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Media: Key challenges... - Views on News from Equitymaster
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  • Aug 24, 2007

    Media: Key challenges...

    In the previous article we had outlined the growth drivers for the media sector. In this article we state the factors, which can derail the growth story of the Indian media industry.

    Economic slowdown: A slowdown in India's GDP growth rate can adversely impact consumption demand. Advertising being a discretionary expenditure of companies, they would be compelled to reduce their advertising budgets in case of an economic slowdown. Similarly, an increase in interest rates would shrink the per capita disposable income of consumers limiting their ability to spend on leisure and entertainment services. This can lead to a slow off take of DTH services and a fall in the occupancy levels of multiplexes.

    Sustaining quality of content: It is of prime importance for the media players to constantly innovate and satisfy the demands of their target audience. The media cycle works like this. Good quality of content leads to better viewership leads to better TRPs leads to better ad rates. This in turn bodes well for the financials of the media companies. Having said that, not just innovating but also sustaining the quality of content over a period of time is set to be a major challenge for the players in the television and print media. Eg: Sony T.V. was ranked ahead of Zee until FY05 but subsequently the TRP's of Sony's programmes fell badly hurting its ad revenues.

    Event Risk: Advertisers as well as media companies have to protect themselves from failure of a certain event. Eg: The early exit of India from the 2007 Cricket World Cup drew a lot of flak from the sports fans and consequently the TRP's went down. The advertisers as well as the sports channel incurred a loss.

    Oversupply: As many as 82 channels across various languages and genres are slated to be launched in the near future. The Hindi general entertainment space will become intensely competitive with the entry of players like TV 18 group, UTV, Viacom, INX Media, NDTV. All these channels will be competing for limited eyeballs. Eg: Times of India started distributing the tabloid Mumbai Mirror free when Hindustan Times was launched in Mumbai. It is therefore feared that some players may resort to unhealthy competition.

    Poor infrastructure: Rollout of CAS will be a long drawn-out process since set top boxes are not readily available. Any delay in the rollout of CAS will reduce the potential subscription revenues of the television broadcasters limiting their ability to procure quality content. Low tele-density will hamper the growth of internet services. The lack of appropriate infrastructure has also led to the regulator's incompetence in deterring piracy. Piracy has been hurting the revenues of the film and the music industry. Stringent copyright laws need to be introduced to curb this menace.

    Varied preferences: India being a culturally and linguistically diversified country, viewers in different parts of the country have varied preferences. A television channel successful in one part of the country may not be successful in another. Similarly regional newspapers do well only in certain regions and do not have any presence in other parts of the country. Eg: The newspaper 'Dainik Jagran' is very successful in northern India but does not have any presence in the south. Media players have at the same time to be wary of hurting the religious, cultural and political sentiments of the viewers.

    We believe that the positives far outweigh the challenges for the Indian media sector, which is poised for great times ahead. The industry as per varied estimates is expected to grow at a compounded annual rate of 15% to 18% over the next 5 years.



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