SMEs will be next big growth drivers on digital: Karan Taurani, Elara

Karan Taurani, VP – Research Analyst (Media), Elara Securities (India) Private Limited, says SMEs will play a key role in bringing incremental growth in digital advertising

e4m by Dipali Banka
Updated: Jul 29, 2020 8:11 AM
KARAN TAURANI

As the Media and Entertainment industry goes through an overhaul, Karan Taurani, VP – Research Analyst (Media), Elara Securities (India) Private Limited, points out areas of growth in digital, television and gives an overall view of the industry.

What is your outlook for digital advertising and its growth going forward?

Digital is growing by about 30% in terms of advertising spends and currently contributes about 25% of ad spends. This has grown at a CAGR of almost 35% in the last three to four years. This is at the cost of print. Print medium was close to around 36-37% until three-four years back, now it has come to 30% and digital, which was 15-16% has grown to 23-25%. So that is where the share is changing hands.

Within digital, until 3-4 years back, almost 80% of digital ad spends are because of social media. The advent of OTT and entry of Jio has changed the industry in a big way. Right now, social media share has come to 65-70% and OTT is commanding almost 15% of ad share. So if digital spends today are around Rs 17,000 crore, OTT is roughly around Rs 2,500 crore. This is primarily led by Hotstar that is cricket content and then Voot, Zee5, etc. Most of the Indian OTT players are AVOD (Advertising on Demand) based players. These spends are excluding YouTube. YouTube spends are calculated in the social media category. OTT is primarily growing because of catch up TV content. Amazon, Netflix have an SWOD model. Almost 60% of Indian OTT consumption comes from catch up TV content. Now because there are no new shoots, no new fiction, non-fiction shows, the consumption is taking a steep hit. And basis which, even the advertising spends on those mediums have taken a hit to some extent. But this is a near term problem, recovery will happen once the shows are back.

News as a category is doing very on the digital ad spend front. In terms of news content on social media, various models on YouTube and even Apps, news as a genre is doing very well.

In terms of type of advertising with digital, video advertising is the fastest-growing at about 45% versus digital ads which are about 30%. This is happening at the cost of display advertising as we have moved away from a web-based to an App-based economy.

In terms of growth for digital segments, SMEs are going to be the next big growth drivers. If we are seeing 30% of growth getting sustained for the next five years, a good 40% of growth would come due to SMEs expanding as corporate advertising is kind of saturated. They are on the verge of forming a big chunk of advertising on digital.

SMEs have been the worst hit due to the pandemic induced lockdown, and the ones that would take a longer time in coming back with ad spends. How do you think this will impact digital advertising?

Yes, the incremental growth has been negatively impacted as SMEs have cut down on their spending and that is factored in. Going forward, incremental growth will be decided upon by the SMEs.

According to a report, the digital ad volume drop is much steeper than even TV. Is this because digital did less discounting and hence volumes dropped more?

There is a base in terms of overall advertising spends and then there is a base in terms of pricing. Ticket sizes on digital are predominantly very low compared to what it would be on a TV. And it is more specific, more niche and more targeted. So I think that is the reason for the decline. Also, there is no capping on inventory on digital, there's ample amount of inventory which is available, whereas TV has got a capping inventory. Price games of digital can start only when the inventory gets saturated, whereas for TV it is completely price game as of now. Also in digital during the Covid times, a lot of time spent has gone on social media, gaming, chat UIP and video conferencing. These four segments have increased almost 40%-45% in terms of time spent and consumption.

What's your outlook on broadcast and the companies and their revenues?

Ad spends on Broadcast should not see a decline of more than 25 odd per cent excluding sports. And including sports, this could go in the range of 30-35% depending on IPL. This also factors in that shoots start probably from July-August and there are new shows on air. Pricing on TV has taken a big hit and it will take time to recover. However, TV is much better placed as a lot of fiction based shows do not require large sets and will be the first ones to recover. Even webseries on OTTs require large sets, so they will take their own time to recover. So, it will be TV shows, web series, and then movies in terms of the pecking order as far as the shoot is concerned

English entertainment channels are facing a tough time and we are hearing some might also go off air. So it if going to be News and Hindi GECs that will lead the recovery for broadcast?

If we look at genre-wise contribution, English as a percentage of overall ad volume has been declining consistently. And that is because OTT market is boomed significantly. India has about 35-40 OTTs functioning today and may are global tech giants which offer good English content much better than what English channels offer. GECs are under a lot of stress too in terms of TV programming and monetization. GEC’s share to overall ad inventory is declining by close to 1.5-2% points every year on an average in the last 3 years and they seem to have capped out in terms of pricing. But since other genres like sports and English have been impacted, GECs are likely to maintain its share in ad volume but growth will take time.

Surprisingly, sports has done predominantly very well in terms of pricing. A lot of ad spends are moving to sports and I think that’s where the future holds. A lot of spends also have a scope to move to the news genre. Also, despite the current situation, there are some businesses that are doing well like e-commerce, online delivery or FMCG, who would want to explore advertising on TV.

Also, the work from home and working at part capacity is likely to be the phenomenon for the next 4-6 months, so a lot of male audiences will still spend more time on TV. And hence news consumption will sustain at 12-13% increase as compared to pre-Covid times for the rest of the year.

But prices in the news genre have been impacted in a big way, revenues have been down by 50-60%?

The problem with news genre is that the inventory is capped out. You don’t the scope of inventory expansion. So all you have is pricing growth. But selectively, players have seen some kind of pricing support. So, if the industry is declining by 40-50%, the market leaders have seen a decline of 15-20%, so that’s working in favour of TV news. Also, a lot of Government campaigns and social media messages run on TV in a big way. I think it will support news advertising in a big way going ahead.

We are seeing some advertisers coming back on Print. So, the inventory is seeing some uptake on print.

Inventory may recover faster compared to the price. The 60% reduction in advertising on Print is largely due to the price cute and circulation going down drastically. Because of the pandemic, people stopped taking newspapers and it has impacted circulations in a big way. I am assuming about 40% of circulation has come back on track and we see another 20-30% come back too. But the balance 30-40% audience may not consume Newspapers for the entire year due to the fear of Covid 19. And that is definitely going to change reading and consumption habits in terms of news and TV is likely to be major beneficiary here.

Research shows that Social media is generally used for connecting socially and networking and not for news. For consuming news, people trust TV and Print. And hence some of the print ad spends could move towards TV within the news genre. Which is why I’m assuming TV definitely is a winner here in these times of Covid.

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