I look at Indiatimes shopping at times and not ebay

Source: ENIL, 2006.

Easy availability of jobs amongst the young Indians (20-24 yrs) have led to a higher disposable income, with a major chunk being spent on music, cell phones, books, food and branded clothes (KSA- Technopak). The industry is expected to create over 2 million jobs by 2008 with software and the ITES sectors contributing one million jobs each. The parallel services industry is also expected to create additional employment for another 2 million people thus boosting their leisure spendings.

So what drives the E&M industry? The buoyant economy has given a fillip to the consumer's income which in turn increases the disposable income that the consumer spends on E&M ². This combined with technological advancement and policy initiatives undertaken by the Indian government has contributed to the growth of the E&M industry. Factors such as low media penetration across various socio-economic classes and lower ad spends have also helped drive the industry. The other key factor is the liberalized foreign regime, the recent being FDI permitted in the print and radio sectors, while films, TV and other segments are already open to foreign investments. In short it can be said that the Indian E&M has everything going for it, be it technology, digitalization, government support and industry developments ³.

Source: ENIL, 2006.

The industry needs a consistent and uniform media policy for increasing investments in all sectors that needs efforts not just by the industry bodies but also by the government. Investments in technology will call for access to more institutionalized funds, thus resulting in corporatization, transparent accounting policies, professionalism and corporate governance. According to a report by BSE, Annual Market Review 2003, the Indian media business is no different in terms of exponential potential as compared to its global counterparts. The difference lies in the structure of the business in India and that at the global levels ⁴. AOL- time, Walt Disney, Bertelsmann, Viacom, News Corporation and Vivendi Universal are amongst the largest media companies in the world and their `family brands' consists of business in almost all areas of the media segment. Whilst in India, we have dominant leaders in individual segments of the business such as Broadcasting (Star, Sony and Zee), Content (Balaji, TV18), Music (Saregama, Tips, Universal), Movies (Mukta Arts, Yash Raj Films) and Distribution (Siticable, Hathway).

Television industry

India has the largest television market in the world today, acquiring the largest share in the entertainment industry accounting to 42%. The television industry grew at 15% overall, while the print media had received the much-needed impetus for growth with approval for FDI in July 2005 ⁵. In the past few years, television has grown in an unprecedented manner. The medium saw changes by way of new genres establishing themselves; more channels added the scene, changes on distribution platforms and hike in rates across channels. Television homes are growing at a staggering rate of 4% pa in India, thus it can be said that the number of television homes far exceeds the number of telephone-connected homes. India has 119 million television households that comprise around 60% of the total households in the country. Of these 119 million TV households, about 50 million receive cable television services, leading to a penetration of about 42% cable TV households to total TV households and 25% cable TV households to total households in India. As can be seen, from these low penetration percentages, there exists a huge untapped potential growth in this industry ⁶.

The television distribution market consists of revenues generated by distributors of television programming to viewers. This includes spending by consumers on subscriptions to basic and premium channels accessed from cable operators, satellite providers, or Internet protocol television (IPTV) services, as well as on video-on-demand (VOD).

The television industry broadly has three streams of revenues - subscriptions, advertising and software content. Subscription revenues are projected to be the key growth driver for the domestic television industry over the next 5 years owing to a rise in the number of pay TV homes as well as subscription rates. From having one public broadcaster to over 350 channels available today, the Indian television industry has come a long way and is poised for even higher growth. An urban cable home in the four metros currently receives approximately 90 channels in the analogue mode. Fifty of these `free to air' channels while the rest are `pay' channels that are bundled together in bouquets.

Emerging platforms like DTH (Direct to Home) and IPTV (Internet Protocol Television) has helped expand the subscriber base and push up subscription revenues ⁸. DTH services are seeing increased interest on the part of large business houses and have emerged as a major challenge to the established cable TV. This increasing popularity of DTH services will stir up not only growth within the segment, but also in the cable TV system. Cable operators, especially multi system operators (MSOs) are gearing up with their offering of digital cable to compete against the DTH services ³.

Due to its sheer size, television has been the main driver for industry's growth contributing to 62% of the overall industries growth. With total revenues of INR 39 billion, television is the goliath of the entertainment industry. It is now ready to advance to the next stage of its evolution, grasping the opportunities presented by the digital age, which will completely change the home entertainment landscape. In the process, it is expected to continue its rapid growth and reach INR 371 billion by 2010 ⁷.

Source: ENIL,2006.

Music Industry

The current size of the Indian music industry is USD 155 million and is expected to grow to USD 165 million by 2010 with a CAGR of merely 1%. Analysts state that the music sector is estimated to be about USD 149 million in legitimate sales of music cassettes and CDs and is pegged to grow at 3% over the next 5 years ³. However, this industry has been plagued by piracy and has been showing very sluggish growth in the physical format over the last few years, both in India and globally. The industry is seeing a revival of sorts with the growth of `mobile music' and `licensed digital distribution' services.

The music industry however has a very unique structure unlike most other global markets. Earlier, the music market was completely dominated by film music, as music is an integral part of Indian films and music rights contributed as much as 15% of an individual film's earnings. However, in the recent years remix, video-albums, depicting live song-cum-dance shows, are creating ripples in music industry. With the tremendous increase in the number of music lovers, piracy too has grown by leaps and bounds along with evolution of new techniques adversely affecting the music industry.

Internet downloads, FM, mobile and I-pods have led to downfall in music market, with 12 - 13 crores music business in 2006 to only Rs.11 crore music business in 2010, as compared to 1200 crore music business in 1995 ⁸. In the past few years, the success of music videos and non-film albums is driving growth in the Indian music market.

However, an industry wide solution is required to address piracy issues that affect major E&M sectors including filmed entertainment, home video and consumer book publishing.

Radio industry

This Rs.300 crore industry is poised for big growth estimated to reach a size of Rs.1200 crore (32% growth) by 2010. The PwC report states that there will be a boom in the radio industry with 22% growth and rationalization of the license framework will treble its size to about USD 145.9 billion by 2009 ³. The key growth factor in the still infant radio industry is reaching local audiences that have till now been served largely by print media. It is said this would grow atleast four times in the next 5 years.

The Indian radio today reaches out to 99% of the population and is currently the most cost-effective mass communication media in the country (According to a report by Global Consultancy PwC). The revenues in this sector are contributed by the advertiser spending on radio stations, radio networks and satellite radio subscriptions, along with the content attaining a growth at a CAGR of 22% in the coming years ⁶. The overall ad spends in India is about 3% as compared to the worldwide average of 8.7%. How much the radio pulls depends on how much privatization there is in a country and how aggressively its players are able to promote themselves. Radio in countries like Philippines and Sri Lanka has upto 10-12% shares ⁹.

Technology has influenced the way consumers listen to the radio. Radio has reinvented itself by finding a presence in portable devices such as phones, I-pods and PDAs triggering multi-platform development. Thus, everybody is looking at repurposing and repackaging core strengths onto as many platforms as possible ¹⁰.

Of late, the radio industry has become the hottest sector for investment in the E&M space due to the availability of as many as 338 FM radio licenses for bidding for the private players. These cover 91 cities, most of which till now were being serviced only by the State Broadcaster ¹¹. The private FM radio sector is expected to get foreign investments of USD 111 million in the next 12 to 18 months.

Film Industry

The Indian film industry is the largest in the world churning out around 1000 movies a year, thus playing a major role in the growth of the E&M sector in India. The industry stands at an estimated USD 1.5 billion and is expected to grow around 20% annually to reach USD 3.4 billion by 2010 ³. The sources of revenue being consumer box office spending for theatrical motion pictures plus spending on renting and purchasing home video products in both DVD and VHS formats. It also includes online film rental subscription services, such as those whereby DVDs are delivered via overnight mail, and streaming services, whereby films are downloaded via a broadband Internet connection.

The film segment is set to grow at 5% a year for the next five years, with areas like overseas markets, domestic box office revenues, ticket prices and home entertainment consumption seeing growth ². The Indian film industry has more than 3.1 billion admissions. Though the number of admissions is the highest in the world, when one compares the number of screens available for Indian population, the average is relatively low as compared with other countries. With around 12000 theatres in the country that are mostly single-screen, the average screen density works out to be only 12 screens per a million population ³. A strong appetite for movies and an upload migration of household incomes in India, has bought a several business opportunities in this segment. The box office collections of this industry are 85% of its revenues as compared to the US film industry where the collections are only 27% of the revenues.

There is also a huge base for growth in the home video segment, having over 5 million home video and DVD subscribers. With the current penetration levels, the home video segment offers ample growth opportunity and is expected to grow over 30% in the next 5 years. With the help of mediums like DVDs and Internet, the viewership of regional films is no longer confined to specific areas. There has been an increased importance of regional cinema. According to industry estimates, Hindi language films made in India are produced in the south and east regions of India in regional languages ⁶. The size of the South Indian film industry is bigger than the Hindi film industry, in terms of number of films produced.

Most international films are being dubbed in the local languages to be screened in cinema theatres. As a result of this the dubbing industry has grown at 25-30% over the last 5 years. With around 75% of the total industry revenues of USD 5.1 million contributed by international content released in local language. For example, the dubbing of `Spiderman 2' in three local languages has played a large role in the stupendous success of film in India ⁶.

Print Industry

The current size of the print media is around Rs.10,900 crore and is projected to grow at a CAGR of 12% to Rs.19,500 crore by 2010 ¹. Rise in literacy levels in both urban and rural areas, a booming economy, growing need for content and appropriate steps taken by the government to encourage foreign investments in this industry has triggered the growth of this sector. With more foreign investments happening in this sector, the demand for Indian content is on the rise. The print (including newspaper and magazines) media industry consists of spending by advertisers and readers of daily print newspapers (both newsstand purchases and subscriptions). Weekly papers constitute a separate and distinct market in terms of content, advertising base and subscriber interests.

However, the print media market is very fragmented with approx. 1900 news publications for a circulation figure of just 200 million. The latest readership survey NRS 2005 states that the reach of print media (dailies and magazines combined), as a proportion of reading population (i.e. 15 years and above) is only 27% as compared to the global readership average of over 50%. This highlights the significant potential of the print media market in India ^3;12. Due to India's regional diversity the print media is also characterized by a large number of players dominating specific geographies. The English daily readership has been stagnant at 21 million, while the vernacular news dailies dominate the market with a 49% share ¹³.

Animation Industry

The size of the Indian Animation industry is USD 285 million and sees an opportunity to rise to USD 950 million by 2009 ⁵. India's software success story is graduating to the creative space by making attempts in story telling by cooking up stories to come up with an immensely entertaining broth. However, Indian animators have not been exposed to animation films unlike animators in China, Philippines and South Korea. The Indian animation industry has moved up the value chain with an entry into the lucrative business of co-production. Walt Disney, NBC Universal, Mattel, Lionsgate and Mike Young Production are just a handful of big names using the Indian talent pool not just to execute animation software but also to share copyrights and profits ¹⁴. The total cost of making a full-length animated film in America is estimated to be USD 100 million to USD 175 million. In India, it can be made for USD 15 million to USD 25 million.

There is a serious need to setup more training institutes that focus on animation to do away with the lack of awareness and absence of substantial venture capital inflow. NASSCOM's study on Gaming and Animation Industry in India released in December 2005 estimates the global opportunities in this sector is currently more than USD 55 billion. Experts expect the animation industry to move from USD 12 billion to USD 42 billion by 2009 with two-third of this coming from India, while the mobile gaming industry would grow by 67% within five years ⁵.

Government Regulations

Over the last few years there has been a rise in the overall consuming levels of Indian consumers attributed to the strong economic growth and lower interest rates in the country that has led to higher disposable income. Government announcement of the key policy initiatives such as migration to revenue share regime, opening of licenses to private players and allowing foreign investments into the segment will help drive growth in this sector ¹.

According to the 2006-07 Budget, the government allows 20% FDI in FM radio by shifting to revenue share regime from the current license fee structure. The foreign ownership restrictions have been relaxed in the newspaper category allowing 26% foreign equity holding, by Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs), in the news-related print media and 100% FDI non-news publications ³. Printing of facsimile editions of foreign journals is now also allowed in India thus helping the foreign journals to effectively cut down on the costs of distribution and serve the Indian audiences more effectively.

Advertising Spends

The Indian advertising spends as a percentage of GDP is at 0.34% as compared to other developed and developing countries where the average is 0.98%. Though low ad spends are one of the major challenges faced by the E&M industry, it throws open immense potential for growth. The current advertising revenues are around Rs.132 billion ¹¹. Of the total amount spent on ads in India, radio is presently estimated to garner a share of about 2% as compared to the Australian commercial radio ad spends of 9%, this shows that there is a possibility for a huge growth in this sector.

Source: Unraveling the potential.

However, experts estimate that the share of ad spends in radio would grow substantially over the next 5-10 years due to explosive growth in the ad inventory as a result of commencement of operations of atleast 300 stations over next couple of years ¹⁵.

Investments

India has one of the most open liberal investment regimes among the emerging economies with a conducive FDI environment. The second quarter brought a mixed bag for VC investments in the E&M industry. Faced with slowing sales and dipping profits, foreign media houses are increasingly eyeing India as one of the most attractive markets globally today we have Britain's Pearson, publisher of Financial Times, Independent News and Media, Turner International and BBC Worldwide as recent investors in this sector.

Recently FDI was permitted in the two important sectors of Print media and Radio; Films and TV and other segments are already open to foreign investments. In all, there have been 8 proposals for FDI in the news and current affairs media including Mid-day Multimedia Ltd, Business India Publication Ltd, Deccan Chronicle Holdings Ltd, Dhara Prakashan Pvt. Ltd, Writers & Publishers Ltd and DT M&E Pvt. Ltd. At present, the information and broadcasting ministry has cleared 13 proposals for FDI in media and is still examining another 22 proposals. The FM radio segment too was opened for foreign investment recently with 20% FDI being allowed. As many as 101 companies have expressed their interest in the segment, most of which are currently not in the business of running and operating a radio station. This has bought about a need not just for financial investments but also technical and operating experience.

Emerging Trends

Almost every segment of the entertainment and media industry is shifting from physical distribution to digital distribution of content, thus creating more revenue opportunities for entertainment and media companies. Of late, India has been witnessing new ways of being entertained thus leading to emergence of new distribution channels like mobile phones and Internet. The global spending via online and wireless channels is expected to increase to USD 67 billion by 2010, says Outlook ¹⁶.

Source: E&M, impact of new technology.

Digital technologies consist of five categories: online rental subscriptions and digital streaming in filmed entertainment, licensed digital downloads and mobile music in recorded music, online and wireless video games, electronic books, and online casino gaming. Consumers are now downloading movie clips, games and film based ringtones, which in turn helps the players to cash in on the emerging craze for this medium. This wireless medium, growing at a CAGR of 80% over the past few years, provides the industry with a new revenue stream for selling their entertainment content ¹⁷. As an indicator of the increasing revenue potential for this channel, content is being modified to suit distribution, with revenues being shared by the mobile service provider, content developer and the content owner. Online distribution of entertainment via Internet is expected to rise with the increased uptake of broadband-based Internet, which is currently at low levels in India.

Technological advancements like digitalization of cable broadcasting TV network will help inflate the existing capacity for broadcasting new channels. This will allow transmission of more channels on the same bandwidth, thereby expanding the market for both advertisements and subscription services. DVD sales and rentals (with falling prices) have revitalized the home video segment with increase in revenues thus contributing significantly to the growth of this segment.

Challenges

The problem of piracy has impacted all segments especially films, music and television. The lack of appropriate measure taken up by the government to enforce anti-piracy laws is encouraging the menace of piracy.

Most sectors of the Indian E&M industry have traditionally operated under various agencies of the Indian Government, which were later opened to the private players in various stages. Thus the major benefactors in terms of broadcasting rights have been the incumbents like AIR and Doordarshan. For instance, limited frequencies have been opened for the private players with a license fee, which is not currently applicable to AIR. The same is with Doordarshan. There is an urgent need to have a consistent content regulation across all delivery mediums like television, films, radio and print.

The broadcast media pricing has been frozen for over a year now, as per the notification issued by the TRAI. Since the market has been so efficiently regulated through competition, price regulation would limit the broadcaster's ability to shape their business models based on the market demand and the competitive environment.

The tax treatment of the foreign broadcasting companies in India is emerging as one of the most important policy issue deterring foreign investments in the country.

The major issue faced by the industry is the lack of infrastructure. India has the challenge of building a broadband digital network to reach every city, every village, every home and every office. In addition, building a broadband digital network calls for huge server fans and new devices, this requires good support of technology.

Millions of trained engineers, operators and technicians are required in order to maintain such a vast infrastructure. Thus the challenge of having proper human resources comes into existence. Since the entertainment industry is highly fragmented and disorganized, there is an urgent need for the government to facilitate digital entertainment to involve as an industry.

Future Outlook

The future of the Entertainment and media industry will be driven by technology giving a bunch of value-added features to the consumers and new revenue streams for the players in each segment. Television industry will continue enjoying a lions share in the E&M industry and is expected to continue growing rapidly and reach INR 371 billion by 2010.

Digitalisation will help revolutionalize the Film industry by bringing out faster and cheaper modes of delivering films to the consumers in terms of digital distribution of films, new distribution formats like mobile and internet devices and the emergence of home video market. The film segment will also experience growth of multiplexes and digital distribution format driven by better realizations at the box-office, growth in collections from the overseas markets as a result of better marketing and distribution set-ups and emergence of the home video market linked primarily with the purchasing power of the consumer.

The music industry world over is beset by piracy and is expected to grow marginally at 3% over the next five years. However, the traditional delivery formats like CDs and Cassettes will be affected by the emerging platforms like digital delivery formats, wireless mobile phones and internet. Thus digital and mobile distribution will be a significant component of the E&M market that will be fueled by rising broadband and wireless subscribership. The physical formats will continue to dominate, but growth will be slow as consumers migrate to digital and mobile distribution.

The radio industry is all set to boom in the coming few years and is expected to grow by 32%. The availability of larger number of frequencies and rationalization in the license framework would drive the radio industry growth by 22% over the next five years to reach a size of about Rs.650 crores by 2009 ¹⁸.

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