Media and entertainment sector may see more deals: EY survey3 min read . Updated: 04 Jul 2014, 12:52 AM IST
India is the market of choice for media and entertainment firms after China, the US, Germany and the UK
New Delhi: India is among the top five destinations for global media and entertainment (M&E) firms—for entry as well as diversification—according to a recent survey conducted by consultancy firm EY for the 10th Capital Confidence Barometer: Media and Entertainment. The survey of 54 countries tapped chief executives, chief financial officers and other C-level executives of media and entertainment firms.
India is the market of choice for M&E firms either to enter or to expand operations in after China, the US, Germany and the UK. According to the survey, M&E firms are taking part in both high-volume, low-value deals in emerging markets and low-volume, high-value deals in developed markets.
The Barometer said confidence in the availability of credit and financing in the sector is at its highest in five years, and provides a platform for deal-making. Eighty-five percent of the respondents believe credit availability is either stable or improving. Thirty-five percent of executives indicated they have debt-to-capital ratios greater than 50%, which is up from 17% the year before, showing a dramatic increase in borrowing. The M&E executives are more confident of closing deals (33% compared with 23% a year ago).
In his note, Tom Connolly, global leader, media and entertainment at EY transaction advisory services, said, confidence in the economy, strong corporate earnings, widespread credit availability, high-quality valuations and short-term market stability are providing the foundation for M&E executives to implement their strategic plans—from reaching consumers on new digital platforms to entering new markets. “The results of our recent Barometer show that the temperament is ripe for M&E companies to take action," he noted.
The benefits of emerging markets such as India include access to a growing middle income population. “From a growth perspective, there is a high level of interest in the country from companies that are either looking to enter or to expand in India," said Ajay Shah, EY India’s media and entertainment transaction advisory services leader.
Atul Mehta, EY India’s media and entertainment financial diligence leader, said the benefits of a country like India far outweigh challenges such as political risk, slowing of economic growth and currency risks. “For instance, except for news, everything else is open here—be it television or print. Besides, both advertising and distribution revenue are growing," he said. Used to consuming media and entertainment at cheap rates, the Indian viewer is slowly paying up a bit more, thanks to digitization of television distribution services. “We expect news to also open up further to allow foreign direct investment (FDI) of up to 49%. That will bring more FDI into the sector," he added.
Mehra said there would be two kinds of deals: mergers and acquisitions and private equity. Expect consolidation in the cable network, direct-to-home and exhibitions industries, he said, adding that there will be private equity deals in sports entertainment such as Indian Premier League (IPL) franchises. According to Shah, mergers and acquisitions may also happen among firms in the general entertainment category as national channels eye properties in regional languages. “Strategic investors are already in talks with companies in India. There is general optimism," said Shah.
Raj Nayak, chief executive officer at Colors, the Hindi entertainment channel of Viacom18, agreed: “The mood is optimistic. While not everyone may find a buyer, television companies looking to grow faster would look to acquire brands that are up and running. They may pay a premium on such properties but they are saved from the hassle of getting licences or setting up distribution networks," he said.
A media executive with a cable network who declined to be named said the future of the media and entertainment industry in India depends on clarity in regulation, the digitization calendar and tax issues.
However, Uday Shankar, chief executive officer, Star India Pvt. Ltd, was not so upbeat: “Business distress in media is too deep and no investor in media has not lost money for a long time. I don’t see many deals unless the policy regime in media changes," he said. Incidentally, 92% executives see political, regulatory and emerging markets instability as factors that have the greatest economic risk to their business over the next 6 to 12 months.