In absolute terms, the 19 companies including HT Media, TV Today, NDTV, TV 18, Zee Entertainment and Sun TV, saw a value erosion of a staggering Rs 50,285 crore in the last 11 months. While the Bombay Stock Exchange’s benchmark index, Sensex, plunged 56.4 per cent since its January 8 peak, media stocks have cumulatively lost 71.5 per cent in market capitalisation.

According to Anup Bagchi, Executive Director, ICICI Securities, “In a slowdown, media spends are among the first ones to get rationalised. And that is the reason for the faster-than-normal contraction of this sector. While short-term spends gets immediately rationalised, the medium- to long-term contracts run their course. Hence, profit changes lag the price movements of shares both on the upside and the downside.”

M K Sharma, Head of Research, Anagram Stock Broking said, “When the stock market was doing well, these stocks were quoting at a premium compared to the market price-earnings ratio. There was a lot of expectation about foreign investment coming into the sector. New deals were expected to happen, but they did not materialise, hence the steep fall.”

While the sector’s revenue growth continues: year-on-year revenue growth in the second quarter for all media stocks was 29.6 per cent, what has been hit is profitability: year-on-year net profit for Q2 fell 48.6 per cent. The steep fall in profitability is largely because of a 41.7 per cent rise in expenses. Within expenses, rising interest costs — that shot up 78.2 per cent year-on-year for Q2 — seem to have done the damage.

Here the unbridled desire of media companies to capture eyeballs and readership is the cause, said Satish Ramanathan, head of equities, Sundaram BNP Paribas Mutual Fund. “The competition for more readers and viewers has led companies to over-expand without consolidating. A lot of mid-cap stocks have fallen by 60-70 per cent. One reason for the fall is the asset class they belong to. Further, their profitability has regularly disappointed investors.”

The near- to medium-term outlook for the sector doesn't look bright either. As the slowdown continues and Indian corporates cut costs, among the first expenditures to be axed will be advertising, which will clearly hit the revenue growth of media companies. “In future, corporates will also get more choosy about whom they advertise with,” said Ramanathan.