The impact of service tax is likely to be marginal on Balaji Telefilms, as it derives close to 90 per cent of revenues from commissioned programmes. In this arrangement, the broadcaster undertakes to market and also pockets the ad revenues and pays the content provider an agreed fee. Balaji Telefilms has such an arrangement with Star Plus. Smaller players such as Creative Eye, B.A.G Films and Radaan Media Networks may feel the pinch, as they may have to lower ad tariffs on most of their sponsored programmes that are telecast on various channels. They may not have the strength to pass on the 12 per cent service tax completely and may have to absorb a part of the hike. UTV, too, may fall in this category. The profitability of its space marketing business on various television channels may also come under stress. Television channels, especially fledgling and weak ones, may be forced to lower their ad tariffs. We do not expect ad spend at the macro level to be affected, as a large proportion of advertisers will be able to set off this service tax payment against excise impost they suffer on their products.
Event management has also fallen into the service tax net. In the listed space, the likes of Entertainment Network, Jagran Prakashan and Mid-Day Multi Media have a presence in event management. The nature of events that they manage are also likely to be ones that will attract the tax; they are not involved in a big way in sports events, which are exempt from service tax. This new impost may have a marginal effect on their earnings, as this business accounts for only a small proportion of their revenues now. Given the nature of the event management business, they are likely to be in a position to price this levy into their service without any problem.
(This article was published in the Business Line print edition dated March 1, 2006)