Indian media and entertainment industry is expected to grow at an annual average growth rate of 18% to touch Rs 2245 bn by 2017 (Source: CII-PwC 2013 report). The 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. The Information and Broadcasting (I&B) ministry has already completed the second phase of digitization, which involved digitizing 16m cable TV houses in 38 cities during FY14. The growth trend for subscription revenues largely depends on the roll out of the Phase III and IV of digitization. The timely roll out of these phases is poised to substantially benefit 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 1%. 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.
Of the more than 70,000 newspapers printed in India, around 90% are published in Hindi and other vernacular languages. There are a total of 833 private satellite TV channels, permitted by the Information and Broadcasting Ministry, out of which 163 are pay channels.
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.
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.
FY14 proved to be yet another tough year for the media industry. The delay in pick up in economic activity continued to impact advertisement spends. This impacted revenues of media companies as they derive a substantial chunk of their revenues from this segment.
In the print space, efforts are being seen towards consolidation of business rather than aggressive expansions. The fall of rupee and its volatility during the year hurt the bottom line of the print media companies as the cost of imported newsprint went up.
The electronic media industry did mature to a considerable extent in FY14, especially after the roll-out of digitization Phase I and II during the year. The growth trend for subscription revenues largely depends on the roll out of the Phase III and IV of digitization. The timely roll out of these phases will certainly benefit the industry. Digitization deadline was further postponed on low availability of set top boxes. Phase III is expected to be completed in 2015 and Phase IV has to be finished in 2016.
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. Television will continue to lead the media industry in terms of revenue contribution with 39%, followed by internet access with 28 %. While, the share of print and films are likely to decrease to 15% and 9% in 2017.