Rise in inflation likely to hurt advertising revenue growth of TV broadcasters, says market analyst

Profitability of broadcasters to be muted due to macro economic challenges.

Mumbai: The rising inflation is playing a spoilsport for the television segment currently, impacting its revenue as advertisers are cutting down the marketing spends. The impact of soaring inflation is observed in one of the most significant categories of the TV industry-FMCG sector. The new age internet companies are also reducing their ad spend. Currently, the advertisers are feeling apprehensive due to the macro weakness and inflationary headwinds.

Inflation heat to hurt profitability

As per financial analysts at Elara Securities, television was the first traditional medium to recover to pre-COVID levels in the financial year 2022. The company estimated the operating profitability of all broadcasters to be muted due to content investments and lower advertising revenue.

Earlier, experts stated that the advertising revenue for television broadcasters is recovering and will reach the pre-covid levels. They predicted that the TV ad revenue will grow 12 per cent in the next financial year. However, the rising inflation has created bottlenecks as companies curtailed their advertising campaigns and adopted a wait-and-watch approach. The FMCG companies also have reported a slowdown in consumer spending. Moreover, the rising input costs also have forced price hikes, which is impacting the overall consumer sentiments and behaviour.

According to data released by the National Statistical Office (NSO), retail inflation touched 7.04 per cent in May 2022. The Reserve Bank of India (RBI) has updated its inflation projection for the current fiscal (FY23) to 6.7 per cent. 

According to EY-FICCI's media & entertainment 2022 report, the television revenue is expected to reach Rs 826 billion by 2024 and will grow at a CARG of 4-5 per cent. In such a case, if the advertisers squeeze their ad spends, it will be difficult for the TV industry to recover and reach the target as estimated, the experts believe. 

In 2021, television advertising revenue grew 25 per cent to reach Rs 313 billion, recovering from a 21.5 per cent drop in 2020. Due to Covid pandemic pressure, TV advertising revenue declined. Moreover, the ad revenue stood at Rs 320 billion in 2019 during the pre-Covid times. 

Industry's observations despite challenges

Elara Securities also estimated that overall revenue of the major players like Zee, Sun TV and TV Today is slated to grow by 4.7 per cent, 23.2 per cent and 23 per cent year-on-year (YoY), respectively. Zee’s revenue growth is negatively impacted by lower operating income (“Dhaakad film”), while its net profit is expected to witness a growth of 26.4 per cent driven by the redemption of preferential shares (paid off in Q4 FY22).

Zee’s overall revenue was up by 14.1 per cent YoY in FY22 at Rs 8189.3 crore. Its profit after tax (PAT) was up by 32 per cent at Rs 955.7 crore. Sun TV’s standalone revenues were up by 12.46 per cent YoY in FY22 at Rs 3504.88 crore. TV Today’s overall revenue was up by 18.76 per cent in FY22 at Rs 973.99 crore.

The company also estimates that advertising revenue for Zee, Sun TV and TV Today will grow 12.7 per cent, 36 per cent and 28 per cent YoY, respectively, on a low base, as they remain between two per cent to ten per cent lower than pre-Covid levels. Subscription revenues for Zee and Sun TV are expected to remain flat YoY.

Zee’s advertising revenue in FY22 stood at Rs 4396.5 crore up by 18 per cent YoY. Its subscription revenue stood at Rs 3246.6 crore. Sun TV’s advertising revenues in FY22 stood at Rs 1300.60 crore up by 30.84 per cent and subscription revenues stood at Rs 1657.13 crore. TV Today’s revenue from television and other media operations stood at Rs 912.03 crore, up by 17.8 per cent in FY22. 

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