The Indian Entertainment And Media Industries-a Growth Story Unfolds

Foreword Welcome to the 2006 annual edition of the Indian Entertainment and Media (E&M) Industry Report. FICCI takes this opportunity to thank PricewaterhouseCoopers, our Knowledge Partners, for having devoted precious time and resources to prepare this report at our behest. The E&M industry is poised for strong growth across all its segments and is experiencing a trend of convergence which is expected to put the consumers in pole position and lead to a completely new social media experience termed as 'Lifestyle Media'. As the various segments of the E&M industry draw growing interest from investors, the emergence of 'media conglomerates' is being witnessed. The film industry has continued its trend of corporatisation with more than half of the releases last year produced by corporates rather than individuals. The growth in number of multiplexes and digital cinemas is expected to drive the growth of this segment over the next five years. The television industry is witnessing the emergence of new distribution platforms in the form of DTH and IPTV, which are expected to boost the revenues of the industry. The roll-out of CAS can be deemed as the most significant development in this industry not just in the last year but in the last three years. The new policies implemented by the government in the radio space in 2005 too immediate effect in 2006, with 245 new channels set for release and the entry of several large players like Reliance in to the radio industry. Print media also continued to flourish, attracting the maximum FDI amongst all segments of the E&M industry. Each chapter also has a section on key international trends in order to provide a global perspective to the various segments within the E&M industry. We thank PricewaterhouseCoopers for drawing the necessary knowledge from their global resources for this endeavour. Their effort to present the content of the report in an interesting, useful and easy-to-read manner will be appreciated not just by the industry people, but the public at large. FICCI acknowledges the valuable inputs provided by members of the Entertainment Committee and all other associated agencies and industry players who have provided information and support to PricewaterhouseCoopers in preparation of this report.

Yash Chopra Chairman FICCI Entertainment Committee

Kunal Dasgupta Co-Chairman FICCI Entertainment Committee

Preface We are pleased to present our third annual report - FICCI-PricewaterhouseCoopers' Indian Entertainment and Media Industry A Growth Story Unfolds. The objective of the Report is to identify key trends and developments affecting the industry and relate them to forecasts across the various segments for the 20062011 period. Our report has been prepared on the basis of information obtained from key industry players, trade associations, government agencies, trade publications, and other industry sources. Based on the information obtained, we analyzed the trends in industry performance and identified the factors underlying those trends. We then developed models to quantify the impact of each factor on the industry segment and created a forecast scenario for each such causative factor. Our professional expertise, institutional knowledge and global resources of knowledge and excellence were then applied to review and adjust those values if required. The entire process was then examined for internal consistency and transparency vis-à-vis prevailing industry wisdom. Through this year's report we have undertaken to tell the story of the Entertainment & Media (E&M) industry's tremendous growth over the last year as well as its expected growth in the future. The E&M industry is expected to outgrow the Indian economy in every year from now till 2011. An impressive cumulative annual growth rate (CAGR) of 18 percent is forecast for the industry over this five year period. This growth rate is in part due to several positive measures taken by the Government. It has also been boosted by technological advancements, entry of large corporate players in to all segments of the industry, an increase in disposable income amongst Indian consumers and several other factors. Since much of the industry does not have an organized body, lack of a centralised tracking agency that could provide us with accurate figures was the biggest challenge before us to compile figures and determine the size of each segment. This challenge was exacerbated by the fact that most companies in the industry do not have their financial information in the public domain. We thus prepared this report on the basis of information obtained from key industry players, trade associations, government agencies, trade publications and industry sources. We would like to thank all the industry players who enthusiastically participated in providing us the inputs that helped us in putting together the contents of this report. We would also like to thank FICCI and its Entertainment Committee for giving us the opportunity to present this year's report. The FICCI-Frames report has acquired the status of an E&M industry ready-reckoner and we are proud to be an integral part of this report for the third consecutive year.

Deepak Kapoor Managing Partner PricewaterhouseCoopers Pvt. Ltd.

Timmy S. Kandhari Executive Director & Leader Entertainment & Media Practice PricewaterhouseCoopers Pvt. Ltd.

Executive Summary

Entertainment and Media Industry today As the Entertainment and Media Industry continues to evolve due to shifting consumer preferences, evolving technology and convergence of traditional and new media, finding a concrete definition of the industry is similar to hitting a moving target. The definitions will continue to blur in the coming years. The potential impact of Convergence on the television and advertising industries has long been predicted, but in 2006, the theory is beginning to become a reality in India. In a converged media world consumers increasingly call the shots. No longer is there a captive, mass-media audience. Today’s media consumer is unique, demanding and engaged. The technology enablers have made this new breed of consumer possible. Though this phenomenon brings about several opportunities, it also poses challenges that Convergence is bringing to the content, distribution, and advertising industries.

Emergence of Lifestyle Media Consumers need a new approach that helps them maximise their limited time and attention to create a rich, personalised, and social media environment- Lifestyle Media: a personalised media experience within a social context. It bridges the world of unlimited content to the world of limited consumer time and attention. It explicitly recognises that consumers increasingly access a two-way communications infrastructure, even if most content is still received in broadcast form today. Realising this vision of Lifestyle Media requires two fundamental components: new content distribution models that put consumers in control, and more accurate and scalable data about what they are watching, doing, and creating. The combination of these two crucial elements will create a media marketplace; a platform that connects media providers and media seekers through an organisational and technical infrastructure. It will enable Lifestyle Media to flourish by allowing content owners, advertisers, and consumers to discover, select, configure, distribute, and exchange both professionally produced and user-generated video content. A media marketplace supports a many-tomany interaction by bringing together content, tools, and consumer activity information. Tools help develop communities and support creation, sharing, mixing, and remixing of user-generated or professional content across multiple touch points.

Source: PricewaterhouseCoopers- The Rise of Lifestyle Media- Achieving Success in the Digital Convergence Era

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Opportunities and Challenges in the emerging media marketplace Consumer needs are expanding beyond mass media and segmented media Convergence is making consumers more sophisticated in their video consumption habits by elevating them to the top of the value-creating hierarchy. What were previously the ends (content, channels, or devices) of media and advertising business models, are now the means for empowering consumers to organise their productive, leisure, and social time around converged media experiences. In an era of virtually unlimited content choices competing for limited consumer time and attention, an approach that allows beneficial interaction between consumers, content owners, service providers and networks will present many opportunities for the industry to create new revenue streams.

Knowledge of consumer activity rather than exclusive ownership of content or distribution assets will become the basis for competition. With ubiquitous connectivity and lower barriers to content creation, convergence empowers consumers and begins to break down the historical control points in the content creation and distribution chain. Leading media providers will track and measure the choices consumers make when they create, find, select, and exchange content and services. Providers will use this information to create value for their advertising partners. Businesses that capture consumer activity data and use it to inform business and advertising models will be positioned to succeed.

Media marketplace provides a structure to capitalise on the opportunity. Media consumption models, such as a media marketplace, that provide consumers with robust search, research, customisation, configuration and scheduling tools will capture the opportunity better than minor modifications to existing business practices. These models resemble those used in online retail, where product placement, dynamic pricing, and individualised service become the basis for competition. Participants in media marketplaces must collaborate in this transformation. In the near-term, the industry will experience increased complexity and economic inefficiencies before a refined and efficient structure for a media marketplace is developed.

Early movers in establishing media marketplaces will have a significant advantage over late entrants because of network effects, whereby the value of the marketplace increases as the number of participants increase. Incumbents and new entrants have begun to compete for consumer loyalty and profile information, and this trend will continue. Incumbents possess significant content assets and a brand advantage and they have a unique opportunity to exploit this by establishing direct relationships with consumers.

Media marketplaces will be economically viable only if operational efficiencies can be realised through consumer activity measurement capabilities and supporting systems. Crucial investments in data capture, analysis, and customer and community management systems are required to create a customer experience which resembles that of an Internet retailer. Effectively engaging audiences can be accomplished only through the automated capture and analysis of customer activity data. This information would feed into marketplace operational systems to trigger content suggestions and advertising placement. Likewise, investments in customer

The Indian Entertainment and Media Industry - A Growth Story Unfolds

9

Executive Summary

experience and community management capabilities that work across multiple platforms are needed to provide a single touch point for advertising and marketing partners.

Significant advancements in audience measurement technology are needed to capture, analyse, and standardise consumer activity data across digital platforms. To date, much of the demographic and activity data related to audience measurement is isolated on separate platforms (TV, broadband, mobile), even though consumers choose content across platforms. Both the content and advertising industries will need trusted third parties that use census and panelbased measurement approaches to capture standardised consumer activity information across platforms. Additionally, because discrete distribution channels can be complementary rather than competitive, measuring and analysing the impact of one outlet on another is also strongly needed.

Measurement standards will be crucial for advertising growth. With the emergence of digital platforms, every programme and advertisement delivered to a set-top box should be logged; in theory, there should be accurate measurement of customer behaviour. But in reality, that accuracy will be relative, as different providers will collect and define unique audience-measurement and advertising delivery metrics, then apply them to proprietary systems and procedures. As a result, this non-standardised consumer data will be of limited value. This problem of inconsistent measurement data provides a challenge to the advertisers who without standard metrics are not able to compare their return on investment (ROI) across different channels and campaigns.

Most importantly, content providers and advertisers will be more accountable for their performance because it is now measurable. Given the proven effectiveness of targeted advertising in other interactive media, television advertising will continue to become more targeted. This shift will also raise demands for accountability. Advertising to mass audiences will continue. But the effectiveness and better metrics of targeted environments will raise advertising spending and move it to those environments that enable a deeper engagement with the audience.

Lastly, Convergence will require increased collaboration between value chain partners to drive new products and services to consumers. As companies look to expand their current portfolio of services and revenue streams, they will need to rely on value chain partners for many roles: technological advancement, access to new distribution outlets, protection of intellectual property, and so on. This will require new partnerships, alliances and joint ventures as great value can be gained from collaborating and sharing strengths. Since many companies will pursue these to drive incremental revenues and growth, transparency of reporting and independent verification will be critical to all parties’ continued success.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Defining Convergence The term convergence describes two trends: the ability of different network platforms (broadcast, satellite, cable, telecommunications) to carry similar kinds of services; and the merging of consumer devices such as telephones, televisions, or PCs. From a technology perspective, the twin forces accelerating convergence are increased broadband penetration and increased standardisation of networks and devices to use the Internet Protocol (IP). Convergence collapses previously distinct media distribution channels (for example, broadcast/cable television, radio, print, online) into a single media delivery chain. A converged infrastructure supports a range of interaction modes between users and content. Moreover, the open transport and interface protocols of IP mean that access to content has become largely network and deviceindependent. Fundamentally, convergence affects the two-step process at the heart of any media-based industry: content creation and transport. The first step entails selecting, packaging, and encoding content into a medium. The second step transports content to its destination and then decodes it for use. In most instances, it is the second step that defines a particular media market, which influences the form taken by the content in the first step. Content owners are both facilitators and beneficiaries of convergence. They make converged media experiences possible by offering consumers their content libraries in digital format through any access device and network. They benefit from convergence by serving consumers’ new media needs with the appropriate distribution and business models.

Converged Media Value Chain Content owners, aggregators, services providers

Services Video

Voice

Music

Gaming

Messaging

Other

Broadband transport (Internet Protocol) Infrastructure Fixed-Line

Mobile

Cable

Consumers

Wireless LAN

Other

Convergence to an IP-based transport allows for all content and servicesto be delivered across any physical infrastructure and therefore to any other device

(Divices)

Source: PricewaterhouseCoopers- The Rise of Lifestyle Media- Achieving Success in the Digital Convergence Era

The Indian Entertainment and Media Industry - A Growth Story Unfolds

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Executive Summary

Convergence Trends in India Digital Cinema : Combination of three phases: digital production or postproduction, digital delivery and digital projection for enhanced movieviewing experience to audiences. Approx. 10% of about 12,000 movie theatres have turned digital with digital projectors and servers to run digital prints.

Ancillary revenues earned by film producers estimated to increase by 20 per cent a year by selling their digital rights to mobile companies and satellite rights to TV broadcasters and distributors (cable companies and DTH players)

Mobile Ads are currently text-based and appear along with search results delivered to mobile devices, and they contain either a link to a mobile website or a phone number which users can click on to generate a call. E.g. Google has started testing mobile ads for advertisers in India Mobile for money transfer – Indian Government has displayed positive inclination towards reviewing banking regulations that currently disallow cash for exchange of another unit such as airtime. This could alleviate the problem of low penetration of bank branches in rural areas.

Enterprise Applications – Operators such as Bharti, Hutch etc. have launched mobile based business applications such as Blackberry, Data access, Order management, Goods Tracking while on the move. Mobile VAS Industry (excluding SMS) is thriving on Ringtones and Ringbacktones, which are the primary revenue drivers. Voice based and Text based information services are also significant. Mobile Music and Mobile Gaming market is small but is expected to grow faster than other services

IPTV is set to pose a significant challenge to established cable and DTH operators with its ‘Triple Play’ promise of high-speed Internet, television (video on demand or regular broadcasts) and telephone service over a single broadband connection. Launched by MTNL last year, other operators like Bharti and Reliance are also undergoing trials.

Mobile TV : It works by receiving a digital TV broadcast signal optimised for mobile devices in much the same way as televisions do at home. Operators and broadcasters have to put up towers across cities. Nokia has tied up with Doordarshan, the State Broadcaster, to conduct a pilot test using digital video broadcaster-handheld (DVB-H) technology for rollout of services. Trials are also being conducted by Mobile Operators. Mobile Operators and Movie hall chains have started tying up for purchase and payment of movie tickets through mobile. E.g. AirTel tie up with PVR Cinemas for mobile ticketing services Equipment vendor Nokia has tied up with a Film training institute and announced a Mobile Film Award aimed at promotion of a new mobile model that will judge entries for short movies produced using the particular handset model. Source: PwC Theme Paper on Communications Convergence

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Key Developments Diversification of Traditional media companies One of the most notable developments of 2006 were the several activities of diversification in the value chain of the industry- be it the news channels launching general entertainment channels, television broadcasters foraying into film segments, film companies entering the radio market, print media companies getting into radio and television and so on. Radio was one segment which most media companies made their entry into, propelled by the opening of FM Radio licenses under the favourable Phase-II FM Radio policy initiative. Prominent amongst those were the television companies such as Sun Group, NDTV Group Asiannet Communications and Print Media Companies such as Malayalam Manorama, HT Media, Malar Publications, Rajasthan Patrika and Dainik Bhaskar. The other notable diversifications were the entry of telecom companies into the E&M segment. In 2006, MTNL launched the first IPTV (Internet Protocol TV) service in India where TV content is being delivered on television screens through a broadband internet connection. MTNL, however, is yet to finalise its pricing for the offering and other commercial terms. Reliance Communications is planning to roll out IPTV services by initially targeting 200 cities across India and aims to reach five million IPTV customers. The Company is running trials in 20,000 homes and is also contemplating Triple Play services to its broadband subscribers. Airtel too has initiated IPTV trials two years back for its select broadband customers. Other diversification activities in 2006 include: The Times of India Group, having its presence in Print, Television and Radio entered into Filmed Entertainment business with the release of its first English film in 2006. It also invested in Percept Picture Company, a Film Production Company and Pyramid Saimira, a Film Exhibition Company Adlabs, having its presence in Films and Radio entered into Television Production by investing in Synergy Communications TV18 Network, launched Studio 18, a division to enter the motion picture business involving acquisition, production, syndication and distribution of feature films. Through CNN-IBN, it forayed into Hindi News Television by acquiring Channel 7 from the Jagran Group. Television news broadcaster NDTV announced its plans to launch an entertainment channel in collaboration with filmmaker Karan Johar's Dharma Productions and also invested in a Radio Company in collaboration with the Sun Group. Anand Bazaar Patrika, present in Print and Television, acquired a stake in a Delhi-based film production company, Kaleidoscope Entertainment in 2006. Sri Adhikari Brothers, having dabbled in entertainment through SAB TV, selling it off, launching Janmat in the current affairs genre in Hindi, announced its plans to start a Marathi entertainment channel. UTV diversified into Gaming by investing into Gaming companies Indiagames and Ignition

The Indian Entertainment and Media Industry - A Growth Story Unfolds

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Executive Summary

Investment in content The impact of Convergence was felt greatest in 2006 by companies especially in the distribution space. With more and more distribution platforms being available, the importance of securing rights over content became paramount. As a result, significant investments were made and committed to by companies to secure their content pipeline. Some of these instances include: Adlabs alongwith Reliance Capital acquired a 21% stake in Prime Focus, a TV and video production facilities company. It also signed a co-production and film financing deal with Ashok Amritraj-promoted Hyde Park Entertainment Group. Disney acquired a 15% stake in UTV, a local kids television production company Several Film Production Companies signed up leading artists to lock them in of which the most notable was Adlabs which signed a contract with Hrithik Roshan with Rs. 350 million for 3 films and Akshay Kumar for Rs. 180 million for 3 films. Adlabs also signed an 8 film deal with director Vipul Shah for Rs. 2000 million. UTV has set aside Rs. 1000 million for contracts with individual directors. Sahara Motion Pictures too entered into a contract with Madhur Bhandarkar for 3 films

Increased Foreign Direct Investment (FDI) in the Industry 2006 saw the maximum flow of foreign investment in the Entertainment and Media Industry. As many as 13 proposals for FDI in media since were cleared by the Ministry of Information and Broadcasting in 2006 itself and the Ministry is further examining another 22 proposals for clearance. Among these, are 8 proposals for news and current affairs segment including Mid-Day Multimedia Ltd, Business India Publications Ltd, Deccan Chronicle Holdings Ltd, Dhara Prakashan Pvt Ltd, Writers & Publishers Ltd and DT Media & Entertainment Pvt Ltd. Over the last three years, the industry has secured foreign investment of over Rs. 4 billion.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

FOREIGN DIRECT INVESTMENT (FDI) INFLOWS IN THE E&M INDUSTRY- COUNTRY-WISE (Amount in million) SR No

Country

2004 Jan-Dec

2005 Jan-Dec

2006 Jan-Oct

Total

FDI

FDI

FDI

FDI

FDI

FDI

FDI

FDI

in Rs

in US$

in Rs

in US$

in Rs

in US$

in Rs

in US$

1

Australia

0.00

0.00

0.00

0.00

4.98

0.11

4.98

0.11

2

Cayman Island

0.00

0.00

13.67

0.31

0.10

0.00

13.77

0.31

3

Cyprus

0.00

0.00

1,160.64

25.47

12.92

0.28

1,173.56

25.76

4

France

0.00

0.00

2.81

0.06

75.49

1.62

78.30

1.69

5

Germany

0.00

0.00

0.10

0.00

0.67

0.01

0.77

0.02

6

Indonesia

0.00

0.00

0.00

0.00

3.10

0.07

3.10

0.07

7

Italy

0.00

0.00

0.00

0.00

0.07

0.00

0.07

0.00

8

Korea(South)

13.73

0.30

0.00

0.00

0.00

0.00

13.73

0.30

9

Luxembourg

2.28

0.05

0.00

0.00

2.18

0.05

4.45

0.10

10

Malaysia

0.00

0.00

0.00

0.00

6.73

0.15

6.73

0.15

11

Mauritius

16.47

0.36

621.67

14.10

0.00

0.00

638.14

14.46

12

NRI

0.00

0.00

178.87

4.11

1,105.64

23.88

1,284.51

27.99

13

Netherlands

0.00

0.00

1.31

0.03

0.00

0.00

1.31

0.03

14

Norway

0.00

0.00

0.00

0.00

0.06

0.00

0.06

0.00

15

Singapore

0.00

0.00

5.91

0.13

1.00

0.02

6.91

0.16

16

Sri Lanka

0.00

0.00

0.00

0.00

3.70

0.08

3.70

0.08

17

Switzerland

0.00

0.00

0.89

0.02

0.00

0.00

0.89

0.02

18

U.A.E.

4.26

0.09

54.48

1.24

0.00

0.00

58.73

1.34

19

U.K.

6.82

0.15

5.25

0.12

47.29

1.05

59.36

1.32

20

U.S.A.

39.92

0.87

497.71

11.01

2.51

0.06

540.14

11.93

21

Unindicated Country

0.00

0.00

33.83

0.77

118.00

2.60

151.83

3.37

83.47

1.81

2,577.14

57.39

1,384.44

29.98

4,045.05

89.18

Grand Total

Source: Department of Industrial Policy and Promotion, Government of India

The Indian Entertainment and Media Industry - A Growth Story Unfolds

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Executive Summary

Increased investment from Private Equity Funds Entertainment and Media industry has traditionally been dominated by strategic buyers. But now private equity is playing a major role in helping reshape many of the segments of the industry. As more companies continue to put money into growth technologies and re-evaluate traditional business that once were considered core but may have less strategic importance in the future- all these initiatives generate the strong cash flows and hence interest private equity players. The past two years have seen a flurry of funds entering the E&M space in India, like 3i, Matrix Partners, Warburg Pincus, De Shaw, T. Rowe Price International etc. A booming stock market at highest ever earnings multiples has not deterred these firms from buying into a sizeable chunk of the Indian E&M pie, backed by the promise of a strong economic growth rate and a highly trained workforce.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Some of the deals in the private equity space in 2006 include: Private Equity Investor (s)

Target

Segment

Estimated Deal value (Rs. million)

Investment Stage

Warburg Pincus (Cliffrose Investment Ltd)

Dainik Bhaskar (Writers & Publishers Ltd.)

Newspaper publishing

1,500

Growth

De Shaw

Crest Animation

Animation Studios

400

Growth

De Shaw

Rich Crest Holdings Inc. (subsidiary of Crest Animation Studios)

Animation

700

Early

De Shaw

Amar Ujala

Newspaper Publishing

1,170

Growth

Matrix Partners (IND)

Seventymm Services

Online Movie Rental

315

Growth

Matrix Partners India

vJive (owned by Digital Music India Pvt. Ltd.)

Out of home mediaDigital Signages

200

Early

T Rowe Price International Saregama Industries Ltd.

Music

191

Mature

Norwest Venture Partners (US)

Sulekha.com

Online/ Internet

450

Growth

Norwest Venture Partners (US), Reliance Capital (IND), TV-18 Group (IND)

Yatra.com

Online/ Internet

N.A.

Early

Norwest Venture Partners (US)

Mobile2win.com

Online/ Internet

675

Growth

Sequoia Capital India (IND), Battery Ventures (US)

Travelguru.com

Online/ Internet

675

Growth

West Bridge Capital (IND)

Travelguru.com

Online/ Internet

450

Growth

West Bridge (and Intel and Sequio Capital) (US)

Mauj

Online and VAS

450

Growth

West Bridge Capital

Shaadi.com

Online and VAS

360

Growth

IL&FS Investment Managers Ltd.

Global News Broadcasts News channel (a group co. of TV18 India) operators

400

Early

SAIF Partners

TV 18 India

Home shopping network

N.A.

Early

Tracer Capital

Web 18 Caymans (subsidiary of TV 18 co.)

Internet Websites

450

Early

UTI Venture Funds

Laqshya Media

Out of Home Advertising

450

Growth

Source: Industry estimates and PwC research

The Indian Entertainment and Media Industry - A Growth Story Unfolds

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Executive Summary

Select public issues by E&M Companies in 2006 Company (Rs.

Share price) Price Band (Rs.) (Rs.)

Issue Price Period

IPO Size

Info Edge (India Limited)

10

290-320

320

Oct-Nov 06

1710

Prime Focus Limited

10

450-500

417

May 06

1150

SUN TV Limited

10

730-875

875

April 06

6,028

K Sera Sera Productions Limited

10

64-70

68

Feb 06

340

Jagran Prakashan Limited

10

270-324

320

Jan 06

502

GBN (owners of CNN-IBN)

10

230-250

250

Jan 07

1,050

Rs. (million.)

Source: Industry estimates and PwC research

Select M&A Deals in the E&M Segment in 2006 Investor Name

Segment

Name

% age Deal Value stake (Rs. million) Segment

Disney

Kids Television Hungama

Disney

Kids Television UTV Software Media 14.9% Communications Conglomerate

630

Adlabs

Films, Radio

Synergy Television Communications Content Company

51%

N.A.

ABP

Print & Television

Kaleidoscope Entertainment

Film Production

N.A.

200

CNN -IBN

Television Broadcasting & Content

Channel 7Jagran Group

Television Broadcasting & Television Content

50%

600

Zee

Television Broadcasting & Content

Ten Sports

Television Broadcasting & Television Content

50%

2,500

NDTV

Television Broadcasting & Content

Radio Today Broadcasting

Radio

N.A.

N.A.

Shree Vijay Raj Entertainment

Film Exhibition 51%

N.A.

E-City Film Exhibition Digital Cinema (Essel Group)

18

Target

Television Broadcasting & Content

100%

1,373

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Times of Varied India including Group Print Media

Vijayanand Printers

Print Media

N.A.

N.A.

Inox Film Exhibition Leisure

Calcutta Cinema Film Exhibition N.A.

N.A.

Color Chips

Animation

Millitoon Animations

Animation

N.A.

N.A.

Media West (Essel Group)

Varied including Print Media

United News of India (UNI)

News Agency

60%

500

Times of Varied India including Group Print Media

Sandesh

Print Media

12%

270

Television Television Eighteen and Online Group

Crisil Market Wire

Online

100%

N.A.

Sun TV

Television Broadcasting & Content

Gemini TV and Udaya TV

Television Broadcasting & Content

N.A.

N.A.

UTV

Films and Television

Indiagames

Gaming

51%

680

UTV

Films and Television

Ignition

Gaming

70%

600

Prime Focus

Films and Visual effects

VTR Group

European 55% Media Service Company

400

BBC

Varied Radio Mid-Day including Radio

Radio

17.5%

318

Reuters News Agency

Times Global Broadcasting

Television Broadcasting & Content

26%

894

United

Mediworld Publications

Print Media

100%

38

Global Business Business Information

Media Times of Varied India including Group Television

Sahara India Television Mass Broadcasting Communications & Content

6%

378

Times of Varied India Group

Percept Picture Company

N.A.

N.A.

Times of Varied India Group

Pyramid Saimira Film Exhibition N.A.

N.A.

Films

The Indian Entertainment and Media Industry - A Growth Story Unfolds

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Executive Summary

Industry size and Growth Potential The Indian Entertainment and Media industry, yet again, continues to out-perform the Indian economy and, yet again, is one of the fastest growing sectors in India. Entertainment and Media industry generally tends to grow faster when the economy is expanding. The Indian economy has been growing at a fast clip over the last few years, and the income levels too have been experiencing a high growth rate. Above that, consumer spending is also on the rise, due to a sustained increase in disposable incomes, brought about by reduction in personal income tax over the last decade. All these factors have given an impetus to the E&M industry and are likely to contribute to the growth of this industry in the future. Besides these economic and personal income-linked factors, there are other factors that are contributing to this high growth rate. Some of these are enumerated below:

Economic impetus Demographic Impetus

Low ad spends

Key Growth Drivers

Low media penetration

Liberalising foreign investment regime

The Economic Impetus Over the past 10 years, India has registered the fastest growth among major democracies, having grown at over seven per cent in four years in the 1990s. It represents the fourth largest economy in terms of ‘‘purchasing power parity’’. The Indian Entertainment and Media industry is expected to significantly benefit from this fast economic growth, as this industry is a cyclically sensitive industry that grows faster when the economy is expanding. It also grows faster than the nominal gross domestic product growth (GDP) dur-ing all phases of economic activity due to income elasticity wherein when incomes rise, pro-portionately more resources get spent on leisure and entertainment and less on necessities.

The Demographic Impetus Over the years, spending power has steadily increased in India. The consumption expenditure is rising due to rising disposable incomes on account of sustained growth in income levels and reduction in personal income tax over the last decade. Lifestyle changes brought about by changes in economic activity is also spurring the growth of the Indian Entertainment and Media industry. In urban areas of India, the consumer mindset is changing due to increased exposure to global influences

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

via media and other interactions leading to higher aspirations which have provided a further fillip to leisure related spending. The Indian rural market with its vast size of nearly three times of urban India, also offers a huge opportunity that has remained largely untapped due to reasons of accessibility and affordability. However, as a result of the growing affluence, fuelled by good mon-soons and the increase in agricultural output, rural India has a large consuming class with over 40 per cent of India’s middle-class and over 50 per cent of the total disposable income.

Liberalising foreign investment regime Today, India has probably one of the most liberal investment regimes amongst the emerging economies with a conducive foreign direct investment (FDI) environment. The E&M industry has significantly benefited from this liberal regime and most segments of the E&M industry today allow foreign investment. In 2005, FDI was permitted in the two important sectors – print media and radio. Films, television and other segments are already open to foreign investment. In the print media segment, 100 percent FDI is now allowed for non-news publications and 26 percent FDI is allowed for news publications. Printing of facsimile editions of foreign journals are now also allowed in India. This policy is helping foreign journals save on the cost of distribution while servicing the Indian market audiences more effectively. The FM radio sector too was opened for foreign investment recently with 20 percent FDI being allowed.

Low media penetration in lower socio-economic classes (SEC) Media penetration varies across socio-economic classes. Though media penetration is poor in lower socio-economic classes, the absolute numbers are much higher for these classes. Hence, efforts to increase the penetration even slightly in these lower socio-economic classes are likely to deliver much higher results, simply due to the higher base.

Low ad spends Indian advertising spends as a percentage of gross domestic product (GDP) – at 0.34 percent – is abysmally low, as opposed to other developed and developing countries. Advertising revenues are vital for the growth of this industry. While today the low ad spends may seem like a challenge before the E&M industry, it also throws open immense potential for growth. This potential can be estimated by the fact that even if India was to reach the global average, the advertising revenues would at least double the current advertising revenues, estimated at about Rs. 163 billion, for 2006.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

21

Executive Summary

The size of E&M in India is currently estimated at Rs. 437 billion and is expected to grow at a compounded annual growth rate of 18 percent over the next five years. In the last year, the Industry has grown by 20 percent. 2004

2005

2006E

2007F

2008F

2009F

2010F

2011F

CAGR

Television

128,700 158,500 191,200 219,900 266,000 331,300 431,000 519,000

22%

Print Media

87,800

109,500 127,900 144,000 162,200 182,300 206,500 232,000

13%

Filmed Entertainment

59,900

68,100

84,500

96,800

112,000 126,450 146,000 175,000

16%

Radio

2,400

3,200

5,000

6,500

8,500

11,000

14,000

17,000

28%

Music

6,700

7,000

7,200

7,400

7,500

7,600

8,000

8,700

4%

OOH advertising

8,500

9,000

10,000

12,500

14,500

16,500

19,000

21,500

17%

Live Entertainment

7,000

8,000

9,000

11,000

13,000

16,000

18,000

19,000

16%

1,000

1,600

2,700

4,200

6,000

8,200

9,500

43%

Internet advertising Total*

600

311,600 364,300 436,500 500,800 588,300 697,150 850,700 1,001,700

18%

Sources: Industry estimates & PwC analysis * Note: The figures taken above include only the legitimate revenues in each segment. Revenues from the Animation and Gaming segments have not been included in the industry size as these are traditionally included in the Indian IT and Software Revenues. The Indian Entertainment and Media industry is projected to grow from an estimated Rs. 437 billion to Rs. 1 trillion in 2011, translating into a cumulative growth of 18 percent over the next five years. One of the key reasons for this high projected growth is the fact that the Entertainment and Media industry is a cyclical industry that grows faster when the economy is expanding. The Indian economy continues to perform strongly and one of the key sectors that benefits from this fast economic growth is the E&M industry. It also grows faster than the nominal GDP during all phases of economic activity due to its income elasticity wherein when incomes rise, more resources get spent on leisure and entertainment and less on necessities. Further, consumption spending itself is increasing due to rising disposable incomes on account of sustained growth in income levels, and this also builds the case for a strong bullish growth in the sector.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Television Industry Amongst the segments of the industry, the television industry segment will continue to contribute the largest share as in the last three years. The television industry revenues are expected to grow from the present size of Rs.191 billion to Rs.519 billion by 2011, implying a 22 percent cumulative annual growth over the next five years. Subscription revenues are projected to be the key growth driver for the Indian television industry over the next five years. Subscription revenues will increase both from the number of pay TV homes as well as increased subscription rates. The buoyancy of the Indian economy will drive the homes, both in rural and urban (second TV set homes) areas to buy televisions and subscribe for the pay services. New distribution platforms like DTH and IPTV will only increase the subscriber base and push up the subscription revenues.

Source: Industry estimates & PwC Analysis

Print Media Industry The Print Media industry, comprising of Newspaper and Magazine publishing, is projected to grow from the present size of Rs. 128 billion to Rs. 232 billion by 2011, implying a 13 percent cumulative annual growth over the next five years. A booming Indian economy, growing need for content and government initiatives that have opened up the sector to foreign investment are driving growth in the print media. With the literate population on the rise, more people in rural and urban areas are reading newspapers and magazines today. Also, there is more interest in India amongst the global investor community. This leads to demand for more Indian content from India. Foreign media too is evincing interest in investing in Indian publications. And the internet today offers a new avenue to generate more advertising revenues.

Source: Industry estimates & PwC Analysis

The Indian Entertainment and Media Industry - A Growth Story Unfolds

23

Executive Summary

Filmed entertainment The Indian Filmed Entertainment industry is projected to grow from the present size of Rs. 84 billion to Rs. 175 billion by 2011, implying a 16 percent cumulative annual growth over the next five years. Indians love to watch movies. Advancements in technology are helping the Indian film industry in all the spheres – film production, film exhibition and marketing. The industry is getting increasingly corporatised. Several film production, distribution and exhibition companies are coming out with initiatives to set up more digital cinema halls in the country are already underway. This will not only improve the quality of prints and thereby make film viewing a more pleasurable experience, but also reduce piracy of prints. More theatres across the country are getting upgraded to multiplexes.

Source: Industry estimates & PwC Analysis

Radio The Radio industry, fuelled by the positive FM-II Radio Policy is projected to grow from the present size of Rs. 5 billion to Rs. 17 billion by 2011, implying a 28 percent cumulative annual growth over the next five years. The cheapest and oldest form of entertainment in the country, which was hitherto dominated by the AIR, is going to witness a sea-change very shortly. In 2005, the Government opened up the sector to foreign investment along with migration to a revenue-share scheme. These factors along with privatisation of a large number of frequencies as part of the FM II Radio Policy will drive growth in this sector. As many as 338 licences were given out by the Indian government for FM radio channels in 91 big and small towns and cities. This deluge of radio stations results in opportunities for content and trained talent. New concepts like satellite radio, visual radio and community radio have also begun to hit the market. Increasingly, radio is making a comeback in the lifestyles of Indians.

Source: Industry estimates & PwC Analysis

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Music While physical sales in the music industry continue to be hampered by piracy and falling prices, digital music has witnessed a surge that will propel this industry in the next five years. The total music industry is currently estimated to be worth around Rs. 7.2 billion and is expected to grow at a CAGR of 4% in the next 5 years propelling it to Rs. 8.7 billion by 2011 on an overall basis. The growth in Digital Music is expected to grow by 25 percent to Rs. 1.8 billion by 2011.

Source: Industry estimates & PwC Analysis

Others Amongst the other segments, the Animation and Gaming industry is expected to show the maximum growth albeit from a small base. The Animation and Gaming industry is projected to grow from the present size of Rs. 11 billion to Rs. 29 billion by 2011, implying an 22 percent cumulative annual growth over the next five years. Other growth segments include Online Advertising, fuelled by the increased uptake of internet and broadband services, Out-of-home advertising, Music and Live Entertainment.

2006E Animation

Rs. 11 billion

CAGR

2011F

22%

Rs. 29 billion

Mobile Gaming

Rs. 2 billion

68%

Rs. 28.5 billion

Internet Advertising

Rs. 9 billion

16%

Rs.19 billion

OOH Advertising

Rs. 1.5 billion

43%

Rs.9.5 billion

Live Entertainment

Rs. 10 billion

17%

Rs. 21.5 billion

The Indian Entertainment and Media Industry - A Growth Story Unfolds

25

Executive Summary

Key Challenges Though the Entertainment and Media industry is growing in leaps and bounds, the full potential is yet to be tapped. One of the ways of realising the potential is not only the removal of certain obstacles in the industry but also the provision of certain incentives to key segments of the industry in order to fuel the industry growth drivers further and thereby realise its full potential. Some of the recommendations as provided by FICCI are as below:

Review of Industry Norms To Usher In Convergence Convergence of technologies, services and markets is the emerging paradigm around which the entertainment and communication industry is centered. Advancement of technology has blurred the line between the telecom, broadcasting services and networks e.g. IPTV, broadband, spectrum allocation for both broadcasting and telecom services. Any Regulation must change to recognize these factors and accept that change is inevitable. Further, given the increasing convergence of Telecom, Internet, and Cable & Satellite industries, there is an urgent need to review the policies governing the sector. It should be the aim of regulation to facilitate fair competition between players, competing platforms and multiple technologies in the carriage segment and let the markets decide the technology and platforms of choice.This has also been recommended by the TRAI in its consultative note.

Digitalisation of Television Networks India, today, does not have a national digital policy or plan. Though the regulator TRAI came out with recommendations for digitalisation of cable networks, there are several more measures that are required to be taken in order for the industry to truly benefit from Digitalisation: Conversion to digitalization should be mandatory and not left on a completely voluntary basis A clear time frame needs to be defined for transition to digital including a launch date and a sunset date Licensing process for allocation of spectrum should be made stringent to filter out non-serious players e.g. net worth, proper declaration of subscriber base, area of operation etc. Fiscal incentives such as waiver of service and entertainment tax, income tax holiday, etc. to be provided to operators for transition to digital.

Uniform Entertainment Tax across all states Since levy of entertainment tax and regulation of cinemas is a State subject, the Centre presently has a limited role to play. The long-standing demand of the film industry is to shift ‘Entertainment and Media’ from the State List to the Concurrent List through a constitutional ammendment. This will enable uniform policies for Cinema Construction Bye-laws and Entertainment tax. There is a need to implement uniform tax policies across the country, to enable standardised growth. The recommendation is to have a uniform Entertainment tax so as to stop reportage of short box office collections resulting in a loss to the ex-chequer.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Customs Duty Customs duty is levied on import of equipment and other hardware used in the production and post production of filmed entertainment programmes. At a time when India is trying to position itself as a hub for production of entertainment and competing in the International market on an equal footing, the necessary infrastructure and equipment is of vital importance. To provide impetus to the technological upgradation of facilities and infrastructure, the necessary equipment and hardware must be allowed to be imported without the additional burden of customs duty.

Multiplexes An Income Tax Concession under Sec. 80 –1B of the income tax act was introduced, with effect from 1st April 2002, allowing Multiplexes commissioning before 31st March 2005, an income tax rebate to the extent of 50% on book profits. It is requested that this concession be reintroduced so as to enable growth of exhibition sector in the country.

Piracy As India moves into knowledge based economy, a strong Intellectual Property regime which provides adequate safeguards to the holder of copyright becomes increasingly important. The menace of piracy is rapidly eating away into the foundations of the entertainment industry. The piracy issue should be handled at three levels; Policy, Enforcement and Prosecution. The Industry recommends allocation of specific funds to fight piracy of entertainment content. This fund should be utilised in Advocacy and awareness of the piracy issue and also enforcement & legal matters.

Export Promotion To promote Brand India, it is important that Indian companies and producers participate in global festivals and markets such as the Cannes & Berlin Film Festivals, MIPCOM, MIDEM, MIPTV, IBC, NATPE, NAB, Interbee, AFM and CASBAA under a common India umbrella. The Ministry of Information and Broadcasting has taken initiative by deciding to set up the task force with the specific aim of export promotion. This council supported by adequate funding will act as a catalyst for exponential growth in exports of Indian Entertainment and Media Industry.

Co- Production Treaties Signing of Co-production Treaty with Canada, UK is already being looked at by the Information and Broadcasting Ministry. The Industry recommends that the Government takes on further initiatives to enter into more such treaties with many more countries so as to provide a further boost to the Indian Film industry.

Education & Training The Entertainment and Media industry today faces an acute shortage of professionals. It is recommended that suitable incentives should be provided by the Government for setting up polytechnics, institutes and film schools. It is recommended that existing universities should include Film, Broadcast, Event Management and Digital technology in their curriculum. Similarly, institutes of Higher Learning like the IITs and the IIMs should be encouraged to offer specialization in Media & Entertainment

The Indian Entertainment and Media Industry - A Growth Story Unfolds

27

Executive Summary

Single window clearance for shooting in India Today, India lacks a single-window clearance system not only for the Entertainment and Media Industry but for other industries as well. Setting-up of such a system could prove to be a great revenue earner for the country as a hub for production of entertainment content.

Cinematograph Act & Other Rules The Cinematograph Act of 1952 has become archaic and needs to be revamped to take cognizance of emerging technology.For instance, earlier film prints were highly combustible in nature and required many stringent guidelines. However, with the advent of digital technology, the print process has been eliminated and hence the rules need amendment.Similarly, the censor certificates issued by CBFC mentions 35mm as the gauge, which creates confusion whether this is also valid for digital cinema.

Making India The Uplinking Hub The Government should also look at establishing India as an uplinking (of satellite channels) hub by easing the existing policies/regulations for uplinking of channels and setting up teleports/hubs. India can be made the regional hub for channels being beamed in the region. Some of the changes, which may make India an attractive destination to set up uplinking centres in India, include a liberal Foreign Investment regime and a tax friendly jurisdiction, which allows certain tax and fiscal incentives for licensees to set up such hubs.

Tax Holiday for the Animation Industry The Animation Industry is covered under the Software Technology Parks of India (STPI) society, set up by the Ministry of Communications and Information Technology with the objective of encouraging, promoting and boosting the Software Exports from India. However, STPI predominantly holds good for an ‘outsourcing’ nature of work where outsourcing is the main module and most animation studios that are getting benefited from STPI have to ensure an export commitment of more than 85%. As a result many Indian animation studios wanting to produce original content based intellectual property and use art and talent from India to produce animation stories for India do not get any such benefits. Further, the classification is unviable since the Indian government through this STPI route is actually subsidizing the production cost of the foreign shows instead of content creation for Indian companies. This is leading to more and more studios working on foreign content and is leading to a severe lack of animated Indian stories in the domestic television schedules and hence a tax holiday is recommended for the production houses doing Animation, Gaming & VFX work for a period of 10 (ten) years.

Removal of Service Tax for Animation Industry The provision for Service Tax is also financially hitting the Indian Animation Studios extremely hard; most of these studios are those that are developing a large amount of original content. Those studios that are export oriented and are thus under STPI are not exposed to the Service Tax at all, whereas the ones that are making or planning on making any Intellectual Property (original Indian content) in India for any client or broadcaster have to pay a service tax @ 12.2%. Accordingly, removal of the service tax from the Animation, Gaming & VFXIndustry is recommended.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Rationalisation of Customs Tariffs for Gaming Industry Though the Global Gaming industry has been growing in leaps and bounds across the world, advanced gaming consoles are yet to penetrate the Indian market. One of the primary reasons for the slow adoption is the high rate of customs tariff applicable on the gaming consoles. The customs tariff of approximately 36.74% translates to high prices for such consoles, which affect affordability and therefore access. These high tariffs are also leading to the growth of a grey market in such products. Rationalization of the tariff structures will therefore mean a more affordable pricing structure that will enable greater market access for such consoles.

Localization of Animation Content Presently most of the animated content shown in the networks are sourced from outside of India and generally from the existing library at a discounted price. This is one of the serious impediments on the growth of Indian Animation Industry. Many countries like Canada, China, Korea, France, UK etc have made varying levels of mandatory localization of content. Hence, FICCI has proposed 10% mandatory local content on the networks to begin with and to reach 30% over next three years as more indigenous animation content gets prepared and available for domestic / export markets.

Tax Benefits for Digital Cinema In view of the several advantages that Digital Cinema offers, FICCI has proposed several tax incentives for the Digital Cinema companies that includes the following: Income Tax holidayunder Section 80 IB of the Income Tax Act 100% Depreciation benefit- similar to the pollution control equipments and energy saving devices are entitled to 100% depreciation benefit as these are part of the capital equipment used in the Digital Cinema infrastructure. Exemption from MAT and DDT- Akin to similar benefits given to certain other infrastructure providers the Digital Cinema Infrastructure provider should be entitled to exemption from MAT and DDT. Customs Duty Benefits- Digital Cinema Infrastructure equipment particularly the Digital Projector and digital movie compressor attract the peak rate of custom duty.Since these items are not manufactured in India and are a very heavy cost burden to the provider these should be treated at par with hi-tech and information technology sector items with customs duty being reduced to nil. Service Tax and Lease Tax Exemption- Digital Cinema operators provide services to distributors for converting the movie prints received from the film producers in analogue form into a digital format and delivering the same to the exhibitors. The exhibitors pay the service providers rentals for the equipment and software, and a fee for software decryption and digital screening services. The service providers also receive advertisement revenue generated by bundling advertisements with the content of the digital cinema. All the services described in the business model above attract a levy of service tax at 12.24%, albeit under different service categories, which is proposed to be waived off. Similarly, Lease Tax Exemption is also recommended.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

29

Executive Summary

Key International Trends 1995 was a landmark year for media convergence. WebTV and Yahoo were founded, and the second version of Netscape Navigator was released. Microsoft released Windows 95 to great fanfare because it included the company’s first version of the Internet Explorer Web browser, which had a link to a fledgling online network appropriately called the Microsoft Network. The telecommunications companies flexed their muscles at the International Telecommunications Union (ITU) Telecom 1995 trade show in Geneva. A host of joint-venture announcements left little doubt that telecommunications companies were positioning to capture the huge pent-up demand for Internet services. Average bandwidth speeds had achieved a blistering 14,400 kilobits per second and promised to double in 1996. Looking 10 years back in order to look 10 years forward is not particularly useful for predicting how convergence technology and deal structures will play out. But it can be very instructive for understanding change. Like today’s executives in media, networks, advertising, and audience measurement, the leaders of incumbent companies and the founders of new companies in 1995 perceived and articulated the opportunities, risks, and competitive advantages at their disposal according to the time and circumstance in which they found themselves. One must remember, bandwidth rates of 14,400 Kbps were considered fast in 1995.

Table 6: Reprentative convergence-defining events of 2005 2005 event of note

Social network MySpace acquired by News Corp.

Disruptive Impact

Introduces the power of social networks in content value creation; defined communitites to provide social comfort and security to online audiences.

Convergent Impact

Social network defined by common interests, personal referrals, and controlled exposure of identity will increasingly become the new targeted audiences for media and advertisers.

In2TV announced by Time Warner, Bypassing traditional distribution Which will distribute older TV channels, Time Warner captures shows directly over the Internet. more advertising revenue. BBC Open Archive announced

Time Warner and other media companies will learn to aggregate shows around defined micro communities, which are dynamic components of media marketplaces.

Video iPod and Singbox come to market

Device and service enables users to separate video content from traditional access device or distribution channel.

Media companies learn that the most important commodity is consumer attention to their propertiesat any time and on any device; they begin to develop business models to monetise that attention.

AT&T, France Telecom and Deutsche Telecom each announce plans to roll out bundles of voice, broadband, and video services.

Traditional contracts and business relationships between content owners, distributors, and technology suppliers are strained by the telco entry into the video market.

Innovation in video content and delivery flourishes as commodity services no longer deliver expected profit margins.

Yahoo buys social networking site del. icio.us

Del.icio.us helps consumers store and share information about their favourite places on and off the Web.

Automation of references for products and services becomes embedded in media consumption, making direct advertising inefficient.

Source: PricewaterhouseCoopers- The Rise of Lifestyle Media- Achieving Success in the Digital Convergence Era

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

Looking back, looking forward It is arguably more instructive to examine some significant events from 1995 and compare the short-term, or disruptive impact, and the long-term, or convergent, impact.In every case, the disruptive, short-term impact of these events hardly foreshadowed the long-term, convergent impact. Convergence takes time, and even as the events of 1995 were already being labelled “convergence” by some a decade ago, those that sought to capitalise at that time had to wait to for their rewards, if indeed they ever received them.

Future Outlook In the next 5 to 10 years, it is probable that today’s leading media, distribution, and advertising companies will continue to be significant purveyors of branded content, services, and commercial messages. It is certain, however, that their business models, revenue streams, competitive dynamics, and core partnerships will evolve in radically new ways. The path ahead is fraught with risk as well as rewards. On the supply side, media providers, network operators, advertisers, and measurement companies must contend with the challenges and opportunities that stem from new ways of working with one another. The demand side faces a similar set of challenges and opportunities for consumer interaction. In both cases, video content and delivery companies must fully grasp that theirs is not a production challenge of porting media content onto various devices, but rather an orchestration challenge for delivering a quality media experience that has lifestyle-enhancing qualities. As content owners, network operators, advertisers, and measurement companies begin to deliver their goods and services through broadband, they become more reliant on relatively immature technologies and on partnerships and business relationships considered unthinkable just a few years ago. These are early days for IP-based video services, and marketplace participants must understand how convergence affects current business processes. During this evolutionary period, many different paths towards a converged media environment will be tried. There is likely to be increased complexity, as well as economic inefficiencies, early on. However, as the different industry participants collaborate on changing consumer activity and business models, the refinement of the media marketplace approach will become possible. After the buzz of convergence deal-making and new product launches has subsided, general business principles rather than novel features will start to differentiate companies. The payment process for on-demand video content provides an example. From an operational point of view, this payment for a single piece of content could include one or more of the following: direct payment to the content originator from a consumer; a portion of revenue to the content originator, passed back by a distribution partner such as a network provider; or payment by an advertiser for placing a commercial message.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

31

Executive Summary

Given such complexity, licensing and royalty collection becomes crucial. Content owners and distributors must consider a number of issues- Licensing compliance and royalty management in a media marketplace throw into sharp relief how convergence will dramatically accelerate the pace of mergers and acquisitions, alliances, joint ventures, and partnerships across industry sectors.

Media Marketplace Evolution

Media marketplace

on demand platform

on demand platform

Linear network

Linear network

Linear network

Past

Present

Future

Lifestyle

Segmented / niche

Mass media

Source: PricewaterhouseCoopers- The Rise of Lifestyle Media- Achieving Success in the Digital Convergence Era

32

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Executive Summary

There has never been a more opportune time for content providers and media distributors to deliver to thoroughly engaged consumers who are ready and able to buy. As a result, digitally converged companies, enabled by new technologies, are completely altering their payment models in ways that better reflect the aims of Lifestyle Advertising. We are seeing advertisers start to offer content and communications providers greater financial incentives to deliver higher levels of engagement with target audiences, at every purchasing stage. While media was traditionally rewarded for delivering large viewership and broad brand awareness, advertisers must now reward those providers who encourage individual consumers to engage with their ads, give up personal information, or engage other consumers in their networks against the backdrop of the brand’s offering.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

33

At a glance TV Households

112 million

TV penetration of Total Households

59%

Cable and Satellite TV Households

68 million

Cable and Satellite TV penetration

61%

Terrestrial TV Households

42 million

Terrestrial TV penetration

38%

DTH Households

2 million

DTH penetration

1.79%

TV Advertising Revenues

Rs. 66 billion

TV Subscription Revenues

Rs. 117 billion

TV Software Revenues TV Industry Revenues

Rs. 8 billion Rs. 191 billion

2

Television

Television

Key Developments CAS The introduction of CAS (Conditional Access System) effective January 1, 2007 can be deemed as one of the most significant developments of the Indian Television Industry not just in 2006 but in the last three years. CAS was launched in select areas in 3 metro cities in India namely Delhi, Mumbai and Kolkata. Chennai was the only city in India which had CAS prior to this. As per the data released by the Broadcasting and Cable services regulator TRAI, about half a million subscribers opted to adopt CAS in the notified areas by midFebruary 2007. Of the estimated 1.63 million homes in these three notified areas, the overall CAS adoption rate was at 29%, with the highest in Mumbai at 41%. CAS notified area*

No. of STBs opted upto Feburary 15, 2007

Estimated number of C&S homes in the CAS notified area*

Estimated rate of adoption

Delhi

189,622

680,000

28%

Mumbai

226,543

550,000

41%

Kolkata

49,620

410,000

12%

465,785

1,630,000

29%

Total Source: TRAI * per TAM Media Research

Foot print of CAS

Of the 7.96 million cable homes across the 3 metros, 1.63 million cable homes fall under the CAS-mandated zones (approx. 21% homes fall under the mandated zones) C&S Homes under the mandated areas, in the respective cities – • Mumbai : 17% (0.55 million of the 3.25 million cable homes) • Delhi : 26% (0.68 million of 2.61 million cable homes) • Kolkata : 20% (0.41 million of the 2.1 million cable homes)

Source: TAM Media Research Some of the features relating to adoption of CAS, as brought out by a consumer research study carried out by TAM during mid-January 2007, are as below:

36

•

Mumbai was the most responsive city with 25% homes CAS-converted homes and 20% of the homes were awaiting installation

•

At an aggregate level, Delhi & Kolkatta response rates were level, however Delhi was better served (14%) than Kolkatta (10%)

•

At a 3-metro level, nearly 1/3rd of the mandated area consumers responded favorably for conditional access to pay channels

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Television

•

The highest uptake of CAS was observed in the higher SEC & the uptakes declined as one came down the SEC ladder, however the uptake levels varied significantly across markets even at a SEC level

•

Highest uptake was observed in the SEC A strata of Mumbai while zero offtake was observed in SEC D/E of Kolkata; the response by Mumbais’ SEC C was nearly at par with that from SEC A residing in Delhi & Kolkata

•

Of the three areas that were probed to check for awareness levels of CASmandated areas, requirements of a STB for viewing FTA channels and the rental schemes for STB’s, following were observed: –

Despite low off-take in Kolkata, consumer awareness appeared to be higher than in Delhi & Mumbai

–

Consumers residing in Delhi appeared to be the least aware of counter-parts from Mumbai & Kolkata

Source: TAM Media Research One of the most important facts which was revealed by this consumer research was that price was the pre-dominant reason for non-adoption of CAS. This was inspite of the price cap of Rs. 5 per channel per month that was imposed by the regulator and that the notified areas of CAS were amongst the most affluent areas in the country.

Source: TAM Media Research

The Indian Entertainment and Media Industry - A Growth Story Unfolds

37

Television

CAS also brought along with itself some key regulations and policies, of which the most highly debated was the imposition of a price cap of Rs. 5 per channel per month by the regulator TRAI. The same price cap of Rs. 5 was imposed for all channels irrespective of the genre of the channel and which city the subscriber belonged to. Further, no such price caps were imposed upon DTH services. At the time of writing this report, the leading broadcasters had filed a petition in the Indian courts against this price cap, which was upheld by the Court in favour of the regulator. The other important provision introduced for CAS was that of revenue sharing between the broadcaster, MSO and local cable operators (LCO) in the ratio of 45:30:25 respectively. However, revenues collected from the Free-to-Air (FTA) homes by the LCO would not be required to be shared with the broadcasters, though the sharing ratio of the same between the MSO and LCO is yet to be finalised. Similarly, sharing ratio of carriage fee, where collected by the MSO from the broadcasters is also yet to be finalised. Other important CAS regulations included mandatory provision of all pay channels on an a-la-carte basis by broadcasters, provision of a minimum of 30 FTA channels at a rate of Rs. 77 per month plus taxes, minimum period of subscription to a pay channel to be atleast 4 months and one month’s notice to be given to subscribers before conversion of a free to air channel to pay channel or vice versa. The regulator TRAI has stated that CAS will be scheduled to be launched in other cities of India, but only after careful study of the adoption trends of CAS in the notified areas and readiness of MSOs and local cable operators for the rollout in the balance areas.

DTH 2006 was also the year of launch of the second private DTH player Tata-Sky, after Zee’s Dish TV in 2003. Though the DTH services were launched in August 2006, the real impact of the DTH services was felt when introduction of CAS was announced and thus the month of December 2006 saw some heavy advertising and marketing by both the DTH players and MSOs offering Digital Cable under CAS. Tata-Sky’s launch of its DTH services also brought into effect the TRAI legislation of ‘Interconnection’, which mandated that all channels must be provided by all players on all platforms at comparable market rates. However, in the absence of a second DTH player, the ‘comparable market prices’ phenomenon could not be established and hence Zee’s Dish TV was unable to offer the competitors’ channels as part of its bouquet of channels. During 2006, the Ministry of Information and Broadcasting also issued a letter of intent to Anil Ambani’s DTH service, Blue Sky Magic. The other player in waiting Sun TV’s plans were dithered a little for launch of its services in 2006 due to a satellite failure because of which its allocation of frequency for DTH services was delayed. Profile of DTH subscribers- Lower SECs lead in the urban areas while the higher SEC take command in rural:

Source: TAM Media Research

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IPTV Followed by extensive trials, MTNL launched the first IPTV services in Mumbai and Delhi in 2006. Though the current base of IPTV subscribers is extremely low, the year marked a beginning of IPTV services in India. Amongst the various challenges that face IPTV service providers, the most significant one is that of whether the services fall under the ambit of telecom services or television services. TRAI has sought certain clarifications from the Department of Telecom on whether MTNL is allowed to provide IPTV services under the Cable Television Networks (Regulations) Act as it does not have the Unified Access Service Licence (UASL) under which a company is allowed to offer Triple Play services.

New Television Channels Unfazed by the large number of existing channels, several new channels were launched in 2006 and several more were announced for launching in the coming year 2007. Some of these include announcements by NDTV of its plans of launching a ‘General Entertainment Channel’ in collaboration with Indian filmmaker Karan Johar, UTV’s announcement of the launch of a Youth Channel by the name Bindass and others. Top Five TV Channels Rank

TV Channels

Households Tunning (in m)

1

DD1

91.2

2

DD News

55

3

Star Plus

30

4

Aaj Tak

29.5

5

Zee TV

29.2

Source: IRS Survey - Round 2

Public Issues Unlike the previous year, the year 2006 saw only one Television Company i.e. SUN TV going public this year. At an issue price of Rs. 875 per share, the IPO size was estimated to be over Rs. 6 billion. In early 2007, CNN-IBN (Global Broadcast News) went public with an issue of Rs. 1 billion. Other public issues proposed in the coming year include that of Raj TV of around Rs. 1 billion and Sony Entertainment Television of around Rs. 9 billion.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

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Television

Audience Measurement TAM, India’s leading advertising measurement company increased its panel meters from January 1, 2007 from 4,500 to 7,000 and it now covers 145 cities instead of 73. TAM has also updated the number of cable and satellite homes to 68 million from the 41 million figure it was using as the base to analyse viewership data. Genre split of channels in terms of total advertising duration in Q1 2006 % Share Regional entertainment

24

Music

16

Hindi news

13

Movie

10

Hindi entertainment

10

Business

5

English news

5

Kids

5

Others*

12

* Includes regional news, english entertainment, sports, religious channels Source : Adex India

Sports Broadcasting Rights Cricket Television was highlighted in 2006 not just by the values paid by television broadcasters to acquire their telecast rights but also by its ‘national importance’. The controversy of ‘events of national importance’ started with the sharing of telecast rights of the World Cup Football in 2006 by ESPN-Star Sports with the Public Broadcaster Doordarshan and went on to the disputes with Nimbus for the Cricket rights. Nimbus stole the limelight this year by winning the four-year global cricket rights for $612 million from the Board of Control for Cricket in India. The recent ordinance passed by the Government in early 2007 requires broadcasters to share telecast rights of all ‘events of national importance’ with the Public Broadcaster Doordarshan on a 75:25 basis n favour of the private broadcaster.

Content disputes The year 2006 also saw several instances where television channels were banned by regulatory authorities over telecast of ‘content’ not as per the ‘content code’. Notably, most of these instances were bans on channels for showing ‘adult content’ and included channels such as AXN and others.

Down-linking policy implemented May 10, 2006 was the deadline for all foreign channels being up-linked from outside India and beaming into India to register under the Down-linking Policy with the Ministry of Information and Broadcasting. The down-linking policy, which was the subject of a lot of debate and discussions last year was implemented this year without any significant amendments. As many as 54 television channels were registered under this policy in 2006 with the Ministry of Information and

40

The Indian Entertainment and Media Industry - A Growth Story Unfolds

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Broadcasting. The down-linking guidelines stipulated a time of 6 months from November 2005 for completion of all formalities of registration. Some of the important compliances required under the guidelines include having a commercial presence in India, a net worth of at least Rs. 15 million, having a facility where online monitoring of content is possible and a system having a capacity to store the data for 90 days, which should be available to the Govt at any point of time, in India, at a pre-designated place etc. Hitherto, the Cable and Television Network (Regulation) Code 1995 was the only provision available to regulate down-linked TV signals in the country. This policy aims at controlling content being transmitted through satellite either at the point of uplinking or after downlinking.

M&A The year 2006 was also prominent for the various M&A activities in the television industry. Some of the notable deals in 2006 included buy-out of UTV’s Hungama TV (Kids Television and Content Company) by Disney India, CNN-IBN’s buy-out of Jagran Group’s Jagran TV which was renamed as Channel 7, Private Equity 3i’s investment in Nimbus for launching Sports Channels and Adlabs’ investment in Synergy Communication, a television content company. During 2006, Zee Telefilms also announced their acquisition of stake in Venus Records & Tapes and Venus Films to help in the improvement of Zee Cinema channel and Zee Music channel. Zee also acquired a 51% stake in Pacenet, a broadband service provider and technology company.

Industry size Over the next five years, the growth of India’s television industry will be propelled by the economic growth of the country, which will drive the revenues of all of its key constituents i.e. advertising revenues, subscription revenues as well as the television software revenues. Today, India represents the fitth largest market for colour televisions in the world, growing at an average rate of 10-12 percent a year. India today has approx. 200 million households but the television reaches only about 112 million homes. Thus, the TV penetration is roughly only 56 percent having grown over 3.2% over the previous year. The television manufacturing industry projects a demand of about 15 million units of colour televisions alone by 2010. Though a portion of this demand would be on account of replacement, this translates into a projected size of television households to about 130 million by 2011, thus a cumulative growth of 3 percent over the next five years. The key drivers for the growth of television homes include rising disposable income, leading to an increase in the number of households above the threshold income level leading to increased sales to first-time buyers (new sales). Coupled with this, declining threshold levels due to price reductions across categories/segments and increasing replacement demand due to ageing TVs (Black and White TVs and Colour TVs) along with growing aspiration levels further fillip the demand. With an increase in the upper middle class population, the demand for multiple TVs per household is also expected to increase. Replacement demand is expected to increase with shortened replacement cycles, which can be attributed to the availability of newer models. This demand is further projected to grow based on the increasing number of families entering the highincome brackets.

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Television

Source: Industry estimates and PwC analysis Of the approx. 112 million television households, there are an estimated 70 million Pay TV households in India. Of these, 68 million are cable households as per the data released by NRS 2006 and an estimated 2 million Direct-to-home (DTH) households. This translates into a penetration of about 56 percent. The cable households are expected to grow by 4-5% per annum over the next five years whereas the DTH households are expected to grow by 43%, albeit from a lower base. The combined Pay TV households are expected to reach 113 million by 2011 of which the significant share is expected to be retained by cable.

Source: Industry estimates and PwC analysis Though the prices of DTH services and cable services in the non-CAS areas are not regulated, the current price cap on cable services in the CAS areas is also seen to be a temporary measure. These are likely to be reviewed by the Regulator for a complete removal in mid-2007. However, the mandatory ‘inter-connect’ regulation is likely to continue in the short-medium term as a result of which the basic prices for both cable and DTH services are likely to remain competitive and similar.

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Source: Industry estimates and PwC analysis The television industry today is estimated to be Rs. 191 billion of which the largest chunk continues to be the television distribution segment. The Indian television industry is projected to grow at an annual compounded rate of 22 percent per annum over the next five years to reach the estimated size of Rs. 519 billion, nearly three times its present size.. Subscription revenues are projected to be the key growth driver for the Indian television industry over the next five years. Subscription revenues will increase both from the number of pay TV homes as well as increased subscription rates. The buoyancy of the Indian economy will drive the homes, both in rural and urban (second TV set homes) areas to buy televisions and subscribe for the pay services. New distribution platforms like DTH and IPTV will only increase the subscriber base and push up the subscription revenues. The TV distribution market is expected to grow from the present size of Rs. 117 billion to Rs. 378 billion by 2011, implying a 26 percent cumulative annual growth over the next five years. Thus, the television subscription revenues are projected to rise by 26 percent compounded annually over the next five years, led primarily by growth in the subscription revenues collected from households.

Source: Industry estimates and analysis

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Television

Television advertising is also expected to grow significantly over the next five years. Economic growth is encouraging Indian companies to increase their ad spends. This is benefiting the television broadcasting industry, since their revenues are increasing, in spite of a stagnant share in the overall ad pie. The share of ad spends of terrestrial and C&S networks have not changed over the last two years and are not projected to change for the next five years, as both the broadcast mediums are expected to gain from the increasing advertisement pie. The TV advertising market is expected to grow from the present size of Rs. 66 billion to Rs. 123 billion by 2011, implying a 13 percent cumulative annual growth over the next five years.

Projected growth of Television advertising in India

Million

150,000 100,000 48,000

54,500

2004

2005

66,200

74,000

2006E

2007F

83,000

94,500

2008F

2009F

109,000

123,000

2010F

2011F

50,000 0

Source : Industry Estimates & PwC Analysis As a result of increases in both subscription revenues and thereby advertising revenues, several new channels are being added to the existing 300 channels being beamed across Indian skies. But that is not discouraging the investors who believe that there is still room for more. Their belief is based on the fact that television as a medium has immense potential to reach a larger number of people which no other medium can match. This, has resulted in an increase in demand for content for these. Hence, the TV software market is expected to grow from the present size of Rs. 8 billion to Rs. 18 billion by 2011, implying a 18 percent cumulative annual growth over the next five years.

Projected growth of the Indian TV Software Market 20,000

18,000

Million

16,000 12,800

15,000 10,000 5,700

8,000

9,400

2006E

2007F

11,000

7,000

5,000 0 2004

2005

2008F

2009F

2010F

2011F

Source: Industry Estimates & PwC Analysis

Million

Projected Growth of Indian Television Industry 600,000 500,000 400,000 300,000 200,000 100,000 0

519,000 431,000 266,000 158,500

191,200

331,300

219,900

128,700

2004

2005

2006E

2007F

2008F

2009F

2010F

2011F

Source: Industry Estimates & PwC Analysis

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Television

Challenges ahead Proposed Broadcasting Bill, 2006 One of the immediate challenges that face the Indian Television Industry is the lack of a ‘Converged’ Bill which addresses the distribution of television content over both the broadcasting/cable medium and telecommunication channels. Though the Ministry of Information and Broadcasting in 2006 did bring out a draft of a Broadcasting Bill, it failed to address this technological advancement. Further, the Bill itself brought about several other points of disputes within the industry members of which the most debated was the lack of ‘independence’ of a Broadcasting Regulatory Authority of India (BRAI) which was proposed to be set up under this Bill as an ‘Independent’ Regulatory Body overseeing the television carriage issues. After seeking the views of the Industry, the draft Bill is under review by the Government.

Digitalisation of Cable Television Telecom Regulatory Authority of India (TRAI) gave recommendations regarding digitalisation of Cable Television in India in 2004 where it suggested that there should be a national plan for digitalisation from 1st April, 2006 till 31st March, 2010. The essential component of this plan was to introduce digital cable services in the top 35 cities of India with population exceeding one million by 2010 amongst others. The introduction of CAS has brought about some digitalisation however in a very small segment of the envisaged coverage. Though roll-out of CAS to other areas could bring about the said digitalization, the Government needs to come up with a more holistic and practical approach to Digitalisation. TRAI is believed to be working on its original recommendations for Digitalisation in view of the developments in the last two years an is expected to bring out its revised recommendations shortly.

Digitalisation of Television Content With technological advancements in existing distribution platforms such as Digital CAS and DTH and emergence of new digital platforms such as IPTV, Mobile TV, Home Video, Webcasting etc., the opportunity for television content owners (Television Broadcasters and others) lies in monetising their library content by distributing it on all these platforms. However, the challenge that remains is that of digitising content such that not only can the existing library content be repurposed for distribution but also reformatted to suit the typical needs of the relevant distribution platform. Zee Group made the first move in this direction by setting up a separate company to look into this opportunity. Doordarshan also announced its plan of digitising its 45-year old content library for this purpose.

Regulation of content storage on IPTV platforms Internet Protocol Television (IPTV) service providers have asked the Telecom Regulatory Authority of India (TRAI) to regulate content storage, as more global players are coming to India to deliver their services. They claim a need for regulation, a licensing policy and guidelines to be put in place for storing television content. IPTV stores content from the TV with the help of the internet, as against cable, to deliver scheduled TV programs or video on demand (VOD) and requires either a computer, software media player or an IPTV set-top box to decode the images in real-time. IPTV is facing various challenges regarding the content and security issue mainly due to scepticism on the part of content providers. .

The Indian Entertainment and Media Industry - A Growth Story Unfolds

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Television

Sharing of infrastructure 2006 saw a coming together of India’s top news channel companies to discuss sharing of infrastructure and equipment on the lines of sharing of infrastructure by telecom service operators to enhance profitability of such news channels. There are also preliminary talks of setting up a common television news agency on the lines of Press Trust India, which provides identical feed to print media outfits. Some of the infrastructure that is proposed to be shared includes OB Vans for covering live events, bureau and studio facilities, news gathering equipments and crew. However the challenge of sharing the infrastructure remains, since some of the key distinguishing factors such as providing ‘breaking news’ or ‘exclusive coverage’ of the news channels could get impacted by sharing of such infrastructure.

Digital Transmission for Delhi Commonwealth Games 2010 According to requirements from the Commonwealth Games Federation, the entire television and radio production of the Delhi Commonwealth Games 2010 is required to be in the digital format. The rights for production of content for the Games are with the Public Broadcaster Prasar Bharati, which currently broadcasts content on analogue format and hence will be required to shift to the high-definition TV (HDTV) format. Turning digital could lead to big annual savings for Prasar Bharati as post-digitisation, a larger number of channels can be hosted on the transponders and thereby help reduce the number of terrestrial transmitters. However, this digitalisation plan will require heavy capital investments (estimated in the range of Rs. 35 billion for Doordarshan over the next 8 years and Rs. 59 billion for All India Radio over the next 10 years) which is yet to be sanctioned by the Ministry of Information and Broadcasting to undertake this project.

Mobile TV The next big thing that has everyone in the Television industry enthralled is the onset of mobile television. However, there are several challenges that remain for this dream to become a reality. Of those, allocation of 3G spectrum to private operators remains the key, for which currently there seems to be no concrete decisions made by the Government either in terms of policy for allocation of spectrum or license fee payable to access such spectrum. Coupled with this, newer handsets supporting 3G technologies will be required to access Mobile TV alongwith with higher battery lives and television content repurposed to suit such mobile handsets.

Key International Trends A.

Television Networks: Broadcast and Cable

The global television network market is projected to grow to a total of $226.6 billion in 2010, growing at a compound annual rate of 6.6 percent from 2005. Latin America is projected to be the fastest-growing market, with a compound annual increase of 10.8 percent. The United States is projected to grow at a 7.4 percent compound annual rate and Asia Pacific by 7.1 percent compounded annually, followed by 5.2 percent growth in EMEA and 4.3 percent in Canada. The U.S. is projected to remain the largest market in 2010, at $84.5 billion, followed by EMEA at $75.1 billion and Asia Pacific at $51.2 billion. Latin America will total $11.3 billion, with Canada at $4.5 billion.

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Principal drivers Multi channel advertising will be the fastest-growing sector in each region, buoyed by rapid growth in digital households and advertising on new channels that the digital platforms support. New analog channels, digital broadcasting, and high definition television will also make free-to-air channels more appealing, while new distribution outlets, including distribution to mobile devices, will expand viewing and boost advertising. Public license fees, which represent a slow-growing component of the market, will hold down overall expansion in EMEA and Asia Pacific. Projected increases in advertising in those two regions will be significantly higher. A stronger and more stable economic climate will lead to large increases in Central and Eastern Europe and in Latin America. Increased funding from the Canadian Television Fund will support programming in Canada, while the lack of progress in improving the regulatory environment, including the restrictions on foreign investment in certain key markets, will impede the otherwise strong growth in Asia Pacific. In the United States, the possibility of à la carte distribution could slow license fee growth for cable networks.

Television Network Maket (US$ Millions) Region

United States % Change EMEA % Change Asia Pacific % Change Latin America % Change Canada % Change Total % Change

2001

2002

2003

2004

2005p

2006

2007

2008

2009

2010

67,957

74,942

79,723

86,798

90,090

96,010

99,901

106,513

110,244

117,114

-1.0

10.3

6.4

8.9

3.8

6.5

4.1

6.6

3.5

6.2

27,746

24,867

27,955

31,306

35,188

39,653

44,511

49,986

55,496

60,958

15.6

14.4

12.4

12.0

12.4

12.7

12.3

12.3

11.0

9.8

10,583

11,866

13,836

16,413

18,736

21,196

24,114

27,553

31,555

35,957

8.9

12.1

16.6

18.6

14.2

13.1

13.8

14.3

14.5

14.0

7,102

5,991

6,005

6,401

7,026

7,809

8,755

9,728

10,716

11,744

4.5

-15.6

0.2

6.6

9.8

11.1

12.1

11.1

10.2

9.6

2,565

2,715

2,936

3,116

3,311

3,534

3,783

4,024

4,276

4,509

8.0

5.8

8.1

6.1

6.3

6.7

7.0

6.4

6.3

5.4

109,953

120,381

130,455

144,034

154,351

168,202

181,064

197,804

212,287

230,282

3.4

9.5

8.4

10.4

7.2

9.0

7.6

9.2

7.3

8.5

2006-10 CAGER

5.4

11.6

13.9

10.8

6.4

8.3

Source: PwC Global Entertainment and Media Outlook

The Indian Entertainment and Media Industry - A Growth Story Unfolds

47

Television

compound annual growth rate of 8.3 percent during the five-year forecast period. Asia Pacific and EMEA will be the fastest-growing regions, at 13.9 percent and 11.6 percent, respectively, followed by Latin America at 10.8 percent. Canada will grow at a projected 6.4 percent rate, and the United States by 5.4 percent compounded annually.

Principal drivers Subscription TV household growth will drive spending in Asia Pacific, Latin America, and EMEA, but saturated markets will dampen growth in the United States and Canada. The introduction of IPTV will contribute to subscriber growth. The migration of subscribers to higher-priced digital services with more channels will boost spending in all regions and expand the potential market for VOD services. Increased revenue per user from enhanced services such as VOD, pay-per-view, and premium services will bolster growth in most regions.

Television Network Maket (US$ Millions)

48

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Television

Television Network Maket (US$ Millions) Region

2001

2002

2003

2004

2005p

2006

2007

2008

2009

2010

United States % Change

39,782 0.5

43,566 9.5

47,354 6.7

54,304 14.7

59,138 8.9

64,160 8.5

68,525 6.8

74,520 8.9

79,080 6.0

84,470 6.8

7.4

EMEA % Change

49,387 1.2

50,325 1.9

52,125 3.6

56,652 6.8

58,224 4.6

61,995 6.5

64,730 4.4

68,254 5.4

71,156 4.3

75,061 5.5

5.2

Asia Pacific % Change

30,365 0.3

31,250 2.9

32,733 4.7

35,003 6.9

36,406 4.0

39,332 8.0

41,387 5.2

45,578 10.1

47,434 4.1

51,201 7.9

7.1

Latin America % Change

4,558 -6.8

4,396 -3.6

4,742 7.9

5,672 19.6

6,770 19.4

7,751 14.5

8,259 6.6

9,346 13.2

9,875 5.6

11,299 14.4

10.8

Canada % Change

2,956 8.0

3.116 5.4

3,372 8.2

3,530 4.7

3,684 4.4

3,849 4.5

4,019 4.4

4,193 4.3

4,370 4.2

4,546 4.0

4.3

127,048

132,653

140,326

154,161

164,222

177,087

186,920

201,993

211,915

226,577

0.6

4.4

5.8

9.9

6.5

7.8

5.6

8.1

4.9

6.9

Total % change

2006-10 CAGER

6.6

Source: PwC Global Entertainment and Media Outlook

B.

Television Distribution: Station, Cable and Satellite

The global television distribution market is projected to increase from $154.4 billion in 2005 to $230.3 billion in 2010, a

United States A.

Television Networks: Broadcast and Cable

•

The disparity between cable and broadcast network advertising growth will be reduced as viewership levels stabilize.

•

The disparity between cable and broadcast network advertising growth will be reduced as viewership levels stabilize.

•

New non-television distribution outlets will stimulate interest in network programming on television.

•

The dampening impact of the emergence of family tiers and à la carte service from cable and satellite basic network license fee increases should be offset by low à la carte take-up rates and new competition from telephone companies.

•

With digital cable and direct broadcast satellite (DBS) subscriber growth moderating to single-digit increases, premium subscriber spending and license fees for premium services will slow.

•

Digital video recorders (DVRs), digital television, and high-definition television (HDTV) will enhance the appeal of television, leading to increased viewership and advertising.

•

The TV network market will expand at a 7.4 percent compound annual rate to $84.5 billion in 2010 from $59.1 billion in 2005.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

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Television

•

Advertising will continue to be the dominant revenue stream, totaling $52.0 billion in 2010, or 62 percent of the total, and growing at a 7.1 percent rate compounded annually.

•

License fee growth will drop to single-digit gains beginning in 2006, averaging 7.9 percent compounded annually to $32.5 billion in 2010 as its growth advantage over advertising narrows.

•

Cable networks will generate $61.2 billion in 2010 from both advertising and license fees—an 8.3 percent compound annual increase from 2005—while broadcast network advertising will grow at a 5.2 percent rate.

B.

Television Distribution: Station, Cable and Satellite

•

Changes in the telecommunications regulatory structure will enable telephone companies to become major players in the television distribution market, putting downward pressure on basic subscription fees.

•

Efforts to boost average revenue per user (ARPU) will sustain subscription spending in the face of new competition, slow subscriber growth, and the introduction of family tiers, under which subscribers get fewer channels and pay a lower price.

•

Benefiting from aggressive rollouts and the availability of current TV shows, which are not available on pay-per-view, VOD will cut into pay-per-view growth and will overtake pay-per-view revenue in 2010.

•

Declining cable subscribership will lead to slower growth in cable system advertising, while the migration to digital will sustain TV station audiences even as the political advertising cycle continues to produce large year-toyear swings.

•

The TV distribution market in the United States will rise to $117.1 billion in 2010, growing at a 5.4 percent compound annual rate.

•

End-user spending, including both subscription and non-subscription spending by consumers, will grow at a projected 6.0 percent compound annual rate, rising to $80.0 billion in 2010.

•

Subscription spending on basic services will total $58.3 billion in 2010—a 5.5 percent compound annual increase—and premium subscriptions will expand 5.1 percent compounded annually to $14.4 billion.

·•

VOD will be the fastest-growing category, at 22.0 percent compounded annually, and will grow to $3.9 billion in 2010.

•

Pay-per-view growth will drop to single digits in 2006 and average 5.7 percent growth compounded annually, rising to $3.4 billion in 2010.

•·

Advertising will increase to $37.2 billion, a 4.1 percent compound annual increase. TV station advertising will grow by 4.0 percent compounded annually to $30.5 billion in 2010, and local cable will expand at 4.7 percent annually to $6.7 billion.

Europe, Middle-East and Africa (EMEA)

50

A.

Television Networks: Broadcast and Cable

•

The proliferation of digital platforms and the launch of new channels will drive television advertising.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Television

•

Investment in Central and Eastern Europe is boosting the economy, stimulating advertising, and making advertising the fastest-growing component of the region.

•

A ramp-up in HD programming will boost viewership and shift advertising funds from other media to television.

•

Public television license fee growth will slow following rate increases in a number of countries in 2005 and growing resistance to large hikes.

•

The television network market will expand from $58.2 billion in 2005 to $75.1 billion in 2010, a 5.2 percent compound annual increase representing an improvement compared with the past five years, when growth averaged 3.6 percent compounded annually.

•

Central and Eastern Europe will be the fastest-growing area, increasing at a 12.0 percent annual rate from $7.0 billion in 2005 to $12.3 billion in 2010, when it will account for 16.4 percent of the EMEA (Europe, Middle East, Africa) market.

•

Western Europe, which accounted for 85 percent of the overall market in 2005 at $49.2 billion, will rise by 3.8 percent compounded annually to $59.4 billion in 2010, when it will account for 79 percent of EMEA.

•

Middle East/Africa, which constituted only 3 percent of the market in 2005, will average 10.8 percent growth compounded annually, rising from $2.0 billion to $3.3 billion in 2010, when it will account for 4 percent of EMEA.

•

The United Kingdom and Germany are the two largest markets in the region, at $10.7 billion and $10.1 billion, respectively, in 2005. Italy ranks third, at $7.8 billion, and we expect it will reach the $10-billion threshold in 2010.

B.

Television Distribution: Station, Cable and Satellite

•

Telephone companies will become significant players in television distribution, with IPTV contributing to subscription growth.

•

Free digital terrestrial television (DTT) and free direct-to-home (DTH) satellite services will cut into the potential for subscription spending.

•

Increased capacity, new launches, and more-attractive programming will boost the demand for premium services and help drive overall spending.

•

Cable operators are consolidating to strengthen their competitive position and enable them to offer advanced services that will boost revenue in the face of sluggish subscriber growth.

•

VOD will take off, benefiting from IPTV rollouts and cable’s conversion to digital.

•·

The TV distribution market in EMEA (Europe, Middle East, Africa) will continue to grow at double-digit rates through 2009 before dropping to a high-single-digit gain in 2010 and averaging 11.6 percent compounded annually during the forecast period as a whole. The market will total $61.0 billion in 2010 from $35.2 billion in 2005.

•

Western Europe will grow at a 9.7 percent rate compounded annually, with spending reaching $43.5 billion in 2010.

•

Central and Eastern Europe will post steady double-digit gains throughout the forecast period, averaging 14.7 percent on a compound annual basis to $12.7 billion in 2010.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

51

Television

·•

Middle East/Africa will post double-digit gains during 2006–07 and highsingle-digit increases thereafter, averaging 9.5 percent annually to $1.7 billion in 2010.

•

An emerging VOD market will grow explosively, rising at a 56.0 percent compound annual rate to $3.0 billion in 2010.

•

The United Kingdom is the largest market in the region, at $7.2 billion, followed by Russia at $4.7 billion, Germany at $4.2 billion, and France at $3.7 billion.

•

Italy will be the fastest-growing country in EMEA, with 22.9 percent compound annual growth, fueled by a rapidly expanding satellite market and growing IPTV.

Asia Pacific

52

A.

Television Networks: Broadcast and Cable

•

New channels, the digitization of television, and the emergence of alternative distribution outlets will expand advertising inventory and grow television advertising.

•

The tightening of both government control of programming and foreign investment in certain key growth markets hampers investment in the development of new and compelling content, which will limit the ability to make television more attractive to viewers at a time of increased competition from other media, thereby limiting the growth potential for advertising.

•

Continued TV household growth will sustain modest gains in TV license fees for public broadcasters.

•

The television network market will expand to $51.2 billion in 2010 from $36.4 billion in 2005, a 7.1 percent compound annual increase, which will be nearly twice the 3.8 percent annual gain during the past five years.

•

Japan is the dominant country in the region in terms of value, at $19.7 billion in 2005, equivalent to 54 percent of total spending. Japan is slowly emerging from its long-term economic slump, and its television network market will expand at a 3.9 percent annual rate through 2010, a significant improvement compared with the 0.2 percent growth compounded annually during the past few years.

•

The People’s Republic of China (PRC) has the second-largest market, at $4.5 billion, and has been the fastest growing of the major countries in the region, posting a 19.7 percent increase in 2005, and will continue to record healthy increases averaging 16.7 percent compounded annually through 2010.

•

Double-digit compound annual growth is also projected for India, Indonesia, Malaysia, the Philippines, and Thailand.

•

Excluding Japan, the region will expand at a 10.4 percent compound annual rate.

•

South Korea, the third-largest country in the region, at $3 billion, has experienced declines during the past two years as a result of its slumping economy, but a turnaround is anticipated beginning in 2006 with growth projected to average 6.6 percent compounded annually through 2010.

B.

Television Distribution: Station, Cable and Satellite

•

Increased infrastructure capacity will facilitate the introduction of new channels, making subscription television more attractive and boosting subscribership.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Television

•

The rollout of IPTV by telephone companies and further satellite launches will increasingly contribute to subscriber growth and make the market more competitive, thereby stimulating infrastructure investment by cable operators.

•

The expansion of digital cable and IPTV will create opportunities for VOD, leading to increased VOD spending during the next five years.

•

While piracy will continue to limit market potential, digital platforms will make it more difficult to steal signals.

•

We project overall spending to rise to $36.0 billion in 2010 from $18.7 billion in 2005, a 13.9 percent compound annual increase.

•

Subscription spending will increase at a 12.9 percent compound annual rate to $33.9 billion from $18.5 billion in 2005.

•

VOD will grow from $281 million in 2005 to $2.1 billion in 2010, with more than half of that projected gain occurring during 2009–10.

•

Double-digit and high-single-digit increases are expected throughout the region, with the exception of South Korea, with a saturated market in terms of penetration of pay TV services.

•

Japan is the largest market, at $4.3 billion, followed by the People’s Republic of China (PRC), at $3.9 billion.

•

In 2005, the PRC surpassed South Korea, which totaled $3.6 billion. We expect the PRC to grow by a projected 16.7 percent compound annual increase, moving it ahead of Japan in 2008 and rising to $8.4 billion in 2010. Japan will total $8.0 billion in 2010.

•

Hong Kong has been the fastest-growing market during the past two years, more than doubling as a result of the introduction of new channels and a developing IPTV market. Although Hong Kong constituted less than 1 percent of all subscription households in Asia Pacific in 2005, it accounted for 57 percent of the region’s IPTV households.

•

Following a surge in cable rates in the Philippines in 2004, a number of households discontinued their subscriptions, which will lead to a drop in spending in 2006.

•

Declining monthly fees will lead to a surge in satellite subscribership growth in Indonesia in 2006 and propel subscription spending during the next five years at a 48.7 percent compound annual rate, fastest in the region.

Future Outlook In the coming years, the last-mile of television distribution will see a lot of action with the entry of new DTH and IPTV players. Digitalisation of content delivery system including DTH, digital cable and IPTV services will change the whole arena of Indian TV market in a big way. As a result, subscription revenues are bound to increase and are likely to drive growth in the television segment. With DTH becoming stronger, the cable industry will have to undergo a sea of change and the quality of product and its price to meet the competition in the DTH arena. With improvement in quality of transmission and content, coupled with economic growth, television penetration is bound to increase by leaps and bounds thereby fuelling the growth of television advertising and content software also.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

53

At a glance Reach of Print Media

222 million readers

Reach of Newspapers

204 million readers

Reach of Magazine

68 million readers

Size of Indian print media industry Estimated at INR 128 billion in 2006 ; projected to grow to INR 232 billion by 2011 Size of Indian newspaper industry Estimated at INR 111.5 billion in 2006; projected to grow to INR 201.5 billion by 2011. Size of Indian magazine industry

Estimated at INR16.5 billion in 2006. projected to grow to INR 30.5 billion by 2011

3

Print Media

Print media

Key Developments New Launches The year 2006 saw the launch of several specialty magazines. Some of these launches include: • • • •

•

• •

Marie Claire, a women’s magazine published by Groupe Marie Claire of France, was launched in India in 2006 in partnership with the Outlook Group. UK’s popular gadgets magazine, T3, was launched in India by Infomedia India under a licensing arrangement with the title owner Future Media. Wolters Kluwer, in 2006, announced is plans for getting into the business of printing and publishing scientific journals and magazines in India. UK-based publishing company Parragon in 2006 formed a joint venture in India for launching 250 books in India ranging from children’s to reference books on subjects like art and architecture, food and drink, cookery, gardening, lifestyle etc. The Conde Nast group of the US, which brings out a string of top end lifestyle publications, has decided to bring two of its best-known magazines, Vogue and Glamour, to India through a 100 per cent subsidiary. The TimeWarner group-owned Fortune announced its plans for publishing in India and is reportedly in talks with Indian publishers for an Indian edition. Cambridge University Press announced its foray in the Indian publishing segment with its 51 per acquisition of city based Foundation Books Pvt Ltd and said it will publish books locally.

The newspaper industry too announced several new launches in 2006. Some of these included announcements by the Bhaskar Group to launch 3 new editions in Punjab (Amritsar, Ludhiana and Jalandhar) and by the Indian Express Group for launch of several new editions including one for the Gulf.

Increased Investment in Print Media There were several investments and deals that took place in 2006 in the Print Media segment. The largest of those included the investment by Warburg Pincus through its affiliate Cliffrose Investment in Dainik Bhaskar (Writers and Publishers) for Rs. 1.5 billion and by De Shaw in Amar Ujala for Rs. 1.2 billion. Others deals included investment by the Times of India Group in ‘Vijayanand Printers’ to enable its entry into the regional language publishing space. The Times Group picked up 12 percent stake in ‘Sandesh’, a regional daily for Rs. 270 million. In 2006, there were eight proposals for Foreign Direct Investment with the Government of India in the news and current affairs media. These included Mid-Day Multimedia Ltd, Business India Publications Ltd, Deccan Chronicle Holdings Ltd, Dhara Prakashan Pvt Ltd, Writers & Publishers Ltd and DT Media & Entertainment Pvt Ltd. Financial Times (India) Pvt Ltd has also submitted a proposal for coming out with its newspapers and periodicals. All these are under consideration by the Government. Of the 20 proposals awaiting approval, 12 belong to Springer India Pvt Ltd, which is looking to start the Indian edition of international publications in niche areas like orthopaedic surgery, intensive care, neurology and cancer.

56

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Print media

National Readership Survey 2006 For the second consecutive year, the National Readership Survey 2006 was brought out, of which the salient features were: •

•

•

•

•

The reach of the press medium (dailies and magazines combined) has increased from 216 million to 222 million over the last one year. As a proportion however, press reach has stabilized in urban India – at 45%. Press reach in rural India has also stayed the same at 19% — needless to say, on a much larger population base. The number of readers in rural India (110 million) is now roughly equal to that in urban India (112 million). Dailies have driven this growth in the press medium, their reach rising as a proportion of all individuals aged 12 years and above – which is the universe defined for NRS – from 24% to 25%. Magazines have declined in reach from 9% to 8% over the last one year. The time spent reading has remained the same – at 39 minutes daily on an average per day over the last year. But there has been increase in urban India (from 41 to 44 minutes daily) and decrease in rural India (from 36 to 35 minutes daily). Literacy as measured in the NRS has risen from 69.9% to 71.1% over the last year. The rate of

•

•

•

•

growth has been marginally lower urban areas (84.4% to 85.3%) than in rural areas (63.6% to 64.8%). One would expect this to boost the market for the press medium. Dailies continue to grow, adding 12.6 million readers from last year to reach 203.6 million while there has been a drop of 7.1 million magazine readers. It must be remembered that this refers only to mainstream magazines. A host of niche titles that continue to be launched regularly are not fielded and their collective readership estimate is outside the purview of the study. Over the last 3 years the number of readers of dailies and magazines put together among those aged 12 years and above has grown from 216 million to 222 million – a growth of almost 3% over last year. There is still significant scope for growth, as 359 million people who can read and understand any language do not read any publication. Of this 359 million, 68% read Hindi. It is not just affordability that is a constraint, since 20 million of these literate non-readers belong to the upscale SEC A and B segments. The Hindi belt has been witness to intense activity from large dailies and is an indicator of the general

The Indian Entertainment and Media Industry - A Growth Story Unfolds

•

•

•

•

growth in the vernacular dailies segment. To elaborate, vernacular dailies have grown from 191.0 million readers to 203.6 million while English dailies have stagnated at around 21 million. Magazines overall show a decline in the reader base, both in urban and rural India. The reach of magazines has declined from 75 million in 2005 to 68 million in 2006. Magazines have lost 12% of their reach since 2005. There are now two dailies that have captured more than 2 crore readers – Dainik Jagran (with 2.12 crores) and Dainik Bhaskar (with 2.10 crores). The gap between Dainik Jagran & Danik Bhaskar has reduced from 38 lakh readers to 2 lakh readers this year. The Times of India is the most read English Daily with 7.4 million readers, but The Hindu has taken the second spot with 4.05 million readers, pushing Hindustan Times, to the third spot with an estimated readership of 3.85 million. Though Hindustan Times adding 3.6 lakh new readers in Mumbai, it has but lost readership in U.P. and Punjab. Today the average urban adult spends 44 minutes per day reading dailies and magazines. The average reading time used to be 41 minutes.

57

Print media

NRS 2006 : Top Dailies Urban + Rural Rank

2006 Nos Rank (‘000’s)

Urban + Rural

2005 Nos Rank (‘000’s)

Dainik Jagran

21165

1

Dainik Jagran

21244

1

Dainik Bhaskar

20958

2

Dainik Bhaskar

17379

2

Eenadu

13805

3

Eenadu

11350

3

Lokmat

10856

4

Lokmat

8820

7

Amar Ujala

10847

5

Amar Ujala

10469

5

Hindustan

10437

6

Hindustan

10557

4

Daily Thanthi

10389

7

Daily Thanthi

9445

6

Dinakaran

9639

8

Dinakaran

1485

39

Rajasthan Patrika

9391

9

Rajasthan Patrika

8651

8

Malayala Manorama

8409

10

Malayala Manorama

7985

10

Times of India

7502

11

Times of India

8092

9

Mathrubhumi

7415

12

Mathrubhumi

6412

13

Ananda Bazar Patrika

7295

13

Ananda Bazar Patrika

7215

11

Gujarat Samachar

6416

14

Gujarat Samachar

6780

12

Punjab Kesari

6302

15

Punjab Kesari

4427

18

Dinamalar

5977

16

Dinamalar

4877

17

Divya Bhaskar

5490

17

Divya Bhaskar

5162

15

Sakal

5066

18

Sakal

4191

19

NRS 2006 : Top Magazine Urban + Rural Rank

2006 Nos Rank (‘000’s)

Urban + Rural

2005 Nos Rank (‘000’s)

Saras Salil

7139

Saras Salil

10561

1

1

India Today - Eng

5150

2

India Today - Eng.

6295

2

Vanitha - Mal.

4115

4

Vanitha - Mal.

3832

8

Grihashobha - Hin

3788

5

Grihashobha - Hin

4121

6

Kungumum

3698

6

Kungumum

4675

4

Swati Sapari Vara Pat

3408

7

Swati Sapari Vara Pat

3959

7

Kungumum

3347

8

Kungumum

5600

3

Saritha

2820

9

Saritha

4191

5

Meri Saheli

2610

10

Meri Saheli

2811

10

Balarama

2526

11

Balarama

2196

13

Ananda Vikatan

2426

12

Ananda Vikatan

2760

11

Cricket Samrat

2370

13

Cricket Samrat

2156

14

Malayala Manorama

2351

14

Malayala Manorma

2947

9

Reader’s Digest

2321

15

Reader’s Digest

1330

22

Grihalakshmi (Mal)

2312

16

Grihalakshmi (Hin)

2070

15

Nirogdham

2034

17

Nirogdham

902

42

58

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Print media

Language/Periodicity-wise Total Number of Registered Newspapers - 2005-06 Language

Dailies

Ter/BiWeeklies

Weekies

Fortnightlies

Monthlies

Quarterlies

Bi-mont hies/

Annuals

Total

Half Yearly Assamese

27

3

84

41

73

13

11

1

253

Bengali

116

16

672

618

782

533

221

26

2,584

Bilingual

107

21

835

477

1,697

467

205

53

3,862

English

481

37

1,193

855

3,513

1,491

986

222

8,778

Gujarati

186

15

1,283

263

707

76

56

15

2,550

Hindi

2,912

128

11,434

3,567

4,734

892

280

53

24,000

Kannada

428

6

487

352

863

64

31

4

2,235

Kashmiri

0

0

1

0

0

0

0

0

1

Konkani

1

0

3

1

6

2

0

0

13

Malayalam

242

7

194

177

933

73

42

16

1,684

Maniuri

17

0

7

5

11

7

5

0

52

Marathi

469

22

1,576

285

697

141

56

134

3,380

Multilingual

20

5

142

82

305

76

41

15

686

Nepali

5

2

29

7

14

18

11

0

86

Oriya

93

3

198

110

335

100

24

4

867

Others

58

16

86

33

132

56

18

1

400

Punjabi

110

15

389

110

314

41

20

1

1,000

Sanskrit

4

0

9

6

18

18

6

0

61

Sindhi

13

0

40

11

39

10

2

0

115

Tamil

375

43

434

291

1,267

44

32

10

2,496

Telgu

282

4

327

273

791

39

23

2

1,741

Urdu

583

21

1391

395

587

80

19

3

3,079

India

6,529

364

20,814

7,959

17,818

4,241

2,089

560

60,374

Source : Registrar of Newspapers for India.

Possibility of a common Readership Survey The Advertising Agencies Association of India, Audit Bureau of Circulations, and Indian Newspaper Society, which are the bodies responsible for the National Readership Survey (NRS) and Indian Readership Survey (IRS) are in talks for a joint industry body to bring out a common survey. Not only will a common study prevent duplication of resource allocation, but also result in an increase in the overall sample size of the study, leading to better coverage.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

59

Print media

Industry size Lower cover prices, spreading literacy and rising incomes have translated into rapidly growing newspaper sales. Elsewhere in the world, print may be losing out to television and the Internet, but in India, the leading print media players enjoy revenue growth rates of between 20 and 30 per cent, with even faster growth in profits because advertising has been buoyant. Print as a medium continues to dominate over other media in terms of revenues from advertising with the highest market share of total advertising spend in India in 2006 (48 per cent), which amounted to Rs. 78 billion. Backed by increasing overall ad spends, the print media industry grew by a healthy 17% to Rs. 128 million in 2006 over 2005. The size of the industry is expected to further increase to Rs. 232 million by 2011.

Source: Industry estimates and PwC analysis With several new publications released in recent years, both the newspaper and magazine industry are expected to show healthy growth rate. The newspaper industry currently estimated to be worth Rs. 112 million is expected to grow at a CAGR of 13% to Rs. 201 million by 2011. The magazine industry is expected to grow at a similar rate and is currently estimated to be worth Rs. 16 million. Both industries have a major proportion of their revenue accruing from advertising expenditure.

Source: Industry estimates and PwC analysis

Source: Industry estimates and PwC analysis

60

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Print media

Source: Industry estimates and PwC analysis The total number of registered newspapers, as on 31st March, 2006: 62,483 The number of new newspapers registered during 2005-06: 2,074 Percentage of growth of total registered publications over the previous year: 3.43 % The largest number of newspapers & periodicals registered in any Indian language (Hindi): 24,927 The second largest number of newspapers & periodicals registered in any language (English): 9,064 The state with the largest number of registered newspapers (Uttar Pradesh):9,885 The state with the second largest number of registered newspapers (Delhi): 8,545 The number of newspapers that submitted Annual Statements: 8,512 The total circulation of newspapers : 18,07,38,611 The largest number of newspapers & periodicals that submitted Annual Statements in any Indian language (Hindi): 4,131 The second largest number of newspapers & periodicals that submitted Annual Statements in any language (English) : 864 The largest circulated Ananda Bazar Patrika Bengali, Kolkata. : 12,34,122 The second largest circulated Daily: The Hindu ,English,Chennai (Printed from 12 different Printing Press):11,68,042 The third largest circulated Daily: Hindustan Times,English, Delhi: 11,36,644 The largest circulated multi-edition Daily: The Times of India, English(six editions):25,42,075 The second largest circulated multi-edition Daily: Dainik Jagran,Hindi,(fifteen editions):21,11,316 The largest circulated periodical: The Hindu, English,Weekly, Chennai (Printed from 12 different Printing Press) :11,02,783 Source: Registrar Office of Newspaper for India

The Indian Entertainment and Media Industry - A Growth Story Unfolds

61

Print media

Key International Trends Newspaper Publishing The global newspaper market is projected to climb 3.1 percent compounded annually from $178.8 billion in 2005 to $208.1 billion in 2010. The United States will expand from $60.3 billion to $69.7 billion in 2010, growing at a 2.9 percent compound annual rate. Spending in EMEA (Europe, Middle East, Africa), the largest newspaper market, will increase at a 2.5 percent average rate, reaching $72.0 billion in 2010 from $63.6 billion in 2005. Growth in Asia Pacific will average 3.8 percent annually from $46.6 billion to $56.2 billion. The Latin American market will advance by a 5.4 percent compound annual rate to $7.0 billion in 2010 from $5.4 billion in 2005. The newspaper market in Canada will grow from $2.8 billion to $3.2 billion, a 2.4 percent average increase. Paid circulation will continue to decline in the United States, EMEA, and Canada but will expand in Asia Pacific and Latin America, while rising circulation prices will generate modest increases in circulation spending. Free daily papers will attract younger readers, and the opportunity to reach this younger demographic will contribute to advertising growth. In EMEA, new printing presses will enhance overall newspaper production quality. In Asia Pacific, price cuts will contribute to unit circulation growth, but the lower prices will limit overall circulation spending. In Latin America, promotions gained the attention of readers in 2005, and rising disposable income will sustain circulation gains. In Canada, possible cutbacks in the geographic coverage for household delivery will adversely affect circulation. In the United States, newspaper Web sites will drive advertising growth as online distribution becomes a significant delivery channel. Online advertising revenues are likely to be significant for newspapers in other regions as well, but there is currently little information available for the markets outside the U.S.

62

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Print media

Newspaper Publishing Market (US$ Millions) Region

United States % Change EMEA % Change Asia Pacific % Change Latin America % Change Canada % Change Total % change

2001

2002

2003

2004

2005p

2006

2007

2008

2009

2010

56,087

55,128

57,380

59,232

60,344

62,034

63,786

65,880

67,546

69,739

-7.0

0.1

4.1

3.2

1.9

2.8

2.8

3.3

2.5

3.2

62,163

60,632

60,195

62,209

63,616

65,027

66,630

68,360

70,161

72,031

-3.8

-2.6

-0.6

3.3

2.3

2.2

2.5

2.6

2.6

2.7

43,060

42,534

43,666

45,465

46,594

48,343

49,913

52,670

54,026

56,159

-0.7

-1.2

2.7

4.1

2.5

3.8

3.2

5.5

2.6

3.9

4,816

4,729

4,699

4,955

5,371

5,709

6,040

6,365

6,686

7,002

1.1

-1.8

-0.6

5.4

8.4

6.3

5.8

5.4

5.0

4.7

2,649

2,659

2,700

2,806

2,835

2,932

2,999

3,064

3,130

3,198

-2.9

0.4

1.5

3.9

1.0

3.4

2.3

2.2

2.2

2.2

167,775

165,582

168,640

174,667

178,760

184,045

189,368

196,339

201,549

208,129

-4.0

-1.3

1.8

3.6

2.3

3.0

2.9

3.7

2.7

3.3

2006-10 CAGER

2.9

2.5

3.8

5.4

2.4

3.1

Source: PwC Global Entertainment and Media Outlook

The Indian Entertainment and Media Industry - A Growth Story Unfolds

63

Print media

Magazine Publishing The overall spending in the United States, EMEA (Europe, Middle East, Africa), Asia Pacific, Latin America, and Canada is projected to grow at a 3.6 percent compound annual rate from $98.5 billion in 2005 to $117.6 billion in 2010. The U.S. market will increase to $42.9 billion in 2010 from $35.7 billion in 2005, expanding by 3.7 percent compounded annually. EMEA, the largest region, at $41.6 billion in 2005, will rise at a 3.3 percent compound annual rate to $49.0 billion in 2010. The Asia Pacific market will advance at a 3.9 percent average rate, increasing from $17.1 billion in 2005 to $20.7 billion in 2010. The magazine publishing industry in Latin America will total $3.7 billion in 2010, rising by 5.8 percent compounded annually from $2.8 billion in 2005. In Canada, the magazine publishing industry will expand from $1.3 billion to $1.4 billion, growing at a 1.8 percent rate compounded annually. Rising incomes and continued maturation to a more sophisticated market economy will fuel growth in Eastern Europe, Latin America, and a number of countries in Asia Pacific, but moderating economic growth will dampen magazine publishing in other regions. Postal rate increases will hurt subscription circulation in the United States and Canada in 2006, but improved newsstand sales in those regions will cushion the decline. Online editions will help stimulate the print market in the U.S., EMEA, and Asia Pacific. Growth among the 15- to 44-year-old population, the principal target demographic segment for magazines, will have a favorable impact on magazines in Latin America and several countries in Asia Pacific, but a decline in that segment will have an adverse impact in EMEA. Increased foreign investment will contribute to expansion in Asia Pacific and Latin America.

64

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Print media

Magazine publishing Market (US$ Millions) Region

United States

2001

2002

2003

2004

2005p

2006

2007

2008

2009

2010

34,166

32,588

32,999

34,481

35,744

37,072

38,635

40,438

41,879

42,880

-12.4

-4.6

1.3

4.5

3.7

3.7

4.2

4.7

3.6

2.4

39.679

39.152

39,260

40,486

41,613

42,954

44,383

45,904

47,445

48,988

0..4

-1.3

0.3

3.1

2.8

3.2

3.3

3.4

3.4

3.3

15.171

15.274

15,649

16,231

17,052

17,749

18,465

19,285

19,934

20,656

-0.7

0.7

2.5

3.7

5.1

4.1

4.0

4.4

3.4

3.6

2,514

2,205

2,333

2,554

2,764

2,937

3,119

3,299

3,477

3,662

-0.3

-12.3

6.8

9.5

8.2

6.3

6.2

5.8

5.4

5.3

1,238

1,211

1,232

1,253

1,280

1,293

1,313

1,341

1,370

1,399

-0.6

-2.2

1.7

1.7

2.2

1.0

1.5

2.1

2.2

2.1

92,758

90,430

91,473

95,005

98,453

102,005

105,915

110,267

114,105

117,585

-4.9

-2.5

1.2

3.9

3.6

3.6

3.8

4.1

3.5

3.0

% Change EMEA % Change Asia Pacific % Change Latin America % Change Canada % Change Total % change

2006-10 CAGER

3.7

3.3

3.9

5.8

1.8

3.6

United States Newspaper Publishing •

Newspaper Web sites will become an important distribution channel for publishers and a significant source of advertising revenue.

•

Unit circulation for print copies will continue to fall, hurt by rising prices in the near term, but declines will moderate during 2008–10 as the industry adjusts to the impact of new media, new delivery mechanisms, and the overall competitive environment.

•

Newspapers will continue to attract print classifieds despite online competition, but local (retail) and general (national) advertising will remain weak.

•

We project the newspaper publishing industry will grow from $60.3 billion in 2005 to $69.7 billion in 2010, a 2.9 percent compound annual increase.

•

Advertising will average 3.5 percent compound annual growth, reaching $58.7 billion in 2010 from $49.4 billion in 2005.

•

Circulation spending will expand at an average annual rate of 0.2 percent, edging up to $11.0 billion in 2010 from $10.9 billion in 2005.

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65

Print media

Magazine Publishing

66

•

Restrained price increases, rising disposable income, and new titles serving growing markets will contribute to a turnaround in newsstand sales, while increased postal costs will cause increased prices and curtail subscriptions in the near term.

•

Moderating economic growth and lower rate bases will dampen consumer magazine advertising, but online editions and brand extensions will continue to show growth.

•

Surging corporate profits will boost business magazine advertising in the near term, but increased use of the Internet and trade shows will keep increases at mid-single-digit levels over the forecast period.

•

Spending on U.S. consumer and business magazines will grow at a 3.7 percent compound annual rate through 2010 to $42.9 billion.

•

Consumer magazine spending will average 3.6 percent annual growth to $27.8 billion in 2010, while spending on business titles will increase to $15.1 billion, growing at a 3.9 percent compound annual rate.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Print media

•

Free dailies and slower circulation declines will provide a modest advertising stimulus.

•

We project the newspaper market in EMEA will grow at a 2.5 percent compound annual rate from $63.6 billion in 2005 to $72.0 billion in 2010.

•

Advertising will increase from $37.7 billion in 2005 to $44.4 billion in 2010, a 3.3 percent increase compounded annually.

•

Circulation spending will expand by 1.3 percent compounded annually, totaling $27.7 billion in 2010.

Magazine Publishing

•

Advertising will total $29.2 billion in 2010, up 4.5 percent on a compound annual basis, with consumer magazines reaching $16 billion, growing by 4.5 percent compounded annually, and business magazines rising to $13.2 billion, a 4.4 percent average annual increase.

•

Circulation spending will increase at a 2.2 percent annual rate to $13.7 billion. Consumer magazine circulation spending will rise to $11.8 billion, a 2.4 percent annual gain, while business magazines distributed on a paid basis rather than for free via controlled distribution to qualified readers will generate $1.9 billion in 2010, up 0.8 percent compounded annually.

•

Rising consumer incomes will generate rapid advertising growth in developing markets, but mature markets will remain sluggish.

•

New genres and new titles will attract new readers, but the core demographic base of readers 15 to 44 years old is eroding.

•

Digital editions and new distribution channels will generate incremental revenues while promoting print editions.

Europe, Middle-East and Africa (EMEA) Newspaper Publishing •

New formats and giveaways will boost circulation temporarily—largely at the expense of competitors utilizing traditional approaches—while increased investment in presses will improve the appearance of newspapers and help attract readers over the longer run.

•

New launches and growth in community papers will limit further unit circulation declines, but free dailies will cut into paid circulation in some markets.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

67

Print media

•

The magazine publishing market in EMEA will increase from $41.6 billion in 2005 to $49.0 billion in 2010, growing by 3.3 percent compounded annually.

•

Magazine advertising in EMEA will rise by 4.0 percent compounded annually from $20.4 billion in 2005 to $24.8 billion in 2010, surpassing circulation spending from 2009 onward.

•

Circulation spending will grow by 2.6 percent compounded annually from $21.2 billion to $24.2 billion.

•

Free papers, strong economic growth, and expanding unit circulation will stimulate newspaper advertising.

•

We project the newspaper publishing industry in Asia Pacific will expand at a 3.8 percent compound annual rate from $46.6 billion in 2005 to $56.2 billion in 2010.

•

Advertising will average 5.8 percent growth compounded annually, from $22.3 billion in 2005 to $29.6 billion in 2010.

•

Circulation spending will increase from $24.3 billion to $26.5 billion, a 1.8 percent rate compounded annually.

Asia-Pacific Newspaper Publishing

Magazine Publishing

•

New papers, declining prices, and relaxation of government restrictions will expand newspaper circulation in India and the People’s Republic of China (PRC).

•

Price cuts for paid dailies will attract readers from free papers, but low price points will limit circulation spending growth.

68

•

New upscale magazines tapping into the emerging wealth of the region are fueling magazine advertising.

•

New regulations will encourage international publishers to invest in the People’s Republic of China (PRC) and India, thereby stimulating magazine publishing in those territories.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Print media

•

Generally favorable demographic trends and improvements in distribution will enhance circulation spending.

•

We project the magazine industry in Asia Pacific will grow at a compound annual rate of 3.9 percent through 2010, reaching $20.7 billion from $17.1 billion in 2005. Excluding Japan, which will grow at only 1.3 percent compounded annually, the rest of the countries in the region will grow by 7.2 percent compounded annually.

•

Advertising will increase at a 5.0 percent compound annual rate from $6.4 billion in 2005 to $8.1 billion in 2010.

•

Circulation spending will rise from $10.7 billion to $12.5 billion in 2010, growing by 3.2 percent compounded annually.

Future outlook The good news for print is that sales will continue to grow as literacy rates improve and incomes rise. Newspapers could also tap the 360 million potential consumers who can read but do not subscribe to any newspaper today. On the cost side, newsprint prices have stopped soaring and even taken a dip, thanks to the arrival of cheaper newsprint in the country. Further, the growing demand for Indian content in the international market, due to rising interest in India amongst the international business fraternity will only spur more growth for this sector.

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69

At a glance Number of films produced in 2006

1,090

Number of single screens

Approx. 12,000

Number of multiplex screens

Approx. 325

Filmed Entertainment Industry

Estimated at Rs.84.5 billion in 2006; projected to grow to Rs.175 billion by 2011

Domestic Box Office Market

Estimated at Rs.64 billion in 2006; projected to grow to Rs.119 billion by 2011

Home Video Market

Estimated at Rs.6.5 billion in 2006; projected to grow to Rs.25 billion by 2011

4

Filmed Entertainment

Filmed Entertainment

Filmed Entertainment The Indian film industry has been one of the oldest segments of the Indian entertainment industry. Motion pictures were brought to India in 1896 by Lumie re Brothers, and since then there has been no looking back. Today, India produces the largest number of films and has the largest number of admissions in the world. The Indian film industry is witnessing marked improvements in all spheres – from the technology used in making films, to internationally-appealing themes of movies, digital exhibition, increased focus on marketing and transparent distribution, finance and business environment. In 2006, the growing trend of corporitisation of the industry along with the shift to digital cinema and multiplexes gained further momentum making it an extremely great year for the Indian film industry.

Key Developments Corporatisation of Indian Film Industry The trend of corporatisation of the Indian film industry, considered to be one of the most important aspects for the growth of the industry, continued to gather momentum in 2006. Some of the key indicators of corporatisation in 2006 include: Following the IPOs of production house like UTV and Saregama in 2005, 2006 witnessed the IPOs of Prime Focus Ltd. and K Sera Sera Productions Company

Share Price price(Rs.) Band(Rs.)

Issue Period Price (Rs.)

Prime Focus Limited

10

450-500

417

May 06 1,150

64-70

68

Feb 06 340

K Sera Sera Productions 10

IPO Size (RS. mn.)

Film production house Percept Picture Company received funding from Bennett & Coleman and UFO Moviez received funding in the amount of Rs. 968 million from 3i, a private equity player. Several companies entered into long term contracts with directors and actors to secure their content pipeline- Adlabs signed contracts with Hrithik Roshan with Rs. 350 million for 3 films, Akshay Kumar for Rs. 180 million for 3 films and Vipul Shah for Rs. 2 billion for 8 films and are reportedly signing a Rs. 220 million- 3 film deal with John Abraham. UTV reportedly has set aside Rs. 1 billion for contracts with individual directors while Sahara Motion Pictures locked in Madhur Bhandarkar for 3 films. Industry sources also indicate that more than half of the releases in 2006 were by corporates rather than individuals. Corporates are also establishing their presence in the film distribution space with media conglomerates like UTV Software, Sahara Group and Eros International entering this segment.

Growth of Multiplexes The increasing corporatisation of the Indian film industry, entertainment tax sops offered by several state governments, frantic pace of development of retail malls that have multiplexes as anchor tenants, improvements in projection and sound technology resulting in the infrastructure of single-screens becoming outdated, superior economics of multiplexes along with growing consumerism have all led to a significant increase in the number of multiplexes in India.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Filmed Entertainment

Company

Current Multiplexes

Projected screens in next 5 years

Screens

Seats

PVR

17

67

16,578

208

Inox

11

41

12,299

165

Cinemax

9

29

8,260

141

Shringar

7

30

9,051

168

Adlabs

7

26

9,146

225

Source: Industry estimates and PwC Research

Improved models for financing films Since 2000, when the Government of India accorded ‘industry’ status to Indian film making doors to organized funding from banks, financial institutions, corporates and venture funds for making films which hitherto were largely financed through unorganized means. Corporatisation has helped in bringing the interest rates for financing films down, which makes these Film Projects more viable and also opens up possibilities for undertaking some big budget movie projects. Corporatisation has also opened up possibilities for creative producers who had good scripts but no financing options. In 2006, IDBI Bank doubled its exposure limit to Rs. 2 billion for film financing. It has sanctioned Rs. 1.8 billion while actual disbursals stood at Rs. 850-900 million towards movie projects.

Growth in Home Video Market 2006 saw a tremendous surge in home theatre surround sound systems, plasma televisions due to a boost in purchasing power, especially in the high-income groups. As a result, there was a significant increase in the demand for home video products like DVDs and VCDs. The overall positive growth and trend of organisation in India’s retail sector is another factor which contributed to the boost in DVD sales. A major development in the DVD market in 2006 was the entry of media powerhouse Nimbus Communications in to the DVD rental business. The company plans to invest Rs. 1.5 billion in trying to create a DVD retail chain by offering over 60,000 movie titles in 56 cities. Optical storage company Mosabaer is also planning an major entry in to the DVD business in India. However, piracy continues to be significant barriers to the exponential growth of the Home video market in India.

Digital Cinemas Digital cinemas are expected to change the face of the century-old cinema business just as Internet (e-mail) and mobile phones changed the face of communication; digital cameras changed the face of imaging; satellite & cable television changed the face of home entertainment; and MP3 technology changed the face of music. Digital cinema envisages providing a high definition cinematic experience using computer servers, telecom and satellite technology. Spearheading this digital revolution in India are companies such as Essel Group, PVR Talkies, Pyramid Saimira, Adlabs, and United Film Organizers (part of the Apollo Group) amongst others. United Film Organizers (UFO) Moviez, the digital cinema network launched by Valuable Media Pvt. Ltd. (a subsidiary of the Apollo International Ltd.) plans to

The Indian Entertainment and Media Industry - A Growth Story Unfolds

73

Filmed Entertainment

create the largest chain of digital cinema houses (2,000 nos.) worldwide by 2008. The company invested Rs. 800 million to increase it’s number of digital cinemas to 585 in 2006 and plans to scale it progressively to 2,000 cinema halls across India at a total investment of Rs. 3 billion. Technology companies such as DG2L Tech, Panasonic, Hughes Escorts Communication Ltd. and Famous Studios Ltd. (Mumbai) are partnering it. Digital cinema help curb piracy as Digital Prints are less prone to illegal duplication and are also cheaper. In the traditional system, the cost of the print (Rs. 60,000 plus) is prohibitive and restrictive in terms of ensuring the penetration of the films into the hinterland (Class B and C towns). Digital cinema has a lower cost per print. Further, if satellite delivery technology is adopted, it can penetrate 100 cities and towns without any additional incremental costs. It offers savings in handling and transportation and has a longer virtual shelf life as physical prints wear out, thus helping film marketers factor in bigger promotional budgets due to these reduced costs.

DIGITAL CINEMA Benefits A.

Curb on piracy In India, software piracy has assumed gigantic proportions. It is estimated that the Indian film industry loses almost 42% revenue due to piracy. This is money on which the Government earns neither Entertainment Tax nor Income Tax. An early and widespread release of movies, enabled by Digital Cinema will act as an effective deterrent to piracy. The digital camera infrastructure network itself is designed to eliminate possibilities of piracy.

B.

Increased box office and Entertainment tax collections Early migrants to the digital cinema system have reported more than 100% increase in revenue collections by way of increased box office collections due to early screening of movies which has also translated into enhanced collections of Entertainment and Income Tax.

C.

Employment opportunities in rural areas due to growth of new cinemas Digital Cinema makes niche cinema and regional language films more commercially viable. This in turn helps generate employment for local artists and technicians and other regional film industry related infrastructural suppliers.

D.

Savings in Foreign Exchange and minimizing wastage in print Besides involving huge costs, analogue prints cannot be recycled and amount to a national wastage. Digital Cinema, on the other hand, does not require any prints, thus, eliminating wastage and saving the country precious foreign exchange.

E.

Eliminates environmental pollution Analogue prints are made from polyester film and are destroyed by burning which is a huge bio hazard. Digital prints are mere digital files and can be simply erased from our server’s memory.

F.

Savings in Power Consumption The Power consumption of a Digital Projection System is far less as compared to that of an optical projection system. Thus in a power strapped state this can translate into huge power savings as illustrated below:

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Filmed Entertainment

Particulars

Optical Projection

KVA per hour

15

Power Factor

0.75

Actual Utilisation

11.25 Savings in Nos. of Units (KVA)

G.

Per theatre per hour Savings in Digital Projection

(Rs.)10.125

Per theatre Daily Savings in Digital Projection

(Rs.)121.5

Per Theatre Monthly Savings in Digital Projection

(Rs.)3,645

Per Theatre Annual Savings in Digital Projection

(Rs.)43,740

Total Annual Savings for 200 Theatres

(Rs.)87,48,000

Promotes Regional and Parallel Cinema It has been seen that regional films are losing out to mainstream Hindi cinemas mainly due to the problems in exhibition and distribution sector. Digital Cinema eliminates the cost of print. This means that even local Bhojpuri language films can be produced and distributed widely without any risk and at a lower cost. For e.g. a regional film produced for even a budget of Rs. 2 million can be released simultaneously over 200 cinemas. Similarly, art films, which have a limited audience, can be shot in digital format and released digitally in select theatres, keeping the financial viability. With Digital Cinema, the constraints for growth of art films will be removed.

H.

Good Quality Images and Virtual shelf life. With analog movie prints, with repeated screenings, there is considerable deterioration in the print quality. With digital cinema, Print quality does not deteriorate and every show is as good as the first show, irrespective of the number of screenings.

I.

Provides new business opportunities Over the past years, cinemas in smaller towns have been reeling under acute economic crisis, leading to the closure of many theatres. Piracy, poor box office collection of films and availability of only dated films have been the main contributing factors. Digital Cinema shall bring the small town cinemas halls at par with the cinema halls in the big cities, thus providing them a second lease of life and offering renewed business and employment opportunities.

J.

New Compact Cinemas The advent of Digital Cinema has seen proliferation of new and compact cinema houses in small towns and cities. With our efforts and research we have designed compact cinemas, which can be opened with a minimum investment. This shall provide additional business opportunities to local businessmen and also increase the State’s revenue.

Source: UFO Moviez

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Filmed Entertainment

Use of Digital technology in film making Cinema has increasingly become technology-centric. Not only are computer graphics imaging or 3D animation picking up, film content itself is going digital with more graphics and visual effects. In 2006, there was an increased use of the Digital intermediate (DI) technology in Indian films. DI involves a process whereby a film gets converted to digital format and affords more control of colours and images as well as room for the adjustment of image structure. This process helps in maintaining the consistency of the film. It is estimated that in 2007 more than 90 per cent of the films made would go through it. Prasad EFX of the Prasad Group did the DI work for films such as ‘Rang de Basanti’ and ‘Taj Mahal’. Further, 2006 also saw increased use of VFX in Films. Though among the top 20 Hollywood films of all time, almost all of them were high on visual effects whether it was Lord of the Rings, Spiderman or King Kong, in India too this trend is picking up with several Indian filmmakers looking to create larger than life films with a supernatural edge such as in Krrish and Dhoom 2.

Increased Marketing Spends Corporatisation of the film industry also brought along with it the concepts of organized and innovative marketing, an arena which was lacking in the industry. The producers of ‘Rang De Basanti’ allocated 40% of the budget to marketing of the film a very large amount compared to the 5% which has been the industry norm not too long ago. Indian films are also exploring the avenue of the internet as a very effective medium for marketing.

Collections from overseas markets The growing Indian diaspora around the world has created a market for Indian films overseas that continues to grow at a rapid rate. The market is currently estimated to be worth Rs. 7 billion and is expected to grow at a CAGR of 18% which is in fact higher than the estimated CAGR of the domestic box office which is estimated at 16%. However the contribution of the overseas box office collections to the total Indian film industry is still below 10% and can be increased through more effective marketing and better sub-titling/ dubbing. Further, increased number of prints for a wider release of film overseas facilitates this process.

Source: Industry estimates and PwC analysis

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Filmed Entertainment

Varied Subjects 2006 yet again saw films on a large variety of topics made. The topics ranged from biographic films of the likes of ‘Guru’, to patriotic films like ‘Rang De Basanti’ and ‘Lage Raho Munnabhai’, comedies like ‘Phir Hera Pheri’ and ‘Gol Maal’, films based on political situations such as ‘Kaabul Express’ to modern action flicks like ‘Dhoom 2’. The year even saw the creation of India’s first super-hero movie ‘Krishh’. Moreover, the gross collections of the top five films in 2006 were almost 100% higher than those of 2005 clearly reflecting what a good year it was for the Indian film industry.

Source: Industry estimates

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77

Filmed Entertainment

Number of Films produced in 2006 Language

Number of films

1

Hindi

223

2

Tamil

162

3

Telugu

245

4

Malayalam

77

5

Kannada

75

6

Bengali

42

7

Gujarati

16

8

Marathi

73

9

English

9

10

Oriya

11

Assamese

7

12

Chattisgrahi

4

13

Rajasthani

5

14

Bhojpuri

76

15

Punjabi

12

16

Harayani

17

Tamil (dub)

18

Konkani

19

Telugu(dub)

20

Maithali

1

21

Santhali

3

22

Hinglish

1

23

Sadari

1

24

Persian English

1

25

Nepali

4

26

Tind

2

TOTAL

21

1 11 1 17

1,090

Source: Film and Television Producers Guild of India

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Filmed Entertainment

Foreign Films in India With changing demographics of Indian Society there is also a growing market for English Films in India. Several Hollywood blockbusters such as ‘Pirates of the Caribbean – Dead Man’s Chest’, ‘Harry Potter and the Goblet of Fire’ and several others had mediocre success in Indian metros. In 2006, approx 74 foreign films were released in India which garned a share of Rs. 2.5 billion as box office collections, roughly 4% of the total Box Office Collections. ‘Casino Royale’ was considered as the #1 film for Hollywood in India as it collected an estimated Rs. 410 million in Box Office Revenues in 2006.

Source: Industry estimates

Casino Royale: 2006’s biggest Hollywood fare in India 001

Largest opening day for any foreign film in India (Friday, 17th Nov, 06) – Rs. 47.4 million

002

Largest single day for a foreign film in India – Rs. 52 million on Sunday

003

Largest opening weekend – Rs. 149. 4 million at the box office

004

Largest 2nd weekend – Rs. 60.5 million at the box office, which is also the 4th largest weekend of all time

005

Largest Bond film ever by a stretch

006

A foreign film in India to cross the Rs. 100 million mark the fastest - in just 2 days

007

Rs. 410 million in 2006 itself. Biggest Foreign film in India in 2006 and the 2nd Biggest all time, behind Titanic.

Source: Sony Pictures Releasing of India

The Indian Entertainment and Media Industry - A Growth Story Unfolds

79

Filmed Entertainment

Looking at the potential for films in India, Hollywood too is looking at co-producing films in India. Sony Pictures Entertainment announced their first Indian co-production in collaboration with Indian Film Director Sanjay Leela Bhansali titled ‘Saawariya’ in the Hindi language. Such co-production offers opportunities for Indian talent to leverage the size and scale offered by such global studios to showcase their work outside India and thus acquire greater exposure for their films.

Top Foreign Films in 2006 Title

No. of Prints

Release Date

Estimated Gross Box Office Collections (Rs. million)

Casino Royale

427

17-Nov-06

410

Pirates of the Caribbean-2

198

21-Jul-06

190

The Da Vinci Code

108

26-May-06

140

The Chronicles of Narnia

99

26-Jan-06

120

Underworld Evolution

47

7-Apr-06

60

House of Flying Daggers

40

8-sep-2006

35

Source: Industry estimates

Industry Size The key factors impacting the filmed entertainment market in any given year are the quality of releases and releases’ appeal to consumers—developments that cannot be predicted. 2006 was an excellent year for the Indian box office. The top five films alone grossed over Rs. 3 billion. This powered a total 21% growth in box office revenues in 2006 taking the estimated size of the Indian domestic box office market to Rs. 64 billion. This growth can also be attributed to the growing number of multiplexes and digital cinemas in the country, the increasing corporatisation of the Indian film industry and the improvement in content for films. The domestic box office market is expected to grow at a CAGR of 13% and nearly double its size to an estimated Rs. 119 billion over the next five years. Overall, the size of the Indian film industry is estimated at Rs. 85 billion, having grown by 24% from 2005. This high increase was attributed to higher average ticket prices, propelled by the growth of multiplexes, estimated to have increased to Rs. 20 per ticket on an all-India average basis. The ticket prices are projected to grow to Rs. 35 per ticket on an all-India average basis over the next five years, as a result of which the Box Office Market (Domestic) is projected to increase cumulatively by 13.5 percent. Overall, the Indian film industry is expected to grow at a CAGR of 16% to Rs. 175 billion by 2011.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Filmed Entertainment

Source: Industry estimates and PwC analysis The Indian films industry’s revenues continue to be dominated by the domestic box office. In 2006, the domestic box office accounted for 76% of the total revenues of the industry. It is expected that in the coming years, this dominance will reduce slightly with other segments, particularly the Home Video segment, contributing greater revenues to the Indian film industry.

Source: Industry estimates and PwC analysis

Source: Industry estimates and PwC analysis

The Indian Entertainment and Media Industry - A Growth Story Unfolds

81

Filmed Entertainment

In terms of growth rates among the various segments, the home video market shows the maximum potential. The market grew a whopping 63% from 2005 to touch the Rs. 6.5 billion mark. This segment is expected to make a continually increasing contribution to the total revenues earned by the Indian film industry. It is expected to grow at a CAGR of 31% to Rs. 25 billion by 2011.

Source: Industry estimates and PwC analysis

Key International Trends Filmed entertainment spending in the United States, EMEA (Europe, Middle East, Africa), Asia Pacific, Latin America and Canada is projected to rise at a 5.3 percent compound annual rate, reaching $104.1 billion in 2010 from $80.5 billion in 2005. EMEA will be the fastest-growing region, rising by 5.9 percent compounded annually to $30.3 billion in 2010 compared with $22.8 billion in 2005. The U.S. market is projected to grow by 5.1 percent compounded annually to $44.2 billion in 2010 from $34.4 billion in 2005. Spending in Asia Pacific will increase from $16.5 billion in 2005 to $20.9 billion in 2010, growing at a 4.9 percent compound annual rate. Filmed entertainment in Latin America will total $2.3 billion in 2010, up from $1.8 billion in 2005 and representing a 5.1 percent gain compounded annually. Canada will expand at a 5.0 percent annual rate from $5.1 billion in 2005 to $6.5 billion in 2010. Box office will be enhanced by digital cinemas in the United States, EMEA, and Asia Pacific and by modern theaters and more screens in a number of countries in EMEA, Asia Pacific, and Latin America. The introduction of high-definition DVDs will stimulate home video sellthrough in the United States and Asia Pacific, new funding programs will have a positive impact on all regions, and emerging online DVD rental services will augment the rental market in every region except Latin America. Film streaming services will generate incremental revenue in the United States and EMEA.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Filmed Entertainment

United States Private funding sources, digital cinemas, and rising ticket prices will generate box office growth. High-definition DVDs and continued growth in TV shows on DVD will boost the sell-through market, but unit sales growth will moderate as the industry matures. Online rentals and digital streaming will bolster the market, but in-store rentals will continue to decline. The overall filmed entertainment market will expand at a compound annual rate of 5.1 percent to reach $44.2 billion in 2010. Box office growth will average 4.3 percent compounded annually during the next five years from a weak 2005, taking total box office spending from $9.0 billion in 2005 to $11.1 billion in 2010. However, admissions in 2010 will remain below the levels achieved during 2002–04. Home video sell-through spending will expand by 6.9 percent compounded annually to $23.3 billion in 2010 from $16.7 billion in 2005. In-store rental spending—at video stores and similar retail outlets—will decline 4.1 percent compounded annually from $7.6 billion in 2005 to $6.2 billion in 2010. The in-store home video market will total $29.5 billion in 2010 from $24.3 billion in 2005, a 3.9 percent compound annual increase. Online rental subscription service will become a major channel for home video rentals, while digital streaming service will augment spending. Together they will total $3.6 billion in 2010, constituting more than half the traditional rental market and growing at a 26.4 percent compound annual rate from $1.1 billion in 2005.

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Filmed Entertainment

The overall home video market will advance at a 5.4 percent compound annual rate, reaching $33.1 billion in 2010 from $25.4 billion in 2005.

Europe, Middle East, Africa (EMEA) Investment incentives and the proliferation of digital cinemas will turn around the box office market. TV DVDs will boost sell-through, but low prices will slow spending growth. Rental vending machines and kiosks will support the traditional rental market, while online film rental subscription services will boost overall rental activity. Filmed entertainment spending in EMEA (Europe, Middle East, Africa) will total $30.3 billion in 2010, averaging 5.9 percent growth compounded annually. Box office spending will expand by 5.0 percent annually to $9.4 billion in 2010 from $7.4 billion in 2005. Rebounding from its first decline in 2005, the in-store home video market will rise from $15.2 billion to reach $18.7 billion in 2010, a 4.2 percent compound annual increase. Online subscription services and video streaming services are entering the market. Together they will reach $2.2 billion by 2010 from only $216 million in 2005, averaging 59.1 percent growth compounded annually.

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Filmed Entertainment

Asia Pacific Digital cinemas, modern theaters, and support of local films will boost the box office market. High-definition videos will enhance the sell-through market, but piracy will continue to limit growth. Online rentals will grow rapidly, cutting into in-store activity but boosting the overall rental market. Filmed entertainment spending will expand at a 4.9 percent compound annual rate to $20.9 billion in 2010 from $16.5 billion in 2005. Box office will rise from $5.9 billion to $7.4 billion, a 4.7 percent increase compounded annually. In-store home video will grow by 2.7 percent compounded annually to $12.1 billion. Online subscription services will grow explosively from $17 million in 2005 to $1.4 billion by 2010.

Future Outlook Increased number of Multiplexes and Digital Cinema screens, increased consumer spending on films and entertainment and better exploitation of films through corporatisation will influence the growth of the Indian Film Industry in the next five years.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

85

At a glance Number of licenses bid for in FM Phase II

338 licenses in 91 cities

Number of bidding companies

37 companies

Number of licenses allocated

245 licenses in 87 cities

Listenership

99% of India’s population

Regular listeners

27% of India’s population

Size of Indian radio industry

Estimated at Rs.5 billion in 2006; Projected to grow to Rs.17 billion by 2011

5

Radio

Radio

Indian Radio Industry Radio has been the cheapest mode of entertainment in India for a long time. Dominated by the state broadcaster – All India Radio – it reaches out to nearly 99 percent of the Indian population making, by far the most reach amongst all the modes of mass media. In the past few years, there has been a sea change with the second phase of the FM licensing already rolled out and the third phase expected to be conducted in the near future. The opening up of the radio industry to foreign investment has been a major boost to its growth. With the additional impetus provided by the emergence of new concepts like satellite, internet and community radio, the Indian radio industry is set to be the top performer in terms of overall growth rate and growth in advertising spends amongst the main segments of the Indian Entertainment & Media Industry.

Key Developments FM phase II results 2005 was a key year for the radio industry as it saw the liberalization of the radio sector with the government announcing the roll out of the second phase of FM licensing. This included the opening up of 338 licenses to private players by way of a bidding process. The licenses that were to be bid for were spread over 91 cities throughout India. The move from the Government was greeted with a positive response from private players, with several large Indian as well as International media companies winning bids for the licenses. In 2006, a total of 245 licenses out of 338 licenses were allocated to 37 different companies, covering 87 cities. The success of this licensing phase is expected to be witnessed in the coming years. These 245 new channels are all expected to be fully functional by the end of 2007. Adlabs Films Ltd. (now Reliance Unicom Ltd.)

45 licenses

South Asia FM Ltd.

23 licenses

Synergy Media Entertainment Ltd.

17 licenses

Music Broadcast Pvt. Ltd.

16 licenses

Entertainment Network India Ltd.

25 licenses

Kal Radio Ltd.

18 licenses

BAG Infotainment Pvt. Ltd.

10 licenses

PAN India Network Infravest Pvt. Ltd.

8 licenses

Radio Today Broadcasting Pvt. Ltd.

7 licenses

Radio Mid-day West (India) Pvt. Ltd.

6 licenses

Source: Ministry of Information and Broadcasting

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Radio

Adlabs Reliance’s ‘BIG’ entry into the radio industry Adlabs Films (a Reliance Group Company) emerged as the Company with the largest number of winning bids in the phase II licensing with 45 licenses to their name. The Company de-merged their radio business, forming Reliance Unicom Limited and launched their services under the brand ‘BIG 92.7 FM’.

Entry of foreign players in the Indian radio industry In 2005, as soon as the Government opened up the radio sector to foreign investment of up to 20%, immediately BBC Worldwide, Malaysian Broadcaster Astro and Virgin Radio made investments in Indian radio companies. BBC Worldwide tied-up with Radio Mid-Day West, Astro alongwith NDTV tied up with Value Labs for acquiring Radio businesses from the India Today Group and Virgin Radio joined the Hindustan Times Group.

Radio channels launched in 2006 Of the 245 FM radio licenses issued, some of the radio channels launched in 2006 include: "Entertainment Network (India) ltd. extended the reach of its channel 'Radio Mirchi' from 7 cities to 10, launching the channel in Bangalore, Hyderabad and Jaipur in April 2006. "MyFm of Synergy Media Entertainment Pvt. Ltd. launched at Jaipur on May 28, 2006. "Radio City 106.4, Hyderabad became the fifth FM Radio station of Music Broadcast Pvt Ltd (MBPL) and was launched on May 29, 2006. "Sun TV launched three more FM Radio Stations under the brand `S FM' in November 2006 through its subsidiaries Kal Radio Ltd. and South Asia FM Ltd on 93.5 MHz frequency in Bangalore, Hyderabad and Jaipur.

Increased profitability of radio channels The switch from a fixed licensing regime to a revenue sharing model has contributed significantly to increased profitability of radio channels. The new regulatory regime has cut the license fee to 5.3% of the net revenues (4% of gross revenues) against approx. 40-50% earlier while other costs have remained unchanged. This has significantly addressed the profitability issue positively, which has led to a spate of media players and other Corporates entering the space. As part of the bidding process, it is estimated that over Rs. 20 billion has already been invested with approx. Rs. 13 billion invested as Bid amounts and Rs. 7 billion as capital expenditure on equipments and facilities.

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Radio Radio

Key Features of the FM II Radio Policy Annual License Fee at 4% of gross revenues or 10% of reserve OTEF (One-time Entry Fee), whichever is higher. Reserve OTEF – 25% of the highest valid bid for that city. 50% of the bid amount to be submitted with the bid along with a performance bank guarantee for 50% of the bid amount. License validity for 10 years from the date of operationalisation and from 1st April 2005 for license under migration. Existing players were also given an option to shift to Phase II on payment of OTEF, which was equivalent to average paid by successful bidders in the city. No player is allowed to operate through more than one frequency in a market. No single player can operate more than 15% of the total operational stations. No news and current affairs programmes are permitted. Foreign Direct Investment or any form of foreign investment is restricted to 20%. Source: Ministry of Information and Broadcasting

Growing Ad Spend on Radio Although radio as a medium covers 99% of the population in India, the share in ad spend is relatively low (just 2.4% in 2005) as compared to the global average of 8.4% in 2005. However while the percentage share of radio in total ad spend is declining globally, it is on the rise in India. In 2006, this share increased to 3.1% from 2.4%. It is further expected to increase to 5.5% by 2011. The liberalization of the Indian radio industry and the several new players expected to enter the market as a result of this are the primary drivers of this growth in ad spend. Radio is a very effective medium for advertising as it targets local markets and has very low ad avoidance levels.

Source: AdEx India

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Radio

FM Radio Listenership trends People listen to FM at home (70%), while driving (32%), at public places (9%) and at the office (7%). Almost 51% of the people listen to FM for an average time of one hour and another 39% listen to FM for a longer period of 1-3 hours Sunday listener-ship is dramatically low with only 10% of the people tuning in to FM vs. weekdays where the number of tune-ins is as high as 94%. Majority of the people listen to Hindi film songs (63%), followed by Hindi pop (40%), remixes (37%) and English pop (33%) Source: Madison Media Research

Source : PwC Global Entertainment and Media Outlook

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Radio

FM Radio Phase III After the success of the second phase of FM licensing, the Government is planning to open up another 700 channels in the third phase of FM licensing. This phase is expected to see several licenses being given in smaller cities and towns. However, prior to that, the balance 93 frequencies which remain unallocated during the Phase II licensing will be bid out.

City

Balance Frequencies

City

Balance Frequencies

1

Delhi

1

25

Nanded

2

2

Mumbai

2

26

Rajamundri

2

3

Bangalore

1

27

Sholapur

1

4

Hyderabad

3

28

Srinagar

3

5

Ahmedabad

1

29

Tiruchy

2

6

Nagpur

2

30

Tirunelveli

1

7

Allahbad

1

31

Sagar

4

8

Jamshedpur

1

32

Warangal

2

9

Patna

3

33

Bikaner

3

10

Ajmer

1

34

Kota

1

11

Akola

2

35

Rourkela

2

12

Aligarh

1

36

Tuticorin

1

13

Aurangabad

1

37

Udaipur

1

14

Bareily

2

38

Agartala

3

15

Bhubaneshwar

1

39

Aizawl

3

16

Bilaspur

2

40

Gangtok

1

17

Dhule

1

41

Imphal

4

18

Gorakhpur

3

42

Itanagar

3

19

Gulbarga

2

43

Kohima

4

20

Jalgaon

1

44

Shillong

2

21

Jammu

2

45

Shimla

1

22

Jhansi

3

46

Daman

1

23

Muzzafarpur

3

47

Port Blair

4

24

Mysore

2

TOTAL

93

Source: Madison Media Research

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Radio

Breakthrough for Community Radio in India In December 2002, the Government of India approved a policy for the grant of licenses for setting up of Community Radio Stations to well established educational institutions including IITs/IIMs. The matter was reconsidered and in 2006 the Government decided to broad-base the policy by bringing ‘Non-profit’ organisations like civil society and voluntary organisations etc under its ambit in order to allow greater participation by the civil society on issues relating to development & social change. No. of Applications / Letters of Intent / Licenses Issues in respect of Community Radio Upto

Upto

30.6.2006

30.9.2006

Total No. of Applications Received

93

100

No. of Licenses issued

26

34

No. of Stations Operational

17

19

Source: Ministry of Information & Broadcasting

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Radio

Key Features of the Community Radio Policy 2006 Basic Principles

interests and needs of the local community.

An organisation desirous of operating a Community Radio Station (CRS) must be able to satisfy and adhere to the following principles:

At least 50% of content shall be generated with the participation of the local community, for which the station has been set up. Programmes should preferably be in the local language and dialect(s).

It should be explicitly constituted as a ‘non-profit’ organisation It should have a proven record of at least three years of service to the local community. The CRS to be operated by it should be designed to serve a specific well-defined local community. · It should have an ownership and management structure that is reflective of the community that the CRS seeks to serve.

The Permission Holder shall not broadcast any programmes, which relate to news and current affairs and are otherwise political in nature. Transmitter Power and Range

Programmes for broadcast should be relevant to the educational, developmental, social and cultural needs of the community.

CRS shall be expected to cover a range of 5-10 km. For this, a transmitter having maximum Effective Radiated Power (ERP) of 100 W would be adequate.

It must be a Legal Entity i.e. it should be registered (under the registration of Societies Act or any other such act relevant to the purpose).

However, in case of a proven need where the applicant organisation is able to establish that it needs to serve a larger area or the terrain so warrants, higher transmitter wattage with maximum ERP up to 250 Watts can be considered on a case-to-case basis, subject to availability of frequency and such other clearances as necessary from the Ministry of Communication & IT.

Selection Process Applications shall be invited by the Ministry of I&B once every year through a national advertisement for establishment of Community Radio Stations. However, eligible organisations and educational institutions can apply during the intervening period between the two advertisements also. Universities, Deemed Universities and Government run educational institutions will have a single window clearance by putting up cases before an inter-ministerial committee chaired by Secretary (I&B) for approval. In case of all other applicants, including private educational institutions, LOI shall be issued subject to receiving clearance from Ministries of Home Affairs, Defence & HRD (in case of private educational institutions) and frequency allocation by WPC wing of Ministry of Communication & IT. Grant of Permission Agreement The Grant of Permission Agreement period shall be for five years and will be non-transferable. No permission fee shall be levied on the Permission Holder. However, the Permission Holder will be required to pay the spectrum usage fee to WPC wing of Ministry of Communication & IT. An applicant/organisation shall not be granted more than one Permission for CRS operation at one or more places. Content regulation & monitoring The programmes should be of immediate relevance to the community. The emphasis should be on developmental, agricultural, health, educational, environmental, social welfare, community development and cultural programmes. The programming should reflect the special

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The Permission Holder shall have to adhere to the provisions of the Programme and Advertising Code as prescribed for All India Radio.

Universities, Deemed Universities and other educational institutions shall be permitted to locate their transmitters and antennae only within their main campuses. For NGOs and others, the transmitter and antenna shall be located within the geographical area of the community they seek to serve. Funding & Sustenance Applicants will be eligible to seek funding from multilateral aid agencies. Applicants seeking foreign funds for setting up the CRS will have to obtain FCRA clearance under Foreign Contribution Regulation Act, 1976. Transmission of sponsored programmes shall not be permitted except programmes sponsored by Central & State Governments and other organisations to broadcast public interest information. Limited advertising and announcements relating to local events, local businesses and services and employment opportunities shall be allowed. The maximum duration of such limited advertising will be restricted to 5 (Five) minutes per hour of broadcast. Revenue generated from advertisement and announcements as per Para 8 (ii) shall be utilized only for the operational expenses and capital expenditure of the CRS. After meeting the full financial needs of the CRS, surplus may, with prior written permission of the Ministry of Information & Broadcasting, be ploughed into the primary activity of the organization i.e. for education in case of educational institutions and for furthering the primary objectives for which the NGO concerned was established.

The Indian Entertainment and Media Industry - A Growth Story Unfolds

Radio

Satellite Radio WorldSpace continues to be the solo player in the satellite radio sector in India. In India, the Company added 18,568 net subscribers during the third quarter of FY2006, ending the year with 138,065 subscribers. During the year, WorldSpace announced a series of content and business highlights. The Company teamed with global content providers, including BBC World Service, TWI, and Radio Mid-Day, to deliver India ‘s first all-sports satellite radio channel, “PLAY” . In November 2006, the company signed an exclusive broadcast license agreement with ESPN STAR Sports to provide its subscribers with live audio coverage of over 200 days of cricket, including a minimum of 77 days featuring the Indian national team. The Company also expanded its branded line-up of specialty programming with the launch of “Falak,” India’s first exclusive 24-hour Urdu channel. The Company launched in Kolkata in early 2006, taking its reach to ten cities in 2006.

Visual Radio Radio Mirchi, in 2006, launched visual radio with Hewlett Packard and Nokia. A connection with Hutch (Hutchison Essar Limited) or Airtel along with General Packet Radio Service (GPRS)-enabled mobiles enable the reception of visual signals. The content is created entirely by Radio Mirchi, HP provides the technology solution, Nokia produces the sets on which visual radio is made available and Hutch provides the conduit for the content to reach the subscriber through the GPRS network. With this, India became only the third country in the world after Finland and Singapore to have a commercial visual radio service.

Industry Size The Indian radio industry is set to grow at the fastest rate amongst all the other major segments in the Entertainment & Media Industry. It is expected to grow from Rs.5 billion in 2006 to Rs.17 billion in 2011, which translates into a cumulative growth of 28 percent over the next five years.

Source: Industry estimates & PwC analysis However, many industry experts believe that this impressive growth rate is only a result of the small value of the industry currently. They believe that the Indian radio industry is being help up by several regulatory and other blockades and may not reach its full potential.

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Radio

Top 10 Categories of Radio Advertisers

% share(in secondages) Jan- Nov 2006

TV Channel Promotions

11.8

Properties/Real Estate

6.2

Cellular Phone Service

5.5

Independent Retailers

3.8

Publications/books

3.1

Jewellery

2.3

Mutual Funds

2.7

Life Insurance

2.3

Biscuits

2.1

Internet/SMS Service

1.5

Source: AdEx India, A Division of TAM Media Research

Top 10 Radio Advertisers

% share (in secondages)

Hindustan Lever Ltd

5.9

Reliance Communications

1.6

MTNL

1.5

Life Insurance Corporation Of India (LIC)

1.3

GTM Buliders and Promoters

1.2

Bhawani Textiles

1.1

Bharti Airtel Ltd

1.1

Hutchison Essar Telecom Ltd

0.8

Maruti Udyog Ltd

0.8

Bennett Coleman & Co Ltd

0.8

Source: AdEx India, A Division of TAM Media Research

Key International Trends The global radio market is projected to increase from $44.6 billion in 2005 to an estimated $58.8 billion in 2010, averaging 5.7 percent compound annual growth. Canada and Latin America, the two smallest markets, will be the fastest growing, at compound annual rates of 8.8 percent and 8.1 percent, respectively. Canada will total $1.5 billion, and Latin America, $1.9 billion in 2010. The United States will increase at a 7.4 percent compound annual rate, reaching $29.9 billion in 2010 from $20.9 billion in 2005. Europe, Middle-East and Africa (EMEA) will expand by 3.3 percent compounded annually rising from $15.3 billion in 2005 to $18.0 billion in 2010. Asia Pacific will climb from $5.9 billion in 2005 to $7.3 billion in 2010, a 4.2 percent annual growth rate.

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The radio market will grow by 5.7 percent compounded annually to $58.8 billion in 2010 from $44.6 billion in 2005. Slow-growing public radio license fees will hold down increases in EMEA and Asia Pacific to 3.3 percent and 4.2 percent, respectively, while compound annual increases of 8.8 percent, 8.1 percent, and 7.4 percent are projected for Canada, Latin America, and the United States, respectively. Digital broadcasting will lead to improved radio advertising, but its positive impact will be partially offset by growing audience fragmentation that will dampen ad rates. Satellite radio will boost spending in the United States and Canada and provide modest incremental revenue in Asia Pacific. Slow-growing public radio license fees will continue to hold down overall market growth in EMEA and Asia Pacific.

Radio Market (US$ Milions) Region

United States % Change EMEA % Change Asia Pacific

2001

2002

2003

2004

2005p

2006

2007

2008

2009

2010

17,862

18,901

19,229

19,975

20,982

22,625

24,043

25,813

27,862

29,915

-7.4

5.8

1.7

3.9

5.0

7.8

6.3

7.4

7.9

7.4

13,222

13,569

14,061

14,823

15,341

15,881

16,427

16,962

17,478

18,029

1.1

2.6

3.6

5.4

3.5

3.5

3.4

3.3

3.0

3.2

5,433

5.448

5,574

5,780

5,933

6,154

6,395

6,709

6,977

7,301

% Change

0.9

0.3

2.3

3.7

206

3.7

3.9

4.9

4.0

4.6

Latin America

761

734

1,072

1,147

1,302

1,562

1,549

1,674

1,797

1,922

-13.0

-3.5

46.0

7.0

13.5

20.0

-0.8

8.1

7.3

7.0

Canada

875

903

979

996

1,044

1,108

1,179

1,274

1,398

1,589

% Change

4.5

3.2

8.4

1.7

4.8

6.1

6.4

8.1

9.7

13.7

38,153

39,555

40,915

42,721

44,602

47,330

49,593

52,432

55,512

58,756

-3.3

3.7

3.4

4.4

4.4

6.1

4.8

5.7

5.9

5.8

% Change

Total % change

The Indian Entertainment and Media Industry - A Growth Story Unfolds

2006-10 CAGER

7.4

3.3

4.2

8.1

8.8

5.7

97

Radio

United States The emergence of new formats, improved sound quality, and reduced clutter will reinvigorate terrestrial radio, although growth rates will be dampened by audience fragmentation. Niche formats, celebrity hosts, sports programming, and the emergence of advertising will drive strong growth in satellite radio, albeit from a low base. The radio market will reach $29.9 billion in 2010, growing at a 7.4 percent compound annual rate. Terrestrial radio advertising will rise to $24.5 billion in 2010 from $20.0 billion in 2005, averaging 4.2 percent compound annual growth. Satellite radio will increase from $1.0 billion in 2005 to $5.4 billion in 2010, a 39.5 percent compound annual increase. The overall radio market will total $29.9 billion in 2010, growing at a 7.4 percent compound annual rate from 2005.

Europe, Middle East, Africa (EMEA) Digital radio and new multiplexes will enhance the appeal of radio but will increase audience fragmentation. Growth will improve compared with 2005 but will not match the gains achieved during 2003–04. Moderating fee increases will lead to slower growth in public radio license fees. The radio market in EMEA is projected to expand from $15.3 billion in 2005 to $18.0 billion in 2010, growing at a 3.3 percent compound annual rate. Public radio license fees—the largest component, at $8.8 billion in 2005 and 38 percent of the total—will be the slowest growing, increasing at a 1.3 percent compound annual rate to $9.3 billion in 2010. Radio advertising will increase at a 5.7 percent compound annual rate from $6.6 billion in 2005 to $8.7 billion in 2010.

Asia Pacific New radio stations in India, a surging market in the People’s Republic of China (PRC), and sustained growth in other countries will fuel radio advertising. Increased promotion will raise awareness of satellite radio and generate a modest subscription market in India. Public radio license fees will continue to post modest increases, limited by slow household growth. Radio—which consists of terrestrial advertising, public radio license fees, and a small satellite radio subscription market—will increase at a 4.2 percent compound annual rate to $7.3 billion from $5.9 billion in 2005. Radio advertising will expand by 5.7 percent compounded annually to

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$4.5 billion in 2010 from $3.5 billion in 2005. Satellite radio subscriptions will begin to gain traction, increasing from $1 million in 2005 to $43 million in 2010, a 112.2 percent compound annual increase, albeit from a very small base. Public radio license fees will expand at a 1.8 percent compound annual rate to $2.7 billion in 2010 from $2.5 billion in 2005.

Challenges that remain… Zero Differentiation amongst FM Radio channels FM Radio companies are not allowed to own multiple frequencies in the same city, which is singularly responsible for ‘zero differentiation’ amongst the FM radio channels. This means that Companies do not have the freedom to experiment with content and hence are forced to cater to the mass segment by playing ‘Hit Music’. This thus excludes the space for niche players in the market, something which global radio markets have been built on.

Unrealistic Content costs With music as the only content, radio operators are required to pay royalty fee to the Indian Performing Rights Society (IPRS) and Phonographic Performance (PPL). While the per needle hour charges has been set at Rs 667, these are set irrespective of the city or town in which the music is played, or type of music or whether the music from a latest album or an old album.

Simultaneous emergence of other infotainment media Unlike in other global nations, reforms in India have happened too late and the radio opportunity is coinciding with the emergence of alternative entertainment media like podcasting, Internet, satellite radio, etc. Internet advertising, which is the fastest growing segment of the Entertainment & Media industry in India, in particular, is expected to snatch a large portion of the market form radio.

Robust listenership-tracking system One of the major obstacle for exponential growth in the radio sector is the absence of a robust listenership measurement system. However, the first steps to it have already been taken in the setting up of Radio Broadcasters Federation which is working with TAM towards this goal.

Future Outlook The sector has never had it so good. The Indian radio listener is going to have a wide variety of radio channels to choose from. Newer technologies, more interesting content, a cheaper and effective medium for advertisers…the potential of the Indian radio sector today is simply enormous. For the listener, if music be the food of life, play on.

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At a glance Current Size in 2006 Projected Size in 2011 Music Industry

Rs.7.2 billion

Rs.8.7 billion by 2011

Indian Animation Industry

Rs.11 billion

Rs.29 billion by 2011

Indian Gaming Industry

Rs.2 billion

Rs.28.5 billion by 2011

Internet Advertising Industry

Rs.1.5 billion

Rs.9.5 billion by 2011

Out-of-Home Advertising Industry

Rs.10 billion

Rs.21.5 billion by 2011

Live Entertainment Industry

Rs.9 billion

Rs.19 billion by 2011

6

Others

Others

Indian Music Industry The music industry in India as well as globally continues to be plagued by piracy leading to a fall in the price of CDs which subsequently leads to a decline in revenues, as these falling prices are not compensated by increasing volumes. The high cost of acquisition of film music and the low priority accorded to the sectoral issues by the authorities have also contributed to the relative stagnation of the music industry. Global majors have recent taken a number of revenue enhancing and cost cutting steps that they expect will lead to a recovery of the global music industry. While CD sales are on the decline, it is ‘mobile music’ and digital distribution of music that continue to be the key growth drivers of the industry so much so that it is estimated that they will soon overtake the conventional music industry in terms of revenues. The trend of an increasing popularity and market for non-film music has continued with several non-film albums and remixes released during the year. Music videos, also, continue to grow in popularity especially as they are available on more platforms other than music channels on television such as on the internet or on ipods. Despite this, the Indian music industry still has a much higher dependency on the film industry than its global counterparts.

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Others

Source: Indian Music Industry

Key Developments & Growth drivers Aggressive anti-piracy measures in India The Indian Music Industry has been indefatigable in its efforts to tackle the problem of music piracy. The number of raids conducted and the number of seizures has been steadily rising over the last few years. In 2006 the total number of raids was over 250 with seizures of approx. 1.4 million CDs and over 2 million VCDs. The setting up of “IP” (intellectual property) cells in the state police forces has contributed significantly to reducing the spread of piracy. The Indian Music Industry (IMI) reports, that more than 40% of all raids they conduct in Tamil Nadu and Kerala were in conjunction with these IP cells. Other government initiatives such as the Goonda Act in Tamil Nadu have also acted as detterents to piracy with music sales receiving a 30% boost since the introduction of this law in 2003. The IMI has also conducted several training programs 9more than 75) for various state police forces instructing them on ways to detect intellectual property right infringements. The IMI is now set to target internet service providers facilitating online infringement. Despite these aggressive steps the level of piracy in the music industry is still very high at 55% leading to losses of close to USD 53mn. A growing worry is the piracy in mobile music which is estimated to drive the music industry over the next 5 years.

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Others

It is estimated that around 500,000 ring tones are being illegally downloaded in India everyday.

Source: Indian Music Industry

Digital music It is estimated that this year India will become the second largest market in the world to see digital (both online and mobile) music sales outpace physical sales. Mobile music downloads in India are estimated to constitute 60 percent of all digital music sales in the world for the coming two years. The mobile music market in India consists of polyphonic ring tones, true tones, ring back tones and full track mobile downloads. With CD sales continuing to decline, it is digital music that is set to drive the music industry in the future. While mobile music started off with the introduction of simple ringtones, it has been fuelled by additional formats such as ring-back tones, caller ID tones, and full track audio and video downloads. The mobile music market in India is estimated to be showing 50 percent year-on-year growth. This is in large part due to the flourishing mobile phone business India with cell phone ownership set to cross the 200 million mark in 2007. Further, mobile service providers are discovering the importance of mobile music as a value added service and the impetus of their marketing is shifting from SMS related services to mobile music services. Most operators have launched facilities like ‘Easy Music’ which allows users to download songs from mobile phone outlets. Hutch recently introduced ‘fun cards’ which are scratch cards that offer multiple caller and ring tones. With the growth of the online music market, online marketing of music has also become a key area for music companies. However, the debate continues as to how does this benefit the India music industry? With increased proliferation of digital music, it is estimated that the mobile phone operators and digital music distributors walk away with the major share of this revenue leaving the content providers in the Indian Music Industry with little.

Live Music Concerts India has witnessed an increasing number of music concerts in recent years with international artists like Roger Waters, Bryan Adams, Jethro Tull, Sting, Shaggy, Mark Knofler and others gracing the Indian stage with others such as Iron Maiden and Aerosmith set to do so in the coming year. There have also been several music

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The Indian Entertainment and Media Industry - A Growth Story Unfolds

Others

festivals such as the jazz festival ‘One Tree Hill’ in Mumbai. These events as well as the marketing surrounding them increases the general interest in music thus benefiting the music industry. Flourishing FM radio industry The radio is the ideal low-cost marketing platform for music launches. Driven by the launch of 250 new private FM radio stations as part of government’s second phase expansion plans, the FM radio industry has been registering an extremely high growth in the last two years. Within this year, all the 250-odd private FM stations will be operational. Further, the Government has already initiated the processes for bidding the balance 90-odd stations and strongly indicated the possible rollout of another 700 FM stations in the third phase which will sustain the high growth rate of the radio industry. The increase in number of radio stations would allow for the marketing of a much more diverse array of music. The current growth of the FM Radio industry is thus a significant boost to the music industry. Remixes and non-film albums Whilst the Indian music industry was once almost completely dependent on film music, recent years have seen a growing market for non-film music. The new platforms for listening to music such as mobile music have increased the scope of Indian listeners thus creating a market for non-film music. Over the years, the shelf life of new albums has shrunk considerably creating a demand for remixes of the original soundtrack or album. A notable feature is the fusion of Hindi songs with English songs and the inclusion of international artists in Indian remixes such as the recent remix of Robbie Williams’ song “Rock DJ” featuring vocals by Asha Bhosle.

Music videos The growing popularity of music videos has created an excellent platform for marketing music. These videos are also available in digital form on mobile phones, i-pods etc. thus increasing their popularity and reach.

Organised music retailing Specialised music stores- such as Planet M, Rhythm House, Groove, Music Worldby music production companies, bundling offers with cinema tickets and other promotional merchandise, tie-ups with coffee chains are some of the examples of corporatisation of the distribution segment of the music industry. An organized retail chain for music helps reduce piracy by increasing availability of legitimate content. The Government allowing limited FDI in retail has provided a further filip to the growth of organized music retailing in India.

Overseas potential The increasing popularity of Hindi movies overseas amongst the growing Indian Diaspora has created a parallel market for the Indian music industry

Compilation albums and singles One of the major deterrents to a rise in sales of CDs and cassettes has been the album concept. Consumers do not want to purchase an entire album just for one song. Hence consumers prefer downloading digital music which allows them flexibility to choose only the songs that they want for purchase. In order to boost

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physical sales the music industry is promoting the release of compilation albums containing several hit songs and singles.

Corporitisation of film industry The Indian music industry is highly dependent on the film industry with 40% of sales coming from new Hindi film music. The corporatisation in the film industry would have a beneficial effect on the music industry, as they jointly move towards a more equitable revenue and risk-sharing model.

Industry Size It is strongly believed that the growth of the music industry in the coming years will be driven by distributing it over the digital medium rather than the current physical medium. To harner this robust growth potential, the current music formats will have to be digitized for appropriate content monetization. However, the pace of change required for this purpose by the Indian music industry has been slower as compared to the development in the rest of the world. Further, the beneficiaries of the growth in digital music have largely been the mobile operators and the digital music distributors. Thus, the actual growth for the Indian music industry has been low and is expected so in the immediate future unless the current business models are adapted suitably in favour of the Indian music industry. Overall, the Indian music industry is projected to increase by 4 percent over the next five years on a cumulative basis. This projected growth of 4 percent is the combined growth of both physical music sales and share of revenues from digital music which will be distributed via mobiles and online music sales.

Source : Industry Estimates & PwC Analysis. Key International Trends Global spending on recorded music rose by 1.2 percent in 2005, its second consecutive increase following four years of decline. Mobile music and licensed digital distribution services fueled the recovery while spending on music in physical formats decreased in most territories except Latin America. Mobile music and licensed digital distribution are projected to

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drive spending during the next five years, steadily replacing the physical market. Spending is projected to expand from $37.1 billion in 2005 to $47.9 billion in 2010, a 5.2 percent compound annual increase. Growth in digital distribution and mobile music will drive spending in each market, offsetting further declines in spending on physical formats. Digital distribution will be fueled by rising broadband subscribership, the launch of new services, content availability and attractive pricing. An expanding wireless universe, upgrades to next-generation wireless networks that can support high-capacity applications such as music, and the migration of the market from ring tones to higherpriced ring tunes will drive mobile music spending. In Asia Pacific, the world’s largest mobile music market, mobile music will surpass physical

Newspaper Publishing Market (US$ Milions) Region United States

2001

2002

2003

2004

2005p

2006

2007

2008

2009

2010

13,741

12,643

12,025

12,762

12,270

12,639

13,250

13,845

14,299

14,739

% Change EMEA

-4.1

-8.0

-4.9

6.1

-3.9

3.0

4.8

4.5

3.3

3.1

15,034

14,731

13,989

13,880

14,002

14,616

16,301

16,209

17,193

18,160

0.4

-2.0

-5.0

-0.8

0.9

4.4

4.7

5.9

6.1

5.6

8,222

8,048

7,764

8,120

8,739

9,447

10,287

11,048

11,537

12,002

% Change Asia Pacific % Change

-4.7

-2.1

-3.5

4.6

7.6

6.1

8.9

7.4

4.8

3.7

Latin America

1,133

1,063

942

1,167

1,277

1,395

1,538

1,663

1,743

1,899

% Change

-17.5

-6.2

-11.4

23.9

9.4

9.2

103

7.5

5.4

9.0

878

805

784

770

835

868

911

967

1,046

1,127

Canada % Change Total

-5.8

-8.3

-2.8

-1.8

8.4

4.0

5.0

6.1

8.2

7.7

39,008

37,290

35,604

36,699

37,123

38,965

41,287

43,722

45,854

41,927

-3.0

-4.4

-4.8

3.4

1.2

5.0

6.0

5.9

4.9

4.5

% change

2006-10 CAGER 3.7 5.3 6.6 8.3 6.2 5.2

Source: PwC Global Entertainment and Media Outlook distribution in 2010. Meanwhile, antipiracy initiatives are beginning to yield results, and we expect incremental losses to piracy will moderate. However, physical formats will face growing competition from licensed digital distribution and from distribution of full tracks to wireless devices.

United States •

Attractive prices, ease of use, rising broadband penetration, and improved search facilities will continue to drive digital distribution.

•

New handsets and the rollout of next-generation wireless networks are facilitating the distribution of actual songs to mobile devices, thereby propelling the mobile music market.

Entertainment and Media A Growth Story Unfolds •The Indian The overall physical market is beingIndustry replaced -by digitally distributed products.

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•

The recorded music market will expand at a 3.7 percent compound annual rate to $14.7 billion in 2010 from $12.3 billion in 2005.

•

Growth will be fueled by rapidly expanding digital sales that will offset declines in the physical market. Physical distribution will drop from $11.2 billion in 2005 to $8.5 billion in 2010, a 5.4 percent compound annual decrease.

•

Physical album sales—excluding singles and music videos—will fall to $8.0 billion in 2010 from $10.6 billion 2005, a 5.5 percent decline compounded annually.

•

The traditional physical singles market—supplanted by digital singles downloads—will virtually disappear, dropping from $24 million in 2005 to only $5 million in 2010.

•

Music videos—distributed in the U.S. on DVD and VHS rather than CD—will decline by 3.5 percent compounded annually to $503 million in 2010.

•

Licensed digital distribution will rise from $653 million in 2005 to $4.9 billion in 2010, a 49.5 percent compound annual increase. From a 5 percent share in 2005, digital distribution will constitute 33 percent of recorded music spending in 2010.

•

Mobile music will advance at a 26.7 percent compound annual rate to $1.4 billion in 2010 from $422 million in 2005.

•

Digital distribution and mobile music together will constitute 42 percent of industry spending in 2010.

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•

The launch of new digital distribution services and growth in the number of broadband Internet subscribers will fuel digital download spending.

•

Efforts to combat piracy are beginning to yield meaningful results in 2006 and are slowing the steep erosion of the physical market, but competition from licensed online and wireless services will continue to cut into spending on physical music.

•

Wireless telephone carriers are using music to drive customers to their 3G networks, but approaching wireless saturation in many European countries will moderate growth in mobile music spending.

•

The downward trend in the recorded music market stabilized in 2005 as large gains in mobile music and an emerging digital distribution market offset continued declines in physical distribution. Overall spending will build on the momentum generated in 2005 and expand at a 5.3 percent compound annual rate to $18.2 billion in 2010.

•

Physical distribution will continue to decline, but—helped by intensified antipiracy efforts—at a more moderate, 3.1 percent rate compounded annually, falling to $10.3 billion in 2010 from $12.1 billion in 2005.

•

Licensed digital distribution will become a significant component of the market, rising to $3.2 billion in 2010 from $154 million in 2005.

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•

Mobile music will grow from $1.7 billion in 2005 to $4.6 billion in 2010, a 21.3 percent compound annual gain.

•

Mobile music and digital distribution together will constitute 43 percent of recorded music sales in 2010 compared with 14 percent in 2005.

Asia-Pacific •

Fueled by the shift to full-length songs, mobile music will become the dominant component of the industry, surpassing physical distribution in 2010.

•

Piracy will continue to cut into sales, but improved enforcement, combined with an increasingly more sophisticated and enabled economy, will lessen its incremental impact as antipiracy efforts begin to yield results.

•

The licensed digital distribution market has been tiny to date but will begin to grow rapidly as new services enter the market and as increased content becomes available.

•

Physical distribution will continue to decline during the forecast period, falling by 4.7 percent compounded annually to $5.2 billion in 2010 from $6.6 billion in 2005.

•

Mobile music will become the largest component of the market in 2010, totaling $5.8 billion, up 22.8 percent on a compound annual basis from 2005.

•

Digital distribution will grow to $1.0 billion by 2010 from $32 million in 2005, a 99.1 percent compound annual gain.

•

The market as a whole will expand from $8.7 billion in 2005 to $12.0 billion by 2010, a 6.6 percent compounded annual increase.

Future Outlook Growth in digital distribution and mobile music will drive consumer spending in the future which will offset the declines in spending on physical formats. Digital distribution in India will be fueled by the growth of mobile phones and the attractive pricing related to music downloads. However, piracy will continue to dampen the growth of the music industry, though anti-piracy initiatives will help losses to piracy to be moderate. However, physical formats will face growing competition from licensed digital distribution and from distribution of full tracks to wireless devices.

Future Outlook for India •

The music industry is set to be dominated by digital, especially mobile music in the coming years. It is hence important for the music content providers to negotiate better deals for themselves so that they can benefit from the boom in this segment.

•

The fight against piracy will continue with the IMI continuously increasing their efforts. The International Intellectual Property Alliance has suggested the creation of a national anti-piracy task force as a priority.

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FDI if allowed in retail in the music segment could help in creating an organised retail system.

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Indian Animation Industry Animation had an early start in India when Dadasaheb Phalke made one of the first stop-motion films animating coins and matchsticks as early as 1914. Subsequently the medium stagnated until 1956 when the Films Division of the Government of India setup the Cartoon Film Unit. Though the Indian animation was initially slow to take-off, it has now become a fast emerging sector with high growth rates. Technological advancements and the growing use of animation in media and entertainment has led to healthy growth rates in the entertainment segment of the animation industry, which makes up for 67 percent of the total animation industry. The Indian animation industry generates maximum revenue from outsourcing, but there is a growing demand for development of animation content, for local markets.

Entertainment Segment The Indian animation industry has three segments - Web designing, Entertainment and E-Education. Within the Entertainment segment there are four segments – TV/ Broadcast, VFX, Movies and Direct to DVD.

Source: Nasscom The entertainment segment accounts for 67 percent of the animation development market in India, with a number of companies catering exclusively to this segment. This share is expected to decrease marginally to 63 percent over the forecast period, as newer segments of E-education and web-designing gain traction but still remain the largest segment for animation driven by demand for animated movies and television content.

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Share of Indian Entertainment Segment in Indian Animation Industry Drop by 4 percentage points

Source : Nasscom

Key Developments & Growth Drivers Growth in number and quality of training institutes. Training institutes imparting training in animation are slowly improving their training methodologies. It is expected that in future these institutes will create increasing number o f production-ready people. The demand for training is increasing in the market because of the skilled manpower in the industry. Some of the institutes currently conducting courses in animation are Arena Multimedia, Maya Academy of Advanced Cinematics, National Institute of Design, Takshaa and Whistling Woods International. Although the current scenario as far as human capital development for the animation industry is on the upswing, there is potential for further improvement. Currently there is some Government involvement in training in the animation industry such as with Toonz-Webel Academy and KINFRA, both run as a Public Private Partnership. Indian training institutes are also starting to engage in collaborations with foreign universities to improve the quality of their courses. Animaster has a collaboration with Algonquin college Canada, while Whistling Woods and Picasso animation have alliances with Seneca College of Applied Arts & technology, Canada and Centennial College, Canada, respectively.

Mergers and Acquisitions Like many other segments in the Entertainment & Media Industry, Animation too has seen quite a few mergers and acquisitions in the past few years, some of which have seen Indian companies buying overseas in order to obtain international market knowledge and skills as well as leverage the marketing capability of the overseas companies and target international clients. Some of the select deals in this segment in 2006 include: De Shaw’s investment in Crest Animation Studios of Rs. 400 million and in its US subsidiary Rich Crest of Rs. 700 million Maverick Productions bought a 51 percent stake in Mumbai based Sankranti creations, a mid-sized animation firm. Prime Focus acquired a 55 percent in the UK based media service company, VTR group. DQ Entertainment alongwith French Company CGI Films formed joint venture with Onyx films, a France based Animation Company for production of 10 high-end computer generated feature films with an initial investment of Rs. 90 million.

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DQ Entertainment also acquired a 20 percent stake in the France based TV production house, Method Films by investing Rs. 150 million Color Chips acquired Militoon Animations, a 100 percent subsidiary of European Animation major Millimages of France. Waygate Capital and Biren Ghose formed a joint venture Kahani which aims at acquiring a Chinese animation studio, venturing into satellite distribution of animation series for kids and co-producing an animation feature with Virgin Comics and filmmaker Shekhar Kapur

Continued growth of Animation Outsourcing Of the total revenues generated by the Indian studios, approximately 70 percent comes from undertaking outsourced work. India is a hot destination for animation outsourcing mainly due to the cost advantage and talent offered by the country. It is estimated that foreign production houses can save up to 60 percent of their costs by outsourcing work to India. India also benefits from the advantage of having a high number of professionals proficient in English which makes it a preferred destination to other competing countries like Philippines and Taiwan. The Indian animation industry has produced world-class animation content with many Indian studios able to procure animation projects from big foreign production houses. In 2006, Indian animation companies continued to contribute to several large-scale foreign films. Frame Flow worked on the Hollywood movie ‘Ghost Rider’. Virgin Animation Ltd. worked on Guy Ritchie’s ‘The Gamekeeper’, while Rhythm & Hue was involved in the production of ‘The Chronicles of Narnia’. The animation outsourcing market is set for healthy growth over the next few years with several major film production houses such as Walt Disney, I Max, Sony Pictures, Warner Bros., Paramount, 20th Century Fox etc. all moving towards outsourcing of animated content. The majority of the outsourcing work comes from off-shore, mainly from the U.S. and Europe.

Source : Nasscom

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Growth of Global Animation Industry Since, a large percentage of animation work done in India is for offshore clients, the Indian Animation industry is greatly influenced by the global scenario. An upswing in the amount of animated content produced worldwide results in production houses having to outsource work which benefits the Indian animation industry. The global animation industry is expected to grow at a healthy CAGR of 8.6 percent over the next four years. 75 percent of this industry is comprised of the entertainment segment.

Source : Nasscom

Co-productions Several Indian studios are entering into co-production agreements, picking up a stake in the projects they are executing, in order to ensure long term revenue sustainability. Crest Animation, VCL, Maya Entertainment, Toonz Animation, UTV Toons are some of the studios developing capabilities to focus more on co-production projects. Some of the big co-productions by the Indian animation companies in 2006 include: Leading Indian animation studio Color Chips is working along with UK Based Zoo group and Australian studio Albert Tross productions to create ‘Tales of Tross’ (2D animation, 26 x 22 minutes) in a part service, part coproduction deal. Kerala based Toonz Animation India recently inked an MOU with Mumbai based production house Impact Vision to c0-produce for the first time the grand Indian epic ‘Mahabharat’ as an attractive combination of Animation, Lyrics and Music in Hindi. Virgin Comics, LLC and Kahani World, Inc. an independent animation company based in Toronto, Canada have teamed up to co-produce Secrets of the Seven Sounds, a full length animated feature for kids 7 and up, inspired by the Ramayana. Ittina Animation Studios has formed a co-production deal with U.K. based Uli Meyer Animation to create ‘MonsterMania’, a fully animated computer graphics feature film

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Pre-production and Post-production work execution Currently most of the work outsourced to animation companies is in the production stage of the animation value chain. This work is typically labour intensive and requires less precision. The post-production stage is slowly emerging as a new outsourcing segment. To a lesser extent, animation studios have been executing some pre-production work too. Certain studios are executing end to end projects for their clients. The increase in post and pre production work is fuelled largely by the growing demand for local content.

Growing Demand from Domestic Market Television Presently, most of the animated content shown on Indian television is developed overseas. The overseas content is localized for the Indian channels by dubbing the animated serial in Hindi. Channels like Nickelodeon and Cartoon Network use this format. However, with the increasing focus on the Indian market, companies have started developing content and this is expected to increase. The ‘Mahabbharata’ T.V. show which is currently being produced by Toonz Animation and Impact Vision is a good example of this. In 2006, Virgin Comics, LLC and Kahani World, Inc. an independent animation company based in Toronto, Canada teamed up to coproduce ‘Secrets of the Seven Sounds’, a full length animated feature for kids 7 and up, inspired by the Ramayana. Other examples of animated television content created especially for the Indian market are Vikram and Betaal, and Krishna by Green Gold Animation, J Bole Toh Jadoo by Graphiti Multimedia etc. Over the next four years the growth in domestic demand for TV/Broadcast animated content is projected to grow at a CAGR of 49.5 percent as compared to a CAGR of 13 percent for the total demand, taking it from under 10 percent of the total market to 30 percent.

Source : Nasscom

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Movies Indian mythology continues to be a major source of stories for domestic animated films. Some of the major films produced or under production stage in 2006 were ‘Hanuman 2’, ‘Krishna’, ‘Geet Mahabharat’, ‘Ghatothkach ‘, ‘Shakuntala’, ‘Bheem’, ‘Lava Kusa’, etc. Color Chips Ltd. allocated approximately Rs. 45 million for the preproduction of ‘Krishna’. Rayudu Vision has allocated around Rs. 225 million for ‘Lava Kusa’, while ‘Hanuman’ has been allocated approximately Rs. 100 million. Over the next four years, the market for fully animated movies for the domestic market is likely to match the offshore segment, growing from its current size of Rs. 650 million to Rs. 3,400 million.

Source : Nasscom

VFX Apart from fully animated movies, several other Bollywood and other local productions make use of animated content. Prasad EFX has worked on the visual effects of movies like Krrish, Vivah, Vettaiyadu, Villayaidu, Vattaram and others. Prime Focus Ltd. has also executed visual effects sequences for films of the likes of Jaan-e-man. Visual Computing Labs worked on BAFTA nominated ‘Rang De Basanti’ as well as box-office blockbuster ‘Dhoom’. VFX is the one segment in which domestic demand for animated content is much higher than demand from offshoring. The domestic demand in this segment is expected to grow from the current Rs. 900 million to Rs. 2700 million at a CAGR of 32.5percent.

Source : Nasscom

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Direct-to-DVD Segment Currently the domestic demand for animation content in this segment is absent with all the work being done fore foreign production houses. However, the fast growth of the Home DVD market in India is expected to result in Indian production houses making movies directly for DVD to save costs. This will result in the development of some domestic demand for animated content in the Direct-to-DVD segment. The total size of the segment is Rs. 1,500 million and is expected to grow to Rs. 2,900 million by 2010, with domestic demand contributing minimally.

Source : Nasscom

Growing number of animation studios The Indian animation industry currently comprises of approximately 300 studios. The industry employs a total of 12,000 professionals. Two of the major road-blocks faced by the animation industry are the lack of experienced professionals, with only 1,000 out of the 12,000 employed estimated to be experienced and well trained artists, and the small size of the animation studios. Only 12 out of the 300 animation firms in the country are large studios with more than 150 artists. These challenges are currently being met through growing focus on training of professionals is animation and convergence of firms leading to bigger studios.

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Industry Size The Entertainment segment of the Indian animation industry is currently estimated to be worth Rs. 11 billion. This is expected to increase to Rs. 29 billion by 2011 growing at a CAGR of 22 percent over the next five years. A noticeable trend is the increasing contribution of the domestic segment to the total market. The domestic segment is expected to touch the Rs.10 billion mark by 2011.

Source : Nasscom Currently the Television, broadcast segment contributes most to the total industry and is worth Rs. 6 billion. The fully animated film segment will have the highest CAGR of 33 percent growing from Rs. 1.9 billion in 2006 to Rs. 8 billion. The percentage contribution of the VFX and Direct-to-DVD formats will also increase slightly with VFX growing from Rs. 1.1 billion to Rs. 4.6 billion and Direct-to-DVD growing from Rs. 1.5 billion to 4.3 billion.

Source : Nasscom

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Percentage share of various segments in Entertainment segment of Indian Animation Industry

Source : Nasscom

Gaming Gaming, especially mobile gaming is becoming an important industry in India, fuelled primarily by the growth of mobile phones. The online gaming segment is also growing rapidly due to increased internet availability and usage. Growing demand for domestic content is also adding impetus to the growth of the Gaming industry which includes PC gaming, console gaming, mobile gaming and online gaming.

Mobile Gaming Mobile gaming accounted for approximately half of the Indian gaming market in 2006 and the same trend is expected to continue in the future, with only a marginal decrease due to increase in the shares of console and online gaming. Share of various segments in Indian Gaming Market

Source : Nasscom

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Mobile gaming is experiencing growth due to increasing demand from both the domestic market and offshore outsourcing work. The market size is expected to grow at a CAGR of 69.5 percent from 2006 to 2010.

Source : Nasscom Most of the outsourced work done by Indian gaming companies in the mobile gaming segment is in the Porting (making games compatible with handsets) and Testing phases of the gaming value chain, with porting accounting for 75 percent of the outsourced work. India offers a cost advantage of almost 100 percent to companies outsourcing their porting work and also offers the advantages of strong technical and engineering capabilities. Several small companies like Small Device Technologies, in India specialize in porting. With the arrival of 3-D mobile gaming, India can expect more outsourced work in the graphic designing phase. Since mobile games have relatively shorter development cycles, some companies like Jump Games engage in end-to-end third party development services. There is also a rise in domestic demand in the mobile gaming market buoyed by the increasing number of mobile subscribers in India (growing at 53.7 percent CAGR from 2002-2010), an increase in the number of game-capable handsets and high focus of service providers on Value Added Services (VAS). This growth of mobile gaming in India is helping developers move up the value chain and adopt the role of publisher, creating their own IP in mobile games. This segment is expected to see the emergence of B2C model and an increase in mainstream advertisements.

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PC and Console Gaming The PC segment is expected to witness a growth in value terms from Rs. 250 million to Rs. 2 billion, but due to higher growth rates of other segments, its contribution to the total gaming market is expected to fall by one percentage point in the same period. The console game market is expected to witness an impressive CAGR of 75.2 percent over the next four years, increasing its share in the total gaming market to 30%.

Source : Nasscom The animation and artwork development phase of development account for one third of the total development costs for PC and console games and it forms the major chunk of the outsourced work in PC and Console segment and due to introduction of next generation artwork assets this offers increasingly higher potential to Indian companies. Certain Indian companies such as RelQ are focused on offering testing activities for console games. Since the development cycle in this segment is long and due to cultural differences between different geographical regions, end-to-end game development is not outsourced to Indian companies. Also core activities like programming are generally not outsourced. A significant growth is expected in the domestic market for console games mainly due to the launch of next generation consoles in India. The Xbox 360 was launched by Microsoft in India in September 2006 and this expected to be followed up by the launch of Sony’s Play station 3 in 2007. Industry estimates that the Indian market will have an installed base of half a million consoles (only the legitimate sales i.e. excluding the large grey market) by the end of 2007. This expected to be achieved with the help of promotions and publicity for the consoles as well as making available easy payment options to buy consoles. After working on the Xbox 360 game Project Gotham Racing 3 in late 2005, Dhruva Interactive were part of the development of Battlefield: Modern Combat in 2006, also for the Xbox 360. They were also involved inn the development of the game Asterix & Obelix XXL2: Mission Las Vegum, which is a PS 2 game. After successfully undertaking projects in the development of games like Tradewinds Legends and revamping the ‘Kingdom of Drakker’ game, Lakshya Digital signed a huge deal in 2006, to work on the development of a console game based on a top rate U.S. television series.

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Online gaming Over the period 2006-2010, the online gaming development market is expected to witness a CAGR of 82.7 percent and is estimated to reach Rs. 2.600 billion by 2010. Online gaming accounted for 11 percent of the overall gaming development market in India in 2006 and this share is expected to increase to 14 percent by 2010.

Source : Nasscom This growth is primarily due to growth in consumer demand for online games and entry of online publishers and portals, who are expected to source a larger percentage of games from India, as compared to 2006. In 2006, this percentage was minimal; however, it is expected to increase to around 75percent by 2010 with the improvement in quality of games developed in India. Much of the growth will be domestically driven as in case of online gaming market, only a small amount of work is currently being outsourced to India. The demand for online games is growing largely due to the growth in internet usage. The number of active internet users rose to 21 million in 2006, with a significant percentage being in the college student or young adult category, which is the major target audience for online games. Faster internet speeds and the growing number of broadband connections (780,000 in 2006) are also providing impetus to the online gaming market. Many Indian publishers in the online segment have started their own gaming portals, such as zapak.com (supported by Reliance, which plans to invest Rs. 4.5 billion in the gaming space over a period of 3 years) and games2win.com (focusing on casual games). Moreover there are other upcoming portals such as Gametantra by Dhruva Interactive, Kreeda (focusing on MMOG segment). These publishers presently get most of their games developed abroad or they develop their games inhouse. However, with the improvement in quality of the Indian game developers and the exisiting cost advantage of Indian developers, their share in online gaming revenues from the domestic market will increase. Another driver of the online gaming market in India is the new concept of ‘Game on Demand’, which enables users to download games on demand along with the security features, which prevents piracy. This concept has been adopted by Indiagames in India. The focus of Indian online gaming is on casual games for the Indian market such as games based on cricket and the other popular concepts in India, followed by MMOGs. Most of the upcoming portals plan to increase the market by introducing

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casual games, such as ‘Pool on the Net’ (a 3 D game) by Dhruva and ‘Kis-mat’ by games2win, since the market is in a nascent stage currently. In the future, they plan to introsuce more hardcore games once the gaming culture becomes prevalent in India

Challenges Low share of revenue Indian mobile game developers presently get only a 20-30 percent share of the revenue generated by the game, which is very low compared to the global market. Developers in Japan get around 70-80 percent shares of revenue. With the emergence of the B2C model, alternative payment mechanisms and rationalization of revenue share, this situation is expected to improve in the future.

Fragmented industry The Indian Gaming industry is made up mostly of small companies. Only 6-7 game development companies have over 100 employees, with over a 100 out of the estimated 150 developers having less than 50 employees. The total number of employees in the industry is estimated to be around 2500. The fragmented nature of the industry makes it difficult for the small developers to work on large projects, especially end-to-end game development projects.

Industry Size The Indian Gaming Industry is currently worth around Rs. 2 billion and is expected to grow at a high CAGR of 68 percent to Rs. 28.5 billion in 2011. The online and console segments have the highest growth rates. While the share in the total market of mobile games and PC games will reduce, these two segments will also grow steadily in absolute terms.

Source : Nasscom

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Internet Advertising Internet advertising is a huge opportunity in India, a country which was an integral part of the dot. com boom and continues to be one of the major IT forces in the world. In 2006, it is estimated that 32 million people in India have used the internet at some point in their lifetime while 21 million people are regular/ active users. This figure is continuously growing thus creating a budding market for internet advertising.

Growth Drivers Growing number of internet users The number of PC literates in India has grown by 270% since 2000 creating a base of 59 million potential internet users. Of these, 32 million people have used the internet at one point of time or another. This figure has increased significantly recently from only 16 million in 2004. Thus now every second PC user in India (54%) has used the internet. 66% of these 32 million are active users of the internet.

Source: IAMAI (Surveys were not conducted in 2002 and 2005) PC Literates: are defined as those who know how to use a PC. While this term does not signify the extent of PC usage, it essentially means that a computer literate is able to work on a PC without any assistance Ever User: is someone who has used the internet at any point of time Active User: is someone who has used the internet at least once in the last one month The number of users is expected to further grow in the coming years and industry experts are looking at a figure of 50+ ever users and 35+ active users by 2008.

Source: IAMAI

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Growth in Internet Connections and Internet Subscribers The number of internet subscribers is growing steadily and has increased from just 620,000 in 2000 to over 2.9 million in 2006. 76% of PC owners currently own an internet connection.

Source: IAMAI The growth in Internet subscribers especially in 2006, can be attributed to faster and cheaper internet access driven by broadband technology. Currently broadband connections account for 27% of total connections, but they are growing rapidly and are expected to overtake dial-ups by 2009 and account for 75% of the connection by 2010. Rapid growth in Broadband Connections

Source: IAMAI

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Trends in Internet Usage Small towns and non-metros have been witnessing a growing internet user base. They now account for 39% of the total number of internet users as compared to 25%, just two years ago. This means that marketers can target quite a broad geographic area through internet marketing.

Source : IAMAI A majority of the internet users are from the richer segments of society. Hence internet advertising is mainly restricted to higher end products.

Source : IAMAI 69% of internet users are between 18-35 years of age. This young, technology savvy generation is accustomed to keeping in touch instantaneously via instant messaging, sms and email. 37% of the internet users are either school or college students. This is a key segment for adver tisers and can be targeted during school holidays, screening of children’s films etc. There has been an increase in internet usage amongst Indian house wives. They now account for 9% of total users. This creates a new opportunities for advertisers to market household goods.

Source : IAMAI

The number of daily users has increased to 28%, while another 18% using the internet 4-6 times a week. Currently 87% of the users use the internet at least once a week. This shows that the internet is becoming an integral part of the lives of users thus opening up huge opportunities for advertisers.

Source : IAMAI

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The number of users who use the internet exclusively for chatting and e-mail purposes is gradually reducing and users are expanding in to various other applications. The increase form 20% to 33% usage for information and education purposes over the last five years is indicative of the growing use of internet in offices and educational institutes.E-commerce is yet to kick off in India, but is slowly emerging as a new segment. The success of E-commerce is vital to the growth of Internet advertising as advertisers would be more inclined to advertise for a product on the internet if they had an opportunity to make an immediate sale.

Source : IAMAI

Internet users access the internet from more than one point indicating that they use the medium for a plethora of activities and not just for work.

Source : IAMAI

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Industry Size Globally, internet advertising is emerging as one of the fastest growing segments of the entertainment and media industry. The share of the internet, in the total ad spend, is also steadily increasing, which can be seen from the table below:

Source: PwC Global Entertainment and Media Outlook

The Indian Internet industry grew by 60% in 2006 to INR 1.6 billion. The industry accounted for 1% of the total ad spend. This contribution is expected to increase in the coming years, due to increasing internet usage and the industry is expected to grow at a CAGR of 43% over the next five years to INR 9.5 billion in 2011.

Source: Industry estimates and PwC analysis

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Out of Home Advertising The Indian Out-Of-Home (OOH) advertising industry is being recognised as an effective medium for executing creative ideas. The advertisers who now use it understand that outdoor displays are much more than flat surfaces that boringly convey your brand or idea. Though the industry has taken some steps towards becoming more professional and organised, a total lack of laws and regulations means that it is still largely fragmented. Outdoor media sites in India are predominantly owned or operated by small, local players and are typically, directly marketed by them to advertisers and advertising agencies.

Key Developments and Growth Drivers Technological Innovations The most significant development in the out of home advertising industry in the past few years has been the several technological advancements that have taken place allowing advertisers a much broader scope for creativity and getting their message across to the target audience. One latest innovation is the convergence between billboards and mobile phones wherein an sms alert would be received by a cell phone user when the person passes a particular billboard. This technology is already being used in the U.S. and is currently under development in Bangalore. LED billboards are also driving the market. These are brighter than conventional billboards and require less electricity and can be changed from a central location. GPRS and GPS are also being used in OOH advertising in buses and bus shelters. Currently, Plasma Technology, LED Technology, Holo-FX (a proprietary 3-D holographic system), Ambient Projection systems, World Class Signage Designs and materials and various other technologies are being used in the Indian OOH industry. However the technology used is still not as state of the art as that used globally mainly due to the unorganized nature of the industry and unwillingness of advertisers to spend extravagant amounts on out of home advertising.

Client perception Clients used to look at OOH simply as a support medium and something that served as a reminder after print and television ads have done their job. Today, it is being used increasingly as a client-building medium in addition to being a reminder call. There are companies who focus their advertising budget on this medium. The best example of this would be the launch of Reliance Mobile on OOH. The launch was done simultaneously in 110 cities. It later went on to cover a total of 567 cities. 410 vendors were used to provide the various advertising products. A total of 12 lakh square feet of printing space was covered. 1700 billboards were put up. 45 different kinds of medium were used, that ranged from hoardings to glowsigns to building wraps. In some places a 100-ft cutout of the handset was used.

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Increasing workforce Another key factor contributing the growing importance of OOH advertising is that the number of people who go out of the house has increased. More people go out of the house to make a living and hence are targets for outdoor advertising. In metros, mobility has significantly increased thus making OOH advertising very important in the overall advertising plan.

Creative flexibility The out-of-home or OOH medium allows for extended creativity and provides images available from a distance. Current imaging technology provides diplays that were not possible earlier by hand-painting thus allowing more scope for creativity. A good example of using the technological advancements in the OOH medium to come up with a creative campaign was the Hutch Music Campaign in Delhi and Mumbai wherein advertising company Ogilvy created a rotating record on a billboard thus giving life to a flat screen.

Impact medium OOH displays are designed to grab people’s attention while they drive or walk. OOH advertising is an effective way to remind the audience of the product being advertised. This works as an impact medium for national advertisers as it reinforces the impact of a particular brand. Amul has used this well by putting up billboards featuring jokes and puns on current affairs at regular intervals.

Attracts local advertising OOH advertising successfully focuses on the target audience. Due to the localized nature of the medium, this medium turns out to be relatively cheaper and costefficient for local advertisers than other broad-based regional or national media.

Organisation & Professionalism in the industry The OOH market is highly fragmented and is dominated by small local players, each owning/ operating very few properties. There are also no regulations or laws governing the industry thus making it quite unprofessional and disorganised. However off late, there have been some positive steps taken towards making this industry more professional. Large groups such as the Times of India Group, Jagran Group and STAR Network have entered the OOH space. This is in keeping with the global trend of media giants owning media. Also there are plans for the establishment of an industry body under the name of Indian Outdoor Advertising Association (IOAA).

Concentrated in metros and large towns A successful OOH vehicle requires a minimum critical mass of targeted audience. As a result, this medium finds widespread acceptance for large advertisers in metro cities and a few large towns. With increased incidence of advertising spends by local advertisers, the attractiveness of OOH in smaller towns could increase.

Better infrastructure Infrastructure is very important for the out-of-home advertising industry as world class outdoor formats must go hand-in-hand with the cityscape and must form part of the city. The impact of infrastructure development on the OOH advertising industry can be gauged from the fact the Delhi metro alone earned an estimated INR 30 crore in 2006 thus springing the growth rate of the city’s OOH industry to 20% (higher than Mumbai’s.)

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Favourable shares in total ad pie Today, the Indian OOH market is estimated at INR 10 billion and accounts for 6 percent of the total ad spends in India. As shown by the two table, the OOH spends in India compared favourably to the global ad spend in terms of percentage of the total ad spend.

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Based on these figures, if the Indian OOH industry is able to maintain its present share of 6 percent in the growing ad pie, it is likely to grow to around Rs. 21 billion by 2011 from its current size of Rs. 10 billion.

Source : Industry estimates & PwC analysis

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Live Entertainment The live entertainment industry (also known as the “events management industry”) comprises a wide gamut of on-the-ground events that include corporate events, felicitations and contests, festivals and personal events.

Source: Industry estimates Portfolio of Events in 2006-07 Sub segment Corporate

Facilitative/ Competitive

Arts

Sports

Festivals

Personal

Genre Examples in 2006
Product launches/
Wills Lifestyle India Product promotions Fashion Week 2006
Training/ meets
S. Kumars launches
Annual parties Belmonte brand
Exhibitions/ trade fairs
WNEC India Conference Celebrity management
Awards
Filmfare Awards
Contests/talent searches
MTV Awards
Beauty pageants
Femina Miss India th
Film
37 IFFI 2006 Goa
Theatre
Prithvi Theatre Festival
Music
Bryan Adams, Roger
Dance Waters, Channel V and other concerts.
Fever Nites (Dance festival)
Sporting events
ICC Champions trohy (individual and combined) 2006
ATP Kingfisher Mumbai open
Government sponsored
Goa Carnival
Festival of Kerala
Kumbh Mela
Rajasthan Desert Festival
Birthday parties
Bombay Times Party
Wedding parties and related functions
General parties

Source: Industry estimates

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As the market grows, event managers will have to extend their services to new sectors and niche segments. While this industry in India is still evolving, Indian event managers have clearly demonstrated their capabilities in successfully managing several mega national and international events over the past few years. However, issues like high entertainment taxes in certain states, lack of world-class infrastructure and the unorganized nature of most event management companies, continue to hinder growth in this segment of the industry.

Key growth drivers Ability to move up the value-chain The event management value chain comprises the following: Execution

Marketing

Creativity

Ownership

Most event management companies started off with expertise in executing events. Over a period of time, some event management companies have contributed significantly to marketing events including obtaining sponsorships, promoting the event on various media, etc. The next step for these companies is creating new event properties for their customers and thereby, offering a complete marketing solution to their clients. Finally, event managers could become owners / partowners of such properties. This progression up the value-chain could result in creating a strong, profitable and sustainable event management business.

Event Management integral to any marketing plan Integration of live events into marketing plans is increasing at a rapid pace in India. Indian marketers are using a combination of sales promotions and advertising for marketing their products. Experiential marketing (largely through live entertainment /events) has begun to emerge as a key element of the sales promotion spends of marketers.

Growth of global presence in India’s corporate sector As Indian companies globalize, new foreign brands enter India, and marketing managers realize the increased effectiveness of focused brand launches and promotions, the largest sub-segment - corporate events – is poised for tremendous growth.

Increased share of organized sector in live entertainment The live entertainment business has recently seen the entry of a number of organized players from the media and advertising agency space. Moreover, the size and scale of an event is also increasing. As a result, the organized sector is likely to capture a larger share of the overall live entertainment business.

Creation of New Categories The live entertainment business could benefit from creation of event properties in relatively new categories. Some of the relatively under-explored event categories, which are experiencing or are likely to experience greater number of organized events, are as follows :


Sports – Recent large events include Mumbai and Delhi Marathon, Chennai Open (tennis), Kingfisher Mumbai Open (Tennis), Premier Hockey League,

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ONGC Cup (Football), ICC Champions Trophy 2006 (Cricket). Some important sports event properties in the future include the 2010 Commonwealth Games and the 2011 Cricket World Cup.





Festivals – Some Indian festivals, which are also associated with specific destinations, are being used for creating strong live entertainment properties. These include the Mumbai Festival, the Pushkar Fair, the Khajurao Dance Festival and the Goa Carnival. Reality Shows on Television – Event properties are being developed around some television reality shows.

In addition creation of new properties such as property melas, industry specific events and trade fairs will also drive growth in this segment.

Rationalization of Tax and Permissions Structures The live entertainment business could benefit from an overall rationalization of tax structures, removal of multiplicity of tax and simplification of the various permissions required to organize events. The recent past has seen a reduction in the levels of entertainment tax across different states. Concerted efforts by the industry in working closely with the respective state governments, could enable rationalization of the tax rates.

Challenges Lack of Adequate Infrastructure for large format events Live entertainment requires large open spaces or large auditoriums, with capacities of over 2,000 people. India’s metros and large cities have a scarcity of such facilities. Hospitality giants like the Taj, the Oberoi, etc. are among the key suppliers of facilities, through their resorts, banquet halls and palaces. However, this infrastructure is still limited from the point of view of large events.

Largely unorganized market The organized live entertainment business has about 10-15 large players. The live entertainment business has a large unorganized component, which comprises approximately 70% of the industry size.

High level of taxes The live entertainment industry has been historically plagued with high entertainment taxes. Presently, different states levy different tax rates with most South Indian states levying lower taxes as compared to the rest of the country However, the recent past has seen a reduction in the levels of entertainment tax across different states. Concerted efforts by the industry in working closely with the respective state governments could enable rationalization of the tax rates.

Multiplicity of Taxes In addition to entertainment tax, an event management company is also required to pay service tax for services secured from ancillary companies supporting the event. This leads to multiple taxation, which also needs to be rationalized.

Multiplicity of licenses and permissions Licenses required for events are very state specific. For example, the State of Maharashtra requires as many as 13-18 government and municipality permissions

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to hold a live event. These include permissions from the police departments (for use of loudspeakers, traffic, etc.), customs (in the event of foreign equipment etc. being used), local municipal corporation and central government, amongst others. This makes the task of organizing events difficult, resulting in this business not achieving its full potential.

Industry Size The size of the organized live entertainment business is currently estimated to be around INR 9.4 billion having grown by around 17% from the previous year. It is estimated that the industry will grow at a CAGR of around 19% over the next five years to approximately INR 22 billion by 2011. This growth is on mainly on account of increased marketing budgets, and an increased focus on the importance of live entertainment, as part of the promotional spends of corporates.

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