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Sector update: Media; FICCI EY 2018 highlights – Growth set to revive

We present key highlights from the latest edition of FICCI 2018 report (in partnership with EY) on the state of India’s Media & Entertainment (M&E) industry - one of the most referenced reports on the M&E industry (Download the entire report here.) Despite a difficult first half due to macroeconomic issues like the lingering effects of demonetization and the GST/RERA implementations, the industry witnessed ~13% yoy growth to Rs1.5trn in 2017. By 2020, the industry is expected to touch ~Rs2trn (~11.3% CAGR). Following are key takeaways from the report:

Subscription rev. growth faster than Advertising (Ad) rev. growth in 2017; Ad to pick up (2018-2020E)

• Industry subscription revenue grew ~15% yoy in 2017 led by tailwinds like: (1) wider implementation of cable television (TV) digitization, (2) higher realization from domestic and foreign box office collections, (3) increased adoption of subscription-based OTT platforms, and (4) increased in-app purchases in the gaming segment.
• Advertising revenue grew ~10% yoy in 2017. During the year, there were several macro headwinds for this particular segment, including: (1) lingering impact of demonetization in Q1CY17, and (2) RERA/GST implementation-led slowdown on ad spends across industries.
• FICCI estimates industry ad revenue to pick up sharply in 2018 and grow by 14.4% yoy at 11.4% CAGR over CY17-20E. Revenue growth for industry subscription is estimated at 8.7% yoy in 2018 at 8.3% CAGR over CY17-20E.

TV ad growth to revive in 2018

• TV industry registered 11.2% yoy growth to Rs660bn in 2017. Advertising grew ~9.9% yoy to Rs267bn while distribution grew ~12.0% yoy to Rs393bn.
• FICCI EY expects TV advertising to post 13.8% yoy growth in 2018 with 9.4% yoy growth in subscription revenue. Advertising/distribution revenue CAGR is estimated at 10.1%/7.9% CAGR, respectively, over 2017-20E.

Print ad – 2017 weak, but better times ahead

• 2017 saw fall in English language ad revenue but marginal growth in Hindi/regional segment. 1% yoy growth in overall Print ad revenue.
• Print ad is expected to register strong 10% yoy growth in 2018 on the back of strong election calendar (5 state elections) and the run up to national elections in 2019.

Digital - the fastest growing segment

• Shifting ad spend to digital platforms led to digital ad revenue growing at a strong 29% yoy in 2017. The share of digital advertising in the ad pie is expected to grow to 22% by 2020 from 17% in 2017.
• Digital video advertising market stood at Rs38bn contributing ~19% of the total digital ad spend in India. There are currently 2m paid digital OTT subscribers across applications and this number is expected to grow to ~4m in 2020 generating subscription revenue of ~Rs20bn.

Other segments

• Indian film segment grew 27% in 2017 on the back of box office growth - both domestic and international - coupled with increased revenue from sale of satellite and digital rights. Barring home video, all other sub segments grew in 2017.
• Demonetization-led slowdown in Q1CY17 and GST impact led to Indian radio industry growth slowing to 6.5% in 2017; expected to grow by 10% yoy in 2018.

We expect FY19E to be a far better year for advertising-led businesses, as economic activity picks ups and government ad spends revive, given the forthcoming national elections. We have an Outperformer rating on Zee Entertainment, Sun TV Network, Dish TV, DB Corp, HT Media, PVR and ENIL; Neutral on Jagran Prakashan, Hathway Cable and Underperformer on Den Networks.