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FICCI-KPMGMedia&EntertainmentIndustryReport
© 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss
cooperative. All rights reserved.
© 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss
cooperative. All rights reserved.
Foreword
Welcome to the 2009 edition of the Indian M&E Industry, prepared jointly by FICCI and KPMG.
In many ways, the year 2008 was a testing time for the industry. With the global economic
slowdown affecting the advertising spends, sectors like TV, Print, Radio and Outdoor which depend
on advertising revenues were affected. Further the liquidity crunch and the consequent lack of
access to funds also affected the capacity expansion plans of players across various M&E
segments.
However, behind every adversity lies an opportunity. Media companies are under pressure to
change, innovate and re-examine their existing business models. Players need to draw upon new
capabilities to survive in this environment. In immediate future, media corporates are likely to focus
more operating margins, and assessing opportunities for consolidation, while building on core
strengths.
The year was also full of interesting developments. While the GEC space witnessed the entry of
new players, entry of new DTH players expanded the penetration of digital TV households. Print
media space also saw multiple new launches and expansion activities in the first half of the year.
Last year, was also the year where Indian players made their foray in the global arena, through big
ticket acquisitions and joint ventures.
The dynamics of the industry are changing and the media universe is increasingly becoming more
complex, specialized and fragmented. With companies increasingly leveraging cross media
platforms and trying to realize synergies, there is a need for paradigm shift and examining the
entire M&E industry from the point of view of common drivers, bottlenecks and challenges that
affects players across the sectors. We have attempted the same through our detailed and reader
friendly report.
FICCI takes this opportunity to thank KPMG, our knowledge partner, for devoting precious time and
resources to prepare this report at our behest. We also acknowledge the valuable inputs provided
by the members of the entertainment committee and all other associated agency and industry
players who have provided information and support in preparation of the report.
© 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss
cooperative. All rights reserved.
“Our greatest glory is not in never falling but in rising every time we fall.”
- Confucius
The advent of New Year 2009, has heralded interesting yet challenging times for the Media and
Entertainment (M&E) industry as a whole. The Indian M&E industry—one of the fastest growing
industries in the country over the past couple of years—is no exception. While 2008 showed
growth for the industry on the whole, the last quarter of 2008 was impacted by the economic
slowdown and liquidity crunch, and this is estimated to continue in the current year.
The year gone by, was one packed with several significant developments for the Indian M&E
industry, including the entry of DTH players, growing acceptance of the digital TV distribution
technology, the success of many small budget movies, and the rising competition in the regional
space in print. Finally, it was the year when IPL proved that innovation in traditional formats
resulted in runaway success!
On the other hand, the after effects of the global economic turmoil are being felt in India as well,
and the economy is expected to grow at a significantly lower rate over the next 2 years (between 5
to 7 percent according to various estimates)1. Consequently, advertising spends, which constitute a
significant portion of the M&E industry’s revenues have got affected, which in turn has resulted in a
lower growth rate for the industry for the current year. Moreover, this trend is expected to continue
in 2009.
Given the industry’s changing landscape and emerging challenges, the focus of industry players too
is changing; with a strong emphasis on profitable growth in the current scenario. Hence, media
companies are increasingly concentrating on strengthening existing operations and assessing
options for growth through consolidation, while continuing to innovate.
Looking at the changing contours of the industry, there are certain drivers which are likely to have
an impact across sectors, and we have examined these drivers in detail in this report. Factors like
Narrowcasting, Regionalization, Internationalization, Organized Funding, Digitization and
Deregulation have become the “buzzwords” in the industry, and we have focused on how these
drivers are affecting various players across the M&E industry value chain.
The analyses and point of view presented in the report have been validated through extensive
discussions with industry players. We take this opportunity to thank the industry players for making
this endeavor possible.
© 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss
cooperative. All rights reserved.
© 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss
cooperative. All rights reserved.
Table of Contents
2. Sector Snapshots 19
3. Narrowcasting 53
4. Regionalization 81
5. Digitization 101
7. Internationalization 137
© 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss
cooperative. All rights reserved.
Indian M&E Industry:
The Growth Story
01
Indian M&E Industry:
The Growth Story
TheIndianM&Eindustrywasoneofthefastestgrowing • Favorabledemographiccompositionandstronglong
sectorsinthecountryinrecenttimes,ridingonthebackof termfundamentalsoftheIndianeconomy.Unlikeother
abuoyanteconomyandextremelyfavorabledemographics. countries,Indianeconomyisstillgrowing,albeitata
AyoungIndian’shigherpropensityfordiscretionary lowerratethanbefore.Further,70percentofIndian
spendinghaspropelledmoremoneyflowintheleisureand populationisbelow30yearsofage1,presentingagood
entertainmentactivitiesgivingasteadyimpetustotheM&E opportunityformarketers
industry.Byembracingmultipleplatforms,expandinginto • AdvertisingtoGDPratioinIndiaisstillatalowof0.47
newgeographies,andexploitingthepotentialofunder percent,visavisdevelopedeconomiesliketheU.S.,
penetratedgeographies,Indianpromotershavebuiltascale, whereitisashighas0.9percent2
wheretheycannowattractforeignmediacompaniesand
• Mediapenetrationinthecountryremainslow.For
investors.Newcontentanddeliveryformatshaveemerged
instance,therearestill359millionpeopleinIndiawho
intheindustrywithnewmediagaininganincreasingly
canreadandunderstandanylanguagebutdonotread
importantroleinthedistributionportfoliooftheplayers.
anypublication.3 Thisrepresentssignificantopportunity
ofexpandingthemarket.
Succeeding in turbulent times Atthesametime,2009-10spellscautionforindustry
players.Thebusinessimperativesinthesetimesneedto
However,themarketenvironmenthasbecomeincreasingly undergochange–withincreasedfocusonnewmantras
challengingforthemediaandentertainmentsector,onthe suchasthe10shortlistedbelow:
backofeconomicslowdownandtheconsequentslowdown • User segmentation toprovideincreasedoptionsfor
inadvertisingrevenues,especiallyinthelastquarterof targetedmessagingthroughnichevehicles
2008.Atthesametime,foranindividualplayer,increased
• Innovation andflexibility,incontent,formats,delivery
complexitieshaveemergedonaccountofgreater
mechanismsandmarketingtoreachouttonew
fragmentationofaudiencesacrossmedia,anddistribution
audiencesandadvertisersinmultipleways
platforms,andgreaterneedforaccountabilityand
measurabilitydemandedbyadvertisers. • Focusonoptimizing margins,throughre-engineering
processes,structures,andworkingcapitalmanagement
Notwithstanding,overa5yearperiod,weprojecta12.5
percentgrowthforthesectoronthebackofthefollowing • Leveraging IP tohelpensurevaluemaximizationfrom
factors: existinglibraries
1Census
2SSKIResearch,KPMGAnalysis
3IRS2007R2
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4
• Forkeyplayers,marketgrowththroughconsolidation,is
increasinglyanoptionunderconsideration,toensure
developmentofstrategicportfolioswithmultimedia
capabilitiesandsynergiesandfinally…
• Producingsalient contentasalways,remainskey!
Television 163.3 182.5 211.3 240.5 13.8% 262.7 295.6 341.7 399.1 472.6 14.5%
Print 117.1 138.6 160.4 172.6 13.8% 183.9 197.9 216.0 239.3 266.0 9.0%
Film 66.9 81.7 96.4 109.3 17.7% 109.2 117.5 130.9 151.3 168.6 9.1%
Radio 4.9 6.0 7.4 8.4 19.7% 9.2 10.3 11.9 13.9 16.3 14.2%
Music 8.3 7.8 7.4 7.3 -4.4% 7.5 8.0 8.7 9.5 10.7 8.0%
Animation 10.0 12.0 14.5 17.4 20.1% 20.0 23.3 27.8 33.1 39.4 17.8%
Gaming 2.2 3.0 4.4 6.5 44.6% 9.4 13.3 17.9 22.5 27.4 33.3%
Internet
2.0 2.0 3.9 6.2 45.2% 8.4 11.0 13.7 17.1 21.4 27.9%
Advertising
Outdoor 10.0 11.7 14.0 16.1 17.3% 17.7 19.8 22.4 25.5 29.3 12.8%
TotalSize 385 445 520 584 15.0% 628 697 791 911 1052 12.5%
Source:GroupM,KPMGInterviews,KPMGAnalysis
Note:Forthepurposeofsizing,wehaveconsideredthefollowingM&Esectors–Television,Film,Print,Music,Radio,Outdoor,Animation,Gamingand
InternetAdvertising.
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5
AdvertisingrevenuesisoneofthemaindriversbehindthegrowthoftheIndian
M&Eindustry.Overthepast3years,itisestimatedtohavegrownataCAGRof
17.1percent.Goingforward,theadvertisingindustryisexpectedtoexhibita
lowergrowthrateowingtotheturbulentmacroeconomicenvironment.We
estimatethatadvertisingrevenueswillgrowataCAGRof12.4percentoverthe
next5years.
IndianAdvertisingIndustry
Advertising Industry CAGR % CAGR %
2005 2006 2007 2008E 2009 P 2010 P 2011 P 2012 P 2013 P
(INR billion) (2006-08) (2009-13)
Television 51.9 60.5 71.1 82.5 16.7% 88.2 97.1 112.6 131.7 155.5 13.5%
Print 69.4 84.9 100.2 108.4 16.0% 114.8 123.8 136.5 153.6 174.3 10.0%
Radio 4.9 6.0 7.4 8.4 19.7% 9.2 10.3 11.9 13.9 16.3 14.2%
InternetAdvertising 2.0 2.0 3.9 6.2 45.2% 8.4 11.0 13.7 17.1 21.4 27.9%
Outdoor 10.0 11.7 14.0 16.1 17.3% 17.7 19.8 22.4 25.5 29.3 12.8%
Total 138.1 165.0 196.6 221.6 17.1% 238.4 262.0 297.1 341.9 396.8 12.4%
Source:GroupM,KPMGInterviews,KPMGAnalysis
Tobeabletoappreciatethechangingcontoursofthisindustry,itisbettertotake
acloserlookatsomeofthekeydriverswhichhaveprovidedthenecessary
growthimpetusandalteredtheindustrydynamics.
KeyGrowthDrivers
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6
ChangingStructureofIncomeGroupsinIndia
Source:MarketingWhitebook2008
However,globaleconomicrecessionhasaffectedtheIndianeconomytoo,with
theGDPgrowthrateexpectedtofallinnearfuture.
PercentagegrowthinIndia’sGDP
Source:WorldEconomicOutlookUpdate,IMF,January2009
Evenattheserates,India’sgrowthrateisstillestimatedtobehigheras
comparedtootherregionsoftheworld.
GDPGrowthForecastofSelectedCountries
Country 2007 2008 2009P 2010P
China 13.0% 9.0% 6.7% 8.0%
India 9.3% 7.3% 5.1% 6.5%
Japan 2.4% -0.3% -2.6% 0.6%
U.S. 2.0% 1.1% -1.6% 1.6%
EuroArea 2.6% 1.0% -2.0% 0.2%
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7
Ascomparedtosomeofthedevelopedcountries,Indiaisinabetterposition
sinceitiswitnessingnotarecessionbutaslowdown.YetthefallinGDPis
expectedtoadverselyimpacthouseholdandpercapitaincome.Asaresultof2
percentfallinGDP,in2008-09thereductioninhouseholdincomemaybetotune
ofaroundINR3200andin2009-10itispredictedtoreacharoundINR7800.The
lossinPerCapitaIncomeisestimatedtobearoundINR650andINR1500
respectivelyin2008-09and2009-10.4
Withthehigheconomicgrowthoverthepastfewyears,India’sspending
patternshavebeenevolving,withbasicnecessitiessuchasfoodandapparel
continuingtodeclineinrelativeimportance,andcategoriessuchas
communications,educationandrecreationandhealthcareincreasingtheirshare.
India’sShareofWalletshiftingtowardsDiscretionaryItems
Source:MarketingWhitebook2008
Withtherecenteconomicdownturn,itisexpectedthatintheimmediaterun,
someamountofdiscretionaryexpenditureistobereallocatedandthereislikely
tobeatradingdownofconsumerexpenditure.Yet,theconsumersentimentsare
expectedtoremainpositiveinthelongrun.
FurtherthefavorabledemographiccompositionaugurswellforIndia.Theaverage
Indianconsumerisgettingyounger.Around70percentofthecountry’s
populationisbelow35yearsofage.5 Morethan50percentofIndia’spopulation
islikelytobeundertheageof30evenin2015.
PopulationDistributionacrossvariousagegroups
Source:Euromonitor
4“India’sGDPgrowthratetogodownby2%”,EconomicTimes,November2008
52001Census,Euromonitor
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8
TheemergenceofIndia’syoungmiddleclasswithgreaterearningpowerand
higherdisposableincomessignifiesgoodpotentialforincreasedmarketingand
advertisingspendsinthecountry.
Further,thepotentialforfurtherriseinadvertisingspendsremainsstrong.In
AdvertisingtoGDPratio,IndiaisstillfarbehindthelikesoftheU.S.andU.K.and
evenbehinditsAsianneighborChina.
SizeofAdversementIndustryasapercentageofGDP
Source:SSKIResearch,KPMGAnalysis
ThelowerratioforIndiaascomparedtoothernationsisatleastinpartdueto
lowerspendingpowerpercapitaascomparedtoothernations.Howevertheper
capitaincomeofthecountryhasbeenrisingsteadilyoverthepastfewyears.
Percapitaincome(USD) GrowthinIndia’sperCapitaIncome
Source:CreditSuisse,Indiastat
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9
TheadvertisementspendtoGDPratioforIndia,hasalsothereforeshownaslow
butdistinctgrowthtrendinthepastfewyears.
AdvertisementspendsaspercentageofGDP
Source:CreditSuisse,KPMGAnalysis
TheseimportantmacroeconomicindicatorshavedriventhegrowthoftheM&E
industryinIndiainrecenttimes.ItisbelievedthatthefundamentalsoftheIndian
economyremainstrong,andtherecenteffectsoftheglobaleconomicdownturn
arelikelytohaveashorttermimpactinIndia.Inthelongrun,theIndian
economyisexpectedtogrowsteadily,leadingtocontinuousriseinthe
disposableincomeofthecountry.
Narrowcastinginvolvessegmentationofthetargetgroupandcomingoutwith
content,programmesandformatsthatappealsbesttothattargetgroup,thereby
enablingadvertiserstoreachouttoafocusaudience.
Goingforward,thetrendofnarrowcastingisonlyexpectedtoincreasefurther
andtheindustryislikelytoseemoreaudiencefragmentationacrossamyriadof
contentgenres.
Theyear2008alsosawcricketemergingasamainstreamentertainmentgenre
withtheadventofIndianPremierLeague(IPL),whichhadanimpactacrossthe
entireIndianM&Eindustry.IPLwaspositionedasacompleteentertainment
packagetotheaudiences.The8teams’tournament,whichstartedwitha
glitteringopeningceremonyinBangaloreonApril18,2008,rivetedtheattention
ofthefamilyaudiencesforthenextoneandahalfmonths.Thetelecastofthe
tournament’sfinalon1stJunegarneredanaverageTVRof9.86,whichwas
historicforadomestictournamentandthiswasreflectedintheadvertisingrates
forthematches.Sportsmarketing,whichisstillatanascentstageinIndia,is
expectedtogrowrapidlynowasbroadcasters,encouragedbytheIPLexample,
startaggressivelysellingcricketandothersportsasentertainmentpackages.
6TAMMediaResearch
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10
Inthepast,growthinmediaconsumptionwaslargelycomingfromthemetros.
Withtheincreaseinthespendingpowerofpopulationlivinginsmallercities,
noweventheTier2&Tier3townsareemergingasimportantgrowthcenters.
Thishasincreasedthedemandforregionalcontent,andcompaniesarenow
increasingfocustocatertothisdemand.Regionalcontentisemergingasoneof
themostsignificantaspectsofcustomizationofcontent,andhenceisemerging
asasignificantgrowthdriverfortheM&EIndustry.
Someoftherecenttrendsinthisaspecthavebeen:
• EstablishedplayersintheEnglishnewspapersspaceforayingintoHindiand
vernacularlanguages
• Growthinregionalchannelsandexpansionofregionalchannelportfolioboth
byregionalplayersaswellasnationalplayers
• Emergenceofcityspecificchannels
Regionalizationislikelytocontinuetobeanimportantgrowthdriverforthe
mediaindustry.InPrintMedia,regionaldailiesareexpectedtogrowfasterthan
thenationaldailies-consequently;thesectormaywitnessnarrowingdownof
advertisingratesdifferencesbetweenthetwo.InTV,costsassociatedwith
settingupofregionalchannelsremainmuchlowerthanthatofnationalchannels
andthedifferencebetweentheadvertisementratesiscomingdown,making
settingupofregionalchannelsanattractivepropositionforbroadcasters.
7MinistryofExternalAffairs
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11
Further,withtwosignificantacquisitionsoftheforeignmediacompaniesinthe
currentyear,Indianplayershavetakenthefirststepstowardsestablishingtheir
presenceinthemainstreamglobalmarket.
InternationalizationofIndianmediacanbecharacterizedinthreedifferentways-
• Productionofcontentforglobalaudience-boththeNRIdiasporaaswellas
thelocalaudienceinforeigncountries.Somerecentexamplesofthisinclude:
• LaunchofTVchannelscateringtolocalaudiencesinothercountries-
NDTVlaunchedNDTVArabiaandNDTVMalaysia
• ForeignEditionsofIndianPublications-Filmfaremagazinelaunchedits
GermaneditioninFebruary2008
• Co-productionandproductionofHollywoodmoviesbyIndianplayers-
BothUTVandRelianceEntertainmentannouncedtheirHollywood
ventures
• Providingmediaspecificservicestoothercountries-Animationsectorhas
emergedasanoffshoringhubforanimationproductionwork.FilmPost
Productionisalsoshowinggoodpotentialinthisregard
• Acquisition/Partnerships/StrategicAllianceswithmediapropertiesabroad.Two
notabledevelopmentsinthisaspectare:
• BennettColeman&CoLtd(BCCL)acquiringBritain’sVirginRadioinJune
20088
• RelianceBigEntertainmentformingaJointVenturewithSteven
Spielberg’sDreamWorksstudioinSeptember20089
AsIndianmediacompanieslooktoexpandtheirfootprint,international
consumptionofIndianmediaisexpectedtobeanimportantgrowthdriverfor
theindustry.
8CompanyWebsite,PressReportsandReleases
9CompanyWebsite,PressReportsandReleases
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12
Somesuchdealsinrecenttimesinclude:
• InJanuary2008,NBCUniversalpickedup26percentstakeinNDTV
Networks,theholdingcompanyforNDTV'sentertainmentandlifestyle
channels,digitalmediaandotherinterestsforUSD150million10
• InFebruary2008,WaltDisneyCompanyincreaseditsstakeinUTVSoftware
Communicationsfrom14.9percentto32.1percentbyinvestingINR8.05
billion.Inadditiontothis,Disneyalsopickedup15percentstakeinUTV
GlobalBroadcastingLtd(UGBL)foraboutINR1.19billion11
• ICICIVentures,LehmanandGoldmanSachspickeduparound15-20percent
stakeinBangalore-basedoutdooradvertisingfirmServe&Volley(S&V)for
INR2.50billion12
Gradually,moreandmoreplayersintheindustryareavailingorganizedsourcesof
finance.Thisisusheringaneraofcorporatizationandprofessionalism.Availability
offundshasalsoresultedinverticalandhorizontalintegrationbetweendifferent
playersinthevaluechain.
Now,withtheeconomicdownturnandtheliquiditycrunch,theoverallavailability
offundingmighttakeahitintheshorttermbutthelongtermprospects
continuetobepositive.
Thisavailabilityoflargesourcesoforganizedfundingisanindicatorofhowthe
IndianM&Eindustryhascomeofage.However,italsomeansthatsmaller
playersinthesectormightfinditincreasinglydifficulttomatchthefinancial
powerofthebigplayerswhonowhaveanabundanceofcapital.Thisislikelyto
leadtoconsolidationacrosssectorsoverthenextfewyears.
10Indiatelevision
11Indiatelevision
12Indiatelevision
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13
Television,FilmsandMusicindustrieshavebeenthemajorbeneficiariesof
digitization.Inthepastfewyears,theIndianmediaindustryhaswitnessed
adventofdigitalTVdistributionplatforms–digitalcable,DTHandIPTV,
digitizationofFilm,Printsandmusiclibraries,andsaleofonlineandmobile
music.
Digitizationoftelevisionprovidesforabetterqualityofviewingexperienceforthe
consumersalongwithagreaterbandwidthofchannels,andatthesametime,
throughadd-onservices,providesmultiplemonetizationopportunitiesforthe
distributor.DTHhasledthedigitizationdriveinIndiasofarwithanexpected10
millionsubscribersbytheendof200813.Digitizationofcable,whichwasearlier
drivenonlybythemandatoryimpositionofCASincertainpartsofthecountry,is
nowhappeninginnon-CASareasaswellascableplayerslooktotacklethe
increasingcompetitioncomingfromdigitaldistributionmediumslikeDTH.
CommercialIPTVserviceshavealsostartedinthecountryandtheseprovide
anotherdigitalalternativetoconsumers.Asthesedigitalplatformsgarnera
greatershareofC&SusersinIndia,itislikelytoleadtoamoreorganizedand
addressabledistributionmarketinthecomingyears.
DigitizationofFilmPrintsishavingamajorimpactonfilmdistribution,enabling
greaternumberofprintstobedistributedatalowcostthusshorteningthe
theatricalwindow,andhencereducingpiracy.Therefore,theoretically,amovie
canbereleasedinthemetrosandsmallercitiesandtownssimultaneously.This
reducesthepotentiallossescausedduetodelayinmoviereleases.
Intheailingmusicindustry,salesofdigitalmusicarenowshowingpotentialof
offsettingtheimpactoftherapidlydecliningphysicalunitsalesandpushingthe
industrytowardsahealthiergrowthrate.InIndia,mobilemusictakesalarge
portionofthedigitalsalespie,andwithinmobilemusic,ringtonesalescommand
adominatingshare.Goingintothefuturehowever,fullsongdownloadson
mobilesaswellpaidsongdownloadsovertheinternetareexpectedtoalso
becomeimportantrevenuestreamsfortheindustry.
13KPMGAnalysis
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14
SomeofthetrendsinconvergenceacrosstheIndianMediaandEntertainment
spacehavebeen:
• LeadingbroadcastinghouseslikeStar,NDTVandUTVcreatingseparate
divisionsfocusingonnewmediadistributionchannels
• Handsetmakersenteringintotie-upswithmusiccontentsitesaswellas
revenuesharingdealswithtelecomandmusiccompanies
• Printpublicationsgoingbeyondtheirofflineformatstolaunchelectronic
versionsoftheirnewspapersandmagazinesandmakingtheirclassified
sectionslikejobs,matrimoniesandhomesavailableonline
• Introductionofmobileandonlineticketbookingfacilityforcinemagoersalong
withtheconvenienceofseatselectionandlaunchofticketingkiosksin
multiplexes
• FilmProductionhouses,likeRajshriandErosmakingtheirlibrarycontent
availableforpaidonlinedownloads
Convergenceisexpectedtotransformthelandscapeoftheindustrybyenabling
playerstoleveragecrossmediasynergiesandattractawholesetofnew
consumers.Adventof3GservicesinIndia,mayfurtheraidconvergence,by
makingthemobilephoneaconvenientaccesspointforvideoandaudiomedia.
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15
InIndia,tillearly2000,mostsegmentsoftheindustryhadgrowntotheirpresent
structureandsizeinalargelyunregulatedenvironment.Suchgrowthhadresulted
inlackofconsumerchoiceandcreationoflastmilemonopolies,especiallyinthe
TVsector.Thesehardgroundrealitiesforcedthegovernmenttotakesome
positivestepsontheregulatoryfrontwhichprovidedanewwaveofgrowthfor
theIndianM&Eindustry.
• AppointmentoftheTelecomRegulatoryAuthorityofIndia(TRAI)in2004
asaregulatorforthetelevisionindustry(withitsscopeincreasedtocover
broadcastingandcableservices)
• IntroductionofConditionalAccessSystem(CAS)inTelevision
• GrantingIndustrystatustoIndianFilmSectorin2000andpermittingFDI
upto100percentinfilmrelatedactivities
• ProvidingEntertainmentTaxexemptionstomultiplexes
• Relaxationofforeigninvestmentnormsinprintmedia
• RolloutofPhaseIIoftheRadiolicensingpolicyin2005,withanumberof
reformsincludingamorerationallicensefeestructure
Source:TRAI,PressReleases
Theindustrycontinuestolookatthegovernmentformoreregulatoryreforms
thatmaybringinthenewwavesofgrowth.
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16
Technologyhasplayedakeyroleininfluencingtheentertainmentindustry,by
redefiningitsproducts,coststructureanddistribution.Forinstance,withthe
arrivalofDTH,distributorsareinapositiontooffermorechannels,betterpicture
qualityandadd-onservicestotheconsumers.Similarly,digitalcinemahas
enabledtheindustryplayerstoreleasethefilmprintssimultaneouslyacrossboth
thebigcitiesandsmallertowns,thusfacilitatingwiderreleaseoffilmprintsand
improvedcollections.Technologyhasthustransformedboththecontentdelivery
aswellasviewershipexperience,besidesprovidingnewgrowthopportunitiesto
theplayers.
Asaresultoftheattractivegrowthopportunities,theindustryiswitnessing
increasedcompetitionfromthehithertononcompetitors,suchasplayersfrom
theTelecomandITsector.Atthesametime,newplayersareexpandingthe
marketsizeitself.Forinstance,entryofnewplayersintheDTHspacehas
expandedtheDTHmarketoverall.Backin2005,whenDishTVwasthesolepay
DTHserviceprovider,totalnumberofpayDTHsubscriberswas0.6million.After
theentryofTataSky,numberofpayDTHsubscribersmorethantripledtoreach
2.6millionbyend2006.14 Atpresent,inafiveoperatorscenario,totalnumberof
payDTHsubscribersisestimatedtohavereached10millionhouseholdsbythe
endof2008.15 Similarly,entryofnewplayersinHindiGECsegmenthasresulted
inincreasingtheGrossRatingPoints(GRPs)forthesegment.Inasixplayer
scenario,theHindiGECsegmentgarnered876weeklyGRPsduringNovember
2007.Aboutayearlater,withthreenewentrantsinthecategory,weeklyGRPs
forthemonthofOctober2008stoodat1135points-anincreaseof30percent.16
14AnnualReports,PressReleases
15KPMGAnalysis
16SSKIResearch
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17
Facedwithincreasedcompetitionfromnewentrants,businessesareenhancing
theirscaleofoperationsbyexpandingtheirfootprintsacrosssectorsand
geographies.Customerretentionisalsoanimperativeandcompaniesare
improvingupontheirproductfeatures,serviceofferingsandvaluepropositions.
Theseactivitiesarefurtherenhancingthecompetitioninthemarketplace,asa
resultofwhichanarrayofmediacontent,consumptionanddeliverychoicesare
beingpresentedtotheIndianconsumer.
AbriefsnapshotofsomeoftheNewMarketExpansionactivitiesoftheindustry
playersduringthelasttwoyearsisrepresentedbelow.Marketisdefinedbythe
geographicalspreadofaplayer,whileproductisdeterminedbytheportfolio
offeringoftheplayer.
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18
TheIndianMediaIndustry,especiallytheTVandFilmsectors,isseeingan
increaseinthepowerofcontentaggregators/distributorsasdistributiongets
moreorganized.Forinstance,inTVdistributionthebargainingpowerofMSOs
andDTHplayersishighandtheycommandhighbandwidthfeesforcarrying
channelsintheirnetworks.SimilarlyinFilms,aggressivemarketexpansionplans
byestablishedplayerslikePVR,Adlabsetc.isleadingtoincreaseinthemarket
poweroforganizedexhibitorsandtheyareinapositiontobargainforbetter
revenuesharingtermswiththedistributors.
Withincreasedmarketingspends,ambitiousgrowthplansandbyvirtueof
accesstotheendconsumers,thepoweroftheseplayersmaycontinueto
increaseinthenearfuture.
Goingforward,mediaplayersarelikelytoincreasinglylooktoleveragetheir
contentacrossdifferentmediaplatforms,leadingtotheemergenceofmore
mediaconglomerates.Asthesametime,competitionissettointensifyfurther
andtherapidriseinthenumberofplayers,mayeventuallyleadtoconsolidation
inmostofthesectors.
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Sectorwise
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Snapshots
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02
Sectorwise Snapshot
Television
InTVadvertising,thegrowthuptonow,wasdriventoa
significantextentbyincreasingadvertisingspendsfromfast
growingsectorssuchastelecom(although,inthewakeof
therecenteconomicdownturn,eventhefastgrowing
TheTVindustryisoneofthelargestchunkoftheIndian sectorsarecuttingdownonadvertisementspends)
M&Eindustryandhastransformedcompletelyinthelast
fewyears.ThenumberofchannelsbeamedontheTV Top10TVadvertisingsectorsbyvolumes
screenofC&SviewersinIndiahasexplodedtoover450 Sector % share
nowfromabout120in2003.Therehasbeenrapidgrowth Food&Beverages 13
inthenumberofchannelsinnewsandotherniche PersonalCare&Hygiene 9
segmentssuchaslifestyle,kidsandinfotainmentapartfrom Services 6
GECs. Telecom/ISPs 6
HairCare 5
InTVdistribution,digitalmediumshaveemergedintheform
ofDTH,DigitalCableandIPTV.SomeofIndia’sbiggest BankingandFinance 4
corporatehouseshaveinvestedintheDTHsector.The Auto 4
subscriberbasehasseenrapidgrowthandweestimatethe PersonalAccessories 4
payDTHmarkettohavereached10mnsubscribersbyend PersonalHealthcare 3
of2008.TheimplementationofCASinselectedzonesof HouseholdProducts 3
Delhi,MumbaiandKolkatafrom2007gaveanimportant Source:TAMAdEx(Datafor2008)
pushtowardsdigitizationofcable.BySeptember2008,
therewere717,722settopboxesinstalledinthemandatory Onthewhole,thetelevisionsectorisestimatedtohave
CASregionsofDelhi,Mumbai,KolkataandChennai2.Even grownataCAGRofaround13.8percentoverfrom2006to
inareaswhereCASisnotmandatory,theMSOshave 08.Withinthis,advertisinghasgrownwithanestimated
alreadybeguntodigitizetheircablenetworks.IPTV,another CAGRof16.7percentwhilesubscriptionhasgrownatan
digitaldistributionmedium,ispartofthegrowthplansof estimatedCAGRof12.4percent.
mostmajorIndiantelecomsandwithcommercialIPTV Bytheendof2008,theindustryisestimatedtohave
serviceslaunchedinDelhiandMumbaiin2008,IPTVhas reachedasizeofINR241bn,agrowthof13.8percentover
madeasmallbeginning. 2007.Outofthis,subscriptionisestimatedtocontribute
aroundINR158bntotheindustrysize,whileadvertising
revenuesareestimatedataroundINR82bn.
1Indiastat,KPMGAnalysis
2TRAIIndianTelecomServicesPerformanceIndicators(July-Sep2008)
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22
Themajorpainpointforthebroadcastersinrecenttimes Atthesametimedigitizationofcableislikelytopickup
hasbeentherapidlygrowingcarriagefeemarketwhichshot pace,independentofwhetherCASisimplementedona
upfromaboutINR6bnin2007toINR12bnin2008as widerscaleornot(although,makingCASmandatoryin55
channelsincreasinglycompetedforpremiumplacements3. bigcities,ashasbeenrecommendedbyTRAI,couldfurther
However,thecarriagefeemarketisexpectedtoeither quickentheprocess).Wethinkitispossiblethatabout35
stabilizeordropfromhereon. mncablehouseholdscouldbedigitalby2013.
Overthenextfiveyearsthegrowthislikelytobedrivenby CablehouseholdsinIndia
avarietyoffactors.Digitizationofdistributionisexpectedto
happenatarapidpaceanddigitaldistributionplatformsare
likelytodemandhigherARPUs.TheDTHsubscriberbaseis
estimatedtogrowtoaround28mnby2013,poweredby
theentryofevenmorenewplayerswhichmaymakethe
marketintenselycompetitiveandforceplayerstomarket
themselvesaggressivelyandkeepthepricepointslow.
PayDTHsubscriberbase
Source:KPMGInterviews,KPMGAnalysis
IPTVisexpectedtotakesometimetocatchupas
infrastructureisbuilttosupportitonawiderscale.Itis
estimatedtoadd4mnsubscribersby2013.
Source:KPMGInterviews,KPMGAnalysis
3KPMGResearch,KPMGInterviews
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cooperative.Allrightsreserved.
23
IPTVSubscribers
Source:KPMGInterviews,KPMGAnalysis
Withdigitizationofdistribution,bandwidthconstraintsmightgetremoved,and
therapidgrowthinthenumberofchannelsislikelytocontinue.Thusfromthe
consumers’pointofview,apartfrombetterpictureandsoundquality,digitization
mayalsoleadtoanincreasingchoiceinchannelsacrossbothmass
entertainmentandnichecategories.Thesefactorsarelikelytopushupthe
averageTVviewershiptime.Theimpactinthisregardisalreadyvisible.The
averagedailytimespentbyviewersinwatchingtelevisionhasgoneup.
Averagetimespentwatchingtelevision
Source:TAMPeoplemeterSystem;TG:CS4+years;Markets:AllIndia
Atthesametime,TVandC&Spenetrationsisalsolikelytocontinuetogrowata
steadyrate.By2013,thetotalnumberofTVowningtotalhouseholdsinIndiais
estimatedtobeabout149mnandaround85percentoftheseareestimatedto
beC&Ssubscribers.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
24
DistributionofTVHouseholds
Source:KPMGAnalysis
DrivenbyrisingARPUs(fromdigitaldistribution)andincreasingC&Spenetration,
subscriptionrevenuesarelikelytogrowatahigherCAGRof14.9percentover
2009-13comparedto12.4percentover2006-08.
Ontheotherhand,duetotheslowdownintheeconomyandtheconsequentcut
downonadvertisementspendsbycompaniesacrosssectors,advertising
revenueislikelytosufferespeciallyoverthenext2fiscals.Growthinadvertising
isestimatedtobelowerat13.5percentCAGRin2009-13comparedto16.7
percentin2006-08.
Onthewhole,thetelevisionindustryisprojectedtogrowattherateof14.5
percentover2009-13andreachasizeofINR473bnby2013.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
25
SizeofIndianTelevisionIndustry
Source:GroupM,KPMGInterviews,KPMGAnalysis
PuttingThingsinPerspective
TelevisionSector:GrowthDrivers TelevisionSector:Challenges
• Rapidgrowthinthenumberofdigitizedhouseholds • Underdeclarationofsubscribersbycableoperators
• SteadyincreaseinARPUsrealizedthroughdigital resultinginlargesubscriptionrevenuelossesforthe
distributionplatforms broadcasters
• Growthinthenumberofchannels,especiallyinniche • LowergrowthinTVadvertisingduetotheeconomy
andregionalcategories slowdownandtheconsequentcutinadvertisement
• GrowthinthenumberofTVandC&Shouseholds spends
• DelayinimplementationofmandatoryCASinotherparts
ofthecountry,inhibitingthegrowthofdigitalcable
• IncreasingcontentcostsforTVchannels,asthe
broadcastingspacegetsovercrowded
• IntensecompetitionandinabilityofDTHcompaniesto
increaseARPUsthusaffectingtheirbottomlines
• ShiftofadvertisngsharefrommajorsectorslikeTVand
Printtowardsalternatefastgrowingsectorslikeradio
andinternet
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cooperative.Allrightsreserved.
26
Filmed Entertainment
FilmedEntertainmentisthemostpervasiveandvisiblesegmentwithinthe
industrysinceitistheprimarycontentsourceforMusicandRadiobesidesbeing
amajorcontributortotheTVsegment.Henceitsimpactisnotrestrictedtoone
sectoralone.
India’sFilmindustryisoneofthelargestintheworldwithmorethan1000movie
releasesandover3bnmoviegoersannually.4 Howeverfactorssuchaspoorly
developedrevenuestreams,excessiverelianceondomesticboxoffice
collectionsandinefficienciesprevalentacrossthevaluechain,resultedin
relativelylowrevenuesfortheindustry.Theindustrywasalsohighlyfragmented
withindependentproducersandsinglescreentheatersdominatingthevalue
chain.Poorinfrastructurefacilities,highentertainmenttaxesandlongtheatrical
windows,resultedinIndiabeingahighlyunder-screenedandunderpriced
market.
Overthepastthree-fouryears,theindustryhaswitnessedtremendouschanges.
Thesechangeshavepositivelyaffectedtheplayersinthevaluechain-producers,
distributorsandexhibitors.Availabilityoforganizedfunding,adventofmultiplexes
andincreasingoverseascollectionshaveledtoimprovedrealizationsforthe
industry.Overthepastcoupleofyearsthebusinessoffilmmakinghadchanged
duetocorporatization,increasingproductioncosts,spiralingactorfeesandhigh
acquisitioncostsforcontent.Withtherecenteconomicslowdownthefilm
industryiswitnessingsomeoftheearlierexcessesbeingbroughtdowntoa
morerealisticlevelplayingfield.Theindustryisalsoenjoyinggreateracceptance
andrecognitionintheglobalarenaasisevidentbytherecentsuccessoffilms
likeSlumdogMillionaireanddealsbetweenDreamWorks-Reliance,Disney-UTV,
Warner-PeopleTreeFilmsetc.Intermsoftechnologicaladvancementsand
content,animationandspecialeffectshavegainedinsignificanceinrecenttimes,
“Besides competitive pricing, whilesmallbudgetmovieshavebeendoingwellinthemarket.WithMoserBaer
a key driver for unlocking the enteringthemarket,DVDsandVCDshavebecomeaffordableandHomeVideo
potential of home video hascometostay.Hencethedomestictheatricallifecycleofmovieshasgone
business, and tackling piracy down,whileduetoeverexpandingbudgetsandincreasingmarketspends,the
head on, will be the further breakevenpointofmovieshasincreased.
compression of release
windows”
Harish Dayani, CEO -
Entertainment Division, Moser
Baer
4SSKIReportonIndiaMediaandEntertainmentIndustry,2007
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27
TheindustryisprojectedtogrowattheCAGRof9.1percentoverthenext5
years,andreachthesizeofINR168.6bnby2013.Itisestimatedthatthegrowth
rateoftheindustrymayremainflatinthenextyearowingtolessnumberof
releases,lesseroccupancyratesandlesserrealizationsfromC&Srightsand
ancillaryrevenuestreams.
SizeofIndianFilmIndustry
Source:KPMGAnalysis
5KPMGAnalysis
6KPMGAnalysis
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cooperative.Allrightsreserved.
28
CAGR CAGR
Film Industry (INR bn) 2005 2006 2007 2008 2009p 2010p 2011p 2012p 2013p
(2006-08) (2009-13)
DomesticTheatrical 52.05 62.11 71.49 80.21 15.5% 78.81 83.70 92.74 108.22 119.80 8.4%
OverseasTheatrical 5.30 5.71 8.71 9.77 22.7% 10.75 12.12 13.86 16.0 18.65 13.8%
HomeVideo 4.29 6.43 7.01 8.63 26.3% 9.84 11.31 12.90 14.47 16.06 13.2%
Cable&SatelliteRights 3.31 4.97 6.21 7.14 29.2% 6.43 6.88 7.57 8.40 9.41 5.7%
AncillaryRevenueStreams 2.01 2.45 2.94 3.53 20.7% 3.35 3.52 3.80 4.18 4.68 5.8%
TotalIndustrySize 66.95 81.66 96.36 109.29 17.7% 109.18 117.53 130.86 151.28 168.60 9.1%
Theperformanceisexpectedtobemainlydrivenbyimprovedcontributionsfrom
overseasboxofficecollectionsandgrowthinhomevideosegment.Cable&
Satelliterightswouldcontinuetoremainanimportantrevenuestream,even
thoughowningtocostrationalizationbyTVbroadcasters,theacquisitioncostsis
expectedtostabilize.Regardingdomesticboxofficecollections,capacity
expansionbytheorganizedexhibitionplayersislikelytoleadtoincreasein
numberofmultiplexesacrossthecountry.Theadditionstoexistingcapacityare
notlikelytobeuptothesamelevelsasanticipatedduetotheoverallliquidity
crunchandtheslowdowninconstructionsector.Still,increaseinnumberof
multiplexesisexpectedtoleadtoimprovedrealizationsowingtobetter
occupancyratesandhigherAverageTicketPrices(ATPs)atthesemultiplexes.
Further,tosomeextent,increaseinnumberofdigitalscreensacrossthecountry
isexpectedtofacilitatewiderreleaseoffilmprintsaswellasbetteroccupancies
insmallercenters.Howeverthenumberoffilmreleasesisexpectedtoreducein
2009owingtotheliquiditycrunchandshortageoffundsandtheconsequent
wideningofgapbetweencommencementofproductionandreleaseoffilms.
NumberofMultiplexscreens
Source:IndustryInterviews,KPMGAnalysis
Domesticboxofficecollectionsarelikelytocontinuetoremainthedominant
revenuesourcefortheindustry.However,otherrevenuestreamsmaycontinue
togrowatafasterrate.
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29
CompositionofFilmRevenues
Source:KPMGAnalysis
Theperformanceofthesectorprimarilydependsoncontent.Eventhoughthe
supplysidefactorsareencouraging,itisultimatelythenumberofpatronsvisiting
cinemahallsthataffectsmoviecollections.Thesectoralsohastocontendwith
competitionfromothersubsectors.2008wasacaseinpoint,whenthemovie
collectionsfromthemonthsofApriltoJunewereaffectedduetoIPLtelecast;
traditionallythesummerseasonhasbeenamongstthemostrevenuegenerating
onesfortheindustry.Lowtomediumbudgetmoviesdohaveupsidepotential
butthatdoesnotimplythatthesuccessratiointhemoviemakingbusinessis
improving.Sincethereisnosureshotformulaguaranteeingahitinthebox
office,productionhouseshavetobalancetheirproductportfoliowithajudicious
blendofbig,mediumandsmallbudgetmovies.Ensuringsteadyfuturecash
flowshasalsoassumedsignificanceinrecenttimes,andhencevaluationof
librarycontentalsobecomesimportant.
Oneofthebiggestchallengesfacingtheindustryisthebaneofpiracy.According
toindustrysources,piracyisanINR20bnmarket,anditsshareofthetotal
homevideomarketisonlyincreasing.7 Industryplayersandthegovernment
needtocometogetherforstrongerenforcementofantipiracylaws.Ifpiracyis
controlled,therevenueearningpotentialofthesectorissignificantlyhigher.
“With an extremely tight liquidity market, and given the fact that the
multiplex business is highly capital intensive, the focus is going to be on
improving margins, which would come by upping spends at the screens,
increasing ticket admits and lower rental payouts. We see a slow down in
the roll out and deliveries of new malls, which would impact the start of
new multiplexes in the year ahead.”
Shravan Shroff, Managing Director, Fame India
7KPMGInterviews
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cooperative.Allrightsreserved.
30
PuttingThingsinPerspective
Filmed Entertainment Sector: Growth Drivers Filmed Entertainment Sector: Key Challenges
• Expansionofmultiplexscreensresultinginbetter • Managingcostofproductionandarrestingthefallin
realizations profitabilitylevels
• Increaseinnumberofdigitalscreensfacilitatinginwider • Increasedcompetitionfromothermediaandmajor
filmprintsreleases eventslikeIPLaffectingoccupancyratesintheaters
• Enhancedpenetrationofhomevideosegment,primarily • Increasedpressureforsupplyoffilmcontentcausingthe
inthesellthroughsegment qualityofcontenttosuffer
• IncreaseinnumberofTVchannelsfuellingdemandfor • Homevideopiracyandillegalmoviedownloadsaffecting
filmcontent,andhenceresultinginhigherC&S thelegitimaterevenuecollections
acquisitioncosts • Regulatoryhurdleslikedifferententertainmenttaxrates
• Improvingcollectionsfromtheoverseasmarkets indifferentstates,antiquatedIndianCinematographAct
etc.
Print Media
TheIndianPrintMediasectoriscurrentlypassingthroughoneofitsmost
dynamicphaseswithmostplayersexpandingtheirfootprintsbeyondtraditional
regions,strongFDIinvestmentspouringintotheindustryandmultipleprint
mediamodelsbeingexperimentedbytheplayers.ThestructureoftheIndian
Newspaperindustrycontinuestobehighlyfragmentedandregionaldominant.Of
thetotalprintpublicationsinthecountry,around90percentconsistsofHindiand
othervernacularlanguages8.Regionaldominanceisnottypicalofonlyvernacular
papers;evenEnglishnewsdailieshavemanagedtogaindominanceonlyin
specificpockets.LargeprintmediaplayerslikeHTMedia,JagranPrakashan,
DainikBhaskar,EenaduorDeccanChroniclehaveregion-specificreach.
Advertisingrevenuecontinuestobethekeygrowthdriverbehindtheindustryas
decliningreadershipandincreasingcompetitionhasledtheplayerstofurther
reducetheircoverprices.Asaresult,thissectorhasbeenthemostaffectedby
theslowdowninadvertisingdueowingtotherecentdownturn.Further,dueto
risingnewsprintcosts,playerswerecompelledtoundertakemultiple
advertisementratehikesduringthefirsthalfof2008,whichononehand
improvedperunitrealizationsfromadvertising,butontheotherhandmadethe
mediaanexpensivepropositionformostadvertisers.
Thesectorwitnessedalotofactionin2008,especiallyinthefirsthalf,withthe
spurtinthenumberofspecialtymagazines,launchofnichenewspaper
supplements,aswellasaggressiveportfolioandgeographicexpansionby
differentcompanies,bothinthenationalandregionalspace.Boththe
newspapersandmagazineplayersalsodisplayedincreasingtendencyto
8IndianReadershipSurvey
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
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31
aggressivelycompetewitheachothertoreachtheirtargetaudience.More
newspaperplayershavestartedtointroducenichesupplementstocounterthe
onslaughtofspecialtymagazinelaunches.Thesedevelopmentsbenefitedboth
theconsumers,duetoincreasedavailabilityofchoicesandbetterproductquality,
aswellastheadvertisersduetobetterchancesofreachingthetargetaudience.
Withareadershipbaseofover250mn,Indiaisthesecondlargestprintmarket
intheworld9.However,thismarketisstillunderpenetratedforacountrywitha
populationinexcessof1,200mnandhighlyfragmentedwithover60,000
newspapersprintedin22languages10.Thelowpenetrationoftheprintmarket
providesasignificantgrowthopportunitywith359mnwhocanreadand
understandanylanguagebutdonotreadanypublication11.Withan85percent
reachintheurbanmarkets(SECAandB)andanabysmal33percentreachin
ruralmarkets(SECC,DandE),webelievethatamajorgrowthopportunityliesin
thevernacularmarkets.
TheIndianPrintMediaindustryisestimatedtohavegrownby7.6percentin
2008andreachingaroundINR172.6bninsize.ThecorrespondingsizewasINR
160.4bnin2007.Theperformanceofthesectorwasaffectedbytherecent
economicslowdown,whichhasaffectedadvertisingindustry.Advertising
revenuesisestimatedtohaveincreasedby812 percentoverthepreviousyearto
reachINR108.36bnin2008.Thesectorhasbeenadverselyaffectedbythe
economicmeltdown,andtheadvertisingrategrowthhasbeenlowerthanTVdue
tohigherexposuretorealestate,autoandtravel,andlowerFMCGcontribution.
Further,enhancedcompetitionhasalsoledtofallinaveragecoverpriceswhich
havecounteredtheriseincirculationvolumesfortheplayers.Circulation
revenueshaveonlyrisenby7.4percentovertheyeartoreachINR64.3bn.The
sectoristhusestimatedtohavegrownbyaCAGRof13.8percentoverthepast
threeyears,agrowthratewhichisstillhigherascomparedtothesingledigits
growthwitnessedinothernations.
TheindustryisprojectedtogrowataCAGRof9percentoverthenextfiveyears
andreacharoundINR266bninsizeby2013.
9MRUC
10RegistrarofNewspapersofIndia
11IndiaReadershipSurvey
12GroupM
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32
ProjectedSizeofIndianPrintMediaIndustry
Source:GroupM,KPMGInterviews,KPMGAnalysis
Advertisingwillincreaseitsdominanceastheprimaryrevenuesourceofthe
industryandisexpectedtoconstitutearound66percentof2013revenues.
Growthinadvertisingwouldbedrivenbyincreasingadvertisingspendsby
emergingsectorslikeOrganizedRetail,TelecomandEducation.AtaCAGRof10
percent,advertisingrevenueswillgrowatafasterrateascomparedtothe
CAGRof7.4percentforthecirculationrevenues.Whileadvertisingrevenueis
basicallyrelatedtoeconomicgrowthinthecountry,thecirculationrevenuesis
expectedtogrowowingtostructuralgrowthdriverslikerisingpenetration,higher
Top10Printadvertisingsectorsby literacylevelsandimprovingaffordabilityofthemedium.
volumes
Thetop10sectorscontributedaround65percentshareofoverallPrint
Sector % share
advertisingin2008.
Education 15
NewspaperpublishingwouldcontinuetodominatePrintMediaandisexpected
Services 12
tocomprisearound92percentofthetotalrevenuesofthesectorin2013.
Banking/Finance/Investment 10
Newspaperpublishingisexpectedtogrowatthecompoundedannualrateof9.1
Auto 7 percentoverthenextfiveyearsandisprojectedtoreachINR245.4bnby2013.
Retail 5 Themagazinepublishingsegmentisexpectedtogrowatacompoundedannual
rateof8.1percentoverthenextfiveyears,andisprojectedtoreachINR20.5bn
Durables 4
insizein2013.
PersonalAccessories 3
Corporate/BrandImage 3
PersonalHealthcare 3
Media 2
Source:Indiantelevision
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
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33
PrintMediabreak-upbySegments
Newspapers 108.0 128.3 148.3 158.7 13.7% 169.0 181.8 198.5 220.4 245.4 9.1%
Magazines 9.1 10.3 12.1 13.9 15.4% 14.9 16.2 17.6 18.9 20.6 8.1%
TotalIndustry
117.1 138.6 160.4 172.6 13.8% 183.9 197.9 216.0 239.3 266.0 9.0%
Size
Source:GroupM,KPMGInterviews,KPMGAnalysis
Theongoingeconomicslowdownposesahugechallengeforthesectorowingto
itsheavyrelianceonadvertising.Also,withtelevisionfragmentation,print
advertising’scostadvantagehasbeenmarginalized;existingprintplayerswanting
tosurvivethismarketneedtomoveawayfromasinglemediummodeltoamulti
mediummodel.Magazineplayersneedtofocusonarrestingthedeclining
readershiplevels.
PuttingThingsinPerspective...
Print Media Sector: Growth Drivers Print Media Sector: Key Challenges
• Sustainedgrowthinadvertisementrevenuesdueto • Increasedcompetitionfromnewschannelsaswellas
increasedadvertisingspendsbytheemergingsectors newmedialikeinternetandmobile
suchasEducation,OrganizedRetailandTelecom • Adverseimpactonadvertisingrevenuesduetoa
• Improvingliteracylevelsinthecountry prolongedeconomicslowdown
• Optimizationofcoverpricesleadingtoimproved • Continuousriseinnewsprintcosts
penetrationandgrowthinsalesvolume • Continuingdeclineinreadershipfigures,especiallyin
• Morelaunchesinthenichesegment,likenewspaper caseofmagazines
supplementsandspecialtymagazines,byplayers
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34
Radio
Radioadvertisementspendsaccountforabout4percentofthetotaladvertising
spendsinIndiatoday,havinggrownfromjust2percentin200413.Thegrowth
hasbeenpropelledbytheemergenceoftheprivateFMindustryinIndia.
Intermsofsheerreach,theIndianradioindustryhasbeendominatedbythe
stateownedAllIndiaRadio(AIR),whichcovers91percentofIndia'sareaand
reaches99percentofthepopulation14.However,theturningpointforthe
industrycamewiththePhase2privatizationreformswhenthegovernment
rationalizedthelicensingfeebyfixingitat4percentofthegrossrevenues(or10
percentoftheReserve(One-Time-Entry-Fee)OTEF,whicheverwashigher).This,
forthefirsttime,madethebusinessmodelviableforcompanies,and
consequentlymanylargecorporatehousesenteredtheprivateFMbusiness.
From21operationalprivateFMstationsbeforethephase2licensing,the
numberofstationsshotuptoover205bytheMarch200815.Theindustrynow
boastsofplayerssuchasRadioMirchiandBigFMwithapan-Indiapresence.
Consequently,theradioindustryisestimatedtohavegrownatanimpressive
CAGRof19.7percentover2006-08.
ItisestimatedtohavereachedasizeofINR8.4bnbyendof2008,agrowthrate
of13.5percentoverthepreviousyear.16
Growthinthefutureislikelytocomethroughcontinuedincreaseinthenumber
ofradiostationsafterphase3licensing,furtherliberalizationofregulationsas
wellasbetterabilityoftheradiostationstoselladvertisementspace.
TRAIhasgivensomeveryimportantrecommendationsforphase3licensingof
thesector.Theserecommendations,ifacceptedbythegovernment,couldgivea
newgrowthpushtothesector.Someoftheimportantrecommendationsare
concernedwithallowingradiostationstobroadcastnews(thishasalreadybeen
givenago-aheadbytheI&BMinistry),increasingFDIlimitsto49percentfrom
thecurrent20percent,allowingnetworkingwithintheradiostationsownedby
thesamecompany,permittingtradabilityoflicensesandallowingownershipof
multiplesfrequencies.Therecommendationscouldhelpinimprovingthe
operationalefficienciesofradiocompanies,gettinginmoreforeigninvestments
inthesectoraswellasmovingtheindustryfrombeingcenteredonasingle
genre(i.e.hitmusic)toofferingmoredifferentiatedcontent.Emergenceofniche
radiostationscouldalsohelptheindustryinattractingnewlistenersanddriving
upoverallradiolistenership.
13KPMGAnalysis
14KPMGIndianEntertainmentIndustry-Focus2010Report
15Indiastat
16KPMGAnalysis
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
35
Introductionofanewperformancemetrictoolforthesector-RAM(Radio
AudienceMeasurement)-isalsoexpectedtoaidthegrowthinradioadvertising.
Eventhoughanotherradiolistenermeasurementtool-IndianListenershipTrack
(ILT)-alreadyexistedinthemarket,buttheadventofRAMprovidesanother
optiontobothadvertisersandradiostations.BothRAMandILTareexpectedto
aidthegrowthinradioadvertisingbymakingthemeasurementofreturnon
investmentforadvertisersmorescientificandassessable,andthusallowingradio
stationstosellthemselvesbetter.
Further,thesizeoftheradioadvertisementindustryasapercentageofthetotal
advertisementindustryinIndiaisstillprettylowatabout4percent.17 Thisis
againstaglobalaverageofabout8percent.18 Also,theratiooflocaltonational
advertisementsisskewedinfavorofnational,contrarytoglobaltrends,indicating
alargescopeforgrowthinthelocaladvertisingsegment.
RatiooflocaltonationaladvertisementsonRadio
Source:Industry
AsregionalbusinessesinIndiastarttospendmoreaggressivelyonadvertisingto
buildbrandconsciousness,theyarelikelytoturntomedialikeradioandprint
whicharehighlycosteffectiveforregionaladvertisementcampaigns.
Howeveratthesametime,likeTVandPrint,radioisalsolikelytofeelthepinch
ofoverallreducedadvertisementspendsinaslowergrowingeconomy.Already,
inthequarterendingDecember2008,advertisementvolumesonradiodeclined
by14percentcomparedtothesamequarterayearago19.
Onthewhole,theradioindustryisexpectedtogrowataCAGRof14.2percent
over2009-13(comparedto19.7percentover2006-08)andreachasizeofINR
16.3bnby2013.
17KPMGAnalysis
18KPMGIndianEntertainmentIndustry-Focus2010Report
19“SlowdownforcesFMradiostocutadvertisementratesby10-15%”,BusinessStandard,February2009
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
36
SizeofRadioIndustry
Source:GroupM,KPMGInterviews,KPMGAnalysis
PuttingThingsinPerspective...
• Increaseinthenumberofradiostationsdue-around • Adverseimpactonrevenuesduetoapossiblyprolonged
700newlicensesexpectedtobeissuedtoPrivateFM slowdownintheeconomy
stationsinPhase3 • OvercrowdingofFMstationsespeciallyinmetrosand
• Expectedregulatoryreformsthatarelikelytoimprove inability/reluctanceofthestationstodifferentiate
profitabilityandstimulateforeigninvestments amongstthemselvesintermsofcontent
• Emergenceofrobustaudiencemeasurementtoolswhich • Stiffcompetitonfromprintforlocaladvertisements
couldfurthercatalyzegrowthinradioadvertisement
spends
• Growthinlocallytargetedadvertisingonradio
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
37
Music
TheadventoftheMP3format,proliferationoftheinternetandpeer-to-peer
networksandthewidespreadavailabilityofportablemusicdevicescreateda
paradigmshiftinthewayusersaccessedandconsumeddigitalmusicworldwide.
Thesetrendsinitiallyhadacripplingeffectontheworldwidemusicindustryin
termsofthesignificantrevenueerosionresultingfromfreeaccesstodigital
music.
Theglobalmusicindustrywasinitiallyslowtorespond,butwithsupportive
legislation,strictlawenforcement,effectivetechnologypartnerships,innovative
marketingandadaptationofitsbusinessmodelinlinewithconsumptionhabits
wereabletoturntheirfortunesaround.ThechallengesfacingtheIndianmusic
industryarenotunlikethosefacedbytheirglobalcounterpartsandneedurgent
attentionbyfollowingglobalbestpracticessuitablyadaptedtofactorinthe
nuancesoftheIndianconsumermindset.
ThesizeoftheIndianmusicindustrywasestimatedataroundINR7.3bnin
2008,downfromINR8.3bnin2005,implyingadegrowthof4.8percentduring
theperiod.Oneoftheprimaryreasonsforthisdegrowthhasbeentheerosionof
salesofphysicalformats,atrendwhichisexpectedtocontinuewellintothe
future.Theindustrythereforewillhavetobankonrevenuesfromdigital
distribution,broadcastandpublicperformancelicensingrevenuesnotonlyto
compensatefordecliningphysicalsalesbutalsodrivegrowthgoingforward.
Anumberoffactorsareeatingintotherevenuesofthemusicindustry.Withthe
numberofmusicenabledportabledevicesontherise,thepracticeofloading
portablestoragedeviceswithunauthorized,unlicensedmusic–apractice
commonlyreferredtoas“sideloading”isemergingasasubstantialthreatto
industryrevenues.Addtothattheclassicalpiracyofphysicalmusicformatsand
morerecentlycompactdiscswithunlicensedmusicishurtingtheindustry.
Physicalformatssuchasaudiocassettesandcompactdiscs,whichaccountedfor
approximately87percentofindustryrevenuesin2005currentlyaccountforjust
under60percentin2008.Aconsistentvolumedegrowthofphysicalformats
coupledwithfactorssuchaspriceerosion,piracyandarobustgrowthinnon-
physicalformatssuchasmobilevalueaddedserviceshascontributedtothe
changingrevenuemix.Goingforwardphysicalrevenuesareexpectedtodecline
ataCAGRof9percentbetween2008and2013.Whiletheactualdegrowthof
formatssuchasaudiocassettesisexpectedtobemuchhigher,thisislikelytobe
partiallyoffsetbyinitiativestakenbysomeleadingmusiccompaniessuchas
SonyBMG,T-SeriesandSaReGaMatoreleaseMP3musiconcompactdiscsat
pricepointssimilartothatoftheubiquitousaudiocassette.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
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38
TheIndiandigitalmusicmarketisestimatedatINR1.8bnin2008.Digitalmusic
distributionismainlyrestrictedtoIndia’srapidlygrowingtelecomsegment,
largelythroughringtonesandcallerringbacktunes.Asmobileandbroadband
penetrationinIndiacontinuestogrowandwiththerolloutofhighspeed3Gdata
services,themarketforotherdigitaldistributionplatformssuchasa-la-carte
downloads,streamingandmusicsubscriptionswillevolve,asithasinother
marketsworldwide.Forexample,intheUnitedStates,whichhasabroadband
penetrationofover22percentandmobilepenetrationof88percentin200820,
digitalmusicsalesaccountedfor39percentoftotalmusicsalesin200821.This
changingshiftfromphysicaltodigitalisalsoexpectedtocontributepositivelyto
marginsinthenearterm,sincedistributioncostsfordigitalformatsisfarlower
thanthatofphysicalformats.
Licensingrevenuesfromradioandtelevisionwhichaccountedfor2.5percentof
totalindustryrevenuesin2005accountedforabout5percentoftotalindustry
revenuesin2008.Licensingrevenuesfromtelevisionandradioisexpectedto
increasefromINR386mnin2008toINR921mnin2013ataCAGRof19
percent.Anewgenreofmusicbasedtelevisionrealityshowsarelikelytodrive
growthinthissegmentgoingforward.
ThepublicperformancesegmentwithrevenuesofINR173mnin2008is
expectedtomorethandoubletoreachINR378mnby2013.Thisgrowthislikely
tobedrivenbyimprovementinliveeventinfrastructure,increasingpublic
awarenessofcopyrightandintellectualpropertylaws,corporatizationofthe
retailandrealestatesegmentsandgreateractiononthepartoflawenforcement
agencies(withsupportfromindustryplayers)toensurecompliance.
Overall,theindustryisexpectedtogrowatamodestCAGRof8.0percent
between2008and2013toreachINR10.7bnby2013.
In2008,totalmusicsalesintheUnitedStatesacrossallformatsregistereda
10.5percentannualgrowthtohitanalltimehighofUSD1.5billion22,compared
to2002whentheindustrywasdegrowingat10percent23.MuchliketheirUS
counterparts,Indianmusiccompaniesneedtoadapttothechangingbusiness
environmentbroughtaboutbytechnologicaladvancesandchangingconsumer
patternstoreplicatethistrend.
20Frost&Sullivan
21IFPIDigitalMusicReport2009
22 NielsenSoundscan
23 IFPI
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
39
SizeofIndianMusicIndustry
Source:KPMGAnalysis
Digital 0.86 1.11 1.44 1.88 30.0% 2.44 3.22 4.19 5.24 6.55 28.4%
TelevisionandRadio 0.21 0.26 0.32 0.39 22.5% 0.46 0.56 0.67 0.78 0.92 19.0%
PublicPerformances 0.03 0.07 0.12 0.17 75.3% 0.21 0.25 0.29 0.33 0.38 17.0%
TotalIndustrySize 8.3 7.8 7.4 7.3 -4.4% 7.5 8.0 8.7 9.5 10.7 8.0%
Source:KPMGInterviews,KPMGAnalysis
PuttingThingsinPerspective...
• Increaseindigitalsales,onthebackofincreasingmobile • Inabilityofthemusiccompaniestonegotiatebetter
andbroadbandpenetration;shiftfrompolyphonicring revenuesharetermswithmobileoperators
tonestotruetonesandfulltrackdownloads • Sortingoutissuesrelatedtolicencingofrightswith
• Introductionofsubscriptionbasedmodelfor broadcatingandradiocompanies
downloadingandstreamingofmusic • Sustainedrevenueleakagesthroughdigitalpiracywith
• Growthinparralleleconomy–companiesareworking increasinginternetandbroadbandpenetrationsinIndia
collectlivelywithvendorsforside-loadingofmusicin • Failureofadoptionofapaidonlinemusicdownload
cafesandkiosksoronchips/memorycards/handsets modelgiventhepresenceofinternetbasedfreeillegal
andotherpointsofconsumption songdownloadalternatives
• Reducedrevenueleakagesduetopiracy,through • Inabilitytoregularisetheparalleleconomyoflow-cost
proactivelegislativeandenforcementactionbylaw sideloadingalternativesforportablemusicdevices
enforcementagenciesandmusiccompanies throughinnovativemarketingandpricing
• Differentiatingonprice,contentandvolumeonaperunit • Publicawarenessandenforcementoflawsagainst
basisvis-à-visthepiratedunit copyrightinfringementandviolationofintellectual
• Developmentofregionalmusiccatalogsbymusic propertyrights.
companies
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
40
Outdoor
OutdoorMedia,alsoreferredtoasoutofhome(OOH)media,includesalltypes
ofadvertisingthatreachestheconsumerwhileheorsheisoutsidethehome.
Thesectorprimarilycomprisesfoursegments:
• Billboards-Thesearethestandardizedlargeformatadvertisingdisplays.They
includeStreetHoardings,Posters,WallMurals,Bulletins,Spectacularsaswell
asDigitalOutdoorMedia
• StreetFurniture-Thesearedisplaysatpublicamenityforeye-levelviewingor
atcurbside.SomeofthecommonformsincludeSignages,Information
Kiosks,BusShelterspanels,Malldisplays,etc.
• Transit-Thesearedisplaysaffixedtomovingvehiclesorpositionedinthe
commonareasoftransit.Thissegmentcoversadvertisingdisplayedin
airports,railwaystations,taxi-carriers,businteriors,etc.
• AlternativeMediums,whichcoverotheradvertisinginotherplacessuchas
RestAreaPanels,StadiumandArenadisplays,VendingCartUmbrellas,etc.
Globally,theOOHsectorhasoutperformedtheoveralladvertisingindustryand
accountsforaround5.6percentoftheoveralladvertisementspend.24 However
inIndia,thegrowthofIndianOOHsectorhasbeentraditionallyhamperedbythe
unorganizedandfragmentednatureofthesector.
Howeverwiththerecentthrustoninfrastructuredevelopmentinthecountryover
thepasttwo-threeyears,OOHisacquiringscaleandemergingfromthemargins
ofadvertising.Thegovernmentisinvestingheavilyininfrastructureprojectsand
seekingprivateparticipation.CitydevelopmentinIndiaisridingonthebackof
advertisingsupportfromOOHmediacompanies.Localgovernmentsand
municipalbodieshavediscoveredvalueinmakingoutdoorcompaniesinvestin
basicinfrastructuredevelopmentinlieuofmediarightstothoseproperties,a
standardpracticeinmuchofEuropeandtheU.S.Thisisfuelingthegrowthofthe
sector,asaresultofwhichitisincreasinglyattractingorganizedinvestments,
bothfromthenationalandregionalplayers.Further,thesectorisbecomingfar
moreorganizedandhasseensignificantchangeswithemergenceofnew
segmentssuchasairports,ambientmedia,digitalmediumsetc.
24ZenithOptimediaReport,2008
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cooperative.Allrightsreserved.
41
OOHmediahasgrownataCAGRof17.3percentoverthepast3years,andis
estimatedtohavereachedINR16bninsizein2008,agrowthof15percentover
200725.Thesector’sperformancewasaffectedinthesecondhalfoftheyear
owingtotheoveralleconomicslowdown.ItisprojectedtogrowataCAGRof
12.8percentoverthenext5yearsandreachasizeofaroundINR29.3bnby
2013.
ProjectedSizeofIndianOutdoorIndustry
TotalIndustrySize 10.0 11.7 14.0 16.1 17.3% 17.7 19.8 22.4 25.5 29.3 12.8%
Source:KPMGInterviews,KPMGAnalysis
Outdoorisacitycentricandalocalmedium,andduetoincreasedinfrastructure
developmentactivitiesintheTier2andTier3cities,industryplayersareexpected
tofocusmoreonthesecitiesinfuture.OOHadvertisingislikelytogrowata
fasterrateinthesesmallercitiesandtowns,owingtothecosteffectivenessof
outdooradvertisinginthesetownsintermsofoutdooradvertising.Also,with
localauthoritiesandmunicipalcorporationsbeginningtoframeguidelinesto
regulatethesector,OOHisexpectedtogetmoreorganizedoveraperiodof
time.
Currently,thegrowthismainlyinTier1towns,withmetrosaccountingformore
thanhalfofthetotalOOHmarket.Industrysectorsspendingthemostonthis
mediumincludeTelecom,Media&EntertainmentandFinancialServices
companies26.
25KPMGAnalysis
26IndustryInputs
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
42
CitiesthatcontributethemosttoOOHAdvertising
Source:GroupM,KPMGAnalysis
Withincreaseinconsumerspendsandintensifiedinfrastructuraldevelopment
activitiesinTier2andTier3towns,penetrationinthesesmallertownsarelikely
todrivethegrowthofOOHinthefuture.Withretaildevelopmentandconsumer
boom,AmbientMediaisalsoexpectedtogainsignificance.Further,thesectoris
expectedtowitnessincreasingverticalsegmentationinfuture,asplayersmove
towardsowningIPRfortheirOOHcreatives.
TheIndianOOHsectorhasbeentraditionallydominatedbybillboards,which
currentlyaccountsforaround60percentoftotaladvertisingspendsinthe
sector27.ThissegmentisunderpressureinurbancenterswithChennaialready
banningthemandspeculationaboutBangalore&Delhiplacingfurthercurbs.The
battleforbillboardsissettoshifttosmallercities.Theshareofbillboardsis
expectedtoreducegoingforwardastheyincreasinglybecomemoreregulated.
HoweveritisstillgoingtoremainthelargestsegmentwithinOOH.
OOHSegmentSharein2008
Source:IndustryInputs,KPMGAnalysis
27KPMGInterviews,KPMGAnalysis
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43
Oneofthebiggestchallengesthatthesectorfacestodayisthelackofacentral
regulatorygoverningOOHmedia.Rulesandregulationsvaryfromstatetostate,
whichinhibitsstandardizationsacrosslocationsandleadstounregulatedgrowth.
Lackofastandardscientificmetrictogaugetheresultseffectivenessofthe
mediumisanotherbottleneck.Inthisregard,theinitiativebytheMediaResearch
UsersCouncil(MRUC)ofconductinganIndianOutdoorSurveyacrossthetop10
citiesinIndia28 cansetagoodprecedentandisexpectedtobenefitthesectoras
awhole.Furthertheongoingliquiditycrunchhasforcedmanyrealestate
developerstogoslowonconstructionactivities,thusaffectingthesupplyofretail
space29.ThisislikelytoaffectthespreadofAmbientMedia.
PuttingThingsinPerspective...
Outdoor Media Sector: Growth Drivers Outdoor Media Sector: Key Challenges
• Enhancedlevelsofinfrastructuredevelopmentactivities • Lackofacentralauthoritytoregulatethesector
inthecountry,especiallyinTtier2andTier3cities • Lackofascientificmetrictomeasuretheeffectiveness
• Audiencefragmentationintraditionalmedia ofthemedium
• HigherspendingonOOHfromsectorssuchasTelecom • Fastchangingregulatoryframework-incasethereare
andMediaandEntertainment moreinterventionstobanBillboardsinothercitiesas
well,theperformancecouldbeadverselyaffected
• Slowdowninconstructiondevelopmentandreductionin
expansionplansofmalls
28MRUCWebsite,KPMGInterviews,PressReleases
29EconomicTimes,“DLFstallsafourthofitsprojectstosavecosts”,February2009
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44
AtanestimatedsizeofINR17.4bnin2008,theIndiananimationindustryis
minisculeascomparedtotheglobalanimationindustrywithestimatedrevenues
inexcessofINR153030 bnby2010.However,theIndiananimationindustryhas
beengrowingrapidlywithanestimatedCAGRof20.1percent31 in2006-08.Itis
estimatedtoreachasizeofaboutINR39bnby2013.
SizeofIndianAnimationIndustry
TotalIndustrySize 10.0 12.0 14.5 17.4 20.1% 20.0 23.3 27.8 33.1 39.4 17.8%
Source:KPMGInterviews,KPMGAnalysis
Amongthedifferentsegmentsoftheanimationindustry,theanimation
productionservicessegmentisestimatedtogrowthefastestwithaCAGRof
21.9percentin2009-13.
30AnimationExpress.com
31KPMGEstimates
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
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45
SizeofIndianAnimationIndustry
Source:KPMGAnalysis,KPMGInterviews
Increasedoutsourcingfromoverseascountriesduetoaninherentcost
advantage,maturityofinternationalanimationstudios,emphasisonIPcreation
andattractivedomesticopportunityhavebeentheprincipalgrowthdriversforthis
sector.Hence,servicesincomecomprisesapproximately60percent32 ofthe
totalanimationindustryinIndia.Televisionproduction,directtoDVDproduction
andinternationalfeaturefilmsproductionscomprisedthecorebusiness
repertoireoflocalanimationhouses.Increasinginternationaldemandledtothe
proliferationofstudiosintheIndianmarket.However,largeanimationplayers
suchasCrest,TataElxsithatprimarilyreliedonservicesoperationsare
graduatingtoco-productiondealstoreducetheirdependenceonservicingand
createanIPlibrary.
Thecommercialsuccessof“Hanuman”,basedonmythologicalcontent,proved
thatthereisagrowingmarketforlocallygeneratedanimationcontent.Realizing
thispotential,anumberofglobalplayershavestartedtappingtheIndianmarket
eitherindependentlyorthroughco-productiondeals.In2008,filmstudiossuchas
YashrajFilms,PerceptPictureCompany,pureplayanimationplayerssuchas
Crest,DQEntertainmentandmediaconglomerateslikeDisney,MGM,
Paramountindicatedtheirintenttoexploitthismarketthroughlocallyproduced
content.Hence,productcreationasapercentageshareoftheanimationindustry
isslatedtoincrease.
In2008,postproductioncompaniesalsogrewatasteadyratebutwitnessed
significantcompetitionfromcountriessuchasSouthKorea,Taiwan,Philippines
andChina.Tomitigatethreatsfromotherlowcostcountriesandmaintain
internationalqualityandstandardsleadingIndiancompaniesdecidedtoacquire
frontendoperationseitherthroughacquisitionsorstrategictieups.Forexample,
PixionacquiredtwoLondonstudios,Men-from-MarsandMolinare33.
32KPMGEstimates
33Animationexpress
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46
Growth Drivers
Indiawithit’srichheritage,cultureandalargetalentpool,hasthepotentialin
creatingcontentforIndianaswellasglobalaudiencesintransferring5000-year-
oldtimetestedstoriesintonewmedia.Themythologycenteredanimationfilms
releasedinthelastfewyearsincludingthelikesofHanuman,HanumanReturns
andBalGaneshareindicatorsofthistrend.TheIndiananimationindustryhas
usedmythologytostartnarratingtotheIndianaudience.Astheindustryevolves
andtheaudiencematures,locallydevelopedcharacterswouldgaindomesticand
internationalacceptance.
2. Outsourcing Advantage
SignificantcostadvantageduetolowcostlaborandavailabilityofEnglish
speakingemployeesmakesIndiaafavorableoutsourcingdestinationforglobal
productionhouses.OutofthetotalrevenuesgeneratedbyIndiananimation
studios,over70percent34 arederivedfromoutsourcing.Themajorwork
outsourcedincludesthecreationofanimationandlipsynchronizingwhichis
labourintensiveandrequireslessercreativequality.Thus,Indianstudiosareable
toprovidecosteffectiveandqualityservicestoglobalclients.Adownturninthe
globaleconomicenvironmentwillcausemajorproductionhouseslikeWalt
Disney,Paramount,IMAX,SonyPictures,PixarandWarnerBrotherstoreduce
theircostofproductionbyoutsourcingoperationstolowcostcountrieslikeIndia.
CostofproducingafulllengthanimatedmovieintheU.S.isUSD100-125mnas
comparedtoUSD25-30mnfromoutsourcingtoIndia.35
Oneofthedriversforthegrowthoftheindustryisthatithasalreadyinplacefor
thepast20years.Withmorethantwodecadesofexistence,localanimators
haveacquiredinternationalprocessesandsystems,qualitycontrolmethodsand
technologicalinfrastructuretobuildintellectualpropertycomparableto
internationalbenchmarks.
Increasingdisposableincomesanddemographicchangeshasresultedinabreak
awayfromappointmentviewingtouserdefinedviewing.Theleaderofthehouse
nolongercontrolstheremotecontrol.Householdshavegraduatedto2-3
televisionsetswithviewingsegmentedoneachtelevisionsetbygenre.
34KPMGEstimates
35KPMGEstimates
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47
Challenges
OneofthemajorchallengesoftheIndiananimationindustryisthefragmentation
ofanimationcompaniesspreadacrossthevaluechain.Mostofthesmalland
mediumIndiancompaniesaresatisfiedwithprovidingoutsourcedservices.
Hence,thecollectivecapacityoftheIndustryhasbeencategorizedasaservice
industryandnotasaproductindustry.
2. Infrastructure Investment
WithitsAsiancompetitorsmakingsignificantinvestmentstodeveloptheir
animationsectors,theIndiananimationindustryshouldbeabletoattractlocalas
wellasforeigninvestorsinordertoboostinfrastructuredevelopment.Many
smallandmediumcompaniesareunabletoattractinstitutionalfundingorbank
lendingduetothenatureoftheanimationindustrywhereprojectsstretchfor
longerdurations.
Theindustryalsofacesthechallengeofinvestingmoretoimproveitslocaltalent
andmeettheneedsoftheanimationindustryformoreskilledworkers.Despite
thelargenumberavailablegraduatestoworkintheindustry,thenumberof
skilledanimatorsisstilllow.Considerableinvestmentintimeandresourcesare
neededinordertohonetheskillsofnewanimators.Thisdilemmaislargely
attributedtolackoftraininginrelevantanimationskill-setsofgraduatesand
entry–levelemployees.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
48
Gaming
Thegamingindustrycanbedividedinto3separatesegments–MobileGaming,
ConsoleGamingandPC&OnlineGaming.
Mobile Gaming
TheIndianmobilegamingsegment,estimatedatINR1.4bnin2008intermsof
enduserrevenueshasnotliveduptothepotential.Enamoredbyitspotential,a
numberofplayershadenteredthemarketin2003-04.Plaguedbyanumberof
issuessuchascontentdiscoveryandrevenueleakagesandafterseeingawave
ofconsolidationin2006-2007,theIndiangamingsegmentinIndiaiscurrently
dominatedbyafewplayerssuchasIndiagames,Nazara,HungamaMobileand
JumpGameswhichconstituteover80percent36 oftheindustryrevenues.
MobilegaminginIndiahastwomainrevenuestreams.Thefirstisthe
development,publishingandportingofmobilegamesbyIndiangames
companiesfordistributioninIndianandoverseasmarkets,eitherdirectlyor
throughtelecomoperators.Thesecondisdevelopmentworkundertakenby
Indiangamedevelopmentcompaniesforoverseasdevelopers/publishers.These
typicallyrangefromartoutsourcingandanimation,tolatestagedevelopment
activitiessuchasgametestingandporting.Morerecently,Indiancompanies
havealsostartedgettinginvolvedincorecodedevelopmentactivities.
Whilethemobilegamingsegmenthastremendouspotential,anumberoffactors
havehistoricallylimitedthesegmentfromachievingthegrowthforeseenbythe
industryatlarge.
Akeycatalysttoindustrygrowthistheabilityofthestakeholderstocreate
awarenessoftheirproductstoendusers.Giventhedistributiondynamicsfor
mobilecontentinIndia,mostmobilegamesaredownloadedofftelecom
operators’decksmakingtheavailabilityofamobiledataconnectionabasic
necessity.Theproblemwiththisistwofold:
• Technology: Historically,alargeproportionofmobilephonesinIndiawerenot
capableofhandlingdataandthereforedidnotformpartoftheaddressable
marketformobilecontent.
• Discovery: Secondly,unlikewesterncountries,wheretelecomoperators
bundlemobileconnectionswithhandsets,inIndiahandsetsandmobile
connectionsaresoldseparately.Handsetswereseldomprogrammedwith
operatorsettingsrequiredtoaccessdataandmoreover,datapackageswere
subscriptionbased(evenforon-deckbrowsing)whichrequiredactivationbya
subscriber.Thiscreatedamultitudeofproblemsintermsofdiscoveryof
36KPMGResearch
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cooperative.Allrightsreserved.
49
mobilecontent,sinceonlyhigh-endevolveduserscouldactuallyactivateand
subscribetorichmediacontentontheirmobilephones.
Console Gaming
Consolegamingisthelargestmoneychurnerintheglobalmarketandisgaining
prominenceinIndiatoo.In2008,theIndianconsolegamingsegmentregistered
totalrevenuesofINR4.1bnwhichisexpectedtogouptoINR9.4bnin2013on
thebackoffavorabledemographics,risingurbandisposableincomesandnew
generationconsolespenetratingtheIndianmarket.Organizedmarketing,which
wasmissingsomeyearsago,hasledtoanewdemandamongtheIndian
consumersforconsolegaming.Ithasgonefrombeingaproductforthecult
grouptoamorelifestyleorientedproduct.
Secondly,easyavailabilityandaffordabilityofconsoleshasledtoagrowthinthis
market.ThefallinconsolepricesfromapproximatelyINR25,000in2006to
approximatelyINR7,500forolderhardwareandINR13,000–20,000forcurrent
hardwaremakesthemanattractivebuyforthenon-usertoplugandplay.
However,highcustomsdutiesandindirecttaxeshavemadelegitimateconsole
hardwareandsoftwareapproximately40percentmoreexpensivethangrey
marketimports.Secondly,thereleasewindowsinIndiaforpopulargamesdonot
coincidewithgloballaunches.Earlyadoptersandactivegamersthereforeturnto
greymarketimportsandpiratedsoftwaretoensurethattheygettoplaytheir
favoritetitlesonthelatesthardware.
PricepointforgamesisveryimportantinIndia.Steeppricesofnewgames
aroundUSD50inU.S.plusasteepimportdutyinIndiamakethegames
expensiveforenduser.Also,consolegamingfacesstiffcompetitionfrommobile
andPCgamingsincethelatterarerelativelycheaper.
InIndia,consolegaminghasbeenmoreofanurbanphenomenonwhereas
mobilegamingwithitsincreasedreach(urbanandrural)andeaseofaccesshas
thepotentialtoevolvemuchquickerthanconsolegaming.Withareachofover
80038 mntelecomsubscribersinIndiain2013,mobilegamingisexpectedtobe
asignificantcompetitortotheconsolegamingmarketinIndia.
37TRAI
38KPMGEstimates
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50
Withover6539 mnPCsthepenetrationrateisincreasingat20percentper
annumthusexpandingthemarketforPCgaminginIndia.Moreover,theyounger
generationisgettinghookedtoPCgamingduetotheriseinthenumberof
gamingcafesintheneighborhoodincludingtheentryofplayerssuchasReliance.
ThenumberofgamingcafeswiththelatestgamingPCsforplayingsingleplayer
aswellasmultiplayergamesoutnumbersgamingcafesthathaveconsoleslike
thePS3orXbox360.
PCsbeingfarmoremultifunctionalthanconsolesattractawideruserbasethan
consoles.Moreover,thenumberofPCgametitlesavailableinIndiafar
outnumbersthoseofconsolegames,particularlywhenitcomestomultiplayer
onlinegames.PricepointsofPCgametitlesarelowerthanconsoletitlesmaking
thissegmentattractiveforawidergroupofusersacrosssocio-economic
classifications.Thepricepointadvantage,however,ispartiallyoffsetbythehigh
entrycostofPCs,especiallyhighendgamingPCsandtheobsolencefactor,
wherebyPC’srequirefrequentupgradestoplaythelatestgametitles.Consoles,
ontheotherhand,havelongerrefreshcycles.
Eventhoughthemetroshaveseensomeimprovement,poorinfrastructurebase
forhighspeedinternetconnectivityisthebiggestchallengefacingtheonline
gamingcommunityinIndia.PingandFramePerSecond(FPS)areoftenjudged
byplayerstobedecidingfactorsduringgameplayandmustthereforebe
optimum.ISPsandhostingserversmustthereforemaintainfastserversand
robustinfrastructuretomaintainspeedyconnections.Intheabsenceofa
conducivegamingenvironmentthegamerwilllookatalternatemediatosatisfy
hisgamingurge.
39IAMAI
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51
Onlineadvertisingthoughgrowingisbeingslowlyacceptedbyadvertisersin
India.Ingameplacementsandgamesfocusedonadvertiserproductsaretoo
earlyforthismarketandadvertisershavenotbeenabletomonetizethisfeature.
Advertisersarerelyingonbanneradvertisementsalonebuttheycannotbe
deployedduringgameplaysincetheywouldinterferewiththegaming
experience.
CommunitiesdoexistinIndiabuttheyhavenotassumedscalesimilartothe
westernworld.InIndia,communitiesareextensionsofagroupoffriendsor
familymembers.Theonlinecommunityformatwheregamerswithsimilar
interestsfromdifferentgeographiescometogetherisstillatanascentstageand
willtake3-4yearstodevelop.
SizeoftheIndianGamingIndustry
Source:KPMGAnalysis,KPMGInterviews
40NPDGroupviawww.itfacts.biz
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52
Mobile 0.5 0.6 0.9 1.4 37.4% 3.2 5.8 8.7 11.4 13.4 57.0%
Console 1.2 1.8 2.7 4.1 50.9% 5.0 5.9 7.0 8.0 9.4 18.0%
PC&Online 0.4 0.6 0.8 1.0 33.5% 1.2 1.6 2.2 3.1 4.6 36.2%
TotalIndustrySize 2.2 3.0 4.4 6.5 44.6% 9.4 13.3 17.9 22.5 27.4 33.3%
Source:KPMGAnalysis,KPMGInterviews
PuttingThingsinPerspective...
41IAMAI
42IAMAI
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Narrowcasting
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03
Narrowcasting
Narrowcasting: Niche is in
abilitytobroadcastamuchlargernumberofchannels,the
broadcastershadmorefreedomtolaunchnichechannels
whichgenerallyearnlesserrevenueperbroadcasthourthan
GECs.Besides,nichechannelshavealsostartedtogarner
Micro-segmentation of the Indian Market higherrealizationsandapremiumforreachingouttotheir
OnecommontrendseenacrossmediasectorsinIndia targetaudience.
todayisthegrowingimportanceofnichecontent.Besides Thishasledtoaselfpropellingeffect.Astheviewersare
targetingthemasses,theM&Eindustryplayershavebegan gettingmorechoicesintermsofcontent,TRPsofhitherto
tofocusonthe“classes”aswell. populardramas/soapshavewitnessedadeclineandreality
shows,talenthunts,gameshowsetc.havebrokenintothe
Top100TRPlist-alistthatusedtofeatureonlysoaps
Different Propellers behind different Sub earlier.Theviewershipofchannelsconsideredasniche
Sectors categoriessuchasnews,kidsandinfotainmenthasalso
Differentfactorshaveinfluencedtheadventofnichecontent risenovertheyears.
acrossdifferentsectors.InTelevision,theprimarydriverhas ThetrendissimilarforFilms.Afewyearsago,nichefilms-
beenthesharpincreaseinthenumberofsatellitechannels; oftenreferredtoasparallelcinema-usedtohavelimited
totalnumberofchannelshasincreasedfromabout120in takersintermsofdistributionandviewing.Itwasimportant
2003toover400bytheendof20081.Thisinturn,hasbeen foramovietohavemassappealtobeevenconsidered
facilitatedbythedigitizationofTVdistribution.Mediums financiallyviable.Thetwomainreasonsforthesamewere
suchasDTHanddigitalCASallowthedistributorsto lowpricedticketsandunderdeclarationofcinemagoersin
provideamuchlargernumberofchannelstothe thethenprevalentsingle-screentheaters.Hencethe
consumers.Thiscrowdingofchannelsontelevisionhashad distributorsmademoneyonlyifthenumberofpeople
twodirectimplications.One,withtheplethoraofGECs watchingamoviewashigh.Thereforetherewasnotmuch
offeringthesamestandardgenreofcontent(i.e.daily experimentationwiththescripts,sincemostofthefilms
soaps),bothnewandoldGECsresortedtocontent weremadekeepingmassaudiencesinmind.Further,due
differentiationinordertogainviewership.Secondly,withthe tobudgetconstraints,producershadtoreininthe
1Industry,Indiastat
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56
production,distributionandmarketingcostsofniche acrosstopicssuchasTravel,Lifestyle,Healthcare,
movies.Asaconsequence,inspiteofgarneringcritical Automobiles,Food,HeritageandCultureetc.Thespurtof
appreciation,thesefilmsdidnotseeboxofficesuccess. magazinetitlesinIndiaismostlyaresultofinternational
magazinepublishersaggressivelyinvestingintheIndian
Theemergenceandincreasingpopularityofthemultiplex
market,afterthegovernmentopenedup100percent
formathasgivenanewleaseoflifetothenichecategoryof
foreignownershiprightsinthenon-newsandspecial
cinemainIndia.Thesemultiplexes,whichsometimeshave
interestcategoriesinprintmedia.Asaresultofthe
screenswithseatingcapacitiesstartingfromaslowas100,
opportunitiesavailable,severalforeignmagazinepublishers
allowtheexhibitorstoexperimentwiththenon-mainstream
setupshopinIndia.Thisalsopromptedestablishednational
movies.Suchmoviesusuallydonothavealargeaudience
playerssuchasIndiaTodayandOutlooktoexpandtheir
andbyreleasingsuchfilmsintheaterswithsmaller
productoffering.
capacity,thetheatercanmanagereasonablecapacity
utilizationsevenwithlessernumberofpeople.Thishelps Thespurtinnichemagazinesisalsopoweredbythe
themmaximizethepotentialofanyfilmirrespectiveofits country’schangingeconomicsandanewgenerationof
budgetandstarcast.Ticketpricesinmultiplexesarealso highlybrandconsciousconsumers.Withgloballuxury
muchhigherascomparedtosinglescreens,withnounder- playersalsograduallyestablishingtheirpresenceinIndia,
declarationofrevenues.Thisprovidesaplatformfor therewasaneedformoretargetedadvertising.Theniche
thematicexclusivityandcreativitytotheproducerssince modelhasgotmoreadvertisersinterestedastheyarenow
theycannowmakemovieskeepingonlyaparticularclass abletofocustheirspending.Further,playerswitharangeof
ofaudienceinmind. publicationscancreatebasketsofadvertisingratesacross
variousproperties;thishelpstoattractandretainadiverse
Theprintsectortooiswitnessingalotofcontentvarietyin
setofadvertisersunderoneroof.
thenewsstands-especiallyinthecaseofmagazine
publishing.Takingacuefromtheirforeigncounterparts,
Indianmagazinepublishersarelaunchingnichemagazines
acrossdiversegenres,targetedatdifferentsegments.
Whileearlieritwasnewsandfilmmagazinesthatusedto
dominatethenewsstands,thecurrentpublicationsrange
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57
2
Drivenbythesefactorsdiscussedabove,theIndianM&Eindustryhaswitnessed
greatvarietyintermsofnewandinnovativecontentbeingintroducedoverthe
pasttwoyears.
EmergingGenresacrossSectors
Sector Niche Genres
Programming Channels
•RealityTelevision • Lifestyle
TV •TalentHunts • Spiritual
•GameShows • KidsChannels
•Mythologicals • EntertainmentNews
•SmallBudgetMovies
•HorrorandKidsGenres
Film
•RemakesandSequels
•MoviesbeingadaptedfromBooks
•SpecialtyMagazineGenres-HomeandLifestyle,Men,Traveletc.
Print
•Supplements
•Verylimitednichecontentrightnowbecauseofregulatory
Radio issues.However,infuture,nichestationsbasedontalk
shows,EnglishmusicandRetroHindimusicislikelytoemerge
Animation •Mythology-basedFilms
Source:KPMGResearchandAnalysis
Twofactorshavedriventhisgrowth.Firstly,theviewershipshareofmass
entertainmentchannelshasbeenonadownwardtrend(althoughthetrendhas
beenreversedforHindiGECsin2008onaccountofthenewGECslaunched
expandingthemarketitself).
ViewershipshareofGECs
Source:TAMPeoplemeterSystem(TG:CS4+,AllIndia)
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58
2
Atthesametime,theviewershipshareofcertainnichesegmentshasincreased.
ViewershipshareofNicheChannels
Source:TAMPeoplemeterSystem(TG:CS4+,AllIndia)
Newnichechannelsarebeinglaunchedtodayhavecreatedwholenewgenresin
theIndianTVmarket.Someexamplesare“E24”-a24hourBollywoodnews
channellaunchedbyBAGFilms,2channelslaunchedbyTV18–“TopperChannel”
-aneducationcenteredchannelforhighschoolstudentsand“Homeshop18”-a
homeshoppingchannel.Manynicheslikemen’schannels,cookerychannels,
homeandhousekeepingchannelsandweatherchannelsareyettobefully
exploredandtheremaybenewchannellaunchesinthesegenresaswellinthe
nearfuture.Forinstance,theIndianMeteorologicalDepartmenthasalreadyshort
listedthreeTVnetworksforlaunchingadedicatedweatherchannel.
SomenichechannelslaunchedonIndiantelevisionin2008
NeoSports NimbusCommunications
Sports
StarCricket Star
BindassMovies UTV
NDTVLumiere NDTV
Source:AnnualReports,CompanyWebsite,KPMGResearch
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59
Itisimportanttonotethatinabsoluteterms,GECsstillgarneramuchgreater
shareofviewershipthananyothercategoryofchannels.HavingaGECinthe
bouquetgivesthebroadcasteranumbrellabrandaroundwhichnichechannels
canbedeveloped.ThreenewHindiGECswerelaunchedbetweenNovember
2007andJuly2008–NDTVImagine,9xandColors.Thelaunchofthesechannels
hasexpandedthesizeofthemarketitselfresultingina30percentincreasein
weeklyGECGRPsinthetargetHindispeakingmarketsfromNovember2007to
October2008.Atthesametime,duetofragmentationofviewership,the
combinedabsoluteviewershipoftheolderGECshasfallenbyaround12percent
inthesameperiod2.
GrossratingpointsofGECs
ViewershipsharebetweenGECs ViewershipsharebetweenGECs
(November2007) (October2008)
Source:exchange4media.com,SSKI2008,KPMGResearch
OfthenewGECs,Colorshasbeenanexceptionalperformerandhasmovedup
tothenumbertwoslotbankingonnew,interestinganddifferentiatedcontent
withshowslikeBallikaVadhu(socialdrama),JaiShriKrishna(mythological),Big
Boss(reality)andEkHaseenaEkKhiladi(dancetalent)whichhavescoredhighon
TVRs.
2exchange4media.com,SSKI2008,KPMGResearch
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60
Intermsofgenres,mythologyandrealityshowshavebeenquitesuccessful.
AnalysisoforiginalprogrammingonGECs,throwslightonthistrend.Reality,
gameandtalentshowstakeabout14percentofthepietodaycomparedto
about5percentin20043.
OriginalprogrammingonGECs(2004) OriginalprogrammingonGECs(2008)
Source:KPMGAnalysis
3KPMGAnalysis
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61
Apartfromadvertisingrevenues,suchshowsalsoprovideotheralternate
revenuestreamstothebroadcaster.Someofthesearelistedbelow:
AlternativerevenuesourcesforRealityShows
Mobi-tones,Mobi-Pixs,Mobi-Video,Mobi-
FlatFeeperdownload High
Logo,AudioSamples,Audiotracks
SMSs,Mobi-tones,Mobi-Pixs,Mobi-
Video,Mobi-Logo,AudioSamples,Audio
Revenuesharing High
tracks,Alerts,Games,Chats,Clues,Event
Entry,Voting
Merchandising–CDs,Books,Videos,
CommissiononSales Low
DVDs,Tickets,Fanmemorabilia
Games,VideoOnDemand(VOD),
Payperplay Low
Highlightsclips
Source:IndustrySources,KPMGResearch
Inthisregard,revenuefrominteractiveservicesi.e.Peer-to-Application(P2A)and
SMS–generatedbyrealityshowsformsasignificantrevenuesourcefor
broadcasters.OfthetotalP2AmarketofaboutINR10.3bn,broadcastersgeta
shareofabout25percent.ThistranslatesintoanINR2.6bnrevenuestream,or
about3percentofthetotaladvertisementrevenuesofbroadcasters4.Itislikely
thattheP2Amarketmightkeepgrowingoverthenextfewyears,mirroringthe
steadygrowthinmobilepenetration.
MobileP2ArevenuesforBroadcasters(INRbn)
Source:CreditSuisse2008,KPMGAnalysis
Amongthegameshowformats,manyofthebiggergameshowsinIndiahave
beenhostedbyBollywoodstarsandarebasedonglobalgameshowformats.
Worldwide,theroll-outofglobalentertainmentformatsisgettingfaster,with
broadcastersincreasinglyseekingtriedandtestedformatswithaproventrack
recordofsuccess.
4CreditSuisse,2008
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62
SomeIndianTelevisionShowsbasedonGlobalFormats
Source:KPMGResearch
ThepopularityofinternationalformatbasedgameshowsamongIndian
audiencescanbejudgedfromthefactthatViacom18’snewchannel‘Colors’
primarilybankedonarealitygameshow-‘KhatronkeKhildai’-asitslaunchpad.
AfterthefirstseasonofFearFactorgotover,thechannelreplaceditwithanother
internationalformatrealityshow-BigBoss,whichtoobecamepopularand
consistentlyfeaturedintheTop50programmeslist5.
Indiancontentproductionhousescantakeacuefromthisanddeveloptheirown
formatsandcontentthatcantravelintheglobalmarketplace.Thatiswhatkeeps
internationalcontentcompanieslikeEndemolinstrongfinancialhealth(In2006,
75percentofEndemol’srevenuescamefromnon-scriptedformatshows6).
Themythologygenreisanotherattractionforchannelsthathavere-discovereda
steadydemandforsuchshowsamongtheIndianaudience.Ramayanawas
aggressivelypromotedbyNDTVImaginebeforethechannelwentonairin
January2008.FromFebruary2008,SETbegantoairre-runsofSanjayKhan'sJay
HanumanforwhichitprocuredtherightsfromDoordarshan.Followingthelead,
9X(anothernewGEC,launchedbyINX)launcheditsversionofMahabharatain
July2008.
However,toputthingsinperspective,soapsstilldominatetheTVRlistings.For
instanceamongtheHindiGECshows,amongtheemerginggenres(mythology
andreality)discussed,11showsmadeittotheTop50programmes(acrossall
channels)versus22soaps.(basedonTAMRatingsfortheweekfromJan4to
Jan10,2009)7.
HindiGECshowsamongTopTelevisionProgrammes
Source:TAMTop100programmes(04Jan–10Jan,2009)
5AsperTRPsprovidedbyTAMMediaResearch
6EndemolInvestorRoadshow(March2007)
7Indiantelevision.com
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63
Infactbetween2006Q1and2008Q1,soapsactuallyincreasedtheiroverallTVR
shareontelevisionfrom39to48percent8.GiventhefamilyorientedIndian
culture,itislikelythatsoapsmaycontinuetodominatetheTRPsinthefutureas
well,butreality,gameshowsandtalenthuntshaveclearlydemonstratedtheir
abilitytoattractnewaudiencestoachannel(whichagoodlineupofsoapscan
thenhelptoretain).
ItisnotjustGECsthathavebeenalteringtheirprogrammingtosuitthenew
tastesofaudiences,thenewschannelstoohaveexperimentedwithnew
content(andnewpackagingofcontent)overthepastfewyearsinaneffortto
wintheTRPrace.Lifestyleshowswhichtrackthepage3parties,Bollywoodand
Hollywoodshows,automobilesrelatedshowsetc.aresomeofthenewcontent
shownonEnglishnewschannels.TheHindichannels,ontheotherhand,have
heavilybankedon‘tabloid’contentsuchascrimeshowsthatrelyheavilyon
sensationalism.Theyalsotryandpackagenewsmoreattractively,oftenusing
animationstoexplainnewsevents.
Thefollowingchartsgiveanindicationaboutthecontentvarietyprevalentin
newschannels.
ProgrammingContentonEnglishNewsChannels(Jan- ProgrammingContentonHindiNewsChannels(Jan-June
June2008) 2008)
Source:TAMMediaResearch,KPMGAnalysis Source:TAMMediaResearch,KPMGAnalysis
ThenewschannelsinIndiahaveevolvedfrombeingseriousandpurely
informationcentrictoprovidingbothinformationandentertainmentinthesame
packageinanefforttogainmoreeyeballs.
8 Industrysources,KPMGResearch
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64
SomeMultiplexMoviesreleasedinrecenttimes
Net Collections
Film Year of Release Status
(INR Mn)
Source:Boxofficeindia
Theyear2008sawaspateofsmallbudgetreleases,mostofwhichhavebeen
criticallyacclaimed.Theincreaseinthenumberofsuchfilmsshowsthatsmall
budgetmovieshavecometostayinIndia.
9Indiantelevision
10Indiaboxoffice
11Indiantelevision
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65
Since2007,remakeshavebecomeespeciallypopular.Remakesofsuccessfulold
BollywoodfilmslikeDon,SholayandUmraoJaanhavehitthescreens.Saleof
remakerightsthusemergedasanotherrevenueearningopportunityforfilm-
rightsowners.Forinstance,producerBoneyKapoorboughttheremakerightsof
TeluguFilmPokhiriwhileMuktaArtssoldtheremakerightsofitsfilm“Karz”toT
Series.Withplayersincreasinglyinclinedtowardslegitimateremakeversions,
remakerightscanbecomeasignificantsourcetomonetizefilmlibrarycontent.
Further,likeitsHollywoodcounterparts,Bollywoodtoohasbeguntocashinon
itssuccessbymakingsequelsofboxofficehits.Sequelsoffilmslike“Golmaal
Returns”and“SarkarRaj”havebeenreleasedinrecenttimesandreceivedwell
bytheaudience.
Anotheremerginggenreinfilmedentertainmentistheinstanceofpopularbooks
beingpickedupforfilmadaptations.Thebondbetweenbooksandcinemaisan
oldstoryforHollywood,wheresomeofthecultfilmshavebeenbasedon
bestsellers.
SomeHollywoodMoviesadaptedfromBooks
ToKillaMockingbird JurassicPark
Schindler’sList WutheringHeights
BenHur APassagetoIndia
SenseandSensibility 2001:ASpaceOdyssey
GonewiththeWind HarryPotterSeries
JurassicPark LordoftheRingsSeries
Source:KPMGResearch
ThistrendhasrecentlypickedupinBollywood.October2008sawtheBoxOffice
releaseof”Hello”,whichwasthecelluloidadaptationofChetan’sBhagat’s“One
Night@TheCallCentre”.Thoughthefilmwasnotaboxofficesuccess,thetrend
haspickedupinthemovieindustrywithaslewofreleasesbasedonfiction
beinglinedupforthefuture.
SomeforthcomingmoviereleasesbeingadaptedfromBooks
Film Producer Book Author
Zoya RedChillies TheZoyaFactor AnujaChauhan
Source:KPMGResearch
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66
TheperformanceofthesefilmsattheBoxOfficeareexpectedtodetermine
whethermorefilmmakerscomeforwardandadaptmoreofbestsellingfiction
forcelluloiddepiction.
Televisionisnottheonlysectorthathasre-discoveredtheappealofmythology
fortheIndianaudience.TheIndiananimationindustrytoohasfoundmythologyto
beanattractiveproposition;ithasbankedlargelyonthetriedandtested
mythologicalgenretoventureintoend-to-endin-houseproductions.Thetable
belowlistssomeofthemythology-basedanimationmoviesproducedbyIndian
studiossince2005.
Mythology-basedanimationmoviesproducedinIndia
Source:KPMGResearch
Foranindustrythatisplaguedbylackofcreativetalentfortheconceptualization
ofgoodoriginalanimationcontent,therichmythologyandfolkloreofIndia
providesagoodsourceofinspiration.Themainchallengeliesinmakingthese
storieslocation,religion,languageandcultureneutralsothattheseanimation
filmscanbesoldtoaudiencesacrosstheworld.
“These are exciting and challenging times for the Indian film industry. Audiences
have shown a propensity to experiment with new genres, revenue streams have
increased and new markets have opened up; at the same time B2B revenues are
under pressure, liquidity is tight and marketing costs have increased with media
becoming more fragmented and cluttered. Navigating these waters will require
some steady hands on deck and the next few years will determine who will sink or
swim.”
Siddharth Roy Kapoor, CEO, UTV
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67
Magazines-ReadershipGrowthacrossselectedgenres
TotalReadership(Figuresin‘000)
Sum of Sum of
Genre % Increase
NRS 2006 NRS 2005
Auto 485 320 51.6
Source:NRS,Exchange4Media
Industryplayersalsoseemtoagreethatthegrowthofthesectordependson
nichegenres.Accordingly,incontinuationofthepreviousyear’strend,the
magazinemarketsawahealthygrowthintheyear2008withmanynichetitles
takingoffacrossgenresandlanguages.
12 NRS,Exchange4Media
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68
SomeNicheLaunchesinMagazinesin2008
Title of the
Genre Publishers/Distributors
Magazine
FashionandLifestyle TwentyOnwardsMedia TrafficLife
WorldWideMedia-MondadoriGroup Grazia
Women
DainikBhaskarGroup She
LivingMediaGroup-CondeNast
Men GQ
Publications
MW.ComIndiaPvtLtd-WennerMedia; RollingStone;
Music
MediaTransasiaIndia-AlphaMediaGroup Blender
Source:KPMGResearch
Withincreasingcompetitionfrommagazines,newspaperpublishershavealso
startedsegmentingnewspaperreaders.Overthepastyear,thePrintMedia
Markethaswitnessedincreasingproliferationofcompact,smallerformatdailies
likeMint,MetroNow,MailTodayandmostrecentlytheHindustanTimesCaféin
Mumbai.EventheHindilanguagemediajoinedthebandwagonwiththelaunch
ofiNextbytheJagranGroup,andAmarUjalaCompactfromtheAmarUjala
Group.Newspapers-bothnationalandregionalarealsoincreasingtheirselection
ofsupplements,whichfocusonspecifictopicsofinterest.Besidestargetingthe
youthandfemalereadership,compactsandsupplementsalsohelpintapping
thoseadvertiserswhonormallygotomagazinesaswellasinchainingthose
segmentsofreaderswhoaremostsusceptibletodefectingtothecompetition.
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69
Globally,thesituationisquitedifferent.Radiothrivesonthebackofnicheand
localadvertising.Highlistenerloyaltyandlistenersrelatingtoaparticularradio
channelareconsideredthekeycharacteristicsthatdrawadvertiserstoradio.In
theU.S.,forexample,withover10,000commercialradiostations,players
operateacrossgenreslikenews,sports,talkshows,fashion,religion,etc13.
Morethan40percentofthetotalaudienceisfortalk,informationandnews
relatedcontent14.Evenwithinmusic,thestationsoperateacrossmultipleniche
andsubnichemusicformats.
WiththeTRAIrecommendationofallowingradiostationstoholdmultiple
frequencieswithinadistrict15,webelievetheprivateFMspaceinIndiamight
alsoseeanemergenceofnichechannels,whenapolicychangeregardingthe
sameisimplementedbythegovernment.Inthemetrosatleast,theneedfor
nichechannelsisalreadybeingfeltwiththeincreasingfragmentationinthe
listenershipofmassmusicorientedchannels.Accordingtoindustrysources,
withinthenichesegments,stationscenteredontalkshowsandretroHindi
musicareexpectedtohaveagoodappealamongstIndianaudiences.
13BBCNews–CountryProfile:UnitedStatesofAmerica
14PressReports
15“Tuneinforbouquet,FMradiomaydoaTV”,TheFinancialExpress,Feb26,2008
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70
Breakupofsportsmarketing
businessinIndia
Sports as an Entertainment Genre
Sportsmarketing,whichincludesbothmarketingofsportseventsandteamsas
wellasusingsportstomarketnon-sportsproducts,istodayabusinessworth
INR20bninIndia(outofwhichcricketaloneaccountsforINR18bn)16.Also,
veryimportantly,itisgrowingatarapidpaceof20percentayearcomparedto
theglobalaveragegrowthof5percentayear17.Whiledevelopedcountrieshave
amaturesportmarketingindustry,inIndiatheindustryhasjuststartedtotake
Source:BrandReporter off.
Themarriagebetweensportandbroadcasters,thoughlongandsuccessful,has
beenchanginginanumberofways.First,thefragmentationofaudiencesamong
hundredsofchannelshasgiventhemostpopularsportsenormousbargaining
power.Sportsareoneofthefewthingsthatstillhavepeopletuninginbythe
mn.Asthenumberofchannelshasmultiplied,largeaudienceshavebecome
muchhardertofind,butSportshasretaineditsabilitytogenerateeyeballsfor
thebroadcasters.Infact,theaveragetimespentwatchingsportschannelsin
C&Shouseholdshasbeenincreasingsteadily.
Source:BrandReporter-IntheFastLane,TAMPeoplemeterSystem
16BrandReporter,2008
17TheEconomist,2008
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71
Withthegrowthinsportsviewership,thenumberofadvertisershavealsorisen
steadily.ThenumberofadvertisersinthesportsgenregrewataCAGRof32
percentfrom2005to2007.Consequently,thesizeofthesportsgenreinterms
ofadvertisingrevenuesstoodaroundINR7bninFY2008asagainstINR5bnin
FY200518.
GrowthinSportsAdvertising
Source:exchange4media,KPMGAnalysis
Asaresultofthegrowthinadvertisingrevenuesfromsports,thescramblefor
sportsbroadcastrightshasalsobeengettingfrantic.TwoyearsagoNimbus,a
mediaandsportsmarketingcompany,paidUSD612mnfortherightstoIndia’s
internationalmatchesanddomesticcricketuntil201019.ESPNStarbroadcasts
eventsstagedbycricket’sglobalgoverningbody,includingWorldCups;itpaid
morethanUSD1bnfortheglobalrightsbetween2007and2014.20
InIndia,sportsandcricketarealmostsynonymous.Amongthethreemegasport
eventsinrecentyearsinIndia,TVviewingofCricketWorldCup2007washighest
(113mn)followedbyOlympics2004(65mn)andFIFAFootballWorldCup2006
(39mn)21.ThiswasinspiteofthefactthatIndiacrashedoutearlyintheCricket
WorldCup.Onthewhole,cricketgarneredabout65percentofthetotalsports
viewershippiein2007.22
ItisnosurprisethereforethatoneofthemostpopularIndiansportseventin
recenttimesthatcausedripplesintheentireIndianmediaindustryandbrought
SportsasamassentertainmentgenreintothelimelightwastheIndianPremier
League–a44dayextravaganzathatwasbasedontheTwenty20formatthathas
trulycaughttheimaginationofthecricketloversbothinIndiaandoutside.
IPLhasmodelleditselfaftertheEnglishPremierLeague(EPL),thetopfootball
leagueinEngland.Thoughadomesticleague,likeEPL,IPLwasintendedtobea
globalbusinesswithglobalinvestors,globalplayersandaglobalbroadcaster.
18exchange4media
19Indiantelevision
20“ESPN-StaredgesoutNimbus,winsICCglobalrightsfor$1.1billion”,TheFinancialExpress,December2006
21TheEconomist,2008
22TAM
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72
EPLwasstartedin1992,andhassincetransformedEnglishdomesticfootball
fromaprovincialsportplayedonbeach-likepitchesinhalf-emptyandrickety
stadiumstoaninternationalphenomenon.Billionairesfromtheworldoverqueue
uptobuyEnglishfootballclubs.OneofthemissteeltycoonLakshmiMittal,who
haspickedup20percentstakeintheclubofQueensParkRangers.Russian
billionaireRomanAbramovichalsoinfusedfundsandturnedthealso-ranChelsea
FCintoachampionclub.AccordingtoForbes,theChelseateamwasworthUSD
339mnin2004.Byearly2007,aftertwoPremiershiptitles,itsvaluehadrisento
USD537million23.
TakingacuefromthesuccessoftheEPLbrand,theBCCItoohiredIMG,a
globalsportsmanagementfirm,tostudytheprofessionalsportsleaguesinthe
U.S.andEuropeandmodelitsIPLbusiness24.
AdventofIPLmightactuallybeaprecursoroftheformationofprivatesports
leaguesinIndia.Itisthepresenceofprivatesportsleaguesworldwidethathave
madeacquisitionofsportsrightsasalucrativebroadcastingproperty.InIndia
too,suchprivateleaguesareexpectedtoboostacquisitioncosts,and
consequentlyadvertisingrates.AnexampleofthiswasESPNSTARSports
baggingexclusiveGlobalCommercialRightsforallmatchesintheTwenty20
ChampionsLeague(adomestictournamentwhichistofeaturetheleading
provincialteamsfromIndia,Australia,SouthAfrica,EnglandandPakistan)for10
yearsatawhoppingUSD975mn.Thismakesthetournamentthehighestvalue
crickettournamentintheworldonapergamebasis;giventhattheChampions
Leagueistohavefewermatches-215to250ascomparedto600intheIPL-the
per-matchcostworksouttoINR170mntoINR200mncomparedtounderINR
70mnforIPL25.Thisinturn,impliesthatthechannelhastoselltheadvertising
ratesforthesematchesatevenhigherratesthanIPLtobreakeven.Clearly,with
sportsemergingasapowerfulentertainmentgenrepostIPL,thescaleofthe
gameischangingrapidly.
23TheEconomist,2008
24TheEconomist2008
25“ESPN-StarbagsChampionsLeagueT20rightsfor$975m”,BusinessStandard,September2008
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
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73
TheIPLinnovativenesswasmarkedwiththeformatitself:IPLwasthefirst‘official’leagueformofcricketinthe
country.Besides,T20isacompactformofcricketwhereeachteambowls20overs.Asaresult,matchestypicallylast
aboutaslongasabaseballgame-justaroundthreehoursorso.Thenextdeparturefromtraditioncamewiththeteams:
nottheusualstate-basedunitsofIndiancricketbutamereeightcity-based“franchises”createdspeciallyforIPL,with
amixofIndianandinternationalcricketers.Scarcitycreatedvalueasfirstthefranchises,andlatertheplayerswere
“auctioned”.The8franchisesbidacombinedUSD723mn(INR29bn)toowntheseclubs.TheIndianCaptain,MS
Dhoni,wenttoTeamChennaiforthetoppriceofINR60million27.Inasportwithnocultureofinter-clubmatches,
theseamountswereastronomical.
FranchiseOwnersandtheirrespectivebids
PreityZinta,NessWadia,KaranPaul(ApeejaySurendraGroup)and
KingsXIPunjab 3.04
MohitBurman(Dabur)
ShahrukhKhan,JuhiChawlaand
KolkataKnightRiders 3.03
JaiMehta(RedChilliesEntertainment)
Source:IndustrySources,PressReleases
TwentypercentoftheseproceedsweretogotoIPL,8percentwastobeallocatedasprizemoneyand72percentwas
tobedistributedtothefranchisees.Themoneyistobedistributedintheseproportionsuntil2012,afterwhichtheIPL
issupposedtogopublicandlistitsshares.Thefranchisesget80percentoftheleague’stelevisionrevenuesinthefirst
twoyears,decliningto50percentfromyear11.Theyalsoreceive60percentofcentralsponsorshipforthefirst10
yearsand50percentthereafter28.Overtime,theyhavetogeneratetheirownmoneyfromsponsorship,licensingand
soforth,someofwhichistogobackintothecentralpool.
26 Businessworld,2008
27 KPMGResearch
28 Businessworld,2008
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74
Anotherthingthattheorganizersdiddifferentlywastoapproachtheentireprojectassomethingthatcouldgenerateas
muchinterest–onprimetime–asasoaporarealityshowmayhavedone.TheIPLpackagewascustommadefor
prime-timetelevision.Thecamaraderiebetweenplayerswhohadhithertobeenconsideredarchrivalsandthepresence
ofstarteamownersfurthercontributedtotheexcitement.Thetournament’sintroductionanditssubsequentimpacton
thesportsworldleftaside,IPLalsoprovedtobeagoodmediapropertyformonetization.Aconsortiumconsistingof
India'sSonyEntertainmentTelevision(SET)networkandSingapore-basedWorldSportGroupacquiredthe10yearglobal
broadcastingrightsofIPLforUSD1.026bn(overINR42bn).Aspartofthedeal,theconsortiumistopaytheBoardof
CricketControlinIndia(BCCI)USD918mnforthetelevisionbroadcastrightsandUSD108mnforthepromotionofthe
tournament29.Aftersecuringthebid,Sony-WSGthenre-soldpartsofthebroadcastingrightsgeographicallytoother
companies.Belowisasummaryofthebroadcastingrightsaroundtheworld.
SummaryofBroadcastingRightsofIPL
Rightstodistributeontelevision,radio,broadbandandInternet,for
WillowTV 5years
theIPLinNorthAmerica
SuperSport SouthAfricaBroadcastRights Termsnotreleased
Canadianbroadcastrights.AiredonATN'sCBN&ATNCricketPlus
AsianTelevisionNetwork channelsonasubscriptionbasis.AiredonXMRadio'sATN-Asian 5years
Radioaswell
Source:PressReleases,KPMGResearch
Theacquisitioncostwasthenconsideredsteepforadomestictournament.SEThastopayUSD316mn(INR12.6bn)
inequalinstallmentsovertheinitial5yearsandUSD608mn(INR24.3bn)forthenext5.ThatmeansSEThadtopay
aboutINR2.53bntoBCCIin200830.However,withthesuccessandpopularityofthetournament,theinvestment
seemstohavepaidoffforthebroadcaster.Theleague,screenedeveryeveninginaprimeslotat8pmpulledin
viewersinlargevolumes.AsperTAMratings,thefinalofIPLon1June2008fetchedMaxanaverageof9.8TVR.The
twosemifinals,too,deliveredratingsofover6each.The44daytournamentachievedanaverageof4.7over57
matchesonSETMax,showingthataudienceinterestwassustainedthroughoutthelongtournament,whichwasa
concernatthebeginning.Theseratingswereunprecedentedforadomesticcrickettournament.Further,thehuge
viewershipthatthematchesgainedpushedupadvertisementratesfor10-secondspotstoINR5-10lakhs,whichwas
markedatINR2lakhsper10secondsatthestartofthetournament31.ESPNStarSportshadchargedaboutINR7.5-10
lakhsfor10-secondspotsfortheIndia-PakistanT20WorldCupfinallastSeptember,whichdeliveredaTRPof15.9.32
29“Sony-WSGconsortiumbagsIPLrights”,BusinessStandard,January,2008
30Businessworld,2008
31Businessworld,2008
32IndustrySources
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75
MAXreapedinthebenefitsoftheleapinviewershipwhichpushedittothenumber1slotonchannelviewershipshare
basisduringQ22008duringthebroadcastofIPL.
ChannelShareofMAX
Source:TAM
IPLprovidedgoodopportunitiesformarketers33.FMCGcompanieslikeITC,MotherDairyandNestle,insurance
companies,PizzaHutandCiplaweretheleadingadvertisersduringthefirsteditionofthetournament.Manyplayers-
likethesuitingmajorSKumar’sNationwidewhoweretheapparelsponsorsofTeamJaipur-enteredatthelaterpartof
thetournament,aftergaugingitssuccessandpopularity.Franchiseeownersalsospendmoneyonmarketingand
promotingtheirrespectiveteams,andinturngeneratedrevenuefromTeamSponsorships.Industryplayersare
unanimousintheirviewsthatIPLhasactedasabigdriverforadvertisingspendsthisyear.
IPLalsoaffectedothersegmentsoftheindustry.InTelevision,TRPsofotherchannelsinthePrimeTimeSlotgot
affected.NewschannelshadfocusedprogrammingdedicatedtoIPLmatches.Infilms,bigbannerspostponedtheir
releasesduetolessermoviegoersincinemahalls;traditionallysummervacationshavebeenoneofthemost
productiveseasonsforthefilmindustryduetohigherfootfalls.LiketheInternationalCricketCouncil(ICC),othermedia
segmentsarealsoseriouslyconsideringkeepingaseparateIPLwindoweveryseason!Clearly,theIPLhasshownthat
ithasalotofpotentialtodeliverhighreturnsforthebroadcaster,theteamfranchiseownersandthesponsors.
ThewayinwhichIPLwasconceptualized,visualizedandorganizedholdsalessonformarketers.Therewerefourmain
reasonsforthetournament’ssuccesses:
• Itstartedoffonascalethatwaslikelytomakeanimpact
• TheorganizersgotspecialistmarketingfirmslikeIMGinvolvedwellinadvance
• ThemarketingwasPRled
• Thetournamentwasefficientlymarketedtoconsumers.
IPLhasgivenawholenewdimensiontosportsandsportsmarketinginIndia.
33 IndustrySources
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76
Gaugingbytheindustryreaction,IPLisexpectedtocontinueasaprimedriverintheM&Eindustryforthecomingyear.
Further,advertisingratesforothercrickettelecastsarealsoexpectedtoincreasesincetheIPLratesarealsoexpected
tobeusedasfuturereferencepointsbythebroadcasters.Manyretailmajorsplantotie-upwithIPLfranchisees,given
thefactthatthebusinessformatofIPLismodeledontheEnglishPremierLeague,whichhasbuiltitsproperties
throughretailtie-upsandmerchandise.IndustryPlayersalsoplantocapitalizeoncelebritybrandambassadorsand
merchandising.CelebrityendorsedbrandedT-shirts,sunglasses,walletsandtravelbagsareexpectedtobepromotedin
abigway.
IPL’sabilitytosustainandgrowitspopularityinthelongtermdependsontheabilityofindividualfranchisesto“break
out”andbecomelargemediapropertiesontheirown.Franchiseesmayhavetoincreasetheirmarketingand
promotionalspendstoeffectivelymonetizetheirfanbaseandbuildbrandsoutoftheirrespectiveteams.Franchises
alsoneedtothinkabouthowtomaintainfans’interestwhentherearenomatchestowatch.Eventhoughthesuccess
ofthedomesticcricketleaguetournamenthasbeenunprecedented,ratingsshowthatitstilltrailedtheT20WorldCup
Finalintermsofviewership34.Inthefuturetoo,tillteamloyaltiesbuildup,theratingsforIPLareexpectedtotrailthose
ofinternationalmatches.Meanwhile,apartfromfindingmoreteamsponsors,franchiseesmaytrytoincreasethemix
ofpremiumseatingintheirhomestadiums,andgeneraterevenuesfromFoodandBeverages(F&B).
Further,theleagueitselfissettoexpandwiththeadditionof4newfranchisesfrom2009-10.Thisislikelytotakethe
totalnumberofteamsto12andisexpectedtoautomaticallyincreasethescaleofthetournament.Inturn,itisalso
likelytoprovidemoreopportunitiesforadvertisers.
Fortheimmediatefuturehowever,evenasIndiawaitsforthenexteditionofIPL,purebusinesslogicmakesthe
tournamentprettycompellingfortheadvertisersandmediabuyersinIndia,andinturnanexcitingprospectforthe
M&Eindustry.Forthefranchiseestoo,buyinganIPLteamisprovingtobeagoodinvestmentdecision.Eveninthe
shortterm,theycanfullyorpartiallyoffloadtheirstakesintheirrespectiveteams,andgetapremiumovertheir
purchasingconsideration.Agoodexampleofthis,istherecentdecisionoftheDeccanChronicletosellitsstakeinan
IPLteam.
34“IPLfinalfailstochaseIndia-PakistanscoreinT20WorldClassclash”,TheEconomicTimes,June2008
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77
EventhoughcricketisstillthemainstayinIndiansport,Indiaisgraduallymoving
fromaonesportmarkettoamulti-sportmarketwithsupportfromtheIndian
governmentandcorporates.
Thegrowthintheviewershipofothersportshasbeendrivenbytwomain
factors:
• LaunchofseveralnewsportschannelsinIndia,acquiringandmarketing
propertiesacrossothersports,internationally
• Indiansportsmendoingwellinternationallyinsportsotherthancricket
Asaresult,othersportslikeFormula1,Tennis,SoccerandGolfarecatchingupin
popularityandgainingviewershipinthecountry.Theyalsoprovideattractive
opportunitiesforadvertisementandsponsorship,becausetheylargelycaterto
SECAandB,andarethereforeoftenabletoprovidetwo-threetimesROIfor
advertiserswhencomparedtocricket35.
Formula One
ViewershipofFormulaOneinIndia
Source:exchange4media
• IndianowhasitsownF1Team–ForceIndia–ownedbyVijayMallya–thisis
likelytodriveupthepopularityofthesportinIndia
• GrandPrixisexpectedtomakeitsdebutinIndiain2010or2011(acircuitfor
thesameisbeingdevelopedatNoida).Onceitdoes,it’sexpectedtocreatea
lotofinterestinthesportamongIndianaudiencesandfurtherdriveup
viewership.
EconomicTimes,June2008
35Industryinputs
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78
Tennis
ViewershipofTennisGrandSlamsinIndia
Source:exchange4media
• WithSaniaMirza,LeanderPaesandMaheshBhupathidoingwellin
internationaltournaments,thepopularityoftennishasgrown,particularlyin
theMetrosandtheSECAandBaudience
• BiginternationaleventssuchasTheKingfisherAirlinesTennisOpen(partof
theATPinternationalseries)organizedinMumbaiin2006and2007,havealso
playedbigroleinincreasingthepopularityofthesportinIndia.
Soccer
ViewershipofFIFAWorldCupsinIndia
Source:exchange4media
• Indiaisoneofthelastsignificantuntappedmarketsforsoccerintheworld.
SoccerviewershipinIndiaisincreasingbyabout20-25percentannually36
• TheviewershipforEnglishpremierLeague(EPL)isnolongerrestrictedto
WestBengal,GoaorKeralabutisspreadacrossIndia.Infact,EnglishPremier
LeagueclubssuchasManchesterUnited(ManU)areseekingtoexpandtheir
commercialinterestsinIndia.OfManU’sestimated333mnfollowers
worldwide,20mnliveinurbanIndia37.
36exchange4media
37TheEconomist,2008
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79
Apartfromthese,Golf,BoxingandHockeyaretheothersportswhichare
expectedtogrowinviewershipdrivenbythegoodperformancesofIndian
sportsmenontheinternationalsceneinrecenttimes.Besides,the
CommonwealthGameswhichisscheduledtobeheldinIndiain2010isfurther
expectedtoboostthemarketingopportunityforsportsinthecountry38.The
gamesareexpectedtoberevenueneutral,sothecostoforganizingmighthave
tobeoffsetbyticketsales,advertisingrevenueandbroadcastrights.Broadcast
rightsandeventmarketingagencyFastTrackhasbeenappointedtorepresent
theInternationalBroadcastRightsbytheOrganizingCommitteeoftheDelhi2010
CommonwealthGames.BroadcastdealswithNetworkTenandFoxtelin
Australia,andTVNZinNewZealandhavealreadybeennegotiated.
Conventionally,bothpublicandprivateenterpriseshavefundedsportsaspartof
theircorporatesocialresponsibility.Thenewsportsentrepreneursare,however,
lookingatrunningsportsteamsandeventsasbusiness.Inordertofurtherboost
sportsasabusinessinIndia,thereisaneedtoexploititmoreaggressively
acrossmultipleformats–suchascontests,eventsandactivations.Digitaland
mobileplatformshavealsonotbeenusedbeyondscoreupdatesanddownload.
Livestreamingandinteractivegamingisyettotakeoff.Contestsandfantasy
leaguesareslowlytakingshapebutstillhavealongwaytogo.Theserevenue
streamscanaddsignificantlytothesportsbusinessinIndia,ifexploited
aggressively.
38PressReports
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80
Future Implications
TheIndianM&Eindustrycontinuestowitnesstheemergenceofnewcontent
genresacrossdifferentsubsectors.Theconceptofuniversalcontentnolonger
holdstrueandplayersareinvestinginbuildingadifferentiatedcontentportfolioto
helpensureconsumerloyalty.Buildingupofadiversecontentbasketcouldalso
actasariskmitigatingmechanismfortheplayers.
Theimpactofemergingcontentvarietyontheindustryissummarizedinthe
tablebelow.
EmergingContentGenres:ImplicationsforPlayers
Sector Effects of Emerging Content Genres Implications
• Companiesneedtoevaluatebenefitsofportfolioapproach(beitacrossfilm
• Playersareincreasinglydiversifyinginto genres,aTVchannelportfolio,multiplemagazines)-inanenvironmentof
AllMedia differentgenresandbuildingaproduct increasinglysegmentedaudiencepreferences.Aportfoliogivesbenefitsof
portfolio hedingrisks,whilestillbeingabletoaggregatemediaforadvertisersand
gettingcostsynergiesinoperationalareas
• Increasingprogramming(time)shareof
newgenressuchasRealityTV,Talent
Hunts,GameShowsetc.
• Channelsneedtobuildupadiverseprogramminglibrary,comprisinga
• Significantshareofnewgenreshowsin
judiciousblendofconventionalandnewgenres.Withtheincreasedchoices
TopTVRlists
availabletoconsumers,measurestohelpensurecustomerloyaltyare
• Spurtinthenumberofnichechannelsfor
TV becomingincreasinglyimportant
diverseTGs,suchasKids,Infotainment,
• Increasingcostsforbroadcastingrightsofsportsevents-Broadcasters
Lifestyleetc.
needtoundertakeacostbenefitanalysisanddetermineaneffectiveprice
• Increasingviewershipshareofniche
beforeacquiringtherightsforaparticularevent
categorychannels
• EmergenceofSportsasamainstream
EntertainmentGenre
• Productionhousesneedtomitigatetheirriskbystrivingtoensurethatthey
• Smallbudget,‘multiplexmovies’have
havetheappropriateportfoliomixofbig,mediumandsmallbudgetmovies
becomeviableduetoaudience
intheircontentpipeline
acceptance
• ProtectionofIPRrightsandvaluationoflibrarycontenthasbecomeallthe
• FilmMakersexperimentinginnewgenres
Film moresignificantduetofuturerevenuepotentialthroughremakes,sequels
suchasKids,Horror,Sci-Fietc.
etc.
• CelluloidAdaptationsofBooksarebeing
• Needtoidentifyconsumerpreferencesandgaugeaudienceacceptancefor
experimentedwith
differentgenresbeforegoingaheadwithproductions,inviewofincreasing
costsofmoviemaking
• Riseinthenumberofsupplements
• Needforplayerstohelpensureadequatemonetizationofsupplementsby
offeredbybothEnglishandRegional
effectivetargetingofadvertisers
Newspapers
Print • Needforcarefulunderstandingofcontentpreferencesoftargetsegment,
• Increasingnumberofspecialtymagazines
andcomprehensiveevaluationoftheirmarketpotentialbeforelaunchinga
inEnglishsegment,bybothexisting
newmagazinetocaptureanicheaudience
playersandnewentrants
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Regionalization
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04
Regionalization
Oneofthemajorfactorsbehindsuchhighinterestlevelsin
regionalmediaisthesignificantlyuntappedmarketinTier2
andTier3citiesandlowersocio-economicgroupsthattend
tobetheprimaryconsumersofregionalmedia. Source: IRS 2007 R2
Weexaminethisingreaterdetailbelow. Thus,Tier2andTier3citiesareshowingahighergrowthin
numberofhouseholdsascomparedtothelargerTier1
cities(citieshavingpopulationofmorethan40lakhs).Asa
Increasing significance of Tier 2 and Tier 3 result,itisestimatedthatby2025populationofbothTier2
cities andTier3citiesputtogetherwillbeasmuchasTier1
Oftheurbanareas,Tier2citieshavingpopulationof10-40 cities2.Hence,thesecitiesareincreasinglyemergingasthe
lakhsarewitnessingthehighestgrowthrateinthenumber focusareaformarketers.
ofhouseholds.1 Thesecitieswitnessedagrowthof7.4
percentgrowthinthenumberofhouseholdsin2007over
2005.Tier3citieshavingapopulationinbetween5-10lakhs
witnessed6.9percentgrowthinthenumberofhouseholds
from2005to2007ascomparedtoa6.6percentgrowth
rateincitieshavingapopulationgreaterthan40lakhs.
1IRS2007R2
2MarketingWhitebook2008
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84
GrowthinPopulationofSECsacrosscities
SECs 40 lakhs + 10-40 lakhs 5-10 lakhs 1-5 lakhs 50K – 1 lakh <1 lakh
A 106 105 104 98 94 96
B 97 96 101 98 94 97
C 100 95 97 100 94 95
D 99 98 100 103 105 98
E 100 107 101 100 104 105 Source: National Council for Applied Economic Research (NCAER)
Note: Data Points indexed between 2005-2007
Source: IRS 2007 R2 Ahighernumberofmiddleandhighincomehouseholdshas
Currently,top6metrosconstituteonly30percentofthe resultedinhighergrowthinpercapitaconsumptioninrural
totalconsumptionofgoodsandservicesinIndia.However, areas.Percapitaconsumptioninruralareaswentupby12
these6metrosconstitute60percentofthetotalmedia percentin2005-06ascomparedto9.8percentinurban
spends3.Thisisananomalythatisboundtochangegiven India.6
thegrowthpotentialofTier2and3citiesduetoanincrease
inthenumbersaswellastheincreasingpurchasingpower
ofthepopulationresidinginthesecities.
3NCAER,GroupM,“SocialChangesandtheGrowthofIndianRuralMarket:AnInvitationToFMCGSector"bySJohnManoRaj,Dr.PSelvaraj,2007
42001census,IRS2007R2
5 NCAER
6NationalSampleSurveyOrganisation(NSSO)
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85
Hence,ruralIndiaoffersatremendouspotentialformarketers,advertisersand
mediaplayersalike.Again,duetodifferencesinthemediaconsumptionhabits
andlanguagepreferencesofruralpeople,mediaplayershavetotargetand
engagetheseaudiencesinadifferentwayasopposedtotargetgroupsinurban
areas.
MediaReachamongdifferentTownCategories
Further,overallMedia7 Reachismuchlowerinruralareasascomparedtourban
areas.
MediaReach
7Note:Media=TV+Print+Radio+Cinema+Internet
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86
Regional Trends in TV
IntheTVsector,bothnationallevelbroadcasterslikeStarandZee,aswellas
regionallevelplayerslikeSunandRajcontinuetoinvestheavilytoprovidemore
contentchoicestotheaudienceswhichpreferlanguagesotherthanHindiand
English.RegionalcontentassumesspecialsignificanceintheSouthsinceit
accountsforthelargestproportionofTVviewinghouseholdsinIndia(about32
percent8).Regionallanguagechannelsaccountfor35ofthetop100showson
televisionaccordingtoTAMPeoplemeterdatafortheweekbeginning18January,
2009to24January,20099.
8Exchange4media.com
9Indiantelevision.com
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87
Onelikelyimpactoftheincreaseinconsumptionofregionalcontentontelevision
couldbeanincreaseinthevalueoflibrarycontentofnationalbroadcasters.Any
broadcasterwithagoodcontentlibrarycanhaveitdubbedinotherlanguagesfor
broadcast.Thishastwoadvantages;first,theproductioncostismuchlesserthan
buildingthecontentfromscratch,andsecond,theriskisminimizedasthe
contenthasalreadyprovenbeensuccessfulinanotherlanguage.
ChannelssuchasZee,StarandSaharaalreadyhavesyndicationdealsinrich
Non-ResidentIndian(NRI)concentratedcountriessuchastheU.S.andthe
U.K.However,it’sthedomesticsyndicationmarketthatisnowbeginningto
catchon.
NewGECentrantssuchasNDTVImaginearebettingbigonsyndication
withdubbedversionsofitstopshow–Ramayana-beingairedontheSouth
Indianchannels-GeminiTVinAndhraPradesh,SunTVinTamilNaduand
SuryaTVinKerala.
Thiscouldadddirectlytothebottom-lineasthecostsinvolvedfordubbing
theexistinglibrarycontentintootherlanguagesarerelativelylow.
Infact,creativeteamsofvariouschannelsarenowactivelyconceptualizing
showswiththegoalthattheyshouldbeabletogeneratemultiple
syndicationopportunities.
However,asawhole,domesticsyndicationstillremainsarelatively
unexploredareainIndiantelevision.Therefore,overthenextfewyears,as
producerslooktomaximizetheirrevenuesbyrepurposingcontent,domestic
syndicationislikelytoofferthemastrongrevenuepotential.
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88
Mainstream Player Existing regional channels (before 2005) New regional channels
ZeeGujarati(GEC) ZeeTelugu(GEC)
ZeeMarathi(GEC) ZeeKannada(GEC)
Zee ZeeBangla(GEC) ZeeTamizh(GEC)
24Ghante(News)
24Taas(News)
StarVijay(GEC) StarMazaa(News)
Star
StarAnanda(News)
Network18 IBNLokmaat(News)
Source: KPMG Analysis
ZeeenteredintotheTamilGECspacein2008withZeeTamizh-thisistheoneof
themostcompetitivemarketintheSouthrightnowwiththedominationofSun
TV.ZeealreadyhasKannadaandTeluguGECs.Thechannelfurtherstrengthened
itspresenceintheBengalimarketbyacquiring26percentstakeinSkyB
(Bangla)Pvt.Ltd.,thecompanywhichrunsBengaliinfotainmentchannelAkaash
Bangla,inNovember200810.Previouslyithadacquireda60percentstakein
Bengalinewschannel24GhantafromSkyB.
10“Zee News India acquires 26% stake in Sky B”, Business Standard, November 2008
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89
TheStarnetworktoohasambitiousplansforexpansionintheSouthIndian
marketandhasformedajointventurewithJupiterEntertainmentcalledStar
JupitertotargetsouthIndianaudience.UndertheagreementStarJupiterwill
haveamajoritystakeinAsianetCommunicationsLimited(ACL)whichcurrently
broadcastschannelsinKannada(Suvarna),Telugu(Sitara)andMalayalam(Asianet,
AsianetPlus).11 Vijay,theTamillanguagegeneralentertainmentchannel,currently
operatedandownedbyStar,isalsotocomeunderStarJupiter.
RelianceADAGisplanningasimultaneousforayintotheregionalandHindi
broadcastingspace.Thecompanyintendstolaunchabouquetofregional
channelsalongwiththelaunchofitsmainstreamHindichannels.
Foranewentrantintoregionalmarkets,it’simportanttoidentifywhichregional
marketsofferthegreatestopportunity.
EvaluationofRegionalMarketOpportunities
- Slightly favourable
11“STARJupitertoholdmajoritystakeinAsianet”,TheEconomicTimes,November,2008
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90
SomeNichechannelsofRegionalplayersinSouthIndia
Genre Channels of Regional players Language
SunMusic Tamil
SSMusic Tamil,Telugu,Kannada,Malayalam
Music
GeminiMusic Telugu
Udaya2 Kannada
KTV Tamil
Movies
TejaTV Telugu
SunNews Tamil
JayaPlus Tamil
RajNews Tamil
KalaignarTV Tamil
MegaTV Tamil
TV9 Telugu
ETV2 Telugu
NTVNews Telugu
GeminiNews Telugu
AsianetNews Malayalam
Indiavision Malayalam
ManoramaNews Malayalam
PeopleTV Malayalam
TV9 Kannada
Suvarna Kannada
UdayaVarthegalu Kannada
12Indiantelevision
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91
Apartfromthesubcontinent,thesechannelsalsohaveviewershipinSriLanka,
China,theMiddleEast,thU.K.,Canada,Europe,AustraliaandpartsofSouth
AfricaandtheU.S.becauseoftsignificantpresenceofIndianoriginpopulationin
thesecountries,especiallythosefromSouthIndia.
TheotherbigregionalmarketsareMarathiandBengali.TheBengalimarkethas
anaddedadvantagethatchannelstargetingWestBengalarealsowatchedin
neighboringBangladesh,makingitlucrativeforbroadcasters.
Nichenewschannelsarenottheonlyfocusofregionalplayers;theyalso
continuetoexpandtheirpresenceinthesouthernGECmarket.Asianetlaunched
itsTeluguGECSitarainOctober2008.ItalreadyhasGECsinMalayalamand
Kannada.
Indiaisoneofthebiggestmoviemarketsintheworldwithovera1000movie
releaseseveryyear.Whilethemainstreamcommercialcinemamightbe
dominatedbytheHindilanguage,Indianstatestoo,havetheirownproduction
MarketSharebynumberofreleases houses.
13BrandReporter
14KPMGAnalysis
15KPMGInterviews,CentalBoardofFilmCertification
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92
millioneachpaidasremunerationtotheleadingactorsanddirectorofthefilm.
WhileabudgetfilmhasaproductioncostofaboutINR40million,smallerfilms
haveabudgetofaroundINR10-30million16.
ApartfromTelugu,Tamil,Kannada,Malayalam,MarathiandBhojpuriaresomeof
theotherimportantregionallanguagesinwhichfilmsaremadeinIndia.The
budgetoftheseregionalfilmsareverysmallascomparedtoBollywood,where
theproductioncostsofbigbudgetfilmsrangebetweenINR300-600million.The
averagetimetomarketforabigbudgetTeluguFilmis10monthsasopposedto
15-18monthstakenforaBollywoodfilm.17
Opportunities in Exhibition
Intheexhibitionspacetoo,theunevengeographicaldistributionofthetheaters
inIndiagivesthefoursouthernIndianstatesanadvantage.AndhraPradesh,
Kerala,KarnatakaandTamilNadutogetheraccountforabout60percentofthe
totaltheatersinthecountry,whilehousingjust22percentofthepopulation18.
Thisprovidesacanvasforwiderfilmreleasesthere.Further,withmall
developmentactivitiespickingupinthesouthernregion,multiplexplayershave
alsostartedtoforayintothesouthernmarket.CompanieslikePyramidSaimira
havemadeinvestmentstoacquireandupgradesinglescreentheatersinSouth
India.Goingforward,theaggressiveplansofthemultiplexplayerstoexpand
theirpresenceinthesouthernmarketisexpectedtoincreasetheaverageticket
sizeandimprovethecollectionsofregionalmovies,thusprovidingafurther
boosttoregionalcinemainthecountry.
16Industry
17Industry
18FilmFederationofIndia
19CompanyWebsite,PressReleases
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93
developmentsaugurwellfortheindustry,andaregraduallyusheringinaneraof
corporatizationintheregionalindustry,alaBollywood.
Withtheavailabilityoffunds,manyoftheseregionalfilmsarenowbeing
releasedonascalecomparabletoBollywood,andasaresultearningrelatively
moreintheatricalrevenues.TheTamilfilm”Chandramukhi”grossedINR800
milliononboxoffice.AnotherTamilblockbuster“Shivaji:TheBoss”wasreleased
in800cinemasacrossthecountry.21 ManyoftheleadingartistsfromBollywood
arealsoworkinginregionalfilms.Southhasalwaysbeenapopulardestination
forBollywooddirectorsandactors;othercinemashavealsostartedpickingup
now.LeadingHindifilmindustrystarslikeAmitabhBachchanandAjayDevgan
haveactedinBhojpurifilms.Thishasfurtherchangedtheperceptionofregional
cinemaintheeyesoftheaudience.
Way Forward
Industryplayersagreethatthemainproblemplaguingregionalcinemaisnotthe
absenceofqualitycontentortalentpool,butlackofeffectivemarketingand
promotionalactivities.Establishingorganizedindustryforumscanhelpregional
filmsdomuchbiggerbusiness.TheGovernmentcanalsohelppromoteregional
cinemabyprovidingalevelplayingfield.Forinstance,inAndhraPradeshthereis
apricecapofINR100onticketpricesaswellasarestrictiononthescreeningof
morethan4showsperscreen.Thishampersthegrowthoforganizedexhibition
players.Removalofsuchrestrictionscangoalongwayinpromotingtheindustry.
Industryplayersalsoneedtotakeuptheseissuesinappropriateforumsforthe
developmentofregionalcinemainthecountry.
20CompanyWebsite,PressReleases
21RegionalCinema–Needed,efficientmarketing&promotion”Exchange4media,March2008
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94
Themarkethasseennewspapersrollingouteditionsandprovidingregion
focusedcontentinanattempttoincreasecirculation.Thisisbecauseofthe
increasedsignificanceofregionalmediainrecenttimes.Readershipand
circulationisdirectlycorrelatedwithliteracylevels,whichhaveincreasedfrom
62.5percentin2002toover73percentin200724.Moreover,69percentof
India’spopulationisrural25.Withfasterliteracygrowthrateinruralareas,print
mediacirculationislikelytogrowfasterinregionalprint.Moreover,boththe
readershipsurveys,IndianReadershipSurvey(IRS)andNationalReadership
Survey(NRS),havereiteratedthedominanceoflanguagepublicationsoverthose
ofnationalpublicationsovertime.ThereadershipfiguresofIRS2008Round
2(R2)surveygoesontostrengthenthisfact.TimesofIndia(ToI)istheonly
Englishnewspaperamongthetop10dailiesinIndia.Outofthetotalreadership
ofthetop10dailynewspaperseachinEnglish,HindiandVernacularcategory,
Englishgetstheleastreadershipshareat11percent26.
TotalNewspaperReadershipinIndia
22RegistrarofNewspapersinIndia
23IRS2007R2
24NRS,IRS
25Census
26IRS2008R2
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95
Eveninmagazines,only1amongthe10mostreadIndianmagazinesbelongsto
theEnglishlanguage.
TotalMagazineReadershipinIndia
Readershipfiguresclearlyshowconsumerpreferencesforregionalpress.Hindiis
themostreadlanguageinthecountryfollowedbyTamil,MalayalamandTelugu.
Further,liketheirnationalcounterparts,playersareexpandingtheirbrandportfolio
byventuringintospecialtygenres.Forexample,DainikBhaskarlauncheditsHindi
financialdaily,BusinessBhaskar,inJune2008.BusinessBhaskar,inturnwent
intoanexpansiondriveforwithinamonthofitslaunchthedailyhad13editions
spanningMadhyaPradesh,Chhattisgarh,Punjab,HaryanaandChandigarh.30
27“HTMediaannounceslaunchofHindidaily”,DNA,May2008
28CompanyWebsite,Newswatch.in
29exchange4media
30exchange4media
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96
Similarly,theDainikBhaskargrouphasalsobuiltupaportfolioofbrands
comprisingofDainikBhaskar,DivyaBhaskar,DNA,BusinessBhaskarlaunchedin
2008andDBStar-thelatter2alsolaunchedin2008.Inearly2008,theDainik
BhaskarGroupalsolaunchedafortnightlyweeklymagazinetitled‘She’for
women.32 ThemagazinewasprimarilytargetedatwomeninSECAandB
categoryinMadhyaPradesh,Chhattisgarh,Rajasthan,Punjab,Haryanaand
Chandigarh.SakaalGroup,publishersoftheMarathiDailySakal,launchedthe
EnglishdailySakaalTimesinPuneinMay2008.
Theotherwaybywhichplayersareplanningtoexpandtheirnationalreachis
throughlaunchingeditionsfrombigcitieslikeDelhiandMumbai.Deshbandhu,
oneoftheoldestnewspapersinMadhyaPradeshandChhattisgarh,launchedits
nationaleditioninDelhiinApril2008.33 BesidesbeingmadeavailableinDelhiand
NCR,circulationwasalsomeantforselectedcitiesinBihar,UttarPradesh,
HimachalPradesh,Uttarakhand,Haryana,PunjabandRajasthan.
Therewereinstancesoflaunchingnichemagazinesaswell.TheToIgroup
launchedamonthlyhealthmagazinetitled‘JeevetSharadShatam’,onMay
2008.35 Thenichemagazineistargetedat40-pluswomen.36Thecontent
includesclinicalissuesrelatedtowomenandgeneralhealthremedies.
Inthenewspaperspace,theregionalsectorhasalsowitnessedtheemergence
oftabloids.HindiafternoontabloidDLAwaslaunchedinAgrainMay2007.37
31exchange4media 36exchange4media
32exchange4media,CompanyWebsites 37exchange4media
33exchange4media
34exchange4media,CompanyWebsite
35exchange4media,CompanyWebsite
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97
Sincethen,ithasalsolaunchedfoursimilarlypricededitionsinothercities.
Asmeansofovercomingofspaceconstraintinthemainissues,playershave
increasedthenumberaswellasfrequencyofcitycentricsupplements.Themain
issuesofmostnationaldailieshavebeencarryingdailysupplementslikea‘Delhi
Times’or‘HTCity’inthemetrotowns.Butwithsmallercentersandtownsalso
emergingassignificantcentersformediaconsumption,playershavestarted
extendingsupplementissuestothesetownsaswell.Hence,supplementslike
‘GurgaonPlus’or‘PatnaTimes’havebecomearegularfeaturenow.
Asalargescaleextensiontotheconceptofsupplements,playershaveleveraged
thedistributionpoweroftheirmotherbrandtolaunchfullfledgednewcity
centricnewspapers.TimesGroup’s‘MumbaiMirror’andtheHTML-BCCL
promoted‘MetroNow’aresomeofthepointersinthisdirection.Thestrategyis
mostlyadefensiveonesinceinmostcases;theaimistopreventtheexodusof
subscribersfromthemaingroupinthefaceofincreasingcompetition.Butthe
veryfactthatnationalplayersseemtotakerecoursetothelocalizationstrategy
forretainingtheirmarketreiteratestheincreasingpoweroflocalcontent.
Somenewplayershavealsoemergedwhotendtoconcentratepurelyonthe
localmarket.OneexamplebeingtheEnglishLanguageCompact“DeccanPost”,
whichwaslaunchedinthetwincitiesofHyderabadandSecunderabadon
February200839.EssentiallyaHyderabadiWeekly,thepublicationwasmeantto
reflectthetypical”Deccan”culture,traditionandcuisine;essentiallyan“outand
out”localnewspaper.Similarlyinthemagazinespace,PremierEntertainment&
38“TOI’slaunchallsettoheatupChennai”,Livemint,April2008
39exchange4media
40exchange4media
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98
MediaPvt.Ltd.unveiled“BangaloreHappenings”.40 Asthenameitselfsuggests,
themagazinewastargetedatprovidingacomprehensivecityguideofBangalore,
itshotels,restaurants,spas,resorts,bookstores,musicstores,culturalinstitutes,
airportandplacesoftouristinterest.
Hindiandothervernaculardailiesareperceivedtobemorelocalfriendlyas
comparedtotheirEnglishcounterparts.Thatisthereasonwhyregional
advertisingisgrowingatarelativelyfasterpace.Ofcourse,withhisenhanced
aspirationsandincreasedpurchasingpower,theruralconsumerhasalsobecome
thenewtargetgroupofthemarketers.Withthat,advertisershaverealizedthe
needforlocalcampaignsandhencemediaplannersarefindingtheregional
mediaattractivetoreachthelocalconsumers.Newerandlocalizedsectorssuch
aseducation,retail,andjewelleryaretappingintothismarket.Newspapers,
throughtheirclassifiedsections,havetraditionallybeenthepopularchoiceof
thesesunrisesectors.Nowwiththeincreasingmarketsegmentationandthe
focusbeingonmicro-customers,cityspecificeditionsandcustomizedlocal
content,newspapersaregainingmorefavoramongthesesectors.
Attheprevailingadvertisingrates,anEnglishreaderisvalued9timesmorethan
aHindireaderand13timesoveravernacularreader.Thelanguagegarnersonlya
25percentshareincirculationwhilestillaccountingfor48percentsharein
advertising.41 Thisanomalyisexpectedtogetcorrectedandthedifferencein
Advertisementratesbetweennationalandregionalpressisexpectedtocome
41“TOI’slaunchallsettoheatupChennai”,Livemint,April2008
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99
PerReaderEconomicsforNewspapers
Mediaplannersfindtheregionalmediaattractiveforanumberofreasons.
EspeciallyinTVtheshareofregionaladvertisingontelevisionissubstantial.
AccordingtoAdExIndia,during2008,nationalandregionalchannelswereused
inanadvertisingratioof58:42.
ShareofAdvertisementVolumesin2008
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100
Thegrowthinregionaladvertisingtoday,isquitesignificantly,bynewadvertising
sectorssuchaseducation,hospitality,realestateandjewellery–whichoftenare
mostlylocalbrandsandthereforeadvertisethroughlocaladvertisingcampaigns.
Goingforward,astheimportanceofregionalmediagrowsacrosstheM&Esub
sectors,thedifferenceintheadvertisingratesbetweenthenationalandregional
mediaisexpectedtonarrowdownfurtherandhenceadvertisingspendsare
expectedtobemuchmoreevenlyspreadbetweenthetwomedia.Forthe
mediacompaniesthisislikelytomeananincreasingfocusoninnovationand
customizationtocreatespecificcontentforregionalmediaaudiences.
• Rapidgrowthinthenumberofregional • Demandforregionalcontentislikelyto
channels continuetogrowandevenHindicontent
• ConsistentriseinAdvertisingrevenue housesmayincreaseexposuretoregional
shareofregionalchannelsinthetotalTV contentdevelopmenttoexploitthe
advertisementpie growingdemand
• NationalBroadcastersventuringinto • Asregionalmarketsbegintosaturate,
regionalspacebylaunchingregional theremightbeneedforacareful
TV channels evaluationofmarketpotentialofa
• Regionalplayersstrenghteningtheir particularregionbeforelaunchinganew
productportfoliobylaunchingniche channel
channels • Enhancedsignificanceoflibrarycontent
• Launchofcitycentricchannelsbynational becauseoftheabilitytodubgoodcontent
players andexploititindifferentlanguages.Need
forpropervaluationofthelibrarycontent.
• Improvingcollectionsofregionalcinema • Needfortheregionalindustryplayersto
duetoexpansionofmultiplexes organizethemselvesandgetthemselves
• Trendofcorporatizationpickingup,with heardinappropraiteindustryforums
Bollywoodplayersventuringintoregional • Qualityofregionalcinemaislikelyto
cinema improveduetoinfusionoffunds
• CrossPollinationoftalentbetween • Playerstoenhancetheirproductioncosts
Film BollywoodandRegionalCinema toattractnewtalentaswellasmatch
internationalstandards
• Imperativeforplayerstoenhance
marketingspendstomatchthepopularity
ofHindiCinema,bothwithinthecountry
andabroad.
• Increasedcompetitionduetobothnational • Needforevaluatingmarketpotential
andregionalplayersventuringintoeach beforeexpandingintoparticularterritories
other’sterritories • Advertisingrevenuestofurthergrowfor
• Establishedplayersexpandingtheir Hindiandregionalplayers,leadingtoneed
productportfoliobyaddingnewlanguages formoreeffectivetargetingofadvertisers
Print
• Competitionleadingtoreductionincover andefficientadvertisinginventory
prices,andthusleadingtopricewars utilization
• Riseinthenumberofsupplementsdueto • Imperativeforplayerstoeffectively
locallyrelevantcontentgainingin monetizethesupplements.
significance
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cooperative.Allrightsreserved.
Digitization
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05
Digitization
Introduction
DigitizationhasalsobeenafocusareaforTRAIforthepast
two-threeyearsanditiswiththisgoalthatithasbroughtin
Digitizationofmediaisplayingamajorroleintransforming regulationstopavethewayforConditionalAccessSystem
thefaceoftheIndianentertainmentandmediaindustry. (CAS),DTH,HITSandIPTV.
InTelevision,adventandincreasingpenetrationofdigital
deliveryplatformsimpliesamultichannelandmulti Increasing Penetration of Digital Delivery
distributionplatform,alongsideanaddressablesystemfor Platforms
thebroadcasters.DigitalsolutionsinFilmedEntertainment
havehelpedtheproducerstoreachrelevantaudienceand OneofthemostimportantdevelopmentsintheTV
increasethenumberofprintswithoutadditionalcosts.The distributionindustryhasbeentheintroductionofmandatory
musicindustryisbullishondigitalmusicplatformsoffsetting CASbythegovernmentinspecifiedareasofDelhi,Mumbai
thedeclineinphysicalsalesinoutdoormedia,theplayers andKolkatasince2007.However,thesystemhasmetwith
arenowgraduallyshiftingfromtraditionalhoardingstoother limitedsuccess.Theadoptionrateofsetupboxesinthe
formsofoutdooradvertisingsuchasdigitalsignageslike CASmandatedareaswasaround38percentinthese3
LED’sandLCDscreens.Digitizationisthustransformingthe citiesonacombinedbasisbytheendof20071.Sinceaset
industryacrosssectors. upboxisnotrequiredtoviewFreetoAir(FTA)channels,
manyofthehouseholdshaveactuallyoptedtoreceiveonly
FTAchannels2.However,forthefirsttimeconsumersin
Digitization in TV these3citiesgotasayinwhattheywantedtowatchand
payfor(CAShadbeenintroducedinChennaiearlierfrom
TheIndianTVdistributionspaceisevolvingfast.Pastthree- September2003onwards3).
fouryears,wehaveseentheConditionalAccessSystem
beingintroducedwhichgavethenecessaryimpetusto ItisactuallytheentryofDTHplayersthathasgivenastrong
digitalcable,theadventof5DTHplayerswhichtogetherare pushtowardsthedigitizationofTVdistribution.Oneofthe
expectedtohavegarnered10millionsubscribersbytheend reasonsforthehighpenetrationofDTHvis-à-visdigital
of2008,andthecommerciallaunchofIPTV. cableisthehighadoptionofDTHinruralareas.Thisis
mostlyowingtothepenetrationofDDDirect+,aFreetoAir
(FTA)DTHserviceprovider,intheseareas.Asaresult,total
1TAMMediaResearch
2TRAI
3“ConditionalAccessSystem–Waitforaclearerpicture”,TheHinduBusinessLine,September2003
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104
numberofdigitalhomesinRuralIndia,at6million,was Sky,Sun,BigTVandAirtelDigitalTV.Thereisanaggressive
morethanthreetimesthatofUrbanIndiawhichstoodat1.8 marketingpushbythenewplayers,whichislikelyto
millionhouseholdsasofAugust20074. expandtheDTHmarketinabigway.Cablenetworks,facing
theheatduetocompetitionfromDTHplayerswith
NumberofDigitalTVHouseholdsinIndia
ambitiousgrowthtargets,seemtohaverealizedtheneedto
digitizeandtogrowtoabiggerscaleiftheywanttosurvive.
MultiSystemOperators(MSOs)aregoingintoadigitization
drivetoupgradetheirnetworkstoadigitalformat.
ConsolidationofMSOsisalsounderway.Forinstance,
Hathwayistakingtheinorganicrouteforexpansion.In
March2008,itacquiredacontrollinginterestintwomid-
sizedcableTVcompaniesaspartofitsstrategytoexpand
itsfootprintandlimitthechallengeofnewMSOsentrants5.
Source:IMRBandTAMStudyandEstimates AnotherMSO,DigicableNetwork(India)acquireda51
percentstakeinKolkata-basedCableCommaspartofits
DigitalDividebetweenRuralandUrbanIndia
strategytoexpandintheeasternregionofIndiainJune
20086.
WithTRAIrecommending100percentmandatorycable
digitizationwithinthenext5years7,thedigitizationand
consolidationtrendamongMSOsisexpectedtocontinuein
future.TotalnumberofDigitalPayTVhouseholds(including
digitalcable,DTHandIPTV)inIndiaisprojectedtogrowat
thecompoundedannualrateof35.4percenttoreach71
millionby2013,orabout56percentofthetotalCableand
Source:IMRBandTAMstudyestimates,KPMGAnalysis
SatelliteHouseholdsinIndia.Shareofsubscriptionrevenues
Digitalpenetrationshotupfurtherin2008,especiallydueto comingfromdigitalplatformsislikelytobeevenhigherat
increasedcompetitioninthePayDTHspace.Withtheentry about64percentonaccountofhigherARPUsindigital
ofRelianceCommunicationsandBharti,therearecurrently distribution8.
fiveprivateplayersoperatinginthissegment-Dish,Tata
4IMRBandTAMStudyEstimates
5“Hathwayacquires51percentinBhaskar'scableTVarmandGujaratTelelinks“,Indiantelevision.com,March2008
6“Digicableacquires51percentinCableComm”,Indiantelevision.com,June2008
7“TRAIsets5yeartimeframefordigitalcableTV”:,TheHinduBusinessLine,July2008
8KPMGAnalysis,KPMGInterviews
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105
Althoughintermsofabsolutenumbers,cableisexpectedtoexhibitasmall
growth,reaching90millionsubscribersfromabout72millionnow,intermsof
marketshare,itisexpectedtofallfromabout84percentnow,to71percentby
2013,infaceofstiffcompetitionfromattractivelypricedandaggressively
promotedDTHandIPTVservices9.AstronggrowthdriverforDTHandIPTVis
alsolikelytocomewhenCASisimplementedonalargerscaleacrossIndian
cities,ashasbeensuggestedbyTRAI.Consumers,whohadbeenstickingto
analoguecablesimplyoutofinertia,maythenbeforcedtomakeachoice
betweeneitherCASbaseddigitalcableorDTHorIPTV.
PayTVHouseholdinIndia
Source:KPMGAnalysis,KPMGInterviews
SunDirect,thenewentrantintheDTHinthebeginningof2008,wasableto
garner1millionsubscribersin200daysfromjust4southernstateswithalow
subscriptionpricingmodel.Thenetworklaunched4regionalbasictiersconsisting
ofover100pluschannelsspecifictoeachsouthernstate(Tamilbasic,Telugu
Basic,KannadaBasicandKeralabasic)attherateofINR75permonth.In
additionitlaunchedaddonpackagesstartingfromaslowasINR1010.
Followingthis,DishTValsoslasheditssetupboxprice.AnewDishTV
connectioninSouthIndiawasavailableforINR1990(plusINR200asinstallation
charges)fromtheearlierINR2950(plusINR200)11.TataSkytoodroppedits
set-topbox(STB)priceby50percenttoINR149912.
9KPMGAnalysis,KPMGInterviews
10“DishTVtotakeonSunDirect”,Indiantelevision.com,July2008
11“DishTVtotakeonSunDirect”,Indiantelevision.com,July2008
12“TataSkyslashesset-topboxpricesby50percent”,Indiantelevision.com,February2008
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106
RelianceCommunicationsandBhartiAirtelenteredtheDTHsegmentinAugust
andOctober2008respectively.Likeotherplayers,bothofthemoffermultiple
entryaswellasmultiplesubscriptionpackages.
Inahighlycompetitivemarket,it’sdifficultforanyplayertokeepprices
significantlyhigherthanothers.Atthesametime,theplayerscan’taffordtohave
subscriptionratesmuchhigherthanthoseofcable.Also,paidaddonservices
suchasvideo-on-demandareyettotrulytakeoffinIndiaandthedemandfor
suchservicesremainslow.
Asaresultofthesefactors,theARPUforDTHinIndiaremainslowataround
USD3-4permonthversusaboutUSD21formostofthebigDTHplayersinAsia
PacificandbetweenUSD60to80inU.S.,U.K.andAustralia.13
AlthoughcompetitionintheIndianDTHmarketislikelytokeeptheDTHARPUs
lowintheshortterm,inthemediumtolongtermwethinkitislikelythatARPUs
maypickupasadd-onserviceswillcatchupinIndiaastheconsumerbecomes
betterpreparedtopaymoreforbetterqualityofservices.
ARPUforDTHServices
Source:KPMGAnalysis
13KPMGResearch
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107
PayTVARPUs(USD)
Source:CreditSuisse,KPMGResearch
HoweveramorecarefulanalysisbasedonARPUsasapercentageofper
capitaincome,indicatesthatIndiaisplacedsomewhereinthemiddle
amongthesenations.
PayTVARPUsasPercentageofPerCapitaIncome
Source:CreditSuisse,KPMGResearch
Therefore,nosignificant“correction”intheARPUisexpectedinthenear
future.However,asdiscussedearlier,wedothinkitislikelythatARPUs
startpickingupfrom2010onwards,largelyonaccountofincreasedusage
ofadd-onservicesassociatedwithdigitaldistributionmediums(Digital
cable,DTHandIPTV)aswellasacoolingdownofthehighlycompetitive
environmentinTVdistributionthatexiststoday.
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108
InJanuary,2009,BhartialsoannounceditsforayintotheIPTVsegment.Itoffers
tripleplayservices(landline+broadband+IPTV)atINR999permonthaftera
onetimeinstallationchargeofINR399916.
Revenuebreak-upintriplepayservices
Service ARPU (in INR)
Landline 200
Internet 400
IPTV 200
Total 800
Source:Industry,KPMGAnalysis
Inthisbreakup,theIPTVARPUhasbeenassumedconservativelybutif
add-onservicessuchasvideo-on-demandweretotakeoffinIndia,the
averageARPUfromtheIPTVsegmentcouldbesignificantlyhigher.
14Icontrol.in
15Industry
16Airtel.in
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109
HITSissimilartoDTHservices;inboththeseplatformsofdigitalcable,channels
aredistributedatonegothroughasatellite.ButunlikeDTH,wheretheend-user
istheconsumer,theHITSend-userisacableoperator,whothendeliversthe
signalstotheendconsumers.
OnceI&BMinistrycomesoutwithdetailedregulationsforthesector,manynew
playersarelikelytoenterthemarketandstartcompetingwiththeDTH,Cable
andIPTVcompaniesforashareofthePayTVdistributionpie.WWILoftheEssel
GroupistheonlyHITSlicenseecurrently,althoughitisyettobegincommercial
operations17.
In2007,PublicbroadcasterDoordarshanlauncheditsmobileTVpilotwithhandset
majorNokiaandSamsung,ontheDVB-Hplatform18.Theserviceofferedeight
freechannels,includingDDNational,DDNews,DDSportsandservicesinsome
regionallanguages.InAugust2008,stateruntelecomoperatorMTNLalso
launchedmobileTVservices.TheTVserviceonmobilehandsets'MTNL-TV'is
availableinDelhiandtheNCRforMTNLcustomers,andprovides20channelsat
INR99permonth19.
IndustryplayersarebullishontheprospectsofMobileTVinIndia,theanticipated
allocationof3GspectrumservicesinIndiain2009istoallowlivestreamingof
videocontenton3Genabledmobilehandsets.Thestakeholders,mobileservice
providersandtelevisioncontentprovidersarealsolikelytobelookingatdifferent
businessmodelsformonetizationofmobileTVandrevenuesharing.Bothfee-
basedandfree,advertisementdrivenprovisionofmobileTVservicesarelikelybe
experimentedwith.However,intheshortterm,mobileTVservicesinIndiaare
likelytohavelimitedpenetrationasonlyasmallproportionofmobilephone
ownershavehandsetscapableoflivevideostreaming.Mostofthe3Gphones
soldinIndiaareintheINR10,000andabovepricerange20.
17“WireandWirelessreadyforHITSoperations”.EconomicTimes,April2008
18“DoordarshanlaunchesmobileTVpilotservice”,Televisionpoint.com,May2007
19“MTNLlaunchesMTNL-TVformobile”,Techtree.com,August2008
20KPMGResearch
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110
CarryingCapacityofBandwidths
300 36
450 54
550 67
750 92
860 106
Source:TRAI
Inmetros,mostofthecableTVhomesreceive65to90channelsusinga
combinationofopticalfiberandcoaxialcables.Suchcablenetworksare
beinggraduallyintroducedthroughoutthecountry.Infact,presentlycable
TVservicesinmostofthecitiesserveupto60channelsovera550MHz
bandwidth.Thesenetworkstypicallycaterto5000customersperhead.
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111
ThesmallestCableTVNetworksinthecountrymaytypicallydeliverupto
30channelsovera300MHzbandwidth.
Sincechannelcarryingcapacityofthecablenetworkeveninitshighest
bandwidthslotof860MHzisjust106channels,theonlyfeasibleoption
lefttoenhancethechannelcarryingcapacityisdigitizationofnetwork.A
singleanalogvideosignaloccupies8MHzofbandwidthonthecable.By
usingbandwidthefficientdigitalmodulationtechniquessuchas
QuadratureAmplitudeModulation(QAM),dataratesinexcessof56Mb/s
canbetransmittedwithin8MHzband.UsingMotionPictureExpertGroup
(MPEG)compressiontechniques,ahighqualityvideosignalcanbe
compressedinto3-4Mbpsdatastream.Therefore,byupgradingacable
plantfromanalogtodigitalTVtransmission,onecanachievemore
channelcapacity.The800MHzofavailabledownstreambandwidthina
moderncableplantcould,intheory,supportover1000channelsofvideo
serviceswithMPEGandothercompressiontechniques.
InDTHservices,thechannelcarryingcapacityforalltheexistingservice
providersisatleast50percenthigherthanthe106channelsupperlimit
foranalogcable.ThechannelcarryingcapacityonDTHdependsontwo
factors–thenumberoftranspondersandthedigitalcompression
techniqueused.
WithMPEG-2compression,around12-15channelscanbecarriedper
transponder.Thereforewith12transponderseach(asonJuly2008),the2
biggestDTHplayersinIndia–TataSkyandDishTVhadmaximum
capacitiesof150pluschannels.WithMPEG-4compression,thenumber
ofchannelspertransponderincreasestomorethan20.Thus,therecently
launchedBigTVDTHservicebyRelianceisoffering200pluschannels
withits8transponderstostartwith.
Source:TRAI
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112
Accesstomorenumberandbetterqualityofchannelsremainthetoptwo
reasonstheconsumersareoptingforDTHtechnology.
KeyReasonsforConsumersoptingforDTH
Source:IMRBandTAM-SDigitalStudies
Thesefiguresindicatethatadd-onfeaturessuchasgamingandVideo-on-Demand
(VoD)areyettocatchupwiththeconsumers.
Asaresult,forserviceslikeMoviesonDemand,oneofthechallengesthatthe
DTHplayersfaceisgettingintorevenuesharedealsastheycan'tpayhigh
minimumguarantees.Ontheotherhand,revenuesharedealsarenotattractive
forthecontentsuppliersiftheydon’tseehighvolumes.
However,theindustrycontinuestobebullishaboutthepotentialofadd-on
servicestoaddtotheARPUsinthenearfuture.
ApartfromDTHandIPTV,theseandotheradd-onservicescanbeofferedon
digitalcableaswell.ForinstanceinNorthAmerica,whichlikeIndia,isacable
dominateddistributionmarket,about50percentofInternetconnectionsare
providedbyCableTVoperators22 resultinginfiercecompetitionbetweentelecom
operatorsandCableTVoperatorsprovidingvariousvalue-addedservices.
Therefore,digitizationofcablesectorinIndiaisalsoexpectedtoenableamuch
widerscopeforsuchservicesincomparisontowhatexiststodayand
significantlyincreasetheARPUsforcableplayers.
Wethinkthatitispossiblethatsuchvalueaddedservicesofferedbydigital
distributionplayersmaypickupinIndiafrom2010.
21“TRAIproposalurgescableoperatorstodigitizenetworks”,TheHinduBusinessLine,July2008
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113
AsurveytomeasuretheTVviewinghabitsofadigitalconsumerleadto
thefollowingconclusions:
1.ADigitalViewerwatchesmorechannelsascomparedtoananalog
one.Thiswasmeasuredbypercentageofchannelscontributingto80
percentviewingtime
NumberofChannelscontributingto80percentviewingtime
DigitalViewer 43
AnalogViewer 31
Source:TAM
2.DigitalhomesspendmoretimeonTV.
TimeSpentonTVperday
No of Channels
Target Group
(minutes per day)
DigitalViewer 186
AnalogViewer 150
Source:TAM
ADigitalviewerspends25percentmoretimeonwatchingTVperday.
Therefore,asdigitalTVdistributioncontinuestoincreaseitssharein
theC&Ssubscribers’pie,onecanexpectacorrespondingincreasein
theaverageTVviewingtimesaswell.
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114
Digitization in Films
DigitizationofFilmtechnologyisexpectedtochangethefaceof“traditional”
cinemabusiness.Digitalcinemaencompasseseveryaspectofthemoviemaking
process,fromproductionandpost-productiontodistributionandprojection.While
investmentinexhibitioninfrastructureisincreasingtheatricalcapacity,digitization
ofdistributionishelpingfilmmakersmaximizerevenues.Intheglobalcontext,
whiledigitalcamerasarenothingnew,andpost-productionhouseshavebeen
usingdigitalequipmenttoeditandmastermoviesandanimationforsometime,
theall-digitaldistributionandprojectionofmovieshasonlyrecentlyarrivedto
completethechain.Overthepasttwo-threeyears,suchtechnologieshavealso
madetheirpresencefeltinIndia.Indianfilmcontentisincreasinglygoingdigital
withuseofmoregraphicsandvisualeffects.Besides,thedistribution
mechanismisundergoingachangewiththeadventofdigitalcinema,which
envisagesprovidingahighdefinitioncinematicexperience.
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115
ThistechnologyimpliesseveraladvantagesfortheFilmIndustry.Thetheater
serverhasthecapacitytostoremultipledigitalmovies,thusallowingflexibilityto
runmultiplemoviesevenforsinglescreentheaters.Inaddition,costpercopyof
digitalprint-atINR3,500-5,000-ismuchlessasagainstcostpercopyofphysical
print,whichstandsatINR65,000-70,000(excludingthecostoftheprojector)23.
Moreoverthisstreamlinesthedistributionofcinemathroughsatellitetechnology
togeographicallyremoteplaces.Thisreducesthescopeofpiracyandmore
numberofpeoplegettoseetheoriginalprintinlesseramountoftime.The
industrythus,couldderivesignificanteconomicbenefitsfromthedigitization
process.
ProducingaBollywoodFilmcancostanythingbetweenINR20-600million.Whateverthesizeoftheproducer’s
wallet,there’sacostthatremainsconstant-INR65,000-70,000formakingasingleprint.For500printsitworksto
aroundINR30-40millionoraround20percentofthetotalcostofbigbudgetmovies24.Forasmallbudgetmovie,
thecostofthesameworksouttobeevenmorethanthetotalcostofproduction!
InHollywood,thedynamicsaredifferent.Budgetsaresohighthatthecostofmaking4,000printsisgenerally,
merely5percentofthetotalcost.So,itbecomeseasyforadistributortocarpetbombcinemaswithanewrelease
andrecoupinvestmentsonthefirstweekend.InIndia,however,toevenattemptcarpetbombing,aproducermight
needatleast1000prints.
Itisthiscostthatearlierusedtocompellow-budgetfilmmakersinIndiatocreatejustabout50-60prints.Thebig
productionhousesmanaged50025.Evenwithsuperblogisticsinplace,theyusedtoatbest,hopetoreachoutto
600cinemasinthefirstweek.
ThisinabilitytolaunchnationallyinthefirstweekliesattherootofBollywood’sproblem.Filmsaretypically
launchedfirstinurbanareas.Afterthattheprintsareshiftedtosecondrungtheaters.Later,theyareshippedto
whatarecalledBandCclasstowns.Bythetimeamoviehitsthesetowns,itcantakeaslongasfivemonths.At
theendoftheday,producersandcinemahallownerslosebecausetheeconomicsofmoviemakingdon’tallow
themtoreachouttotheiraudienceaheadofthepirates.Sorevenuesfromthesmallercentersandtownswere
almostnon-existentforthefilmmakers.
23ufomoviez.com
24IndiaBrandEquityFoundation
25IndiaBrandEquityFoundation
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116
DigitalCinema,atitscore,worksontheprincipleofsimplyeliminatingprints.Onceacinemahallsignsupwitha
DigitalCinemaTechnologyProvider,suchasUFOorRealImage,itinstallshighendcomputers,digitalprojectorsand
asmartcardwithapassword.Themovieisbroadcastviahighspeedsatellitelinkstothecinemahallwhereit
residesonthecomputer.Thesmartcardcomesprogrammedwithlicensesfromtheproducer.So,ifahallis
authorizedtotelecastafilm35timesoveroneweek,itcandojustthat.Attheendof35shows,themoviedeletes
itself—unlessthelicenseisextended.
Thecomputercanstoreasmanyas12movies.Forasinglescreenowner,ittranslatesintoanabilitytoscreen
differentmoviesatdifferenttimes.RuralIndiaapart,itisthekindofthingthathasgivenanewleaseoflifetosingle
screencinemahallseveninbigcities.Inthepasttheyhadtosticktorunningasinglemovie.Nowtheyhavethe
flexibilitytoshowdifferentmoviesatdifferenttimes.
Hence,cinemaownersaremorereceptivetoexhibitsmallbudgetfilms,andproducersgetthebenefitof
simultaneoustheatricalwindowacrossthecountry.
Forallitsadvantages,thehighendDCinemacomesouttobeexpensivefor
smallcenterstheaterownersinIndia.ThecostofDCIapprovedequipment
comesouttobeUSD125,000andtheHollywoodmodelofupfrontinvestment
bytheaterownersrendersthistechnologyfinanciallyunviableforsmallscale
cinemaoperators27.Further,thetechnologyhadtoberuggedenoughtotake
careoferraticandunstableelectricsupplyandthedustyenvironments.
Consequently,theIndianmarketevolveditsownbusinessmodelthathas
facilitatedwidespreadadoptionofdigitalcinema.
MajorityofthescreensthathavegonedigitalhavenotbeensoldthehighendD
cinemabuttheE-Cinematechnology,whichisabout10percentpoorerinquality
butcomesataboutathirdofDCinema’scost.28 Alsoinmostcases,cinema
ownersdonothavetomakeupfrontinvestmentsforcostofprojectorsand
otherinfrastructurerequirements;allthelogisticalarrangementsarebornebythe
technologicalplayers,inreturnofrevenuesharingarrangements.
26“Multiplexes:Bigpictureahead”,IndiaInfoline,April2006
27“Multiplexes:Bigpictureahead”,IndiaInfoline,April2006
28“Multiplexes:Bigpictureahead”,IndiaInfoline,April2006
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117
Forinstance,RealImagesellscinemasystemagainstadownpaymentofaround
10percentwhileUFOMoviezcollectsafeepershow(INR200fromthe
distributorsandINR250fromtheexhibitors)whileretainingownershipofthe
systems29.Bothgettherightsforon-screenadvertising,insomecasesabigger
revenuecomponentthandigitalcinemasolutions.Thus,unlikeHollywoodwhich
viewsdigitalsolutionsasaqualityinvestmentdevice,digitalcinemaismoreofa
costsavinginstrumentinIndia,whichexplainsthebusinessmodelnovelty.
D-Cinemavs.E-Cinema
Parameter D-Cinema E-Cinema
Source:“Multiplexes:Bigpictureahead”,IndiaInfoline,April2006
Penetrationofdigitalscreens
Source:CreditSuisse,KPMGResearch
29“Directtotheater”,OutlookBusiness,May2008
30KPMGInterviews
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118
Thishasfacilitatedwiderreleaseoffilmprints,sincemoviesnowcanbe
releasedbothinbigcitiesandsmallertownssimultaneously.Someofthe
biggesthitsof2008werereleasedwithrelativelyhighernumberofprints.In
December2008,themovie“Ghajini”wasreleasedwith1200prints,thehighest
numberofprintssofarforaBollywoodfilm31.
Digitizationhasbroughtinarevolutioninthewayfilmsaredistributedand
exhibitedinIndia-Thenumberofprintsofrecenthitsthathasbeenreleasedin
thedigitaltheaters-overandabovetheonesreleasedinnon-digitalformatgive
anotherindicationofthethingstocome.
SomeProminientBollywoodReleasesinDigitalTheaters
Film Digital Theaters
SinghisKingg 415
RabneBanaDiJodi 400
SarkarRaj 372
HeyyBabyy 340
Tashan 322
LoveStory2050 320
JodhaAkbar 302
BhoolBhulaiya 297
Source:UFOMoviez,"FilmstaketheDigitalRoutetohitJackpot",TimesofIndia,August2008
Withtheeconomicslowdownandtheconsequentfocusoncontainingcosts,we
believethatdigitalcinemawithitslesserrecurringcostsmaygainevenwider
acceptance.
AdvantagesofDigitalCinema
Wider release of films and reduction in time to SmallercentersinTier2andTier3townscanattractmoreaudiencesandcharge
market higherticketprices.Thisrestrictslossesduetopiracyandadversereviews.
Entailsonetimeinvestmentincostofdigitalprints;costpercopyofprintismuch
Savings in cost of prints
lowerthanphysicalprints.
Opticalprintsdeteriorateinqualityovertime;digitalprintsretaintheirqualityand
Durability of Films hencepicturesdonotgetdistortedontransportation.Adistributorthusdoesnot
havetospendonre-printstoprovidequalityincaseafilmdoeswell.
Highdefinitioncontentproductionsoftwareguardsagainstpiracy.Also,digital
Reduces Piracy cinemareducesthetheatricalwindowbyfacilitatingsimultaneousreleasesin
smallertowns.Thisleadstohighertheatricaloccupancies,thuscurbingpiracy.
Widerreleaseoffilmspromotesearlyrecoveryofinvestments-higheroccupancy
Improved Profitability resultsincostsgettingspreadoveralargerpatronbaseresultinginbetter
profitability.
Oldclassicscanbere-releasedindigitalformat;thisaddsapotentialnewrevenue
Conversion of Old Films
streamfortheproducersand/orcopyrightowners.
DigitalCinemaeliminatesthecostofprint.Thismeansthatevensmallbudgetand
locallanguagefilmscanbeproducedanddistributedwidelyatlowercost.Similarly,
Promotes Parallel and Regional Cinema
artfilms,whichhavealimitedaudience,canbeshotindigitalformatandreleased
digitallyinselecttheaters,keepingthefinancialviabilityinmind.
31“WhyGhajiniisalessoninPR”,DNA,December2008
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119
TheIndianMarketdisplayedagreatlevelofmaturityintakingcareofhigh
investmentsandotherrelatedproblemsfacedindevelopedcountrieslikethe
U.S.Goingforward,bothDandECinemasareexpectedtoco-existinIndia,with
aplayersadvocatingandpromotingboththesetechnologies.However,withthe
Tier2andTier3townsemergingasnextgrowthcentersandIndiabeingaprice
sensitivemarket,ECinemamayhaveahigherrateofadoption,owingtoitsearly
headstartandaggressivegrowthplansbyplayers,atleastintheshortto
mediumterm.By2013,itisestimatedthattheremightbearound7000digital
screensinIndia32.Thisisexpectedtoresultinhigherreachoffilmsandhigher
realizationperfilm,thusincreasingthefinancialviabilityofmovies.
Digitization in Music
MusiccompaniesinIndiacontinuetodigitizetheirmusiccataloguesforlicensed
deliveryofcontentovertheinternetandmobile.Digitalmusicsalesarenow
showingpotentialtooffsetthedecliningphysicalunitsalesanddrivegrowthof
theindustry.
Howevertheonlinemusicindustryfacesamajorchallengeintheformofillegal
fileswappingservices.Extensiveviolationofcopyrightanddigitalstreamripping
arehurtingtheindustryhard.
Playershavestartedtoputeffortsinaddressingtheseissues.Forinstance,in
2007TSeriesfiledacaseagainstYouTube.comanditsparentcompanyGoogle
Inc.forinfringementoftheircopyright;thecompanywassuccessfulinobtaining
aninterimrestraintagainstYouTubeandGoogle.In2008aswell,thecompany
filedacaseagainstYahooInc.anditsIndiansubsidiaryYahooWebServices
(India)Pvt.Ltdforinfringementoftheircopyrightcausedbyunlicensedstreaming
ofTSeries’copyrightworksonYahoo'sportal33.
Infuture,songsembeddedinhandsetsarealsoexpectedemergeasasignificant
revenuestreamformusiccompanies.Forinstance,ahandsetmaybeoffered
withcertainnumberfulltrackdownloads(thepriceofwhichistobecoveredin
thecostofthephone)withfurtheroptionsofdownloadingnewsongsforafee.
32Crisil–StateoftheIndustry,October2007
33“T-Seriescontinuesfightagainstpiracy”,Buzz18.com,July2008
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120
However,DigitalMediaisyettofullypickupinIndia.Thecurrentconversionrate
fromstatictodigitalhoardingsis7-10percent.34 Therearetwomainpre
requisitesforthewidespreadadoptionofDigitalMedia:
• Availabilityofsuitableinfrastructure
• Separatecontentfordigitalmedium.
Mostoftheestablishedplayershavealreadystartedtoaddresstheseissues.
Therearecurrentlyaround10-12playersoperatinginthedigitaloutdoormedia
space;manyofthemareintheprocessofsettingupinhousecreativeteamsto
designcommercialsespeciallyforthismedium.From2011onwards,digital
formatsareexpectedtodominatetheOOHmediaspaceandprovideabig
impetustoOOHadvertising.Thisisexpectedtoleadtoconsolidationofthe
industryandwipingoutofthesmaller,unorganizedplayers.
“The number of music listeners have not reduced, but music buyers have. If
digital music has to affirm its footing in India as it has begun in the rest of the
world, then we need a strong judicial system on an urgent basis that protects
the IPR of the creative assets and its creators.”
Kumar Taurani, Chairman & Manging Director, Tips Industries
34KPMGInterviews
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121
Onedirectimpactofdigitizationhasbeenconvergenceofmediaoverthelast
fewyearsgivingconsumerstheconvenienceofaccessingaudioandvisualmedia
content(indigitalformats)acrossmultipledevicesincludingPCs/laptops,MP3
playersandmobilesindigitalformats.
Thepotentialmarketforconvergentmediacontentissizeableandgrowing.There
areabout12.24millionactiveinternetusersinIndia,outofwhich4.90millionare
broadbandsubscribers.Mobilepenetrationisevenmorepromising.Thereare
about315.31millionmobilesubscribersoutofwhichabout88.27millionusers
logontotheinternetformtheirmobile35.
TheincreasingpenetrationofthePCandthemobilephonehasopenedup
numerousopportunitiesformediacompaniestoprovidecontentsuchasmusic,
newsandentertainmentforaccessonthesedevices.Therearemultiplemodels
thatcanbefollowedtomonetizethiscontentsuchaonetimedownloadfee,
subscriptionfeeorad-supportedfreecontent.Giventhewaymediaconsumption
hasevolvedovertheinternetandmobilephonesandtheeasyaccessavailable
forfreeillegalcontentontheinternet,theusersnowexpectthemediacontent
suchasmusictobefree.Inthisscenario,thethirdoption–freeadvertisement
supportedcontentislikelybeagoodbetformediacompaniesatleasttillthe
timedigitalpiracyisbroughtundercontrol.
Withtheconvenienceitofferstotheendconsumer,mediaconsumptiononPC,
mobilephone,digitalmusicplayersandotherdevicesmaynaturallycontinueto
commandanincreasingshareofthemedicconsumptiontimeofconsumersthat
haveaccesstothesedevices.Recognizingthis,Indianmediacompaniesare
adaptingthemselvestoservethisnewconsumerdemand.
Forinstance,NDTVhasconsolidateditswebandmobilepropertiesunderNDTV
Convergence,awhollyownedsubsidiarywhichisfocusedexclusivelyon
providingcontentfortheinternet,mobilephoneandnewmediaplatformssuch
asIPTV.ItsmandateincludesbothrepackagingNDTV’stelevisioncontentfor
consumptionontheinternetandmobilephonesaswellasdevelopingexclusive
propertiesforthesedomains.
SimilarlyUTVNewMedia,thedigitalmediaarmofUTVSoftware
Communicationshasfocusedoncreatingcontentforitswebpropertiesandon
acquiringrightsfordigitalmusicandcreatingassetssuchasimages,ringtones
andvideosaroundit.ItswebpropertiesincludethepersonalfinanceportalUTVi,
entertainmentportalUTVatplayandpropertiessuchasTechtreewhichwere
broughtunderitsumbrellathroughtheacquisitionofIndiantechnologycompany
ITnation.ForthefirsthalfofFY2009,newmediaaccountedfor3percentof
UTVSoftwareCommunication’stotalrevenues36.
35TRAI,TheIndianTelecomServicesPerformanceIndicatorsJuly–September2008
36UTVInvestorPresentation,November2008
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122
Implications of Digitization
Undoubtedly,digitzationissettotransformthemediaindustryinIndiaby
enhancingthequality,thespeedandscopeofdeliveryaswellastheuser
interactivityofvariousmediaformats.Inthefollowingtable,theimplicationsof
digitizationonthedifferentsectorsofthemediaindustryaresummarized.
Digitization:ImplicationsfortheIndustry
• Widerreleaseofprintswithsimultaneousreleasein • Higheroccupanciescanfacilitatequickerrecoveryof
smallercenters investmentandenablemorefilmreleases
• Shortertheatricalwindows • Universalreductioninthetheatricallifeofafilmincinema
Film halls-statusofthefilmcanbedecidedinthefirstweekitself
• Advancedvisualeffectsandtechnology
• ReductioninpiracyinTier2andTier3cities
• PostProductionworksarelikelytogainincreased
significance,withenhancedtimeandbudgetallocations
• Alternaterevenuestreamsavailabletomusic • Increasingshareofrevenuesformusiccompaniescoming
companiestocompensatefordecliningphysicalunit fromdigitalmusic
sales • Betterbottomlinesformusiccompaniesasdigitalmusic
• Companiesmakingtheirentiremusiclibraries salesinvolvelowercoststothecompanybecauseofmore
availableontheinternetforlegaldownload costeffectivedistribution.
• RapidlygrowingmobilemusicmarketinIndiawitha • Evenfurtherfallinphysicalunitsalesasdigitalmusic
Music largepercentageofmobilemusicrevenuescoming catcheson
fromringtonedownloadscurrentlybutexpected
increaseintheshareoffulltrackdownloadsinthe
mediumtolongterm
• Clubbingofmobilemusicandmobile
services/handsetsemergingasaneffectiverevenue
streamformusiccompanies
• Increasinguseofdigitalsignagesvstraditional • Customersmayexpectmoreinteractivityinthemedium
hoardings • Costofdoingbusinesstoincrease,andsmallerbusinesses
arelikelytosuffer.Consolidationmightsetinandthe
industryislikelytobecomemoreorganizedinthefuture
Outdoor
• Withincreasingcostsandoutlayinvolved,moreefficient
metricsofperformanceeffectivenessarelikelytoemerge,
whichcanhelpinattractingadvertisers
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Regulatory and Tax
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Environment
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06
Regulatory and
Tax Environment
Governmentinterventionbywayofregulationsalsostems
Introduction fromitsplannedobjectives(laiddownintheFiveyear
plans).Regulationsmaybebroughtouttohelpensurethat
theobjectivesareachievedasperthegovernmentdesign.
Mediaplaysanimportantroleindisseminationof Furthermore,theneedforhugeinvestmentsalsocallsfor
information,therebystimulatingdevelopmentinany clearregulationstogenerateinvestorconfidence.
country.Thesignificantfunctionassumedbythemedia
industryhasbeenprimarilyresponsibleforregulatory Historically,mediahasbeenkeptundercheck.Thesectoris
interventioninthissector.Ourcountry’spastexperience stillregulatedandhasnotbeenopenedforforeign
manifeststhateffectiveregulations(whichmaybeformed participationasmuchasothersectors.Thishasbeendueto
throughaconsultativeapproach)contributetothegrowth media’sinherentpowerofinfluencingpublicopinion.This
andcompetitioninanysector(e.g.telecom).Thecurrent strengthgivesmediaimmenseresponsibilitytoo.
regulatorystructureinM&Esectordemonstratesadrivein Governmentsofseveraldevelopednationshaveprovidedfor
thesamedirection. checksonmedia(helpingensurecontrolofmediafirmsin
thehandsofresidentsoftheircountry,conservative
Severalfactorshavebeenresponsibleforregulatory approachonmediaacquisitionsetc.)bywayofregulations.
interventioninthesector,whichhavecontributedto
furtheranceofconsumerinterest,viz. Intoday’stimes,growthandobjectivesofthesectorcan
onlybeachievedresponsivelyiftransparency,involvement
• Makingavailablenewalternativetechnologyplatforms ofthestakeholders(informulationoftheregulations)and
foraccessingthebroadcasts(e.g.DTH,IPTV) changingconsumerbehavior,tastesandtechnologyare
• Qualityofservices givendueconsideration.
• Checkingmonopolistictrends(e.g.specifyingceiling
ratesforpaychannels)
• Commercialaspects(asbetweennetworkoperatorsand
broadcasters),inter-alia,under reporting ofsubscribers
bythecableoperators,offeringofchannelsbythe
broadcastersasabouquetratherthana-la-carteetc.
• Piracy.
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SnapshotofRegulatoryInterventions
Proposals/
Sector Parameter Earlier Now Implications
recommendations1
Television Uplinking Separateuplinking -Consolidated -TelecomRegulatory Therecommendationmakes
Guidelines guidelinesfor: UplinkingGuidelines AuthorityofIndia provisionsfor:
a)Newsandcurrent datedDecember2, (TRAI)hasgivenits a)Televisionchannelswithoutany
affairschannels 2005(fortelevision recommendationin subscriptionfee(tocableoperator
channelsandSNG/ respectofissues etc.)
b)Non-newsand DSNG) relatingto:
currentaffairschannels b)Enhancedcoverageoflocal
a)Privateterrestrial issues,eventsetc(againstprimarily
c)SatelliteNews TVbroadcast
Gathering(SNG)/Digital thecoverageofnationalissuesby
services thesatellitechannels)
SatelliteNews
Gathering(DSNG) b)Mobiletelevision c)Additionalmodeofaccessing
activities services televisionchannelsbeingexplored
(inmobileTV)
Foreign a)Televisionchannels: a)Televisionchannels TRAIhasalsogiven
Investment (i)Newsandcurrent -Sameasearlier itsrecommendations
limits2 affairstelevision b)Cablenetwork- onforeign
channels-26percent Sameasearlier investmentslimits
forbroadcasting
(ii)Televisionchannels c)DTH:49percent sector.TRAIhas
otherthan(i)-100 (FDI+FII);FDInotto recommended
percent3 exceed20percent increaseinforeign
b)Cablenetwork-49 investmentlimit:
percent a)Forcablenetwork
c)NoDirect-to-home to74percent
(‘DTH’)guidelines4 b)ForDTH-74
percent(Incl.FDI)
Downlinking NoDownlinking Downlinkingpolicy -Mandatoryfortelevisionchannels
guidelines guidelines announced togetregistration
-Foreignchannelsmadetohave
localpresenceinIndia
Note:TheaboveinformationisupdateduptoDecember31,2008
1TRAIhasbeenfollowingaconsultativeapproach(withtheindustrystakeholders)inrespectofseveralissuesconfrontedbytheIndustry,therebyinvolving
suchstakeholdersinthepolicyformulationprocess.Afterreceivingthecommentsfromthestakeholders,TRAIreleasesitsrecommendationstotheconcerned
Ministries
2ForeignInvestmentinthebroadcastingsector(radio,television,DTHetc.)allowedunderthe‘approvalroute’only.
3Additionalconditionsinclude,interalia,ownershipofatleast51percentoftotalequitybylargestIndianshareholder(asdefinedintheUplinkingguidelines)
4TheUnionGovernmentdecidedtopermitDTHTVserviceinKuBand.TheprohibitiononthereceptionanddistributionoftelevisionsignalinKuBandhas
beenwithdrawnbytheGovernmentvidenotificationNo.GSR18(E)datedJanuary9,2001oftheDepartmentofTelecommunications(DoT).
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127
SnapshotofRegulatoryInterventions
Proposals/
Sector Parameter Earlier Now Implications
recommendations
Television Legislation for Programmeand Sameasearlier BroadcastingServices Thebillisdetailed
content etc. Advertisementcode RegulationBill,2007 andincorporates
includedunderthe suggestsa theprovisionsof
CableTelevision comprehensivecontent theCableAct.
Networks code,crossmedia However,thereis
(Regulations)Act, holdings6,public aneedtoaddress
1995andCable serviceobligationand theconcernsofall
TelevisionNetworks establishmentofthe stakeholders.
Rules,1994[the broadcastingregulatory
CableAct] authorityofIndia
5ProvidedundertheGuidelinesforUplinkingfromIndia.FurthermandatedbySportsBroadcastingSignals(MandatorySharingwithPrasarBharti)Act,2007
6TRAIhasissuedaconsultationpaperdatedSeptember23,2008on‘MediaOwnership’togatherindustry’sviewsontheissuesofcrossmediaand
ownershiprestrictions
7TAspertheTelecommunication(BroadcastingandCable)ServicesTariffOrder,2004(asamendedtilldate)
8TheRegisterofInterconnectAgreements(BroadcastingandCableservices)Regulation,2004[asamended];TRAIalsoissueditsConsultationPaperon
InterconnectionIssueson15December2008todealwith,interalia,issuesarisingwiththeadventofnewtechnologies,viz.IPTV,HITS
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128
SnapshotofRegulatoryInterventions
Proposals/
Sector Parameter Earlier Now Implications
recommendations
Television Principal CableTelevision Additionalguidelines -TRAIhasissued Therecommendationislikelyto
Legislations Networks include: recommendationsfor: helptoregulatethecableindustry,
(Regulations)Act, attractforeigninvestmentand
-DTHguidelines9 a)therestructuringof
1995andCable cableTVservices; becomemorecompetitive.Itis
TelevisionNetworks -InternetProtocol alsoexpectedtomakeavailablean
Rules,1994 Television(IPTV)10 b)Headend-In-The-Sky alternateformofdistributing
(HITS)11 televisionchannelsforthecable
operators.
9TelecomDisputesSettlementAppellateTribunal(‘TDSAT’)hasrecentlyruledthatitisnotmandatoryforaDTHoperatortocarryallthechannelsonits
network
10MinistryofInformationandBroadcasting(‘MIB’)hasissuedguidelinesonIPTVwhich,interalia,providesforthefollowing:
-Noregistrationrequiredincaseof:
a)Telecomlicenseeshavingalicensetoprovidetripleplayservices;
b)InternetServiceProviders(‘ISP’)havingnetworthofmorethanINR1000millionandhavingpermissiontoprovideIPTVservices;and
c)Registeredcableoperators.
-TelecomserviceprovidersandISPstopaylicensefeebasedonadjustedgrossrevenueasapplicablefromtimetotime;
-Priorapprovalofthegovernment(orlicensingauthority)requiredforaddinganynewvalueaddedservicetothenetwork.
11GovernmentofIndiahad,intheyear2003,issuedpermissiontotwocompaniestooperateHITSserviceforfastimplementationofCAS.However,this
servicehasnottakenoffsofar.
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129
SnapshotofRegulatoryInterventions
Proposals/
Sector Parameter Earlier Now Implications
recommendations
PrintMedia Foreign Notpermitted Indianentities Thepresentforeigninvestment
Investment publishing:a) limitbringsalevelplayingfieldin
Newspapers/Indian thenewssegmentoftelevision
editionsofforeign broadcastingandprintmedia.
magazinesetc.
dealingwithnews
andcurrentaffairs–
26percent
b)Scientific/
technicaljournals
etc-100percent
c)Publicationof
facsimileeditionof
foreignnewspapers
100percent.
AbovelimitsofFDI
arepermittedwith
priorapprovalofthe
Government
Radio12 License fee Fixedlicensefee -One-TimeEntry -OTEFforadistrict; -Enhancedviabilityofthe
regime(with15 Fee(OTEF)foracity and14 stationsasannualfeealigned
percentescalation 13;and withthesizeofthemarket
-Annualfee-basedon
everyyear) Therecommendationfor
-Annualfee-based higherof4percentof
onhigherof4 grossrevenueand2.5 changingthegeographicalbasis
percentofgross percentofOTEF oflicensing-citytodistrictmay
revenueand2.5 furtheraugmentviability.
Concessionsfor
percentofOTEF stationsinNorth-East However,MIBconsidersthat
andJammu&Kashmir suchshiftfromcitytodistrict
maynotbepossibleinviewof
thesomeoperationalissues
involved15.
Multiple Restrictionon -Restrictionon -Atleast3[excluding Therecommendationsarelikely
licenses multiplelicensesina multiplelicensesina AllIndiaRadio(AIR)] to:
city city channelsinanydistrict -Increasecompetition;and
-Capontotal tobeallottedto
differententities; -Providefordifferentiated
channelsheldbya contenttotheconsumers
licenseeinthe -Cap(perlicensee)of
countryfixedat15 50percentoftotal However,MIBdoesnotfavor
percentofall channelsinadistrict removalofcapof15percentof
channels allchannelsinthecountryand
-Noall-Indiacap recommendsthattotalnumber
ofchannelsownedbyalicensee
shouldnotbemorethan40
percentofallchannelsinacity
Note:TheaboveinformationisupdateduptoDecember31,2008
“MRUC is expected to release first set of data from Indian Outdoor Study by
March – April, 09. This would overcome the biggest challenge faced by OOH
media and is definitely expected to kick off a significant industry growth phase”
Indrajit Sen, President, Laqshya Media
12TRAIhasissueddraftguidelinesonsatelliteradiowhich,interalia,providesforannualfeeof4percentofgrossrevenues,FDIupto74percent;provisionof
subscriptionbasedservicesonly(nocommercialadvertising),specificnewsbroadcastofAllIndiaRadioandcertainchannelsofPrasarBharti.
13AsperthePolicyonexpansionofFMradiobroadcastingservicesthroughprivateagencies-Phase-IIissuedonJuly13,2005
14RecommendationsinrespectofallparametersforradiohavebeengivenbyTRAIonPhase-IIIofFMradiobroadcasting
15TheseareMIB’sviewsonTRAI’srecommendationson3rdphaseofFMradiobroadcasting
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130
SnapshotofRegulatoryInterventions
Proposals/
Sector Parameter Earlier Now Implications
recommendations
Radio Foreign NoFDI Foreigninvestment(FDI/ ForeignInvestment -Increaseinoptionsofmobilizing
Investment permitted portfolio)totheextentof20 instations funds
(portfolio percentpermitted16 broadcasting: -Foreignradioplayersmayalso
investmentto -Newsandcurrent participateinIndiathroughdirect
theextentof20 affairs-26percent investmentintheIndiancompany
percent -OtherthanNews andwiththeirexpertisefurther
allowed) andcurrentaffairs– augmenttheoperationalefficiencies
49percent Therecommendationislikelyto
bringconsistencyandalevelplaying
fieldinthenewsandcurrentaffairs
segmentofbroadcasting(print,
televisionandradio).
MIBagreeswithTRAI’sproposals
Note:TheaboveinformationisupdateduptoDecember31,2008
16Additionalconditionsinclude,interalia,ownershipandmanagementcontrolofmorethan50percentofpaidupequitybyanIndianindividualorcompany
17CategorizationbasedonsizeofpopulationinacityaspertheFMRadiopolicy(Phase-II)
18Newsarticlesandwebsearch
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131
IncaseanFTCoperatesfromacountrywithwhichIndiahasataxtreaty,itis
taxableinIndiaonlyifitconstitutesaPermanentEstablishment(PE)inIndia.
TheprovisionsofataxtreatyapplytotheFTCtotheextenttheyaremore
beneficialascomparedtotheprovisionsofthedomesticlaw.Theterm‘business
connection’iswidelyinterpretedandisbasedoncaselaws.ThedefinitionofPE
isgenerallynarrowerascomparedtothetermbusinessconnection.Incasethe
FTChasabusinessconnection/PEinIndia,theprofitsattributabletosuch
presenceinIndianeedtobecomputed.IncasetheFTCsdonotmaintain
countrywiseaccounts,thenthiscouldposeconsiderabledifficultyincomputing
theprofitswhichcanbetaxedinIndia.
SubscriptionrevenuesareusuallycollectedbytheIndiandistributorsand
subsequentlypaidtotheFTCs.TheIndiantaxauthoritiesarecontendingthatthe
paymentofsubscriptionfeesrepatriatedtotheFTC’sareliabletotaxwithholding
consideringthesametoberoyalties.
SomeotherissueswhichtheTVchannelcompaniesneedtoconsideris
withholdingtaxesonthepaymentsmadeinrespectofuplinkinganduseof
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132
transponderandsatellitespace.Thewithholdingtaxissuesmayariseonaccount
ofcharacterizationofpaymentasroyaltyorfeesfortechnicalservice,existence
ofpermanentestablishment/businessconnectionofthenon-residentpayee(e.g.
satellitecompany)inIndia.
Inthepast,IndiantaxauthoritieshaveheldthatpaymentsmadebyaTVchannel
companytoanon-residentcompanyowningsatellitestowardsleaseof
transpondercapacityisinthenatureof‘royalty’foruseofprocessunderthetax
treaty.Onthisissue,therearetwocontradictorydecisionsissuedbytheTax
TribunalinthecaseofAsiaSatelliteTelecommunicationsCo.Ltd.19 andPan
AmSatInternationalSystemsInc.20).Asperonedecision,suchpaymentshave
beenregardedasinthenatureofroyaltybasedontheprovisionsoftheAct(no
treatybenefitavailable),whileasperanotherruling,thesamehasbeenregarded
as“royalty”basedontheinterpretationundertheIndia-U.S.taxtreaty.
Recently,thetaxauthoritieshavetakenaviewthattheprocessesinvolvedinthe
receiptandtransmissionofsignalsbythetransponderonthesatelliteisasecret
processandthatatransponderis‘equipment’.Theissuecreatesuncertaintiesfor
thestakeholdersinrelationtothewithholdingtaximplications.Itispending
beforetheCourtsandcontinuestoremaincontentious.
However,conformingtotheaforesaidconditionsmayleadtoanexposureof
creationofaPermanentEstablishment(PE)oftheforeigncompanyinIndia.
19[2002]85ITD478(Del.)
20[2006]9SOT100(Del.)
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133
partiesoverseashaveincreasedmanifold.Suchrelatedpartytransactionscome
underthepurviewofTPregulationsandrequirethesametobecarried-outat
arms-length.Theseregulationsprescribemandatorydocumentationwhichneeds
tobemaintainedannually.
Intherecentpast,anumberofcompaniesinthisindustryhavebeenscrutinized
closelybytheIndianTPadministrationonaccountofrelatedpartytransactions.In
thecaseofStarIndia(P)Ltd.,theMumbaiTribunalheldthatarobust/detailed
Functions,AssetsandRisksanalysisiscriticaltosupportadequacyofthearm’s
lengthpriceconcept.Inaddition,theconceptofatransactionspecificapproach
hasalsobeenemphasizedinthisrulingandithasbeenconfirmedthatthechoice
oftestedpartyinaneconomicbenchmarkinganalysisdependsonthelevelof
complexityofthetransactingentitiesalongwiththeavailabilityandreliabilityof
thedata.
AnimportantelementthathasalsoevolvedistheuseofTPmethodologyinthe
determination/attributionofprofitstoPermanentEstablishmentsinIndia.Towards
thisend,theMumbaiHighCourt,inthecaseofSETSatellite(Singapore)Pte.
Ltd.21 heldthatincasethecorrectarm’slengthpriceispaidtoadependant
agentinIndia,nofurtherincomewouldbetaxedinthehandsoftheforeign
enterprisehavingaDependantAgentPermanentEstablishment(DAPE)inIndia–
i.e.paymentofthearm’slengthpricetothedependantagentwouldextinguish
thetaxliabilityofaforeigncompanyhavingaDAPEinIndia.
TPpoliciesshouldbebasedonathoroughfunctionalandeconomicanalysisthat
identifiesthevariousfunctionsincludingthevaluedrivers,risksandlocationof
thecompanyassets.TheexistenceofTPdocumentation,alongsidepolicyand
proceduresdocumentation,couldstreamlinethediscussionswithIndiantax
authorities.Inaddition,establishingarobustsetofTPpoliciesandguidelines
couldhelptoproactivelyidentifyandeffectivelymanagenewTPexposuresthat
arecreatedasaresultofbusinessexpansions,acquisitions,restructuring,etc.
21[2008]307ITR205(Mum.)
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134
Tax Incentives
In India: Special Economic Zones (SEZ)
TheSEZregimeinthecountryallowstaxbreaks(subjecttofulfillmentofcertain
conditions)toeligibleentitiesonexportearningsforaperiodof15years(ina
phasedmanner).Thebenefitsareavailabletoentitiesoperatinginvarioussectors
andcanbeexploredformediaactivitiessuchascontentdevelopment/animation/
filmrestorationetc.However,feasibilityofthesameneedstobeanalyzedona
casetocasebasis.
Overseas Incentives
AsIndianmediacompaniesreachforaglobalfootprintandtargetaudiences
worldwide,anappropriateoverseaspresencemaybedeemednecessary.The
samemandatesanalysisoftaxlawsofvariousjurisdictions(includingfiscaland
otherincentivesthatsomecountriesmayprovideformediacompanies)to
managetheglobaltaxincidence.
22Aspernewsarticlesonthematter,theprescribedconditionsincludecontinuanceofminimum51
percentholdingbymajorityshareholdersorpromoters
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135
Service Tax
Servicetaxisleviedonprovisionofcertainnotifiedcategoriesofservices
(includingbroadcasting,cable,developmentandsupplyofcontent,sound
recordingandvideoproductionservices).ServiceTaxbeinganindirecttax,
normallytheserviceproviderrecoverstheservicetaxfromtheservicerecipient.
However,insomecasessuchasservicesprovidedbynon-residents,goods
transportagencies,sponsorshipservicesetc.,thereversechargemechanismis
applicable(i.e.,theobligationtopayservicetaxisthatoftheservicerecipient
andnotoftheserviceprovider).Amechanism23 forcreditofinputservicetax
andcentralexcisedutyoninputservices,inputsandcapitalgoodsisalsoputin
23CENVATCreditRules,2004
24Notification12/2007dated1March2007
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136
placebytheGovernment.Effectivefrom1March2007,subjecttofulfillmentof
specifiedconditions,exemption24 isgrantedfromlevyofservicetaxtoservices
providedforgrantingrighttoauthorizeanypersontoexhibitcinematographfilm,
thecontentofthefilmbeingindigitizedformandistransmittedthroughuseof
satellitetoacinematheater.
Entertainment Tax
Entertainmenttaxisleviedonvariousmodesofentertainmentsuchasonfilm
tickets,cabletelevision,liveentertainment,etc.Indiahasoneofthehighestrates
ofentertainmenttaxacrosstheglobeandtherehasbeenaconstantcryfrom
thestakeholderstoreduceit.Recently,somestateshavegrantedexemption
fromentertainmenttaxtomultiplexes.
Other challenges
ThekeychallengeunderindirecttaxregimeinIndiaincludesanalysisof
transactionsandidentificationoftheindirecttaximplicationsonsuchtransactions
andentitiesinvolved.Sometypicaltransactionsinclude:
• Internetservices(e.g.saleofspace,including”content”providedtotelecom
companies,e-mailsubscriptionservices,e-commercetransactions,etc.)
• Taxabilityofsubsidiary/agentinIndiawheretheprincipalbroadcastingagency
isoutsideIndia
• Saleofadvertisementtime/spacebymediacompaniestoadvertisement
agencyandsubsequentsalefromagencytoadvertisers
• Transactionsinvolvingtransferofrighttousefilm/programmecontent
• Specialtransactions(e.g.costsharingarrangements,importoftechnology,
sharingoftelecomrevenuesgeneratedthroughcontests/opinionpolls,hiring
ofequipmentsforfilmproduction,etc.).
24Notification12/2007dated1March2007
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Internationalization
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07
Internationalization
NolongeraretheIndianM&Eplayersconfiningthemselves Finally,year2008witnessedoneofthebiggestlandmarksin
todomesticshoresfortheirtargetconsumers;theyare IndianM&EindustrywhentwoofthebiggestIndianmedia
increasinglyreachingouttoglobalaudiences.Indianmedia playersacquiredmediapropertiesabroad.Themovewas
companies,especiallyinthetelevisionandfilmsegments significantsincetheacquisitionswerenotmerelyaimedat
continuetotargetthe25millionNRIdiaspora1 settledin providingsynergiestoIndianoperationsortargetingthe
variouspartsoftheworld. Indianpopulationbutestablishingadistinctbrandidentity
abroad.Theseacquisitionsreiteratedtheincreasingglobal
EstimatedsizeofoverseasIndianCommunity
ambitionsofIndianMediaInc.
Inanutshell,theaspectofinternationalizationcoveredinthis
chapterinvolvesthefollowingdistinctaspects:
• ProducingcontentcateringtotheNRIdiaspora
• Targetingthemainstreamglobalaudience
• Indiancompaniesemergingasanoffshorehubfor
mediaservices
• Acquisitionofforeignmediaproperties.
*Onlycountrieswithover500,000peopleofIndianoriginareshown
Source: Ministry of External Affairs (Data as on December 2006)
Targeting NRI Diaspora
However,nowthattheindustryhasfewestablishedplayers
whohavethenecessarycapitalandareeagertoincrease
theirscaleofoperations,mediacompanieshavebegunto TV: Broadcasting across Foreign Shores
producecontentnotjustfortheNRIsbutalsoforthe
Withmorethan25millionNRIsspreadacrosstheglobe,
mainstreamglobalaudienceinothercountries.
theinternationalmarketisanimportantsourceforIndian
Atthesametime,globaldemandformediaservicesfrom broadcasterstoaugmenttheirdomesticrevenues.Today,
Indiaisalsogrowing.Animationhasbeenattheforefront, leadingIndianbroadcasterstypicallyhaveapresencein
withIndiaemergingasamajoroutsourcingdestinationdue foreignmarketsthroughdistributiontieups.Forinstance,
toitscostadvantage.Filmpostproductionhasalsoshown IndianbroadcasterZeehaschannelbouquetsinEurope,
potentialinthisregard. NorthAmerica,Africa,MiddleEastandSouthEastAsia.
1MinistryofExternalAffairs
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140
ApartfromZee,someoftheotherIndianbroadcasters therewerecasesofcertainmovieslike“Taal”,“Yaadein”
beamingtodifferentpartsoftheworldareNDTV,UTV and“DilSe”whichwereeitherflopsordidaverage
GlobalBroadcasting(UGBL),TV18,AajTakandregional businessatdomesticboursesbutwereotherwisebighits
languageplayerslikeSun,EenaduandAsianet.(Starand overseas4,thusallowingthefilmmakerstorecovertheir
Sonytoohaveglobaldistributionnetworksbuttheyarein money.Inmorerecenttimes,“KabhiAlvidaNaKehna”and
anycasepartofmultinationalmediacompanies).Besides “Don”performedrelativelybetteroverseasvis-à-visthe
theconventionalcablenetworks,broadcastersalsorelyon domesticmarket;theyweretoptwoBollywoodreleasesat
newplatformslikeIPTVtodistributetheircontent.For theU.K.box-officein20065.
instance,UGBLrecentlyenteredintoanagreementwith
IPTVserviceprovider,TheNewMediaGroup(TNMG),to Overseas vs. Domestic Box Office Collections of some
launch3ofitschannelsonTNMG’sIPTVplatform,”World Indian Films
On-Demand”inJapan,AustraliaandNewZealandfrom Net
Overseas
August1,2008.Viacom18alsojoinedhandswithTNMG,to Domestic Domestic Overseas
Film Earnings
Collections Verdict Verdict
enableitsnewlylaunchedGECchannels“Colors”tobe (INRMillion)
(INRMillion)
seenviatheIPTVserviceWorldOn-Demand2.
DilSe 86.6 Flop 83 Hit
Afewyearsback,Bollywoodfilmmakerssawoverseas U.K.andU.S.arethetoptwooverseasmarketsrespectively
collectionsastoomarginalarevenuesourcetobe forIndianfilmsintermsofbothboxofficecollectionsas
consideredimportant.“DilwaaleDulhaniyaLeJayenge”, wellasthenumberofreleases.
releasedin1995,wasthefirstwakeupcall.Withan
overseasrealizationamountingtoINR90millioninU.K.and
INR175millionworldwide3,themoviewastermedasanall
timeblockbusterintheoverseasmarket.Inlateryears,
2CompanyWebsite,PressReleases
3Boxofficeindia
4PressReleases
5Boxofficeindia
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141
TheimportanceofoverseascollectionsforIndianfilmscanbegaugedfromthe
factthatmanyofthebigIndianfilmdistributorssuchasYashRaj,UTV,Adlabs
andEroshaveestablishedtheirdistributionofficesoverseas.In2008,UTV
MotionPictures,withitsreleasesintheU.S.grossedUSD5.48millioninthefirst
28weeksofthe2008andemergedamongstthetop20filmdistributorsinNorth
America(theonlyforeignlanguagedistributorinthetop20list).6
OverseasReleases–WhathasworkedatOverseasBoxOffice
Source:KPMGAnalysis Note:
1 Analysisdoneontop50moviesintermsofoverseascollectionoveraperiodof5years
2 BoxOfficeperformancebasedonthesizeofcollections
3 Sizeofthecirclerepresentsrelativeaveragenetadjustedcollectionintheoverseas
market
6CompanyWebsite,PressReleases
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142
Globally,electronicversionshaveemergedasseparaterevenuemodelsforthe
printmediaplayers;theircontentisalsodifferentiatedfromthatintheoffline
versions.HoweverinIndia,electronicversionshaveoriginatedmoreasabrand
buildingandbrandsaliencemedium.Currently,thee-papersarejustelectronic
reproductionsoftheofflineeditions.
Manynationalandregionalnewspapersalsopublishtheiroverseaseditions
targetingtheNRIpopulation.
OverseasEditionofsomeIndianNewspapers
Source:KPMGAnalysis
Indianmagazineplayerstoohavestartedtocomeupwiththeirinternational
editions.Forinstance,FilmfarelauncheditsGermaneditionaspartofitseffortto
spreadreadershipininternationalmarkets.ThemagazineispublishedinGerman
languageaswell.8
7KPMGInterviews
8 exchange4media
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143
ZeeNetwork,forexample,hasZeeAstrowhichisbroadcastintheSouth-East
AsiainthelocalBahasalanguage.NDTVtoohaslaunchedtwochannels
specificallyformarketsoutsideIndia–AstroAwaniinSouth-EastAsiain2006
andNDTVArabiaintheMiddleEast.WhileNDTVArabiaisinEnglish,Astro
AwaniisprimarilyinBahasa.9 Bothchannelscarrylocallyrelevantinfotainment
programming.
Besidestheseculturallysimilarcountries,popularityofbrandBollywoodhasalso
improvedinnewmarketssuchasIsraelandPoland.Also,countriessuchas
Indonesia,Malaysia,Thailand,Germany,RussiaandChina,allofwhichconsume
dubbedHollywoodcontent,offeringgoodmarketpotentialforBollywoodfilmsas
well.
9CompanyWebsite,PressReleases
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144
Itisalsoworthmentioningthatinrecenttimes,westernfilmmakershave
startednoticingIndiancinemaandaremakingmovieswithIndiacentrictheme
andartists.Thesuccessandpopularityof”SlumdogMillionaire”,withitsIndian
locales,artistsandmusicunderscoresthegrowinginfluenceofIndianCinema
andaugurswellforBollywoodmoviemakerstargetingtheglobalaudiences.
Clearly,Bollywoodisamuchbiggerbrandtodaythanfewyearsback.The
developmentofthisbrandandtheawarenessaboutBollywoodhasbeen
catalyzedbymanyfactorsinrecenttimes:
• Indianproducersaggressivelypromotingtheirfilmsininternationalfilm
festivalssuchasCannes
• IncreasinguseofforeignlocationsinIndianfilms
• IncreasingcoveragegiventoBollywoodinthewesternmedia
• IndianfilmawardfunctionssuchasIIFAwhichareheldataninternational
scaleoutsideofIndia.
Tounlockthetruepotentialofoverseasmarketshowever,filmcompaniesneed
certainkeycapabilities:
• Allocatingsufficienttimeandbudgetsformarketresearchintheoverseas
markettounderstandthecontentpreferencesoftheoverseasaudience
• Modifyingtheexistingcontentbeforereleasinginoverseasmarkets.For
example,thelongerlengthofIndianfilmsactsasadeterrentforacceptability
bywesternaudiences.Thiscanbetakencareofbycrispeditingofcontent
• Allocatingmoretimeatthepostproductionstagesothattheendoutputis
technicallycomparabletoaHollywoodfilmandmeetsinternationalstandards.
Atpresent,filmmakersinBollywoodallocateonlyone-fourththetimetaken
byHollywoodforpostproductionwork10
• Enteringintotie-upsandallianceswithagentswhohavetheright
relationshipswithmajordistributorsalongwithanunderstandingofdifferent
marketsandtheatricalrevenuestreams.Similaralliancesandamorefocused
approachtodistributionandmarketingofDVDs,VCDs,etc.arerequiredtotap
thepotentialoftheoverseashomevideosegment
• InvestingheavilyinmarketingandpromotionofIndianfilmsabroad.
Bollywoodallocatesonlyaround10-15percentofitstotalbudgetin
marketing,vis-à-vis30percentinHollywood.11 Ensuringawiderreleaseof
Indianprintsinmainstreamtheatersabroadiscriticalforbringingoverseas
audiences,duetowhichmarketingassumessignificance
10KPMGAnalysis,KPMGInterviews
11KPMGAnalysis,KPMGInterviews
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145
OneofthecompaniesattheforefrontinthisregardisUTVMotionPictures,
whichhasalreadyco-producedthreeHollywoodfilms.
HollywoodFilmsco-producedbyUTV
CineMosaic,EntertainmentFarm,Fox
TheNamesake 2007
Searchlight
BlindingEdgePictures,BarryMendel
TheHappening 2008 Productions,SpyglassEntertainment,Fox
Searchlight
Source: Company Website,KPMG Research
In2006,UTVMotionPictureshadalsosignedaUSD30milliondeal,withWill
Smith’sproductioncompanyOverbrookEntertainmentandSonyPictures
Entertainmenttoproducetwofilms12.Accordingtotheagreement,UTVand
Overbrookaretoco-producetwofilmsandSonyPicturesEntertainmentisto
distributethemoviesworldwide,excludingIndia.
AnothercompanywithambitiousglobalexpansionplansisReliance’sBig
Entertainment.InMay2008,itannounceditsplanstomake10Hollywood
movies13.Inordertodothis,Reliancehassigneddealswiththeproduction
teamsoftheHollywoodstarsNicolasCage,JimCarrey,GeorgeClooney,Tom
HanksandBradPitt.14 Thecompanyisalsopursuingopportunitiesinthemovie
exhibitionsectoraroundtheworld.Inthefirsthalfof2008,itboughtover230
cinemasintheU.S.andanother50inMalaysia.Thecompanyhasalsobought
sometheatersinMauritiusandNepal.15
12 “UTVtoproducefilmswithFox,Sony”,TheTimesofIndia,August2006
13CompanyWebsite,“RelianceBigEntertainmentlaysoutaUSD10billiongameplan”,Livemint.com,May2008
14CompanyWebsite,“RelianceBigEntertainmentlaysoutaUSD10billiongameplan”,Livemint.com,May2008
15CompanyWebsite,“AdlabsforaysintoMalaysia”,BusinessStandard,May2008
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146
Indiahassignedfilmco-productiontreatieswithGermany,Britain,Italyand
Brazil.Theadvantagesofsuchtreatiesforfilmmakersofbothcountriesare
generallyintermsofaccesstotechnicalexpertiseandproductionstandards,
taxbenefitsandaccesstofinance.
Otherthanaccesstosubsidizedfinance,aco-productiontreatysignedwith
onecountryalsoallowsbothpartiestoavailtheadvantagesofotherco-
productiontreatiesthattherespectivecountriesmayhave.Forinstance,asper
theIndo-U.K.treatytheIndianproducerscantakeadvantageofthesixco-
productiontreatiesthatU.K.isalreadyasignatoryto,namelySouthAfrica,
NewZealand,Australia,Jamaica,FranceandCanadawhileU.K.cansimilarly
leverageIndia’sagreementwithGermany,BrazilandItaly.
Thereareotheradvantagesaswell.TheU.K.treaty,forexample,providesfor
theco-productionstobegivennationalstatusinbothcountries.Accordingto
theagreement,bothcountriesalsointendtowaiveoffimportorexportduties
onanyequipmentnecessaryforproduction.
However,amongtheconditionsintheagreement,atleast25percentofthe
totalproductionexpenditureincurredonfilmingactivitiesmusttakeplace
withinU.K.ThisposesproblemsforIndianproducersasproductioncostsin
U.K.areextremelyhigh.
Thisconditionislikelytoincreasebudgetsby25-30percent.So,eventhe25-
30percentexemptionmightgetnegated.However,forafilmthatneedstobe
shotinBritainbecauseofthescriptdemands,thetreatyislikelytohelpin
reducingthecostthroughtaxincentives.
Goingonestepahead,theglobalmarketexpansionplansoffilmproduction
houseshaveproceededbeyondco-productions;companieshavestarted
embarkingonthepathofsoloproductions.Forinstance,UTVMotionPictures
hasventuredintoitsfirstsoloHollywoodproductiontitled‘The Ex-Terminators’
starringHeatherGraham.ItisthefirsteversoloHollywoodproductionbyan
Asianfilmcompany.ReliancehasalsoannouncedplanstoproduceanAmerican
Gangstermovietitled‘Broken Horses’,tobedirectedbyIndianfilmmakerVidhu
VinodChopra.SuchHollywoodproductionsbyIndianproducersarealsoexpected
toopenthedoorsforIndiandirectorsandtechnicianstoworkinHollywood.16
NotonlywilltheirHollywoodprojectsopenupadditionalrevenuestreamsforthe
Indianfilmcompanies,butwillcouldalsohelpBollywoodworkwithadvanced
techniquesonabiggerscale.Atpresent,theIndianfilmindustry,withreleasesof
around1000moviesayear,producestwicethenumberofHollywoodmovies.In
sharpcontrasthowever,Hollywoodhastentimesthesales.Iftheprinciplesthat
16CompanyWebsite,PressReleases
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147
theIndianfilmcompanieslearnfromtheirHollywoodexperiencesareappliedto
India’sfilmindustry,itcouldcertainlyhelpmakebiggermovies,targetingamore
globalaudience.
standards” •MediacompaniesinIndiaareleveragingthegrowingopportunityinareassuch
asediting,digitizationandclosedcaptioning,re-purposing,archivingandmeta-
Namit Malhotra, Managing
taggingofcontent
Director, Prime Focus
•GlobalentertainmentcompaniesareincreasinglypartneringwithIndian
creativehousestosendasignificantpartoftheirdigitalproductionandpost
productionworktoprocessingstudiosinIndia
•GamingstudiosinIndiaarebeingoutsourcedgamingdevelopmentworkfor
variousmediasuchaspersonalcomputers,consoles,internetaswellas
mobilephones
Ofthese,theanimationandfilmpostproductionsectorsarediscussedisdetail
inthefollowingsections.
17 “U.S.Newspapersmayoptforoutsourcing”,TheTimesofIndia,Spetember2008
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MajormarketsandexportcentersforAnimation
U.S. SouthKorea
France Taiwan
Japan India
Canada China
Philippines
Source:KPMGAnalysis
ShareofIndiainanimationoutsourcingmarket
Source:”AnimationIndustrysettoAccelerate”,CrisilResearch,May2008,KPMGResearch
Animationproductionconsistsoffourmainstages–conceptualization,pre-
production,productionandpost-production.Intheoutsourcingmodel,thepre-
productionandconceptualizationisgenerallyhandledincountrieslikeU.S.,
FranceandCanadaafterwhichthelabor-intensiveproductionprocessis
outsourcedtotheAsianstudiosincludingthoseinIndia.
Theoutsourcingoftheproductionstageofthevaluechainhasbecomeanormin
theglobalindustrybecauseoftheconsiderablecostadvantage.Productionisa
laborintensiveprocess,andbecausethecostoftalentismuchlowerinthe
Asiannations,placestheoutsourceratanadvantage.
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TypicalCostBreakupforcreatingan
Costperhourofanimation
animatedfeaturemarket
Source:KPMGAnalysis Source:KPMGAnalysis,KPMGInterviews
Apartfromthecostadvantage,splittingtheproductionprocessanddistributingit
betweenstudiosalsohelpscutdowntheproductiontimesthroughparallel
processing.
ForIndiananimationmovies,mythologyhassofarprovidedaneasycontent
sourceandonethathasalreadyproventobesuccessful.Thesemovieshavehad
agoodappealamongtheIndianaudiences,forwhomthesewereprimarily
made.However,theIndiananimationindustryisalreadytakingthenextstepand
manyofthenewprojectsarebasedonnon-mythologicalsubjectsandtargeta
moreglobalaudience.
UpcomingIndianAnimationFeatures
Source:KPMGResearch
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Thisisamovementintherightdirectionandtobecometrulyglobalandextract
maximumvaluefromanimationproductionchainproducts.TheIndiananimation
industryhastocreatecontentthatislocation,languageandcultureneutraland
hasuniversalappeal.Themarketforglobalanimationpropertieswithgood
contentisenormousandthisisthemarketthatIndiananimationindustryshould
betargetinginthelongterm.
Biggestgrossinganimationfilms
Source:IMDB
Indiahasthepotentialtoemergeasamajoroutsourcinghubforpostproduction
work.Indianpostproductionstudiosprovideawholegamutofservicesincluding
scanning,editing,sound,specialeffectsandfilmpackaging.Apartfromtechnical
know-howandtalent,India’scompetitiveedgecomesfrompeople’sfluencywith
Englishlanguage.Also,thecostdifferentialforIndiaincomparisontotheU.K.
marketisashighas6-8timesand3-4timesfortheU.S.market.18 Hence,there
issubstantialcostreductiontodooffshoringinIndia.Therefore,overseas
productionhousesandspecialeffectsstudiosarebeginningtooutsourceworkto
Indiatocutcosts.StudioslikeRamojiandPrimeFocushavebeenprovidingpost-
productionfacilitiestomanyHollywoodProductions.Forinstance,in2007,
18KPMGInterviews
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151
Mumbai-basedPrimeFocusdidtheentirepostproductionworkforthe
HollywoodFilm“28WeeksLater”.Thecompanysubsequentlyalsoworkedon
visualeffectsfortheBritishindependentfilm-“TalesoftheRiverBank.”Tata
Elxi’svisualcomputinglab(VCL)isworkingwithseveralHollywoodstudiosinthis
regard.19
Thefastestgrowingareaofpost-productionoutsourcingisvisualeffects.Indian
techniciansthatworkinthisfieldareexpertsinproducingandeditingspecial
effectsforawidevarietyofprojectsincludingindependentfilmsaswellasbig-
budgetblockbusters.Recognizingthispotential,Hollywoodstudiosareeither
enteringintopartnershipswiththeIndianstudiosoropeningtheirofficesinIndia.
In2005,BarrieM.Osborne,theproducerofHollywoodfilmssuchas“Lordof
theRings”,“TheMatrix”,and“Face-Off”,hadenteredintopartnershipwithN
Madhusudhanan,anIndianvisualeffectsspecialist,andfoundedavisualeffects
studioinIndiatoproducefilmsgloballyandcreateahighcaliberofthree-
dimensionalandspecialeffectsforthosefilms.Morerecently,in2007,theOscar-
winningspecialeffectsforthe2007Hollywoodblockbuster“TheGolden
Compass”wereputtogetherinIndianheadquartersofRhythm&Hues(R&H),
theleadingLosAngeles-basedspecialeffectsstudio.Thecompanyhasnow
openedanotherstudioinHyderabad.20
Anotherareaofgoodpotentialinpost-productionservicesisdigitalfilm
restoration.Filmrestorationisahighlylaboriousprocessandaveryexpensive
jobinthewest.Someofthefilmsarenotrestoredduetotheprohibitivecosts,
andbecausetheycannotbecommerciallyexploited.HoweverinIndia,thedigital
restorationcanbedoneatfractionofthecost.TheIndianpost-productionstudios
arewellversedwiththedigitaltechnologyandhaveshowcasedtheircapabilities
byrestoringtheblackandwhiteclassicMughal-e-Azamintechnicolor.Besides,
Indianstudioscanalsooffervalueaddedservicessuchascolorgradingand
moviepackagingathighlycompetitiveprices.Chennai-basedPrasadLabsisone
ofthenotableplayersengagedindigitalrestorationworkforHollywoodstudios.
19CompanyWebsite,Businessofcinemas.com
20CompanyWebsite,PressReleases
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152
Insummary,Indianstudiosofferanumberofadvantagestoforeignstudios
lookingtooutsourcepostproductionservices:
• Modernfacilities/equipment-afterthegrantingofindustrystatus,thefilm
industryhaswitnessedaninfluxoforganizedfunding,whichhasledtothe
emergenceofstudioswhichhaveinvestedindevelopingtheirpostproduction
services
• Availabilityofskilledtechnicalstaffatlowercosts
• Abilitytooperate24/7throughshiftwork,whichleadstogreaterutilizationof
assets
• Abilitytoprovidehighlycompetitivedigitalrestorationandvisual
effects/services.
OneofthenotableweaknessesforIndianpostproductionstudioshasbeenthe
lackofadequateprofessionalcoursesinthefield.Thereisnospecializedfulltime
accreditedcoursesonfilmpost-productioninIndia.Mostofthecoursesbeing
offeredarebysoftwaretraininginstitutessuchasArena,NCSTandNIITs.Most
oftheseareshorttermcourseswheretheytrainthestudentsonlyonthe
softwareandtrainingonaestheticsandartisticsideofpost-productionismissing.
Theindustryneedstocometogetherandproactivelystartcoursestocopewith
thisproblem.
Tounlockitsfullpotentialasapostproductionhub,Indianstudioshavetomove
beyondthecostpositioningandaggressivelytargetgettinghighendpost
productionworkfromthebestofglobalstudios.Thiscanbeachievedbyopening
up/acquiringstudiosabroad.Openingupastudioinforeignshoreshelpsin
establishingtherightcontactsandmanagingcustomerrequirementsduringa
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
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153
project,andthushelpinginsecuringmorework.Oncethestudio/producersees
physicalinfrastructureinplaceabroad,andisassuredofthequalityaVFXstudio
canofferhim,hecanclearlyunderstandthevaluepropositionofgettingthework
doneinhalfthetimeandatlowercostsbysharingworkwiththeIndianstudio.
Someplayers,likePrimeFocushavesuccessfullyadoptedthispath.Further,the
workloadcanbedividedbetweentheIndianandforeignoffices.Forexample,the
postproductionworkfor28weekslaterwassharedbetweenPrimefocus’s
LondonandIndianStudios;Rhythm&Huesregularlyoutsourcesworktoits
centerinIndia.
Indiancorporatesaremarchingintotheglobalarenaandaretakingsmallstepsto
becomenetexportersofdealstothedevelopedworld.KPMGanalysisofdeals
betweenemerginganddevelopedeconomiessince2003showstherewere322
completeddealswhereIndianbuyershaveacquiredcompaniesinthemajor
developedeconomies,ascomparedto340dealscompletedintheopposite
direction.21
Postproductionandanimationandgamingaresomeofthesegmentsthathave
seenaconstantstreamofacquisitionsintherecentpast.In2006,PrimeFocus,
anintegratedend-to-endpost-productionandvisualeffectsservicecompany
acquireda55percentstakeinVTRGroup,aEuropeanmediaservicecompany,at
anestimated4.7millionpounds.Shortlythereafter,PrimeFocusalsobought
ClearPostProduction,avisualeffectscompany,andmergeditwithVTR.22 The
ideawastohelpensureaconstantflowofworkbysettingupapipelinein
Westernmarkets.In2007,PrimeFocusfurtheracquiredtwoNorthAmerican
companies-PostLogicStudiosandFranticFilmsVFX,andthusaddednew
facilitiesinLosAngeles,NewYork,VancouverandWinnipeg.23 Theaimwasto
provideclientsintheU.S.bettervaluepropositionbyofferingacompleteback
endfacilityinIndia.
Ingamingandanimation,UTV’sacquisitionofU.K.-basedIgnitionEntertainment
in2006andU.S.-basedTrueGamesInteractivein2008havebeensomeofthe
notableacquisitions.24
However,inthepastyear,thetwomostsignificantdevelopmentshavebeenin
radioandfilms-withTimesGroupacquiringU.K.’sVirginRadioandReliance
enteringintoa50:50JointVenturewithDreamWorks.
21KPMG2008reportonEmergingMarketsInternationalAcquisitionTracker
22CompanyWebsite,PressReleases
23CompanyWebsite,PressReleases
24CompanyWebsite,PressReleases
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TheVirginRadiodealwassignificantbecauseanIndianmediacompanyre-
brandedandre-launchedanewentertainmentbrand.Thetargetherewasnot
theIndiandiasporabutthelocalU.K.audience,VirginbeingBritain'sfirst
nationalcommercialrockradiostation.Thiswasthefirstinstance,wherean
Indianmediacompanywasacquiringaforeignpropertytotargettheglobal
audience.TheacquisitionwasakeyentrypointintothevibrantBritishradio
marketandreinforcedthegrowingpowerandinternationalpresenceofIndian
mediacompanies.
OnJune2008,theTimesGroup,throughitswhollyownedsubsidiary-
TimesInfotainmentMediaLimited(TIML),acquiredVirginRadioHoldings
anditssubsidiariesintheU.K.fromScottishMediaGroup(SMG)Plcfor
anallcashconsiderationofGBP53.2million(INR4.48billion).Itwasthe
firsteveroverseasacquisitionbytheTimesGroupinthemediaspace.
VirginRadioisBritain'sfirstnationalcommercialrockradiostationwhich
reaches2.7millionlistenerseveryweek.ItoperatesunderanFMlicense
inLondon,anAMlicenseintherestoftheU.K.aswellasadigitalradio
stationthatoperatesonlineatvirginradio.co.uk.Itisalsocommonlyheld
tobethefirstradiostationinEuropetobroadcastontheinternet,afeatit
pulledoffin1996.ItwasadistresssalebySMGandhencethedealwas
financiallyattractivefortheTimesGroup;TIMLclosedthedealatalmosta
quarterofwhatSMGhadpaidin2000toacquiretheradiostation.
Accordingtothetermsofthedeal,TIMLdidnotgaintherightonthe
Virginbrandandhencedoesnotretainandusetheoriginalbrandname
afteraperiodof90daysfromthetransaction.TIMListomanagethe
stationalongwiththeIrishradioconsultancycompany,AbsoluteRadio,
andisalsocommittedtoinvestGBP15millionforthere-brandingofthe
radiostation,overthenexttwoyears.TIMLsubsequentlyre-launchedthe
radiostationasAbsoluteRadiofromSeptember2008.Goingforward,the
stationisalsoexpectedtodiversifyintonewareaslikestand-alone
brandedproperties,eventownership,TVandcustomertransactionslike
musicsubscriptions,downloadsandticketing.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
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155
TherearecertainkeybenefitsfromthedealfortheTimesGroup:
•Entrypointandfootholdinwhatisconsideredasthemostmatureand
sophisticatedradiomarketintheworld-theU.K.market.Virginowned
oneofBritain’sthreecommercialradiolicenses
•Gainingtherequisiteexperienceforoperatingthedigitalradiomedium.
DigitalmediumandradioonnetarebiginthewestandVirginis
especiallystrongonthedigitalfrontwithanonlinemusicsubscription
service,onlinevideoandmobileapplications-Itsonlinerevenues
comprisesabout25percentofallonlinerevenuesintheU.K.radio
market
Thedealwasperceivedinthewesternmediaasasignofthingstocome
fromIndiaandotheremergingmarkets.Traditionalmediacompaniesin
theUnitedStates,WesternEuropeandJapanhavebeenstrugglingwith
fallingadvertisingrates,agloomyeconomicenvironmentandcompetition
fromtheInternet.Butnewspaper,televisionandradiocompaniesin
emergingmarketsareexpectedtoexpand.
Source:Company,PressReportsandReleases
September2008witnessedanotherimportantmilestoneinIndianM&Eindustry,
whenRelianceBigEntertainmentandStevenSpielberg’sDreamWorksSKGinked
aUSD1.2billiondealtosetupanewDreamWorksStudio,basedinLosAngeles.
Asperthetermsofthedeal,thenewstudioistobea50:50JointVenture-the
firstsuchinstancebetweenaHollywoodentityandaBollywoodcompany-and
thusmarkedthebiggestunionbetweenthetwoindustriestilldate.25
25Company,PressReportsandRelease
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156
Reliance Joint Venture with DreamWorks SKG- A ‘Big’ Step for Indian Cinema
September2008witnessedamarriageofBollywoodandHollywoodofsignificantproportionsinthe
historyofcinema.IconicHollywooddirectorStevenSpielberg'sDreamWorksSKGfilmstudiosigned
adealwithRelianceADAGroup'sentertainmentarm,RelianceEntertainmentasperwhichReliance
agreedtopumpUSD500millionintoDreamWorksthatcanenabletheDreamWorksteamendtheir
associationwithParamountPicturesandfloatanewUSD1.25billionfilmstudiothatcouldproduce
morethan30filmsoverthenext5years(thefundingiscontingentontheadditionalmoneybeing
raisedasdebt).Accordingtothedeal,DreamWorksistohenceforthfunctionasa50:50jointventure
betweenSpielberg,currentDreamWorksChiefExecutive,StaceySniderandRelianceBig
Entertainment.SpielbergretainedtherightstothenameDreamWorksandaffixedittothenew
entity.Viacom’sParamountPictureshadboughtDreamWorksin2006forUSD1.6billionwiththeaim
ofusingthecompanyasacreativeenginetoreinvigorateParamount,butwaslookingforbuyersto
saveonoverheadcosts.Reportedly,priortoDreamWorks'exit,ParamountwaspayingUSD50
millionayearinoverheadsforDreamWorks.
ThedealwashailedasoneofthemostimportantdealsinthehistoryofIndiancinema-notonlydue
tothesize,butalsoduetoitsimpact.SpielbergisoneofHollywood’smostsuccessfuldirectorsof
alltime.Someofhiswell-knownfilmsare“RaidersoftheLostArk”,“ET”and“JurassicPark”.
DreamWorkshasanimpressivetrackrecordofproducingboxofficesuccesseslike“SavingPrivate
Ryan”,“Dreamgirls”,“Gladiator”and“Transformers”.ThedealisexpectedtobenefitbothDreamWorks
andRelianceEntertainmentastheformeristohaveaccesstoastablesourceoffinancingfrom
Reliance,whilethelatteristoholddistributionrightsinIndiaforfuturefilmreleasesbyDreamWorks
acrossplatforms-theaters,television,DTHandHomeVideo-foraperiodofsixyears.Further,the
companyisabletotapSpielberg’spopularitytoexpanditspresenceintheU.S.market.Reliance
Entertainmentdoesnothaveanycreativecontroloverthestudio.
ThedealisexpectedtogiveafurtherboosttoRelianceEntertainment’sglobalambitions.Earlierin
March,throughitsexhibitionarmAdlabs,ReliancehadboughtseveralmultiplexesintheU.S.,giving
it250screensin28NorthAmericancities,includingNewYork,LosAngeles,ChicagoandWashington
D.C.Thecompanyhadalsoboughtanother50theatersinMalaysia,andsometheaterswerealso
takenoverinMauritiusandNepal.AlsointheMay2008CannesFilmFestival,RelianceBig
EntertainmenthadannouncedproductiondealswithsomeofthebiggestnamesinHollywoodsuch
asBradPitt,GeorgeClooney,TomHanks,JimCarreyandNicholasCage.
ThenewdealcomesinthewakeofafinancialcrunchinHollywood,withtheindustrylookingto
foreigninvestorstoreplacethefundingthathasnowreducedfromWallStreetduetotheprevailing
economicdownturn.
Source:Company,PressReportsandReleases
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FromtheperspectiveofIndiaMediaInc.,thesedealsweresignificantduetothe
scaleoftheirambitions,sinceboththesecompaniesdidnotgodownthewell
troddenAsiandiasporarouteandchosethemoreexpensive,intenselycut-throat,
mainstreamaudiencerouteinstead,toentertheglobalmarket.These
acquisitionssignifiedtheforayofaspirationalIndianmediacompaniesoutside
theirethniccomfortzones.BesidessignifyingIndiaInc.’sincreasingthrust
towardsclimbingnewfrontiers,theacquisitionunderlinesthefactthat
geography,languageandculturalbarriersnolongercountforIndianindustry.
Suchaggressiveacquisitionofforeignpropertieshavealsosetprecedentsfor
otherIndianM&Ecompanies,anditisexpectedthatthesetwodealsmaybethe
precursorsofmanymoresuchinternationalacquisitionsbyIndianplayers.
However,therearesomeimportantpointswhichIndianmediacompaniesneed
toconsiderbeforeacquiringaforeignmediaproperty.
PointstoconsiderforevaluatingacquisitionofaforeignTargetBrand
Synergywithacquirers
Assessingmarketconditions Productcategoryevaluation Targetbrandperformance
existingportfolio
Ascertainingmarketsize
Assessingmarketsize Analysisofthebrand’s Experienceandexpertise
andgrowthpotentialof
andgrowthpotentialof historicalperformance oftheacquirertooperate
theoverallM&Eindustry
theproductcategory andpaceofgrowth inthatparticularcategory
ofthetarget
Organization’scapabilities
Riskreturnanalysisofthe Awareness,salienceand requiredtosupportthe
Evaluatekeyoppurtunity
oppurtunitypresentedby recallofthebrandamong growthplansofthe
areasinthemarket
theproductcategory itstargetaudience targetbrandandwhether
theacquirerpossesses
thesecapabilities
Whataretheareas
Whatarepossible Target’sperformance Whetherexpected
wherethecompanycan
avenuesforthetargetto vis-à-vistheintensityof returnscommensurate
useitscurrentcapabilities
leverageitsexisting competitionfacedinthe withinvestmentlevels
todifferentiateinthe
capabilities/brandimage? market required
market?
Acquirer’sabilitiesand
Howhaveinternational Evaluatingexisting changereadinessto
Whatarethefinalsetof
contentproducers distributioncapabilitiesof handletheriskand
oppurtuinitiestobe
diversifiedandgrownin thebrandandfuture challengesarisingoutof
pursued
scale? inventorypipeline integrationoftwo
differentcultures
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158
Internationalizationalsorepresentspotentiallylucrativenewmarketopportunities
fortheIndianM&Eindustryasawhole.Ascompetitioninthedomesticmarket
increasesandtheindustrygetsmorefragmented,internationalmarketspresent
agoodriskmitigatingandrevenueaugmentingoptionfortheIndianplayers.
Leadingindustryplayersacrosstheworld,likeNewsCorporationandSony
PicturesEntertainmenthavecreatedandestablishedglobalnetworks.Indian
mediacompaniesarealsonowbeginningtoshowthattheyhaveglobal
ambitions.Synergies,accesstofunds,favorableregulatorymechanismandtrade
agreementscanhelpgivefurtherimpetustotheindustryinthisdirection.
Internationalization-ImplicationsforPlayers
Sector Effects of Internationalization Implications
TV • SteadilyincreasingpenetrationofIndian • Steadilyincreasinginternationalrevenuestreamforbroadcasters
channelsabroad(meantforNRIaudiences) • AfterasufficientscalehasbeenbuiltinIndia,bigbroadcastersinIndiacanstartlaunching
acrossmultipledistributionplatforms channelscateringtomainstreamaudiencesinothercountriesandcreateinternationaltelevision
• LaunchofchannelsbyIndianbroadcasters brandssuchastheonesthatStarandSonyhavecreated
thatcatertolocalaudiencesinother • Needtounderstandthecontentpreferencesandtastesoftargetaudience,beitNRIor
countries globalmainstream,andhaveaprogrammingmixtailormadeforthem
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Deal Activity and
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Investment Trends
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08
Deal Activity and Investment Trends
witnessed1crossborderdealvaluedatUSD105mn.
M&A Activity: Media and
Someofthemodelprofitablemediacompaniesworldwide
Entertainment1 areconglomerateswithpresenceacrossthemediavalue
chainsuchasNewsCorporation,Disney,TimeWarner,
ViacomandNBCUniversal.Theseconglomerateshavebeen
Overalldealvolumesregistereda25percentdropin2008 abletocreatevaluebytheexploitationoftheircontent
butthenumberofM&Edealsincreasedfrom59to85as librariesacrossmediaplatformstherebyaggregatingtheir
comparedto2007.In2008,the85dealswerevaluedat customerbaseandaddressingdiversemediaconsumption
USD1.7billionascomparedto59dealsin2007atUSD1.0 patterns.
billion.
AmongthemaintrendsinthesectorthatisdrivingM&A
Thesectorwitnessed36privateequitydealsascompared activityisthecreationofspecializedmediaandmultimedia
to27in2007,withdealvaluesamountingtoUSD496mn. holdingcompaniesthatincludeprintandpublishing
M&Aactivityregistered49dealsatUSD636mnas companies,internetresources,radio,TVandanumberof
comparedto32dealsin2007.TheIndianmediasector othermediaassets.
continuedtoexploreinternationalsynergisticopportunities
InIndiatoo,severalcompaniessuchasUTV;Network18;
recording12crossborderdealsamountingtoUSD612mn.
RelianceBigEntertainment;Bennett,Coleman&Co.and
In2008,televisioncontinuedtoattractinvestorinterest NDTVhaveexpandedtheirpresenceacrossthemediavalue
through24dealsatUSD380mn.Ascomparedto7deals chain.Thesedomesticconglomerateshaveseenincreased
forUSD22mnin2007,filmandcontentproduction interestfromtheirglobalcounterpartsasevidencedby
registered10dealsvaluedatUSD775mnin2008. Viacom’sjointventurewithNetwork18,TimeWarner’s
Investorswereattractedbyoneoftheonlygrowingprint investmentinMiditech,Disney’sinvestmentinUTV
marketsintheworldwith10dealsatUSD91mninthe SoftwareCommunicationsandNBCUniversal’sinvestment
sameyear.Alternatemediaplatformssuchasoutofhome inNDTVNetworksplc.
attractedforeigninvestmentofUSD124mnthrough7
deals.In2008,theinvestorscapitalizedontheMVASspace
through10dealsvaluedatUSD94mnduetotheincreasing
subscribergrowthpotentialofthismedium.In2008,radio
1Bloomberg,ResearchReports,Mergermarket
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162
“2009 will also be a year of consolidation and mergers. Half the TV broadcast
industry is already in fire sale mode in India. Similarly, Cinema exhibition space is
poised for consolidation, since economies of scale is a prime value driver in this
business.”
Rajesh Sawhney, President, Reliance Entertainment
2Bloomberg,ResearchReports,Mergermarket 6Industrysources
3Bloomberg,ResearchReports,Mergermarket 7Industrysources
4Bloomberg,ResearchReports,Mergermarket
5Bloomberg,ResearchReports,Mergermarket
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163
Print
Withjust38percent8 ofpenetrationinprint,Indiaisoneofthefewgrowingprint
marketsintheworldandisexpectedtosustainitsgrowthrateandcreatevalue
forthenext5-6years,supportedbystrongunderlyingfundamentalssuchas
growingliteracyrate,emergenceoflocalcentricbusinesses,lowPCpenetration,
absenceofpanIndianplayers(exceptBCCL)andahugevernacularmarket.DE
Shaw’ssecondroundofinvestmentintoAmarUjala9 highlightstheimportanceof
extensivevernacularreachandregionaladvertisinggrowth.KotakMahindra
Bank’sincreasedstakeinBusinessStandard10 supportsthethesisthatreadersof
Englishfinancialnewsdailiesareconsideredtobeinthehigherincomebracket
thusluringadvertiserstochannelalargerportionoftheiradvertisingspends
throughEnglishfinancialnewsdailies.
However,theprintmarketfacestwomajorchallenges–growthof
internet/televisionnewsandhighnewsprintcosts.Theriseofcomputerand
internetpenetrationislikelytoerodeprintmarketshareinthelongtermand
consequentlythereturnoninvestmentforadvertisers.Second,risingnewsprint
costsseenin2008haveeatenintotheprofitmarginssincenewsprintaccounts
forapproximately50percent11 ofthetotalcostofanewspaperpublisher.
Asaresultthisindustryislikelytogothroughaconsolidationphasewhereinthe
largerplayersmayseekmargingrowthbyacquiringsmallerregionalplayers.
Second,printcompaniesmightalsoseektoleveragetheirnewsdistribution
modelthroughdifferentplatformssuchastheinternet,televisionandmobile.
Radio
Thepresenceofincreasingnumberofplayersinthisindustryvyingforapieof
USD3billion12 in2010–thattoowithzerodifferentiationhasledto
cannibalizationofrevenuesinthissubsector.Hence,thissectorhasseenlimited
M&Aactivityin2008.Theincumbentshavefocusedonstrengtheningtheir
existingoperationsandtheinternationalplayersplayedawaitinggamedueto
foreigninvestmentconstraintsfacedbythissegment.
RegulatorychangessuchasrelaxationofFDIlimits,grantingpermissiontoown
multiplefrequenciesinacityandthepermissiontoairnewsandcurrentaffairs
holdthekeytothegrowthofthissegment.
Inthenearfuture,relaxationofregulatoryhurdlesislikelytofacilitateactive
interestfromlargeinternationalprivateequityplayersandglobalradiomajors
suchasFox,WaltDisney,Hearst,RogersCommunications,VirginGroupandCTV
Globemedia.
8Industrysources 12IDFCSSKIResearchReports
9Bloomberg,Mergermarket
10Bloomberg,Mergermarket
11Industrysources
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164
Out of Home
TheOutofHomesegmentwitnessedareasonableinterestfromprivateequityin
2008.KeydealsconsummatedduringtheyearwereGoldmanSachsandLehman
Brothers’investmentofUSD50mnintheout-of-homeadvertisingsubsidiaryof
ENILandWarburgPincus’USD75mninvestmentinLaqshyaMedia13.Anumber
ofotherswerealsoreportedtohavebeenindiscussionswithprivateequity
fundsduringtheyeartoraisegrowthcapital.
Thegrowthprospectsofthissegmentremainstrongwithkeydriversbeing
formatexpansiononthebackofairportprivatization,publicinfrastructure
projects,upgradationofstreetfurnitureandtechnologicaladvances.The
fragmentationofothermediaandOOH’spropositionofprovidingalocalized,low
costmediumofadvertisingenhancesthemedium’sappealtoadvertisers.
However,neartermchallengesduetotherationalizationofadvertising
expenditureduetotheeconomicslowdownremainsaconcern.
SomeofglobalOOHmajorssuchasJCDecauxandClearChannelhavealimited
presenceinIndiaandmaylooktoscaleupIndianoperationsthroughinorganic
means.However,sincemostoftheIndiancompaniesareingrowthphaseand
lackscale,M&Aactivityin2009maybelimitedtogrowth/expansioncapital
investments,jointventuresandalliances.
Gaming
In2007,UTVSoftwareCommunicationsacquiredIndiagamesandtheU.K.-based
Ignitionentertainmentmarkingtheirforayintothemobile,onlineandconsole
gamingmarket.In2008,UTVcontinuedtostrengthentheirpositioninthis
segmentwiththeacquisitionofTrueGamesInteractive,aU.S.-baseddeveloper
anddistributorofonlinegames.
Goingforward,webelievethatIndiangamingcompaniesarelikelytoseekcapital
infusiontoacquiretechnology,developcontentandretainpeople.Wealso
believethatincumbentssuchasZapakandIndiagamesarelikelytoseekto
complementtheirexistingportfoliosandtechnologiesthroughacquisitionsin
Indiaandoverseas.TheIndiangamingindustryisexpectedtogrowat106
percentannuallytoreachUSD250mn14 by2010andislikelytowitnessstrategic
interestfrominternationalplayerssuchasVivendi,ElectronicArts,etc.
Outbound Deals
In2008,anumberofIndianmediacompaniesextendedtheirpresencetoother
geographies.KeydealsincludedBennettColeman’sacquisitionofU.K.based
VirginRadioforUSD105mntogainafootholdintheU.K.radiomarket,UFO
Moviez’sacquisitionofMoviebeam,aleadingU.S.basedon-demandmovie
serviceandUTV’sacquisitionofTrueGamesInteractive,aU.S.basedpublisherof
13Bloomberg,Mergermarket
14Industrysources
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165
onlinegames.RelianceBigEntertainmentwasbyfarthemostactiveIndian
mediaacquirerabroadwiththeacquisitionofWillowTV(sportswebcaster),DTS
DigitalImages(filmrestorationcompany)andtheexpectedUSD550mnjoint
venturewithStevenSpielberg’sDreamworksSKG15.
Indianmediacompaniesarelikelytocontinuetoscoutforopportunitiesto
establishaglobalfootprintin2009,especiallyatattractivevaluationsbrought
aboutbytheglobaleconomiccrisis.
“Internationally the mobile gaming segment in particular is ripe for another round of
consolidation after seeing some significant M&A activity between 2004-2006. Some
listed companies are trading well below cash and at fractional revenue to sales
multiples. This is clearly a buyers’ market. However given the overall market
sentiment, the natural instinct of most companies who have cash will be to
conserve it and hence we may see some long gestation periods before deals
actually get consummated.”
Samir Bangara, COO, Indiagames
Whilethereisalargeamountofcapitalavailablefortherightbusinessventure,
investorsfollowextremelyrigorousassessmentandevaluationprocessesbefore
actuallycommittingfundstoaparticularbusiness.Atypicalprivateequityfund
investsinonlyabout2-3percentoftheinvestmentopportunitiesthatareshown
toit;approximately85percentofinvestmentopportunitiesarerejectedafter
initialscreeningorassessment.
Severalreasons(includinginterestintheunderlyingindustryorsegment)can
resultinapotentialinvestmentbeingrejectedbytheinvestor.Mainconcernsthat
investorsoftenhavespecificallyinthecaseofmediabusinessesare:
• Volatilityofcashflowsinthecaseofcertainbusinessesorindustrysectors
• Absenceofoperatinginfrastructuretosupportitsgrowthprojectedinthe
businessplan
• Significantinvolvementofthepromoter/ownerindecision-making
• Outdatedandinconsistentaccountingpolicies,notinlinewithcurrent
practices.
15Industrysources,researchreports,Mergermarket
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166
Thereareseveralactionsthatamediacompanycantakeinordertobecome
moreinvestor-friendly–inasensetomakeitself“readyforinvestors”.These
actionsspandifferentfunctionalareasandsomeofthemaredescribedinmore
detailbelow.
• Whoisthetargetaudience?
• Whatisthevaluepropositionbeingofferedtothiscustomerbase?
• Isthisanattractivecustomersegment?
• Isthevaluepropositionsuperiortothatofcompetition?Forexample,a
newspaperthatleadsaparticularlanguagegenreinacitymayneedto
evaluatewhetheritprovidesadvertisersanattractiveaudiencethatcannot
otherwisebereached.
• Towhatextenttheycanexercisecontrolovertheirpositionintheindustry
valuechainandtheirrevenuestreams.Forinstance,atelevisionchannelthat
isnotapartofastrongdistributionbouquetmaynothavestrongcontrolover
itsabilitytoreachcablehouseholdsinordertodriveviewershipand
advertisingrevenues.
• Howthecompanyplanstomitigaterisksparticulartoitsindustrysegmentor
businessmodel:forinstance,afilmproductioncompany,whoseyear-to-year
revenuecouldvarywidelydependingontheperformanceofitsfilmsinthe
boxoffice,mightpre-sellsomeofitsrightsorenterintoco-financing
arrangementsinordertoreduceitsdependenceonperformanceofany
specificfilm.
• Detailedassumptionsunderlyingsuchbusinessplans,whicharetypically
derivedeitherfromindustrytrends(e.g.size,growth)orthemanagement’s
strategy(i.e.targetaudience,pricing,marketshareetc.).
• Scenarioanalysiswithregardtoindustrytrendsaswellassuccessofthe
company’sstrategy;identifyingandanalyzingkeysensitivitiesinthe
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167
assumptionsisagoodwaytosignaltoapotentialinvestorthatthemanager
isawareoftherisksassociatedwiththebusinessplanandisintheprocess
ofplanningaheadforthem.Atelevisionbroadcaster,forinstance,could
analyzethebreakevenforanewshowbytestingtheimpactofdifferent
levelsofviewershipandadvertisementrates;anewspaper,ontheother
hand,couldevaluatetheimpactofanincreaseinnewsprintpricesonits
profitability.
• Inanindustrysuchasfilmproduction,whererevenuescanvarysignificantly
fromfilmtofilm,producerscanincreasevisibilityoffuturerevenuesbypre-
sellingsomeoftherightsofupcomingfilms–thisreducesthedownsiderisk
incaseafilmperformsbadlyattheboxoffice
• Similarly,televisionbroadcastersandnewspaperscouldincreasevisibilityof
futurecashflowsbysigninglongtermsponsorshipdealsornewsprint
purchasecontracts
• Anothercommonstrategyemployedbymediacompaniestoreduceearnings
volatilityistoadoptaportfolioapproach.Forinstance,arecordlabelcan
produceseveralalbumseachyear;whilethereturnsofindividualalbumsmay
varysubstantially,thereturnsoftheportfoliocouldbeexpectedtobesteadier
fromyeartoyear.
Thesestrategiesdonotprotectacompanyfrompoorperformanceinitscore
business,butitdoesreducethevolatilityofearningsbetweenoneyearandthe
next;lowervolatilitymakesthesameexpectedreturnsmoreattractivefor
potentialinvestors.Companieswishingtoattractinvestmentneedtounderstand
whichstrategyismostrelevantforreducingvolatilityintheirbusinessprojections
andhowbesttoapplyittotheirbusiness.
• Operationalandcreativedependenceonfewkeyindividualsresultingfrom
legacyoffamily/individualdrivenbusinesssetup.Suchdependenceonfew
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168
individualscoupledwithabsenceofprofessionalmanagementraises
concernsregardingscalabilityofthebusinessastheexistingmanagement
maynothavethebandwidthtomanagesignificantgrowthinthebusiness.
Mediacompaniesthereforeneedtodevelopastrongmanagementteam
combinedwithaprofessionalsetofsecondtiermanagementandalsolookto
developawelldefinedsuccessionplanforkeymanagementindividualsand
reducebusinessdiscontinuityrisk
• Lackoffocusonsupportinginfrastructureleadingtosituationssuchas
unsophisticatedITsystemswhichareunabletohandlecomplexities,absence
ofaformalizedandstrongMIS,illdefinedprocesses,roles,responsibilities
andmanagementcontrols.Weaksystemsandprocessesplacemajor
constraintsontheabilityofanorganizationtoincreasescaleandalsoreduce
thereliabilityofthebusinessplanfromaninvestor’sperspective.
• Weakaccountingpoliciesresultingfromabsenceofanyaccounting
pronouncementsonindustryspecificissuesallowingcompaniestheflexibility
todevelopaccountingpoliciesfocusingonimprovingprofitabilityandtax
savings.Forexample,thereisnosetstandardforaccountingtreatmentof
contentcostsduetowhichcompaniestendtohavevariedandinconsistent
accountingtreatments
• Highriskofmanagementoverride
• Weakboardoversight
• Lackoftransparencyinoperationsstemmingfromabsenceofagreementsfor
keyarrangementsandrelianceontrust/relationshipswithregardtokey
operations.Agreements,iftheyexist,arenottypicallyenforcedoraredifficult
toenforcefromapracticalperspective.Increasingly,companiesareentering
intoagreementswithvariousstakeholders,evaluatingmeanstoenforcethe
agreements,lookingformeanstocontrolandauditthesupplyand
distributionchainetc.
Strongercorporategovernanceandprocessesarelikelytoincreasethereliability
ofthebusinessplanandthereportedfinancialperformancefromanexternal
investor’sperspective.
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Changing Landscape in
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Audit for M&E
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09
Changing landscape in
accounting for Media and
Entertainment industry
Theconvergenceofaccountingstandardsacrosstheglobe usedsetofaccountingstandardsintheworld,the
isgainingincreasingmomentum.Moststandard-setting accountinglandscapeasweknowit,issignificantly
bodieshaveacknowledgedthattheultimategoalof changing.
convergenceistohaveasinglegloballyacceptedfinancial
Theaimofthispublicationistoprovideahigh-level
reportingsystem.Accordingly,theInternationalFinancial
summaryofhowfinancialstatementresultsoftheMedia
ReportingStandards(IFRS)issuedbytheInternational
andEntertainment(M&E)industrymaygetimpactedupon
AccountingStandardsBoard(IASB)haveemergedasan
adoptionofIFRS.IFRSislikelytoaffectmostcompanies,
evergreaterfocusofattentionforreportingentitiesin
notonlythosefromtheM&Eindustry,onvarioustopics
recentyears.
suchasaccountingforbusinesscombinations,financial
WhiletheIASBandtheU.S.FinancialAccountingStandards instrumentsandderivatives,share-basedpaymentsetc.In
Boardcontinuetoworkcloselyontheirconvergenceproject thispublication,wehavediscussedhowadoptionofIFRS
betweenIFRSandU.S.GenerallyAcceptedAccounting mayimpacttheareaof“revenuerecognition”forentities
Principles(U.S.GAAP),theU.S.SecuritiesandExchange withintheM&Eindustryespeciallytransactionsinvolving
Commission(SEC)hasmadesignificantprogressto bartertransactions,multiple-elementdeliverablesandright
increasetheacceptanceofIFRS.TheSEC'sdecisionto ofreturnprovisions.Eachoftheseconceptshasbeen
acceptforeignprivateissuers'financialstatementsprepared explainedbywayofexamplesbelow.
inaccordancewithIFRSasissuedbytheIASBwithout
reconciliationtoU.S.GAAP,hasdemonstratedtheSEC's
willingnesstocontinuetosupportthemovetowards Barter transactions
convergence.Additionally,theSECrecentlyproposeda
"roadmap"forphasinginIFRSfilingsbyU.S.public
companiesbeginningforyearsendingonorafterDecember Bartertransactionsinvolvingadvertisingservicesare
15,20141.Backhome,theInstituteofChartered commonlyenteredintobyentitieswithintheM&Eindustry.
AccountantsofIndiahasalsoreleaseda‘ConceptPaperon IFRScouldhaveasignificantimpactontheaccountingand
ConvergencewithIFRSinIndia’,whichdetailsthestrategy reportingofsuchtransactionsinthefinancialstatements.
androadmapforconvergenceofIndianAccounting
Abartertransactioninvolvingadvertisingservicesoccurs
StandardswithIFRSeffectiveApril1,20112.
whentwounrelatedentitiestransact,underwhichone
Withthesedevelopments,thegrowinguseofIFRSinthe entityprovidesadvertisingservicesandinreturnreceives
world’smarketsanditscurrentpositionasthemostwidely advertisingservicesfromtheotherentity.Theseadvertising
1SECReleaseNo.33-8982,RoadmapforthePotentialUseofFinancialStatementsPreparedinAccordancewithInternationalFinancialReportingStandardsby
U.S.Issuers,availableatwww.sec.gov.
2ConceptpaperonconvergencewithIFRSsinIndia,availableaticai.org
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172
servicesmayconsistofpublishingadvertisementsin theoneinthebartertransactioninquestion.
newspapersormagazines,broadcastingcommercialson Theabovecanbeexplainedbywayofthefollowing
televisionorradio,displayingadvertisementsonwebsitesor example:
advertisingthroughothermedia.Inmostcases,nopayment
ismadebetweenthetwoentitiesexchangingservices. • PublisherXprovidesTelevisionBroadcasterYwith
advertisingspaceinitsmagazine.Inreturn,Ybroadcasts
UnderIFRS,revenuefrombartertransactionsistobe X’stelevisioncommercialsonitschannel.Nopayments
recognizedinthefinancialstatements,providedthe aremadebetweenthetwocounterparties.Thefairvalue
servicesexchangedaredissimilarandtheamountof oftheadvertisingserviceprovidedbyXtoYisUSD
revenuecanbereliablymeasured3. 100,000
IFRSdoesnotprovideadefinitionofsimilarordissimilar • Asthemagazineandthetelevisionchannelaretwo
transactions.Asanexample,transactionsinvolving differentadvertisingmedia,theadvertisingservices
exchangeofadvertisingservicesforsupplyofgoodswould exchangedaredissimilar.Xthereforerecognizesrevenue
beconsidereddissimilar.Bycontrast,transactionsinvolving ofUSD100,000fortheadvertisingserviceithas
exchangeofadvertisingservicesinsimilarmediadonot provided.Thisamountisthefairvalueoftheadvertising
resultinrevenuerecognitionunderIFRS.Inthisregard, serviceprovidedbyXaspartofthebartertransaction,
mediamaybeconsideredtobesimilar,iftheysharesome basedonothersimilaradvertisingservicesprovidedby
ofthecharacteristicssuchasthetargetgroup,formator X.
positionandsizeoftheadvertisement,frequencyandtiming
withwhichtheadvertisementisbroadcast/placed. Certainrelatedfinancialreportingissuesmayalsoariseif
thebartertransactionscrosstwoaccountingperiods.For
Withrespecttothesecondcriteria,revenuefromthe example,ifattheendofareportingperiodonepartytothe
exchangeofadvertisingservicesmayonlybemeasured bartertransactionhasperformedonlypartofitsservices
reliablybytheadvertisingserviceprovideratthefairvalue andtheotherpartyhasdeliveredalltheservices,thena
ofitsownadvertisingservice,andnotatthefairvalueof necessaryassetorliabilityneedtoberecordedinthe
theadvertisingservicereceived.Asabenchmarkfor financialstatements.
measuringfairvalue,theadvertisingserviceprovidermay
onlyuseotheradvertisingtransactionsthatarenon-barter Therefore,beforeadoptionofIFRS,entitiesthatenterinto
transactions,involveadvertisingservicessimilartothosein bartertransactionsneedtoanalyzetheircontractsto
thebartertransaction,occurfrequently,involvepaymentof evaluatefinancialreportingimplications.
considerationanddonotinvolvethesamecounterpartyas
3InternationalAccountingStandard(IAS)18,Revenue,paragraph12and20;StandingInterpretationsCommittee(SIC)31
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173
Multiple-element transactions
Amultiple-elementarrangementisanarrangementwithacustomerunderwhich
differentdeliverablesarerequiredtobeprovidedtoand/orperformedforthat
customerforacompositefee.Inthesecases,itmaybenecessarytoseparate
thissinglearrangementintoitsvariouscomponents,withdifferentrevenue
allocationsforeachcomponenttoreflectthesubstanceofthetransaction.
IFRSdoesnotcontaindetailedguidanceonthebreakdownofmultiple-element
arrangements.However,itiscommonpracticetofollowU.S.GAAP(EITF00-21),
whichrequiresanarrangementtobeaccountedforasamultiple-element
arrangementif:
• Ithasstand-alonevaluetothecustomer,whichisthecaseifitissoldona
stand-alonebasisbyanyvendororthecustomercouldresellit
• Thereisobjectiveandreliableevidenceofthefairvalueoftheundelivered
itemand
• Deliveryofundeliveredelementsisprobableandsubstantiallyunderthe
controlofthevendor,i.e.,ifthecustomerhasageneralrighttoreturnthe
deliveredelements.
Inthemediaindustry,publishersoftensellcomprehensive“information
solutions”thatcombineprintandonlineproducts.Whiletheprintproducthasa
fixededitionstatusatthetimeofsale,theonlineproductincludesregular
updatestotheinformationcontainedintheprintproduct,whichareprovided
overtheInternetforacertainperiodoftimeintheformofatime-limited
subscription.Insuchcases,underIFRSwhenthecustomerbuysacombined
printandonlineproduct,thearrangementinvolvingthetwodeliverablesmay
needtobeseparatedforrevenuerecognitionandthetotalpurchasepricemay
needtobeallocatedamongtheindividualelements4.
"Relativefairvaluemethod"isoneofthemethodsthatcanbeusedtoallocate
thetotalpurchasepriceamongtheindividualelements.Underthismethod,the
portionofthetotalconsiderationreceivedorreceivabletobeallocatedtothe
differentcomponentsisdeterminedbytheratioofthefairvaluesofthe
componentsrelativetoeachother.
Theabovecanbeexplainedbywayofthefollowingexample:
Apublishersellsbookscontainingcollectionsofaccountingtext.Customerscan
alsopurchaseanonlinesolutionfromthepublisher,whichprovidesregularonline
updatestotherelevantaccountingtext.Theproductsaresoldatthefollowing
prices:
4IAS18,paragraph13;example11oftheAppendixtoIAS18
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• BoundprinteditionasasinglepurchaseUSD100
• Three-yearonlinesubscriptionasasinglepurchaseUSD50
• Boundprinteditionincludingthree-yearonlinesubscriptionUSD120
LetusassumethatcustomerXpurchasestheboundprinteditionincludingthe3-
yearonlinesubscriptionandpaysUSD120.Undertherelativefairvaluemethod,
twothirdsofthetotalconsiderationofUSD120istobeallocatedtoboundprint
editionamountingtoUSD80andonethirdtothe3-yearonlinesubscription
amountingtoUSD40.
Anotherareaofrevenuerecognitionthatneedstobeevaluatedincludes
customercontractshavingrightofreturnprovisions.Publishersgenerate
publicationrevenuebysellingtheirpublicationsthroughwholesalersandretailers,
whichformthelinkinthecommercialchainbetweenthepublisherandtheend
customer.Generally,wholesalersandretailershavethecontractuallyagreedright
toreturnunsoldproductstothepublisherforareimbursementoftheselling
price.Thismayaffectmusicandprintproducts.
Insuchsituations,ifthewholesalerorretailerhasarightofreturn,andthereis
uncertaintyastotheprobabilityofreturn.UnderIFRS,revenueisrecognized
whentheperiodinwhichthewholesalerorretailermayexerciseitsrightof
returnhaspassedorthepublicationshavebeensoldtoendcustomers5.
However,revenuemayberecognizedatthetimeofdelivery,ifthevolumeof
expectedreturnscanbereliablyestimated(e.g.,fromsupportablehistoricaldata)
andrevenueisdeferredfortherisksbasedontheexpectedreturnsratio.For
newtitles,itmaybedifficulttoreliablyestimateexpectedreturnsduetoalackof
historicalexperience.Intheabsenceofareliableestimate,revenueisusually
recognizedfornewtitlesonlywhenthetimeperiodforexercisingtherightof
returnhaselapsedor,ifsooner,whentheproductshavebeensoldtoend
customers.
UponadoptionofIFRS,publishersmayhavetoanalyzetheircontractshaving
rightofreturnprovisionsandmakenecessaryadjustmentsinthefinancial
statements.
Inconclusion,whilewehaveonlycoveredcertainbroadareasof‘revenue
recognition’inthispublication,therearevariousM&Eindustry-specific
accountingissuesthatcompaniesneedtoaddressuponofadoptionofIFRSsuch
asaccountingforprogramassets,publishinganddistributingrights,contract
productionsetc.CompaniesintheM&Eindustryshouldstartthinkingabout
adoptionofIFRS-determiningastrategyandprojectmanagementplan,
knowledgeandresourcerequirements,changestoinformationtechnology
systemsandprocessesandcommunicationtointernalandexternalstakeholders.
5IAS18,paragraph14;example2boftheAppendixtoIAS18
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Building Robust And
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Scalable Internal Processes
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10
Building Robust And Scalable
Internal Processes
TheMediaandEntertainment(M&E)companiesinIndia Tobespecific,ateachstageoftheirevolution,M&Eplayers
todayareoperatinginamuchmoreturbulentandvolatile mustaskthemselvesthefollowingquestions:
environmentascomparedtotheirpredecessors.The
• Doesthedesignofthebusinessprocessesestablished
exponentialgrowthwitnessedincertainmediasub-sectors
bymycompanysupportitsstrategicobjectives?
alongwiththeneedtoconstantlyinnovatethebusiness
model,tocreateaperceivabledifferentiator,hasput • Areourprocessesrobustenoughtosupportscaleupof
significantpressureontheinternalprocessesofthese operationsandimproveourrevenuerealizations?
companies.Considerablefocushasbeenputonthetopline
• Hasthemanagementdevelopedacomprehensive
andvaluationsbyMediacompaniesinrecenttimeswith
understandingofthebusinessrisksthatcouldprevent
littleregardtoprofitability.Butsuccessfulplayersrealizethat
mycompanyfromachievingitsstrategic/business
iftheyneedtobeprofitabletheyneedtomakesurethat
processobjectives?
notonlyistheirstrategywellarticulatedbutalsothatthey
haverobustinternalprocessestoefficientlyexecutethat • Doesthedesignoftheinternalprocessesestablishedby
strategy.Inadditiontothesecomplexities,corporate mycompanyadequatelyaddresstherisksidentified?
governancerequirementshaveincreasedmanifold;investors
• Hasthemanagementderivedasetofcriticalsuccess
andratingagenciesarenowcloselylookingatan
factorsandkeyperformanceindicatorsthatmonitor
organization’sriskmanagementandgovernancepractices.
objectivesandmanagementoftherisks?
Organizationalprocesses,systems,performancemetricsas
• Dowehaveagoodoversightfunctiontoreviewwhether
wellasprocedureshavetobealignedtotheCompany’s
theseestablishedprocessesareworkingthewaythey
strategicpriorities.Thenandonlythenisitlikelythata
shouldbe?
companycouldbeabletosuccessfullyfacetherisks,
challengesandopportunitiesbeingpresentedbythe Ifplayersunderstandandprepareforthesequestionswell
externalenvironment.Thus,havingrobustinternal enough,thentheyarewellplacedtoleveragetheirinternal
processesisnowapre-requisiteforsuccess. capabilitiestotakeontheexternalandinternalthreatsand
opportunities.Further,theycanalsogaininsightsintothose
areaswheretheirbusinessdesignmaynotbeoptimized,
andthus,areabletoidentifyareaswheretheircompany
maybeabletoimprovetheirperformance.
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Anorganizationisgovernedbytheinterrelationshipsof alsobeenrisinginrecenttimes.Themainbusiness
manysystems,functionsandprocessesthatcontributeto objectiveswithrespecttocontentacquisitionand
itssuccess.FortheM&Ecompaniesinparticular,thereare developmentshouldbeto:
certainkeyprocessesthatareanimperativefortheir
• Offercontentthatmaximizesconsumption(i.e.
progressupthevaluechain.
viewership,readership,listenershipetc.)
Inthissection,KPMGhasattemptedtoanalyzetheimpact
• Maximizereturnoncontentproductionand/oracquisition
oftheexternalenvironmentandrecenttrendsonthe
costs
followingkeyinternalprocessesofM&Ecompaniesaswell
asidentifythecriticalsuccessfactorsandkeyperformance • Maximizethecontentlibraryvaluationbycreating
indicatorsformanagingtheseprocesses: contentwithresalepotentialacrosstime,mediumsand
geographies.
1. ContentAcquisitionandDevelopment
Toachievetheseobjectives,playershavetobuildincertain
2. AdvertisingSales
internalcapabilitiestofacetherisksanduncertainties
3. Distribution arisingoutofthebusinessenvironment.
Business Objectives
Contentremainstheking,especiallywiththewidevariety
ofleisureandentertainmentchoicesavailabletothe
consumer.Contenthastobeenrichingenoughtoattract
andengagetheviewerandarichcontentlibrarycanbea
lucrativelongtermrevenuesource.Increasingnumberof
playersacrossM&Esubsectors,andtheresultant
competitionhasfuelledthedemandforqualitycontent.Asa
result,thecostofcontentacquisitionanddevelopmenthas
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M&EIndustry:TowardseffectiveContentAcquisitionandDevelopment
• CostperGRPofcontentacquired/
developed
• Revenuegrowthfromcontent
syndication
• Numberofcustomersforcontent
syndication
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• Clearsegregationofeditorialfrom
Advertisement-forequitybarter
dealstomaintainindependenceof
content
1”FMRadio,musicindustryoutoftuneonroyalty”,Rediffnews,December2008
2”FMPhaseIIIPolicyinoffingtoadd780radiochannelsinanother275cities,sayssecretaryI&B”,ASSOCHAM,November2008
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181
• Conductingmarketresearchtoascertainconsumerpreferencesatregular
intervals
• Undertakingcompetitorresearchsurveysandmonitoringtheirproduct
offerings
• Regularlytrackingconsumeracceptance(viewership,listenership,readership
etc.)andtakingcorrectiveactionasperthefeedback
• Maintainingproperschedulesandplansandmonitoringdeviationsfromthe
actualstandards
• Implementingprocedurestohelpensurethatintellectualpropertiesare
protected.
Thereforetoconclude,anticipatingfuturecontentpreferencesandproactive
productionofsuchproperties,ratherthanreactingtomarkettrends,mayhelp
playersemergeasleadersinthemarketspace.Developingstandards,
proceduresandresourcerequirementsforproductdesign,testingandproduction
andmonitoringadherencetothedevelopmentprocessandmethodologiesmay
alsohelpinensuringthedesiredproductionqualityandefficiency.
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Advertising Sales
Business Objectives
Theemergenceofmultiplemediaplatformsandtheconsequentcustomer
fragmentation,advertisershavebecomemoredemandingandplayersarebeing
requiredtodemonstratevalue/results.Asaresult,thetargetsandgoals
pertainingtothisfunctionhavebecomesteeperthanbefore.Themainobjectives
ofthebusinesswithrespecttoadvertisingsalesare:
• Maximizepriceperspotandrevenueperunit
(viewership/listenership/readership)
• OptimizeAdvertisement-program/Advertisement-editratio
• MaximizeAdvertisementinventoryutilization
• Enhancetheadvertiser’sperceptionofproductvalue.
Toachievetheseobjectives,playershavetobuildincertaininternalcapabilitiesto
facetherisksanduncertaintiesarisingoutofthebusinessenvironment.
M&EIndustry:TowardsanefficientandeffectiveAdvertisementSalesprocess
• Numberofnewadvertisers
• Valueandnumberof
Advertisementforequitybarter
deals
• IRRonAdvertisementforEquity
barterdeals
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• Absenceofascientificmetricforconsumer • Developinginhousecapabilities
responsemeasurementlimitstheadvertising fordesigningaswellasexecution
pieinthismedium ofcreatives
• Cinemaadvertisinggeneratingincreasing
interestwithadvertisersbutisstillina
nascentstage
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• Mappingadvertisersacrosstoincreasethecustomerbase
• Adoptingtimelyandappropriatemeasuresfortrackingadvertiserfeedbackand
takingactiononthesame
• Maintaininguptodateinventorystatusreportsaswellasmonitoringsalesand
profitabilityacrossvariouschannelsandmarkets
• EstablishingstandardprocessesforAdvertisementscheduling,billingand
receivables.
Therefore,toconclude,adoptingdynamicpricing,de-riskingthebusinessmodel
byrelyingonadvertisingsalesfrommorethanonemediumandmapping
advertisersmayhelpplayersemergeasleadersinthemarketspace.Developing
standards,proceduresandresourcerequirementsforAdvertisementScheduling,
BillingandCollectionscanalsohelpinensuringthedesiredefficiency.
Distribution
Business Objectives
Buildingupanefficientcontentinventoryandoptimizingadvertisementsalesare
ofnouseunlesscontentisdeliveredinatimelymannertotheendconsumer.An
efficientdistributionprocessminimizesthetimetomarketandhelpsensurethat
thisobjectiveofthebusinessismet.Theprimarybusinessobjectivesforbuilding
adistributionfunctionaremainlythefollowing:
• Maximizetotalreach
• IncreaseARPUsthroughancillaryrevenuestreams
• Maximizeutilizationofcontentinventory
• Facilitatecontentmonetizationacrossalternateplatforms.
Creatingefficientandeffectivedistributioncapabilitiesinvolvescertainchallenges
andrisksfortheindustryplayersasenumeratedbelow.
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M&EIndustry:TowardsamoreeffectiveDistributionProcess
Sector Environmental Context Critical Success Factors Key Performance Indicators
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• Effectiverelationshipmanagementwithdistributionpartners
• Monitoringandevaluatingtechnologicalchangesandnewdistribution
opportunities
• Maintainingsufficientinfrastructurebackupandinternalcheckpointstoplug
lastmilerevenueleakages.
Therefore,toconclude,adoptingmanagingrelationshipswithdistributionpartners
andanticipatingtechnologicalchangesmayhelpplayersemergeasleadersinthe
marketspace.Developingstandards,proceduresandresourcerequirementsfor
contracting,payingandmonitoringdistributioncostsmayalsohelpinensuring
thedesiredefficiency.
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Media&Entertainmentcompaniesareincreasinglywakinguptothepotentialof
theirInternalAuditfunctionstostrengthentheirinternalprocessesaswellas
monitorcompliancewiththesame.A‘real’InternalAuditfunctioniswell
positionedtonotjusttoshareindustrybestpracticeswithprocessownersbut
alsolinkthestrategicbusinessriskswith‘ontheground’internalcontrols.The
followingquestionscanhelpyouassessifyourInternalAuditfunctionisgeared
tomeetthetoday’schallenges:
• DoestheInternalAuditfunctionhaveacharteroutliningitsauthorityand
responsibilitythathasbeenapprovedbytheAuditCommitteeoftheBoard?
• IsyourInternalAuditplanlinkedtotherisksfacingyourbusinessandhasit
beenapprovedbytheAuditCommitteeoftheBoard?
• DoyourInternalAuditpersonnelpossessadequateindustryandaudit
experience?
• IstheInternalAuditworkfocusedonimprovingbusinessprocessandIT
systemcontrolsinsteadofmerelyverifyingtransactions?
• DoesyourInternalAuditfunctionhavetheindependencetoreportitsresults
totheAuditCommitteeoftheBoardandtheExecutiveManagement?
• DoyoutrackwhethertherecommendationsmadebyyourInternalAuditteam
havebeenimplemented?
Mediacompanieshavealongwaytogotoimplementstrongandscalable
processes.However,strengtheningtheirInternalAuditfunctioncouldbestartin
therightdirection.Astheindustrygrows,seriousplayersarelikelytorealizethat
focusingonprocessesisnolongeraluxurybutanecessity
“There are many challenges facing the fledgling radio sector. Its biggest challenge is to trim its
cost structure and bring viability to the business. The biggest cost elements are music royalties.
Radio companies must seriously consider moving away from music formats. Secondly, radio cos
have to protect cash - by working together with each other on credit control in the market.
Thirdly, radio players need to band together in promoting the medium - there are many
advantages of radio that should help it increase its share of advertising but this will not happen
until they band together. If radio companies do this, they will actually emerge a stronger bunch.
It is a well known fact that in economic slow-downs, radio does well. Clients are bound to
substitute costly media like TV and print with a more cost-effective medium like radio.”
- Prashant Panday, CEO, Entertainment Network India Limted
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Inaknowledgeeconomy,itispeople,notcapitalormarket,whomakeallthe
difference.AstalentoccupiescenterstageintheIndianworkplace,managing
andretainingmanpowerisbecomingcrucialtoanorganization’ssuccess.To
achievethis,companiesacrosssectorsarefocusingonsomeofthemorecritical
HRpractices.
RidingontheeconomicgrowthandrisingincomelevelstheIndianMediaand
Entertainment(M&E)industrytooexperiencedahighgrowthphase.Itwas
envisagedtoemergeasoneofthefastestgrowingindustriesandpossibly,
amongthelargeremploymentgeneratorsofthecountry.TheroleofHRwithin
thissectorhasalsoundergoneamajorchange.ThesiloedHRdepartment,
focusingpredominantlyonbasicadministrative,record-keepingandtransactional
duties,isathingofthepast.Theindustryhasalreadyopeneddoorstotrained
HRprofessionalsfromoutsidetheindustry.Changedscenariointheglobal
economicfronthasalsochangedbusinessprioritiesfortheM&Esector.These
changestakingplacewithinthesectorhavegivenrisetosomekeyimperatives
forHRtoactupon.
Theremaybeaneedtotakesomeharddecisions,duringwhichHRmayhaveto
workalongsidetheCEOtoimplementthesemeasureswithouthurtingthe
employeemorale.Thesemeasuresneedtobeimplementedwithutmost
sensitivityandwithelaborateplanning.HRneedstoconstantlycommunicateto
theemployeesinaforthrightandtransparentmanner.
Withthebusinessprioritiesshiftingtocostoptimizationandworkingcapital
management,HRhastoexamineitsowncoststructureandavenuesforcutting
costswithoutsacrificingeffectiveness.Itneedstoidentifythetalentandroles
whichcontributeandcreatethemaximumorganizationalvalueandfocusits
limitedfundstowardsthem.
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Today,everyfunctionandactivityrelatedtotheIndianfilmbusinessisbecoming
welldefinedandsystematized,beitproduction,filmretailinfrastructure,
financing,marketingordistribution.Asfilmproduction,distributionandexhibition
companiesarebeinglistedonstockmarkets;anincreasingnumberof
companiesareseriouslylookingatcreatingcorporatestructures.HRneedsto
contributetothisbusinessneedofconsolidationofoperationsbyinstitutinga
formalandefficientorganizationstructurebyaligningittothechangesinthe
businessmodelandassigningresponsibilitiestothecriticalpositions.
Decentralizingdecisionmakingtobringspeedandefficiencyandimplementing
performancemanagementsystemstomeasurethevaluedeliveredarethe
needsofthehour.
TraininghoweveriscloselylinkedtotheoverallHRstrategyofthecompany.With
newemployeestakingoverroles,eveniftheyarelimitedinnumber,itbecomes
importanttoequipthemwithalltherequisiteknowledgeandskillstomakethem
productiveattheearliestpossibletime.
Earlier,corporatetrainingwasundertakenbymanymediumtolarge-sized
companiestohonetheiremployeesinvariousareassuchasmanagementskills,
leadership,communication,changemanagement,negotiation,customerservice,
conflict,timemanagement,strategicplanning,stressmanagement,attitudeand
delegation.Nowthefocusoftrainingneedstoshifttowardsincreasing
productivityimpartedthroughinternaltraining.
ThekeyissuethatmostM&Ecompaniesshouldcontinuetoaddressistheneed
formoremiddlemanagers.Corporatetraininginsuchcompaniesneedstoaimat
developingmiddlemanagersandcreatingafutureleadershippipeline.
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Thechallengefortheindustryistobuildapipelineoftalent.Specifically,itisthe
middleandseniorleveltalent,whichisdifficulttolocate.Thishasledtoatrend
ofrecruitingpeoplefromoutsidetheindustry.Itisincreasinglyseeninthe
marketing,salesandadministrationrolesinmediacompanies.Poachingfrom
competitionisaneasypathforrecruitment,howeverwithlimitedchoice.Inthe
digitalbusiness,assystemsgrowbiggerandmorecomplex,theneedfor“highly
skilledsuperspecializedtechies,productdevelopersanddesigners”isgoingto
growwithfurthergrowthoftheindustry.
Fromalargerperspective,thereisalsoaneedforcreatingworldclass
universitiesandinstitutionswhichcancatertothedemandcreatedinthe
industry.Theseinstitutionscanhelpincreatingcompactmodulecourseswitha
goodcombinationofacademiclearningandpracticalorientation/exposure.
TheM&EindustryneedstotakecuefromotherindustrieslikeIT&ITESinlaying
structuredproceduresformanagementofitstalent.TheHRfunctionalsoneeds
toexpandmuchmorewithspecialistsinplacetodesign,implementandmanage
scientificHRsystemsintheorganization.HRalsoneedstoputHRpoliciesin
placeonthelinesofotherevolvedindustriesandthatmeettheglobalstandards
ofworking.DeploymentofHRpoliciesandstructuredproceduresinmedia
companiesarelikelytohelpensuretransparencyandfairnessintheworkculture,
whichgoalongwayinattractingandretainingtalent.
Asdigitalmediaexperiencesfurthergrowth,newbusinessmodelsandideasget
rolledout;peoplewithpotentialjointhefrayasentrepreneursthuscreating
nichesandskill-setsthataremorespecialized.
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However,itistoberecognizedthattheopportunitiesearlierregardedasmere
hobbiesarebecomingfulltimecareeroptions.Rightfromradiojockeys,actors,
musicians,dancers,journalists,videotechnologycreatorsandmanagersto
accountsplanning,cameramen,editors,soundmenandpublicrelations
managers,thissectorofferscareeropportunitiesforall,challengebeingto
maintainandnurturetheseskill-sets;therefore,tobuildandgrowatalentpool,
weneedgreatercoordinationwithacademicinstitutions.Further,Mediaand
Entertainmentsectoroffersvarioushighprofilecareersthatareinconstantpublic
glareandcanhelptoearnhandsomeincomes.
Theneedistocreateamindsetamongsttheparentstoencouragetheirchildren
tolookbeyondthetraditionaldisciplineslikemedicine,engineeringand
management,andforayintothissectorthatcancatertotheyoungsters’skill
setsandcompetencies.Theprospectiveemployeeshavetodeducejustwhat
canopenthedoorsofopportunityforthem.SomeofthejobsrelatedtoM&E
industryinvolveinformationtechnology,communicationengineering,event
management,productionmanagement,ideation,celebritymanagement,financial
management,brandmanagement,businessdevelopmentandconsulting.Care,
however,shouldbetakeninrightskilling,ormatchingjobswithaparticularlevel
oftrainingratherthanhiringoverskilledworkers.
Anemploymentbrandcreatesanimagethatmakespeoplewanttoworkforthe
companybecauseitisawellmanagedorganizationwhereemployeesare
continuallylearningandgrowing.Theimageofanorganizationasa‘greatplaceto
work’inthemindsofpeoplecreatesloyalcustomersandemployees.
Mostimportantly,ithelpsorganizationstoreboundquicklyandgetontractasthe
effectsoftheslowdownwearoff.
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Animportantaspectofcreatingasuccessfulemployerbrandissupportingthe
entirebrandbuildingcampaignwithaworkenvironmentandcultureconduciveto
professionals,wheretheemployeesgetopportunitiestogrowprofessionallyas
wellaspersonally.
Companiesthatoffervariablepayoptions,flexibleworkhours,part-timeoptions,
andmultiple-shifts,giveemployeestheoptiontoplanningtheirworksothatthey
canfindtherightbalancebetweenworkandhome.Italsoprovidestheimmense
benefitofbeingabletomanageitsemployeecostseffectivelyduringthetimeof
economicdownturn.
Wealthcreationintoday’seraistransitingfromafinancialresourcebasetoa
knowledgecapitalbaseespeciallyinthosesectorswhicharegrowingata
breathtakingpaceliketheM&Eindustry.Themarketisincreasinglydependent
onintellectwhichliesinknowledgelieswithinindividualsandtheculturalcontext
oftheenterprise.HRneedstoconcentrateonconvertingthisabstract
knowledgeintoacorporatepropertywithoutsacrificingthelargerperspectiveof
organizationaleffectiveness.
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Way Forward: Sector
wise key action steps
11
Way Forward:
Sector wise key action steps
Basedonadetailedunderstandingoftheindustryandour IPTV,andsinceARPUsarealreadyfairlylow,playersneedto
interactionswithvariousplayers,thefollowinginitiativesare differentiatethroughtheiradd-onservicesandqualityof
recommendedtobeundertakenbythosecompanies customerservicetoattractnewcustomers.
operatinginvarioussubsectorsoftheM&Eindustry.The
Tosummarize,themainchallengesforthesectorarelikely
industryislookingtocapitalizeonnewopportunitiesdriven
tobe:
byfavorablesocio-economicchangesandsmarter
distributiontechnologies.Thissectionfocusesonkeyaction • Fragmentation of viewership:Asthenumberof
stepsthatplayersneedtokeepinmindinordertounlock channelsincreasedifferentiationofcontentislikelyto
greaterpotentialandtohelpthemselves: becomeincreasinglyimportant
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Tomanagethesechallenges,whilecapitalizingon
opportunities,stakeholdersacrossthevaluechainneedto
takefurtheractiontounleashthetruegrowthpotentialin
thesector.
Atanindustrylevel,someimportantinitiativesthatcould
helpinunlockinggrowthare:
• Pushingforgovernmentregulationsformandatory
digitizationofallTVdistribution
• Developmentofalternateaudience/viewership
measurementsystems
• Rationalizationofcontentproductioncoststhrough
discussionswithstakeholdersatalllevels–
actors/technicalstaff,productionhousesand
broadcasters
Ataplayerlevel,broadcastingcompaniesneedtofocuson
contentdifferentiationtoattractviewersinanincreasingly
fragmentedenvironment.Theyalsoneedtocreatecontent
foraudiencesintheTier2and3townsfromwherethenext
waveofgrowthislikelytocome.
Digitaldistributionplayersmayneedtoimproveand
monetizetheiradd-onofferingstoaugmenttheirtoplines.
Sincedifferentiatingoncostislikelytobedifficult,they
needtodifferentiateonthequalityofcustomerservice
levels.
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TelevisionSector:KeyActionSteps
Broadcasters
Goingforward,abasketapproachwillbeimportantforsuccessinthebroadcasting
Buildingchannelbouquets industry.Creationofchannelbouquetswillincreasethebargainingpowerofbroadcasters
withdistributors.Innovativebouquetofferingswillalsohelpinattractingadvertisers
Withtheovercrowdingoftelevisionchannels,theTVviewerislikelytobespoiltfor
choiceandthosechannelsthatareabletodifferentiateintermsoftheircontenttocater
Focusondifferentiationofcontent
tospecificaudiencesarelikelytodowell.Channelswithdifferentiatedcontentand
specifictargetaudiencesmayalsobemoreattractivetoadvertisers
Playersneedtofocusonbuildingastrongcontentlibrarytohelpensuresteadysourceof
Buildingastrongcontentlibrarytocapitalize futurerevenues.Someoftheavenuesforfuturerevenuesaredubbingofcontentin
onvariousrevenuestreams regionallanguages,internetdistribution,anddistributionacrossMobileTVetc.Proper
valuationoflibrarycontentalsoassumesaddedsignificanceinsuchascenario
Broadcastersmustintelligentlyexploitmobileinteractiveservicesi.e.Peer-to-Application
Realizingtherevenuepotentialofmobile (P2A)andSMS–forrealityshowsandtalenthunts–toaugmenttherevenuesearned
interactiveservices fromsuchshows.WithIndia’slargeandgrowingmobilesubscriberbase,thiscanbea
significantrevenuestream
GrowthinTVandC&Spenetrationisexpectedtobedrivenprimarilybysmalltownand
FocusoncontentrelevanceforTier2/Tier3
ruralIndiaoverthenextfiveyearsandhenceitisveryimportantforthebroadcastersto
townsandRuralIndia
developcontentthatisrelevanttotheseaudiences
WiththeincreasingcompetitionintheGECbroadcastingspace,thecontentcoststo
broadcastersarelikelytogoup.AgoodlongtermstrategyforGECbroadcasterscould
Backwardintegration
thereforebetogetintocontentproductionthemselves,andthushedgetherisks
associatedwiththecostofcontentacquisition
Withalargenumberofdistributorsacrosssegments–cable,DTHandIPTV–negotiating
dealswithdistributionplayersislikelytobecomemorecomplexandmayneedtobe
Maximizingreachofchannels
managedintelligentlysothatthechannelreachcanbemaximizedwhilemakingsurethat
carriagecoststothebroadcasterremainsreasonable
Distributors
Withthepressuretokeepmonthlysubscriptionpricepointslowandsubsidizesetup
boxes,itislikelytobecomeincreasinglyimportantforDTH,IPTVanddigitalcableplayers
Increasingrevenuefromadd-onservices
toaugmenttheirrevenuesthroughadd-onservicessuchasvideoondemand.User
(digitaldistributionplayers)
adoptionfortheseservicesmayhavetobedriventhroughkeepingthepricepointslow,
offeringfreetrialperiodsandaggressivelymarketingtheseservicesamongcustomers.
Ascompetingonpricebecomesincreasinglydifficult,distributionplayerscaneffectively
differentiatethemselvesisbybuildingareputationforquickandefficientservicingof
Providingquickandefficientcustomerservice
customercomplaints(whichisanotherimportantconsiderationthatpeoplehavewhen
decidingwhichservicetogofor)
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Regulatory Wishlist
Withregardtosupportfromthegovernment,someoftheimportantregulations
thattheindustryislookingatare:
Foreign Investment
• EnhancementinFDIlimitsincaseofcablenetworkandDTHto74percent
inordertobringthematparwithcompetingtechnologiesinIPTV(inview
oftheconvergenceofbroadcastingandcommunicationtechnologies)
Double Whammy
• DTHplayersaresubjectedtobothservicetaxandentertainmenttax.There
isademandforremovalofsuchdoubletaxation
Income-tax provisions
• Rectificationoftheanomaly/disconnectbetweenthedownlinkingpolicy
andthetaxprovisionsregardingconclusionofcontractsorholdingof
marketing/distributionrightsbytheIndianCompanyanditsconsequential
taxability.
• Clarificationsregardingcategorizationofsatellitepayments(whetherroyalty
ornot)topreventlitigation.
Filmed Entertainment
Theyear2008wasalearningyearfortheindustrywiththesectorreelingunder
thetwinimpactoflowersuccessratioascomparedtolastyearaswellasfacing
toughcompetitionfromsportingeventssuchasIPL.Theongoingliquiditycrunch
hasalsoaffectedthemoviemakingbusinessandhassloweddownthefunding
toproducersandcorporates.Consequentlythenumberoffilmreleasesis
expectedtoreduceinthenearfuture.Eventhoughinrecenttimes,smallbudget
movieshavedisplayedanupsidepotential,yettheoverallprofitabilityoffilmshas
beenadverselyimpacted.
Tosummarizeandreiteratethechallengesforthesector:
• Piracy –ThisistrulythebaneoftheIndianfilmindustry.Itisestimatedthatas
muchasINR20001 croresislostduetopiracyannually.Filmsaresometimes
releasedinthepiratedmarketnosoonerthan12hoursaftertheofficialrelease
foraslittleasINR20.Iftheindustrycancombatpiracythenthepotential
revenueupsideforthesectorcouldbesignificant
1IndustryInputs
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• Content –Filmmakingisacreativebusinessandtheprimarydriverforagood
filmisitscontent.Theindustryneedstocomeupwithgoodqualityand
originalcontentwhichappealstotheaudience
• Infrastructure –Theindustryisgrapplingwithinadequatefacilitiesintermsof
numberofshootingfloorsavailable,dubbingstudios,equipment,exhibition
centers,thisiscompoundedbythefactthattheburgeoningTelevisionindustry
isalsocompetingforthesamefiniteresources.Theneedofthehouristo
establishadditionalstateoftheartstudiofacilitieswhichcanserveasaone
stopshopforallthepreandpostproductionactivities.
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• Competition-Thereisincreasingcompetitionfortheaudiencewalletand
mindsharefromsourceslikeIPL,onlinegaming,formula1etc.Itisbecoming
increasingharderforfilmstobreakthroughtheclutterandemergeasthe
winnerinthisbattle.
Thesechallengesalsounderscorethatgoingforwardtheindustryislikelytobe
drivenbyoriginalcontent,technologicaladvancesandagilityinrespondingto
changingcustomerpreferences.Stakeholdersacrossthevaluechainmayneedto
takefurtheractiontounleashthetruegrowthpotentialinthesector.
Atanindustrylevel,thefollowinginitiativesarelikelytohelpinunlockingvalue
forthesector:
• Improveconsumerconnectbyinvestinginnewformatsandcontent
• MorewidespreaddistributionofHomeVideo,e.g.atgrocerystoresetc.,to
facilitateeasyaccess
• Takecoordinatedandproactiveactiontotacklepiracy
• Promoteandexperimentwithnewtalents
• Improveorganizationalabilitytoattractandretaintalent
Atanindividuallevel,playersneedtofocusondevelopingnewcapabilitiesand
reinforcetheirstrongareas.Companiesneedtofocusonmaximizingtheir
revenuefromalternaterevenuestreams.WiththeVideoonDemandserviceson
bothDTHandIPTVexpectedtopickupinfuture,playersneedtobuildupa
stronganddiversecontentlibrarytocapitalizeoncontentdemandaswellas
mitigatetheirrisks.
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FilmedEntertainmentSector:KeyActionStepsforIndustryPlayers
Filmmakersmayhavetofocusoninnovativecontentandoriginalscreenplaystohelp
ensurehigheroccupancyratesinthetheaters.Visualenhancementsandpresenceofbig
starscanneverbesubstitutesforgoodcontent.Tohelpensurehigheroccupancyratesin
Focusondevelopinginnovativestorylinesand theaters,productionhousesmayneedtokeepenrichingthecontentforviewers.
content Segregatingcontentdevelopmentandaligningitwiththedifferentsections,i.e.
urban/ruralaudiences,age-wisebifurcation,etc.arelikelytobeessential.Companiesmay
alsoneedtoinvestinsignificantadvancementsinaudiencemeasurementtechnologyin
ordertocaptureandanalyzeconsumerpreferencesanddevelopcontentaccordingly.
Consumerstodayneedbetterstories,superactingperformancesandwishtowatchan
overallentertainingmovieirrespectiveofthesubjectmatter.Moreover,withtherapid
expansionofmultiplexesinthecountry,thereisacontinuingneedforgoodmoviesto
fulfillthevarietyappetiteoftheviewers.Intheabsenceofanysureshotformulaforbox
Createadiverselibrarytobalancereturns
officehits,playersneedtofocusoncreatingadiversecontentlibrary,comprisingdifferent
subjectsandconsistingajudiciousblendofbig,mediumandsmallbudgetmovies.
Besideshelpingensureasteadysupplyofcontent,thiscouldalsohelpingettingbalanced
returnsandderiskthebusinessmodel.Librarycontentvaluationisalsolikelytogainin
significanceforhelpingensuresteadyfuturecashflowsfromdiverserevenuestreams.
ItmaybeimportantforIndianproducerstotie-upwithagentswhohavetheright
relationshipswithmajordistributorsalongwithanunderstandingofdifferentmarketsand
theatricalrevenuestreams.Similaralliancesandamorefocusedapproachtodistribution
Focusonenhancingcollectionsfrom
andmarketingofDVDs,VCDs,etc.mayalsoberequiredtotapthepotentialofthe
OverseasMarkets
overseashomevideosegment.Amorecomprehensiveandconcerteddistributioneffortis
expectedtobethekeytoincreasingtherevenuepotentialofIndianfilmsfrom
internationalaudiences.
WiththespurtinthenumberofTelevisionchannels,thereisanincreaseindemandfor
moviecontent.Playerscantakeadvantageofthissituationandenterintoinnovative
arrangementswiththechannels.Insteadofsaleofsatelliterightsforaspecificperiod,
MaximizeReturnsfromtheSatelliteMarket
companiescanenterintorevenuearrangementsbasedonnumberofscreeningswith
satellitechannels.Thiswaytheplayersneednotgettiedupforaspecificnumberofyears
andalsocanselltheserightstomultiplenumberofchannels.
Playersneedtoimprovetheiroperationaleffectivenesstohelpensurestrictadherenceto
timeandcostcommitments.Productionhousesmayhavetodeploytightercontrolsand
EnsureEffectiveTimeandCostControls
insistontimeboundscriptsandprovideadequateprovisionsforcontingenciestoenable
timelyreleaseofmoviesandpreventcostescalation.
Todaywiththetheatricalwindowsbeinggreatlycompresseditisimperativetopackage
onesproductinnovativelythatcouldgettheaudienceintothetheatersintheopening
FocusonInnovativemarketingandpackaging
weekitselfandsustainitselfpostthatwithwordofmouthandsecondrungof
ofcontent
promotionalactivity.Intoday’sageofclutter,itisasimportanttopackageandpresent
yourproductcleverlyasmuchasfocusingontherightcontent.
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Regulatory Wishlist
Thesectorislikelytoreceiveastrongimpetusifthefollowingstepsaretakenby
thegovernmenttocorrecttheexistinganomalies:
• GreateruniformityinentertainmenttaxandVATregimesacrossStates
• Relaxconstraintsonpricing,numberofshowsetc.inSouthIndia
• Setupaseparatebody/association/regulatorforIPRrelatedjurisdictionthatis
empoweredtotacklecopyrightinfringementsandIPRviolationcases
• ReviewoftheIndianCinematographAct,1952
• Stringentenforcementofantipiracylaws.
Print Media
PrintMediaiswitnessingincreasingproliferationofthenicheandspecialty
genres,aswellasaggressivemarketexpansionintheregionalspace.Asaresult
ofthecompetition,thecoverprices,andconsequentlythecirculationrevenues
arecomingdown.Atthesametime,risingcostofnewsprintisincreasingthe
costofoperationsforprintcompanies.Insuchascenario,advertisingrevenues
arefurthergaininginsignificancefortheprintcompanies.
Owingtothedynamicandcompetitiveenvironment,thesectorisfacingcertain
challenges:
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ThesearechallengingtimesforPrintMedia.Totacklethesechallengesaswellas
providegrowthimpetus,industryaswellasthegovernmentneedstotake
certainactionsteps.
Industrycantakethefollowingconcertedstepstounlockthegrowthpotentialof
thesector:
• Investinqualityimprovements,especiallyinregionalmediatoattract
advertisers
• Collectivenegotiationsandbulkpurchaseofnewsprint
• Constituteforumstoencourageandpromoteregularreadinghabitsamong
youth
• Adoptinginnovativepracticesliketradingmediaspaceinpublicationplatforms
inreturnforequity
• Improveorganizationalabilitytoattractandretaintalent
Attheplayerlevel,thereisaneedtoconsolidateonesrespectivepositionintheir
respectivemarkets,aswellasincreasetheirnicheandspecialtyofferings.Strong
investmentsneedtobemadeinqualityimprovementstoattractmoreadvertisers,
aswellbuildconsumerloyalty.Companiesalsoneedtomonetizetheirnews
contentoveralternatemediaplatformstoscaleuptheirpresence.
2“IndianPrintMediaIndustry”,SystematixInstitutionalResearch,May2008
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PrintMediaSector:KeyActionStepsforIndustryPlayers
Therearelimitednumbersofprintvendorsineachcity,enjoyingmonopoliesovera
particulararea.Withcompetitionheatingupandgrowthinthenumberofnewspapersand
StrengthenDistributionAvenues magazinesavailable,thereisaneedtoretainandmanagethesevendorseffectively.Hence
companiesmayneedtofocusonbuildingvendorloyaltiesinordertoreachtheend
consumerseffectively.
Withthesmallertownsgrowingintermsofpercapitaincomeandconsumerspends,and
advertisersopeningtheireyestothecostadvantagethatregionaldailiesoffervis-à-vistheir
EnhancePresenceinRegionalMarkets Englishcounterparts’,playershavetofocusonenhancingtheirpresenceintheregional
marketstomaintaintheirgrowthmomentum.Inorganicgrowthislikelytobemorecost
effectivevis-à-visorganicgrowth.
Playersmayhavetofocusoneffectiveconsumersegmentationanddefinetheirtarget
groupssothattheyareabletocustomizetheirofferingsaccordingtotheirtarget
segments.Indianconsumershavebecomequitediscerningintheirchoices,andtheaxiom
Focusonnicheandspecialtyproductofferings
“OneSizeFitsAll”isnolongervalidfortheIndianMediamarket.Playershavetooffer
differentproductstocapturedifferenttargetsegments,andnicheandspecialtyproducts
couldfurthergrowinsignificance.
Similartotheirglobalcounterparts,IndianPrintMediaPlayersarefacingabigthreatfrom
TVandInternetinthelongrun;thesetwomediaareeatingintotheshareofnews
distributionfortheprintplayers.Hence,playersmayneedtorealignthemselvesacross
Exploitalternatedistributionplatformsto
newsdistributionmedia-TV,InternetandRadio-ratherthanbeingstandalonepublishers.
monetizecontentandde-riskthebusiness
Mostofthelargerplayershavealreadytakentheleadinthisaspect.Further,playersalso
model
needtotrytomonetizetheironlineversionsbyprovidingdifferentiatedcontentand
focusingonclassifiedsectionssuchasproperties,jobsandmatrimonies.Developmentof
internetverticalscanalsohelpinsulateplayersfromthegrowingchallengeoftheinternet.
Toattractadvertisers,playershavetofocusonimprovingtheirproductquality.Thiscould
bedonebyenhancingbyhavingmorecoloredpages,increasingtheproportionofcolored
Investinqualityimprovements advertisementsandinnovativeformatlayout.Perunitrevenuesfromcolorinsertsaremore
thanthoseofblackandwhite.Hencethesequalityimprovementscouldautomaticallylead
toimprovedbottomlines.
Atpresent,e-versionsofnewspapersandmagazinesareprimarilyacostcenterforprint
mediacompanies,withveryfewmonetizingthem.Playershavetoprovidedistinctandup
MonetizeElectronicVersions
todatecontentfortheironlineversionsandthenfindavenuesformonetizingthesame,
especiallythedisplayadssectionlikejobportals,matrimonials,classifiedsetc.
Globallynewsprintcostsareescalatingatarapidpace,andIndianprintmediaplayers
sourcearound55percentoftheirdemandsfromimports3.ThereforeIndianplayersare
ManageNewsprintCosts
alsogettingaffectedbytherisingprices.Playershavetofocusonmanagingthesecosts
effectively,byinventorystockpilingandenteringintolongtermcontracts.
3“IndianPrintMediaIndustry”,SystematixInstitutionalResearch,May2008
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Regulatory Wishlist
ThegovernmentcanalsofacilitatethegrowthofPrintMediainthesechallenging
timesbytakingthefollowingactionsteps:
• Reducingthecustomdutiesfornewsprintwhichcanhelptheplayersin
controllingtheircosts
• EnsureuniformtaxratesforIndianandforeignplayerswhichcanprovidea
levelplayingfieldintheindustry.
Radio
AfterthePhase2reformsandtherationalizationofthelicensefee,thePrivateFM
sectorinIndiahasbeenonarapidgrowthmodewiththenumberofPrivateFM
stationincreasingfromjust21attheendof2005to205byMarch,2008.Asthere
isverylittledifferentiationincontentbetweenthestations,thishasledto
continuousfragmentationoflistenersespeciallyinthemetros.Withthegrantof
Phase3licensesexpectedsoon,thecompetitionmayincreasefurtheranditmay
becomenecessaryfortheplayerstodifferentiatethemselvestobuildabrand
identityandgetloyallisteners.Atthesametime,itmayalsobeimportantforthe
sectortoaggressivelytargetlocaladvertisers,whichcurrentlymakeuponlyabout
afourthoftheradioadvertisingpie.
Tosummarize,themainchallengesforthesectorarelikelytobe:
Tomanagethesechallenges,whilecapitalizingonopportunities,stakeholders
acrossthevaluechainmayneedtotakefurtheractiontounleashthetruegrowth
potentialinthesector.
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Atanindustrylevel,someimportantinitiativesthatcanhelpinunlockinggrowth
are:
• Nationalimplementationandacceptanceofthelistenershipmeasurement
mechanism–thereisaneedforgreaterconsensusonnatureandsystemof
measurement
• Initiativesforongoingmessagingtotheadvertisingcommunityonthe
effectivenessofthemediumbyradioindustryforums
• Developingconsensusonamutuallyacceptablemethodofdeterminingradio
musicroyaltiesalongwithmusiccompanies
Ataplayerlevel,companiesmayneedtofocusondifferentiatingthecontenton
theirradiostations.Theyalsoneedtotargetlocaladvertisersandincrease
awarenessoftheeffectivenessofradioasalocaladvertisementmedium.
KeyActionStepsforIndustryPlayers
WiththecrowdingofFMchannelsespeciallyinmetros,retainingloyallistenersislikelyto
becomeincreasingdifficultfortheradiostationsifallofthemareofferingthesamegenre
Differentiationinmusiccontent
ofmusic–newBollywoodhits.FocusinginsteadonothergenreslikeretroBollywoodor
Englishmusiccouldhelpensuredifferentiation
Apartfrommusiccontent,theotheroptionforradiostationstodifferentiatethemselves
couldbethroughotherprogrammingsuchaschatshows,comedyshowsetc.Insuch
Differentiationinnon-musiccontent programming,howgoodorbadtheRJiscanmakealotofdifference;thereforeretaining
andattractingthebestRJtalentmaybeofgreatimportanceinacompetitive
environment.
Withlocaladvertisementaccountingforonly25percentshareoftheradioadvertisement
pie,againstashighas75percentinU.S.,regionaladvertisingstillremainsalarge
Targetlocaladvertisers untappedpotentialinIndia.Thewholeindustryneedstotakestepstosellthemediumto
localadvertisersandeducatethemaboutthecost-effectivenessofradioforlocal
advertisementcampaigns.
Brandbuildingtoensuregreaterlistenerstickinessisallthemorecriticalinthecurrent
Brandbuilding
scenariowithlimitedcontentdifferentiation
Assessingpotentialofalternaterevenuestreamssuchasactivationsandinternetradio
Exploringalternaterevenuestreams
mayalsobeimportanttoaugmentthestandardadvertisingrevenues.
“Radio, however, is severely underserved and in fact requires more release of supply of
radio frequencies rather than consolidation. Similarly, Internet will become big in the
next 2/3 years on the back of 3G/Wimax and Broadband initiatives and enterpreneurial
innovations.”
Rajesh Sawhney, President, Reliance Entertainment Pvt. Ltd.
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Regulatory Wishlist
Theindustryislookingatthegovernmentforregulatorysupportinsome
importantareas:
• ForeignInvestment:RaisingFDIlimitabovethecurrentlevelof20percentto
bringinmoreforeigninvestment
• RoyaltiespaidtoMusicCompanies:Rationalizationofmusicroyaltieswitha
variablefeesystem
• PermissiontobroadcastNewsandcurrentaffairsprogrammes
• Networkingbetweenplayers:Allowingofnetworkingbetweenlicenseesfor
sharingcontent,resourcesetc.
• GovernmentAdvertising:Mandatoryshareingovernmentadvertisingtothe
sector
• Removalofcaponnumberofchannelsacrossthecountry:Relaxationofcap
ontotalnumberofchannelsthatcanbeheldbyaplayerinthecountry
• Allowingofmultiplelicenseswithinacity:Thiscouldallowradiocompaniesto
experimentwithdifferentgenreforradiostationsapartfromhitfilmmusic
• Raisingloans:ConsideringloansextendedtotheRadiosectoras“priority
lending”
Music
Withrampantpiracyeatingawayhalfoftherevenuesandresultingindismally
lowgrowthrate,theIndianMusicIndustryhasbeengoingthroughhardtimes
liketherestoftheworld.Howevertheincreasingrevenuefromthemobileand
onlinesalesaswellasradioroyaltiesisnowshowingpotentialtooffsetthe
decliningphysicalunitsalesandpushtheindustrytowardshighergrowthrates.
Mobilemusicmaybethemostimportantcategoryherewithhighcellphone
penetrationlevelsinIndia.Piracyisexpectedtocontinuetobethebiggest
menacetotheindustryandplayerscouldgettogethertotackleitmore
aggressively.
Tosummarizeandreiterate,themainchallengesforthesectorarelikelytobe:
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challenge.
Tomanagethesechallenges,whilecapitalizingonopportunities,stakeholders
acrossthevaluechainneedtotakefurtheractiontounleashthetruegrowth
potentialinthesector.
Atanindustrylevel,someimportantinitiativesthatcanhelpinunlockinggrowth
are:
• ProvidingassistancetotheInternetServiceProvidersinidentifying the
websites allowing download of illegal music content andblocking
access
Ataplayerlevel,companiesneedtofocusonmonetizationoftheirlibrarieson
newmediaplatforms–mobileandinternet.Formobilemusic,theycouldconsider
gettingin“bundling”dealswithhandsetmanufactures.Aggressivelypursuing
legislationagainstcopyrightinfringementmayalsobecriticaltoreducelosses
occurringduetopiracy.
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MusicSector:KeyActionStepsforIndustryPlayers
WiththecontinuingdeclineofcassetteandaudioCDsales,therevenuefromnew
distributionmedia–i.e.mobileandinternetislikelytobecomeincreasingimportantfor
musiccompanies.Inmobilemusic,itisimportantforthemusiccompaniestonegotiate
Maximizingmonetizationofmusiclibraries forbetterrevenuesharingtermswithmobileserviceproviders.Formonetizingmusicon
acrossnewmedia theinternet,musiccompaniesneedtoprovidecomplete‘entertainmentpackages’to
attractconsumersandrollouttheirownvideoandmusic-streamingservices,alongwith
othervalueaddedserviceslikeartistinterviews,liveperformancesand‘behind-the-
scenes’footagedirectlytoconsumers.
Withthepopularityofmusicphonesinthecountry,playersneedtotieupwithhandset
makerstoprovidemusicsubscriptionservicesforalimitedperiodandtapthisconsumer
segment.Thecostofprovidingsuchservicescanbebundledwiththehandsetprices.This
Exploringavenuesfor‘bundling’ofmusic
ideacanbeextendedbeyondhandsets.“Free”musiccanalsobebundledwithmobile-
subscriptionswithotherdevices
phonecontracts,broadbandservice,music-players,PCsorevencars.Firmsthatprovide
thesethingsmaybepreparedtochipintowardsthecostofthemusicserviceinreturnfor
customerloyalty.
ProactivelegislationliketherecentinstancesofT-SeriessuingYahooandYoutubefor
copyrightviolationscanalsogoalongwayincurbingonlinepiracy.Ifsuchlegislative
Takingproactivemeasuresagainstpiracy
actionsaresystematicallypursuedbytheindustryplayers,itcouldactasastrong
deterrenttoonlinepiracy.
Regulatory Wishlist
Supportfromthegovernmentandlawenforcementagenciesislikelytobe
criticalforthemusicindustryinthecomingyearsasitcontinuestograpplewith
piracy.Thecurrentstateoflawenforcementagainstindividualsindulginginmusic
piracyremainspoor.Jointteamsofmusicindustryforumsandthepoliceto
conductraidscanprovetobeaneffectivewaytocontrolpiracybuttheseteams
needtobedeployedonamuchlargerscale,haveadequatemanpowerandbe
spreadthroughoutthecountrytohavemeasurableimpact.
Themusicindustryisinastateofparadigmshift,reinventingitsbusinessmodel,
enteringintomorepartneringinresponsetodramatictransformationintheway
themusicisbeingconsumedanddistributed.Musiccompaniesmaynotbe
buildinganeconomicfuturebasednotjustonsellingmusicbuton“monetizing”
consumeraccesstoit.“Musicforfree”isthemyththattheindustryneedsto
driveacampaignagainstwiththecooperationofthegovernmentandinternet
serviceproviders.
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Outdoor
Overthepasttwoyears,thesectorhasbenefitedfromtheincreasein
consumptionpowerofIndiancustomers.Asconsumptionincreases,new
productsarebeingmadeavailabletonewmarketsanditbecomesessentialfor
marketerstobuildbrandawareness.Otherdemographicchangeslikewomen
enteringtheworkforcehavealsoledtocreationofnewproductsandservices
suchasreadytoeatproducts,onlinepaymentservicesetc.Thesenewproducts
andservicesneedawarenessbuilding.Buildingawarenesshasbeenatraditional
strengthoftheOOHmedium.
However,likeitscounterpartsfromotherM&Esectors,OOHmediumfaces
certaininherentchallenges.Someofthemostnotablechallengesare:
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potentialofOOH.
Thesechallengesalsorepresentapotentialforconsolidationintheindustry.As
playerschangetheirbusinessmodels,andgoforintegrationacrosstheirvalue
chaintoprovideendtoendservices,thesectorcouldwitnessmoreacquisitions
andexitofsmallerplayers.BiggerplayersmayexpandfromCitytoStateand
hencebecomestronger,thusleadingtoamoreorganizedsectorinthemediumto
longrun.
Tocapitalizeonfavorabletrendsandopportunities,stakeholdersacrossthevalue
chainneedtotakefurtheractiontounleashthetruegrowthpotentialinthe
sector.
Atanindustrywidelevel,thefollowingstepsneedtobejointlytaken:
• Improvegovernancestandardsandmovetowardsgreater
professionalization
• Improveconsumerconnectbyprovidingendtoendintegratedservices
• Investincreativeinnovationsforthismedium,bothintermsoftechnological
formatsaswellascommunicationmediums
• Exploreconsolidationoptionsbyexpandingacrossthevaluechain
• Promotethedevelopmentofauniformscientificmeasurementsystemfor
thismedium
• Improveorganizationalabilitytoattractandretaintalent
Inparticular,playersneedtoinvestindevelopingcertaincapabilitiesthatcould
providegrowthimpetusatanindividuallevel.Itisbecominganimperativefor
playerstooptimizetheiradvertisinginventoryacrossvariousformatsaswellas
expandtheirpresenceinsmallertowns.Investmentsinbuildingdigitalcapabilities
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KeyActionStepsforIndustryPlayers
ThetraditionalbillboardssegmentisunderpressureinurbancenterswithChennaialready
banningthemandspeculationsaboutBangaloreandDelhiplacingfurthercurbs.Further
thissegmentishighlyfragmentedwithalargenumberofunorganizedplayersoperatingin
Optimizemixofadvertisinginventoryacross
thesesegments.Ontheotherhand,streetfurniture&transitsegmentsaregrowing
varioussegments
rapidlyonaccountofthegrowthintransport,retail,mallsandrealestate.Therefore,
playersneedtofocusonmaintainingajudiciousblendofinventoryacrossthese
segments.
Withsmallertownsemergingasimportantgrowthsectorsandincreasedspendson
infrastructuraldevelopmentsinthesetowns,expansiontothesethroughfocused
ExpandPresenceinsmallertowns
investmentshavetobethethrustareaforplayers.Playersshouldlayemphasison
providinglocalizedservices.
Rapidonsetoforganizedretailandtheconsequentexpansioninmallsandmultiplexes
implytheneedtoengagecustomersthroughinteractivemediums.Tocapitalizeonthe
same,playersneedtofocusonassetdeploymentofscreensusingdigitaltechnology.
Investinbuildingdigitalcapabilities
Further,thistypeofinteractivemediacallsforcontentthatisdistinctfromthetraditional
outdoormedia.Hencecompanieshavetoconcentrateonbuildingcapabilitiestoof
creatingseparateadsanddesigningdifferentcreativesforthedigitalandambientmedia.
Withcompaniesincreasinglylookingforonestopdestinationforreceivingendtoend
services,playershavetoinvestinprovidingintegratedservices,includingcontentdesign
Expandpresenceacrossthevaluechainto
anddevelopmentandmediaintegration.Smalleroutdoorcompaniestooneedtoenter
provideendtoendservices
intotie-upswithcreativedesigningagenciesandotherplayerstoenhancetheirvalue
chainandofferacompletetheirportfolioofservices
WithrapidtechnologicaladvancementsandonsetofpublictransportsystemlikeMetro
Developnewcapabilitiestocapitalizeon
Rail,MassRailTransportsystemetc.,thereisaneedtoenhancethecreativecapabilities
infrastructuredevelopmentinpublictransport
andkindofoutdoormediatotakeadvantageofthishugeopportunity.Playersneedto
system
investincapabilitybuildingtotakeadvantageofthesame.
WiththeadventofsportingleagueslikeIPL,sportsandeventsingeneralarelikelyto
havealargeoutdoorcomponentandthereislikelytobeconvergencebetweenevent
Buildscaleandtakeadvantageof
managementandoutdoor.Givensuchascenario,largescaleoutdoorcompaniesmay
convergencebetweeneventmanagement
ventureintoeventmanagementandvice-versa.Further,thereisapossibilityof
andoutdoor
acquisitionsandconsolidationintheindustry,andplayersneedtobewellpreparedforthe
same.
couldalsogivegoodreturnsinthelongrun.
Regulatory Wishlist
Supportfromthegovernmentiscriticalforthisrapidlyevolvingsectorinthe
comingyears.Inparticular,governmentcanpropelthegrowthofthesectorby
takingthefollowingactionsteps:
• Clarityinregulatoryframeworkgiventhethrustforinfrastructure
development
• Dialoguewithindustryplayersbeforeframingguidelinesonthesector,as
againstunilateraldecisionslikebanonhoardingsacrosscities
• Provideinvestmentandoperationalincentives
• Appointingaunifiedregulatorforthesector
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Drivenbygrowthintheglobalmarketforanimationcontentandthecompelling
businesscaseforoutsourcing,theIndiananimationsectorhasbeenonarapid
growthmodeoverthelastfewyears.WiththesuccessofrecentIndiananimated
filmsandtheincreaseinthenumberofchildren’schannels,animationcontent
demandinthedomesticmarketisgrowingtoo.Weexpecttheindustrytogrowat
aCAGRofapproximately18percent,overthenextfiveyears,toreachINR39
billionby2013,asmostoftheunderlyinggrowthdriversremainstrong.
InordertomakeIndianAnimationandVFXindustrygloballycompetitiveand
churningoutproductsfordomesticaswellasglobalaudience,theindustrywill
needtomanagethefollowingkeychallenges
Tomanagethesechallenges,whilecapitalizingonopportunities,stakeholders
acrossthevaluechainwillneedtotakefurtheractiontounleashthetruegrowth
potentialinthesector.
6FICCI
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Atanindustrylevel,someimportantinitiativescanhelpinunlockinggrowth
wouldbe:
• Indiancompaniescreatinginternationalpresencethroughacquisitions/joint
ventures/strategictieupswillprovideaccesstothefrontendandtransferring
backendproductiontoIndia.
• Whilecapitalisanimportantelementforcompaniesincreasedfocuson
creativitythroughimplementationofprocesses,systemsandtechnology
managementwillholdthekeytodevelopmentofthisindustry.
• Withanincreasingfocustocutbackonproductioncosts,Hollywood
companiessuchasPixar,DisneyetcwouldbeattractedtotheIndian
animationandVFXmarket.Forexample,atypicalproductionbudgetof
approximatelyUSD150millionintheUScouldbereducedinlowcost
countriessuchasIndiatoapproximatelyUSD30million.8
• EducationinitiativessuchasthegrowthofanimationandVFXeducation
instituteswillsupplythisindustrywiththerequiredtalentpooltocreateIPof
internationalrepute.
Onaplayerlevel,companieswillneedtoinvestinincreasingthescaleandscope
oftheiractivitiesandaimatcreatingglobalanimationproperties.
KeyActionStepsforIndustryPlayers
AworldclassanimationfilmcanhaveaproductionandmarketingbudgetofoverUSD100
million,9 andtherevenuesnecessarytorecoverthiscostcanonlybeearnedthroughamixof
domesticandinternationalmarkets.Therefore,tobecometrulyglobal,theindustrywillneedto
buildnotonlythecreativecapabilitiestodevelopanimationpropertiesandstoryconcepts
Produceanimationpropertieswitha whichhaveauniversalappeal,butalsothemarketingskillsandrelationshipstopre-selltheir
universal,globalappeal filmsininternationalmarketsandthefinancialmuscletotakeaprojectfrompilotto
completion.Aggressivelytargetingco-productiondealswithinternationalstudioscouldbeone
waytobuildvaluableIP;focusingonlow-costfilmswithlocalstorylinesandcharacterscould
beanother.Further,internationalacquisitionscouldhelpIndianplayersrapidlyenhancetheir
skills.
ItwillbeimportantthattheanimationstudiosinIndiaincreasethescaleandscopeofactivities
thattheycanhandle.Someprogresshasbeenmadeinthisregardinthepastfewyears,and
severalIndianplayersarerecognizedinternationallyforworldclassinfrastructureandhigh
Increasescaleandprofitability qualitytalent.Inordertosupportthismoveupthevaluechain,Indiananimationstudioswould
needtoextendtheircapabilitiesfromtelevisiontofilmcontent,andtostrengthentheir
presenceinpre-productionactivitiessuchasstoryboardingandcharactermodeling,andpost-
productionactivitiessuchasvisualeffectsandcompositing.
Intheshortterm,outsourcedworkcontinuestobetheprimaryrevenuestreamofthe
industry.KeyneighbouringcountriesandcompetingoutsourcinghubssuchasSingapore,
PhilippinesandChinabenefitfromhighqualityinfrastructureandstronggovernmentsupport,
Continuetoattractoutsourcedwork
andthusplayersmustworkhardtomaintaintheircostadvantagewithoutcompromisingon
quality.AnimationandVFXstudiosneedtodeveloptheirowntoolsandprocessestoincrease
theefficiencyofaccomplishingrepetitivetaskswhilemaintainingquality.
Tobuildastrongtalentpoolrequiresdevelopingeducationalinfrastructurekeepinginmindthe
Investtobuildastrongtalentpool projecteddemandforanimators.Thus,toensureagoodtalentpoolinbothquantityand
quality,theindustryplayerswillhavetoinvestinimprovingtheeducationinfrastructure.
8KPMGEstimates
9KPMGEstimates
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215
Regulatory Wishlist
Theindustryislookingatthegovernmentforregulatorysupportinsome
importantareas:
• Taxholiday:AnimationindustryiscoveredundertheSoftwareTechnology
ParksofIndia(STPI)society,setupbyMinistryofCommunication&
Information.STPIholdsgoodsforan‘outsourcing’businessandmost
animationstudiosthataregettingbenefitedfromSTPIhavetoensurean
exportcommitmentofmorethan85percent.AsaresultmanyIndian
animationstudioswantingtoproduceoriginalcontent-basedIPanduseart
andtalentfromIndiatoproduceanimationstoriesforIndia,donotgetany
suchbenefits.TheclassificationisunviablesinceIndiangovt.throughthisSTPI
routeisactuallysubsidizingtheproductioncostoftheforeignshowsinstead
ofcontentcreationforIndiancompanies.Thisisleadingtomore&more
studiosworkingonforeigncontentandisleadingtoaseverelackofanimated
Indianstoriesindomestictelevisionschedules.
• ServiceTaxrelaxation:Originalcontentstudiosdevelopinglocalcontentshould
besubjecttoamuchlowerlevelofthe12.36percentlevyofservicetaxto
enablegrowthduringtheintialphase.
• Entertainmenttax:TheentertainmenttaxinIndiavariesfrom21percenttoa
highof125percentacrossvariousStatesofIndiawiththeaveragerateoftax
being60percent.10 Highincidenceoftaxationaddstothecostofoperations
foryounganimationcompanies.Hence,theIndiananimationindustryshould
notbeclassifiedinthesameleagueastheliveactionfilmcategorythathas
alreadyachievedindustrystatus.
• GovernmentAdvertising:Mandatoryshareingovernmentadvertisingtothe
sector
• Implementationofacaponairingcontentonnetworksacrossthecountry:
Implementationofacaponnumberofhoursoflicensedcontentthatcanbe
airedbyanetworkasagainstfreshprogramminginthecountry
• Raisingloans:ConsideringloansextendedtotheAnimationandVFXsectoras
‘prioritylending’
10FICCI
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216
Gaming
Videogameshavebeenapopularpastimesincethe1970s.Therewasatime
whentheglobalgamingmarketwasdominatedbytheubiquitousPCgames.But
withtheadventofneweroptionssuchasmobile,console,andonlinegames,the
gamingmarketanditsdynamicshaveundergoneamajorchangetheworldover.
PCgamingisnomoretheleaderintheworldwidegamingsegment.Mobile
gaming,withrevenuesofUSD4.5billion11 in2008,hasbecomethefastest-
growingsegmentbecauseofitsrisingpopularityamongstgamersandtheadvent
ofdevicessuchasthe2ndgenerationiPodTouchandtheiPhone,whichgreatly
improveonthemobilegamingexperience.
Tosummarize,goingforward,themainchallengesforthesectorwouldbe:
Tomanagethesechallenges,whilecapitalizingonopportunities,stakeholders
acrossthevaluechainwillneedtotakefurtheractiontounleashthetruegrowth
potentialinthesector.
Atanindustrylevel,someimportantinitiativescanhelpinunlockinggrowth
wouldbe:
• Developingaconsensusonandimplementinganationwideantipiracy
campaignjointlywithlawenforcementagencies(forconductingraids)and
Internetserviceproviders(forblockingaccesstoillegalonlinegame
downloads)
• Pushingthegovernmenttowardsloweringofduties–suchascustomduties,
andindirecttaxessuchasVATthateatintogamescompaniesmargins.
• Publishingdedicatedgamingpublications,organizinggamingevents,contests
etc.cangoalongwayhelpincreatingmoreawarenessandattractingnew
consumerstothegamingworld.
11FICCI
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217
Ataplayerlevel,companieswillneedtofocusondifferentiatingthecontenton
theirradiostations.Theywillalsoneedtotargetlocaladvertisersandincrease
awarenessoftheeffectivenessofradioasalocaladvertisementmedium.
KeyActionStepsforIndustryPlayers
CommunitiesdoexistinIndiabuttheyhavenotassumedscalesimilartothewesternworld.
InIndia,communitiesareextensionsofagroupoffriendsorfamilymembers.Theonline
Developingnetworksaroundgames communityformatwheregamerswithsimilarinterestsfromdifferentgeographiescome
togetherisstillatanascentstageinIndia.Activelydevelopingsuchcommunities,willhelpthe
gamingcompaniesretainloyalgamers.
Brandbuildingthroughsustainedadvertisingwillbeimportanttoensuregreatergamer
Brandbuilding
stickiness
Exploitingthepotentialofalternaterevenuestreamssuchasin-gameadvertisingand
Exploringalternaterevenuestreams
advergameswillalsobeimportanttoaugmentrevenues
Regulatory Wishlist
Theindustryislookingatthegovernmentforregulatorysupportinsome
importantareas:
• Recognitionofindustrystatusforthegamingindustry
• Relaxationofcustomsdutiesandindirecttaxregime
• Governmentassistancetoclampdownonrampantpiracyinthisindustry
• Consideringloansextendedtothegamingsectoras‘prioritylending’
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
Wewouldliketothankallthosewhohavecontributedandsharedtheirvaluabledomaininsightsinhelpingusputthis
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