In the previous article, we had analysed Zee Entertainment by doing a SWOT analysis on the company's business. In this article, we shall profile the television broadcasting sector and Zee in that context by applying the Michael Porter's 5 forces analysis.
Barriers to entry: Television broadcasting is a very capital intensive and a regulated business. Any prospective broadcaster needs to obtain uplinking permission from the Ministry of Information and Broadcasting. Various regulations such as limit on FII and FDI investment, number of directors, minimum share capital needs to be complied with. A satellite also has to be leased and an uplinking hub (teleport) also needs to be arranged.
The broadcaster has to plan the content to be beamed and accordingly produce the same or enter into arrangements with the content providers. Highly qualified and creative people are required at the helm. In India, media and mass communication institutes and colleges offering courses for the television broadcasting sector are limited in number and so there is a shortage of talent. Besides this expensive broadcasting equipment and studios are required. Any new channel that is launched needs to build brand awareness among prospective viewers so huge marketing and advertisement expenditure is incurred. In addition to the high capex required the direct operating costs are also very high. It is estimated that with rising content, employee and marketing costs, the direct operating costs of a Hindi general entertainment channel are in the range of Rs 3.5 to Rs 4 bn per annum. Thus the barriers to entry are very high.
Barriers to exit: Highly qualified and creative people are recruited on a permanent basis. If the company decides to shut down, then retrenchment compensation needs to be paid to them. Heavy investment is made in specalised broadcasting equipments and studios. Huge marketing expenditure is incurred and high lease charges paid for satellite and uplinking hub. All this expenditure would go waste if the broadcaster decides to shut its operations. Thus, the exit barriers are also very high.
Bargaining power of buyers: The buyers in this case are the advertisers. If the broadcaster's channels enjoy high viewership ratings, then its bargaining power is high. Advertisers would clamor to advertise their products on such channels. The channel enjoys high ad rates and even the broadcaster's debtor days are low. However, if the channel is losing market share, then its bargaining power is low .It is not able to hike ad rates and debtor days may increase. The viewership ratings of Zee Entertainment's flagship channel 'Zee TV' have been increasing enabling it to hike its ad rates. The advertisement revenues of the company have increased 31% YoY in FY07.
The multi service operators (MSOs) and the DTH players are also the buyers in this case. If the broadcaster's channels enjoy high viewership ratings, his bargaining power would be high. He may not have to pay any or very low carriage fees to the MSOs. However, under the current TRAI regulations for CAS areas, non-CAS areas and DTH services, there is a cap on the subscription price that a broadcaster can charge for a channel. This limits the subscription revenues of the broadcaster and reduces its bargaining power. Since Zee Entertainment's channels enjoy high viewership ratings, it enjoys high bargaining power with the MSOs and the DTH operators.
Bargaining power of suppliers: The suppliers in his case are the content providers. The Hindi general entertainment space will get intensely competitive with the entry of NDTV, UTV, INX Media. The broadcasters would try to maintain or increase their market share by improving their quality of content. Thus, the broadcasters expenditure on content would increase. We expect the bargaining power of the content providers to be high and their realistions per hour to increase. The increase in Balaji's realisations per hour even though its TRPs (television rating points) are falling is a reflection of this trend.
Rivalry between existing players: The rivalry between existing players is very high. All the existing broadcasters are trying to tap the same audience and enter into contracts with the same advertisers. The broadcasters also resort to copying the format of a successful programme on a rival channel. The broadcasters also resort to poaching of key personnel of rival broadcasters.
Availability of substitutes: The substitutes to television entertainment are films, print, radio, Internet. However television has the highest reach in urban as well as rural areas in different socio economic classes.
Penetration of Different Media in Urban areas
Source: IRS 2005, Round 2
As per the FICCI-PWC report on the Indian entertainment and media sector, television is projected to continue to be the largest sub segment of the entertainment and media industry with a revenue share of 51% in 2011 from 45% in 2006. This presents a huge opportunity for growth for leading broadcasters like Zee. However, the challenge will be to maintain the quality of programming and retain key talent.