Media companies post weak Q1 results on muted advertising revenue

“The weakness in the first quarter was pronounced due to sharp fall in ad volumes,as advertisers held back inventory,” Rahul Kundani,analyst – institutional research,SBI Cap Securities,said. FMCG companies constituting 50-70 per cent of ad revenues for broadcasters cut back on ads. HUL’s ad spends declined 16 per cent year-on-year (y-o-y),according to SBI Cap. Kundani added,“Gross margins of FMCG companies are under pressure because of rising raw material costs. Hence,they’re spending less on advertising.”

Zee Entertainment Enterprises recorded a profit after tax (PAT) growth of 7.6 per cent,but its margin contracted 528 basis points to 22.3 per cent,owing to dismal growth in ad revenues (0.5 per cent),higher content costs and sports losses. While its domestic DTH subscription revenues grew 13 per cent quarter-on-quarter,HD feeds of Ten Cricket during the India-West Indies series led to a rise in programming cost,taking losses to Rs 56.6 crore in its sports business. Nikhil Vora,MD,IDFC Securities,said,“Besides poor growth in ad revenues,Zee Entertainment Enterprises spent Rs 21 crore in re-branding and also ventured into a new media business,leading to a rise in overhead costs. Content costs went up to 49 per cent of sales compared to 45 per cent in Q1 FY11,putting more pressures on margins. International revenues also declined by 10 per cent.”

Meanwhile,Sun TV registered an ad growth of 5 per cent,while PAT grew by 10 per cent. According to Kotak Institutional Equities,lower ad spends by FMCG companies,which are amongst the top advertisers on Sun,affected ad growth,while higher costs of film satellite rights led to margin pressures.

“However,a 12-15 per cent ad growth is expected for Sun,which will be driven by impact of rate hikes in its non-GEC channels and the launch of five to six new channels this year,” Shobhit Khare of Motilal Oswal Securities said. The network’s leadership position in the South and its strong film library content is expected to drive advertising volumes during the second and third quarter.

For TV18 Broadcast,Q1 performance was driven by Viacom 18,which reported a revenue growth of 16 per cent. Viacom 18,which operates Colors,garnered 9 per cent ad revenue growth,while its general news operations achieved break-even during the quarter. “With a bouquet of the strong properties across genres,TV18 is a key player. Its investments in new channels will lead to an increase in subscription income. However,ad environment continues to be challenging,” Vora added.