A global slowdown in advertising revenues is likely to leave an imprint on the July-September quarter, said analysts, as overall ad-spends likely remained stagnant during the quarter compared to the same period last year.
Media companies, such as Zee Entertainment Enterprises Ltd and Sun TV Network, have been pointing to an upcoming revival in ad-spends for quite some time now.
“The much awaited pick-up in ad-revenue growth for broadcasters might remain elusive even
in 2QFY24, in our view,” said analysts from JM Financial.
Analysts’ pessimism stems from three factors — a visible distress in the rural economy, a shift in the festive season to the third quarter, and deferment of some ad-spends in view of the ICC Men's Cricket World Cup that started in October.
Major consumer packaged goods companies are shifting their ad-budget towards sports channels with the ongoing ICC Men's Cricket World Cup 2022. This translates to a loss for other broadcasters.
Adding to the woes is a drop in spends by companies in industries such as edtech, fintech, foodtech and e-commerce. These companies have been hit by a drying up of liquidity and funding in recent months due to rising interest rates in the US. .
However, on a positive note, the drying up of demand from start-ups should make ad-rates more palatable to FMCG companies, analysts said.
Box Office Benefits
The media companies, particularly Zee and Sun TV, could get some support from an unexpected area — their film production business.
“Zee Studios’ “Gadar 2” and Sun Pictures’ “Jailer” will help ZEEL and SUNTV report 11%/47% YoY revenue growth,” said JM Financial.
Gadar 2, which released in theatres on August 11, has recorded worldwide collections of over Rs 690 crore.
Another source of support would be subscription revenue — the fees paid by cable TV subscribers for watching pay channels.
Zee’s subscription revenue is expected to rise to Rs 870 crore from Rs 822 crore last year. However, this will be lower than the Rs 907 crore reported in Q1 FY24.
Meanwhile, Sun TV’s profits for the ongoing quarter are expected to benefit from the superhit success of the recent Rajinikanth starrer ‘Jailer’.
The film collected more than Rs 650 crore worldwide, becoming only the second Tamil film after '2.0' to achieve this feat.
SunTV also earned Rs 100 crore by selling the movie’s OTT rights to Netflix.
“We see trends in ad/subscriber growth to remain broadly similar to 1Q [for Sun TV]. We are building 2%/6.5% YoY revenue growth for ad/subscriber revenue,” noted JM Financial.
The analysts also said that they expect a consolidated revenue growth of around 47% YoY. After adjusting Jailer’s production costs, the EBITDA margin is expected to see a decline of 262 bps.
“We estimate Sun TV's ad revenue to be flat year-on-year, outperforming Zee (expect 3% year-on-year decline) for the ninth consecutive quarter,” noted analysts from Kotak Institutional Equities.