ERNSY & YOUNG RESEARCH on where media and entertainment is headed?

Hindi film Kabhi Alvida Na Kehna is the biggest-ever Indian blockbuster overseas, earning more than Rs 44.5 crore (Rs 445 million) abroad, overtaking Kabhi Khushi Kabhie Gham's Rs 35.25-crore (RS 352.5 million) record.

Last week, Television Eighteen Group, which owns the CNBC-TV18 business news channel, bought financial newswire Crisil MarketWire.

Individually, these are impressive nuggets of news. Together, they are clear pointers to the explosion in the Indian media and entertainment industry.

There's further proof. Last month, the strategist asked professional services company Ernst & Young for a comparison of earnings before interest, income tax, depreciation and amortisation data of India'sM&E industry.

It wasn't a random thought, but a logical follow-up to E&Y's recent report "Spotlight on Profitable Growth", which included a similar examination on a global scale. The findings, in a nutshell: M&E will grow exponentially, but only if the industry adapts to evolving business models.

EBITDA explained

The Indian industry is fragmented and most firms are privately held. E&Y stayed with listed M&E companies, including Adlabs, Balaji Telefilms, K Sera Sera, Zee, Sri Adhikari Brothers and UTV Software.

But focusing on listed companies meant missing out on biggies like Star, Disney and Sony Entertainment, whose financials are not in the public domain.

Between 2001 and 2005, Indian M&E companies achieved a higher EBITDA growth than the companies included in the BSE Sensex and the NSE Nifty.

While the 23 M&E companies recorded an average EBITDA compounded annual growth rate of 23 per cent, the EBITDA CAGR for the 30 companies in the Sensex and the 50 in the Nifty were significantly lower, at 18 and 17.5 per cent, respectively.

Simply put, these numbers imply profit growth in media and entertainment is faster than in other Indian industries. The picture changes somewhat when you take a closer look at EBITDA margins (EBITDA divided by net sales).

The Sensex and Nifty companies achieved higher aggregated EBITDA margins than M&E companies. The takeaway? On average, media companies are less profitable than other industries.

Granted, the numbers aren't truly representative of the industry, but they do indicate the general direction in which Indian M&E is heading. Or does it? E&Y executives believe the numbers will change dramatically in just a few years' time, as the industry adapts to the rapidly evolving technology and begins delivering value-added products and services.

"India is on the threshold of a major technological change," confirms Farokh Balsara, industry leader, media and entertainment, E&Y.

How did the companies in the global report fare? The industry as a whole achieved better EBITDA growth and margins than companies in the S&P 500 and the FTSE 100. While the Nikkei Index grew faster than the global media companies, its EBITDA margins were still lower.

The big picture

The E&Y global report had mixed reports on the television, cable and satellite industry. A 2004 study had identified television broadcast (free to air services; the Indian equivalent would be Doordarshan) as the sector "most challenged to thrive in the future", thanks to dropping audience and advertising shares.

The threats to free TV are very real, particularly as satellite TV (direct-to-home, or DTH) and cable operators establish themselves more firmly.

The rise of digital video recorders that allow viewers to record programmes and skip ads has also been a severe blow. (Unlike cable and DTH operators, whose revenue models are a mix of subscription and advertising, free TV depends heavily on ad revenues.)

In contrast, cable operators (Indian equivalent: Siti cable and so on) were the sector "most likely to thrive in the future", given their growing base of services (the ability to bundle digital television, high-speed Internet, video-on-demand and, more recently, telephony).

Globally, the sector's been growing steadily, with EBITDA CAGR at 16 per cent for 2001-05, and 39 per cent margins. Those numbers may be challenged as DTH expands its subscriber base, but cable is gearing up by promoting the video-on-demand service and developing unique content.

Meanwhile, DTH is thriving internationally, with strong EBITDA growth and margins, as a growing customer base finally offsets the huge initial investments. Operators have also hit upon a near-perfect way of warding off competition from cable: by promoting DVRs and emphasising the TV viewing experience.

It's different in India. The 68 million cable and satellite homes account for 61 per cent of all television homes in India and, given the social imperative, you won't see Doordarshan fading away anytime soon. It follows that free-to-air channels will continue to get their ads.

But the future lies in the paid channel route, according to E&Y. Subscription revenues are already double those from advertising and, in addition, are growing twice as fast. On a base of 52 million subscribers last year, ad revenues were $1.2 billion (14 per cent CAGR) and subscription revenues were $2.5 billion (26 per cent CAGR).

There's potential for further growth: the average revenue per user in India's cable industry is just $4 a month, compared to $16 in Taiwan, $20 in Indonesia and $42 in the US. A mere $1 increase in Arpu will lead to an over-$2 billion increase in subscription revenues by 2009, even keeping the subscriber base constant.

How can cable operators increase their Arpu? By providing value-added services, such as better reception quality, increased channel carrying capacity, and adding new features such as programme guides and interactive services, suggests the report.

"The industry is at a tipping point, where broadcasters have realised there is huge scope in subscription revenues, compared to ad and content revenues," comments Balsara.

Already, about 30 per cent of Star India's revenues come from pay TV and recently, the South-based Sun TV, too, announced its flagship Sun TV channel would become paid from December.

E&Y is equally bullish about DTH. By 2008, it estimates that India will become Asia's largest DTH market. But even if it is growing fast, the sector will probably show negative EBITDA margins for a while, as it scales infrastructure and invests in subscriber growth. Meanwhile, the TV boom means demand for content will also increase exponentially.

Waves of change

Like TV, the global and Indian radio sectors are hugely different. Internationally, radio is a mature market - its profitability growth is slow (EBITDA CAGR was 2 per cent from 2001 to 2005), but margins are strong (41 per cent in 2005). Radio's biggest threat there is from the all-pervasive iPods, Discmans and MP3 players.

In India, radio is still young. But unlike in the West, where radio had a chance to grow, peak and now settle down to a relaxed old age, here, the boom came along with other technological advancements - the Internet, satellite radio, iPods and FM all took off at the same time.

Not only is radio struggling to cope with simultaneous attacks on so many flanks, it's also leaving vital territories unguarded.

Instead of reaching out to niche audiences, private FM players are falling into a trap of sameness, says E&Y. A good example would be Mumbai's Go 92.5, which played mostly Western music, until it revamped its image, changed its name to Radio One and started airing the same Hindi pop and film music all other channels played.

"The effectiveness is lost when all channels sound similar," points out Balsara. Still, FM in India will grow, especially now that the government allows 20 per cent foreign direct investment in private non-news radio broadcast.

Satellite radio isn't so lucky. It's got three strikes against it: huge initial costs, battling free broadcasters and trying to "establish a 'for-pay' business model in a space that historically has been free".

Internationally, satellite radio has been growing its subscriber base by tying up with car makers who sell its equipment. That is still to be tried here. Meanwhile, the government is finalising a satellite radio policy where it proposes to lower the FDI cap from 100 to 49 per cent. Which means Worldspace, India's only satellite radio operator and a fully-owned subsidiary of an American parent, will have to offload a majority share to an Indian partner.

There's more to media

It's not just TV and radio: other M&E sectors also are growing in importance. The past few years haven't been good for the music industry: it's worth Rs 1,150 crore (Rs 11.5 billion), of which Rs 450 crore (Rs 4.5 billion) is lost to piracy.

The rise of mobile music, though, has changed the industry's tune, so much so that Star, Sony and Bennett, Coleman have set up separate business divisions to tap into this market.

According to reports, Star expects to eventually earn 30 per cent of its revenues from mobile telephony.

Last year, the industry earned Rs 150 crore (Rs 1.5 billion) from ring tones, caller ringer back tones and music clip ring tones. "Digital music is going to drive this industry in the next five years," says Balsara.

Then there's films. While multiplexes are helping box office receipts in India, global audiences are also contributing significantly. KANK apart, Fanaa earned Rs 53 crore (Rs 530 million) at home and Rs 28 crore (Rs 280 million) overseas; Omkara, too, made Rs 28 crore here and Rs 10 crore (Rs 100 million) abroad. There's another angle to the "go global" strategy: international co-productions.

Last year, Adlabs Films tied up with Hyperion Pictures to make Marigold, an English film set in India. iDream Productions, has set up an office in the UK and already made three films there. "The Indian film industry has shown huge improvement in all spheres," says Balsara.

Just six years ago, India's largest listed media company was a bundle of misery. Ever since its inception in 1992, we have been tracking the fortunes of Zee Telefilms, but never had we seen it hit a lower point than it did in 2000. It had lost four CEOs, its television business was a mess, its cable operation was stagnant. The media empire that chairman Subhash Chandra built had acquired the reputation of being a 'management hotspot', a political, insecure kind of place where no one of ability wanted to work. First Sony, then Star attacked it and took away its leadership position in broadcasting. Its share price crashed, wiping out billions in market capitalisation (see 'Planning A Comeback', BW, 4 December 2000).

In the subsequent years, the first Hindi satellite broadcaster just could not get its act together. It ran through three more CEOs, its programming sank lower and Siti Cable continued to languish. Even India's first DTH (direct-to-home) service, which it launched in 2003, was largely ignored. Real DTH, everyone said, would begin when Star joined the fray. A trip to meet someone at Zee was usually a sad experience. The moment you walked into the closed, claustrophobic office, you knew you were meeting a team of well-meaning people who did not seem to be getting anywhere.

Walk into the Zee Telefilms office at Worli in Mumbai today. There is an airy, light feeling, as if the windows have been opened after many years. The same people we have met over six years are an excited lot. The place is bursting with positive energy as everything — broadcasting, cable, DTH, sports, regional languages and every other business — falls into place. At Rs 1,423-crore, Zee Telefilms looks and behaves like India's largest listed media company. "It is like somebody has put incense oil and lit a flame below. The company feels and smells good," laughs Irshwin N. Balwani, business head, Zee Muzic.

It sure does. On the back of shows such as Saat Phere and Kasamh Se, ratings are up and yields per 10 seconds have doubled. This has lifted advertising revenue growth to 43 per cent, up from 10 per cent in the previous financial year, according to estimates by Hong Kong-based consulting firm Media Partners Asia. From No. 3 in the Hindi general entertainment stakes, Zee TV is now a clear No. 2, ahead of Sony. Between 8 p.m. and 10 p.m., Indian prime time, it battles Star Plus rating point for rating point. "They (Star) have had a six-year dominance. We sure as hell will try to break that," says Punit Goenka, director (and Chandra's son). "We don't want to remain No. 2 for too long," echoes Pradeep Guha, CEO.

This aggressive feeling is not limited to broadcasting. There have been a string of acquisitions, joint ventures and deals — UNI, Ten Sports, RPG Netcom and Diligent Media Corporation (the joint venture with Dainik Bhaskar that prints DNA) — among others. Alliances such as the one with Ten Sports will have an immediate impact on topline.

Chandra is now breaking his company into four parts to build a bigger, stronger 'sum of parts'. The demerger of Zee Telefilms, which will be operational soon, will create four separately listed companies: Zee Telefilms (broadcasting and international), Wire and Wireless India (WWIL, cable), Dish TV (DTH) and Zee News (ZNL, news and regional channels). Each will be raising capital for growth. The total capital being raised over the next five years — about Rs 1,500 crore. And their joint revenue target — Rs 12,000 crore by 2011 (more on this later).

In November came the seal of approval from the stockmarkets — Zee's market capitalisation finally hit the same figure that analysts at Merrill Lynch, New York, had attached to Star India in October 2005 — $3 billion. Chandra's company, it seems, has finally got its act together. What happened? "The only visible thing that has changed is that our flagship channel has revived," says Rajiv Garg, CEO (corporate strategy and finance), Essel Group (Zee's parent).

Its rub-off effect is being used to break up the company and raise capital to fix the subscription-driven businesses. Notice that all the big investments from now on — about Rs 1,500 crore in all — will happen in pay TV systems such as cable and DTH. There is no major capex planned for the content businesses.

The ability to sustain this success and to leverage it to become a bigger company will, however, need a management depth and maturity that Zee has for long been accused of lacking. So, have Chandra and Zee indeed matured enough to take that big leap? "Contrary to expectations and in spite of whatever I had heard [before joining Zee], Mr Chandra did not interfere [with whatever changes he made at Zee]," says Guha. Coming from a man who has just completed two years at a company notorious for losing CEOs within a year, is that sign that the turnaround is not a flash in the pan?

What's Working

Chandra maintains that Zee's "strategy was never wrong, only execution was poor. There were no systems and processes, everything was individual driven. When the channel and company were doing well, many things were wrong but no one noticed". To fix that, he got Guha, former president of Bennett, Coleman & Company (BCCL), and Goenka to join the Zee TV team in January 2005. The putting in place of systems and processes is the first of two changes that the duo made.

Earlier each channel operated in a silo with its own revenues and costs. Now, however, the 23 domestic channels operate as a network. Take Zee Cinema. It had been a star in the Zee portfolio for over three years (it brings in the largest share of profits after Zee TV). Much of its strengths came from its understanding of movie-watching behaviour. Bharat Kumar Ranga, executive vice-president in charge of Zee Cinema (among other channels) points out that most viewers watch an average 20-22 minutes of a film. Contrary to popular perception, they prefer breaks. "Consumer behaviour at home is different from the theatre," he says. That is because India remains, largely, a one-TV market. Films are watched along with other people. "Even in two- and three-TV homes, the atmosphere is of a one-TV home," says Ranga. Nuggets like these were never utilised by the network. But now this understanding of movie-watching behaviour has meant that the Zee Cinema team does the film programming for Zee TV and the entire network.

The second change is more subtle. Neil Chakravarti was an investment banker with JP Morgan in London when Guha and Goenka bumped into him a couple of years ago. Guha offered him a job on the spur of the moment and Chakravarti accepted. This non-TRP man is now vice-president in charge of English channels Zee Café, Zee Trendz and Zee Studio. These channels are extremely difficult to push in a mass-entertainment driven cable scenario. The idea is to keep building them till pay TV systems take off. Even three years ago, Zee would not have committed resources and people like Chakravarti to building the business. "Earlier, it was a very cost-centric approach, now it is an investment-centric one," says a senior manager. Earlier this year, the entire creative team was taken on a film appreciation course to FTII. "This has never been done before," says Sanghamitra Ghosh, executive vice-president (HR), who has been around for over five years.

This focus on investing in people, programming and businesses comes with more questioning. For instance, the key result areas (KRAs) of most programming people are now linked to TRPs. There is a calendar of meetings for senior people devised by The Hay Group (an HR consultancy). They have to meet every few weeks irrespective of which part of the world they come from. This adherence to processes and systems has been Star's biggest strength, whose executive committee meets with Hong Kong every Monday. The team from Hong Kong comes to India every month and so the system goes. Because the top guys are always in touch with each other, coordination and communication is much better, so are responses to competitive situations.

"I think the biggest change has been stability," says Goenka, who seems very much his own man. "The company had seen four different heads in quick succession. Performance was affected because people did not want to take decisions." Now, "there is a lot of positive energy, every success is celebrated", says Nitin Vaidya, executive vice-president, Zee Regional Channels. For example, if Zee Marathi wins an award, a mail is sent out to everybody from the chairman. The result is a culture that encourages people to think and voice ideas and systems that ensure that these ideas do not get lost. "There is an openness that Guha and Goenka showed. They clearly want people who can think out of the box," says Chakravarti. Attrition, a huge problem at Zee, is showing some signs of slowing down. From 36 per cent in 2004-05, it has come down to 24 per cent in 2005-06. Ghosh expects it to steady at 12 per cent in the next financial year.

These changes are being dovetailed into some of the tougher ones. These are the steady raising of ad rates, the launching of several new international (such as Zee Arabiya) and Indian channels (such as Zee Tamil), and the investment in sports. The biggest bets, however, are on what the demerger could do. The first restructuring discussion happened in 2005, says Garg. The idea was to free all the other businesses from the vagaries of the broadcasting one. Cable, DTH, news and regional channels, and broadcasting all have different regulations and foreign investment norms. "It was evident that the content business would drag down the other ones such as Siti Cable (WWIL)," says Goenka. Now, if WWIL wants to raise money, a couple of rating point drops in Zee TV will not affect its valuation.

If the demerger works, it opens the floodgates for subscription revenues, the biggest potential upside in the Rs 20,000 crore-odd television broadcasting business. These have so far been the weakest link in the chain for all broadcasters including Zee. Of the Rs 12,000 crore-odd collected on the ground from 71 million cable homes in India, just about 15-20 per cent comes back to broadcasters against 50 per cent in more robust pay TV markets (this does not include DTH revenues). Though they want a slice of the market, foreign investors have been chary of the unorganised and fragmented nature of the business. So, in spite of being allowed to own 49 per cent in a cable company, most have stayed away. Nor have broadcasters and cable companies found it worth their while to invest in installing digital set-top boxes, which would bring addressability and, therefore, more pay revenues (see 'Choked', BW, 16 May 2005).

Saat Phere/Zee TV The travails of the 'dark girl' has captivated Indian audiences, handing Zee key rating points

Today, "there is a powerful pull from the ground forcing us to do digitisation", says Jagjit Singh Kohli, CEO, WWIL. DTH and the threat of IPTV have put cable networks in a state of panic. Their networks are already broadband-enabled. Kohli points out that several broadband operators (Sify, Tata, Reliance) use the cable pipes combined with Ethernet to ride into homes. WWIL is using this state of physical and mental readiness among last-mile operators to gain control over homes directly. It has acquired, at roughly Rs 1,500-Rs 2,000 per home, controlling stakes in seven non-metro MSOs, who have access to 250,000 subscribers. The target is to control, directly or through franchisees, 9.6 million STB-enabled homes by 2011. The cost: Rs 830 crore as of now. And the targeted revenues: Rs 3,770 crore. Even if WWIL acquires 7-8 million direct subscribers, its ability to command a valuation of $100-$200 per subscriber from a foreign investor goes up, reckons Dinyar Contractor, editor, Satellite & Cable TV magazine.
Remember, everyone from John Malone's Liberty Media to Time-Warner have their eye on this market. At a minimum of $100, even a 20 per cent sale of stake in a network with 10 million homes could bring in about Rs 1,000 crore.

Now factor in the impact of rising pay TV numbers, either through DTH, HITS (Headend in the sky) or cable, on the content business. Control over the last mile means a better share of revenues and the ability to price channels such as Zee Café differentially (though regulation does not permit that yet). "We have not even scratched the surface on subscriptions," says Guha. Agrees Arun Poddar, CEO, Zee-Turner: "Three years down the line, people will forget the last 10 years of broadcasting. Subscription will become the mainstay."

The Chandra Factor

Even Chandra's worst critics admit that he is a visionary par excellence. The plan is just proof of that. He spots businesses and bets on them long before his bigger rivals. Unlike Star or Sony, Zee has a robust regional and international broadcasting business. If you take Fun Republic (into multiplexes) and DNA into account, Chandra owns, along with Kalanithi Maran's Sun TV, one of the best portfolios of media assets in India. But the execution is not always as good as the vision. "When I look at some of the (research) papers from 1993, I feel strongly that we were headed in the right direction, but didn't carry our decisions through well," says Chandra. For instance, Zee did the first experiments with a Bangla language programme in 1992. "We should have launched a Bangla channel by 1994, but the CEO then did not," says Chandra. Ditto for Tamil. "We made a mistake in the hiring of CEOs. That cost the company a lot in terms of perception. Things settled down once Goyal [Sandeep Goyal, the CEO just before Guha] was asked to leave," goes on Chandra. (When contacted by BW, Goyal declined to comment.)

The results, especially on the flagship channel, are proof that Chandra is letting his CEOs be. It explains why the same team, most of who have done an average of 7-9 years at Zee, has performed. "I had a far more dismal picture of Zee from the outside than when I came in. I found the people to be very good. I have hardly hired any new people," points out Guha. Chandra still wields tight control, though. He also has a reputation for not liking it if the CEOs become the stars. Almost every former CEO has said that to us. At a meeting of top managers a couple of weeks ago, several requested him to decentralise decision-making some more. Says the head of one business: "Even today, any decision I make has to go through him. Everything is going right for the company, but it has to get out of the ownership trap." Chandra denies that he is very hands on, now. "If I notice something I do inform them. It is up to them to take action," he says.

Adhuri Ek Kahani/ Zee Marathi The channel brings in the most revenues among all of Zee's regional channels

You could argue, of course, that some of the best media companies in the world are driven by owners — Sumner Redstone's Viacom or Rupert Murdoch's News Corporation, for example. "It is a good blend of owner and professional management that works," says Jawahar Goel, business head, Dish TV and Chandra's brother. If Guha's job was to put systems and processes in place, he has done that. Now it is up to the chairman to respect them at an operational level. That is what a Murdoch or a Redstone does. So maybe all that was needed — the right balance of Chandra and a professional CEO — is already there.

The risks are evident — a five-point drop in ratings or a 20 per cent one in share price could easily derail the transformation process if it is not yet part of the company DNA. Also, remember that Zee has surged ahead in a year when both its competitors had their eye off the ball. The internal politicking at Star (see 'Beyond Broadcasting', BW, 8 May 2006) and Sony's problems with its investors made things easier for Zee. But as Vivek Couto, executive director, Media Partners Asia, points out, "You can hit an 800-pound gorilla (Star), but you haven't yet felt the 800-pound gorilla hitting back." The other risks: "CAS might not take off, DTH may not become as big as estimated," rattles off Couto.

The Goenka Factor

The biggest risk, however, is in the question floating within and outside Zee these days. Who is responsible for the turnaround, Guha or Goenka? It typifies Zee's paradoxical existence as an owner-driven, professionally run company. "It is no credit to any one person. It is to the credit of the whole team. Punit and Pradeep work as a team," says Chandra. Goenka, who makes no bones about the fact that he is the owner's son, says he is answerable only to shareholders. He is clearly comfortable with Guha professionally, a thing that his father may not have shared with Zee's former CEOs. (Guha and Goenka knew each other before Guha joined Zee). So, this nextgen at Zee (everyone talks about Goenka being Chandra's successor) is ostensibly more comfortable with professional management than the entrepreneur.

What about the professionals? Remember Vijay Jindal, the only CEO who stayed around for five years and brought order to the wild west that Zee was in the early 1990s? Jindal, incidentally, was a BCCL man. Does it say anything about Guha and Jindal's special ability to work in owner-driven companies? Maybe it does. Maybe Guha knows where to push and where to draw the line. And that is why he was reluctant to talk to us or anyone. Maybe that is why the changes he has made will be more lasting. What happens to Zee when he leaves (there are rumours flying around already)? "The momentum won't go if I leave. I am very focused on building systems and processes," says Guha.

If Zee grows as per schedule even after he leaves, then both Chandra and Guha would have done their jobs. Till then, the jury is out on the strength of the turnaround.

Basant saab

Out of the four I am not sure on either one  (at current price) since all good things have run up. Videocon tie up is good Biyani is trengthening his backend and knows his strength is not in vegetables and fruits.

1.Sony is progressively becoming less TOTAL VALUE seller to customer as regard to Value given to customer, (as I think so)!

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 http://www.valuenotes.com/one-time/tarannum_analysisE&M_3jan07.asp?ArtCd=103792&Cat=&Id=# - 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.

TV18 not in their list, though I see something like a Mukta Arts. Interesting!!

TV18 still lacks any serious entertainment-oriented channel! Do they have anything up their sleeve in this arena...forgeting CAS/DTH.

Ya...thats nice!

Btw, I have been making some changes to my portfolio. It shall take some 1-2 months to fully finish up with it, but after that I think Basant sir, my portfolio will be done for the short-term to medium-term at least....so wish me luck as my 'folio will really be risk-full after that! But thats the fun of it after all, aint it especially since my whole life's plans are dependent on the earnings from my 'folio...whoa what a rush and high...its better than mariguana!!! 

"We are satisfied with the implementation of CAS in the notified areas and are looking to expand further as part of CAS Phase-2 and Phase-3," Information and Broadcasting Minister P R Dasmunsi said.

The minister said "urban metros" like Ahmedabad and Bhopal would be areas considered for the expansion of CAS, apart from remaining areas in Delhi, Mumbai, Kolkata and Chennai. Satellite towns of Delhi such as Noida and Gurgaon would also be included in the new exercise.

"A comprehensive decision on this would be taken by the first week of February. Discussions on the matter are currently on," Dasmunsi said, denying reports of widespread shortage of set-top boxes, required to de-encrypt pay channels under CAS.

"There were 1-2 complaints but by-and-large, the situation was normal," he said.

After orders from the Delhi High Court, CAS was rolled out in notified areas of Delhi, Mumbai and Kolkata from December 31, last year. The system is under implementation in Chennai since 2003.

Friends - a related question ... Do any one of you think that the media and entertainment space is getting crowded with too many players? After all, there is only so much time that an average listener/viewer can spend listenting to FM/Viewing News etc. And there is nothing to suggest that the 10% GDP growth means people doubling their time spent in listening to FM or listening News.

The Ushodaya board has approved an agreement where the Blackstone Group and its affiliates are expected to acquire a stake in the company and have representation on the board, the announcement said.

Ushodaya plans to raise a total of $465 million, out of which $275 million will be invested by Blackstone. The remaining $190 million will come from banks. The announcement did not elaborate on the terms or pricing of the deal. “The transaction is subject to regulatory approvals by the Foreign Investment Promotion Board and the ministry of information and broadcasting,” according to the joint statement.

Kotak Investment Banking was advisor to the transaction.

Ushodaya owns Eenadu newspaper, a leading newspaper brand in Andhra Pradesh, and several TV channels in Bengali, Gujarati, Telugu, and Marathi, among others. The parent company of UEL, the Ramoji Rao Group, owns Asia’s largest studio, Ramoji Film City.

In a written statement, UEL chairman Ramoji Rao said: “We were impressed with Blackstone’s disciplined and highly rigorous investment process and the ability to combine this emphasis with a deep and genuine respect for the promoter’s interests and desire to add value.”

Although the company could have opted for any other financing route, including an IPO, UEL chose Blackstone.

Rao said: “We believe that at this stage of our growth we have an opportunity to create significant value by leveraging Blackstone’s outstanding experience and track record in the global media sector,” Rao added.

The chairman and managing director of Blackstone Advisors India Pvt Ltd, Akhil Gupta, said: “We believe that the Indian media sector will be a key beneficiary of a secular trend in growth in personal consumption that is driving India’s economic expansion, which in turn will spur advertising growth.”

Of late, one has witnessed significant international action in the Indian media sector - print, television and radio - both in terms of financial and content tieups. Some of these include the Jagran group’s tieup with UK’s Independent, the Financial Times’ investment in Business Standard, Deccan Chronicle’s arrangement  to print the International Herald Tribune, Times TV’s tieup with Reuters, and Hindustan Times with The Wall Street Journal for its new business newspaper.

ye lo investor ji:

Well yes I thought you would know how to open notepad. But still I thought it would be better to describe it, just in case you didnt know...that way time is saved. As they say, better safe than sorry.

The Name of the thread has been justified by the last few posts....I thankfully have no internet restrictions in the office.

It's in its infancy in the country, yet gaming is attracting a lot of attention. With 54 per cent of the Indian population below 25, gaming features as one of the predominant spending areas.

Nasscom states the Indian gaming industry, estimated to be around $48 million (around Rs 210 crore) in 2006, is expected to cross $424 million (around Rs 1,900 crore) by 2010 -- a compounded annual growth rate of 72 per cent. The mobile and console gaming markets jointly contribute around 77 per cent of the total gaming market in India.

Mobile gaming, though, grew at only 40 per cent to become a $10 million industry against the expectation of clocking $20 million by December 2006. In the console gaming market, serious gamers could get their hand on Microsoft's Xbox360. Sony Playstation III is yet to enter India.

"The platform (mobile) will now get a push with localised content and consumer focus from content providers like Mauj.com for their short code service, thus roping-in casual gamers," reasons Sameer Bangara, CEO, India Games.

Clearly, then, it was PC gaming that sustained the market in 2006 and industry players are now gung ho about online gaming as a fast emerging new platform, besides mobile gaming, which will introduce the casual gamers to the new form of entertainment.

Rohit Sharma, COO, Zapak Digital Entertainment, says, "We have been getting visitors on the portal for locations like Siliguri, Guntoor, Jabalpur, Patiala, Jalandhar, Vizag and other such non-metro cities."

Forming a large part of the online gaming market are the massively multi-player online (MMOGs) games. LevelUp MD, Venkat Mallik, says, "The Indian market has not yet tipped off."

India Games too is increasing its gaming content library from present 170 titles to 300 titles and Microsoft is launching its Yuvraj Singh Cricket World Cup 2007 game for the Xbox 360 besides more India-centric titles, says Ashim Mathur, country manager Xbox 360, Microsoft.

The year will also witness, "greater involvement from global videogame publishers and developers as well as Microsoft, Sony, and Nintendo, which will further boost the market," says an Electronics Arts official.

URL for this article:
http://www.rediff.com///money/2007/jan/30gaming.htm

Ok basant sir, am putting an off topic thought here:

I agree Basant sir. However, i was kind of perturbed by your words "best case scenario". Do you think that is the best case scenario for TV18 and/or NTWK18? What about 5 years for TV18 and NTWK18.