The ongoing economic slowdown, made worse by the Covid-19 pandemic, is set to cull Indian media and entertainment industry’s revenue by 16% – or Rs 25,000 crore – to Rs 1.3 lakh crore this fiscal.

Advertisement (ad) revenue, which accounts for ~45% of the pie, will see a sharper cut of 18%, while subscription revenue, which accounts for ~55%, will be relatively resilient with a likely decline of 14% (refer to chart in annexure).

The sharp drop in revenues will impair the debt metrics of the industry, while balance sheet strength and time to recovery will determine the overall impact on credit profiles.

Ad revenue, which correlates strongly with economic growth, will take a hit as India's gross domestic product (GDP) growth hurtles towards a multi-decade low this fiscal owing to the extended lockdown driven by the pandemic. Weak economic conditions had kept advertisement revenue muted even last fiscal.

Says Sachin Gupta, Senior Director, Crisil Ratings “Overall ad revenue will plummet ~18% this fiscal, with the impact varying across segments. In digital, it will continue to grow but at a slower pace. All the traditional segments – television (TV), print, radio, out-of-home media, and films, in the order of impact from low to high – will see a significant decline. Sans digital, the overall decline would be worse at ~25%.”

TV, print and digital are the top three segments in terms of ad revenue. The resilience of the digital segment is driven by increasing use of devices and applications. For TV, impact on ad revenue will also be because of lack of new content on popular channels and postponement of major sporting events such as the Indian Premier League. For newspapers, longer recovery time for key advertiser-industries such as automobiles, real estate and e-commerce would keep ad spend muted.

The top three segments for subscription revenue are TV, print and cinema, of which, TV continues to be healthy even during the lockdown. Newspapers have faced distribution challenges in certain areas leading to a temporary blip in the circulation revenue. But a sharp fall in box office collections will curtail subscription revenue.

The overall revenue loss of ~Rs 25,000 crore for the industry will translate to significantly lower profits for companies despite cost-cutting measures.

Says Nitesh Jain, Director, Crisil Ratings “Given the sharp reduction in revenues, debt protection metrics will certainly weaken this fiscal for media and entertainment companies. The large ones will surmount the stress given their ample liquidity and strong financials. But smaller players could see a sharp impact on their credit profiles as revenues decline and liquidity gets squeezed. Multiplexes that have had strong credit profiles will see credit pressure aggravating because of longer road to recovery.”

The analysis is based on 78 media and entertainment companies rated by Crisil.

Our base case for fiscal 2021 assumes a lockdown of about 2 months followed by a gradual uptick in consumption. Any rebound in ad revenue hinges on economic growth. Given the low base likely this fiscal, next fiscal would see revenue grow 18-20%.

The dynamics could change across segments as things are evolving continuously. Recovery in ad revenue will begin only after the lockdown ends.