With the growing focus on digital modes of content consumption including over-the-top (OTT) platforms, social media or mobile apps, media companies in India are likely to witness an increased revenue share from the segment.
According to Crisil Ratings analysis of 20 companies, which account for 55% of the media industry’s revenue, digital segment revenue contribution will increase to reach 18% by FY27. The contribution at present is 12% and stood at 8% in 2019.
Increasing contribution from the digital segment will help media1 players print 8% annual revenue growth to Rs 60,000 crore in the next two fiscals. This will follow the compounded annual growth rate (CAGR) of 5% over the past five fiscals to reach Rs 47,000 crore in fiscal 2024.
Media companies have seen a slower annual growth of 5% between fiscals 2019-24 following shift in consumer preferences to digital mode.
The analysis noted that while the increasing number of smartphone users, rising internet penetration, high affordability of data in India ($0.2 per 1 GB of mobile data) and adoption of 5G fuelled this trend, media companies were slow to adapt.
However, this is likely to change now.
Manish Gupta, Senior Director, Crisil Ratings said, “To leverage the digital wave better, media companies have begun focussing on digital modes such as over-the-top platforms, social media and mobile apps. As a result, the digital segment will continue to grow its share in the media players’ revenue pie, from 12% in fiscal 2024 (8% in fiscal 2019) to over 18% in fiscal 2027, as consumers increasingly turn to digital modes for consumption of news and other media content.”
Driven by growth in the digital segment, the overall revenue of these players will grow 8% annually over fiscals 2025-2027. It will also be supported by increasing ad revenue in traditional print and publication streams in sync with the growth in domestic retail demand in sectors like fast-moving consumer goods, automobiles (where new launches take centre stage), education services, online shopping and real estate.
All’s not well for the digital segment
Digital has been a drag on profitability of media companies on account of high initial expenditure for manpower, content creation and marketing as companies pushed for identifying customers and markets for their products. Plus, competition has limited improvement in margins given that consumers have plenty of free alternatives for content.
Ankit Hakhu, Director, Crisil Ratings noted that operating performance of the digital segment is now expected to improve.
“Discovery of the product fits implies that companies have started to identify customer segments most appropriate for their product offerings, thus enabling control over promotional expenses by making it more targeted. Within our study, at least 8 out of 20 companies have achieved or identified this fit to a reasonable extent,” he shared.
Proliferation of digital segment also enables advertisers to present consumers with ads that reflect their specific traits, interests, and shopping behaviour. With this discovery of consumer taste and preference, targeted ad campaigns through the use of analytics could improve ad revenues for every rupee spent on promotions. This and increasing scale will help in better absorption of fixed costs, with breakeven in operating profitability (from ~20% operating loss in fiscal 2024) in the digital segment expected by fiscal 2027.
Following the breakeven in operating profitability in digital segment and continued increase in revenue from traditional sources, media players are expected to see an improvement in their operating margins by 500 bps to 18% by fiscal 2027.
That said, improvement in overall operating profitability also remains sensitive to movement in prices of other key raw materials and input costs for these players such as newsprint prices (NP), which account for 30-40% of overall costs.
Geopolitical or other issues in the global supply chain could lead to unexpected volatility in NP prices, as seen in fiscal 2023, when prices averaged $840 per tonne, up ~23% on-year, it concluded.