New advertising norms will impact broadcasters

Last Updated: Mon, May 21, 2012 20:11 hrs

According to last week’s new norms by the Telecom Regulatory Authority of India (Trai), broadcasters cannot carry advertisements for more than 12 minutes in one clock hour (including two minutes for promotion of own programmes). This is likely to impact all broadcasters as they currently carry, on an average, 14 minutes of ads every clock hour. The move comes at a time when ad volumes and rates are under pressure thanks to slowing economic growth.

Ad revenues contribute between 54 and 65 per cent of total revenues of major broadcasters. The large share is also partly due to under-reporting on subscriber numbers by intermediaries. In that sense, analysts believe the move should have come once digitisation was implemented fully.

All genres of channels, namely general entertainment channels (GECs), sports, news and movie, are likely to feel the heat. Analysts believe movies and news channels will be worst hit, while GECs are likely see a hit of 10-20 per cent on their prime-time ad volumes. To give an example, advertisements in prime time (which form 35 per cent of total telecast) are more than 12 minutes in one clock hour for news channels.

The rules also state the time gap between two ad sessions should be at least 15 minutes (30 minutes for movies). This move will hit GECs significantly, as they will now be able to have only three ad breaks per hour as against four currently. Broadcasting of old movies (which depend heavily on ad volumes for revenues) could also prove expensive for companies. For live sporting event telecast, ad breaks can only be taken during actual breaks on the sporting field. This, along with the banning of drop down/part screen ads will hit sports channels severely. These norms are likely to hurt Zee Entertainment, Zee News, Sun TV, TV Today and NDTV, say analysts.

Companies do not have many options to protect their topline as well as margins. Given the subdued business environment there is limited scope to negotiate rate rises with advertisers. “Broadcasters will have to step up investment in content and programming hours to protect revenues. There could be downside risk to our FY13 ad revenue growth estimate of 11 per cent and 16 per cent for Zee Entertainment and Sun TV, respectively,” noted analysts at Motilal Oswal Securities. For now, unless companies are able to extract higher rates from advertisers or see a good jump in subscriber numbers, expect this new move to reflect on their earnings.

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