Imagine if that $100 bill in your wallet was suddenly declared illegal and that a replacement would only become available in stages over a couple of months.
That's the kind of currency reform India went through when, on Nov. 8, Prime Minister Narendra Modi made the surprise announcement of the demonetization of 500 rupee ($7.6) and 1,000 ($15.2) rupee notes in a surprise live television broadcast that stunned the nation. The result was overnight chaos as banks were overwhelmed with the sudden and massive rush to replace old currency notes and experts fiercely debated the impact on the economy and Modi's political future.
The demonetization drive was aimed at replacing the 500 rupee notes with a newly designed version and totally scrapping 1,000 rupee notes while introducing a new 2,000 rupee ($30.5) note instead. The government said that demonetization would clamp down on unaccounted wealth and stem counterfeit currency. Cash withdrawal limits were imposed in stages until new notes were replenished well into the new year.
On Tuesday, the government restored normalcy by lifting all cash withdrawal limits, officially signaling the conclusion of the currency reform.
"The crazy speed bump of demonetization took 85 percent of currency and declared it illegal," said 21st Century Fox CFO John Nallen at last week's Deutsche Bank Media & Telecom Conference.
In India, Fox runs leading TV and media group Star India. The cash crunch meant that the "consumer market basically shut down in what is a cash economy," Nallen said, adding that it "obviously shut down advertising and us being quite big in the market, we got hit by $30 million dollars [in the last quarter] and [the effect] is into this quarter as well."
India's television industry was estimated at $8.28 billion (542 billion rupees) in 2015, including both advertising and subscription revenue, according to a report by consultants KPMG India, which projected that this figure could reach $9.42 billion (617 billion rupees) in 2016. While there are no figures available immediately as to how much the currency reform has affected the segment, other indicators also point to a short-term negative impact.
According to an analysis by industry news portal Televisionpost, direct-to-home operators are expected to end the current financial year, ending in March, with the addition of 9.5 million subscribers, compared with 11.3 million a year ago, with demonetization partly contributing to the slower growth. India's DTH industry consists of six major players, including TataSky, a joint venture between the giant Tata conglomerate and 21st Century Fox.
There was also an impact on the film business, even though no specific figures or estimates are available there either so far. With demonetization unleashed right at the start of the festive season when some of the year's biggest films were set for release, the film business also braced for a sudden impact.
"Though the initial week was slightly slow, in the second and third week the business gradually picked up," said PVR Cinemas CEO Gautam Dutta. PVR is India's largest cinema chain and Dutta added that subsequent releases like Bollywood titles Force 2 and Dear Zindagi brought the audiences back, saying: "When the content is good, people do spend."
In its quarterly earnings reported in December, Indian film powerhouse Eros International said demonetization had a "temporary negative impact" on theatrical revenues with its November 11 release Rock On 2 "impacted directly by demonetization," according to the company's executive vice chairman and managing director Sunil Lulla.
He added: "Although the movies released during the quarter witnessed weak box-office performances due to lack of [foot traffic], we firmly believe that the demonetization step, in the longer term, will throw up a huge opportunity for us to strengthen our lead in corporatizing the Indian media and entertainment industry."
Eros said that in the December quarter, the company clocked sales of $51.23 million, versus $51.59 million in the same quarter in 2015, a marginal decrease of 0.7 percent mostly "on account of a narrower film slate." It added: "Despite demonetization impacting theatrical revenues [which contribute 35.5 percent of the company's total sales], the company's strong performance was driven by presales across all revenue streams and catalog sales momentum."
Eros also said it decided to hold back some releases in the quarter due to the currency reform and opened eight films, compared to 15 in the corresponding quarter in 2015.
India does not officially report box-office numbers in a market where Hollywood and foreign films hardly command about 10 percent market share. But it seemed that by late December, the negative effects of demonetization were beginning to wane as reflected in the record-breaking performance of Disney India's wrestling drama Dangal, which opened during the Christmas frame. Local reports indicated that the film, starring Aamir Khan, grossed $70.3 million (4.8 billion rupees) to become the highest-grossing Hindi language title of all time.
Demonetization also sparked a move to digital payments with Dutta saying that PVR's cash-less transactions doubled, signaling "a new wave in the country." Mumbai-based entertainment industry analyst Jehil Thakkar also said that digital payments "could usher in more transparency, which will be beneficial for the entertainment industry in terms of tracking consumer trends."
At the UBS investor conference in New York in December, Eros International group CFO and president of North America, Prem Parameswaran, said that despite the short-term box office slowdown due to demonetization, "in the long term, we think it's great, because India is going to eventually get to [be] going to a cash-less society."
Much as experts warned of the overall economic fallout, demonetization was also seen as a political gamble for Modi and his Bharatiya Janta Party, given how daily life was seriously disrupted in the initial stages. But last week, Modi seemed vindicated as the BJP roared to victory in local state elections in India's largest state Uttar Pradesh. Political scientist Milan Vaishnav was quoted by the BBC as saying that the vote "represents a referendum on demonetization." He added: "Whether voters were bothered by the implementation of the policy or not, they clearly have decided that the prime minister is a man of action."
Industry executives also seem optimistic about the long-term. At the UBS December conference, Viacom CEO Bob Bakish said that India and Viacom18, the company's local joint venture, "will continue to be a strong growth story. There may be a quarter, like right now, where there's a little disruption. ... But that's a couple of months bump in the road. That's nothing to get really worried about long-term."
And Nallen said that India is currently in the middle of a five-year growth cycle where "pay TV will double, advertising will nearly double, and with Star India and our various businesses, [from regional broadcasting ventures to digital platform hotstar], given we are market leaders, we over-index on that growth."
He emphasized that this means Fox would benefit in India, saying: "When advertising lifts, we get a little more than what the advertising lift is because of our market share."