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Intheinterval...

Butreadyfor
thenextact
FICCI-KPMGMedia&EntertainmentIndustryReport
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 the 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 the 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.

Yash Chopra Kunal Dasgupta


Chairman Co-Chairman
FICCI Entertainment Committee FICCI Entertainment Committee
“Our greatest glory is not in never falling but in rising every time we fall.”
- Confucius

The advent of the 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 into 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.

Russell Parera Rajesh Jain


Chief Executive Officer Head - Information, Communications &
KPMG in India Entertainment
KPMG in India

1 IMF, Cushman and Wakefield Report 2009


Table of Contents

1. Indian M&E Industry: The Growth Story 01

2. Sector Snapshots 19

3. Narrowcasting 53

4. Regionalization 81

5. Digitization 101

6. Regulatory & Tax Environment 123

7. Internationalization 137

8. Deal Activity and Investment Trends 159

9. Changing Landscape in Audit for M&E 169

10. Internal Processes of M&E Companies 175

11. Way Forward: Sector wise key action steps 193


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
4

• Select market expansion giventhetrendsin


Size and Growth of the Industry
regionalization,overseasmarketsanddigitalmedia
TheIndianM&EindustrystoodatINR584billionin2008,a
• Greateraccountability,throughdemonstrationof
growthof12.4percentoverthepreviousyear.Overthe
effectivenessofmediaproperties
nextfiveyears,theindustryisprojectedtogrowataCAGR
• EstablishstandardsforCorporate governance and
of12.5percenttoreachthesizeofINR1052billionby2013.
movetowardsgreaterprofessionalization

• Differentiation of brand throughcreationofstrong


SizeoftheIndianM&EIndustry
positioning,asrequiredincompetitivetimes

• Forkeyplayers,marketgrowththroughconsolidation,is
increasinglyanoptionunderconsideration,toensure
developmentofstrategicportfolioswithmultimedia
capabilitiesandsynergiesandfinally…

• Producingsalient contentasalways,remainskey!

M&E Industry CAGR % CAGR %


2005 2006 2007 2008 2009 P 2010 P 2011 P 2012 P 2013 P
(INR billion) (2006-08) (2009-13)

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.
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
6

Socio Economic Environment = Demographics + Economic


India’sdemographiccompositionensuresthatitcontinuestoremainanattractive
marketforvariousproductsandservices.ThehigheconomicgrowththatIndia
hasbeenwitnessinginthepastfewyearshasresultedinatransitioned
demographywithincreaseddisposableincomes.India’sincreasingGDPand
consequentriseinincomelevelsacrossurban,semi-urbanandruralhouseholds,
isleadingtoanincreaseinpopulationofconsumingclassinIndia.

ChangingStructureofIncomeGroupsinIndia

Source:MarketingWhitebook2008

However,theglobaleconomicrecessionhasaffectedtheIndianeconomytoo,
withtheGDPgrowthrateexpectedtofallinnearfuture.

PercentagegrowthinIndia’sGDP

Source:WorldEconomicOutlookUpdate,IMF,January2009

Evenattheserates,India’sgrowthrateisstillestimatedtobehigheras
comparedtootherregionsoftheworld.

GDPGrowthForecastforSelectedCountries
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%

WorldOutput 5.2% 3.4% 0.5% 3.0%


Source:WorldEconomicOutlookUpdate,IMF,January2009
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
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
9

TheadspendtoGDPratioforIndia,hasalsothereforeshownaslowbutdistinct
growthtrendinthepastfewyears.

AdspendsaspercentageofGDP

Source:CreditSuisse,KPMGAnalysis

TheseimportantmacroeconomicindicatorshavedriventhegrowthoftheM&E
industryinIndiainrecenttimes.ItisbelievedthatthefundamentalsoftheIndian
economyremainstrong,andtherecenteffectsoftheglobaleconomicdownturn
arelikelytohaveashorttermimpactinIndia.Inthelongrun,theIndian
economyisexpectedtogrowsteadily,leadingtocontinuousriseinthe
disposableincomeofthecountry.

Narrowcasting=Entertainment ‘niche’ Style


Overthepastfewyears,themediaindustryhaswitnessedtheemergenceof
newnichecontentgenresacrosssectors–emergenceofrealitytelevision,rising
numberofnicheTVchannels,crossovercontentinmusicandfilmsaswellas
largenumberofmagazinelaunchesinthenichegenres.

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
10

Regionalization = Local content in Local Language


TherearetwoaspectstoRegionalization.Thefirstreferstoprovidingcontentin
regionallanguages.Thesecondaspectreferstocontentproviderscateringtoa
specificgeographybyprovidinglocallyrelevantcontent(Localcontentpertainsto
aconsumer’scity,districtorstateandmayormaynotbeintheformofone’s
vernacularlanguage).

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
andthedifferencebetweentheadratesiscomingdown,makingsettingupof
regionalchannelsanattractivepropositionforbroadcasters.

Internationalization = Indian Players, Global Ambitions


IndianplayersarenolongerlimitingtheirambitionswithinIndia’snational
borders.Similartotheirglobalcounterparts,whohavebeenincreasingtheirscale
byenteringtheemergingmarkets,M&EcompaniesinIndiatoohavestartedto
eyeinternationalmarketsbytargetingmediaconsumersoutsideIndia.
InternationaldemandforIndiancontenthasbeenthereforsometime,withthe
telecastofIndianTVchannelsacrosstheworld,andBollywoodreleasesgettinga
significantshareoftheirboxofficeearningsfromabroad.WiththelargeNRI
populationbaseofabout25milliontoserve,7 M&Ecompaniescontinuetohave
agoodopportunitytofurtherincreasetheirrevenuesfromoverseasmarkets.In
fact,IndiancompaniesarealsonowlookingbeyondtheNRIdiasporaand
attemptingtotargetthelocalaudienceinthesecountriesaswell.

7MinistryofExternalAffairs
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’sVirginRadioonJune
20088

• RelianceBigEntertainmentformingaJointVenturewithSteven
Spielberg’sDreamWorksstudioinSeptember2008.9

AsIndianmediacompanieslooktoexpandtheirfootprint,international
consumptionofIndianmediaisexpectedtobeanimportantgrowthdriverfor
theindustry.

8CompanyWebsite,PressReportsandReleases
9CompanyWebsite,PressReportsandReleases
12

Organized Funding = Capital + Corporatization


Earlier,theM&Eindustrywasreliantlargelyonprivateandindividualfinancingat
highinterestrates.However,overthepastfewyears,theM&Eindustryhas
witnessedincreasedinvestmentsintheformofPublicIssues,StrategicStakes
andPrivateEquityfunding.Theseinvestmentshavecomefromboththe
establishedindustrymajorsaswellasprivateequityplayers,fromtheglobalas
wellasIndianmarket.Mostoftheorganizedfundingfromtheglobalplayershas
beenconcentratedonthemediumoftelevision.

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
13

Digitization = Analog into Digital


Digitization,theprocessofconvertinganaloginformationintodigitalformats,has
transformedmanysectorsoftheglobalmediaindustry.

Television,FilmsandMusicindustrieshavebeenthemajorbeneficiariesof
digitization.Inthepastfewyears,theIndianmediaindustryhaswitnessed
adventofdigitalTVdistributionplatforms–digitalcable,DTHandIPTV,
digitizationofFilm,Printsanddigitizationofmusiclibrariesandsalesofonline
andmobilemusic

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
14

Convergence = Entertainment + Information +


Telecommunications
Convergencereferstothemodeofcreatingmultipletouchpointsfortheend
consumerbydeliveringthesamecontentviadifferentmediaplatforms.The
IndianM&Eindustryiswitnessingincreasingconvergencebetween
Entertainment,InformationandTelecommunications,fueledbythemergingof
functionalitiesofcustomerendterminaldeviceslikeTelevision,Personal
Computers,andMobilePhonestocarrysimilarkindofcontent.Convergenceis
changingthetraditionalindustrystructures,existingbusinessmodelsand
distributionmechanisms.

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.
15

Deregulation = Policy + Framework


Regulationsprovideuniformframeworkanddirectiontothemarketinorderto
guideittowardsbeingfairandefficient

InIndia,tillearly2000,mostsegmentsoftheindustryhadgrowntotheirpresent
structureandsizeinalargelyunregulatedenvironment.Suchgrowthhadresulted
inlackofconsumerchoiceandcreationoflastmilemonopolies,especiallyinthe
TVsector.Thesehardgroundrealitiesforcedthegovernmenttotakesome
positivestepsontheregulatoryfrontwhichprovidedanewwaveofgrowthfor
theIndianM&Eindustry.

Some Regulatory Actions that spurred industry growth

• AppointmentoftheTelecomRegulatoryAuthorityofIndia(TRAI)in2004
asaregulatorforthetelevisionindustry(withitsscopeincreasedtocover
broadcastingandcableservices)

• IntroductionofConditionalAccessSystem(CAS)inTelevision

• GrantingIndustrystatustoIndianFilmSectorin2000andpermittingFDI
upto100percentinfilmrelatedactivities

• ProvidingEntertainmentTaxexemptionstomultiplexes

• Relaxationofforeigninvestmentnormsinprintmedia

• RolloutofPhaseIIoftheRadiolicensingpolicyin2005,withanumberof
reformsincludingamorerationallicensefeestructure

Source:TRAI,PressReleases

Theindustrycontinuestolookatthegovernmentformoreregulatoryreforms
thatmaybringinthenewwavesofgrowth.
16

Outcome: New Market Expansion


Alltheabovementionedgrowthdriversputtogetherhavetransformedthe
contoursoftheindustry.Playersareincreasinglycomingoutoftheirtraditional
domainsandestablishingtheirpresenceinnewareas.Furtherplayersfromother
sectorssuchasITandTelecomarealsoenteringtheM&Esector.Competition
andtechnologicalinnovationshaveincreased,andasaresult,theoverallM&E
marketisgrowing.

Technology and Competition are expanding the overall market

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,entryofnewplayersintheHindiGECsegmenthas
resultedinincreasingtheGrossRatingPoints(GRPs)forthesegment.Inasix
playerscenario,theHindiGECsegmentgarnered876weeklyGRPsduring
November2007.Aboutayearlater,withthreenewentrantsinthecategory,
weeklyGRPsforthemonthofOctober2008stoodat1135points-anincreaseof
30percent.16

14AnnualReports,PressReleases
15KPMGAnalysis
16SSKIResearch
17

Existing players are expanding across segments

Facedwithincreasedcompetitionfromnewentrants,businessesareenhancing
theirscaleofoperationsbyexpandingtheirfootprintsacrosssectorsand
geographies.Customerretentionisalsoanimperativeandcompaniesare
improvingupontheirproductfeatures,serviceofferingsandvaluepropositions.
Theseactivitiesarefurtherenhancingthecompetitioninthemarketplace,asa
resultofwhichanarrayofmediacontent,consumptionanddeliverychoicesare
beingpresentedtotheIndianconsumer.

AbriefsnapshotofsomeoftheNewMarketExpansionactivitiesoftheindustry
playersduringthelasttwoyearsisrepresentedbelow.Marketisdefinedbythe
geographicalspreadofaplayer,whileproductisdeterminedbytheportfolio
offeringoftheplayer.

TV 18 enters Regional News Sun TV Forays into Film Production


Broadcasting with IBN - Lokmat
TV 18 forays into Print with the acquisition of
New

UTV Motion Pictures to produce


Infomedia
Hollywood Movies

Radio City launches in Ahmednagar HT Media launches a job portal - shine.com

Times Of India enters Chennai Reliance Big Entertainment enters TV distribution


Market

Miditech to start its


TV Broadcasting channel
Dish TV offers free set up boxes to its consumers
NDTV expands into GEC segment with
Mail Today introduces its ‘First’ Supplement - Mail ‘NDTV imagine’
Today Property
Existing

TV 18 forays into GEC segment with the launch of


‘Andhra Jyoti’ becomes the first language ‘Colors’ channel
newspaper in Andhra Pradesh to go all color
Dainik Bhaskar launches its
Hindi Financial Newspaperer
Existing New
Product
Source:CompanyWebsites,PressReportsandReleases
18

Increasing power of Media Aggregators

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.
Sectorwise
Snapshots
02

Sectorwise Snapshot

InTVadvertising,thegrowthuptonow,wasdriventoa
Television significantextentbyincreasingadvertisingspendsfromfast
growingsectorssuchastelecom(Although,inthewakeof
therecenteconomicdownturn,eventhefastgrowing
TheTVindustryisoneofthelargestchunkoftheIndian sectorsarecuttingdownonadspends)
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

payDTHmarkettohavereached10millionsubscribersby PersonalHealthcare 3
endof2008.TheimplementationofCASinselectedzones HouseholdProducts 3
ofDelhi,MumbaiandKolkatafrom2007gaveanimportant Source:TAMAdEx(Datafor2008)

pushtowardsdigitizationofcable.BySeptember2008,
therewere717,722settopboxesinstalledinthemandatory Onthewhole,thetelevisionsectorisestimatedtohave

CASregionsofDelhi,Mumbai,KolkataandChennai2.Even grownataCAGRofaround13.8percentover2006-08.

inareaswhereCASisnotmandatory,theMSOshave Withinthis,advertisinghasgrownwithanestimatedCAGR

alreadybeguntodigitizetheircablenetworks.IPTV,another of16.7percentwhilesubscriptionhasgrownatan

digitaldistributionmedium,ispartofthegrowthplansof estimatedCAGRof12.4percent

mostmajorIndiantelecomsandwithcommercialIPTV Bytheendof2008,theindustryisestimatedtohave
serviceslaunchedinDelhiandMumbaiin2008,IPTVhas reachedasizeofINR241billion,agrowthof13.8percent
madeasmallbeginning. over2007.Outofthis,subscriptionisestimatedto
contributearoundINR158billiontotheindustrysize,while
advertisingrevenuesareestimatedataroundINR82billion.

1Indiastat,KPMGAnalysis
2TRAIIndianTelecomServicesPerformanceIndicators(July-Sep2008)
22

Amajorpainpointforthebroadcastersinrecenttimeshas Atthesametimedigitizationofcableislikelytopickup
beentherapidlygrowingcarriagefeemarketwhichshotup pace,independentofwhetherCASisimplementedona
fromaboutINR6billionin2007toINR12billionin2008as widerscaleornot(although,makingCASmandatoryin55
channelsincreasinglycompetedforpremiumplacements3. bigcities,ashasbeenrecommendedbyTRAI,couldfurther
However,thecarriagefeemarketisexpectedtoeither quickentheprocess).Wethinkitispossiblethatabout35
stabilizeordropfromhereon. millioncablehouseholdscouldbedigitalby2013.

Overthenextfiveyearsthegrowthislikelytobedrivenby CablehouseholdsinIndia
avarietyoffactors.Digitizationofdistributionisexpectedto
happenatarapidpaceanddigitaldistributionplatformsare
likelytodemandhigherARPUs.TheDTHsubscriberbaseis
estimatedtogrowtoaround28millionby2013,poweredby
theentryofevenmorenewplayerswhichmaymakethe
marketintenselycompetitiveandforceplayerstomarket
themselvesaggressivelyandkeepthepricepointslow.

PayDTHsubscriberbase

Source:KPMGInterviews,KPMGAnalysis

IPTVisexpectedtotakesometimetocatchonas
infrastructureisbuilttosupportitonawiderscale.Itis
estimatedtoadd4millionsubscribersby2013.

Source:KPMGInterviews,KPMGAnalysis

3KPMGResearch,KPMGInterviews
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&Spenetrationsarealsolikelytocontinuetogrowat
asteadyrate.By2013,thetotalnumberofTVowningtotalhouseholdsinIndiais
estimatedtobeabout149millionandaround85percentoftheseareestimated
tobeC&Ssubscribers.
24

DistributionofTVHouseholds

Source:KPMGAnalysis

DrivenbyrisingARPUs(fromdigitaldistribution)andincreasingC&Spenetration,
subscriptionrevenuesarelikelytogrowatahigherCAGRof14.9percentover
2009-13comparedto12.4percentover2006-08.

Ontheotherhand,duetotheslowdownintheeconomyandtheconsequentcut
downonadspendsbycompaniesacrosssectors,advertisingrevenueislikelyto
sufferespeciallyoverthenext2fiscals.Growthinadvertisingisestimatedtobe
lowerat13.5percentCAGRin2009-13comparedto16.7percentin2006-08.

Onthewhole,thetelevisionindustryisprojectedtogrowattherateof14.5
percentover2009-13andreachasizeofINR473billionby2013.

“I believe there is a tremendous apportunity to provide the Indian TV viewers


ground breaking services high fibre capacity coupled with minimal investment.
The Indian customer is going to use fibre for a lot of different things, fibre and STB
is going to make that possible.”
J S Kohli, Managing Director & CEO, Digicable Networks Pvt. Ltd.
25

SizeofIndianTelevisionIndustry

TV Industry CAGR CAGR


2005 2006 2007 2008 2009p 2010p 2011p 2012p 2013p
(INR billion) (2006-08) (2009-13)
Subscription
111.4 122.0 140.2 158.1 12.4% 174.5 198.5 229.1 267.4 317.1 14.9%
Revenues
Advertisement
51.9 60.5 71.1 82.5 16.7% 88.2 97.1 112.6 131.7 155.5 13.5%
Revenues
TotalIndustry
163.3 182.5 211.3 240.5 13.8% 262.7 295.6 341.7 399.1 472.6 14.5%
Size

Source:GroupM,KPMGInterviews,KPMGAnalysis

PuttingThingsinPerspective

TelevisionSector:GrowthDrivers TelevisionSector:Challenges

• Rapidgrowthinthenumberofdigitizedhouseholds • Underdeclarationofsubscribersbycableoperators
• SteadyincreaseinARPUsrealizedthroughdigital resultinginlargesubscriptionrevenuelossesforthe
distributionplatforms broadcasters
• Growthinthenumberofchannels,especiallyinniche • LowergrowthinTVadvertisingduetotheeconomy
andregionalcategories slowdownandtheconsequentcutinadspends
• GrowthinthenumberofTVandC&Shouseholds • DelayinimplementationofmandatoryCASinotherparts
ofthecountry,inhibitingthegrowthofdigitalcable
• IncreasingcontentcostsforTVchannels,asthe
broadcastingspacegetsovercrowded
• IntensecompetitionandinabilityofDTHcompaniesto
increaseARPUsthusaffectingtheirbottomlines
• ShiftofadvertisngsharefrommajorsectorslikeTVand
Printtowardsalternatefastgrowingsectorslikeradio
andinternet
26

Filmed Entertainment

FilmedEntertainmentisthemostpervasiveandvisiblesegmentwithinthe
industrysinceitistheprimarycontentsourceforMusicandRadiobesidesbeing
amajorcontributortotheTVsegment.Henceitsimpactisnotrestrictedtoone
sectoralone.

India’sFilmindustryisoneofthelargestintheworldwithmorethan1000movie
releasesandover3billionmoviegoersannually.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,AnimationandSpecialEffectshavegainedinsignificanceinrecent
“Besides competitive pricing, times,whilesmallbudgetmovieshavebeendoingwellinthemarket.With
a key driver for unlocking the MoserBaerenteringthemarket,DVDsandVCDshavebecomeaffordableand
potential of home video HomeVideohascometostay.Hencethedomestictheatricallifecycleofmovies
business, and tackling piracy hasgonedown,whileduetoeverexpandingbudgetsandincreasingmarket
head on, will be the further spends,thebreakevenpointofmovieshasincreased.
compression of release
windows”
Harish Dayani, CEO -
Entertainment Division, Moser
Baer

4SSKIReportonIndiaMediaandEntertainmentIndustry,2007
27

Size and Growth


ThefilmedentertainmentsectorisestimatedtohavegrownataCAGRof17.7
percentoverthepast3years.TheindustryisestimatedtoreachINR109.9billion
insizein2008,agrowthof13.4percentover2007.Theperformancewasmainly
drivenbyincreasedrealizationsfromthehomevideomarketaswellCableand
Satelliterights(C&S),whichhavebeenestimatedtogrowby23percentand15
percentrespectivelyoverthepastyear5.C&Sacquisitioncostswitnesseda
declineinthesecondhalfof2008,atrendwhichisexpectedtocontinueinthe
nextyear.Intermsofnumberofhitfilms,2008wasnotasgoodas2007with
manyofthebigreleasesfailingattheboxofficeandIPLmatchesaffectingthe
occupancylevelsatcinemahalls.Amarkedimprovementwaswitnessedinthe
lastquarterof2008,withbigticketreleasesleadingtoincreasedfootfallsand
occupancyratesincinemahalls.Consequently,thedomesticboxoffice
collectionshavebeenestimatedtogrowby12percenttoreachINR80.2billion
in2008.6

TheindustryisprojectedtogrowattheCAGRof9.1percentoverthenext5
years,andreachthesizeofINR168.6billionby2013.Itisestimatedthatthe
growthrateoftheindustrymayremainflatinthenextyearowingtolessnumber
ofreleases,lesseroccupancyratesandlesserrealizationsfromC&Srightsand
ancillaryrevenuestreams.

SizeofIndianFilmIndustry

Source:KPMGAnalysis

5KPMGAnalysis
6KPMGAnalysis
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&
Satelliterightscouldcontinuetoremainanimportantrevenuestream,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.
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,piracyisanINR20billionmarket,anditsshareofthetotal
homevideomarketisonlyincreasing.7 Industryplayersandthegovernment
needtocometogetherforstrongerenforcementofantipiracylaws.Ifpiracyis
controlled,therevenueearningpotentialofthesectorissignificantlyhigher.

“With an extremely tight liquidity market, and given the fact that the
multiplexing 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
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,playerswerecompelledtoundertakemultipleadrate
hikesduringthefirsthalfof2008,whichononehandimprovedperunit
realizationsfromadvertising,butontheotherhandmadethemediaanexpensive
propositionformostadvertisers.

Thesectorwitnessedalotofactionin2008,especiallyinthefirsthalf,withthe
spurtinthenumberofspecialtymagazines,launchofnichenewspaper
supplements,aswellasaggressiveportfolioandgeographicexpansionby
differentcompanies,bothinthenationalandregionalspace.Boththe
newspapersandmagazineplayersalsodisplayedincreasingtendencyto

8IndianReadershipSurvey
31

aggressivelycompetewitheachothertoreachtheirtargetaudience.More
newspaperplayershavestartedtointroducenichesupplementstocounterthe
onslaughtofspecialtymagazinelaunches.Thesedevelopmentsbenefitedboth
theconsumers,duetoincreasedavailabilityofchoicesandbetterproductquality,
aswellastheadvertisersduetobetterchancesofreachingthetargetaudience.

Withareadershipbaseofover250million,Indiaisthesecondlargestprint
marketintheworld9.However,thismarketisstillunderpenetratedforacountry
withapopulationinexcessof1,200millionandhighlyfragmentedwithover
60,000newspapersprintedin22languages10.Thelowpenetrationoftheprint
marketprovidesasignificantgrowthopportunitywith359millionwhocanread
andunderstandanylanguagebutdonotreadanypublication11.Withan85
percentreachintheurbanmarkets(SECAandB)andanabysmal33percent
reachinruralmarkets(SECC,DandE),webelievethatamajorgrowth
opportunityliesinthevernacularmarkets.

TheIndianPrintMediaindustryisestimatedtohavegrownby7.6percentin
2008andreachingaroundINR172.6billioninsize.Thecorrespondingsizewas
INR160.4billionin2007.Theperformanceofthesectorwasaffectedbythe
recenteconomicslowdown,whichhasaffectedadvertisingindustry.Advertising
revenuesisestimatedtohaveincreasedby812 percentoverthepreviousyearto
reachINR108.36billionin2008.Thesectorhasbeenadverselyaffectedbythe
economicmeltdown,andtheadvertisingrategrowthhasbeenlowerthanTVdue
tohigherexposuretorealestate,auto,andtravel,andlowerFMCGcontribution.
Further,enhancedcompetitionhasalsoledtofallinaveragecoverpriceswhich
havecounteredtheriseincirculationvolumesfortheplayers.Circulation
revenueshaveonlyrisenby7.4percentovertheyeartoreachINR64.3billion.
ThesectoristhusestimatedtohavegrownbyaCAGRof13.8percentoverthe
pastthreeyears,agrowthratewhichisstillhigherascomparedtothesingle
digitsgrowthwitnessedinothernations.

TheindustryisprojectedtogrowataCAGRof9percentoverthenextfiveyears
andreacharoundINR266billioninsizeby2013.

9MRUC
10RegistrarofNewspapersofIndia
11IndiaReadershipSurvey
12GroupM
32

ProjectedSizeofIndianPrintMediaIndustry

Source:GroupM,KPMGInterviews,KPMGAnalysis

Advertisingwillincreaseitsdominanceastheprimaryrevenuesourceofthe
industryandisexpectedtoconstitutearound66percentoftherevenues.
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 percentoverthenextfiveyearsandisprojectedtoreachINR245.4billionby
Retail 5 2013.Themagazinepublishingsegmentisexpectedtogrowatacompounded
annualrateof8.1percentoverthenextfiveyears,andisprojectedtoreachINR
Durables 4
20.5billioninsizein2013.
PersonalAccessories 3

Corporate/BrandImage 3

PersonalHealthcare 3

Media 2

Source:Indiantelevision
33

PrintMediabreak-upbySegments

Print Industry CAGR CAGR


2005 2006 2007 2008 2009p 2010p 2011p 2012p 2013p
(INR billion) (2006-08) (2009-13)

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.Second,withtelevisionfragmentation,print
advertising’scostadvantagehasbeenmarginalized;existingprintplayerswanting
tosurvivethismarketneedtomoveawayfromasinglemediummodeltoamulti
mediummodel.Magazineplayersneedtofocusonarrestingthedeclining
readershiplevels.

PuttingThingsinPerspective...

Print Media Sector: Growth Drivers Print Media Sector: Key Challenges

• Sustainedgrowthinadvertisementrevenuesdueto • Increasedcompetitionfromnewschannelaswellas
increasedadvertisingspendsbytheemergingsectors newmedialikeinternetandmobile
suchasEducation,OrganizedRetailandTelecom • Adverseimpactonadvertisingrevenuesduetoa
• Improvingliteracylevelsinthecountry prolongedeconomicslowdown
• Optimizationofcoverpricesleadingtoimproved • Continuousriseinnewsprintcosts
penetrationandgrowthinsalesvolume • Continuingdeclineinreadershipfigures,especiallyin
• Morelaunchesinthenichesegment,likenewspaper caseofmagazines
supplementsandspecialtymagazines,byplayers
34

Radio

Radioadspendsaccountforabout4percentofthetotaladvertisingspendsin
Indiatoday,havinggrownfromjust2percentin200413.Thegrowthhasbeen
propelledbytheemergenceoftheprivateFMindustryinIndia.

Intermsofsheerreach,theIndianradioindustryhasbeendominatedbythe
stateownedAllIndiaRadio(AIR),whichcovers91percentofIndia'sareaand
reaches99percentofthepopulation14.However,theturningpointforthe
industrycamewiththePhase2privatizationreformswhenthegovernment
rationalizedthelicensingfeebyfixingitat4percentofthegrossrevenues(or10
percentoftheReserveOTEF,whicheverwashigher).This,forthefirsttime,
madethebusinessmodelviableforcompanies,andconsequentlymanylarge
corporatehousesenteredtheprivateFMbusiness.From21operationalized
privateFMstationsbeforethephase2licensing,thenumberofstationsshotup
toover205bytheMarch200815.Theindustrynowboastsofplayerssuchas
RadioMirchiandBigFMwithapan-Indiapresence.

Consequently,theradioindustryisestimatedtohavegrownatanimpressive
CAGRof19.7percentover2006-08.

ItisestimatedtohavereachedasizeofINR8.4billionbyendof2008,agrowth
rateof13.5percentoverthepreviousyear.16

Growthinthefutureislikelytocomethroughcontinuedincreaseinthenumber
ofradiostationsafterphase3licensing,furtherliberalizationofregulationsas
wellasbetterabilityoftheradiostationstoselladspace.

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
35

Introductionofanewperformancemetrictoolforthesector-RAM(Radio
AudienceMeasurement)-isalsoexpectedtoaidthegrowthinradioadvertising.
Eventhoughanotherradiolistenermeasurementtool-IndianListenershipTrack
(ILT)-alreadyexistedinthemarket,buttheadventofRAMprovidesanother
optiontobothadvertisersandradiostations.BothRAMandILTareexpectedto
aidthegrowthinradioadvertisingbymakingthemeasurementofreturnon
investmentforadvertisersmorescientificandassessable,andthusallowingradio
stationstosellthemselvesbetter.

Further,thesizeoftheradioadindustryasapercentageofthetotaladindustry
inIndiaisstillprettylowatabout4percent.17 Thisisagainstaglobalaverageof
about8percent.18 Also,theratiooflocaltonationaladvertisementsisskewedin
favorofnational,contrarytoglobaltrends,indicatingalargescopeforgrowthin
thelocaladvertisingsegment.

RatiooflocaltonationaladvertisementsonRadio

Source:Industry

AsregionalbusinessesinIndiastarttospendmoreaggressivelyonadvertisingto
buildbrandconsciousness,theyarelikelytoturntomedialikeradioandprint
whicharehighlycosteffectiveforregionaladcampaigns.

Howeveratthesametime,likeTVandPrint,radioisalsolikelytofeelthepinch
ofoverallreducedadspendsinaslowergrowingeconomy.Already,inthe
quarterendingDecember2008,advolumesonradiodeclinedby14percent
comparedtothesamequarterayearago19.

Onthewhole,theradioindustryisexpectedtogrowataCAGRof14.2percent
over2009-13(comparedto19.7percentover2006-08)andreachasizeofINR
16.3billionby2013.

17KPMGAnalysis
18KPMGIndianEntertainmentIndustry-Focus2010Report
19“SlowdownforcesFMradiostocutadratesby10-15%”,BusinessStandard,February2009
36

SizeofRadioIndustry

Radio Industry CAGR CAGR


2005 2006 2007 2008 2009p 2010p 2011p 2012p 2013p
(INR billion) (2006-08) (2009-13)
TotalIndustry
4.9 6.0 7.4 8.4 19.7% 9.2 10.3 11.9 13.9 16.3 14.2%
Size

Source:GroupM,KPMGInterviews,KPMGAnalysis

PuttingThingsinPerspective...

Radio Sector: Growth Drivers Radio Sector: Key Challenges

• Increaseinthenumberofradiostationsdue-around • Adverseimpactonrevenuesduetoapossiblyprolonged
700newlicensesexpectedtobeissuedtoPrivateFM slowdownintheeconomy
stationsinPhase3 • Overcrowdingoffmstationsespeciallyinmetrosand
• Expectedregulatoryreformsthatarelikelytoimprove inability/reluctanceofthestationstodifferentiatein
profitabilityandstimulateforeigninvestments termsofcontent
• Emergenceofrobustaudiencemeasurementtoolswhich • Stiffcompetitonfromprintforlocaladvertisements
couldfurthercatalyzegrowthinradioadspends
• Growthinlocallytargetedadvertisingonradio
37

Music

TheadventoftheMP3format,proliferationoftheinternetandpeer-to-peer
networksandthewidespreadavailabilityofportablemusicdevicescreateda
paradigmshiftinthewayusersaccessedandconsumeddigitalmusicworldwide.
Thesetrendsinitiallyhadacripplingeffectontheworldwidemusicindustryin
termsofthesignificantrevenueerosionresultingfromfreeaccesstodigital
music.

Theglobalmusicindustrywasinitiallyslowtorespond,butwithsupportive
legislation,strictlawenforcement,effectivetechnologypartnerships,innovative
marketingandadaptationofitsbusinessmodelinlinewithconsumptionhabits
wereabletoturntheirfortunesaround.ThechallengesfacingtheIndianmusic
industryarenotunlikethosefacedbytheirglobalcounterpartsandneedurgent
addressalbyfollowingglobalbestpracticessuitablyadaptedtofactorinthe
nuancesoftheIndianconsumermindset.

ThesizeoftheIndianmusicindustrywasestimatedataroundINR7.3billionin
2008,downfromINR8.3billionin2005,implyingadegrowthof4.8percent
duringtheperiod.Oneoftheprimaryreasonsforthisdegrowthhasbeenthe
erosionofsalesofphysicalformats,atrendwhichisexpectedtocontinuewell
intothefuture.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.
38

TheIndiandigitalmusicmarketisestimatedatINR1.8billionin2008.Digital
musicdistributionismainlyrestrictedtoIndia’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
increasefromINR386millionin2008toINR921millionin2013ataCAGRof19
percent.Anewgenreofmusicbasedtelevisionrealityshowsarelikelytodrive
growthinthissegmentgoingforward.

ThepublicperformancesegmentwithrevenuesofINR173millionin2008is
expectedtomorethandoubletoreachINR378millionby2013.Thisgrowthis
likelytobedrivenbyimprovementinliveeventinfrastructure,increasingpublic
awarenessofcopyrightandintellectualpropertylaws,corporatisationofthe
retailandrealestatesegmentsandgreateractiononthepartoflawenforcement
agencies(withsupportfromindustryplayers)toensurecompliance.

Overall,theindustryisexpectedtogrowatamodestCAGRof8.0percent
between2008and2013toreachINR10.7billionby2013.

In2008,totalmusicsalesintheUnitedStatesacrossallformatsregistereda
10.5percentannualgrowthtohitanalltimehighofUSD1.5billion22,compared
to2002whentheindustrywasdegrowingat10percent23.MuchliketheirUS
counterparts,Indianmusiccompaniesneedtoadapttothechangingbusiness
environmentbroughtaboutbytechnologicaladvancesandchangingconsumer
patternstoreplicatethistrend.

20Frost&Sullivan
21IFPIDigitalMusicReport2009
22 NielsenSoundscan
23 IFPI
39

SizeofIndianMusicIndustry

Source:KPMGAnalysis

Music Industry (INR CAGR CAGR


2005 2006 2007 2008 2009p 2010p 2011p 2012p 2013p
billion) (2006-08) (2009-13)
Physical 7.25 6.34 5.55 4.86 -12.5% 4.37 3.93 3.54 3.19 2.87 -10.0%

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...

Music Sector: Growth Drivers over the next 5 years Music Sector: Risk Factors over the next 5 years

• Increaseindigitalsales,onthebackofincreasingmobile • Inabilityofthemusiccompaniestonegotiatebetter
andbroadbandpenetration;shiftfrompolyphonicring revenuesharetermswithmobileoperators
tonestotruetonesandfulltrackdownloads • Sortingoutissuesrelatedtolicencingofrightswith
• Introductionofsubscriptionbasedmodelfor broadcatingandradiocompanies
downloadingandstreamingofmusic • Sustainedrevenueleakagesthroughdigitalpiracywith
• Growthinparralleleconomy–companiesareworking increasinginternetandbroadbandpenetrationsinIndia,
collectlivelywithvendorsforside-loadingofmusicin in
cafesandkiosksoronchips/memorycards/handsets • Failureofadoptionofapaidonlinemusicdownload
andotherpointsofconsumption modelgiventhepresenceofinternetbasedfreeillegal
• Reducedrevenueleakagesduetopiracy,through songdownloadalternatives
proactivelegislativeandenforcementactionbylaw • Inabilitytoregularisetheparalleleconomyoflow-cost
enforcementagenciesandmusiccompanies sideloadingalternativesforportablemusicdevices
• Differentiatingonprice,contentandvolumeonaperunit throughinnovativemarketingandpricing
basisvis-à-visthepiratedunit • Publicawarenessandenforcementoflawsagainst
• Developmentofregionalmusiccatalogsbymusic copyrightinfrigementandviolationofintellectualproperty
companies rights.
40

Outdoor

OutdoorMedia,alsoreferredtoasoutofhome(OOH)media,referstoalltypes
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,Taxicabs,BusInteriors,etc.

• AlternativeMediums,whichcoverotheradvertisinginotherplacessuchas
RestAreaPanels,StadiumandArenadisplays,VendingCartUmbrellas,etc.

Globally,theOOHsectorhasoutperformedtheoveralladvertisingindustryand
accountsforaround5.6percentoftheoveralladspend.24 HoweverinIndia,the
growthofIndianOOHsectorhasbeentraditionallyhamperedbytheunorganized
andfragmentednatureofthesector.

Howeverwiththerecentthrustoninfrastructuredevelopmentinthecountryover
thepasttwo-threeyears,OOHisacquiringscaleandemergingfromthemargins
ofadvertising.Thegovernmentisinvestingheavilyininfrastructureprojectsand
seekingprivateparticipation.CitydevelopmentinIndiaisridingonthebackof
advertisingsupportfromOOHmediacompanies.Localgovernmentsand
municipalbodieshavediscoveredvalueinmakingoutdoorcompaniesinvestin
basicinfrastructuredevelopmentinlieuofmediarightstothoseproperties,a
standardpracticeinmuchofEuropeandU.S.Thisisfuelingthegrowthofthe
sector,asaresultofwhichitisincreasinglyattractingorganizedinvestments,
bothfromthenationalandregionalplayers.Further,thesectorisbecomingfar
moreorganizedandhasseensignificantchangeswithemergenceofnew
segmentssuchasairports,ambientmedia,digitalmediumsetc.

24ZenithOptimediaReport,2008
41

OOHmediahasgrownataCAGRof17.3percentoverthepast3years,andis
estimatedtohavereachedINR16billioninsizein2008,agrowthof15percent
over200725.Thesector’sperformancewasaffectedinthesecondhalfofthe
yearowingtotheoveralleconomicslowdown.Itisprojectedtogrowata
compoundedrateof12.8percentoverthenext5yearsandreachasizeof
aroundINR29.3billionby2013.

ProjectedSizeofIndianOutdoorIndustry

OOH Industry CAGR CAGR


2005 2006 2007 2008 2009p 2010p 2011p 2012p 2013p
(INR billion) (2006-08) (2009-13)

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,industryplayersmayfocus
moreonthesetownsinfuture.OOHadvertisingislikelytogrowatafasterrate
inthesesmallercitiesandtowns,owingtothecosteffectivenessofthesetowns
intermsofoutdooradvertising.Also,withlocalauthoritiesandmunicipal
corporationsbeginningtoframeguidelinestoregulatethesector,OOHis
expectedtogetmoreorganizedoveraperiodoftime.

Currently,thegrowthismainlyTier1towns,withmetrosaccountingformore
thanhalfofthetotalOOHmarket.Sectorsspendingthemostonthismedium
includeTelecom,Media&EntertainmentandFinancialServicescompanies26.

25KPMGAnalysis
26IndustryInputs
42

CitiesthatcontributethemosttoOOHAdvertising

Source:GroupM,KPMGAnalysis

Withincreaseinconsumerspendsandintensifiedinfrastructuraldevelopment
activitiesinTier2andTier3towns,penetrationinthesesmallercitiesislikelyto
drivethegrowthofOOHinthefuture.Withretaildevelopmentandconsumer
boom,AmbientMediaisalsoexpectedtogaininsignificance.Further,thesector
isexpectedtowitnessincreasingverticalsegmentationinfuture,asplayers
movetowardsowningIPRfortheirOOHcreatives.

TheIndianOOHsectorhasbeentraditionallydominatedbybillboards,which
currentlyaccountsforaround60percentoftotaladvertisingspendsinthe
sector27.ThissegmentisunderpressureinurbancenterswithChennaialready
banningthemandspeculationaboutBangalore&Delhiplacingfurthercurbs.The
battleforbillboardsissettoshifttosmallercities.Theshareofbillboardsis
expectedtoreducegoingforwardastheyincreasinglybecomemoreregulated.
HoweveritisstillgoingtoremainthelargestsegmentwithinOOH.

OOHSegmentSharein2008

Source:IndustryInputs,KPMGAnalysis

27KPMGInterviews,KPMGAnalysis
43

Oneofthebiggestchallengesthatthesectorfacestodayisthelackofacentral
regulatorygoverningOOHmedia.Rulesandregulationsvaryfromstatetostate,
whichinhibitsstandardizationsacrosslocationsandleadstounregulatedgrowth.
Lackofastandardscientificmetrictogaugetheresultseffectivenessofthe
mediumisanotherbottleneck.Inthisregard,theinitiativebytheMRUCof
conductinganIndianOutdoorSurveyacrossthetop10citiesinIndia28 canseta
goodprecedentandisexpectedtobenefitthesectorasawhole.Furtherthe
ongoingliquiditycrunchhasforcedmanyrealestatedeveloperstogoslowon
constructionactivities,thusaffectingthesupplyofretailspace29.Thisislikelyto
affectthespreadofambientmedia.

PuttingThingsinPerspective...

Outdoor Media Sector: Growth Drivers Outdoor Media Sector: Key Challenges

• Enhancedlevelsofinfrastructuredevelopmentactivities • Lackofacentralauthoritytoregulatethesector
inthecountry,especiallyintier2andtier3cities • Lackofascientificmetrictomeasuretheeffectiveness
• Audiencefragmentationintraditionalmedia ofthemedium
• HigherspendingonOOHfromsectorssuchasTelecom • Fastchangingregulatoryframework-Incasethereare
andMediaandEntertainment moreinterventionstobanBillboardsinothercitiesas
well,theperformancecouldbeadverselyaffected
• Slowdowninconstructiondevelopmentandreductionin
expansionplansofmalls

“For OOH, the opportunity for unprecedented growth is


now – when the entire user base is desperately seeking
cost efficiencies without sacrificing reach or impact or
innovativeness”
Alok Jalan, Managing Director, Laqshya Media

28MRUCWebsite,KPMGInterviews,PressReleases
29EconomicTimes,“DLFstallsafourthofitsprojectstosavecosts”,February2009
44

Animation and VFX

AtanestimatedsizeofINR17.4billionin2008,theIndiananimationindustryis
minisculeascomparedtotheglobalanimationindustrywithestimatedrevenues
inexcessofINR153030 billionby2010.However,theIndiananimationindustry
hasbeengrowingrapidlywithanestimatedCAGRof20.1percent31 in2006-08.
ItisestimatedtoreachasizeofaboutINR39billionby2013.

SizeofIndianAnimationIndustry

Animation Industry CAGR CAGR


2005 2006 2007 2008 2009p 2010p 2011p 2012p 2013p
(INR billion) (2006-08) (2009-13)

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.

“This is an industry still in its nascent stage but with huge


potential so any person with commitment will reap huge benefits”
Seemha Ramanath, Managing Director, Crest Animation Studios Ltd.

30AnimationExpress.com
31KPMGEstimates
45

SizeofIndianAnimationIndustry

Source:KPMGAnalysis,KPMGInterviews

Increasedoutsourcingfromoverseascountriesduetoaninherentcost
advantage,maturityofinternationalanimationstudios,emphasisonIPcreation
andattractivedomesticopportunityhavebeentheprincipalgrowthdriversforthis
industry.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,PerceptPictureCompanyandpureplayanimationplayerssuchas
Crest,DQEntertainmentandmediaconglomerateslikeDisney,MGM,
Paramountindicatedtheirintenttoexploitthismarketthroughlocallyproduced
content.Hence,productcreationasapercentageshareoftheanimationindustry
isslatedtoincrease.

In2008,postproductioncompaniesalsogrewatasteadyratebutwitnessed
significantcompetitionfromcountriessuchasSouthKorea,Taiwan,Philippines
andChina.Tomitigatethreatsfromotherlowcostcountriesandmaintain
internationalqualityandstandardsleadingIndiancompaniesdecidedtoacquire
frontendoperationseitherthroughacquisitionsorstrategictieups.Forexample,
PixionacquiredtwoLondonstudios,Men-from-MarsandMolinareforan
undisclosedamount33.

32KPMGEstimates
33Animationexpress
46

Growth Drivers

1. Building Brand India

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.
CostofproducingafulllengthanimatedmovieintheUSisUSD100-125million
ascomparedtoUSD25-30millionfromoutsourcingtoIndia.35

3. Established Indian Animation Industry

Oneofthedriversforthegrowthoftheindustryisthatithasalreadyinplacefor
thepast20years.Withmorethantwodecadesinexistence,localanimators
haveacquiredinternationalprocessesandsystems,qualitycontrolmethodsand
technologicalinfrastructuretobuildintellectualpropertycomparableto
internationalbenchmarks.

4. Changing viewership habits

Increasingdisposableincomesanddemographicchangeshasresultedinabreak
awayfromappointmentviewingtouserdefinedviewing.Theleaderofthehouse
nolongercontrolstheremotecontrol.Householdshavegraduatedto2-3
televisionsetswithviewingsegmentedoneachtelevisionsetbygenre.

34KPMGEstimates
35KPMGEstimates
47

Challenges

1. Categorized as a service industry

OneofthemajorchallengesoftheIndiananimationindustryisthefragmentation
ofanimationcompaniesspreadacrossthevaluechain.Mostofthesmalland
mediumIndiancompaniesaresatisfiedwithoutsourcedservices.Hence,the
collectivecapacityoftheIndustryhasbeencategorizedasaserviceindustryand
notasaproductindustry.

2. Infrastructure Investment

WithitsAsiancompetitorsmakingsignificantinvestmentstodeveloptheir
animationsectors,theIndiananimationindustryshouldbeabletoattractlocalas
wellasforeigninvestorsinordertoboostinfrastructuredevelopment.Many
smallandmediumcompaniesareunabletoattractinstitutionalfundingorbank
lendingduetothenatureoftheanimationindustrywhereprojectsstretchfor
longerdurations.

3. Developing Talent Pool

Theindustryalsofacesthechallengeofinvestingmoretoimproveitslocaltalent
andmeettheneedsoftheanimationindustryformoreskilledworkers.Despite
thelargenumberavailablegraduatestoworkintheindustry,thenumberof
skilledanimatorsisstilllow.Considerableinvestmentintimeandresourcesare
neededinordertohonetheskillsofnewanimators.Thisdilemmaislargely
attributedtolackoftraininginrelevantanimationskill-setsofgraduatesand
entry–levelemployees.
48

Gaming

Thegamingindustrycanbedividedinto3separatesegments–MobileGaming,
ConsoleGamingandPC&OnlineGaming.

Mobile Gaming
TheIndianmobilegamingsegment,estimatedatINR1.4billionin2008interms
ofenduserrevenueshasnotliveduptothepotential.Enamoredbyitspotential,
anumberofplayershadenteredthemarketin2003-04.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
49

mobilecontent,sinceonlyhigh-endevolveduserscouldactuallyactivateand
subscribetorichmediacontentontheirmobilephones.

• Consumer Education: Giventherateofmonthlysubscriberadditions(average


ofaround9.4millionpermonth37 in2008),telecomoperatorsarepresently
morefocusedoncustomeracquisitionthanmarketingofon-deckcontent.
Lackofsuchmarketinginitiativesbythetelecomoperatorimpliesthateven
userswithdataactivehandsetsoftengetexcludedfromtheaddressable
marketsincetheyarenotawareoftheexistenceofon-deckdatacontent.

Console Gaming
Consolegamingisthelargestmoneychurnerintheglobalmarketandisgaining
prominenceinIndiatoo.In2008,theIndianconsolegamingsegmentregistered
totalrevenuesofINR4.1billionwhichisexpectedtogouptoINR9.4billionin
2013onthebackoffavorabledemographics,risingurbandisposableincomesand
newgenerationconsolespenetratingtheIndianmarket.Organizedmarketing,
whichwasmissingsomeyearsago,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 milliontelecomsubscribersinIndiain2013,mobilegamingisexpectedto
beasignificantcompetitortotheconsolegamingmarketinIndia.

37TRAI
38KPMGEstimates
50

PC and Online Gaming


PCgameshavebeenaroundforaverylongtimetoo.Inthe1980s,thehighcost
ofconsolegameswasbeyondthereachoftheaverageIndianhouseholds.The
purchaseofthecomputerbyahouseholdmeantthatthefatherwoulduseitto
typeofficialdocumentswithteenagersandyoungadultspopularizinggames
suchasQuake,PrinceofPersia,Doom,Wolfenstein3D,etc.Today,thePC
gamingmarkethasgrowntoINR978.6millionandexpectedtogrowataCAGR
ofover36percentthrough2013.TheprimarygrowthdriversforPCgamesin
Indiaarethegrowingbroadbandsubscriberbase,multifunctionalnatureofPCs
andavailabilityandpricepointsofPCgametitles.

Withover6539 millionPCsthepenetrationrateisincreasingat20percentper
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
51

Onlineadvertisingthoughgrowingisbeingslowlyacceptedbyadvertisersin
India.Ingameplacementsandgamesfocusedonadvertiserproductsaretoo
earlyforthismarketandadvertisershavenotbeenabletomonetizethisfeature.
Advertisersarerelyingonbanneradvertisementsalonebuttheycannotbe
deployedduringgameplaysincetheywouldinterferewiththegaming
experience.

CommunitiesdoexistinIndiabuttheyhavenotassumedscalesimilartothe
westernworld.InIndia,communitiesareextensionsofagroupoffriendsor
familymembers.Theonlinecommunityformatwheregamerswithsimilar
interestsfromdifferentgeographiescometogetherisstillatanascentstageand
willtake3-4yearstodevelop.

Overall Market Size


TheoverallgamingmarketinIndiaisestimatedatINR6.5billionin2008andis
expectedtogrowoverfour-foldtoreachINR27.4billionin2013ataCAGRofover
33percent.TheIndiangamingmarket,thoughgrowingatahealthyrate,is
dwarfedbythesizeofthegamingmarketindevelopedcountriessuchastheUS
whichstandsatUSD37billion40 in2008.Factorssuchasayoungpopulation,
risingdisposableincomes,increasingPCandwirelessusersareattracting
domesticandinternationalgamingcompanies,developers,publisherstothis
market.

SizeoftheIndianGamingIndustry

Source:KPMGAnalysis,KPMGInterviews

40NPDGroupviawww.itfacts.biz
52

Gaming Industry CAGR CAGR


2005 2006 2007 2008 2009p 2010p 2011p 2012p 2013p
(INR billion) (2006-08) (2009-13)

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...

Gaming Sector: Growth Drivers Gaming Sector: Key Challenges

Mobile gaming Mobile Gaming


• Increasingtelecombaseandarrivalof3G:Indiatelecom • Skewedrevenuesharingagreementswithmobile
baseisexpectedtogrowfrom347millionsubscribersin operators:Becauseofthedirectbillingrelationshipwith
2008to815millionsubscribersin2013ataCAGRof19 theenduser,operatorsinIndiatypicallyget60-70
percent41.Theexpectedrolloutof3Gserviceswill percentoftherevenuesforVASwhilecontentcreators
provideefficient,highspeeddatanetworkstomobile getonly15-20percent.
gamers Console Gaming
• DecreasingvoiceARPUs:GiventhedecliningARPUs • Highcustomsdutiesandindirecttaxes:Thesemake
fromvoiceservices,mobilevalueaddedserviceswill legitimateconsolehardwareandsoftwareabout40
assumeincreasingsignificanceasadditionalrevenue percentmoreexpensivethangreymarketimports.
sourcestooffsetthisdecline.
• Releasewindowsforpopulargamesdonotcoincidewith
Console gaming globallaunches:Earlyadoptersandactivegamers
• DemographicsandRisingIncomes:Indiaisayoung thereforeturntogreymarketimportsandpirated
countrywithtwothirdsofitspeopleagedunder35(the software
primarytargetsegment).Thiscoupledwiththerising PC Gaming
disposableincomesinurbanIndiaandtheincreasing
• Piracy:Piracyisandwillcontinuetoremainthebiggest
consumerismmakesagoodcaseforgrowthinthe
threatforPCgames,becauseofeaseofhighstreet
consolegamingsegmentinthenextfewyears
availabilityofillegalCDsatrockbottomprices.Moreover
PC and Online Gaming withgrowthofbroadband,downloadingofpiratedgames
• Increasingbroadbandpenetration:Thenumberof throughinternetandP2Pnetworksarelikelytohurtthe
broadbandsubscribersinIndiahasincreasedfrom0.7 industry.
millionin2004to4.942 millionbySeptember2008and
continuestogrowrapidly–thiswillhelpindrivingonline
gaming
• Strongmarketinganddistribution:Mainstream
advertisingaswellasthestrongdistributionnetworkof
gamingchainssuchasRelianceWebworldhasattracted
manyyoungpeopleinurbanareastoPCgaming–such
chainswillcontinuetodrivegrowthinthePCgaming
segmentinthefutureaswell.

41IAMAI
42IAMAI
Narrowcasting
03

Narrowcasting

abilitytobroadcastamuchlargernumberofchannels,the
Narrowcasting: Niche is in 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
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
57
2

Emerging Genres across sectors

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

TV – Growth of Niche Channels and Reality Television


TwoimportantdevelopmentshavetakenplaceinthepastfewyearsasfarasTV
contentisconcerned.Firstly,therehasbeenastronggrowthinthenumberof
channelswhichcomeundernichecategoriessuchasNews,Kids,Infotainment,
SpiritualityandLifestyle.

Twofactorshavedriventhisgrowth.Firstly,theviewershipshareofmass
entertainmentchannelshasbeenonadownwardtrend(althoughthetrendhas
beenreversedforHindiGECsin2008onaccountofthenewGECslaunched
expandingthemarketitself).

ViewershipshareofGECs

Source:TAMPeoplemeterSystem(TG:CS4+,AllIndia)
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

Genre Channels Media Company

Lifestyle NDTVGoodTimes NDTV

Business UTVi UTV

NeoSports NimbusCommunications
Sports
StarCricket Star

Kids ChuttiTV Sun

BindassMovies UTV

Movies WorldMovies UTV

NDTVLumiere NDTV

Hindinews News24 BAGFilms

EnglishNews NewsX INXMedia

Education Topper TV18

EntertainmentNews E24 BAGFilms

Source:AnnualReports,CompanyWebsite,KPMGResearch
59

Itisimportanttonotethatinabsoluteterms,GECsstillgarneramuchgreater
shareofviewershipthananyothercategoryofchannels.HavingaGECinthe
bouquetgivesthebroadcasteranumbrellabrandaroundwhichnichechannels
canbedeveloped.ThreenewHindiGECswerelaunchedbetweenNovember
2007andJuly2008–NDTVImagine,9xandColors.Thelaunchofthesechannels
hasexpandedthesizeofthemarketitselfresultingina30percentincreasein
weeklyGECGRPsinthetargetHindispeakingmarketsfromNovember2007to
October2008.Atthesametime,duetofragmentationofviewership,the
combinedabsoluteviewershipoftheolderGECshasfallenbyaround12percent
inthesameperiod2.

GrossratingpointsofGECs

Channel GRP (Nov 07) GRP (Oct 08)


StarPlus 356 271
Zee 254 194
Sony 102 113
Sahara+StarOne+Sab 164 193
NDTVImagine 74
9x 57
Colors 233
Total 876 1135
Source:exchange4media.com,SSKI2008,KPMGResearch

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
60

Intermsofgenres,mythologyandrealityshowshavebeenquitesuccessful.
AnalysisoforiginalprogrammingonGECs,throwslightonthistrend.Reality,
gameandtalentshowstakeabout14percentofthepietodaycomparedto
about5percentin20043.

OriginalprogrammingonGECs(2004) OriginalprogrammingonGECs(2008)

Source:KPMGAnalysis

3KPMGAnalysis
61

ApartfromAdrevenues,suchshowsalsoprovideotheralternaterevenue
streamstothebroadcaster.Someofthesearelistedbelow:

AlternativerevenuesourcesforRealityShows

Applications Revenue Model Current Usage

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.OfthetotalP2AmarketofaboutINR10.3billion,broadcastersget
ashareofabout25percent.ThistranslatesintoanINR2.6billionrevenue
stream,orabout3percentofthetotaladvertisementrevenuesofbroadcasters4.
ItislikelythattheP2Amarketmightkeepgrowingoverthenextfewyears,
mirroringthesteadygrowthinmobilepenetration.

MobileP2ArevenuesforBroadcasters(INRbillion)

Source:CreditSuisse2008,KPMGAnalysis

Amongthegameshowformats,manyofthebiggergameshowsinIndiahave
beenhostedbyBollywoodstarsandarebasedonglobalgameshowformats.
Worldwide,theroll-outofglobalentertainmentformatsisgettingfaster,with
broadcastersincreasinglyseekingtriedandtestedformatswithaproventrack
recordofsuccess.

4CreditSuisse,2008
62

SomeIndianTelevisionShowsbasedonGlobalFormats

Show Channel Global Format Country of Origin


KyaAapPanchviPass Areyousmarter
StarPlus U.S.
SeTezHain thanthefifthgrader

DusKaDum SET ThePowerof10 U.S.

BigBoss(Season2) Colors BigBrother Netherlands

KhatronKeKhiladi Colors FearFactor Netherlands

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
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
64

Films: Small is Big-Growing Popularity of Multiplex Movies


IntheFilmEntertainmentsector,numeroussmallbudgetmoviesarebeingmade
today,keepinginmindaspecificaudienceclassandtheirtastes.Whilethegross
realizationsofthebigbudgetfilmsaremuchmoreconsideringthehugesums
spentonmakingthem,the“non-commercial”moviesareconsideredrelatively
muchlessriskiertodaywiththepossibilityofahigherreturnoninvestments.This
haspromptedeventhelargeandestablishedproductionhousestoexperiment
withscriptsandgetintomakingsmallbudgetfilms-termedas“multiplex
movies”-tocapturetheincreasingnicheaudienceforsuchfilms.Someofthese
filmshaveturnedouttobeblockbusterrunawayhits.Forinstance,“BhejaFry”
wasasmallbudgetfilmmadebyRajatKapooratareportedcostofINR6
million9 andnetted12-13timesitsinvestmentattheboxoffice10.In2008,
“Mithya”,anothersmallbudgetfilmmadeatabudgetofINR22.5milliongrossed
morethantwicethatamount11.Towardsthelatterhalfoftheyear,smallticket
movieslike“AWednesday”and“WelcometoSajjanpur”havealldonewellat
theboxoffice.

SomeMultiplexMoviesreleasedinrecenttimes

Net Collections
Film Year of Release Status
(INR Million)

PyaarkeSideEffects 2006 130 Average

KhoslakaGhosla 2006 70.9 Average

HoneymoonTravelsPrivateLtd 2007 180 Average

BhejaFry 2007 79.3 Hit

Mithya 2008 54.9 Hit

Aamir 2008 30.2 Hit

RockOn 2008 265 Hit

AWednesday 2008 105.7 Hit

WelcometoSajjanpur 2008 104.4 AboveAverage

Source:Boxofficeindia

Theyear2008sawaspateofsmallbudgetreleases,mostofwhichhavebeen
criticallyacclaimed.Theincreaseinthenumberofsuchfilmsshowsthatsmall
budgetmovieshavecometostayinIndia.

9Indiantelevision
10Indiaboxoffice
11Indiantelevision
65

Trend of Remakes and Sequels Catching Up in Films

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.

Advance Booking- Celluloid Adaptations of Books

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

3Idiots VidhuVinodChopra FivePointSomeone ChetanBhagat

TheJapaneseWife AparnaSen TheJapaneseWife KunalBasu

Source:KPMGResearch
66

TheperformanceofthesefilmsattheBoxOfficeareexpectedtodetermine
whethermorefilmmakerscomeforwardandadaptmoreofbestsellingfiction
forcelluloiddepiction.

Growing popularity of mythology-based animation films in India

Televisionisnottheonlysectorthathasre-discoveredtheappealofmythology
fortheIndianaudience.TheIndiananimationindustrytoohasfoundmythologyto
beanattractiveproposition;ithasbankedlargelyonthetriedandtested
mythologicalgenretoventureintoend-to-endin-houseproductions.Thetable
belowlistssomeofthemythology-basedanimationmoviesproducedbyIndian
studiossince2005.

Mythology-basedanimationmoviesproducedinIndia

Movie Producer/Animation Studio Year of Release

Hanuman Silvertoons 2005

Krishna ECATS,MediaSolutions 2006

MyFriendGanesha RadiantAnimation 2007

BalGanesh ShemarooEntertainment 2007

HanumanReturns PerceptPictureCompany 2007

MyFriendGaneshaII RadiantAnimation 2008

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
67

Print-Spurt in Special Interest Magazines


Intheprintsector,eventhoughthereadershipsurveyshavereporteddeclinein
theoverallreadershipofmagazines,emergenceofspecificgenresisfuellingthe
growthtrajectoryofmagazines.Reviewofreadershipgrowthin10select
magazinegenrestakentogetherindicatethatreadershiphasgrownby28.1
percentin2006over200512.Thetablebelowsummarizesthegrowthstoryof
thenichegenres.

Magazines-ReadershipGrowthacrossselectedgenres
TotalReadership(Figuresin‘000)

Sum of Sum of
Genre % Increase
NRS 2006 NRS 2005
Auto 485 320 51.6

BusinessandFinance 2628 1926 36.4

CareerandEducation 4707 2743 71.6

FashionandLifestyle 11271 7033 60.3

GeneralInterest 59389 50271 18.1

Healthcare 1413 519 172.3

Men's 211 96 119.8

Sports 9144 5650 61.8

Travel 802 505 58.8

Women's 30637 25310 21

Total 121618 94963 28.1

Source:NRS,Exchange4Media

Industryplayersalsoseemtoagreethatthegrowthofthesectordependson
nichegenres.Accordingly,incontinuationofthepreviousyear’strend,the
magazinemarketsawahealthygrowthintheyear2008withmanynichetitles
takingoffacrossgenresandlanguages.

12 NRS,Exchange4Media
68

SomeNicheLaunchesinMagazinesin2008
Title of the
Genre Publishers/Distributors
Magazine
FashionandLifestyle TwentyOnwardsMedia TrafficLife

WorldWideMedia-MondadoriGroup Grazia
Women
DainikBhaskarGroup She

LivingMediaGroup-CondeNast
Men GQ
Publications

Auto LivingMediaGroup-AxelSpringer AutoBild

CelebrityNews OutlookGroup-Time People


Bangalore
CityCentric PremierEntertainmentandMedia
Happenings

MW.ComIndiaPvtLtd-WennerMedia; RollingStone;
Music
MediaTransasiaIndia-AlphaMediaGroup Blender

FoodandAgriculture DelhiPress Farm‘n’Food

BusinessandFinance OutlookGroup OutlookProfit

ITMagazine IDGMedia WindowsWorld

HeritageandCulture HeritageIndiaCommunications HeritageIndia

HomeandInteriors WorldWideMediaGroup-BBC BBCGoodHomes

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.
69

Radio- A Long Way to Go


PrivateFMradioinIndiacontinuestobedominatedbythemassentertainment
categoryi.e.Bollywoodandregionalmusic.Therehavebeenafew
experimentationsinrecenttimes,liketheMeowFMstationlaunchedin2007,
cateringspecificallytoafemaleaudienceandhavingalargeportionofairtime
devotedtotalkshows.Howeversuchchannelscontinuetobeexceptionsrather
thantherule.Thereasonisfairlysimple-multiplefrequenciesinthesamecity
forthesamestationareprohibited.Asaresult,radiostationsprefertotakethe
safemasssegmentrouteratherthanexperimentwithnichecontent.

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
70

Breakupofsportsmarketing
businessinIndia
Sports as an Entertainment Genre

Sportsmarketing,whichincludesbothmarketingofsportseventsandteamsas
wellasusingsportstomarketnon-sportsproducts,istodayabusinessworth
INR20billioninIndia(outofwhichcricketaloneaccountsforINR18billion)16.
Also,veryimportantly,itisgrowingatarapidpaceof20percentayear
comparedtotheglobalaveragegrowthof5percentayear17.Whiledeveloped
countrieshaveamaturesportmarketingindustry,inIndiatheindustryhasjust
Source:BrandReporter startedtotakeoff.

Media and Sports – Mutual Interdependence


ThesymbioticrelationshipbetweenMediaandSportshasproveddurable
becauseofmutualbenefitstoboth.Thesportsbusinessisbasedontheideathat
peoplearewillingtopaytowatchothersplay,andtelevisionexpandsthe
audiencevastly,fromthousandsinsidethestadiumtomillionsoutside.For
broadcasters,moreeyeballsmeanmoresubscribersandadvertisers.
Broadcastersneednotjustbroadcast,buttheycanventureouttoowntheirown
sportsproperties.Forinstance,EsselGroup(ZeeNetwork),startedtheprivate
cricketleagueICL,andownstheproperty.

Themarriagebetweensportandbroadcasters,thoughlongandsuccessful,has
beenchanginginanumberofways.First,thefragmentationofaudiencesamong
hundredsofchannelshasgiventhemostpopularsportsenormousbargaining
power.Sportsareoneofthefewthingsthatstillhavepeopletuninginbythe
million.Asthenumberofchannelshasmultiplied,largeaudienceshavebecome
muchhardertofind,butSportshasretaineditsabilitytogenerateeyeballsfor
thebroadcasters.Infact,theaveragetimespentwatchingsportschannelsin
C&Shouseholdshasbeenincreasingsteadily.

HindiMass NewsChannels SportsChannels

Source:BrandReporter-IntheFastLane,TAMPeoplemeterSystem

16BrandReporter,2008
17TheEconomist,2008
71

Withthegrowthinsportsviewership,thenumberofadvertisershavealsorisen
steadily.ThenumberofadvertisersinthesportsgenregrewataCAGRof32
percentfrom2005to2007.Consequently,thesizeofthesportsgenreinterms
ofAdrevenuesstoodaroundINR7billioninFY2008asagainstINR5billionin
FY200518.

GrowthinSportsAdvertising

Source:exchange4media,KPMGAnalysis

AsaresultofthegrowthinAdrevenuesfromsports,thescrambleforsports
broadcastrightshasalsobeengettingfrantic.TwoyearsagoNimbus,amedia
andsportsmarketingcompany,paidUSD612millionfortherightstoIndia’s
internationalmatchesanddomesticcricketuntil201019.ESPNStarbroadcasts
eventsstagedbycricket’sglobalgoverningbody,includingWorldCups;itpaid
morethanUSD1billionfortheglobalrightsbetween2007and2014.20

Cricket still the dominant sport in India

InIndia,sportsandcricketarealmostsynonymous.Amongthethreemegasport
eventsinrecentyearsinIndia,TVviewingofCricketWorldCup2007washighest
(113million)followedbyOlympics2004(65million)andFIFAFootballWorldCup
2006(39million)21.ThiswasinspiteofthefactthatIndiacrashedoutearlyinthe
CricketWorldCup.Onthewhole,cricketgarneredabout65percentofthetotal
sportsviewershippiein2007.22

ItsnosurprisethereforethattheoneofthemostpopularIndiansportseventin
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
72

EPLwasstartedin1992,andhassincetransformedEnglishdomesticfootball
fromaprovincialsportplayedonbeach-likepitchesinhalf-emptyandrickety
stadiumstoaninternationalphenomenon.Billionairesfromtheworldoverqueue
uptobuyEnglishfootballclubs.OneofthemissteeltycoonLakshmiMittal,who
haspickedup20percentstakeintheclubofQueensParkRangers.Russian
billionaireRomanAbramovichalsoinfusedfundsandturnedthealso-ranChelsea
FCintoachampionclub.AccordingtoForbes,theChelseateamwasworthUSD
339millionin2004.Byearly2007,aftertwoPremiershiptitles,itsvaluehadrisen
toUSD537million23.

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
yearsatawhoppingUSD975million.Thismakesthetournamentthehighest
valuecrickettournamentintheworldonapergamebasis;giventhatthe
ChampionsLeagueistohavefewermatches-215to250ascomparedto600in
theIPL-theper-matchcostworksouttoINR170milliontoINR200million
comparedtounderINR70millionforIPL25.Thisinturn,impliesthatthechannel
hastoselltheAdratesforthesematchesatevenhigherratesthanIPLtobreak
even.Clearly,withsportsemergingasapowerfulentertainmentgenrepostIPL,
thescaleofthegameischangingrapidly.

23TheEconomist,2008
24TheEconomist2008
25“ESPN-StarbagsChampionsLeagueT20rightsfor$975m”,BusinessStandard,September2008
73

Emergence of IPL as a hot Media Property: Will this Sustain?


Goingbytheresponsegeneratedinitsinauguraledition,IPLseemstohavetrulyredefinedtheconceptofsportsin
India.Inacountrywherecricketisalreadyconsideredtobeareligion,thedomesticTwenty-Twenty(T20)tournament
furtheraddedtoitspopularitybyprovidingajudiciousblendofthegame,celebritiesandentertainment.Intheprocess,
IPLpresentedcricketasacompleteentertainmentpackage,andarguablysucceededinattractingnewviewer
segmentsintothegame’sfold.Thegamealsoprovidedabigboosttotheadvertisingindustry.Accordingtoestimates,
IPLisexpectedtobringinINR11.9billioneveryyear,generateTVadvertisingworthINR6.5billionayear,get
sponsorships(bothteamandcentral)worthINR2.9millionayear,gatereceiptsofINR1.75millionayearaswellas
stadiumadvertisingofINR800millionayear26.

Monetization and Marketing of Brand IPL

TheIPLinnovativenesswasmarkedwiththeformatitself:IPLwasthefirst‘official’leagueformofcricketinthe
country.Besides,T20isacompactformofcricketwhereeachteambowls20overs.Asaresult,matchestypicallylast
aboutaslongasabaseballgame-justaroundthreehoursorso.Thenextdeparturefromtraditioncamewiththeteams:
nottheusualstate-basedunitsofIndiancricketbutamereeightcity-based“franchises”createdspeciallyforIPL,with
amixofIndianandinternationalcricketers.Scarcitycreatedvalueasfirstthefranchises,andlatertheplayerswere
“auctioned”.The8franchisesbidacombinedUSD723million(INR29billion)toowntheseclubs.TheIndianCaptain,
MSDhoni,wenttoTeamChennaiforthetoppriceofINR60million27.Inasportwithnocultureofinter-clubmatches,
theseamountswereastronomical.

FranchiseOwnersandtheirrespectivebids

Franchise Owner(s) Price (INR Billion)

MumbaiIndians RelianceIndustries 4.48

RoyalChallengers,Bangalore UBGroup 4.46

HyderabadDeccanChargers DeccanChronicle 4.28

ChennaiSuperKings IndianCementsandNSrinivasan 3.64

DelhiDaredevils GMRHoldings 3.36

PreityZinta,NessWadia,KaranPaul(ApeejaySurendraGroup)and
KingsXIPunjab 3.04
MohitBurman(Dabur)

ShahrukhKhan,JuhiChawlaand
KolkataKnightRiders 3.03
JaiMehta(RedChilliesEntertainment)

RajasthanRoyals EmergingMedia 2.68

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
74

Anotherthingthattheorganizersdiddifferentlywastoapproachtheentireprojectassomethingthatcouldgenerateas
muchinterest–onprimetime–asasoaporarealityshowmayhavedone.TheIPLpackagewascustommadefor
prime-timetelevision.Thecamaraderiebetweenplayerswhohadhithertobeenconsideredarchrivalsandthepresence
ofstarteamownersfurthercontributedtotheexcitement.Thetournament’sintroductionanditssubsequentimpacton
thesportsworldleftaside,IPLalsoprovedtobeagoodmediapropertyformonetization.Aconsortiumconsistingof
India'sSonyEntertainmentTelevision(SET)networkandSingapore-basedWorldSportGroupacquiredthe10yearglobal
broadcastingrightsofIPLforUSD1.026billion(overINR42billion).Aspartofthedeal,theconsortiumistopaythe
BoardofCricketControlinIndia(BCCI)USD918millionforthetelevisionbroadcastrightsandUSD108millionforthe
promotionofthetournament29.Aftersecuringthebid,Sony-WSGthenre-soldpartsofthebroadcastingrights
geographicallytoothercompanies.Belowisasummaryofthebroadcastingrightsaroundtheworld.

SummaryofBroadcastingRightsofIPL

Winning Bidder Regional Broadcasting Rights Duration

SET-WorldSports GlobalBroadcastingRights 10yearsforINR42Billion

NetworkTen Free-to-airtelevisioninAustralia 5yearsatINR350-400Million

SetantaSports UnitedKingdomandIrelandonasubscriptionbasis 5years

ArabDigitalDistribution MiddleEastbroadcastrightsonADD'sARTPrimeSportchannel 10years

Rightstodistributeontelevision,radio,broadbandandInternet,for
WillowTV 5years
theIPLinNorthAmerica
SuperSport SouthAfricaBroadcastRights Termsnotreleased

GEOSuper PakistanBroadcastRights Termsnotreleased

Canadianbroadcastrights.AiredonATN'sCBN&ATNCricketPlus
AsianTelevisionNetwork channelsonasubscriptionbasis.AiredonXMRadio'sATN-Asian 5years
Radioaswell
Source:PressReleases,KPMGResearch

Impact on the M&E Industry

Theacquisitioncostwasthenconsideredsteepforadomestictournament.SEThastopayUSD316million(INR12.6
billion)inequalinstallmentsovertheinitial5yearsandUSD608million(INR24.3billion)forthenext5.ThatmeansSET
hadtopayaboutINR2.53billiontoBCCIin200830.However,withthesuccessandpopularityofthetournament,the
investmentseemstohavepaidoffforthebroadcaster.Theleague,screenedeveryeveninginaprimeslotat8pm
pulledinviewersinlargevolumes.AsperTAMratings,thefinalofIPLon1June2008fetchedMaxanaverageof9.8
TVR.Thetwosemifinals,too,deliveredratingsofover6each.The44daytournamentachievedanaverageof4.7over
57matchesonSETMax,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
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.

In a nutshell: Why was IPL a success that it turned out to be?

ThewayinwhichIPLwasconceptualized,visualizedandorganizedholdsalessonformarketers.Therewerefourmain
reasonsforthetournament’ssuccesses:

• Itstartedoffonascalethatwaslikelytomakeanimpact

• TheorganizersgotspecialistmarketingfirmslikeIMGinvolvedwellinadvance

• ThemarketingwasPRled

• Thetournamentwasefficientlymarketedtoconsumers.

IPLhasgivenawholenewdimensiontosportsandsportsmarketinginIndia.

33 IndustrySources
76

Future perfect in the immediate run

Gaugingbytheindustryreaction,IPLisexpectedtocontinueasaprimedriverintheM&Eindustryforthecomingyear.
Further,advertisingratesforothercrickettelecastsarealsoexpectedtoincreasesincetheIPLratesarealsoexpected
tobeusedasfuturereferencepointsbythebroadcasters.Manyretailmajorsplantotie-upwithIPLfranchisees,given
thefactthatthebusinessformatofIPLismodeledontheEnglishPremierLeague,whichhasbuiltitsproperties
throughretailtie-upsandmerchandise.IndustryPlayersalsoplantocapitalizeoncelebritybrandambassadorsand
merchandising.CelebrityendorsedbrandedT-shirts,sunglasses,walletsandtravelbagsareexpectedtobepromotedin
abigway.

In the long run

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
77

Other Sports are not far behind, gradually catching up in terms of


Popularity

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
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’sestimated333millionfollowers
worldwide,20millionliveinurbanIndia37.

36exchange4media
37TheEconomist,2008
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
80

Future Implications

TheIndianM&Eindustrycontinuestowitnesstheemergenceofnewcontent
genresacrossdifferentsubsectors.Theconceptofuniversalcontentnolonger
holdstrueandplayersareinvestinginbuildingadifferentiatedcontentportfolioto
helpensureconsumerloyalty.Buildingupofadiversecontentbasketcouldalso
actasariskmitigatingmechanismfortheplayers.

Theimpactofemergingcontentvarietyontheindustryissummarizedinthe
tablebelow.

EmergingContentGenres:ImplicationsforPlayers
Sector Effects of Emerging Content Genres Implications

• Companiesneedtoevaluatebenefitsaportfolioapproachcanprovide(beit
• Playersareincreasinglydiversifyinginto acrossfilmgenres,aTVchannelportfolio,multiplemagazines)-inan
AllMedia differentgenresandbuildingaproduct environmentofincreasinglysegmentedaudiencepreferences.Aportfolio
portfolio givesbenefitsofhedingrisks,whilestillbeingabletoaggregatemediafor
advertisersandgettingcostsynergiesinoperationalareas

• 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 • Needforcarefulunderstandingofcontentpreferencesoftargetsegment,
Print
• Increasingnumberofspecialtymagazines andcomprehensiveevaluattionoftheirmarketpotentialbeforelaunchinga
inEnglishsegment,bybothexisting newmagazinetocaptureanicheaudience
playersandnewentrants
Regionalization
04

Regionalization

Context – the great Indian regional story


Regionalmediahasbeenanimportantgrowthdriverforthe Highergrowthratein5-40lakhspluspopulationtowns
Indianmediaindustryinthepastfewyears.Established
nationalplayersareexpandingtheirregionalfootprint,
existingplayersarediversifyingtheirportfolioofferingsand
theregionalmediaspaceiswitnessingahostof
investmentsfromestablishedplayersaswellasventure
capitalistsandprivateequityinvestors.

Oneofthemainfactorsbehindsuchhighinterestlevelsin
regionalmediaisthesignificantlyuntappedmarketofTier-2
andTier-3townsandlowersocio-economicgroupsthattend
tobetheprimaryconsumersofregionalmedia. Source: IRS 2007 R2

Weexaminethisingreaterdetailbelow. Thus,Tier2andTier3citiesareshowingahighergrowthin
numberofhouseholdsascomparedtothelargerTier1
cities(citieshavingpopulationofmorethan40lakhs).Asa
Increasing significance of Tier-2 and 3 cities result,itisestimatedthatby2025populationofbothTier2
Oftheurbanareas,Tier2citieshavingpopulationof10-40 andTier3citiesputtogethermaybealmostasbigasthatin
lakhsarewitnessingthehighestgrowthrateinthenumber theTier1towns2.Hence,thesecitiesareincreasingly
ofhouseholds.1 Thesetownswitnessedagrowthof7.4 emergingasthefocusareaformarketers.
percentgrowthinthenumberofhouseholdsin2007over
2005.Tier3citieshavingapopulationinbetween5-10lakhs
witnessed6.9percentgrowthinthenumberofhouseholds
from2005to2007ascomparedtoa6.6percentgrowth
rateintownshavingapopulationgreaterthan40lakhs.

1IRS2007R2
2MarketingWhitebook2008
84

Estimated2025UrbanPopulation(inmillions) Higher consumption potential in rural areas


Eventhough70percentofIndianhouseholdsresideinrural
India4,marketers,advertisersandconsequentlymedia
playershavetraditionallyfocusedmoreonurbanareas.The
perceptionwasthatalthoughinabsolutenumbersruralIndia
mightbeaheadofurbanIndia,mostoftheconsuming
powerisstillconcentratedinurbanIndia.Thisparadigmhas
graduallychangednowandnotwithoutgoodreason.In
absoluteterms,thesizeofthemiddleandhigherincome
householdsinruralIndiawasexpectedtobedoublethatof
Source: Marketing Whitebook 2008
urbanIndiain2007.5
TheincreasingpurchasingpowerofTier2andTier3citiesis
NumberofMiddleandHigherIncomeHouseholds
alsoevidencedbythesocio-economicdata,withthese
citieswitnessinggrowthinthenumberofpeoplebelonging
totheuppersocio-economicclasses.

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: NCAER
Note: Data Points indexed between 2005-2007
Source: IRS 2007 R2 Ahighernumberofmiddleandhighincomehouseholdshas
Currently,thetop6metrosconstituteonly30percentofthe resultedinhighergrowthinpercapitaconsumptioninrural
totalconsumptionofgoodsandservicesinIndia.However, areas.Percapitaconsumptioninruralareaswentupby12
60percentofmediaspendsstillgototheTop6cities3.This percentin2005-06ascomparedto9.8percentinurban
isananomalythatisboundtochangegiventhegrowth India.6
potentialofTier2and3townsduetoanincreaseinthe
numbersaswellastheincreasingpurchasingpowerofthe
populationresidinginthesetowns.

3NCAER,GroupM,“SocialChangesandtheGrowthofIndianRuralMarket:AnInvitationToFMCGSector"bySJohnManoRaj,Dr.PSelvaraj,2007
42001census,IRS2007R2
5 NCAER
6NSSO
85

Hence,ruralIndiaoffersatremendouspotentialformarketers,advertisersand
mediaplayersalike.Again,duetodifferencesinthemediaconsumptionhabits
andlanguagepreferencesofruralpeople,mediaplayershavetotargetand
engagetheseaudiencesinadifferentwayasopposedtotargetgroupsinurban
areas.

Low Media penetration in smaller towns and rural areas


Despitethesignificantconsumptionpotentialofsmallertownsandruralareas,
thereachofthemediaisrelativelylowerinthesmallercategorytownsandcities
whilelargercitiesarebecomingsaturatedintermsofgrowthinmediareach.
Hence,thesesmallertownsoffergoodpotentialforgrowthinmedia
consumption.

MediaReachamongdifferentTownCategories

Source: IRS 2007 R2

Further,overallMedia7 Reachismuchlowerinruralareasascomparedtourban
areas.

MediaReach

Source: IRS 2007 R2

7Note:Media=TV+Print+Radio+Cinema+Internet
86

Implications for Media Players


Tosummarize,mediaplayersarelookingatadiversesetoftargetgroupsfor
sustainingahighergrowthrateandhenceneedtopracticeeffectiveconsumer
segmentationandtargetingtoreachtheseaudiences.Tremendousmediagrowth
opportunitieslieinsignificantlyuntappedtargetgroupscomprisingpopulationin
smallertowncategories,ruralIndiaaswellasthelowersocioeconomicclasses.
Sincetheeconomicprofileandmediaconsumptionhabitsofthesepeopleare
differentfromthatoftheconventionalconsumersofthemediacompanies,there
isaneedtotargettheminadifferentway.Theseconsumerswantcontentthatis
relevanttothem,inalanguagethattheyarecomfortablewith.

Regional Trends in TV

IntheTVsector,bothnationallevelbroadcasterslikeStarandZee,aswellas
regionallevelplayerslikeSunandRajcontinuetoinvestheavilytoprovidemore
contentchoicestotheaudienceswhichpreferlanguagesotherthanHindiand
English.RegionalcontentassumesspecialsignificanceinSouthsinceitaccounts
forthelargestproportionofTVviewinghouseholdsinIndia(about32percent8).
Regionallanguagechannelsaccountfor35ofthetop100showsontelevision
accordingtoTAMPeoplemeterdatafortheweekfrom18Jan,2009to24Jan,
20099.

8Exchange4media.com
9Indiantelevision.com
87

Onelikelyimpactoftheincreaseinconsumptionofregionalcontentontelevision
couldbeanincreaseinthevalueoflibrarycontentfornationalbroadcasters.Any
broadcasterwithagoodcontentlibrarycanhaveitdubbedinotherlanguagesfor
broadcast.Thishastwoadvantages.One,theproductioncostismuchlesser
thanbuildingcontentfromscratch.Andtwo,theriskisminimizedasthecontent
hasalreadyproventobesuccessfulinanotherlanguage.

Domestic content syndication – A significant opportunity for


ancillary revenues

ChannelssuchasZee,StarandSaharaalreadyhavesyndicationdealsin
placeinNon-ResidentIndian(NRI)-richinternationalmarketssuchastheU.S.
andU.K.However,it’sthedomesticsyndicationmarketthatisnow
beginningtocatchon.

NewGECentrantssuchasNDTVImaginearebettingbigonsyndication
withdubbedversionsofitstopshow–Ramayana-beingairedonSouth
Indiachannels-GeminiTVinAndhraPradesh,SunTVinTamilNaduand
SuryaTVinKerala.

Thiscouldadddirectlytothebottom-lineasthecostsinvolvedfordubbing
existinglibrarycontentintootherlanguagesarerelativelylow.

Infact,creativeteamsofvariouschannelsarenowactivelyconceptualizing
showswiththegoalthattheyshouldbeabletogeneratemultiple
syndicationopportunities.

However,asawhole,domesticsyndicationstillremainsarelatively
unexploredareainIndiantelevision.Therefore,overthenextfewyears,as
producerslooktomaximizetheirrevenuesbyrepurposingcontent,domestic
syndicationislikelytoofferthemastrongrevenuepotential.
88

Hindi Powerhouses expand their regional presence


GiventheovercrowdingandtheresultingfragmentationintheHindisegment
withthespurtofGECandotherchannelslaunchedinrecenttimes,ithas
becomeevenmoreimportantforthebroadcasterstodiversifytheirriskby
exploitingthefullpotentialoftheregionalsegment.Henceinrecenttimes,
severalregionalchannelshavebeenlaunchedbytheestablishedplayersofthe
Hindibroadcastingindustry.

Regional channels of national players

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
themostcompetitivemarketinsouthrightnowwiththedominationofSunTV.
ZeealreadyhasKannadaandTeluguGECs.Thechannelfurtherstrengthenedits
presenceintheBengalimarketbyacquiring26percentstakeinSkyB(Bangla)
Pvt.Ltd.,thecompanywhichrunsBengaliinfotainmentchannelAkaashBangla,
inNovember200810.Previouslyithadacquireda60percentstakeinBengali
newschannel24GhantafromSkyB.

10“Zee News India acquires 26% stake in Sky B”, Business Standard, November 2008
89

TheStarnetworktoohasambitiousplansforexpansioninthesouthIndian
marketandhasformedajointventurewithJupiterEntertainmentcalledStar
JupitertotargetsouthIndianaudience.UndertheagreementStarJupiteristo
haveamajoritystakeinAsianetCommunicationsLimited(ACL)whichcurrently
broadcastschannelsinKannada(Suvarna),Telugu(Sitara)andMalayalam(Asianet,
AsianetPlus).11 Vijay,theTamillanguagegeneralentertainmentchannel,currently
operatedandownedbyStar,isalsotocomeunderStarJupiter.

RelianceADAGisplanningasimultaneousforayintotheregionalandHindi
broadcastingspace.Thecompanyintendstolaunchabouquetofregional
channelsalongwiththelaunchofitsmainstreamHindichannels.

Foranewentrantintoregionalmarkets,it’simportanttoidentifywhichregional
marketsofferthegreatestopportunity.Thiscanbedonebyevaluatingandrating
theoptionsonthebasisofcertainimportantparameters.

Evaluationofregionalmarketopportunities

Parameter Gujarati Marathi Punjabi Kannada Tamil Telugu Malayalam Bengali

Size of target audience


Purchasing power of
target audience
Advertising size
and revenue potential
Number of players
present in the space
Source: KPMG Analysis
* The table presents a snapshot of the situation as on October, 2008. The parameters like the one
Key: relating to competition are constantly subject to change with number of new regional channels
being launched every year. Therefore, these must be re-evaluated frequently.
- least favourable

- Slightly favourable

- Moderately favourable
Ingeneral,thebasicstrategyfollowedbynewentrantsintheregionalmarketsis
- Highly favourable tofirstestablishtheirpresenceintheregionalmarketthroughaGEC,anews
- Most favourable channelandamoviechannelbeforegettingintomorenichecategories.Sun,the
leadingchannelinSouthIndia,hasfollowedthesamestrategyinthepast.

11“STARJupitertoholdmajoritystakeinAsianet”,TheEconomicTimes,November,2008
90

Growth of niche channels in Regional Markets


Theregionalmarketitselfisgettingsub-segmentedasitgetsmoremature,and
increasinglytheadvertisersarealsobeginningtodifferentiate.Consequently,the
wellestablishedregionalplayersarenowtargetingnichechannelsegmentsto
furtheraugmenttheirnetworkviewership.SunTV’sTamilkidschannelChuttiTV
hasbeenquitesuccessfulandithasplanstolaunchkids’channelsinothersouth
Indianlanguagesaswell.RajTVhasaddedRajNewstoitsTamilnetworkwithan
estimatedinvestmentofINR200million,addingtoitsTamilgeneral
entertainmentchannelRajTV,musicchannelRajMusix,andRajDigitalPlus.Raj
isalsoplanningmusicchannelsinTelugu,MalayalamandKannada.12

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

News TV5News Telugu

GeminiNews Telugu

AsianetNews Malayalam

Indiavision Malayalam

ManoramaNews Malayalam

PeopleTV Malayalam

TV9 Kannada

Suvarna Kannada

UdayaVarthegalu Kannada

Kids ChuttiTV Tamil


Source: CompanyWebsites, Press Releases KPMG Research

12Indiantelevision
91

Regional News rules the roost


News,clearly,thefocusareaisontheregionalnichesegments,withasmanyas
17newschannelscateringtothe4regionallanguagemarketsinSouthIndia(as
ofSeptember2008).Thegrowthintheregionalnewsmarkethasbeen
exceptionaloverthelastthreeyears.Infact,Advolumeonregionalnews
channels(combinedMarathi,Bengali,Southern)in2006was17,682seconds.The
amountvirtuallydoubledin2007totouch31,167seconds.13

Apartfromthesubcontinent,thesechannelsalsohaveviewershipinSriLanka,
China,theMiddleEast,U.K.,Canada,Europe,AustraliaandpartsofSouthAfrica
andtheUnitedStatesbecauseoftheSouthIndia-basedpopulationsettledin
thesecountries.

TheotherbigregionalmarketsareMarathiandBengali.TheBengalimarkethas
anaddedadvantagethatchannelstargetingWestBengalarealsowatchedin
neighboringBangladesh,makingitlucrativeforbroadcasters.

NichechannelslikeNewsarenottheonlyfocusofregionalplayers;theyalso
continuetoexpandtheirpresenceinthesouthGECmarket.Asianetlaunchedits
TeluguGECSitarainOctober2008.ItalreadyhasGECsinMalayalamand
Kannada.

Regional Trends in Cinema

Indiaisoneofthebiggestmoviemarketsintheworldwithovera1000movie
releaseseveryyear.Whilethemainstreamcommercialcinemamightbe
dominatedbytheHindilanguage,Indianstatestoo,havetheirownproduction
MarketSharebynumberofreleases houses.

South Indian Cinema Market


SouthIndiaisabigmarketintermsofnumberofmoviereleases.Thefour
southernstatescomprisingAndhraPradesh,TamilNadu,KarnatakaandKerala
togetheraccountforover50percentoftheshareofthetotalfilmsreleasedin
India.14
AfterBollywood,Telugufilmindustry,referredtoasTollywood,isoneofthe
biggestinIndiaintermsofthenumberofmoviesproducedandreleasedper
year.About200filmsaremadeeveryyearofwhicharound20arethebigbudget
Source: Central Board of Film Certification, films15-typicallybigbannerfilmswiththebeststarcast,relativelybetterquality
KPMG Analysis
ofshootingandtypically,sociallyacceptablethemes.Abigbudgetfilmistypically

13BrandReporter
14KPMGAnalysis
15KPMGInterviews,CentalBoardofFilmCertification
92

onewithabudgetofaboutINR120-200million,witharoundINR30-40million
eachpaidasremunerationtotheleadingactorsanddirectorofthefilm.Onthe
otherhand,abudgetfilmistypicallydoneinaboutINR40million.Besides,there
arealsosmallerfilmswhicharemadeinatotalbudgetofaroundINR10-30
million16.
ApartfromTelugu,Tamil,Kannada,Malayalam,MarathiandBhojpuriaresomeof
theotherimportantregionallanguagesinwhichfilmsaremadeinIndia.The
budgetforregionalfilmsareverysmallascomparedtoBollywood,where
productioncostsofbigbudgetfilmsrangebetweenINR300-600million.The
averagetimetomarketforabigbudgetTeluguFilmis10monthsasopposedto
15-18monthsinBollywood.17

Opportunities in Exhibition
Intheexhibitionspacetoo,theunevengeographicaldistributionofthetheaters
inIndiagivesthefoursouthernstatesanadvantage.AndhraPradesh,Kerala,
KarnatakaandTamilNadutogetheraccountforabout60percentofthetotal
theatersinthecountry,whilehousingjust22percentofthepopulation18.This
providesacanvasforwiderfilmreleasesthere.Further,withmalldevelopment
activitiespickingupinthesouthernregion,multiplexplayershavealsostartedto
forayintothesouthernmarket.PlayerslikePyramidSaimiraarealsoinvesting
heavilytoacquireandupgradesinglescreentheatersinSouthIndia.Going
forward,theaggressiveplansofthemultiplexplayerstoexpandtheirpresencein
thesouthernmarketisexpectedtoincreasetheaverageticketsizeandimprove
thecollectionsofregionalmovies,thusprovidingafurtherboosttoregional
cinemainthecountry.

Corporatization of Regional Cinema


Giventhehugemarketpotentialaswellasthetimeandcostadvantages,the
regionalfilmindustryhasalsostartedtoattracttheattentionofleadingplayers
fromtheHindiFilmIndustry.Forinstance,in2007,Adlabsreleasedtheirfirst
Tamilfilm‘Kireedam’,whichwasajointco-productionwithSujathaCineArts.
ErosInternationalacquireda51percentcontrollingstakeinAyngaran,aTamil
homevideoanddistributionarm.UTValsoenteredtheTelugufilmsectorwitha
dealfortwomovieswithMaheshBabu,oneofthebiggestTelugufilmstars;and
aco-productiondealwithIndiraProductionsfortwoTelugufilms.Thecompany
alsoacquiredtheAndhraPradeshtheatricaldistributionrightsto“Atidhi”19.2008
sawmoresuchinvestments.Ultra,whosecorebusinessliesinacquiringand
marketingofhomevideorightsofBollywoodfilms,forayedintoregionalcinema
byannouncingplansofinvestingINR200millionforproducinganddistributing
MarathiandGujaratifilms.RelianceEntertainmentalsomadeanentryintothe

16Industry
17Industry
18FilmFederationofIndia
19CompanyWebsite,PressReleases
93

KannadaFilmIndustrybyannouncingtwofilmprojectsthere.Reliance’smusic
label-BigMusic-alsoacquiredthemusicrightsoftwoKannadaFilms20.These
developmentsaugurwellfortheindustry,andaregraduallyusheringinaneraof
corporatizationintheregionalindustry,alaBollywood.

Withtheavailabilityoffunds,manyoftheseregionalfilmsarenowbeing
releasedonascalecomparabletoBollywood,andasaresultearningrelatively
moreintheatricalrevenues.TheTamilFilm”Chandramukhi”grossedINR800
millionfromtheBoxOffice.AnotherTamilblockbuster“Shivaji:TheBoss”was
releasedin800cinemasacrossthecountry.21 Manyoftheleadingartistsfrom
Bollywoodarealsoworkinginregionalfilms.Southhasalwaysbeenapopular
destinationforBollywooddirectorsandactors;othercinemashavealsostarted
pickingupnow.LeadingstarsfromtheHindiFilmIndustrylikeAmitabhBachchan
andAjayDevganhaveactedinBhojpurifilms.Thishasfurtherchangedthe
perceptionofregionalcinemaintheeyesoftheaudience.

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
94

Regional Trends in Print

Readership-Dominance of Regional Players


TheIndianPrintindustryishighlyfragmented.Hindilanguagenewspapers
comprise44.6percentoftheregistereddailieswhileEnglishlanguage
newspaperscompriseamere7.4percentofthetotal.22 Hindiisthelargest
languageintermsofpenetrationoftotalpopulationofIndia.Itisfollowedby
English,Marathi,TamilandTelugu23.

Themarkethasseennewspapersrollingouteditionsandprovidingregion
focusedcontentinanattempttoincreasecirculation.Thisisbecauseofthe
increasedsignificanceofregionalmediainrecenttimes.Readershipand
circulationisdirectlycorrelatedwithliteracylevelsthathaveincreasedfrom62.5
percentin2002toover73percentin200724.Moreover,69percentofIndia’s
populationisrural25.Withfasterliteracygrowthinruralareas,printmedia
circulationislikelytogrowfasterinregionalprint.Moreover,boththereadership
surveys,IndianReadershipSurvey(IRS)andNationalReadershipSurvey(NRS),
havereiteratedthedominanceoflanguagepublicationsoverthoseofnational
publicationsovertime.ThereadershipfiguresofIRS2008Round2(R2)survey
goesontostrengthenthisfact.TimesofIndia(ToI)istheonlyEnglishnewspaper
amongthetop10dailiesinIndia.Outofthetotalreadershipofthetop10daily
newspaperseachinEnglish,HindiandVernacularcategory,Englishgetstheleast
readershipshareat11percent26.

TotalNewspaperReadershipinIndia

Source: IRS 2008 R2 Survey, KPMG Analysis

22RegistrarofNewspapersinIndia
23IRS2007R2
24NRS,IRS
25Census
26IRS2008R2
95

Eveninmagazines,only1amongthe10mostreadIndianmagazinesbelongsto
theEnglishlanguage.
TotalMagazineReadershipinIndia

Source: IRS 2008 R2 Survey, KPMG Analysis

Readershipfiguresclearlyshowconsumerpreferencesforregionalpress.Hindiis
themostreadlanguageinthecountry.Tamil,MalayalamandTelugucomenext.

Brand Extensions by National Players in the Regional Segment


Sensingtheimmensepotentialofregionalplayers,establishednationalplayers
areleveragingtheirbrandvaluetoenterintotheregionalspace.andhavechalked
outaggressiveplansintheregionalspacenow.HTMLannouncedplanstolaunch
revampedversionofHindustanin200827.TheTimesGroup,afterhavinglaunched
aGujarativersionofitsbusinessdaily‘EconomicTimes’in2007,further
introducedaHindiVersionofthesamein2008.ItscompetitorBusinessStandard
alsointroducedtheHindieditionofitsfinancialdailyinthesameyear28.

Rapid Expansion by existing players


Theregionalprintspacehasalsowitnessedahugeflurryofnewlauncheswith
establishedplayersleveragingtheirexistingstrengthstorolloutintonewer
geographies,whichareotherwisedominatedbyafewhighlyentrenchedplayers.
Forinstance,DainikBhaskarlaunchedsixeditionsinChhattisgarh;Bhilai,
JagdalpurandRatlaminMadhyaPradeshandstrengtheneditsNorthIndia
presencewithlaunchesinPunjab,Haryana,Chandigarh;ShimlainHimachal
Pradesh;andPaliandNagpurinRajasthan.HindidailyHariBhoomilaunchedits
JabalpureditioninOctober2008.29

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
96

Regional players going National


Withsuccessachievedintheirrespectivemarkets,regionalplayersaregradually
targetinghigherSocio-Economicclassesinlargertownsaswelltoincreasetheir
nationalreach.Oneofthewaysadoptedforthesameisdiversificationintothe
Englishsegment.Forinstance,theJagranPrakashan(JPL)grouplauncheda
compactbi-lingualdailyi-NextinLucknowandKanpur,targetingSECABreaders
of18-35yearsofage.31ThenewspaperusesacombinationofHindiand
commonlyusedEnglishwordskeepinginmindthespokenlanguageofthe
targetedgroupinmini-metros.

Similarly,theDainikBhaskargrouphasalsobuiltupaportfolioofbrands
comprisingDainikBhaskar,DivyaBhaskar,DNA,BusinessBhaskarandDBStar-
thelatter2beinglaunchedin2008.Inearly2008,theDainikBhaskarGroupalso
launchedafortnightlyweeklymagazinetitled‘She’forwomen.32 Themagazine
wasprimarilytargetedatSECABwomeninMadhyaPradesh,Chhattisgarh,
Rajasthan,Punjab,HaryanaandChandigarh.SakaalGroup,publishersofthe
MarathiDailySakal,launchedtheEnglishdailySakaalTimesinPuneinMay2008.

Theotherwaybywhichplayersareplanningtoexpandtheirnationalreachis
throughlaunchingeditionsfrombigcitieslikeDelhiandMumbai.Deshbandhu,
oneoftheoldestnewspapersinMadhyaPradeshandChhattisgarh,launchedits
nationaleditioninDelhiinApril2008.33 BesidesbeingmadeavailableinDelhiand
NCR,circulationwasalsomeantforselectedcitiesinBihar,UttarPradesh,
HimachalPradesh,Uttarakhand,Haryana,PunjabandRajasthan.

Narrowcasting in Regional Space too


LiketheirEnglishcounterparts,regionalplayersarealsomovingtowards
narrowcasting.Thefirstexampleisanincreaseinthenumberofsupplements
offeredbytheplayers.Forinstance,Naiduniaofferssixsupplementstocapture
nichereaders.Fortnightlysupplements“Sehat”and“Spectrum”catertohealth
andchildren.AsupplementforwomenappearseveryWednesdayandoneon
careerseveryThursday.ThesupplementonFridaycoversglamour,movies,TV
andfashion.Inaddition,thereisaregularSundayfeaturessupplement.34

Therewereinstancesoflaunchingnichemagazinesaswell.TheToIgroup
launchedamonthlyhealthmagazinetitled‘JeevetSharadShatam’,onMay
2008.35 Thenichemagazineistargetedat40-pluswomen.36Thecontent
includesclinicalissuesrelatedtowomenandgeneralhealthremedies.

Inthenewspaperspace,theregionalsectorhasalsowitnessedtheemergence
oftabloids.HindiafternoontabloidDLAwaslaunchedinAgrainMay2007.37
Sincethen,ithasalsolaunchedfoursimilarlypricededitionsinothercities.

31exchange4media 36exchange4media
32exchange4media,CompanyWebsites 37exchange4media
33exchange4media
34exchange4media,CompanyWebsite
35exchange4media,CompanyWebsite
97

Increasing competition reducing cover prices


Asaresultoftheaggressivecompetition,theregionalprintspaceisbecoming
excitingandcompetitive.Theenhancedcompetition,inturn,resultedinan
inevitablepricewar.Sinceplayersareventuringintoeachother’sgeographicturf,
themarketisgettingfragmentedandestablishedplayersinaparticularregionare
reducingtheirratesasastrategytoretaintheircirculationbase.Oneillustration
wastobeseeninJune2008inDehradun,whenleadingplayersthere-Amar
Ujala,DainikJagranandHindustan-reducedthecoverpricesoftheirrespective
editionsbyINR1;priceofallthe3newspapersfellfromINR3toINR2.
Similarly,whenToIenteredtheChennaimarket,existingplayersrespondedby
reducingtheirpricestocountertheincreasedcompetition38.

Localization of Content in Newspapers


Traditionally,theextentofnationalandregionalcoverageintheIndianPrintMedia
hasbeenfargreaterthanlocalnews.Thesituationseemstobechangingnow
withnewspapers,bothnationalandregional,increasingtheamountoflocal
affairscoverage.

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&
MediaPvt.Ltd.unveiled“BangaloreHappenings”.40 Asthenameitselfsuggests,

38“TOI’slaunchallsettoheatupChennai”,Livemint,April2008
39exchange4media
40exchange4media
98

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.

Advertising: The primary driver behind the scenes


Interestingly,foralltheheatedactioninregionalprintmedia,theactivitiesofthe
playersareadvertisingdriven.Geographicalexpansionsandbrandextensions
enhancetheabilityoftheplayerstoderivesynergiesfromcommoneditionsand
asaconsequence,buildbrandequity.Hence,playerscanofferthebenefitsof
Ad-bundlingtotheadvertisers.Advertisersremaintheprimaryreasonbehindthe
playersincreasingtheircolorproportionandinvestinginqualityimprovements;
customersarethemeansthroughwhichthesebrandsattractadvertisers.Print
hasalwaysbeenahighvolumesgameandlowpricinggame,withthecover
pricesinsufficienttorecovertotalcosts.Hencetheseplayersarehighly
dependentonadvertisingtorecovertheircostsandimprovemargins.Traditionally
HindiandotherVernaculardailiesusedtohavehighercoverpricesthantheir
Englishcounterparts.However,withtheregionalmarketalsogettingfragmented,
playershavedroppedaveragecoverpricestoimprovecirculation,andhence
thereistheneedtoimprovethelookandfeelofthepaperinordertoprovide
valueformoneytotheadvertisers.

Attheprevailingadvertisingrates,anEnglishreaderisvalued9timesmorethan
aHindireaderand13timesoveravernacularreader.Thelanguagegarnersonlya
25percentshareincirculationwhilestillaccountingfor48percentsharein
advertising.41 ThisanomalyisexpectedtogetcorrectedandthedifferenceinAd
ratesbetweennationalandregionalpressisexpectedtocomedownasthe
regionalmediabeginstogetitsdueimportance.

41“TOI’slaunchallsettoheatupChennai”,Livemint,April2008
99

PerReaderEconomicsforNewspapers

Language Advertising Circulation Total

English 2099 728 2827

Hindi 233 208 441

Vernacular 157 203 360

PremiumofEnglishOverHindi 9.0x 3.5x 6.4x

PremiumofEnglishoverRegional 13.4x 3.6x 7.9x

Source: ICICI Securities

Implications- More Monetization of Regional


Media

Growth in Regional Advertising


Theconsumershifttowardsregionalmediaisborneoutbythegrowthtrendsin
regionaladvertising.Untilsometimeago,therewasasubstantialmismatch
betweentheviewership/readershipnumbersandadvertisingrevenuesforthe
regionalmediaplayers.Theregionalmediaseldomgottheirshareofadvertising
revenuescongruenttotheviewershiporreadershipnumbers.Allthatischanging
nowandthegapbetweentheshareofadvertisingrevenuesandviewershipis
decreasing,resultinginhigherrevenuesforregionalmedia.

Mediaplannersfindtheregionalmediaattractiveforanumberofreasons.
EspeciallyinTVtheshareofregionaladvertisingontelevisionissubstantial.
AccordingtoAdExIndia,during2008,nationalandregionalchannelswereused
inanadvertisingratioof58:42.

ShareofAdVolumesin2008

Source: TAM Adex


100

Thegrowthinregionaladvertisingtoday,ispartlydriven,quitesignificantly,by
newadvertisingsectorssuchaseducation,hospitality,realestateandjewellery
–whichoftenhavelocalbrandsandthereforeadvertisethroughlocalAd
campaigns.

Goingforward,astheimportanceofregionalmediagrowsacrosstheM&Esub
sectors,thedifferenceintheadvertisingratesbetweenthenationalandregional
mediaisexpectedtonarrowdownfurtherandhenceadvertisingspendsare
expectedtobemuchmoreevenlyspreadbetweenthetwomedia.Forthe
mediacompaniesthisislikelytomeananincreasingfocusoninnovationand
customizationtocreatespecificcontentforregionalmediaaudiences.

Sector Effects of Regionalization Implications

• Rapidgrowthinthenumberofregional • Demandforregionalcontentislikelyto
channels continuetogrowandevenHindicontent
• ConsistentriseinAdrevenueshareof housesmayincreaseexposuretoregional
regionalchannelsinthetotalTV 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 • Advertisingrevenuestofurthergrowin
• Establishedplayersexpandingtheir significance,evenforHindiandregional
productportfoliobyaddingnewlanguages players,leadingtoneedformoreeffective
Print
• Competitionleadingtoreductionincover targetingofadvertisersandefficientAd
prices,andthusleadingtopricewars inventoryutilization
• Riseinthenumberofsupplementsdueto • Imperativeforplayerstoeffectively
locallyrelevantcontentgainingin monetizethesupplements.
significance
Digitization
05

Digitization

DigitizationhasalsobeenafocusareaforTRAIforthepast
Introduction 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
TheIndianTVdistributionspaceisevolvingfastandina September2003onwards3).
spanofthree-fouryears,wehaveseentheConditional
AccessSystembeingintroducedwhichgavethenecessary ItisactuallytheentryofDTHplayersthathasgivenastrong

impetustodigitalcable,theadventof5DTHplayerswhich pushtowardsthedigitizationofTVdistribution.Oneofthe

togetherareexpectedtohavegarnered10million reasonsforthehighpenetrationofDTHvis-à-visdigital

subscribersbytheendof2008,andthecommerciallaunch cableisthehighadoptionofDTHinruralareas.Thisis

ofIPTV. mostlyowingtothepenetrationofDDDirect+,aFreetoAir
(FTA)DTHserviceprovider,intheseareas.Asaresult,total

1TAMMediaResearch
2TRAI
3“ConditionalAccessSystem–Waitforaclearerpicture”,TheHinduBusinessLine,September2003
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
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

DTH – Stiff Competition keeps ARPUs low


Indiabeingapriceconsciousmarket,hashelpedensurethatplayersherehave
hadtocompetewitheachotheronthebasisofprice.

SunDirect,thenewentrantintheDTHinthebeginningof2008,wasableto
garner1millionsubscribersin200daysfromjust4southernstateswithalow
subscriptionpricingmodel.Thenetworklaunched4regionalbasictiersconsisting
ofover100pluschannelsspecifictoeachsouthernstate(Tamilbasic,Telugu
Basic,KannadaBasicandKeralabasic)attherateofINR75permonth.In
additionitlaunchedaddonpackagesstartingfromaslowasINR1010.

Followingthis,DishTValsoslasheditssetupboxprice.AnewDishTV
connectioninSouthIndiawasavailableforINR1990(plusINR200asinstallation
charges)fromtheearlierINR2950(plusINR200)11.TataSkytoodroppeditsset-
topbox(STB)priceby50percenttoINR149912.

9KPMGAnalysis,KPMGInterviews
10“DishTVtotakeonSunDirect”,Indiantelevision.com,July2008
11“DishTVtotakeonSunDirect”,Indiantelevision.com,July2008
12“TataSkyslashesset-topboxpricesby50percent”,Indiantelevision.com,February2008
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-onservices,andcatchoninIndiaastheconsumerbecomes
betterpreparedtopaymoreforbetterqualityofservices.

ARPUforDTHServices

Source:KPMGAnalysis

“Digitization is not something that suddenly happens one fine day. It is


already happening and will continue to permeate increasingly in every
aspect of the media business causing a multi-dimensional impact. Media
organizations have the choice to either lead digitization or be led by it. At
the same time, the challenge for the media sector as a whole is to help
shape an economically sensible and sustainable digital environment that
is value-additive rather than value-destructive for the sector as a whole.”
Anuj Poddar, Sr. Vice President – Strategy & Business Development,
Viacom 18 Media Pvt. Ltd.

13KPMGResearch
107

Pay TV ARPUs – India vs. Rest of the World


TheaveragepayTVARPUinIndia,ataroundUSD4,remainslowby
globalstandards,cominginthesecondlastpositionamongthemajor
AsiaPacificnations.

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.
108

IPTV takes off


TheAksh-MTNLforayintoIPTVservicesinMumbaiandDelhihavetaken
commercialIPTVservicesastepforwardinIndia.Thiswasfollowedwithan
AkshandBSNLjointventureforIPTVservicesinsmallercitieslikeJaipurand
Jodhpur.TheseIPTVserviceshavebeensetatveryattractivelevelswith
subscriptionchargesvaryingbetweenINR100andINR200permonth
(dependingonthecity).Thesetupboxisfreeandavailableagainstarefundable
securitydepositofINR99914.Atsuchpricepointsandwithuniquefeatureslike
timeshiftedviewing(aviewerisabletoseeanyprogrammetelecastinthelast
fewdaysatatimeofhisconvenience),IPTViscompetitivelypricedwithother
distributionservices–CableandDTH.However,thequalityandreliabilityofthe
serviceprovidedcontinuestobeanissueandhasinhibitedgoodadoptionrates
tillnow15.

InJanuary,2009,BhartialsoannounceditsforayintotheIPTVsegment.Itoffers
tripleplayservices(landline+broadband+IPTV)atINR999permonthaftera
onetimeinstallationchargeofINR399916.

Triple Pay opportunity for Indian Telecoms


TheaveragepayTVARPUinIndia,ataroundUSD4,remainslowby
globalstandards,cominginthesecondlastpositionamongthemajor
AsiaPacificnations.

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
109

HITS: A new growth opportunity


Theothernewtechnology,thatisbeinglookedatpositivelybyTRAIisHeadEnd
intheSky(HITS)becauseoftheaccelerationitcanbringtothespreadofboth
digitizationandconditionalaccessinIndia.

HITSissimilartoDTHservices;inboththeseplatformsofdigitalcable,channels
aredistributedatonegothroughasatellite.ButunlikeDTH,wheretheend-user
istheconsumer,theHITSend-userisacableoperator,whothendeliversthe
signalstotheendconsumers.

OnceI&BMinistrycomesoutwithdetailedregulationsforthesector,manynew
playersarelikelytoenterthemarketandstartcompetingwiththeDTH,Cable
andIPTVcompaniesforashareofthePayTVdistributionpie.WWILoftheEssel
GroupistheonlyHITSlicenseecurrently,althoughitisyettobegincommercial
operations17.

Mobile TV: Television content on the Mobile screen


Mobiletelevisionreferstoprovisionoftelevisionchannelsandcontenton
portabledevicessuchasmobilephones.Thiscontentcanbesameasthat
broadcastedonordinarytelevisionormaybecontentspecificallymadeformobile
phoneviewing.

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,addrivenprovisionofmobileTVservicesarelikelybe
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
110

Digitization in TV – Advantageous for both Industry and


Consumers
Oneoftheprimepotentialbenefitsofdigitizationoftelevisionsignalsisin
overcomingthebandwidthconstraintsoftheanalognetworks.Thishasplayedan
importantroleindrivingthegrowthinthenumberoftelevisionchannels.
Digitizationisalsoleadingtoamoreorganizedandaddressabledistribution
market.Thisisultimatelyexpectedtoincreasesubscriptionrevenuesforthe
broadcasters.

Increasing channel bandwidth through digitization


MostoftheCableTVNetworksinIndiadeliverTVchannelsinanalog
modetothesubscribers.Inthebeginningcableoperatorswereableto
showonly6-14analogchannelsontheirnetworksduetolimited
bandwidth.Sincethen,thecapacityhasbeenenhancedbyextendingthe
bandwidthoftheCableTVdistributionsystem.Fromabandwidthof225
MHzintheearlydaysofCableTV,thenetworkshasprogressively
enhancedtheircapacityto300MHz,450MHz,550MHz,750MHzand
nowto860MHz,whichisthelargestavailablebandwidthforCableTV
Networksworldwide.Inthefuturethiscouldgetenhancedto1000MHz.
Thebandwidthofcablesystemsandmaximumpossibleanalogchannels
onsuchsystemsaregiveninthetable:

CarryingCapacityofBandwidths

Bandwidth(in MHz) Maximum number of Analog Channels

300 36

450 54

550 67

750 92

860 106
Source:TRAI

Inmetros,mostofthecableTVhomesreceive65to90channelsusinga
combinationofopticalfiberandcoaxialcables.Suchcablenetworksare
beinggraduallyintroducedthroughoutthecountry.Infact,presentlycable
TVservicesinmostofthecitiesserveupto60channelsovera550MHz
bandwidth.Thesenetworkstypicallycaterto5000customersperhead.
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
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
113

The Digital Consumer


Theyear2008waswhenDigitalTVviewinginIndiacametoitsown.
Withincreaseindigitalpenetrationandsamplesizesinkeymarkets
crossingthereportingthreshold,TAMstartedreportingdigitalhouseholds
asaseparateanalysistargetgroupfromAugust2008.Thisfurther
reiteratedthegrowingsignificanceofDigitalHouseholdsfortheM&E
industry.

AsurveytomeasuretheTVviewinghabitsofadigitalconsumerleadto
thefollowingconclusions:

1.ADigitalViewerwatchesmorechannelsascomparedtoananalog
one.Thiswasmeasuredbypercentageofchannelscontributingto80
percentviewingtime

NumberofChannelscontributingto80percentviewingtime

Target Group No of Channels

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.
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.

Use of Digital Technology in Film Making


Overthepasttwoyears,anincreasingnumberoffilmsinIndiahaveusedthe
DigitalIntermediate(DI)technology,wherebyafilmgetsconvertedtodigital
formatandaffordsmorecontrolofcolorsandimagesaswellasroomforthe
adjustmentofimagestructure.Consequently,therehasbeenincreasing
instancesofuseofcomputergraphicsimaging,3DanimationandVFX
technologyinfilms.During2008,Adlabsthroughatechnologytie-upwithIsrael-
basedCinemaParkNetworks(CPN),openedIndia’sfirst6Dentertainment
center-TheCinemaPark-inAgra.Atpresent,thescreeningismeantfor
educationalmoviescateringtoforeigntourists,studentsandfamilies.The
technology-drivenvisualeffectsandacousticsof6Dcombinestrikinglyrealthree-
dimensionalimageswiththesensesofsmell,sound,touch,motionand,above
all,interactivity.Thisprovidesauniquecinematicexperiencetotheviewer.Ifthe
conceptissuccessful,moreexhibitorsandpostproductionstudiosmightbe
keentogoforusageofsuchadvanceddigitaltechnologiesinfuture.
115

Digital Cinema –The Technology


FilmIndustryhaswitnessedthearrivalofdigitaltechnologyincinemaoverthe
pasttwoyears.DigitalCinemareplacescelluloidfilmswithdigitalprojection.
Moviesarefilmedandthenstoredondigitalmediasuchasharddisksorservers.
ThesearethendistributedthroughphysicalmediasuchasDVDsorare
transmittedtodigitalcinemawiththehelpofhigh-speednetworks(satelliteor
opticalfiber).Atcinemas,thesemoviesarebeamedusingspecialdigital
projectors.

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.

The Economics of Cinema Prints- How does Digital Cinema Help?


The Scene two years earlier….

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
116

The Solution…Digital Cinema and how it could help

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.

The ‘Glocal’ Indian Model of Digital Cinema


DigitizationhastakenoffinIndianCinemaduetotheadaptedtechnologythatthe
IndianplayershavebroughttoIndia.Inthewesterncountries,mostlytheD
Cinemakindofdigitaltechnologyhasbeenadopted.DCinemareferstodigital
screensadheringtosystemspecificationsasprescribedbyDigitalCinema
Initiatives(DCI).DCIstandardshelpensureauniformandhighleveloftechnical
performance,reliabilityandqualitycontrol,withthefinalcinematicviewing
experiencebeingbetterthanthenormalanalog35mmfilms.GloballyDCinemas
arethenorm;theyaretheonlyformatinwhichHollywoodFilmsarereleased
today26.InIndiatoo,playerssuchasPVRandAdlabsaremakingeffortsto
introducetheD-CinematypeofdigitalformatscreensinIndia

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
117

Forinstance,RealImagesellscinemasystemagainstadownpaymentofaround
10percentwhileUFOMoviezcollectsafeepershow(INR200fromthe
distributorsandINR250fromtheexhibitors)whileretainingownershipofthe
systems29.Bothgettherightsforon-screenadvertising,insomecasesabigger
revenuecomponentthandigitalcinemasolutions.Thus,unlikeHollywoodwhich
viewsdigitalsolutionsasaqualityinvestmentdevice,digitalcinemaismoreofa
costsavinginstrumentinIndia,whichexplainsthebusinessmodelnovelty.

D-Cinema vs. E-Cinema

D-Cinemavs.E-Cinema
Parameter D-Cinema E-Cinema

Quality Equaltoorbetterthan35mm Belowanalogquality


Expensive
Price Inexpensive(USD20000-50000)
(USD1,00,000-1,50,000)

DevelopedFor CinemaMarket VideoMarket

Driver Quality Price

Source:“Multiplexes:Bigpictureahead”,IndiaInfoline,April2006

Impact on the Film Industry


This‘glocal’modelhasledtoanexplosioninpenetrationofdigitalscreensin
India-therateofadoptioninIndiaishigherthanthoseinthedeveloped
countries.PlayerssuchasRealImagesandUFOhaveequippedaround1800
theatersinIndiawithdigitaltechnologyandhaveaggressiveexpansionplanstill
2010.30 Atpresent,penetrationofdigitalscreensinIndiaishigherthanthatin
U.S.

Penetrationofdigitalscreens

Source:CreditSuisse,KPMGResearch

29“Directtotheater”,OutlookBusiness,May2008
30KPMGInterviews
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
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.

Online Music Content


Musiccompaniesnowoffertheirmusiclibraryonmultiplethirdpartywebsites
apartfromtheirownwebsiteforafeebaseddownload.

Howevertheonlinemusicindustryfacesamajorchallengeintheformofillegal
fileswappingservices.Extensiveviolationofcopyrightanddigitalstreamripping
arehurtingtheindustryhard.

Playershavestartedtoputeffortsinaddressingtheseissues.Forinstance,in
2007TSeriesfiledacaseagainstYouTube.comanditsparentcompanyGoogle
Inc.forinfringementoftheircopyright;thecompanywassuccessfulinobtaining
aninterimrestraintagainstYouTubeandGoogle.In2008aswell,thecompany
filedacaseagainstYahooInc.anditsIndiansubsidiaryYahooWebServices
(India)Pvt.Ltdforinfringementoftheircopyrightcausedbyunlicensedstreaming
ofTSeries’copyrightworksonYahoo'sportal33.

Growth in Mobile Music


BulkofthedigitalsalesinIndiacomprisesofmobilemusicandwithinthis
ringtonesdownloadoccupiesthedominantshare.

Infuture,songsembeddedinhandsetsarealsoexpectedemergeasasignificant
revenuestreamformusiccompanies.Forinstance,ahandsetmaybeoffered
withcertainnumberfulltrackdownloads(thepriceofwhichistobecoveredin
thecostofthephone)withfurtheroptionsofdownloadingnewsongsforafee.

32Crisil–StateoftheIndustry,October2007
33“T-Seriescontinuesfightagainstpiracy”,Buzz18.com,July2008
120

Digital Formats in Outdoor Media


Overthepasttwoyears,digitalformatsinoutdooradvertisinglikeLCDandLED
screenshavegainedwideracceptance.Theyear2008witnessedtheintroduction
ofnewformatsandtechnologyinOOH,throughinternationalstandardsBusQ,
digitalmediaintroductioninhousingcomplexes,cafes,restaurants,malls,office
complexes,airportsandinretailstores.Costeffectivenessandscalabilityarethe
twomainadvantagesthatdigitalbillboardsofferoverthetraditionalformatsin
caseofOOHadvertising.Digitalbillboardsareexpectedtoexpandtheeffective
out-of-homeinventorybecausemultipleadscanbeshownonthesamedisplay,
generatingmanytimestherevenueofatraditionalbillboard.Further,withbig
citieslikeChennai,DelhiandBangaloreputtingabanonstreethoardings,players
arebettingonputtingdigitalsignagesinmallsforeffectiveengagementof
customers.Industryplayersbelievethatsincehoardingsandbillboardsalonemay
notbeabletocaptureenoughconsumerattention,customerengagementhasto
comethroughinteractivity.

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
121

Convergence: Accessing media across


devices

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.Inthisscenarios,thethirdoption–freeadsupported
contentislikelybeagoodbetformediacompaniesatleasttillthetimedigital
piracyisbroughtundercontrol.

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
122

Implications of Digitization
Undoubtedly,digitzationissettotransformthemediaindustryinIndiaby
enhancingthequality,thespeedandscopeofdeliveryaswellastheuser
interactivityofvariousmediaformats.Inthefollowingtable,theimplicationsof
digitizationonthedifferentsectorsofthemediaindustryaresummarized.

Digitization:ImplicationsfortheIndustry

Sector Effects of Digitization Implications


• Morechoiceavailabletoconsumersduetogreater • Lesserunderdeclarationofsubscriberbaseleadingto
numberofchannels increaseinsubscriptionrevenuesforthebroadcaster
• EnhancementofoverallTVviewingexperiencedue • IncreaseinaverageTVviewingtimeduetobetterviwing
TV tobetterpictureandsoundquality experienceandmorechannelchoice
• PotentiallyhigherARPUsfordigitaldistributionplayers
• Availabilityofmultipleadd-onservicesapartfrom
becauseofabilitytoofferadd-onservices
standardchannelsubscriptionpackages

• Widerreleaseofprintswithsimultaneousreleasein • Higheroccupanciescanfacilitatequickerrecoveryof
smallercenters investmentandenablemorefilmreleases
• Shortertheatricalwindows • Universalreductioninthetheatricallifeofafilmincinema
Film halls-statusofthefilmcanbedecidedinthefirstweekitself
• Advancedvisualeffectsandtechnology
• ReductioninpiracyinTierIIandTierIIIcities
• 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
Regulatory and Tax
Environment
06
Regulatory and
Tax Environment

Governmentinterventionbywayofregulationsalsostems
Introduction fromitsplannedobjectives(laiddownintheFiveyear
plans).Regulationsmaybebroughtouttohelpensurethat
theobjectivesareachievedasperthegovernmentdesign.
Mediaplaysanimportantroleindisseminationof Furthermore,theneedforhugeinvestmentsalsocallsfor
information,therebystimulatingdevelopmentinany clearregulations-togenerateinvestorconfidence.
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.
126

SnapshotofRegulatoryInterventions
Proposals/
Sector Parameter Earlier Now Implications
recommendations1
Television Uplinking Separateuplinking -Consolidated -TelecomRegulatory Therecommendationmakes
Guidelines guidelinesfor: UplinkingGuidelines AuthorityofIndia’s 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.)sallowedunderthe‘approvalroute’only.
3Additionalconditionsinclude,interalia,ownershipofatleast51percentoftotalequitybylargestIndianshareholder(asdefinedintheUplinkingguidelines)
4TheUnionGovernmentdecidedtopermitDTHTVserviceinKuBand.TheprohibitiononthereceptionanddistributionoftelevisionsignalinKuBandhas
beenwithdrawnbytheGovernmentvidenotificationNo.GSR18(E)datedJanuary9,2001oftheDepartmentofTelecommunications(DoT).
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 serviceobligation, theconcernsofall
TelevisionNetworks establishmentofthe stakeholders.
Rules,1994 Broadcastingregulatory
[theCableAct] authorityofIndia
Regulator Noseparateregulator TRAIappointedasabroadcasting Appointmentofa
andcableservicesregulatorwith regulator
effectfromJanuary9,2004 facilitated
addressingof
isuuesfacedby
theIndustry.Ithas
alsobroughtmore
transparencyin
thepolicymaking
process
Pricing -Notregulated -ConditionalAccessSystem(CAS) -Choiceto
regulations/ -Channelsofferedin implementedinChennaiandsome consumerstopay
Choice of bouquets(thana-la- partsofMumbai,DelhiandKolkata forthechannels
channels for thattheywatch
carte) -Pricingcaps7 on
consumers -Transparencyfor
a)PaychannelinCASareas(INR
thebroadcasters
5.35perchannelpersubscriber)
asthenumberof
b)Amountpayablepermonthin subscriberscanbe
Non-CASareasistorangebetween known
INR82andINR278;and
-Betterforthe
c)PaychannelsofferedtoDTH consumersasthe
operators(at50percentofthe discretionofthe
ratesatwhichchannelsareoffered cableoperators
fornon-CASareas) wouldnotbe
-Provisionofchannelsona-la-carte functional
basismademandatory -Regulations
-Interconnectagreements governing
betweenbroadcastersandnetwork Interconnect
operators(DTH,cableoperators agreements
etc)governed8 byTRAI enableacquisition
ofcontentby
distributorson
competitiveterms
Sharing of feed Basedoncommercial Mandatory5sharingoflivefeedsin -Revenueleakage
with public arrangements;not respectofsportsprogrammesof forprivate
broadcasters mandatory nationalimportance channels
-Availabilityof
importantsporting
eventstothe
masses

Note:TheaboveinformationisupdateduptoDecember31,2008

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
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.

Films& Principal -IndianCopyrightAct, Amendmentsinthe Theamendmentsproposed,inter


Music Regulations 1957(‘CopyrightAct’) CopyrightActproposed alia,include‘digitalrights
-Cinematograph intheyear2006 management’andaspects
Act,1952 emanatingfromIndia’s
membershipoftheWorldTrade
-PolicyforImportof Organization(WTO).Itislikelyto
Cinematographfilms maketheCopyrightActmore
etc. stringentandincompliancewith
theinternationalscenario.
Foreign 100percentFDIin 100percentFDI Removalofentrylevelconditions
Investment filmallowedsubject allowedinwithno mayallowmoretie-ups/foreign
toentrylevel entrylevelconditions playerstocomeintothecountry.
conditions
Co-production TreatieswithItalyUK, Furthertreatieswith TreatieswithChina, Suchtreatiesenablethe
agreements France Germany,Brazil Canadainprocess developmentoffilmindustriesof
(treaty) boththecountriesandfurther
economicandculturalexchanges.
Treatiesalsoaccordstatusofa
‘nationalfilm’totheco-produced
film.
PrintMedia Principal -ThePressand Additionalguidelines/ Editionsofforeignnewspapers
Regulation RegistrationofBooks regulationsinclude: couldbemadeavailabletothe
Act,1867 -Guidelinesfor Indianreaders(whichwereearlier
-TheRegistrationof publicationof importedintothecountry).
Newspapers(Central) facsimileeditionsof However,thereisnofacsimile
Rules,1956 foreignnewspapers editioninIndiatilldate.
-Guidelinesfor -Indiannewspaperscanprocure
Syndication material(photographs,cartoons
ArrangementsBy etc.)fromforeignpublications
Newspapers Thegovernment’sdecisiontoallow
-Guidelinesfor Indianeditionsofforeignnewsetc
publicationofIndian magazinesmayresultinreduction
editionsofforeign inpricesofsuchmagazinesand
technical/scientific/ alsoinclusionofIndiancontent/
specialtymagazines/ advertisementsinsuch
journals/periodicals publications.
-Guidelinesfor
PublicationofIndian
EditionsofForeign
Magazinesdealing
withNewsand
CurrentAffairs
Note:TheaboveinformationisupdateduptoDecember31,2008

9TelecomDisputesSettlementAppellateTribunal(‘TDSAT’)hasrecentlyruledthatitisnotmandatoryforaDTHoperatortocarryallthechannelsonits
network
10MinistryofInformationandBroadcasting(‘MIB’)hasissuedguidelinesonIPTVwhich,interalia,providesforthefollowing:
-Noregistrationrequiredincaseof:
a)Telecomlicenseeshavingalicensetoprovidetripleplayservices;
b)InternetServiceProviders(‘ISP’)havingnetworthofmorethanINR100croresandhavingpermissiontoprovideIPTVservices;and
c)Registeredcableoperators.
-TelecomserviceprovidersandISPstopaylicensefeebasedonAdjustedgrossrevenueasapplicablefromtimetotime;
-PriorapprovaloftheGovernment(orlicensingauthority)requiredforaddinganynewvalueaddedservicetothenetwork.
11GovernmentofIndiahad,intheyear2003,issuedpermissiontotwocompaniestooperateHITSserviceforfastimplementationofCAS.However,this
servicehasnottakenoffsofar.
129

SnapshotofRegulatoryInterventions
Proposals/
Sector Parameter Earlier Now Implications
recommendations
PrintMedia Foreign Notpermitted IndianentitiesIndian Thepresentforeigninvestment
Investment entitiespublishing: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-timeentryfee -OTEFforadistrict; -Enhancedviabilityofthe
regime(with15 (OTEF)foracity13; and14 stationsasannualfeealigned
percentescalation 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
14RecommendationsinrespectofallparametersunderRadiohavebeengivenbyTRAIon3rdphaseofFMradioBroadcasting
15TheseareMIB’sviewsonTRAI’srecommendationson3rdphaseofFMradiobroadcasting
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 Therecommendationislikelytobring
consistencyandalevelplayingfield
inthenewsandcurrentaffairs
segmentofbroadcasting(print,
televisionandradio).
MIBagreeswithTRAI’sproposals

Provision of Notpermitted Notpermitted Contentsourced Therecommendationsareexpected


news and fromAIR, tomakethestationsmoreviableand
current affairs Doordarshan(DD), extendthedisseminationof
authorizedTV informationtothemasses.
channelsetc MIBisopentoairingofnews
allowed,without bulletinsofAIRorDDonly.Ithas
anysubstantive alsolistedcertainbroadcast
change categoriesthatshallbetreatedas
non-news/currentaffairs,viz.sports
eventcommentaries,trafficand
weatherinformation,etc.

Networking Notpermitted -Notpermittedbetweentwo Networkingallowed -Increasingtheviabilityandqualityof


(simultaneous withoutprior licensees withinalicensee’s contentinsmallercities
broadcast of approval -Allowedbyalicenseeforown networkonly Therecommendationislikelyto
same content) stationsincategoryCandD furtherreducethecostofcontentfor
cities17 withinaregiononly. theoperators.
MIBhasacceptedtheTRAI’s
proposal.However,ithasalso
suggestedensuringatleast20
percentbroadcasttobeinthelocal
dialectofthecity

Outdoor Regulations Noformal -SupremeCourt(SC)had -Central Thereisaneedforappropriatepolicy/


Advertisi regulatorycode bannedhoardingsinDelhiin governmenthas regulationsacrossthecountrywhich
ng18 attheunion 1997—ongroundsofroad alsoaskedstate hasbeenabsenttillnow.Itis
level;states safety governmentsto imperativetobringuniformnormsat
havetheirown -MunicipalCorporationofDelhi imposeabanon nationallevel.
policies (MCD)setsupanUrban hoardings
-WestBengal GraphicsForumonApril30,
Preventionof 2003forregulatingoutdoor
Defacementof advertisingandevolvinganew
PublicProperty advertisingpolicyforthecity
Act -DelhiOutdooradvertisement
policy2008approvedbySC
-ChennaiHighCourtbanned
hoardingsetc.tohelpensure
roadsafetyin2006(upheldby
theSCin2008)

Note:TheaboveinformationisupdateduptoDecember31,2008

16Additionalconditionsinclude,interalia,ownershipandmanagementcontrolofmorethan50percentofpaidupequitybyanIndianindividualorcompany
17CategorizationbasedonsizeofpopulationinacityaspertheFMRadiopolicy(Phase-II)
18Newsarticlesandwebsearch
131

Certain tax related aspects- Direct tax

Deduction of expenses for film producers/ distributors


SpecificruleshavebeenprovidedundertheIncomeTaxRules,1962[Rule9A&
9B]inrelationtodeductionofexpenditureonproductionoffilms/acquisitionof
distributionrightstherein.Aspertheprescribedrules,afilmproducerwhosells
theentireexhibitionrightsofthefilmisentitledtoadeductionoftheentirecost
ofproductionincurredbyhimintheyearinwhichtheCensorBoardcertifiesthe
filmforreleaseinIndia.Asimilardeductionisalsoavailableforafilmdistributor
foroutrightsaleofthedistributionrightsacquiredbyhim.Otherconditionsalso
existincaseofpartialsale/exhibition.

Tax issues for foreign television channels/telecasting


companies (FTC)
ThetwoprimarysourcesofrevenueforFTC’s,interalia,isincomefromthesale
ofadvertisingairtimeontheTVchannelandsubscriptionrevenues.Underthe
domestictaxlaw,incomeoftheFTC’sistaxedinIndiaincasetheyconstitute
businessconnectioninIndia.

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
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.

Permanent Establishment exposure


ThedownlinkingguidelinesissuedbyMinistryofInformationandBroadcasting,
GovernmentofIndia(MIB)mandatethateithertheapplicantcompanyshouldbe
theownerofthechanneloritshouldhaveexclusivemarketing/distributionrights
fortheterritoryofIndia,whichincludesrightstoadvertisement/subscription
revenuesforthechannel.Incaseithassuchrights,itshouldalsohavethe
authoritytoconcludecontractsonbehalfofthechannelforadvertisements,
subscriptionandprogrammecontent.Itisnecessarytocomplywiththe
aforesaidconditionstoobtainapprovalsfromtheMIB.

However,conformingtotheaforesaidconditionsmayleadtoanexposureof
creationofaPermanentEstablishment(PE)oftheforeigncompanyinIndia.

Some important aspects relating to Transfer Pricing (TP)


GiventheincreasedlinkagesbetweentheIndianmediaplayerswiththeir
counterpartsacrosstheglobe(coupledwiththeimpressivegrowthachievedand
targetedforthesector),thetransactionsbetweenIndianplayersandtheirrelated

19[2002]85ITD478(Del.)
20[2006]9SOT100(Del.)
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.)
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.

Latest development for FM Radio companies


TheUnioncabinethasrecentlypermittedprivateFMradiocompaniesto
restructuretheirbusinessesbeforethefive-yearlock-inperiod.Accordingly,the
Governmenthasnowallowedmergers,demergers,setting-upofsubsidiariesand
amalgamationinFMPhaseIIPolicyonfulfillmentofcertainprescribed
conditions22.Thiscouldhelpsuchcompaniesconsolidatetheirbusinessesand
makethemmoreefficient.

Further,TRAIinitsrecommendationson3rdphaseofFMRadiobroadcasting
has,interalia,suggestedthatdilutionofownershipbeyond51percentshouldbe
permittedaftertheexpiryofthreeyearsfromthedateofoperationalizationofthe
station,withawrittenapprovalfromtheMinistryofInformation&Broadcasting.

22Aspernewsarticlesonthematter,theprescribedconditionsincludecontinuanceofminimum51
percentholdingbymajorityshareholdersorpromoters
135

Certain tax related aspects- Indirect tax

Central and state levies


Therearelevies,centralaswellasstate,whichdirectlyaffectthemediaand
entertainmentindustry-centralleviesbeingcentralexciseduty,customsduty
andservicetaxandStateleviesbeingstate-VATandentertainmenttax.Ofthe
variousindirecttaxesapplicableinthemediasector,servicetaxandstate-VAT
meritspecialattention.Applicabilityofthesetaxesonprogrammeproduction,in-
filmplacements,grantofvariousrightssuchasdistributionrights,theatrical
rights,cableandsatelliterights,saleofairtimeforadvertisementpurposes,
recording/editingofprogramme,sale/leaseofprogrammecontent,etcare
becomingincreasinglycontentiousandleadingtodisputeswithauthorities.

Applicability of State VAT on Sale of a Film


Factorssuchasinterplayofmultipleindirecttaxes,availabilityofvariousoptions
forcomputationoftax,frequentevolutionofconceptsintaxationthrough
changesinlawandjudicialrulings,havegivenrisetocomplextaxissuesinthis
space.Forexample,aHighCourthasheldthatproductionandsaleofafilm
resultedincreationofaworkofartandnotsaleofgoods.However,someother
state-VATlawshaveincludedfilmsas'goods'liabletosalestax.Further,certain
stateslevystate-VATonintangibleslikecopyrightandalsoongrantoffilmrights
touse/hire.Thereisneedforgreaterconsistencyanduniformityintaxationfor
suchanimportantindustry.

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
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
Internationalization
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

• Indiancompaniesemergingasanoffshoringhubof
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.Animationhasbeenattheforefrontin leadingIndianbroadcasterstypicallyhaveapresencein
thiswithIndiaemergingasamajoroutsourcingdestination foreignmarketsthoughdistributiontieups.Forinstance,
duetoitscostadvantage.Filmpostproductionhasalso IndianbroadcasterZeehaschannelbouquetsinEurope,
shownpotentialinthisregard. NorthAmerica,Africa,MiddleEastandSouthEastAsia.

1MinistryofExternalAffairs
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
IPTVserviceproviderTheNewMediaGroup(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

Taal 255 Average 137.5 Hit

Films: Bollywood riding high on overseas Yaadein 133 Flop 91


Above
Average
collections
Don 501 Hit 320 Blockbuster
IndianfilmshavealwaysbeenafavoritewiththeNRI
KabhiAlvida AllTime
diaspora.Therefore,asthenumberofNRIshasincreased 464 Hit 445
NaKehna Blockbuster
substantiallyworldwide,thepopularityofIndianFilmshas Source:IndiaBoxofficeDatabase
alsoincreasedabroad.

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
141

TheimportanceofoverseascollectionsforIndianfilmscanbegaugedfromthe
factthatmanyofthebigIndianfilmdistributorssuchasYashRaj,UTV,Adlabs
andEroshaveestablishedtheirdistributionofficesoverseas.In2008,UTV
MotionPictures,withitsreleasesintheU.S.grossingUSD5.48millioninthe
first28weeksofthe2008,emergedamongstthetop20filmdistributorsin
NorthAmerica(theonlyforeignlanguagedistributorinthetop20list).6

Crossover and Drama dominate overseas market


Whilemoviesacrossgenreshavebeenlargelypopularoverseas,‘crossover’and
‘drama’movieshavedoneespeciallywell.AnanalysisofTop50moviesinterms
ofoverseascollectionsoveraperiodof5yearsrevealsthattheoverseas
audiencehasamaximumpreferenceformoviesbelongingtothesegenres.

OverseasReleases–WhathasworkedatOverseasBO

Source:KPMGAnalysis Note:
1 AnalysisdoneonTop50moviesintermsofoverseascollectionoveraperiodof5years
2 BOperformancebasedonthesizeofcollections
3 Sizeofthecirclerepresentsrelativeaveragenetadjustedcollectionintheoverseas
market

6CompanyWebsite,PressReleases
142

Online and Overseas Editions of Print Media


AlmostalltheleadingnewspapersandmagazinesinIndia(bothEnglishandother
languages)havetheironlineeditionsprovidingfreeaccesstothelatestnewsand
analysis.TheseelectronicversionsareusedbyadvertiserstotargetIndiansliving
abroad.Almost80percentofhitsonthesewebsitescomefromtheNRI
diaspora.7

Globally,electronicversionshaveemergedasseparaterevenuemodelsforthe
printmediaplayers;theircontentisalsodifferentiatedfromthatintheoffline
versions.HoweverinIndia,electronicversionshaveoriginatedmoreasabrand
buildingandbrandsaliencemedium.Atpresent,thee-papersarejustelectronic
reproductionsoftheofflineeditions.

Manynationalandregionalnewspapersalsopublishtheiroverseaseditions
targetingtheNRIpopulation.

OverseasEditionofsomeIndianNewspapers

Newspaper Frequency Country/City

Sandesh Weekly Chicago

AnandBazaarPatrika Fortnightly Average

MalayaManorama Daily Bahrain,Dubai

Madhyamam Daily Bahrain,Dubai

GujaratSamachar Weekly NewYork

DivyaBhaskar Fortnightly NewYork

Source:KPMGAnalysis

Magazineplayerstoohavestartedtocomeupwiththeirinternationaleditions.
Forinstance,FilmfarelauncheditsGermaneditionaspartofitsefforttospread
readershipininternationalmarkets.ThemagazineispublishedinGerman
languageaswell.8

7KPMGInterviews
8 exchange4media
143

Targeting Mainstream Global Audiences

Dedicated TV programming for local audiences abroad


ApartfromtargetingtheNRIpopulationbybeamingIndiancontentinother
countries,broadcastershavenowbeguntotakethingstothenextlevel,andare
startingtoofferdedicatedprogrammingforthelocalaudiencesinthese
countries.

ZeeNetwork,forexample,hasZeeAstrowhichisbroadcastintheSouth-East
AsiainthelocalBahasalanguage.NDTVtoohaslaunchedtwochannels
specificallyformarketsoutsideIndia–AstroAwaniinSouth-EastAsiain2006and
NDTVArabiaintheMiddleEast.WhileNDTVArabiaisinEnglish,AstroAwaniis
primarilyinBahasa.9 Bothchannelscarrylocallyrelevantinfotainment
programming.

Films: Looking beyond the diaspora


It’snolongerjusttheNRIsthathaveatasteforBollywoodmovies.Increasingly,
nonIndianmovieaudiencesindifferentpartsoftheworldarediscoveringthe
charmofBollywoodsong-and-danceroutinesandmelodramas.Thestriking
popularityofIndianfilmsamongnonIndianaudiencesinAsia,theMiddleEast
andEuropeshowthatHindifilmsreachbeyondthebarriersoflanguage,culture,
andreligion,andareatrulyglobalmedia.Keymarketsforthefilmindustry
includeIndia’sneighboringandculturallysimilarcountriessuchasPakistan,Sri
LankaandBangladesh.BesidestheIndiandiasporainthesecountries,thereisa
greatdemandforBollywoodcontentamongthelocalaudiencethere.Pakistan,
forexample,hasa165millionstrongpopulationthathasakeeninterestin
Bollywoodfilms.WithPakistanrelaxinglawsagainstthetheatricalreleaseof
IndianFilms,thecountryhasemergedasverybigpotentialmarketforHindiFilm
Industry.Indianfilmsarealreadypopularthereandpeopleunderstandthe
languageaswell.Similarly,countrieslikeBangladesh(147millionstrongBengali
speakingpopulation),SriLanka(3.8millionTamils),Malaysia(2.3millionTamil
speakers),Singapore,UAE,andFijialsohavegoodpotentialfordifferentregional
Indianfilms,ashasbeenprovenbythepopularityofIndiantelevisionchannelsin
thesecountries.

Besidestheseculturallysimilarcountries,popularityofbrandBollywoodhasalso
improvedinnewmarketssuchasIsraelandPoland.Besidescountriessuchas
Indonesia,Malaysia,Thailand,Germany,RussiaandChina,allofwhichconsume
dubbedHollywoodcontent,offergoodmarketpotentialforBollywoodfilmsas
well.

9CompanyWebsite,PressReleases
144

Itisalsoworthmentioningthatinrecenttimes,westernfilmmakershave
startednoticingIndianCinemaandaremakingmovieswithIndiacentrictheme
andartists.Thesuccessandpopularityof”SlumdogMillionaire”,withitsIndian
locales,artistsandmusicunderscoresthegrowinginfluenceofIndianCinema
andaugurswellforBollywoodmoviemakerstargetingtheglobalaudiences.
Clearly,Bollywoodisamuchbiggerbrandtodaythanafewyearsback.The
developmentofthisbrandandtheawarenessaboutBollywoodhasbeen
catalyzedbymanyfactorsinrecenttimes:

• Indianproducersaggressivelypromotingtheirfilmsininternationalfilm
festivalssuchasCannes

• IncreasinguseofforeignlocationsinIndianfilms

• IncreasingcoveragegiventoBollywoodinthewesternmedia

• IndianfilmawardfunctionssuchasIIFAwhichareheldonaninternational
scaleoutsideofIndia.

Tounlockthetruepotentialofoverseasmarketshowever,filmcompaniesneed
certainkeycapabilities:

• Allocatingsufficienttimeandbudgetsformarketresearchintheoverseas
markettounderstandthecontentpreferencesoftheoverseasaudience

• Modifyingtheexistingcontentbeforereleasinginoverseasmarkets.For
example,thelongerlengthofIndianfilmsactsasadeterrentforacceptability
bywesternaudiences.Thiscanbetakencareofbycrispeditingofcontent

• Allocatingmoretimeatthepostproductionstagesothattheendoutputis
technicallycomparabletoaHollywoodFilmandmeetsinternational
standards.Atpresent,filmmakersinBollywoodallocateonlyone-fourththe
timetakenbyHollywoodforpostproductionwork10

• 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
145

Production and Co-Production of Hollywood Films


ApartfromaggressivelysellingBollywoodintheU.S.,theIndianfilmstudiosand
distributorshavenowbeguntomaketheirmarkinanevenmorefundamental
way–bygettingintotheproductionofHollywoodfilmsthemselves.Similarto
theirwesterncounterpartslikeSony,DisneyandWarnerBros,whoareco-
producingIndianmovies;Indianfilmcompaniesarealsolookingatoverseas
ventures.Increasedcorporatizationhasalsobroughtabouttheconfidenceinthe
IndianplayerstoextendtheirinfluenceoutsideofIndianborders.

OneofthecompaniesattheforefrontinthisregardisUTVMotionPictures,
whichhasalreadyco-producedthreeHollywoodfilms.

HollywoodFilmsco-producedbyUTV

Film Year of Release Co-Producers

CineMosaic,EntertainmentFarm,Fox
TheNamesake 2007
Searchlight

IThinkILoveMyWife 2007 FoxSearchlight,ZahrloProductions

BlindingEdgePictures,BarryMendel
TheHappening 2008 Productions,SpyglassEntertainment,Fox
Searchlight
Source: Company Website,KPMG Research

In2006,UTVMotionPictureshadalsosignedaUSD30milliondeal,withWill
Smith’sproductioncompanyOverbrookEntertainmentandSonyPictures
Entertainmenttoproducetwofilms12.Accordingtotheagreement,UTVand
Overbrookaretoco-producethetwofilmsandSonyPicturesEntertainmentisto
distributethemoviesworldwide,excludingIndia.

AnothercompanywithambitiousglobalexpansionplansisReliance’sBig
Entertainment.InMay2008,itannouncedthatitplanstobemake10Hollywood
movies13.Inordertodothis,Reliancehassigneddealswiththeproduction
teamsoftheHollywoodstarsNicolasCage,JimCarrey,GeorgeClooney,Tom
HanksandBradPitt.14 Thecompanyisalsopursuingopportunitiesinthemovie
exhibitionsectoraroundtheworld.Inthefirsthalfof2008,itboughtover230
cinemasinU.S.andanother50inMalaysia.Thecompanyhasalsoboughtsome
theatersinMauritiusandNepal.15

12 “UTVtoproducefilmswithFox,Sony”,TheTimesofIndia,August2006
13CompanyWebsite,“RelianceBigEntertainmentlaysoutaUSD10billiongameplan”,Livemint.com,May2008
14CompanyWebsite,“RelianceBigEntertainmentlaysoutaUSD10billiongameplan”,Livemint.com,May2008
15CompanyWebsite,“AdlabsforaysintoMalaysia”,BusinessStandard,May2008
146

Co-production agreements with other countries-How do they


help?

Indiahassignedfilmco-productiontreatieswithGermany,Britain,Italyand
Brazil.Theadvantagesofsuchtreatiesforfilmmakersofbothcountriesare
generallyintermsofaccesstotechnicalexpertiseandproductionstandards,
taxbenefitsandaccesstofinance.

Otherthanaccesstosubsidizedfinance,aco-productiontreatysignedwith
onecountryalsoallowsbothpartiestoavailoftheadvantagesofotherco-
productiontreatiesthattherespectivecountriesmayhave.Forinstance,asper
theIndo-U.K.treatytheIndianproducerscantakeadvantagesofthesixco-
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
shotinBritainanywaybecauseofthescriptdemands,thetreatyislikelyto
helpinreducingthebudgetthroughtaxincentives.

Goingonestepahead,theglobalmarketexpansionplansoffilmproduction
houseshaveproceededbeyondco-productions;companieshavestarted
embarkingonthepathofsoloproductions.Forinstance,UTVMotionPictures
hasventuredintoitsfirstsoloHollywoodproductiontitled‘The Ex-Terminators’
starringHeatherGraham.ItisthefirsteversoloHollywoodproductionbyan
Asianfilmcompany.ReliancehasalsoannouncedplanstoproduceanAmerican
Gangstermovietitled‘Broken Horses’,tobedirectedbyIndianfilmmakerVidhu
VinodChopra.SuchHollywoodproductionsbyIndianproducersarealsoexpected
toopenthedoorsforIndiandirectorsandtechnicianstoworkinHollywood.16

NotonlycouldtheirHollywoodprojectsopenupadditionalrevenuestreamsfor
theIndianfilmcompanies,buttheycouldalsohelpBollywoodworkwith
advancedtechniquesonabiggerscale.Atpresent,theIndianfilmindustry,with
releasesofaround1000moviesayear,producestwicethenumberofHollywood
movies.Insharpcontrasthowever,Hollywoodhastentimesthesales.Ifthe

16CompanyWebsite,PressReleases
147

principlesthattheIndianfilmcompanieslearnfromtheirHollywoodexperiences
areappliedtoIndia’sfilmindustry,itcouldcertainlyhelpmakebiggermovies,
targetingamoreglobalaudience.

“I believe that this is Off-shoring hub for Media Services


the best time for the
Indian VFX industry. With Althoughalateentrantonthescene,theIndianMediaandEntertainment(M&E)
booming growth rates of industryiscatchingupintheoutsourcingtrend.Outsourcingofmediaand
entertainmentrelatedservicesaccountsforaverysmallproportionoftheglobal
the domestic
outsourcingmarket,butiswitnessingrapidgrowthinthelastfewyears,both
entertainment industry throughcaptivecentersaswellasthirdpartyoutsourcing.Themajordriversfor
and untapped potential of offshoringtoIndiaarecostsavingsandtheavailabilityofsuitabletalent.

Hollywood,the Indian CompaniessuchasReuters,ChicagoTribune,Sony,Yahoo,WaltDisney,Viacom


visual effects/post andAOLareoffshoringavarietyofservicestoIndia.Whilealargeproportionof
theworkisinstandardserviceslikeIT,HR,financeandaccounting,customer
production business is
relationshipandsupplychainmanagement,offshoringisbeingtriedinfairlyniche
reaching closer to a point areassuchaspublishingandeditorialservices,animationandvisualeffectsand
where it will be gamingdevelopment.
recognised as a SomeareasofopportunityforM&Eoutsourcinggoingforwardare,
powerhouse of talent
1.Indiannewspaperpublishers,graphicdesigncompaniesandpublishingBPO
offering international vendorsarepoisedtoexploitaUSD3-5billionopportunityinthenewspaper
technology and quality outsourcingsegment17,byprovidingservicestoMediacompanies.

standards” 2.MediacompaniesinIndiaareleveragingthegrowingopportunityinareas
suchasediting,digitizationandclosedcaptioning,re-purposing,archivingand
Namit Malhotra, Managing
meta-taggingofcontent.
Director, Prime Focus
3.GlobalentertainmentcompaniesareincreasinglypartneringwithIndian
creativehousestosendasignificantpartoftheirdigitalproductionandpost
productionworktoprocessingstudiosinIndia.

4.GamingstudiosinIndiaarebeingoutsourcedgamingdevelopmentworkfor
variousmediasuchaspersonalcomputers,consoles,Internetaswellas
mobilephones.

Ofthese,theanimationandfilmpostproductionsectorsarediscussedisdetail
inthefollowingsections.

17 “U.S.Newspapersmayoptforoutsourcing”,TheTimesofIndia,Spetember2008
148

Animation industry as an outsourcing hub


Indiaisoneofthemajoranimationproductioncentersoftheworld.Ithasa
distinguishedtrackrecordinbusinessprocessoutsourcingandthewidearrayof
genericadvantagesofoutsourcingtoIndiaalsoaccruetoanimationproduction.

MajormarketsandexportcentersforAnimation

Major Markets Major Export Centers

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,andthecostoftalentbeingmuchlowerintheAsian
nationsplacestheoutsourceratanadvantage.
149

TypicalCostBreakupforcreatingan
Costperhourofanimation
animatedfeaturemarket

Source:KPMGAnalysis Source:KPMGAnalysis,KPMGInterviews

Apartfromthecostadvantage,splittingtheproductionprocessanddistributingit
betweenstudiosalsohelpscutdowntheproductiontimesthroughparallel
processing.

Moving up the value chain - The business growth model


Whileoutsourcinghasprovidedalargeportionoftherevenuesoftheindustryin
thepast,theIndiananimationindustryisnowmaturingandhasbeentargeting
co-productionopportunitieswithinternationalstudiosandatthesametime
increasingfocusonend-to-endin-houseproductionswheretheycanretainthe
IPRwiththemselves.

ForIndiananimationmovies,mythologyhassofarprovidedaneasycontent
sourceandonethathasalreadyproventobesuccessful.Thesemovieshavehad
agoodappealamongtheIndianaudiences,forwhomthesewereprimarily
made.However,theIndiananimationindustryisalreadytakingthenextstepand
manyofthenewprojectsarebasedonnon-mythologicalsubjectsandtargeta
moreglobalaudience.

UpcomingIndianAnimationFeatures

Animation Category Animation company & Producer

Alibaba Film UTVMotionPictures

Bommi&Friends TVSeries ImageVentures

TheSecretofSevenSounds Film KahaniWorld

Sultan-TheWarrior Film Orccher,Adlabs

Source:KPMGResearch
150

Thisisamovementintherightdirectionandtobecometrulyglobalandextract
maximumvaluefromanimationproductionchainproducts,theIndiananimation
industryhastocreatecontentthatislocation,languageandcultureneutraland
hasuniversalappeal.Themarketforglobalanimationpropertieswithgood
contentisenormousandthisisthemarketthatIndiananimationindustryshould
betargetinginthelongterm.

Biggestgrossinganimationfilms

Worldwide Box Office Earnings


Animation Film Year of Release
(USD Billion)

Shrek2 2004 881

FindingNemo 2003 865

ShrekTheThird 2007 791

TheLionKing 1994 783

KungFuPanda 2008 633

Source:IMDB

Potential to emerge as a major offshoring hub for Film Post


Production Services
Post-productionservicesareakeycomponentforHollywoodfilmswherethe
post-production(includingvisualeffects)cancostover50percentofaVFX-rich
film’stotalbudget.Withspiralinglaborcostsandreducedtimelines,international
productionhouses/VFXhousesarelookingtooutsourcepartoftheworktoother
studiostobeabletosustainthedemandvariantsoftheirlocalindustry.

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
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.

“We see 2009 as a major metamorphosis for the industry. The


market will dictate that premium content; strong stories and world
class execution is going to bring the best results to the ‘studios’
such as EROS. The number of global releases will increase and we
see almost 6 to 7 such products from our stable. The value addition
through digital and VFX technologies is going to make a big
difference to the scale and packaging going forward. Finally, niches
such as regional and boutique content will also see a huge growth
with the emerging distribution paradigms.”
Biren Ghose, Executive Director, Eros Pictures India

19CompanyWebsite,Businessofcinemas.com
20CompanyWebsite,PressReleases
152

Insummary,Indianstudiosofferanumberofadvantagestoforeignstudios
lookingtooutsourcepostproductionservices:

• Modernfacilities/equipment-Afterthegrantingofindustrystatus,thefilm
industryhaswitnessedaninfluxoforganizedfunding,whichhasledtothe
emergenceofstudioswhichhaveinvestedindevelopingtheirpostproduction
services

• Availabilityofskilledtechnicalstaffatlowercosts

• Abilitytooperate24/7throughshiftwork,whichleadstogreaterutilizationof
assets

• Abilitytoprovidehighlycompetitivedigitalrestorationandvisualeffects.

OneofthenotableweaknessesforIndianpostproductionstudioshasbeenthe
lackofadequateprofessionalcoursesinthefield.Thereisnospecializedfulltime
accreditedcoursesonfilmpost-productioninIndia.Mostofthecoursesbeing
offeredarebysoftwaretraininginstitutessuchasArena,NCSTandNIITs.Most
oftheseareshorttermcourseswheretheytrainthestudentsonlyonthe
softwareandtrainingonaestheticsandartisticsideofpost-productionismissing.
Theindustryneedstocometogetherandproactivelystartcoursestocopewith
thisproblem.

The Business Growth Model for the global market


Thereexistsagoodpotentialforoutsourcingofpostproductionworkfromthe
westerncountries,sincetheproportionofspecialeffectsrequiredinthesefilms
isincreasing.EspeciallyinHollywood,severalbigbudgetmoviesareusingalot
ofspecialeffects–inaction-orientedfilmssuchasthelastepisodesofTheLord
oftheRingsandStarWars,almosteveryshotmayhaveadigitaleffect.Andyet,
whilevolumeshaveincreased,releasescheduleshavenotchanged.Sothe
amountofworkloadforpostproductionhaveincreased,withthetimeallocated
remainingthesame.Studiosarethusbreakingprojectsintomultiplefacilitiesto
handlethevolumeofworkandreleasethefilmonschedule,andarethuslooking
foroutsourcingthepostproductionservices.Indiaiswellpositionedtoobtain
somepercentageofthisoutsourcedwork,providedplayerscandemonstrate
capabilitiesonparwiththeircompetitorsintheU.S.,Canadaorelsewhere.

Tounlockitsfullpotentialasapostproductionhub,IndianStudioshavetomove
beyondthecostpositioningandaggressivelytargetgettinghighendpost
productionworkfromthebestofglobalstudios.Thiscanbeachievedbyopening
up/acquiringstudiosabroad.Openingupofstudioinforeignshoreshelpsin
establishingtherightcontactsandmanagingcustomerrequirementsduringa
153

project,andthushelpinginsecuringmorework.Oncethestudio/producersees
physicalinfrastructureinaplaceabroad,andisassuredofthequalityaVFX
studiocanofferhim,hecanclearlyunderstandthevaluepropositionofdoing
workinhalfthetimeandlowercostsbysharingworkwiththeIndianstudio.
Someplayers,likePrimeFocushavesuccessfullyadoptedthispath.Further,the
workloadcanbedividedbetweentheIndianandforeignoffices.Forexample,the
postproductionworkfor28weekslaterwassharedbetweenPrimefocus’s
LondonandIndianStudios;Rhythm&Huesregularlyoutsourcesworktoits
centerinIndia.

Acquisition of Foreign Companies

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
enteredintoa50:50JointVenturewithDreamWorks.

21KPMG2008reportonEmergingMarketsInternationalAcquisitionTracker
22CompanyWebsite,PressReleases
23CompanyWebsite,PressReleases
24CompanyWebsite,PressReleases
154

TheVirginRadiodealwassignificantbecauseanIndianMediacompanyre-
brandedandre-launchedanewentertainmentbrand.Thetargetherewasnot
theIndiandiasporabutthelocalU.K.audience,VirginbeingBritain'sfirst
nationalcommercialrockradiostation.Thiswasthefirstinstance,wherean
IndianMediacompanywasacquiringaforeignpropertytotargettheglobal
audience.TheacquisitionwasakeyentrypointintothevibrantBritishRadio
marketandreinforcedthegrowingpowerandinternationalpresenceofIndian
mediacompanies.

Times Acquisition of Virgin Radio-

OnJune2008,theTimesGroup,throughitswhollyownedsubsidiary-
TimesInfotainmentMediaLimited(TIML),acquiredVirginRadioHoldings
anditssubsidiariesintheU.K.fromScottishMediaGroup(SMG)Plcfor
anallcashconsiderationof53.2millionpounds(INR4.48billion).Itwas
thefirsteveroverseasacquisitionbytheTimesGroupinthemediaspace.

VirginRadioisBritain'sfirstnationalcommercialrockradiostationwhich
reaches2.7millionlistenersinaweek.ItoperatesunderanFMlicensein
London,anAMlicenseintherestoftheU.K.aswellasadigitalradio
stationthatoperatesonlineatvirginradio.co.uk.Itisalsocommonlyheld
tobethefirstradiostationinEuropetobroadcastontheinternet,afeatit
pulledoffin1996.ItwasadistresssalebySMGandhencethedealwas
financiallyattractivefortheTimesGroup;TIMLclosedthedealatalmosta
quarterofwhatSMGhadpaidin2000toacquiretheradiostation.
Accordingtothetermsofthedeal,TIMLdidnotgaintherightonthe
Virginbrandandhencedoesnotretainandusetheoriginalbrandname
afteraperiodof90daysfromthetransaction.TIMListomanagethe
stationalongwiththeIrishradioconsultancycompany,AbsoluteRadio,
andisalsocommittedtoinvest15millionpoundsforthere-brandingof
theradiostation,overthenexttwoyears.TIMLsubsequentlyre-launched
theradiostationasAbsoluteRadiofromSeptember2008.Goingforward,
thestationisalsoexpectedtodiversifyintonewareaslikestand-alone
brandedproperties,eventownership,TVandcustomertransactionslike
musicsubscriptions,downloadsandticketing.
155

TherearecertainkeybenefitsfromthedealfortheTimesGroup:

•Entrypointandfootholdinwhatisconsideredasthemostmatureand
sophisticatedradiomarketintheworld-theU.K.market.Virginowned
oneofBritain’sthreecommercialradiolicenses

•GainingtherequisiteexperienceforoperatingtheDigitalRadio
Medium.Digitalmediumandradioonnetarebiginthewestand
Virginisespeciallystrongonthedigitalfrontwithanonlinemusic
subscriptionservice,onlinevideoandmobileapplications-itsonline
revenuescomprisesabout25percentofallonlinerevenuesintheU.K.
radiomarket

Thedealwasperceivedinthewesternmediaasasignofthingstocome
fromIndiaandotheremergingmarkets.Traditionalmediacompaniesin
theUnitedStates,WesternEuropeandJapanhavebeenstrugglingwith
fallingadvertisingrates,agloomyeconomicenvironmentandcompetition
fromtheInternet.Butnewspaper,televisionandradiocompaniesin
emergingmarketsareexpectedtoexpand.

Source:Company,PressReportsandReleases

September2008witnessedanotherimportantmilestonebyIndianM&E
companies,whenRelianceBigEntertainmentandStevenSpielberg’s
DreamWorksSKGinkedaUSD1.2billiondealtosetupanewDreamWorks
Studio,basedinLosAngeles.Asperthetermsofthedeal,thenewstudioisto
bea50:50JointVenture-thefirstsuchinstancebetweenaHollywoodentityand
Bollywoodcompany-andthusmarkedthebiggestunionbetweenthetwo
industriestilldate.25

25Company,PressReportsandRelease
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,currentDreamWorkschiefexecutiveStaceySniderandRelianceBig
Entertainment.SpielbergretainedtherightstothenameDreamWorksandaffixedittothenew
entity.Viacom’sParamountPictureshadboughtDreamWorksin2006forUSD1.6billionwiththeaim
ofusingthecompanyasacreativeenginetoreinvigorateParamount,butwaslookingforbuyersto
saveonoverheadcosts.Reportedly,priortoDreamWorks'exit,ParamountwaspayingUSD50
millionayearinoverheadsforDreamWorks.

ThedealwashailedasoneofthemostimportantdealsinthehistoryofIndiancinema-notonlydue
tothesize,butalsoduetoitsimpact.SpielbergisoneofHollywood’smostsuccessfuldirectorsof
alltime.Someofhiswell-knownfilmsareRaidersoftheLostArk,ETandJurassicPark.
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
157

FromtheperspectiveofIndiaMediaInc.,thesedealsweresignificantduetothe
scaleoftheirambitions,sinceboththesecompaniesdidnotgodownthewell
troddenAsiandiasporarouteandchosethemoreexpensive,intenselycut-throat,
mainstreamaudiencerouteinsteadtoentertheglobalmarket.Theseacquisitions
signifiedtheforayofaspirationalIndianmediacompaniesoutsidetheirethnic
comfortzones.BesidessignifyingIndiaInc.’sincreasingthrusttowardsclimbing
newfrontiers,theacquisitionunderlinesthefactthatgeography,languageand
culturalbarriersnolongercountforIndianindustry.Suchaggressiveacquisitionof
foreignpropertieshavealsosetprecedentsforotherIndianM&Ecompanies,and
itisexpectedthatthesetwodealsmaybetheprecursorsofmanymoresuch
internationalacquisitionsbyIndianplayers.Therearesomeimportantpoints
whichIndianmediacompaniesneedtoconsiderbeforeacquiringaforeignmedia
property.

PointstoconsiderforevaluatingacquisitionofaforeignTargetBrand

SynergywithAcquirers
AssessingMarketConditions ProductcategoryEvaluation TargetBrandPerformance
ExistingPortfolio

Ascertainingmarketsize Experienceandexpertise
Assessingmarketsize Analysisofthebrand’s
andgrowthpotentialof oftheacquirerin
andgrowthpotentialof historicalperformance
theoverallM&Eindustry operatinginthat
theproductcategory andpaceofgrowth
ofthetarget particularcategory

Organization’scapabilities
Awareness,Salienceand
Riskreturnanalysisofthe requiredtosupportthe
Evaluatekeyoppurtunity Recallofthebrand
oppurtunitypresentedby growthplansofthe
areasinthemarket amongitstarget
theproductcategory targetbrandandwhether
audience
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
Whatisthefinalsetof
contentproducers distributioncapabilitiesof handletheriskand
oppurtuinitiestobe
diversifiedandgrownin thebrandandfuture challengesarisingoutof
pursued
scale? inventorypipeline integrationoftwo
differentcultures
158

Implications for Players


Fortheindustryplayers,internationalforaysprovidethemaccesstomoremature
andsophisticatedwesternmediamarkets,whichresultsinamorecompetitive
orientationandoutlook.ThisalsoencouragesIndianmediacompaniestoabsorb
andimbibethebestpracticesoftheirforeigncounterparts.Knowledgeand
resourcesharingacrossgeographicalboundariescanhelpinbuildinguptheskill
andcapabilitybaseoftheIndiancompanieswhichcaneventuallyequipthemto
takeonthebestintheworldmarket.

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

Film • IncreasingpopularityofIndianFilmsamong • NeedtounderstandthetypeofcontentthatworksfortheNRIaudience,anddevelop


theNRIdiaspora contentaccordingly
• BollywoodFilmshavestartedmaking • Imperativeforplayerstotieupwithmarketing/distributionagentsabroadtosecurereleasein
inroadsamongstthemainstreamglobal mainstreamtheatersandunlockthepotentialoftheoverseashomevideomarket
audience • Technicalandcreativequalityofthefilmshouldbeabletomatchinternationalstandards;
• EstablishedplayersinBollywoodventuring accordinglytimeandcostallocationatthescriptdevelopmentandpostproductionstage
intoco-productionandproductionof needstogoup
Hollywoodfilms • Playersneedtoaggressivelymarketthemselvesininternationalmarketsaswellas
• IndianPostProductionStudioscandevelop internationalfilmfestivalforums;marketingspendsabroadtoincrease
asapotentialoffshoringdestinationfor
foreignstudios

Print • Playershavelaunchedoverseaseditionsof • Needforevaluatingthetargetmarketpotentialandconsumerpreferencesbeforegettinginto


newspapersandmagazines particularterritories
• OnlineeditionsofPrintMediatargeted • PlayersneedtoeffectivelytapadvertisersabroadtocapitalizeontheirreachamongtheIndian
primarilyfortheNRIaudience diaspora
• Needforplayerstoeffectivelymonitizetheironlineversions

Animation • Indiahasashareofabout8percentinthe • Becauseoftheexcessivedependenceontheoutsourcingmodelrightnow,thereisarisk


globalanimationoutsourcingmarket thattheIndianindustrymaylosealargeportionofit’srevenuesifoutourcingdips.Thiscould
• About80percentoftherevenuesofthe happenifotheralternativeoutsourcinghubsemergeorifIndiabeginstoloseitscost
Indiananimationindustrycomesfrom advantageduetohighertalentcostsbecauseoftalentdemandoutstrippingsupply
outsourcingwork • TheIndianIndustryusesworldclasssoftwareandtechnologyasithandlesoutsourced
• Asaresult,Indiahasathrivingandfast animationproductionofsomeofthebiggestinternationalstudios
growinganiamtionindustryinspiteoflow • Becauseofthealreadyexistinghighqualityinfrastructure,theirremainsabiguntapped
localdemand potentialforIndiananimationstudiostodeveloptheirownglobalIPs.Thedemandandmarket
forsuchglobalanimationpropertiesishugeaswitnessedbytheboxofficecollectionsof
animationfilmsproducedbystudiossuchasWaltDisneyandPixar
Deal Activity and
Investment Trends
08
Deal Activity and Investment Trends

totheincreasingsubscribergrowthpotentialofthis
M&A Activity: Media and medium.In2008,radiowitnessed1crossborderdeal

Entertainment1 valuedatUSD105million.

Someofthemodelprofitablemediacompaniesworldwide
areconglomerateswithpresenceacrossthemediavalue
Overalldealvolumesregistereda25percentdropin2008 chainsuchasNewsCorporation,Disney,TimeWarner,
butthenumberofM&Edealsincreasedfrom59to85as ViacomandNBCUniversal.Theseconglomerateshavebeen
comparedto2007.In2008,the85dealswerevaluedat abletocreatevaluebytheexploitationoftheircontent
USD1.7billionascomparedto59dealsin2007atUSD1.0 librariesacrossmediaplatformstherebyaggregatingtheir
billion. customerbaseandaddressingdiversemediaconsumption
patterns.
Thesectorwitnessed36privateequitydealsascompared
to27in2007,withdealvaluesamountingtoUSD496 AmongthemaintrendsinthesectorthatisdrivingM&A
million.M&Aactivityregistered49dealsatUSD636million activityisthecreationofspecializedmediaandmultimedia
ascomparedto32dealsin2007.TheIndianmediasector holdingcompaniesthatincludeprintandpublishing
continuedtoexploreinternationalsynergisticopportunities companies,internetresources,radio,TVandanumberof
recording12crossborderdealsamountingtoUSD612 othermediaassets.
million.
InIndiatoo,severalcompaniessuchasUTV;Network18;
In2008,televisioncontinuedtoattractinvestorinterest RelianceBigEntertainment;Bennett,Coleman&Co.and
through24dealsatUSD380million.Ascomparedto7 NDTVhaveexpandedtheirpresenceacrossthemediavalue
dealsforUSD22millionin2007,filmandcontent chain.Thesedomesticconglomerateshaveseenincreased
productionregistered10dealsvaluedatUSD775millionin interestfromtheirglobalcounterpartsasevidencedby
2008.Investorswereattractedbyoneoftheonlygrowing Viacom’sjointventurewithNetwork18,TimeWarner’s
printmarketsintheworldwith10dealsatUSD91millionin investmentinMiditech,Disney’sinvestmentinUTV
thesameyear.Alternatemediaplatformssuchasoutof SoftwareCommunicationsandNBCUniversal’sinvestment
homeattractedforeigninvestmentofUSD124million inNDTVNetworksplc.
through7deals.In2008,theinvestorscapitalizedonthe
MVASspacethrough10dealsvaluedatUSD94milliondue

1Bloomberg,ResearchReports,Mergermarket
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

Television Broadcasting Television Distribution


Historically,televisionhasbeenthelargestvaluecreatorin Thetelevisiondistributionsegmenthasnotwitnessedtoo
theIndianmediaandentertainmentsectoronthebackof muchdealactivityin2008withMorganStanleyandIndia
robustadvertisinggrowth,anditisnosurprisethatthis InfrastructureHoldingsFund’sUSD60mninvestmentin
segmenthasseenaflurryofdealactivityfromprivate HathwayCableandDatacombeingtheonlysignificant
equityandglobalmediaconglomeratesalike.Key reportedinvestmentthisyear7.
transactionsin2008includeDisney’sacquisitionofa15
Thissegmentisplaguedbyanumberofinefficiencieswhich
percentstakeinUTVGlobalBroadcasting2,NBCUniversal’s
areimpedimentstovaluecreation.Inaddition,someofthe
acquisitionofa26percentstakeinNDTVNetworksplcfor
measurestakenbythegovernmentsuchasimplementation
USD150mn3,MerrillLynch’sinvestmentofUSD30mnin
ofCAShavenotseenthelevelofenforcementand
ZoomEntertainmentNetworkandNewsCorporation’sjoint
executionasonemight’vehoped.However,distributionis
venturewiththeRajeevChandrashekharbackedJupiter
likelytoemergeasamajorareaofinvestmentbothinDTH
EntertainmentVentures(whichownsleadingSouthIndian
andcable,givenfurtheropportunisticgrowth
televisionchannels)4.
ThedistributionlandscapeinIndiaisdominatedbylarge
ThisyearalsosawtheexitofReutersfromtheir26percent
conglomeratessuchasTata,Zee,RelianceADAGandthe
jointventurewithTimesGlobalBroadcastingandthesaleof
HindujaGroupwhichhavetheabilitytoinvestforthelong
PeterMukherjeabackedINXMedia’ssaleofitsEnglish
termascomparedtotheunorganizedlocalcableoperators.
newschanneltoNaiDunia5.
Withlimitedfinancialstrengthandimminentdigitization,
Sincebroadcastersderiveapproximately80percent6 oftheir thereconsolidationisexpectedinthefragmentedcable
revenuesfromadvertising,aslowdowninadvertising market.
growthin2009,coupledwithincreasingplacementcostsis
Dealactivityintelevisiondistribution2009islikelytobe
likelytoputseverepressureonthelessestablished
drivenbyrequirementstoraisecapitaltofundambitious
broadcasters.Broadcasterswithstrongchannelbouquets
roll-out/customeracquisitionobligationsand
andthosethatcanaggregatenicheaudiencesareexpected
opportunisticallyacquirethelocalcableoperatorswherever
tocontinuetoseeadvertiserandinvestorinterestinthe
possible.
neartermandalsobenefitfromtheimminentdigitizationof
thedistributionlandscape.

2Bloomberg,ResearchReports,Mergermarket 6Industrysources
3Bloomberg,ResearchReports,Mergermarket 7Industrysources
4Bloomberg,ResearchReports,Mergermarket
5Bloomberg,ResearchReports,Mergermarket
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
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
percentannuallytoreachUSD250million14 by2010andislikelytowitness
strategicinterestfrominternationalplayerssuchasVivendi,ElectronicArts,etc.

Outbound Deals
In2008,anumberofIndianmediacompaniesextendedtheirpresencetoother
geographies.KeydealsincludedBennettColeman’sacquisitionofU.K.-based
VirginRadioforUSD105mntogainafootholdintheU.K.radiomarketfor,UFO
Moviez’sacquisitionofMoviebeam,aleadingU.S.-basedon-demandmovie
serviceandUTV’sacquisitionofTrueGamesInteractive,aU.S.-basedpublisherof
13Bloomberg,Mergermarket
14Industrysources
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

PE investment trends in Media and


Entertainment

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
166

Thereareseveralactionsthatamediacompanycantakeinordertobecome
moreinvestor-friendly–inasensetomakeitself“readyforinvestors”.These
actionsspandifferentfunctionalareasandsomeofthemaredescribedinmore
detailbelow.

Alignment of the business model to industry themes


Companieslookingforinvestmentneedtoexaminetheirbusinessmodelsand
assesshowitisalignedtocriticalgrowthandcompetitivethemesintheir
industries.Thisincludesassessingthefollowing:

• 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.

Development of a robust business plan


Investorstodayexpectrobust,professionallydevelopedbusinessplansfrom
companiesthattheyareconsideringaninvestmentin.Theplansneedtocover
followingkeyelements:

• Detailedassumptionsunderlyingsuchbusinessplans,whicharetypically
derivedeitherfromindustrytrends(e.g.size,growth)orthemanagement’s
strategy(i.e.targetaudience,pricing,marketshareetc.).

• Scenarioanalysiswithregardtoindustrytrendsaswellassuccessofthe
company’sstrategy;identifyingandanalyzingkeysensitivitiesinthe
167

assumptionsisagoodwaytosignaltoapotentialinvestorthatthemanager
isawareoftherisksassociatedwiththebusinessplanandisintheprocess
ofplanningaheadforthem.Atelevisionbroadcaster,forinstance,could
analyzethebreakevenforanewshowbytestingtheimpactofdifferent
levelsofviewershipandadrates;anewspaper,ontheotherhand,could
evaluatetheimpactofanincreaseinnewsprintpricesonitsprofitability.

Increasing visibility of cash flows in the projections


Reducingvolatilityofcashflowsreducestheriskperceptionforinvestors,making
thecompanymoreattractivetoinvestors.Somepossiblewaystodothisare:

• 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.

Development of the infrastructure supporting the growth plan


Formostmediacompanies,asthecaseforinvestmentisbasedonbusiness
scalability,companiesneedtodemonstratetheabilitytoexecutetheirbusiness
plans.Acriticalaspectofthisisthedevelopmentofoperatinginfrastructure,in
theformofmanagementteams,informationandcontrolsystems,anddecision-
makingprocesses,tosupportalargerscaleofoperations.Keyareastofocuson
are:

• Operationalandcreativedependenceonfewkeyindividualsresultingfrom
legacyoffamily/individualdrivenbusinesssetup.Suchdependenceonfew
individualscoupledwithabsenceofprofessionalmanagementraises
168

concernsregardingscalabilityofthebusinessastheexistingmanagement
maynothavethebandwidthtomanagesignificantgrowthinthebusiness.
Mediacompaniesthereforeneedtodevelopastrongmanagementteam
combinedwithaprofessionalsetofsecondtiermanagementandalsolookto
developawelldefinedsuccessionplanforkeymanagementindividualsand
reducebusinessdiscontinuityrisk

• Lackoffocusonsupportinginfrastructureleadingtosituationssuchas
unsophisticatedITsystemswhichareunabletohandlecomplexities,absence
ofaformalizedandstrongMIS,illdefinedprocesses,roles,responsibilities
andmanagementcontrols.Weaksystemsandprocessesplacemajor
constraintsontheabilityofanorganizationtoincreasescaleandalsoreduce
thereliabilityofthebusinessplanfromaninvestor’sperspective.

Improving corporate governance


Weakcorporategovernanceprocessesareakeyconcernamonginvestorswith
respecttothemediaindustryprimarilyduetosmall/mediumscaleofanumber
ofcompaniesandtraditionallackofcorporatizationinthespace.Theseare
typicallyevidencedby:

• 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.
Changing Landscape in
Audit for M&E
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
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
173

Multiple-element transactions

Amultiple-elementarrangementisanarrangementwithacustomerunderwhich
differentdeliverablesarerequiredtobeprovidedtoand/orperformedforthat
custo¬merforacompositefee.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
solu¬tions”thatcombineprintandonlineproducts.Whiletheprintproducthasa
fixededitionstatusatthetimeofsale,theonlineproductincludesregular
updatestotheinformationcontainedintheprintproduct,whichareprovided
overtheInternetforacertainperiodoftimeintheformofatime-limited
subscription.Insuchcases,underIFRSwhenthecustomerbuysacombined
printandonlineproduct,thearrangementinvolvingthetwodeli¬verablesmay
needtobeseparatedforrevenuerecognitionandthetotalpurchasepricemay
needtobeallocatedamongtheindividualelements4.

"Relativefairvaluemethod"isoneofthemethodsthatcanbeusedtoallocate
thetotalpurchasepriceamongtheindividualelements.Underthismethod,the
portionofthetotalconsiderationreceivedorreceivabletobeallocatedtothe
differentcomponentsisdeterminedbytheratioofthefairvaluesofthe
componentsrelativetoeachother.

Theabovecanbeexplainedbywayofthefollowingexample:

Apublishersellsbookscontainingcollectionsofaccountingtext.Customerscan
alsopurchaseanonlinesolutionfromthepublisher,whichprovidesregularonline
updatestotherelevantaccountingtext.Theproductsaresoldatthefollowing
prices:

4IAS18,paragraph13;example11oftheAppendixtoIAS18
174

• BoundprinteditionasasinglepurchaseUSD100
• Three-yearonlinesubscriptionasasinglepurchaseUSD50
• Boundprinteditionincludingthree-yearonlinesubscriptionUSD120
LetusassumethatcustomerXpurchasestheboundprinteditionincludingthe3-
yearonlinesubscriptionandpaysUSD120.Undertherelativefairvaluemethod,
twothirdsofthetotalconsiderationofUSD120istobeallocatedtoboundprint
editionamountingtoUSD80andonethirdtothe3-yearonlinesubscription
amountingtoUSD40.

Right of return provisions

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
Building Robust And
Scalable Internal Processes
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.
178

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.

Content Acquisition and


Development

Business Objectives
Contentremainstheking,especiallywiththewidevariety
ofleisureandentertainmentchoicesavailabletothe
consumer.Contenthastobeenrichingenoughtoattract
andengagetheviewerandarichcontentlibrarycanbea
lucrativelongtermrevenuesource.Increasingnumberof
playersacrossM&Esubsectors,andtheresultant
competitionhasfuelledthedemandforqualitycontent.Asa
result,thecostofcontentacquisitionanddevelopmenthas
179

M&EIndustry:TowardseffectiveContentAcquisitionandDevelopment

Sector Environmental Context Critical Success Factors Key Performance Indicators

TV • RapidgrowthinthenumberofGECs • Hedgingagainsttheriskof • Ratingpoints(TRPs)forindividual


whichtypicallyobtainoriginal increaseincostofcontentby programmes
programmingcontentfromexternal signinglongtermcontractswith
contenthouses.Consequently, contenthouses • Viewershipshareofchannel
expectedincreaseincontent withinitscategory
acquisitioncostsforbroadcasters • Comprehensiveandcontinuous
marketresearchtokeepatrackof • Costofprogrammingperepisode
• Increasingdemandfornon-fiction consumerpreferencesforcontent
programmingsuchasreality,game • Percentageofprojectsmeeting
andtalentshows • Modificationofprogramming productionbudgets
distributiontoreflectthese
• Growingopportunitiesforestablished changes • Returnoncontent
playerstosyndicatecontentto development/acquisitioncosts
smallerTVhousesnotcompetingin • Creatingalliancestosharecontent
thesamegenreaswellas createdovertimesoasto • Hoursoforiginalcontentperday
internationalplayers optimizereturns,content relativetopeers
acquisitioncosts
• Increaseinequitybarterdealsinlight • Valueofprogramminglibrary
ofthedecreaseinadspendsdueto • Clearsegregationofeditorial
costreductionmeasuresby decisionmakingfromAd-forequity • Budgetvs.actualvariationsin
corporates barterdealstomaintain programacquisitionand
independenceofeditorialcontent developmentcosts

• GRPtrendanalysisforprograms

• CostperGRPofcontentacquired/
developed

• Revenuegrowthfromcontent
syndication

• Numberofcustomersforcontent
syndication

Film • Increasingaudienceacceptanceof • Ensuringabalancedportfolioof • Numberoffilmsincontentlibrary


crossovercontentandsmallbudget, bigaswellassmallbudgetfilms
multiplexmovies tomitigaterisksaswellas • Valueofcontentlibrary
maximizerevenues
• Emergenceofstudiomodelleading • Percentageofprojectsmeeting
toincreaseincontentinventoryfor • Propervaluationaswellas productionbudgets
productionhouses monetizationofcontentlibrary
• Returnoncontentdevelopment
• IncreasingdemandofIndianfilm • Productionofcontentthatis
contentforoverseasmarket technicallycompatibleaswellas • Numberoffilmsreleasedinthe
universalenoughtocatertothe year
• Increaseinnumberofmultiplexes discerningoverseasaudience
fuellingdemandforcontent • Sizeofcontentpipelinerelativeto
• Workingonmultiplefilms peers
• Enhanceduseofdigitaltechnologyin simultaneouslywithout
cinemaplustheracetolockintalent compromisingonthequalityof • Budgetvs.actualvariationsin
leadingtoanincreaseinproduction content productioncostsandtimelines
budgets
• Efficientmanagementandcontrol
offilmproductionprocessesto
preventtimeandcostoverruns
180

Sector Environmental Context Critical Success Factors Key Performance Indicators

Print • Increasingsignificanceofniche •Conductingcontinuousmarket • AverageIssueReadership


contentwithgrowthinthenumber researchtokeepatrackof
• Totalnumberofcopiessold
ofspecialtymagazinesaswellas consumerpreferences
(Circulation)
newspapersupplements
• Properconsumersegmentation
• AverageRealizationpercopy
• Growingpreferenceforlocally andmatchingthesesegmentsto
relevantcontent theircontentpreferences • Marketsharewithinitscategory

• Changeinbusinessmodelaimedat • Ensuringajudiciousmixof • Paginationvs.Compete


de-riskingAdsalesrevenueand differentlanguagesandgenres
• Revenuegrowthfromcontent
creatingnewerplatformssuchas whiledecidinguponproduct
syndication
internet,radioetc. portfolio
• Numberofcustomersforcontent
• Spiralingincreaseinnewsprintcosts • Increasinglocalsupplementsto
syndication
resultinginpressureonmargins catertospecificlocalcontent
needs
• Increasingcompetitionfromnews
channels • Effectivelyleveragingexisting
contentfornewerbusiness
• Increaseinequitybarterdealsinlight
ventures
ofdecreaseinAdspendsduetocost
reductionmeasuresbycorporates • Creatingalliancestoshare
contentcreatedovertimesoasto
optimizereturnscontent
acquisitioncosts

• Clearsegregationofeditorialfrom
Ad-forequitybarterdealsto
maintainindependenceofcontent

Radio • Over250channelsexpectedtobe • Targetingspecificconsumer • PercentageshareofListenership


operationalbyendof20081 segmentsanddifferentiating
• Returnonmusicroyaltyfeepaid
contentaccordingly
• Over700newlicensesexpectedto
• ReturnonnumberofRJs
beissuedunderphase32 • Differentiatingthroughfocuson
employed
particularmusicgenres
• Verylittledifferentiationamongthe
• Saturationofinterestamong
radiostationswithallofthem • Differentiatingthroughthe
consumerswiththesamemusic
focusedonmassmusicsegment station’sRJsandnonmusic
genresacrossallstations
programming
• Excessivefragmentationof
listenershipspeciallyinmetros • Targetinggeographieswhere
resultinginlowerAdratesforeach radiopenetrationislowerrather
player thanfocusingonmetrosonly

Music • Highacquisitioncostsforfilmmusic • Conductingcontinuousmarket • Returnontotalmusicacquisition


rights researchtokeepatrackof costs
consumerpreferences
• Notallmoviesareboxofficehits.As • Percentageofalbums/moviesfor
musicsalesofhitfilmsgenerally • Bargainingformorerationalprices whichmusicrightsareacquired
earnamajorityoftheprofits, formusicrights amongtop50musicalbumssold
therefore,highrisksareinvolvedfor
• Carefulevaluationoffutureselling • Valueofcontentlibrary
themusicdistributor
prospectsbeforebuyingrights
• Sizeofcontentpipelinerelativeto
• Filmstudiosopeningtheirownmusic
peers
distributionarmstherebylimitingthe
contentavailableforpuremusic
players

1”FMRadio,musicindustryoutoftuneonroyalty”,Rediffnews,December2008
2”FMPhaseIIIPolicyinoffingtoadd780radiochannelsinanother275cities,sayssecretaryI&B”,ASSOCHAM,November2008
181

Sector Environmental Context Critical Success Factors Key Performance Indicators

Animation • Primaryfocusonthelowvalue • Conductingcontinuousmarket • Sizeofcontentlibrary


productionpartoftheanimationvalue researchtokeepatrackof
• Valueofcontentlibrary
chainwhichisoutsourcedtoIndia consumerpreferences
• Percentageofprojectsmeeting
• Veryfewinhouseproductionsin • Focusoncompleteinhouse
productionbudgets
genresotherthanmythology(which productions
tendstohaveonlylocalappeal) • Returnoncontentdevelopment
• Focusoncreatingglobalproperties
• Lackofcreativetalentrequiredforthe whichareregion,religion&culture • Numberoffilmsreleasedinthe
highvalueconceptualization,pre- neutral year
productionandpost-productionparts
• Creatingstrategicalliancesto • Sizeofcontentpipelinerelativeto
ofthevaluechain
acquirethetechnicalskillsrequired peers
toproducequalityanimation
• Budgetvs.actualvariationsin
content
productioncostsandtimelines

Managing Content Acquisition and Development risks - A


summary
Mostoftheanticipatedriskscanbemanagedbyembeddingthefollowing
controlprocessesintheoperations:

• 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.
182

Advertising Sales

Business Objectives
Theemergenceofmultiplemediaplatformsandtheconsequentcustomer
fragmentation,advertisershavebecomemoredemandingandplayersarebeing
requiredtodemonstratevalue/results.Asaresult,thetargetsandgoals
pertainingtothisfunctionhavebecomesteeperthanbefore.Themainobjectives
ofthebusinesswithrespecttoadvertisingsalesare:

• Maximizepriceperspotandrevenueperunit
(viewership/listenership/readership)

• OptimizeAd-program/Ad-editratio

• MaximizeAdinventoryutilization

• Enhancetheadvertiser’sperceptionofproductvalue.

Toachievetheseobjectives,playershavetobuildincertaininternalcapabilitiesto
facetherisksanduncertaintiesarisingoutofthebusinessenvironment.

M&EIndustry:TowardsanefficientandeffectiveAdSalesprocess

Sector Environmental Context Critical Success Factors Key Performance Indicators

TV • Morenumberofchannelsleadingto • DynamicPricing-Dynamically • Adinventoryutilization


increasingclutterandaudience linkingspotpricingtoTRPs
fragmentation • Adrevenuesperratingpointfor
• Creatingappropriatediscounting individualprogrammesaswellas
• Increaseinnumberofregionaland policyfornetworksales forthewholechannel
nichechannelsthatoffermorecost
effectiveandbettertargeting • Mappingadvertiserstoincrease • Ratioofadunitssoldatoriginal
mediumstoadvertisers penetration pricetothosesoldatdiscount

• Stagnant/decliningAdratesdueto • Dynamicmonitoringofsalesand • Ratioofpaidtofreeadvertising


audiencefragmentation availableinventoryspots slots

• Increasingcompetitionfrom • Coordinationaswellasintegration • Averagepriceperspotforprime


emergingsectorslikeradioand ofsystemsbetweenAdsalesand timeandnon-primetimerelative
internet schedulingteams topeers

• Increaseinequitybarterdealsinlight • Keyaccountmanagementfor • AverageDiscountingrate


ofdecreaseinAdspendsduetocost largeadvertisers
reductionmeasuresbycorporates • Percentageofoldaccounts
• Identificationandnegotiationof retained
equitybarterstoutilizeunusedAd
inventory • Numberofnewadvertisers

• ValueandnumberofAdforequity
barterdeals

• IRRonAdforEquitybarterdeals
183

Sector Environmental Context Critical Success Factors Key Performance Indicators

Print • Increaseincompetitionleadingtodeclinein • Optimizingpagination • AdEditRatio


coverprices,leadingtoenhanced
• OptimizingtheAd-editratio • TotalAdspacesold
dependenceonadvertisingrevenues
commercially
• Increasingtheproportionofcolor
• Decliningreadershipfiguresleadingto
inventorysold • Proportionofcolorinventory
increaseinbargainingpowerofadvertisers
sold
• Appropriateadvertisingmix
• Riseinthenumberofspecialtymagazines
betweendisplayads,classifieds, • Averagepriceperinsert
andnewspapersupplements,aswellas
tendersandsupplements
regionalpressoffermorecosteffectiveand • Adinventoryutilization
bettertargetingmediumstoadvertisers • Offeringoptimizeddiscountrates
• Paidtofreeinserts
toadvertisersforbuyingspots
• Indiscriminateincreaseinpaginationwithout
amongthediverseportfolio • Percentageofoldaccounts
correspondinginAdvolumes.Nowresulting
offerings retained
inlowerpaginationtocutspiralingnewsprint
costs • Mappingdifferentcategoriesof • Numberofnewadvertisers
advertiserstothedifferent
• Increasingcompetitionfromemerging • RatioofAdunitssoldat
portfolioofferings
sectorslikeradioandinternet originalpricetothosesoldat
• Keyaccountmanagementfor discount
• Increaseinequitybarterdealsinlightof
largeadvertisers
decreaseinAdspendsduetocostreduction • AverageDiscountingRate
measuresbycorporates • Identificationandnegotiationof
equitybarterstoutilizeunusedAd • ValueandnumberofAdfor
inventory equitybarterdeals
• IRRonAdforEquitybarter
deals

Radio • RadioAdspendsinIndiastillaccountforonly • DynamicPricing-Dynamically • Adinventoryutilization


5percentofthetotalAdpieversusabout8 linkingspotpricingtolistenership
• Adrevenuesperunit
percentglobally figures
listenership
• Increaseinnumberofradiostationshasled • Creatingappropriatediscounting
• RatioofAdunitssoldat
tofragmentationoflistenershipandhence policyfornetworksales
discounttothosesoldat
stagnation/declineofAdratesforindividual
• Targetinglocaladvertisersand originalprice
stations
ensuringoptimizedmixofnational
• Percentageofoldaccounts
• LocaltoNationaladvertisementratiois25:75 tolocaladvertising
retained
inIndianradioversus75:25globally
• Mappingadvertiserstohelp
• Numberofnewadvertisers
• Lackofcontentdifferentiationdueto ensuresaliencewithprograms
continuedregulatorybottleneckscanleadto
• Excellentcoordinationaswellas
stagnationinlistenershipandthereforeAd
systemsintegrationbetweenAd
revenues
salesandschedulingteams
• Keyaccountmanagementfor
largeadvertisers

Outdoor • IncreasedPILsandconsequentbanon • Optimizemixofadvertising • Adinventoryutilization


hoardingsinmajorcitiesputtingadvertisers inventoryacrossvarious
underpressuresincebillboardsisthelargest segments-Billboards,Street • Percentageofoldaccounts
segmentinoutdoormedia Furniture,Transitaswellresidual retained
media
• Risingconsumerismleadingtoincreasing • Numberofnewadvertisers
significanceofambientmediaanddigital • Designingdifferentiatingadsfor
formats digitalandambientmedia

• Absenceofascientificmetricforconsumer • Developinginhousecapabilities
responsemeasurementlimitstheadvertising fordesigningaswellasexecution
pieinthismedium ofcreatives

• Cinemaadvertisinggeneratingincreasing
interestwithadvertisersbutisstillina
nascentstage
184

Managing Advertising Sales risks - A summary


Mostoftheanticipatedriskscanbemanagedbyembeddingthefollowing
controlprocessesintheoperations:

• Mappingadvertisersacrosstoincreasethecustomerbase

• Adoptingtimelyandappropriatemeasuresfortrackingadvertiserfeedbackand
takingactiononthesame

• Maintaininguptodateinventorystatusreportsaswellasmonitoringsalesand
profitabilityacrossvariouschannelsandmarkets

• EstablishingstandardprocessesforAdscheduling,billingandreceivables.

Therefore,toconclude,adoptingdynamicpricing,de-riskingthebusinessmodel
byrelyingonadvertisingsalesfrommorethanonemediumandmapping
advertisersmayhelpplayersemergeasleadersinthemarketspace.Developing
standards,proceduresandresourcerequirementsforAdScheduling,Billingand
Collectionscanalsohelpinensuringthedesiredefficiency.

Distribution

Business Objectives
Buildingupanefficientcontentinventoryandoptimizingadsalesareofnouse
unlesscontentisdeliveredinatimelymannertotheendconsumer.Anefficient
distributionprocessminimizesthetimetomarketandhelpsensurethatthis
objectiveofthebusinessismet.Theprimarybusinessobjectivesforbuildinga
distributionfunctionaremainlythefollowing:

• Maximizetotalreach

• IncreaseARPUsthroughancillaryrevenuestreams

• Maximizeutilizationofcontentinventory

• Facilitatecontentmonetizationacrossalternateplatforms.

Creatingefficientandeffectivedistributioncapabilitiesinvolvescertainchallenges
andrisksfortheindustryplayersasenumeratedbelow.
185

M&EIndustry:TowardsamoreeffectiveDistributionProcess
Sector Environmental Context Critical Success Factors Key Performance Indicators

TV For Broadcasters For Broadcasters For Broadcasters

• Increasingpenetrationofdigitaldistribution • Efficientnegotiationofdistribution • PercentageoftotalC&Sviewing


platformslikeCAS,DTHandIPTVaswellas contractsandensuringdesired populationreached
cabledigitization placements
• Percentageoftargetconsumer
• Increasingnumberofchannelsleadingto • Enhancingbargainingpowerwith segmentspopulationreached
highcarriageandplacementfeesfor distributionbyaddingmorechannels
• Carriagecostsnegotiatedwith
channels(evenfordigitalplatforms) andthusstrengtheningchannel
distributorsrelativetopeers
bouquet
• Issuesofrevenueleakagesstillprevaildue
For Distributors
tounderreportingbycableoperators • Monitoringofcablecarriagecontracts
tohelpensurecompliancewithagreed • NetCustomeradditionsper
• Opportunitytobuildinadditionalrevenue
terms quarter
streamsbyprovidingvalueaddedservices
throughdigitaldistributionchannels • Assessingbenefitofpayingexcessive • Customerchurn
cablecarriagewithrespectto
For Distributors • Marketshare
increasedreachandresultingincrease
• Longtermviabilityofbusinessesmaybe inAdSales • Averagecustomeracquisition
uncertaininthefaceofsustainedlossesdue cost
For Distributors
tolowpricepoints
• ARPU-AverageRevenueper
• Maintainingcompetitivepricepoints–
• Fickleconsumerloyaltiesduetolackof user
thisiscriticalinstronglyprice
contentexclusivityamongstcompeting
consciousmarketlikeIndia • ARPUthroughvalueadded
digitaldistributionplatforms(andnoother
services
pointofdifferentiationaswell) • Strongmarketingandaggressive
sellingofaddonserviceslikevideoon • Averagesubsidygivenperset
• InabilitytoincreaseARPUsthroughaddon
demandbydigitaldistributionplayers upbox
servicesbecauseoflowuptakeofsuch
servicesamongIndianconsumers

Film • Digitizationofcinemafacilitatingwider • Makinginvestmentsindigital • PercentageofTotalPopulation


releaseoffilms technologyandnegotiationof reached
agreementswithdigitalscreen
• GrowingrevenuesthroughC&Sdistribution • Rateofcommissionpaidto
exhibitorsaswellasmultiplexowners
duetoincreaseinnumberofchannels distributorsinrelationtopeers
• Negotiationofagreementswith
• Increasingpenetrationofhomevideomarket
satellitechannels;dynamiclinkingof
duetolowerpricepointsinthesellthrough
revenueswiththenumberof
segment
screenings
• Digitalstreaminganddownloadofmovies
• Monetizingcontentlibrarythrough
throughtheinternet
alternatedistributionplatformslike
• DespitegrowingpopularityofIndianfilms homevideoandinternet
overseas,contributionofoverseas
• Aggressivemarketinginitiativesaswell
collectionstothetotalrevenuesoffilm
astieupwithagentstofacilitatewider
industryisbelow10percent
releaseoffilmsinoverseasmarkets
• Piracyissuescontinuetoprevail
• Proactivelitigationagainstunauthorized
useofcontent
186

Sector Environmental Context Critical Success Factors Key Performance Indicators

Print • Increaseinnumberofnewspapers • Negotiationofagreementswith • Percentageoftotalliterate


andmagazinesleadingtoincreasein distributorsandvendors populationreached
bargainingpowerofthedistributors
• Enhancingbargainingpowerby • Percentageoftargetconsumer
andvendors
strengtheningproductportfolio segmentspopulationreached
• Emergenceofelectronicandmobile
• Monetizationavenuesforalternate • RateofCommissionnegotiated
versionsofnewspapersand
distribution,especiallyincaseof paidtodistributorsorvendors
magazines
classifiedsandotherdisplayads relativetopeers
• Inabilitytoincreasecoverpricesdue
• Agreementsandpoliciesregarding • Unsoldsvs.Compete
tocompetitioncoupledwith
unsoldinventory
increasingbargainingpowerof
vendorsputtingpressureonmargins
ofcompanies

Music • Continuousdeclineinsalesof • Bargainingforbetterrevenue • Totalnumberofdistribution


physicalunits shareincaseofdigitalmusic, centerswherephysicalunitsof
especiallyincaseofMobile thecompanyisbeingsold
• Growingimportanceofalternate
Music(currentlyoperatorstake
distributionplatforms;morethanhalf • Percentageshareofonlinemusic
about70percentofrevenues
therevenuesofthesectorisfrom downloads
generated)
licensingrevenues–fromFM,mobile
• Percentageshareofmobilemusic
musicsales,onlinemusicsalesetc. • Ensuringcontentavailabilityacross
downloads
allmajorthirdpartyinternet
• Piracyisstillrampantinthesector;
platformssuchasiTunes
thesectorlosesmorethan60
percentofitsrevenuesthroughpiracy • Proactivelypursuinglegislation
againstillegitimateonlinemusic
• Filmproducersintroducingtheirown
distributionplatforms
musiclabelsandretainingthemusic
rightswiththemselves

Managing Distribution risks - A summary


Mostoftheanticipatedriskscanbemanagedbyembeddingthefollowing
controlprocessesintheoperations:

• Effectiverelationshipmanagementwithdistributionpartners

• Monitoringandevaluatingtechnologicalchangesandnewdistribution
opportunities

• Maintainingsufficientinfrastructurebackupandinternalcheckpointstoplug
lastmilerevenueleakages.

Therefore,toconclude,adoptingmanagingrelationshipswithdistributionpartners
andanticipatingtechnologicalchangesmayhelpplayersemergeasleadersinthe
marketspace.Developingstandards,proceduresandresourcerequirementsfor
contracting,payingandmonitoringdistributioncostsmayalsohelpinensuring
thedesiredefficiency.
187

Internal Audit – A Catalyst for Change

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
188

People Management in Media and


Entertainment Industry

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.

Increasing Cost Pressures


Withthemediaindustrytooexperiencingtheeffectsofdownturn,thereisan
increasingpressureonkeepingthecostsdownwhilesimultaneouslyretaining
itskeytalent.Companiesareacutelyfeelingthestrainoftraining,managingand
retaininggoodstaff.

Theremaybeaneedtotakesomeharddecisions,duringwhichHRmayhaveto
workalongsidetheCEOtoimplementthesemeasureswithouthurtingthe
employeemorale.Thesemeasuresneedtobeimplementedwithutmost
sensitivityandwithelaborateplanning.HRneedstoconstantlycommunicateto
theemployeesinaforthrightandtransparentmanner.

Withthebusinessprioritiesshiftingtocostoptimizationandworkingcapital
management,HRhastoexamineitsowncoststructureandavenuesforcutting
costswithoutsacrificingeffectiveness.Itneedstoidentifythetalentandroles
whichcontributeandcreatethemaximumorganizationalvalueandfocusits
limitedfundstowardsthem.
189

Formalizing Organization Structure and Systems


TheIndianfilmindustry,withover3billionadmissionsperannum,isthelargest
intheworld,intermsofnumberoffilmsproducedperyear.Theopeningofthe
filmindustrytoforeigninvestmentcoupledwiththegrantingofindustrystatus
tothissegmenthashadafavorableimpact,leadingtomanyglobalproduction
unitsenteringthecountry.

Today,everyfunctionandactivityrelatedtotheIndianfilmbusinessisbecoming
welldefinedandsystematized,beitproduction,filmretailinfrastructure,
financing,marketingordistribution.Asfilmproduction,distributionandexhibition
companiesarebeinglistedonstockmarkets;anincreasingnumberof
companiesareseriouslylookingatcreatingcorporatestructures.HRneedsto
contributetothisbusinessneedofconsolidationofoperationsbyinstitutinga
formalandefficientorganizationstructurebyaligningittothechangesinthe
businessmodelandassigningresponsibilitiestothecriticalpositions.
Decentralizingdecisionmakingtobringspeedandefficiencyandimplementing
performancemanagementsystemstomeasurethevaluedeliveredarethe
needsofthehour.

Changed focus of training


ManycompaniesintheM&Esectorhaveinthepast,focusedoncontinuous
learninganddevelopmentinitiativestoaddressissuesoftalentscarcity.Attrition
wasanotherimportantreasonwhycompanieslookedattrainingtheiremployees.
Astheeconomicslowdowncontinues,attritionandskillgaparenolongerissues.
Manycompanieshavereactedwithahaltontheseinitiativesandhavereplaced
themwithotherslikesmallerincrementsandhiringfreeze.Formany
organizationsthehiringfreezeistotal,othershavehiringforreplacement
vacanciesorforcertainpositionsbasedonbusinessneeds.

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.
190

Ensuring talent pipeline for the future beyond the slowdown


Withtheadventofnewsectorslikeinternet,gamingandanimation;andthe
establishedsectorslikefilm,televisionandradiogrowingatafastpacetalent
requirementislikelytogrowmanifoldinashortperiod.Forinstance,the
animationindustryisexpectedtodoubleitsrevenuestonearlyUSD1.5billionby
2010.Themanpowerdemandinthesectorhasgrownmultifoldinthelasttwo
years,thoughhasebbedrecently.Notwithstandingthecurrentslowdown,which
perhapshasbluntedthefocusontalentacquisition,theindustrymaycertainly
needmanymoretrainedhands.

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.
191

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.

Continue with the long-term strategies of “Building an


employer brand”
Creatinganemployerbrandisoneofthemanylong-termstrategiesthat
organizationsacrossindustriesemploy.Whenmostemploymentstrategiesare
shorttermandreactivetorequirements,buildinganemployerbrandaddresses
theproblemonalonger-termbasisasitisdesignedtoprovideasteadyflowof
applicantstothecompany.

Anemploymentbrandcreatesanimagethatmakespeoplewanttoworkforthe
companybecauseitisawellmanagedorganizationwhereemployeesare
continuallylearningandgrowing.Theimageofanorganizationasa‘greatplaceto
work’inthemindsofpeoplecreatesloyalcustomersandemployees.

Mostimportantly,ithelpsorganizationstoreboundquicklyandgetontractasthe
effectsoftheslowdownwearoff.
192

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.
Way Forward: Sector
wise key action steps
11
Way Forward:
Sector wise key action steps

Basedonadetailedunderstandingoftheindustryandour differentiatethroughtheiradd-onservicesandqualityof
interactionswithvariousplayers,thefollowinginitiativesare customerservicetoattractnewcustomers.
recommendedtobeundertakenbytheplayersoperatingin
Tosummarize,themainchallengesforthesectorarelikely
varioussubsectorsoftheM&Eindustry.Theindustryis
tobe:
lookingtocapitalizeonnewopportunitiesdrivenby
favorablesocio-economicchangesandsmarterdistribution • Fragmentation of viewership:Asthenumberof
technologies.Thissectionfocusesonkeyactionstepsthat channelskeepsincreasingdifferentiationofcontentis
playersneedtounlockgreaterpotentialandtohelp: likelytobecomeincreasinglyimportant

• IncreasetheirMarketShare • Under declaration of subscribers by Cable operators:


Inananalogcabledominateddistributionmarketlike
• Maximizetheirrevenues
India,rampantunderdeclarationofsubscribersatthe
• Improveprofitabilitylevels LCOandMSOlevels,resultsinlargesubscription
revenuelossesforthebroadcasters.Thiswillcontinueto
beachallengeuntiladdressabledigitizedplatforms
Television garnerahighershareinthedistributionmarkett

• High production costs:Withrisingcostsofactingand


technicaltalent,managingproductioncostsislikelytobe
WiththeexplosioninthenumberofTVchannels,and
criticalfortelevisioncontentproducers
increaseinthechoiceavailabletotheviewer,TVviewership
hasbeenseeingcontinuousfragmentation.Maintaininghigh • Low ARPUs for DTH players:Competitionislikelyto
qualitystandardsincontentanddifferentiatingoneselffrom helpensurethattheARPUsarekeptlowintheshort
thecompetitionisthusbecomingmoreimportantthanever term,directlyaffectingthebottomlinesofDTH
before.Bothbroadcastersandcontenthousesneedtobe companies.
constantlyawareofthechangingconsumerpreferencesfor
contentandtheirproductsaccordingly.Monetizationof
contentlibrariesthroughinternetandnewmediaplatforms
suchasMobileTVisalsolikelytobeimportanttoaugment
revenues.Inthedistributionendofthesegmentthe
competitionislikelytobeintensebetweencable,DTHand
IPTV,andsinceARPUsarealreadyfairlylow,playersneedto
196

Tomanagethesechallenges,whilecapitalizingon
opportunities,stakeholdersacrossthevaluechainneedto
takefurtheractiontounleashthetruegrowthpotentialin
thesector.

Atanindustrylevel,someimportantinitiativesthatcould
helpinunlockgrowthare:

• 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.
197

TelevisionSector:KeyActionSteps

Broadcasters

Goingforward,abasketapproachwillbeimportantforsuccessinthebroadcasting
Buildingchannelbouquets industry.Creationofchannelbouquetswillincreasethebargainingpowerofbroadcasters
withdistributors.Innovativebouquetofferingswillalsohelpinattractingadvertisers.

Withtheovercrowdingoftelevisionchannels,theTVviewerislikelytobespoiltfor
choiceandthosechannelsthatareabledifferentiateintermsoftheircontenttocaterto
Focusondifferentiationofcontent
specificaudiencesarelikelytodowell.Channelswithdifferentiatedcontentandspecific
targetaudiencesmayalsobemoreattractivetoadvertisers.

Playersneedtofocusonbuildingastrongcontentlibrarytohelpensuresteadysourceof
Buildingastrongcontentlibrarytocapitalize futurerevenues.Someoftheavenuesforfutureavenuesaredubbingofcontentin
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
Backwardsintegration
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)
198

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 croresarelostduetopiracyannually.Filmsare
sometimesreleasedinthepiratedmarketassoonas12hoursaftertheofficial
releaseforaslittleasINR20.Iftheindustrycancombatpiracythenthe
potentialrevenueupsideforthesectorcouldbesignificant

1IndustryInputs
199

• High Remuneration Costs –Actors’feeshavebeengrowingsteeplyoflate


whichrenderssomeprojectseconomicallyunviableastheyarenotableto
recovertheircosts

• Content –Filmmakingisacreativebusinessandtheprimarydriverforagood
filmisitscontent.Theindustryneedstocomeupwithgoodqualityand
originalcontentwhichappealtotheaudience

• Liquidity Crunch –Inthelastfewyearswehavewitnessedcorporatehouses


jumpontothefilmmakingbandwagon;howeverduetotherecenteconomic
downturntheyarefacingaliquiditycrunchandfundingthatwaseasily
availableinthefilmindustryhasnowdriedup.Asaresultofthiswearelikely
toseemoviesthathavebeenproducednotbeingreleased.Sportingevents
liketheIPLmayalsoimpactthereleasesofthefilms.Producersopttotime
theirfilmsreleaseafterthesportingeventssuchasIPLwhichcouldthen
resultinaglutoffilmsbeingreleasedatthesametimeleadingtoplentyof
vyingforsimilarresourcessuchasdistributors,exhibitorsetc.Lowtomedium
budgetfilmsmaybeimpactedthemostduetothisastheydonothavethe
necessaryclout

• Infrastructure –Theindustryisgrapplingwithinadequatefacilitiesintermsof
numberofshootingfloorsavailable,dubbingstudios,equipment,exhibition
centers,thisiscompoundedbythefactthattheburgeoningTelevisionindustry
isalsocompetingforthesamefiniteresources.Theneedofthehouristo
establishadditionalstateoftheartstudiofacilitieswhichcanserveasaone
stopshopforallthepreandpostproductionactivities.

“Going forward, differentiation of brands will be key for a broadcaster;


there will be emergence of channels catering to specific demographics
- across different age groups, cities”
Kunal Dasgupta, CEO, Multiscreen Media (Sony Entertainment)
200

• 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.
201

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.
202

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:

• Effect of economic slowdown -Printlargelybeinganadvertisingdriven


medium,theeconomicslowdownandtheconsequentreductioninadbudgets
ofmarketershasaffectedthismedium.Newspapersreceivealargeportionof
theiradvertisingrevenuesfromverticalssuchasRetail,RealEstate,Jobsand
Classifieds.Aprolongedslowdowninthesesectorsislikelytohaveitsruboff
onprintmedia.
203

• Competition from internet -Theincreasingpopularityofonlineservicesand


increasinginvestmentsintheinternetdistributionplatformposesalongterm
challengetoprintmedia.Thedevelopmentofnicheportalsmakesonlinean
effectiveandcheaperwaytoreachthetargetaudienceascomparedto
newspapers.Globally,thesectorhaswitnessedmigrationofadvertising
revenuesfromprintontoonlineservices;Indianplayersneedtoprepare
themselvestoavoidsuchasituationathome

• Rising cost of Newsprint -Newsprintaccountsforapproximately50percent


ofthetotalcostofanewspaperpublisher.2 In2008,globalnewsprintcosts
shotupduetothedemandsupplymismatchleadingtostrainedmarginsfor
Indianprintcompanies.SharpdeclineinnewsprintdemandintheU.S.ledto
theclosureofmanynewsprintfactoriesinU.S.andCanada.Howeverin2009,
webelievethatnewsprintcostsmayremainstableasthedemandfrom
emergingmarketsremainsrelativelystablewhilethesupplycontinuesto
reduce.ThereductioninsupplyduetocapacityreductionofCanadian
companiesandthedepreciatingrupeecouldbecomplementedbyreducing
energycostsandcapacityadditioninChina.Thisisexpectedtoproviderelief
toprintmediacompanies

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
204

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
205

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:

• Fragmentation of listenership: Asthereisverylittledifferentiationincontent


betweenthestations,thishasledtocontinuousfragmentationoflisteners
especiallyinthemetros.WiththegrantofPhase3licensesexpectedsoon,the
competitionandfragmentationislikelytoincreasefurther

• Increasing share of Radio in the total advertisement pie: Thisiscurrently


around4percentversusanaverageof8percentglobally.Increasingthisshare
mayrequiremakinggreatereffortsinconvincingadvertisersofthe
effectivenessofradioasanadvertisingmedium.

• Attracting regional advertisers: Localadvertisementsmakeuponlyafourth


oftheradioadvertisingpiecurrently(asagainst75percentinU.S.4),and
thereforetappingthissegmentadequatelymaycontinuetobeabigchallenge.

Tomanagethesechallenges,whilecapitalizingonopportunities,stakeholders
acrossthevaluechainmayneedtotakefurtheractiontounleashthetruegrowth
potentialinthesector.

4KPMGInterviews
206

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.

Withlocaladvertisementaccountingforonly25percentshareoftheradioadpie,against
ashighas75percentinU.S.,regionaladvertisingstillremainsalargeuntappedpotential
Targetlocaladvertisers
inIndia.Thewholeindustryneedstotakestepstosellthemediumtolocaladvertisers
andeducatethemaboutthecost-effectivenessofradioforlocaladcampaigns.

Assessingpotentialofalternaterevenuestreamssuchasactivationsandinternetradio
Brandbuilding
mayalsobeimportanttoaugmentthestandardadvertisingrevenues.

WiththecrowdingofFMchannelsespeciallyinmetros,retainingloyallistenersislikelyto
becomeincreasinglydifficultfortheradiostationsifallofthemareofferingthesame
Exploringalternaterevenuestreams
genreofmusic–newBollywoodhits.Focusinginsteadonothergenreslikeretro
BollywoodorEnglishmusiccouldhelpensuredifferentiation

“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.
207

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.iracyisexpectedtocontinuetobethebiggestmenace
totheindustryandplayerscouldgettogethertotackleitmoreaggressively.

Tosummarizeandreiterate,themainchallengesforthesectorarelikelytobe:

• High rights acquisition cost: Acquisitioncostofmusicrightshadbeen


consistentlyrising.Thiscombinedwithhighermarketingspendshadseverely
constrainedtheprofitabilityofthemusiccompanies.Thoughthecompanies
havereducedtheiracquisitioncostsbyenteringintorevenue-sharing
agreementswithproducers,bringingthemfurtherdownislikelytobea
challenge.
208

• Rampant piracy: Theriskrelatedtopiracyofbothdigitalandphysicalmusicis


veryhigh.Consumerscaneasilysharesongsamongstthemselvesthrough
peer-to-peerfilesharing.Onagloballeveltheindustryhasmanagedtoclamp
downonandsuccessfullyshutdownsomefilesharingwebsiteslikeNapster,
KaazaandLimewire,andestablishedlegitimatedigitaldistributionplatforms.
However,alotremainstobedonebeforepiracycanbebroughtundercontrol.
Thelengthylegalandarbitrationprocesscoupledwithlackofempowered
officersforenforcementofanti-piracylawscontinuetounderminethe
crackdownonpiracy.

• Adaptation to digital business models: Tostandupagainstthenewrealities


ofmusicbusiness,companiesneedtoadoptnewstrategiesforcontent
monetizationsuchasenteringintomobilemusicrevenuesharingagreements
withmusiccompaniesandcontentaggregators.Tomonetizedigitalmusic,
theyneedtoinvestindigitalizingtheirentiremusiclibraries.

Tomanagethesechallenges,whilecapitalizingonopportunities,stakeholders
acrossthevaluechainneedtotakefurtheractiontounleashthetruegrowth
potentialinthesector.

Atanindustrylevel,someimportantinitiativesthatcanhelpinunlockinggrowth
are:

• Formingjoint raid and intelligence teams withthelocalpolicytobring


piracyundercontrol

• ProvidingassistancetotheInternetServiceProvidersinidentifying the
websites allowing download of illegal music content andblocking
access

• Negotiating better revenue sharing terms for mobile music withmobile


serviceproviders

Ataplayerlevel,companiesneedtofocusonmonetizationoftheirlibrarieson
newmediaplatforms–mobileandinternet.Formobilemusic,theycouldconsider
gettingin“bundling”dealswithhandsetmanufactures.Aggressivelypursuing
legislationagainstcopyrightinfringementmayalsobecriticaltoreducelosses
occurringduetopiracy.
209

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.
210

Outdoor

Overthepasttwoyears,thesectorhasbenefitedfromtheincreasein
consumptionpowerofIndiancustomers.Asconsumptionincreases,new
productsarebeingmadeavailabletonewmarketsanditbecomesessentialfor
marketerstobuildbrandawareness.Otherdemographicchangeslikewomen
enteringtheworkforcehavealsoledtocreationofnewproductsandservices
suchasreadytoeatproducts,onlinepaymentservicesetc.Thesenewproducts
andservicesneedawarenessbuilding.Buildingawarenesshasbeenatraditional
strengthoftheOOHmedium.

However,likeitscounterpartsfromotherM&Esectors,OOHmediumfaces
certaininherentchallenges.Someofthemostnotablechallengesare:

• Effect of economic slowdown - OOHbeingcompletelyanadvertisingdriven


medium,theeconomicslowdownandtheconsequentreductioninadbudgets
ofmarketershasaffectedthismedium.Thesectorwitnesseddecreasedad-
spends,especiallytowardsthelastquarterof2008whenfinancialcategories
likeinternationalbanksandmutualfundsreducedtheirexposuretowardsthe
sector.Furthertheslowdowninconstructionsectoraswellaspostponement
ofretailsupplyplansisexpectedtoimpactthesectoradversely.

• Lack of a scientific measurement system - Thelackofascientificmetricto


measuretheefficacyofOOHmediumcontinuestobeadeterrentto
advertisers.Researchthatgivesaccountabilityfortherupeespenthaslong
beentheneedofthehour.ThepanelsetupbyMRUCandHansaResearchto
measuretheefficienciesofoutdooradvertisingisexpectedtoplayacrucial
roleinthegrowthfactorfortheindustry.Theresearchisinanadvancedstage
andresultsareawaitedshortly.

• Ban on billboards/hoardings in some cities - Authoritiesacrossthecountry


initiated"citybeautification"drivesandintroducednewbyelawsforOOH.The
impactwasfeltthroughreducedclutterlevelsincitiesandstandardizationof
sizes.Somecitieswitnessedacompletelargeformatmediaban,viz.Chennai.
Traditionally,Billboardshasbeenoneofthelargestsegmentwithinthesector
withover60percentshareoftheoutdoorpie5;butnowthereisanimperative
uponplayerstoreducedependenciesonthismedium.

• Need to provide end to end services as well as customized content -


Integrationofservicesprovidedincludingcontentdesignanddevelopment
andmediaintegrationisatrendthatcouldfurtherconsolidate.Anincreasing
needtocreateandprovidecustomizedcontentforthismediumisbeingfeltin
theindustry.Companiesneedtoaddressthisdemandtounleashthegrowth
potentialofOOH.

5KPMGInterviews,KPMGAnalysis
211

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
couldalsogivegoodreturnsinthelongrun.
212

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.

Regulatory Wishlist
Supportfromthegovernmentiscriticalforthisrapidlyevolvingsectorinthe
comingyears.Inparticular,governmentcanpropelthegrowthofthesectorby
takingthefollowingactionsteps:

• Clarityinregulatoryframeworkgiventhethrustforinfrastructure
development

• Dialoguewithindustryplayersbeforeframingguidelinesonthesector,as
againstunilateraldecisionslikebanonhoardingsacrosscities

• Provideinvestmentandoperationalincentives

• Appointingaunifiedregulatorforthesector
213

Animation and VFX Industry

Drivenbygrowthintheglobalmarketforanimationcontentandthecompelling
businesscaseforoutsourcing,theIndiananimationsectorhasbeenonarapid
growthmodeoverthelastfewyears.WiththesuccessofrecentIndiananimated
filmsandtheincreaseinthenumberofchildren’schannels,animationcontent
demandinthedomesticmarketisgrowingtoo.Weexpecttheindustrytogrowat
aCAGRofapproximately18percent,overthenextfiveyears,toreachINR39
billionby2013,asmostoftheunderlyinggrowthdriversremainstrong.

InordertomakeIndianAnimationandVFXindustrygloballycompetitiveand
churningoutproductsfordomesticaswellasglobalaudience,theindustrywill
needtomanagethefollowingkeychallenges

• Absence of co production treaties: CountrieslikeKorea,China,Singapore,


FranceetchaveenjoyedGovernmentsupportforingeniouslypromotingthis
sector.TheGovernmentassiststheindustryforthedevelopmentofrobust
domesticindustryandtoexploreexportsavenuesthroughcoproduction
treaties.Forexample,Francehasafundcreatedoutofentertainmenttax,
whichsupportsco-productiontotheextentof25–40percent,witha
conditionthat40percentoftheproductiontobedoneinFrance.6 Indiahasno
suchexemptionsfromthegovernmentoranycoproductiontreatieswith
countriessuchasFrance,Korea,Japanetc.

• No restriction on networks for airing content: Presentlymostofthe


animatedcontentdownlinkedonnetworksissourcedfromtheoverseas
marketandgenerallyfromanexistinglibraryatadiscountedprice.Thisisone
oftheseriousimpedimentsonthegrowthofIndianAnimationIndustry.Many
countrieslikeCanada,China,Korea,France,UKetchavemadevaryinglevels
ofmandatorylocalizationofcontent.AccordingtoCASBAKoreahas
mandatorylocalcontentprogrammingquotaformoviechannels30percent
andforanimationchannelsitis35percent.7

• Lack of awareness: CountrieslikeJapan,Korea,Chinaetcprovideassistance


tothelocalAnimation&VFXIndustryforoverseasbusinesspromotion.Indian
companiessufferbecausethereisalackofinternationalawarenessaboutthe
potentialoftheIndiananimationandVFXindustryasalibraryofrichoriginal
contentandahubforcoproductions.

Tomanagethesechallenges,whilecapitalizingonopportunities,stakeholders
acrossthevaluechainwillneedtotakefurtheractiontounleashthetruegrowth
potentialinthesector.

6FICCI
7FICCI
214

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
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
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:

• Skewed revenue sharing agreements with Mobile operators: Becauseof


thedirectbillingrelationshipwiththeenduser,operatorsinIndiatypicallyget
60-70percentoftherevenuesforVASwhilecontentcreatorsgetonly15-20
percent.Thisputsmobilegamedevelopersatadisadvantage

• High customs duties and indirect taxes: Thesemakelegitimateconsole


hardwareandsoftwareabout40percentmoreexpensivethangreymarket
importsandthereforeencouragepiracy.

• Internet piracy: PiracyisandwillcontinuetoremainabigchallengeforPC


gamedevelopers,becauseofeasyavailabilityofillegalfreedownloadsof
gamesontheinternetthroughP2Psharingservices.

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
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’
Wewouldliketothankallthosewhohavecontributedandsharedtheirvaluabledomaininsightsinhelpingusputthis
reporttogether.

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in.kpmg.com

KPMGinIndia KPMGContacts FICCIContacts


Mumbai Pradip Kanakia Amita Sarkar
KPMG House, Kamala Mills Compound Executive Director FICCI
448, Senapati Bapat Marg, Head - Markets Federation House
Lower Parel, e-Mail: pkanakia@kpmg.com 1 Tansen Marg ,
Mumbai 400 013 Tel: +91 80 3980 6100 New Delhi - 110001
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Fax: +91 22 3983 6000 Rajesh Jain Tel: +91 11 2335 4285
Executive Director
Delhi Head - Information, Communnications & Leena Jaisani
DLF Building No. 10, Entertainment FICCI
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DLF Cyber City, Phase 2, Gurgaon 122 002 Tel: +91 22 3983 5300 1 Tansen Marg ,
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Bangalore Head - Media & Entertainment
Solitaire e-Mail: jthakkar@kpmg.com Manish Ahuja
139/26, 3rd Floor, Tel: +91 22 3983 6232 FICCI
Inner Ring Road, Koramangala, Federation House
Bangalore 560 071 Nandita da Cunha 1 Tansen Marg ,
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Tel: +91 44 3914 5000 Corporate Finance
Fax: +91 44 3914 5999 e-Mail: samikray@kpmg.com
Tel: +91 22 3983 5347
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8-2-618/2 Nisha Bains
Reliance Humsafar, 4th Floor Associate Director
Road No.11, Banjara Hills Media & Entertainment
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