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Media: Elections bring no windfall - Views on News from Equitymaster
 
 
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  • Mar 18, 2009

    Media: Elections bring no windfall

    Media companies earn more than half of the revenues from advertising. However, the last couple of quarters have not been particularly good for this sector due to economic slowdown and lower ad spends by the corporate sector. With elections on their way, media companies are now targeting this nationwide event to boost their revenues.

    Historically, print media has been the favourite with nearly 50% to 60% of the total poll ad spending directed to this medium. Out of home (OTH) and television follow with around 20% share each. The government has now allowed political advertisements on FM radio as well.

    Better ad rates: The Directorate of Advertising and Visual Publicity (DAVP) is the government agency responsible for endorsements by the various Ministries and Government bodies, including public sector undertakings, and autonomous bodies. The advertising rates of the Directorate of Advertising and Visual Publicity (DAVP) has been increased by 10% across the board. The Information and broadcasting (I&B) Ministry had also accepted the proposal of the print media industry to waive off the 15% commission that was given on the ads. Overall, this has increased the DAVP ad rates by nearly 25%. More than 4,000 newspapers are registered with the DAVP. However, DAVP gains importance only during the election period only and is not a significant contributor later. Overall, government endorsements contribute around 7% to 10% to the total ad revenues for media companies.

    Negligible volumes: As seen from the following chart, no significant correlation has been found between ad revenues and elections. Ad spends during the last elections (2004) were estimated at Rs 3 to Rs 4 bn. As per the media industry, election ad spend is expected to be around Rs 6 to 8 bn in this year's national polls. While this would partially aid growth of advertisement revenues, it would not provide a major turnaround for the media companies as election advertising contributes only about 3% to 4% to the total advertising market.

    Source: DNA

    Going forward: Whether elections or no elections, ad revenues are generally driven by economic growth and consumer sentiments. While the year 2008 was a tough one, the coming year is expected to be even more challenging. The global economic slowdown has affected advertising expenditure and sectors like TV, print, radio and outdoor, which depend on advertising revenues have been affected.

    The size of the Indian media industry stood at Rs 584 bn in 2008, growing by 12.4% YoY. As per FICCI, over the next five years, the industry is projected to witness a 12.5% CAGR to touch Rs 1 trillion by 2013. This is slower than the earlier estimates where the industry was projected to touch Rs 1 trillion by 2011. The ad revenues are expected to witness CAGR of 12.4% over the same period as compared to a CAGR of 17.1% witnessed over the past three years. The print and television segments are expected to be the worst affected. FICCI estimates print ad revenue growth to decline to 10% during 2009-13 (16% between 2005-08), while that of television to fall to 13.5% from 16.8%.

    Having said that, while the outlook for the sector looks challenging, conglomerates who have presence across segments would relatively safeguarded. Further, consolidation and revaluation of the businesses would also take place.

     

     

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