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Media: Robust ad spends… - Views on News from Equitymaster
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  • Sep 14, 2007

    Media: Robust ad spends…

    Ad revenues to total revenues
    Zee Entertainment 46.40%
    SUN TV 53.60%
    NDTV 85.70%
    Advertisement is a major source of revenue for the television broadcasters. Advertising revenue of the television industry depends on the general economic environment, financial condition of the major advertisers, their growth prospects and the TRP ratings. We expect broad based and improved quality of television viewing to offer a major boost to the ad revenues of lead broadcasters in the coming years. Here we explain why...

    Case for robust growth in ad spend

    • Proxy to economic growth: India's robust economic growth has an attractive proxy in its advertising industry. The country's TV advertising market is expected to grow from Rs 66 bn in 2006 to Rs 123 bn by 2011. (Source: Balaji Annual Report FY07). The ad spend is a mere 0.4% of the GDP compared to 1.4% in the U S. This is despite the fact India is the second fastest growing economy in the world today next only to China and has registered growth rates in excess of 8% in the last two years. According to a recent Hewitt Associates survey, in 2005, Indians got the highest salary increase (13.9 %) in the Asia Pacific region.

    • Increasing target audience: The median population age being 24.5 years, the target audience for different media segments increases. This young population has more propensities to consume and is credit friendly. This has led to a consumption boom driving the demand for the goods and services such as cars, mobiles, mutual funds, insurance schemes, liquor, FMCG products. A channel exclusively promoting tourism being launched (Voyages) is a reflection of the growing consumerist and affluent mindset of the Indian middle and upper middle class.

    • Desire for better visibility and greater mind space: The biggest media spenders are soft drink makers, consumer durable firms, liquor brands, telecom companies, banks, financial services players and automobile companies. In the years to come all these industries are expected to enhance the advertising budgets. These companies are facing increased competition, have deep pockets, and are presently clocking high rates of growth. Hence these companies have increased their ad spends significantly and are expected to increase it further.

      To illustrate this, the penetration of cellular services in India is very low but is growing at a very fast rate. This explains the aggressive advertising by cellular service providers such as Bharti Airtel and mobile phone manufacturers such as Nokia. Pepsi did not stop its aggressive 2007 Cricket World Cup campaign when India lost but started a new campaign. Banks and financial companies, which hitherto sparsely advertised on television have also fallen in line. The entry of foreign players in the banking sector should lead to a surge in the ad budgets of banks. India's high savings rate bodes well for financial service providers such as insurance companies and mutual funds. An increase in the penetration of car finance, entry of more foreign players in the Indian auto sector will trigger huge ad spending. India's young population has higher propensity to consume, which augurs well for value retail chains, fast food chains and apparel manufacturers. Liberalized FDI norms should pave the way for the entry of international luxury retailers who would advertise through lifestyle media.

      As per a survey done by GroupM-owned MindShare, the country's largest media buying agency, Indian advertisers' TV spends gets third-best return in Asia. For every US$ 1,000 spent, a marketer can get over two million prime-time TV viewers in India. Thus television is a very effective advertising medium enabling the marketers to reach their target audience at a reasonable cost.

    Channel Highest TVR
    Zee TV 6.93
    Star Plus 5.17
    Sony Entertainment TV 4.49
    Source: Balaji Telefilms Limited Website
    To conclude...
    The implementation of CAS and DTH will increase the broadcasters subscription revenues reducing their dependence on ad revenues. Increased competition in the broadcasting space will lead to fragmentation of ad revenues. However, advertisement being a discretionary expenditure, any slowdown in economic growth will lead to a decline in ad spends. Having said that, we believe that robust economic growth and the fact that in terms of efficacy of television ad spends India ranks among the top three across all Asian markets - will ensure accelerated growth in television ad spends. Thus broadcasters who deliver quality content will capture a larger pie of this increased ad spend and create shareholder wealth.



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