Introduction
The Indian Entertainment and Media Industry has out-performed the Indian economy and is one of the fastest growing sectors in India. It is rising on the back of economic growth and rising income levels that India has been experiencing in the past years. This is significantly benefiting the entertainment and media industry in India as this is a cyclically sensitive industry and it grows faster when the economy is expanding.
An added boost to the entertainment and media industry in India is from the demographic point of view where the consumer spending is rising due to increasing disposable incomes on account of sustained growth in income levels and reduction of personal income tax over the last decade. The current size of the industry as a whole is estimated at US$ 7 billion in 2004 and is expected to grow at a CAGR of 14 per cent to US$ 13 billion by 2009. The Filmed Entertainment and Television segment dominate the industry followed by the Print, Radio and the Music segments.
Other than the demographic and economic impetus provided by the Indian economy that is helping the entertainment and media industry to grow at this rapid face, there are several other factors, which are contributing to this high growth rate. Some of these are:
Low Media Penetration in lower socio-economic classes
Table below gives the media penetration in various segments of the E&M Industry today. As would be evident, the media penetration is varied across segments and across the socio-economic classes. A common factor, however, across the segments is the fact that though the media penetration is lower in lower socio-economic classes, in terms of absolute numbers, the penetration is much higher in these classes. Hence, efforts to increase the penetration even slightly in these lower socio-economic classes are likely to delivery much higher results simply due to the higher numbers.
Low Ad Spends
Indian Advertising spends as a percentage of GDP is only 0.34 per cent, which is way below the percentages for both developed and developing countries. This provides an immense potential for growth in since advertising revenues are key to every segment in the Indian entertainment and media industry. Even if India were to reach the global average, the advertising revenues generated would almost be equal to the current advertising revenues, which are estimated at about US$ 2.5 billion for 2005 fiscal.
Foreign Direct Investment (FDI)
Today India has probably one of the most open liberal investment regimes among the emerging economies with a conducive FDI environment. The entertainment and media industry has significantly benefited from this liberal regime and most segments of the entertainment and media industry today allow foreign investment. Recently FDI was permitted in the two important sectors of Print Media and Radio. Films, Television and other segments are already open to foreign investment. In the print media segment, 100 per cent FDI is now allowed for non-news publications and 26 per cent FDI is allowed for news publications. Printing of facsimile editions of foreign journals are now also allowed in India. This policy is helping the foreign journals save significant costs of distribution them to service the Indian market audiences more effectively. The FM radio sector too was opened for foreign investment recently with 20 per cent FDI being allowed. The FM radio sector itself has expanded by opening 330 licences for private investment, which currently is underway. As a result, the radio sector is expanding rapidly with forecasted growth rates of 22 per cent per annum.
Print Media
Indian print media has evolved through a series of revolutionary events. This has rendered the market highly fragmented with approx. 1900 news publications for a circulation figure of just 200 million. The segment hence provides for several opportunities as listed below:
Tapping the reading population
As per the latest readership survey NRS 2005, the reach of the print media (dailies and magazines combined), as a proportion of the reading population (i.e. 15 years and above) is only 27 per cent. The global average readership is estimated to be over 50 per cent. This highlights the significant potential of the print media market in India. Further, as literacy (as measured in the NRS) grows by nearly eight points and even higher in the rural areas, the potential of the print media assumes a significant proportion. This can be illustrated from the fact that one of the reasons that Dainik Jagran, India’s leading daily has been able to retain its leadership position for the last three years is because the number of literates in Uttar Pradesh, Bihar and Jharkhand (strong Dainik Jagran markets) has grown explosively. Time spent on reading has also gone up quite significantly from an average of about 30 minutes daily to around 39 minutes daily over the last three years, further contributing to this growth potential.
Build a pan-India presence
Due to low levels of literacy and India’s marked regional diversity, the print media segment is characterized by a large number of players dominating specific geographies (See Table below). Vernacular news dailies thus dominate the market with a 49 per cent share. Regional dominance is not just typical of only vernacular papers- even English news dailies have managed to gain dominance only in specific pockets. As a result, there are hardly any players with a pan-India presence.
Leveraging a fragmented market
The print media market today is highly fragmented with most publishers being family owned. These publishers hence had low access to capital and information and thus concentrated only in the geographical location in which they were the leaders. However this trend is now changing and publishers are looking to expand their market though both organic and inorganic routes. With an added push of foreign investment being allowed in the print media segment, this segment thus offers significant investment opportunities.
Television
Television has dominated the entertainment and media industry and continues to have the potential to do so even in the future. With over 200 million homes, television today reaches to over 100 million homes. With an average household-size of 4-5, advertisers simply cannot get over the potential to reach over 500 million eyeballs. The potential of the industry just seems to get better even with the current statistics. Television homes are growing at a staggering rate of 4 per cent per annum - it is no wonder that today in India, the number of television homes far exceed the number of telephone-connected homes.
The growth in the appetite of television homes to get a cable connection is ever-increasing with the changing demographics and economic status in not just the ‘A' class cities but also the ‘B' and ‘C' class cities. In fact, most growth in the Cable and Satellite (C&S) connected homes is now likely to emerge from these segments, which till date were privy only to the channels provided by the State Broadcaster. With a current base of about 61 million C&S homes, the growth projected in these homes is about 8-10 per cent. This is inspite of the fact that most C&S homes today are in the analog mode and the potential of the Digital C&S services is still in its nascent stage.
These staggering statistics give rise to immense number of opportunities, some of which are described below:
Demand for content
Today, there are over 300 channels, which are beamed into the Indian skies and most of such channels are available to all C&S connected homes. However, this has not discouraged the investor who still believes that there is room for more, keeping in consideration the potential to reach the large number of eyeballs, which no other medium can capture. As a result, around 50 new channels are being added each year. This has given rise to the serious demand for content for these 24-hour channels. Television broadcasting companies are continually scouting for content software companies and due to this imbalance, the programming costs are rising in an un-proportionate manner. This is a potential opportunity which still needs to be tapped to its fullest.
Regional programming
Regional programming is another segment, which needs to be evaluated closely for the opportunities that it presents. Most of the content on satellite channels today is either in Hindi or English. When all channels of Star TV went into exclusive Hindi programming two years back, the demand for local language content was proved beyond doubt. This aspect now needs to dwell further into vernacular languages and not just the southern languages where companies have already started their investments.
Niche Channels
With the influx of general entertainment, movie and news channels, television broadcasters are losing their audiences to their competition. Thus when one looks at the viewership ratings of the three main general entertainment channels in India, these do not vary significantly over a period. Investors hence now need to look at developing targeted niche channels as in the case of most matured television markets in the world. Though some channels in the genre of lifestyle and music have been launched, these are still a handful and thus there still is potential in this area. For example, India could do with a dedicated ‘food' channel or a ‘women' channel as in the US. Certain niche channels for genres of English Business News and Sports are doing very well in India, which gives the impetus for broadcasters to explore content for such niche channels.
Radio
Radio, which till a couple of years back, was in the privy domain of the State Broadcaster, has now been opened up to private investment. This sector has become the hottest sector for investments amongst the entertainment and media industry due to the following reasons:
- As many as 338 FM Radio licences are now available for bidding for the private players. These cover about 91 cities, most of which till now were being serviced only by the State Broadcaster.
- The Government has allowed FDI upto 20 per cent in the sector, which was not allowed previously.
- The Government has moved to a low revenue-share regime in contrast to the earlier fixed license fee regime, which was hurting the industry badly.
These three measures by the Government have thrown open several opportunities in the sector, which is poised to grow at 22 per cent per annum:
Investments required
The opening of 338 licences for which bidding will commence soon has given rise to the need for funding and operating these licences. As many as 101 companies have expressed their interest in the segment, most of which are currently not in the business of running and operating a radio station. This has brought about a need not just for financial investments but also technical and operating experience. As most of the existing players are themselves bidding for additional licences, there is a demand from the new players, who are proposing to enter this space, for technical and financial expertise to run a radio business and thus are looking out to international market for the same.
Content boost
The opening of new radio channels is also providing a boost to creative content companies to spring into action. Assuming an average requirement of about 5000 content hours per annum per radio channel, one can clearly see the potential for content in the additional 338 channels that being launched in the country. Further, radio as a medium also has the potential to tap into local markets, which earlier was being serviced only by the print media. Though ‘hit music' continues to be the preferred genre of content on radio, radio companies are not afraid to try out new creative formats, even though news is not permitted.
Potential to reach local markets
Out of the 338 channels that are up for bidding in the second phase of FM Radio expansion, only 22 channels are in the four metro cities, which have a flavour of a private radio broadcast. The balance 316 channels in 87 cities until now had access only to the radio services offered by the State Broadcaster. When the first FM licences were available in the four metros, there was a dramatic change in lifestyles in theses cities where people actually went back to radio listening itself! Thus, listenership of radio grew from an almost zero base to about 70 per cent today. Since listenership is directly linked to the advertising revenues of these radio stations, advertisers are looking forward to tap this local audience base and radio companies in turn to target growth from such niche-advertising revenues. Further, as compared to television commercials, radio commercials are relatively very economical to make. Because of this, advertisers are able to make multiple creatives to suit different cities, different day-parts and different brand objectives.
