If you are in the TV broadcasting business, you are seeing trends you probably haven't seen before. Despite the rise of OTT entertainment, as more people stay indoors, the number of people turning to television increases. In a business where 60% of the topline comes from ads however, things aren't as hunky-dory as they seem.
In today's post, we discuss the factors leading to a sharp decline in ad revenue amidst the rising user base, the change in the relative attractiveness of television amidst the crisis, and the potential opportunity for firms with deep pockets to build brand relatively cheaply.
The two forces
Most firms today are staring at an immediate cash flow crisis, with the weaker among them struggling for survival in what could potentially be the beginning of a recession. In such an environment, where growth seems hard, the first place firms go to is cost-cutting. Historically cutting travel and other perks was a good starting point, but the current crisis has already taken that off the table. The next place most managers focus their attention on is Advertisement and Promotion spend.
The consumer in the middle of dark times is increasingly less likely to spend on anything other than things they find essential. This reduces the incentive of advertisers to pay to be on your screen. This purchasing intent reduction, combined with an imperative to cut costs sees most firms cutting spend, especially in the areas where it is relatively costly - Like TV. Folks in the industry are looking at a 30%-40% drop in topline this quarter, with similar trends in the future if this continues.
Incidentally, this drop in spending comes at a time when there are more people at home due to COVID, driving up both the number of people and the length of time for which people are watching TV. A strange problem to have!
The long term play
An important thing to note here is that while TV adverts do lead to a jump in direct traffic if you're an online player and a short term boost in sales if you're an offline player, the real value of TV advertisements is in the future.
Memorable ads and jingles have reserved their space in the psyche of the Indian user, and will help the brand far beyond the ads are being telecast. From a Marketers point of view, the difficulty in quantifying this makes it a hard thing to pitch, especially in times like these, but it is important to keep in mind nonetheless.
A potential opportunity
As more advertisers run for the hills, TV companies will be a lot more likely to renegotiate terms with folks already advertising with them. Consumer staples firms who can continue selling in this market will receive more attention since they are likely to spend in this market as well.
In a market like this, if a firm has reasonably deep pockets to survive the next few quarters without too much hassle, this could provide a brilliant opportunity to build the brand and get in front of a much wider audience at a fraction of the cost.
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About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P. Morgan and Goldman Sachs, before founding GSN Invest.