Analysis of Media and Entertainment Industry

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Analysis of

Media and EntertainmentIndustry


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Table of Contents Industry characteristics-

Television

Newspapers Films

Radio and music

Key Industry Trends

Revenues Outlook Distribution

Television

Films

Music Newspapers

Analysis on Profitability


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Table Contents

Advertising-internet advertising Advertising-outdoor advertising

Advertising-regionalization Digitisation Project economics-newspaper edition launch Fm phase 3-background Fm phase 1,2 and 3 Fm phase 3-feasibility analysis

Multiplex-background Multiplex-key players Multiplex-feasibility analysis Digitization to alter television distribution landscape


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Industry

characteristics-television


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TelevisionIntroduction

The Indian television industry has come a long way since the launch of

STAR TV and Zee TV in 1992. India, with around 141 million TV

households as of December 2011, is now one of the argest television

markets in the world alongwith China and USA.

There are 831 registered channels (as of March 2012), including 168 pay

channels.

The total Indian television industry revenues stood at around Rs 346

billion in 2011 over Rs 315 billion in the previous year due to a

continued rise witnessed in the advertising revenues.


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This rise in revenues was due to Cable and Satellite(C&S) penetration

which reached close to 80 per cent in 2011 with a healthy growth shown

by the DTH platform during the year.

Television has the widest reach amongst the primary media delivery

channels.

Key listed players in the category include Balaji Telefilms Ltd, Den

Networks, Dish TV India Ltd, Hathway Cable & Datacom, Network 18

Ltd, New Delhi Television Ltd, Sahara One Media and Entertainment

Ltd, Sun TV Network Ltd, TV Today Network Ltd, Wire and Wireless

India Ltd, Zee Entertainment Enterprises Ltd and Zee News Ltd.

TelevisionIntroduction


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Industry structure and characteristics

The television value chain mainly comprises of the content providers,broadcasters and the distributors.Television content providers:Television content providers supply content either on a commissionedor on a sponsored basis (explanation below under 'types of televisioncontent').As their importance is associated with the exclusivity of the content aswell as the reputation of the content house, some of these providers

produce some/all of the content themselves.Television broadcasters:Television broadcasters uplink the content supplied by the contentproviders to a satellite for broadcasting into TV homes.There is intense competition amongst the broadcasters due to the lowentry barriers in this space and the large number of options available to

the viewer.Their current share in the television subscription revenues is around 15per cent which is expected to increase, once the benefits of digitisationkick in.


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Television distributors:The television distributor is a link between the broadcasters and theend consumer.There are around 5,000 MSOs and 60,000 LCOs in the Indian market.This is a highly fragmented and unorganised chain.Further, lack of addressable systems lead to massive under reporting ofthe subscribers at the LCO level.

MSOs, control a number of LCOs and act as a link between the LCOsand broadcasters.Currently, in a largely analogue environment, carriage and placementfee received from broadcasters constitutes a substantial part of therevenues earned by the MSO (40-75 per cent) since LCOs retain amajority share of the subscription revenues by under-declaring

subscribers.Hence, the current share of MSOs in subscription revenues remainslesser.



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Subscribers:

There are around 111 million Cable and satellite subscribers in the

country who pay Rs 100-400 per month towards the subscription

charges depending upon the location.

These subscribers often do not have a choice in terms of subscription

mainly due to the monopoly enjoyed by the local cable operators in their

respective areas of operations.

However, this situation is gradually changing with the increasing

acceptance of digital viewing platforms, particularly DTH.On the cable side too, a shift to digital cable is imminent with the

digitisation deadline mandated by the I&B Ministry.



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Television value chain


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Television contentLow entry barriers in general entertainment

The television content business, especially general entertainment

programming, is characterised by the presence of large number of

content houses and low entry barriers.

Competition and entry barriers are relatively higher in case of niche

content, where exclusivity and intellectual property rights (IPRs) are

involved (e.g., cricket matches)


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Types of television content

Commissioned programmes:

The broadcaster commissions a television content producer to produce

a program in return for a telecast fee. In most cases, the broadcaster

retains the IPRs for the programme.

The broadcaster earns revenue by selling airtime to the advertiser.

The content producer typically works on a cost plus margin basis.

Thus, the broadcaster bears the financial risk, while the television

content producers bear the execution risk.


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Sponsored programmes:

The content producer buys a slot from the broadcaster for telecasting a

programme by paying a telecast fee.

Along with the slot, the producer also gets some free commercial

airtime, which typically ranges between 5-7 minutes for a half hour slot.

The content producer usually retains the IPR for the programme.

The excess/deficit of revenue earned from selling commercial airtime

to advertisers over the telecast fee, production cost of the programme

and any other related cost represents the profit/loss to the producer.The content producer thus bears the financial as well as the execution

risk in this model.

Types of television content


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Television broadcasting

Segmentation of the broadcasting industry

The Indian broadcasting industry can be segmented into two categories:

Terrestrial broadcasting refers to broadcast done through transmittersand received through antennas.The government-owned Prasar Bharti Corporation is the onlyterrestrial television broadcaster in India which operates channels inHindi, English and several other regional languages under the umbrellabrand 'Doordarshan', which is available free of cost.

Satellite broadcasting:Cable and satellite (C&S) broadcasting refers to broadcast through asatellite transponder. Equipment required for reception of televisionsignals include dish antennae, amplifiers, modulators and decoders.C&S channels can be further categorised into the following segments -general entertainment (GEC), regional, movie, news, sports, educational

and spiritual. Several Doordarshan channels are available only through the C&Sbroadcasting mode.C&S channels are either free-to-air (FTA) or pay channels.


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Broadcasters struggle for placement of channels in analoguetransmission

A number of new channels are being launched every year.

Analogue television sets can carry only between 80 to 100 channels

which prompts the broadcasters to pay a fee (called carriage and

placement fee) to the multi-system operators and DTH operators.

The carriage fee is merely to carry the channel while the placement fee

would be to place their channels on the prime viewing bands.

In terms of quality of reception, Prime and colour bands are the best

followed by S-band, hyper band and UHF band.


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Choked analogue networks have made carriage fee payment anaccepted practice

Most cable television networks in India transmit channels in the

analogue mode through a combination of fibre optic and coaxialcables.

Analogue television networks have limitations with respect to the

number of channels that can be carried given the bandwidth available -

a maximum of 106 channels can be shown on an 860 MHz bandwidth.

The ever- increasing number of channels coupled with limited space

availability has resulted in cable networks getting choked.


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Television: Cable Network Capacity & number of channels that canbe provided


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Digitalisation overcomes the bandwidth constraints of analogue

networks and offers better clarity.

With digitalisation, it is possible to offer a minimum of 6 digital

channels in a bandwidth occupied by a single analogue channel.

Therefore, theoretically, if all analogue channels were converted todigital, an 860 MHz cable network would be able to offer up anywhere

from 700 to 1,100 digital channels.

Owing to prevailing constraints, there is intense competition amongst

broadcasters to carry their channels on preferred bands and

consequently, get better visibility.



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In order to ensure that their channels are carried, broadcasters pay a

carriage fee to MSOs and cable operators.

In many cases, a placement fee is also paid to place a channel in an

easy-to-catch frequency and competing channels on hard-to-catch

frequencies.

In a way, payment of a placement fee for cable distribution is

somewhat comparable to paying retailers for shelf space to display

consumer products.

However, the element of carriage & placement (particularly placement)

is expected to reduce, once digitisation is implemented as per the

stipulated timelines and the benefits start to accrue.



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Programming genres available

The content transmitted into Indian homes belongs to diverse genres.

General entertainment content catering to undifferentiated audiences,

such as Doordarshan, Star Plus, Colors, Zee TV and Sony Entertainment

Television in Hindi and Sun & Asianet among regional languages

attract the maximum viewership.

The remaining share of viewership is split across myriad content(ranging from general news and business news to films, music,

children's entertainment, education and spiritual) targeted at specific

audiences.

News and movie channels enjoy higher viewership than other

channels; however, niche channels also draw significant viewership

across specific socio-economic groups.


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Television broadcasting: Different genres and key players


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Television distributionBroadcasters, MSOs / DTH operators and LCOs form the televisiondistribution value chainThe television distribution value chain consists of three main players:

Broadcasters, who uplink the content provided by content providers tothe satelliteMulti-system operators (MSOs) or their franchisees, who downlinksatellite signals and feed the signals into receivers, in case of a FTA

channel OR integrated receivers and decoders (IRDs), in case of a paychannel (In case of DTH, the DTH operator plays a role similar to anMSO, though the content is then beamed directly to the customer'spremises)Local cable operators (LCOs), who control the hybrid fibre coaxialcables that transmit television signals, modulate the output from thereceivers or IRDs and bring the signals to the customer's premises.


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Television delivery mechanism


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Emergence of new delivery platforms changing the balance of power

Increasing adoption of addressable distribution platforms like DTH,

digital cable and IPTV will result in a shift in the balance of power inthe distribution space.

Currently, the LCOs wield enormous clout by virtue of their control

over the last mile and the monopoly enjoyed by them.

The emergence of competition would reduce the bargaining power of

the LCOs.

MSOs and consequently the LCOs to majorly digitise their networks

over time, ultimately leading to a more organised distribution market

and a greater share of subscription revenues for broadcasters.


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Television: Comparison of various delivery media from thesubscriber's point of view


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Television: Comparison of various delivery media from thesubscriber's point of view


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Television revenues and advantages

The television advertising market in India has grown rapidly on theback of increasing television viewership and the number of channels.

While advertising revenues grew by 12 per cent y-o-y to Rs 125 billionin 2011, subscription revenues grew by 9 per cent y-o-y to Rs 221 billionduring the year.The advantage enjoyed by television, over other advertising mediasuch as print and radio, is that television has better audio-visual appeal

and is extremely effective to reach out to large audiences on a cost andreach basis.Fast moving consumer goods (FMCG) players are the largestadvertisers on television.The television industry is expected to grow by around 6 to 8 per centin 2012, aided by increasing digital penetration though advertising

growth would be muted, owing to the subdued macro-economicenvironment.


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Industry

characteristics-newspapers


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NewspapersIntroduction

India, along with China, is one of the largest newspaper markets in the

world where readership is growing despite increasing threat from the

internet.

While 62 million copies were circulated on a daily basis in 2011, the

readership increased by 4 per cent y-o-y to 250 million.

The newspaper industry size was estimated to be around Rs 169 billion

in 2011 and expects it to grow by about 6 to 8 per cent in 2012.

The key players in this industry include Bennett Coleman and

Company Ltd (BCCL), Jagran Prakashan, DB Corp, HT Media andAmar Ujala.


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Industry structure and characteristicsHighly Fragmented industry

The Indian newspaper industry is characterised by extreme

fragmentation and regional diversity. With over 2,000 daily newspapers in the country, no single newspaperdominates national circulation.Out of the total daily newspapers published, around 90 per cent areHindi and other vernacular language newspapers, while the rest are inEnglish.

The newspaper industry can be segmented across languages i.e.English, Hindi and other vernacular languages or across genres i.e.general and business.The content and circulation of English language newspapers are largelyfocused on the large urban markets.Hindi and other regional newspapers have a more local and regionalfocus compared to English newspapers and cater mainly to readers insmaller towns and villages.


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Newspaper: Publication and region of dominance


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Regional newspapers have a higher readership-to-circulation ratio

Circulation deals with number of newspapers sold whereas readership

consists of people who have read or looked at a publication in its

periodicity (that is, the day before for a daily).

Generally, Hindi and regional language newspapers have a readership

to circulation multiple of 4-6 times, whereas English language

newspapers have a multiple of 2-3 times.

The higher readership-to-circulation ratio of Hindi and vernacular

newspapers in comparison with English language newspapers canbe

attributed to the following reasons:


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Historically, the cover price of non-English newspapers has always

been higher than English newspapers.

However, this trend is witnessing a change recently with newHindi/vernacular editions being launched at at a low cover price, inorder to garner a large circulation base.

The rise in literacy rates, increasing demand for region-specific content,

and expansion by players into new languages and geographies (Tier-2and Tier-3 cities) to further enhance readership.

The average reader of a non-English newspaper belongs to a lower

income group than that of English newspapers.

Hence, the tendency of sharing the newspaper among family members

and other members of the community is stronger in case of non-English

newspaper readers.

Regional newspapers have a higher readership-to-circulation ratio


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Supply chain for newspapers

Newspaper publishers in India are yet to be affected by the worldwide

proliferation of the internet.

Newspapers, in physical form, continue to record healthy circulation

growth.

News is a highly perishable product and newspaper sales involve

distributing under severe time constraints.

If a subscriber does not get his daily dose of news in time, he is most

likely to switch over to competitors.

Therefore, having an efficient and responsive distribution network

focused on achieving on-time delivery is of utmost importance in thenewspaper publishing industry.


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Distribution process


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There are three main players in the newspaper supply chain - thenewspaper publisher, distributor and vendors.Once a newspaper is published, it gets despatched to variousdistributors across a region, either through private carriers within thelocal area or public transport/couriers in case of longer distances.The distributors in turn appoint agents/hawkers/vendors who delivernewspapers at the door step of the subscribers or sell newspapers at

their stands.Newspaper publishing companies pay a commission for thedistribution of the newspaper, which is usually around 30-35 per cent ofthe selling price of the newspaper, which is shared amongst thedistributors and the vendors appointed.Generally, the vendors, the last link in the supply chain, get the highest

commission.

Distribution process


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Newspaper revenues

Newspapers earn their revenues from two primary sources - the sale of

advertising space in publications (referred to as advertising revenues)

and sale of newspapers (referred to as circulation revenues).

Newspaper publishing companies report advertising revenues as net

of commission charged by advertising agencies (usually around 15 per

cent) and circulation revenues as net of commission paid to distributors,

agents and vendors.


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Circulation revenues earned by a newspaper are a function of thefollowing factors:

Price, brand strength and distribution muscle of the newspaper

Intensity of competition among newspapers in a market

Quality, relevance and credibility of content


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Advertising revenues earned by newspaper publishers are dependentupon the following factors:

Readership reach (used by media buyers to determine cost per

thousand readers) and profile.

Geographical coverage and positioning of the newspaper Advertising

mix (advertisement revenues are earned from classifieds, displays,

cinema and entertainment, appointments, matrimonials etc.) and level

of advertising in the newspaper.


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Advertising revenues drive the newspaper industry

The newspaper industry grew at 7 per cent in 2011. While advertising

revenues, which are a direct play on overall macro-economic

environment, grew at 7 per cent, circulation revenues grew at a slightly

lesser 6 per cent.

We expect the overall newspaper revenues to increase to around Rs 181

billion in 2012, with continued support from advertising revenues,

which are estimated to grow on the back of events such as the IPL and

the Assembly elections in a few states.


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All newspapers heavily dependent upon advertising revenues

Advertising revenues are currently estimated to account for around 70per cent of the total revenues earned by the newspaper publishing

industry, while most of the remaining comes from circulation.English newspapers garner the larger chunk of corporate advertisingspends, despite lower circulation numbers as compared to regionalnewspapers.English newspaper readers are considered to be from the higherincome bracket and have better purchasing power than Hindi or

vernacular newspapers; hence, advertisers channel a larger portion oftheir advertising spends through English newspapers.However, this trend is witnessing a change lately, with more of theadvertising spends being directed towards Hindi and vernacularnewspapers.The recent slowdown in advertising (particularly national advertisers)has had a comparatively lesser impact on non-English papers, sincethey have been able to garner more of the local / regional advertisingpie.


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Advantages of print media

Lengthy, complex or detailed information and descriptions can be

communicated through advertisements in print media

Readers have the option to refer back to newspaper advertisements,

which is not possible in any other media

Readers have the freedom to read a newspaper at a time and place

convenient to him/her, which may not be possible in other media.


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FilmsIntroductionThe Indian film industry is the second largest in the world in film production and theatrical

admissions.

The size of the Indian films industry was estimated to be around 112 billion for the year ended

2011, which is nevertheless very small as compared to the other countries in the world.

The two key reasons for the small size of the market are cheaper admission prices and

comparatively low occupancy levels at theatres.

Domestic theatrical revenues contributed to about 73 per cent of the total film revenues

(excluding advertisement) during the year.

The average ticket prices in the industry increased by around 9 per cent y-o-y to Rs 35 in 2011

from Rs 32 a year ago.

The key listed players in the film industry include Reliance Mediaworks Ltd, Eros International

Media Ltd, Cinemax India Ltd, Inox Leisure Ltd, PVR Ltd, Mukta Arts and Shree Ashtavinayak

Cine Vision Ltd


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Disadvantages of print media

Viewers tend to switch television channels during commercials, whichthey cannot in the case of print.

Viewers have access to multiple channels on television, whereasnewspaper readers read only selected newspapers.

The popularity of print media as an advertising medium has always

been challenged by television.

Now, radio and internet are also establishing themselves as credible

advertising platforms with a wide reach and are gradually eating into

the print media advertising pie.

While the larger newspapers may not be impacted much by this

development over the medium term owing to their wide reach, smaller

players would face challenges in continuing to garner sizeable

advertising revenues.


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Industry

characteristics-films


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FilmsIntroduction

The Indian film industry is the second largest in the world in filmproduction and theatrical admissions.

The size of the Indian films industry was estimated to be around 112billion for the year ended 2011, which is nevertheless very small ascompared to the other countries in the world.The two key reasons for the small size of the market are cheaperadmission prices and comparatively low occupancy levels at theatres.Domestic theatrical revenues contributed to about 73 per cent of the

total film revenues (excluding advertisement) during the year.The average ticket prices in the industry increased by around 9 per centy-o-y to Rs 35 in 2011 from Rs 32 a year ago.The key listed players in the film industry include RelianceMediaworks Ltd, Eros International Media Ltd, Cinemax India Ltd, Inox

Leisure Ltd, PVR Ltd, Mukta Arts and Shree Ashtavinayak Cine VisionLtd


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Industry structure and characteristicsTheatrical revenues largely drive the film industry growth, thoughshare to reduce

The Indian films industry derived almost 73 per cent of its revenues

from domestic box office ticket sales in 2011.

While the cable and satellite rights witnessed a rise in revenues owing

to increasing demand from the broadcasters, revenue share from the

home video segment declined during the year on account of rising

levels of piracy.


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Revenue share of the Indian Film industry


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This is in contrast to the US film industry, which earns around 35 per

cent of its revenues from box office sales and the remaining 65 per cent

from sales of DVDs and VCDs and C&S and satellite television rights.

However, with new sources of revenues such as wireless and internet

downloads coming in, rapid digitisation and technological

advancement, the industry is expected to leverage these technological

innovations to monetize films on alternate screens, thereby bringing

down the share of theatrical revenues.

Revenue share of the Indian Film industry

l d l h


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Film industry value chain

T h e r e a r e t h r e e m a i n p l a y e r s i n t h e f i l m i n d u s t r y v a l

u e c h a i n :- P r o d u c e r ,

- D i s t r i b u t o r , a n d

- Exhibitor.

Fil d i


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Film production

The producer decides to make a film and subsequently, arranges forthe shooting, editing and dubbing of the film and finally, delivering thefilm to the audience. Producers get a minimum guarantee fee from

distributors before a film is released in return for distributing rights of afilm in a territory or several territories within the country.Producers with an expectation that their film has the potential to dowell overseas, sell rights for the international distribution of their filmsas well.After a film does well and the distributor has recovered his investment,any additional inflows usually get divided between the two inaccordance with pre-defined arrangements.Lately, many producers have entered into revenue-sharingarrangements with distributors.Producers finance their films either through internal accruals, bank

finance, private financiers, or through equity. In some cases, cost of thefilm is raised by selling the rights upfront to distributors. In some cases, producers can recover a substantial part of the cost ofthe film by pre-selling it to distributors.

Fil d i


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Film production process

M lti l t f d fil


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Multiple revenue streams safeguard film revenues

Producers are turning to alternate revenue streams to augment and

safeguard their returns from films. Following are a few of the

m a n y o p p o r t u n i t i e s e x p l o r e d b y t h e p r o d u c e r s c u r r

e n t l y :- T h e a t r i c a l e x h i b i t i o n

- O v e r s e a s r i g h t s

- C a b l e & S a t e l l i t e t e l e c a s t r i g h t s- M u s i c r i g h t s

- I n - f i l m a d v e r t i s i n g

- D i g i t a l r i g h t s ( i n t e r n e t r i g h t s , r i n g t o n e d o w n l o a

d s )

- H o m e v i d e o r i g h t s

- Merchandising

R t f fil d


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Revenue stream for a film producer

R t f fil d


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These alternate revenue streams bolster the revenues generated by afilm and go on to reduce the risk associated with returns.

With other sources of revenue streams increasingly contributing to theproducer's kitty and finance being available from organised sources,production has become more organised.However, producers still have to grapple with three main risks:Completion risk:Producers face the risk of not completing the film dueto various factors including running out of funds, failure to retain talent

etc.Time and cost overruns:Not completing the film in the scheduled timecould lead to cost overruns which would negatively affect theproducer's margins.Changing audience preference:Risks associated with the changing

audience tastes and preferences over the course of the productionprocess is inherent in films.The distributor's perception of audience preferences also influences theacquiring price for a film.

Revenue stream for a film producer

I tit ti l l di t th fil i d t


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Institutional lending to the film industry

Banks like EXIM Bank, Yes Bank and IDBI Bank are the more activefilm financiers in the country in the disbursal of loans for the movie

making process.A few of the financial institutions also undertake 'slate funding',committing to finance multiple films of a certain production house.As per the Reserve bank of India (RBI) guidelines, banks can takeexposure of up to a maximum of 50 per cent of the total production costof a film.Also, the film for which the loan is sought must be insured. Hence, filmproducers are increasingly getting their films insured.The first film to be insured in India was Taal (1999). Since then anumber of films have been insured.Film insurance generally covers death or injury to actors, damage to

sets, costumes, film equipment and theft.The premium charged for insurance is generally 1.0-1.5 per cent of thetotal budget of the film.

Film distribution


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Film distribution

Film distributors buy theatrical distribution rights from a producer fordistributing the films within a territory or across several territories.

The distribution rights are normally purchased for a period of 3 years.In return, they offer a minimum guarantee fee to the producer.In some cases, the distributors purchase the distribution rights well inadvance of the release of the film while in most cases lately, the same ison a revenue-share basis with the producer.There is no scientific basis for the determination of the amount payable

towards distribution rights; this poses a huge risk in case a film does notdo well at the box office.Distributors play various roles including part financing of films,spending on print and publicising the film, selection of exhibition hallsand managing the distribution of the film prints.

Distributors in India are rarely involved at the pre-production orproduction stage and they get to see a film only after it is completed.

Film distribution process


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Film distribution process

Film distribution highly fragmented


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Film distribution highly fragmented

The distribution segment of the films industry is highly fragmented

with a majority of distributors having only a limited presence.

Therefore, for theatrical distribution of a film throughout the country,

producers need to typically tie up with a number of distributors.

Some of the largest film distributors in India are Yash Raj Films, Sun

Pictures, Eros Entertainment, Mukta Arts and Reliance Mediaworks

Distribution of revenues between distributors and producers


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There are three models followed for the distribution of revenues

between distributors and producers:

Minimum guarantee plus royalty model:In this model, the distributor

shares any overflow of revenues over the minimum guarantee fees,

print and publicity costs and his commission with the producer in a pre-

determined ratio.However, in case, the distributor does not earn any overflow i.e. therevenues earned by him are lower than his costs; he has to bear theentire loss.

This model is most commonly followed in case of films produced by

established producers and big banner production houses.

The overflow money, if any, is generally shared in in a pre-agreed ratio

between the producer and the distributor.



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Commission model: The distributor does not bear any risk in thismodel.

He simply retains a commission on the total amount collected from theexhibitor and remits the rest to the producer.With film distributors losing heavily in recent years due to the poorperformance of films at the box office, the commission model isincreasingly gaining acceptance and being adopted by distributors,especially for small budget films.Outright sale model:The distributor purchases the entire rights for aterritory or several territories from the producer.In this model, the distributor bears the entire upside and downsidearising from the outright purchase of rights.Some film production houses (for example, Yash Raj Films) usually

distribute their films on their own. In such a case, while the risks arehigher, the gains are also higher.


Revenue stream for a film distributor


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Revenue stream for a film distributor

Film exhibition


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Film exhibition

Exhibitors, link between the film distributors and the audience, control

the last mile in the box office value chain i.e. the theatre.Initially, the theatre hire model was the most commonly followed

model, wherein the distributors had to bear the burden of the theatre

rentals irrespective of whether a film ran or not.

In the changing scenario today, revenues collected at the box office get

shared between the theatre owners and the distributors, especially in the

case of multiplexes.

In some small cities, where revenue recording mechanisms are suspect,

distributors preferably enter into fixed hire or minimum guarantee plus

royalty contracts with the exhibitors.

Revenue streams for a film exhibitor


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Revenue streams for a film exhibitor

Segmentation of film exhibition


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Segmentation of film exhibition

The film exhibition sector can be divided into two segments - single,

double screen cinemas and multiplex cinemas (a movie theatre complex

with multiple screens, typically 3 or more).

Approximately 80 to 85 per cent of the cinema screens spread over the

country are single screen cinemas owned by individual entrepreneurs,

operating in an unorganised environment. However, the scenario isfast changing with the ushering in of the

multiplexes.

The number of multiplex screens increased to 1,250 in 2011 over 1050

screens in 2010, which constitutes around 15 per cent of the total screens

running in the country.

Multiplex cinemas gaining ground


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Multiplex cinemas gaining ground

Multiplex cinemas are fast changing the manner in which movies areviewed, particularly in big cities. Historically, most movie theatres inIndia were set up as single screen theatres with large seating capacities

which vary in the range of 750-1500 seats per screen. However, lack ofinvestments in maintaining and upgrading facilities at the single screentheatres resulted in their poor condition which meant a deterrent to thefamily audiences.On the other hand, multiplex cinemas characterised by their limited

seating capacity of about 250-400 seats per screen, good ambience,quality viewing with high-end sound systems, comfortable seatingarrangements, excellent service as well as good quality food &beverages have succeeded in attracting family audiences back to thetheatres. Watching movies in the movie theatre has once again become a highly

preferred source of family entertainment.

Multiplex business mode


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Several governments have been announcing policies offeringentertainment tax benefits to multiplexes.

These exemptions, along with consumer demand for multiplexes, haveled to increased investments in multiplexes and have encouraged singlescreen owners to convert to multiplexes. Major players operating/managing multiplexes include RelianceMediaworks Ltd.(BIG Cinemas), PVR Cinemas, Inox Leisure, FameIndia Ltd, Cinemax, ECity Entertainment, Wave Cinemas and DTCinemas.Multiplexes, with their superior infrastructure offer significanteconomic advantages over traditional single/double screen theatres andalso provide enhanced movie viewing experience to the consumers.An increase in the number of Multiplex screens should result in an

increase in film exhibition revenues implying a significant growthopportunity for the industry.


Comparison of multiplexes and single/double screens


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Comparison of multiplexes and single/double screens

Multiplexes to be key growth driver for the film industry


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Revenue earning potential is fully exploited:Multiplex cinemas canshift a movie across various screens depending upon the response to themovie.For example, multiplexes often screen a movie in multiple screens in thefirst week of its release;the movie is then shifted to the screen with the largest capacity andsubsequently to smaller capacity screens.In this manner, the revenue earning potential of a movie can be fully

exploited.Higher occupancy rates and better realisations:Multiplex cinemas scoreover single screen cinemas in terms of occupancy and realisations.The average occupancy of multiplexes is estimated to be between 30-35per cent, while that of single screen cinemas ranges between 20 - 25 percent.

Multiplex ticket prices are also much higher than single screen tickets.



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Sharing of costs reduces the overhead costs, improving

profitability:All the screens of a multiplex equally share its facilities

such as ticketing window, food and beverages outlets and manpower.

This, consequently, results in lower overheard costs and thereby,

improved profitability.

Diversified revenue stream:Multiplexes have a diversified revenuemodel; they earn around 65-67 per cent of their revenues from the sale

of tickets, 15-22 per cent from food and beverages and the rest from

advertising, sponsorship and renting out retail space. On the other

hand, single screen cinemas earn almost all of their revenues from the

sale of movie tickets alone.

Mu t p exes to be ey g o t d e o t e dust y

Multiplexes beneficial to every stakeholder across the value chain


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Consumers:The movie watching experience is much better in amultiplex than in single screen cinemas with a wider option of moviesto choose from. It also provides enhanced movie viewing experience tothe consumers.Exhibitors:As stated earlier, average occupancy as well as realisationsin multiplexes are higher than in single screen cinemas. Multiplex theatre owners also enjoy the flexibility to exploit thecommercial value of a movie in a better manner.Distributor:All the sales are reported in a multiplex given its

computerised ticketing system leaving little scope for any revenueleakage on account of under reporting of actual revenues.Distributors stand to gain through multiplexes, as their returns wouldincrease when higher collections are reported.Producers:Higher revenue collections would translate into better

returns for the producer as well.Multiplexes also provide producers with increased scope forproducing niche and low-budget films.

Distribution of revenues between exhibitors and distributors


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Theatre hire model: In this model, the distributor bears the entire riskof the box office performance of a film. The exhibitor retains a fixed pre-determined amount of the entire box

office collections (net of entertainment tax and other local body levies)and passes on the balance to the distributor.Fixed hire model: This model is the opposite of the theatre hire model.Herein, the distributor receives a fixed amount from the exhibitor,irrespective of the fate of the film at the box office.Thus, the exhibitor bears the entire risk of the box office performance of

the film.This model is prevalent mainly in case of small-budget films with low-key promotions, which the exhibitor may otherwise refrain fromexhibiting owing to the lack of a substantial audience.Minimum guarantee plus royalty model: The exhibitor pays a

minimum guaranteed amount, usually per week, to the distributor.Net box office collections in excess of the minimum guaranteed amountare shared between the distributor and exhibitor in a pre-determinedratio.. If the box office collections turn out to be lower than theminimum guaranteed amount, the exhibitor bears the losses.

Distribution of revenues between exhibitors and distributors


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Revenue share model:In this model, the net box office collections (after deducting

entertainment taxes and local levies) are shared between the producerand the exhibitor in a pre-determined ratio. Thus, the risk of box officeperformance of the film is shared by both the producer as wellas the exhibitor. The ratio in which exhibitors share net box officecollections with distributors keeps varying from time to time. This

model is widely followed considering that the risks are shared almostequally between the exhibitor and the distributor in this case.Currently, revenue-sharing between the exhibitors and the producers /distributors is on a case-to-case basis, as the arrangementspecified in 2009 ceased to exist since June 2011. The new sharingmethod generally gives a large portion of ticket collections toproducers and distributors, with a higher dependence on the

performance of the film at the box office in multiplexes.


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Industrycharacteristics-radio

and music

Radio


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Introduction

Radio is the most local and one of the cheapest modes of media

entertainment.

The state broadcaster, All India Radio (AIR), reaches most of the Indian

population.

A set of new players entered the sector with the implementation of the

second phase of FM radio privatisation.

Implementation of phase III licensing policy shall further extend reach

and is also expected to improve the revenues of the industry.

Radio broadcasting: Brief history


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Migration to revenue-sharing regime leads to higher levels of


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g g g gpenetrationThe plight of players in the FM radio broadcasting space prior to 2005was similar to that of operators in the mobile services business prior to

the implementation of the National Telecom Policy, 1999.There were only seven players providing FM radio services across 12cities who were struggling to stay afloat given the high fixed licence feepayments.The sector received a fillip after the government announced Phase II ofFM radio privatisation, throwing open 338 frequencies across 91 cities to

private players.More importantly, it shifted from a fixed fee to a revenue-share-basedlicensing regime.The government also allowed foreign investment of upto 20 per cent inradio broadcasting companies, which was previously not allowed.Further, Phase III licensing for 839 frequencies, covering a total of 294cities has been announced and is expected to boost the revenues of theindustry

FM radio broadcasting: Key players and number of stations (as at


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March 2012)

Radio advertising versus other media advertising


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Cost effective medium of advertising

Radio is a cost-effective advertising medium where the audience is

considered to be more focussed as compared to other mass media.

Radio is a useful means of communication with illiterate consumers. It

can be an excellent complementary medium to television and print.

For local advertisers, radio is a boon, as it enables them to reach out to

their target markets in a highly cost-effective manner.

Advertisers can, at least theoretically, make different ad campaigns to

suit different cities, different times of the day and different brand

objectives.

Low content costs as compared to television


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Unlike television, radio does not require any original content to be

commissioned and broadcasted.

Music is the biggest content broadcast on radio.

For playing music on their stations, radio broadcasting companies pay

a royalty to music companies or music industry associations.

Different prime time compared to television


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The prime time for radio listenership differs from the prime time for

television viewing.

People usually listen to radio in the morning, afternoon or late at night,

while television viewership reaches its peak during the night slot.

Need for robust measurement system


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With the number of operational private FM stations increasing and the

share of advertising spends directed at radio slated to increase, there is a

growing need for establishing a reliable and robust radio listenership

system.

TAM Media and Indian Listenership Track (ILT) from

Media Research Users Council (MRUC) have their respective audience

measurement tools in radio [Radio Audience Measurement (RAM)].

TAM uses the diary method of recording listenership, while ILT uses

the day after recall method.

Phase III of the FM radio broadcasting


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Phase III of the FM radio broadcasting (recommended initially by TRAIin February, 2008) announced in July 2011 aims to expand radio reach toabout 70 per cent as opposed to the 40 per cent achieved in the first twophases.Phase III aims at further liberalising the reach and envisages thefollowing critical changes in the radio licensing policy:ncreasing thegeographical reach for FM radio from city to district and allowing morenumber of channels in the same city.

Every city with a population of one hundred thousand and above isproposed to be covered by a private FM station.Private operators are allowed to own more than one channel but notmore than 40 per cent of the total channels in a city subject to aminimum of three different operators in the city.FDI+FII limits in a private FM radio broadcasting company has been

increased to 26 per cent from 20 per cent prevalent earlier.

Phase III of the FM radio broadcasting


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Radio operators have been permitted carriage of news bulletins of AllIndia Radio.The limit on the ownership of channels, at the national level, allocatedto an entity has been retained at 15%. However channels allotted inJammu & Kashmir, North Eastern States and island territories will beallowed over and above the 15% national limit to incentivise the biddingfor channels in such areas.Broadcast pertaining to information like sporting events, traffic and

weather, coverage of cultural events etc. as provided by the localadministrators will be treated as non-news and current affairs broadcastand will therefore be permissible.A choice is proposed to be given to the private FM broadcasters tochoose any agency other than BECIL for construction of CTI within aperiod of 3 months of issuance of LOI failing which BECIL will

automatically become the system integrator.

MusicD i i f l Hi di fil i


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Domination of latest Hindi film music

The music industry in India has a unique structure unlike other globalmarkets.The new Hindi film segment, which accounts for almost half of theindustry's revenues is one of the most risky segments from the point ofview of music companies, as they may not be able to recover theupfront cost paid towards the acquisition of music rights (also called asminimum guarantee) in case an album does not do well.

The acquisition cost for music rights for films have shown substantialdecline from the great heights they touched towards the end of 1990s.The willingness of the producers to enter into revenue-sharingagreements with music companies indicates that risks and rewards areshared more equitably.Other genres of the music industry are old Hindi film music, English,

ghazals, classical music, regional and devotional.With the advent of satellite television and increased consumerexposure to non-film music, other music genres are also gainingpopularity.

Plagued by piracy


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The music industry, both in India and globally, is plagued by piracy.According to estimates by the International Federation of PhonographicIndustry (IFPI), more than 90 per cent of the music tracks were

downloaded without payment to the artist or the company thatproduces them.In India, piracy currently accounts for a substantial part of the totalmarket. Due to the digital format of music and pirate sites on theinternet, piracy is taking root as a contributor to the revenue leakage.Till around 2001, piracy mainly assumed the form of physical piracy ofmusic cassettes, i.e. un-authorised copying and selling music oncassettes alone. However, with the progress of technology, digital piracyhas increased.Peer-to-peer sharing (P2P), FTP sharing and local sharing on local areanetworks is rampant and it is only recently that softwares or companies

enabling such activity have been penalised (Kazaa in 2005, Napster in2001). IFPI estimates that for every one legal download, twenty illegaldownloads take place.

Music distributionSt t l h i th l b l i i d t


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Structural change in the global music industry

A dramatic structural change is occurring in the global music industry

with the music distribution worldwide going digital and mobile.

Licensed digital distribution of music and mobile music are buzzwords

in the global music industry and are fast gaining credence over music

distribution in the physical form

. The transition of music from physical to digital platforms is forcing

music companies to redevelop business strategies as well as come up

with innovative methodologies to package and distribute music content.

Driving forces behind structural changes


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Increasing penetration of high-speed broadband internet connections &

mobile networks and uptake of high-speed services by telecom

operators

Increased availability and adoption of mobile handsets, with higher

download, storage and playback capacities (mobile handset companies

are increasingly launching music-enabled phones specifically targeted at

the music buffs, who wish to have their choice of music on the go)

Digitalisation of entire music catalogues by players.

Continuous improvements in the technical specifications and

capabilities of digital players.Social networking sites, promotional tool for the Indian music

fraternity, significant driver for music consumption.

Traditional physical format versus digital and mobile music


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Players and consumers embracing preferences in music consumptioni di it l ld id


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increase digital revenues worldwide

Global music majors and technology companies are actively investing

in licensed digital delivery of music through the internet, which serves

to underscore the shift taking place in music distribution.

Apple Computers, through its iTunes facility, offers a digital music

shop on the internet. In India, Indiatimes, Gaana and Soundbuzz offer

legal music downloads.

Consumer acceptance of paid-for music downloads is also rising.

Digital technology driving revenues of the Indian music fraternity


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Digital technology driving revenues of the Indian music fraternityDigital distribution of music gained ground over music distribution inthe physical form during the year 2010.

The year witnessed companies entering into agreements with socialnetworking sites to promote music content as well as reach out to theaudiences through various interactive platforms.The revenues from digital music are estimated to have contributedabout 62 per cent to total music industry revenues in 2011 from 50 percent a year ago marking a significant shift in the consumer preferencesto consume music in digital formats.This increase in revenues was due to increasing mobile and broadbandpenetration, rollout of high speed data services as well as technologicaladvances.On the other hand, physical formats such as audio cassettes and CDs

which accounted for about 44 per cent of the industry's revenues in2010, contributed around 33 per cent to the total industry revenues in2011 due to emergence of digital technology, price erosion and risinglevels of piracy.

Music Revenues breakup


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Challenges posed by digitisation and Internet worldwide


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With digitisation, the internet and growth in the bandwidth of telecom

networks have opened up new avenues and forms of distribution for

the global music industry. Simultaneously, it introduced a new set of

challenges for the industry players.

Sales of music in physical formats, in most countries, have been on a

downward spiral in the past few years.

With music distribution increasingly happening online and on mobile

phones, music companies no longer have complete control over the

content owned by them.

The risk posed by piracy in both digital and physical formats remainshigh.

Challenges posed by digitisation and Internet worldwide


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Consumers can easily share songs amongst themselves through P2P file

sharing software.

Although the music industry managed to clamp down on and

successfully shut down some file sharing websites (Napster, Kazaa,

Limewire) and establish legitimate digital distribution platforms to the

fore, piracy still remains a glaring problem especially in developing

countries, where anti-piracy rules and regulation are either weak or are

not strictly enforced.

Also, disputes pertaining to the amount of royalty receivable from

radio operators are currently in hearing, a negative ruling on whichcould further impact revenues of the music industry.

Challenges faced by the Indian music industry


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In May 2009, The Indian Music Industry (IMI) launched Music Mobile

Exchange (MMX), a world mobile licensing arm, in a bid to fight piracy.

Under this initiative, mobile storeowners got legitimate licences from

the right holders and then sold the music without violating copyrights.

Saregama India Ltd, Aditya Music, Tips Ltd, Venus Music, EMI group,

Sony and Universal

signed on with this initiative.

In April 2010, Saregama India launched a WAP portal

(wap.saregama.com), wherein it sold its huge collection of songs in the

digital form to the mobile users.

Challenges faced by the Indian music industry


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Most music companies today are treating the mobile music business as a

new distribution channel, with India's mobile subscriber base growing at

a furious pace by the day. When a new album is released in the market,

music companies not only promote the album in traditional ways but als

enter into tie-ups with mobile content aggregators and service providers

for ringtones, etc. to promote the album.Revenues earned from the sale of mobile music are shared between the

music company, the content aggregator and the telecom operator.

Revenue-share in this case though, is skewed in favour of the telecom

operator, as he holds the crucial billing relationship with the end-

subscriber.


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Key Industry Trends

Advertising spends to grow at 13 per cent CAGR till 2016 subject toeconomic revival


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Growth of the media industry in 2012 is expected to be affected by the

weak macro-economic environment that had impacted advertisingrevenues.

However, non-advertising or subscription revenues is believed to be

growing at a faster pace than ad revenues, driven primarily by the

impressive box office collections of films.

Overall, revenue growth in 2013 is expected to be higher than in 2012

following an expected improvement in macro-economic conditions.

Over the next 4 years, the industry to grow at a steady pace of over 11

per cent CAGR to Rs 1.2 trillion by 2016.

economic revival

Advertising spends to grow at 13 per cent CAGR till 2016 subject toeconomic revival


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economic revival

Advertising spends to grow at a tepid pace of 7 per cent in 2012.

However, in 2013, growth in ad revenues is expected to increase to 12per cent subject to a revival in the economy driving up corporate

advertising spends.

Growth is expected to pick up further momentum in the followingyears and we expect overall ad revenues to grow at 13 per cent CAGR

over the next 4 years to touch Rs 553 billion by 2016.

The growth will be driven by the launch of new products and services,

fragmentation of media and the consequent need for advertisers to

ensure visibility for their products and services, besides new s e c t o r s

w h i c h a r e l i k e l y t o b e a g g r e s s i v e a d v e r t i s e r s i n f u t

u r e .

Subscription revenue growth to lag advertising growth


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Although subscription revenues are expected to grow faster than

advertising revenues in 2012, this trend is set to reverse over the next 4

years.

Subscription revenues are expected to grow at 10 per cent CAGR till

2016 to touch Rs 630 billion.

The key growth drivers of subscription revenues for the various media

are: Increasing adoption of digital distribution platforms like direct-to-

home (DTH) and digitisation of cable television

Television: will lead to greater subscription revenues for the television

industry.



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Driven by the implementation of the digitisation mandate (which

stipulates the use of set top boxes to view television content), the digital

pay TV subscriber base is expected to increase at a 20 per cent CAGR

between 2011 and 2016.

Print media/newspapers: Growing literacy rates and player expansion

is expected to drive up newspaper circulation and readership.

Consequently, newspaper circulation and readership to grow at a

CAGR of 8 per cent and 4 per cent, respectively, between 2011 and 2016.



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Films: Growth in the number of multiplexes and the implementation of

digital technology in cinemas will be the primary revenue drivers for

the film industry.

While the advent of multiplexes has improved the average ticket

pricing, digitisation of film prints has aided in a wider release of films,

reduced distribution costs and reduced the scope for piracy.

Radio: Number of multiplex screens to grow at a 10 per cent CAGR

over the forecast period.



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Auction of additional radio stations under FM Phase III is expected to

boost the radio industry's revenues further, enabling a growth of 18 per

cent CAGR between 2011 and 2016.

Music: Sale of music in physical formats such as cassettes and compact

discs has seen a sharp decline. Digital distribution of music, either over

mobile phones or the internet, is gaining traction. We therefore expect

digital music to drive the industry's growth in future. By 2016, digital

distribution of music is expected to contribute to nearly 90 per cent of

the music industry total revenues.


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Revenues Outlook

Long-term growth outlook for the sector remains stable


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The year 2012 is expected to close as a year of mixed fortunes for the

media & entertainment industry.

While non-advertising (subscription) revenues have witnessed steady

growth, advertising revenues have been impacted by the overall macro-

economic slowdown.

With an expected revival in economic activity, the growth of the

industry is expected to be higher in 2013 than in 2012.

By 2016, the industry is expected to grow at a CAGR of over 11 per

cent, to a size of about Rs 1.2 trillion.

Growth in advertising is expected to be higher than subsciptiongrowth.

Long-term growth outlook for the sector remains stable


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Growth will be driven primarily by: Increase in advertising spends, as

companies raise advertising outlay to reach their target audience Higher

penetration of various media, translating into higher advertising

spends, and higher consumption of media products.

Widespread availability of digital media distribution platforms -

primarily television, radio and internet - for monetising content

effectively.

Increase in local advertising spends across various regional media as

focus on localisation and regionalisation increases.

Expanding international markets for Indian content.

Media &Entertainment - industry revenues


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Advertising growth tapers in 2012


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Advertising spends, which had slowed down in 2011 (particularly in

the latter half), slowed down further in 2012 owing to the weak macro-

economic environment.

The overall advertising growth is expected to be only around 7 per cent

in 2012, as compared with 10 per cent in 2011.

While the digital media and television have witnessed good growth,

other media like newspapers and radio have seen growth slow down

over 2011 levels.



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From a sector perspective, FMCG was among the few sectors that had

witnessed a healthy growth in advertising spends, while most other key

advertising sectors saw either a marginal growth in ad spends or a

contraction in their adspends owing to budget constraints.

Based on expectation of a revival in economic activity in 2013, growth

in ad spends is expected to be higher than in 2012. Further, over the

longer term, the structural factors driving growth in advertising and

hence ad revenues will remain unaffected as:



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Fragmentation of media due to multiple options available to the

consumer, and increasing reach of media will result in advertisers

increasing outlays to reach target markets.

The likely emergence of newer sectors such as e-commerce will lead to

heavy advertising.

Increasing consolidation of various unorganised business units into the

organised sector. We also expect advertising spends on radio to increase, after the

auction of additional FM frequencies across towns (Phase III) Overall,

we expect advertising spends to touch Rs 553 billion by 2016, translating

into a CAGR of 13 per cent.

Ad spends, as a percentage of GDP, are expected to rise from 0.57 per

cent currently to around 0.75 per cent in 2016.

Forecast - Advertising spends (in Rs billion)


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Share of ad spend distribution to witness a shift


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Over the longer term, the share of media such as radio and internet will

increase from the current levels.

Radio is expected to constitute 6 per cent of the advertising pie by

2016, as compared to over 4 per cent in 2012.

Meanwhile, the share of digital advertising is expected to almost

double from 4 per cent to 7 per cent of the total advertising spends in

2016.

Share of ad spend distribution to witness a shift


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Share of advertising spends directed towards print to follow the global

trend, declining from an estimated 43 per cent in 2012 to 41 per cent in

2016.

Television will continue to remain a preferred medium for advertising.

The reach of television across different strata of society and the

opportunity it offers to create an impact through the audio-visual

medium makes it a must in the advertising portfolio of most advertisers.

Over the next 5 years, the share of television in total advertising spends

is projected to r e m a i n a t a b o u t 4 2 p e r c e n t .

Break-up of advertising spends by media


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Further, given the increasing fragmentation of media, the share of local

/ regional advertising is expected to keep rising, as compared to

national advertising.

In fact, in the current slowdown, the performance of the local /

regional ad space has been better than the national average.

Subscription revenues to witness steady growth over the forecastperiod


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Subscription / non-advertising revenues to touch Rs 433 billion in 2012,

implying a 12 per cent growth from 2011.

Over the forecast period, subscription revenues are estimated to

increase to Rs 630 billion in 2016, at a CAGR of 10 per cent.

This growth will be driven by a combination of factors, such as:

Growing adoption of digital distribution platforms leading to gradual

growth in the average revenue earned per cable subscriber.

The government's mandate to move all analogue subscribers to digital

by 2014 would give a further thrust to the adoption rate.

Subscription revenues to witness steady growth over the forecastperiod


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Increasing reach of satellite television and expected launch of niche

channels across various genres.

Rising literacy levels, translating into growth in newspaper circulation

and readership.

Continuing growth in theatrical collections of movies due to the

increasing number of multiplexes and average ticket prices (both in

India and abroad), along with increasing revenues from ancillary

streams.

Increasing adoption of music on mobile phones.

Subscription revenues to witness steady growth over the forecast period


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However, the share of subscription revenues in the industry's overall

revenues is expected to decline to around 53 per cent in 2016 from an

estimated 57 per cent in 2012, as growth in ad revenues is expected to be

faster.

Some players would take a hit on subscription revenues to ensure

wider reach, and consequently earn higher advertising revenues.

Break-up of advertising and subscription revenues


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Increasing digital penetration, advertising spends to drive televisionindustry growthR h R 611 billi b 2016


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Revenues to touch Rs 611 billion by 2016

The year 2012 is expected to be a moderately good year for television,

despite the weak macroeconomic environment.

Overall growth in the television industry at around 10 per cent y-o-y in

2012, with advertising and subscription revenues growing at almost the

same rate.

Growth is expected to be slightly higher at 11 per cent in 2013, driven

by the increase in advertising.

Revenues to touch Rs 611 billion by 2016


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The effect of fragmentation on the M&E sector is clearly visible in the

television segment, where advertisers are compelled to purchase more

spots to reach their target markets.

The growing fragmentation in television notwithstanding, television

continues to be the preferred choice for a majority of the advertisers.

We expect advertising revenues to touch Rs 238 billion by 2016, at a 5-

year CAGR of 14 per cent.

Further, in TV advertising, a key development was the TRAI directive

which restricted ad breaks on TV

Increasing digital penetration, advertising spends to drive televisionindustry growth


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channels to a maximum of 12 minutes per clock hour, without any

averaging of this limit permitted through the day. Broadcasters have

approached the TDSAT against this directive and the case is scheduled

for hearing in December 2012.

If such a directive is implemented, we expect news channels, and to a

lesser extent, sports channels to be the most affected.

Overall revenues of the television industry to increase at a 12 per centCAGR to Rs 611 billion in 2016 from Rs 353 billion in 2011.

Television industry revenues


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C&S households to reach 156 million by 2016


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The number of cable and satellite (C&S) households has been growing

steadily, and the trend expected to continue over the next 5 years on

account of the increasing reach of cable television and affordability,

spurred by rising incomes.

Both the DTH and digital cable subscriber base would witness a

healthy increase over the next 5 years.

Of the estimated 148 million television subscribers in the country as of

2011, close to 80 per cent subscribe to cable services.

By 2 0 1 6 , w e e x p e c t t h i s n u m b e r t o r e a c h a b o u t 1 5 6 m i l

l i o n .

Television and C&S households


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ARPU to increase moderately despite digital adoption


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Despite increasing adoption of digital television services in the form of

DTH and digital cable, and a number of new pay channels being

launched, we expect average ARPUs to increase only marginally to Rs

219 by 2016.

The reasons for our view are: Stiff competition amongst various

television distribution platforms is restricting the price rise, leaving only

the subscriber

acquisition route for revenue growth.

Many channels are likely to remain free-to-air due to the fear of losing

advertising revenues, owing to a possible decline in viewership on

converting to a pay channel.

Weighted average ARPU


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Revenue growth for newspapers to remain stable

Growth in the newspaper industry's revenues, impacted by the


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p p y , p y

slowdown in advertising, is expected to be limited to 6 per cent in 2012.

While advertising revenue growth will remain subdued at 4 per cent,circulation revenues are expected to grow at over 10 per cent.

The higher growth in subscription revenues will come from leading

publications hiking their cover prices in prominent editions and

reducing the discounting on yearly subscription offers.

Driven by an increase in advertising intensity, growth in revenues is

expected to be higher at 10 per cent in 2013.

Over the forecast period, total newspaper revenues are expected to

increase to Rs 278 billion by 2016, translating into a CAGR of 10 percent, driven b y a s t e a d y i n c r e a s e i n b o t h a d v e r t i s i n g a n

d c i r c u l a t i o n r e v e n u e s .

Newspaper revenues


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Growing literacy rates and player expansion to drive newspapercirculation and readership


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The rise in literacy rates, increasing demand for region-specific content,

and expansion by players into new geographies and languages will

drive expansion in newspaper circulation and readership.

Circulation growth of Hindi and vernacular newspapers, which

contribute to nearly 60 per cent of the total newspaper advertising

revenues, will be higher than that of English newspapers.

Asmore advertising spends are likely to be directed towards Tier II

and III cities, players in these regions will expand their reach.

Newspaper circulation and readership


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Theatrical revenues will continue to drive film industry growth

Revenues of the film industry are estimated to grow at a healthy 15 peri 2012 d i l l b h i i b ffi ll i f


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cent in 2012, driven largely by the impressive box office collections ofmany films.

Further, an increase in the number of multiplex screens, increased

occupancy levels, and a hike in the Average Ticket Price (ATP) would

also contribute to this growth.

Over a 5-year period, the film industry's revenues are projected to growat 8 per cent CAGR to Rs 156 billion, largely comprising theatricalrevenues.In recent years, the window available for a film to earn revenues at thebox office has shrunk sharply, especially for Hindi films.

Hence, distributors flood the market with prints, looking to garner as

much revenues as possible during the opening weekend of the release.

Due to this trend, most of the film's revenues flows into the value chainwithin the first weekend of the movie release, in most cases.

F h i h h fil il bl h l f lik DTH d

Theatrical revenues will continue to drive film industry growth


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Further, with the film available on other platforms like DTH and

distribution within weeks of its release, a sizeable audience prefers to

wait for the same, rather than spend a higher amount to watch it in

theatres.

Domestic box office collections to grow at 8 per cent CAGR from 2011

to 2016, driven largely by an increase in the number of multiplex

cinemas (where ticket prices are much higher as compared with single

or double screen cinemas), and, to some extent, by the wider release of

films on account of implementation of digital technology in cinemas.

Moreover, we expect average ticket prices to increase significantly,

from an estimated Rs 40 in 2012 to Rs 57 in 2016.

Film industry revenues


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FM Phase III to act as a growth driver for radio revenues

Radio revenues have been adversely impacted by the macro-economic


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Radio revenues have been adversely impacted by the macro-economic

slowdown, owing to advertisers directing a lesser proportion of spends

to this medium.

As a result, growth in radio revenues is expected to be a mere 4 per

cent in 2012. Such growth would increase following an expected revival

in advertising activity.

Over the forecast period, revenues of the radio broadcasting sector to

increase to Rs 30 billion by 2016, at a CAGR of 18 per cent. During this

period, the share of advertising spends directed towards radio will

touch 6 per cent, up from an estimated 4 per cent in 2012. Growth willbe driven by an increase in the number of radio stations post

implementation of Phase III of FM broadcasting.

The I&B ministry's plans to e auction additional FM frequencies (Phase



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The I&B ministry s plans to e-auction additional FM frequencies (Phase

III) gives us confidence on the launch of new radio stations within the

forecast period.

Development of additional mechanisms to track the listenership of

radio stations (through radio audience measurement) will also serve to

increase the credibility of radio as an advertising medium.

The growth in the radio broadcasting sector will be driven by: An

increase in the number of radio stations, once Phase III of FM

broadcasting is implemented.

FM Phase III Policy proposes to extend FM radio services to 227 newcities, with a total of 839 new FM radio channels catering to 294 cities



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Phase III policy will result in the coverage of all cities with a

population of 0.1 million and above with private FM radio channels.

Local advertisers increasingly using radio as a medium to reach target

markets (Currently, the share of local advertising in total radio

advertising is estimated to be around 35 per cent).

National advertisers continuing to use radio as a complementary

advertising medium, given its growing reach.

Rapid increase in the availability and adoption of mobile handsets with

FM radio.

Radio revenues


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Digital distribution of music to drive industry growth

The year 2011 was a year of transition for the Indian music industry,


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y y y

with digital sale of music (as ring-tones and caller ring-back tones)

exceeding sales through physical distribution.The trend has continued in 2012, with a decline inthe share of physicalmusic sales.

While rampant piracy continues to plague the industry, players are

increasingly adapting their business models to capitalise on the

increasing trend of delivery and consumption of music, primarily over

mobile phones in the form of ring-tones, caller ring-back tones and full

track downloads.

We expect revenues of the music industry to increase to Rs 14.5 billionby 2016, implying a 19 per cent CAGR in revenues between 2011 and

2016, driven largely by continuing growth in the mobile music space.

Music industry revenues


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Distribution-television

Shift to digital platforms witnessing steady progress

The analogue television distribution value chain comprisesbroadcasters multi system operators (MSOs) and local cable operators


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broadcasters, multi-system operators (MSOs) and local cable operators(LCOs) catering to 120 million cable and satellite (C&S) subscribers inthe country.

The market is highly fragmented, with the presence of nearly 55,000

LCOs, 6,000 MSOs and several broadcasters vying to acquire a larger

proportion of the subscriptionrevenues.

LCOs provide last mile connectivity, i.e. up to the consumer's homeand enjoy a virtual monopoly in most regions.

This, coupled with the lack of addressable systems (refer to 'Definition

of addressable system' below, h

Documents

Analysis of Media and Entertainment Industry