Television Box Populi
The significant growth in the entertainment industry in the last decade of the twentieth century was largely triggered by the coming of age of television. For most of the last fifty years, it was a monopoly of the public sector broadcaster. However, the nineties inspired private sector enterprise across the television value chain. Since then, the rapid growth of the television industry has made it the most significant component, in value terms, of the entertainment sector. With increased hours of mass entertainment programming during prime time and better coverage of popular events, it has seen an explosive growth in consumer mindshare. Its status as the preferred mode of entertainment of the people is obvious from the fact that it now contributes more than 60 percent of the entertainment industry's revenues. Out of its total current revenues of INR 139 billion, subscription contributed 53 percent, i.e. INR 73 billion. That is one-and-a-half times the advertising revenues, which are at INR 49 billion. However, due to the large skew in the 'last mile', as discussed later, the broadcasters' share of pay revenues amount to only around 17 percent, or INR 12.5 billion. Other revenues, which include international distribution right, amount to INR 14 billion.
A combination of purposeful regulatory interventions and technology adoptions can go a long way in correcting such structural imperfections. The initiatives being undertaken and being proposed to be undertaken, to correct these structural imperfections, will drive the second wave of growth of the industry.
Advertising
As per industry estimates, the total advertisement spend in India last year was approximately INR 118 billion. However, at 0.50 percent, India continues to have one of the lowest 'Advertising spend to GDP' ratios amongst peer economies. This underscores the significant potential India has yet to achieve vis-à-vis advertising budgets. However, this is set to change. A growing middle-class will spur the increasing tide of consumerism and a growing lineup of global brands will continue to be attracted by this expanding market. Consequently it is expected that the 'ad spend to GDP' ratio will increase steadily over the next four years. In the Indian context, there is further potential for television to increase its ad share. It is expected that over the next three years, both print and television will each command around 43 percent of the market, with the balance 14 percent being split between radio, outdoors and others.
Until recently, FMCG companies and consumer durable marketers were the main advertisers on TV channels. Today, the advertiser segment has expanded to include youth and teen products, financial products and services, educational products and services, corporate image building, telecommunications, computing, vehicles, and mobile telephony, to name a few. It is interesting to note that according to TAM Media Research, on-air promotions that are carried out by the channels themselves account for almost 40 percent of the total airtime, with a significant portion of them being shown on prime time. Going forward, with capacity utilisation of airtime improving, the opportunity cost of self-advertising will increase and it is expected to decline.
With advances in the technology platforms available and the introduction of addressability the effectiveness of ad-spend will be more transparent. This will further redefine ad spend patterns among genres, channels and advertising segments. Addressability will give additional tools to media planners, leading to significant improvements in media planning. This, in turn, is likely to cause radical shifts in media buying on television, which presently is largely a function of TRPs. Channels that succeed in convincing buyers of a better value for money by clearly identifying the right target group will be able to charge a significant premium to the market. There is a point of view that in a more transparent market, with the introduction of addressability, the duration of advertising will fall even as subscription revenues increase. However, this may not necessarily be the case. As has been seen in the past, the more popular channels have been able to garner almost the same quantity of advertisements (in volume terms) while simultaneously charging a subscription fee, compared to some of their free-to-air (FTA) counterparts. This situation is expected to continue and, barring short term dips, the average ad duration per channel is expected to sustain itself and, in fact, increase in the medium term as a result of an increase in non-prime time advertising. The fear that compulsory addressability could lead to a flight of advertisers to FTA channels may not be entirely justified; flagship channels, whether FTA or pay, will continue to garner premium advertisements.
Subscription revenue Television reaches over 40 percent of the billion people in India, commands the highest mindshare among consumers and cuts across rural-urban and class divides. Currently, 91 million households own a television, out of which 48 million households are cable and satellite households, the state-owned terrestrial broadcaster, Prasar Bharti, accounting for the balance 43 million. Though the cable TV penetration in India continues to grow at a brisk pace, the untapped potential is still very significant. Over the next few years, cable and satellite, along with emerging delivery platforms like DTH and IP-TV are expected to close in on the gap further. It is expected that television connectivity in India can reach 134 million households by 2010, of which as many as 85 million, or 63.5 percent could be connected through cable and satellite, DTH, IP-TV or other non-terrestrial broadcast platforms.
Along with a growth in subscriber volumes, the cable subscription charges (ARPU per month) too is expected to grow at a pace faster than that of per capita GDP. At around INR 150, India has one of the lowest ARPUs in the world. In fact, the ARPU for cable television has actually fallen in real terms, growing at sub-inflation rates over the past seven years. An average urban Indian cable connected household receive as many as 100 or more channels for which it pays anywhere between INR 100 to 300 per month, while in certain rural and semi-urban areas, this number could be as low as INR 60 per month. The wide disparity in ARPUs between locations and, often, between various localities within the same city, is not proportionate to the quality of content or service offering by the distributor but has been guided mostly by the relative bargaining power of the cable operator with both the consumer and the broadcaster.
Apart from the low subscription fees, subscriber declaration by cable distributors to broadcasters in India is one of the lowest in the world, resulting in a grossly inequitable distribution of subscription revenues. According to an independent research, operator-broadcaster split in India of subscriber revenue has the worst skew in the world. It is estimated that the LCO corners 79 percent of the total subscription revenues of the industry and leaves just about 17 percent for the broadcaster. The residual 4 percent is retained by the MSO who downlinks the broadcasters' signals and transmits them through a combination of fibre and coaxial cable network to consumers' homes via the LCO, who, almost in all cases, owns the coveted 'last mile'. The low levels of declarations are attributed to the lack of transparency at the last mile distribution end of the business, owned by the 30,000 odd LCOs across India. This combination of low subscription fees (ARPUs) and chronic under-declaration of the subscriber base by the LCOs has significantly constrained the growth in the subscription revenues for the broadcasters.
Making sense out of the chaos
In a consumer economy, consumer interests should ideally drive the market structure and regulations. Today the consumer has little real choice regarding platforms or operators in the monopolistic last mile environment, created through informal agreements amongst cable operators. Unwillingness to proactively intervene to correct such market distortions amounts to protecting an informal monopoly, denying consumers their rightful operator and technology choices and constraining the growth and employment potential of the industry in the long term.
Putting the issues in perspective
It is unreasonable to expect the 30,000 strong LCO & ICO fraternity (which employs over 500,000 people) to either shut down or fall in line overnight. On an as-is basis, it is unlikely that the declaration percentage will improve significantly from the current level of 23-25 percent to more than 30-35 percent, unless such a move to increase declaration is accompanied by either a steep increase in subscription fee or a significant reduction in channel pay-outs, or a combination of both. This would necessitate all existing stakeholders, viz the LCOs, MSOs and broadcasters to act in unison and look at partnering solutions for the last mile. In the interim period when the market moves towards a correction in the imbalance, the incremental gains to the various stakeholders, including consumers will be disproportionate. However, if each stakeholder insists on maximising his own gain in the short term, it would only lead to a lose-lose situation in the long term. An effort in trying to correct the skew overnight may result in 'no correction' at all.
However, in the long run, there should be no ambiguity about the fact that better offering is linked to higher price; adequate consumer awareness campaigns may need to be undertaken by both the regulator and the broadcaster-distributors to ensure that pay revenues are eventually aligned with service. This situation, in a way, is akin to a toll road or an urban utility project, where privatisation of infrastructure eventually results in the user paying for a similar facility which he was hitherto enjoying for 'free'. To ensure smooth implementation, government could consider mandatory licensing for cable operators. All registered cable operators should be given a reasonable deadline to switch over to such a licensing regime without any licensing fee. The licensing authority could be given powers to conduct surprise audits to establish the declared subscriber numbers and to invoke penal provisions, in case of any material discrepancy.
Content
Broadcasters are beginning to recognise that audiences cannot be taken for granted. An increase in the number of channels, coupled with a surfeit of “me too” content on channels within the same niche has led to fragmentation in viewership patterns. Advertisers too, now, have the option of lower priced niche channels to reach a more focussed target group, and their advertising spend reflects this. An increasingly sophisticated Indian audience, now exposed to international fare, benchmarks television entertainment with the best when it comes to quality and treatment. Capturing the mood of the viewer, sports and Hindi film channels have gained viewership, but have had to spend heavily in order to acquire prime properties. News channels registered a 100 percent increase in viewership over the last three years, as have English entertainment stations and channels for children. The success of quality programming in certain segments indicates the potential for entertainment channels to move up the content value chain.
The shifts in viewing patterns have put a high pressure on mainstream channels, necessitating them to revisit their content strategy to attract new audiences and to retain existing ones. Several big budget shows have been launched on Indian television in the recent past. The line-up included reality shows, professional dramas, game shows, interactive programmes, daily soaps and adult programming. These were highbudget, high star-value programmes on which channels spent millions on development and promotion, not all of which proved successful and were subsequently pulled off air or thematically re-oriented.
Sports channels
With an increase in cricket as well as non-cricket viewership, sports channel viewership has gone up manifold. The boom was primarily on account of World Cup Cricket 2003, followed by India's tours of Australia and Pakistan in 2003-04. The popularity of Indian cricket has been rising rapidly, as can be seen from the price at which the television rights have been sold in the recent past. For instance, as opposed to a mere USD 10 million which the broadcast rights for World Cup in Australia-New Zealand (1992) garnered, the rights for the 2003 World Cup in South Africa fetched around USD 85 million, an increase of 750 percent in ten years. Compared to this, the Olympic rights have moved from USD 350 million (Atlanta, 1984) to USD 1.5 billion (Athens, 2004), an increase of just over 300 percent in twenty years. In addition to cricket, viewership of Formula 1, tennis, soccer, hockey, basketball and baseball is also on the rise, helped to a great extent by the rise of Indian sportspersons like Narain Karthikeyan (Formula 1) and Sania Mirza (tennis) who have recently made it big in the international arena. Sports channels are proactively trying to attract the audience with a mix of sports, entertainment and amusement. Indian viewers currently have a choice of five sports channels. It is expected that the share of viewership of sports channels will be cyclical depending on the occurrences of popular sports properties in that year, with a continued heavy dependence on cricket.
News channels
The news and business channel space grew from virtually nothing in 1995, to just over INR 2 billion in 2002 (comprising two dominant news channels, one major business channel and two international English news channels). Since then, this segment has grown further - currently, there are around 11 mainstream news channels and a slew of regional channels which together generate revenues of over INR 5 billion. Increased production values, introduction of tabloid news formats and entering into bouquets have helped this segment in attracting more eyeballs in the recent past. A few more news and current affairs channels are reportedly in the offing with large corporate houses planning forays into this segment. The business channel space, originally an offshoot of the news channel space, hitherto dominated by CNBC, is believed to be the next growth driver, within the news and business space. Currently valued at INR 1 billion, this space is expected to grow at 40-50 percent over the next 2-3 years.
Children's channels
Close on the heels of news channels, the children's channel space is emerging as one of the fastest growth drivers. Children's channels currently garner INR 1.4 billion in advertising revenues, while pay revenues too are expected to kick in, in a large way. Advertisers of general products are increasingly getting interested in this space - apart from a growing market for children's products, children are believed to exert a strong 'pester power', which influences buying decisions for a large range of consumer durable and non-durable products. Currently, there are around ten children's channels. International majors in children's broadcasting, Cartoon Network and Nickelodeon already have an established presence in India, while Disney has commenced operations recently. Established Indian broadcasters like Zee and content providers like UTV and Pentamedia have also entered this space over the last two years. The domestic players appear to be well-placed to exploit the current void in localised programming, which has empirically proven to be a strong driver in other mature television economies. The international channels too currently have a high degree of dubbed multi-lingual programming and are reportedly looking at including local programming in their offering as well. As a result of increased depth of programming, together with the expansion of the advertising space and the emergence of addressable distribution platforms facilitating pay television, the children's channel segment seems to have entered a period of sustained growth.
Regional channels
Regional channels have been jostling for viewership, in the face of increasing quality and variety of offering by mass channels, and the emerging popularity of niche channels. In West Bengal, Maharashtra and the four Southern states Andhra Pradesh, Karnataka, Kerala and Tamil Nadu, though, consumers have continued to establish a definite demand for regional content. However, this space is characterised by low ad rate realisations, low production budgets, “me too” programming and fierce competition between various channels. The large regional variations necessitate the need for a more targeted and segmented approach for content, in an addressable scenario. Viewership of other genres such as English entertainment has risen by around two thirds over the previous year. Currently, there are seven English entertainment and film channels that cater mostly to the urban households. English film channels enjoy the highest ads-to-viewership ratio, i.e. they command a relative premium on a proportionately lower viewership base, as opposed to mass channels. Regional channels, on the other hand, have the lowest ads-toviewership ratio.
Content trends
The television software sector, which supplies programming content to broadcasters, is currently estimated at INR 28 billion. The increasing number of programmes on prime time, a swell in the number of hour long weekly programmes and enhanced consumer interest in niche content are considered to be driving growth. Further, the increased use of content libraries for export to both Indian and non-Indian viewers abroad have also led to growth in this sector. While mainstream entertainment programming will continue to be the bulwark of Indian television, other genres such as news, sports, children and special interests (viz. religion, home, health, etc.) will form an increasingly important part of the software pie. It is important to note that despite the boom in the television sector and the spiralling demand for content, stand alone television production houses have not been able to grow their business, barring the market leader and a few others who have further consolidated their positions.
Going forward, it is believed that both broadcasters and content producers will begin to work out backward and forward integration models respectively with broadcasters developing a higher proportion of content in-house and more production houses getting into the broadcasting business. Another growth area in the Indian television software industry will be adaptation of the existing content for digital and on other delivery platforms. Most of the Indian television software is generated on analog platforms, going digital only in the last phase of broadcasting. All content will first need to be converted to digital formats and then fine-tuned to suit the delivery needs of each individual format such as HDTV, IP-TV, etc.
The road ahead
The television industry is now ready to advance to the next stage of its evolution, grasp the opportunities presented by the digital age and completely change the home entertainment landscape. In the process, it is expected to continue its rapid growth and reach INR 371 billion by 2010. Over the next six years, television advertising spend is expected to grow at a little over 8 percent annually, to reach INR 78 billion in 2010. Such growth will be a function of an increase in number of advertisers and an increase in paid ad seconds. Going forward, digital distribution players like DTH, IP-TV are expected to emerge as new contenders for the total ad pie, as new revenue streams like (advertising on) Electronic Programming Guides (EPG) emerge.
The total distribution revenues are expected to grow from the current INR 73 billion to around INR 250 billion by 2010, of which the share of declared revenues will improve significantly from INR 19 billion (26 percent) to INR 134 billion (54 percent). It will be driven more by the conversion of existing analog subscribers to addressable digital subscribers, rather than a plain vanilla increase in the declaration percentage, which will increase only from 25 percent to 30 percent in six years.
Broadcasters' pay revenues will grow six-fold, from INR 13 billion to INR 82 billion, while organised distributors, currently at a fledgling INR 3 billion, will command a significant share of the television market with subscriber revenues of around INR 41 billion. The LCO community, though growing at a lower compounded rate, too will benefit from increasing ARPUs, seeing their revenues growing from INR 58 billion currently to INR 126 billion. Riding on a strong base and strong economic indicators, C&S connections are expected to grow at a CAGR of 10 percent over the next six years to reach 85 million households. Content will be the key driver and demand for premium content will increase. Though the market is expected to be price sensitive, operators are likely to be able to charge significantly higher fees for premium and value-added content.
The digital subscriber off-take is expected to be more rapid in metros, while the roll-out will be slower in other cities, towns and rural areas. The price wars with existing cable offerings will be more intense. While DTH and digital cable will see a moderate subscriber off-take in smaller towns and even rural areas (where the state-owned Prasar Bharti's low-priced DTH offerings are expected to have a higher market share compared to that of private operators), IP-TV and broadband over copper will be restricted to the major cities, given the high per-line investment required. In 2010, out of the estimated 85 million connected households (a household with C&S, DTH, IP-TV or any other form of connectivity other than terrestrial), digital platforms will have a market share of around 18 percent, or 13 million. There is a potential for this number to go up significantly, depending, inter alia, on the regulatory environment which will induce new players like established telecom operators to make the necessary investments.
In terms of offerings, it is expected that the majority of subscribers, irrespective of the platform they are on, will continue to opt for a basic package, which is selfcontained and fulfils the minimum infotainment requirement. 'Light viewers' (i.e. Less than 20 hours a week) form the bulk of television viewership and watch the maximum number of genres. The behaviour of this segment in the face of an onslaught of channels and competing platforms, and the ability of broadcasters and distributors to tap these eyeballs effectively through attractive packaging and pricing will have a direct bearing on the subscriber off-take. This, in turn, will determine how soon the basic subscriber, can move to the premium category.
Conclusion
2004 was an eventful year for the industry. The industry saw a further strengthening of the C&S dominance and increasing reliance on subscription revenues. Persistent efforts by broadcasters enabled them to get higher disclosure rates. These superior disclosure rates coupled with higher subscription charges, post lifting of the price freeze that had been in force for around two years, increased the broadcaster revenues. It also helped the broadcast industry continue its progress from an advertisement dependant one to one with more balanced revenue streams. 2005 could be a turning point in the industry's life cycle. The launch of DTH, DSL and IP-TV is expected to reshape the landscape of the industry, by introducing competition in the last-mile for the first-time. The forces unleashed by them will determine the future of the industry.
Continued ..
