Aug 20, 2007|
Media: Growth drivers for the Industry
The Indian entertainment and media industry is one of the fastest growing sectors in India. According to the FICCI-PWC report on the entertainment and media industry it is estimated that the entertainment and media industry is set to grow at a compounded annual rate of 18% to reach an estimated size of Rs 1 trillion by 2011. In this article we outline some of the key factors that are expected to fuel the growth trajectory for the players in the sector.
The economic impetus: India is the second fastest growing economy in the world today next only to China. It has registered growth rates in excess of 8% in the last two years. Lower inflation, decline in tax rates and increased propensity to consume has led to more spending on leisure and entertainment services. According to a recent Hewitt Associates survey, in 2005, Indians got the highest salary increase (13.9 %) in the Asia Pacific region. Indian entertainment and media industry is expected to continue to benefit from this rapid 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 GDP during periods of high economic growth. This is due to income elasticity of the demand, wherein, when incomes rise, proportionately more resources get spent on leisure and entertainment and less on necessities.
Demographic impetus: The median age in India is 25 years. The job opportunities for the youth have increased manifold over the last couple of years. Fast growing sectors like retail, aviation, and real estate, IT/ ITES have been recruiting in huge numbers. India's working youth have more disposable income and resultantly a higher propensity to consume. The growth in the number of multiplexes is a reflection of this fact. In urban areas the consumer mindset is changing due to increased exposure to global influences. As per NCAER, in FY07, the consuming class comprised around 46% of the country's total households as compared to around 17% in FY95. This has led to the emergence of a huge consumer base for the various products and services (including entertainment). Also, an increase in the literacy rate has provided an impetus to the growth of the print media sector, with increase in the circulation of newspapers and magazines.
Liberalizing foreign investment regime: India has liberal foreign direct investment (FDI) norms and a conducive environment. The media industry has significantly benefited from this liberal regime and most segments of the industry today allow foreign investment. In 2005, FDI was permitted in the print media and radio sectors. Films, television and other segments are already open to foreign investment. In the print media segment, 100% FDI is now allowed for non-news publications and 26% FDI is allowed for news publications. The FM radio sector too was opened for foreign investment recently with 20% FDI being allowed.
Low penetration: Media penetration varies across socio-economic classes (SECs). Though media penetration is poor in lower socio-economic classes, the absolute numbers are much higher for these classes. Hence even a slight increase in the media penetration in these economic classes will lead to a significant increase in the overall media penetration.
Low ad spends: Indian advertising spends as a percentage of gross domestic product (GDP) – at 0.3% – is abysmally low, as opposed to other developed and developing countries. The major ad spenders are the soft drink makers, consumer durable firms, FMCG firms, banks, financial services companies, automobile firms, etc. Strong sales growth in these sectors will lead to an increase in advertisement spending.
Digitisation process: Television industry is the largest sub segment of the entertainment and media industry. The digitisation process (rollout of CAS and DTH) will provide a fillip to the growth of the television industry. The Delhi High court has last year set a deadline for implementing CAS in zone I areas of Delhi, Mumbai and Calcutta. Recently, TRAI has recommended that CAS be rolled out further in these cities and has also provided a road map for CAS rollout in other cities. TRAI has suggested that CAS be rolled out to a further 55 cities (population of more than 1 m) by 2011. Digitisation means that cable penetration will increase from 70 m homes in 2006 to around 113 m homes by 2011 (source: Balaji Telefilms annual report). This will benefit all the stakeholders. The broadcasters revenues will increase significantly increasing their ability to spend on content. Digitisation will also be beneficial to the viewers as it means a better visual quality at a lower cost. The malpractice of the local cable operators of under reporting of viewers will be curbed. Thus the broadcasters subscription revenues will increase significantly reducing their dependence on advertisement revenues.
Over the next three to five years, apart from improved declaration by cable operators, we expect the average revenue per user (ARPU) to rise in India. Post the DTH and CAS scenario, we expect subscription rates to be market-driven i.e., quality of content will determine the price as against the current government administered price. Favorable policy initiatives will move the industry towards a better intellectual property rights regime. Parallely, growing investment and surge in technological advancements offers ample growth scope to the industry. Overall, we believe that the media sector is a play on consumerism in the long-term and we are positive about the long-term growth prospects of the sector.
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