Fitch: negative outlook in 2012 for Indian media and entertainment sector

The outlook for the Indian print media and TV broadcasting sectors is negative in 2012, as growth in advertising spending is expected to slow down due to the moderating economic growth and cost reduction initiatives by corporates.

In its 2012 sectoral outlook series titled, 2012 Outlook: Indian Media & Entertainment - Reduced Advertising Spending Threatens Margins, ratings agency Fitch notes that TV broadcasters generate 70 per cent - 90 per cent of revenues from advertising compared with about 70 per cent for newspaper publishers, and are therefore likely to be the worse hit in this area.

However, the broadcasters that have diversified their revenue base towards subscription are expected to perform better than those with a higher exposure to advertising revenue.

The rising newsprint cost, which is the largest operating cost for newspaper publishers and typically accounting for 40 per cent - 50 per cent of total operating costs, is likely to pressure the operating margins of the print media industry. At end-November 2011, domestic newsprint prices increased by 13.4 per cent and international newsprint prices by 7.0 per cent compared with the average prices in 2010, respectively.

The recent depreciation of the Indian rupee has lead to a further increase in the effective price of the international newsprint.

Fitch said that it expects the Indian media industry to grow at  8 per cent-12 per cent in 2012. Given the high newsprint costs and expected lower revenue growth, margins of the print media industry are likely to fall to the range of 18 per cent - 22 pert cent.