Consistent commitment to economic reform over the last decade has spurred the steady growth of the Indian economy. The emphasis on creating an enabling environment for investment and the inherent potential of the Indian economy have together pushed India's annual Gross Domestic Product (GDP) growth rate beyond 8 percent.
While India's GDP ranks eleventh in the world in absolute terms, it ranks among the top five economies of the world when assessed in terms of purchasing power parity. It is the growing consuming class with the proclivity to spend that will drive the growth of the Indian entertainment industry. Adding to this positive outlook is the fact that the average Indian is getting younger and is showing a greater propensity to indulge and entertain himself. Moreover, there are over 20 million Indians living abroad who are increasingly opting for India-oriented entertainment, as the availability of such content increases. Globally, a clutch of international films with Indian content, themes and performers are receiving wide visibility and acclaim. This broad acceptance of Indian entertainment is likely to give a further fillip to the expansion of this industry.
Consumerism and demographics
The emergence of the Indian middle class with greater earning power and a higher disposable income is one of the key factors that will drive the growth of the Indian entertainment sector. Demographic analysis clearly shows the evidence of this growth. The consumption chart below indicates the continued progression of people into higher income and consumption segments.
As the average Indian gets richer and his more compelling needs are met, his propensity to spend on discretionary items such as entertainment increases. Further, as his consumption of various goods and services rises, companies would try to reach out to him through more marketing and advertising. Higher demand and an increased investment would result in an expansion of the entertainment industry in the years to come.
Non homogenous market
As the Indian entertainment market grows, it is essential to recognise the heterogenous nature of the market. All too often, the specific appetite of certain segments such as the rural population, women and children, is under-estimated and their financial value proposition continues to be under-recognised. Companies and businesses that have managed to differentially cater to the varying segments of Indian population have benefited. As a corollary, the entertainment sector too has begun to witness the advent of a broader set of offerings which are aimed for specific segments: e.g. television channels for children. On the other hand, the ‘children's films’ genre, for instance, has yet to grow and mature in India. There is a case for a proactive and sustained targeting of specific, niche segments of the market. In fact, given the size and potential of India's niche segments, niche may be a word which is likely to be replaced soon.
Advertising spend
As per industry estimates, the total advertising spend in India in 2004 was approximately INR 118 billion, a growth of 13.4 percent over the last year. However, India continues to have a low 'advertising spend to GDP' ratios compared to other economies, underscoring the untapped potential. In 2004, the advertising spend for India stood at 0.50 percent of the GDP, up from 0.48 percent the previous year. This is expected to increase significantly due to rising consumerism and growing interest from global brands attracted by this huge and expanding market.
Given the increasing number of media channels that consumers are exposed to, brands will have to advertise more frequently and across more channels to generate brand recall. As television channels have multiplied and the content available has become more diverse in the last decade, their viewership has increased, niche channels have emerged targeting specific demographic segments and the cost of advertising on television has reduced. While the broadcasters can dwell on this shared optimism, they must also recognise that advertising budgets are very sensitive to economic downturns. Advertising budgets are not only easily brought down, but the productivity of such expenses is also challenged. Companies are increasingly demanding their advertising agencies to link their fees to performance indicators such as sales increments. With increasing access to state-of-the-art technologies, addressability issues are being put to test, thereby exposing the limitations of current media research findings and measuring the true efficacy of media.
Content
Any new media market attracts an initial swell of content players. Such a scenario invariably leads to a stage where the smaller players find it unviable to continue and are eventually weeded out. After the initial shakeout, the industry consolidates and grows until it reaches a stage of maturity. Thereafter, in a stable environment, it is the quality of content, with an accentuation on innovation and creativity that drives the industry. In the television medium, the different genres are in different stages of their life cycle. Several channels have emerged recently in the space of children's entertainment and education.
The news channels are in the next stage of evolution with an influx of players in the last two years, but market limitations and more transparent viewership patterns will lead to an inevitable shakeout. Up the maturity curve is the mass entertainment genre, which has established itself with 3-4 major players and the quality of programming (including innovative formats) determining their fortunes. With the introduction of newer distribution channels, such as DTH and IP-TV, the demand for premium/ alternate content will increase and this is expected to spur the growth of new genres such as education, teenage entertainment, mature content (subject to liberalisation of the programming code), etc.
With a legacy of over 50 years and 1000 films a year, the Indian film industry has reached a phase where the focus is on the quality of content. The increase in the number of films made has not seen a proportionate increase in their commercial success. In fact, there is now a decline in the number of films being produced annually and this trend is expected to continue as production houses now value quality over quantity. To combat the pressures of television programming, the Indian film industry, like its western counterpart, is being forced to attract the audiences through technological advancements like advanced visual effects, special effects, sound sync, animation and sheer star power.
In the late 80s, the Indian music industry saw an end of the existing duopoly with several new players emerging. A spurt in content availability and new genres such as Indi-pop drove the rise in music consumption. However, technology has facilitated easy access to music through illegal downloads, pirated CDs and tapes, music television channels and radio FM channels. With little value realisation by music companies and minimal regulatory support, music companies are struggling for survival, as a result of which there has been very little experimentation in content. This situation could change with the increasing popularity of non-film music in India and globally, signs of which are being observed.
Pricing
India has the potential of becoming an attractive destination for international broadcasters and production houses, despite its low per capita income, as the larger population base makes a viable case for high volume consumption. However, while prices are significantly lower in India than in other parts of the world, access to volumes is restricted by fragmentation in the distribution chain. Subscriber declaration by cable distributors to broadcasters in India is extremely low resulting in very inequitable distribution of subscription revenues. According to an independent research, the operator-broadcaster split of subscriber revenue in India has possibly the worst skew in the world.
Such low levels of declarations have been attributed to the lack of transparency in the last mile distribution end of the business, which is controlled by the 30,000 odd local cable operators and independent cable operators across India. Similarly, in films, there is low transparency of actual gate receipts, outside of multiplexes and few organised theatre halls. This is particularly true in smaller towns where receipts are not accounted for. According to industry experts, the total revenues lost to the film industry due to unaccounted receipts coupled with video piracy range between INR 15 - 20 billion annually.
Film piracy through illegal DVD and VCD releases and the open screening of new releases by cable channels, is forcing film producers to pre-sell the television and video rights, before the release of the film even if it means an erosion of theatrical ticket sales. Piracy of music through illegal downloads, unauthorised CDs and remixed versions of popular music is taking its toll on music recording companies. The paltry royalty sums, if any, paid by music television channels and FM radio only adds to the difficulties faced by these companies.
Differential pricing
India has seen improved income levels across a large section of its populace, with a significant number of people willing to spend on entertainment. However, a substantial difference in the affordability levels between various sections of society continues to exist. As a result, a price differentiation strategy needs to be adopted for media products, with a view to maximise revenues. Establishment of zones and creating a zonal pricing structure for different cable subscription packages could be an effective pricing strategy. Through a differential pricing system, broadcasters will be able to earn more from higher income groups through compelling content packages, and the same can be used to subsidise subscription fees of lower income groups with minimal content packages. This will help increase the size of subscribers thereby resulting in increased revenues. In the film sector, price differentials already exist both at the point of distribution (territories for distribution) as well at the point of exhibition (theatre hall tickets).
The differential pricing mechanism can be examined more closely and transparently to determine price levels that will draw larger audiences to films. In the music sector, pricing CDs at a premium end and cassettes at the low end may help music companies compete with the prices of pirated cassettes. A marginal drop in CD sales may be offset by increased cassette sales. At an overall level, difference pricing should be driven by the objective of revenue optimisation. In all these sectors, differential pricing would require a thorough understanding of the demand for media and price sensitivities of various segments, gained through research at the ground level.
Regulation
Regulations give form and direction to the free play of market forces, according to the social and economic objectives of the nation. Therefore, regulatory interventions are typically driven by a vision for the future, which can be shared by all stakeholders. The need to have such a vision is very important now in India, as the entertainment industry prepares for the introduction of several new technologies and business models that have the potential to revolutionise the dynamics of value creation in this space. In most media markets, the consultative process leading to formulating regulations, has served as defining steps for charting the growth path. In India, most segments of the industry have grown to their present structure and size in a largely unregulated environment. Such growth has resulted in the creation of lastmile monopolies in cable television, established through informal agreement among the unorganised last-mile operators. However, further growth will be extremely difficult without facilitative regulation to ensure structural and behaviourial changes amongst the industry players. It is important to note that any regulatory intervention should be supported by a comprehensive framework for industry evolution, and followed up by efficacious implementation. Otherwise such interventions can only lead to chaos and uncertainty as demonstrated by the aborted attempt to introduce Conditional Access Systems (CAS) for television in 2003 - 04.
Technology
Technology has played a key role in influencing the entertainment industry, by redefining its products, cost structure and distribution. Empirical evidence suggests that technological innovations create discontinuities in the industry, with the initial dissonance evolving into eventual realignment to effectively create and realise value from it. Content creation has benefitted significantly from technological breakthroughs, especially in the areas of sound, visual effects and animation. This has benefitted audiences by providing them with a high-tech content viewing/ listening experience. The growing adoption of digital television around the world has forced leading global broadcasting companies to put development and use of new technologies at the centre of their core strategies. For a content distributor, future will come by specialised offerings, such as high-resolution pictures, high-speed Internet access, online games and information, pay-per-view electronic commerce services and voice telephony. New technologies, such as satellite radio, are characterised by their ability to reach out to larger audiences than ever before, reducing the cost per contact. While these technologies typically require high initial capital expenditure, the same may be set off by incremental volume gains through increased reach. It is this trade off that needs to be evaluated before an investment is made in any new technology. If one were to look at emerging trends in technology and their impact on entertainment consumption, the most significant trends are seen in the areas of media distribution, though some may be regarded as product innovations.
The increasing penetration of technology is a major force shaping the entertainment landscape today. It will completely revolutionise content delivery as well as the viewership experience. Once these technological changes attain a critical mass, they can have a shattering effect on the existing industry equilibrium. Due to the imminent impact of these and other technologies, the successful media and entertainment companies will be the ones that are prepared for their disruptive effects on their business models and the industry structure.
The future of the entertainment industry will be a function of the interplay of each of the above factors, namely consumerism, advertising spend, content, pricing, technology and regulation. Estimating the industry size over the next 5-10 years, would require a crystal ball, given the number of variables involved. However based on current trends, the industry is expected to breach the INR 500 billion barrier in five years. For the Indian entertainment industry, this is the moment of truth. Beyond the linear growth projections, there is a bigger story waiting to happen if a concerted and accelerated effort is made now. The industry is entering a second phase of growth, which will have technology as one of the key drivers. This growth phase will be the consequence of a combination of quality infrastructure and the gradual penetration of digital connectivity, which will redefine the way entertainment content is delivered and consumed. This phase of growth needs to be supported by an enabling tax and regulatory infrastructure, as the government begins to understand the long term potential of this sector, and starts according it the priority status it deserves.
Continued ..
