The Indian Media and Entertainment (M&E) industry is a sunrise sector for the economy and is making high growth strides. Proving its resilience to the world, the Indian M&E sector is on the cusp of a strong phase of growth, backed by rising consumer payments and advertising revenues across all sectors. The industry has been largely driven by increasing digitisation and higher internet usage over the last decade. Internet has almost become a mainstream media for entertainment for most of the people.
The Indian media and entertainment industry in 2016 was able to sustain a healthy growth on the back of strong economic fundamentals and steady growth in domestic consumption coupled with growing contribution of rural markets across key segments. These factors aided the industry to grow at 9.1 per cent on the back of advertising growth of 11.2 per cent, despite demonetisation shaving off 150 to 250 basis points in terms of growth across all sub-segments at the end of the year. The ‘KPMG in India – FICCI Media & Entertainment Industry Report 2017’ launched recently at FICCI Frames 2017 shows that compared to 2016, the industry is projected to grow at a faster pace of 14 per cent over the period of 2017-21, with advertising revenues expected to increase at a CAGR of 15.3 per cent. The year 2017 is likely to witness a marginally slower rate of 13.1 per cent as the economy recovers. The big story in 2016 has been the evolution of FTA channels post expansion of rural measurement in the television segment coupled with the impact of the 4G rollout and the resulting price wars. Both these factors have resulted in media consumption penetrating deeper into India, resulting in a realignment of strategy by media companies and advertisers alike.
Commenting on the industry’s performance and way forward, Uday Shankar, Chairman, FICCI M&E Committee and Chairman and CEO of Star India, said, “The industry has gulped down the bitter pill of demonetisation trusting its long-term benefits and yet is set to bounce back to a steady growth, thanks to strong fundamentals. Building solid infrastructure and continued government support will help the industry reach the tremendous potential it holds for employment and creating socio-economic value for the country. A commitment towards a quick transition to digitisation will ensure growth for all stakeholders.”
Girish Menon, Director, Media and Entertainment, KPMG in India, said, “2016 was a mixed bag for the industry with digital media making its way to the centre stage rapidly from being just an additional medium. It is compelling existing players to rethink their business models. To accelerate growth, M&E organisations must rebuild their strategies to fit and thrive in the changing, digitally-oriented landscape. Nimbleness and flexibility will be at the core of sustainable businesses.” Menon added, “The long-term factors driving the future growth are expected to remain positive, with growing rural demand, increasing digital access and consumption, and the expected culmination of the digitisation process of television distribution over the next two to three years. “
The TV industry clocked a slower growth in 2016 at 8.5 per cent, attributed to tepid growth of 7 per cent in subscription revenues and a lower than estimated 11 per cent growth in advertising revenues. A key theme in 2016 was the emergence of FTA channels as a key focus area following the expansion in rural measurement by BARC and the resultant increased interest by both broadcasters and advertisers. Additionally, strong performance of sports properties and increased spending for the launch of 4G by telecom operators helped alleviate some of the pressure. The industry is expected to grow at a CAGR of 14.7 per cent over the next five years with advertising and subscription revenues projected to grow at 14.4 per cent and 14.8 per cent, respectively. The projections remain robust due to strong economic fundamentals, rising domestic consumption and growing contribution of rural markets coupled with the delayed, but eventual completion of digitisation.
The revenue growth rates of print continued to witness a slowdown at 7 per cent in 2016, as English newspapers remained under pressure. Regional language papers demonstrated strong growth, but were adversely affected by demonetisation given their high dependence on local advertisers. Print is expected to grow at 7.3 per cent, largely driven by continued growth in readership in vernacular markets and advertisers’ confidence in the medium, especially in the tier II and tier-III cities. Rise in digital content consumption poses a long-term risk to the industry.
Films grew at a crawling pace of 3 per cent in 2016. The segment was impacted by decline in core revenue streams of domestic theatricals and satellite rights, augmented by poor box office performance of Bollywood and Tamil films. Expansion of overseas markets, increase of depth in regional content and rise in acquisitions of digital content by over-the-top platforms are expected to be the future growth drivers that would help the segment bounce back at a forecasted CAGR of 7.7 per cent. However, factors such as dwindling screen count and inconsistent content quality could prove to be limiting factors.
Continuing to ride on a high growth trajectory with a 28 per cent growth in 2016, digital advertising has captured 15 per cent share in the overall advertising revenues, with a minor hiccup due to demonetisation. 4G rollouts and the resultant data price wars are providing further impetus to the growth as digital consumption and habits are becoming more mainstream. It is projected to grow at a CAGR of 31 per cent to reach INR294.5 billion by 2021, contributing 27.3 per cent to the total advertising revenues. Advancement in infrastructure, evolving audience measurement technology leading to better content and lowering data costs will drive user habits towards greater digital consumption, driving tremendous growth for the industry.
Animation and Visual Effects (VFX):
The industry grew at 16.4 per cent, driven majorly by a 31 per cent growth in VFX due to increase in outsourcing work, growing use of VFX in domestic film productions and increase in demand for domestic animated content on television. The industry is estimated to grow at a CAGR of 17.2 per cent over 2017–21.
Out of Home (OOH):
The industry registered a slowdown in growth rate at 7 per cent majorly due to adverse impact of demonetisation. OOH is projected to grow at a CAGR of 11.8 per cent primarily driven by development of regional airports, privatisation of railway stations, growth in smart cities, setting up of business and industrial centres, and growing focus on digital OOH.
Radio recorded a 14.6 per cent growth led by volume enhancements in smaller cities, partial roll out of Batch 1 stations and a marginal increase in effective advertising rates. However, weak uptake in Batch 2 auctions of Phase 3 and delays in the rollout of majority of Batch 1 stations, coupled with adverse impact of demonetisation dampened the overall sentiment. Nevertheless, it is expected to be the fastest growing amongst the traditional mediums at a CAGR of 16.1 per cent, arising from operationalisation of new stations in both existing and new cities, introduction of new genres and radio transitioning into a reach medium.
Key underlying themes of 2016:
- The ‘Bharat’ story strengthens with expansion of rural measurement in Television and 4G data price wars deepening digital consumption. Print and Films segments have also been supported by growing demand from the regional markets
- Surge in digital consumption has been the central theme led by burgeoning mobile Internet and smartphone penetration, roll out of 4G, government and private initiatives around public Wi-Fi, greater emphasis on broadband rollout by multiple system operators.
- The impact of government policies and initiatives has been wide-ranging, with some short-to-medium term damage, though long implications are positive for the industry. Demonetisation hampered growth in annual advertising spends by about 1.5-2.5 per cent. The industry is expected to be a net beneficiary of GST primarily due to availability of input credits across the board and inclusion of entertainment tax within the sphere of GST
- Consolidation is gaining momentum across the value chain with large players expanding their footprint resulting in an increase in overall deal values compared to the previous year.
Increased FDI in M&E sector
The Centre announced ‘Big Bang’ Foreign Direct Investment (FDI) reforms, easing norms across several sectors including media. This is aimed at boosting the investment environment and bringing more foreign investments in the country. With more than 600 television channels, 100 million pay TV households, 70,000 newspapers and 1,000 films produced annually, India’s vibrant media and entertainment (M&E) industry provides attractive growth opportunities for global corporations. In recent years, with near double-digit annual growth and a fast-growing middle class, there has been a renewed surge in investments into the country by multinational companies.
At present, India has probably one of the most liberal investment regimes amongst the emerging economies with a conducive foreign direct investment (FDI) environment. The M&E industry has significantly benefited from this liberal regime and most sectors of the M&E industry today allow foreign investment. The government of India (GOI) has recently further liberalised the FDI caps in key sectors (including Direct-To-Home (DTH), print media and radio) and entry restrictions for foreign companies have been relaxed for most segments of the M&E industry.
In the year 2001, the film industry was granted the status of an ‘industry’. Since then, the GOI has taken several initiatives to liberalise the foreign policy regulations relating to films. Through the liberalisation of the foreign exchange regulations, the GOI has allowed 100 percent FDI in the film sector. For the purposes of FDI, film sector broadly covers film production, exhibition and distribution, including related services and products. FDI in the sector is permitted without any prior approval (‘automatic route’). In addition, there are no entry level conditions for FDI in the sector. However, investors must comply with certain post filing requirements, including notifying the Reserve Bank of India within 30 days of receipt of inward remittance in India and filing of certain documents within 30 days of allotment of shares. The GOI has also entered into film co-production treaties with several countries and is in the process of entering into more bilateral pacts with countries like Australia, China and Canada.
Broadcast sector to be benefitted
“TV households in India account for around 148 million, or over 700 million viewers, and the ongoing digitization is going to completely change the face of the Indian broadcast industry”, Chandrajit Banerjee, Director General, CII
Raised foreign direct investment (FDI) in broadcast carriage services will impart tremendous boost to India’s cable TV sector. However, more would need to be done to attract the required investments into the sector. The broadcast sector comprises direct-to-home (DTH), multi-system operators (MSOs), and cable TV digitization. With the intention and a clear plan to completely digitize the broadcast distribution by 2017, India is the most sought-after market in the world. TV households in India account for around 148 million, or over 700 million viewers, and the ongoing digitization is going to completely change the face of the Indian broadcast industry. The objective is to bring transparency and accountability into the system, which will ultimately reflect in expansion of the media and entertainment sector and add to the overall economy. In fact, combined with a nascent broadband market, it can be expected to create a new service segment beyond entertainment. An estimated Rs. 25,000 crore investment is required by cable operators to digitize 100 million cable homes. Digitization of the entire cable TV infrastructure is expected to be completed by this year.
Enhancing the limits for FDI is a major step to begin with, helping the opening up of the sector and speeding up the pace of digitization across the country. Building digital infrastructures and deploying new technologies are also needed, which necessitates greater participation from overseas operators. While the fine print on rules set by the Foreign Investment Promotion Board is awaited, the government has brought back confidence among the cable distribution community.
Immediate beneficiaries will be those MSOs that have obtained licence from the Ministry of Information and Broadcasting for digital addressable system (DAS). The move to raise the FDI bar will help MSOs with concrete digitization expansion plans in the coming months. The DTH segment of broadcast service will also benefit from this move, especially with regard to heavy taxation.
Major foreign players are looking to venture into India’s broadcast service space. Consolidation will also happen in this space and mobile players will step in for digital licences. The opening of 100 percent FDI in Mobile TV is a welcome step, but more action in this space will evolve when spectrum issues are cleared and 4G-deployed. While CII was advocating increase in FDI limits in the cable distribution sector from 49 to 100 percent till some months back, there is room for more policy measures from the government. The key measure required is to grant an information infrastructure status to the cable TV sector. This would bring the sector on par with other infrastructure sectors in the way taxes are levied and bank credits are dispersed. At the same time, high entertainment tax levied in the DTH segment (which is likely to get extended to cable distribution in the new digitization process) will be the biggest challenge for new investors.
Digitization and the evolving television industry
In India, the Television revolution that started in early 80s with a government-owned Doordarshan, experienced its first major boom in early 90s with the introduction of cable TV. For the first time, Indian audiences experienced 24-by-7 TV and more than one channel; besides the quality of content not possible with government produced content. The next leg of the revolution hit when a few major players, some of them strongly present in Telecom, entered the Television Industry through satellite TV, providing a direct-to-home connectivity. This, along with the introduction of Digital Quality TV just few years ago, has put the Indian TV industry agog with excitement and tremors of a major shakeup about to unleash.
The digitization drive of the government of India, started with four Metro cities of New Delhi, Mumbai, Kolkata and Chennai was the tip of the iceberg. With over 150 million homes enjoying cable or satellite TV, and slated to grow to over 200 million in next few years, covering an estimated audience of over 800 million people – it is one of the largest platform expanse globally. The government has valid concerns over tax realizations. The industry of content connectivity (cable and satellite TV) is taxed but since the last-mile connectivity is achieved by small, unorganized and local operators with no billing or tax; the government wants to fix this problem using the Digital quality lure.
Once the urban, semi-urban and suburban areas of this country are completed, more and more villages will have to go Digital, providing the connection to homes through set top boxes and getting all data wired through the Conditional Access System (CAS). The Digitization drive helps three stakeholders directly: governments gets taxes, content providing channels will have better accountability in terms of numbers (for paid channel revenues or advertisements), and the viewers will get better quality Television. This will incidentally also help electronic majors selling newer and more advanced TV sets in larger numbers. The concerns of going digital, however, has been seen and perceived by pay TV industry as a challenge, when it is a hidden opportunity.