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Star India’s ad revenue loss from demonetisation at $50 mn in two quarters

MUMBAI: Star India’s ad revenue loss due to the government’s demonetisation move has widened to $50 million in two quarters.

Star has lost $20 million in the fiscal third quarter (January-March) due to demonetisation, 21st Century Fox CFO John Nallen said.

As reported first by TelevisionPost.com, Star lost $30 million in Q2 (October-December) due to the Narendra Modi-led government’s decision to remove legal tender status of Rs 1000 and Rs 500 currency notes, which led to slowdown in demand due to currency crunch. With demand slowing down, advertisers had turned cautious by cutting down ad expenditure.

Nallen, however, said that the impact of demonetisation is beginning to taper off. “Now while the major effects of demonetisation are now behind us, it negatively impacted the third quarter revenue by approximately $20 million,” he said. Incidentally, Star India’s fiscal cycle starts from 1 July and ends on 30 June.

Even Star’s peers like ZEEL and TV18, which owns 50% stake in Viacom18, have felt the pinch of demonetisation.

As reported by TelevisionPost.com, TV18’s segment profit (including proportionate share of joint ventures) plummeted 74% to Rs 61.5 crore in FY17 compared to Rs 236.3 crore a year ago. The JVs include Viacom18 and AETN18.

ZEEL, which had posted 20.1% ad revenue growth in FY16, saw its growth fall to 9.2% in FY17. The company has been a strong performer that has always outgrown the industry.

21st Century Fox’s international advertising revenues were down 18% in the third quarter versus the prior year principally due to the absence of Star’s prior-year broadcast of the ICC T20 World Cup and Asia Cup cricket tournaments, and the continued negative impact of India’s demonetisation initiative.

However, international EBITDA contribution increased 44% due to the lower sports programming costs at Star and affiliate fee growth.

Nallen said that the cable networks segment in Q4 would see a higher growth due to the ICC Champions Trophy. “We don’t have a big sports step-up domestically. But uniquely internationally we have a big cricket event in Star with the Champion’s Trophy. We will see a higher growth in that quarter uniquely for that event; otherwise, our expenses should be in that mid-single zone,” he stated.

21st Century Fox executive chairman Lachlan Murdoch noted that, though the financial impact of the Indian demonetisation is behind it, the impact has obscured impressive operational progress.

He added that Star India is increasing its viewership lead over its competitors and the continued rise of Hotstar as the emerging platform of choice in India.

Elaborating further on the company’s India operations, 21st Century Fox CEO James Murdoch said that the international cable affiliate revenue cannot be compared since Star had renewed agreements in Q3 of FY16, due to which the international cable affiliate revenue grew by 20%.

“At Star, we continue to grow at a good pace, but the timing of some affiliate renewals last year affects this quarter’s comparisons. You may recall that we had extraordinary growth last year in Q3 of some 20% in international cable affiliate revenue, so we are comping very nicely against a very high bar,” he said.

He also said that the Hotstar platform in India continues to make strides expanding its watch time over the prior year quarter by 220%, making it by some estimates about 14 times the watch time for Netflix.

When asked by an analyst whether the company is on its way to meet the $1 billion EBITDA target by 2020, James said that the entertainment business is seeing an increased level of leadership while the sports business, which has been a loss leader, is also witnessing some success with local leagues.

“Look we’re very enthusiastic about our business in India. I think what we’re seeing there today, as Lachlan mentioned, is an increase level of leadership in terms of our entertainment share. Our sports business is really going from strength to strength since we’ve acquired half of the ESPN STAR Sports joint venture number of years ago and really reinvented STAR Sports in the marketplace. It’s been very, very successful not just in cricket but also with kabaddi and with the Indian Super League, the soccer league there really rounding up the schedule,” Murdoch stated.

Star India, he said, is very much at the run rate needed to attain the $1 billion target despite the impact of demonetisation.

“I mean when looking at the marketplace, we obviously had a disruption with the demonetisation, and as John mentioned, that’s we are largely through that now. It wasn’t that big an impact in the last quarter and we’re at the run rate that we need to be at to get to our targets at this point,” he said.

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