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MUMBAI:
Credit ratings firm Fitch Ratings has come out with a negative
outlook for the Indian media and entertainment industry for
2012, affecting the credit metrics of the print and television
broadcasting companies as their profit margins get squeezed
due to rise in newsprint costs, rupee depreciation and a muted
ad growth.
The
sector will be hit by a slow growth in advertising due to
economy moderation and cost reduction initiatives by corporates.
TV
broadcasters are likely to be worst hit as their dependency
on advertising revenues is 70-90 per cent, compared with about
70 per cent for newspaper publishers. However, the broadcasters
that have diversified their revenue base towards subscription
are expected to perform better than those with a higher exposure
to advertising revenue.
Print
media will have to absorb rising newsprint cost, which accounts
for 40-50 per cent of the total operating expense of newspaper
publishers. Operating margins are likely to come under pressure.
At
end-November 2011, domestic newsprint prices increased by
13.4 per cent and international newsprint prices by 7 per
cent compared with the average prices in 2010 respectively,
the firm noted.
To
add to the woes of the industry, the recent depreciation of
the rupee has lead to a further increase in the effective
price of the international newsprint.
Fitch
forecasts an 8-12 per cent growth of the Indian media industry
in 2012. “Given the high newsprint costs and expected
lower revenue growth, margins of the print media industry
are likely to fall to the range of 18-22 per cent. Broadcasting
industry margins are expected to fall to the range of 24-28
per cent. The lower profitability would lead to the deterioration
of the credit metrics of the companies in these two sectors,”
it said.
However,
digitisation would improve the business profile of multi-system
operators (MSOs) over the medium- to long-term. Also, radio
phase-III auctions are believed to be positive for the industry
in the long-term.
Fitch
also said that the credit profiles of operators are expected
to worsen in the short-to-medium-term as successful bidders
will have to pay non-refundable one-time entry fees.
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