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Media Sector Analysis Report 

[Key Points | Financial Year '17 | Prospects | Sector Do's and dont's]

  • The Indian media and entertainment industry comprises of print, electronic, radio, internet and outdoor segments. With the government aggressively pushing in for digitization of TV, Multi System Cable Operators (MSOs) are expected to lose 15-20% of their subscribers to DTH (direct-to-home) services. Digitization will facilitate increased number of channels and high-quality viewing. India is a fast digitizing market and the consumer shift towards digital services is exhibited through the expansion of digitized households. The digitization process in Phase I, Phase II, Phase III and Phase IV cities is a positive step for the industry.
  • The players in the electronic media can be classified into a three-link chain. First are the studios (including the animation studios), which comprise the hardware part of the industry, the second are the content providers and the third link comprises the distribution trolleys, which include the cable and satellite channels, multiplex theatres, MSOs and the DTH players.
  • In India, the ratio of advertising expenditure to GDP is less than 0.5%. This is substantially lower in comparison to the developed economies as well as other developing economies. Interestingly, Print and TV media contribute over 75% of the advertisement spend in a year. As the Indian economy continues to develop and the media reach increases, the advertising expenditure to GDP ratio is expected to increase over the next 5 years.

How to Research the Media Sector (Key Points)

  • Supply
  • Of the more than 70,000 newspapers printed in India, around 90% are published in Hindi and other vernacular languages. There are over 800 private satellite TV channels, permitted by the Information and Broadcasting Ministry.
  • Demand
  • The demand for regional print media is growing at a faster pace than that of English language print media. In the electronic media, the highly-fragmented viewership has led to an increasing preference for niche channels.
  • Barriers to entry
  • In the electronic media, entry barriers are high for broadcasting since it is very capital-intensive. It involves the cost of leasing the transponder, setting up up-linking facilities, setting up pre and post-production facilities. The barriers to entry are far lower for content providers. Besides, broadcasters themselves commission programmes and finance their production. Hence margins are lower. In spite of the high barriers to entry a slew of channels across languages and genres have been launched in the recent past.
  • Bargaining power of suppliers
  • In the print media, it is high for newsprint suppliers. It is medium to low for content providers in the electronic media. Terrestrial broadcasters such as Doordarshan and regional broadcasters such as Sun TV actually commission time slots to content providers.
  • Bargaining power of customers
  • Relatively high in both print and electronic media. The consumer finds a surfeit of players to choose from. Conditional access system (CAS) and DTH services now enable the consumer to choose the channels that he wishes to view; thereby increasing his bargaining power.
  • Competition
  • High in print media, especially in Hindi dailies. The print sector includes listed entities like Jagran Prakashan and HT Media. Regional print media too is seeing increasing competition. Competition is high amongst broadcasters especially for general entertainment channels. The space includes listed entities like Zee TV, TV 18, UTV, NDTV and Sun TV.

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Financial Year '17

  • The Media and Entertainment Industry is a key growth driver for the Indian economy. According to the FICCI-KPMG Report, the sector witnessed another year of all round growth, albeit slower than estimates at the start of the financial year. This was mainly due to the impact of demonetisation. According to FICCI-KPMG estimates, the industry grew at 9.1% in CY16 over the previous year, to Rs 1,262 billion. Television forms the core of the Indian M&E Industry contributing to around 47% of the overall revenue of the industry.
  • Television grew at 8.5% primarily due to a lackluster year for subscription revenues and speed bumps in advertisement revenue growth primarily due to slower domestic consumption and the Broadcast Association Research Council (BARC) data recalibration. Print revenue grew at 7% as English language newspapers continued to be under stress. However Regional languages sustained their strong growth levels. Films had a disappointing year with mere 3% growth on the back of poor box office performance of Bollywood & Tamil films.
  • Digital advertising continued its momentum with a 28% growth to reach 15% share in the overall ad pie. Radio registered a 14.6% growth led by volume enhancements in smaller cities, partial roll out of batch 1 of phase III stations and marginal increase in effective rates.
  • Total advertising spend across different media verticals was US$7.9 million in 2016. Print media and television together contributed for 76.2% of total revenue from advertising in 2016.
  • The year 2016-17 had two significant events which impacted the industry. The first was demonetisation which derailed the momentum of growth. The industry which was expected to benefit from implementation of 7th Pay Commission and good monsoon and register higher growth in H2, slipped to a low single digit growth post demonetisation. The second event is roll out of GST from July 2017, the impact of which is uncertain. Newspaper industry which was exempted till now from indirect taxation has been brought under the GST regime and it is yet to be seen how and to what extent it will impact the print industry's business model.
  • In the year gone by, within the television segment, regional channels continued to gain traction. Print, unlike in the developed world, continued to grow, with vernacular outpacing the growth of English language publications. In the movie industry, although overall revenues declined, box office collections of blockbuster films surpassed all previous records. This was true for Bollywood as well as regional films. Video consumption on digital platforms got a boost due to decline in data tariffs and increased availability of content on various digital platforms. Radio made deeper inroads in semi-urban India following the auction of Phase III licenses.

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Prospects:

  • According to the FICCI-KPMG Report, the industry is expected to grow to Rs 2,260 billion by 2020 at a CAGR of 14.3% during 2015-2020, which is more than double the rate of growth of global media Industry.
  • Currently, advertising revenue in India contributes less than 0.5% of the GDP, compared to the average 1% contribution across most developed economies. It is expected that advertising will increasingly contribute a higher share to the GDP in the coming years and is projected to double to Rs 994 billion by 2020 growing at a CAGR of 16% during 2015-2020.
  • With the effects of cable digitization yet to show impact, the subscription revenue is expected to grow to RS 1,266 billion by 2020 at a CAGR of 13.2% during 2015-2020.
  • The fortunes of the media industry are linked to the growth of the economy. India is set to grow at a rate of at least 6-7% over the long term. Rising incomes in the hands of people encourage them to spend more on discretionary items like media and entertainment. However, the trend is shifting more towards the online medium.
  • The demographic profile of India also favours higher spend on entertainment, with the consuming class forming a sizeable chunk of the country's total households. Thus, this could lead to the emergence of a huge consumer base for the various products and services (including entertainment).
  • New distribution technologies like DTH, Conditional Access System (CAS) and IPTV, hold the future of the media industry as increasing digitization will radically alter the ways in which consumers receive channels. The mandatory digitization all over India will bring in more subscription revenues for the broadcasters as opposed to under reporting of numbers by cable operators at present. Also, continued growth of regional media and growing strength of the filmed entertainment sector will also boost growth of the media industry.
  • The advent of digital platforms will require industry participants to invest in constant innovation in products and services. Thus, going forward, innovation will be the key to attract more consumers and deliver relevant content and services that are profitable too.
  • With metros already being saturated, regional markets provide ample scope for growth in the media sector. In print media, newspapers are being published in vernacular language. In television, newer channels are introduced in local languages. Tier II and Tier III cities and towns are set to drive the Indian consumption story in the next few years.

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Related Links for Media Sector
Quarterly Results | Sector Quote | Over The Years

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