Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MEDIA SECTOR
We take stock of our views on the Indian M&E industry, and the stocks that
we cover, in the context of the FICCI-FRAMES convention on Media and
Entertainment Industry, held through March 22- March 25. We think: a/
Television continues to be highly dependent on the evolution of regulatory
landscape, as well as competitive concerns. Key creators of value shall be
those that have a work-around through these adverse issues. We are bullish
on regional broadcasters with strong market concentration, grip on
distribution (BUY on Sun TV Network). b / The advantages of regulation and
limited inventory may offset the disadvantage of undifferentiated content
for radio broadcaster as new categories emerge, and localisation gains
ground (BUY ENIL). c/ Print media companies appear cheaply valued, given
higher visibility of value creation (BUY HT Media, ACCUMUATE Jagran
Prakashan and DB Corp), d/ Filmed entertainment growth depends on
factors that are difficult to monitor and judge, and risks of sectorunderperformance
may be running high (REDUCE UTV Software).
Key Statistics - Indian Media and Entertainment Industry
Indian M&E industry has grown to Rs 652 Bn in CY2010. Print and TV continue to
account for the largest chunks of the M&E pie.
In 2010, most sub-sectors grew at a healthy rate, with filmed entertainment being
the conspicuous laggard. Fastest growing sectors included FM radio, and outdoor,
which grew at 25% and 21% respectively. Digital advertising and gaming have also
shown strong growth - from considerably low base.
Drivers
M&E industry has been driven by strong advertising spends which staged a resurgence
post the declines witnessed last year, the prime driver of key sectors' growth.
The television industry witnessed strong growth on the back of strong adds in the
DTH space (Indian has a total of 28mn DTH subs now, accounting for ~26% of total
C&S households), which were driven by a strong sports calendar this year. Total television
penetration was on the rise, with a total of Rs 138 mn households owning
television in 2010 (vs 129mn in 2009).
Shape of the Industry
n Television, in the industry sense, continues to be an industry still searching its
business model. Following channel proliferation, continued fragmentation, undifferentiated
content, and inadequate infrastructure, the industry at large has lost
profitability compared with most international peers (Indian television sector margins
have declined ~15 ppt over the past five years). A large number of broadcasters
continue to rant about under-declaration at LCO level. Frustration is building
up among broadcasters at government's inactivity in mandating digitization.
Mandatory digitization of ~100 mn households in the country is being estimated
by some industry players to have a capex requirement of Rs 250Bn-Rs 350Bn (to
be borne by MSOs), and a large part of the industry believes that such investments
can only be undertaken once a new licensing regime is in place that ensures
that return on this capital is adequate. Certain relevant players did make
positive noises about an upcoming collaborative effort of broadcasters and MSOs
to digitize a large part of the four metros in the next year, but these are early
steps, and there is a fair degree of scepticism within the industry about whether
complete digitization of the country's cable networks is possible even as late as
2015. Broadly, subscription revenues of broadcasters shall grow dependent on
the growth in DTH subscribers until there is visibility on the investments in cable
television digitization. DTH take-up is expected to be strong (71 mn households
by 2015, as per FICCI-KPMG report). Regional channels continue to see growth
in advertising, and have monetization opportunities as revenues from subscription
revenues continue to be lower than top-rung Hindi GECs. Advertising revenues of
regional channels account for about 25% of the total advertising on television.
Even so, cost per rating point of regional channels versus Hindi GECs suggest
there may be continued out-performance of regional channels versus Hindi
GECs. Tamil and Malayalam channels' CPRP suggests largest trade-offs available
to the media buyer flexible in buying regional advertising space versus Hindi.
n As is usually the case, print industry had a negligible presence in FRAMES, although
most other industries' continue to look upon the industry's relative unity
and pricing practices as a best practice to manage India's complicated value
chain. As per FICCI-KPMG projections, advertising revenues of newspapers are
expected to grow 13% CAGR through 2011-2014, while circulation revenues are
expected to remain under pressure due to rising competition. The FICCI-KPMG
report believes that regional and Hindi media shall outperform English print media
in a large way, and that all three language segments (English, Hindi, and
other regional) shall account for nearly equal advertising spends in 2015.
n Radio industry players continue to look forward to the likely introduction of Phase
3 of licenses in this year. Participants continue to be cautiously positive on implementation
of Phase - 3 of radio FM licensing in 2011 , after 2010, the "year of
waiting" for the industry. As of now, radio industry on the whole seems to have
utilized more than a fair share of inventory (inventory has expanded strongly as
players have increased advertising time per hour), and participants seem to
agree that rate increases are on the anvil. New categories have begun to participate
in the radio medium, and education and properties have emerged as two
important categories for the radio medium, which implies that going ahead, the
dependence of radio on FMCG players (currently ~60%) shall reduce - another
positive for the industry. There was widespread agreement among participants
that there is unlikely to be a lot of overbidding in the upcoming auctions for the
third phase.
n Film industry is the second one which we think is grappling with its business
model. The industry has had the softest growth among sub-sectors of the Indian
M&E industry, despite: 1/ the sharp growth in multiplexes, 2/favourable scenario
in C&S rights exploitation (10.3%CAGR through 2007-2010), 3/relatively strong
growth in ancillary revenue streams (11.4% CAGR through 2007-2010) and 4/
(relevant only for comparion with last year) the fact that there should have been
a favourable base effect on account of the producer-exhibitors standoff last year.
Industry players believe that the companies need to exploit more markets (Indian
Diaspora), show greater innovation, and need better enforcement from the government
(check piracy). Some enthusiasm on 3-G launch and its after-effects on
exploitation of content seems to have already waned, and players feel that the
"game changer" will now likely be 4-G launch, scheduled about 18 months
later.
Our Take
n We believe industry characteristics of the broadcasting industry in the broadest
sense, make for a poor investment climate - 1/ content is not sufficiently
differenciated in major genres, 2/ exclusivity is unavailable, therefore 3/ free pricing
or not, it is unlikely that the consumer will be willing to pay strongly. This is
a vicious circle, in our opinion, and all such genres that are exposed to strong
competition shall suffer in the medium term. Industry's dependence on FMCGs,
and the strong bargain power thereof, caps gains that broadcasters can make on
advertising revenues. DTH subscriber additions may continue to be strong, but
the subscription revenues shall continue to be loaded towards players with a
degree of exclusivity and differentiated content. We think that players in the
general news space are most susceptible to all the above mentioned negatives.
Hindi GECs, while differentiated in content, face strong competitive headwinds.
Regional GECs stand out as the only worthwhile investment opportunities.
n While radio industry shall continue to be dependent wholly on advertising revenues,
there are two positives that can be seen: 1/ unlike television, radio has
been regulated strongly. Inter-industry competition, while strong headwind is balanced
by the fact that inventory at an industry level is limited over a mediumterm
horizon, 2/ new categories are beginning to slowly turn the mix of advertising
revenues of radio players towards local (versus national) advertising. We note
that the localization theme shall get a further impetus from the Phase -3, when
we think radio shall be truly able to compete with print for local advertising.
n We believe that filmed entertainment faces many headwinds and contradictions
in its growth path. While C&S rights and overseas rights have emerged as new
streams that de-risk the industry, it is worth noting that strong revenues from
these rights, pre-release, are difficult to obtain for projects that lack star/ director
power. Stars of these films recognize that, which may impact production costs
and therefore value creation (there have been, on the average, however, a decline
in star and directors' fee over the past year) . Moreover, hit-rates seem to
be diminishing, both in Indian and international markets, and the industry needs
doses of creativity, innovation - qualities that are difficult to measure until results
are obtained over the long-term.
n Print continues to be an important part of the Indian M&E story. Industry structure
is more favourable than most other sub-sectors. Newspapers, we believe,
are greater brands than television channels/ radio channels; they enjoy greater
stickiness and success has greater predictability with limited inter-industry competition
(2-3 players account for 60-80% share in a large number of markets). Over
the past five years, print is the only sub-industry where long-term estimates of
industry bodies have been largely on-line, suggesting two things: 1/ greater predictability
of revenue streams and the share in advertising that print will generate,
and 2/ reasonable expectations, from stable models and lack of dependence
on extraneous factors.
n Given these, we continue to hold the view that: 1/ print sub-industry is being
undervalued by the market and print stocks shall be outperformers, as a subindustry,
over the longer-term, 2/ among broadcasters, we believe that regional
players, owing to stronger industry concentration, are better plays, while general
news broadcasters face poor industry dynamics, 3/ radio may come into its own
and has strong potential for delivering value provided the bidding for the Phas-3
licences stays rational, 4/ Filmed entertainment as an industry faces difficulty in
monitoring, and ex-ante probabilities that may be assigned to success in execution
are weak.
n Among print stocks, we are most bullish on HT Media (BUY, PT-Rs 224), and
have a positive view on both DB Corp (BUY- PT Rs 312) and Jagran Prakashan
(ACCUMULATE, PT - Rs 163). We are keen on ENIL (BUY, PT- Rs 364), and Sun
TV Network (BUY, PT- Rs 595). We have an ACCUMULATE stance on IBN - 18,
and REDUCE on Zee Entertainment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MEDIA SECTOR
We take stock of our views on the Indian M&E industry, and the stocks that
we cover, in the context of the FICCI-FRAMES convention on Media and
Entertainment Industry, held through March 22- March 25. We think: a/
Television continues to be highly dependent on the evolution of regulatory
landscape, as well as competitive concerns. Key creators of value shall be
those that have a work-around through these adverse issues. We are bullish
on regional broadcasters with strong market concentration, grip on
distribution (BUY on Sun TV Network). b / The advantages of regulation and
limited inventory may offset the disadvantage of undifferentiated content
for radio broadcaster as new categories emerge, and localisation gains
ground (BUY ENIL). c/ Print media companies appear cheaply valued, given
higher visibility of value creation (BUY HT Media, ACCUMUATE Jagran
Prakashan and DB Corp), d/ Filmed entertainment growth depends on
factors that are difficult to monitor and judge, and risks of sectorunderperformance
may be running high (REDUCE UTV Software).
Key Statistics - Indian Media and Entertainment Industry
Indian M&E industry has grown to Rs 652 Bn in CY2010. Print and TV continue to
account for the largest chunks of the M&E pie.
In 2010, most sub-sectors grew at a healthy rate, with filmed entertainment being
the conspicuous laggard. Fastest growing sectors included FM radio, and outdoor,
which grew at 25% and 21% respectively. Digital advertising and gaming have also
shown strong growth - from considerably low base.
Drivers
M&E industry has been driven by strong advertising spends which staged a resurgence
post the declines witnessed last year, the prime driver of key sectors' growth.
The television industry witnessed strong growth on the back of strong adds in the
DTH space (Indian has a total of 28mn DTH subs now, accounting for ~26% of total
C&S households), which were driven by a strong sports calendar this year. Total television
penetration was on the rise, with a total of Rs 138 mn households owning
television in 2010 (vs 129mn in 2009).
Shape of the Industry
n Television, in the industry sense, continues to be an industry still searching its
business model. Following channel proliferation, continued fragmentation, undifferentiated
content, and inadequate infrastructure, the industry at large has lost
profitability compared with most international peers (Indian television sector margins
have declined ~15 ppt over the past five years). A large number of broadcasters
continue to rant about under-declaration at LCO level. Frustration is building
up among broadcasters at government's inactivity in mandating digitization.
Mandatory digitization of ~100 mn households in the country is being estimated
by some industry players to have a capex requirement of Rs 250Bn-Rs 350Bn (to
be borne by MSOs), and a large part of the industry believes that such investments
can only be undertaken once a new licensing regime is in place that ensures
that return on this capital is adequate. Certain relevant players did make
positive noises about an upcoming collaborative effort of broadcasters and MSOs
to digitize a large part of the four metros in the next year, but these are early
steps, and there is a fair degree of scepticism within the industry about whether
complete digitization of the country's cable networks is possible even as late as
2015. Broadly, subscription revenues of broadcasters shall grow dependent on
the growth in DTH subscribers until there is visibility on the investments in cable
television digitization. DTH take-up is expected to be strong (71 mn households
by 2015, as per FICCI-KPMG report). Regional channels continue to see growth
in advertising, and have monetization opportunities as revenues from subscription
revenues continue to be lower than top-rung Hindi GECs. Advertising revenues of
regional channels account for about 25% of the total advertising on television.
Even so, cost per rating point of regional channels versus Hindi GECs suggest
there may be continued out-performance of regional channels versus Hindi
GECs. Tamil and Malayalam channels' CPRP suggests largest trade-offs available
to the media buyer flexible in buying regional advertising space versus Hindi.
n As is usually the case, print industry had a negligible presence in FRAMES, although
most other industries' continue to look upon the industry's relative unity
and pricing practices as a best practice to manage India's complicated value
chain. As per FICCI-KPMG projections, advertising revenues of newspapers are
expected to grow 13% CAGR through 2011-2014, while circulation revenues are
expected to remain under pressure due to rising competition. The FICCI-KPMG
report believes that regional and Hindi media shall outperform English print media
in a large way, and that all three language segments (English, Hindi, and
other regional) shall account for nearly equal advertising spends in 2015.
n Radio industry players continue to look forward to the likely introduction of Phase
3 of licenses in this year. Participants continue to be cautiously positive on implementation
of Phase - 3 of radio FM licensing in 2011 , after 2010, the "year of
waiting" for the industry. As of now, radio industry on the whole seems to have
utilized more than a fair share of inventory (inventory has expanded strongly as
players have increased advertising time per hour), and participants seem to
agree that rate increases are on the anvil. New categories have begun to participate
in the radio medium, and education and properties have emerged as two
important categories for the radio medium, which implies that going ahead, the
dependence of radio on FMCG players (currently ~60%) shall reduce - another
positive for the industry. There was widespread agreement among participants
that there is unlikely to be a lot of overbidding in the upcoming auctions for the
third phase.
n Film industry is the second one which we think is grappling with its business
model. The industry has had the softest growth among sub-sectors of the Indian
M&E industry, despite: 1/ the sharp growth in multiplexes, 2/favourable scenario
in C&S rights exploitation (10.3%CAGR through 2007-2010), 3/relatively strong
growth in ancillary revenue streams (11.4% CAGR through 2007-2010) and 4/
(relevant only for comparion with last year) the fact that there should have been
a favourable base effect on account of the producer-exhibitors standoff last year.
Industry players believe that the companies need to exploit more markets (Indian
Diaspora), show greater innovation, and need better enforcement from the government
(check piracy). Some enthusiasm on 3-G launch and its after-effects on
exploitation of content seems to have already waned, and players feel that the
"game changer" will now likely be 4-G launch, scheduled about 18 months
later.
Our Take
n We believe industry characteristics of the broadcasting industry in the broadest
sense, make for a poor investment climate - 1/ content is not sufficiently
differenciated in major genres, 2/ exclusivity is unavailable, therefore 3/ free pricing
or not, it is unlikely that the consumer will be willing to pay strongly. This is
a vicious circle, in our opinion, and all such genres that are exposed to strong
competition shall suffer in the medium term. Industry's dependence on FMCGs,
and the strong bargain power thereof, caps gains that broadcasters can make on
advertising revenues. DTH subscriber additions may continue to be strong, but
the subscription revenues shall continue to be loaded towards players with a
degree of exclusivity and differentiated content. We think that players in the
general news space are most susceptible to all the above mentioned negatives.
Hindi GECs, while differentiated in content, face strong competitive headwinds.
Regional GECs stand out as the only worthwhile investment opportunities.
n While radio industry shall continue to be dependent wholly on advertising revenues,
there are two positives that can be seen: 1/ unlike television, radio has
been regulated strongly. Inter-industry competition, while strong headwind is balanced
by the fact that inventory at an industry level is limited over a mediumterm
horizon, 2/ new categories are beginning to slowly turn the mix of advertising
revenues of radio players towards local (versus national) advertising. We note
that the localization theme shall get a further impetus from the Phase -3, when
we think radio shall be truly able to compete with print for local advertising.
n We believe that filmed entertainment faces many headwinds and contradictions
in its growth path. While C&S rights and overseas rights have emerged as new
streams that de-risk the industry, it is worth noting that strong revenues from
these rights, pre-release, are difficult to obtain for projects that lack star/ director
power. Stars of these films recognize that, which may impact production costs
and therefore value creation (there have been, on the average, however, a decline
in star and directors' fee over the past year) . Moreover, hit-rates seem to
be diminishing, both in Indian and international markets, and the industry needs
doses of creativity, innovation - qualities that are difficult to measure until results
are obtained over the long-term.
n Print continues to be an important part of the Indian M&E story. Industry structure
is more favourable than most other sub-sectors. Newspapers, we believe,
are greater brands than television channels/ radio channels; they enjoy greater
stickiness and success has greater predictability with limited inter-industry competition
(2-3 players account for 60-80% share in a large number of markets). Over
the past five years, print is the only sub-industry where long-term estimates of
industry bodies have been largely on-line, suggesting two things: 1/ greater predictability
of revenue streams and the share in advertising that print will generate,
and 2/ reasonable expectations, from stable models and lack of dependence
on extraneous factors.
n Given these, we continue to hold the view that: 1/ print sub-industry is being
undervalued by the market and print stocks shall be outperformers, as a subindustry,
over the longer-term, 2/ among broadcasters, we believe that regional
players, owing to stronger industry concentration, are better plays, while general
news broadcasters face poor industry dynamics, 3/ radio may come into its own
and has strong potential for delivering value provided the bidding for the Phas-3
licences stays rational, 4/ Filmed entertainment as an industry faces difficulty in
monitoring, and ex-ante probabilities that may be assigned to success in execution
are weak.
n Among print stocks, we are most bullish on HT Media (BUY, PT-Rs 224), and
have a positive view on both DB Corp (BUY- PT Rs 312) and Jagran Prakashan
(ACCUMULATE, PT - Rs 163). We are keen on ENIL (BUY, PT- Rs 364), and Sun
TV Network (BUY, PT- Rs 595). We have an ACCUMULATE stance on IBN - 18,
and REDUCE on Zee Entertainment.
No comments:
Post a Comment