Listed companies: the picture gets clearer

Twenty years ago, ‘entertainment’ meant going to a single screen cinema hall or catching up on an old movie on the cable television network. Entertainment channels such as Zee and Sun TV had barely begun operations, while multiplexes and direct-to-home operations were unheard of.

Cut to the present and we have movies grossing Rs 100 crore plus in collections quite regularly and films being available on DTH platforms within a month of their release. In many ways, the media and entertainment ‘industry’ itself has grown into prominence only in the last 7-10 years.

From an investor’s perspective, the listing of stocks across print and electronic media, ushered in new investment opportunities. During the boom years for the economy between 2003 and 2008, advertising revenues for print and electronic media grew at a hectic pace, while subscription did not garner a similar traction.

The listed multiplex players have been caught up in consolidation. From four players, two were acquired by the larger players. This consolidation has helped build scale and improve ticket prices for film exhibitors.

Most of the companies in the media and entertainment space today earn revenues of more than Rs 1,000 crore annually (Sun TV and Zee Entertainment are much larger).

While the stock market returns of most of these companies have been quite disappointing since listing with many of them even below their listing price, it may be worthwhile to examine the broad trends that have emerged in each segment over the last decade.

The dependence on advertising for print and electronic media companies has meant that their fortunes have been quite closely linked to the state of the economy. Therefore, most stocks listed over the last 7-8 years, barring PVR, have not had a spectacular run.

Zee Entertainment, which listed about twenty years ago (albeit as a different entity), has been the exception, delivering an astounding 9,383 per cent return over this timeframe. The stock also commands the highest valuation among media and entertainment stocks.

Sun TV, the second-largest player in the listed arena, was an out-performer until political developments and the increasing competition in the southern market exerted pressure on the stock.

In the print space, Hindi language newspapers DB Corp and Jagran Prakashan with their strong regional focus and ability to derive a good share of local advertising, have done much better than the English major, HT Media. In the electronic media space, the likes of NDTV, focused on news alone and has continued to be loss making; it has been given a thumbs down by the markets continuously over the past few years.

Zee Entertainment, despite heavy competition from Star and Colors, has managed to remain among the top three players among the general entertainment channels. All three have been beneficiaries of the telecom regulator’s mandate to digitise large parts of the country implemented over the last couple of years. As a result, subscription revenues have received a significant boost. Zee Entertainment, for example, now has a near 50:50 mix of advertising and subscription.

Concentration has also been evident in the industry. Though there is a huge list of channels in the general entertainment space, the top three players today account for over three-fourths of the advertising pie. Hence, the long tail of also-rans, that are also dependent on advertising revenues, tend to struggle to remain profitable.

In the print industry, the mix of revenues remains skewed in favour of advertising. Most newspapers derive nearly 75 per cent of their revenues from advertisements. Here, the key trend has been regional language newspapers, especially the widely read Hindi dailies, managing to bridge the gap in advertising rates compared to their English counterparts. From over 11 times 10 years ago, the premium that English papers command is now just over four times, according to industry reports.

Despite the growth in Internet and television, print still continues to garner the highest share of advertising with 46 per cent of the overall pie, down just two percentage points from what it was seven years ago.

In the multiplex space, there has been a bout of consolidation with Inox buying out Fame and PVR acquiring Cinemax. This has given these multiplexes significant scale and a presence in most important centres in the country.

Multiplex financials have also improved with consolidation. From the ticket price of Rs 10-15 that single screens used to charge 20 years ago, average ticket prices in a multiplex have soared to Rs 170 levels. The spends on food and beverage also have been rising and hover at about Rs 60 per person, thus aiding realisations. These trends have helped make up for relatively muted occupancies and the seasonality of the business.

Cable network operators such as Den Networks and Hathway Cable have benefitted significantly by the Government’s mandate to digitise cable networks across the country in key metros and top cities. In fact, it has helped them come out of losses and become profitable at the net level.

The media and entertainment industry was worth Rs 82,100 crore as of 2012. With several new segments such as animation, digital advertising, OOH and gaming coming into the fold, the space is expected to expand significantly.

According to a report from FICCI-KPMG, the media and entertainment industry is expected to grow at 15 per cent annually till 2017 and reach a size of Rs 1,66,100 crore.

Certainly that is a big leap for an industry that was extremely localised and unorganised till about 15 years ago.

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