“Media and Entertainment - channel checks: Ad-agencies’ outlook on ad-spends; sector update ”

Channel checks: Outlook on ad-spends cautious; not pessimistic Our interaction with media planners leads us to believe that the outlook on advertising expenditure across media categories is benign over the medium term. Post September 2008, industries such as real estate, automobiles, and BFSI, significantly reduced their ad-expenditure. With FY09 nearing end, most contracts are being re-negotiated, which may have an impact on the prevailing ad-rates. In television, the overall supply of inventory significantly went up in 2008 as new channels commenced operations, further reducing the bargaining power of broadcasters. In the face of a fragmented television space, print has emerged as a more expensive medium for advertising. This could translate into losses for newspapers, making cheaper alternatives such as internet and television more preferable. However, since 1999, the ratio of total ad-spends growth to nominal GDP growth has touched a low of 1.0x, which surely does not indicate a pessimistic scenario.   Outlook over the next 12 months - cautious Over the next year, we expect the overall advertisement expenditure to grow 8-10%. Television is likely to grow 9-11%, whereas print at 6-8%. Internet and radio are expected to grow at 35% and 20%, respectively, but from a low base. In the current scenario, television emerges as a safer bet for advertisers because of its reach and impact. Broadcasters who own leading channels in various genres are expected to attract the lion's share of overall ad-spends.    Colors established as No. 2 GEC; Aaj Tak maintains leadership Colors has successfully established itself as the No. 2 player in Hindi general entertainment category (GEC) in a small time frame, and poses tough competition for Zee TV. In the coming year, Colors is poised to generate strong advertisement and subscription revenue traction because of its robust performance since launch. However, Zee TV still has 14 shows in the top 100 compared with 10 shows of Colors. Moreover, ZEEL  offers a stronger bouquet of channels with a 33% market share in the Hindi movies genre and a consistently performing sports channel, Ten Sports. TV Today is also expected to report better performance, since Aaj Tak has maintained its leadership position in the Hindi news genre.   Lackluster Q3FY09 results expected We expect to see signs of ad-revenue slowdown in Hindi GECs, indicating challenging times in future. ZEEL's flagship channel, Zee TV, conceding its spot to Colors would also affect the company's bargaining power with advertisers. Moreover, TV-18 is expected to report a weak set of numbers due to a significant slowdown in ad-revenues fuelled by reduced spending from industries such as banking and financial services, autos and real estate. TV Today is also expected to be impacted by the slowdown, but the festive season and continued leadership of Aaj Tak would enable it to report decent revenues. The company's profit margins may however dampen due to high carriage fees and employee costs. Zee News is expected to report robust revenues growth, but margins may dampen on cost incurred for launching Zee Tamil.