Why media may not be a good investment avenue

Investors could look forward to a fall in profit growth for media companies. While the average revenue growth across print and television could stay flat over March 2011 quarter, the profit growth could fall to an average 16 percent in June 2011 quarter.

Analysts expect advertising revenue to decline for the print media and input costs to rise. In case of television companies, revenue could grow steadily along with the direct-to-home subscription revenue.

While overall profitability could remain steady, rising newsprint costs could pull down profit margins for newspaper companies.

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Securities firm Batlivala and Karani (B&K) expects print media companies to witness a further decline of 5-9 percent in the net profit than earlier estimated.

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During the previous slump in 2009, the print sector ad revenue growth plummeted to 8-12 percent against the average growth of over 25%. However, regional press continued to grow revenue. This quarter, the fear is about a drop in revenue growth for the regional press. This is largely due to the education sector which contributes 12-15 percent of their revenue, according to B&K.

As a result, newsprint prices rose 15-18 percent over the past one year and are likely to go up even further. Jagran Prakashan could be affected due to this. Companies like HT Media who use more of international print would not be affected as international newsprint prices have remained stable.

In the broadcast media space, ratings for general Hindi entertainment channels fell as IPL ran through April and May.

Zee Entertainment fell as the average rating points for the entertainment channel dipped 10 percent from the first quarter of last year.

DTH would continue to drive subscription revenue. It is estimated to be at 40 percent for the June 2011 quarter. In case of Sun TV, the ad spend is expected to go up by 14 percent mainly because of a 12-13 percent increase in April 2011. Despite a politically difficult situation that Sun TV owners face, securities firm Motilal Oswal thinks it is still a good play in the broadcast arena.

Valuations of media companies are not cheap. However, analysts believe that share prices of major companies have underperformed over the past six months.

Things to watch out for if you are an investor:

• Rise in newsprint costs for print industry

• Subscription revenue increase due to DTH subscriptions for television companies

• Adspend moderating due to slowing economy