Reality Bites

MEDIA FIRMS

The June 2007 quarter results show that competition is already hurting some players.

At the last count there were over a hundred television channels readying to go on air. But it seems like viewers are already spoilt for choice. As are marketers.

They're not complaining, but with the television space becoming increasingly fragmented, some channels could be in trouble.

Says Timmy S Kandhari, executive director, PricewaterhouseCoopers,"It's true that some channels are beginning to feel the pressure because of the competition."

They sure are. In a quarter when state elections were held in Uttar Pradesh, English news channel NDTV has reported a revenue growth of just 10 per cent y-o-y to Rs 70 crore.

In the March quarter too, NDTV's sales grew barely 16 per cent y-o-y, a sign that competition from peers is intensifying. Rival Global Broadcasting News(GBN) which operates the CNN-IBN channel has seen a top line of Rs 22 crore and while numbers for the June quarter of 2006 are not available, there has been a sequential fall over the March quarter.

It's not just the muted top lines that are worrying. Costs remain high, so that GBN has posted an operating loss of Rs 1.8 crore in Q1FY08, compared with a profit of Rs 5 crore in the March quarter.

NDTV has turned in an operating loss of Rs 7.4 crore for the June quarter, forced to spend more on carriage, marketing and advertising "" up 24 per cent. NDTV's operating loss, however, is partly the result of investments in new ventures.

According to Nikhil Vora, vice-president, SSKI Securities, the competitive pressure on NDTV's core news operations and the loss of share to CNN-IBN and Times Now are cause for concern.

Adds Farokh Balsara, partner, Ernst & Young, "The top two players typically corner 65-70 per cent of advertising revenues,so it's important to reach that position and stay there."

That seems to be pretty much the norm. TV18 , the leader in the business news space, has posted stand-alone revenues of Rs 52.3 crore, a smart rise of 46 per cent y-o-y and a near 100 per cent rise in the operating profit to Rs 15 crore.

In the general entertainment genre, Zee Entertainment, spun off from the erstwhile Zee TV, has done well to post a top line growth of 35 per cent y-o-y to Rs 391 crore in the June quarter, driven by strong advertising revenues of 49 per cent.

Moreover, the operating profit margin rose 750 basis points to 30.5 per cent. Zee is reaping the benefits of having invested in programming and is gaining viewership at the expense of its rivals Sony and StarPlus. It is now clearly the number two in the genre. The managment claims it is able to negotiate new advertising contracts at a hike of 10 per cent.

While that may be true, the general entertainment space too will get crowded in the next few years with entrants such as NDTV, INX Media and Viacom 18.

While the economics of a new channel can hardly be exciting given the high fixed operating costs and low revenues in the initial years, it will be little consolation for incumbents. If not immediately, they will have to share the estimated Rs 2,000 crore pie (including subscription revenues) with the new channels, sooner rather than later.

So while Zee could see revenues growing 25 per cent this year, they could taper off to 10 per cent next year. It's not that the advertising pie's not growing:it should touch Rs 5,800 crore for the industry in two years from Rs 4,600 crore in March 2007. But, there may not be enough to go round.

Balsara believes channels will need to start looking at different models. "They may want to be completely subscription-driven, much like BBC is on the Tata Sky DTH platform," he says.

That's possible since the number of cable and DTH households is expected to hit 110 million by 2012. However, PwC's Kandhari cautions that the implementation of CAS and DTH could take longer than expected. Not the easiest of times for the broadcasting industry.