Buoyed by the market condition Sun TV Network has hiked advertisement for prime time week day slots; the company hopes to maintain margins at 75-80 percent.
Kalanithi Maran-owned Sun TV Network has increased its advertisement tariffs by an average 19 percent buoyed by the traction seen in advertisement revenues, SL Narayanan, Group CFO, Sun Group told CNBC-TV18 today.
The tariff will be applicable to week day prime time slots with effect from July 15. The Tamil general entertainment channel broadcaster could hike the advertisement tariff almost after 24 months, as FY12 had been a very difficult year for the media industry.
“FY13, which has just ended, we had some very modest growth rates in the first half and we accelerated to 20 percent growth in December and then we have sustained the momentum at a 15 percent growth in the advertising revenue in March 2013,” Narayanan said.
The company will also think of increasing advertisement tariffs of other channels under its umbrella in coming months. The media company hopes to maintain its margin between 75-80 percent. Increasing subscription revenues are seen pushing the operating margin going forward.
Sun TV today reported 12 percent on year increase in fourth quarter net profit at Rs 178 crore. It sales also rose 11 percent on year to Rs 473 crore in the same quarter.
Below is the verbatim transcript of the interview
Q: Before we talk about the quarter gone by and the numbers I see in the press release that there is an ad rate hike, if you could tell us how much that is and how do you expect that to aid your revenues going forward?
A: Having regard to the buoyancy in the market, we feel encouraged to increase our tariffs by an average of 19 percent. This would cover only the week day prime time slot, six out of the nine half hour slots that we have in the evening. The increases are being put through with effect from July 15 at an average of 19 percent.
Q: Give us some more perspective with regards to this ad rate hike. After how long have you managed to initiate an ad rate hike and what do you think will possibly do to your ad revenues considering it has grown to 15 percent this quarter?
A: This is the first increase after almost 24 months. As you may recall, FY12 was a difficult year for not just Sun TV but for entire media industry. So, we were having some difficulty in putting through increases in FY12. FY13, which has just ended, we had some very modest growth rates in the first half and we accelerated to 20 percent growth in December and then we have sustained the momentum at a 15 percent growth in the advertising revenue in March 2013.
So, as we enter FY14, we are fairly optimistic that things are going to be much better, which is why we feel encouraged to put this increase through. Let me again emphasize that this is only for our flagship channel which is Sun TV which is a Tamil general entertainment channel (GEC) offering and we will look at other languages and other genres in the months to come by.
Q: Before I talk to you about the Q4 performance, give us a word on this whole Indian Premier League (IPL) fiasco because now you also have a team. Are you surprised and shocked by the kind of revelations that have come about in the IPL and I just want to know if the team Sunrisers Hyderabad will have any kind of numbers for you going forward in terms of reporting numbers?
A: It is unfortunate that some players have conducted themselves in a manner which is shameful, but I think the authorities have come on hard and made sure that action has been taken immediately. I am quite die-hard cricket fan and I am feeling quite distressed that these things do happen.
Q: Just to drive that point home, will there be any sort of impact on the profit and loss (P&L) at all, have you seen any sort of disruption in terms of revenues, advertising inflows etc?
A: Not at all. In fact, it has got nothing to do with the mainstream business which is advertisement and subscription. What is not coming out very loudly as yet is the kind of growth that we are seeing on the direct-to-home (DTH) revenues because up to September we were growing sequentially at about 2 percent. In December that accelerated to 5 percent and in a most recent quarter it has gone up to 5.5 percent.
Q: Your margin seems to have slipped to 73 percent though they are still elevated, there was some deceleration coming in there, what is sustainable run rate for the margins and do you expect it to be sustained above 70 percent or do you expect a possible slip there?
A: I think margins sometimes go up and down because of proprietary content, which we create. So in some months, when we do shows like awards nights or some specialized game shows or reality shows, it does go up because the expenditure is booked in the company’s books. Normally, most of our content is outsourced from third party producers. Therefore, there maybe some slight ups and downs but in the long run, we should be able to sustain the historical average of anywhere between 75 percent and 80 percent.
We must remember that subscription revenues are going up and that is going to have a huge leverage on operating margins.