Television viewership in India during the lockdown saw an unprecedented growth of 37% to exceed 1.2 trillion minutes 1. Television consumption at this scale hasn't been witnessed or even imagined before. But when the Broadcast Audience Research Council (BARC) declared these massive growth numbers, it did not enthuse the Rs 78,800 crore industry as it normally would have.
Instead, industry CEOs were locked on video calls, deliberating cost cuts, appraisal freeze, pay reduction, and layoffs. The industry is grappling with an existential crisis that it had neither anticipated nor planned for.
Even their best strategic planners had not seen this tsunami coming. Combating the menace of COVID-19 has meant separating people from each other, and inevitably, from doing just about everything the industry does to make money.
Creating intellectual property (IP) lies at the core of the industry, in the form of scripted and non-scripted shows which are then monetised through advertisement and subscription revenues.
The absolute lockdown has impacted both these activities, putting on hold production of hundreds of shows, and wreaking havoc on the networks' development plans. The programming void is filled through repeats of older shows. The complete shutdown of all sports events has been devastating for the broadcast industry, especially networks like Star India and Sony Pictures who have a significant stake in sports broadcasting.
About 26 private sports channels have now been reduced to re-running old tournaments, with no certainty about when and in what form live-sports might resume. The lockdown has thus negated the general assumption that the rise in viewership translates to increased revenues.
On the contrary, advertisers across the board have cut back their spends drastically, owing to the overall economic distress and decreased consumer spending. Advertising volumes have witnessed a 26% decline as per BARC data, and spot rates have also understandably crashed.
It is believed that total billing has fallen by 70-75% during this period. While 'normal' industry-wide advertising revenue stood at Rs 32,000 crore in 2019, this is a body blow to broadcasters.
While all genres have felt the impact, sports have suffered the most as it is almost impossible to derive any economic value from telecasting a tournament when one already knows the outcome. While no data is publicly available, a fall of 85% to 90% in advertisement revenue would be very believable just going by the negligible ad volumes during these repeat telecasts.
Moreover, the suspension of television shows is also bound to impact advertiser interest in GEC channels that are broadcasting reruns with their content banks having run out.
Subscription revenue, another source of income for payment networks, is also not bereft of its share of woes, with no significant spike in subscriber numbers. How can a cable/DTH operator or subscriber justify paying the same monthly fee for a sports channel with no live sports, or for general entertainment with no fresh content?
Subscription revenue collected from end-subscribers is completely dependent on cash collections from home and/or monthly recharge at dealer points. The lockdown has severely impacted these collections, which in turn impacts the liquidity of broadcasters.
A longer lockdown will eventually lead to a drop in subscriber numbers of pay channels, in the absence of fresh content. Viewers may find it more economical to downgrade to free-to-air offerings and seek better options with OTT platforms which have hours of fresh content to offer to new subscribers.
Disney+Hotstar's launch during the lockdown, for example, would be able to seize this opportunity and grow subscription numbers, capitalising on its very popular Disney library. Increasing subscriber churn will put pressure on networks to extend discounts in order to retain viewers and maintain channel reach, which will drive down subscription revenue significantly.
The massive hit to overall revenue will inevitably put severe financial stress on margins, with most networks struggling to even cover fixed costs. While larger networks will have to seriously consider suspending operations of some of their channels, smaller networks will find it difficult to survive this onslaught.
Sports networks with no live sports and margins, will in all probability be forced to consolidate multiple sports channels. For the English genre, which was already struggling with falling viewership due to the proliferation of OTT platforms, and the new tariff order of the TRAI, the lockdown is a death blow.
The Unlocking Dilemma - A Long Road to recovery
The unlocking dilemma is something that businesses across the globe are struggling with and attempting to find the right balance between lives and livelihood.
The challenges of unlocking are unique to the television industry as it relies almost entirely on human resources and creativity to build economic value. How does one resume shooting shows which are dependent on physical proximity and showcasing human expression?
Will these shows be as good, or as popular, with scripts that envisage actors keeping their distance and in masks? Lastly, re-imagining and re-designing production protocols and guidelines in itself is a complex exercise that is not only time consuming but will also mean increased cost of production.
Sports networks have to deal with an added set of complications arising out of sports rights agreements involving billions of dollars, due to cancellation and postponement of marquee events. These networks not only stand to lose advertising revenues but also take a hit to their earnings, with no clarity on whether or how much they have to pay for the rights for these games.
While it would be pragmatic for all stakeholders to reach consensus given the gravity of the crisis and its human dimension, eventually it may simply boil down to immutable contractual obligations. In this eventuality, losses and increasing cash flow problems will predictably create frictions down the line.
On the positive side, the sports world is hugely interdependent and works on long term relationships. Hopefully, none of the stakeholders would want to risk future relationships by taking hostile legal positions, especially during a calamity of this nature.
Some of the broadcasters who in more exuberant times had bid aggressively for sports rights, may also now try to either renegotiate or exit unfavorable deals. In the interim, uncertainties will take a huge toll on the business.
The road to recovery looks long and rough, as resuming production of shows and sporting events is just the beginning. The coronavirus's greatest impact on television won't stem from the acute shock of suspended production but from the long-lasting consequences of the recession.
While marketing and promotional activity is not an immediate priority for advertisers struggling to re-build their own businesses, revenues will remain subdued through the middle of 2021. Pay-TV growth is directly connected to consumer appetite, which will be at its lowest during the recession.
Entertainment is a discretionary expenditure that an average household struggling with unemployment and other financial commitments will try to control at this time. As consumers are forced to make hard choices, OTT platforms and telcos may be able to offer a better proposition in terms of value, quality, and cost, and hence this period may accelerate the pace of cord-cutting.
The pay-TV ecosystem will also be influenced by the emerging regulatory landscape, including the New Tariff Order 2.O by the TRAI. Post-COVID-19, we will witness a new wave of industry transformation, accelerating the pace of consolidation which had begun in 2019. India is home to 918 registered television channels (386 news and 582 non-news).
This proliferation was enabled by India's economic growth from 1991 onwards, with the market generating increased advertising spends, and animal spirits driving the establishment of new channels. Clearly there will be a shakeout in these dire times, with several channels shutting down or moving online.
The News Broadcasting Association has appealed to the central government to provide a stimulus package, and also to ensure that the government advertisement overdues are cleared. It will not be long before the general entertainment channels (GECs) also come under severe financial stress and require stimulus support from the government.
Consumer habits could be altered for good by the COVID-19 pandemic and may force television networks to make hard choices between their linear television and OTT businesses. Currently, Indian broadcaster OTTs lack sufficient originals and largely depend on catch up content.
It is likely that they will lean harder into their OTT businesses and move more content investments towards fast-growing streaming services.
The market will certainly not be in a position to reward and incentivise a large number of channels. While television may continue to be the primary screen until the data infrastructure in India can meet growing demand, this will hold good only for selected mass entertainment channels, live sports, and news.
Which prudent network would see wisdom in investing to rebuild a business that is rapidly losing out to the streaming future? Niche genres like English entertainment, kids, and infotainment will have to accelerate their plans to go "only digital" for better monetisation opportunities.
On a positive note, creativity and entertainment have always staged remarkable recoveries after periods of stress. Newton discovered theories of gravity and motion when he was confined during the Great Plague in London in 1665-1666. Similarly, the Black Death (1342- 1553) marked an end of an era in Italy and led to the emergence of the Renaissance, one of the greatest epochs for art, architecture, and science in human history.
The Walt Disney Company, founded in 1923 is a standing testimony of the survival of multiple calamities. We look forward to the day when positive public sentiments of a corona-free world trigger a surge in demand, and more so for out-of-home entertainment like Broadway, theatre, and live sports According to Albert Einstein, "In the middle of every difficulty lies opportunity".
(The author is Founder & Partner Shyamala Venkatachalam LLP, The remediation company)