MUMBAI: Finance minister P Chidambaram‘s `no nothing‘ offer to the media sector came as no surprise except in the area of set-top boxes (STBs) where one thought a push would be given in terms of sops to boost the local manufacturing industry. There is very little that the Budget can offer in realistic terms and the past trend continued this time too.

If the Union Budget 2007-08 hurt the media stocks today, it was more to do with the announcements that were made as part of an overall corporate sector tax policy. There were, in fact, three tax proposals that could pinch the industry but in varying degrees.

First, and this will particularly hit the news channels, is the employee stock options (ESOPs) which are being brought under the fringe benefit tax (FBT) net. Listed companies like TV18 Group, NDTV and TV Today Network have been planning to use this as a management tool to retain talent in a media business that has recently seen a high attrition rate.

Already NDTV‘s net profits have been eroded (for a few quarters) by a rise in personnel costs and ESOPs. TV18‘s policy has been to reserve a chunk of holding for the employees while TV Today has taken permission to offer up tp five per cent as stock options.

The news channels took a beating today with TV18 dropping 4.47 per cent to Rs 578.70 on the BSE while Global Broadcast News slipped 6.08 per cent to Rs 572.80. NDTV, on the other hand, fell 2.26 per cent to Rs 318.50 but TV Today gained 1.7 per cent to Rs 134.85.

Unlike IT companies which has built stock options into it, the media sector shouldn‘t be unduly alarmed. "There may be some cause for concern but it wouldn‘t have any major impact. Though it is becoming a trend, the media sector doesn‘t integrally have a big component reserved as stock options," says an analyst at a broking firm.

The dividend distribution tax, up from 12.5 per cent to 15 per cent, will also impact the sector. But this could only be a minor shock as media companies are not well known for doling out huge dividends.

The third, and probably most pinching of the lot, is the commercial property rentals that will now fall under the service tax bracket. If this does not exclude the entertainment sector (we are still awaiting clarity on this), multiplexes may find themselves in a spot of trouble. Most of them have ambitious expansion plans to spread across the country and do not see ownership of property as the only route to setting up screens in different locations.

The multiplex companies went into a free-fall today as the scrip value dipped in the stock exchanges. Adlabs and Shringar ended four per cent down at Rs 423.65 and Rs 52.65 respectively while Cinemax fell 7.29 per cent to Rs 141.25.

"If the multiplexes fall under the service tax net, it will have a more lasting impact on their bottomlines," says an analyst.

Meanwhile, UTV dropped 8.61 per cent to Rs 258.95 while Balaji Telefilms fell 7.58 per cent to Rs 114.05.

Zee Group‘s Wire & Wireless India Ltd (WWIL) also shed 6.5 per cent to close the day at Rs 102. While Cas (conditional access system) is slow to take off, the industry is still not clear whether there are incentives provided in the Budget for domestic manufacturing of set-top boxes.

"Media stocks fell today along with the tumbling of scrips in other sectors like cement and IT. Besides, there was a global meltdown which cast its imfluence in India. It remains to be seen how long the Budget will cast its negative impact on the media stocks, but there is nothing that is deeply damaging," the analyst adds.