This paper highlights the credit rating of the Global Media and Entertainment Industry by various credit rating agencies.

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GLOBAL MEDIA AND ENTERTAINMENT RATING
ASSIGNMENT
MANAGEMENT OF FINANCIAL SERVICES
TOWARDS PARTIAL FULFILMENT OF THE EVALUATION IN THE SUBJECT
26TH SEPTEMBER, 2014
SUMMER SESSION (JULY – NOVEMBER 2014)
NATIONAL LAW UNIVERSITY, JODHPUR
WORD COUNT: 17205
SUBMITTED BY: PRANITA MEHTA SUBMITTED TO: DR. RITUPARNA DAS
ROLL NO: 962 PROFESSOR
V SEMESTER FACULTY OF MANAGEMENT
B.B.A, LL.B (HONS.) NATIONAL LAW UNIVERSITY, JODHPUR

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TABLE OF CONTENTS
Introduction To The Global Media And Entertainment Sector .................................................4
Issues Related To Control Of Media, Entertainment And News Content .................................7
Brief Introduction To India’s Media And Entertainment Industry..........................................10
Market Size.....................................................................................................................10
Investments .....................................................................................................................11
Government Initiatives..................................................................................................12
Road Ahead ....................................................................................................................13
Growth Figures ..............................................................................................................13
Media & Entertainment industry's contribution to the economic growth of the
country ............................................................................................................................15
Key Emerging Trends in India’s M&E Industry........................................................20
Credit Rating And Methodology .............................................................................................22
Key Considerations In Evaluating A Company’s Business Risk Profile ................................26
Key Considerations In Evaluating A Company’s Financial Risk Profile ................................29
(A) Earnings....................................................................................................................29
(B) Cash Flow/Coverage................................................................................................30
(C) Balance Sheet and Financial Flexibility Considerations......................................30
Key Considerations In Evaluating A Company Within The Media And Entertainment
Industry ....................................................................................................................................32
A. Predominant Factors ...........................................................................................32
I) Size and Scale ....................................................................................................32
II) Content/ Library.................................................................................................32
III) Regulation..........................................................................................................33
IV) Audience ............................................................................................................33
B. Other Factors .......................................................................................................33
I) Name Recognition..............................................................................................33

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II) Quality of Revenue ............................................................................................33
III) Intangibles..........................................................................................................34
IV) Internet/ Online Strategy....................................................................................34
V) New Technologies..............................................................................................34
VI) Trends in Advertising.........................................................................................35
STANDARD & POOR’S MEDIA AND ENTERTAINMENT SECTOR OUTLOOK.................................36
Online Businesses – Stable Credit Outlook .................................................................36
Radio – Minimal Credit Upside....................................................................................37
Magazines – Weak Credit Outlook ..............................................................................37
Selected Media & Entertainment Ratings and Outlooks ...........................................38
MOODY’S INVESTORS SERVICE: MOST INVESTMENT-GRADE RATINGS IN MEDIA &
ENTERTAINMENT RESILIENT IN A RECESSION ..........................................................................43
Illustrating Rating Vulnerability to a Cyclical Downturn .........................................46
Financial Flexibility within the Current Rating .........................................................47
Cyclical Revenue Exposure...........................................................................................48
Secular Revenue Pressure and Event Risk..................................................................49
The Factors Combined Illustrate Relative Downgrade Risk.....................................51
About Future Rating Actions........................................................................................52
Defensive Strategies during a Recession Can Help Preserve Ratings.......................53
INDIA RATING AND RESEARCH’S 2014 OUTLOOK: MEDIA AND ENTERTAINMENT: EXPECTED
ECONOMIC RECOVERY TO BENEFIT INDUSTRY.........................................................................55
What Could Change the Outlook? ...............................................................................57
Key Issues........................................................................................................................57
ERNST &YOUNG’S SPOTLIGHT ON PROFITABLE GROWTH OF THE M&E INDUSTRY................62
FITCH RATINGS’ PREDICTION REGARDING TOUGH DAYS FOR THE INDIAN M&EINDUSTRY...66

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INTRODUCTION TO THE GLOBAL MEDIA AND ENTERTAINMENT SECTOR
With astonishing speed, entertainment, media and publishing have evolved into a highly
dynamic industry, interconnected by the global digital platform in a manner that few people
could even have conceived of a few decades ago. From books and media printed on paper,
music on CDs, movies rented on DVD at the local Blockbuster and TV networks that forced
the viewer to be in front of the screen at a given hour in order to watch a given show, the
industry has changed dramatically into an always on, easy to time-shift, always with you,
customizable stream of news, entertainment, movies, e-books and music.
Media and Entertainment (hereinafter “M&E”), as a broad sector, is somewhat unique in
that revenues are generated by multiple methods. Primarily, these methods are1:
1) outright purchase, such as the download of an e-book or the purchase of a movie
theater ticket;
2) subscription, such as cable TV fees or magazine subscriptions; and
3) advertising fees.
Advertising revenues remain of vast importance to this industry, and the Internet has created
a multitude of new outlets for such advertising. Global advertising media revenues were
estimated to be $489.6 billion in 2013, according to Magna Global, a unit of advertising
agency leader Interpublic Group. Much of this growth is occurring in online media, and the
fastest growing markets are in developing nations such as China, Indonesia, India and
Brazil.
Analysts at Veronis Suhler Stevenson estimate that total U.S. communications and media
spending hit $1.189 trillion in 2012. They forecast this number to grow to $1.455 trillion in
2016. Broadly measured, the U.S. entertainment and media industry spans multiple sectors,
from America’s 10,656 FM radio stations, to the 1.3 billion movie tickets sold yearly in U.S.
theaters. Also, the gambling sector is often included when considering entertainment as a
whole. In America, legal gambling is estimated to be a $90 billion industry. The American
Gaming Association placed commercial casino gambling in the U.S. at $37.3 billion during
2012 (up from $35.6 billion in 2011), a number that does not include Indian reservation
gambling, lotteries and some other outlets.
1 http://www.plunkettresearch.com/entertainment-media-publishing-market-research/industry-and-business-
data/statistics (last visited 20th September, 2014)

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Today, digital media2 of all types must be included when considering the scope of the
entertainment and media industry. Broadband Internet connections in U.S. homes and
businesses total about 96 million, plus over 180 million wireless subscribers with access to
smartphones and tablets. This means there is a vast market for online entertainment and
media, and this segment represents one of the most important advertising revenue
markets. Comcast (the cable TV provider) alone had more than 20 million high speed Internet
customers as of the beginning of 2014. Advertising on the Internet (including ads on wireless
devices) grew to $42.3 billion in the U.S. in 2013, according to e-Marketer. The firm
forecasts this number will grow to $61.4 billion in 2017. Plunkett Research estimates that
online advertising totalled $98 billion worldwide in 2013.
Most recently, the “Third Screen” (cell phone-based content including video and music) is
becoming a major factor in entertainment and media. As 2014 began, there were 326 million
wireless subscriptions (for cell phones, tablets and other devices) in the U.S. and 7 billion
worldwide. The traditional, storefront video rental business has dwindled due to alternatives
including Netflix, TiVo and video-on-demand services offered by Comcast and other
firms. This led to the bankruptcy of the Blockbuster retail chain.3
Newspapers have been dramatically hurt by online alternatives. With an approximately 40
million paid daily circulation in the U.S. as of 2014 (down from nearly 60 million in 2000),
newspapers are finding it increasingly difficult to compete against Internet news and
advertising rivals. Many of America’s leading newspapers have gone bankrupt, while others
have downsized or become electronic only. Meanwhile, free daily or weekly newspapers and
shopping guides have enjoyed substantial growth.
Both newspapers and magazines are rapidly adopting new formats and new technologies with
the goal of making themselves highly relevant and readable for Internet users on PCs, and for
mobile users on smartphones, tablets, e-book readers and other digital devices. Some
consumer magazine industry executives in the U.S. expect at least 25% of their readership to
be on digital devices by 2015. Recorded music sales on CD continue to drop while sales of
digital music files gain market share. Traditional radio broadcasting is hurting, finding it
increasingly difficult to gather listeners for advertising-based radio programming due to such
2 http://businesstoday.intoday.in/story/digital-media-makes-inroads-in-india-kpmg/1/204233.html
3 Nilanjana Sensarkar (2010), How prepared is the Indian Entertainment industry to tackle the challenges
posted by Web 2.0?, JOURNAL OF INTELLECTUAL PROPERTY LAW AND PRACTICE, Vol.4, No.8, pp.592-599.

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alternatives as satellite radio (SiriusXM had over 25 million paid subscribers by the
beginning 2014), Internet-based radio and digital music players.
In the film industry, gross U.S. and Canadian box office receipts for 2012 were $10.8
billion. Meanwhile, film production companies are suffering from dwindling revenues from
DVD sales, as more viewers rent inexpensively from Netflix or Redbox instead of buying
films. Both emerging and mature economies outside the U.S. are of prime importance to film
revenues.4 For 2013, China’s box office receipts rose to $3.6 billion, up from $2.8 billion in
2012. Foreign films accounted for 41% of ticket sales, while films made in China made up
the remaining 59%, according to the State Administration of Radio Film and Television. 638
films were produced in China in 2013, compared to 745 in 2012. 5,077 new screens were
added, bringing China’s total to almost 18,200. There are now thousands of 3-D capable
screens in theatres around the world. Some moviegoers are willing to pay premium ticket
prices for 3-D films. However, receipts for 3-D have not met expectations. IMAX theatres
have also seen large growth in number in the past few years.5
New television sets are Internet-enabled, meaning viewers are able to connect directly to
entertainment options on the Internet. This brings up an important question: where will TV
viewers of the future get their programming? Cable and satellite subscriptions are
expensive. Broadcast TV is free, as is a lot of Internet-based programming, although online
content is likely to become supported by subscription to a growing extent. At the same time,
online delivery of rented movies is now mainstream, led by technology at Netflix and
Amazon. Consumers have been dropping their paid TV subscriptions in large numbers,
opting to watch free or low-cost programming on sites such as Hulu.com while dramatically
impacting revenues at cable and satellite TV companies.6
The burning issue affecting all sectors of the entertainment and media industry is maintaining
control of content and audiences while taking advantage of myriad new electronic delivery
venues. Competition in the entertainment sector is fierce. Gone are the days when television
and radio programmers enjoyed captive audiences who happily sat through ad after ad, or
planned their schedules around a favourite show. Consumers now demand more and more
control over what they watch, read and listen to.
4 NASREEN TEHER & SWAPNA GOPALAN,GLOBAL FILM INDUSTRY : AN INTRODUCTION, ICFAI University Press
(2007)
5 Supra note 1, http://www.plunkettresearch.com/entertainment-media-publishing-market-research/industry-and-
business-data/statistics (last visited 20th September, 2014)
6 Id.

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ISSUES RELATED TO CONTROL OF MEDIA, ENTERTAINMENT AND NEWS
CONTENT
Several issues arise when content of a particular news item or related pieces of information
are to be disseminated to the audience. Some of them have been identified below:
1) Pricing for content, including free-of-charge access versus paid; illegal downloads
versus authorized downloads; and full ownership of a paid download versus pay-per-
view.
2) Portability, including the ability for a consumer to download once and then use a file
on multiple platforms and devices, including tablets and smartphones, or the ability to
share a download with friends.
3) Delayed viewing or listening, such as viewing TV programming at the consumer’s
convenience via TiVo and similar digital video recorders.7
Source: Plunkett Research, Ltd.
The competition among entertainment delivery platforms has intensified; all sectors face
daunting challenges from alternative delivery methods. For example, online radio firm
Pandora is disrupting the traditional radio industry. Another example: telecommunications
companies such as AT&T and Verizon are now delivering television programming to the
home via ultra-high speed internet connections, battling cable and satellite TV firms for
market share.
Today, electronic offerings such as advanced smartphones, digital video recorders (DVRs),
video-on-demand (VOD) and digital music players have vastly altered the way consumers
enjoy entertainment. People watch and listen according to their own desires and whims. Miss
the finale to a favourite television show? Watch it online later, or plan in advance to record it
to watch later. Interested in only one track from a music artist's new album? Buy and
download just the one song via Apple’s iTunes. Love a prime-time drama on a major network
but hate commercials? Skip over the commercials with a DVR.8
The implications of these changes are staggering. The business models upon which most
entertainment companies have traditionally run are becoming obsolete. Revenue from
7 Supra note 1, http://www.plunkettresearch.com/entertainment-media-publishing-market-research/industry-and-
business-data/statistics (last visited 20th September, 2014)
8 Id.

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traditional advertising is in jeopardy while revenue from subscription-based business models
is soaring. Online advertising is growing at supersonic speed. Television programming
schedules are losing relevance while electronic program guides are becoming more and more
vital. Printed books are slipping in market share while e-books are soaring. The giant, U.S.
book store chain Borders closed its doors in 2011. Traditional media are losing share while
newer digital media are becoming the norm. Entertainment and publishing companies are
being forced to evolve in order to deal with new technologies and new demands from
consumers.
Rapid changes in viewing habits are occurring. Network TV news, radio news and
newspapers all find that they have to compete fiercely against Internet-based options. A large
portion of sports programming has migrated away from “free” broadcasts on TV and onto
paid cable channels and pay-per-view systems, and many of the most popular TV shows are
found on cable only.9
Meanwhile, platforms and delivery methods are evolving quickly. Smartphones are now used
more and more for entertainment purposes, including games, videos and TV-like
programming. Game machines are going multipurpose with the ability to connect to the
Internet. Broadband to the home has matured into a true mass-market medium, while wireless
broadband systems such as Wi-Fi are enhancing the mobility of entertainment and media
access. A serious evolution of access and delivery methods will continue at a rapid-fire pace,
and media companies will be forced to be more nimble than ever. Mobile TV is taking a large
step forward thanks to new technologies and platforms that provide programming to cell
phones, laptops and other mobile devices. Hundreds of local broadcasters in the U.S. have
joined in such an effort, called the Open Mobile Video Coalition.
Advanced technology is elevating entertainment to new heights. Electronic game machines
feature incredibly advanced chips, algorithms and motion detectors. Another excellent
example of the technology revolution at work in entertainment is today’s level of special
effects in movies. The rapidly growing variety of mobile entertainment, games and media
“apps” available for smartphones and tablets is further revolutionizing the industry in a very
dramatic way.
9 DEBSHIKA DUTTA,SILVER SCREAN AT THE DOORSTEP OF LEGAL BOX OFFICE, Indian Law Journal, Vol.2, No.3,
pp.45-49 (2009)

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Recommendation software that learns the habits and tastes of consumers have evolved to do a
better job of pushing appropriate entertainment choices toward audiences. Amazon.com has
long been a leader in the use of such software. Netflix has created an admirable package of its
own. Likewise, Apple’s iTunes software is strong on recommending content to
customers. Some interesting mergers might be driven by the potential to use extremely
powerful recommendation software to attract and better serve consumers across multiple
types of entertainment media.
Count on continued, lightning-fast changes. As the revolution in new media continues,
platforms will evolve quickly, consumers will obtain even greater control and competition
will become even hotter. Meanwhile, the global audience is growing quickly, thanks to
emerging middle classes in developing nations as well as the booming spread of cell phones
and Internet access.

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BRIEF INTRODUCTION TO INDIA’S MEDIA AND ENTERTAINMENT
INDUSTRY
The Indian media and entertainment (M&E) industry is full of potential and has a tremendous
impact on the country’s economy. As per a FICCI–KPMG report,10 India’s M&E industry
reaches 161 million TV households; 94,067 newspapers; about 2000 multiplexes; and 214
million internet users, of which 130 million access the Internet on their mobile phones.
The industry grows with each passing day and plays a significant role in creating awareness
on many issues that impact the masses. India’s population is over 1.2 billion. These numbers
give the M&E industry in India a tremendous opportunity for growth. A few years ago, the
idea of reaching and engaging the county’s population seemed improbable. That scenario has
completely changed today and the current industry is armed with digital technologies,
modern mobile devices, penetration of broadband internet and digital cinema, and
considerable backing from the Central Government.11
Market Size
India’s M&E industry registered a growth of 12 per cent in 2013 and touched Rs 91,800 crore
(US$ 15.27 billion). The industry has the potential to grow at 14.2 per cent to more than Rs
1.78 trillion (US$ 29.61 billion) in the next four years, as per a report by FICCI–KPMG.
10 Media Reports, Press Releases, FICCI–KPMG report, Press Information Bureau, available at
http://www.ibef.org/industry/media-entertainment-india.aspx (last visited 26th September, 2014)
11 NASREEN TEHER & SWAPNA GOPALAN, INDIAN FILM INDUSTRY : AN OVERVIEW, ICFAI University Press
(2007)

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The television industry in India, which was estimated at Rs 41,720 crore (US$ 6.94 billion) in
2013, is projected to increase at a compound annual growth rate (CAGR) of 16.2 per cent
over 2013–18, to reach Rs 88,500 crore (US$ 14.72 billion) by 2018.
With an estimated market size of US$ 5 billion, India is the 14th biggest advertising market
globally, as per the latest edition of the Gunn Report. Digital advertising is also expected to
witness a CAGR of 27.7 per cent by 2018.
Investments
The foreign direct investment (FDI) inflows in information and broadcasting (I&B) sector
(including print media) during April 2000 to March 2014 stood at US$ 3,712.72 million, as
per the data released by Department of Industrial Policy and Promotion (DIPP).12
The following are some of the major investments and developments in the M&E sector13:
Infosys has entered into collaboration with telecom company Orange to offer Internet TV to
its customers. In a statement, the company said that it will create a portfolio of interactive TV
apps on the Orange Livebox Play. The apps will be powered by Infosys DigitizeEdge, an
integrated digital content monetisation platform. Also, Infosys will use this cloud-based
platform to facilitate Orange to provide a range of lifestyle-centric video and contextual over-
the-top (OTT) services through its TV apps to improve viewer experience.
Vodafone India has entered into collaboration with Disney India’s Interactive business to
bring about games and applications for both smart and feature phones. “Our association with
Vodafone is a step forward in our strategic relationship with them and creates an additional
12 Supra note 10, Media Reports, Press Releases, FICCI–KPMG report, Press Information Bureau, available at
http://www.ibef.org/industry/media-entertainment-india.aspx (last visited 26th September, 2014)
13 http://www.ibef.org/industry/entertainment-presentation (last visited 23rd September, 2014)
Size of major entertainment industry segments
The television segment is expectedtogrowto 51per cent by 2017

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destination for exciting games and apps for their users,” as per Mr Sameer Ganapathy, Vice
President and Head, Interactive, Disney India.
Zee Entertainment Enterprises Ltd will soon launch Zindagi, an entertainment channel
featuring syndicated content from Pakistan. While the first set of content will be sourced
from Pakistan, the company is also actively sourcing content from various geographies such
as Turkey, Latin America, and Egypt, as per Mr Punit Goenka, MD and CEO, Zee
Entertainment Enterprises Ltd.
San Francisco-based digital music services company Rdio signed an agreement to acquire
Pune-based music streaming service, Dhingana, in March 2014. “India is a tremendously
vibrant market for music and culture and one of the largest and most important in the world,"
as per Mr Anthony Bay, CEO, Rdio.14
Guardian Corporation will establish a Dinosaur Park, which will be among India’s largest
indoor theme parks with more than 23 attractions. “It’s been over two decades since India
became a part of the global economy, but we still lack good entertainment destinations. We
want to contribute in filling this gap by offering the design and development services for
amusement parks, theme parks and museums,” said Mr Manish Sabade, Chairman, Guardian
Corporation.
Government Initiatives
The Cabinet Committee on Economic Affairs (CCEA) has given the go-ahead for the
proposal of the Ministry of I&B with regard to the 12th Five-Year Plan scheme of All India
Radio (AIR) and Doordarshan ‘Broadcasting Infrastructure and Network Development’ at a
14 http://www.ibef.org/industry/entertainment-presentation (last visited 23rd September, 2014)
Advertising revenue share
Print is thelargest contributor, accounting for 46 per cent
of the advertising share

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cost of Rs 3,500 crore (US$ 582.34 million). The two primary components of the proposal
are the continuing schemes of the 11th Five-Year Plan and new schemes of the 12th Five-
Year Plan. As part of the 11th Plan scheme, the capacity of Doordarshan's Direct to Home
(DTH) is being increased to 97 channels from 59 channels. During the 12th Five-Year Plan,
the capacity is expected to further increase to 250 channels.
The Indian and Canadian governments signed an audio-visual co-production deal in February
2014. The deal would help producers from both India and Canada to harness their artistic,
technical, creative, financial and marketing resources for co-productions and, subsequently,
lead to exchange of culture and art among the two countries.
Further, the Centre has given the nod for licences to 45 new news and entertainment channels
in the country. Among those who have secured the licenses include established names such as
Sony, Star, Viacom and Zee. Currently, there are 350 broadcasters which cater to 780
channels. “We want more competition and we wanted to open it up for the public. So far, we
have approved the licences of 45 new channels. It’s a mix of both news and non-news
channels,” as per Mr Bimal Julka, Secretary, Ministry of I&B, Government of India.
Road Ahead
India’s M&E industry will continue to bank on the digital area in future. With a growing
internet user base of over 200 million, the industry’s potential to generate revenue is vast. In
2013, telecom companies started focusing on data as a way to generating revenue. Also,
advertising agencies competed with each other to acquire in the social media and digital
domains. These developments suggest a bright future for the M&E industry in the country.
It is also time for the M&E sector to start looking at opportunities outside India. Africa and
the Middle East are two of the fastest growing M&E markets, and Indian M&E companies
would do well to explore these regions.
Growth Figures
The media and entertainment (M&E) industry logged a healthy 12% growth to Rs 92,800
crore in 2013, largely driven by digitisation, according to the Ficci-KPMG report.15
The report will be formally released at the 15th edition of the industry jamboree Ficci Frames
next week. The three-day international industry event will begin next Wednesday with the
15 Ficci-KPMG Report of March 4th, 2014, available at http://www.kpmg.com/IN/en/Press%20Release/FICCI-
KPMG-Press-Release.pdf (last visited 24th September, 2014)

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theme 'Media and Entertainment: Transforming Lives,' with Australia as the partner
country. The jamboree is expected to be attended by a host of media, film and entertainment
personalities and industry leaders from the country and abroad besides telecom regulator
Rahul Khullar, information & broadcasting secretary Bimal Julka and other senior
government officials.16
However, the report did not offer any growth projection for the current year. The advertising
revenues of mass media like television and newspapers were hit mainly on account of
economic slowdown and depreciation in the rupee, affecting the fortunes of print, cable and
DTH companies. The Print sector grew at a CAGR of 8.5% in 2013 to reach Rs 24,300
crore, the report found.
However, this was countered by the impact of continued digitisation of media products and
services, and growth in the regional media domain. "2013 has been an extraordinary year for
the media and entertainment sector -- a year of challenges and significant change which saw
the industry dealing with a host of issues," Chairman of FICCI M&E committee Uday
Shankar said.
Television saw the implementation of the 10+2 advertising cap and significant progress in
seeding of set top boxes, which set the stage of revenue growth and expansion in genres, he
said. The film sector continued to mature on the back of multiplex expansion and a wide
variety of content, while the radio and print continue to defy global trends and await positive
regulatory intervention that will take these sectors to greater heights, added Uday Shankar.
Digitisation of cable saw progress of television industry moving in the right direction, with
the mandatory Digital Access System (DAS) roll-out almost complete in Phase II cities.
Consequently, carriage fees saw an overall reduction of 15-20%, the study pointed out.
However, the anticipated increase in ARPUs and subscription revenues for broadcasters and
MSOs (Multi System Operators) is expected to be realised only over the next 2 to 3 years, it
said.
Other key highlights in 2013 were the inclusion of LC1 (less than class I) markets in TV
ratings, the 12 minute advertising cap ruling and the shift from TRP to TVT ratings. The
study also found that growth of multiplexes is expected to slow down in the near future, in
16 http://www.dnaindia.com/money/report-indian-media-and-entertainment-industry-grew-by-12-to-touch-rs-
920-billion-in-2013-ficci-kpmg-report-1966818

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line with the overall delays and slow pace of retail sector and commercial real estate
development, impacting box office growth in the short term.
Approximately 90-95% movie screens are now digitised in the country, with a shift in focus
to Tier II and III cities.17
The film industry recorded a double digit growth in 2013 albeit slower than in 2012the
previous year, with multiple movies scoring big on box office collections. The total Internet
user base in India reached around 214 million in 2013 with almost 130 million going online
using mobile devices. Mobile Internet users dominated the total internet user base capturing
an overall share of 61%.
Digital media advertising in India grew faster than any other advertising category. Streaming
and download services continued to see growth in the music industry, with the growth in
mobiles, in particular smartphones, contributing significantly to increased consumption of
music 'on-the-go'.
However, with the continued decline in physical sales, compounded by the significant fall in
ringback tone revenues (following the backlash of TRAI guidelines issues in 2012), the sector
saw an overall fall in size by 10% in 2013.
Media & Entertainment industry's contribution to the economic growth of the country
The Indian motion picture and television industry is one of the largest and fastest growing
sectors, contributing USD 8.1 billion (c. INR 50,000 Cr.) to the country’s economy, equating
to 0.5% of GDP, in 2013, according to a new report launched on March 12. The sector also
supports a significant 1.8 million (18.8 lac) jobs.
The ‘Economic Contribution of the Indian Motion Picture and Television Industry’, by
leading financial services firm, Deloitte, was launched during a panel discussion at FICCI
FRAMES, 2014, being held at the Renaissance Mumbai Convention Centre.18
It was presented to an audience of leading film and TV industry representatives and media by
the Motion Picture Dist. Association (MPDA), India, in partnership with the Federation of
Indian Chambers of Commerce and Industry (FICCI) and local screen associations: The Film
and Television Producers Guild Of India (FTPGI) and the Film Federation of India (FFI).
17http://articles.economictimes.indiatimes.com/2014-02-12/news/47270072_1_ad-revenue-india-ratings-
digitisation
18 http://www.indiatimes.com/news/more-from-india/ficci-frames-2014-indian-media-industry-contributes-05-
of-gdp-134203-2.html

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The report assessed the economic contribution of the wide range of sectors that make up the
industry value chain, including film production and distribution, film exhibition, non-
theatrical, TV production, TV broadcasting and TV distribution and the fast-growing new
media
Speaking at the panel discussion ‘Talking Numbers: Hard Facts about the Indian M&E’s
Economic Contribution’, Siddharth Roy Kapur, Managing Director – Disney India, said,
"The year 2013 has been an interesting one for the Media & Entertainment industry. For
Filmed Entertainment it has been another year of strong growth for the theatrical business,
which still accounts for the lion's share of overall revenue. For Television it has been a "wait
and watch" year, driven by changes in the regulatory environment, a new ratings system on
the anvil, an overall slowdown in advertising growth and finally, a mixed report card on
digitization with lower than expected growth in DTH subscribers balanced by positive signs
on carriage fee reductions.”19
Sanjay Gupta, COO, Star India, said, “The media & entertainment sector in India has
significant headroom for growth – unshackled, it can contribute as much as 0.5% to India’s
annual GDP". Speaking on the current need of the industry, Sudhanshu Vats, Group CEO,
Viacom 18 Media Pvt. Ltd., said, “There is need to build capacity across people, funding,
technology and infrastructure. We need to add more than 2.5 million to the workforce over
the next eight years. New funding models are needed to diversify risks for investors as well
as to put together larger budget productions in line with global standards. Fragmentation of
media consumption across platforms and devices along with individualization of consumer
preferences demands for a structured approach towards investments in new and innovative
technology solutions. Finally, an enabling infrastructure, including exhibition, internet access
and broadband, theme parks, events and transponder availability, is crucial to be able to
service the demand of the sector.”
Mukesh Bhatt, President, FTPGI, said, “In 2013, domestic box office collections accounted
for 75% of total industry revenues. The demand for our movies on TV has boosted cable and
satellite rights and online/digital aggregation revenues, which are expected to grow at a
CAGR of 15% over the period FY 2013 through FY 2017. This is an important report that
recognizes the contribution of our thriving film & TV industry to the Indian economy, which
19 Panel discussion at FICCI FRAMES, 2014, available at http://www.indiatimes.com/news/more-from-
india/ficci-frames-2014-indian-media-industry-contributes-05-of-gdp-134203-2.html

17. 17 | P a g e
was estimated at US$ 8.1 bn for FY 2013. Creating a business environment with a unified tax
structure will help infuse growth in this sector which is currently affected by an array of taxes
levied at every stage of film production, distribution and exhibition.”
Ravi Kottarakara, President, FFI, said, “India is the largest producer of films in the world,
with 1602 films released in 2012, however up to 90% of those films do not release in
cinemas, due to the inadequate number of screens in the country. The Indian film and TV
industry supports 1.8 million jobs which include talented artists, technicians, directors and
daily wageworkers whose livelihoods depend on the profitability of this industry, however
piracy continues to create a negative impact on the profitably of our industry. This report is a
timely reminder that while the Indian motion picture and television industry accounts for
0.5% of the GDP of India, the Government needs to address key industry growth drivers and
challenges which include infrastructure development, facilitating faster clearances for foreign
and Indian film productions and building a robust regulatory environment to deter piracy.”20
Dr. Didar Singh, Secretary General, FICCI, said, "The Indian media and entertainment sector
is a vibrant ecosystem; we produce the largest number of films and our motion picture and
television industry is one of the largest and fastest growing sectors, contributing almost USD
8.1 billion tothe economy, which translated to 0.5% of the GDP in 2013. The sector employs
a large workforce and is responsible for training this human capital in its various subsectors.
The full potential of this multi-faceted industry does not get realized, as we have thus far
lacked the numbers to back the sector's growth in terms of its actual contribution. This report
and the very stimulating discussion at FRAMES 2014 will be tools for the stakeholder
community and the regulators to understand the breadth of the sector's possibilities and plan
for future.21
Frank Rittman, SVP, Deputy Managing Director and Regional Policy Officer, Motion Picture
Association, Asia Pacific, said, “This economic contribution report is a useful marker for the
film and television industry to evaluate its success and growth across a wide range of
business areas. There’s no doubt that the sector is fueled by talent, innovation and unrivaled
entrepreneurship, and supports millions of people with quality, rewarding careers and jobs.
The industry has come together in recent years to identify and find solutions to the key
challenges that have prevented the industry from achieving its full potential. These include
20 http://www.kpmg.com/IN/en/Press%20Release/FICCI-KPMG-Press-Release.pdf
21 Id.

18. 18 | P a g e
rampant piracy, a burdensome taxation regime and an overly bureaucratic system for getting
productions made and distributed. Government has a key leadership role to play shaping the
future of the film and television industry, particularly in regard to providing robust copyright
legislation and support for the Single Window Clearance initiative supported by the local
screen community. We are privileged to be part of the screen community in India joining
FICCI, FTPGI and FFI in sharing the same mission of building a vibrant industry, a dynamic
online legitimate marketplace and addressing content piracy which will ultimately enhance
the growth and progress of the people in the Indian creative community."
Key Findings of the Deloitte Economic Contribution of the Indian Motion Picture and
Television:
 Film and TV contribute c. USD 8.1 billion (c. INR 50,000 Cr.) to the country’s
economy, equating to 0.5% of GDP.
 Total gross output of c. USD 18.5 billion, (c. INR 115,000 Cr.).
 Supports 1.8 million (18.8 lac) jobs.
Self-regulation best option for TV ratings: I&B Ministry
The government has recently notified TRP guidelines that cover a detailed procedure for
registration of rating agencies, eligibility norms, terms and conditions of registration, cross
holdings, methodology for audience measurement, complaint redressal mechanisms, sale and
use of the audit, disclosure, reporting requirements and action against non-compliance. This
was disclosed by Mr Bimal Julka, Secretary, Ministry of Information and Broadcasting,
Government of India, at the opening of the 15th FICCI FRAMES Conference.22
FRAMES is a three day global convention organised by Federation of Indian Chambers of
Commerce and Industry (FICCI). It covers the entire gamut of media and entertainment like
films, broadcast, digital entertainment, animation, gaming, and visual effects. About 200
Indian and overseas speakers will address nearly 2000 Indian and 800 foreign delegates from
the media and entertainment industry. This year marks the 15th anniversary of FICCI
FRAMES and assumes importance since it comes just before the general elections.
22 Supra note 19, Panel discussion at FICCI FRAMES, 2014, available at
http://www.indiatimes.com/news/more-from-india/ficci-frames-2014-indian-media-industry-contributes-05-of-
gdp-134203-2.html

19. 19 | P a g e
In his opening remarks, Mr Uday Shankar, Chairman, FICCI Media and Entertainment
Committee and CEO, Star India, complimented the FICCI team for putting up such a
spectacular show. He expressed happiness that the media had recorded a growth of 12 percent
last year, amidst an environment of gloom and doom. That is a testimony to the tenacity of
the media, he said.
Mr Shankar also described media and entertainment as key to the inspiration of one billion
Indians, and hence felt that an event like this was extremely important, especially since it
took place at a time leading to the elections. The industry had run through its course of
exploiting the first set of economic reforms in 1991. It now faces a complex set of economic
and social choices, including the role of the government and private sector. He was of the
view that no relationship is more important than that between the government and the media,
since they are conditioned to be adversarial. Hence these weeks before the elections call for a
rethink of their respective roles.
“We are of the firm view that self-regulation by the industry is the best option as far as TV
ratings are concerned,” said Mr Bimal Julka. Delivering the vision statement at the inaugural
session, he announced that the Indian Broadcasting Foundation had set up a Broadcast
Audience Research Council (BARC)) High Table and was going ahead with appointing a
rating agency. He urged BARC to speed up the process so that ratings may be generated
without delay. He described the issue of TRPs as critical for the broadcasting sector and said
it had been under discussion for the last few months.23
Regarding FM radio, Mr Julka said that the ministry’s policies had ensured vibrant growth in
the sector, with 245 FM channels launched in 86 cities since 2005. The third phase of FM
auction for 839 channels is currently underway. He also discussed the challenges facing the
sector, including complete digitisation throughout the country, rationalisation of taxes,
control of vertical monopoly and cross holdings and content monitoring. Mr Julka also
announced that the National Museum of Indian Cinema in Mumbai is ready for inauguration
and the first phase will be dedicated to the nation very shortly.
Mr Ajit Pai, Commissioner, FCC, USA, was the guest of honour at the event. He began on a
personal note, describing how his parents migrated to the US in 1971 and taught him the
value of hard work and sacrifice. As a child growing up in the US, he found it difficult to
23 Supra note 20, http://www.kpmg.com/IN/en/Press%20Release/FICCI-KPMG-Press-Release.pdf

20. 20 | P a g e
communicate with his grandparents back home because there were no phones, no email and
no YouTube. Today’s world is unrecognisable from those days, he observed. Thanks to
technology, families that are separated geographically feel a lot closer today than they did in
the ‘70s.
Mr Pai was clearly of the view that regulators must not impose their preferences on others. It
was the role of the marketplace to sort success from failure. Describing the phenomenal
progress made by the entertainment and media industry in America, he said that this progress
happened not by government fiats, but because the private sector took risks to innovate,
spending over one trillion dollars on upgrading and deploying core broadcast infrastructure.
The US Government created the regulatory framework for the industry to take these risks.
That is the story behind their success.
Key Emerging Trends in India’s M&E Industry24
a) Growing importance of the regional markets. Taking cognizance of the potential of
regional markets many national and foreign media companies have are today
developing content for the regional audience.
b) Increasing media penetration.
c) Growing per capita consumption.
d) Change in media consumption patterns with visible shift towards new media.
e) Prominent growth of digitization. Film studios saw greater adoption of digital prints
over physical and it was the first time in India that digital music sales surpassed those
of physical units.
f) Growing diversity of distribution platforms such as digital, non-digital and mobile.
g) New technologies such as 3G provide better customer experience and also enhance
opportunities for companies to monetize content.
h) Major Hollywood studios like Viacom, NBC, Universal, Dream Works, besides
Warner Bros., Sony and Disney have already made sizeable investments in India’s
entertainment sector while Warner Bros., for example, recently called off a deal it
had signed with a Chinese production firm.
i) Social media has gained significant popularity as a marketing and gaming platform.
Social media offers advertisers and content owners the ability to directly connect
with their consumers/audiences. Businesses are now beginning to understand the
24 http://www.crisil.com/research/industry-toc-media-and-entertainment.html

21. 21 | P a g e
power of this tool and integrating it into their core marketing plan to reach out to
their target audience.'
j) Higher proportion of Indian movies are released globally. Growing number of cross
over films are released with an appreciable success rate. Film makers engage actors
from other countries to provide an international feel for their movies. Recent
instances are Rachel Shelley in Lagaan, Giselli Monteiro in Love kaj Kal, Barbari
Mori in Kites and Chris Patten in Rang De Basanti.
k) Indian movies are increasingly becoming popular in foreign markets. Film makers
are today targeting a much wider audience with their offerings. The increasing
number of Indian diaspora, growing popularity of Indian culture and the Indian way
of life among foreigners has contributed to the better acceptance of Indian movies in
foreign markets. While movies in the Hindi language have a global audience, the
recently released Tamil movie, ‘Robot’ was also released on a global scale and found
many takers.
l) Due to media clutter and the consequent fragmentation of media audiences, the
media and entertainment industry is opting for the niche format. Considering the high
TRP ratings of entertainment news, a new channel, E-24 has been launched
exclusively catering to Bollywood news, there is NDTV Good Times and Zoom for
life style related content, Meow from Radio Today which the first radio channel
exclusively devoted to women and the recent announcement of television channels
exclusively devoted for food and beverages is a pointer to this trend.
m) There is growing concern among the entertainment industries worldwide regarding
the role of online service providers in safeguarding their copyright materials in the
user uploaded content world.

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CREDIT RATING AND METHODOLOGY
A credit rating is an evaluation of the credit worthiness of a debtor, especially
a business (company) or a government, but not individual consumers. The evaluation is made
by a credit rating agency of the debtor's ability to pay back the debt and the likelihood
of default.25 Evaluations of individuals' credit worthiness are known as credit reporting and
done by credit bureaus, or consumer credit reporting agencies, which issue credit scores.
Credit ratings are determined by credit ratings agencies. The credit rating represents the credit
rating agency's evaluation of qualitative and quantitative information for a company or
government; including non-public information obtained by the credit rating agencies'
analysts. Credit ratings are not based on mathematical formulas. Instead, credit rating
agencies use their judgment and experience in determining what public and private
information should be considered in giving a rating to a particular company or
government. The credit rating is used by individuals and entities that purchase the bonds
issued by companies and governments to determine the likelihood that the government will
pay its bond obligations.26
A poor credit rating indicates a credit rating agency's27 opinion that the company or
government has a high risk of defaulting, based on the agency's analysis of the entity's history
and analysis of long term economic prospects.
opinion about the ability and willingness of an issuer, such as a corporation or state or city
government, to meet its financial obligations in full and on time.
Credit ratings can also speak to the credit quality of an individual debt issue, such as a
corporate note, a municipal bond or a mortgage-backed security, and the relative likelihood
that the issue may default. Ratings are provided by organizations such as Standard & Poor’s,
commonly called credit rating agencies, which specialize in evaluating credit risk.
Each agency applies its own methodology in measuring creditworthiness and uses a specific
rating scale to publish its ratings opinions. Typically, ratings are expressed as letter grades
that range, for example, from ‘AAA’ to ‘D’ to communicate the agency’s opinion of relative
level of credit risk. The following is the rating scale of CRISIL:
25 Kronwald, Christian (2009). Credit Rating and the Impact on Capital Structure. Norderstedt, Germany:
DRUCK UND BINGDUNG. p. 3.
26 "DBRS: Short-Term and Long-Term Rating Relationships"
27 "Credit Rating Agencies—NRSROs". U.S. Securities and Exchange Commission. 25 September 2008.

23. 23 | P a g e
CRISIL’s Rating scale for Long-Term Instruments28
CRISIL AAA
(Highest Safety)
Instruments with this rating are considered to have the highest degree
of safety regarding timely servicing of financial obligations. Such
instruments carry lowest credit risk.
CRISIL AA
(High Safety)
Instruments with this rating are considered to have high degree of
safety regarding timely servicing of financial obligations. Such
instruments carry very low credit risk.
CRISIL A
(Adequate Safety)
Instruments with this rating are considered to have adequate degree
of safety regarding timely servicing of financial obligations. Such
instruments carry low credit risk.
CRISIL BBB
(Moderate Safety)
Instruments with this rating are considered to have moderate degree
of safety regarding timely servicing of financial obligations. Such
instruments carry moderate credit risk.
CRISIL BB
(Moderate Risk)
Instruments with this rating are considered to have moderate risk of
default regarding timely servicing of financial obligations.
CRISIL B
(High Risk)
Instruments with this rating are considered to have high risk of
default regarding timely servicing of financial obligations.
CRISIL C
(Very High Risk)
Instruments with this rating are considered to have very high risk of
default regarding timely servicing of financial obligations.
CRISIL D
Default
Instruments with this rating are in default or are expected to be in
default soon
28 http://www.crisil.com/ratings/credit-rating-scale.html

24. 24 | P a g e
Moody's S&P Fitch Rating Description
Long-
term
Short-
term
Long-
term
Short-term Long-
term
Short-
term
Aaa P-1 AAA A-1+ AAA F1+ Prime
Aa1 AA+ AA+ High grade
Aa2 AA AA
Aa3 AA- AA-
A1 A+ A-1 A+ F1 Upper medium grade
A2 A A
A3 P-2 A- A-2 A- F2
Baa1 BBB+ BBB+ Lower medium grade
Baa2 P-3 BBB A-3 BBB F3
Baa3 BBB- BBB-
Ba1 Not
prime
BB+ B BB+ B Non-investment grade
speculative
Ba2 BB BB
Ba3 BB- BB-
B1 B+ B+ Highly speculative
B2 B B
B3 B- B-
Caa1 CCC+ C CCC C Substantial risks
Caa2 CCC Extremely speculative
Caa3 CCC- Default imminent

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Ca CC with little
prospect for recovery
C
C D / DDD / In default
/ DD
/

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KEY CONSIDERATIONS IN EVALUATING A COMPANY’S BUSINESS RISK
PROFILE
A fundamental component of DBRS analysis29 is the consideration of macro business factors
that apply to most, if not all, industries within the corporate sector. The general business risk
profile is largely a qualitative assessment of the environment a company is affected by and
operates in. An assessment of the general business risk profile serves as a backdrop for the
analysis of the company’s financial risk profile as well as other qualitative and quantitative
factors that are particularly unique to the company. Differing business risk profiles impact the
assessment of a company’s financial risk profile, and thus, it is important to understand the
extraneous influences and business factors a company is or could be affected by despite its
financial strength.
The following considerations, while not intended to be an exhaustive list, indicate the key
areas DBRS considers in evaluating a company’s business risk profile30:
Economic Environment
The importance of the industry within the overall economy, in terms of either how it impacts
or is impacted by the economy and shapes a company’s viability. Also of importance is how
the industry is influenced by current economic factors such as inflation or deflation, supply
and demand, interest rates, currency swings and demographics.
Legislative and Regulatory Environment
Whether an industry is regulated or not is key, as the degree of regulation and legislative
oversight can severely restrict or assist a company depending on its stage of growth, industry
influence and regulatory relations. A regulated industry imposes a certain rigour and
governance. It is also important to understand the frequency of change or stability in industry
rules and whether regulations may require companies to make costly modifications to their
infrastructure.
Competitive Environment
The nature of the market structure (e.g., monopoly versus oligopoly) determines the extent of
competitiveness and the barriers to entry a company may face. Many industries are
29 http://www.dbrs.com/research/215940/rating-media-and-entertainment-archived.pdf
30 Id.

27. 27 | P a g e
undergoing significant structural changes such as consolidation or deconsolidation, excess
capacity or competitive threats from new capacity in “low-cost” countries such as China,
Brazil and Russia in both domestic and international markets. Even small changes in the
competitive environment can have a profound impact on a company.
Country Risk
Governments often intervene in their economies and occasionally make substantial changes
in policy regarding competition, ownership, wage and price controls, restrictions on foreign
currency, capital and imports/exports, among other things. Such policy changes can
significantly affect a company, and therefore, considerations include the company’s main
location or country of operation, the extent of government intervention and support, and the
degree of economic and political stability. The assessment of country risk is not limited to
direct government actions to interfere with the private sector, but also encompasses the full
range of financial and economic events that can spill across a country, causing widespread
defaults in otherwise healthy corporate credits. As such, country risk can have considerable
implications for corporate ratings. A country ceiling is assigned to corporate foreign currency
ratings based on the country’s susceptibility to systemic shocks and the private sector’s
ability to maintain its foreign currency debt payments when shocks occur.
Industry Cyclicality
Cyclicality is influenced by factors such as levels of consumer spending, consumer
confidence and the strength of the economy. The degree of cyclicality is influenced by the
market segment in which a company specializes. Non-cyclical industries are better able to
withstand dramatic economic changes, as are companies with more predictable cycles, than
those with significant peaks and troughs. It is important to examine a company’s strategies
and performance over the longer term and understand them in cyclical highs and lows.
Management
The capability and strength of management is a pivotal factor in company success. An
objective profile of management can be obtained by assessing the following: the
appropriateness of core strategies; rigour of key policies, processes and practices;
management’s reaction to problem situations; its appetite for growth, either organically by
adding new segments or through acquisition; its ability to smoothly integrate acquisitions

28. 28 | P a g e
without business disruption; and its track record in achieving financial results. Retention
strategies and succession planning for senior roles are also critical considerations.
Corporate Governance
Effective corporate governance requires a healthy tension between management, the board of
directors and the public. There is no one “right” approach for all companies. A good board
can have a profound impact on growing companies, those in fragile financial states or those
undergoing significant change. Beyond a review of management, assessment should focus on
the appropriateness of board composition and structure (including the independence and
expertise of the audit committee) to approve executive compensation and corporate strategy,
and to oversee execution and opportunities for management self-interest.
Other important areas include the extent of disclosure of financial and non-financial
information (including aggressiveness of accounting practices and control weaknesses), share
ownership (including director’s ownership) and shareholder rights.

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KEY CONSIDERATIONS IN EVALUATING A COMPANY’S FINANCIAL RISK
PROFILE
The financial risk profile is largely a quantitative assessment of the company’s financial
strength and an estimation of its future performance and financial profile.31 DBRS reviews
three key areas: earnings, cash flow, and additional measures for balance sheet and financial
flexibility. Within each area, DBRS focuses on key metrics and considerations which are
assessed over time, noting that the trend in the ratios is also important to the rating. However,
ratios alone cannot be used as an absolute test of financial strength.
With a focus on future expectations, the primary goal of financial risk assessment is to
understand the inter-relationship between the numbers, interpret what they mean, and
determine what they indicate about the company’s ability to service and repay debt on a
timely basis given the industry background.
The following financial considerations and ratios tend to be analyzed for the majority of
industries in the corporate sector. There may be additional quantitative factors and ratios that
are considered on an industry-specific basis which are noted under Section IV – Industry-
Specific Factors.
(A) Earnings
DBRS’s earnings analysis focuses on core or normalized earnings and in doing so considers
issues such as: the sources, mix and quality of revenue; the volatility or stability of revenue;
the underlying cost base (e.g., the company is a low-cost producer); optimal product pricing;
and potential growth opportunities.
Accordingly, earnings as presented in the financial statements are often adjusted for non-
recurring items or items not considered part of ongoing operations. DBRS generally reviews
company budgets and forecasts for future periods. Segmented breakdowns by division are
also typically part of DBRS’s analysis.
Typical earnings ratios include:
 Gross margin
 Return on common equity
31 Thomas L. McPhail, GLOBAL COMMUNICATION : THEORIES, STAKEHOLDERS AND TRENDS, Wiley-Blackwell,
UK (2010)

30. 30 | P a g e
 Return on capital
 EBIT margin and EBITDA margin
(B) Cash Flow/Coverage
DBRS’s cash flow analysis focuses on the core cash flow generating ability of the company
to service current debt obligations and other cash requirements, as well as the future direction
of cash flow. From a credit analysis perspective, insufficient cash sources can create financial
flexibility problems even though net income metrics may be favourable. DBRS evaluates the
sustainability and quality of a company’s core cash flow by focusing on cash fl ow from
operations and free cash flow before and after working capital changes. Using core or
normalized earnings as a base, DBRS adjusts cash flow from operations for as many non-
recurring items as possible. In terms of outlook, DBRS focuses on the projected direction of
free cash flow, the liquidity and coverage ratios, and the company’s ability to internally
versus externally fund debt reduction and future capital expenditure and dividend/stock
repurchase programs, as applicable.
Typical cash flow ratios include:
 EBIT interest coverage and EBITDA interest coverage
 EBIT fixed charges coverage
 Cash flow/total debt and cash flow/adjusted total debt
 Cash flow/capital expenditures
 Capital expenditures/depreciation
 Debt/EBITDA
 Dividend payout ratio
(C) Balance Sheet and Financial Flexibility Considerations
As part of determining the overall financial risk profile, DBRS evaluates various other factors
to measure the strength and quality of the company’s assets and its financial flexibility. From
a balance sheet perspective, DBRS focuses on the quality and composition of assets including
goodwill and other intangibles, off-balance sheet risk, and capital strength including the
quality of capital, appropriateness of leverage to asset quality, and the ability to raise new
capital. DBRS also reviews the company’s strategies for growth, for example, capital
expenditures, plans for maintenance or expansion, and the expected source for funding these
requirements. Where the numbers are considered significant and the adjustments would

31. 31 | P a g e
meaningfully impact the credit analysis, DBRS adjusts certain ratios for itemssuch as
operating leases, derivatives, securitizations, hybrid issues, off-balance sheet liabilities and
various other accounting issues.
Typical balance sheet ratios include:
 Current ratio
 Turnover – Receivables and inventory
 Asset coverage (times)
 Per cent total debt to capital and per cent adjusted total debt to capital
 Per cent adjusted net debt to capital
The following factors focus on the company’s liquidity:
 Maintaining sufficient bank-lines or cash balances
 Prudent use of cash balances for dividends or stock repurchases
 Terms and conditions of credit facilities including unique terms and/or financial
covenants
 Debt management approach including dependence on short-term versus long-term
debt, fixed versus variable rate debt, and debt maturity schedule
 Interest rate and/or foreign exchange exposure
 Relationship and strength or weakness of a parent holding company or associated
companies, if applicable

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KEY CONSIDERATIONS IN EVALUATING A COMPANY WITHIN THE MEDIA
AND ENTERTAINMENT INDUSTRY
Each industry within the corporate sector has unique features that cannot be broadly applied
across all industries. For example, capital spending is a key area in the utilities industry,
reserves are particular to the mining industry, adequate R&D is critical for the pharmaceutical
industry, and seasonality significantly impacts merchandisers. Against the backdrop of the
general business and financial risk profiles, a company’s unique strengths, weaknesses and
industry-specific concerns need to be factored into the credit analysis to form an appropriate
credit rating. These particular business and financial issues and measures also help to shape
the company’s rating relative to its peers.
The following considerations more specifically characterize media and entertainment
operators, and supplement the macro business and financial considerations, respectively, in
Sections II and III in DBRS methodology.
A. Predominant Factors
I) Size and Scale
Size and scale are assessed as they can play an important role in the ratings of media
companies. Generally, larger companies have the ability to offer national advertising
footprints and therefore have a considerably broader potential revenue base. Additionally,
size and scale afford a media company an advantage over smaller competitors with an ability
to negotiate more favourable pricing for content, which is also a predominant factor in the
ratings assessment. Size and scale for media companies are best measured by both total
revenue and relative market share.
II) Content/ Library
A principal component of a media company’s value proposition is its content, video, audio,
print and electronic formats. All of these are core determinants of the corporate value
proposition and are assessed as they play a material role in the business risk assessment. The
competitive position of a company’s content products and businesses is evaluated, as is its
primary role as either a distributor or generator of such content. In addition, high-quality
content that is in high demand and highly rated is positively correlated with revenue growth.
This is especially relevant as consumers have a broad range of media and entertainment

33. 33 | P a g e
sources to choose from and content is the single most important differentiator for a company
in this industry.
III) Regulation
Regulatory bodies in media and entertainment around the globe exert significant influence on
companies’ operations and strategies. As a result, regulation often has a major impact on
credit ratings within this segment. Regulators often govern the number- and the number of
different types- of media outlets that can be owned in a single market.
Content is often regulated as well. Such regulation can challenge a company’s ability to gain
further scale efficiencies, as, for example, restrictions on multiple media outlets in a single
market limit the scale any one company can achieve. The regulatory environment in which a
media or entertainment company operates is assessed and the positive or negative impact of
current and expected regulation is factored into the credit rating.
IV) Audience
Audience size and quality are the driving forces that determine a company’s ability to raise
advertising and subscription prices in television, radio, outdoor advertising, newspapers or
the Internet. The stability of a corporate issuer’s audience base is evaluated since media and
entertainment companies’ revenues largely consist of advertising and subscription revenue
which customers link directly to the quality of subscribers.
B. Other Factors
I) Name Recognition
Companies with highly recognized brand names generally have more stable revenue and
deeply entrenched market positions. Companies that are devoted to maintaining the integrity
and strength of their brand names often appreciate that this is a valuable source of future
revenue. This is largely a qualitative assessment but it focuses generally on a relative
comparison of competing companies.
II) Quality of Revenue
The proportion of a company’s total revenue that is derived from subscriptions relative to
what is generated from advertising is taken into consideration in the rating assessment. This
is evaluated on an individual credit basis and on a relative basis in comparison with the media
company’s primary competitors.

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Media and entertainment companies typically generate revenue in two ways: subscription and
advertising. Subscription revenue is received by companies at regular intervals (weekly,
monthly, annually, etc.), thus providing an element of stability and predictability to a
company’s revenue stream. As such, this generally has a positive influence on a company’s
credit profile. Conversely, advertising revenue is cyclical in nature and follows economic
cycles, making it inherently volatile in most cases. While companies’ credit profiles are
assessed through a full business cycle, a disproportionate emphasis on a volatile revenue
stream will factor negatively into the rating.
III) Intangibles
Impacts on intangibles are considered credit neutral events in the media and entertainment
sector. Intangible assets can, however, have substantial economic value and it must be
acknowledged that intangibles can be very sizeable relative to a company’s equity base.
Material write-downs to intangibles can affect a company’s credit profile and therefore each
case of intangible asset impairment is examined in full.
IV) Internet/ Online Strategy
The success with which a company has adapted to an online environment and the measures it
has taken to protect its traditional market share is duly evaluated. The Internet has become a
major force on the media and entertainment landscape, and the extent to which companies
have capitalized on opportunities afforded by this medium and incorporated them into their
growth initiatives is assessed as part of the ratings analysis.
V) New Technologies
Technology is an important part of the method companies in the media and entertainment
industry use to deliver content. An analysis determines whether new technology is disruptive
and the degree to which it can influence the company’s operating results, both positively and
negatively. An example of technology’s impact is the advent of the digital video recorder
(DVR), which enables viewers to record television programming and skipping
advertisements and commercials. The level of impact this may have on the advertising model
used by television and cable networks is considered. Conversely, positive aspects include
providing video and audio content through wireless handsets or other distribution
mechanisms. How effectively a company is leveraging its brands into other platforms and
revenue streams using advanced technology is yet another element to factor into the ratings
assessment.

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VI) Trends in Advertising
Advertising is a critical revenue source for traditional media companies such as radio and
television broadcasters, and newspaper publishers. This revenue source can come under
pressure from competing sources like other media outlets. Advertisers tend to quickly shift
their advertising budgets to the most efficient and effective media outlets, that is, outlets with
proven ability to reach target audiences. This can impact pricing power and revenue growth
of “traditional media” companies, and is something to which special attention must be paid in
any thorough ratings analysis.

36. 36 | P a g e
STANDARD & POOR’S MEDIA AND ENTERTAINMENT SECTOR OUTLOOK
Online Businesses – Stable Credit Outlook
 Online advertising may surpass TV as largest ad category by 2019
– Double-digit percent growth through 2013 and expected again in 2014
 Social media growing rapidly as advertisers chase eyeballs
 Traditional banner advertising growth softening; excess inventory pressuring pricing
 Mobile, doubling year-over-year; now about 23% of online activity

37. 37 | P a g e
− Likely a long-term driver, but very reliant on ad exchanges to move remnant
inventory
− A large gap between time spent and percentage of ad spend
− Inconsistent audience measurement remains an impediment
 Minimal near effect from Netflix and Comcast interconnectivity agreement
− Key credit consideration remains subscriber growth and content costs
Radio – Minimal Credit Upside
 We expect industry revenue will be flat to down slightly in 2014, and could continue
the decline longer term under structural pressure
 Time spent listening expected to decline as a result of continued growth in internet
radio
 Increasing competition from & opportunities related to dashboard Internet radio
 Radio faces continuing advertising fragmentation and difficulties in raising rates
 $15 billion radio broadcasting advertising being directly targeted by internet radio
broadcasters and is critical to them in the face of rising content costs.
Magazines – Weak Credit Outlook
 Print ad pages, the largest revenue source, are in structural decline.
 Print circulation, the second largest revenues source, is also in secular decline.
 Digital ad revenues are rapidly increasing, but account for less than 10% of ad
revenues due to weak mobile monetization and lower CPMs.
 Publishers have been successful in building traffic, but monetization has been
difficult.
 Magazines are establishing broadcast & cable TV extensions of their content to help
retain audience and advertising
 Tablets have been a mixed blessing
 Next Issue Media may be the best hope for the industry.

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Selected Media & Entertainment Ratings and Outlooks
Diversified Media Companies
Company CCR Outlook Ratings
Tendency
Comments
Time Warner
Inc.
BBB Stable Neutral Leverage threshold of 3.25x;
good results at cable networks &
filmed entertainment; publishing
spin-off
21st Century
Fox. Inc.
BBB+ Stable Negative Leverage threshold of 3.0x; good
results at cable networks,
broadcast network, and film
entertainment
Viacom Inc. BBB Stable Neutral Leverage threshold of 3.0x;
networks contribute all EBITDA
and cash flow

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Walt Disney Co. A Stable Neutral Leverage threshold of 2.0x
despite step up in share
repurchases; strong performance
at major business units
TV Broadcast Networks:
Company CCR Outlook Ratings
Tendency
Comments
CBS Corp. BBB Stable Stable Leverage threshold of 2.75x; ad
revenue still +50% pro forma for
Outdoor spin
Univision
communications
Inc.
B Stable Stable Extremely high lease-adjusted
debt to EBITDA of 11.7x, debt
maturities pushed to 2019 and
beyond
Cable Networks:
Company CCR Outlook Ratings
Tendency
Comments
AMC Networks
Inc.
BB Stable Neutral  Strong audience ratings at
AMC Network
 Rating constrained by lack of
publicly disclosed financial
policy
Discovery
Communications
Inc.
BBB Stable Neutral  Leverage threshold of 3.0x
 Strong international cable
and growing broadcast
television operations
Scripps Network
Interactive Inc.
A+ Stable Negative  Audience ratings down at key
cable networks
 Overhang from potential

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M&A for Food Network and
Travel Channel
 Leverage threshold of 1.5x
Ad Agencies:
Company CCR Outlook Ratings
Tendency
Comments
Interpublic
Group of cos.
Inc.
BB+ Stable Positive Leverage threshold of 2.75x; ad
revenue still +50% pro forma for
Outdoor spin
Univision
Communications
Inc.
B Stable Neutral Extremely high lease-adjusted
debt to EBITDA of 11.7x, debt
maturities pushed to 2019 and
beyond
Local TV Broadcasters:
Company CCR Outlook Ratings
Tendency
Comments
Nexstar
Broadcasting
Group Inc.
B+ Stable Neutral  Acquisitions improve
geographic & network
diversity
Sinclair
Broadcast Group
Inc.
BB- Stable Neutral  Aggressive acquirer of TV
station assets
 Aggressive financial policy
limits upward ratings
potential
Tribune Co. BB- Stable Negative  Focused on TV with
acquisition of Local TV and
spin of publishing assets
 Pro forma leverages increases
to about 4.5x

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Online Businesses:
Company CCR Outlook Ratings
Tendency
Comments
Expedia Inc. BBB- Stable Neutral  Solid competitive position
 Moderate financial policy
Google Inc. AA Stable Positive  Strong cash position
 Emerging competitive
challenges
Netflix Inc. BB- Stable Neutral  Escalating content acquisition
costs
 Investment in original
programming
Priceline.com BBB Positive Positive  Fastest growing large Online
Travel Agency (OTA)
 Very strong international
brand
Film Companies:
Company CCR Outlook Ratings
Tendency
Comments
Lions Gate
Entertainment
Corp.
B+ Stable Neutral  Improving leverage resulting
from success of film
franchises
Metro Goldwyn
Mayer Inc.
B+ Stable Neutral  Library cash flow and
franchises help reduce
volatility
Dreamworks
Animation SKG
Inc.
B Stable Negative  Small film slate increases
volatility even among film
studios
 Intermediate upside from
Netflix TV output deal

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Radio Broadcasters:
Company CCR Outlook Ratings
Tendency
Comments
CC Media
Holdings Inc.
(Clear Channel)
CCC+ Negative Neutral  Huge debt burden and
significant refinancing risk
Cumulus Media
Inc.
B Positive Positive  Expect company will use
discretionary cash flow to
repay debt. We could
upgrade if leverage less than
6x
Entercom
Communications
Corp.
B+ Stable Slightly Negative  Leverage has moderated to
5.3x on expense control and
debt repayment
Magazines:
Company CCR Outlook Ratings
Tendency
Comments
Wenner Media
LLC
B Stable Negative  Limited business diversity as
two titles account for all of
EBITDA.
 Good discretionary cash flow
and moderate leverage
offsetting volatile operating
performance
American Media
Inc.
CCC+ Negative Negative  Highly dependent on
declining newsstand sales.
 May need an amendment due
to narrowing margin of
compliance on revolving
credit facility covenant

43. 43 | P a g e
MOODY’S INVESTORS SERVICE: MOST INVESTMENT-GRADE RATINGS IN
MEDIA & ENTERTAINMENT RESILIENT IN A RECESSION32
Moody’s central macroeconomic forecast anticipated modest global economic growth in
2012 and 2013, with US economic growth remaining below its long-term trend and a
recession in the euro area.33
 A global economic downturn led by the US and Europe would put downward pressure
on the earnings of investment-grade media and entertainment companies, and this
could put credit profiles to the test. However, we believe the ratings of most global
media and entertainment companies would stand up relatively well. This report
assesses the relative vulnerability of investment-grade media and entertainment
issuers to a rating downgrade in a more severe environment in which global economic
growth is weaker, Europe as a whole experiences a recession lasting into 2013, and
the US and other regions in which rated issuers operate slip into recession.
 Financial flexibility and cyclical revenue exposure are the primary determining
factors in estimating relative rating vulnerability. It is illustrated in this report,
Moody’s views on relative rating vulnerability to a cyclical downturn by depicting
issuers’
i. financial flexibility within their current rating and
ii. exposure to cyclical revenue volatility.
A third factor is included to incorporate the view that a few selected issuers face
additional pressure from other factors such as secular revenue concerns or event risk.
Although these other issues are not specific to a recessionary environment, a recession
could increase secular revenue pressure for some issuers. They grouped companies
into four categories of relative downgrade risk based on a combination of the three
illustrative factors: vulnerable, exposed, moderately exposed, and limited exposure.
 No companies are in the vulnerable category, where there is the highest relative risk
of a rating downgrade in a recession. Ratings of six companies are relatively exposed
to a downgrade while 17 are moderately exposed and eight have limited exposure (see
Figure 1)
32 Moody’s Investors Service, “Global Media and Entertainment Industry: Most Investment-Grade Ratings
Would Be Resilient in a Recession, Special Comment (16 Aug 2012)
33 Moody’s Investors Service, “Update to Our Global Macro-Risk Outlook 2012-2013: Modest Growth and
Resurfacing Oil Price Risks,” April 30, 2012.

44. 44 | P a g e
 In general, the most investment-grade media and entertainment companies are better
positioned within their present rating category today than they were headed into the
US recession of 2007-09. In the September 2007 report on this topic, which focused
on US companies only, we listed four US companies as “vulnerable” to a downgrade,
the highest relative risk of exposure on our illustrative scale. Based on similar
illustrative factors, no companies are in the vulnerable category in this updated study.
This is primarily because the group as a whole has stronger balance sheets, but also
due in part to our view that the current collective group of investment-grade media
and entertainment issuers is better positioned to sustain revenue and cash flow in the
face of technology-driven changes in consumer habits than the 2007 group.
FIGURE 1: Summary of Relative Downgrade Exposure in a Recession
Limited Exposure Moderately
Exposed
Exposed Vulnerable
BskyB Group Bertelsmann Interpublic Group None
Comcast CBS McGraw-Hill
Cox communications Cox Enterprises Omnicom
DirecTV Discovery
Communications
UBM
Globo Grupo Televisa Washington Post
Naspers JCDecaux WPP
Time Warner NBC Universal
Viacom News Corp.
Pearson
Publicis
Reed Elsevier
Scripps Networks
Shaw
Communications
Thomson Reuters
Time Warner Cable
Walt Disney
Wolters Kluwer

45. 45 | P a g e
FIGURE 2: Investment-Grade Media and Entertainment Issuers Covered
Company Rating Outlook
Bertelsmann AG Baa1 Stable
British Sky
Broadcasting Group
plc
Baa1 Stable
CBS Corporation Baa2 Stable
Comcast Corporation Baa1 Stable
Cox
Communications,
Inc.
Baa2 Stable
Cox Enterprises, Inc. Baa2 Stable
DIRECTV Group,
Inc
Baa2 Stable
Discovery
Communications,
Inc.
Baa2 Stable
Globo Comunicacao
e Participacoes S.A.
Baa2 Stable
Grupo Televisa,
S.A.B.
Baa1 Stable
Interpublic Group of
Companies (The)
Baa3 Stable
JCDecaux S.A. Baa2 Stable
McGraw-Hill
Companies
A3 RUR-D
Naspers Limited Baa3 Stable
NBCUniversal
Media, LLC
Baa2 Stable
News Corporation Baa1 Stable
Omnicom Group,
Inc.
Baa1 Stable

46. 46 | P a g e
Pearson plc Baa1 Stable
Publicis Groupe S.A. Baa2 Stable
Reed Elsevier Baa1 Stable
Scripps Networks
Interactive, In
Baa1 Stable
Shaw
Communications Inc.
Baa3 Stable
Thomson Reuters
Corporation
Baa1 Stable
Time Warner Cable,
Inc.
Baa2 Stable
Time Warner Inc. Baa2 Stable
UBM plc Baa3 Stable
Viacom Inc. Baa1 Stable
Walt Disney
Company
A2 Stable
Washington Post
Company
Baa1 Negative
Wolters Kluwer N.V. Baa1 Negative
WPP Plc Baa2 Stable
Illustrating Rating Vulnerability to a Cyclical Downturn
We illustrate in this report our views on relative rating vulnerability to a cyclical downturn by
depicting issuers’ (1) financial flexibility within their current rating and (2) exposure to
cyclical revenue volatility. We include a third relative rating vulnerability factor to
incorporate our view that a few selected issuers face additional pressure from other factors
such as secular revenue concerns or event risk, although these issues are not specific to a
recessionary environment.
Within each factor, we ranked companies depending on their relative exposure. To illustrate
how these factors could be combined to depict a composite relative risk estimate, we group
the relative rankings into bar charts. The height of the bars reflects relative exposure and is

47. 47 | P a g e
not meant to depict precise risk measurements. A higher combined bar height indicates higher
relative exposure to a rating downgrade in a recession.
The scale we used to combine the elements in the charts that follow is meant to illustrate
relative ranking rather than a precise probability. In addition, the rankings focus on elements
related to financial flexibility, cyclicality and other factors such as event risk that constitute
only some of the key considerations for the rating. Ratings are also influenced by a broader
range of factors that are discussed in published industry Rating Methodologies and company-
specific Credit Opinions.
Financial Flexibility within the Current Rating
Figure 3 on the following page depicts each company’s relative financial flexibility within
the credit metrics expected for its rating. For most issuers, our measure of relative financial
flexibility is the EBITDA cushion within the debt-to-EBITDA leverage level that could cause
a credit-rating downgrade.
We use estimates of financial flexibility other than debt-to-EBITDA for a few issuers in cases
where there are only qualitative metrics or multiple quantitative metrics cited in the “What
Could Change the Rating Down” section of the company’s Credit Opinion (see Appendix A
for a summary of the criteria used for each issuer). Such estimates include free cash flow to
debt, retained cash flow to net debt, or an estimate of financial flexibility based on the
company’s business profile, financial position and other factors such as liquidity. The
calculations we use to estimate financial flexibility use each company’s reported currency.
In Figure 3, we translate our view on financial flexibility into a bar chart to depict relative
vulnerability to a downgrade. Issuers with higher bars to the right have less relative flexibility
while issuers with lower bars to the left have higher relative flexibility.
Companies in the category furthest to the right have less relative flexibility and are Shaw
Communications Inc. (Baa3 stable), Time Warner Cable (Baa2 stable), UBM (Baa3 stable),
Wolters Kluwer (Baa1 negative) and Washington Post (Baa1 negative). If their EBITDA (or
other metric used) were to decline by less than 2%, credit metrics could fall below the
potential downgrade thresholds cited in our Credit Opinion for the respective companies. If
we expect credit metrics to be sustained at such weaker levels, a downgrade could occur.
Companies in the category furthest to the left have more relative financial flexibility and are
BSkyB Group (Baa1 stable), Globo Comunicacao e Participacoes S.A (Baa2 stable) and

48. 48 | P a g e
Naspers Limited (Baa3 stable). Their EBITDA (or other metric used) would have to fall more
than 30% to weaken credit metrics to levels below the potential downgrade thresholds cited
in our Credit Opinion for the companies.
We calculate flexibility based on current debt34 outstanding and thus do not factor in the
potential for future debt reduction or possible increases in debt. If a company’s leverage (or
other metric) were to weaken relative to its threshold for a downgrade, it would have less
EBITDA (or other metric) cushion and hence lower financial flexibility, which we view as
making a company more vulnerable to a downgrade in a recession.
We emphasize that there are other important quantitative and qualitative measures that affect
ratings. Our Credit Opinions for each company published on Moodys.com indicate what
measures or other factors would be most likely to place downward pressure on a company’s
credit rating.
Cyclical Revenue Exposure
Figure 4 on the following page depicts the percentage of total revenue that each company
derives from revenue sources sensitive to cyclical business and consumer discretionary
34 For example, for the most common measure, debt-to-EBITDA (incorporating Moody’s standard adjustments),
current debt outstanding is divided by EBITDA for the 12 months ended March 2012 (or December 2011 in the
absence of more recent reporting for some European issuers). Current outstanding debt incorporates any debt
reduction since the last reporting period.

49. 49 | P a g e
spending, such as advertising, sports events and amusement parks. A higher bar indicates
higher cyclical revenue exposure
Companies with the highest exposure to cyclical revenue are in the category furthest to the
right and in alphabetical order include all the advertising agencies—Interpublic Group (Baa3
stable), Omnicom(Baa1 stable), Publicis (Baa2, stable) and WPP (Baa2 stable) - as well as
JCDecaux (Baa2, stable), which is an outdoor advertising company. These companies are
completely reliant on cyclical advertising and/or marketing service spending.
In our estimates of cyclical revenue, we don’t include subscription-based revenue such as
monthly cable-system fees with high renewal rates and retransmission fees under multi-year
contracts. Some companies might have indirect exposure to ad revenues associated with
content production (film and TV). However, most of those revenues are locked in by longer-
term agreements that are less vulnerable until the contracts come up for renewal.
Secular Revenue Pressure and Event Risk
The final relative exposure to downgrade chart layers (see Figure 5) an additional subjective
element on top of our assessment of financial flexibility and cyclical revenue exposure to
account for other issues we believe could result in downward rating pressure. These risks
include issues such as

50. 50 | P a g e
1. regulation, competition or long-term secular/structural changes in the operating
environment that we expect will pressure revenue over the coming 12-24 months, and
2. potential negative event risks such as announced acquisitions, proposed spin-offs,
litigation or other events that could hurt credit quality.
Such pressure could occur regardless of the economic environment, but we believe our
relative downgrade risk illustration would be incomplete without incorporating such
factors.We believe an additional risk element is warranted for Washington Post, McGraw-
Hill (A3 review for downgrade), and News Corp. (Baa1 stable). Washington Post’s revenue
and earnings are pressured at its Kaplan higher-education division due to negative publicity
and potential regulatory initiatives related to student loan defaults, lower enrollment, and
greater competition for better qualified students. Washington Post has a negative rating
outlook as a result of these issues.
McGraw-Hill’s ratings have been on review for downgrade since the company’s September
2011 announcement that it planned to spin off its education businesses. McGraw-Hill has
indicated it plans to complete the spin-off by the end of 2012. The current A3 rating for
McGraw-Hill and Baa1 rating for Washington Post factor in their business diversity and low
leverage.
News Corp. continues to face negative headline and legal risk associated with its UK
newspaper phone-hacking and bribery scandal. The company’s newspaper business
represents only a single-digit percentage contribution to the company’s cash flows, and the
company generates strong free cash flows and maintains a very significant cash balance. We
believe these strengths mitigate the event risk pressure from the scandal based on what has
been discovered, but view an event risk adjustment as warranted based on the wide range of
potential outcomes of the scandals. Separately, we indicated that News Corp.’s June 2012
announcement that its board of directors authorized management to pursue a plan to separate
its publishing assets slightly reduces the company’s financial flexibility, perhaps only
temporarily, but does not affect the company’s Baa1 rating or stable rating outlook. As a
result, the additional subjective relative exposure to downgrade risk element for News Corp.
relates only to the phone hacking scandal since it is not yet clear how the separation of its
publishing assets will affect News Corp.’s exposure to lawsuits related to the scandal.
Because the issues related to Washington Post and McGraw-Hill prompted a negative rating
outlook and review for downgrade, respectively, the additional relative downgrade risk

51. 51 | P a g e
adjustment is greater for those issuers than for News Corp. We do not believe an additional
relative downgrade risk adjustment is necessary for the other investment-grade media and
entertainment issuers.
The Factors Combined Illustrate Relative Downgrade Risk
The combined height of the bars for the three factors in Figure 5 on the following page
provides an overall indication of a company’s relative exposure to a rating downgrade in an
economic downturn. Companies with higher bars to the right have the most relative exposure
to a rating downgrade in a recession, and companies with lower bars to the left have the least
relative exposure, subject to any potential liquidity or other issues that might arise.
Figure 5 illustrates relative downgrade exposure and not the probability of a downgrade.
However, we believe the combined results can be grouped into four categories that provide
additional insight into our view of overall rating vulnerability. We broadly classify the 31
companies into four categories:
 Vulnerable (0): We don’t think any companies are in the vulnerable category, where
there is the highest relative risk of a downgrade in a recession.
 Exposed (6): There are six companies with material revenue exposure during a
recession but generally sufficient financial flexibility to potentially manage through a
downturn.
 Moderately exposed (17): There are 17 companies with less cyclical revenue
exposure or solid financial flexibility relative to their current credit ratings that we
believe creates only moderate downgrade exposure in a recession.
 Limited exposure (8): The eight companies with the most limited downgrade
exposure in a recession have mostly non-cyclical revenue streams and strong financial
flexibility, which safely position the companies within their rating categories.

52. 52 | P a g e
Most of the companies we categorize as having revenue that is “exposed” or “moderately
exposed” to a recession have a stable rating outlook to reflect our view that they can manage
through cyclical downturns given their liquidity position, free-cash-flow generation and
ability to adjust costs and their use of cash. The stable rating outlooks also reflect the
uncertainty regarding the duration and severity of a recession, if one were to occur.
Companies that use cash more conservatively in a downturn to reduce debt or that increase
liquidity, build capacity to weather a longer and more severe recession. In contrast,
companies that aggressively repurchase shares or pursue acquisitions in a downturn could see
their ratings come under more pressure.
About Future Rating Actions
This report illustrates our view of relative exposure to a downgrade. However, we are not
asserting that the results indicate the probability of future rating actions and we do not
incorporate all issues that affect ratings. As a result, future rating actions in an economic
downturn will ultimately depend on:
 the timing, depth and length of a recession, if one occurs;
 the magnitude of any effect on revenue;

53. 53 | P a g e
 the company’s ability and willingness to offset revenue weakness with cost reductions
or an increase in EBITDA-to-free-cash-flow conversion (via reductions in taxes,
interest costs, working capital investment, capital expenditures or dividends); and
 the company’s ability to reduce debt from cash flow, asset sales or share offerings.
We consider ratings particularly exposed to cyclical revenue pressure if a company’s credit
metrics weaken and are expected to be sustained beyond specified thresholds, even if 100%
of stressed cash flow generation is used to reduce debt. We will also consider in future rating
actions how a company allocates free cash flow to debt reduction, acquisitions and share
repurchases. Note that acquisitions, a changing business-risk profile or shareholder
distributions can affect credit ratings regardless of future economic developments. As noted,
McGraw-Hill’s A3 senior unsecured rating is on review for downgrade owing to the
company’s announced plan to spin off its education businesses and Washington Post’s Baa1
rating has a negative rating outlook due to earnings pressure at its Kaplan higher education
division.
Defensive Strategies during a Recession Can Help Preserve Ratings
In a downturn, revenue of investment-grade media and entertainment companies can come
under increasing stress because of exposure to cyclical revenue or weakness in primary
operating regions. However, the scale and revenue diversity of investment-grade companies
generally allows for continued free-cash-flow generation. This provides companies with
some discretion in establishing the capital structure and the ability to partially mitigate the
effects of economic weakness by reducing debt. Nevertheless, the present climate of very
high share repurchases and dividends could undermine companies’ ability to reduce debt if
management is not cautious and is not highly committed to, and defensive of, its investment-
grade profile.
We believe that companies with high exposure to cyclical revenues, weak positioning relative
to their current credit-rating category, material event risk or secular revenue pressure, or very
high medium-term refinancing exposure are the most vulnerable to credit-rating downgrades
in an economic downturn. This vulnerability is magnified if an issuer is:
 consciously permitting its balance sheet to weaken – in an attempt to reduce its
hypothetical overall cost of capital to boost share price; or

54. 54 | P a g e
 facing fundamental competitive revenue pressure – from secular disintermediation to
new media distribution channels, particularly the Internet. The pressure is most
intense in newspapers and other print media, and a factor for mature industries such as
radio broadcasting and, to a lesser degree, television broadcasting. Companies with
material online revenue have better transitioned to this increasingly dynamic
environment and will likely benefit from the rapid growth in Internet advertising
(which Magna Global expects will increase o7ver 11% annually over the next three
years versus 2.0% a year for total US advertising, according to its July 2012 forecast).
Such companies have a better chance of growing in a period of general economic
stagnation or even contraction because of market-share gains from traditional media
rather than organic advertising growth.
It is noteworthy that, driven by fear, some companies retrench during cyclical downturns and
times of uncertainty such as we are seeing today. As a result, many companies will reduce
debt to lower levels than in robustly profitable years, which may mitigate risks sufficiently to
support existing ratings.

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INDIA RATING AND RESEARCH’S 2014 OUTLOOK: MEDIA AND
ENTERTAINMENT: EXPECTED ECONOMIC RECOVERY TO BENEFIT
INDUSTRY
India Ratings, a Fitch Group company, maintained its negative outlook on the country’s
media and entertainment sector for the first half of 2013 as slowing economic growth and
cost-cutting leads to sluggish growth in advertising expenditure. The agency has a stable
outlook on the second half of 2013 on expectations of an improved economic environment.
It said the digitisation programme will benefit television broadcasters, multi-system
operators (MSOs) and direct-to-home (DTH) operators as under-reporting of subscribers,
estimated at 15-20%, is set to end. The agency also expects 10-15% of current analog cable
subscribers would move to DTH.35
The financial performance of TV broadcasters is likely to be moderate in the first half but
improve in the last six months, the report said. Mandatory digitisation will help them counter
the negative impact of the expected muted advertising revenue growth. After digitisation,
carriage fees are also likely to decline due to a significant improvement in bandwidth,
provide scope for rationalisation of these charges, it said. The print industry will continue to
remain under pressure, the agency said. The print media industry has been growing at single-
digit rates for six consecutive quarters starting in the third quarter of the 2008-09 fiscal year.
The industry has been hurt on revenue and cost owing to the moderation in advertising
growth and firm newsprint prices, it said. Improved corporate revenue, a stronger rupee and
a significant drop in domestic and international newsprint prices could improve the outlook
for the sector. Online advertising will have the fastest growth in the medium to long term
although it will still be smaller than TV and print, it said. India Ratings expects print and
television to benefit from a likely improvement in growth to 7% in FY14 on the back of a
boost in advertising expenditure.
Economy-led Advertisement Spending: India Ratings & Research (Ind-Ra) has revised the
outlook on the media and entertainment sector to stable for FY15 from negative to stable36 as
it expects improvements in advertisement spending (ad spending) by corporates with a
gradual economic recovery.
35http://www.livemint.com/Consumer/57GZGjHPFsnjb0KkNgKN8H/India-Ratings-maintains-negative-
outlook-on-media-sector.html (last visited 26th September 2014)
36http://www.moneycontrol.com/news_html_files/news_attachment/2013/Media-
Entertainment_Fitch_140213.pdf