Mumbai: More than 100 new TV channels are scheduled for launch in India over the next 12 months, delivering ever smaller audiences to broadcasters and nudging up their cost of distribution and marketing.
With the total number of channels on air set to hit 700 by 2009, broadcasters will be forced to slash advertising rates and spend heavily on improving technology to ensure their channels are carried into homes, or face the prospect of being swallowed up by rivals.
Boost in adspend
India’s economic growth of around 9% a year is forecast to boost advertising spending which makes up 60% of broadcasters’ revenues by a fifth to $4.4 billion (Rs17,600 crore) this year.
“But even that fast pace can’t keep up with the speed at which the pie is getting sliced thinner and thinner,” said Atul Phadnis, chief executive of research firm Media e2e.
“There is also an expansion across other media, so broadcasters will be forced to discount to get advertisers.”
Most channel launches focusing on entertainment
Many of the new channel launches, which start this month, will be in the dominant general entertainment genre, whose Hindi-language soaps and movies corner about 40% of all TV ad revenues.
Leader News Corp’s Star India will face new launches from rival Zee Entertainment Enterprises as well as from New Delhi Television, UTV Software Communications Viacom-18 and INX Media.
“Longer term, we believe the market has the depth of spend, demographics and distribution to accommodate several new TV channels and genres,” said Vivek Couto, executive director of research firm Media Partners Asia in Hong Kong.
Consolidation is the next step
“But consolidation is inevitable over the medium term.” This can be seen for example in Sun TV Network, the No.2 listed broadcaster, which recently bought 49% of NDTV’s Red FM radio network, while Television 18 acquired Jagran Group’s Channel 7 news channels.
Walt Disney last year bought UTV’s children’s entertainment channel Hungama and a stake in UTV. Zee bought 50% in Ten Sports channel and Blackstone earlier this year bought a stake in a regional broadcaster.
Asia’s most lucrative pay-TV market
The pressure on advertising rates and the load on overburdened analog distribution systems is expected to benefit deep-pocketed broadcasters and edge out smaller and niche broadcasters.
Leaders Star India, Zee and Sun are likely to eye more acquisitions to strengthen their positions to take on the new entrants, analysts said.
India has become the world’s third-biggest cable TV market in less than two decades since the market was opened up, and is forecast to become Asia’s most lucrative pay-TV market by 2015.
But average revenue per user per month from its 73 million cable homes is only $3.50, among the lowest in the region.
Concerns over high valuations and the slow pace of regulation are also keeping foreign investors at bay.
Plans of Carlyle, Providence and Liberty Global to buy distribution firms have been shelved, Media Partners said. The rollout of satellite TV and pay-TV that can help increase broadcaster’s subscription revenues have been slowed by delays and caps on pricing and exclusivity of content.
“The regulatory issue is a big worry,” said Media e2e’s Phadnis, adding upcoming general elections were likely to discourage any moves that would raise prices for consumers.
Investor confidence lowered
Investors have suffered amidst the uncertainty. Shares in Zee have fallen 41% this year, NDTV has dropped by more than half, and Television 18 has lost 38%, all heavily underperforming the BSE index’s 12% gain.
Despite the falls, the stocks still trade at rich multiples of 37-66 times forecast earnings. Broadcasters remain sanguine: “The market could be better,” said K.V.L. Rao, chief executive of NDTV, which is launching four channels this month and has more lined up.
“But that doesn’t mean there isn’t enough ... there is potential to grow the cable TV base three times,” he said, referring to the estimated 200 million Indian households.