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Media: 'Ad'ing growth - Views on News from Equitymaster
 
 
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  • Apr 20, 2004

    Media: 'Ad'ing growth

    The roots of the 'Indian' television industry can be traced back to the launch of the government owned Doordarshan channel in the year 1959 and since then, the it has evolved considerably. While till 1990, the Indian television scene was primarily dominated by Doordarshan, the development of this industry started to gather pace with the introduction of the Cable and Satellite (C&S) broadcasters in India in the early 1990s. Since then, the Indian media and entertainment industry has evolved from the single-channel era to the choice of over 100-channels currently. Now there are channels catering to a wide variety of choices including entertainment, news, movies, music, sports, spirituality, fashion, etc. Television has now emerged as the preferred mode of entertainment for the masses.

    The television industry primarily has two sources of revenues - subscription and advertisements. In sharp contrast to the developed and other developing economies where subscriptions have a lead over the advertising revenues, in India, advertising continues to constitute a major chunk of revenues (over 70% in 2002) for the industry. Thus, for Indian C&S players like Zee, TV Today, etc., advertisements are the bread and butter. The importance of advertisement can also be gauged from the fact that the advertisers get to reach the masses through the medium of television.


    * FICCI KPMG estimates

    Just to put things in perspective, India has almost 82 m television homes with a viewing population of almost 400-450 m. Out of these, almost 42 m homes have cable connections. Further, according to the FICCI KPMG report, the television and C&S homes are expected to increase to approximately 111 m and approximately 64 m respectively by 2007! These numbers are a delight for advertisers, especially FMCG companies, who wish to reach the millions of people across sections of the society.


    * Includes Outdoor, Radio and Cinema
    Source: NDTV IPO

    The last decade has witnessed a conscious shift of advertising revenue towards the television industry. The total media spend is estimated to be of the order of around Rs 92-94 bn in 2002 of which television advertising accounted for almost 41% (see chart above). Even at the current juncture, the level of advertising spend in India is low. To put things in perspective, the ratio of advertising expenditure to nominal GDP in India is about 0.4%. This is lower in comparison to the developed economies - UK (1%), Germany (0.8%), France (0.6%), Japan (1.1%) - as well as developing economies - Latin America (1.2%) and China (0.6%). As the Indian economy gathers steam, its advertising expenditure to GDP ratio is expected to increase.

    Going forward, with the economy showing strength, corporates would increasingly look at increasing adspend to garner larger revenues. Another interesting trend, which is expected to continue, is the ad-spend of the FMCG companies, which is increasingly getting concentrated towards rural markets. No wonder most broadcasters are quickly launching regional channels to cater to a vast semi-urban/ rural population. Moreover, with new sectors opening up like telecom, healthcare and insurance, advertisements by these segments would also aid the adspend growth.

    All these developments augur well for companies to whom ad revenues are an important source of revenue, whether directly or indirectly. While for broadcasters like Zee Telefilms, TV Today (the owner of the Aaj Tak channel) and NDTV (the owner of the NDTV news channels), ad spends by corporates is a direct source of revenue, for other players like Balaji Telefilms (producers of popular soaps like 'Kyunki saas bhi....' and 'Kahani ghar ghar ki') which provide content to leading broadcasters like Sony and Star, an improvement in the ad spend scenario helps the company to negotiate better rates with broadcasters.

     

     

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