KPMG deciphers impact of COVID-19 on M&E sector
MUMBAI: KPMG has released a thought leadership titled ‘COVID-19: The many shades of a crisis- A media and entertainment sector perspective’ which discusses the impact of COVID19 in the Media and Entertainment industry.
The report highlights that media consumption overtime has tended to be income inelastic, however, the current environment could result in a dip in media consumption in the near term; and also foresees key trends across Television, Print media, Films, OTT platforms during COVID along with the recovery time for the same.
Furthermore, the report highlights that due to COVID-19, traditional media could face some challenges in the near to medium term, and there is likely to be a long-term upward shift in the integration of digital technologies into our everyday lives with media and entertainment being an immediate beneficiary.
The report stated that ad-spend pressures will linger on the back of a weak economy and lower domestic consumption. At-home entertainment options (digital, TV, gaming) will see an upswing as ‘lockdown behaviour’ results in habit formation. Further, longer time lag will return to normalcy for weaker economic sections of the populations.
Outdoor entertainment (films, events, theme parks), particularly in COVID-19 hotspots, will see lingering risk aversion even in the medium term. ‘Pent-up’ demand behaviour among some sections of the population may provide some respite.
Digital consumption, it noted, will see rapid incremental growth with India’s ‘digital billion’ trajectory likely to accelerate materially. According to the report, the pandemic will delay expansion plans though digital businesses aggressively target market opportunity.
The media and entertainment (M&E) sector in India was estimated at Rs 1,631 billion in FY19 and grew at a compounded annual growth rate of 11.5% over a five-year period FY15-FY194. This was against an overall rate of growth in the country’s GDP at 7.2% during the same time.
It also noted that monetisation in the M&E sector is predominantly reliant on advertising, which has seen a major contraction. Overall ad-spend is determined by the performance of sectors such as FMCG, e-commerce, automotive, financial services, real estate etc., all of which currently face their own challenges and could, therefore, take time to recover.
TV: Glued to the telly but where’s the money?
- Overall TV viewing has increased but in absence of fresh content.
- News channels are popular as viewers follow COVID-19 updates in real-time
- Monetisation has dropped substantially with advertisers scaling back on spends
- Sports could emerge as the big draw when recovery begins, especially if IPL dates are announced
Slow ad-spend recovery over the medium term. Long term risks due to digital competition.
Print: New lease of life
- Monetisation a serious challenge as advertisers scale back expenditures
- Higher credibility in the face of proliferation of fake news on social media
- Circulation pick up in near term once restrictions are lifted also resulting in improved ad monetisation
- Digital presence now more critical and could translate into greater monetisation opportunities
Segment needs to leverage positive consumer sentiment and build strong digital products to capture the opportunity.
Films: Disaster at the box office
- Footfalls and therefore revenues have dried up with cinema hall closures
- Rental cost savings anticipated due to invoking of force majeure clause
- The recovery process may be different across demographics based on specific COVID-19 experiences and perceived risk from social gathering
- Medium-term release pipelines may be impacted due to crowding of projects and restart of on-hold projects
Footfalls could take a while to return to normalcy. Risk of narrowing of theatrical windows. Expansion delays likely.
OTT: Silver lining
- Secular rise in OTT consumption in duration, and across demographics and devices
- Content pipeline has dried up. OTT players with a large, legacy library have an advantage
- Ad-spends currently down but greater digital allocations by brands likely post-recovery
- OTT players offering extended free periods to drive subscription pick up through habit formation
Habit formation could result in a new normal and accelerated growth in consumption and monetisation.
Animation: Back to the drawing board
- Lockdown has affected content creation as remote working poses infrastructural challenges
- Animation and VFX work more long-term so demand could hold up despite crisis
- TV and digital projects could increase while film projects have taken a bigger hit
- Segment has high fixed and capital costs so cash flows likely to be an issue
VFX and post-production on films likely to be hit. Animation for TV and digital could recover faster.
Online gaming: A dream run
- Noticeable increase in time spent since mid-March
- Monetisation gap due to lowering of ad-spends
- Paid models could see growth as online gaming gets more entrenched into overall time spent on M&E
- Fantasy sports and e-Sports may be adversely impacted with a stalling of sporting activity, as well as potential aversion to social gatherings in certain demographics
Accelerated growth in consumption and monetisation as isolation allows for habit-forming behaviour.
Radio: Tuning in
- Radio jockeys operating from home so content continues to be refreshed
- Local and topical content popular as people look to follow COVID-19 news relevant to their specific area
- Overall decline in advertising revenues, though some branding has been converted into CSR
- Drop in transit audience listeners as people are working from home
Demand for timely, localised content should remain strong even after recovery. Ad-spends could take time to recover, however.
Events: Lights out
- Multiple events cancelled including IPL, IIFA2020, India Gaming Expo, FDCI Fashion week etc.
- Industry’s losses estimated at around INR 30 billion by the Event and Entertainment Management Association (EEMA)8
- Earlier recovery more likely in B2B events before B2C as people continue to remain wary of crowded places
- Given the dominance of small players, the segment could come under severe cash flow pressures
Live events could see a delayed recovery as social distancing behaviour takes a while to dissipate. Government support essential.