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Posted on Mar 12, 07:54PM | IBNS
New Delhi, Mar 7 : The Indian Media & Entertainment (M&E) industry grew from INR 728 billion in 2011 to INR 821 billion in 2012, registering an overall growth of 12.6 percent.
Not long ago, the thought of being able to reach and engage with the billion-strong and significantly diverse Indian customer base seemed farfetched.
Today, powered by digital technologies, growth in penetration of broadband and digital cinema, increasingly sophisticated mobile devices, and a regulatory framework that is enabling growth and change in several sectors of the industry, the dreams of advertisers, media houses, and telcos are beginning to take steps towards fulfillment.
Not so surprising then, that the theme for the FICCI Frames 2013 conclave is "A tryst with Destiny: Engaging a billion customers".
Below given are key highlights of each chapter covered in report this year.
Indian M&E Industry in 2013
The Indian M&E industry grew from INR 728 billion in 2011 to INR 821 billion in 2012, registering an overall growth of 12.6 percent. Recent policy measures taken by the government can pave the way for gradual recovery for the Indian economy.
With some improvement also likely in the global economy in 2013, the prognosis for the Indian economy looks somewhat better and real GDP growth is expected to be in the range of 6.1 to 6.7 percent in 2013- 146.
Given the impetus introduced by digitization, continued growth of regional media, upcoming elections, strength in the film sector and fast increasing new media businesses, the industry is estimated to achieve a growth rate of 11.8 percent in 2013 to touch INR 917 billion. The sector is projected to grow at a healthy CAGR of 15.2 percent to reach INR 1661 billion by 2017.
"2012 was a challenging year - especially for advertising, however, there are parts of the industry that grew robustly - especially film and new media. It was also a year in which significant developments took place - FDI in TV distribution and the roll out of digitization. These changes will position the industry well to achieve projected 15% growth figure," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Television - The march to digital begins
Digitisation of cable is expected to bring in transparency and increase subscription revenues for Multi System Operators (MSOs) and broadcasters.
It is also expected to reduce carriage fees, building a case for the launch of niche channels and investment in content for existing channels. Developments and refinements in viewership measurement systems may affect the way Advertising is distributed among channels.
Further, in a reflection of India's growing diaspora, Indian channels have also been aggressively increasing their presence across international markets.
GEC channels like Zee TV, SET, Star Plus and Colors are available in approximately 169, 77, 70 and 50 countries respectively. Industry discussions suggest that while the US, UK and Canada markets are close to saturation in terms of penetration, the Middle East and Africa continues to offer significant growth opportunities.
In addition to the Indian diaspora, offerings are also targeted at the local population, primarily through dubbed or sub-titled content.
"The television industry will be transformed in the next few years if the changes that began in 2012 are carried through to their logical end. The industry will likely see its revenues from subscriptions go up leading to stability of earnings. It is extremely important for digitization to be carried through in order to ensure the long term health of the industry," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
New Media - Let the games begin!
New media continued its growth trajectory in 2012 (albeit slightly slower than the previous years), with estimated growth in advertising revenues of close to 40 percent over last year. Coming in at approximately INR 22 billion in revenue in 2012, digital ad spend reached approximately 6.7 percent of the total M&E industry advertising revenue. As predicted last year, the mobile story has begun to play out in India, with the user base expanding significantly over last year.
The devices are getting cheaper, access better and time spent longer, leading to significant shifts in content consumption habits of large sections of the Indian audience. This audience, however, remains under-monetized - primarily due to a decline in on-deck revenues, sluggish ad rates and under investment in distribution platforms that allow customers to pay for content effectively.
One of the biggest challenges facing this industry in realising its full potential will be the ability to create distribution platforms with enough critical mass that provide users with a rich experience and transact seamlessley (even for small ticket sizes).
There is increasing consensus in the industry is that it is no longer possible to prevent content from being made available on-line. The recourse for content owners is to invest and create credible platforms where users can consume content effectively and at the same time work towards effective policing of piracy.
"The New Media segment continues to power ahead. Digital advertising, social media marketing, gaming etc are all fast growing markets. With the roll out of 4G in 2013 and increasing penetration of wired broadband coupled with widespread use of smartphones and tablets, New Media will continue to be an ever increasing part of the overall M&E industry," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Radio - Renewed hope
The radio industry had a muted growth of 10 percent in CY 2011 and reached revenues of INR 12.7 billion compared to INR 11.5 billion in CY 2011. The overall revenues of listed radio players exhibited a single digit growth rate during the entire year.
The growth in industry's revenues was driven by volume improvements as prices largely stayed stagnant. In certain markets, leaders have been able to raise rates slightly but the overall trend has been to expand revenue through volume enhancement and rate rationalization.
The utilization levels have reached nearly 100 percent during peak season in the top eight metros putting pressure on volume based growth from metros in the near future.
For non-metro players too, utilization continued to be a lever for growth - for example, MY FM's average inventory utilization was at 95 percent in prime time followed by non prime time in the range of 75 to 85 percent.
"Radio has been waiting for too long for Phase III and the associated regulatory reforms. After a challenging year in 2012, there is now renewed hope that in 2013, the industry will finally see its shackles removed and a regulatory structure enacted that will drive it to the next stage of growth," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Music - Streaming to success
2012 was the year of discovering music - consumers finally showed some indication of broadening consumption beyond Bollywood as other genres showed vibrancy.
Technology enabled personalization in music discovery through various mobile and internet apps while cloud storage assisted in managing the content swiftly.
Social media continued to blur borders and promote music consumption, thereby fostering talent unlike before.
More and more independent artists were able to find an audience and also monetize their content, albeit in a small way. Live music performance also came into its own and provided a platform for audience engagement to both established artists as well as budding talent.
Digital tunes are now being played like never before contributing 57 percent to the INR 10.6 billion music industry which grew pie 18 percent Y-o-Y.
While the TRAI guidelines restricting the automated renewal of Caller Ring Back Tones (CRBT) dampened the growth momentum - achieving a 16 percent Y-o-Y growth against our expectation of 18 percent, the industry is now gearing to take the digital audience to the next level by offering enhanced and affordable music services online and on mobile devices.
Revenues from digital platforms are expected to gradually gain pace and grow at a CAGR of 21.7 percent over the next five years.
By 2017, digital revenues will contribute 72 percent to the music industry's revenues.
This growth will be on the back of availability of faster broadband speeds and the uptake of subscription based online music services. Growth in music consumption (both online and mobile) is expected to drive the music industry to revenues of over INR 20 billion by 2017.
"Digital and broadcast video are driving growth in the music business. Performance licenses also saw growth. These will continue to drive the industry forward and over the medium term, more than compensate for the loss of revenue from CRBT and radio revenue," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Technology - Changing the game
FICCI-KPMG India has identified six trends viz. big data, cloud, social media, mobility, embedded systems and augmented reality which will have a logical maturity that inevitably brings them together.
The advent of technology has empowered the consumer like never before. The rising presence and reach of the internet, coupled with the prolific growth of smartphones, tablets and related technologies, has provided consumers with unmatched access to information on the go, thereby helping them make informed purchasing decisions.
The adoption of digital media is redefining consumer mindsets, patterns of purchase and decision making. This, in turn, is transforming consumer behavior. The rapid pace at which digital media is being adopted is also expected to propel growth in the use of consumer technology.
"The ' access anywhere' expectation from consumers is driving technology to move faster and faster - especially in Media and Entertainment. Storage on cloud, social media, personalization and business intelligence driven by analytics, programming analysis, etc are all practices that emerged on the back of technology in the last decade. The digital decade is truly going to be one that is driven by technology," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Print - Regional to the rescue
The INR 224 billion Indian print industry grew by only 7.3 percent from INR 209 billion in 2011- lower than KPMG in India's expectation of 8.3 percent growth last year.
The high dependence on advertisement revenues resulted in the growth of print industry being dampened by poor macro economic performance of the country. In 2012-13, the Indian economy slowed down its growth momentum registering a growth of only 5 percent as compared to 6.2 percent in 2011-12.
However, 2012 witnessed some improvement in circulation revenues which increased by 7.3 percent years on year as compared to only 3.8 percent in 2011.
This was achieved through launch of new editions and increase in cover prices of established editions. Going forward, the industry may adopt a differentiated pricing strategy by increasing the price of established editions in mature markets while holding the prices low in case of tier II and III markets or while entering newer markets.
"The print industry's dependence on advertising resulted in lower than expected growth in 2012. National advertisers revised plans although regional markets still proved to be an area of growth. We see this trend continuing in 2013 and beyond as regional continues to be the engine of growth," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Films - A Blockbuster year
After several years of muted growth, 2012 was an exciting year for the Indian film industry with the audience returning to the theaters.
India's domestic theatrical revenues grew by 23.8 percent Y-o-Y; contributing 76 percent to the INR 112.4 billion film industry. Digital distribution played a significant role in increasing the reach of the industry. The industry has begun penetrating tier II and III markets and entertaining the un-served population which sits near the bottom of the pyramid.
All this has been made possible by leveraging technology which is allows for a movie watching experience at an affordable cost and in a secure environment. Indian cinema has continued to enchant the Indian audience for almost a century now and it is expected to continue on its growth trajectory and be worth INR 193.3 billion by 2017.
It is not only Hindi or English films which are contributing to the elite INR 1 billion club.
The increasing preference amongst patrons for local taste in content has seen regional cinema growing over the years. The growth of regional cinema is led by digitization, boost of multiplexes, emergence of new talent and organized funding.
The rise of regional channels has also given a boost to the regional industry as it presents more opportunities for cable and satellite monetization.
"The film industry bounced back vigorously in 2012. Better content that appealed to all segments of the audience, wide relaeases enabled by the now large footprint of digital screens and smart marketing led to great domestic box office," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Animation, VFX and Post Production - Lights, Camera... Animation!
There is indeed scope for animation companies to grow in India. Animation is no longer a 'sunrise' industry, it has begun expansion in different directions primarily due to factors such as growth of the overall M&E industry, the potential newer consumption segments like education and gaming, and the recognition of India as an outsourcing destination.
Business models too are changing, at present, many Indian companies are graduating from traditional outsourcing to a co-production model. Besides this, custom content development is expected to grow into a larger segment, going forward.
The VFX industry, a rapidly evolving segment in India, is estimated at approximately INR 7.7 billion and can be broadly classified into the following verticals — movies, TV shows and advertisements.
As the segment is still at a nascent stage and domestic consumption remains limited, with mainly low-end work being carried out in India, there is considerable dependence on outsourced projects from the US and the UK.
However, the domestic market is now witnessing bigger budget film releases and ad campaigns, for which players have increased spending on VFX so as to provide an enhanced visual experience for viewers. The segment registered 35 percent7 growth over 2008-2012 and is expected to grow approx 20 percent CAGR to reach INR 19 billion in 2017.
"Animation and VFX in India continues to grow in the services segment but has yet to come into its own in the product segment. As a services destination, the sector does face a threat from East asian countries that get government support. Our government needs to really support this sector in terms of incentives, treaties etc in order to drive it to achieve its potential," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Out of home - Displaying resilience
2012 witnessed brands across industries actively experimenting with something new, something more creative and appealing - 3D cutouts of Amitabh Bachchan on mobile vans for the TV show Kaun Banega Crorepati, travel site Expedia's launch campaign, a tailor made car of scrap at the Mumbai airport for Volkswagen, Cycle to light up the Mysore Palace by Vodafone, and the mall mountings for Spiderman on UTV Action, to name a few.
These innovations not only attracted eyeballs but made lasting impressions as well.
However, 2012 was an uncertain year for the Indian outdoor advertising industry, which had its share of highs and lows.
Brand owners spent approximately INR 18 billion in 2012 on Out-of-home advertising which approximates 5-6 percent of advertisement spends. Rural consumption increased in most product categories - fast moving consumer goods (FMCG), consumer durables, insurance, two-wheelers, etc.
While 50-60 percent of the outdoor budget was consumed by Mumbai and Delhi alone a few years ago, there appears to be a marked shift to the Tier II and III cities - the top 10-12 markets' spend has over the last few years reduced from 80 percent to 60 percent. This trend is expected to continue.
Unlike in 2011, when 76 percent of Out of Home (OOH) media consumption was concentrated amongst four industry sectors, 2012 saw increased contribution from other industries such as auto, retail, white goods and real estate.
"Out of Home witnessed challenges in 2012 as budgets continued to stay under pressure. Most segments suffered with the exception of transit - which did well. This segment is likely to do even better with India's aggressive growth plans on its transport infrastructure and airports," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Convergence - Waiting for bandwidth
The International Telecommunication Union says that "There is no universal definition of convergence, although generally it is understood to mean the ability of different networks to carry similar kinds of services (e.g., voice over Internet Protocol (IP) or over circuit switched networks, video over cable television or Asynchronous Digital Subscriber Line (ADSL) or, alternatively, the ability to provide a range of services over a single network, such as "triple or quadruple play".
From a M&E perspective, convergence results in offering content in its various forms (like print, radio, television, films, gaming, music, etc) through wired and wireless digital networks and making it accessible to customer devices such as cell phones, tablets, PC's, PDAs etc. Convergence is also being witnessed from telecom service providers venturing into the M&E industry.
For example telecom operators have ventured into satellite distribution of television channels, MSOs offer internet services to their subscribers, music producers have launched YouTube channels, etc.
"The long held promise of Convergence - the marriage of media and telecom, seems to finally be coming to fruition in 2013. Segments on our audiences are already in a converged world, but with the digital ecosystem likely to go wide this year, we will finally see this promise be fulfilled," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Deal volume and value in 2012 - Consolidating for scale
The year 2012 saw overall Mergers and Acquisitions (M&A) and private equity funding in India totaling approximately 1,000 deals with a value exceeding USD 49 billion.
Deal activity in the M&E sector witnessed a significant uptrend, with 35 transactions with a reported value in excess of USD 1.5 billion, versus 42 transactions valued at USD 1017 million in 2011 and 27 transactions valued at USD 693 million in 2010.
The growth in the Indian M&E industry has continued to be driven by favorable demographics, consumer acceptance of new media platforms and relaxation of FDI regulations across several sub sectors.
While the overall number of deals resulting from M&A and private equity funding saw a decline from 2011, the M&E sector saw a significant increase in deal value, attributable to few high value transactions.
Marquee transactions in 2012 include Network 18 Media and Investments' acquisition of Eenadu TV for USD 395 million, Sony Corporation's acquisition of a 32 percent stake in Multi Screen Media Limited and Aditya Birla Group's acquisition of a 27.5 percent stake in Living Media India Limited for a reported USD 70 million.
Several private equity funds have made investments in the sector, with the most notable being L Capital Asia, making investments in film and TV production and theatres and Providence Equity Partners, making an investment in the cable business.
"The value of transactions continue to rise in this sector. We fundamental changes in the value chain and structure in 2012 and with the changes in FDI regulations for TV distribution, we will see significant activity in the next few years as new entrants come in and existing players raise capital or consolidate," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India.
Tax and Regulatory - Two steps forward...
The Indian Finance Minister presented the Finance Bill 2013 on 28 February 2013. There are a few proposals in the Budget which are relevant for the M&E sector from a taxation angle.
On the indirect tax front, the Finance Minister accepted the request of the film industry and the exemption from service tax in respect of copyright in cinematographic films granted last year has been withdrawn. However, the exemption continues in respect of films for exhibition in theatres.
Another proposal impacting the distributors of TV channels is increase in customs duty on set top boxes from 5 percent to 10 percent.
On the direct tax front, while the headline corporate tax rate has remained unchanged, the rate of surcharge, if taxable income exceeds INR 10 crores, has been enhanced from 5 percent to 10 percent in case of domestic companies and from 2 percent to 5 percent in case of foreign companies.
Further, the domestic withholding tax rate in case of payment of royalty and fees for technical services to non-residents has been increased from 10 percent to 25 percent. This could have significant impact in relation to payments made for acquisition of content, transponder hire charges, etc. in cases where the tax treaty benefit is not available.
The Government also deferred implementation of the General Anti-Avoidance Rules (GAAR) by two years to FY 2015-16, providing a much needed respite to tax payers.
The announcement of the roll out of Phase III of radio licensing is a welcome move that will be a catalyst for growth of the radio industry.
The industry has been awaiting this for a while and the new stations will enable radio to be a much more viable medium for advertisers looking for a broader reach.
In a welcome move on the regulatory front, the Government, through issue of Press Note 7, has raised Foreign Direct Investment (FDI) limits / liberalized the FDI norms for investment in the broadcast carriage services industry such as Direct-To-Home (DTH), cable TV and also clarified the foreign investment policy in Mobile TV.
The Government has also cleared the Copyright (Amendment) Bill, 2010, which expands the definition of 'copyright' and introduces a system for statutory licensing to protect owners of literary or musical works.
The amendments now enable artists to claim lifelong royalty for their works. The Government has also taken several measures to ensure 'digitization' of cable television.
Industry participants anticipate that several tax issues discussed below are likely to be resolved by the Government in the near future.
"It is encouraging that the government has been lending a ear to the M&E industry's tax and regulatory demands and some changes like the recent service tax amendments, however we still need several initiatives like including Entertainment tax in GST, rationalization of withholding tax on royalty, etc," said Jehil Thakkar, Head of Media and Entertainment, KPMG in India