Realizing the Indian Dream

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The power Also in this issue: • Secondary headline number one Description writtenof here a billion • Secondary headline number one Description written here • Secondary headlineRealizi number one ng the Description written here Indian dream

FICCI-KPMG Indian Media and Entertainment Industry Report 2013

kpmg.com/in We would like to thank all those who have contributed and shared their valuable domain insights in helping us put this report together.

IMAGES COURTESY: Eros, Sony Music, Disney UTV, Reliance Entertainment, Zee Network, Times Music, Only Much Louder, T-Series, United Mediaworks, Fox Star India, Milestone Interactive, Viacom 18, Star India, 9X Media, Vserv.mobi, Graphiti Multimedia, Green Gold Animation, Prime Focus, DDB Mudra, Times OOH with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion Realizing the Indian dream

FICCI-KPMG Indian Media and Entertainment Industry Report 2013 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 Foreword

The Promise of a Billion...

The promise of a billion consumers – this year’s theme for the FICCI Frames, symbolizes the immense potential of India as a Media and Entertainment (M&E) market.

Why is this the relevant year to articulate this theme? While 2012 was a challenging year for the industry as a whole, it was also a year of significant changes; one where value chains were re- arranged and business models re-defined. These changes, while painful in the short run, will position the Indian M&E industry on a stronger footing for the future.

This year, we have included several guest columns in the report. We believe it is important to have multiplicity of perspectives. There is a wide range and breadth in the points of view offered in these columns; but we hope these opinions will enhance the value of the facts and information contained in this report.

In 2012, the economic slowdown hit the industry hard – especially advertising revenue. Advertising budgets were cut and plans had to be modified. Most companies had to revise previously robust projections to reflect a new macro – economic reality.

However, many seeds of positive change were sown this year.

The digital transformation of the industry, which we highlighted last year, has finally entered the implementation phase. Digitisation of cable in India was rolled out. Phase 1, though somewhat delayed, is now largely complete in Mumbai and Delhi and progressing in Kolkata. Phase 2 is now underway. FDI in cable and DTH was also a welcome announcement and we are likely to see significant interest from foreign strategic investors and private equity players in these sectors.

Films saw robust growth of close to 21 percent on the back of content that addressed various consumer segments. The digitisation of theatres is close to 80 percent and projected to be nearly complete in 18-24 months – improving access for audiences and the economics for the business as a whole. Also, macro factors will enable the film industry in India to continue with its robust growth for years to come – rapid urbanization, headroom for multiplex growth and increasing sophistication in production and marketing will continue to drive revenue at near 11 percent for the next several years. We are not far from achieving our next benchmark – the INR 10 billion box-office film! with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 Radio too, is set for the – roll out of new licenses in 294 cities as announced by the Finance Minister in his Union Budget speech of 2013 – a positive step that can accelerate the sector’s growth. Print continues to grow in India unlike in most countries. It has become more competitive and vibrant over the last few years. And the industry is finally acknowledging that challenges to its business model, though not immediate, will emerge eventually. English markets will be challenged by the emergence of the digital ecosystem first followed by regional markets. However, for the foreseeable future, growth will continue at 9-10 percent CAGR. New media also emerged as a growth driver in 2012 – we saw the impact of new media revenue Uday Shankar for music companies reach critical mass, Youtube Chairman became a significant revenue driver, the App FICCI Media and economy in India began to take off and OTT Entertainment Committee models are being experimented for TV. 2013 will be the year in which the promise of wireless broadband starts to find fulfillment. There Ramesh Sippy is a renewed push on 3G and limited launches of 4G services – which are likely to go wider this year. Co-Chairman This should provide content companies a whole FICCI Media and new platform on which to reach, entertain and – Entertainment Committee engage its audience of a billion.

Karan Johar Chairman FICCI Frames

Jehil Thakkar Head Media and Entertainment KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 Tableco of ntents

Indian M&E Industry in 2013 An Introduction 06 12 Television The march to digital begins

Radio Renewed hope 88 114 126 New Media Music Let the games Streaming to begin! success

172 Technology Changing the game with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 Print Regional to the rescue 42 58 Films A Blockbuster year

Animation, VFX and Post Production Convergence Lights, Camera… Waiting for Animation! bandwidth 146 158 166 Out of Home Displaying resilience

Deal volume and value in 2012 Consolidating for scale 180 186 Tax and Regulatory Two steps forward... with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 6 The power of a billion: Realizing the Indian dream

Indian M&E Industry in 2013 01 An Introduction with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 01 beginning tomove towards fulfillment. of theindustry, thedreamsofadvertisers, mediahouses,andtelcosare frameworka regulatory thatisenablinggrowth and change inseveral sectors cinema,increasinglysophisticatedmobiledevices,broadband anddigital fetched. Today, powered bytechnologies, digital growth inpenetrationof billion-strong andsignificantlydiverse Indiancustomer baseseemedfar Not longago,thethoughtofbeingabletoreach andengagewiththe Introduction 04. 03. 02. 01. responsiveness andflexibility? measure andmonitoraudiencereaderresponses,then toensure youththe multitasking oftoday? How dowe theninculcateprocessesto penetrated markets for greaterlocalization ofofferings? How dowe engage cities? Isthereabusinesscasefor furtherzoning/ goinghyperlocal within and rural markets? key Orinternationalvslocallyproducedcontenttargeting how dowe balancedubbedvslocalized contentinnewly penetratedregional and customize contentfor each segment, toensurerelevance? For example, How canwe effectively segmentadiverse audiencebaseandthenresearch How dowecreatetrue the bottom ofthepyramid? access tomediaatrealisticpricepointsfor theunder-served populationnear penetrate emergingandlucrative regionalpockets? How canwe ensure audience segmentsandenablebetter subscriptionrevenues? How dowe How canwe formulate multi platform distributionstrategiestoreach new How canweextendour government. the promiseofabillion,comekey questionsfor M&Ecompaniesandthe with theopportunities presentedby digitizationand convergence, torealize distribution leakagesandtheneedfor better co-ordination. Along industry struggle withchallenges ofsuboptimalscale,fragmentedaudiences, environment thathasdampenedadvertising spends.Key sectorsstill At thesametime,thiscomesagainstbackdrop ofasubduedmacro Engaging aBillionConsumer Frames 2013 conclaveis‘A Tryst withDestiny: Not sosurprisingthen,th

KPMG Analysis basedupon discussions. TRAI, IAMAIestimates andindustry IRS Q32012 KPMG Analysis baseduponCensus2011 discussions andIndustry Organization(CSO)estimates Central Statistical 176 millionInternetusers 159 millionRadio listeners Significant potentialtogrow reach ofonebillion inacountry 181 millionPress AIR • • • 730 million TV Viewersmillion TV 730 in 2012-13 (visavis6.2percentprevious year) 5 percentgrowth inrealGDP(nominalgrowth 11.7 percent)inIndia Continued crisisintheEU Global slowdown ineconomic growth 3 2 connect? 4 3 reach? The power ofabillion: at thethemeforFICCI s’ 1

Realizing theIndiandream 7

Industry size and projections • ‘Alive’ App enables readers to interact with the The overall Indian economy slowed down in 2012 due to print medium. both domestic and external factors. Domestically, the • Increased integration of events with print/radio monetary and fiscal stimulus provided by the Government campaigns ensures on-ground reach. of India post financial-crisis led to strong growth in demand and consumption in 2009-10 and 2010-11. However, this • Barfi combined online apps, college and in mall resulted in higher inflation and a powerful monetary events, and multimedia appearances in a high response that slowed consumption demand. Moreover, recall marketing campaign. corporate and infrastructure investment were also pulled • Internet Radio stations: Purani Jeans (retro hits), down by the tightened monetary policy as well as the Club Mix (party tracks) and Sufiyaana (Sufi and policy bottlenecks. Externally, a slowing global economy ghazals) cater to tastes of niche audiences. weighed down by the continued crisis in the Euro area and uncertainty in the US fiscal policy also increased risks • Satyamev Jayate utilized Big data analytics to analyze large volumes of multiformat responses to growth. The Central Statistical Organization’s (CSO’s) within and post each show, to tailor future shows estimates indicate a 5 percent growth in real GDP in and leverage data to lobby for change. 2012-13, as compared to a growth of 6.2 percent posted in 2011-12. These factors resulted in a challenging year for the M&E industry, with reductions in advertising budgets across sectors.

The Indian M&E industry grew from INR 728 billion in 2011 to INR 821 billion in 2012, registering an overall growth How can the power of media be harnessed of 12.6 percent5. Recent policy measures taken by the to influence and be an instrument of social government can pave the way for gradual recovery for the change? Indian economy. With some improvement also likely in the global economy in 2013, the prognosis for the Indian How do we leverage the people’s trust in media to economy looks somewhat better and real GDP growth is influence, educate and be change agents for the better expected to be in the range of 6.1 to 6.7 percent in 2013- of society? How can we develop platforms that enable 146. Given the impetus introduced by digitization, continued our audiences to connect with each other and create growth of regional media, upcoming elections, strength in communities with common causes? the film sector and fast increasing new media businesses, the industry is estimated to achieve a growth rate of 11.8 percent in 2013 to touch INR 917 billion. The sector is • ‘Nirbhaya’ protest and women’s safety campaign projected to grow at a healthy CAGR of 15.2 percent to across traditional and social media, garners reach INR 1661 billion by 2017.5 widespread awareness and support. Television clearly continues to be the dominant segment, • Satyamev Jayate draws attention to key social however we have seen strong growth posted by new issues. media sectors, animation/ VFX and a comeback in the Films • Successful films OMG and Vicky Donor present (21 percent growth in 2012 over 2011 vis a vis 11 percent social themes in an entertaining way. per growth in 2011 over 2010) and Music sectors (18 percent growth in 2012 over 2011 vs. 4.7 percent growth • Press campaigns such as Lead India and Teach in 2011 over 2010) on the back of strong content and the India aim to mobilize and empower readers. benefits of digitization.

• ‘Have a Heart’ Radio channel campaign in Mumbai Radio is anticipated to see a spurt in growth post rollout and Delhi aims to promote acts of kindness. of Phase 3 licensing. The benefits of Phase 1 cable digital access system (DAS) rollout, and continued Phase 2 rollout are expected to contribute significantly to strong continued growth in the TV sector revenues and its ability to invest in and monetize content. The sector is expected to grow at a CAGR of 18 percent over the period 2012-20175.

05. KPMG in India Analysis and industry discussions 06. Economic Survey 2012-13 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 9

Overall industry size and projections

Overall 2008 2009 2010 2011 2012 Growth in 2013p 2014p 2015p 2016p 2017p CAGR industry size 2012 over (2012-17) (INR Billion) 2011 (For Calendar Years)

TV 241.0 257.0 297.0 329.0 370.1 12.5% 419.9 501.4 607.4 725.0 847.6 18.0%

Print 172.0 175.2 192.9 208.8 224.1 7.3% 241.1 261.4 285.6 311.2 340.2 8.7%

Films 104.4 89.3 83.3 92.9 112.4 21.0% 122.4 138.3 153.6 171.7 193.3 11.5%

Radio 8.4 8.3 10.0 11.5 12.7 10.4% 14.0 15.4 18.7 22.7 27.4 16.6%

Music 7.4 7.8 8.6 9.0 10.6 18.1% 11.6 13.1 15.3 18.3 22.5 16.2%

OOH 16.1 13.7 16.5 17.8 18.2 2.4% 19.3 21.1 23.0 25.0 27.3 8.4%

Animation and 17.5 20.1 23.7 31.0 35.3 13.9% 40.5 46.8 54.3 63.1 73.4 15.8% VFX

Gaming 7.0 8.0 10.0 13.0 15.3 17.7% 20.1 23.8 30.9 36.2 42.1 22.4%

Digital 6.0 8.0 10.0 15.4 21.7 40.9% 28.3 37.1 48.9 65.1 87.2 32.1% Advertising

Total 580 587 652 728 821 12.6% 917 1059 1238 1438 1661 15.2%

Source: KPMG in India analysis and industry discussions

Advertising trends and projections Total advertising spend across media was INR 327.4 Continued growth in Hindi and regional print markets billion in 2012, contributing to 40 percent of M&E industry backed by rising literacy levels, growing advertiser revenues. In the light of continued economic slowdown, engagement through activation solutions to leverage the advertising revenues saw a growth of 9 percent in 2012 as ‘local’ strengths of the medium, and threat from digital against 13 percent in 2011 and 17 percent in 2010.7 platforms still being held at bay, are all assumed to continue to drive ad spends on the print medium. Print continued to be the largest beneficiary, accounting for 46 percent of the advertising pie at INR 150 billion.

Advertising revenue (INR billion)

Overall 2008 2009 2010 2011 2012 Growth in 2013p 2014p 2015p 2016p 2017p CAGR industry size 2012 over (2012-17) (INR Billion) 2011 (For Calendar Years)

TV 82.0 88.0 103.0 116.0 124.8 8.0% 138.6 156.6 180.1 207.2 240.3 14.0%

Print 108.0 110.4 126.0 139.4 150.0 7.6% 162.0 179.0 200.0 222.0 248.0 10.6%

Radio 8.4 8.3 10.0 11.5 12.7 10.4% 14.0 15.4 18.7 22.7 27.4 16.6%

OOH 16.1 13.7 16.5 17.8 18.2 2.4% 19.3 21.1 23.0 25.0 27.3 8.4%

Digital 6.0 8.0 10.0 15.4 21.7 40.9% 28.3 37.1 48.9 65.1 87.2 32.1% Advertising

Total 221 228 266 300 327 9.1% 362 409 471 542 630 14.0%

Source: KPMG in India analysis and industry discussions

07. KPMG in India analysis and industry discussions with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 10 The power of a billion: Realizing the Indian dream

Roundup of the key trends and themes traditional media. However India remains a growth market for ‘traditional’ media evidenced by the growth last year in for growth TV audiences, radio listenership, and footfalls in theatres. Over the last couple of months, our team met with over a India is an outlier country where print is still a growth hundred senior stakeholders across TV, Films, Print, Gaming market. There is growing overseas demand for quality Indian and Animation/ VFX, Radio, OOH, advertising and new media animation/ VFX work at affordable pricing. sectors. We present in this report, a consolidated point of view on what shaped these sectors over calendar year 2012, New media co-exists as an additional and growing and what could be the game changers going forward… distribution platform. The need of the moment is the development of multimedia symbiotic models for reaching and monetizing all audience segments. Digitization of film and TV distribution infrastructure Macro economic indicators – rising literacy, continued Digitization of distribution has brought in the promise of urbanization, growing consumption, especially among more sustainable and profitable business models across younger sections of population, are expected to continue to media sectors. drive the penetration of and growth in traditional media.

The year 2012 heralded the much awaited start to digitization Greater sophistication of and segmentation in of cable. Despite some hiccups, Phase 1 saw significant content progress in implementation of mandatory digital access system (DAS) across the four metros. Industry now hopes to The content sector has traditionally been inhibited realize benefits over the medium term – including enhanced by challenges of lack of transparency, niche audience ability to monetize content, greater transparency and measurement, and broadcast economics not supportive equitable revenue share across the value chain, lower burden of investing in targeted content. Hence we have seen the of carriage fees and hence increased ability to invest in dominance of GECs in television, a majority of films targeted differentiated and sophisticated content. Phase 2 digitization at a mass market, most radio channels playing similar across the next 38 cities is anticipated to move ahead mainstream film music, and relatively lower production on similar lines, albeit with some delay vis a vis planned quality. 2012 saw the exit of channels such as BBC English timelines. entertainment and BBC CBeebies targeting kids, on account of economic challenges such as carriage fee payouts that Digital distribution has also enabled the films sector to make were prohibitive for standalone niche channels a comeback this year. The industry has achieved 77 percent digitization of screens and expects to be close to 100 percent A key outcome of the push in digitization will be the ability digitized in the next 18 months to 2 years8. Today 80-909 to increase production budgets and invest in differentiated percent of films are distributed digitally vis a vis 50 percent10 genres and multilingual content. physical prints in 2010. These developments have resulted We have already discussed, how digitization in films has in an increased ability to invest in differentiated content, supported greater investments in content and marketing in marketing, and widespread releases – all contributing to films sector with great results in 2012. greater audience engagement and unprecedented box office success across big and small budget movies alike. Digitization of distribution infrastructure in TV is also expected to improve broadcast economics, (with lower Overall - digital technology is expected to drive the M&E carriage fees, more equitable distribution of subscription sector’s growth in a challenging macro environment, by revenues across the value chain and the ability to increase spurring on end-user spending and transparency. ARPUs). In turn this could drive more investments in production quality, and niche and targeted genres of content/ Growth in new media packaging in the medium term The rapid increase in mobile and wireless connections Phase 3 licensing, and anticipated provisions for permitting continued to drive the growth of internet penetration in India. multiple frequencies in a city, would encourage investments With better access, through cheaper and smarter devices, in differentiated content for the Radio sector. audiences (especially youth) are consuming more content and are getting increasingly engaged. Internet and mobile platforms are a cost effective enabler to reach diverse audience segments with tailored content. Key beneficiaries are the emerging new media segments, For example, special genre internet radio stations of players which include internet advertising, online classifieds, and such as Radio Mirchi, Radio City, and multiple genre music gaming, all of which are on a rapid growth path. libraries available for download online.

Going forward, better uptake of 3G connections and the The Indian audiences could look forward to more targeted beginnings of the 4G rollout are expected to spur growth and engaging content in the medium term further. 4G technology will enable greater uptake in services including Live TV, HD video/ audio streaming, real time online gaming, high speed data downloads and uploads and could Regional markets remain key centres of growth enable introduction of new innovative offerings. The industry Advertisers continue to see higher growth in consumption looks forward with great hope to an aggressive rollout of this from key regional markets. Hence regional media continues technology by the telcos. on a strong growth trajectory especially in the print and television sectors. Key media players are focusing on With traditional media still going strong selectively expanding their presence in regional markets that are seeing higher rates of advertising revenue growth, Across the world, technology futurists envisaged that the and better insulation from slowdown than metros, which explosion in new media would drive audiences away from may be close to saturation in many cases.

08. Industry discussions conducted by KPMG in India 09. Industry discussions, Information shared by UFO with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 10. Hitting the High Notes, FICCI-KPMG Indian Media and Entertainment Industry Report 2011 The power of a billion: Realizing the Indian dream 11

For example Bennett Coleman & Co. launched Bengali daily better quality of production, should enable players to get ‘Ei shomoy. Going beyond regional GECs, broadcasters better realization for content. launched several sub-genre channels in regional markets. Zee and Star both launched their Bangla movie channels – Zee Cinema Bangla and Jalsha Movies. Star owned Regulatory and policy support Asianet Communications also launched Asianet Movies, Regulatory interventions have been a key enabler of growth the first satellite movie channel in Malayalam. Gujarati for the sector. dailies Sandesh and Gujarat Samachar launched their news channels – GS TV News and Sandesh TV. Anticipated developments in 2013 such as continued cable DAS rollout, Phase 3 licensing for Radio, and 4G rollout, will Film studios are also building a regional films pipeline. spur growth from the medium term. Reliance Big Pictures, Disney UTV Motion Pictures and Eros International are increasingly investing in the regional space. However, continued and unflinching government support is Hollywood films are expanding their revenue potential by needed. There is a need for measures to aid curtailment of dubbing across regional languages such as Tamil and Telugu. piracy and encourage investments to support further growth.

Phase 3 licensing in the radio sector is also expected to Co-production treaties, rationalization of entertainment tax, garner particular interest in key regional markets. government support to encourage formal skill development and training and incentives for animation/vfx and gaming are important areas of policy and regulation that need attention. Coming LIVE to you With changing lifestyles, there is an increase in media Gaps in availability of skilled M&E professionals consumed out of home. Brands are also increasingly keen to connect with consumers via ‘experiences’ to ensure greater The M&E sector could be a noteworthy employer across recall and amplification of brand values. creative, technical and business areas. With the growth in TV and Radio broadcast channels, in skill intensive sectors Activations/ events are now increasingly a key facet of radio of film, animation, gaming, VFX, the demand for qualified and print media solutions. talent is only set to escalate. In the talent driven media sector, companies could potentially differentiate based on Live music events/ festivals have been successful in ability to attract and retain the right people (for example, in attracting widespread audiences and engaging youth across the knowledge intensive content development sector or RJ key cities. dependent radio sector).

Increased consumption of music/radio/ video on-the-go However the industry is hampered by a talent crunch across via mobile and in cars provides opportunities for real time sectors. At the same time, changes including digitisation, mobile, location-based advertising. growth in multilingual markets, new technologies and convergence, require additional skill sets. The industry The Out of Home (OOH) advertising sector has also seen has successfully experimented with bringing in people higher rates of growth in transit advertising. from other industry backgrounds. Key stakeholders have expressed a need for investments in credible media There is hence an increased need to provide 360 degree institutes, with quality faculty and a relevant and dynamic solutions to advertisers and provide multiple platforms to curriculum. reach out to consumers wherever they are. Under the National Skill Development Policy 2009, National Revenue models still advertising dependent Skill Development Council (NSDC) has constituted a Media and Entertainment Skill Council (MESC), which will focus M&E is still an advertising dependent industry in India. on the television, print, films, radio, animation, gaming and Hence it remains sensitive to the impact of business cycles. advertising industries. It plans to setup Institutes focusing While the print sector saw some increases in circulation on technical, creative and business talent. It will work closely revenues, and increases in cover price in some areas, with NSDC to train more than 11.7 million people over the cover prices still remain significantly lower than global next 10 years in skills such as lighting, scriptwriting, electric counterparts. Established pracitces, competitive pressures work and tailoring. This will hopefully prove a critical step in from within the sector and from TV, and the threat of digital bridging the skill gap. migration, are likely to keep prices under pressure. In summary, the vision set out for the sector, of engaging In the TV sector, digitization has the potential to increase communities, entails reaching out and understanding ARPUs and improve the share of subscription revenues to multiple segments, creating greater connect, and leveraging the broadcasters. Early indicators suggest that carriage costs this connect to influence for the greater social good. The have already dropped somewhat in Metros after Phase 1 industry is undergoing transformation, driven by digital digitization. technologies, opportunities for further penetration of the billion strong market, and an enabling regulatory framework. Most companies are yet to see significant revenues At the same time, it remains sensitive to the economic from digital content. Dampeners include limitations in situation, and a lot will depend on its ability to manage measurement systems, decline in on deck revenues, and the risks of continued shortage of skilled manpower, and under investments in distribution platforms. There is a need ability to spur end user pricing across segments. It is a time for innovative or hybrid pricing models to cause a shift for introspection, and a time for innovation, to see how companies can harness the powers of new technologies and Overall, engaging consumers through more targeted convergence to realize its vision. offerings, innovative pricing and packaging models, and with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12 02 Television The march to digitalbegins 02 04. 03. 02. 01. percent in2017 revenueindustry isexpected toincreasefrom66percentin2012 to72 (Average Revenue Per User),theshare ofsubscriptionrevenue tothetotal billion in2017. Aided by digitisationandtheconsequentincrease in ARPUs is expected togrow ataCAGR of18 percentover 2012-17, to reach INR848 The inIndiaisestimatedatINR370billion in 2012, television industry and receive landingrightsinChina2012. in approximately 169, 77, 70and50countriesrespectively markets. GECchannels like Zee TV, SET, PlusandColorsareavailable Star also beenaggressively increasingtheirpresenceacrossinternational Further, inareflectionofIndia’s growing diaspora, Indianchannels have broadcasters. India continuestoremainakey strategicmarket for leadinginternational Despite thecurrent challenges, thelong-termoutlookremainspositive, and future.for profitable amoresustainable, players. The TV sectoralsowitnessedconsolidationandexits, paving theway networks stoodoutasthey managedtoholdout better thanfringeandniche macro-economic environment. Against thisbackdrop, leadingplayers and andcutting capital advertisementconserving spendsintheface ofasoft In itself, 2012 was achallenging year for theindustry, withcompanies distributed amongchannels. in viewership measurementsystems may affect theway advertising is investment incontentfor existing channels. Developments andrefinements reduce carriage fees, buildingacasefor thelaunch ofniche channels and Multi System Operators(MSOs)andbroadcasters. Itisalsoexpected to expected tobringintransparencyandincreasesubscription revenues for significantly change theway businessisdone.Digitisationofcable changing path,withtheseedsplantedfor sweeping changes thatwould In 2012, commenceditsjourney thetelevisiondown industry agame Introduction television channels since2006 ZEEL hasbeensyndicatingIndiandramasdubbedinMandarintoChinese 2012, discussions suggestthattheresponsehasbeenpositive. andindustry or sub-titledcontent.ZEELlaunched itssecond Arabic channel, Zee Alwan, in offerings atthelocalpopulation,primarilythroughdubbed arealsotargeted to offer significantgrowth opportunities. InadditiontotheIndiandiaspora, to saturation intermsofpenetration,theMiddleEastand Africa continue discussions suggestthatwhiletheUS, UKandCanadamarkets areclose

KPMG inIndiaanalysis The Hindu,12 April 2012 The Hindu,14 2008 January Boxofficeindia.com; 11 August 2012 4 . “ achieved global recognition. and 29 dedicated internationalchannels, ZEE asabrandhas viewers acrosstheglobe. With arichbouquetof32channels ZEE hasreachin 169 countries,entertainingover670million 2 andbecamethefirstIndianchannel The power ofabillion: Zee EnterprisesEntertainmentLimited “ Realizing theIndiandream 1 . Industry . Industry Chief Strategy Officer, 3 to - Atul Das

TV Industry size Growth in number of paid C&S households

Source: KPMG in India Analysis, Industry discussions conducted by KPMG in India Source: KPMG in India Analysis, Industry discussions conducted by KPMG in India Note: Figures are rounded to nearest integers and may not add up exactly to column totals

Strong growth in TV sales continues Approximately 145 million television sets were sold in India in 2012. A large proportion of these television sales represent replacement of old television sets, institutional TV sales, and a second or third TV set entering a household. As per Information and Broadcasting (I&B) ministry estimates, institutional and multi TVs account for approximately 17 percent of television sets in metro cities. LCD and LED panels are estimated to account for 40 percent of sales in 2012 and this share is expected to rise to close to 100 percent by 2017.

Television Sales

Source: Industry discussions conducted by KPMG in India Note: 1. Years indicate year ended 31 March 2.TV sales reported in last year’s report have been revised basis Industry discussions conducted by KPMG in India

Paid C&S penetration of TV households expected to increase to 91 percent by 2017 The number of C&S households in India increased by 11 million in 2012, to reach 130 million. Excluding DD Direct, the number of paid C&S households is estimated to be 121 million. This paid C&S base is expected to grow to 173 million by 2017, representing 91 percent of TV households.

05. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 15

Snapshot of the TV industry value chain

The TV industry value chain consists of content production, broadcasting and distribution.

Content production • In general, production costs continue to be linked to inflation; artist costs however, have increased

• Cable digitisation is expected to create significant opportunities for content providers, including:

-- Existing channels investing in content, and upgrading content quality

-- Narrower targeted offerings, to segments which are currently served by ‘one size fits all’ offerings, which will require more localised content

-- Launch of new niche channels, which may see a viable business case on the back of reduced carriage fees

• Broadcasters believe that content is under-invested and with the improving economics on account of digitisation, investment in content is expected to grow

Broadcasting • 2012 continued to be a challenging year for the industry, with a lower-than- expected advertising revenue growth. However, the long-term outlook remains positive and the industry expects advertising revenues to grow at a 14 percent CAGR from 2012-17

• Subscription revenues increased in 2012, but this seems to be attributable to better negotiation through consolidated entities (MediaPro, One Alliance, India Cast etc.), rather than to digitisation in Phase 1

• The benefit of phase 1 and phase 2 digitisation in terms of growth in subscription revenues is expected to be seen over 2013 and 2014

• In digitised areas, carriage costs appear to have declined. At the same time, TAM’s increased coverage of Less than Class I (LC1) markets has resulted in some of the carriage savings being redirected to increase reach in LC1 markets

• Growth is expected to be driven by a sharp increase in subscription revenues, while carriage costs are expected to rationalize in metro markets

Distribution • Phase 1 of cable digitisation kick-started, and met with varying degrees of success in the four metros. However, the consumer has warmed to the concept of digitisation

• Industry discussions suggest that the digitisation in Phase 1 cities may not all be addressable yet. MSOs are in the process of verifying their customer base, and updating their systems before packages are deployed

• Completion of Phase 2 digitisation is likely to get delayed by 9 to 12 months. Out of the 38 cities identified for phase 2 digitisation, approximately 40 percent of C&S households are already digitised

• It is important to continue the momentum and ensure that digitisation of cable gets completed; else there may be a risk that even Phase 1 cities may regress to a mélange of analogue and digital cable with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 16 The power ofabillion: digitisation effort. the rightdirection,andthey remaincommitted tothe participants agreethatdigitisation hasbeenastepin the digitisationprocess,atanoverall level, allindustry issuesin participantshighlightedcertain While industry managing logistics. 2 isalsoexpected topresentchallenges intermsof requires investment inotherinfrastructure aswell. Phase 1 was primarilytowards Set Top Boxes (STBs), Phase2 by MSOsversus Phase1. While theinvestment inPhase 2 isexpected torequiresignificantlyhigherinvestments customer base,thedeadlinefor Phase2isclose. completion, andasMSOswork toverify andstabilizetheir Even asdigitisationinPhase1citiesmoves towards digitised by theendofMarch 2013. in DelhiandMumbai.Kolkataisexpected tobelargely Chennai, DAS roll-outisestimatedtobealmostcomplete While therehave challenges beenimplementation in expectations. digitisation experience hasbeenlargelyinlinewithindustry to besuccessfulincomparisonwiththeearlierCAS. The complete digitisationacrossmetros,andthatDAS islikely stakeholders hadindicatedadelay of6-12 monthsfor As perourFICCIKPMGIndianM&Ereport2012, most metros ofDelhi,Mumbai,KolkataandChennai. Digital Access System (DAS) beingimplementedinthefour inIndia,withmandatory the cabletelevision industry The year 2012 was ayear ofunprecedentedchanges for Distribution 09. 08. 07. 06.

Livemint, 28December, 2012 Afaqs.com, 5November, 2012 2November,Business Standard, 2012 India Today, 20 June, 2012 “ “ digitisation inatimelymanner. follow throughwithPhase2 and complete reasonably successfully, it isimportant to Phase 1ofDAS has beenrolled out broadcasting industryin2012.Whilst development fortheTelevision Digitisation hasbeenthebiggest adopting thenewrules. However, the industryhas been slowin to servicetheconsumerindigitalregime. financial resources,would generally beable strong fundamentalssuchastechnologyand awaiting the big change.Companiesthathave infrastructure ontimeforconsumerskeenly the capabilityofoperatorstodeliver The key to usherindigitisationwouldbe Realizing theIndiandream Multi Screen Media PrivateLimited - Nitin Nadkarni “ - Jawahar Goel “ Dish TV CFO, MD,

parts ofMumbaiandDelhi businesses from enteringtelevision broadcastinganddistribution recommendation todisallowandcentralgovernments state distribution market inChennai,even asitissuedarecent the state-run Arasu cablewhich dominatesthecable TV Authority ofIndia(TRAI)isyet toaward aDAS licenseto estimated completiondateinChennai. Telecom Regulatory 31, 2013, thereisalack onitsprogressand ofclarity and isestimatedtogetcompletedby theendofMarch and Chennai. inKolkata While digitisationisunderway to delays ofdigitisationinKolkata inimplementation of the states West Bengal and Tamil Nadumay have led discussionsindicate thatpoliticalreasonsin Industry signals even after thedeadline. 2012. KolkataandChennaicontinuedtoreceive analogue complete shift cableby todigital theendofDecember percent was originallyscheduled for July 1,2012. However, only30 The deadlinefor cable TV digitisationacrossfour metros The Phase1experience October 31 an analoguecableblackout atthestroke ofmidnighton by theMinistry, andhouseholdsinDelhiMumbaifaced The October31,2012 deadlinefor PhaseIcitieswas upheld deadline was deferred toOctober31,2012. by I&BMinistry have acquiredSTBs by mid-June, andhencethePhase1 are estimatedtobedigitisedacrossthefour metros. 85 percentofC&Shouseholds(includingDTHhouseholds) discussionsindicatethatonanoverallindustry basis,80to digitisation achieved acrossthefour cities.However, our There have beenvaried estimatesregardingtheextent of stakeholders losesteamalongtheway. incasethegovernmentanalogue withdigital orany ofthe ofcontinuedexistencea riskofregressiontostate entire digitisationeffort throughtocompletion. There is Lastly, believes theindustry thatitiscriticaltosee Phase Idigitisationupdate Source: Note: *Refers toMxM releasedon 23October2012,TV StreetMapssurveydata reportedby Medianama,29October Kolkata Delhi Mumbai Chennai # Based onMPA estimatesreported by Business Today, 29October2013 I&B Ministry Press release31October2012,I&B Ministry TAM Universe Update 2013; discussionsconducted Industry 2012 by KPMGinIndia 6 ofcableviewing householdswere estimatedto 7 9 100% . While analoguebroadcastresumedinafew . As ofOctober31,2012 97% 86% 85% I&B “ MxM* 49% 45% 86% 53% the metros will relapse. did. IfPhase2and3don’t gothrough, even forward tocompletion,orregress,likeCAS remain whereitis.It will either move The digital ecosystem inIndia cannot 8 , bothcitiesreportedanear MPA 70% 45% 30% 50% # TAM 70% 26% 93% 97% As ofDec31,2012 - CEO, StarIndia Industry estimates “ Uday Shankar 25-30% 90-95% 90-95% 65-70% muted growth. 2010 to1monthin2012 may beoneofthereasons for the decrease infreeviewing periodfromabout5months in to itssubscriberbasein2012, versus 9millionin 2011. The addedapproximatelyOverall, 7million theDTHindustry ARPUs, providing acostadvantageover DTH. subscribers appeartobecurrently paying analogue-level mostofitssubscriberbase.Further,retain newly digitised of largenationalMSOs,which may have helpedcable strongholds ofcableproviders withahigherpresence discussions suggestthatmetroshave traditionallybeen I, which was lowerexpectations.Industry thanindustry key stepinimproving collection. movement tothepre-paidmodelistherefore viewed asa An identificationoftheend-customer, andsubsequently, LCOs for thistrue base,collectionremainsachallenge. and hencethetrue subscriberbase. While they arebilling MSOs are,however, aware ofthenumberboxes seeded, addressability. may becompletedby thesecondhalf of2013, bringingin subscriber base,andupdatingtheirsystems. This process information, verifying thesame,consolidating their the processofcollectingKnow-Your-Customer (KYC) LCOs andincentives toend-customers,MSOsarein of end-customers.Usingacombinationpenaltiesto boxes inbulkfromMSOs,andareholdingback theidentity discussionssuggest thatLCOshaveIndustry acquired addressable. as indicatedabove, thesehomesarenotnecessarily while homesinPhase1have beenseededwithSTBs participantssuggestthat Our discussionswithindustry Digitised, butnotaddressable is estimatedatapproximately 20 performance, andtheanaloguesubscriberchurn to DTH DTH providers. However, MSOsdemonstratedstrong was notexpected totakeplacewithoutsomechurn to Conversion cable ofanaloguecablesubscriberstodigital analogue subscribers Cable retainsapproximately 80percentof 10.

Industry discussionsconductedby KPMGinIndia Industry “ future investmentimpact. between pastoperatingperformanceand be betterunderstood by differentiating the bottomline is impacted. Same would future bywayofsubscriberacquisition, However due toconstantinvestment in the Videocon D2HareEBITDApositive. Mostly allDTHCompanies,including 10 percentduringPhase Videocon D2H Deputy CEO, “ - Rohit Jain

customer base,isakey driver toraise ARPU. Deployment ofpackages, beingaway todifferentiate the process may get done sometime in the second half of 2013. packages by April 2013, believes thelargerindustry thatthis While MSOsappeartobeoptimistic aboutdeploying their subscriberbase. packages willbedonepostverification andconsolidationof pricing hasbeenpassedontocustomers,deployment of been designed,andinformation regardingpackages and Discussions withMSOssuggestthatwhilepackages have with abetter value proposition. theirsubscriber base,whileprovidingretain thecustomer will have toaggressively competewithDTHoperatorsto at theearlierprice.Insuch ascenario,cable TV operators for thesamesetofchannels ormay notgetallthechannels Hence, itislikely thattheconsumermay have topay more newly digitisedcustomerswould qualify for a‘basepack’. We alsonotethatatcurrent ARPU levels, mostofthe analogue subscriberbase. factors alargeshareoftheir thathelpedMSOsretain thestatus quo on maintaining ARPUs may beoneofthe discussionssuggestthat paying analoguerates.Industry end hasnotincreasedmaterially–thecustomerisstill discussions suggestthatthe ARPU attheconsumer’s channels, which aremadeavailable uponrequest).Industry their MSO(barring afew exceptions such assomeregional the consumerisreceivingfullportfolio ofchannels from signals, packages have notyet beendeployed. Essentially, by receivingdigital MSOs,andtheconsumerhasstarted In theprocessofdigitisation,whileSTBs have beenseeded pack’ fornow Easing ino Scan theQRcodetohearmorefromHarit f consumers – f consumers All onthe‘highest “ “ The power ofabillion: can kick in. before theupside from Phase1digitisation and inthatsense,itwill take afewquarters that cashcollectionremainsachallenge, on a“wholesale”basis.Thetoughpartis are billingthemforevery set-top box,albeit of boxes that arelyingwith LCOs andwe The goodpartisthatweknowthenumber digital subscribersin Phase 1cities. DTH accountsforthelargershareofpaying This will take mostofthisyear. Atpresent, subscriber baseandlaunchingpackages. together intermsofmappingtheirtrue MSOs maytakeawhile to gettheiract Hathway Cable & DatacomLtd. Managing Director&CEO, “ Realizing theIndiandream - Jagdish Kumar - Harit Nagpal CEO &MD, Tata Sky “

Broadcasters benefit from increased Achieving Phase 1 stability in all its subscription revenues, but better negotiation entirety of consumer“ choice, packages may be the driver rather than digitisation and a-la-carte , billing and collections “etc. is important before we plan Phase 2 The TV industry has witnessed a trend of broadcasters implementation. We still have learnings coming together to consolidate their distribution functions, from Phase 1. to improve negotiating power. Mediapro and One Alliance are examples. This trend continued in 2012, with the - Subhashish Mazumdar formation of Indiacast to distribute Viacom18, Sun Network, Senior Vice President, Disney and Eenadu Group channels. IndusInd Media & Communications In 2012, large networks appear to have witnessed 20 to 25 percent growth in their subscription revenue. Our discussions with broadcasters suggest that:

• This growth was driven primarily by better negotiation

Boxes may have been seeded by MSOs but through consolidated entities such as Mediapro and One Alliance monetization may be difficult immediately“ as packaging has not been done yet. A lot • Small niche channels may have seen lower growth “would depend on how effectively MSOs are able to work the LCOs and how soon they • Digitisation upside was not materially felt in 2012 start billing subscribers directly. Since MSOs are still in the process of establishing - R C Venkateish subscriber management systems, except for sports and CEO, niche segments, broadcaster-MSO agreements continue to Dish TV be based on fixed fee arrangements for the most part.

LCOs protest, seeking greater revenue share Early benefits of cable digitisation were TRAI has recommended a revenue share of 55:45 (MSO: seen in the form of some increase in“ LCO) for the basic free to air tier and 65:3511 (MSO: LCO) subscription revenue and some decrease in for a combination of free to air and pay channels. There “carriage in two major metros. However, real have, however, been instances of LCO protests against the benefits will come in over the next 2-3 years TRAI recommendation with demands for a greater revenue as other towns get digitised. share for LCOs. - N P Singh LCO cooperation remains crucial for smooth COO, implementation of DAS across Phase 2 cities, and MSOs Multi Screen Media Private Limited are expected to avoid tough negotiations at least till the end of Phase 2. This may lead to further delays in monetizing gains from digitisation. Lower carriage fee becomes a reality Shift in the power equation towards MSOs – Industry participants across the value chain agree that digitisation has reduced the carriage fee payout. The largely expected, but yet to materialize digitised markets of Mumbai and Delhi have witnessed a 15 With the eventual control of the subscriber moving to 20 percent drop in carriage. In some cases, broadcasters to MSOs post digitisation, the distribution industry is have continued to pay the same carriage, but are able to expected to see a power shift towards MSOs. LCOs are carry a larger bouquet of channels at the same cost. expected to take up the role of collection and servicing

agents while MSOs control the infrastructure and generate

bills through a subscriber management system. However, even as MSOs may have control of the We have increased our reach substantially “ subscriber, LCOs will be crucial to customer interactions in the LC1 markets, and are paying the and day to day management. Therefore LCO relationship same absolute amount of carriage fee. “Effectively, carriage fee has softened. management remains crucial for MSOs.

MSOs may attempt to mitigate the risk of over-dependence - M K Anand on LCOs by encouraging consumers to opt for a pre- CEO Broadcasting, paid subscription model. The extent of power shift may Disney-UTV therefore depend upon successful deployment of channel packages and acceptance of the pre-paid model amongst subscribers.

11. TRAI Tariff Order and Interconnection Regulations for Digital Addressable Cable TV Systems with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 19

While carriage fee may decline further over the next 2-3 In the near term, decline in carriage fees in digitised regions years, part of this may claw back in the form of placement may be offset by an increase in carriage fee paid for LC1 fees, where broadcasters pay for placements in various markets. TAM has extended its reach to include the LC1

tiers of channel packages. However, we note that the markets and broadcasters may want to ensure visibility in

supply-demand situation to carry channels will improve these markets. significantly post digitisation, and therefore on an overall basis, the total payout towards carriage and placement fee “ is expected to decline. In the near term, carriage will need to be paid in LC1 markets, which will get digitised later. Carriage which till now has been a “ significant revenue stream for MSOs is - N P Singh set to come down in the future, although COO, “currently there has not been a significant Multi Screen Media Private Limited decline because channels wanted to play it safe in year one. Although in absolute terms as well as a percentage to sales,

the carriage in the current year is lower by Capital expenditure as per expectations approximately 10-15 percent. Placement

fee shall never be an equal replacement Discussions indicate that capital investments during Phase for carriage, it will be a localised and a I have been in line with industry expectations. Back-end relatively small revenue stream“ since infrastructure for leading MSOs was estimated to be largely digital cable can easily carry 500 channels, in place for the first phase of digitisation. Unlike successive and the channels anyway need to be phases where significant investments may be required for grouped by genre which reduces the value upgrade of back-end infrastructure, funding requirements of placement charges. during Phase I have been mostly on account of set-top-box installation. - Atul Das Chief Strategy Officer, Zee Enterprises Entertainment Limited

Learning from Phase 1

Better consumer • It was felt that consumer messaging appeared to be focussed on analogue cable blackout and the consequences education of not digitising, rather than on benefits that a digital delivery platform offered in terms of an enhanced viewer experience

• For Phase 2, the industry may consider a soft and inclusive approach towards messaging, so that the consumer does not feel that digitisation is being forced onto him by the industry

Addressability in- • Phase 1 cities have witnessed digitisation, while addressability is playing catch-up step with digitisation • In Phase 2, MSOs may place greater emphasis on on-boarding end-consumers in tandem with seeding boxes

Need for MSOs to • Phase 1 witnessed MSOs working mostly in silos, and multiple boxes were sold to the same “subscriber” in some work together instances. For example, industry discussions suggest that the number of boxes seeded in Delhi was 50 percent higher than the total subscriber base

• In Phase 2, MSOs may increase knowledge sharing, and present a more united front to LCOs, thereby improving negotiations

• Several industry participants have suggested that MSOs and broadcasters also need to work together better on

packaging of channels and change the existing adversarial relationship between the two stakeholders MSOs and Broadcasters need to work “ together and overcome their legacy of “mutual distrust and antagonism. - Jagdish Kumar CEO & MD, Hathway Cable & Datacom Ltd. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 20 The power of a billion: Realizing the Indian dream

Phase II expectations: Miles to cover Most stakeholders believe that Phase II of digitisation 25 out of 38 cities will get digitised relatively will be implemented successfully, at least across the key easily as large national MSOs have a strong

cities. Our discussions indicate that on an overall basis, presence there, and consumers have

approximately 40 percent of C&S households in Phase “sufficient purchasing power in these cities. II cities were already digitised by the end of 2012. Select Success in the other 13 cities would depend cities like Ludhiana, Ahmedabad and Amritsar have seen upon whether the ecosystem is helpful “ nearly complete voluntary digitisation, while others appear enough in terms of providing incentives / to be on track for a timely roll-out. Industry stakeholders benefits to the small entrepreneurs who are have also gained experience around implementation willing to invest in digitisation of these cities. challenges observed during Phase I, and this may help mitigate similar challenges during successive phases. At the same time, Phase II presents some challenges which - Ashok Mansukhani were not present, or only weakly felt in Phase I. Director, IndusInd Media & Communications Limited and President, MSO Alliance There may be a delay of approximately 9 to 12

months for complete digitisation across Phase II Scan the QR code to hear more from Ashok cities The deadline for Phase II of digitisation across 38 cities ends on March 31, 2013. With an estimated 16 to 17 million C&S households in Phase II, approximately 1012 million We are ready. Though there are voices in subscribers are required to be digitised during Phase II. this the market that Phase 2 may get delayed,

phase is expected to be more challenging with respect to it may get delayed for another 3 months.

logistics requirements and financial commitments required “We always prepare ourselves in advance; on behalf of the MSOs. This may lead to a delay of 9 to 12 we know that Phase 2 will come. We have months for successful implementation across cities. Three witnessed a tripling“ of our order book issues appear to be key: from last year’s levels. We have already enlarged our production capacity to satisfy customers’ requirements for speedy Logistic preparedness delivery. Phase II, which includes 38 cities spread across 15 states, is expected to be a greater logistical challenge as compared - Martin Jiang to Phase I across four metros. No large MSO appears to Country Manager – India, have a geographic presence across all 38 cities. Hathway 13 Sichuan Changhong Network Cable and Datacom is present across 25 Phase II cities, Technologies Co. Ltd. and is reported to hold a dominant position in 11 of these. Den networks, Digicable, Siti Cable, and Incable are present in 1914, 1315 , 18, and 1616 cities respectively, out of these 38 cities. Funding availability Digitisation across Phase II cities is likely to be tackled in Phase II includes significant investment in digital head-ends a phased manner by large national MSOs. The initial focus and other back-end infrastructure apart from STB costs. area would be in cities where the MSO has a presence, Funding may prove to be a challenge because: and currently offers digital services (voluntary digitisation) i.e. in cities where the MSO already has a digital head end. • While Phase II consists of 38 cities, large national MSOs The next area of focus is expected to be in cities where are present only in 15-20 Phase 2 cities. They appear the MSO has a presence in analogue cable (i.e. already has to have plans to expand their presence to 20-25 cities, an analogue head end), and thus has relationships with but the balance cities may need to be serviced by small distributors and LCOs. The last area of focus would be cities regional MSOs, who may have funding challenges which are attractive from a C&S perspective, and which the MSO may wish to enter. • Even for large MSOs, revenue benefits from Phase 1 have not started flowing in. At the same time, revenue Our discussions indicate that most large national MSOs share to broadcasters has increased, while carriage are likely to focus on approximately 20 to 25 cities out of a fee has been lowered. Hence, these MSOs need to total of 38. The balance cities may need to be digitised by raise funds for Phase II. While FDI limit has been raised smaller, regional MSOs, which have not had the benefit of to 74 percent, the benefits of digitisation are yet to be learning from Phase 1. Therefore, there remains a risk that reflected in the numbers of MSOs, and this may have these balance cities may not undergo complete digitisation deterred investors. Hence, even large MSOs may face a even after a 9 to 12 month delay post the stipulated challenge in funding deadline.

12. Industry discussions, KPMG in India Analysis 13. Business Standard, 27 November, 2012 14. Company reports 15. Business Standard, 16 February, 2013 16. Afaqs, 12 November, 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 21

for rollout for an MSO. On the other hand, penetration of

Even large MSOs are facing problems digital platforms in C&S households in Phase III and IV cities is already estimated to be higher than 4517 percent on in obtaining funding “ from banks. The government should consider granting account of penetration of DTH services in these areas. “infrastructure status to cable, and encourage banks to lend to the sector on a HITS: Cable’s answer to DTH in Phase III & IV? priority basis. Head-end-in-Sky (HITS) is a platform for providing digital - Ravi Mansukhani signal throughout the country via satellite. LCOs would be Managing Director, required to install a reception dish at their premises with IndusInd Media & Communications a capital expenditure of under INR 1 million. HITS players then act as service providers for the LCO by providing the back-end infrastructure, while the LCO needs to fund the set top box subsidy provided to the consumer. LCOs may Political considerations find it unviable to operate independently, and in such a scenario aligning with a HITS provider is expected to be Industry stakeholders believe that the government appears more profitable for the LCOs as they retain a higher share to be firm in its resolve to see through DAS implementation of customer-end net ARPU. in Phase II cities. However, experience from Phase I indicates that concurrence in state and central government While some players like NSTPL (Noida Software Technology policies may be a key driver to successful digitisation. Park Limited) have declared HITS plans, discussions indicate that they are yet to see significant traction, with current industry focus limited to Phase I and II. Essel Phase III and IV Group had tested the technology in India in 2008; however Digitisation is being tackled in a phased manner, with most there was no digitisation mandate around this period, and players continuing to focus on Phase I and Phase II cities. therefore, the business did not gain the expected traction. Ground-level challenges have led to inadvertent delays in completion of the process in these cities. However, overall Now, with DAS implementation imminent across India indications remain positive and industry believes that DAS over the next 3-4 years, HITS may have an opportunity to will achieve significant success across all phases, albeit emerge as cable’s answer to DTH for digitisation in Phase with some delays. III and IV cities, as well as for Phase II cities where large MSOs may not have a presence.

Sunset date for analogue cable Industry HITS will be the answer to LCO’s continuing“ Geographies Parliamentary estimates to remain in business by providing quality Phase covered approval for achieving service to consumers by aligning to a significant levels “neutral service provider while he still of digitisation continues to own the subscriber.

Delhi, Mumbai, - Tony D’silva I Kolkata, 30-Jun-12 Mar-13 President, Chennai Hinduja Ventures Limited

All cities with II population > 31-Mar-13 Mar-14 10 L “

All urban areas The challenge with HITS is that III (municipal 30-Sep-14 Dec-15 broadcasters don’t have comfort around areas) “clear demarcation of areas. IV Rest of India 31-Dec-14 Dec-16 - Uday Shankar CEO, Source: KPMG in India analysis Star India

Discussions indicate that larger MSOs are more likely to focus on consolidating their position in Phase I and II in the near future. Phase III and IV will require significant upgrade of back-end infrastructure apart from STB installation. A large number of Phase III and IV, as well as some phase II cities are characterized by low population density and spread out clusters, which may not justify a business case

1 7. KPMG in India analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 22 The power ofabillion: services isexpected toprovideservices aboostto ARPU. additional revenue gains.Further, risingpenetrationofHD for subscription-basedniche contentwhich willleadto ARPU levels. Digitisationwillalsoprovide anopportunity packs’ for toppaying subscribersleadingtoincreasein to ‘value’ packs, MSOsmay lookatcreationof‘premium expected toleadsignificantincreasein ARPU. Inaddition across cablecustomersover thenext 3to4years is across phases.However, deployment ofchannel packages low. This isexpected tocontinueasdigitisationprogresses deployment ofchannel packages, ARPUs continuetobe theracetoacquiresubscribersandpending With medium term ARPUs gains providers. service growth opportunities forcableaswell digital asDTH The Indianmarket islargeenoughtoprovide significant byplatform C&S subscribers (2)Figuresareroundedtothenearestintegerandmay notaddupexactly tocolumntotals No. ofSubscribers Source: Note: Source: (1) DTHfiguresarenetof churn ARPU KPMG in India analysis, Industry discussions conductedbyKPMG inIndiaanalysis, Industry KPMG in India analysis, Industry discussionsconductedbyKPMG inIndiaanalysis, Industry month Cable DTH

per

Realizing theIndiandream to materialise,butinthe 2012 170 166

2013P 180 174

2014P 194 209

2015P 236 227 “ “ “

go up. yet. Itwill take upto1-2yearsfor ARPUs to End customer ARPUs havenotgoneupjust a medium by theconsumers. This provesthattelevisionisundervaluedas ticket, whileinIndiathat ratio iscloseto1. 5-6 timesthatofasingle multiplex movie Monthly ARPUsindevelopedmarketsare television content.ARPUsneed to goup. Indian consumersneedtopaymorefor bundling ofDTH and broadbandservices. However we arestillfurtherawayfrom kind ofmodelswill drive ancillaryrevenue. channels andinnovativepay-per-view Apart from this, nichesubscriptiondriven HD serviceswill be akeyrevenue driver. DTH growth in Indiafornextfew years and Core serviceswill continue todrivethe Reliance BroadcastNetworkLimited Multi Screen Media PrivateLimited 2016P 266 260 “

Chief Financial Officer, - Asheesh Chatterjee Videocon D2H 2017P 289 293 Deputy CEO, - - Rohit Jain N PSingh “

COO,

“ Investing in TV distribution– Why Indiaisattractive estimated tobe12 percentin2011 and 17 percentin2010. comparison, growth inthe TV advertisement market was 8 advertisement market isestimatedto have grown around in thefirsthalfof2012. Onanoverall basis,thetotal TV condition. This resultedinmutedgrowth, particularly pressure duetothesoft globalanddomesticeconomic The televisioncontinuedtobeunder advertising industry Introduction production Broadcasting andContent 18 percentin2012, lowerexpectations.In thanindustry Hence thelow penetrationlevels willdemonstrate andextractretain morevalue fromitssubscribers. sufficiently andcapableofinvesting profitable toattract, entire E&Mecosystem healthy witheverycomponent ofaddressablesystemsImplementation willmake the ‘whether’. Digitisation isnow onlyamatter of‘when’ andnot that working theclarity againstitsimplementation, also given thevested interests,whowere hitherto ofpublicunrest.Ithas happen withoutthepossibility government can theconfidencethatimplementation inDelhiandMumbaihasgivenimplementation the phases isexpected tochange thisscenario.Successful Introduction ofDAS (Digital Addressable System), in cost basesbetweentheplatform types. as tothegovernment istestimony tothedifferential contributes morethancabletothebroadcastersaswell that withathirdofpay TV industry’s subscribers, DTH completely different duetounder-declaration. The fact with analoguecablewhosecoststructure was however itsexpansion was stunted duetocompetition DTH didsettheballofaddressablesystem rolling, rationalizing taxes. mechanismtheir delivery andthegovernment from in whatthey created,theplatforms fromupgrading this prevented thecontentcreatorsfrominvesting its movement, includingthegovernment. Hence stakeholders whocreatedthecontentandfacilitated was accounted,didnotfinditsway back tothe from thecustomers,ofwhich onlyasmallpercentage subscription the primarily inanaloguemode, distribution opportunity was policyanditsimplementation. With The onlyfactor thatmarred theattractiveness ofthis The size ofIndia’s E&Mopportunity was never indoubt. “ blockbuster year. will see bettergrowth, but willnotbea Adsales growth hasbeen softin 2012. 2013 “ Videocon D2H Deputy CEO, - Rohit Jain

the moves. adequate FDI. The laws have beencreatedtosupport &MediaecosystemEntertainment which attracts above andmoresothatwe move towards aprofitable platforms areplanningtheirmoves toachieve allofthe Iamsureeveryonefragmented state. ofthelargecable versusand createcontiguity thecurrent subscaleand All ofthisispossibleonlyifthebusinessesgettoscale • • • • cable businesses.Interalia,theseinclude: the potentialinvestors someconfidencetoinvest inthe However, somequick corrections arerequiredtogive the sectorislikely togive fair returns totheinvestors. with alargerevenue baseandreducedcapex intensity, infrastructural investments aremade.Inthelongterm, high levels ofgrowth intheshortrun after adequate 18. was provided by HaritNagpal. The views andopinionsexpressed views andopinionsofKPMGinIndia. Unless otherwise noted,allinformation includedinthiscolumn/article Unless otherwise herein arethoseoftheauthorsanddonotnecessarilyrepresent

Industry discussionsconductedby KPMGinIndia Industry Build a brand of service and value Build abrandofservice from relevant industries toattractAbility experienced andretain management timeframe and repairswithinacceptable infrastructure Field service tomanageinstallations updating ofcustomisedpackages manage customerinteractionsfor creationand Infrastructure, processesandtrainedpeopleto Managing Director&CEO, “ The power ofabillion: - Harit Nagpal was warranted. were perhaps cut downa lotmorethan much worsethanreality, andad spends 2008, theperceptionofthingstocomewas conservation mode. Havingsaidthat,in downbeat. Everyoneisgoingintocapital growth. Thistime,themood is alotmore coming onthebackofafewyears of robust At leastthen,thesentimentwasstillbullish than whenthesubprimecrisishitin2008. times; in manyways,itwas even worse 2012 hasbeenthetoughestyear in recent Tata Sky

Realizing theIndiandream “ - Uday Shankar Star India CEO,

Advertisement spends were affected as private

consumption experienced a protracted slowdown. The

2012-13 advance estimates from the Central Statistics There was some pressure overall on the Office indicate a sharp fall in the growth of real private final industry in the last few months. Advertisers consumption expenditure (PFCE). At constant (2004-05) have reduced their campaign size and“ prices, the PFCE is estimated at INR 34,73019 billion in “outlays, which tends to impact smaller 2012-13, an increase of only 4.1 percent over the previous channels first. For us, this fiscal year has year. In comparison, the increase in private consumption been good. We are however cautiously expenditure was estimated at 6.5 percent in 2011-12 and optimistic about the next year. 8.1 percent in 2010-11 . - Nitin Nadkarni The absence of a mega sporting event, like a Cricket World CFO, Cup in 2011, and a muted advertiser response to season Multi Screen Media Private Limited

5 of the IPL contributed to the low television ad spends

in 2012. The ten week TAM black-out coincided with the festive season, and the industry is reported to have completed deals during this period on the basis data of the “ preceding eight to ten weeks. This may have led to niche This year, growth in the ad market was and fringe broadcasters being unable to achieve the full muted. Leading players came into focus in advantage of the festive season spends. “this year, with their large GRPs and reach. A study of marketing spends of a sample of advertisers - Man Jit Singh suggests that while select large advertisers increased CEO, spending on advertisement and promotion in order to Multi Screen Media Private Limited revive demand, on an overall basis, advertising spend remained muted.

Scan the QR code to hear more from Man Jit Illustrative analysis of key advertisers

Key advertisers Advertisement spend (April to A&P expenses as share of revenue Increase in A&P spends December, INR billion) (April to December) over last year

2012 2011 2010 2012 2011 2010 2012 2011

HUL 24.1 19.7 21.4 12% 12% 14% 22% -8%

Colgate Palmolive 2.7 3.2 2.7 12% 16% 16% -15% 19%

Bharti Airtel 64.4 52.9 46.0 11% 10% 11% 22% 15%

Ideal Cellular 18.7 17.3 13.6 11% 12% 12% 8% 28%

Godrej Consumer Products 4.6 3.2 2.5 10% 10% 10% 44% 27% Ltd.

Source: Company fillings on BSE Note: A&P expenses refer to Advertisement and Promotion expenses for Hindustan Unilever Ltd. and Colgate Palmolive India Ltd., Sales and Marketing spends for Bharti Airtel Ltd., Advertisement and Publicity for Godrej Consumer Products Ltd. and Subscriber acquisition, Service and Business promotion expenditure for Idea Cellular

Advertising spends are expected to grow at a similar rate in On the other hand, subscription revenue for broadcasters 2013. However, outlook for the Indian television advertising is estimated to grow at a CAGR of 26 percent from 2012 industry remains positive in the medium term with a CAGR to 2017. Increase in the declared subscriber base and of 1420 percent over 2012-17. aggregation of distribution on behalf of broadcasters is expected to drive up the share of subscription to total

broadcaster revenue from 36 percent in 2012 to 48 percent in 201621.

TV is the most undervalued media and continues to get the lowest rates,“ especially for the kind of reach it delivers, “while being an accountable media where brands know exactly how many people watched their commercials.

- Rohit Gupta President, Multi Screen Media Private Limited

19. Central Statistical Organization 20. Industry discussions conducted by KPMG in India, KPMG in India analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 21. KPMG in India analysis Scan theQRcodetohearmorefromManJit 22.

Hindu Business Line,27December, 2012 declined insomecases. to volume growth. Rates continuedtoremainflatoreven advertisement revenue growth was largelyattributable inthepastfewContinuing thetrendobserved years, revenue growth,whileratesremainedflat foradvertisement primary growthdriver Increased inventory continuedtobethe Broadcasting industry Source: Industry discussionsconductedby KPMGinIndia,India Industry Analysis “ “ “ same period. subscription revenuetoquadruplein the ad market). Essentially then,weexpectour there issignificantpotential growth inthe India’s lowadtoGDPratio, we believe revenue over in thenext3-4 years (given next 3-4years.We expecttodoubleourad ratio movingfrom70:30to50:50overthe We seeouradto subscription revenue an issue. with noadditionalcontentcomingin, it is However, when volume keepsexpanding expansion of content isacceptable. Expansion of volume onthebackof volumes, isveryimportantfortheindustry. Improvement inyields, rather thanjust There ishuge pricing pressure on adrates. Multi Screen Media PrivateLimited “ “ - - - Man JitSingh Uday Shankar Uday Shankar Star India Star India CEO, CEO, CEO,

“ time perhourofprogramming. broadcasters, resultinginrestrictedgrowth ofcommercial led tosomeextent ofself-regulationamongstthe leading wideenforcement ofthisamendment,itmayindustry have Stakeholders believe thatwhileitmay take2-3years for of advertising timeduringonehourofprogramming. the Cable Act in2012 tospecifyamaximumof12 minutes a limitedincreaseinfreecommercialtime. TRAI amended ExistingGECbroadcastersmayremained stable. have seen to have comefromothergenreswhileGECvolumes inventory. Mostofthevolume expansion isestimated position asthetopadvertiser on TV by awidemargin. the largestportfolioits ofbrandscontinuedtomaintain the pressureonadvertisingUnilever rates.Hindustan with buying onaccountoflargeFMCGcompaniesmaintained up from25percentin2011, Bulk and23percentin2009. accounted for 26percentofadvertising volumes in2012, (care andhygiene, accessories,haircare,healthcare) Top 10 advertisers being FMCGplayers. Personal products continued todominatetheadvertising spacewith9outof 2012; similartothepastthreeyears. The FMCGsector 60 percentoftheoverall TV advertising volume shareduring The top10 sectorscontinuedtoaccountfor approximately advertising spends continued toaccountfor33percentof careandservices FMCG, personal to 845 The numberofchannels total increasedfrom623in2011 Top 10 categoriesadvertising on TV reserved with reserved TAM MEDIA RESEARCH PVT. LTD. Any useof TAM (orderivative data thereof)mentionedherein without express permissionof TAM shallbetreated asillegal Source: Note: *Refers toBanking/ Finance/Investment andhencemay in2009 notbeexactly comparable Auto Telecom/Internet Top Total providers materials/Equipments Services Household Hair Building, Food Personal Personal Personal hygiene

sectors

TAM AdEx, Period: Year 2011 and2012, Medium: TV, Based onanalysis of Ad volumes inseconds.Copyright care

22 & in2012, leadingtoanincreaseinadvertising

beverages

healthcare accessories care/Personal Industrial

products

service

& The power ofabillion:

Land

(% 2012

share) 14 12 60 4 4 7 3 3 3 5 5

Realizing theIndiandream (% 2011

share) 13 13 59 4 7 3 3 3 2 5 5

(% 2010

share) 13 14 59 4* 4 4 4 3 3 6 5

Top 10 advertisers on TV Viewership share by genres – all India

2012 2011 2010 Genre 2012 Brand (% (% (% (% share) share) share) share) English Entertainment 0.14 Hindustan Lever Ltd 8 8 8 English News 0.23 Cadburys India Ltd 2 2 2 English Movies 0.88 Reckitt Benckiser (India) Ltd 2 3 3 Hindi GEC 30.01 ITC Ltd 2 2 2 Hindi News 3.18 Procter & Gamble 2 2 2 Hindi Movies 11.93 Colgate Palmolive India Ltd 1 1 1 Regional GEC 20.18 Ponds India 1 1 1 Regional News 2.78 Coca Cola India Ltd 1 1 2 Regional Movies 3.65 Samsung India Electronics 1 -* -* Ltd Kids 6.47

Marico Ltd 1 -* -* Music 3.09

Total 22 20 21 Infotainment 1.08

Source: TAM AdEx, Period: Year 2011 and 2012, Medium: TV, Based on analysis of Ad volumes in seconds. Copyright reserved with TAM MEDIA RESEARCH PVT. LTD. Any use of TAM data (or Others 16.4% derivative thereof) mentioned herein without express permission of TAM shall be treated as illegal Note: *Smithkline Beecham, Bharti Airtel Ltd., and L’Oreal India Private Ltd. were amongst the top 10 advertisers in 2011 and 2010 as reported by FICCI KPMG Indian M&E Report 2012 and 2011 Source: TAM; Week 1 to 52, 2012, All India CS4+ market. Copyright reserved with TAM MEDIA RESEARCH PVT. LTD. Any use of TAM data (or derivative thereof) mentioned herein without express permission of TAM shall be treated as illegal

Genres

Hindi and regional General Entertainment Channels In areas that were digitised, increased audience (GECs) continued to account for over 50 percent of the fragmentation was witnessed. Our discussions indicate total viewership. GECs are the key drivers of television that viewing patterns of some niche channels have seen a viewership, accounting for 65-75 percent of Hindi and positive movement when comparing their pre-digitisation

regional markets. and post-digitisation share of viewership.

Hindi GEC and Hindi movie genres consolidated their position with a viewership share of 30.0 percent and 11.9 percent in 2012, compared to 26.5 percent and 10.6 percent “ respectively in 2011. A large part of this growth may be Viewership share of English entertainment attributed to TAM’s increased reach in LC1 areas of Hindi channels has increased post DAS and Speaking Markets (HSMs). LC1 markets of UP, MP, PHCHP, would continue to further increase as DAS Rajasthan and Gujarat account for 16.2 percent of the total “ rolls out further. television viewership. Hindi GEC share of viewership in the above LC1 markets is significantly higher, at 40-50 percent, - Anuj Poddar compared to 39 percent in HSMs without LC1. Similarly Head – Strategy & Business Development, Hindi movie share of viewership in the stated LC1 market is Viacom 18 Media Private Limited higher at 19-24 percent, compared to 17 percent in HSMs without LC1.23

23. Overview of Television Landscape in New LC1 Markets, TAM Media Research Pvt. Ltd. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 27

Hindi GECs The Hindi GEC space continued to see sustained Top 10 popular non-fiction programmes competition between the top four channels – Star Plus, in 2012 Zee TV, Sony and Colors – with extremely dynamic channel rankings. Genre Channel 2012 Advertising continues to be the mainstay for Hindi GECs, (% share) and broadcasters are chasing ratings aggressively with a number of relatively non-performing shows getting replaced and several new shows being launched. The table Kaun Banega Crorepati Sony 42.0 below lists the top 10 fiction and non-fiction programmes in 2012, as measured by Ormax Media which tracks the Big Boss 6 Colors 39.8 preference (favourite) share of programmes through its monthly popularity study ‘Characters India Loves’. MTV Roadies MTV 33.1 Preference shares for non-fiction appear higher compared to fiction programming indicating greater audience recall for Dance India Dance Zee TV 25.0 this segment.

Star Plus continued to focus strongly on the fiction genre Styamev Jayate Star Plus 22.7 with five out of the top 10 popular fiction programmes. On the other hand, Colors appears to have increased focus Jhalak Dikhla Jaa Colors 20.3 on non-fiction, with four out of top 10 popular non-fiction programmes. Comedy Circus Sony 12.3

Top 10 popular fiction programmes in Indian Idol 6 Colors 10.4 2012 India’s Got Talent 4 Colors 7.0

Genre Channel 2012 Sa Re Ga Ma Pa 2012 Zee TV 4.6 (% share)

Source: Front Page 2012 – Ormax Media Bade Acche Lagte Hain Sony 24.7

Balika Vadhu Colors 18.1

Tarak Mehta Ka Ulta Chashma SAB TV 14.6

Diya Aur Baati Hum Star Plus 12.3

Saath Nibhana Saathiya Star Plus 10.1

Is Pyaar Ko Kya Naam Doon Star Plus 8.7

Yeh Rishta Kya Kehlata Hai Star Plus 7.4

Pavitra Rishta Zee TV 7.2

Pratigya Star Plus 7.0

CID Sony 6.9

Source: Front Page 2012 – Ormax Media with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 28 The power of a billion: Realizing the Indian dream

The table below lists the top 10 fiction and non-fiction launches in 2012, as measured by Ormax Media’s ‘Showbuzz’ which tracks the UA (Unaided Awareness) of new shows on television.

Top 10 fiction and non-fiction launches in 2012 Fiction Non-Fiction

Show Channel UA Show Channel UA

Love Marriage ya Arranged Sony 37 Big Boss 6 Colors 39 Marriage Satyamev Jayate Star Plus 37 Veera Star Plus 30 Kaun Banega Crorepati 6 Sony 34 Anamika Sony 29 Jhalak Dikhhla Jaa Colors 23 Madhubala Colors 27 Indian Idol 6 Sony 18 Kairee Colors 26 Nach Baliye 5 Star Plus 18 Chhal – Sheh Aur Maat Colors 24 Movers and Shakers SAB TV 17 Qubool Hai Zee TV 24 India’s Got Talent 4 Colors 14 Byah Hamari Bahu Ka Sony 23 Sa Re Ga Ma Pa 2012 Zee TV 13 Punar Vivah Zee TV 22 DID L’il Masters 2 Zee TV 12 Khamoshiyan Star Plus 21 Source: Front Page 2012 – Ormax Media Source: Front Page 2012 – Ormax Media

Broadcasters continue to invest in movies Movie acquisition costs continued to soar as broadcasters The level of TRPs generated by blockbuster premieres in retained their strategy in using block-buster movies to 2012 appears to have declined vis-à-vis the level in 2010 and sustain viewer interest and buzz. Star Network is reported 2011. In a bid to control movie costs, networks had started to have invested approximately INR 3 billion on movie to acquire movies before its theatrical release, sometimes acquisitions in the past year. Zee Entertainment on the even at the concept stage. However, many channels are other hand is reported to have invested INR 224 billion reported to have suffered losses26 from such investments, to acquire 10 movies during the year. After syndicating as some high profile movies did not perform as well as its library of over 500 films to Star India earlier this year, expected on the box-office. Viacom 18 entered into an exclusive licensing agreement with Eros International Media for forthcoming releases TV networks have indicated that they may be less and is reported25 to have acquired 9 movies for satellite aggressive than earlier in paying for movie acquisitions, and broadcast. wait for the box-office response of the film before acquiring satellite rights at high prices. For example, in a recent press Star continued the trend of premiering its big movie interview, Colors indicated that with the cost of movie acquisitions on its movie channel Star Gold, rather than on acquisition having gone up five times, the channel will its flagship GEC. Star Gold premiered blockbusters like ‘Ra. continue to buy movies, albeit less aggressively and at the One’, ‘Bol Bachchan’, ‘Kahaani’ and ‘Housefull 2’ during right price27. 2012. Zee also premiered ‘Agneepath’ on its movie channel Zee Cinema. However, our industry discussions indicate Our discussions suggest that blockbuster movies and that it may be more challenging to monetize blockbuster movies catering to a family audience may continue to premieres on movie channels than on the flagship GEC, as witness price rises, while prices of non-family movies effective rates may not be as high. (particularly those not rated for “Universal” viewing) may not see such aggressive bidding.

24. Afaqs, 4 April, 2012 25. Indiantelevision.com, 6 July 2012 26. Timesofindia.com, 21 September, 2012 27. Business Standard, 22 October, 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 29

TRPs of films

2012 2011 2010

Film TRP Film TRP Film TRP

Ra.One 6.7 Bodyguard 10.3 3 Idiots 10.8

Bol Bachchan 4.8 Singham 8.8 Dabangg 9.2

Agneepath 4.7 Zindagi Na Milegi Dobara 4.1 Ajab Prem Ki Gajab Kahani 7.5

Ek Tha Tiger 4.6 Band Baaja Baraat 2.5 Khatta Meetha 4.8

Source: TAM (for 2012); Press articles (other years); Copyright reserved with TAM MEDIA RESEARCH PVT. LTD. Any use of TAM data (or derivative thereof) mentioned herein without express permission of TAM shall be treated as illegal Hindi movies “ Hindi movies is the second biggest genre in the Hindi speaking markets, with a viewership share of close to 12 percent in 2012. In 2012, the genre increased its If there is a phenomenon waiting to viewership share by 13 percent28. A part of this growth may happen, it’s regional. be attributed to inclusion of LC1 markets in TAM ratings “ - M K Anand measurement, where Hindi movies account for a larger CEO Broadcasting, share of the market compared to the HSM average. The Disney-UTV competition in this genre continues to remain intense, with most movie channels of the large broadcasters delivering 50-6029 GRPs per week. Two new launches in the category in 2012 were Movies OK from Star India and Cinema TV.

The Hindi movies genre is a fragmented market with 12 players competing for a 430 percent share of the television Regional genres are showing phenomenal advertisement pie. The advertisement market for Hindi growth in terms of viewership. Advertisers“ movies has stabilised at around INR 1231 billion, and is are yet to tap into the large potential of expected to grow at a steady rate going forward. The “retail consumers in these markets and genre continues to be under-valued vis-à-vis viewership local advertisers would be willing to pay a share, while channels struggle to keep rising movie premium for this audience. acquisition costs in check. Movie channels belonging to large broadcasters have the advantage of being able to - Punit Goenka access libraries of their parent networks. Newer channels MD & CEO, like Cinema TV are looking to reduce costs and differentiate Zee Enterprises Entertainment Limited content with a library of older movies from the 70s and 80s. Scan the QR code to hear more from Punit

Regional channels

Regional channels accounted for approximately 26.6 Regional GEC is the most dominant genre within regional percent of total television viewership in 2012. Of this, the channels in terms of viewership share, accounting for 76 to Tamil and Telugu markets account for approximately 50 78 percent of audiences in the Bengal and Marathi markets, percent of total regional viewership (marginal decline from and 65 to 70 percent in the southern markets. Broadcasters 52 percent in 2011). In comparison, Marathi and Bengali are looking to strengthen their portfolio of regional markets account for close to 29 percent of total regional channels with new launches; Zee and Star both launched viewership28. their Bangali movie channels – Zee Cinema Bangla and Jalsha Movies. Star owned Asianet Communications also launched Asianet Movies, the first satellite movie channel in Malayalam. Gujarati Dailies Sandesh and Gujarat Samachar launched their news channels – GS TV News and Sandesh TV. A new Bhojpuri entertainment channel Anjan TV was launched by AAP Media.

28. TAM; Week 1 to 52, 2012, All India CS4+ market. Copyright reserved with TAM MEDIA RESEARCH PVT. LTD. Any use of TAM data (or derivative thereof) mentioned herein without express permission of TAM shall be treated as illegal 29. Industry discussions conducted by KPMG in India 30. Pitch Madison 31. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 30 The power of a billion: Realizing the Indian dream

Regional markets have emerged as a key revenue driver for national broadcasters. Regional channels are estimated to Fiction, the main domain of GECs, has 32 always dominated viewership. GECs cater account for approximately 30 percent of total revenues of Star and Zee networks. MSM entered the Telugu market in to almost 60-65 percent of viewership 33

“in regional markets, and 50 percent+ in 2012 with the acquisition of Maa TV and is reported to be national. Ad revenues are proportional looking at expansion in at least three regional markets. Last

to viewership, and a large chunk of year, Network 18 group had acquired Eenadu TV which has its presence across 6 key regional markets. the advertisement pie continues“ to be garnered by GECs. Audiences have not Regional channels command an advertising market share moved out from GECs, but few niche of 27.234 percent, which is proportionate to their viewership channels have gained due to availability share. Advertising interest in regional markets is strong and post digitisation. broadcasters see immense potential for revenues from - Subramanyam K local advertisers who may be willing to pay a premium Vice President, National Head – to reach their targeted audience. With the exception of Ad sales and Marketing, the Bengal ad market which de-grew and the Marathi ad ETV Network market which grew by 4-5 percent, most other regional ad markets, led by the South, grew between 12 percent and 15 percent35.

Viewership share of regional channels

Regional markets continue to outpace the national market in terms of growth. Despite

a slower growth in 2012, some regional

“markets have shown an impressive upward trend. This is on account of FMCG clients which account for 60 percent“ of total spending. On the other hand, consumer durables, auto, telecom and real estate continued to stay low on GECs even during the festive season.

- Subramanyam K Vice President, National Head – Source: TAM; All India 4+ Week 1 to 52, 2012; TAM; All India CS4+ market. Copyright reserved with TAM MEDIA RESEARCH PVT. LTD. Any use of TAM data (or derivative thereof) mentioned herein Ad sales and Marketing, without express permission of TAM shall be treated as illegal ETV Network

Market size

Households (million in Television households C&S households Advertisement market Language home state) (million, percent of total (million, percent of total size (INR million) households) households)

Tamil 17.7 16.4 (93%) 15.9 (97%) 13,500

Telugu 20.9 15.1 (72%) 14.8 (98%) 9,000

Bangla 20.3 9.5 (47%) 8.6 (90%) 7,000

Kannada 13.5 10.0 (75%) 9.9 (98%) 6,200

Malayalam 8.1 7.6 (93%) 7.1 (94%) 6,600

Marathi 24.9 16.8 (67%) 14.9 (89%) 4,100

Bhojpuri* 56.4 16.6 (29%) 11.3 (68%) 1,000

Punjab 5.5 4.8 (87%) 4.3 (91%) 1,500

Oriya 10.0 4.2 (42%) 3.5 (84%) 800

Gujarati 12.7 8.1 (64%) 7.0 (87%) 450

Source: IRS Q3 2012; Industry discussions conducted by KPMG in India Note: *Bhojpuri market consists of the states of Eastern UP, Bihar, and Jharkhand

32. Afaqs, 29 August, 2012 34. Pitch Madison with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 33. Financial Express, 4 July, 2012 35. Industry discussions conducted by KPMG in India The power of a billion: Realizing the Indian dream 31

The Rise of Tier II with a Regional Perspective on Television in India

Regional / Tier II is the next buzz word in the Indian Star launched Pravah in Marathi, Jalsa in Bengali and did economy. The reasons are many, primary being the a JV with Kerala’s Asianet for Asianet Plus in Malyalam, fact that India’s smaller cities have delivered robust Suvarna in Kannada and Sitara in Telugu. Discovery India economic growth over the last 15 years, comparable launched a Tamil Channel as also multiple language with the largest. It is estimated these will add 160 feeds. True value can be seen in national players and million to the overall urban population and contribute to pan India networks taking a stake in regional’s to 49 percent of the urban GDP. Provision of basic services give weight to their network (Star India, Sun TV, Zee here will reduce the migration to larger cities. Fast Entertainment, Multi Screen Media and Network 18 saturation and increased competition are impacting Group, the top 5, control a bulk of total TV-ad revenue). margins and market share for players in metros / tier-1 This allows greater eyeballs for their shows and offers a markets. Given such a scenario, tier-2 cities will witness better business proposition for their marketers. growth and drive spending. The prospect of less competition, large unexplored territories and a sitting With digitisation targeted to be completed for Rest audience make these markets extremely attractive. of India by 31 December 2014, regionalization and localization setting in, we will see significant additions in Metros are still big markets but growth is slowing with mass media offerings for the rural customer also. smaller markets growing faster for most categories – so emphasis on regional media is expected and Greater accountability of channel viewership which is, will continue to gather momentum. Marketers are currently lacking, will make these markets even more investing heavily to strengthen their channel presence interesting to marketers with digitisation. here - FMCG, Auto, BSFI, Consumer Durables are Smaller independent channels will sprout offerings with some major sectors. As advertisers shift their focus to customised unique value propositions driving in niche regional markets to tap rising consumption, television loyal audiences; rife for a national buyout! broadcasters are chasing regional channels which are growing faster at approximately 12-15 percent than Regional will create leverage for itself and value non-Hindi television markets with a higher viewership proposition for its stakeholders. Regional may just be at almost 35 percent. The economic downturn of 2008 set to rule. got national broadcasters interested by acquisition or stake purchase in regional channels as advertisers were drawn towards consumption interest. Digitisation of distribution infrastructure, demand for regional and niche content will drive growth in this segment. Numerous channels continue to appear across genres including general entertainment, news - Anita Nayyar and movies, lifestyle, kids and infotainment; the CEO, increasing audience fragmentation contributes to Havas Media Group, India & South Asia the trend. Intense channel competition is leading to investments in differentiated content and diversification into niche and regional channels. Unless otherwise noted, all information included in this column/ article was provided by Anita Nayyar. The views and opinions expressed The majority of India’s urban consumption comes herein are those of the authors and do not necessarily represent the from non-metro cities / Tier 2 and Tier 3 towns - views and opinions of KPMG in India. regional markets with distinct cultures, languages and content preferences. These markets offer a variety of opportunities to deliver localised content. Many global film studios and television broadcasters have already entered and are producing regional-language content. Language feeds and localisation will make regional channels all the more attractive with the overall cost of reaching the audience increasing over time. The top regional markets namely Tamil Nadu, Kerala, Andhra Pradesh, Karnataka and the rest of West Bengal have strong regional players. Though these do not command advertising spends in terms of value as HSM / metros, their volume share is steadily growing at a faster pace. Tamil Nadu has clear demarcation of language and monopoly of media making it very media attractive. Maharashtra is an overlap of the HSM and regional markets with fragmented media but it is a more politically stable market having many Tier 2 cities and a brand-cum-media inclined audience making it promising. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 32 The power of a billion: Realizing the Indian dream

Kids

The Kids genre delivers 500-60036 GRPs per week, and is Carriage fee is a challenge for the Kids genre, and this the largest genre after the Hindi and regional GECs. may be easier absorbed if these channels are part of a large network. BBC exited the Kids genre by closing down Since the target segment served by the Kids genre is a CBeebies in 2012 citing unviable carriage fee payouts as sub-set of that served by the GECs, one may expect any one of the reasons for the exit. tightening of advertisement budgets to have an adverse impact on the genre. However, the genre has historically The Kids genre will continue to see increasing localisation been undervalued by advertisers, vis-à-vis viewership of content, as broadcasters create offerings suited to Indian share. Advertisers are increasingly recognising the power culture and tastes. Local content creation will also serve to of reaching kids who are emerging as key influencers reduce content cost. Brand extensions to monetise popular in several household purchasing decisions. The genre shows through digital / live media and consumer products witnessed a growth of 20 percent in its advertisement are expected to emerge as a key revenue driver in the revenue share in 2012, as compared to 5 percent in 201137. medium to long term. Total advertisement market for the Kids genre is estimated

at INR 2.638 billion in 2012. English entertainment

Compared to its viewership share of approximately 139 “ percent, English entertainment including GECs and The kids genre continues to be under- Movies, commands a high advertisement share of traded. With a viewership share of over 8 approximately 540 percent. This is on account of its premium percent, it commands only 2 percent of the SEC A viewership, which is an important target segment “advertisement pie. for advertisers. Viewership for English entertainment is present in Metros and select large cities which results in - Nina Elavia Jaipuria high carriage payouts. BBC withdrew from the English EVP & GM Sonic & Nickelodeon India, Entertainment genre this year citing unsustainable carriage Viacom 18 Media Pvt. Ltd. costs. However, digitisation of key cities during Phase 1 and 2 is expected to reduce carriage and improve channel economics leading to higher profitability. English GECs are also reported to have seen a significant increase in viewership across three metros of Mumbai, Delhi and The viewership share for the Kids genre increased by 17 Kolkata post digitisation. percent in 2012, on the back of several new launches. These new launches targeted viewers based on age, leading to Programming strategy on English GECs has seen a change sub-segmentation in the genre. Two new channels targeted in order to better suit the Indian television viewer. Channels towards pre-school kids were launched in 2012– ‘Disney have introduced more shows focusing on drama and crime, Junior’ and ‘Nick Junior’. Two new channels targeted and are airing more than one season of sitcoms on all towards kids between 4 and 11 years were launched with weekdays to improve consumer stickiness. Broadcasters an ‘edutainment’ positioning – Zee Q and Discovery Kids. are also looking at airing more movies in order to increase

Discussions with industry players indicate that digitisation channel sampling and audience stickiness. will allow broadcasters to charge premium advertisement

rates on account of targeted viewership. With the exception of ‘Discovery Kids’, the other three new channels launched in 2012 are available only on digital platform. “ Viewership share of English entertainment channels has increased post DAS and would continue to further increase as DAS “rolls out further. Kids is a genre which lends itself naturally to sub-segmentation. A 4 year old is very - Anuj Poddar

different from a 9 year old, who is very Head – Strategy & Business Development, “different from a 10 year old. The same Viacom 18 Media Private Limited

genre can thus carry very different content based on the target segment (pre-school to teens) and gender“ (boys or girls). Digitisation will boost viewership for the Kids genre as navigation through various offerings on kids channels becomes easier for the child.

- Nina Elavia Jaipuria EVP & GM Sonic & Nickelodeon India, Viacom 18 Media Pvt. Ltd.

36. Industry discussions conducted by KPMG in India 37. Pitch Madison 38. Industry discussions conducted by KPMG in India 39. TAM; Week 1 to 52, 2012, All India CS4+ market. Copyright reserved with TAM MEDIA RESEARCH PVT. LTD. Any use of TAM data (or derivative thereof) mentioned herein without express permission of TAM shall be treated as illegal 40. Pitch Madison with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 33

Music

While the music genre continues to be a very competitive space, viewership share increased from 2.7 percent in 2011 to 3.141 percent in 2012. However, 2012 saw the LC1 markets are now“ being reported by genre approach a ‘hyper-competitive’ scenario with a large TAM and that will have an impact on all number of channels competing for the viewer mind-share channels and broadcasters will have to and time-share. With Hindi film music dominating the “make investments to increase reach in content on music channels, content differentiation has those markets. always been a challenge. Broadcasters are now looking - N P Singh at specialized music channels to engage viewers. 9XM COO, launched two new niche music channels – 9XO which runs Multi Screen Media Private Limited international music content and 9X Jalwa which features timeless ‘Bollywood’ hit songs. “ on LC1 markets, the music channels will be impacted and The music genre is very crowded. Further, may need to consider investing more in carriage payouts to music is consumed through various media be able to increase reach in these regions. – not just TV. “ Channel [V] effectively exited the music genre, replacing - Shailesh Kapoor music with youth focused fiction and non-fiction CEO, programming and may be looking for higher advertisement Ormax Media rates with its new positioning as a youth GEC channel.

Our discussions with industry players indicated that consumption of music is across various platforms, and therefore a standalone TV strategy for music channels may No other genre has so many number of not be sustainable. Digital extensions of music channel channels. This clearly demonstrates that brands onto online platforms, including pads and phones music is a liked genre across various target will drive revenue growth and will need to be considered in “group of people and their geographies. the medium term. Like it happens in all genres, people/ viewers bookmark their favorite and News preferred channels. Digitisation will lead to more offerings to consumers/viewers. The news genre consists of general and business news in So there will be an overall increase in the Hindi, English and regional languages. Hindi and regional consumption of favourite/preferred/niche news account for 50 percent and 543 percent of total news channels. It’s a fact that music, across viewership, respectively. In 2012, news viewership declined languages and English language channels, by 15-2044 percent, with English News channels impacted

is the driving category of preferred/niche more than Hindi channels. Several news channels appear to

channels. Music consumption would have witnessed a decline in advertisement revenue in 2012 continue to grow with regional viewership as rates continued to be under pressure. growing. Markets like Punjab, Haryana,“ Maharashtra, and Bengal have responded A decrease in carriage fees is critical for news channels, as very well. Also, digital ENGAGEMENT, and carriage payouts are significantly higher than subscription not just presence, would be one of the key revenue. English news channels are reported to spend differentiators for broadcasters. approximately 7045 percent of their distribution costs on carriage fee in metros. However, discussions indicate that - Punit Pandey the news genre is yet to achieve significant benefits from EVP New Business, digitisation of metros, which account for a significant share 9X Media Pvt. Ltd. of their viewership. While subscription revenue benefits are yet to flow in, overall decline in carriage fee payments for news channels has been below industry expectations.

Earlier this year, Star group exited its 26 percent46 stake Hindi music accounts for close to 7542 percent of the in MCCS which runs Hindi, Bengali and Marathi news advertisement market. However, growing advertiser channels due to its inability to invest more than the FDI limit interest in regional markets has led to music channels of 26 percent. looking at further expansion in the regional markets. 9X Media Pvt. Ltd. launched two new regional music channels The upcoming national elections that may be held in 2013 or in Punjabi and Marathi market - 9X Tashan and 9X Jhakaas, 2014 are expected to help improve advertisement revenues respectively. CNEB launched a new Bhojpuri music for news channels. channel, ‘Hummra M’. However, with TAM now reporting

41. TAM; Week 1 to 52, 2012, All India CS4+ market. Copyright reserved with TAM MEDIA RESEARCH PVT. LTD. Any use of TAM data (or derivative thereof) mentioned herein without express permission of TAM LTD. Any use of TAM data (or derivative thereof) mentioned herein without express permission of TAM shall be treated as illegal shall be treated as illegal 44. Pitch Madison 42. Indian television, 12 February 2013 45. Indiantelevision.com, 24 July 2012 43. TAM; Week 1 to 52, 2012, All India CS4+ market. Copyright reserved with TAM MEDIA RESEARCH PVT. 46. Business Standard, 2 April 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 34 The power of a billion: Realizing the Indian dream

Sports Lifestyle and Infotainment After an increase in 2011, the sports genre saw a 2647 The Lifestyle and Infotainment genre saw a viewership percent decline in viewership and a proportionate decline growth of 1242 percent in 2012, with players expanding in its advertisement share in 2012. This is attributed to the their offerings for Indian viewers through new channel absence of a mega sporting event like the Cricket World launches, localization of content and audio feeds in multiple Cup in 2011 and a muted advertiser response to season 5 languages. The Lifestyle and Infotainment genre, like of IPL. the English GEC genre, commands an advertisement share disproportionate to its viewership share. Increasing Despite intense competition, the sports genre has competition in the genre indicates that more broadcasters emerged as one of the most attractive opportunities for are eyeing the INR 3.452 billion infotainment market. broadcasters in India. After airing IPL on its entertainment channel SET Max, MSM India launched its exclusive sports Players in the genre are looking at localisation of content channel, Sony Six which currently holds the broadcast to appeal to Indian viewership and reach out to hitherto rights for IPL till 2017. News Corp strengthened its presence untapped audiences. Indian content accounts for 35 in the genre with the acquisition of ESPN’s 50 percent percent of programming on Fox Traveler and 20 percent of stake in ESPN Star Sports at approximately INR 1848 billion programming on NGC53. Other channels are also looking at and a two year non-compete clause. In a keenly contested mix of international and local content. Discovery channel bidding process last year, ESPN-Star acquired the BCCI aired tailor-made Indian content like ‘Feast India’ and cricketing media rights till 2018 for INR 38.549 billion. The ‘Rhodes across India’, while Animal Planet broadcast a 52- company also acquired the rights for Bangladesh Premier week run of ‘India: Wild encounters’. League and Sri Lanka Premier League. Sub-genres within niche genres is a growing trend, and Broadcasters continue to target committed audiences for the Infotainment genre has seen several channels over the other sports as well. ESPN-Star committed approximately last 2-3 years focused on interests as diverse as history, INR 850 billion to retain the exclusive rights to broadcast adventure , travel, cooking and lifestyle. While spends from football English Premier League for an additional three traditional advertisers have been under pressure, varied years. In addition the company also acquired the global programming is bringing in more international advertisers rights for Hockey India League while Ten Sports acquired like tourism boards promoting international destinations, the rights for Elite Football League of India. Niche sporting and ready-to-eat food companies, as infotainment channels channels like Ten golf can command customer subscription focused on sub-genres help them reach a targeted revenues in the range of INR 20051 per month and help audience. deliver targeted high-income viewership. Going forward, broadcasters expect to focus on cricket Other Themes in 2012, and going ‘beyond international cricket’ i.e. club and university cricket, forward as well as on non-cricket sports. BARC The broadcasting and advertising industries have long

The Sports genre is seeing strong growth been vocal about the need for more competition in the

with non-Cricket sports being followed television ratings measurement service in India. With and watched by young India. With strong this objective, Broadcaster Audience Research Council “partnerships“ with some of the largest (BARC) was initially registered in July 2010, after being in leagues in the world - UFC and the NBA, plans for six years and was launched in March 2012. BARC Sony SIX is in a strong position to provide is a joint body of advertisers and broadcasters with three Sports and Entertainment to the youth of shareholders – Indian Broadcasting Foundation (IBF), India. Advertising Agencies Association of India (AAAI) and Indian Society of Advertisers (ISA). IBF holds 60 percent in the JV, - Nitesh Kripalani with the balance 40 percent equity being shared by AAAI Senior Vice-President: Business and ISA. BARC is reported to be formed on similar lines as Development and New Media, BARB (Broadcast Audience Research Board) that compiles Multi Screen Media audience measurement and television ratings in the UK.

BARC is reported to be targeting a sample size of 30,00049 households. The broadcasting industry has indicated that HD viewership in the country received a boost over the transparency is a key pillar for BARC, which has decided last 1-2 years with the introduction of several HD sports to segregate the functions of data collection, analysis and channels. However, 2012 also saw difficult subscription reporting between three independent agencies. revenue negotiations between DTH service providers and HD sports broadcasters. Three DTH service providers i.e. Airtel Digital TV, Sun Direct and Dish TV had suspended certain HD sports channels from their channel packages.

47. TAM; Week 1 to 52, 2012, All India CS4+ market. Copyright reserved with TAM MEDIA RESEARCH PVT. 50. Indian television, 2 February, 2013 LTD. Any use of TAM data (or derivative thereof) mentioned herein without express permission of TAM 51. Industry discussions conducted by KPMG in India shall be treated as illegal 52. Pitch Madison, KPMG in India analysis 48. Business Standard, 28 January, 2013 53. Indian television 8 January, 2013 49. Hindu Business Line, 2 April, 2012 54. Indian Express, 4 September, 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 35

If the boxes that are being seeded during The TV broadcasting industry will see digitisation can be equipped with data better growth if we address two key issues

retrievable technology whereby one can that we are currently facing

“know the channels watched, time spent “ etc., it will perhaps be the ideal system (a) The distribution system which has been for viewership measurement.“ Technically plagued by a lack of addressability, low

this is possible. Increase in sample size subscription revenue and high carriage

shall give better accuracy. BARC would fees. Hopefully digitisation will lead to a be transparent due to the participation of major change in this regard; and various stake holders. “ (b) Viewership rating system – we need - Subramanyam K to overhaul the system of measuring Vice President, National Head – viewership rating and also increase the Ad sales and Marketing, sample size of viewers. ETV Network - Vikram Chandra Executive Director & CEO, NDTV Group

Scan the QR code to hear more from Vikram

In the current viewership measurement

system, only one entity controls the system Early this year, BARC issued a global Request for

end-to-end, making it opaque. In BARC, Information to conduct an establishment study. The exercise seeks to understand the requirements that will “one agency will conduct“ an establishment survey, a second agency will design the help define the architecture for the audience measurement metering system and conduct quality system. While the body has taken some steps towards checks, while a third agency will actually commencement of operations, BARC has historically install the meters. faced operational and technical delays since its inception. Discussions indicate that progress has been slower than - Punit Goenka anticipated and BARC may be at least 1.5-2 years away MD & CEO, from coming into force as a competitive alternate currency Zee Enterprises Entertainment Limited and for the television industry. Chairman, BARC

Scan the QR code to hear more from Punit with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 36 The power of a billion: Realizing the Indian dream

Consolidation 2012 was a year of consolidation with significant deal activity across the television value chain. The broadcasting industry witnessed action as players took the M&A route to enter new markets, expand presence in regional markets, consolidate presence in focus markets and exit non-core businesses.

Television M&A activity in 2012

Target Stake Acquirer Comment

Broadcast UTV Global Broadcasting55 20% The Walt Disney Company Expansion into multiple India genres

Living Media India Limited 56 27.5% Aditya Birla Group Strategic

MCCS57 26% ABP Group Exit from non-core genres

Consolidation of presence ESPN Star Sports58 50% News Corp in existing genres; Disney exit from non-core genre

MSM59 32% Sony Pictures Television Buy out of minority share holders

MAA TV55 30% Sony Pictures Television Regional expansion

Eenadu TV56 50% (5 channels) Network 18 Media Regional expansion 25.4% (2 channels)

Distribution DEN Networks56 1.14% Reliance Strategic Strategic Investments

Digicable56 90% Sahara Group Strategic

Hathway Cable & Datacom60 17.3% Providence Equity Partners News Corp’s exit from non-core business

Content Endemol India61 49% CA Media Strategic production

Note: (*) Announced in 2011; completed in 2012 with a public offer for the 20 percent of shares owned by public shareholders

Going forward, significant fund raising activity is expected in the distribution sector as MSOs make heavy capital The M&E industry is undergoing

investments for digitisation, and DTH providers look for consolidation across sub-sectors as funds needed for expansion and customer acquisition. well as select exits (including in TV

For instance, Videocon D2H has filed for an IPO, Tata Sky “broadcasting). While exits indicate that is reported to have plans to raise INR 20 billion through an there are issues“ and challenges, they IPO, Dish TV is reported to have plans to raise INR 5.5 billion 62 also indicate that rationality is back in through listings abroad . The broadcasting industry may the system. That will lead to stronger also witness consolidation, as channels enter more regional economics and industry health going markets and make significant investments in content and forward. distribution to attract viewers who would have a larger number of offerings to choose from. - Anuj Poddar Head – Strategy & Business Development, Viacom 18 Media Private Limited

55. Financial Times, 1 February, 2012 59. Timesofindia.com, 15 June, 2012 56. Mergermarket, Bloomberg 60. WSJ, 13 March, 2012 57. Business Standard, 2 April, 2012 61. Livemint, 27 April, 2012 58. Medianama, 20 December 2012 62. Business Standard, 8 December, 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013

The power of a billion: Realizing the Indian dream 37

Consolidation is the need of the day “ New media has finally arrived and growing because many players are burning too even faster than anticipated.“ Premium much cash and are trying to hold on to their content from broadcasters and film studios “market share, albeit on low profitability. “is fueling high streaming consumption through web platforms and smartphones - Atul Das and tablets. Chief Strategy Officer, Zee Enterprises Entertainment Limited - Anuj Poddar Head – Strategy & Business Development, Viacom 18 Media Private Limited The rise of digital media Online video viewership has witnessed significant traction in India, growing 45 percent63 between Dec 2011 and Dec 2012. Online television content consumption is expected Content has always been king but the king to mirror this trend, and broadcasters are catching up to now has a queen in the form of technology. expand presence across digital platforms like online portals, Technology is going to be the game video platforms, and mobile applications. “changer especially for the news genre. However, the challenge is going to be

Availability of robust networks today has enabled secure monetization, as a lot of content is available delivery of live and on-demand content on multiple for free. Our attempt is going to be on “ platforms. Several leading broadcasters have launched or development of differentiated content and partnered with mobile video delivery platforms, such as formats that will encourage consumers Apalya, Geodesic, Zenga, DigiVive and iStream. Google to pay for content. Advertising though will is also reported to be licensing entertainment and sports continue to be a key revenue source. content for its Youtube website. - Preet Dhupar Chief Operating Officer - India, BBC Global News

Multi-screen platforms launched by major networks

Network Online Platform Availability Description

• Online on sonyLIV.com • Live and VOD service; episodes of current and previous MSM India Sony LIVE shows • Free mobile applications

• Online on dittotv.com • More than 50 channels across broadcasters; more than Zee Network Ditto TV 100,000 downloads since launch in February 2012 • Free mobile application

• Live and VOD content in short form (4-5 minutes) and • Online on Startv.in long form (22 minutes) for current and previous shows Star Network Star Player • Paid mobile applications • Viewership increase of 80 percent over last 6 months; with 70 percent of return viewers

Brand specific • Online platforms: Colors, MTV, Viacom 18 • Live and VOD service online platforms Nickindia, Sonicgang

Source: Websites and Industry discussions conducted by KPMG in India

As consumption of television content across platforms rises further, a key concern for broadcasters and advertisers alike would be the availability of a measurement platform that integrates viewership across multiple media.

63. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 38 The power of a billion: Realizing the Indian dream

Riding the HD growth curve Genre segmentation and specialty channels After a relatively slow start for the first 2-3 years, adoption of HD connections saw an upswing in 2012. HD subscribers Emergence of specialty channels and sub-segments within account for approximately 3.5-464 percent of existing hitherto niche genres is expected to be a key theme going DTH subscribers. However, the percentage of new DTH forward once digitisation achieves maturity. Channels subscribers opting for HD packages has doubled, from 7-8 across varied genres like Kids, Music, Infotainment, Sports percent last year to approximately 1564 percent during 2012. and Movies are expected to start offering differentiated Growing HD adoption is expected to boost DTH ARPUs. content appealing to sub-segments within their target An analogy to appreciate the importance of the HD C&S audiences. subscriber base may be drawn from the Indian telecom industry, where postpaid subscribers account for 5 percent Impending digitisation has encouraged a few broadcasters of the subscriber base, while contributing 30 percent64 to to take a leap of faith in launching specialty, advertisement revenue. free and niche channels, particularly in the Kids genre. Many of these channels are available only on digital platforms in order to develop a subscription driven business

model. Discussions indicate that by the time digitisation

The HD market opened up in 2010, saw approaches completion, broadcasters want their offerings an increased traction in 2011 and has to achieve significant maturity amongst their target exploded in 2012. 15-20“ percent of new audiences so as to benefit from increase in subscription “DTH customers are opting for HD services. revenue and achieve premium advertisement rates. For Increasing number of flat panel sales is a instance, HBO Asia and Eros launched HBO Hits and HBO very important factor influencing the sale Defined – two new advertisement free premium priced of HD services. movie channels.

- Anil Khera Despite the launch of a few specialty channels, overall CEO, industry movement towards the international model Videocon D2H of subscription driven niche channels remains slow. Discussions indicate that broadcasters are yet to align themselves to a digital world with limited investment in Two factors have enabled an accelerated adoption of HD content creation and reach generation. television in India. Flat panel sales including LCD, LED and Plasma television sets has seen significant traction, and is

expected to increase at a CAGR of 2764 percent over 2012- 16.

Post digitisation, we see more targeted offerings coming in. For instance, Gujarat, Panel sales Maharashtra and“ UP can all be called “HSM, but they are culturally very different. In today’s analogue world, they are all served one spectrum of content created in Mumbai.

- Uday Shankar CEO, Star India

With digitisation, broadcasters with launch more niche channels. I expect “ more channels aimed at men and youth “segments, travel & leisure, health & Source: KPMG in India analysis, Industry discussions conducted by KPMG in India wellness. The focus will not only be on 14- Note: Figures are rounded to the nearest integer and may not add up exactly to column totals 34 year old women, but young males also.

Sensing a market opportunity, broadcasters have made - Man Jit Singh large numbers of channels available in HD format. CEO, Approximately 36 channels across genres like GEC, Multi Screen Media Private Limited Infotainment, Sports and Movies are available on the HD

platform, and this number is expected to rise to close to Scan the QR code to hear more from Man Jit 5064 by next year.

64. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 39

Regulatory snapshot

Industry wish-list

Entity Wish-list Comment Broadcasters Timely digitisation • There have been implementation challenges and “ with addressability delays in complete digitisation of four metros. At Complete and timely digitisation is the same time, while boxes have been seeded in foremost on any broadcaster’s wish- homes, these are not necessarily addressable. list.

• Several broadcasters have indicated that timely “ digitisation along with consumer addressability is - Asheesh Chatterjee

the most important development needed by the Chief Financial Officer, television industry. Reliance Broadcast Network Limited Move to CPT, • Currently, the industry uses the CPRP metric to “ rather than CPRP arrive at advertisement rates. The industry should move from a CPRP based system to a CPT model. This will help niche • A CPT metric based system better represents the new C&S households added every year. genres a lot. It is also in-line with what “ the world is doing. - Rohit Gupta President, Multi Screen Media Private Limited

Introduce pricing • In the DAS regime, the government has regulated freedom the retail pricing, and recommended a revenue share amongst various stakeholders in the value chain.

• Strong broadcasters prefer pricing freedom in fixing consumer tariffs for different channels.

Self regulation • While TRAI has mandated a maximum of 12 of advertisement minutes of inventory per hour of programming, inventory compliance measures against broadcasters remains low.

• Strong broadcasters would like to see the industry move towards self-regulation in advertisement leading to enhanced consumer experience and higher advertisement rates for the broadcasters. 40 The power of a billion: Realizing the Indian dream

Industry wish-list

Entity Wish-list Comment

MSOs Introduce pricing • MSOs prefer pricing freedom for the broadcasters freedom to to fix consumer tariffs for different channels. A better option would have been for broadcasters and • A market driven pricing model may lead to the regulator to allow broadcasters mandate a revenue to fix their MRP to end customers and share between consumers in different areas paying different ARPUs for the same bouquet of channels. “ then mandate a revenue share for the stakeholders various players across the value chain.

At least this should have been tried in

the initial 1-2 years of DAS. It may be noted that during the CAS regime, the only problem that was highlighted“ (in terms of ARPU and ARPU share) was that broadcasters were not allowed to price their offerings - end customer price was regulated.

- Subhashish Mazumdar Senior Vice President, IndusInd Media & Communications

Incentives and • Providing infrastructure status to the cable support from the industry will enable easier MSO access to The entire onus of digitisation is on Government domestic funding critical for successive phases of the MSOs. MSOs are obtaining boxes, digitisation. subsidizing the boxes, and executing rollout on the ground. The government • Custom duty on set top boxes has been doubled “ to 10 percent. MSOs indicate that this has been could play a more supporting role. done in order to provide a boost to the indigenous For instance, instead of reducing manufacturers. customs duty on boxes, they have doubled it (to make the local STB • MSOs prefer that instead of MSOs subsidizing the manufacturing industry competitive customer for the increase in STB cost, government vis-à-vis imports). While we appreciate provide these local manufacturers incentives that local manufacturing needs to be and subsidies to enable them to be more cost- encouraged, the government should competitive vis-à-vis imported boxes. have given local manufacturers some

fiscal incentives or removed VAT • Reduction in custom duty on digital headend as done with the Telecom Sector or

equipments and set top boxes will provide a boost reduced it for a couple of years till to the digitisation initiative. the local manufacturers achieved“ economy of scale. This would have reduced the cost of the Stbs. Today, the MSOs are being penalized to make the local industry competitive.

- Ravi Mansukhani Managing Director, IndusInd Media & Communications with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 41

Industry wish-list

Entity Wish-list Comment

DTH Rationalize taxes • The DTH industry is subject to multiple taxes. The operators tax levies on DTH industry includes an average of Rationalization of taxes is a crying need 10 percent entertainment tax, 10 percent in license for the DTH industry. The industry is

fees, and an additional 10 percent customs duty subject to entertainment tax, service on set-top-boxes.

“ tax, as well as license fee for the • Rationalization of taxes is expected to provide a spectrum that total up to 32 percent of boost to the industry enabling providers to invest topline. In addition the customs duty“ in infrastructure development and customer on STBs has been doubled just when acquisition. we were gearing up for phase 2 of digitisation with approx 5 Million boxes on high seas and in ports.

- Harit Nagpal Managing Director & CEO,

Scan the QR code to hear more from Harit Tata Sky

Timely access to • Timely access to transponder space has been cited transponder space as a key concern.

• Allowing DTH operators to buy transponder space in the open market will enable faster access to transponder space and eliminate capacity constraints.

Reduction/ • Approximately 95 percent of customer-end removal of equipment (set-top-boxes and antennae) are customs duty on imported. set-top-boxes • DTH providers would also like to see a reduction

in custom duty on digital head-end equipment and

set-top boxes. Content and Higher investment • High carriage fee and low subscription revenues “ others in content limit broadcaster’s ability to invest in quality Investment in content needs to content. increase significantly. • As digitisation progresses further, television industry would like see higher investment in “ - Uday Shankar content in order to command subscription premium CEO, for an enhanced consumer experience. Star India

Good quality talent • Limited availability of quality personnel across the

for media industry value chain constrains the ability of the television industry to innovate and create disruptive The industry is facing a severe strategies for rapid growth. challenge in terms of quality“ of talent across career stages. The challenge is • Availability of academic programmes focused “ in terms of training and capability, and on the media sector, particularly television, will also in terms of the sector attracting enable the sector to tap into the right people in the right talent. terms of training skills and capability. - Uday Shankar CEO, Star India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 42

Print 03 Regional to the rescue with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 43

Print industry overview

CAGR INR Billion 2007 2008 2009 2010 2011 2012 2012 2013p 2014p 2015p 2016p 2017p (2012- growth 17)

Total advertising 100 108 110 126 139 150 7.3% 162 179 200 222 248 10.6%

Total circulation 60 64 65 67 69 75 7.3% 79 82 86 89 93 4.5%

Total industry size 160 172 175 193 209 224 7.3% 241 261 285 311 340 8.7%

Total newspaper 148 159 163 181 196 211 7.6% 228 248 272 298 327 9.1% revenue

Total magazine 12 13 12 12 13 13 3.8% 14 14 14 13 14 0.9% revenue

Total industry size 160 172 175 193 209 224 7.3% 241 261 285 311 340 8.7%

Source: KPMG in India analysis, Industry discussions conducted by KPMG in India

2012: Tough year for print The calendar year 2012, was the year when the going got helped the company shrink average delivery times from tough and the tough got going. The INR 224 billion Indian seven hours to four hours, and papers are now supplied print industry grew by only 7.31 percent from INR 209 within a 200-kilometer radius of where they are printed, billion in 2011- lower than KPMG in India’s expectation of instead of the previous 350 kilometers.5 8.32 percent growth last year.

The high dependence on advertisement revenues resulted in the growth of print industry being dampened by poor 2012 started on a tough note for the print macro economic performance of the country. In 2012-13, media industry, including HT Media. With the Indian economy slowed down its growth momentum- strong headwinds on advertising revenues registering a growth of only 5 percent as compared to 6.2 “throughout the year, our focus this year“ was percent in 2011-123. The slowdown can be attributed to a on rationalising costs. The bright spots were host of factors such as high interest rates to curb inflation, our emerging businesses like Mumbai, Hindi investment bottlenecks that slowed down corporate and Radio, which have shown growth despite a and infrastructure investment and poor global economic difficult economic environment. conditions that took a toll on India’s exports. All this has resulted in advertisers adopting a cautious approach - Vinay Mittal towards their marketing initiatives-leading to relatively Chief Financial Strategist, muted growth in overall advertising spends. HT Media In such challenging times, the Indian print industry has adopted a pragmatic approach with most print players The print industry continued to derive most (94 percent) now focusing on consolidating their position in core of its revenues from the newspaper category. The INR markets and penetrating them further through the launch 13 billion1 magazine segment continued to decline in of new editions rather than entering newer territories. The share due to decline in readership of general category industry has also made efforts to save the bottom line by magazines.6 The industry is worried that the readership of effectively managing operating costs. For example, HT the sector is holding flat but not growing. Niche magazines Media has brought down its raw material costs from a high with their defined readership and advertiser base of 38.2 percent in Q2FY13 to 33.8 percent in Q3FY13. The continued to perform better. decline in raw material costs was brought about by lower consumption of newsprint and softening of international Advertising, as stated earlier, is a prime contributor (67 newsprint prices which have declined from USD 623/tonne percent in 2012)1 to the total revenue earned by the print in the beginning of CY12 to USD 620/tonne towards the sector. However, with advertising budgets tightening and end and further to USD 616/tonne in February 20134. On the eventual threat of newer competitive platforms such as the other hand, Dainik Bhaskar has over a period of time digital, in the long run, it would be prudent for the industry decentralised its printing operations. The strategy has to increase circulation / subscription revenue as much as possible.

01. KPMG in India analysis 04. ICICI securities analyst report, Feb 13, 2013 02. FICCI-KPMG Indian Media and Entertainment Industry Report 2012 05. http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4439 03. According to Ministry of Statistics and Programme Implementation website of the Government of 06. IRS Q3 2012 India it is Central Statistics Office with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 44 The power of a billion: Realizing the Indian dream

Advertising mix

INR Billion 2009 2010 2011 2012 2013p 2014p 2015p 2016p 2017p

English 49 53 57 59 62 66 70 74 79

Hindi 31 37 41 45 49 56 64 73 83

Vernacular 30 36 42 46 51 57 66 75 85

Total 110 126 139 150 162 179 200 222 248

Source: KPMG in India analysis, Industry discussions conducted by KPMG in India

Print sector growth during last five years Growth in the previous year was mainly driven by an increase in advertising volumes and circulation revenue. Yield in most markets remained flat or marginally improved and did not have any material impact on the overall growth of the print sector. Overall advertising in the industry has grown 7.3 percent - lower than previous estimate. The english segment faced the roughest weather7.

While the market for English dailies continues to be tough, the regional and vernacular markets continue to defy gravity and grow on the back of rising literacy and low print media penetration as well as the continued tide of advertisers wanting to spend in these markets. The growth of the overall print industry was, hence, largely driven by Hindi and the vernacular print markets. The Hindi print Source: KPMG in India analysis market grew by 9.8 percent from INR 62 billion in 2011 to INR 68 billion in 2012 and vernacular from INR 63 billion 2011 to INR 69 billion in 2012 respectively7. Accordingly, 2012 witnessed some improvement in circulation revenues which increased by 7.3 percent year on year as compared to only 3.8 percent in 2011. This was achieved through launch of new editions and increase in cover prices of established editions. Going forward, the industry may adopt a differentiated pricing strategy by increasing the price of established editions in mature markets while holding the prices low in case of tier II and III markets or while entering newer markets. Such an approach will enable mature editions to gradually decrease their dependence on advertising revenues. 07. KPMG in India Analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 45

Long term growth looks promising

Print media market 2011 2012 2013p 2014p 2015p 2016p 2017 CAGR (2012-17) (In INR billion)

English Market 83 86 90 94 99 104 109 4.8%

Advertising 57 59 62 66 70 74 79 6.0%

Circulation 26 27 28 28 29 29 30 2.1%

Hindi Market 62 68 75 83 92 103 114 10.8%

Advertising 41 45 49 56 64 73 83 13.3%

Circulation 22 24 26 27 28 30 31 5.6%

Vernacular Market 63 69 76 85 94 105 116 10.9%

Advertising 42 46 51 57 66 75 85 13.3%

Circulation 21 24 26 27 28 30 31 5.8%

Total industry size 209 224 241 261 285 311 340 8.7%

Source: KPMG in India analysis, Industry discussions conducted by KPMG in India

The Indian print industry continues to be a promising long Key trends of 2012 and sector growth term growth story. However, in 2013 the growth of the industry is expected to be subdued and from mid 2014 drivers onwards it will gradually gain momentum and will be worth Scale tilting in favour of Hindi and other 340 billion by 2017 registering CAGR of 8.7 percent8. vernacular print markets The industry’s future performance will be a factor of the macroeconomic environment stabilising and print players Share of English, Hindi and vernacular languages achieving greater operational efficiencies and connecting with readers through delivery of high quality content. The industry is expected to focus on profitable growth by implementing cost control initiatives and adopting technology across key business performance areas such as planning, budgeting, customer relationship management, strategic outsourcing, etc. While leading players have made a head start in this direction, many still have to fully review their existing business models.

The inherent advantages of print industry – extensive reach, localisation benefits and ability to create trust and achieve a higher ‘attention span’, are expected to serve as a base for growth and ensure that print continues to be one of the most important platforms for Indian advertisers. By 2017, the print industry is estimated to contribute for 20.5 percent8 to the Indian M&E industry.

Source: KPMG in India analysis

08. KPMG in India analysis, Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 46 The power of a billion: Realizing the Indian dream

Over the years, there has been a gradual increase in the By 2017, the scale is further expected to tilt in favour of market share of vernacular newspapers. The combined the Hindi and vernacular markets – together constituting share of Hindi and vernacular dailies has risen from 53 64 percent of the industry revenues growing at a CAGR percent in 2008 to 61 percent (refer graph above) in 2012. of 10.8 percent and 10.9 percent respectively. The English The industry expects this trend to continue largely due to market will be worth INR 114 billion growing at a CAGR of volume growth driven by the launch of new local editions 4.8 percent9. and gradual improvement in advertisement rates of these markets. Advertising continues to be the key contributor While the English print commands higher ‘cost-per- Advertising is the cornerstone of the print industry’s thousand’ (CPT) compared to regional print, metro markets performance and has witnessed one of the most, if not the are challenging in terms of advertising and circulation, most, challenging years in a decade. The strong correlation leading to lower growth for the English language dailies. between economic growth and advertisement spends The English segment grew by 3.6 percent versus industry was reflected in the weak advertiser sentiments. Some growth of 7.3 percent and Hindi and vernacular grew at 9.8 of the big spending sectors such as Education, Banking, percent9. The segment will also likely face a greater threat Financial Services and Insurance, Telecom and Retail from digital platforms, especially considering the imminent tightened budgets and the advertising spends remained shift in media consumption habits due to increased flat or declined. The slowdown in advertising volumes was broadband penetration and availability of faster access particularly more intense in the case of the English market. once 4G is rolled out. The Socio Economic Classification The share of English print advertisement volumes declined (SEC) and income demographics that the English market from 32 percent in 2011 to 27 percent in 2012. Vernacular addresses is also the market that is most likely to adapt dailies continued to enjoy volume growth with their share high speed mobile devices and change reading behaviour. increasing from 37 percent in 2011 to 39 percent in 201210.

Comparison of percentage press and internet users Print advertising advertisement volume (% share)

Source: IRS Q3 2012

Source: TAM MEDIA RESEARCH PVT. LTD Disclaimer: Copyright reserved with TAM MEDIA RESEARCH PVT. LTD. Any use of TAM data (or derivative thereof) mentioned herein without express permission of TAM shall be treated Estimated share by language in 2017 as illegal.

In 2012 the growth in advertising over the previous year was largely driven by volume. Industry discussions indicate that this trend will continue at least till the first half of 2013. Going forward, with advertising regaining ground on the back of improvement in economic activities, the advertising-circulation mix is expected to swing back in favour of advertising11.

Source: KPMG in India analysis

09. KPMG in India analysis 10. TAM MEDIA RESEARCH PVT. LTD 11. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 47

Advertising and circulation revenue share Print players are looking to scale up through geographic and product expansions as well as increasing the footprint and quality of digital delivery formats. Localisation of news through special editions has plenty of growth opportunities as well. Industry participants contend that localised and targeted advertising is difficult to achieve in nationwide broadcast media, giving print an edge with respect to local businesses such as restaurants, malls, retail shops and neighbourhood services. Supplements continue to be launched, the industry believes that launching supplements in existing markets helps them penetrate further by gaining access to new readers and expanding the advertiser base. A few examples of the supplements launched during 2012 include Habitat, Watches Luxury And Beyond and Weekend Life by Hindu, Ebela, Ananda Plus and Bishoy Ashay by Ananda Bazar Partika and Yuva by Hindustan Times. Further, Source: KPMG in India analysis, Industry discussions conducted by KPMG in India Dainik Bhaskar (Bhopal) brought together ten real estate developers of Bhopal who are developing ‘New Bhopal Area’ near the International Airport and launched ‘Gatefold’ a special feature which was distributed in Bhopal.

Top categories advertised on print (by volumes)

Categories 2008 2009 2010 2011 2012 Change from 2011

Auto 6.8 7.8 7.1 9.8 11.4

Education 17.1 17.3 14.6 10.6 10.6

FMCG 5.8 7.2 7.4 8.9 10.3

Real estate & home 6.4 6.5 8 8.4 8.6 improvement

Clothing/Fashion/Jewellery 5.1 5.5 5.3 6.5 7.1

Retail 5.5 5.8 5.8 5.6 5.8

BFSI 8.3 7.9 8.7 6.7 5.7

HH durables 6.5 5.3 5.3 5.7 4.9

Telecom/Internet/DTH 6.2 5.4 6.3 4.7 4.1

Travel & tourism 4.3 3.5 2.5 2.8 2.3

Corporate 3.6 3 3 2.8 2.2

Media 1.9 2.2 2.2 1.5 1.4

Alcoholic beverages 0.3 0.3 0.2 0.2 0.1

Others 22.2 22.5 23.6 25.7 25.3

Source: Pitch Madison Ad Outlook 2013 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 48 The power of a billion: Realizing the Indian dream

For the first time in the last five years, the Education After last year’s price corrections by the magazine category is not the highest spender in the print medium. players, 2012 saw newspaper players finally opening-up While the Education sector has maintained its share to experimenting with cover prices and taking baby steps on print advertising at 10.6 percent, the Auto sector towards increasing these in many mmarkets. During the has increased its contribution to 11.4 percent in 2012 as year, some of the leading publishing houses marginally compared to 9.8 percent in 201112. increased the cover price of a few of their editions. DNA increased its cover price from INR 2.5 to INR 3 while Times FMCG continued to be one of the top spenders on the print of India increased it from INR 5 to INR 6 and for D B Corp medium contributing 10.3 percent in 2012 as compared the average cover price went up from INR 2.5 to INR 2.7214. to 8.9 percent in 201112. Its contribution in 2008 was 5.8 percent. Increased spend by FMCG companies has been a big respite for the print sector in a year where growth was Language markets continue to grow hard to come by. In the print sector, revenues from Hindi and vernacular segments are fast catching up with English, which has, The next two years will be critical with the advertising to date enjoyed a majority share of the value. Hindi and growth to be largely driven by increases in election spends, vernacular language publications have always enjoyed advertising driven by the launch of new products (30 auto a healthy readership base. In 2012, nine out of top ten model launches in the next 12-18 months), categories dailies being published were either in Hindi and vernacular expanding due to product and brand launches (4G, foreign language publications. However, in the past this segment retail chains), launch of new editions and publications had lagged in its ability to effectively monetize. catering to niche markets. In 2007-09, the advertising rate premium commanded by English newspapers was roughly 10 times over Circulation revenues contribution to sector that of regional language papers. The scenario is now grows compared to previous year changing with the premium paid by advertisers for English In an attempt to improve circulation revenues, newspaper newspapers steadily declining to be in the range of 3-4 companies are trying to encourage readers to purchase times in 2012 15.The industry believes that there is potential multiple papers per day through bundling of editions, for for Hindi and vernacular dailies to further increase their example, bundling business papers and tabloids with rates. regular newspapers and providing them at discounts. Such initiatives are expected to increase penetration and improve The two segments (Hindi and vernacular) now contribute circulation revenue. approximately 62 percent of industry’s revenues and cater to 89 percent of the readership. The cover price of newspapers in India is extremely low when compared to other countries. While an Indian daily is sold at a monthly price of ~USD 2-3, the same subscription can be as high as USD 6-8 in Pakistan, USD 18-20 in Average Issue Readership (AIR) of top 10 dailies Malaysia13. Publications Language AIR (in '000)

Average monthly cover price (in USD) Dainik Jagran Hindi 16474

Dainik Bhaskar Hindi 14491

Hindustan Hindi 12242

Malayala Manorama Malayalam 9752

Amar Ujala Hindi 8536

The Times Of India English 7653

Daily Thanthi Tamil 7417

Lokmat Marathi 7409 Source: KPMG in India analysis Rajasthan Patrika Hindi 6818

Mathrubhumi Malayalam 6415

Source: IRS Q3 2012

12. Pitch Madison Ad Outlook 2013 13. KPMG in India Analysis 14. KPMG in India Analysis, Company reports 15. Industry discussions conducted by KPMG in India’ with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 49

Together, the Hindi and Vernacular markets are expected to Bengali market by launching a Bengali daily, ‘Ei shomoy’. grow at a CAGR of 10.9 percent over the period 2012-2017, The newspaper (‘Ei shomoy’) is placed to compete against outpacing the English language market’s growth of 4.8 Ananda Bazar Patrika, which has for many decades now percent16. been eastern India’s most widely circulated daily. The ‘Hindu’ has also shared their interest to launch a Tamil daily in 201317. Language-wise Average Issue Readership and revenue split Backed by the increase in purchasing power across tier II and III cities along with the rise in literacy rates, regional 2012 media consumption will continue to rise. As is the trend Language with many players, editions with local content in regional AIR Split Revenue Split languages will attract readers and help in consolidating the position of the newspaper, thereby attracting local English 10% 39% advertisers. Competition among English print media players has now Hindi 36% 30% moved into tier II and tier III markets with leading English- language dailies launching their editions in cities such as Vernacular 54% 31% Coimbatore, Madurai, Bhopal and Indore. Some players are also setting up printing facilities near these markets to Source: IRS Q3, KPMG in India analysis manage their printing operations.

These developments indicate continued industry belief The year witnessed regional players increasing their in the growth of regional markets. The growth story of foothold in key markets and also the entry of national the regional print market is stronger than ever and the players in regional markets. Dainik Bhaskar increased its publishers believe that there are ample opportunities which penetration in Maharashtra with its Marathi daily ‘Divya have yet to be tapped. Marathi’ while Bennett Coleman & Co. (BCCL) entered the

Literate but not reading: A challenge or opportunity? As per 2011 census, India’s literate population base Percentage of literate people of the total of 895 million provides a huge target audience to population not reading newspaper print companies. The literacy rate has increased considerably over the last decade with some states such as Kerala at 94 percent and the National average at 74 percent. However, as per IRS Q3 2012, approximately 44 percent of these people do not read any newspaper publication18. This clearly highlights that there is much headroom for growth amongst the literate non-readers.

Contrary to the view that the youth is not reading, IRS data highlights that the readership habits of 16-19 year olds are comparatively healthier than any other age-groups. However, the newspaper reading habits amongst children in the age-group of 12-15 years are found to be the least at 31 percent (with 59 percent not reading the newspaper). This could be a potential threat to the print industry as reading habits are formed in those early years18. Source: Q3 IRS. 2012

Source: Q3 IRS, 2012, India Census 2012

16. KPMG in India analysis 18. IRS Q3 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative 1 7. Press article – Business standard article in Jan 1, 2013 http://www.business-standard.com/article/ affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 companies/owners-of-the-hindu-consider-tamil-daily-launch-113010100032_1.html 50 The power of a billion: Realizing the Indian dream

State Percentage of literate population not reading Percentage of literate people as per any newspaper IRS Q3 2012

West Bengal 60% 77%

Gujarat 57% 76%

Madhya Pradesh 57% 64%

Assam 56% 74%

Orissa 54% 73%

Bihar 53% 59%

Chhattisgarh 51% 69%

Punjab 51% 76%

Uttar Pradesh 49% 64%

Haryana 49% 77%

Himachal Pradesh 48% 85%

Karnataka 47% 74 %

Uttaranchal 45% 79%

Andhra Pradesh 45% 67%

Rajasthan 44% 66%

Jharkhand 42% 63%

Jammu & Kashmir 41% 86%

Delhi 39% 90%

Maharashtra 36% 81%

Tamil Nadu 34% 83%

Chandigarh 24% 90%

Goa 22% 92%

Kerala 17% 97%

Source: IRS Q3 2012

Furthermore, as seen from the table above, there are seven states where the literacy ratio is higher than the all India average, but the percentage of people not reading any publication is also higher than the average of 44 percent. For instance, in West Bengal, which has played a pivotal role in the development of the print industry in India, 60 percent of the literate population does not read a newspaper.

The above statistics highlight the challenges, and in turn, potential opportunities for the print industry. The industry needs to look at these segments and develop innovative strategies to promote reading habits. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 14, upfromINR5,750billion billionin2013-annual agriculture ofINR7000 credittarget 270 billionfor agriculture. The budgethasalsofixed an 801 billiontowards rural development schemes andINR 22. 21. 20. 19. expenditure 56 percentofNationalIncomeand64thetotal Rural Indiaaccountsfor 70percentofIndia’s population, Rural ontheradar markets over –05 2004 1053.6 inrural India. This accountsfor 60percentincrease expenditurecapita –10 in2009 was estimatedatINR Expenditure –10) inIndia2009 theaverage monthlyper the NationalSampleSurvey(HouseholdConsumer are enablingexposure andawareness. According to technology penetrationaswell asglobalisationthat changes i.e.increasingincome,risingeducationand agricultural isclearlyobsolete. There aresignificant The traditionalvisionoftherural economy aspurely and Emami;thisfocus islikely toincreasegoingforward. many consumergoodsplayers such asDabur, HUL,ITC FMCG sales.Rural markets have beenakey focus areafor rural consumers,whocontributetoaboutone-thirdof This isexpected toincreasethedisposableincomeof scheme areexpected helpstirdemandinrural pockets. allocation for thenationalrural employment guarantee subvention scheme for short-term croploansandhigher The government’s decisionstoextend theinterest

Niche magazine for rural Indialaunched, 16 August 2012, exchange4media.com http://www.frost.com/prod/servlet/press-release.pag?docid=264693723 http://www.moneycontrol.com/news/budget-news/highlightsunion-budget-2013-14_831956.html The Marketing Whitebook 2012 –13, Businessworld 19 “ “ . UnionBudget2013-14 hasallocatedINR 19 . and viewsconsumption shifting to the newandsocialmedia for news serious threatofthissection of readerbase needs toaddressimmediately. There exista requirement isachallengewhich print media the presentation of newstomeettheir within age group of15to20 and alsoaligning Improving readership habits among youth launch with the marketpotential pragmatic andbalancetheeconomicsof However publishing houses will have to be more local editions toattractretailadvertisers. witness trendofexisting players launching towards tier-II andIIIcities, industry will As advertisingspendsarebeing directed Director-Business andCommercial, 20 . Amar UjalaPublicationsLtd The Times of India Group Executive Director, - Sunil Mutreja - Mohit Jain “

markets. players toenterandstrengthentheirpositionintherural constituents ofrural markets have attracted publishing by mainstreammedia. The favourable macroeconomic the finerpointsofrural bases,which gounnoticed ‘Rural Marketing’ Recognizing thepotentialofrural India,i9Medialaunched High dependenceofcompaniesonruralmarkets: percent duringFY2012-FY 2015 that isestimatedtoregisterasalesgrowth ofaround 20 commercial vehicles (LCV)isthefastest growing segment is increasingitsshareofvolume inrural India.Light increase theirproductsales.For theauto sector instance, Marketers arehencelookingatrural consumersto consumption centreby moving beyond mode. survival rural populationhasthepotentialtobecomeanimportant presents opportunities thatbusinesscannotignore. The indicatethatIndia’sMacroeconomic statistics rural market Source: The Marketing Whitebook 2012-13, Businessworld TVS Dish TV Dabur Hero Honda Hindustan Unilever Company 22 magazinewithafocus onhighlighting The power ofabillion:Realizing theIndiandream Two-Wheelers Two-Wheelers Household products Media Personal products Category 21 . 40 45 33 50 60 % salesfromrural market 51

Digital platforms yet to have any significant impact Globally, the print industry has witnessed a decline in its and the Financial Times have been behind the pay walls subscription and advertising revenues due to the steady for some time now, the global print industry is witnessing shift of consumers towards new media platforms such general newspapers also establishing similar pay models. as the internet and mobile. To be more competitive, For instance, The New York Times introduced its paid companies have maintained low newspaper cover prices subscription services by signing up 100,000 digital (with some exceptions) and focused on differentiating by subscribers in the first month and has grown to 450,000 providing high quality, analytical content to the consumers. paid subscribers in a year’s time. As a result, for the first However, bankruptcies have continued unabated. Rocky time, The New York Times’ circulation revenues surpassed Mountain News, Cincinnati Post, Halifax Daily News and its advertisement revenues. However, not all dailies are Tucson Citizen are some of the newspaper companies that able to master the digital game. The ability to attract online have filed for bankruptcy in the last few years. readers to pay for content will be the key differentiating factor23. The winners will be those who can create value for Amidst the gloom, some publications have been able to their content and facilitate on-demand aggregation far more monetise content on the digital platforms. While a few efficiently than they have done till date. leading business dailies such as The Wall Street Journal

Online newspaper reading behaviour

Percent of users

Behaviour USA Brazil Germany Russia France India

Ever visit a paper site 66.9% 39.1% 43.2% 33.0% 43.5% 35.4%

Visit a paper site daily 17.1 8.5 11.7 7.4 11.6 9.9

Percent of pages viewed per visitor 1.1 0.6 1.9 0.5 1.6 2.1

Source: WAN-IFRA/ComScore, November 2012; In the US, for example, 67% of people who ever use the Internet, visit newspaper sites. But only 17% of daily web users turn to their newspaper site daily.

In marked contrast to the global trends, the Indian print Content is getting digitised and becoming platform industry is growing with steady increase in both advertising agnostic, while also becoming available in audio and and circulation revenues. Although, internet broadband video formats. Due to technological advancements and penetration has been increasing at an enormous pace, growing user needs, content today is highly interactive, current penetration levels are too low to pose a significant easily distributable to its users at low cost and is real time. threat to the industry. Online reading behaviour indicates However, monetising digitised content online is another

that only 35.4 percent of the Indians who ever use the industry challenge.

internet, visit newspaper websites and only 9.9 percent of daily web users turn to their newspaper website daily. This is substantially low when compared to countries such as “ USA and France. Industry will witness the shift of tactical advertisement from print to ecommerce Although several print media houses have moved to online platform, but for brand advertisement print will channels, they are usually slow to adapt or monetise “remain the preferred choice of an advertiser. their content effectively. Success cases are few and far between. For instance, HT Media’s digital segment - Sunil Mutreja witnessed an 18 percent increase in revenues from its Executive Director, digital segment to INR 138 million from INR 117 million in Amar Ujala Publications Ltd Q3FY13 as compared to Q3FY12. HT Mobile registered a 40 percent growth over Q3 FY12. The company has also registered revenue growth of 30 percent over Q3 FY12 on both HTCampus.com and Shine.com24. The Times Internet Limited (part of The Times group) has built 24 properties across various categories such as online news, eCommerce, music, video, and communities and achieved a base of 30 million plus monthly visitors25.

23. http://wire.kapitall.com/investment-idea/newspaper-industry-renewed-hope/ 24. HT Media, Company Website 25. Company website with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 53

For advertisers, access to mass markets remains the key, Online and offline classifieds business continue leading print players with an established reader base will to co-exist but balance tilting towards online always be high on the spending plans of advertisers. The Overall classified market in India is driven by growth in overall shift of readers from print to online will continue the service sector, favourable demographics and growth and will get to critical mass at some point in India’s future. in the advertising industry. Print classifieds constitute 59 So print players must continue to develop innovative percent of the overall classifieds industry27. Challenges advertising packages combining both print and online to faced by the online classified business- language barrier, secure the advertising spend for their brands. lower penetration of the internet and online payment mechanism, are saving the offline classifieds for the time Activation business adding an innovative being. With increasing penetration of internet, the offline flavour to the print medium classified business is expected to cede its majority share to the online space. Brand activation is now an important part of any brand building exercises and print players have been tapping this opportunity by providing integrated solutions to media Online and offline classified business planners. Due to its local nature, compared to a national medium like television, print players have been able to provide customised solutions to advertisers. The industry is providing activation solutions to brands for promotions, brand/product launches, brand awareness campaigns, consumer fairs, exhibitions and other mega social events. Most of the players have invested in developing their activation divisions26. The activation segment in the print is driven by development of award properties and rural properties. Our industry discussions indicate that while marketers plan to increase the proportion of their below- the-line spends in 2013, the growth will be driven by activities which are targeted towards rural audiences. The organised portion of this industry is poised to increase as advertisers’ increase their below-the-line spends over Source: Netscribes report – online and offline classified market in India the next two years, build communities and amplify the customer experiences. Print players have been quick to assess the above trend of declining offline classified business and to compensate Cost rationalisation for the loss of revenue, had started their online classified Due to challenges and the slowdown faced by print businesss well in advance. For example, Bennett Coleman companies in India, companies have already been & Co. Ltd has established a strong presence in the three focusing on cost reductions across all functional areas for of the most dominant online classifieds categories - some time. The economic downturn has, however, led matrimonial, jobs and real estate. to still tougher measures. Some publishers are looking to increase efficiency by outsourcing part or all of their production process and finding ways to collaborate with Newsprint prices anticipated to be stable but others, implementing strong inventory management rupee depreciation still a risk processes to reduce the newsprint carrying cost and Newsprint typically accounts for 40 to 50 percent of a designing a leaner organisation structure to reduce publisher’s cost base. The total newsprint demand in India manpower cost. was 2.1 million MT in FY 2012. Of this, approximately 1 million MT of newsprint was produced and procured

locally, while 1.1 million MT (approximately 50 percent of

total demand) was imported from international newsprint producers. Print industry will have to“ be innovative to design customised and integrated ad solutions to create value for advertisers, along Break-up of domestic and imported newsprint “with continuously tightening the grips on consumption operational costs.

- DD Purkayastha Group CEO, Anand Bazaar Patrika

26. Industry discussions conducted by KPMG in India 27. Netscribes report – Online and offline classified market in India Source: Centre for Industrial and Economic Research Industry statistic with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 54 The power of a billion: Realizing the Indian dream

Magazines continue a sluggish growth Capacity rationalization by newsprint The magazine industry witnessed a growth rate of 1 manufacture across the globe is due percent in 2012 and was valued at INR 13 billion. As readers

to continuous reduction of newsprint demand more focused content, the demand for the general

“consumption in North America and Europe content category continued to decline. The industry feels which is driven by penetration of new media. that general content and news magazines is a fading Continuing trend of“ closure or capacity segment, whereas special interest magazines and niche rationalisation by newsprint manufacturer content magazines have good potential to be of interest to may pose risk of newsprint supply in a longer readers with a monetisation potential in the long run. run for countries like India with high newsprint consumption

- Mohit Jain Revenue share of magazines in print media Director-Business and Commercial, The Times of India Group

Industry experts believe that going forward, additional requirements of newsprint will largely be fulfilled by import of newsprint. To compete with the imported newsprint, domestic newsprint manufacturing companies are not able to increase prices leading to tremendous financial pressure and no incentive for any manufacturer to add to existing capacity. Industry anticipates that the newsprint prices will be stable in 2013; however, if the rupee depreciates against the dollar, landed costs may increase. Significant unused capacity in the global newsprint supply chain due to the Source: KPMG in India analysis declining consumption in the West has made newsprint imports competitive and a major source of meeting domestic newsprint needs.

Newsprint price

Source: Crisil research

In 2012 newsprint prices were stable, giving some respite to the publishers in a challenging year. Also the gap between the imported newsprint price and the domestic newsprint narrowed in the last quarter of 2012. The gap noted in the earlier period was due to foreign currency exchange fluctuation. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 55

Readership trend Top 10 magazines

Magazine Language Q3 2012 Q3 2011

Vanitha Malayalam 2271 2590

Pratiyogita Darpan Hindi 1894 2025

SamanyaGyan Darpan Hindi 1733 - -

India Today English 1526 1636

Saras Salil Hindi 1351 1941

Meri Saheli Hindi 1205 1209

Karmakshetra Bengali 1183 1047

Malayala Manorama Malayalam 1053 1307

General Knowledge Today English 1047 1087

Cricket Samrat Hindi 1044 1159

Source: IRS Q3 2012 and IRS Q3 2011

Top 10 Hindi magazines

Magazine Q3 2012 Q3 2011

Pratiyogita Darpan 1894 2025

SamanyaGyan Darpan 1733 – –

Saras Salil 1351 1941

Meri Saheli 1205 1209

Cricket Samrat 1044 1159

India Today 966 1116

Grehlakshmi 909 983

Grin Shobha 873 990

Champak 725 859

Vanitha 702 777

Source: IRS Q3 2012 and IRS Q3 2011 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 56

Top 10 English magazines Globally, magazine readership in most categories has been Magazine Q3 2012 Q3 2011 declining primarily due to free content availability on the internet, easy access to information from various sources India Today 1526 1636 and changing lifestyles, making time availability a premium. Similar trends are being noted in India, with 8 of the top 10 magazines witnessing negative readership trends, as per General Knowledge 1047 1087 IRS surveys during 2011 Q3 and 2012 Q3. Today Industry believes that revenues for magazine will not go Readers Digest 1016 998 down but the sources of revenue are undergoing a change as there is more contribution from non-subscription-based Competition Success 703 657 areas. While advertising, sales and subscription may Review contribute a large portion of the total revenues, together, events, innovations and digital presence are also adding to Outlook 474 444 the topline.

The Week 424 387

Star Dust 420 385

Pratiyogita Darpan 417 345

Business Today 406 331

Wisdom 346 327

Source: IRS Q3 2012 and IRS Q3 2011

Slowdown of economic growth

Source: Ministry of Statistics and Programme Implementation and KPMG in India analysis

The Indian economy is expected to grow at 5 percent in

2012-13, lower than the average growth rate of 6.5 percent Though there seems to be some increase in in 2011-12 and 8.4 percent in 2010-11. This slowdown in advertising sales“ for both regional and English GDP has been brought about by a host of factors such metropolitan newspapers, if the economy does as supply constraints, weak investment, business and “not improve, the industry will see advertisers investor sentiment, currency depreciation and stubbornly shifting from print to less expensive targeted high inflation. media

- Tariq Ansari, Chairman and MD - Next Mediaworks Ltd. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 28.

Economic Survey2012-13 deals withthepresentchallenges. future potential,however, willdependonhow theindustry overall on capitalising Indianscenariolookspromising, declining revenues over thepastfew years. Although the its globalcounterparts,which have beenexperiencing iscomparatively betterIndian printindustry off than Conclusion todeliverfragile andtheability originalcontentlow. their firstpreference. This poolsremain meansthetalent to agreatextent, few students choose acareerinprintas challenge. discussionsindicatethateven Industry today are many journalismschools remainsa inIndia,quality all mediasegments,especiallysofor print. While there However, availabilityremainsachallenge oftalent for platforms. from massmarket information available for freeondigital upon thepublication’s todifferentiate ability itscontent key anditssuccesswould assetfordepend theindustry reducing overall poolwillbea headcount. talent A quality building strongeditorialteamswhileatthesametime playerscurrent circumstances, areinvesting heavily in ofcontent.Inthelight compromising onthequality publications tofindinnovative ways tocutcosts without The toughmacroeconomicsituation hasbeenchallenging Hiring andretainingtalent “ become coretosuccess. to serve different nicheaudiences, will also relevant marketinganddeliveryplatforms penetration andadaptation of contentto differentiated products.Additionally, media content andfurtherlocalisingit, to create research, bringinginmoreinnovation time toconductmorefocusedconsumer segment. We areexpendingconsiderable core growthdriversoftheregional print media consumption in Tier IIandIIIcitiesarethe markets andthepotentialofincreasing Clearly thegrowingimportance of regional opportunities, astheypresentthemselves. very well placed tocapitaliseongrowth a boosttocorporate sentiments andwe are policy environment whichin turn hasgiven with governmenttakingsteps to improvethe language printindustryremainspromising, The longterm growth storyofthe Indian Promoter Director, - Girish Agarwaal “ D BCorpLtd.

revenue streams. developed participantstogenerateadditional by industry weforward, may seedifferentiated modelsbeing and buildupaneffective pricingmodelaroundit.Going content boundaries betweenpremiumandcommodity therefore, istoplanastrategythatidentifiesthe the bottom players. lineofstatic The pre-requisite, for flexibleprofitability andaggressive players anderode opportunities andchallenges thatwillgreatlyimprove models, consumerandreaderdemographicspresent environment thatisunprecedented–changing business todayThe isfaced printindustry withadynamic be intherangeof6.1to6.7percent2013-14 looks somewhat better andrealGDPgrowth isexpected to economy in2013, theprognosisfor theIndianeconomy health. someimprovementsWith alsolikely intheglobal of recoveryfor theIndianeconomy andrestoreitsfiscal measures takenby thegovernment canpave theway penetration ofregionalprintmedia.Recent policy tier IIandIIIcitieswilltogethercontributetoincreased consciousness andstrongcommercialdevelopment in Rising literacy, growth indisposableincome,brand increased penetrationinregionalmarkets. at aCAGR of4.5percentfrom2012 to2017 onback of revenues. Circulationrevenues areexpected togrow additional capabilitiestoexplore alternatesources of markets whileconcurrently thechallenge willbetobuild thegrowthtapping potentialoftheHindiandvernacular and touch INR340billionby 2017. The opportunity liesin The sectorisprojectedtogrow ataCAGR of8.7 percent 28 . 57

Introduction After several years of muted growth, 2012 was an exciting For these films, co-production continues to be the preferred year for the Indian film industry with the audience returning business model. Production houses see prudence in to the theaters. India’s domestic theatrical revenues grew teaming with peers who know those local markets. Both by 23.8 percent Y-o-Y, contributing 76 percent to the INR international and Bollywood studios are leveraging co- 112.4 billion film industry1. Digital distribution played a productions deals for entering newer markets as they learn significant role in increasing the reach of the industry. The the pulse of the vernacular audience. Local producers industry has begun penetrating tier II and III markets and are leveraging the national and international distribution entertaining the un-served population which sits near the strength of their co-producers and taking their content to bottom of the pyramid. All this has been made possible newer geographies. by leveraging technology which is allows for a movie watching experience at an affordable cost and in a secure environment. 2012 was a fantastic year for the film industry Indian cinema has continued to enchant the Indian with differentiated content and talented audience for almost a century now and it is expected to debutants attracting audiences to the continue on its growth trajectory and be worth INR 193.3 “theatres in larger numbers. This was also billion by 20171. Domestic theatricals will continue to be the aided by superb promotions by production major growth driver for the industry while ancillary revenue houses and studios, as everyone battled it out streams will also grow rapidly albeit off a smaller base. to enjoy a big opening“ weekend. 2013 has begun on a great note and promises to set new benchmarks in promotions and pre release efforts, and thereby achieve bigger and better The Indian Film industry has continued to opening figures. enchant and entertain not only Indians but audiences across the globe. Celebrating the - Apoorva Mehta

“100th year of Indian Film industry, I believe CEO, we have come a long way and matured as an Dharma Productions

industry. India is the land of captivating story tellers and our strong cultural heritage adds to our image of the land of romance, mystery“ and entertainment. The industry is at the cusp of another change with digital technologies enabling greater reach of the medium thus ensuring exciting times ahead. Last year, we have seen a huge pool of new talent come into the industry and taste - Ramesh Sippy success. That’s a great sign for the industry. Co-Chairman, “However, we need to keep a check on FICCI Media and Entertainment Committee the production and marketing costs. The production costs are disproportionately high. Meanwhile, marketing needs to be aggressive but cost effective. While we have a rich INR 1 billion plus club, we need to see how much ROI are we really getting on the projects. Small is Production big literally with some tightly budgeted films Professionally-run production houses are competing with making a gold run at the box office. It looks the family-run banners to bring in greater sophistication and likely that the revenues from C&S are going to efficiency across the value chain. The approach has shifted slowdown as well, so it matters more to us that from producing pure star driven films to experimenting with we keep production costs in check because content and providing a platform to newer talent. Films our dependence on theatricals is bound to such as ‘Paan Singh Tomar’ and ‘Gangs of Wasseypur’ have increase. We need adequate support from pushed the envelope on the kind of content that works in Government of India. There is tremendous “ India and have managed to achieve unanticipated box office pressure due to high entertainment tax rate success. and service tax and the industry needs to engage Government seriously in this regard. Although production costs have escalated by 15-20 percent in 20122, these have been more than offset by strong box office performance. While the cost structure varies - Vijay Singh based on the budget and star cast, artist fees continue to CEO, form a major component of film’s budget for most large Fox Star Studios productions.

Bollywood and Hollywood production houses are moving into regional markets which are also observing a tectonic shift in the consumption pattern of the audience. The new generation in regional markets is more receptive to non- mainstream films and is encouraging experimentation with content.

01. KPMG in India analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative 02. Industry discussions conducted by KPMG in India affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 60 The power ofabillion: Case study: Vicky Donor success ofthefilmcanbemeasuredintermsits movie acrossvarious mediaplatforms. The commercial companies spentINR70milliononmarketing the JA andErosInternationalMedia,the Entertainment budget film.Co-producedby actorJohn Abraham’s INR 50million,thefilmwas promotedjustlike any big productionsof2012.profitable Produced atacostof donation andinfertility emergedasoneofthehighly The comedy-drama filmbasedontheconceptofsperm distribution spends. filmswithaggressiveand non-star marketing and smallbudgets are basedonstrongcontent(storyline), houses arenow focusing onproducingfilmswhich content strategyoftheIndianfilmindustry. Production The successof Vicky Donormarksthechange in the Economics of Vicky Donor Source: Eros InternationalMediaLtd. Realizing theIndiandream go intoproductionin2013. producer John Abraham hasannounceditssequel will the Tamil and Telugu versions have beensold,while Following itssuccess,theremake rightsofthefilmfor can achieve commercialsuccess. proved thateven filmwithastrongstoryline anon-star lead actors- Ayushmann Khurrana and Yami Gautam The filmwhich was producedwithtwonewcomers as office. USD 1.2 million(INR65million)attheinternationalbox was releasedoverseas with125 printsandgrossed which were soldat1.5x thecostofproduction. The film (INR 460million)thecostofproductionandC&Srights domestic grossbox office collectionswhich were 9.2x “ business model. diversify andstrengthentheoverall upside. This alsoenableusto limited downsidewithunlimited concept films,whichensures to supportsmallerbudget-high As part of strategywewill continue distributed likebighigh profile films. , providedtheyaremarketedand and otherchannelsofdistribution achieve higherreturnsatboxoffice budget ,highconcept films can illustrated newtrendthatsmaller Vicky DonorandEnglishVinglish , Eros International Media Ltd. Group CFO-India, “ - Kamal Jain

The power of a billion: Realizing the Indian dream 61

Distribution – Digital dominance is here Over the past few years the industry has steadily shifted In film marketing the battle for eyeballs can be from releasing films with physical prints to digital won or lost in the first 2 weeks of the campaign. distribution. The share of the digital format has increased First impressions are critical in our industry, so from roughly 50 percent3 in 2010 to around 80-90 “once our research on pre-campaign audience percent4 in 2012. Digital distribution has enabled films to awareness is done, we ensure that our first broaden their reach and do it far quicker than ever before. creative (trailer and posters) has very high on Distributors are now able to capture revenues in a shorter appeal and reach amongst our target audience. time frame by having same-day release across theatres and Once a good base“ is created then further pre-selling C&S rights. Most films now garner about 60-80 marketing interventions in the 6-8 week period percent of their revenue in the first week of release4. prior to the film’s release, become that much more effective in achieving box office revenue Box office success in the first week is considered critical targets. and marketing plays an important role in determining turnout. Some reports indicate that pre-release marketing budget is found to be highly correlated with the opening - Shikha Kapur weekend success of a movie5. With this trend increasingly Executive Director - Marketing, becoming prominent, advertising spends are on the rise. Studios, Disney UTV

Print and advertising (P&A) budgets witnessed a 20 percent Y-o-Y increase in 20124 with marketing spends dominating. In 2012, on an average 60 percent4 of P&A budgets were spent on promotion and advertising of the film. The distribution of Hollywood content is also evolving rapidly. While most big-budget English movies are Film marketing activities have progressed beyond distributed by the respective studios, several other films posters and promos with the aggressive use of new require local distributors. For example, PVR Pictures marketing tools on social media, portals, search engines has identified this area as a potential opportunity and and even activation. Use of social media has become an distributed 18 Hollywood titles last year. It also plans to important component of pre-release marketing strategy distribute another 24 titles in next 15 months. In order to for any movie. Some players have gone a step ahead and compete with domestic titles, Hollywood continues upping developed mobile apps for promoting their movie. For marketing budgets, some Hollywood films are now being instance, Disney UTV’s marketing team developed a mobile marketed at spends as high as INR 50 million4. For instance, app for ‘Barfi’ which was used to create a strong connect Avengers which was released in 1000 prints across English, between the protagonist and the audience. Hindi and South Indian languages was marketed at pan India level. Star Movies India did a 360-degree marketing campaign comprising all mediums – print, online, OOH and television, to promote the action movie in India. The

Star Movies Facebook page also offered an Avengers app

featuring wallpapers, videos and puzzles related to the Cinema is going from India to Bharat, all thanks superheroes6. to digitization technology. Digital distribution“ has provided depth to the industry and made “it possible to take cinema to the hinterland. We expect this trend to bring back INR 30 to 40 billion back from piracy to the system. We have seen that superlative content, backed by innovative marketing, wide distribution and - Kapil Agarwal high C&S valuations have been the growth Joint Managing Director, “driver for the business. We have seen a lot UFO Moviez India Ltd. of high concept content movies deliver good numbers at the box office and the risks taken by producers have paid off thus paving the way for the need for more such content. The

increase in the number of multiplexes and

In 2012, the average film marketing costs ranged anywhere increased digitisation of 2K screens and between INR 80-120 million4. For high budget films, this E-Cinema has helped us ensure cost effective went up to INR 150 million and for low budget films, in reach and better show casing“ opportunities. 3D some cases, it exceeded their production cost. As per movies have also helped bring back audiences industry estimates, for a low budget film, a minimum into the theatre especially for Hollywood and budget of INR 35 to 50 million4 is required to ensure a we will see a spurt in the number of 3D movies decent commercial release for the film. However, the in Bollywood as well. economics are different in South India where marketing 4 budgets are still low at INR 15 – 20 million per film .It is - Vijay Singh anticipated that as media clutter grows, marketing budgets CEO, for films will continue to climb in order for products to get Fox Star Studios noticed.

03. Hitting the High Notes, FICCI-KPMG Indian Media and Entertainment Industry Report 2011 04. Industry discussions conducted by KPMG in India 05. ‘IIM-A cracks box office code to predict a film’s future’, Times of India, October 2012 06. ‘Star Movies India Goes All Social For ‘The Avengers’ Premiere’, Lighthouseinsights.in, January 2013 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 62 The power ofabillion: Region-wise splitofscreenadditions,2012 greater economicgrowth. next 40citieswhich areexperiencing rapidurbanizationand getting closetosaturated, thefocus isnow shifting tothe only 1singlescreen. manyWith metrosandtier-I markets Andhra Pradeshwhile andKarnataka Tamil Naduadded The multiplex screenadditionswere restrictedtoKerala, with 90percent(37screens)multiplex screenadditions. The added41screens SouthIndianexhibition industry added 18 new multiplex screensand2new single screens. 21 new multiplex screensandasinglescreenwhileBihar and Biharsaw maximumsupplyadditions.Gujarat added new screenswere addedinDelhiandMumbai,Gujarat growth comingfromexpansion ofmultiplexes. While no In 2012, added152 theindustry new screenswithmajor market.commercial realestate in recenttimesby theslowdown inthegrowth ofthe isexpanding itssupply,industry althoughitisconstrained million available. The opportunity ishugeandtheexhibition continues tobeheavily underscreenedwith8screens per the landscapeisundergoingdrasticchanges. India expected tocontinueintheforeseable future. However, of itsrevenue comingfromthischannel andthistrendis source ofrevenue for thefilmindustry, with76 percent Domestic theatricalrevenues continuestobethemain Exhibition 08. 07. Source:

UFO Moviez IndiaLtd.market intelligenceandcompany records KPMG inIndiaanalysis UFO Moviez IndiaLtd.market intelligenceandcompany records “ Realizing theIndiandream into amultiplexculturein the next5years. going population and weexpectittoevolve single screens. Theregionhasahugemovie- operators in the Southasitis still dominatedby There isa huge opportunityformultiplex Chief Financial Officer, - PVR Limited Nitin Sood 7

“ Break-up ofscreenadditions,2012 slowing development ofmallsandcommercialrealestate. growth willbelimitedby thebottlenecks createddueto as players racetoaddscreens.Intheshortrun, organic in theexhibition businesswillcontinuetodrive deals 2012 withPVRacquiringCinemax. The questfor scale multiplexes in2012. Accordingly, only10 singlescreenswere converted into value fromconverting single screensintomultiplexes. investments asmostmultiplex players donotperceive willbemostlythroughgreenfield growth oftheindustry intend togrow bothorganicallyandinorganically. Organic to thelevel development ofrealestate asmostplayers Growth willbehighlycorrelated ofthemultiplex industry Source: UFO Moviez IndiaLtd.market intelligenceandcompany records “ 8 Inorganic activity gatheredpacein Inorganicactivity screens everyyearafterthisone. 60 screensthisyear and thenaround60-100 now startingtomaterialize. We plantoopen with developersduringthepast 5 yearsare gear. Many of theprojectsthatwe signed and weexpectourgrowthtohitintohigher 2013 willbeabreakthroughyearforCinepolis Managing DirectorandCountryHead, Cinépolis India - Milan Saini “ The power of a billion: Realizing the Indian dream 63

Single screens continue to face challenging times with as many as 97 screens shutting down in 20129. The year saw single-screen theatres making efforts to re-invent Single screen contribution to Box Office is themselves and upgrading their existing infrastructure to increasing gradually. In reality the per show provide enhanced movie watching experience experience. revenue of single screen is higher than that Players are making renovations from improving picture “of multiplex. However, there is significant “ quality, surround sound systems, and air-conditioning, under reporting of occupancy by single to improving the parking spaces and quality of food and screens, which will eventually be addressed by beverages. Some players have also introduced online proliferation of computerised ticketing system ticketing systems to curb black marketing and enhance along with digitisation of the screens. convenience for consumers. The Andhra Pradesh Film Chamber of Commerce (APFCC) has teamed up with - Sanjay Gaikwad theatre owners and producers to set up a portal for online Chief Executive Officer and Managing Director, ticketing in 1,500 odd single-screen theatres across the UFO Moviez India Ltd state10 while the Maharashtra government is incentivizing theater owners to adopt online ticketing systems by Scan the QR code to hear more from Sanjay providing tax incentives.

The industry has achieved 77 percent digitization of screens and expects to achieve 100 percent digitization by next year11. Digital technology is now enabling reaching Many single screen owners are facing the un-served population which sits near the bottom of challenging times. Single screens are in the pyramid. The key advantages of digital technology

existence since 1913 and paying entertainment – affordability, security, timely access is facilitating the

“tax since 1923. However, till today we have emergence of a new category of exhibitors. Players such been loaded with heavy entertainment tax. The as United Media Works are developing business models Government should consider“ entertainment as that are addressing issues of piracy at the video theaters an industry and accordingly provide incentives (Government licensed outlets) and tapping the un- to single screen exhibitors to renovate and served audience through making the films available at an improve facilities which can lead to increase in affordable cost. occupancy levels.

- Ram Vidhani President,

Cinema Owner and Exhibitor Association of 09. UFO Moviez India Ltd. market intelligence and company records India 10. ‘A portal to kill the black ticket’, Deccan Chronicle, July 2012 11. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 64 The power ofabillion: Source: segment grew ataCAGR of23.8percentasagainstourestimate7lastyear. 2012 was anexciting year withfootfalls for theIndianfilmindustry returning tothebigscreen. The domestictheatrical Domestic theatrical Theatricals Industry Performance 12. Theatrical Theatrical Ancillary Total (INR Billion) Revenues Satellite Streams Domestic Home Video Rights Revenue Overseas Cable &

KPMG inIndiaanalysis Bollywood: INR1billionclub Number ofmovies crossing INR1billion Source: KPMG inIndiaanalysis KPMG inIndiaanalysis Realizing theIndiandream 104.4 2008 80.2 7.1 9.8 3.8 3.5 6.8 89.3 2009 68.5 4.3 3.5 6.3 62.0 2010 83.3 4.1 2.3 8.3 6.6 68.8 6.9 10.5 4.7 2011 2.0 92.9 1.7 12.6 7.6 112.4 2012 85.1 5.4 1.4 14.1 122.4 2013p 92.4 8.3 6.2 benchmark for success. is expectedINR2billionasthenew toestablish driven by strongcontentandexpansion ofmultiplexes have beensethigher. Continuedsuccess atbox office Tha touchingTiger’ closetoINR2billion, aspirations films in2011. Moreover, withbox office collectionof‘Ek the coveted INR1billionmark,ascomparedtoonlyfive billion threshold.2012 witnessedninefilmscrossing with anincreasingnumberoffilmscrossingtheINR1 Bollywood. However, itsexclusivity seemstobefading 1 billionatthebox office, setting anew benchmark for GhajinibecamethefirstmovieIn 2008, tocrossINR 104.7 1.2 16.2 7.2 138.3 2014p 9.0 115.3 8.3 153.6 1.1 19.1 2015p 9.8 127.6 10.8 1.0 171.7 12 2016p 22.8 9.6

2017p 142.2 193.3 11.9 11.1 27.3 0.9 -15.0% 15.2% growth) (YoY 2011-12 9.0% 23.8% 20.0% 21% -12.0% 10.8% 16.8% 15.5% 11.5% 2017 2012- 9.4% CAGR * Updated till January 52013* UpdatedtillJanuary God’ allenjoyed box office success. theaters. Filmssuch as‘Vicky Donor’, ‘Kahaani’and‘OhMy budget movies withuniquestoriesalsodrew crowds tothe budget, bigstar-cast’ movies topthecharts, butsmall- What was interestingabout2012 was thatnotonlydid‘big 13. Top 20Bollywoodmovies bybox office collections Jab Tak HaiJaan Jannat 2 Talaash Agent Vinod Agneepath Son OfSardaar Student oftheYear Movie Ishqzaade Khiladi 786 Kya SuperKoolHainHum Kahaani Dabangg 2 Ek ThaTiger Housefull 2 Bol Bachchan Raaz 3 Barfi! Rowdy Rathore OMG (OhMyGod!) Cocktail

‘Top 10 Bollywood Movies in2012 by Box Office Collection’, Bollymoviereviewz.com, December 2012 Aamir KhanProductions,ExcelEntertainment Yash RajFilms Yash RajFilms Arbaaz KhanProductions,ShreeAshtavinayakCineVision Yash RajFilms,FantasticPrimeFocus Production house Shree AshtavinayakCinevisionPvtLtd,DevganFilms Viacom 18MotionPictures Vishesh Films,FoxSTAR Studios Illuminati Films,PrimeFocus Eros International,NadiadwalaGrandsonEntertainment Eros International,H.R.Musik,HariOmEntertainmentCompany Eros InternationalMediaLtd.,IlluminatiFilms,PrimeFocus,RajFilm Dharma ProductionsPvtLtd,RedChilliesEntertainment Dharma ProductionsPvtLtd Fox STAR Studios, Vishesh Films Balaji MotionPictures Boundscript MotionPicturesandPenMovies UTV MotionPictures UTV MotionPictures,SLBFilmsPvt.Ltd. Productions, CocktailFilm Grazing GoatPictures,Viacom 18 MotionPictures,Playtime Creations 13 The power ofabillion: (INR billion)* Net Collection Realizing theIndiandream 1.99 1.26 1.23 1.14 1.05 1.55 1.02 1.22 1.31 0.80 0.90 0.70 0.70 0.59 0.43 0.44 0.45 0.82 0.47 0.71 65

‘B-town onaroll’, Business Today, September2012 Times, February 2013 ‘Bollywood ofpiracy; but ignoringdangersofonlinecanbecostly’, nolongertalks The Economic discussionsconducted by KPMGinIndia Industry 16 . The average ticket pricefor multiplexes isnow “ release Year of 1994 2009 2012 Realizing theIndiandream are lookingforwardtoaverystrong2013 due toapersistentsupplyofqualityfilms.We a tremendous surge inFebruary admissions typically aleanperiod, however, wehaveseen looks quite promising. January toMarchis signals areanythingtogoby, 2013 already for film entertainment businessandiftheearly of thesefactors,2012hasbeenagoodyear also frequenting theatres moreoften. Because there isa surge infootfalls,butpatronsare consumption patternofourpatrons.Not only We areobservingadefinitive change in 14 ofscreenshave beendigitized. screens for release Number of theatrical 1,000 3,500 500 - 15 Mr. Kamal Gianchandani PVR Pictures Ltd. 3.5x in3years 2x in15years Growth 14 President, . This has . This 17 - from “

formats movies derive 35percentoftheirrevenues fromdubbed Tamil and Telegu hasachieved that.Currently, English of Hollywood movies inregionallanguagessuch asHindi, toattainit isimportant a pan Indiareach andthedubbing However for amovie togarnerrevenues onalargescale growth ofHollywood content. growth inmultiplexes androbustmarketing hasaidedthe billion to 8.5percentin2012 collectionsofINR9.5 withtotal Hollywood movies ingrossbox office collectionsincreased but alsofor Hollywood filmsinIndia. The shareof 2012 proved tobeablockbuster year notonlyfor Bollywood Hollywood alsoclaimsashareofthepie contribute almost60-80percentofafilm’s collection total release andnumberofprints. The firstweek andweekend First week businesshasincreaseddriven by thewider Shortening ofthemovie shelflife Hollywood films-2012 Revenue for splitofregionalmarket collections aresharedintheratioof6:4 for filmswhich arereleasedin3Dand2Dprints,box office usually infavour of3Dmovies. estimates, As perindustry footfalls acrosstheweek. weekdays andweekends, they areabletomaximize revenue. Byadoptingadifferential pricingstrategyfor are experimenting withpricingmodelstomaximize towards theweekend. Consideringthis,multiplex chains Even withinthefirstweek, thetrendisgetting skewed promote theirfilms Rings, Perfetti Alpenliebe Swirl, LGElectronics3D TV to up withlocalbrandssuch asMcDonalds,MCD, CraxCorn have provided afilliptogrowth. Many studios have tied Innovative marketing strategiesusedby Hollywood studios 2D, 3DandIMAXformats prints infour languages-English,Hindi, Tamil and Telugu in In 2012, The Amazing Spider-man was releasedwith1236 is alsoadrivingfactor for popularization ofEnglishfilms. Source: 19. 18. 7. 1

Today, July 2012 ‘Hollywood onanaggressive modetomarket theirfilmsin India,betsbigonbrandtie-ups’, Business discussions KPMG inIndiaanalysis basedonIndustry PVR Ltd.QuarterlyreportendedDecember2012 Industry discussionsconductedby KPMGin India Industry 18 . A widerdistributionnetworkduetodigitization, 14 . 19 . The increaseinnumberof3Dscreens 19 . The box office collectionsare 14 . 14 . Top filmsinIndia overseas movies isontherise. movies totherightaudiences,demandfor international and moreso,thesuccessfulstrategiesinmarketing these genre. Indianaudiences’With increasingglobaloutlook performance of‘Life ofPi’was anexception tothe drama to grabaudiencesatapan-Indialevel. The strongbox office their massappeal;dramasandcomediesstillfinditdifficult Spiderman, Avengers orSkyfallaresucceedingbecauseof by genres. While franchises andbigactionmovies such as The performance ofHollywood movies stillvaries widely 20. release market, butcollectedINR1billionwithin11 days ofits ‘Thuppakki’ was notonlyablockbuster intheSouthern to theeliteINR1billionclub. A Tamil actionthrillerfilm It isnotonlyHindiorEnglishfilmswhich arecontributing Regional performance monetization. as itpresentsmoreopportunities for cableandsatellite channels hasalsogiven aboosttotheregionalindustry of newandorganized talent funding. The riseofregional is ledby digitization, boostofmultiplexes, emergence South Indianfilmindustry. The growth ofregionalcinema industries arebothmajorcontributorstothegrowth ofthe Punjabi have alsogatheredpace. The Tamil and Telegu film segment, otherregionssuch asBengali, Marathiand While SouthIndiahithertodominatedtheregionalcinema regional cinemagrowing over theyears. amongst patronsforincontenthasseen localtaste 1.24 billionatthebox office. The increasingpreference Source: Titanic 3D The DarkKnightRises The Avengers Amazing SpiderMan Skyfall Movie Ice Age4 Madagascar 3 MIB 3 Resident Evil:Retribution Life ofPi

http://ibnlive.in.com/news/tamil-film-thuppakki-enters-rs-100-crore-club/307482-71-174.html Internet movie(IMDB) database 20 . Bengali film‘Challenge2’alsoearnedover INR Twentieth CenturyFoxFilmCorporation,ParamountPictures, Abu DhabiFZ,MediaMagikEntertainment,Parkes/MacDonald Amblin Entertainment,HemisphereMediaCapital,Imagenation Production House Syncopy Warner Bros.Pictures,DCEntertainment, LegendaryPictures, DreamWorks Animation,Pacific DataImages(PDI) Davis-Films, ImpactPictures Metro-Goldwyn-Mayer (MGM),Danjaq,EonProductions Marvel Studios,ParamountPictures Blue SkyStudios Fox 2000Pictures,HaishangFilms,RhythmandHues Lightstorm Entertainment Productions Productions Constantin FilmInternational,DavisFilms/ImpactPictures(RE5), Columbia Pictures,MarvelStudios,Enterprises,LauraZiskin “ The power ofabillion: they meetwithsuccess. the secondweekandtoevenmore screensif the first week, thengrow to60-70screensin movies aredistributed in just 20-30screensin 20 million or less.Forexample, in Tamil, small themes andaremadewithabudgetofINR the moviesusuallyhaveverynative, grassroots in theotherregionallanguagemarketswhere ‘multiplex movies’,theoppositehas happened While in Hindi, theseare referred toas both inproduction numbers andcollections. Hindi markets,suchmoviesaredoinggood Especially intheTamil, Marathi, Bengali & 50 percent increase insmall-budgetmovies. During thelast3yearstherehasbeenover Indian BoxOffice(USDmillion) Realizing theIndiandream 12.6 10.3 14.5 10.7 4.2 2.9 3.6 9.2 5.0 2.1 - Chief ExecutiveOfficer, Aravind Ranganathan “ Real Image

‘English Vinglish earnsRs.27 croreonweekend’, India Today, October2012 ‘ Barfi Worldwide Lifetime Collections|Updated’, BoxOfficeDay.com, 2013 January discussionsconductedby KPMGinIndia Industry ‘Regional cinemareelsincorporatemovie investors’, BusinessLine, April 2012 ‘Thuppakki Movie Rocking atOverseas Box Office’, Southnews.in, November 2012 ‘Foreign Return’, The IndianExpress, August 2012 21 . Tamil movie ‘Thuppakki’ collectedINR11.8 28 . 24 Realizing theIndiandream . USA, UK, Australia, New Zealandand 23 . Actor-Producer Akshay Kumar isalso 27 deal with Star dealwithStar TV networkfor 22 24 in itsfirstweek of . Pakistan, for 25 andEnglish 26 24 overseas. . 24 . Feature Films satellite rights billion atbox office, therewas limitedinterestin‘Barfi!’’s example ofthisisthatdespitegrossingmorethan INR1 around INR 300 million around INR300 million atthebox office, itssatelliterightswere soldat continuous attention spanrequiredfor such films the advertisement breaksonsmallscreenintrude the base isquitedifferent fromamultiplex audience. Also, not perform well onthesmallscreenascustomer television; whereasgenressuch assuspensethrillers do such as‘Kahaani’, ‘Ek Tha Tiger’, and‘SonofSardar’. of theirtheatricalrelease.Recent examples would befilms movies beingbroadcastontelevision within60to90days increase. The theatre-to-television window isreducingwith of filmsoncableandsatelliteplatforms isexpected to number ofmovie channels, thedemandfor allgenres of TRPs, Video-On-Demand (VOD) andgreater services, digitization likelyWith toprovideinterms greaterclarity as comparedtoactionandcomedygenres. repeat value ofcontentlike ‘Barfi!’ isquitelow ontelevision derivative thereof)mentioned hereinwithoutexpress permissionof TAM shallbetreatedasillegal Source: Notes: Disclaimer: 30. 29. 28. 27. Top 10Hindi FilmsonHindiMovieChannels 10 1 7 4 9 2 Rank 8 3 5 6

‘Agent Vinod hasrecovered 50%ofitscost:Dinesh Vijan’, March OneIndia Entertainment, 2012 ‘Is Barfi! toosweet for television?’, DNAIndia.com,February 2013 ‘Ajay India’, Devgncroredealwith Star Signs400 Addatoday, March 2013 croredealwith ‘Salman Khansigns500 TV channel’, India Today, 2013 January Period- Week 1to52,2012; Channels-HindiMovies; Market- HSM; TG- CS4+;Language-Hindi TAM MediaResearch Copyright with reserved TAM MEDIARESEARCH PVT. LTD. Any useof TAM (or data Agneepath [Hrithik Singham Movie Don 2 Housefull 2 3 Idiots Bodyguard Ferrari KiSawaari Roshan) Bol bachchan Ra-one Players 29 . While ‘Agent Vinod’ fared onlyINR450 30 . isoftheviewThe thatthe industry Action Action Action Action Action Action Genre Romance Comedy/Drama/ Comedy Comedy Comedy 24 . An TVR 4.83 4.73 2.1 2.21 2.08 2.47 2.45 2.59 3.78 6.72

32. 31.

KPMG in Indiaanalysis Times, February 2013 dangers ofonline canbecostly’, The Economic ‘Bollywood ofpiracy; but ignoring nolongertalks to INR1.7 billion market size shrinkingby 15 percentfromINR2billion The homevideomarket continuedtodeclinein2012, with Home video initiatives. launched ‘Movies Ok’throughrebrandingandmarketing strengthening itsmovie channels Gold’andthenewly ‘Star world TV premiereof‘Agneepath’. STAR Indiahasalsobeen a strongmarketing campaigntodrive buzzaroundthe premiere ofmovies. For example, ZeeCinemaconducted launching strongmarketing campaignstomarkthe new movies back onthemovie channels. They are also movies onGECs,television networksarenow premiering Reflecting areversal ofthetrendshowcasing new percent of total homevideosales percent oftotal CAGR of20-25percentfrom2007-2012, accountingfor 10 Demand for such andhasgrown contenthasalongtail at series continuestogrow inthehomevideosegment. such aslifestyle videos,educationalvideosandclassic British BroadcastingCorporation(BBC) and Gamesforhasenteredintoatieupwiththe instance and salesfor thisgenreareexpected togatherpace. valuesentimental for customersseekingtobuildlibrary andclassicworks.documentaries Such contententails latter’s productionsinIndia. of The BBChasalargelibrary ranges between30,000-40,000 for thenumberofDVDs instance, soldintheentirecountry the DVD/VCD market. For cast, bigbudgetfilmswithastar market andareexpected totakeaway significantshareof Video onDemand(VoD) areanevolution ofthehomevideo in market size. Moreover, Value (VAS)Added Service and technology factorsdigital leadingtoafall aretheprimary Tiger Sardar Son of Movie Kahaani Ek Tha 31 Theatrical August 15,2012 Release Date 2012 November 13, March 9,2012 “ 32 . Piracyandthegrowingof popularity and healthfitnesscontent. interest categorysuchasself-development 20-25 percent.We areinvestinginthespecial is observingrobustdemandand growing at format. Theniche special interestcontent consumer’s valueperception ofthephysical been abletocombat piracy, ithas destroyed delivery. Whileslashingpriceshave not remain, whether throughphysical or digital the needforhomeconsumptionwill always Home video segment isdown but notout- 34. 33.

BBC’, Screen.indianexpress.com, May 2012 ‘Reliance Home Video inksdistribution dealwith discussionsconductedby KPMGinIndia Industry June 3,2012 January 26, TV Premiere 2013 2012 November 11, 33 unitsonly. Niche content 33 Shemaroo Entertainment Ltd. . Reliance Home Video 34 todistributethe 74 days difference Days of 86 days 88 days - Hiren Gada “ Director,

revenues fromtheatricalexhibition forderives instance 90percentofits Indian filmindustry percent ofrevenue comingfromthissegment. The South muchstill very dependentonthetheatricalrevenue with76 to beasmallnumberrelative tobox office. Indiancinemais absolute termsisexpected togoup of each isexpected toremainthesame,volume in and 10 percentcinemaadvertising. While theproportion 70 percentticket sales,20percentfood andbeverage desired region.Currently anexhibitor’s revenue comprises advertiser acaptive theflexibilitytotarget audience inthe rise tothegrowth ofcinemaadvertising,givingthe The growingdistributionhas given penetrationofdigital In-Cinema advertising: by 2017 revenue in2012 andareexpected tocontribute5.7percent revenueAncillary streamsconstituted 4.8percentoffilm rise toapressingneedfor alternative sourcesofrevenue. increasing competitionfor exhibition screenshasgiven Rising productioncosts,globaleconomicslowdown, and Ancillary revenuestreams 32 . However, theserevenue streamswillcontinue “ The power ofabillion: something we’reworking to change. measurement systems in placeandthat’s television, wedonothave any cinemaaudience The key pain pointisthatunlikeTRPsin 10 percent of televisionadvertisingrevenues. that oftelevision.Cinema should atleasttarget the CPTofcinemaadvertisingisthreetimes look outsidemultiplexeswhereasintheUS, advertising arelowerthantelevisionifyou go. InIndiaCPTs (costperthousand)ofcinema digital screens.Butwestillhavealong way to advertising havebeenpioneeredby Qube in advertising. Digital scheduling andrule-based than 100 percent y-o-ygrowth in cinema Driven byusandUFO, there hasbeengreater 33 33 . . Realizing theIndiandream - Senthil Kumar Co-Founder, Real Image “

‘Cinépolis eyes expansion inIndia’, Indiantelevision.com, November 2012 ‘Cinepolis India betsonsmallcities;todouble screensthisyear’, The Economic Times, February 2013 ‘Cable TV DigitizationinIndia’, Techmagnifier.com, November 2012 KPMG inIndiaanalysis ‘Cars2 economics:Movie, Merchandise andKids’, Bemoneyaware.com, July 2011 37 . There willbeconsiderablemonetization potentialfor 36 , pay perview isexpected togrow robustlyover “ Realizing theIndiandream ourselves tofindnewsourcesofrevenue. also nottakenupinIndia.We need topush theatrical releasesalone.Merchandisinghas overseas revenueasofnowcomesfromthe films arenotbeingtranslated worldwide. The compared tointernationalmarkets. Indian India lacksoncontentsyndication in filmsas 35 . Gamingalsoremains Grazing Goat Pictures - Ashvini Yardi Co Founder,

“ as Bhiwadi, ShimlaandLucknow SRS Cinemasisalsolookingtoaddscreenscitiessuch Bilaspur NCR, itrangesfromINR40-90inUjjainand50-150 in regular PVRticket pricerangesfromINR100-275 inDelhi/ charged by multiplexes inthemetros.For whilea instance, of thesecities,thepricestickets arelower thanthose down thecostperscreen.Keeping inminddemographics frills cinema,theexhibitors areabletoconsiderablybring prices insmallertowns andtheleeway tolaunch ano Kochi in2013 expand itsfootprint inthesouthby opening11 screensin such asLatur, Raipur etc.Cinepolisplansto Darjeeling, Big Cinemaarerapidlyexpanding theirfootprint intowns Multiplexes like PVRCinemas, Inox Movies andReliance new screenadditionsinMumbaiandDelhi. out.In2012,these regionsisrapidlydrying therewere no the revenues ofabigbudgetfilm,multiplex expansion in Delhi andMumbaicontributebetween55-60percent tier IIIcitiesaspotentialdrivers ofgrowth. Even though opportunity aremovie exhibitors whonow seetierIIand tocashinonthis and tierIIIcities. Amongst thosetrying Indian movies onseveral screens,includingthoseintierII in anumberofways, releaseof onebeingsimultaneous Digitization haschanged theface ofthemovie industry Penetration intotierIIandIIImarkets Key themes country by 2016country more screensfor the Talkies modelinthenext threeyears cinemas for consumersintierIIcities,islookingtoadd50 Kharghar andUdaipur. PVR Talkies, PVRCinemas’ no-frills territories such asMadurai, Bhopal,Surat,Bhubaneshwar, launch around50screensby theendof2013, enteringnew 42. 41. 40.

PVR Cinemaswebsite, accessedMarch 2013 ‘SRS Cinemastoadd18 screensby FY13’, IndianExpress,November 2012 ‘Small IsBig!’, Franchise Plus,June 2012 42 Scan theQRcodetohearmorefromSanjay . 38 . It plans to open 500 screensacrossthe . Itplanstoopen500 39 “ “ . Multiplex chain INOX is planningto investment andprovideabetterexperience. which are constructed atreasonable building whatcanbecalledas‘valueplexes’ cities areobservinggrowth. Such citiesare down inmetrocitieswhile tier IIandIII Screen additionsofmultiplexesareslowing non-metros. see increaseduptakeof3Dcontent even in on arise as qualityofcontent is improving. We Nanded, BilaspurandUjjain. 3D demandisalso Hollywood moviesintier2marketslike We weresurprisedtoseethe success of being acceptedinunexpectedmarkets. maintained, experimental cinema hasstarted While thedomesticconsumption has 41 . lowerWith realestate “ UFO MoviezIndiaLimited Chief Financial Officer, Managing Director, - Sanjay Gaikwad - PVR Limited 36 Nitin Sood of 40 .

“ million such asFacebook and Youtube isapproximately INR 1.8 Twitter. The marketing current spendondigital platforms the sequel’s primecharacters. The electionwason staged marketed throughapseudoelectioncampaignbetween effectivelymedia very tocreateattention. The sequelwas as Anurag Kashyap’s Gangsof Wasseypur utilized social on YouTube, breakingrecordsworldwide likestrailer receivedinthefirstweek 30,000 ofits release industry. For example, Yash Chopra’s Jab Tak HaiJaan These by consumersarealreadybeingtargeting the film surfers –apotentiallylargeplatform formarketing. digital Consolidation inexhibitionindustry to ignore.Indiahasmorethan70million internet surfingtimeinIndia,thismediumisratherhard SocialMediagrabbingabout25percentofthe With strategies Use ofsocialmediainpre-releasemarketing 47. 46. 45. 44. 43. India’s underpenetrated movie exhibition market intothevast totap opportunity presentedby the industry well asviaacquisition. A concertedeffort by isunderway company isalsolookingtoexpand both organicallyas properties. Cinepolis,theworld’s 4th largestexhibition the acquisition,PVRpossesses351screensacross85 film exhibition businessintermsofscreencount.Post itasthenumberonecompanyrank, establishing inthe acquisition ofCinemaxinNovember 2012 uppedPVR’s Growth hasbeenbothorganicaswell asinorganic.PVR’s multiplex chains hasledtoaggressive expansion efforts. underpenetrated exhibition market, competition between significant way. attemptsAs theindustry tofixtheseverely and capturing theattention oftheIndianaudienceina the lastfew years withthemultiplexes growing steadily The filmexhibition businesshasevolved considerablyin 3.5 millionfollowers online and for Disney merchandise. The company hasmorethan Youtube for everymovie itmakes, for allitsthemeparks pages andaccountsacrossFacebook, Twitter, Linkedin and through morethan1000 socialmediaaccounts.Ithas on alargescale.Itengageswithmillionsofconsumers Disney hasdemonstratedhow toleverage socialmedia Disney magiconline.

PVR Limited, Investor Presentation, Feb 2013 http://www.businessinsider.com/the-30-biggest-social-media-advertisers-of-2012-2012-9?op=1 discussionsconductedby KPMGinIndia Industry http://www.indiatimes.com/bollywood/jab-tak-hai-jaan-trailer-creates-history-44110.html ndtv.com, February 2013 ‘Facebook has71millionactive usersinIndia,50 millionduplicateaccountsworldwide’, Gadgets. 45 andwillrisesignificantlyinthenearfuture. “ has alongwaytogo. (141), US (117),China(31)andBrazil (10), India only 8 per million as comparedtoIndonesia 30,000 morescreens.Withscreen density of consolidation, theindustry needs atleast While theindustrywill see further 46 - The goalistorecreatethe Joint Managing Director, 43 44 UFO MoviezIndiaLtd. socialnetwork “ . Movies such - Kapil Agarwal 47 .

“ inorganic growth PVR’s screenevolution –amixoforganic and Source: PVR Ltd.,Investor February presentation 2013 is going to continueatleastforthenexttwodecades. cinema isfinallyheading for agradual,cumulativegrowthwhich a reasonableprice.Overall I cansaythat,in 100th yearIndian to theircontributioninthisspaceandsheerneedforcontentat and movie channels enterintothemovieproductionpurelydue started entering into multi-leveltie-ups. We willseemanyGECs acquisitions. Indianstudios/productionhouseshave already operators) will start getting into contentcreationand player in this segment. The exhibitors(read large multiplex Indian marketisgoingtowitnessamaximum of threemajor Consolidation hasalreadybegunin the exhibitionspaceand continuous simulated,synergeticandsymbiotic growth. The futureofIndianfilm industry liesinconsolidationand The power ofabillion: Head ofDistributionandAcquisition, Realizing theIndiandream Reliance Entertainment - Utpal Acharya “

2010-11 2011-12 2012-13 FY Industry discussionsconductedby KPMGinIndia Industry 2013 ‘Salman Khan’s Dabangg2 getsfantasticopeningatBox Office’, January OneIndiaEntertainment, UFO Moviez IndiaLtdmarket intelligenceandCompany records 49 . However, adigital thecostofinstalling Kites Rajneeti Tees MaarKhan Housefull Dabangg Players TheDirtyPicture Bodyguard Ra.One-2D/3D Agneepath RowdyRathore Dabangg2 Don2-2D/3D EkThaTiger JabTak HaiJaan Realizing theIndiandream Movie 48 , anumberpreviously considered 49 . 49 Digital Prints* . Moreover, 1210 1500 1480 1900 1613 1669 1750 1014 1725 1927 1871 2363 930 876 985 Analog Prints* 490 416 479 350 275 373 550 618 613 600 585 221 361 351 537 Scan theQRcodetohearmorefrom Alok Total Prints* “ 1700 1598 1480 1963 1494 1946 1551 1861 2500 2638 2300 2350 2065 2085 2101 screens acrossallcitieswearepresent in. us in monitoring ourcontentandobserveall (NOC). The installation oftheNOC has helped controlled byourNetworkOperationsCentre In addition to this,allthesescreensarenow art technologieslike3Dto smaller cities. technology. Thishashelpedinbringing state of all ourscreenstoDCICompliant2kDigital guests. Today, wetakepride in converting in thebestmovieviewing experience toour the latesttechnologyismandatorytobring At INOXandFAME, webelieve that adopting Digital as%ofTotal Prints 71% 72% 76% 90% 81% 82% 80% 84% 80% 83% 89% 59% 65% 63% 62% Chief ExecutiveOfficer, Inox LeisureLtd. - Alok Tandon

“ The power of a billion: Realizing the Indian dream 73

Parallel cinema slowly and steadily Digitization of the country’s Broadcasting gaining ground

infrastructure space will be a big catalyst for Cinemas in India may be segregated into 3 genres:

the overall entertainment value chain. We mainstream, non-mainstream and art house movies. 2012 “believe content owners like Eros will be big saw mainstream cinema grow even bigger. The year also beneficiary of the digitization . Digitization “ saw the emergence of non-mainstream cinema with will boost revenues for platform owners and movies such as ‘English Vinglish’ and ‘Kahaani’ gaining broadcasters and the money will ultimately sufficient traction. Anurag Kashyap’s ‘Gangs of Wasseypur flow to the content owners for bigger and (I & II)’ garnered revenues of INR 470 million50, an amount better content to attract subscribers. unheard of for this category of films. Art house cinema (or independent cinema) is yet to establish its foothold in the Indian industry. Produced on a limited budget of - Kamal Jain INR 20-50 million51, art house films struggle to promote Group Chief Financial Officer - India Eros themselves and claim exhibition space. Notwithstanding, International Media Limited some of these films are claiming considerable international fame. Apart from being honored as the Best Punjabi Language Film at the 59th National Film Awards and winning the Golden Peacock award for best film at the 43rd International Film Festival of India (IFFI) 2012 in Panaji52, Anhe Ghode Da Daan also received global acclaim. The film There is a global appreciation of India’s diverse won the Special Jury Mention and the Black Pearl Trophy and vibrant film culture and this is evident from at the Abu Dhabi Film Festival. It was also showcased the increasing international collaborations at the 55th British Film Institute, London Film Festival, “on Indian Stories. Films Like Qissa (Punjabi), and the Busan International Film Festival53. International Dabba (Hindi), Arunoday (Marathi), Chauti Koot co-productions have been one of the primary enablers of (Punjabi) are all international co-productions this genre of cinema. Indie cinema, however, is in need with NFDC and it is interesting to note that of organized funding with more government, access to we are leveraging the various international favorable slots in exhibition space and the support of an treaties on audio-visual co-productions signed established art house circuit in India.

by the Government of India to achieve such

collaborations. Further, the attachment of International Sales Agent gives such films a worldwide footprint. These“ partnerships which are based on the spirit of collaboration, make it possible to think local and act global, thus promoting the cinemas of India at both within India and abroad.

- Vikramjit Roy General Manager, 50. Box Office India 51. Industry discussions conducted by KPMG in India NFDC (India) 52. ‘Punjabi film Anhey Ghode Da Daan wins Golden Peacock at IFFI’, Movies.ndtv.com, November 2012 53. ‘Bite of real cinema’, Tribuneindia.com, January 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 74 The power ofabillion: percent ofallforensic matches inthe Asia-Pacific region months of2012 revealed thatIndiaaccountedfor 54 for thesameperiodin2011. The auditreportoffirstnine percent increaseascomparedto30camcordingincidents 53 forensic matches tocamcordingincidentsinIndia,a77 2012, theMotionPictures Association (MPA) hadidentified toSeptember increased inrecenttimes.DuringJanuary camcording incidentsintheatreshave significantly However, piracycontinuestoplaguetheindustry. Indeed, therefore shifting online. format (VCDs andDVDs) isdisappearingandpiratesare the businessofpiracyhasalsotransformed. The physical Also, withtheshift inconsumerpreference totheInternet, pirated DVDs. ‘Son ofSardar’. This hashadsomeeffect onthebusinessof theatrical release;whileithappenedinonly2monthsfor premier of‘Ek Tha happenedonly3monthsafterTiger’ its window hasbeenreducedtolessthan3months. The TV with piratedDVDs/VCDs. Currently thetheatre-to-television take advantageofthisdelay, andwould floodthemarket only after sixmonthsofitstheatricalrelease.Piratescould A few years ago,afilmreached television andhomevideo battlehelped theindustry thisissueaggressively. film industry. However, therearesomechanges thathave The issueofpiracyremainsacriticalfor theIndian Piracy Key industrychallenges that direction. The initiatives of Telugu areasignificantstep in filmindustry providers, site-blocking measurescancombatonlinepiracy. cooperation fromthegovernmentWith andinternetservice and createefficient mechanisms for content protection. In thiscontext,thatindustriescollaborate itisimportant 15.79 percentfromthatin2008. due topiracyin2012 was USD1.1 billion,anincreaseof terms ofvideopiracy. MPA Indiaestimatesthattheloss (MPDA), India isamongthetopnationsinworld in As pertheMotionPictures Distributors Association 55. 54.

Times, February 2013 ‘Bollywood ofpiracy; but ignoringdangersofonlinecanbecostly’, nolongertalks The Economic discussionsconductedby KPMGinIndia Industry “ Realizing theIndiandream the toolstoarrestandprosecutecriminals. legislation, whichwill provide law enforcement environment withspecific and strong work together to buildarobustregulatory Government and stakeholders needto laws and buildingconsumerawareness. to combatpiracy,startingwithstrengthening combat. We need to buildadequatedeterrents the biggestchallengeforusandindustryto in cinemasisanorganised crime andremains Content theftatsource, through camcording Motion Picture Association, India Managing Director - Uday Singh 54 .

“ • • 117 permillion million people,unlikewherethereare intheUnitedStates, challenge for theindustry. There arejust8screensper penetration oftheatrescreensinIndiaremainsthebiggest of filmsproducedeach year andattendance, theunder While Indialeadsworld averages intermsofthenumber Under-penetration oftheatrescreens change inmindsetonthepartofconsumers. Moreover, amajordeterrent topiracywillcomeonlyfroma criminal charges. people foundofsuch guilty infringementsubjectedto developed seriously, economies,piracyistakenvery with copyright infringement,strictenforcement islacking. In made progressindeveloping responseproceduresto While theGovernment andotheraffiliated agencieshave 57. 56.

industry Such efforts willberecognized andrewarded by the to alertthe AVPC throughtheirmobilephones. instantly streets orvideolibraries,canleverage thisapplication coming acrosspiratedmaterialbeingsoldonthe content piracy(bothonlineandpiratedCDs).People with allsmartphoneshaseducative information about online piracy. The applicationwhich iscompatible also designedaweb applicationtodetectandreport The Anti Video PiracyCell(AVPC) ofthe APFCC has INR 250millioninlostrevenues about criminal syndicatesthatcostthefilmindustry by MPDA and APFCC revealed twomajororganized of contentprotection.InJune 2012, ajointoperation well aspromotepublicawareness ontheimportance tackle contenttheft camcording, onlineandoncableas protection. The allianceisworking oninitiatives to and MPDA have formed analliancetopromotecontent Andhra Pradesh FilmChamberofCommerce(APFCC) ‘Show time:Growth inmultiplexes tobedriven by malls’, Business Today, May 2012 ‘A new apptocurbonlinepiracy’, Times ofIndia, March 2012 56 . 57 . “ digital, both inproductionandexhibition. democratization thathasbeenenabledby industry trulytakeadvantage of thecontent Only once we haveenoughscreenscan the the numberofscreensinnext10years. each year. Theindustryshouldlookatdoubling considering the numberofmovieswemake of numberscreenspercapita,especially We arestill severely under-penetrated interms 55 . - Senthil Kumar Co-Founder, Real Image “

The power of a billion: Realizing the Indian dream 75

The number of screens is highly correlated with Regulatory hurdles commercial real estate development in the country, Extreme Taxation which is currently challenged due to the overall economic slowdown. At many places urban land supply is controlled High entertainment tax acts as a major impediment to the by state-owned development bodies and housing boards, growth of exhibition industry, as the overall tax implication leaving limited space for development of malls. Restricted is as high as 40-50 percent in states like Maharashtra, land supply also leads to high real estate prices. Moreover, Uttar Pradesh, Bihar and Karnataka. Such high rates of the approval process for a multiplex is very slow and entertainment tax on box office admissions seem irrational cumbersome, as it is largely controlled by the local considering that films are available on other platforms municipalities. Obtaining a theatre operating license can like television and Internet platforms for free or very little take as long as 6 months in certain cases58. cost. Such regulations have also led to many corrupt trade

practices. To save on entertainment tax, some theatre owners under-declare occupancy rates. It is estimated that “ approximately 25-30 percent of the ticket sales is under reported by these theatres58. Hence, it is imperative that Lack of mall readiness is slowing down the the entertainment tax structure across the country be screen expansions. Last year approximately 30 rationalized by bringing down rates of entertainment taxes. “percent of the plans have got delayed. - Sanjay Gaikwad Chief Executive Officer and Managing Director, UFO Moviez India Ltd

58. Industry discussions conducted by KPMG in India

Scan the QR code to hear more from Sanjay with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 76 The power ofabillion: Source: Jammu andKashmir Jharkhand Assam Tamil Nadu Andhra Pradesh State West Bengal Karnataka Kerala Delhi Himachal Pradesh Madhya Pradesh Haryana Maharashtra Madhya Pradesh Rajasthan Bihar Uttar Pradesh Punjab Gujarat Orissa ‘Entertainment ‘Entertainment Tax InIndia’ Taxindia.com, August 2012, ‘GrossandNett Gross: The Difference’, Indicine.com,September2012 Realizing theIndiandream 15% forticketslessthanINR20; 15% 40% forticketsexceedingINR30 40% 49.5% forticketspricedatINR251-350; 45% forticketsunderINR250; Tax Free Tax Free Tax Free Tax Free price) Entertainment Tax (aspercentageofticket 20% 2012 toMarch2013 20% forticketsmorethanINR20 20% 20% 25% 20% 20% Entertainment Tax exemptedfortheperiodApril 35% forticketsbetweenINR10-30; 30% forticketuptoINR10; 30% 30% 30% 50% 54% forticketsINR501andabove 51.75% forticketsatINR351-500; 15% forTelugu films Tamil languagefilmsaretaxfree and Nepalilanguage re taxfree Note 2% forfilmsinBengali,Santhali Kannada filmsaretaxfree Earlier itwas110% Marathi filmsa the ratesaccordingtoaudience inflow. tickets sincetheatre owners willhave freedom torevise Flexible pricingwill alsohelptoreduceblack-marketing of decide ontheadmissionrates according todemand. of shows andcapon ticket pricingandlettheexhibitors the governments torelaxregulationsonfixed number 75 hascurrently beenputonhold in singlescreensfromINR10 toINR25and60 In Andhra Pradesh, aproposaltohike cinematicket rates depending onthesetoffacilities. multiplexes cancharge amaximumof INR120 perticket allowed tocharge amaximumofINR 50perticket and governments. In Tamil Nadu,singlescreentheatresare Ticket pricinginmanyisregulatedby states state Ticket pricecontrols growth anddevelopment ofsuch cities. tier IIandIIIcitiestoincentivisethesectorboost for infrastructural development onsetting upcineplexes in Separately, itwillbeusefultoprovideholiday tax benefits cost for exhibitors andisnotcreditable. onimmovable tax becomesa property including service tax. Accordingly,liable toservice taxespaidoninputside for exhibitors. Exhibitorsfor cinematographicfilmsarenot lease ofimmovable isanotherfinancialburden property on tax increasing thecostsofmovieService making. thereby tax theatrical rights)etc.areliabletopay service Film actors,artists,technicians, distributors(for non- “ from thecurrentstateofaffairs. the GSTtobringabout relief tothefilm industry Film Industry eagerlyawaitstheintroduction of to theGovernmentauthoritiescontinue, the While, the representationsof film industry in thestateofapathywhichitcurrentlyis. in indirecttaxesandputthefilm industry back of theGSTwhich seeks toachieve uniformity of entertainment tax shalldefeatthepurpose film industry believesthatsuchadditional levy an additional levy overand above theGST. The outside thepurviewofGST, therebyforming which proposestokeepentertainment tax Goods andServiceTax (‘GST’)legislation Government authoritiesover the proposed industry hasalsovoiced its concernstothe stage offilm production anddistribution.Film account ofmultiplicitytaxesleviedateach continue tobeaffectedin the longtermon revenues overthepastfewyearsandmay industry seemstohavestagnatedintermsof Indian indirecttaxes.Thegrowth of thefilm of taxes, a majorityofwhich constitutes the has beenchallengedbythelevyof a plethora The Indianfilm industry, in its centenaryyear The Film & Television Producers GuildofIndia 59 . expectsThe industry Chief ExecutiveOfficer, - Kulmeet Makkar “

fund film and entertainment projects fund filmandentertainment is alsolaunching aprivatefundworth equity INR2billionto Bani Banerjee, aveteran with The Chatterjee Group(TCG), years ahead. film industry, andisexpected andgrow tosustain inthe This indicatesthegrowth oforganized filmfinancingfor the by SecuritiesandExchange Board ofIndia(SEBI) alternative investment funds(AIF)guidelineslaiddown have gotanINR1billionfilmfundapproved underthenew Management Private Limited,aninvestmentfirm, advisory production anddistributioncompany, andMentorCap DAR MediaPrivate Limited,aMumbai-basedfilm interest inthefilmbusiness,2012 saw arevival ofinterest. a lullininterestfromfilmfundsandotherventure funds’ back them crores andINR30crores,findapoolofinvestors to will identifyfilmprojectswithabudgetofbetweenINR4 policy.according toastated The DAR MentorCapFilmFund are fundsthatpoollocalandoverseas andinvest capital other venture firmsinvesting capital inIndianfilms andSpringboard Entertainment Ventures aresomeofthe and ‘Dabangg2’. HighgroundEnterprises,Magus funded filmslike ‘Heroine’, ‘Bol Bachchan’, ‘Chakravyuh’ focused sectorhasrecently onthefilmandentertainment institutions directly. aventure CinemaCapital, fund capital attracting private/venture equity fundingfrom capital scaling upofrevenues, Indianfilmsareincreasingly due tohighrisknature ofthebusiness.However, with Sourcing offilmfinancinghasbeenlargelyunorganized The adventoforganized funding Upcoming trendsinfilmfinancing Themes ofthefuture 63. 62. 61. 60. 59.

‘TCG veteran tolaunch PEfundsinrealty, films’, 2013 January BusinessStandard, ‘DAR Media,MentorCaplaunch Rs.100 crfilmfund’, Livemint.com, October2012 DAR MentorCapgetsSebiapproval for Rs1bnfilmfund’, Indiantelevision.com, November 2012 ‘Where Bollywood GetsItsMojo’, Openthemagazine.com,November 2012 Proposal tohike cinematicket ratesputonhold, The 17, Hindu,January 2013 62 . The power ofabillion: 63 . Realizing theIndiandream 61 . AIFs 60 . After 77

international markets. andhelpbridgethegap vis-à-vis growth intheindustry participation by stakeholders willfurtheraccelerate prudent structuring oftheentirevalue chain andgreater to nameafew. However, government deregulation, as securitizationofIPreceivables andgapfunding innovative andstructured financingproductssuch as well asbuildscale,thiswillenablethemtoaccess adopting globalbestpracticesinordertogaintraction Indian productionhousesaregraduallymigratingand Vietnam, amongothers. traditional markets such asMorocco, Turkey, Africa and Australia andSAARC countriesbutalsotomany non international markets such astheUS, UK,MiddleEast from movies beingdistributednotonlythetraditional The filmdistributionlandscapeiswitnessingashift movies arebeingmadebasedonbestsellingnovels. to caterregionalaudiences. Another trendisthat whereHindimoviesrecent instances arebeingremade Bollywood remakes. However, therehave beenseveral sourceofcontentfor has traditionallybeentheprimary industry. Untilrecently, the SouthIndianfilmindustry Bollywood, datesback totheinceptionofIndianfilm Remakes, in aphenomenoncommonlyobserved of thecommerciallyviableIndianregionalfilmindustry. a stepfurtherandarenow seekingtocapture ashare movies aroundtheglobe.Leading USstudios aregoing are usingtheirstronginternationalnetworktodistribute intheirmaturestagnation homemarkets. These studios of openingnewer avenues for expansion; given the withtheaim actively participatingintheIndianindustry major studios. Various overseas studios have been for fundingfilmproductionsinvolving localandglobal of IPrightshave becomethenew modusoperandi and exploit IPrights.Co-productionsandthepresale pooling oftechnology, tojointlycreate andtalent capital strategic jointventures aswell asalliancesthatcallfor has ledtotheemergenceofmediaconglomerates, Today, theneedfor diversification &linearintegration segment. transactions for arangeofM&Eenterprisesinthis to thissunrisesectorby engaginginkey structured Bank demonstrateditscommitment hasconstantly when itcomestostructured methodsoffinancing. Yes reflect therisingmaturity oftheIndianfilmindustry as crowd filmfunds,P&Afinancingfurther financing, ‘I Am’, theNational Award winningfilmhasgiven sharing intheventure orloanpayback withinterest money for financialgain–for exampleorprofit anequity crowd-financing orinvesting iswhentheinvestors fund etc. There isnoprofitsharinginvolved. Ontheotherhand, name oncredits,musiclessons,autographedmerchandise and incentives, for example DVDs, tickets or VIP passes, project inexchange rewards forandintangible tangible Crowd-funding iswhenindividualsfundamovie orany Crowd-funding vsCrowd-investing India whofinditdifficult tosourcefundsfor theirfilms. is graduallybeingadoptedby independentfilmmakers in already popularinmany countriesacrosstheworld and contribution. Crowd fundingfor movies isatrendthat some reward inreturn (incashorkind)basedontheir Participants orsponsorsofsuch initiatives may receive sumsfromasmallnumberofinvestors.substantial orsocialnetworks,ratherthanseeking Internet portals number ofindividualsorcommunities,usuallythrough a projectisfundedby smallcontributionsfromalarge orhyperfunding, funding)isafinancingmodelwhere Crowd funding(alsocalledcrowd equity financing, funding embracecrowd Independent filmmakers 67. 66. 65. 64. Therefore itturnedtowards thecrowdsourcing After successfullyraisingfundsfromthegeneral Case Study–‘I AM’ a boosttotheideaofcrowdfundingmovies. generated videos of themwereacknowledged in asco-producers of thelegal –both issues. individuals Around 400 media campaigningtoattract investors.I Am’s model forfunds. usedsocial The filmaggressively matter, itwas notabletogetbacking ofany studio. process. The totalamountpooledinforthemovie public forI Am, itsproducer-director duoSanjay updates ontheprojectandspreadhighawareness Being a film that dealt controversial subject Being afilmthatdealtcontroversial Suri andOniragain tookthecrowd-fundingroute for theirupcomingfilm‘Chauranga’. fund-raising campaignusedmorethan50user- local andforeigncontributedtotheproject was INR30million the movie aswellwerepart oftheprofitsharing

‘The OneRupee FilmProject’, Lfebf.com, December2012 ‘Crowd funding: An emergingtrendinBollywood’, Times ofIndia,March 2012 ‘Crowd fundingsetfor Indianboom’, FilmBusiness Asia, March 2013 ‘The growing trendofcrowd funding’, Times ofIndia, October2012 65 66 . The directorprovided regular . 64 . All 64 . 2012 project was abletocollectINR153,000 asof21December makers have nameditas ‘‘The OneRupee Movie’. The a producerby paying justarupee. That iswhy thefilm people arewelcomed topay more,butonecouldbecome funding platforms – andIndiegogo. Wishberry Though They areseekingcontributionfrompeoplethroughcrowd filmmakers fromKolkataonindependentfilmmaking. Another example ofcrowd fundingisaprojectby two Advantages Risk Reduction • • • 67 There isnointerference Transparency infinancial dealings the lossisdividedamonga larger groupthatisinvolved in workfromproduction in thefunding. Risk ofinvestmentislowas houses. . The power ofabillion: funding Disadvantages Difficult toattractforeign investors Risk ofconceptleakage Limitation onamountof • • • • There isalimitationof copied assomepartsofthe attract investors. universal appealisableto movie needtobedisclosed funds pooledinforfinance. films. to themassesattract investors Risk offilm’s conceptbeing Only agoodscriptwith Only worksforsmallbudget Realizing theIndiandream 79

Disney Fox Star

Reeling Them In,Outlook Business,03March 2012 ‘India, Spainsignaccordfor movie co-production’, October 2012 BusinessStandard, the FilmsSector’, Pib.nic.in, July 2012 ‘ IndiaandPoland Sign Audio Visual Coproduction Agreement toEnhanceBilateralCooperation in May 2011 ‘Viacom 18, PPI Announce DealtoDistributeParamount Movies inIndia’, Hollywood Reporter, February 2013 ‘Life ofPi,SkyfallmarkHollywood’s increased box office shareinIndia’, The Economic Times, Realizing theIndiandream 68 . 12 15 11 releases Number of 5 collections INR 2.17billion INR 1.00billion INR 1.65billion INR 0.91billion Gross BoxOffice 71 . This isnotthe 69 andSpain

70 in on theirpayments Further, Spainoffers upto20percentrebatefilmmakers rebate tocompaniesfromabroadwhoemploy localtalent Added Tax (VAT) refunds.Czech Republic offers 20percent and Australia givesconcessionin about40percenttax Value overseas filmsbeingshotthere government offers rebatetofullyfunded 47percenttax makers tofilminexotic arenow trying locations. The Fiji of production.Cashingontheopportunity, Indianfilm cases,canalsosharethecost facilitation, andincertain These incentivesrebates,freestays, rangefromtax visa of afilm. subsidies, which canbeashigh40percentofthecost pitching for locationstoproducersinIndiaby offering into theircountry. Various tourismboardsareincreasingly This inturn promotestourismandraisesthetourist traffic Many countriesoffer incentives onshootingintheirland. Foreign subsidies skill ofthesector. certification courseswhich contribute towards thehoning isexpected toaddprogramsand theindustry Going forward need for skilldevelopment programsfor thefilmindustry. Both thegovernmenthave andindustry recognized the Skill Development works doneinGermany for 20percentproductionsubsidyon VFX (visualeffects) Lately, theGermanFederal FilmFund (DFFF)has allowed Anubhav Sinha’s ‘Warning’ have beenrecently filmed inFiji. Films alsoinvested intheproject Fortissimo Films.Dutch privateinvestor equity Pardesi international distributionrightstofilmsalescompany to French broadcaster Arte France for INR15 million,and INR 5million. The satelliterightsfor thefilmwere pre-sold 2012 number ofvisasissuedfor IndiantouriststoSpaintill August tremendously. There was a65percentincreaseinthe Spain, theinfluxofIndiantouriststoSpainhasincreased film ‘ZindagiNaMilegiDobara’which was filmedpartlyin 76. 75. 74. 73. 72. Source: Aamir KhanProductionsandExcelEntertainment Akshay Kumar’s HariOmEntertainment Ajay DevgnFilmsandShreeAshtavinayak Ajay DevgnFilmsandViacom18 MotionPictures Production housesandstudios Illuminati FilmsandErosInternationalMedia Pictures Grazing GoatPicturesandViacom18 Motion Company, Eros InternationalandH.R.Musik Cinevision

‘With eye‘With ontourism,Spain woos Bollywood withtax-cuts, sops’, BusinessLine, September2012 ‘Bollywood goesabroadtocashinonsubsidy’, Truthdrive.com, May 2012 http://www.variety.com/article/VR1118062531/ ‘Fiji isnew hotspotfor Indianmovies’, India.nydailynews.com, June 2012 their projects’, Crowdsourcingindia.com, March 2012 ‘Independent filmmakers areturning tointernationalco-productionandcrowdfunding tofinance 76 Factiva . 75 . Following thesuccess of Bollywood 74 . South Africa offers 30percent 73 . Filmssuch as‘3G’and 72 . (2012) Co-Productions Talaash Agent Vinod Son ofSardaar Khiladi 786 Bol Bachchan Oh MyGod 75 . 79. 78. 77. cross-disciplined knowledge ofvarious aspectsofcinema as thereisademandfor trainedprofessionals whohave films.Itisnowcataloguing emerging asafieldinfilmstudies to archiving, researching, documenting, contextualising and Film Curation,alsoknown as‘filmprogramming’, pertains schoolFirst for‘FilmCuration’: electricworksuch andtailoring scriptwriting, aslighting, more than11.7 millionpeopleover thenext 10 years inskills the trainingprogrammes.Itwork closelywithNSDCtotrain bodyfor Kamal Hassan.MESCwillactasanaccreditation will besetup. The skillscouncilwillbeheadedby actor stuntmen, spotboys andothersemployed infilmindustries advertising industries.Institutes focusing ontechnicians, on thetelevision, print,films,radio,animation,gamingand SkillCouncil(MESC),whichand Entertainment willfocus Skill Development Council(NSDC)hasconstituted aMedia under theNationalSkillDevelopment Policy National 2009, many industrieswhich requiretraininginstitutes. Accordingly The government ofIndia hasidentifiedM&Easoneofthe Media andEntertainment SkillCouncil:

Industry discussionsby KPMGinIndia Industry ‘Films asScience’, The IndianExpress, April 2012 Film biztoget11.7m trainedworkers, The Times ofIndia,03Oct2012 Scan theQRcodetohearmorefromSiddharth “ “ brighter. and finishing can helptheindustryshinemuch the rough,who with thehelpofsome polishing for themtoavailof.Theyare like diamondsin to thelackofanystructuredtraining facilities are forcedtolearncompletelyonthe job due We havenodearthoftalentedindividualswho production design, visual effects andsoon. of filmmakingsuchaswriting,editing, sound, formal training in most creative disciplines on thecinematicarts.Thereisadearthof high qualitywell-runinstitutionsfocused can beraised significantly if therearemore As anindustry, ourlevel of creativeoutput country. boost theimage of vocationaleducation in the not onlyattractingtalentedstudentsbutalso degree grantingstatus?Itwill go alongwayin eligible to offerdiplomas. Why can’t theyhave Right nowmedia schools in India areonly Degree orMasterandevendoctorates. 300 mediauniversitiesandschools offering entertainment sector. UnitedStateshas over need tofocusoneducation in themediaand the StateGovernmentEducationMinistries Development in GovernmentofIndia and The MinistryofHumanResource and “ “ Whistling Woods International - Siddharth RoyKapur Studios, DinseyUTV Managing Director - Ravi Gupta 77 Dean .

groups thelower-middlecinema hallstargeting andlower-income achain NukkadEntertainment, started ofsmall-sized digital segment. UnitedMediaworks (UMW),forhas instance, hasbeguntorecognize thevast industry potentialofthis segment toexpand to150 milllionfrom50million millionfrom thecurrent 350million peopleandtherich500 shrink significantly, middleincomegrouplikely togoup urban incomes,withthelow incomegroupexpected to films. films. cities withmultiplecultures ormarket for regionallanguage is oftheview thata15 screentheatrewould dowell onlyin investment duetohighlandcostandrentals. Also, industry India sofarexpensive asitisvery tobuildandrequireslarge not many exhibitors have invested inthemegaplex format in screens each inMumbai,ChandigarhandKochi. However, soon. PVRalsohasan11-screen multiplex inBangalore, 9 in Thane, 11 screensinKochi and10 screensinGhaziabad Cinepolis isopeningmoresuch megaplexes with14 screens and show timings. Average is180 seatingcapacity seats. offering patronswithunprecedented choice offilmtitles will run 75shows perday or1new show every10 minutes cinema experience) and12 regularscreens. The megaplex have 3Cinepolis VIP screens(aluxuriousandultrapremium megaplex which willbelaunched inPune isdesignedto titles tostayintheatrefor alongerfirstrun. The 15-screen megaplexes allow for moretitlestobeplayed and for called Megaplex (megamultiplex) inIndia.Largeformat exhibitor, Cinépolis,willsoonopenitslargemultiplex format even largercinemawatching experience. International environment, moviegoers inIndiacannow advance to After upgradingfromsingletheatrestoamultiplex Large formats creating servicedifferentiation Multiplexes –slicingtheaudienceand untapped marketuntapped of India’s populationlives inrural areas indicatingalarge which liesatthebottom ofthepyramid. Almost 70percent recognized theimmensepotentialposedby theaudience hasalso As withmany industries,thefilmindustry ‘Valueplexes’: Tapping theBottom ofthePyramidthrough well. PVR planstotakethismodelotherkey metrocitiesas an encouragingresponsefrompatronsinDelhiregion,and patisserie andafilm-themedbookshop.PVRhaswitnessed reclining chairs, acafe, arestaurant-cum-bar, alounge, complete package withgrandauditoriums180 degree movie theatre,butisa to them.Itisnotmerelyaluxury Ebony Lounge, asitoffers adifferentiated experience INR1000 for aPVR’s DirectorCutticket orBigCinema’s entertainment. They areincreasinglywillingtopay INR700- Movie goershavein begun toappreciateluxury Luxury entertainment: creating professionally-trained curators University inDelhihasintroducedafull-timecourseaimedat planning toorganize iteveryyear. Inaddition,Dr Ambedkar (FTII) organized afour-day courseonfilmcurationandisalso As afirststeptowards this,theFilmand Television ofIndia and whocanselectfilmsfor afestival inaninformed manner. 82. 81. 80.

‘Dawn of‘paisavasool’ videoparlours’, 2013 January BusinessStandard, Preeti Mehra, “The rural incomepyramid ismorphinginto adiamond,” BusinessLine, Census 2011 82 . 79 80 . Rural incomesaregrowing faster than The power ofabillion: : 78 Realizing theIndiandream . 81 . The 81

Nukkad Entertainment

Nukkad Entertainment (‘Nukkad’), an initiative started • Add to government revenue: Creates a new by United Media Works (UMW), is a chain of small- source of tax revenue for the government and also sized digital cinema halls targeting the lower middle generates employment across the country & lower income groups of the country. It offers easy and legitimate access of film content to under-served • Provide entertainment to un-served category: markets. Provides a audience access to high quality content in a multiplex like environment • Easy access: Availability of cinema halls in remote areas • Opportunity for in-cinema advertising: Enables national advertisers to reach the remote areas • Legitimate access: Standard, legal and good quality viewing experience • Community development: Nukkad educates children living in the areas of proximity. Each Nukkad’s aim is to enable the lower segments of Nukkad facility endeavours to educate 50 children society to gain access to legal content, hence limiting during morning hours. their need to indulge in piracy. The ticket price ranges from INR 30-50 and average capacity of 120 seats, the Key issues faced: theatre is marketed as a ‘Paisa Vasool’ movie hall. • Obtaining Licenses: The Nukkad Entertainment cinema hall operates on video theatre licenses and The no-frills theatres which can be set up with a certain states have halted issuance of new licenses. minimum area of 1200-1500sqft provides in-theatre For example, since 2008 issuance of licenses has movie experience similar to multiplexes – offering Food been banned in Rajasthan as certain video theatres and Beverage and air conditioning to the consumers. were found to be exhibiting pirated and adult Currently, there are 2 operational Nukkads in Gujarat content. and UMW plans to open 2,000 similar theatres by 2015. • Uneven entertainment tax structures: High The model aims to: entertainment tax applicable in some of the states is making the model of small sized cinema halls an • Curb piracy: Providing legitimate access to movies unviable proposition. at low cost in a cinema hall is expected to help bring down incidents of piracy • Procuring content as the right price: Convincing distributors to share film content at a rational rate • Offer new revenue streams to the film Industry: especially for the distant and non-existing territories The model aims to provide exhibition services to is an up-hill task. the ‘un-served’ category of audiences thereby creating a new market for the film industry. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 whether theefforts are creatingpositive results. to engageprospective audienceand continuouslyassess employ toolstodefinewhich platforms shouldbeused to attract theaudiencetotheatres. Movie marketers can marketers’ onusofcreatingextensive buzzandinterest options such asweb, mobile, TV etchave addedtomovie movies intheatre and availability ofalternateentertainment office windows, low attention span,highcostofwatching innovative andscientificinitsapproach. Shorterbox of marketing amovie isfast evolving andbecoming prospective audiencestobuy movie tickets. The art The ofany finalstage movie lifecycle istoconvince • • • Content Development and Audience Pre-testing. done by usingvarious testingtoolssuch asConcept Testing, content turns outtoberelevant andappealing. This canbe be refinedthroughfocused grouptestingtoensurethatthe audiencehasbeendecided,contentcan Once thetarget behind erratic audiencebehaviour. language, incomebracket etccanunravel themystery and mediaconsumptionpattern -by age,gender, geography, behaviour parameterssuch asgenrepreference, spending as demographics,incomedistributionandconsumer potential ofaconcept. Analysis ofbasicparameterssuch audiencefordefine atarget genreandassessthemarket when itcanleverage toolsandframeworks statistical to nolongerhastorelysolelyonitsinstincts The industry ofafilm’shelpful toolateverystage life cycle. captivates theirattention. Market research canprove tobea of audienceandrevealing whatfascinates themand thecontentpreferencesscientifically understanding product, thecontentofafilmcanbeshapedinpartby use theknowledge innovatively. Similartoany consumer assess consumerdemandandbehaviour intelligently and distributing afilmismakingitimperative for companiesto The highcostofdeveloping,acquiringand making, Leveraging potentialofresearch ensure maximumimpact changesand make necessary tothegameplan to gaugetheeffectiveness oftheirmarketing efforts Companies canalsousePre-release Awareness Testing are otherswhostronglysupportthepractice canmake orbreakamovie,treatment ofastory there limited ornofaith inthisprocess,believing thatthe someproducershaveopinions onpre-testing, only focus theirmarketing strategies. There aremixed appealing whilethereactionsalsohelpdistributors changes tomake itmore necessary inthe storyline Audience pre-testinghelpsproductionhousesmake house develop thethemeofmovie Concept testinganddevelopment enablesaproduction methodological andscientificapproach tomovie making. Much canbeachieved follows iftheIndianfilmindustry a de-risk amovie’s exposureaudiencereaction. touncertain methodology toensurebox office success,itcancertainly Although, market research cannotbeafullproof campaign ofthefilms. content-feedback mechanism topositionthemarketing However, itisgraduallyfindingitsplaceaspartofa In Indiatheconceptofmarket research isstillnascent. “ The power ofabillion: gained afabulousresponse. was able to connectwiththeaudienceand turned outtobeagooddecision.Themovie in traditionalcostumeofLord Krishna andit We thenre-writtenthescenewith Akshay goddesses (traditionaloutfitwithornaments). audience is used toseeingIndiangodsand was Godunlessheadornedtheavatarwhich shirt). The audiencecouldnotbelievethathe Akshay Kumar dressedcasually(injeansand is God. The scenewasoriginallywrittenwith scene whereitisrevealed that AkshayKumar received astrongfeedbackonthehospital and appealingtothissectionofaudience. We testing toensurethatthecontentisrelevant women aged35+yearstofocusedgroup conducted afocusedgroup research among be acceptedbythehousewives.Forthiswe we werenotsureastohowthisfilmwould As thefilm was based on a sensitive topic, Realizing theIndiandream Grazing Goat Productions - Ashvini Yard “ Co-Founder,

© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 84 The power ofabillion: Case study–BARFI! • Campaign details alliances, mediaanddigital. through thecampaignacrosscreative, events, PR, film aroundit. This positioningremainedconsistent a tagline “Don’t Worry Be Barfi!” andpositionedthe inputsfromconsumerresearch,With itcameupwith Overcoming thechallenge charms hisway througheverything. about Barfi! –astreetsmart,happy-go-lucky guy who andtoemphasizeentertainer thatitwas afunfilm of thefilmproducerswasasan toestablish perceive thisasadullandseriousfilm. The objective audiencedidnot the filmandtoensurethattarget withoutshyingof disability away fromthesubjectof The majorchallenge was tosteeraway fromthetheme The marketing challenge 20 percentoftherun timeofamovie. blockbuster filmwheredialoguesconstituted lessthan more thanINR1billionrevenue. ItisthefirstHindi outperforming atthedomesticbox office andgarning at thebox office. ButBarfi! haschanged allofthatby wouldwith asuperstar have beendifficult toscorehigh hadphysicalprotagonists disabilities,even andmental INR 1billionmark. To addtoit,afilmwheretheleading plots withaction,comedyordramathatcrossedthe content today. Prior toBarfi! itwas mostlymainstream Barfi! haschanged theway audiencesconsume Box Office Collection–INR1.26 billion million Cost ofProduction –INR300 • • alliances is estimated to be around INR 500 million. alliances isestimatedtobearound INR500 charming, beBarfi’. The freemediaworth ofthese Ranbir KapoorurgingKolkataitesto‘Be sweet, Be Ananda inKolkataalsointegrated thefilmwith ‘Cholbe Na’campaignby DainikBhaskarand ABP news style. ofthelastdecadeinhisinimitable The Today groupwhereBarfi! walked throughsignificant integrated onthe‘Barfi! news series’ onthe TV shows onthesameday. Inanotherfirst, Barfi! was with theleadcharacters ofthreeprimetime - Barfi! MarathononZee TV withBarfi! interacting Chashma) inadditiontoanuniqueintegration Oolta India Dance,ComedyCircus, Taarak Ka Mehta several andfictionshows reality (Indian Idol,Dance the Barfi!alongwithPriyanka style and Ileanaon Media Alliances–Ranbir Kapoorappearedin India. Pritam perform inmallsacrossdifferent citiesin had theBarfi! teamalongwithmusiccomposer withabrandpartner(NissanMicra)that property ‘Barfi! Live Experience’- This was yet another in thecanteen,arrange a patch upetc. cast todointerestingthingsincolleges–hangout contest inassociationwitharadiopartnergotthe the Barfi! teamtovisittheircollege. The Barfi Bulao college students were given anopportunity toget Barfi! Bulao– To theyouth establish connect, Realizing theIndiandream Barfi! Movie ExcitementScore (%reach) week ofitsrelease. 90 percent(Movie Excitement Score tracker) onthe campaign helpedBarfi! achieve anaudiencereach of by continuousmonitoringthereach ofthemarketing A diligentlyplannedmarketing strategysupported • • Digital campaign o increasethefunquotientofcampaign,a • • Brand associations Source: Idea Chair Awards.Idea innovation attheprestigious category Yahoo Big years. The appalsowon abronze inthevideo that hasbeendoneon YouTube inthepast1.5 the GoogleIndiateamasbestonlineinnovation over usersin2weeks andwas 250,000 hailedby at Barfi’s Pataoshala. The appwas aviralhitgaining desired. They couldalso learntipstoimpressgirls anddoanything elsetheyKapoor dance,smile,cry youtube.com/barfi) wherepeoplecouldmake Ranbir appwasA digital createdon Youtube (www. win abox ofsweets autographedby Ranbir Kapoor. a messageaboutBarfi thefilmandgotachance to who searched for Barfi onGooglewere abletosee launched withBarfi asthekeyword. Many people During Diwali 2011, anadwords campaignwas the week leadinguptotherelease. by Ranbir andfeatured behind-the-scenesfootage in song ‘Fatafati’ was launched thatwas partlysung adding uptoover INR18 croreofmediaworth. com, Rupa, Panasonic, Goodricke and Vodafone –all were Prestige, MonteCarlo,Nutrasweet, Mydala. across media(TV, Print, Radio &In-store) Digital, Other brandsthataddedtotheshareofvoice country. danglers at1200 CaféCoffee Day outletsacrossthe and additionalbrandingviatentcards,menu youth connectandhadBarfi brandedcoffees Coffee Day associatedwiththefilmkeeping the T Industry discussionconductedby KPMGinIndia Industry “ Government seriouslyin this regard. entertainment taxrateandservice tax andtheindustry needs toengage need adequatesupportfrom GOI. Thereistremendouspressureduetohigh in checkbecauseourdependence ontheatricalsisboundtoincrease. We slowdown as well,soitmattersmoretousthatwekeep production costs at theboxoffice. It lookslikelythattherevenuesfromC&Sare going to Small isbigliterallywithsometightlybudgetedfilmsmaking a goldrun how muchROI are wereally getting ontheprojects? cost effective. While wehave a richINR100crore plusclub, we needtosee disproportionately high.Meanwhile, marketing needs tobeaggressivebut a checkontheproduction and marketingcosts.Theproduction costsare taste success.That’s a great signfortheindustry. However, we need to keep Last year, wehaveseena huge poolofnewtalentcome intotheindustryand “ CIndia -ChiefExecutive Officer, - Fox Star Studios Mr. Vijay Singh, The power ofabillion:

Realizing theIndiandream 85

© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 86 The power ofabillion: Technology transformingmediaconsumption availability permitbetter, ofsalesdata morescientific each ofthestakeholders inatimelymanner. The instant settlementto theatersandenableinstant of duesto computerized box office ticketing systems freeofcost with ourImpactExchange platform, wherewe provide to allthestakeholders. We’ve addressedthischallenge revenues alsohasanimpactonrightfulrevenue flow Indian FilmIndustry. The assumed underdeclarationof Transparency isabiggestchallenge faced by the collections flow totherespective stake holdersquickly. also liesinmonetization,andensuringthatappropriate necessarily translateintomorebusiness. The challenge However, amovie just taking toallthescreensdoesnot and isgrowing everyyear. collections movie clubhasthuscomeintoexistence number oftheaters. The INR1billion plusbox office time abigticket movie isreleasedacross anincreasing contributed tounprecedentedbox office numberseach movie tomake money andensureprofitability. This has has significantlyimproved ofevery theprobability now screenedinovertheatersonday one. 2,000 This theatersis previously –300 bescreenedinjust200 show tosmallandbigcitiesalike. A movie which would the businessofcinemabyfirst-day-first- taking of thefilm.Beyond this, UFO hassignificantlygrown reproduced immaculatelyasisexpected by thedirector our UFOtechnology we ensurethateveryscreeningis everytimetheirmoviesfinest detail arescreened. With of movies wanttoits toemulateandreproducereality equipment duringtheproductionprocess,directors Indians watch movies intheaters. betterWith capture a significantimpactover thepast6years onhow cinemaplayersDigital includingUFOhave made the way cinemaisexhibited toaudiencesintheaters. production andthepostprocesseswith evolution ofcinema,withbetter equipmentduringthe engaging. Technology hashadamajorimpactonthe the soundcameintoexistence, movies becamemore tocaptureprogressed andtheability andreproduce white motionpictures withoutsound. As technology Cinema firstbeganitsjourney intheform ofblack and availableentertainment totheaverage Indian.Indian Take for example, thecaseofcinema,key form of extent by achange incontent. been driven by technological innovations andtosome consumption ofvarious categoriesofmediahaslargely oriented.Evolutionentertainment inthemeansof with video.Mediacanbeinformative, educationalor forms althoughtoday itispredominantlyassociated been evolving over theyears. Mediaexists invarious Media andthemeansofconsumptionmediahave Realizing theIndiandream UFO MoviezIndiaLtd. CEO &Managing Director, Mr. Sanjay Gaikwad India’s needs. connectivity are adequate.Hence they arenot abletoaddressthe the cablenetworksusedtoconnect thesedevices reached ratesofover data aterabitandassumethat firms thattoday manufacture networkingdevices have underdeveloped. The Most upgradeisanarduous task. sets ofthepersonnelmanaging thenetworkarealso infrastructure remainsoldandobsolete andtheskill live televisionserving contentfor decadesnow. This using thelowest costcablesandone thathasbeen has beenlaidby anLCO(Local Cable Operator) delivers regularcablechannels. This cablenetwork is theRFcablethatruns throughmosthomesand connects everyhouseholdwithatelevision. This we’re enablingtheexisting legacynetworkthattoday viewing experience. ourMediaBoostWith technology, limited uptakebecauseofthelack ofapleasantuser butagainhave(near videoondemandservices) seen and DTHplayers have triedtoaddressthiswithNVOD channelsdelivery apartfromtheInternet.Satellite istolooktowardson-demand entertainment alternate We believe thattheonlyway Indianscanenjoy true television. watching mediaontheircomputersinsteadofthe The othermajorchallenge of relatestothelimitation long waits, buffering breaksandlowstreaming. quality faces onlinetypically challengesa mediaservice of toaccess predominantly becauseaconsumertrying thathaveonline on-demandservices triedandfailed media. higher quality There aremany companieswith demands by consumersfor mediaconsumptionand this willnever besufficient tofulfilltheever increasing enabling 4Gnetworksfor wirelessinternetaccess, on thewirelessfrontwithoperatorsconsidering address thischallenge. While thereissignificantactivity a technology calledMediaBoost, which willspecifically solve thischallenge ourselves. We have now developed have beenworking over thelastfew to years intrying content thatisviewed, isawhileaway for India. We apart fromtheoccasionallowusergenerated quality means ofdeliveringmediaconsumption, highquality plans. Therefore, theleveraging oftheInternetasatrue continue tohave tocharge forbasedinternet data costs oflicensingspectrum, bandwidthproviders will for atleastthenext decade.Further, withthehigh willcontinuetobeachallengeinternet connectivity constrained availability ofconsistenthigh-bandwidth Internet hasincreasedover thelastfew years, the have flourished.InIndia,whilethepenetrationof media consumptionplatforms like Apple TV andRoku access andhighbandwidthatthelastmile,on-demand countries, wherethereisanwidespreadbroadband demand asandwhereone’s lifestyle allows. Inwestern This hasgiven risetoaneedconsumemediaon- lifestyles have becomeincreasinglybusywithtime. how consumerstoday consumemedia.Consumer media buthasalsosignificantlyimpactedwhereand Technology isnotonlychanging thebusinessof also monetization. impacting theway mediaismadeanddistributed maximize therevenue collected. Technology isthus release strategiesfor distributorsallowing themto The power of a billion: Realizing the Indian dream 87

With our patent pending Media Boost technology , The future of media in India is heavily reliant on which has been developed specifically to enable high technological solutions to enable utilization and quality, high definition on-demand viewing of content on monetization of existing infrastructure available, rather legacy networks using RF cable as a one way Forward than installing new infrastructure which entails long path and the internet only as a low bit rate return gestation periods and eventually become unviable in path, we now have a solution that addresses India’s the long run. connectivity problems. This will allow an average Indian to subscribe to our service and get access to thousands Unless otherwise noted, all information included in this column/ article of hours of on-demand movies, music, television shows was provided by Sanjay Gaikwad. The views and opinions expressed and catch up television on-demand. herein are those of the authors and do not necessarily represent the views and opinions of KPMG in India.

Conclusion There is a steady rise in the dynamism and confidence and evolution of marketing and delivery platforms to serve in India’s film sector. Increasing consumption in tier II different niches- all point towards a very positive future for and III cities, growing importance of regional markets, the industry. greater focus on market research, innovation in content with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 88 05 New Media Let thegames begin! 05 close to40percent than theprevious years), withestimatedgrowth inadvertising revenues of New in2012 mediacontinueditsgrowth trajectory (albeitslightlyslower 02. 01. India -Internetconnections,2012-2017P accessintheoverall ofmobiledata economyimportance digital period, wirelessconnectionshave grown by almost50percent,outlining the Over lastyear fixed lineconnectionsgrew by 11 percent.Over thesame million internetconnectionsinIndia,ariseof41percentover lastyear. growth ofinternetpenetrationinIndia.Bytheend2012 therewere 124 As expected, mobileand wirelessconnectionscontinuedtodrive the andaccesscontinuestogetbetterConnectivity continued uncertainty in the telecomenvironment continued uncertainty overthan lastyear primarilyduetocontinueduncertainty 4Groll-outand connections addedover 2012-2017. The projectedgrowth isslightlylower mn by 2017, withwirelessconnectionscomprisingnearly90percentofall numberofconnectionsisexpected thetotal tosurpass380 Going forward, effective policingofpiracy. users canconsumecontenteffectively andatthesametimework towards recourse for contentowners istoinvest andcreatecredibleplatforms where no longerpossibletoprevent contentfrombeingmadeavailable on-line. The small ticket sizes). isthatit There isincreasingconsensusintheindustry that provide userswitharich experience andtransactseamlessley (even for tocreatedistributionplatformswill betheability withenoughcriticalmass One ofthebiggestchallenges inrealisingitsfullpotential facing thisindustry platforms thatallow customerstopay for contenteffectively. in on-deck revenues, sluggishadratesandunderinvestment indistribution audience, however, remainsunder-monetized –primarilyduetoadecline content consumptionhabitsoflargesectionstheIndianaudience. This cheaper, accessbetter andtimespentlonger, leadingtosignificantshifts in the userbaseexpanding significantlyover lastyear. The devices aregetting As predictedlastyear, hasbegun toplay outinIndia,with themobilestory advertising revenue. M&Eindustry total in revenue in2012, adspendreached digital approximately 6.7percentofthe Source:

Industry discussionsconductedby KPMGinIndia Industry KPMG inIndiaanalysis KPMG inIndiaanalysis 1 over lastyear. Cominginatapproximately INR22billion The power ofabillion: 2 . Realizing theIndiandream 1 . 89

KPMG inIndiaanalysis Realizing theIndiandream Disney UTV MD –Digital, Vishal Gondal,

3 . explored inthecomingtime. inventions ofthepresenteraandthere aremany additionalfeatures tobe audience. We shouldembracethefact thatmobiledevices aretherevolutionary only beachieved by oceanandswimmingalongwiththe divingintothedigital thewhatsandhows to understand oftheirconsumption. is important This can marketing budgets. To space,it audienceresidinginthedigital thetarget tap marketing andadvertisingofthe willsoonform percentage asubstantial life. today, thewholenewWith purposethe mobilephoneisserving digital The cellphoneisnolongerjustacellphone;it’s becomeapartofourday today ofstronggrowth with newnarrating astory monetizationmodelsemerging. hasdriven consumptionofcontenttoanall-timehigh thedigital 4G services power toengagewithany ofthesefromtheirmobiledevices. Launch of3G and Beentertainment. itGames, Audio or Video content,userstoday have the Mobile devices have today emergedasadistinguishedsourceof innumerable opportunities atourfingertipsfor ustograb. over millionusersintheworld. 900 Sowhatdoesthismean? This opens up We allknow thatIndiais thesecond-largestmobilephoneuser-base with right roadtogetthereandmobiledevices willleadustoit! orisstillafar-fetchedour country dream.Iwould say we arepositively onthe There isanever boomhasarrived ending debate astowhethertheDigital in represent theviews andopinionsofKPMG inIndia. author.The views andopinionsexpressed hereinarethoseoftheauthorsand donotnecessarily noted,allinformation includedinthiscolumn/articlewas providedUnless otherwise by the users. and innovate tocateropportunities offered by these tech companiesandintermediarieswillcontinuetodisrupt higher. Eitherway, e-commerceplayers; contentproviders; India, thisfigurehasthepotentialofbeingsignificantly As andwhencosteffective arelaunched 4Gservices in India Internetvs. TV penetration,2012 -2017P Source: KPMG inIndiaanalysis The power of a billion: Realizing the Indian dream 91

The devices are getting smarter, the users more engaged In 2012, almost half of wireless access4 was via feature Smartphones and tablets have an installed base of phones, but a rapid change in the device ecosystem on the approximately 44 million and 2.5 million units respectively, ground, means that 2013 will be the first year when feature comprising a third of internet enabled devices in India. phones will cease to be the main use of internet access Driven by several cheaper smartphone options and more in the country. This shift is already having far reaching low cost tablets coming into the market, the share of these consequences for content providers, media platform devices is expected to increase to 67 percent of all devices, owners (both on deck and off-deck) and telcom companies. by 20174.

Device split Shared of internet enabled devices, 2012 Shared of internet enabled devices, 2017P

Source: Industry discussions conduted by KPMG in India

04. KPMG in India analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 92 The power of a billion: Realizing the Indian dream

The rise of the (smart) mobile internet Operating system market share, user October 2012

Nearly half (47 percent) of the respondents 2012 engage with smartphone messenger

service WhatsApp and spend 24 minutes a Android 47%

“day chatting making it the top smartphone app for urban Indian consumers. This Symbian 40% further validates findings“ from Nielsen’s recent study on The Indian Smartphone Blackberry 4% User, which shows how chat and game apps rule the roost when it comes to smartphone apps. Windows Phone 3%

- Prashant Singh iOS 1% Managing Director - Media, Nielsen India Region Others 5%

Source: Nielsen Informate Mobile Insights 2013

India - Active Internet enabled smartphones, These smartphone users are increasingly moving to Web- 2012-2017P based and off-deck platforms for their content consumption needs, as opposed to relying on the telecom operator deck.

As per IAMAI estimates in the study - Mobile internet in India conducted in 2012, about 17 percent of mobile Internet users in India use the telco deck. This figure is likely to come down to 14 percent by next year. As has been the trend in other International markets, Telco portals once dominated content distribution, but are at risk of losing their allure. In international markets ‘Downloads through operator portals are still less than one million per month on average per operator compared to one billion per month downloads from the Apple App Store’.6

The success of off deck platforms is on account of several factors:

• They have historically offered much better revenue shares to developers, allowing for better innovation

Source: Industry discussions conducted by KPMG in India • Off-deck platforms offer developers much tighter integration with the hardware and operating system of the device and are able to make search and payment There were approximately 38 million smartphones with native to the device, offering a much better user active Internet connections in India at the end of 2012.5 experience Android has the clear lead, and represents almost 50 percent of the installed base, however as the table below • These platforms were able to curate a range of content shows, Operating systems, versions, screen sizes and from around the world into a single store, whereas device types are growing rapidly and continue to pose most operator decks tended to be country specific with significant challenges for content creators and curators to limited content quality ensure compatibility across all these platforms. • Apple effectively commercialized the mobile app concept which has become on-off the main uses for a smartphone

• Operator decks largely missed the App revolution, focusing on CRBT, video clips and basic games – a lot of which was available for free on the internet anyway

• Off-deck platforms have kept content display very democratic by allowing users to vote for content based on their liking, engendering greater trust from consumers

The most important reason behind developers’ preference for app stores as a distribution channel is the advantage this platform offers in terms of a higher customer reach. Over half of developers distributing through the Apple, Google,

05. Industry discussions conducted by KPMG in India Nokia and BlackBerry app stores claim that they key driver 06. www.visionmobile.com for app store selection is the ability to sell to more users6. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The smartphone is a very sophisticated entertainment device On an average, Indians spend over 2.5 hours on their smartphones everyday and less than a quarter of that is spent on voice calls and SMS7. The phone for these users is becoming the second screen and they spend on average, almost 2 hours a day browsing, watching videos, playing games and catching up on social networking sites with their friends.

Distribution of active time spent on smartphone (160 mins spent per day)

Source: Nielsen Informate Mobile Insights 2013

While the average price of Internet enabled mobile devices in India is INR 8,250, data consumption shoots up by almost 36 percent post the INR 15,000 price point. As the users of these smartphones devices upgrade to more sophisticated devices, their data consumption goes up dramatically, re-affirming their desire and willingness to spend on quality content.

Data consumption shoots up by almost 36 percent post the INR 15,000 price point

Source: Nielsen Informate Mobile Insights 2013

Having said that, feature phones will continue to be an important medium for access for on-line content in India for the next few years. By 2017, there will still be 61 million internet enabled feature phone users in the country and certain large players will continue to innovate to cater to 07. Nielsen Informate Mobile Insights 2013 08. KPMG in India analysis this audience as well8. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 94 The power ofabillion: 60 percentofunitsshippedpricedunderINR10,000 considerably over 2012, tosubINR15,000 levels, withover average computershasalsofallen salepriceoftablet 10. 09. at a50percentCAGR toreach 20mnunitsby 2017 devicesThe baseoftablet isexpected installed togrow desktop ormobile? The tabletphenomenon–isita Facebook ontheFeature takes phonebattle Source: Source: Samsung Spice Karbonn Nokia HTC Motorola Micromax LG Lava

CyberMedia Research, Different strokes -Outlookbusiness, March 2013 discussionsconductedby KPMGinIndia Industry ranges ofsmartphones,which would guaranteethat have thesoftware directlyimbeddedintothechip ofall Chinese chipmaker Spreadtrum. The chipmaker will toexecuteis trying thisstrategyby working witha on thepurchase oftheirfirstsmartphone.Facebook the emergingmarkets tohave accesstoitsmobileapps The socialnetworkinggiantwants billionsofpeoplein user baseover thisperiodwas 25percent over itsDecember2011 userbase.Growth inworldwide users inIndiaDecember2012, an81percentincrease Facebook claimedabaseof71millionmonthlyactive categories inIndia Smartphone price www.mysmartprice.com www.business2community.com, www.firstpost.com, www.gbr.in “ Realizing theIndiandream screens differing endusesowingtolargertouch competition fromsmartphones, given Tablets suchasAakashdonotfacedirect Starting price INR 3,800 INR 7,400 INR 6,000 INR 6,200 INR 5,250 INR 3,600 INR 3,500 INR 3,250 INR 3,200 “ Managing Director, - Suneet SinghTuli Ranging upto INR 38,200 INR 31,000 INR 34,500 INR 26,000 INR 24,500 INR 10,000 INR 13,500 INR 13,000 INR 7,500 DataWInd 9 .The 10

hardware supportingtheappfeatures economies such ofthe asIndia,withouttheworry end smartphonestomake theirway intoemerging the Facebook appwillbeinbuilteven for thelowest this agreementwithSpreadtrum willensurethat the Facebook appfroma Android appstore.However, Technically, any Android phoneusercandownload and willbe‘Facebook ready’. ones) would soonbefreeofanyissues compatibility millions ofnew smartphones(includingtheinexpensive The power of a billion: Realizing the Indian dream 95

Comparison of Tablet device categories

Segment Devices Indicative price range Functionalities

High end Apple iPad 3, iPad mini, INR 22,000 – INR 49,000 7.9” / 9.7” screen 5 MP primary camera Wi-Fi /3G enabled iOS 6

Mid range Samsung Galaxy tab 2, Zync Z1000, INR 11,000 – INR 15,000 7” screen 3 MP primary camera Wi-Fi Spice Mi-1010 enabled Android Jellybean OS

Low end Datawind Aakash 2 (ubiSlate 7ci), INR 4,000 – INR 7,000 7” screen Wi-Fi, 2G enabled Android Micromax Funbook, HCL Me Ice Cream Sandwich OS

Source: www.flipkart.com; Note: Functionalities are representative and vary by model

Tablets are the new entertainment zone While penetration of tablet devices will remain low relative to smartphones, the format is more suited to accessing rich content such as music, video, gaming and e-books. Initial studies are already showing that almost a third of the time spent on a tablet is for entertainment.

Share of time (%): Smartphones vs Tablets

Source: Nielsen Informate Mobile Insights 2013

The app economy Perhaps the biggest outcome and beneficiary of the The growth of the Indian app economy has been mobile internet has been the rise of the app economy. constrained primarily due to under investment in seamless Mobile applications (apps) have been around since the late payment and distribution platforms. nineties, but it wasn’t until the launch of Apple Appstore that the app economy started to blossom in earnest. The While the Apple App store and Android (through the Google number of apps downloaded globally has nearly doubled to Play store) currently accept card payments from Indian 45 billion in 2012 from 25 billion in 2011, and is expected to users, others such as the Nokia Store and Blackberry App rise to 300 billion by 201611. World have billing arrangements with telecom operators, uptake however remains low by international standards.

11. Gartner estimates, The Sydney Morning Herald, September 12, 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 96 The power of a billion: Realizing the Indian dream

base, app developers will selectively focus on serving key platforms such as Android, with Windows Phone expected

India will become the third biggest mobile to gain traction on the back of increased adoption by OEMs. app market by 2014, but the challenges are distribution, app discovery and payments. “ While premium pricing of Apple devices will constrain “Android should own over 60 percent of the App store download volumes, scope for monetization will market by then, which will make it even remain high on account of a favourable user demographic harder to distribute and monetize apps and ease of transacting on the platform. given the fragmented Android ecosystem India has all the prerequisites for a vibrant app economy, - Aakrit Vaish in terms of a growing base of access devices, growing Managing Director, disposable incomes and adequate local development Flurry India talent. The emergence of a system enabling seamless transactions will prove to be the inflection point for monetization over the coming years. Top smartphone apps App Rank App Name App Category Online Advertising 1 WhatsApp Messenger Chat Monetization in the new media space in India continues to remain dependent on revenues from advertising. Growing at close to 40 percent, the online Ad market (excluding 2 Facebook Social Networking mobile) in India touched INR 20 billion in 2012, and is expected to grow at a 32 percent CAGR to reach INR 74 3 Google Play Store App Store billion in 201714. Mobile advertising currently accounts for a small share of the market, estimated at INR 1.7 billion14. 4 Nimbuzz Chat However, it is expected to grow significantly in the coming years, as advertising catches up with usage and time spent 5 YouTube Video Streaming on mobile. Historically, there have been challenges related to screen size and return on investment (click through rates) 6 Facebook Messenger Chat for display advertising in mobile. However, a number of innovations in ad formats, growth in smartphones, larger screen sizes and penetration of tablets will ensure that 7 Gmail Email mobile advertising continues to grow at a fast pace. 8 Tubemate Video Streaming/ Download Indian Digital Advertising Market 9 News Hunt News

10 Google Maps Navigation

Source: Nielsen Informate Mobile Insights 2013

Top Smartphone Apps The Indian app economy is quickly gaining traction, enabled by growth in smartphone and tablet penetration, and driven by availability of international and localized content on several app stores operated by OEMs and mobile network operators.

Estimates indicate that approx. 100 mn apps are downloaded monthly in India, and this could surpass 5bn downloads per annum within 3 years12. Source: Industry discussions conducted by KPMG in India India is the fourth largest market for Android apps, with App downloads by Android users in India over the past year exceeding downloads over the past 3 years combined13. The introduction of local currency pricing in Apple’s App Given the historical infrastructure bottlenecks with store is expected to further spur consumption. wired broadband and under investment in 3G, the Indian digital advertising industry is starting from a low base. As is the case globally, monetization is likely to occur It is expected to be amongst the fastest growing digital through a combination of upfront paid and ‘freemium’ advertising markets in the world going forward. microtransaction based apps. Given the complexity of catering to multiple standards across a fragmented device

12. KPMG in India analysis, Industry discussions conducted by KPMG in India 13. “India fourth-largest market for Android app downloads: Google”, NDTV, October 19, 2012 14. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 97

Digital Ad spend CAGR 2012-2016 This is in line with Global trends, where Video and Social networking increased at a rapid pace. Ad spending on online video increased 46 percent in 2012, far outpacing search (15 percent) and display overall (19 percent)15. In an indication of the growing traction for video, spending among Youtube’s top 100 advertisers increased 50 percent in 201216 compared to the previous year; Similarity to TV in terms of ability to connect with the consumer is one of the big drivers for growth in Video. This is driven largely by the increasing use of the internet for Brand advertising, and not just performance advertising.

Mobile advertising continued to grow in India, however the base still remains small, and lags usage of mobile as an internet/ data consumption device. The overall market for mobile advertising is estimated at INR 1.7 Bn, with growth pegged at 60-70 percent17 during 2012. Mobile advertising is currently dominated by search Ads, which Source: http://www.emarketer.com/Article/Emerging-Markets-Asia-Pacific-Propel-Digital-Ad-Spend- account for over 75 percent of mobile advertising. However, Growth-Region/1009598 going forward display advertising on mobile is expected to grow significantly. Driven by search impressions, websites account for a lion’s share of mobile advertising Growth in India is being generated mostly from volume at over 75 percent18. Despite growth in smartphones, increases. Given the large inventory available, there has apps still account for a relatively small share at 20 to 25 been pressure on ad rates, which remained largely flat in percent. In terms of ad impressions, the contrast is starker,

2012. with websites accounting for 95 percent19 of total ad impressions.

As the mobile segment is seeing“ rapid

growth in media consumption and advertisers are beginning to appreciate We are seeing a lot of success with our “the medium, we are seeing positive growth innovative digital content, including the “ trends in ad revenues. ability to create original web programming, “for our core digital audiences. The scale of - Gautam Sinha audiences is now here for digital content Chief Operating Officer, and the monetization is getting there. Times Internet - Sameer Pitalwalla Director-Video and Celebrity, Disney UTV Search advertising continues to dominate; accounting for 47 percent of total online desktop ad spends in India. Of this, close 90 percent was captured by Search Engine Marketing, with the remaining spend going to Search Engine Optimization. Video and social networks are emerging as a high growth area, showing over 50 percent growth during the year. Going forward, they are expected to grow at a CAGR of 40-50 percent up to 2017, compared with 32 percent for the overall market.17

Online Advertising revenue mix by Segment Ex- Mobile, 2012

15. Zenith Optimedia - Advertising expenditure forecasts, September 2012 16. Company press release - Forbes, January 22, 2013 1 7. Industry discussions conducted by KPMG in India 18. IAMAI report on Digital Advertising in India, 2012 19. Inmobi India Market Overview, Q3 2012 Source: Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 98 The power of a billion: Realizing the Indian dream

The year gone by – Highlights Review of 2012 UltraViolet: An Overview The battle in video heats up

Viewership for on-line video grew by 45 percent between Ultraviolet adoption by the

December 2011 and December 2012. Indian Film Industry can cater to the widespread online diaspora Indian Video Viewership Online “and reach a global audience“ to create unique monetization opportunities for Indian content through global online consumption.

- Ravi V. Velhal Global Content Policy Strategist, Intel Corporation

UltraViolet is a new platform that allows users to collect, access, and enjoy movies and TV shows in the cloud from major Hollywood studios, technology companies and retailers. UltraViolet brings instant streaming and downloading to share for a household on a wide range of digital devices, including PCs, UltraBook, smartphones, tablets, media/gaming consoles, when they buy a movies or TV show once. UltraViolet currently has more than 8500 titles of Source: Comscore “Rise of India’s Digital Consumer”; Minutes per viewer refers to total minutes in the corresponding month Movies and TV shows. DECE (Digital Entertainment and Content Ecosystem) LLC consortium that developed ‘UltraViolet’ currently has 80 member companies, including many of the world’s leading 52 percent of the total videos viewed belonging to the movie studios, technology providers, consumer entertainment category and in fact most of the top YouTube channels were related to Bollywood20. Unless otherwise noted, all information included in this column/ article was provided by the author.The views and opinions expressed herein are those of the authors and do not necessarily Rank Top Channels on YouTube21 represent the views and opinions of KPMG in India.

1 T-series

2 SET India

3 Rajshri

Source: Industry discussions conducted by KPMG in India

Video in India continues to be dominated by short format video and mostly ad funded. Over the last two years, there have been several launches of long format video on demand services with mixed success. Video on demand in India continues to suffer from four big challenges:

• High bandwidth costs

• Availability of cheap content on cable and satellite

• Skepticism from content owners to license digital rights

• Lack of clarity on revenue sharing arrangements

However initial feedback on all new launches has been encouraging. There is clearly a huge unmet demand for good quality, long format content that can be viewed by a user on demand on any device – at a sensible price point.

20. Comscore – “Rise of India’s Digital Consumer” 2012 21. Ranked on the basis no. of views for the channel - with Rank 1 representing the highest no. views with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 Comparison ofprintande-bookpricingon Flipkart Comparison of VOD services 150,000 titlesby December. publishers, Flipkartlaunched titles,growing to with65,000 through itsFlytestoreinNovember. Having tiedupwithkey store duringtheyear inIndia.Flipkartlaunched e-books Both Amazon andFlipkartlaunched theire-booksappand E-book launches totestmonetizationmodelforprint Source: Source: Title The OathoftheVayuputras (Amish Tripathi) Tata Sky And TherebyHangsaTale (JeffreyArcher) Apple TV provider Shantaram (GregoryDavidRoberts) Women andtheWeight LossTamasha (RujutaDiwekar) Name oftheservice Ditto TVbyZee Big Flix Box TV Lukup Calico Joe(JohnGrisham) 22.

Industry discussionsconductedby KPMGinIndia Industry www.flipkart.com Press articles(tatasky.com, medianama.com,themobileindian.com,thenextweb.com, vccircle.com) Launch time 2011 2012 2012 2012 Mid 2013 Mid 2013 - whereitspaidsubscriberswouldhaveanaccesstoover1000movietitles,TV shows, Tata Sky’s Video onDemandserviceisavailabletheTata Skysettopboxproviding The onlineserviceoffersliveTVstreamsandvideoondemandcontentmobile Already launchedontheAppleIndiawebsite–expectedtobeinstores over A digitalboxthatwouldallowthestreamingofiTunes storecontenttoauser’s since itslaunch. genres (consistingof500to1000movietitles). phones, tablets,PCs,entertainmentboxesandconnectedTVs.DittoTVclaimsto offer more than50televisionchannelstoitssubscribersandclocked100,000downloads free orpaidsubscriptiontodownloadmovies,TVshows,shortfilms,etc. that canbeviewedonmultipledevices.Expectedlaunchdatemid2013. the nextcoupleofmonths. television andalsoconnectiDevicestothebiggerdisplaywithhelpofAirPlay. the subscribersaccesstoselectTVshowsanditsmovielibraryacrossmultiple video clips,etc. Key Features Hardware basedOTTboxwithalargeselectionofinternationalanddomesticcontent BigFlix, aDVDrentalcompanyinIndia,hasshiftedexclusivelytoonlinevideostreaming Boxtv.com isawebbasedonlinevideostreamingservicewhereuserscansubscribe its further, asvolumes buildup. The pricinganddiscountstructures areexpected toevolve titles arebeingoffered at adiscounttotheprinteditions. paid titles)inthefirst2monthsoflaunch itself. E-book has seencloseto100,000 downloads (Includingfreeand have beensmallsofar, Flipkart but thetractionispromising. theinitialfocusWith onsetting upoperations,numbers E-book Price 106 210 278 305 211 The power ofabillion: Print EditionPrice 22 122 245 309 377 301 Realizing theIndiandream E-book Discount 19% 14% 13% 10% 30% 99

E-book sales comprise approx. 20 percent-30 percent of • Online retailers have also seen good traction with direct print edition sales in volume terms in developed markets, micro payments models. For example, Flipkart’s pre and this trend could be replicated in Indian markets, paid ‘Wallet’ allows users to preload money onto their where e-books are predominantly accessed on tablets and accounts online, enabling easy low value transactions. In smartphones as opposed to e-book readers. addition, enabling the storage of credit card details will also facilitate fast check out for low value transactions. Taking into consideration a 15 percent penetration of e-book reading apps amongst tablets in India and 5 e-book downloads annually per user by 2017, Indian e-book sales Portals and other aggregators continue to make could reach 15 mn units per year23 with further upside investments in content expected from consumption on smartphones. A library Page views for content properties such as news, finance, of local language content is being grown, which should sports, lifestyle, movies and celebrity news have grown help catalyze penetration. A selection of free and low significantly during the year, by 80-100 percent in many cost titles priced below INR 100 will also help to drive cases. Apart from portals, most online players are investing experimentation amongst readers. in content as a means to drive user engagement. LinkedIn Going forward, differentiation between providers could for example has invested in content around business, be in terms of range and depth of content libraries, leadership and professional development, as part of its news section. Google is reportedly investing an additional effectiveness of discovery mechanisms, pricing, digital 24 rights restrictions imposed, and ease of payments. E-books USD 200 mn in original content for the Youtube website . could also prove to be a platform for advertisers, as is the case in relatively mature markets. Emergence of innovative ad formats with higher revenue potential Innovation in micro-payments continues Historically, brand advertising online has been under Micro-payments are increasingly critical online, particularly penetrated as compared to performance advertising but for categories such as Music, where transaction sizes this is changing as more advertisers come on-line. This are small. While traditionally, micro payments have been is resulting in the emergence of more innovative and restricted to the on-deck platform, viable alternatives are engaging ad formats, which hopefully over a period will emerging. drive up inventory prices in certain categories. Portals such as Yahoo are developing curated content in sponsored • With the launch of payment solutions such as Airtel pages for leading brands. Similarly, Facebook’s sponsored Money and Vodafone’s M-pesa, Telcos are likely to stories are expected to provide much higher reader continue to play a central role in micropayments, engagement. These innovative formats command higher particularly given their reach and experience with mobile rates, and are expected to increase monetization potential billing. through advertising online.

Comparison of digital advertising formats

Advertising unit Key characteristics Pricing mechanism

Display advertising • Includes Banners & Leaderboards, Buttons, Rectangles & Boxes • Cost per click (CPC) and Skyscrapers • Cost per action (CPA) • Can consist of simple images or flash animations (over 50 percent of spend), and rich media with or without video • Cost per thousand impressions (CPM)

• Mature segment priced slightly higher than paid search, with • Cost per view (CPV) greater effectiveness

Paid search listings • 90 percent of the market is comprised of Search engine Typically lower cost than banners marketing, balance is Search engine optimization) • Pay per click (PPC) • Provides advertisers cost effective reach to target audience • Cost per action (CPA) • Demonstrated user interest through proactive search

Mobile advertising • Consists of mobile browser-based ads (75 percent of market), • Cost Per Install (ad-funded apps) in-app ads (25 percent) and SMS ads (5 percent) • Cost per click (CPC) • Targeting of users based upon demographic characteristics • Cost per action (CPA) such as SEC group possible (using handset or tablet model ownership as a proxy) • Cost per thousand impressions (CPM)

23. KPMG in India Analysis 24. Wall Street Journal “YouTube to Double Down on its Channel Experiment”, July 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 101

Advertising unit Key characteristics Pricing mechanism

Sponsored posts & • Twitter/social network users paid to post specific content • Cost per Tweet tweets • Large follower base of celebrity users can also be leveraged • Cost Per Click • Message effectiveness can be tracked in real time

Video advertising • Include in-video display ad banners, translucent overlay ad • Cost Per Click (CPC) banners, in-video streaming ads (skippable), standard in stream • Cost Per View (CPV) ads (non skippable) on online video platforms such as YouTube

• Ads are delivered based upon video content and search string

• Allow for delivery of richer ad content

Social network • Fan pages and contextual banners on social networks such as • Cost Per Click (CPC) advertising Facebook, LinkedIn, etc. • Cost per action (CPA) • Scope for highly contextual advertising based upon users’ • Cost per thousand impressions (CPM) social connections, interests & hobbies, etc.

Location based • Driven by penetration of GPS enabled mobile devices • Cost Per Click (CPC) advertising • Ads displayed within apps leveraging location data

• Suited for both local merchants and large brands

Source: KPMG in India analysis

Mobile internet usage has already

taken over PC internet usage in India in 2012. Given that Mobile media offers “unprecedented targeted reach, “ intuitive interactivity, personalized engagement and ROI driven pricing, we are certain that it will bloom as the 7th and most powerful mass media in the years ahead.

- Dippak Khurana CEO and Co-Founder, VServ.mobi

iTunes and Apple TV come to India Apple launched the iTunes store in India in December 2012, allowing Indian users to buy local and international music from the store. Songs are priced at anywhere between INR 7 to INR 15 for singles and albums start at INR 70. Following the launch of Flipkart’s Flyte last year, the entry of iTunes could provide a significant boost to digital music in India.25

25. KPMG in India analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 102 The power of a billion: Realizing the Indian dream

Outlook for 2013 Generation C: Defining the future of content – Digital ratings Google Inc. Despite impressive growth in a relatively short period of time and having access to significant amounts of data about users, the industry still struggles to generate meaningful independently verified data . Unique viewers and click throughs do not tell a story about the audience or paint a picture of their on-line consumption habits. Several players are working on bridging these gaps and will hopefully will lead to industry accepted measurement systems in the near future, that allow straightforward comparisons with traditional media measurement metrics. Sandeep Menon Head of Marketing Google India

Measurement of ad effectiveness should The way people consume content has changed use metrics that matter, not just those vastly in the recent years. For the first time, an that are easy to measure. More relevant entire generation has grown up with an unmediated “measures of the effectiveness of digital ad relationship with content. They are a generation campaigns are now available on a timely defined by their interaction with the internet, mobile, basis, including ad recall, awareness, and social networks. They are the generation that purchase intent and actual sales lift. sets the trends and determines what’s popular in Further, a metrics infrastructure built on content and culture today. They are the passionate fast, accurate, granular and actionable fans who turned Justin Bieber, Psy and Dhanush into

data is critical. As digital ad measurement stars.

evolves to address these, the industry will benefit from greater recognition of A fairly young and educated generation, they are ad effectiveness. Comscore’s validated “ knowledgeable, discerning and opinionated. To give Campaign Essentials™ (vCE) is an an indication, almost 70 percent of YouTube viewers integrated solution for complete campaign in India are under the age of 35 and 72 percent have delivery validation and in-flight optimisation. a college or higher degree education. At Google we call them Generation C. GenC is a - Kedar Gavane psychographic label representative of a consumer Director, class that is defined by 4 Cs : Comscore India • Curation: They pick trends around the physical and online world and amplify them through their own creative lens. Gangnam Style rapidly spread from 0 to 1 billion views in a course of 6 months. An entire ecosystem of content sprouted around Gangnam Style that further fed the viewership of the video. In India this trend was witnessed with Kolaveri Di, and more recently by T-Series, one of Will Windows 8 be a game changer the leading channels on YouTube. They’ve recently crossed 1 million subscribers on their YouTube Despite previous attempts to dominate the mobile space, channel by curating content for their audience and Microsoft has struggled to get traction on the OS front in determining the music that matters in popular the mobile space. There is certainly room in the smartphone culture today. arena for a strong third player – and Windows 8 looks to be making a positive impression on consumers and is • Creation: They value creativity and productivity leveraging its strengths in the PC market and Xbox gaming and the social capital that results from the same. to create a consistent experience across platforms. Given They want a narrative and a purpose which is there is a large development community that is already their voice in the world. They upload photos and familiar with the Microsoft platforms, app development on videos they have taken themselves. In India 1 in 3 this platform is likely to catch-up with other platforms very YouTube viewers comments on a video whereas quickly. Either way this will expand the overall mobile media it is 1 in 4 for photo uploads. consumption market and in the long term be beneficial to the industry. On YouTube 4 years ago, 12 hours of content was uploaded per minute. Today we see 72 hours of content being uploaded per minute globally. Anybody can create content and find a global audience. In India, Yo Yo Honey Singh became the music star of the year in 2012 with his song Brown Rang which was not only the most watched song but also the top trending video for YouTube in India. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 26.

Industry discussionsandKPMGinIndiaanalysis Industry communities aroundtheircontent. just creationbutcuration,connectionandbuilding cateringtonot Content creatorswillneedtostart for theneedsofGenCwillhave tobeadopted. and amultiscreen,purposeapproach providing consumed willtherefore needtobereconsidered engagement. The format inwhich contentis transformed by GenC,theirwants andtheir Video consumptionaswe know itwillbe will join. create communitiesaroundyour brandandGenC that GenCloves toshareandthey willsharethem, brands andcontentthey interactwith.Createvideos authenticity, transparencyandcollaborationfromthe crave participationandfeedback. They want tribes aroundsocialnetworksandinterests Gen Cisextroverted and expressive; they form • represent theviews andopinionsofKPMG inIndia. expressed hereinarethoseoftheauthors anddonotnecessarily article was provided by theauthor.The views andopinions noted,allinformation includedinthiscolumn/ Unless otherwise • growing Cricket onGoogle+. community great example ofthisinIndiaisthe12M+ and passions andinterestsonaregularbasis.One is bigandfor thisthey seekcontentaroundtheir popular videosandimpresstheirfriends.Sharing make theirfriendslaugh,tosharefunny, coolor update theirsocialprofilesdaily. They want to 50 percentsharevideosviaemail,65 viewers sharevideosonsocialnetworks; While in Indiawheremorethan12Indian YouTube strong senseofcommunity. This isespeciallytrue meaningful astheya areinpersonandmaintain networks. They believe interactionsonlineareas swapping videoswithfriendsviaemailandsocial Community: capture thisgenerationsattention initsentirety. multi screenpattern ofconsumptiontobeable tocaterthis become increasinglyimportant watch. For contentcreatorsandbrandsitwill cafes wherethey have controlover whatthey mobile devices andanother20percentatinternet users watch nearly30percentofvideosontheir TV together. As for videoconsumption,Indian TV and1in3 YouTube userswatch YouTube and which ishigherthanthetimethey spendon Informate Insights)ontheirmobilephones, close to160 minutes*(Source:NielsenMobile times perhour. InIndia,smartphoneusersspend most tothem. They switch betweendevices 27 connected topeopleandthingsthatmatter with ornext totheirphone! They areconstantly and breathewithouttheirphonesthey sleep Connection: This generationofuserscannotlive GenC thrives oncommunity, INR 42bnby 2017. year andisexpected togrow ata22percentCAGR toreach and tablets comes closer.and tablets India andhow quickly thegamingexperience onmobiles segment, alotwilldependonhow thePS4launch fares in percent CAGR toreach INR19 bnby 2017. For theconsole Consequently, theoverall market islikely togrow ata19 with PS2consoleswillalsoimpactthemarket. offset PS2sales. A fall insoftware sales earlierassociated in PSP, PS3andMicrosoft Xbox 360saleswillonlypartially out inIndiathisyear andupsidesfromattach growth the fact thatSony’s PS2 console isexpected tobephased further moderatedgoingforward. This isprimarilydueto Growth estimatesfor theconsolemarket have been India Gaming Market, 2012-2017PIndia GamingMarket, inIndiagrewThe 16 gamingindustry percent Section Overview Gaming • • 2012, actual growth cameinat8percentprimarilydueto: While growth ratesof28percentwere forecast over 2011- reduce graduallyasmobilegaminggainssignificance. gaming market. However, itsdominanceisexpected Console continuestobethelargestsegmentofIndian Console gaming Source: overhang intheinternetgamingspace Sluggishness inadratesandsignificaninventory unit salesandattach ratios Overall sluggishnessinthe economy impactingboth Industry discussionsconductedby KPMGin India Industry “ The power ofabillion: Metros. population in the top12cities includingthe is stilldominatedanddetermined by the a majorpartoftheconsolegaming habit shown impressive growth acrossIndia, Whilethe smaller (Tier 1and2)citieshave 26

“ Sony Computer Entertainment Realizing theIndiandream Country Manager, 26 - over last Atindriya Bose

103

“ model envisages a flexible multiple mobile gamingapps. The operating into thedynamicmarket ofpublishing needs, Milestonehasrecentlyforayed in syncwiththistrendandthemarket growth intheyears tocome.Keeping app market thatispoisedfor significant and brandstoentertheburgeoning Indian developers, publishers,IPowners This presentsahugeopportunity for growing ataCAGR ofover 60percent. mobile phonesubscriberbasebut which isstillonly4percentofthetotal consumer baseofjustover 40million devices. Indiacurrently hasasmartphone over 40billionin2012 acrossabillion Global appdownloads have doubledto MD andCEO, - Neeraj Roy

views andopinionsof KPMG inIndia. of theauthorsanddo notnecessarilyrepresentthe The views andopinionsexpressed hereinarethose in thiscolumn/articlewas provided by theauthor. noted,allinformation included Unless otherwise distribution platform. global market through agamingfocused yet gettheirproductsshowcased toa focused ontheircorecompetenceand studios anddevelopment teamstostay and ROI. Ouraimistohelpindependent analytics, performance measurement apps –includingmonetization,app marketing &PRcampaignaroundthe the consumerbehavior andexecuting marketunderstanding needs,predicting global audience.Milestonewillfocus on great games/appsthatappealtoa are given creative freedomtoproduce supported by us,whereby thestudios studio partnershipmodel,financially 27. interactive content. improve over time,allowing providers totransmitricher, gaming content,isalsoexpected ofquality to to delivery Set topdevice functionality, currently amajorbottleneck to belargelyalower incomeaudience digitization. onset ofmandatory This ishowever expected tocurberosion insubscriberswiththe added services cableoperatorsattemptas digital tooffer compellingvalue segment holdssomepotentialfor growth goingforward While the TV gamingisarelatively smallmarket, the significant contributortogrowth over thecomingyears. consistent withlastyear’s reportisnotexpected tobea The PCgamingmarket grew nominallyover thisperiod PC & TV gaming Low lifecyclesofGaming Apps Source:

Industry discussionsconductedby KPMGinIndia Industry Nielsen Informate MobileInsights2013 contribute significantlytogrowth. aswell,forward emergingcategoriesareexpected to grew atafaster pace,over 40percentyear onyear. Going educationandhorizontalclassifieds auto, realestate, 18 percentduringtheyear. Emergingcategories,including classifieds market, andareestimatedtohave grown at15- and Matrimonialaccountfor 55to60percentofthetotal 2012. The twolargestmature categoriesinclassifieds,Jobs around 24percent,fromINR12 BNin2011 toINR15 BNin The onlineclassifiedsmarket isestimatedtohave grown at Classifieds Indian OnlineClassifiedsMarket Source: Industry discussionsconducted by KPMGinIndia Industry The power ofabillion: 27 Realizing theIndiandream 105

Themes for 2012 Monetization of digital content online Revenues through consumer spending on content are minimal, barring in select areas such as gaming and on-deck Media content remains under-monetized on the mobile. While paid music platforms and e-book platforms online/ mobile platforms including Flipkart’s Flyte, Amazon’ Kindle Store and Apple’s iTunes have been launched in the past 12 months, these There has been a significant increase in the internet user are in initial stages. While these services are reporting good base, with the number of unique monthly visitors online 28 traction, total revenues from paid content is estimated to at 125 mn in July 2012. The reach of new media (across be less than 5 percent of the ad revenues generated online desktop internet and mobile), is now significant compared currently. to traditional media platforms. Even globally, barring for music and games, digital sales have accounted for a very small share of overall media Reach of different media platforms in India content sales.

Reach of different media platforms in India

Source: KPMG in India analysis, Comscore ‘Rise of India’s Digital Consumer’, IRS Q2 2012

Further, audiences online tend to have higher purchasing Source: International Federation of Phonographic industry, Digital music report, 2012 power, making them more attractive to advertisers. However, while digital ad spends have been growing significantly, monetization is still limited. Ad revenues Reasons for under monetization generated online (across desktop and mobile) in India account for only around 6.7 percent of total the ad revenues Advertising across media platforms. Traditional media has well established and respected measurement metrics, historically high rates and a natural Digital Advertising in India is dominated by constraint on inventory (number of channels and ads per hours, number of print pages). Ad rates online are aggregators, limited monetization by content significant lower than that for traditional media. This is owners driven by the availability of significant ad inventory online (that expands significantly every year) and advertiser concerns around ad engagement and effectiveness as compared to traditional media.

Further, audiences are heavily fragmented online, limiting the ability to raise revenue on individual properties. For example, while leading GEC channels on television may reach a weekly audience of over 70 mn29, In comparison, barring Youtube (31 mn unique vistors in Jan 2013) and Facebook (15 mn unique visitors in Jan 2013), leading video sites online generate unique monthly viewership of only 1 to 3 mn. Even on Youtube, leading channels such as Tseries and Vevo generate only 12-13 mn video views a month (Likely to translate into less that 1 mn unique viewers)28.

Source: KPMG in India analysis

28. Comscore – “The Rise of India’s Digital Consumer” August 2012 29. IRS 2012 Q3 weekly audiences for General Entertainment Channels - Hindi with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 digital platformsasoutlinedbelow: Globally, therehavebeensuccessfulmodelsofgeneratingcontentpaymentson around content portability, micropayment platforms, IP, and immature. However as someofthestructural issues In India,theseoff-deck platforms arestillrelatively new the on-deck userbaseisbecomingsmallandlessrelevant. Finally, withtheincreasingproliferation ofsmartphones, to contentsuch asgames,callertunes, wall papersetc. limited content thatcanbepushedthrough,andistypically the on-deck intermsofthekind modelhasitslimitations operators makes itprohibitive for contentowners. Further, its limitations. The highrevenue sharecharged by mobile sales onmobilefeature phones.However, thismodelhas platforms inIndiahave been largelylimitedtoondeck Over thepastfew years, userpayments ondigital Direct userpaymentsforcontent Source: Sector Video onDemand Newspapers/ E-books Magazines Music KPMG inIndiaanalysis “ provider. monetization opportunities fortheplatform audience –andarein turn significant reach, butalsoengagedeeplywiththeir great opportunity for brandstonotjust Innovations likebrandedcontentoffera in creatingmeaningfulexperiences. Content isslatedtoplayalargerrole engagement with users isimperative. momentum in digital, creating real With brandadvertisinggathering Amazon Instant Amazon Kindle, Wall StreetJournal, Video Leading Players NetFlix, Hulu, New York Times Noble iTunes, Barnes& iTunes, Amazon Financial Times, Sr. DirectorandHeadofMarketing (India &South-eastAsia),Yahoo! “ Penetration Digital Sales - Nitin Mathur MEDIUM HIGH LOW LOW

current ad spendindigital togenerate revenuefor the industry isfar greaterthan the penetration andeaseofuseget sortedout,thepotential Pay Willingness to HIGH HIGH HIGH LOW • • • • • • • • • • • Success factors ‘Freemium’modelstartingtoworkfor Aggressive pricingcomparedtoCable Aggressive pricing editions differentiated content some players,particularlythosewith physical Subscription model Single songsatlowpricepoint Integrated deviceandcontentecosystem Higher willingnesstopayfortablet Micropayments Large contentlibrary;lowcost Quick searchandcheckoutfacility Creation ofreadingexperiencesimilarto

Imperatives for successful monetization E-books Amazon Kindle Content Ecosystem Build out Given its rising middle class and base of English language The rapid development of a content ecosystem was one of speakers, India is a potentially large market for e-books. the critical factors in the early success for Amazon. Kindle In addition, there is large potential for local language was launched with a catalog of 90,000 books, and scaled publications. In a recent study by Bowker market upto 200,000 books in the first year. Providing users with research30, 53 percent of respondents in major Indian cities access to a long tail of smaller titles was critical in driving reported downloading free e-books in the past six months. adoption. Publishers and platform providers see the potential for e-books to capture 50 percent31 of the total legal books market over the next five years. Amazon Kindle, content build up Globally, the introduction of the Kindle in the US in 2007 played a critical role in accelerating e-book adoption. For the first time, the device provided direct mobile access to a major online store through the Kindle device. Development of a seamless user experience, a vast catalog and aggressive pricing were critical to its success.

Amazon Kindle Key Success Factors

User Experience • Seamless experience; Even the wireless data access costs to download books were bundled into pricing

• Easy check out experience to encourage impulse buys Source: Caris & Company - International business times, March 07, 2013

Ecosystem creation • Very rapid scale up of content catalog through publisher tie ups The Indian opportunity With the launch of e-books platforms by Amazon’s Kindle Aggressive Pricing • Number of new books sold for a in August and Flipkart’s Flyte in November, publishers in flat price of USD 9.99, many even India finally have access to credible and scalable platforms at a loss; Classics and back editions for e-books. While it is still early days, the initial signs do priced at USD 1.99 indicate good traction. However, to ensure that the market achieves significant scale, publishers and aggregators will • Low device prices have to work together in a few critical areas:

Source: KPMG in India analysis • E-book sales are likely to be driven by smartphones (As much as tablets) in the next five years. Developing content, user interfaces and pricing tailored to On a number of titles, Amazon priced aggressively, often at smartphone users will be critical a loss, to encourage e-book adoption. This was facilitated • Aggressive pricing, offering a compelling price point by its initial wholesale pricing model, where publishers sold compared to print additions; This will also help address books to Amazon at a fixed wholesale price, and agreed to the piracy threat let Amazon fix the retail price. • Small ticket size content such as individual chapters, short stories and lower priced back editions; These need Amazon Pricing Example, Stephen King’s Just to be backed by micro payment models such as Flipkart’s After Sunset wallet

Hard Cover E-Book • Digital Rights Management to enable India specific pricing is critical to enlist publishers

Amazon Retail Price USD 18.48 USD 9.99 • Build up a large content library across English and local language titles Wholesale Price USD 14.00 USD14.00 • High quality search and check out experience Gross Profit USD 4.48 (USD 4.01)

Gross Margin 24% -40%

Source: Credit Suisse analyst report “Everything you want to know about the Kindle”, July 2009

30. Bowker Market Research International e-book sales & trends, BEA Constellation Presentation June 7th, 2012 31. Indusrtry Discussions with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 success ofthemodelwere: for songs. to purchasepropensity attheINR8to15 pricepointrange Million downloads in3months,itdoesindicatesignificant While thisismuch lower thaniTunes scaleupofreaching 5 2.5 to3mndownloads alreadyinthefirst12 months. to pay atlow pricespoints.For example, Flipkarthasseen In Indiatoo,recentlaunches suggestahighwillingness • • • • • in theUnitedStates music market and29percentofentireretail within ayear. In2012, iTunes held64percentofthedigital 70 percentshareofthelegaldownloadable music market points. iTunes was launched inJuneandcaptured 2003, a musicatlow ofdigital price demonstrated theviability The successoftheiTunes modelgloballyhasclearly Music Growth inusercontentlibraryanddownloadsforiTunes ininitial twoyears Source: 32.

labels to build a large library quicklylabels tobuildalargelibrary Managed tostrike aninitialdealwithfive bigmusic software addressedIPconcernsofMusiclabels Secure format throughMacbaseditunes music labels, helpedbringthemonboard High revenue shareof65-70percentpaidtothemusic initial users User friendlysoftware andinterface criticalinconverting building subscriptionbasedmodels were atatimewhennumberotherservices per song, Pay perdownloadlow model,atavery priceofUSD .99 NPD Group,Q22012 Credit SuisseFirstBoston InitiatingCoverage 2005

32 . Key factors contributingtothe “ the market. to sharerisks,experimentrapidlyandgrow online musicstoreshave to worktogether Further, both the recordcompaniesand ensure securityandenablequick checkout. robust micropaymentmodelsinplacethat (less than INR20/-)itiscriticalto have pay forlegal music. But at lowpricespoints We aredefinitelyseeingawillingnessto Vice President,DigitalBusiness “ - Sameer Nigam Flipkart.com

Similarly, Hungama.com has reportedly seen 22.5 mn paid Implications for Indian players: transactions on its mobile site, through its INR 5 per day 33 • Based on recent developments in the west, it appears micropayments model . Customers are charged INR 5 a that customers are willing to pay for print content on the day to download five pieces of content including ringtones, Tablets, as long as the quality of experience and content videos or songs. is differentiated However, to build a sustainable model and substantial • Build niche, special interest and hyper local content scale, the industry will have to focus on a few critical which have higher monetization potential as compared success factors: to general news. For example financial / special interest • Quality of catalog and search experience publications such as the Financial Times and Economist have been much more successful at charging for content • Quick payments/ check out (Including one click purchase, on digital. storing card details etc.), given the low ticket size of songs • Explore hybrid models, using free content to generate scale for advertising, while keeping premium/ analytical • Micropayments, including models such as Flipkart’s content behind a payment wall wallet and telco billing • Magazines and newspapers are valuable properties for • In the absence of a hardware player such as Apple willing branding. Focus on higher revenue potential brand/ rich to lead losses through low prices to push hardware media advertising and innovative ad formats such as sales, Music companies and Platform owners need work sponsored sections to enhance ad revenue potential together to enable low price points and share risk As it stands, most Indian publishing houses are experimenting with the above to some degree. However, Print user paid revenues are yet to become significant. Globally, the print media (Newspapers/ Magazines) has lagged on the monetization front. While publications have been experimenting with combinations of free and paid Video on demand models online, it is only with the emergence of the tablet Video online is broadly divided into two categories, short (and smartphone) platforms that we are seeing meaningful and long format video. Short format video has so far monetization online. Given the print like reading experience been the predominant category online with a large share on Tablets, willingness to pay for content is much higher. of user generated content. Google’s Youtube has been For example in the US, 90 percent of magazines of AAM dominant in this space, through an ad funded model. magazines34 now have a digital presence, up from 51 Globally and in India, video is one of the fastest growing percent in 2009. 80 percent of the revenues made by these advertising categories online. Advertisers see similar magazines are because of consumption on the iPad.34 benefits to Television in Online Video, in terms of its utility for high impact brand advertising. As a result, there is As a result, while pressures on ad revenues are sustained, increased focus on professional content (As opposed to many leading publications are beginning to see an increase User Generated Content), given the higher potential for ad in digital subscriptions from tablets. How successful revenues. Ad rates for online video can be 5 to 10 times publishers are at exploiting this trend remains to be seen. higher than that for basic display ads. Hence, through good quality, low cost, made for digital content, meaningful advertising can be achieved for short format video online.

Share of digital subscriptions for leading global print players

The world is flat on digital platforms and they provide entrepreneurs an unparalleled ability to experiment, innovate and reach

“out to an audience beyond the traditional Indian diaspora. We see this as a huge

opportunity and are working towards producing compelling content at low costs for a global audience. In a first of its kind, “ we have just launched ‘Indono Daidokoro’, a Japanese language Indian food channel on YouTube and other platforms. If we love sushi, I’m sure they will love samosa!

- Rajjat Barjatiya Managing Director & CEO, Rajshri Media

Source: Company Annual Reports, KPMG in India analysis Scan the QR code to hear more from Rajjat

33. Live mint & The Wall Street Journal, December 11, 2012 34. Alliance for audited media; formerly the Audit Bureau of circulations with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 follows several businessmodelsglobally: valuable insightsfor Indianplayers. Video onDemand Globally, videoondemandismoremature, andprovide traction intermsofthepaiduserbase. andareyetinitial stages, toseeany significantamount of focused onthemobileplatform. However, these arestillin a few launches of VOD for India,many services ofthese areexpected togrow.services There have alreadybeen India. However, asbroadbandpenetrationincreases,such penetration oflongformatvideocontentisstilllow digital in low penetrationofhighspeedbroadbandinIndia, the traditional television andfilmcontent.Given therelatively The secondcategory, longformat video,includesmore Source: Through Transaction Video on TV Everywhere on Demand Business model Subscription Video Electronic Sell Demand KPMG inIndiaanalysis Allows accesstocontentonapaypertransactionbasis Allows accesstoacontentcatalogforfixedsubscriptionfee; storage devices Description Enables ondemandviewingforPayTVsubscribersacross May includeadfunding Pay pertransactionmodelwhereuserdownloadsfilefor Apple, Amazon,Google Apple, Amazon,Microsoft, Streampix, Redbox Walmart (WUDU) Leading Players Netflix, Hulu,Comcast/ Comcast, Dish The power ofabillion: Realizing theIndiandream Maturity MEDIUM MEDIUM HIGH LOW 111

Globally, the Subscription Video on Demand model has the • Given the low ad revenue potential on digital Vs largest user base and revenues. traditional, leveraging low cost content (Eg. Short videos, back dated episodes etc.) is critical US Video on Demand market - Segment wise • For long format content online, subscription based video size on demand dominates globally. In the medium term, given the low rates for Cable in India and the high cost of bandwidth, providing this at competitive price points relative to cable may be difficult (especially for mass adoption)

• However initial launches of video on demand services have seen an encouraging response. As the catalogue, technology and broadcast platforms improve, this could be a strong revenue generator for the industry

We are at an inflection point for video on demand uptake in India. The growing consumption of online video; better “connectivity and more options for Source: IHS Screen Digest June 2012; Company Annual Reports; KPMG in India Analysis broadband; and stiff competition among Please Note: Growth in the SVOD model is driven by Netflix decision to charge directly for online mobile and pay TV operators to differentiate

access from Q4 2011 on the basis of content, all point towards

rapid growth of video on demand. While a majority of on-demand video viewing is The key to the success of the SVOD model has been low short form (<5 mins) content and will be“ subscription prices. For example in the US, where monthly consumed on personal computers and cable subscriptions are over USD 20, Netflix’s pricing of mobile devices, we expect much better USD 8 per month is very attractive. However, access to monetization on long form (>20 minutes) low cost content is critical in order to achieving these price content that is consumed on TV. points. Netflix was able to do this by securing initial deals that were priced at a fraction of the cost of comparable - Kallol Borah cable deals. However, content costs have increased at Director, a 70 percent CAGR35 in the last 3 years and are placing Lukup Media significant stress on Netflix’s low price subscription model.

Summary SVOD Service Provider Typical Subscription Charges In categories such as e-books and music, where the model is largely established in more advanced countries, the Netflix USD 8 per month major challenge in the Indian market will be to recreate this at price points that work, create successful micropayments models, manage the threat of piracy and deliver a superior Streampix USD 5 per month user experience that discourages switching to pirated content. Dish/ Blockbuster USD 10 per month However, for players in Print media (Magazines/ Newspapers) and Video (Television/ Movie), business Source: Macquarie Equity Research September 2012 – “Netflix virtuous circle turning vicious” models are still evolving globally. While players in India in the sectors can learn from global experiences, they will need to innovate to develop a sustainable model. Implications for Indian players

• Ad based monetization through short format, made for digital content is the more immediate monetization opportunity through online video in India and has a good level of exploitation already

• Broadband penetration remains a challenge to large scale adoption of traditional long format content

• In India and globally, video advertising is one of the fastest growing advertising segments online; Opportunity for content owners to benefit from this through made for digital content

35. Macquarie Equity Research September 2012 – “Netflix virtuous circle turning vicious” with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 113

Regulatory challenges

One of the key building blocks for a vibrant digital • Where users are uploading data on content sharing economy in any country is to have a robust copyright platforms what controls are in place to ensure framework that allows sufficient incentive and copyright is not being systematically violated. This protection to creators to commercially exploit their is especially relevant for search, content sharing work. In economies, where the right legal protection and social networking (e.g. caching, hosting and framework is provided, innovation and investment has indexing) sites – all of which are key for efficient grown and in the process added significant benefit functioning of the internet. to the overall ecosystem. On the flip side, countries where there is a perceived risk of litigation around the Internationally “safe harbor concepts” are increasingly provision of services for digital distribution of conten, being enshrined in legislation that provide certain investment and innovation has suffered and hence long exceptions to copyright rules for internet intermediaries term growth of the sector has been constrained to allow them to function in this environment. While the specific legislation varies from country to country, the Historically copyright law has roots in handling and principles regarding safe harbour provisions in copyright copying of content. However this relationship breaks regimes are similar globally: down in the digital world, as content can only be shared and disseminated by copying it. 1. Provide a broad breadth of coverage for Internet Intermediaries: This raises several questions: 2. Put in place prerequisites for Service Providers to • How much may be copied from a copyrighted work Claim Safe Harbors: before permission must be sought? 3. Specify legal process by which rights holders can • Can someone who has a legitimate copyrighted notify platforms regarding specific infringement work change the format in which they use it (eg. CD to Mp3)? 4. Put in place provisions regarding the consequences of notification by rights holders • Where an intermediary makes a digital copy of a copyrighted work to assist in disseminating it to legitimate users, in what, if any, circumstances must they obtain explicit permission?

Current state of play of online copyright issues in India:

• Safe harbour concepts were first introduce in • Copyright Act amendment also affected licensing Indian Information Technology Act (via its Section situation in India. With changes made with regards 79 provisions), and updated with its amendment to who holds copyright in certain works, situation in 2009, however are often subject to varying unclear in many cases for online businesses seeking interpretations by courts. to engage with collecting rights societies to license musical works. • Copyright Act was amended in 2012, including new provisions regarding limiting liability for service While progress is clearly being made in this space in providers {via newly added Sections 52(1)(b) and India, there is still some catching up to do. Given that 52(1)(c)}. Implementing regulations for this still we will soon be home to the world’s second largest pending at Copyright Office, and provisions of Internet population, these regulations could be the key amended Copyright Act being tested at courts in to unlocking innovation and monetization in this space interim in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 114 06 Radio Radio Renewed hope 06 02. 01. by thecompany activations businessandotherinnovative packages offered tothecustomers largely remainedsame. The growth for ENILwas ledby Mirchi innovations, was driven by increaseinvolume ofadvertisements whileadvertising rates inallthequarterswithdoubledigitgrowth inrevenuethe industry which also innon-metroplayers. continuedtogrow ENILandRadio City faster than digit growth inlargercompaniessuch asRadio Mirchi’s andRadio City, and The revenues growth inindustry CY2012 was primarilydriven by double expand revenue throughvolume enhancementandraterationalization. leaders have beenabletoraiseratesslightlybuttheoverall trendhasbeento volume improvements markets, aspriceslargelystayedIncertain stagnant. during theentireyear. The growth inindustry’s revenues was driven by overall revenues oflistedradioplayers exhibited asingledigitgrowth rate percent. 95 percentinprimetimefollowed by nonprimetimeintherangeof75to 85 lever for growth –for example, MYFM’s average inventoryutilizationwas at in thenearfuture. For non-metroplayers too,utilizationcontinuedtobea the topeightmetrosputting pressureonvolume basedgrowth frommetros The utilizationlevels have reached nearly100 percentduringpeakseason in revenues ofINR12.7 billioncomparedtoINR11.5 billioninCY2011. hadamutedgrowthThe of10 radioindustry percentinCY2011 andreached Revenue growthstifledasutilizationlevelspeak Round upoftheyearthatwas where Q2&Q3growth was 16 percentincomparisonto2011. Mantra, thatexhibited agrowth rateof12.5 percentin2012 andMYFM, improvement; examples ofplayers focused onnon-metrosincludeRadio non-metros grew faster thanthemetrosonback ofinventoryutilization improvement andincreasedfocus onlocaladvertisers. Revenues from Radio intierIIcitiesisgrowing well ontheback ofinventoryutilization pace Revenues fornon-metrosaregrowingatafaster employee costs. and continuestobehampered due toincreaseinelectricity The profitability royalties, which improvement hasledtoprofitability ofRadio players. into effect, ofthemusiccompaniesarenow majority charging reduced royalty aspertherevised ratesin2011, licensingcoming with thestatutory on needlehour. While afew musiccompanieshadalreadybeguncollecting royalty toproducersfromradio2percenttheearliermethodbased music companieswillbedecidedby theCopyright Board. Ithasreducedthe licensingprovisions, theratecardforstatutory royalty for producersand dissemination oftheirwork, abasicprincipleofthecopyright law. Under licenselimitsexclusiveA statutory rightsofauthorsandcreators tocontrol Amendment Bill,2010 beingapproved by theUnionCabinetinMay, 2012. royalty licensingprovision issuewas inCopyright clearedwiththestatutory onaccountofincreasedcostdiscipline. the industry The over ambiguity the improvementProfitability – There improvement was someprofitability in higher thantheoverall industry’s growth rateof10 percent. and Radio Mantraoperateexclusively innon-metros. The growth rateismuch

research report 29May 2012 ENIL Conference Call Transcript for Q4FY12, ICICIDirect.comENIL discussions and industry KPMG inIndiaanalysis basedonannual reportsofradioplayers 3 Scan theQRcodetohearmorefromPrashant 2 . “ who investinclientinnovations. business remainsunderpressure,thewinnerswill be those market conditionsremainchallenging and thecoreradio advertising. Goingforward I believethatas long asthe are seekingadvertisingsolutionsratherthanplain vanilla Clients arebecomingincreasinglymoredemanding and The power ofabillion: 04. 03.

Amendment Bill”published inRadio andMusicon27th April 2012 licensingdropintheCopyright opposesstatutory “Radio industry discussionsconductedby KPMGinIndia Industry Realizing theIndiandream “ - Prashant Pandey 3 Both MYFM 1 The 4 ENIL CEO,

115

“ a powerful tooltolocalbusinessesexpand andgrow. the nature ofcommunicationinsmallertowns aswell give and reaching outtobuyers. Phase3isexpected tochange today have practicallyno costeffective way ofadvertising advertise onforinthesecitieswho thousandsofretailers importantly, itwillbecomeavailable asalocalmediumto to reach outtopotentialconsumersinthesecities.More and 3towns willprovide acosteffective choice tothem and minimetrosfor growth, theavailability ofFMin Tier -2 go upexponentially. As advertisers lookbeyond themetros available morecities,itsreach across nearly300 willonly theadvent With ofPhase3whereFMwillbecome • • opinions ofKPMGin India. are thoseoftheauthors anddonotnecessarilyrepresent theviews and was provided by theauthor. The views and opinions expressed herein noted,allinformation includedinthiscolumn/article Unless otherwise • • cost ofprintinacity. level. Itgetsadvertisers thesamereach at1/3rdthe Radio isalsofar morecosteffective than printatalocal evening tobuild efficiencies inamediaplan. day itisbetter touseradioduringtheday and TV inthe when TV andradioarelistenedto,even onasingle nature ofthetime Because ofthecomplementary advertisers’ messagetoconsumers. the widespreadimpactitcanhave intransmitting the media except the GECchannels andthusdemonstrates Radio’s reach atalocallevel ishigherthanmostother 15 cties) auditionsacross done by saw Radio City nearly80000 they tendtoresponditfar easily. (eg A recentactivity platform comfortablewiththemedium, andarevery of thefact thatcommonpeopleview radioastheir recall thanusingmorepassive medialike print.Because kind ofmarketing activation hasdemonstratedhigher Increasingly aradioplusoutdoororonground Radio City CEO, Apurva Purohit

05. Share oflocaladvertising were someofthenew categoriesadvertising onRadio BFSI restrictedtheirbudgets.Sports,NGOsandagriculture sectorswhiletelecomand automobile, FMCGandretail aswell. radio industry Advertising was driven mainlyby advertising market continuedtohamperthegrowth of The macro-economicchallenges plaguingtheoverall Local advertising spendincreases FM itis75percent Mirchi, localadvertisingat~40percentandfor stands MY difference acrossmajor networks. For example, Radio overall advertising revenue withsignificant for theindustry The localsegmentnow comprisesnearly50percentof slowdown intheeconomy –especiallyin Tier IIandIIIcities. by localbusinesseswhich were somewhat insulatedfrom partially compensatedby astronggrowth rateexhibited The reductioninbudgetsofnationaladvertisers was radio industry. across 294citiesisanencouragingdevelopment for the minister inthe2013 budgetontherolloutof839stations as acategory. The recentannouncementby the Finance market toexpand andalsoenablegrowth ofradiomedium Phase 3willtakeradiotonewer towns which willhelpthe last quarteroftheyear duringthefestive season. although thegrowth innationaladvertisements picked upin to cuttheiradspendsinlightofaslowing economy, national advertisements asthenationaladvertisers chose The firstthreequarterssaw aconsiderablereductionin Source:

Industry discussionsconductedby KPMGinIndia Industry KPMG in India analysis based on industry discussions KPMG inIndiaanalysis basedonindustry “ effectively targetingthissegment. phase III,radiocanplayanimportantrolein customised massmedia solutions. Post size anddiversityofthismarketrequires also continue to thrive.Thegeographical in smallercities. While local/regional brands launching local products totargetthemarkets National advertisersareincreasingly 5 . Reliance BroadcastNetworkLimited - Asheesh Chatterjee “ 5 CFO, .

youth by developing youth centricprogramming. 20-40 years ofage. continuetofocusAs aresultstations on ofradiolistenershipcomesfromtheagegroup Majority during thesameperiod. 6.1 percentcomparedto6.4growth of Television million fromQ12012 toQ32012 registeringagrowth of the listenershipofradioincreasedfrom155 millionto159 listenership for radio. According toIRS 2012 Q3findings, readership surveys conductedinIndia.Italsocaptures Indian Readership SurveyorIRS isoneofthelargest ofradio listeners Youth continuetobetheprimary Source: Age Group >40 yrs 20-40 yrs Below 20yrs IRS Q32012 The power ofabillion: % listenership Realizing theIndiandream 48% 26% 27% 117

listenership. There hasbeenanincreaseinout-of-home Radio isconsumedacrossday-parts Realizing theIndiandream opinions ofKPMGinIndia. are thoseoftheauthorsanddonotnecessarilyrepresentviews and was provided by theauthor. The views andopinionsexpressed herein noted,allinformation includedin this column/article Unless otherwise such consumers. andradiowillbethe idealmediumtoreachcountry will play amorepivotalroleinshapingthefuture ofthe In anutshellwe cansay thatthese‘growing cities’ received responsefromthelisteners. anoverwhelming & retrogenremusicformats, someofwhich have experimented show, withtalk all-English storytelling, consumer tochoose inthepasthave from.Stations formats emergingoffering moreoptionstothe Finally, evolves, asthecategory we would seenewer reduction andwould helpinincreasingprofitability. asperPhaseIIIpolicywillresultincost radio stations process. Apart fromthis,we alsobelieve networkingof challenges toensurehigherparticipationinthebidding market inmindaswell asaddresstheabove mentioned price, keeping thepotentialrevenue fromthatparticular a category. However, thegovt. shouldfixanidealfloor the market toexpand andalsoenablegrowth ofradioas radiotonewercome up,taking towns, which willhelp are addressed.Inphase3,many new frequencieswill migration issue,new ¤t affairs basedcontent challenges includingmusicroyalty, licenseperiod, price once PhaseIIIofFMpolicyislaunched &thecurrent The ofradiowillgrow potentialandviability many-fold language inthefastest possibletime. and addressabrand’s localchallenge intheirown local &effectiveimportant mediumtoreach such consumers further increased.Hence,Radio inevitablybecomesan enabled mobilehandsets,theconsumptionofradiohas place-any time.Latelywithincreasednumberof FM radio isamobilemediumandcanbeconsumedany literacy levels andlow internetpenetrationswhile DB CorpLtd.(RadioDivision) CEO, Harrish M Bhatia

The power of a billion: Realizing the Indian dream 119

Mobile and out of home listenership drive growth According to IRS and RAM, people are spending more utilization levels in non-metros), new licenses in the existing time listening to radio as compared to the time spent on cities and through the addition of new cities as a part of other mediums such as television and print. The increased Phase III. Also, the large players with extensive reach engagement with radio is because it is consumed post phase Phase III may be able to charge a premium by throughout the day and also there is a consistent increase offering a countrywide advertisement solution. in out-of-home listenership through mobile and car stereo.

Listenership % Private FM Radio Industry - Incremental revenues till 2017 Medium used Q3'11 Q3'12

Mobile 25.6 37.8

Car/Stereo 1.3 2.2

Source: IRS

In India due to low penetration of mobile internet, radio broadcasters have started tying up with telecom operators to offer radio services. Radio Mirchi and Big FM have already launched applications for mobile radio where a user can listen to a Mumbai radio station from any city in India. Mirchi Mobile (the VAS application launched by Radio Mirchi) is now offered by most of the Telecom companies. It has been well accepted and has 8-10 million subscribers, Source: KPMG in India analysis based on industry interviews conducted with key decision makers at radio stations out of which 50 percent are active subscribers.6

Sector projections Trends in the radio industry The industry is forecast to grow at a 10 percent CAGR till the Phase III stations start operations (expected in 2014). Increased innovations in Radio Post Phase III, the industry is expected to grow at a CAGR As the market conditions remain tough and the core of 21 percent. Correspondingly, radio’s share of media ad radio business remains under pressure the radio players spends is expected to increase from around ~3.9 percent are increasingly investing more in innovations targeted currently to 4.3 percent in 2017.7 towards driving listenership and increasing engagement with advertisers. Going forward innovations are likely to continue to play an important role in growth of the sector Projected revenue growth as rates remain under pressure over the medium term and volume expansion headroom is limited. There has been an increased focus on bundling activations with ad solutions. E.g. Dabur Chyawanprash - Immune India was a school contact programme MY FM initiated to increase sales of Dabur Chyawanprash. Under this programme, MY FM played promos in Dhoni’s voiceover on radio urging people to stay fit by eating Chyawanprash every day. The team also visited schools and distributed Chyawanprash samples and spread awareness about the benefits of eating Chyawanprash.8

Source: Industry discussions with leading industry players, annual reports of ENIL, RBNL, HT Media, and D B Corp Ltd and KPMG India Analysis

After the release of additional frequencies post phase III, radio industry is expected to see a steep growth (CAGR 21 percent). The industry will see growth from existing licenses (through increased prices in metros and increased

06. ENIL Investor Updates for Q1, Q2 and Q3 of CY 2012 07. KPMG in India Analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative 08. Industry discussion with CEO of MY FM conducted by KPMG in India affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 120 The power ofabillion: 13. 12. 11. 10. 09. forgrowthofRadioInnovation isthekey Increasing usageofsocialmedia issues for thebetter initiative tochange thelives of‘real’peoplewith donationfor their monetary “Good morning Angels” utilizedstations, theironlinepresencetodrive extensive In South Africa, Jacaranda 94.2oneofthelocalradio radio audiences. players have utilizing inordertoengagewithtarget started crowded market. Social media isatoolthatmany radio for radioplayers inorder todifferentiate themselves ina Engaging withlistenerscontinuestobethetoppriority long way. pandora, live365 andstreema,internetradiohascomea popular conceptworldwide.very websitesWith such as in Indiatokeep theyouth engaged.Internet radioisa radio, onlineradiohasnow emergedasapowerful medium ofreachsmart phonesandlimitations faced by traditional easyavailabilityWith ofinternet,growing adoptionof Internet Radio targetingtheyouth conversation withguestsandRJs. gossip ontheirFacebook pageallowing fans toengageina puts upinstudio pictures, andceleb guestinterviews In India,withadifferent page for each city, Radio One94.3

“Radio goeswhereyouth is–online” publishedinwww.exchange4media.com on27th August 2012 www.radionomy.com www.jacarandafm.com extracted inFebruary –blog entry 2013 discussionsconductedby KPMGinIndia Industry discussionwithCFOofRBNLconductedby KPMGinIndia Industry passionate peopleofaparticularcity. Passion’ recognized whereinthestation andprofiled Tamil Nadu.MYFMrananevent My named‘MyCity Punjab, Rajasthan, Maharashtra, Andhra Pradesh and Awards’ acrossseven regionsincludingCentralIndia, second editionofits‘BigRegional Entertainment engage withtheregionalaudience.BigFMannounced audiences. 2012 saw many innovations incontentto tolocal its strengthfrombeingamediumtargeted Focus onlocalcontent andissues– International musicby musiclegends. issues by MYFMandMusicLegends Hourfocusing on focusingBig Memsaab,NukkadNatak oncertain Karisma Kapurplaying RJonBigFM’s women targeted non-stop music’duringprimetimeby Fever FM, Somenewstations. developments were ’40minutes celebrities playing DJs appearingonradio hasstarted radioplayscontent likeshows,and reality storytelling, continues tobeonBollywood music,alternate Innovations incontent – listenership Innovations todrive Realizing theIndiandream 11 . While theprimefocus 9 Radio derives out theSalesmanof Year. the year wheremajorcorporateswere covered tofind FM alsoconductedDIMAT -Rocket SinghSalesmanof Madhya Pradesh withlive coverage ofthesame.MY ofallthemajorhistoricalmonumentsacross the beauty which promoted,whereintheRJprofiled thestation MP e.g. Tourism’s KaDilDekho, campaignHindustan to provide interestingadvertising solutionstoclients, degree brandmarketing solutions.MYFMcontinues spectrum activations cellproviding end-to-end360 Connect’isRadiosolution. RadioCity’s City full works alongwiththeclienttoprovide anadvertising Radio Mirchi haslaunched Mirchi innovation which collaboratively withclients. many productlinesintheirportfolio inordertowork one medium.Radio players aretherefore adding the radioplayers ratherthanseekingexposure to are increasinglyseekinganadvertising solutionfrom in termsofpricingandalsovalue. They The clientshave increasinglybecomemoredemanding Greater engagement withadvertisers – advertisementsInnovations todrive Stop IndiPop - radio stations Web Radio Live, Freedom Radio andNon– English clubmixes. alsooperatesthreeonline Radio City beyond Bollywood andClubMirchi, which airsHindiand retro Bollywood songs,Mirchi Edge which provides music modern Bollywood songs,Purani Jeans which broadcasts has four–MeethiMirchi, onlineradiostations which airs the potentialtosellnationaladvertisers. Radio Mirchi widen theirreach beyond theirsignal areaandincrease streaming theirprogramsonline. This allows themto In India,traditionalradiobroadcastershave begun 42 millionlisteninghourseverymonth thatgeneratemorethan programmed onlineradiostations user-its networkcurrently boastsmorethan6,000 since itsinitialdebutback Furthermore, in2008. attracted morethan13 millionuniquelistenersworldwide French-Belgian Internetradiocompany Radionomy has 13 . “ and easeoflistenershipmeasurement. lower entryfees(comparedtoFMlicenses), extensive reacheventotierII & tierIIIcities, due todriverslikegreater content variation, Internet radioisemergingataveryfastpace 10

12 Radiowalla Network Pvt. Ltd . CEO, Co-Founder, - Anil Srivatsa “

campaigns anddrive upadrates. advertisers, thusproviding anopportunity tocustomize information audience–vital to and measuringtheirtarget mediaprovidesdigital themabetter meansfor monitoring to advertisers for thevalue they provide. The growth in providing anaccuratejustificationofadvertising spend Traditionally radiobroadcastershave faced achallenge in worldwide. special interest,internetradiochannels for niche audiences other handradiowallathatoffers isaservice avarietyof original musicsourcedfromindependentartists.Onthe Itfocusesonline radioportal. onplaying unheard exclusive making theirpresencefelt. Radio Whiskey isapureplay There arealsosomeindependentweb radioportals 15. 14.

http://www.gramvaani.org/ Radio Movement“Community togetaboost”, publishedin Times OfIndiaonFeb 11, 2013 • forInternetRadio Drivers • • Challenges forInternetRadio • • • • Scan theQRcodetohearmorefrom Apurva challenge. Monetization ofinternetbased contentisamajor generated alargenumberofpaid subscribers. existed for alongtimefor music,thesehave not Though onlinesubscriptionplatforms have players believe new businessescannotbebuilt. minimum guaranteepayouts, onwhich industry pricing structuredigital inIndiareliesheavily on royalties payable for musicstreamed. The current The key challenge for internetradioisthe order toprovideinformation vital toadvertisers audiencein Easier tomonitorandmeasuretarget smart phones Easy availability ofinternet,growing adoptionof genre. who want dedicatedchannels for aparticular Internet radioalsoappealstoniche audiences Indianswhoworkradio totarget abroad. anywhere intheworld. This enablesinternet Internet radio‘stations’ arealsoaccessiblefrom accessible fromany partofIndia. requirements. The internetradioistherefore Unlike traditionalradio,therearenolicense “ streams hasbeenexcellent. as thelistenershipresponsetoour4webradio been a100percentrevenuegrowththisyear proportion ofRadioCity’s revenues,therehas While digitalradiocontributestoasmall - Apurva Purohit “ Radio City CEO,

Government advertisement. gotafairensuring thattheempanelledstations shareof Radio empanelmentthroughDAVPCommunity thereby initiative topromotethestreamliningandsimplificationof CRS morefinanciallyviable. hastakenthe The ministry Government isalsoplanningtotakestepsmake the considering spectrum waiver forradiostations. community financiallyviable.Departmentof stations Telecom is The Government isalso planning stepstomake these awareness Radio Stations. activitiesofCommunity buildingand million isbeingproposedforcapacity training, proposed for providing financialsupport,whileINR100 (CRS). millionhasbeen OutoftheINR1billion,900 newRadio Stations proposed tosetup500 Community DuringthePlanperiod,itis Radio forward. Community be providing INR1billionintheXIIPlanfor propelling a freshimpetus tothismovement. The government will in Indiabutthegovernment isworking towards providing Radio isconsideredtobeatanascentstage Community education). and 10 onKrishi Vigyan Kendra (Agriculture andFarmer of which 76 arefocussed oneducation,38NGOs, 126 inIndia,out radiostations operationalcommunity a smallcommunity. As of2012, therewere approximately for disseminationofnews andviews thatresonatewithin as India,byandproviding cateringtolocaltastes a platform role inthegrowth aslarge ofacountry, especiallyacountry Radio hasthepotentialofplayingCommunity animportant propelled bygov Community radiotogetaboost information about current affairs. utilize thisplatform for showcasing andsharing talent utilization ofMNREGA fundsandHIV/AIDS. People also have helddiscussionsonissueslike water conservation, self expression andgivestobeheard. themtheability They regional issues. The radiochannel is meantfor theusersfor up to mobilephonesanditaddressestheneedoftaking Goonj banksonthefact thattherural populationhasaccess Africa. 15 Pakistan, NamibiaandSouth IndianStates, Afghanistan, technology iscurrently beingusedby 2millionusersacross receiving overcallsaday,state, 2000 whileGramVaani’s pyramid. GoonjisoperatinginselectdistrictsofJharkhand as avoice basedsocialnetworkfor the bottom ofthe a mobilebasedradionetworkcalledGoonj,which acts IVRbasedapplicationsandlastyear,stations, launched village), hasbeenbuildingtechnology forradio community GramVaani in2008-09, Started (meaningvoice ofthe which cantakeupregionalissues. radio are currently noexistent orcommunity FMstations that rural populationhasaccesstomobilephonesandthere insmalltowns.stations Mobileradioisdriven by thefacts radio tofill thegapofcommunity Mobile radioistrying radio doesnot Mobile radioreaches wheretraditional 14 The power ofabillion: ernment support 15 Realizing theIndiandream 121

Is thegovernment listening? has done(radiodoesn’t demandliteracy;norelectricity). radio willdomorefor thepeoplethanany othermedium Adopt the rightauctionmethodology. And have faith that to allow radiotobreathe.Let itgrow. Release spectrum. hasfromthegovernmentSo theonlywishindustry is will lose,andunnecessarilyso. set by this roundofscarcity-riddenauctions.Everybody current licensesin2015/16 willhappenatthehighprices ones whowilllosethemost–sincerenewal oftheir broadcasterswhoareobjectingwillbethe And thevery license fees as a resultofpoorspectrum utilization). get variety);butitwillalsoharmitsown interests(less harm theconsumerinterestmost(listenerswont By notreleasingmorespectrum, thegovernment will (obviously) toface lessercompetition(whodoesn’t). readily available. And afew broadcasterswhoprefer behind minortechnical issuesfor which solutions are can’t cover istaking MumbaiandDelhi?Buttheministry city. If neighboringColombocanhave why 25stations, channels), we couldhave many morechannels ineach halving thechannel “separation” (thegapbetweentwo the government accepted TRAI’s recommendationof reason for restrictingtheauctionsinthismanner. Ifonly in Mumbai. isthatthereno What irkstheindustry Chennai, Bangalore, Ahmedabad andPune, and2 metros. There isonly1frequencyonoffer inDelhi, simply aren’t enoughfrequenciesbeingbidoutinthe But thebiggestproblemwithpolicyisthatthere broadcaster? from thestate their own sourcesofnews. Why should they buy news broadcasters comefromlargemediagroupsandhave of sourcingnews onlyfrom AIR isbizarre. Most There areotherproblemsaswell. The restriction once thedamagehasbeendone,itcannotbeundone. government tolower willthenstart fees, thereserve but what thegovernment hasseenwith2Gauctions. The towns willattract similarto ascenariovery bidding, My estimateisthatnomorethanone-thirdofthese authors and donotnecessarilyrepresent theviews andopinions ofKPMGinIndia. provided by theauthor. The views andopinionsexpressed hereinarethoseofthe noted,allinformation includedinthiscolumn/ articlewas Unless otherwise ENIL CEO, Prashant Pandey

The power of a billion: Realizing the Indian dream 123

Key challenges the industry is facing

Expected revenues for Government from Phase

Delay in phase III has hit the growth and III auctions profitability projections“ of existing players. Revival of radio industry is possible only when Average price No of Total “Phase III reforms are brought about swiftly INR billion expected per licenses collection and Industry’s concerns are addressed by the license Government. Category A+ 0.21 4 0.85 - Rahul Gupta Director and Project Head, Category A .132 19 2.51 Jagran Radio Category B .05.5 29 1.60 Category C .04 175 7.00 Delay in phase III Category D 0.008 609 4.87 In his Union Budget speech on 28th February 2013, Finance Minister Shri P Chidambaram said that the phase III Total 839 16.83 expansion is likely to take place in FY 2014. There are many clauses in phase III that the industry is looking forward Source: KPMG in India analysis based on industry interviews conducted with key decision makers to. Delay in phase III is hurting the profitability and growth at radio stations aspirations of players in the industry. The delay is also holding back radio from reaching out to the vast population that resides beyond tier I and tier II cities. Below are some Expected Capital requirements post the Phase III aspects that are being adversely affected due to delay in bidding phase III. Cost of setting Incremental cost Total • Limited reach for National Advertisers INR billion up radio station of setting up for capex Radio has the potential to be the media for the masses. for a new player existing players range However, the reach of private FM is limited to tier I and few of the tier II cities. The smaller tier II cities and tier Category A&B 0.0025 – .0045 0.008-0.01 .6-1 III cities do not have access to private FM channels. These small cities are also likely to be growth engines of Category C&D 0.01-0.02 0.005-0.007 7 – 10 Indian economy going forward. National advertisers are increasingly targeting these customers. Given that radio Source: KPMG in India Analysis based on Industry discussions is not yet developed here, a lot of advertising spend Note: For calculation of range, it is assumed that there will be between 20 to 40 that would have gone to radio is now being diverted to percent stations that will have to set up new stations in category A&B towns and these alternate media like print and activations. will have limited benefits in terms of existing infrastructure. In category C&D towns, it is assumed that Networking will play a major role in bringing the capital expenditure Permission for content networking is likely to result in costs to reasonable levels. increased development of regional network models, given the potential for better cost economics. This would increase the relevance of radio for people in Hampered profitability of radio industry smaller cities. Delay in phase III has hampered the potential of the radio industry to achieve better profitability. Phase III promises • Slower growth of the radio industry favourable cost economics for the industry on two counts – The radio players are very keen to invest in the next round of growth in radio industry. There is a possibility • Permission for multiple frequencies in a city is expected that Government may fetch INR ~17 billion from the to be granted as part of Phase III. This could also auction of Phase III licenses and an additional INR 7.6 – improve the cost economics as the incremental cost 11 billion may be infused by industry in capital expenses for additional frequency is significantly lower than for starting new stations.16 that for an independent station. There is potential for operational cost savings on staff/manpower, premises, marketing and overheads related costs. On the capital expenditure front, there is potential for savings on studio infrastructure, IT and office infrastructure as a large part of infrastructure for leading players is already in place and hence they will be able to reap the benefits of additional frequencies at limited capital expenditure in Phase III.

16. “Digital Dawn – the metamorphosis begins”, FICCI-KPMG Indian Media and Entertainment Industry Report 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 124 The power ofabillion: • • • that needfurtherclarity. beneficial totheradioindustry, clauses therearecertain While phaseIIIhasmany clausesthatpromisetobe Key challenges ofphaseIII • sources have thatincasethe benchmark stated from Also, Information &Broadcasting (I &B)Ministry Million andKozhikode ataroundRs70Million. towns willbesetbyC category Kochi ataroundRs95 bid. Likewise, thebenchmark intheSouthfor Band benchmark willbeChandigarhwhere itwas thehighest will beahighamountofRs156 Millionsincetherelevant Consequently, fee thereserve towns for allCcategory that region. received ofcitiesin duringFMPhase-IIfor thatcategory priceshallbetheHighestBid afresh, thereserve inPhase-II. Incitieswhichthat city arebeingtakenup Phase-II citiesshallbethehighestbidpricereceived for that theReservePrice for new channels inexisting FM The current clause forpricestates phaseIIIreserve High reservepriceforcertain cities networking permission. of theplayers owing scale benefitsaccrued dueto auctions. Consolidationislikely toenhanceprofitability years may encourageconsolidationpostthePhaseIII to 3years andincreaseoflicenseperiodfrom10-15 the reductionofshareholderlock-in periodfrom5 inlargercitiestobuildfocusedstations formats. Also, playersresult inestablished lookingtoacquireadditional The permissionfor multiplefrequenciesisexpected to savings onoperatingcosts. cost effective models,withpotentialofover 20percent percent localcontent). This couldhelpplayers buildmore Phase IIIlicensing(withastipulationofminimum20 categories ofcitiesisexpected tobegrantedaspart of Also, permissionfor networkingcontentacross Phase III. expenditureadditional frequenciesatlimitedcapital in place andhencethey willbeabletoreapthebenefits of part ofinfrastructure for leadingplayers isalreadyin infrastructure, IT andoffice infrastructure asalarge expenditure front,thereispotentialfor savings onstudio marketing andoverheads relatedcosts.Onthecapital operational costsavings onstaff/manpower, premises, for anindependentstation. There ispotentialfor additional frequencyissignificantlylower thanthat costforthe costeconomicsasincremental granted aspartofPhaseIII. This couldalsoimprove on forisexpected multiplefrequenciesinacity to be “ Realizing theIndiandream address Industry’s concerns. Phase IIIreformsarebroughtaboutswiftlyto Revival of radioindustryispossible only when profitability projections of existingplayers. Delay in phase IIIhashitthegrowthand Director and Project Head, - Jagran Radio Rahul Gupta “

7. 1 classical music,regionalmusic oroldBollywood music. license fees isadjustedtoencouragealternatecontentlike will beinstrumental indrivingniche content provided the content. However, inmetros additionofmorestations may encourageplayers tocomeupwithdifferentiated and permissiontoallow news, sportsandcurrent affairs phase IIIprovisions ofpermissionfor multiplefrequencies to shift focus away frommainstreamfilmmusic. The various citiesandhighlicenseprice,itbecomesdifficult Given thelimitednumberofFMchannels available in Content differentiation developing amoreinclusive measurementmethodology. brighter, may beabletomake theindustry investments for prospectslook andalsowhenprofitability the industry feels thatpostphaseIIIwhenthereare moreplayers in have experts beennomajorstepsinthisdirection. Industry comprehensively covering allradiomarkets. However, there all citetheneedfor arobustmeasurementsystem more playersconfronting theindustry. Industry andadvertisers Measurement continuestobeachallenge thatis Measurement

“Expect radioadgrowth ofonly10 percent in2013” publishedinRadioAndMusic on4thFeb 2013 — — viable. for many citiesandbiddingattheselevels may notbe experts believeIndustry high thatthesepricesarevery 500,000. pricewillbeINR less than100,000, thereserve price. For new citiesinborderareaswithapopulation ofcitiesshallbetakenasthereserve that category lowest ofthehighestbidreceived inotherregionsfor phase IIfor aparticularregionisnotavailable, thenthe — — differentiation ofthemedium. andcreativity This putsfurtherrestrictionsonthecontent news bulletinswould beallowed for broadcast. are restrictionsontheformat ofnews andonly AIR aspartofphaseIII.However,their stations there permitted thecarriage of AIR news bulletinson Restriction onnews -Broadcasterswould be be willingtopay. pricethey toestimatethereserve maytheir ability outflowscapital ofradioventures thereby limiting This prevents theplayers frompredictingthefuture their licencesbeyond thephaseIIlicenseperiod. to becharged for radioplayers whowant toextend onthemigrationfeesbe uncertainty thatislikely onmigrationfeesUncertainty – There continuesto 17 “ grow reallyfast. reach toonlyhandfulofcities. Radio needsto appropriate listenershipresearchandlimited the growthofRadioindustryarelack The major impediments holding back “ Chief Operating Officer, - Sanjay Hemady Hit 95 FM

pie intheoverall mediaspendsandproviding adiversityof several grounds,includingexpansion ofFMradiorevenue hadsupportedtheproposalforradio stations key metroson the numberofchannels ineach city. Someoftheleading – aworldwide practice.Doingthiswillimmediately double adjoining FMchannels Khz Khzto400 fromthepresent800 ofreducingthechannelpossibility separationbetweentwo In 2011, TRAI hadinitiatedaprocessofevaluating the 98.7 98.3 97.9 97.1 96.7 96.3 95.5 94.7 93.9 93.5 93.1 92.7 92.3 91.5 91.1 90.7 90.3 Frequency FM stationsinNewYork 89.9 89.5 89.1 89.1 88.9 88.7 88.3 88.1 87.75 Jazz Jazz Adult Contemporary(AC) Americana Primary Genre Sports Spanish Spanish Spanish Spanish MexicanRegional Variety Music Variety Music Variety Music Variety Music Variety Music Variety Music Variety Music News/Talk/Public Affaris Music-Freeform Rock Russian CHR –Urban Christian Contemporary CHR –Rock/Pop Country Music Caribbean Music Contemporary HitRadio(CHR) 18 18. measurement methodology. devising innovative solutionsanddevelopment ofarobust regulation ofcontent,increased focus onclientby are releaseofspectrum especially inlargercities,less The key drivers thatwould propeltheradiogoingforward definitely provided aray ofhopetothe radioplayers. price for theproposedstations. This announcement has government hadinDecemberannounced thereserve III expansion islikely totakeplaceinFY 2014. The Minister Shri.PChidambaramsaidthatthephase In unionbudgetspeech on28thFebruary 2013, Finance Going forward York playing City differentiated this. contentsubstantiates being madeavailable tolisteners. The inNew FMstations radio frequenciesresultsindifferentiated andniche content Internationally, thathighernumberof ithasbeenobserved progress onthisfront. content toradioconsumers.However, therehasbeenno 107.5 107.1 106.7 105.9 105.5 105.1 104.3 103.9 103.5 103.1 102.7 101.9 101.1 100.7 100.3 99.5 Frequency FM stationsinNewYork

2013 New York Radio guidedownloaded fromhttp://www.nyradioguide.com/freqlist.htm on6thMarch Adult Contemporary Adult Contemporary AC AC Primary Genre Sports Variety Rock AC Rock Religion –Christian Urban AC Oldies Classical –Music CHR –Urban Classic Rock CHR –Rhythmic CHR The power ofabillion: 18 Realizing theIndiandream 125

6.0 0.9 2.3 1.4 Performance byrevenuestreams platforms asrevenues from physical salesfade. andconsumptionarefastdelivery evolving ondigital trends.Music India isreplicatingworld musicindustry Composition ofmusicrevenues 01. (percent change forecast)2012 v. 2011 Change inmusicrevenuesbytype Source: Source:

KPMG inIndia analysis 2013p Marketing Charts.com, August 2012 KPMG inIndiaanalysis 11.6 7.0 1.6 2.0 1.1 2014p 13.1 1.8 8.3 1.3 1.7 The power ofabillion: 2015p 15.3 10.1 2.0 1.6 1.5 2016p 18.3 12.6 2.0 2.3 1.4 Realizing theIndiandream 2017p 22.5 16.1 1.3 2.4 2.7

(2012-17) -10.5% CAGR 16.2% 21.7% 13.7% 22.0% 127

Globally, online and mobile music revenues have witnessed strong growth rates while physical music sales continue to slide. When it comes to content, there’s room for everyone – and digital breaks down barriers. This is how you get an independent

Digital Sales “artist, like Yo Yo Honey Singh to formally

Digital music revenues increased 16 percent to INR 6.0 entrench Bollywood charts; and also get a billion in 2012. Currently at 57 percent, the share of digital regional song, like “Kolaveri Di,” onto the music sales is expected to rise to 72 percent by 2017.3 list of Top 15. Heavily promoted content will“ always do well, but now we’re starting to There are essentially three types of digital music content on see high quality content that may how have offer legally: the same level of promotion gain traction through a groundswell of interest. • Ringtones and Caller Ring Back Tones, - Paramdeep Singh • Music streaming and Co-founder and Managing Director, • Downloadable digital music Saavn

• Music bundled with consumer devices like phones

Further, digital music is consumed either via a mobile handset or the Internet. Consumption of online music Physical music struggles for survival has seen consistent growth during the last 2-3 years and the mobile segment has grown rapidly. Currently, Physical music continues to de-grow in terms of sales as mobile contributes around 85-90 percent of total digital well as share of industry revenue due to consumers shifting music consumption in India2. Moreover, in 2012, mobile to newer technology platforms (online and mobile) and continued piracy. The industry witnessed a decline of 12 Internet surpassed Desktop Internet traffic in India, as per 3 StatCounter Global stats. The explosion of Smartphones percent Y-o-Y in 2012 in the sale of physical music formats. and high speed 2G and 3G connections in urban markets While physical music sales have been overtaken by digital has largely contributed to this. Currently, there are around music sales, the physical retail model still exists in the 40 million internet enabled smartphones and tablets in 3 smaller towns and pockets of metro areas, where internet India . With the launch of new services in the industry such penetration is low and people still depend on physical as Flipkart’s Flyte and Apple’s iTunes, we will see online formats like CDs for music.4 music growing further. Such services are also expected to enhance content delivery.

Desktop Internet vs Mobile Internet traffic

The share of physical sales is declining out of the overall music pie, but it is not dying. Physical medium exists in“ many parts of “the country, especially in tier 2 and 3 cities, where people still buy CDs and DVDs. Physical is here to stay at least for another three to four years.

- Devraj Sanyal Managing Director, Universal Music India & SAARC

Poor sales volumes have pushed retailers to reduce the depth of their catalogue. For instance, Planet M’s entertainment portfolio now constitutes only 20 percent Source: StatCounter stats tool of its total sales and the company expects this to shrink further to 10 percent. Regional content players have been the worst hit as the SKU realization of CDs is much lower than the Hindi film music or international albums. Planet M has set a base SKU realization of INR 150 as a criterion to stock inventory thereby, removing most regional content, which is usually priced between INR 50 to INR 99, from its catalogue4.

02. ‘Online Music Industry in India: A look at Past, Present and Future ‘, Nextbigwhat.com, November 2012 03. KPMG in India analysis 04. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 129

hotels, restaurants, bars, pubs, discotheques, shopping malls, shops, offices etc. is subject to royalty payment to Music retailers are facing challenging times the music labels, termed as public performance revenue.

with continued de-growth in sale of music. With the Copyright Amendment Bill in place, users are

We are working towards alternate revenue now more aware of the need to obtain licenses for public “streams and ways to revive sales. We are now performances. Revenues through performing rights have renting out shelf to regional labels“ who have increased by 50 percent to INR 0.90 billion in 2012, owing better understanding of the what works with to a surging live events market coupled with increasing the vernacular audience. We are also providing awareness. With a surge in per capita income of people opportunity to new talent and have launched and rapid urbanisation of India, there has been an ever two music albums last year. increasing number of shopping malls, hotels, restaurants - Sanjay Karwa and entertainment places like pubs, gigs, concerts etc. CEO, PlanetM Retail that use music extensively. This has strengthened public performance revenue.

Some retailers are trying their best to retain this segment. However, as it is very difficult to monitor payment of such For instance, Sony DADC Home Entertainment is setting license fee, there is a lot of under-reporting which is causing up a new distribution system for promoting physical music revenue leakage. There are still a plethora of hotels and in such markets. It plans to take the license from owners, pubs that are playing commercial music without paying determine the price, distribute and market the music in the requisite license fee to Phonographic Performance towns with population of 500,000 India5. Ltd (PPL). Recently, PPL has served notices to many large hotels and pubs in India, which have not paid the requisite In developed markets too, the death of the physical format music license fee to play music at their year-end events11. was highlighted when British music retailer HMV recently filed for bankruptcy after spending more than 90 years in 6 Trends business . HMV has succumbed to stiff competition from From composing quality music at home using Digital online retailers and digital downloading services. It had Audio Workstation (DAW) systems, selling it worldwide been closing stores and selling subsidiaries during the using iTunes, and keeping in touch with fans via Twitter, past few years, as digital music sales in the UK surpassed emerging technologies have had a significant impact on physical sales for the first time in the first quarter of 2012, 7 the way music is produced, distributed and consumed. The as per the British Phonographic Industry (BPI) . This is listening experience has been evolving with technological representative of the decline in physical sales globally. changes. From CDs to MP3s (MPEG-1 Audio Layer 3) to AAC (Advanced Audio Coding used by Apple’s iTunes), the Royalty from radio and television audio compression techniques are getting better every day which has enabled quicker downloads and instant playback. The royalty from radio and television segments equaled The evolution of 3G has made streaming and downloading INR 1.4 billion* in 2012, constituting 13 percent of the total quicker and easier. The move to 4G is expected to further music industry. enhance this user experience. Following are some of the The ambiguity over the royalty issue was cleared with the trends being observed by the industry: statutory licensing provision in Copyright Amendment Bill, 2010 being approved by the Union Cabinet in May, 2012. Online music streaming becomes A statutory license limits exclusive rights of authors and mainstream among Internet users creators to control dissemination of their work, a basic Online streaming is a major growth engine for the music principle of the copyright law. Under statutory licensing industry, both globally and in India. According to Strategy provisions, the rate card for royalty for producers and music Analytics, globally, online streaming revenues will grow at companies will be decided by the Copyright Board. It has nearly 5 times the rate of growth for download revenues in reduced the royalty to producers from radio to 2 percent 2012, at 40 percent versus 8.5 percent. from the earlier weighted average of INR 660 per needle hour. While a few music companies had already begun collecting royalty as per the revised rates in 2011, with the Yearly change in online music revenue by type statutory licensing coming into effect, majority of the music (2012E vs 2011) companies are now receiving reduced royalties, which has led to a huge dent in the income of music industry from radio royalty.

Royalty revenues from television remained strong due to launch of new music channels like Khushboo TV 8 and 9X Jalwa9 - both broadcasting songs from pre-2000 era and a new international music channel called 9XO10. While a few channels like Channel V have moved to reality and fiction based content, Bollywood music remains the mainstay of other music channels in India. Public Performances Live or recorded Indian or international music, played in public places or commercial establishments such as Source: Strategy analytics Global Recorded Music Forecast 2012

05. ’Physical music sales down not out nokia music connects 4’, Radioandmusic.com, November 2012 10. ‘9X Media’s intl music channel 9XO launches on 24 April’, Indiantelevision.com, April 2012 06. ‘HMV goes bankrupt after 91 years in the disc-selling business’, Engadget.com, January 2013 11. ‘Pay up or face the music, PPL tells major hotels & pubs’, Mxmindia.com, March 2013 07. ’Digital music sales outstrip CDs and records’, BBC.co.uk, May 2012 * KPMG in India has revised the methodology of calculating royalty from television. The income now includes with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative 08. ‘Hindi music genre to get a new contender’, Afaqs.com, July 2012 revenues earned by music industry from video licensing of content. Thus, 2012 figures are not comparable affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 09. ‘9X Media to launch Hindi music channel - 9X Jalwa’, February 2012 to 2011 figures. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 130 The power ofabillion: * After 30-days, audiosandvideosarelimitedto1-min streaming 12. needs: It alsohasdifferent subscription plansdependinguponuser videos. visual arts,craft, filmsanddocumentary specific content,showcasing categoriessuch asliterature, stop onlineplatform for accessingHindiaswell asregion music destination,thewebsite hasevolved intoaone- streaming anddownloading websites.asanIndian Started Launched in2007, iMusti.comisoneoftheoldestmusic average) Estimated dailytimeonsite(mm:ss)(Monthly Traffic: MusicsitesinIndia space inIndia. com andsaavn.com aresomeofthepopularplayers inthis Indian musicsuch asgaana.com,dhingana.com,imusti. spent byfor consumers.Onlinestreamingmusicportals growth intermsofuniquevisitorsandamount time Music streamingsiteshave beenwitnessingsignificant stream contentonline. has becomecheaper andmorewidelyavailable for usersto with therolloutof3GinIndia,accesstohigh-speedInternet has notfullytakenupandthereisrampantpiracy. Further, music consumption,moresowhenthedownload model In India,streamingprovides anunprecedentedoption of Source: month month Plans Free USD 7.99/ USD 1.99/ http://imusti.com/#!/plans http://www.alexa.com, accessed8February, 2013 Audio All songsavailableforstreaming All availableforstreaming All songsavailableforstreaming 30-days* Realizing theIndiandream All videosavailableforstreaming1 All videosavailableforstreaming All videosavailableforstreaming1 minute each* minute each Video Subscription Required Subscription Required Registration &loginrequired 12 The power of a billion: Realizing the Indian dream 131

While Dhingana has 10.5 million13 active visitors per month, of the official album launch. Such initiatives allow labels Gaana.com has about 3 million unique visitors per month, to create pre-release excitement and maximize impact on as per Comscore (November 2012). By the end of 2013, audiences in a cost-effective manner. Gaana expects to have 10 million active users across all platforms including recently launched mobile apps14. Earlier in July 2012, independent artists focused on music streaming. Discovery platform NH7 partnered with Hungama.com also has 20 million users15 via various touch Flipkart’s owned Flyte to launch digital music downloads points. featuring independent music/artists. Currently, the platform manages 100 artists and claims that all of them are seeing As legal sites gain popularity and engagement soars, major revenue increases. brands are increasingly willing to spend on digital music websites and apps, enabling music streaming services to provide a large catalog of ad-supported music to end users Licensed music stores coming to age for free. Until recently there were few legal sources for buying media content in India. In 2012 the Indian digital music Production houses and labels are also taking advantage of industry saw the debut of Flipkart’s Flyte and Apple’s iTunes the opportunities offered by digital music streaming. Tips stores featuring comprehensive selection of local and Industries Limited recently announced a partnership with international music from all the major labels and thousands Saavn. Under the agreement, Saavn received exclusive of independent labels. 15-day streaming rights of music for the film Race2 ahead

Online music stores in India

Music Store Price/Song Price/album Library Size Description

iTunes16 INR 7 to 15 Starting from 26 million songs in Purchase only possible through credit cards. Also has (Most new INR70 high-quality a cloud drive to store music. songs priced at INR 12)

Flyte17 INR 8 to 15 Starting from Over 2 million unique Users can listen to a 30-second clip before making INR25 tracks across 55 their purchase. Music purchase from Flyte is currently languages and 800 restricted to users in India only. genres and subgenres.

Nokia Music N.A N.A Over 4.5 million tracks Nokia Music is free for a limited period (depending Store18 on the category of device, duration of the free subscription lasts for 3, 6 or 12 months), post which, the subscription is at least INR113 per month.

Hungama19 INR10 N.A Over 2.5 million pieces Allows full song streaming of music and videos. The of content including store offers four different subscription plans, for music tracks, movies, example, INR99 for 99 tracks in a month. music videos & dialogues; ringtones & wallpapers

Saregama20 INR9.95 N.A Has songs from Provides songs and albums released under the various genres and Saregama label for purchasing. Saregama’s store languages. Also has also has the option of delivering customized CDs. old songs Users can opt to create their own playlists & have them burned on a MP3 CD to be delivered home for INR199 for 200 minutes (40 songs). It also has various membership plans for users.

Source: Respective company websites and digital stores Launched in February 2012, Flipkart’s music store Flyte achieved 2.5-3 million music downloads in its first year 13. ‘How do desi Spotifys stack up against each other biz models behind free music streaming’, 21 TimesInternet.in, July 2012 of operations . As per Hungama.com, an on-demand 14. ‘Gaana mobile app to garner three fold growth’, R Gaana mobile app to garner three fold growth, storefront for Bollywood and South Asian entertainment Radioandmusic.com, January 2013 content, the total number of paid downloads including 15. ‘Hungama Revamps Its Content Portal; HTML5, Free Cloud Storage & More’, Medianama.com, December 2012 mobile and web at Hungama.com touched 75 million across 16. ‘iTunes in India, with a price pull’, Hindustan Times, December 2012 digital entertainment content including music tracks, music 1 7. Flipkart.com 22 18. ‘Nokia India offering free Nokia Music subscription and recharge options on Symbian phones’, videos, movie streaming etc . Mobigyan.com, May 2012 19. ‘Hungama Revamps Its Content Portal; HTML5, Free Cloud Storage & More’, Medianama.com, While it would be too early to predict whether this will December 2012 20. ‘Saregama Working On Live Beta Version Of Its Online Store’, Medianama.com, April 2012 change the way music is consumed or purchased in 21. Industry discussions conducted by KPMG in India India, music companies are optimistic and expect an 22. ‘Online Music Industry in India: A look at Past, Present and Future ‘, Nextbigwhat.com, November 2012 improvement in sales and a reduction in piracy with the uptake of such stores. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 132 The power ofabillion: store alonehas1.4 millionsongsdownloaded perday 25. 24. 23. Major globalcloudmusicservices downloaded monthlyinIndia Estimates indicatethatapproximately 100 mnappsare witness aboomonce4GandLTE arelaunched. services has furtherboostedaccess,andthesectorisexpected to available for aslow asINR3,200. The launch of3Gservices mobile applicationslike never before. Smartphonesare low-cost smartphoneshasenabledyoung Indianstoaccess and relevance tothemusicindustry. A riseinthenumberof smartphones. However, they have grown incapabilities - simpleprogramsorcasualgamesforand tablets Applications were launched asmeretoolsfor consumption music disco Personalized applicationsenhance from user data. from userdata. The wealthsuppliedby the ofdata digital platforms thatdigital makethe kindoftargeting possible Indian labelsgetanopportunity toreach audiences,dueto billion downloads perannumwithin3years Amazon Service Xbox Music iCloud Music Player Google Play Cloud

‘iTunes debutsinIndia;download aHDmovie for Rs490’, The Hindu,December2012 discussions KPMG estimatesbasedupon industry ‘Mobile handsetcompanies betonIndianappmakers’, Afaqs.com, May 2012 Apple Inc.andwaslaunched Amazon CloudDriveisaweb on 12October2011.AsofJuly genres (websiteonly),and device withInternetaccess. streaming application,Cloud storage applicationlaunched a catalogofmorethan30 cloud computingservicefrom users toplaystoredmusic playlists. million songs. upload theirentirelibraryto free streamingofsongsfrom from anycomputerorAndroid than 150millionusers the webandstreamitback. Windows andMacOSX. 2012, theservicehasmore It supportsbrowsingmusic Description It's currentlyfreewhilein in October2012.Itfeatures iCloud isacloudstorageand in March2011.Amusic Microsoft Corp.launched Player, isbundled,allowing Cloud musicservicefrom Google PlayMusicletsusers by songtitles,albums,artists, beta, andcompatiblewith Realizing theIndiandream very 23 , andthiscouldsurpass5 24 owned) Yes music Serves (other than No No No . Nokia’s music 25 . Android Android Supported Software Windows Mobile iOS a foothold globally, especiallyintheUnitedStates. alreadyhave ofdevices.types CloudbasedMusicservices allow acrossdifferent managementoftheentirecatalog Music isdifficult tomanage,andcloudbasedplatforms Music intheCloud frequently played songsofauser. genre, eraetc.Raaga.com hasafeature which stores based onuserpreferences like mood,tempo,category, feature onthesitethatallows userstodiscover new music allow for better musicdiscovery. Ithasintroducedanew For example, Hungama.comhasrevamped itswebsite to user isthekey. thepreferenceswhere understanding oftheend andtastes medium enablescustomization,criticalinanindustry each) songs songs (up up to100GB paid Storage to 250MB launched 25,000 Not yet 20,000 Limit 5GB free, access to unlimited month for per GB/year non-iTunes music, music Price Xbox music library year for 9.99 per Desktop iTunes USD Free for Free USD25 a Free for 5GB, USD1 access to unlimited per GB/year non-iTunes month for music, music Price year for Xbox music library 9.99 per Mobile iTunes Free for USD USD25 a Free for Free 5GB, USD1 15 markets Availability iTunes Europe US, UK US and Globally via The power of a billion: Realizing the Indian dream 133

Service Description Serves Mobile Storage Desktop Mobile Availability music Software Limit Price Price (other than Supported owned)

Subsonic Subsonic differs from various No Android, Unlimited Free Donation of Globally cloud services as the users iOS, USD20 don’t need to upload music Blackberry, onto the cloud to stream it. Windows It also streams videos and Phone 7 users can download music for offline play.

mSpot mSpot is similar to Google No Android, 5GB free, Free for Free for Free plan Music and Amazon Cloud iOS 40GB paid 5GB, USD4 5GB, USD4 everywhere. Player. Unlike the others, per month per month Paid plan however, mSpot can stream for 40 GB for 40 GB US only to both iPhone and Android, making it ideal for cross- platform families. It also has features such as lyrics searching and online radio stations.

Rdio Rdio is an ad-free music Yes Android, Unlimited Free Trial, USD10 per US, Canada, subscription service. It offers iOS USD5 per month UK, EU, an organized, vast-but-not- month Australia infinite library of popular songs and New for streaming to all of the Zealand users' devices. Rdio has a desktop application that scans iTunes or Windows Media Player library and matches songs with its online Rdio library

Spotify Spotify is a music streaming Yes Android, Unlimited Free limited, EUR10 per US, UK, EU, service offering digitally iOS, unlimited month Australia restricted streaming of Windows is for EUR5 and New selected music from a range Phone 7, per month Zealand of major and independent Symbian, record labels, including Sony, Palm EMI, Warner Music Group and Universal.Total users reached 20 million by December 2012, 5 million of them paying monthly.

SoundCloud The service, which started Yes Android, N.A Free, N.A Everywhere in 2007, has 10 million iOS, Premium registered users as of Windows versions January 2012. A key feature Phones 7, EUR29- of SoundCloud is that it lets Blackberry, EUR500 artists upload their music with Symbian per year a distinctive URL. SoundCloud depending depicts audio tracks on features graphically as waveforms and allows users to comment on specific parts of the track. SoundCloud distributes music using widgets and apps

Source: Respective company websites and digital stores Note: Indicative list with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 134 The power ofabillion: Hungama MusicCloudwas launched inNovember 2012 music players have launched musiccloudservices. and thenplay themonany Apple device. Even domestic and match songsprocuredfromothersourcestoiCloud and increaserevenue streamsfor content. ‘CLEAR’ platform inordertocutcontentdistributioncosts provider Primecontent services Focus Technologies’ operations tothecloudandhascommissioneddigital Sony MusicIndiaisalsomoving itsentirevideocontent Android, iOS, Blackberry and Windows devices for free. fromtheir their musiclibrariesandaccesstheservice Media.Userscanupload Media IncandHungamaDigital isajointventureThe service betweenUSbasedCatch 37. 36. 35. 34. 33. 32. 31. 30. 29. 28. 27. 26. percent) andpolitics(34 movies issues(46percent),sports(43 aheadofcommunity social networkusersin20countriesdiscussmusicand (IFPI),around67percentof of thePhonographicIndustry social networksglobally. As pertheInternationalFederation music isoneofthemostengagingtopicsdiscussionon channels andfeeds toengagewithcustomers.Moreover, which by thebusinessesareusingtotarget setting up Social networkshave developed hugeconsumerbases, engagement Social Mediafuellingdigital at INR1200 perannum the launch ofiTunes Match inIndiathisyear. service Priced This trendisbeingmirrored intheIndianmarket, which saw these musicwebsites stayinthegame. and innovation inmarketing isplaying ahugeroletohelp manner. Technological innovation, coupledwithcreativity customers by offering personalized contentinanengaging hoping toattract freeusersandconverting themintopaid also usingsocialmedianetworkstoleverage viralcontent, mobile applicationsfor Smartphones,musicwebsites are Besides with integratingtheirmusicdownload service

150000-fans/articleshow/17841679.cms http://timesofindia.indiatimes.com/entertainment/music/music-events/Sunburn-2012-saw-over- Company website http://nh7.in/weekender/ http://nh7.in/indiecision/2012/10/22/guns-n-roses-india-tour-2012-dates-announced/ www.invasionfestival.in ‘T-Series joinsthe Youtube millionaireclub’, RadioandMusic.com, February 2013 ‘Tips Music’s Facebook Page Hits1MillionFans!’, RadioandMusic.com, December2012 ‘Dhingana drives traffic withsocialmediain2012’, RadioandMusic.com ,December2012 ‘Flippin’ over India’s musicindustry’, digital BusinessLine,March 2012 MusicReportIFPI Digital 2013 world’ ‘Engineofadigital ‘Sony Music IndiaMoves Its Video Content To The Cloud’, Techcircle.in, April 2012 RadioandMusic.com, November 2012 ‘Hungama, Catch Mediaunveil JV‘HungamaSmartCloud’atNokiaMusic Connects4’, ‘Apple iTunes StoreFinally Launched InIndia’, December2012 IndianNerve.com, “ Realizing theIndiandream for SaavnonFacebook. generated morethan 2 billionimpressions our musicstreamsbyover200percent and music. This partnership alone hasgrown shared experiences,anddiscoveryof experience that promotes selfexpression, Facebook, foraseamlesssociallistening share andstreammusiconSaavn.comvia Facebook andSaavnallowsour listeners to Open Graph. This deepintegrationbetween their firstglobalandIndianpartneron In late2011,Facebook approached ustobe 26 , this service allows userstoscan , thisservice Co-founder andManaging Director, 29 . - Paramdeep Singh 28 “

Saavn 27 . with themtocreatecontent. view creationsfromvarious otherartists,andcollaborate content, connecttopeoplewithsimilarcreative interests, - Qyuki,which provides aplatform for artiststoshare recently launched theirhighlyawaited socialmediaplatform sourcing ofcontent.ShekharKapurand AR Rahman have Social platforms arealsohelpinginco-creationandcrowd- like Google+,Facebook and Twitter etc. been buildingupastrongaudiencebaseonsocialnetworks videos, audiojuke boxes, trailers,etc.,thechannel has from offering awidevariety ofcontentrangingfromsongs, and hasregisteredover 730millionvideoviews has achieved abaseofonemillioninlessthantwoyears Launched in April 2011, the T-Series channel on YouTube high engagementratio. onFacebooka a largecommunity andhasalsomaintained brandsonFacebookentertainment inIndia. Tips Music has record audiences. gained tractionandspreadtonewer territories, attracting Major festivals such asSunburnandNH7 Weekender in December2012 Tips Musiccrossedthecoveted 1millionfans mark their feedback. music playlist,andget shareitwithanonlinecommunity to listenmusictheirfriendsarelisteningto,createa music recommendationservice. allows The users service networking features, italsooffers usersapersonalised due tointegrationwithFacebook. Apart fromsocial • • • • andSeanPaul.Santana by internationalartistssuch asEnriqueIglesias,Carlos enjoy live performances. Indiasaw majorperformances mindsets leadingtoincreasedwillingnesspay and appreciation ofdifferent genres ofmusicandchanging are popularamongstaudiences,reflectinggreater Both IndianandInternationalartistsmusicfestivals across various musicgenres,locationsandaudiencesize. 2012 saw anumerouslive musicevents inIndiaspread The Indianlive events market isgrowing steadily. Year musicthrives Live percent It claimstohave witnessedgrowth ofmorethan600 Dhinganaisfocusing onsocialmediamarketing. service customer wishestocontinue login inthroughFacebook followed by apaidmodelifthe advertisement freemusicfor 7days for signingupor For thewebsite instance, iMusti.comisoffering Pune and50bands atthenewer festivals. audience ofover 1.2 million performances across120 countries, reaching aglobal festival also tiedupwith YouTube tolive stream the hosted over fans fromacross theworld. 1,50,000 The SunburnGoa 2012Noida whileitspremierproperty Percept’s Sunburnfestival expanded toMumbai and Delhi andBengaluru Electronica, Folk andClassical,expanded fromPune to NH7 Weekender, featuring genressuch asSufi, 1500 -INR10,000 India inDecember2012 withtickets were pricedatINR The American rock bandGunsN’Roses performed in Delhi andBengaluru Invasion Festival 2012 which was organized inPune, world by DJ MAG magazine,performed inEristoff David Guetta, ranked amongstthetopfive DJ’s ofthe 31 intermsofregisteredusersQ12012, mainly 32 , becomingoneofthemajor 35 . 36 34 andperformed with 80bandsat . 30 37 . Socialmusicstreaming . 33 . Apart audience andhasastrongfan base. toensurethat theartistconnectswith the industry costoftheevent.of thetotal for Itthusbecomesvital Expenditure onartistcostsconstitute around60percent been impactedwithmostevents unabletobreakeven. 1-1.5x growth inrevenues, however has profitability discussions, thesegmentwitnessedapproximately 39. 38. Cost Structureofanevent-India and audiencesize eventsbasisinvestmentsClassification oflive long events withmultipleartistsperforming live IIIevents to10,000. Category aretoursor3-4 days5,000 or Internationalartistsperforming for anaudiencebaseof medium sized events featuring Indianartists established IIeventslimited audiencesandminorartists.Category are IeventsCategory arerelatively small,characterised by categories basedoncostoftheevent andaudiencesize. Live events inIndiacanbebroadlyclassifiedintothree audiences. edge toolfor promotingevents bytheright targeting The platform emergenceofdigital hasprovided acutting live acrossevents entertainment in2012 spentapprox INR1billionon The industry entertainment Source: Source:

http://sunburn.in/ discussionsconductedby KPMGinIndia Industry Industry discussionsconductedby KPMGin India Industry Industry discussionsconducted by KPMGinIndia Industry 38 . As perindustry 38 . effective marketing strategies. managementofcostsand artists, artistcosts,branding, Successwillbeafunctionoftheselection will survive. notallplayers ispromising, While thefuture oftheindustry significant collectionsfromticketing andmerchandising. out oftheirannualevents arecurrently abletogenerate propertieswhichestablished have createdstrong brands are abletobreakeven owing topoorticket sales.Only While thereareseveral events mushroominginIndia,few while Percept’s Sunburnhaspartneredwith Absolut OML’s NH7weekender hasBacardi asabrandpartner format, theticket salescomprise60percentofrevenues. the tickets salescomprisetheremainder. Inanartist’s format, sponsorscomprise60percentofrevenues while associating withthefestivals andevents. Inasponsorship interrelated withthesuccessoflifestyle brandsthatare sponsorships wherethesuccessofmusicevents ishighly remainshighlydependentonco-brandingand The industry The power ofabillion: Realizing theIndiandream 39 . 135

Sunburn Santana Sulafest Sean Paul Name ofthe Weekender Vanakkam’ –A

Iglesias Enrique in Concert Mahindra Blues Festival Festival Bacardi NH7 R RehmanLive Carlos

http://www.indianstage.in/events/ar_rahman_live_in_concert.html mar-2012/ http://nh7.in/indiecision/2012/01/09/the-nh7-guide-to-upcoming-music-festivals-jan- http://www.afternoondc.in/48-hrs/event-mahindra-blues-festival/article_47299 Hindustan Times, October 20, 2012 Rollingstoneindia.com, September28,2012 http://www.soundbox.co.in/sean-pauls-multi-city-tour-dates-of-november-announced/ http://nh7.in/weekender/pune/ http://sunburn.in/goa2012/ 44 40 45 43 46

42 47

Realizing theIndiandream Date 28 November 2-4 November 2-4 December 29 December 27-29 February 11–12 February 4–5 October 17-21 October 26and Venue Nashik Delhi, Mumbai, Mumbai Bengaluru Bengaluru Bengaluru, Pune, Delhi, Pune Greater Noida Goa Chennai Taj MahalTrio, JohnLeeHookerJr, SoulmateandAna The secondMahindraBluesFestivalthisyearhad The annualmusiceventhadperformerssuchas Attracted audiencesofaround3000people. Annual eventinNashik,Maharashtraattracting An annualelectronicdancefestival albums ‘ImperialBlaze’and‘Tomahawk Technique’ audiences ofapproximately7000.2012sawthe fourth editionofthefestival Second performanceinIndiawithamulti-citytour. various artistsperforminglikeGrammyawardwinner year. ThefestivalexpandeditspresencetoDelhiand Description Indian Ocean,andShafqatAmanatAliKhanthis Indian artistARRahmanperformedattheYMCAin Nandanam Megadeth, AnoushkaShankar, Pentagram,Hexstatic, Buddy GuywithspecialguestRobertRandolph,the Bengaluru andatF1RocksinGreaterNoida. Bengaluru thisyear. Live performancesattheVladivarRock’NIndiain Part ofamulti-citytourtopromote Popovic. “ strong connectwiththeaudience. and Sunburnwhichcreateanexperience and on building properties such as NH7 Weekender lack ofvenuesandlicensing.Playersneedtofocus ticketing asaculturethatstill needs topick up, players are scepticism of internationalartists, concert. Challengestypicallyfacedbytheindustry addressed for seamless executionofaneventora there aresome hindrances thatneedtobe country isgearingupforthelivemusicculture, considerably negativeformostplayers.Asthe than doublebutthebottom lines havebeen 16-17 internationalacts.Growthhasbeenmore industry inIndiawithperformancesofaround 2012 wasaphenomenalyearforthelive music Ticket Price 15,000 14,950 basedupon number ofdays number ofdays INR 1,950–5,950 INR 2,500– INR 2,500and INR 2,500-INR10,000 INR 1,499to INR 1,800 INR 500–25,000 INR 3,450to 2,750 3,000 basedupon Chief ExecutiveOfficer, Only Much Louder - “ Vijay Nair

The power of a billion: Realizing the Indian dream 137

Independent music continues to rise While the Indian audiences continue listening to and approximately 75-80 independent artists and its catalogue follow film music, recent trends in the industry indicate an includes around 80-85 albums which are currently on increased consumption of non film music and a growing sale. The company is expecting to expand its catalogue to demand for independent artists. touch around 250-300 albums by March 2013. They have also tied up with one of the channels on Youtube - India The independent music scenario in India has changed Music Network to create and monetize the content of drastically in the recent past. With music festivals emerging independent artists. They have introduced an ‘Album Card’ in country like NH7 weekender to special television to assist budding artists monetize content offline. The user format shows like The Dewarist, MTV Sound Trippin, MTV typically pays the band for the card after a live performance, Unplugged and Coke Studio @ MTV providing a platform for and can use a code on the card to download music from the the independent artists to showcase their talent. website52.

Industry participants believe that independent artists will constitute 1-2 percent of industry revenues in coming two years. Till two years ago independent artists were

dead. But in the last two years, independent artists have really picked up. Likes of Adnan

“Sami, Rabbi Shergill have already become Over the last year there has been a surge of huge brands. They are topping“ the charts everywhere. A non-film album currently independent musicians who are creating

sells at almost 40 percent of what an some really good music. Leveraging the A-starrer film album sells and will soon sell “digital medium allows these artists to reach

at around 60-70 percent out to a much wider base of consumers, who are always hungry to get their hands on - Devraj Sanyal some great music. While artists tend to“ earn Managing Director, more money from live performances, sales Universal Music India & SAARC from digital channels such as OKListen are seeing a steady rise, which is a huge improvement from earlier times

- Vijay Basrur Music labels are now embracing band management48. Founder, Local bands are now stepping out of their territories and OKListen travelling across cities. Most of these independent artists are leveraging digital distribution platforms to monetize their content. Regional Music continues to grow Regional markets continue to provide ample scope for growth in the M&E sector and have witnessed a rise in content consumption across media platforms. In the music Talent will be the next creator of content. industry, Hindi film music continues to rule the music

Technology is now enabling artists to charts but there has been a increase in regional music

digitally distribute their content. We consumption too. As per industry discussions, regional “at Hungama have been increasingly music now comprises approximately 30-35 percent of the supportive of emerging talent- Artistaloud “ overall music pie in India52. Tamil, Telugu, Bengali, Punjabi has promoted close to 350 independent and Bhojpuri are emerging regional music markets in artists since its inception and we work India52. closely with record labels, radio stations, Telcos, device manufacturers and brands. Few music labels are also identifying and signing up popular artists in different regional music segments. T-Series has - Neeraj Roy signed artists like Manoj Tiwari, Dinesh Lal Yadav and Managing Director and CEO, Kalpana in the Bhojpuri genre53. Also, with an investment Hungama Digital Media Entertainment plan drawn up to USD 4 million in the Tamil Film music and further acquisition of Think Music Catalog, Sony Music has Scan the QR code to hear more from Neeraj acquired a majority share in the Tamil music market54.

While the independent music scene in India has been largely driven by live performances, it is now a growing 48. http://www.indianmusicrevolution.com/Reviews/Album-Reviews/Swarathma-Topiwalleh 49. http://www.medianama.com/2010/01/223-hungama-launches-artistaloud-com-a- market online. Artistaloud, is a digital platform launched platform-for-independent-artists/ by Hungama for independent artists to showcase their 50. http://nh7.in/indiecision/2012/07/10/nh7-launches-new-music-store-on-flipkart 49 51. http://rollingstoneindia.com/indie-downloads-slowly-paying-off/ unreleased music . Online retailer Flipkart’s digital store, 52. Industry discussions conducted by KPMG in India Flyte has tied up with independent music platform NH7, 53. Radioandmusic.com, March 10, 2009 to promote indie music50. Flyte has also inked a deal with 54. Hindu Business Line, July 19, 2011 artistaloud.com to publish Artistaloud’s catalogue on their site51. OK Listen, a digital platform has associated with with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 138 The power ofabillion: channel, ‘Jhakas’ Similarly, 9XMedialaunched India’s firstMarathimusic 62. 61. 60. 59. 58. 57. 56. 55. Some ofthemajorconcerts byIndianartists heldin2012: international music TV channel –HummaraM Broadcast (CNEB)andLaunch Pad launched Bhojpuri to regionalmusiconly. CompleteNews andEntertainment and haswitnessedthelaunch ofmusicchannels catering The isalsomonetizingonthissegment television industry regional channel which willairhitPunjabi filmmusic also planningtoenterthePunjab market withanother called ‘Tashan’

Salaam Dubai Shreya Ghoshal Sonu Nigam

Concerts Live inBahrain Ooh La One World Concert Concert

priyanka-chopra-debut http://articles.economictimes.indiatimes.com/2012-09-21/news/34002270_1_universal-music-india- Times ofIndia,December20,2011 http://www.hindustantimes.com/Punjab/Chandigarh/Punjab-goes-global/SP-Article1-927847.aspx Dawn,Digital FICCIKPMGinIndia’s report,2012 Industry MediaandEntertainment tashan-31-august http://www.radioandmusic.com/content/editorial/news/9x-media-launch-punjabi-music-channel- Indiantelevision.com, March 3,2012 http://www.radioandmusic.com/content/editorial/news/cneb-and-launchpad-enter-punjab-feb http://www.mxmindia.com/2012/08/cneb-turns-into-hummra-m-bhojpuri-music-channel/ 66 65

“ 67 67 58

. Realizing theIndiandream 57 languages. different musicandinstrumentsacross the sameold classic lyricsaredonewith growing asmusicpreferenceschangeand advertisers. Devotional content willkeep also from new supportfrom consumers and these artiststodistribute their contentand for theindustryasitbecomeseasier Independent artistswillbegrowthdrivers in theindustryupcoming years. be twokeygenresthatdrivegrowth Devotional and Independentartistswill by Tamil, Telugu, Kannada,andMalayalam. Marathi; and a continuedstrongshowing growth inPunjabi, Bhojpuri, Bengali, and and nichecontentwe expect global There isa growing demandforregional Artist A.R. Rahman Shreya Ghoshal Sonu Nigam whileitalsohasaPunjabi musicchannel Co-founder andManaging Director, “ Country Bahrain UAE USA US Guyana - Paramdeep Singh 55 . They are . They Saavn 56 April ,2012to April, 2012 . Period October, 2012 October, 2012 Indian artistsperforming overseas. concert music,which isevident by anincreasingnumberof anicheIndian musicalsocarved for itselfintheworld of have travelled toasmany as80world folk festivals launched inUAE Limited’s (ENIL)FMradiochannel ‘Radio Mirchi’ hasbeen Canada andUK internationally, particularlyinmarkets such asthe US, and overseas, Punjabi musicalsohasaconsumerbase Hindi music,which enjoys alargefollowing bothinIndia of Indianmusic,bothinIndiaandabroad. Apart from of musicdiscoveryarecontributingtoexpand the reach The platforms emergenceofdigital andgreaterchannels Globalization ofIndianmusic footprint to31countries East &North African regionbringingitsinternational channel, MTVIndiawas recentlylaunched intheMiddle markets such asMiddleEastetc. The youth popmusic theopportunity intheunconventionalalso lookingtotap to internationalborders.Musictelevision channels are Indian broadcastingplayers Indianmusic arealsocarrying album sold100,000 copiesinitsfirstweek ofrelease featuringdebut Englishalbum‘InMyCity’ Will.I.Am. The while Bollywood actressPriyanka Choprareleasedher collaborated with Avicii, aSwedish DJ for anew track with internationalartistsandcreatingmusic.SonuNigam The year 2012 alsosaw various Indianartistscollaborating and many othercountries. international conferences inEurope,SouthKorea, Australia 67. 66. 65. 64. 63.

Factiva research http://www.bollywoodhungama.com/news/1433752/Sonu-Nigam-enthralls-crowds-at-Guyana vent/3qF3bK9zk0iqLve9ptJdAA.cspx?rss=136 http://www.myabc50.com/news/local/story/One-World-event-wraps-up-with-star-studded- http://www.radioandmusic.com/content/editorial/news/radio-mirchi-launches-uae http://www.radioandmusic.com/content/editorial/news/mtv-india-expands-middle-east-north-africa The eventtookplaceinthegroundsofIndianSchool A.R. Rahmanalongwith20otherartistsperformedinfront About 20,000peopleattendedtheshow of acrowd27,000people.Tickets werepricedbetween sold out performed forthefirsttimeinUAEandallticketswere Description Bahrain (ISB)andthesingervisited9citiesinUSA USD 35-USD55 59 64 . Punjab’s folk songsandfolk music . 63 . Entertainment NetworkIndia . Entertainment 53 60 . She and 61 62

. The power of a billion: Realizing the Indian dream 139

Some of the major concerts by Indian artists held in 2012:

Concerts Artist Country Period Description

OzAsia Kailash Kher Australia September, OzAsia Festival plays host to 20 performances and 73 events Festival68 2012 featuring 300 artists and presenters from various countries. New Zealand UK tour along with band covered 20 cities and tickets UK Tour69 were priced between £25 and £75. Kailash Kher has also UK performed in other countries like USA, Pakistan and South Africa

Roop Kumar Roop Kumar UK September, The artists toured 3 cities in UK Rathod and Rathod and 2012 Sunali Rathod70 Sonali Rathod

Kumar Sanu Kumar Sanu and Pakistan June, 2012 The entry ticket was priced at INR 2,000 and Alka Yagnik Alka Yagnik Concert71

Honey Singh Honey Singh, Bahrain July, 2012 Organisers charged BD15 to BD25 per ticket for the concert. Concert72 Money Aujla, He also performed in Kenya for the first time in November, J-Star, Alfaaz 2012 and DJ Andy

Sunidhi Sunidhi Bahrain October, 2012 Tickets were priced between BD3 and BD30 per person. Part Chauhan Chauhan June, 2012 of the proceeds from the event was given to Bahrain Mobility Concert73 New Zealand Centre. New Zealand event’s tickets were priced between USD 40 - USD 150

Shankar, Shankar, Ehsaan UAE June, 2012 The event was organised at Oman International Exhibition Ehsaan and Loy and Loy Centre which recently opened doors for entertainment Concert74 shows after 18 years. They also performed for the first time in Australia in February, 2012.

Key industry challenges Piracy The Indian Music Industry (IMI), the umbrella organization will dissuade consumers to purchase illegitimate content. of the music industry that is responsible for combating Music cloud services, affordable download options, piracy in India, estimates that the industry faces losses of subscription models, ad-based free streaming of music INR 200 billion every year due to copyright infringement75. are some of the initiatives which are expected to bring The International Federation of the Phonographic Industry consumers closer to legitimate music consumption. (IFPI) estimates that around 54 percent Internet users Additionally, certain players are taking additional initiatives in India access illegitimate services monthly76. This to legalize music consumption. T-series, for example, is represents a huge opportunity, if at least some of them issuing licenses at the cost of INR 1,000 per month to can be migrated to licensed services. In March 2012, the mobile retailers. The license allows a mobile retailer to organization obtained mandatory injunction orders from the legitimately transfer music to customers’ handsets78. This is Calcutta High Court directing 387 Internet service providers an initiative to fight piracy at the bottom of the pyramid. to block 104 music copyright-infringing web sites77. However, the industry feels that the ruling had limited Additional strategies to combat this issue include pursuing success and expects stringent action from government to litigation and lobbying for tougher anti-piracy laws, eradicate unauthorized use of content. garnering support from online intermediaries like mobile service providers and ISPs and spreading awareness The industry is working towards making legal and amongst users to refrain from consuming pirated music. affordable music available through digital platforms which

68. http://www.radioandmusic.com/content/editorial/news/kailash-kher-perform-ozasia-fest 73. Factiva research 69. http://www.ethnicnow.com/channels/editors-choice/press-release/1/6792/kailash-kher-uk-tour- 74. http://oman.dxbwebsite.com/shankar-ehsaan-loy-set-to-rock-muscateers/ april-2012.html 75. Digital Piracy: No Music to Ears, May 04, 2012, Indiabiznews 70. http://www.songkick.com/artists/260264-roop-kumar-rathod 76. IFPI Digital Music Report 2013 71. http://www.themusicbeats.net/topics/kumar-sanu-concert-in-karachi-pakistan 77. The Hindu Business Line, March 15, 2012 72. Factiva research 78. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 140 The power of a billion: Realizing the Indian dream

Pricing parity, technology and transparency One billion dollar dream of music industry - are going to be the three growth drivers Opportunities and challenges for the industry. We first need to have “legal music available at affordable price points. Only then will consumers shift from consuming pirated music to legal stores. The next wave of growth will come from newer platforms and technology. New

streaming models, download models,

phone-to-phone sharing will enable better music discovery and consumption options. Neeraj Kalyan Players who are technologically“ smart President, and innovative will flourish. We also need Super Cassettes Industries Ltd to bring in greater transparency in music business. Robust cyber laws are the need of the hour. With proliferation of smart devices and internet penetration, the digital and online consumption - Devraj Sanya is steadily increasing in the country, which today Managing Director, stands at second largest internet user base in the Universal Music India & SAARC world. The real task at hand for the Indian music industry is how to grow the music business and set a real goal of a billion dollars in annual revenues to the music industry that we can achieve in the next Digital threat to production houses decade. The growth of YouTube as a digital video sharing platform The fifth year of flat or declining physical sales and has allowed amateur and professional artists alike to revenues has directly resulted in a reduction of showcase (and often monetize) their content, reaching artist videos, new talent promotion, investments viewers directly. This has adversely impacted the relevance and job losses. The only way to revive investments of traditional production houses, who rely upon digital 79 in new artists and create more jobs (in music and music for 30 percent of their revenues . VAS industry) is by increasing the revenues of the music business. Until few years ago, it was possible by to sell more albums and at a higher price but the Significant dip in revenue from Caller steady decline in CD sales explains why that is no Ring Back Tones (CRBTs) longer a possibility. The Telecom Regulatory Authority of India’s (TRAI) directive The current estimated value of the Indian music to service providers for obtaining a confirmation from industry revenue is less than USD 200 million consumers for activation and renewal of value-added (Approximately INR 1000 crores) whereas the services have severely impacted the industry’s digital global music industry revenues are estimated at revenues from CRBTs. USD 23 billion in 2012 (as per Recording Industry Post the TRAI guidelines in 2011, the industry has Association of America). Based on the declining witnessed a 40 -50 percent dip in CRBT revenues and CD sales, physical sales will continue double-digit a similar dip in mobile radio, video streaming and other declines in units and even greater declines in value. offerings in 2011. Industry participants anticipate further The silver lining is growth of digital albums which declines of 60 – 65 percent in CRBT revenues once all will continue to grow in unit sales. However, gains telecom carriers comply with the TRAI directives. in digital sales will continue to be erased by declines in physical sales. Considering a modest inflation at around 9 percent a year, current revenues cannot support a sustainable music business.

The Mobile economy for the past several Thanks to recent Copyright Act amendments years gave a growth in revenues for the placing unprecedented fetters on the content Music Industry. This year, driven by the TRAI owners to negotiate a fair value for their contents, “directive, there has been a considerable drop TRAI guidelines hampering the marketability of VAS in some services, such as CallerTunes etc. content and unabated rise in internet piracy, the

The paid customer base has shrunk from 80-90 music business has never been more risk prone

million subscribers to 40 million in less than than it is today. The good news is that India is at a year. There is still no clarity on next steps. the threshold of digital revolution and the growth There is a need“ to develop a quality music curve is yet to arrive. Now is the time for the music service across devices and generate more out industry to focus its efforts on developing a new of mobile internet through micro transactions. paradigm for music revenue creation. Advertising driven models will not work for the industry.

- Neeraj Roy Managing Director and CEO, Hungama Digital Media Entertainment

Scan the QR code to hear more from Neeraj 79. IFPI report 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 141

Luckily, non-physical music revenue is growing and subscriptions as possible? Just an average monthly is the only kind of revenue that can support a vibrant subscription of only USD2 bundled into 3 billion devices sustainable music business over the long term. The would take global music revenues to more than USD70 industry needs to be bullish on the following for long billion from current USD23 billion and if Indian music term gains: can garner even 1 percent share of this global market in next 8-10 years, we are home. • Music synchronization license revenue is still a neglected child and needs a little pampering by Before we embark upon this journey to achieve our music labels. dream of increasing pie size, a number of challenges need to be overcome. It will take an organized effort • Advertising-revenue sharing with video search by the music industry and our technology, device platforms such as YouTube and Vevo generating and mobile service providers to make this dream a growing revenue with others like Dailymotion joining reality. All the music stakeholders from music labels, the party. film producers, musicians and authors to singers, publishers, digital content aggregators and VAS service • Music cloud lockers such as iTunes Match, Amazon providers must organize now to build the business we Cloud Drive, Google Music downloads, Xbox Music all want. and Samsung Music Hub are yet another potential revenue for the music business but each one has its’ For example, T-Series has spent last year in setting own pros and cons. the right foundation in terms of content digitization and meta tags, training the existing teams, getting • Music performance revenues is still a very under the right people on board as partners, and putting the rated vertical in Indian and needs to be nurtured for distribution pipes in place for seamless delivery in the long term gains. future. Moving ahead, some of the priorities we will be concentrating on in coming years would be what • RBT subscriptions and streaming services remained the master of the digital economy but downloads you can do once you have everything connected, revenues are clearly important pieces of the revenue every license in place: solve the problem of discovery, pie going forward. micro payments and what people are going to be listening to next, and making sure that they can get that • Music streaming subscription revenues are going to social signal in a way that is meaningful, exciting, and be another major growth area in the future. engaging and help increase the pie size. Integration of Social Media (Facebook, Twitter) and Video Search Proliferation of legitimate internet platforms such as platforms (Youtube, Daily Motion etc) with download iTunes, Hungama.com, Flipkart, T-Series.com and recommendations is going to play a pivotal role in Ovi etc., which started offering licensed content for nurturing the paid eco-system in the near future and downloads to the consumers, is playing an important today we are at the threshold of this metamorphosis. role in seeding the paid music eco-system. Other music streaming services namely Saavn, Dhingana, Gaana, Building the correct and comprehensive metadata for in.com etc, although licensed by the music industry, are better search and discovery is going to play the most offering free legitimate music to the consumers but are important role for individual content owners and is the solely dependent on ad supported revenue models and first stepping stone for the future success. sustainability of such a model over the long term is a big question mark. Although combined music-streaming Under reporting and complete reliance on platforms services in India may only have 3 to 4 million music for revenue data is another challenge and unless subscribers today, 30 to 50 million are clearly possible the industry adopts a more robust B2C Content in next 8 to 10 years. At 40 million subscribers at USD2/ Delivery Network under direct control of the content month (considering currency depreciation and inflation owners likethe one designed by French technology in next 8-10 years), the industry can nearly achieve platform ‘Digiplug’ for a major label in the West. USD1 billion in gross revenues (Approximately USD 400 Until then music industry will continue following the million in net revenues after taxes and revenue splits streaming / download platforms with a beggar’s bowl with service providers) from online music subscription or alternatively demanding huge upfront guarantees services alone. However, in order to sustain revenue which in turn may make survival of these services growth in the streaming vertical, industry will eventually questionable leading the industry back into the rut. have to shift towards a subscription based eco-system The Producers and Studios also need to rationalize in a planned and sustained manner as free music is a the current unsustainable price for music rights which very dangerous thing and we would not like our children will help the music industry mitigate its risks and grow up believing music is for free. instead focus on increasing the pie size by channelizing investments in new technology platforms. The steep Globally there are only an estimated 300 million music hike in music acquisition cost in recent times is only buyers in a world of 7 billion people. There are 6 billion killing the goose which may lay golden eggs later. active cell phones and 1.2 billion smart phones80. 50 million new cars hit the roads every year. How can music subscriptions be bundled into as many of these

80. http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats/a#subscribers with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 142 81. ownership onlyto producers andrecordlabels. out filmuse. The 2010 version oftheBillassignedcopyright each entitledtoequalsharesof royalties received for the etc.) ofunderlyingworks andassignees(publishers)are the new actspecifiesthattheauthors(lyricists,composers Intellectual PropertyOrganization)normsintoexisting laws, Aimed atincorporatinginternationaland WIPO (World of musicasitgives themownership rightsfor theirworks. 2012. This hasbeenwelcomed by writersandcomposers Copyright (Amendment)Bill,2012 hasbeenpassedinMay Music commerceinIndiaisatthecuspofchange. The Music publishingisthefuture Themes forthefuture

Indian Music Service, Indian MusicService, Taking Page From Spotify, GoesPro, 13 Feb 2013, The New York Times a largemarket anditwillbeintheinterestofISPto too. Inthelongterm,legitimatecontentislikely tobe pirated content–thisapproach mustbeadoptedinIndia law enforcement toproactively monitorandrestrict countries work closelywithcontentowners andwith online piracy. Providers Also, InternetService insome these sitescanbeasignificantcatalystinreducing to raiseawareness andthereby curbtheiradson displayed onthesesites. Working withlargerbrands times, advertisements fromlargebrandsthatmay be addition toseveral smalleradvertisers, thereare,at The piratesites’ revenue modelisadvertising.In but ifthatrightisnotrespectedthenitoflittle use. Copyright isanessentialdriver inthecreative process, hub merelycreatesavoid for anothertofill. be effective becauseshutting down onemassive piracy may drainingand befinanciallyandmentally not the effort. Shutting down sitesthroughlegalprocesses -how longtheeffect willlastandwhetheritwas worth questionis is notthequestion,moreimportant legal actionsagainstpirateonlineplatforms iseffective was backthe industry tosquareone. Whether taking short-lived asanotherHighCourtdilutedtheorder and Court againstanumberofillegalsitesbutthejoy was afavourableIMI recentlyobtained orderfromoneHigh to curbit. despite having thetechnology, laws andinfrastructure unabated andthegovernment hasfailed tocontrolit onlinepiracy,or filmsisdigital which iscontinuing challenge content,whethermusic toentertainment music services onamonthlybasis music services percent ofInternetusersinIndiaaccessunlicensed a greaterreasonisinternetpiracy;itestimated55 the successorfailure ofthefilmatbox office. But and its’ orsuccessisdirectlyproportional to popularity dominated by filmmusic,which hasashortshelf life India’s mediaeconomy isthatpopularmusicinIndia A partofthereasonfor music’s smallproportionof free ride Online Piracy-Howtoeffectively control the 81 . The major . The public forum thatwillenhancetheirbrandvalue. award for brandswhorespect thecreative copyright ina should usetheirmight,weight andprestigetocreatean the creative industry. associations The contentindustry corporate world aboutthedamagethey may bedoingto This opportunity shouldbeusedtoeducatethe annual award shows where many brandsalsoadvertise. houses owning Satellite&Radio Networksallhost institutions such as The Producer’s Guild,majormedia aswellThe astheirwell contentindustry respected take thebrandssupportingpiratesitesheadon. needstobemore pugnaciousinitsapproachindustry to a collaborative approach doesnotwork, themusic for which needsjoinforces. theentireindustry Where rights. The fightagainstpiracyisanotbattle butawar ofappreciatingcreativeconsumers ontheimportance media following couldspreadawareness amongst Further, theactorsandsingerswhohave strong social of themarebrandambassadorsfor thesebrands? buildingawareness,start butwillthey doitasmost / celebritiestoany ofthesebrandsisallittakesto One tweetoraFBpostday by mainstreamactors economy by advertising ontheseroguesites. how they aredoingairreparable damagetotheIndian and makingthemrealize theirsocialresponsibility any new legislationby simplyapproaching thesebrands commercial infringementwithoutnecessarilyrequiring may helptoaddressmassscale,enterpriselevel distribution companiesowning the TV &Radio networks brands andtheirPRagencies,thecontentmedia By simplyleveraging theirexisting relationshipswith sales. work withcontentowners topromotelegitimatemusic represent theviews andopinionsofKPMGinIndia. expressed hereinarethoseoftheauthorsanddonotnecessarily article was provided by NeerajKalyan. The views andopinions noted,allinformation includedinthiscolumn/ Unless otherwise administration. societies willhenceplay acriticalroleinrightprotectionand records labelsandpublishers.Publishers andcopyright case inthe West, musicrightswillnow besplitbetween master recordingandpublishingrightsinIndia. As isthe Prior tothis,musicrecordcompanieswere handlingboth FICCI 2013 143

The Amendments to the Copyright Act are like an undersea earthquake: all is calm above the waters and the next moment “the landscape is unrecognisable. On the one hand, the Amendments will open up untapped revenue streams for the copyright industries, spread the risks and rewards, bring greater transparency, certainty and flexibility to the licensing process; on the

other hand, they will unleash a tsunami

of data that can only be processed by music publishers and Collective Rights Management Societies. The“ early adopters will be the biggest gainers; but if you live the Amendments like a trauma then you need good external advice or you won’t be part of the new landscape.

- Achille Forler Managing Director, Universal Music Publishing Pvt. Ltd.

However, the current state of publishing in India is complex given a lack of proper Meta data and documentation. This makes identification of the copyright owners for proper disbursement of revenues a difficult task. There are often multiple publishers for the same piece of content. Complexity in music publishing has deepened with the introduction of a plethora of digital music platforms which need to pay music royalties.

The market for music publishing, though at a nascent stage currently, is set to grow rapidly with the introduction of copyright law amendments. Music producers are working towards incorporation of Meta tag information (such as time and date of creation, creator or author of its content, etc.). Producers and composers are continuously approaching publishers to license their works, users of these works are also adhering to copyright rules and obtaining requisite licenses. Indicative of growth expected in the segment, September 2011, Sony Music launched Sony ATV, its international music publishing business in India82 while Universal Music Publishing Pvt. Ltd. fully acquired Deep Emotions Publishing in 2012.83

The Amendments are spot on at a time when

digital technology, which has been mostly

destructive for the copyright industries so “far, is now giving us the tools to build a new Golden Age.“ The much derided political class has shown greater acumen and foresight than the copyright industries: will anyone have the grace to acknowledge that?

- Achille Forler Managing Director, Universal Music Publishing Pvt. Ltd.

82. Sony/ATV forms exclusive JV with Sony Music for India foray, The Economic Times, Sep 19, 2011 83. soundcloud.com/deep-emotions with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 144 The power ofabillion: million socialengagementsandover 120,000 download the show, Dewar’s Indiafacebook pagegeneratedover 3.2 distribution ofthe10 collaborative tracks createdduring rated brandchannel atthetime. inthecountry Through channel garneredover 1.7 millionviews, makingitthetop category.and Entertainment The show’s official YouTube medal atCannesLion2012 Awards for BrandedContent Similarly, Bacardi India’s Dewarist, a TV show won bronze 87. 86. 85. 84. revenues throughlicensingagreements. Gaana.com, Saavn, Dhinganaetc.generateadditional Flyte, Apple’s iTunes storeandstreamingsitessuch as companiessuchMajor onlinemusicservices asSpotify, models andlicensingcontenttoonlinemusicservices. companies arenow embracingvariousdistribution digital In ordertogeneratenew revenue streams,music Adoption ofnewrevenuemodels and thehighest‘pre-booked’ albumlastyear onFlipkart across allplatforms andisamongstthemostsuccessful season was thehighestdownloaded musicalproject and hassetabenchmark for musiclovers. The second artists fromdifferent genres andcountriestooneplatform thatbringstogetherdiversea dynamicmusicproperty Coca ColaIndia’s Coke Studio@MTV hasestablished under asponsorshiparrangement. unlock value. Brandscontribute60percentofrevenues These arrangements aremadefor longtermsinorderto audiencesandcreateanexperientialtarget property. live musicevents andconcertsinordertoengagewith Several lifestyles brandsareassociatingthemselves with services. enduring brandsaroundmusicplatforms, events and content, labelsandevent organizers areseekingtobuild Seeking tocapitalizeonthelongevityinherentmusical branded properties Branding ofcont the audienceandisattopofmindfor brandrecall. properties andcreateanenriching experience thatdrives In thenearfuture, brandsareexpected todrive music data connections data consumers tosyncmultipledevices over cellularorwi-fi listening onupto5devices peraccountandallowing planned. Key features offline includead-freelistening, free trial. Apps for Android andfeature phonesarealso with amonthlysubscriptionfee ofINR 215 after a30day The productwillinitiallybeavailable on Apple’s appstore 2013 for fortheIndianmarket. itsstreamedmusicservice Saavn issettolaunch apaidsubscriptionmodelinMarch, streaming models. pay-per download toad-basedmusicstreamingandpaid project iscurrently active inabout21countries. poweredthe musicservice by Universal MusicIndia. This devices andisaccompaniedby anannualsubscriptionto catalogue. The launcher willbeembeddedonover 2million and providesaccesstoUniversal’s usersinstant music project’ for HP. A launcher isembeddedontoallHP laptops Universal a‘musiclauncher MusicGrouphasstarted ultimate experience. Oktoberfest, andSunburnhave builtsuch propertiesfor an Eristoff Invasion, Bacardi NH7 Weekender, The GreatIndian

Medianama.com, February 12, 2013 Radioandmusic.com, June 25,2012 Radioandmusic.com November 1,2012 discussionsconductedby KPMGinIndia Industry Realizing theIndiandream 87 . ent andbuilding 84 Properties such as 84 These include These 84 85 86 . . streaming service onselectmobiletariff plansin streaming service Austria. partneredwith service, T-Mobile tooffer unlimitedmusic April 2012, Deezer, aFrench web-based musicstreaming offeringsenhance theirservice andreducechurn rates.In structures helptelcosandISPsto —musicservices and ISPs’ commercialfootprint established andbilling toreachservices massmarket —leveraging telcos’ situations for bothparties. While bundlingenables music providers (ISPs)canensureinawin-win internet service oftelcos and withtheservices Bundling musicservices can bemonetisedthroughmusicsales. 2012 tocreatebrandanthemsandcorporatejingleswhich Similarly, Universal MusicIndiahaslaunched a division in break thatbarrier. in December2012 andemergedasthefirstever videoto premiered on YouTube, crossedtheone-billionviews mark achieved throughthesocialmediaplatform. The song Style’, isanexampleandsuccess ofinternationalvisibility larger audiences.SouthKorean artistPsy’s ‘Gangnam varied genresandthereby allowing artists’ exposure to Social mediaplatforms areenablingeasierdiscoveryof consumption ofnewergenres Simplified music discovery to encourage Electronic MusiclistenersinIndia Music Indiatocaterthegrowing populationofpurely Universal MusicIndia. Itisasub-labelsetupby Universal first purelyelectronicmusiclabel, isbeingintroducedby EDM musicfestivals inIndia. “ContraBass Records”, India’s has seengrowth in audiencesandleadingtosuccessful Electronic DanceMusic(EDM),apopularmusicgenre encourage consumptionofnew genresofmusic. the audience. Various players stepsto industry aretaking and internationalmusichave seenagood tractionamong space haswitnessedaconsiderableactivity. Both regional position intheIndianmarket, thenon–Bollywood music While Bollywood musiccontinuesto commandadominant music discoveryasatooltoachieve greater success. interest innew genresby audiences andtheemergencyof 90. 89. 88.

Radioandmusic.com, November 21,2012 http://youtube-trends.blogspot.in/2012/12/gangnam-style-crosses-one-billion-view.html subscriptions-with-mobile-tariffs-in-austria/ http://thenextweb.com/eu/2012/04/26/deezer-partners-with-t-mobile-to-offer-unlimited-music- “ 89 Itssuccessisindicative ofgrowing illegally fromtheirplatform. content cannotbepirated or downloaded engage withhiscustomerandensurethat innovative atthesametime continues to The winner will besomeone who canbe delivery ofcontentisfreefor the end-users. payments and use advertisersonlywhere of thetechnology, build trust with users on application developershavetostayahead world isyettobeunlocked. Website and biggest opportunitiesinthedigital music and digital delivery ofcontent – the improvement ofdigitalinfrastructure With cost effective streaming, constant 90 . Sand Hill Counsel - Anand Kumar “ Patner, 88

The power of a billion: Realizing the Indian dream 145

Growing radio and television penetration will further accelerate this trend. During 2012, we observed conversion of some of radio channels into all English music channels Recent reports of industry performance while the television industry observed launch of niche indicate an upward “correction”. Organized channels in the music category. funding (such as hedge funds and private “equity funds) can provide much needed lift-off to the music industry. With wider International music on the rise proliferation of devices, rapid evolution of technology and changing consumer With world’s second largest English speaking population 91 habitats, such players can provide (more than 125 million) , India has a big audience for necessary funding to connect the dots over

Western music. The growing popularity of international a long gestation period. In the near future music can be validated by the fact that ‘Vevo’– an online we will witness increasing importance destination for International music – ranks 7th among 92 of video packaged along with audio on the most viewed YouTube channels in India . While the portable high-capacity mobile devices at“ a country is seeing a surge of demand for International music mass affordable price. Cheaper and faster and artists, there is lack of promotion and availability of pipe (for e.g. advanced LTE) access will international music in comparison to other genres of music drive consumption on digital platforms and content. Many music stores are trying to bridge this gap revive the music industry fortunes. with launch of legitimate international music destinations. While the consumption of international music on mobile - Mandar Thakur is just 5-7 percent of the overall music consumption in the Chief Operating Officer, 93 country , it is expected to grow its share in the coming Times Music years.

Capturing this opportunity is digital distributor South Asian Audio Visual Network (Saavn), which has expanded its catalogue with a wide range of international music through the launch of a new product ‘Saavn English’. The company has tied up with Sony Music Entertainment and Universal Music Group to offer more than 250,00094 international songs on its website. Saavn English brings music from artists including Jay-Z, Pitbull, Shakira, and Michael Jackson, for Indian listeners. Apart from the website, Saavn also plans to launch Saavn English on mobile platforms such as iOS, Android, and Java/J2ME (Feature phones).

Another player is 9X Media Group, which has launched its latest offering in the space with an online music store for international music at www.9xo.56060.in. It has also created a WAP portal to download videos, wallpapers, ringtones and audio packs. 9XO has recently partnered with Universal Music to launch ‘GRRR!’ – a collection of the popular songs from The Rolling Stones, an English rock band, over the last five decades. It also carried out a month- long campaign celebrating the band’s legacy in India.95

NexGTv, a mobile TV service has unveiled an English music channel called nexGTv Music. There are over 300 popular English songs on the channel, and the number is set to grow.

Conclusion The industry is innovating and licensing every viable form of music access for consumers. The next phase of growth for the industry will be driven through providing digital music services to consumers at affordable prices, with ease and access they seek. The battles for music audiences will be fought over the Internet. Improved digital infrastructure and maturing audience tastes will catalyze growth. Players which achieve consumer loyalty through enhanced music consumption experiences will stand to benefit.

91. Census 2001 92. http://www.business-standard.com/article/companies/cira-media-launches-4-english-music- channels-113021400458_1.html 93. http://techcircle.vccircle.com/2012/02/01/hungama-brings-vh1-on-the-mobile/ 94. http://www.radioandmusic.com/content/editorial/news/saavn-expands-india-catalogue-with- intl-music-partners-tips-race-2 95. http://www.afaqs.com/news/story/35323_9X-Media-Group-launches-online-store-for- with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative international-music affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 146 08 Animation, VFX Animation, VFX and Post Production Lights, Camera, Animation! Lights, The power of a billion: Realizing the Indian dream 147

Outlook for the year The year 2012 was a mixed year for the Indian animation Domestic animated feature film releases over the past and VFX industry. While some players witnessed healthy year (‘Chhota Bheem’, ‘Arjun-The Warrior Prince’, ‘Delhi growth on the back of increased workflow as the industry Safari’, ‘Krishna aur Kans’ and ‘Sons of Ram’) did not meet grew globally, others struggled to keep the momentum expectations and this has had a detrimental effect on going as the squeeze on pricing and margins increased. producer interest in the segment. The performance of the animation industry was more flat, whereas VFX and Post-production grew in line with the On the VFX and post-production front, 2D-3D conversion overall performance of the film and TV industry. activity increased and the quality of VFX in movies and TV improved significantly. Overseas players now consider India a viable source for content and quality work at affordable pricing.

(Amounts in INR billion)

Segment 2008 2009 2010 2011 2012 CAGR (2008-12) Growth in 2012

Animation services 4.8 5.5 6.2 7.1 7.6 12.17% 7.0%

Animation production 3.6 3.7 3.9 4.2 4.5 5.7% 7.1%

VFX 2.3 3.1 4.5 6.2 7.7 35.3% 24.2%

Post-production 6.8 7.8 9.1 13.5 15.5 22.9% 14.8%

Total 17.5 20.1 23.7 31.0 35.3 19.2% 13.9%

Source: KPMG in India analysis

Size of Animation, VFX and Post production industry in India

Animation revenues include revenues from work outsourced to India (animation services), locally created animation movies and revenues earned from animation used in commercials (animation production). VFX revenues include revenues generated from shots created for producers for domestic and international movies.

Source: Industry discussions conducted by KPMG in India

While release of six animated movies in 2012 was a mile stone for Indian Animation industry, the key to success still lies in

“moving Animation genre from kids to family entertainment.”

“Central government’s pro active intervention in to signing co-production“ treaties with animation relevant countries and encouragement for creating original animated content from India will go a long way in stabilizing the industry.

- Ashish S K CEO, Reliance Animation

Animated films - a large, growing market globally The animation-film category has expanded significantly in recent years, both in terms of releases and box-office collection. Of the top 100 grossing movies released in Hollywood in 2012, 13 were animated.

Number of Animated Movies in top 100 worldwide collecton

Source: www.boxofficemojo.com with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms affiliated Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 149

Top 10 highest grossing animation films worldwide

Rank Title Studio Worldwide gross collection (USD million)

1 Toy Story 3 Pixar USD 1,063.2 2 The Lion King Walt Disney USD 951.6 3 Finding Nemo Pixar USD 921.7 4 Shrek 2 DreamWorks USD 919.8 5 Ice Age: Dawn of the Dinosaurs Blue Sky USD 886.7 6 Ice Age: Continental Drift Blue Sky USD 875.3 7 Shrek the Third DreamWorks USD 798.9 8 Shrek Forever After DreamWorks USD 752.6 9 Madagascar 3: Europe’s Most Wanted DreamWorks USD 742.1 10 Up Pixar USD 731.3

Source: BoxOfficeMojo.com

The India story Revenue distribution of the Indian animation industry The Indian animation industry comprises of independent Growth in the childrens’ television genre and the six animation studios like DQ Entertainment and Green Gold theatrical releases in 2012 manifested in a greater share of Animation, Indian divisions of international studios like revenue for these segments as compared to direct to DVD Rhythm and Hues and Technicolor, animation divisions of content. large Indian houses like Tata Elxsi and Reliance Animation and several small independent studios. It is estimated that there are about 300 animation companies in India Revenue distribution of animation industry employing more than 12,000 people with nearly a quarter working as freelance animators.1

Outsourced work remains a significant component (63 percent)2 of industry revenues. Indian players are primarily focussed on labour-intensive production and post- production activities at the lower end of the value chain although some firms are moving up the value chain. While there are a few firms with world-class capabilities, there is a need for a wider section of the industry to upscale their capabilities by focusing on creation of proprietory content; unfortunately India has so far been unable to offer a larger domestic market to support this transition. Content development and pre-production activities for the domestic and the outsourcing markets are at a nascent stage in India. However, this is expected to gain momentum owing largely to corporate e-learning programs and to universities offering degree courses in animation. This requirement for Source: Industry discussions conducted by KPMG in India content, added to the inclination of corporates (especially in the US) to outsource custom content development, is likely to be an opportunity for animation content development companies in India.

01. Economic Times 8 Jul 2012 02. KPMG in India analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms affiliated Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 150 The power ofabillion: ‘Chhota Bheemandthe ‘Chhota Throne ofBali’. major animatedfeature filmprojectsinpipelineexcept for audiences tothetheatresfor such movies. There areno and multiplexes in Tier II and IIIcitieswhich would attract screens of traditionalthemesandpenetrationquality Hollywood films,limitedproductionbudgets,appeal was possiblyduetofactors such ascomparedto asquality lacklustre performance ofmostdomesticanimatedmovies and animatedcharacters asthemainprotagonists. The was moreofamainstreammovie featuring bothhuman which grossedmorethanINR1.2 billion;however this movies releasedinIndia.‘Makkhi’, was anexception, of approximately INR440millionofsixHollywood animated than INR120 million(USD2.18 million)asagainstcollection collections fromthesemovies was estimatedtobeless live uptoexpectationsatthebox office theatrical –total ‘Krishna Aur Kans’). Unfortunately, thesefilmsdidnot and thecursefromDamyan’, ‘Makhi’, ‘SonsofRam’ and (‘Arjun-The Warrior Prince’, ‘DelhiSafari’, Bheem ‘Chhota feature filmswereonthis madeandreleasedtocapitalise for animatedcontent. highquality A numberofanimation indicative ofthelatentinterestamongstIndianaudiences live actionandcomputergeneratedanimatedcharacters, is The successofmovies such as‘Avatar’, featuring ablendof expectations? Indian animationmovies failtomeet industry. is expected tobeacatalystfor thedomesticanimation ofanimationcontentamongadults increasing popularity in viewership for the14+ agegroupcategory. The viewership ofkids’ channels increase indicatessubstantial of animationcontentamongadultsasapercentage the children’s isneeded.Increasingviewership category as inthewest, anappealtobroaderaudiencesbeyond For animationtoachieve thesamelevel ofsuccess inIndia Animation graduallycomesofage Key developments 03.

Industry discussionsconductedby KPMG in India Industry Realizing theIndiandream 3 include: Recent co-productionsbetweenIndianandforeign studios ratherthanfocusproperty onoutsourcedwork. now increasinglylookingtocreatetheirown intellectual Indian studios, by collaboratingwithforeign studios, are Partnerships asasteppingstone Moving upthevalue chain – Source: Indian studio DQ Entertainment DQ Entertainment DQ Entertainment Crest Animation Crest Animation www.dataquestinfoway.com, www.crestindia.com Animation, USA for ColoursChannel& Sony Walt DisneyTelevision Kodansha andTMS Nickelodeon Channel Entertainment, (Japan) Foreign studio Method Animation Moonscoop (France) Star Suraj: Theraising Swan Princess–5 Season 5 Film/ TVSeries Mickey Mouse Octonauts Charlie Chaplin Club House

The power of a billion: Realizing the Indian dream 151

TV channels driving demand Key challenges While channels such as Disney, Nickelodeon and Cartoon Network, expanded their presence, there were also new Content and creativity launches, for example following the launch of Sun Group’s Thus far, Indian animated content has largely consisted of regional language kids channel Kochu TV in late 2011, reworks of traditional mythological content with limited Discovery also launched their kids channel Discovery focus on compelling story telling. The few Indian animation Kids. Turner Network forayed into the live action original films that have attempted to explore other themes have productions space in India with shows such as ‘M.A.D’ met with limited commercial success. Thus technical which continue to be popular and the second season of quality has taken precedence over content. The industry animated series ’Kumbh Karan’. As childrens’ channels are does need 1-2 successes of original films and content in driven by animation content, this drove animation studios order to spur interest in this category. to produce more content, including original Indian content. Owners of comic strip intellectual properties are also trying to leverage these to create animated episodes for various Costs vs Revenue TV channels. The average Indian animation movie budget is limited - less than 1 percent of the budget of a typical Disney-Pixar film (such as Ratatouille). While audiences expect animation Animation in TV advertising on the rise content to conform to international standards, few are The Indian television advertising industry is projected to willing to pay high ticket prices. The economics of animation command a 38.26 percent4 share of the advertisement films in India are therefore unviable in the absence of large industry pie in 2013. The digitization of the Indian cable audiences. industry is likely to be the catalyst for the launch of several new channels in the next 2 years. This, coupled with the growing popularity of animated characters in advertising Talent is expected to boost the industry. Animated characters in There is a paucity of high quality skilled manpower in the advertising can help break thorugh ‘celebrity clutter’ and animation area. Moreover, there are only a few universities also be a cost effective way of straddling cultural nuances such as Birla Institute of Technology, Bharati Vidyapeeth across markets. University, All India Council for Technical Education (AICTE) and credible training schools offering degree courses and training in animation. Although Indian studios meet Licensing and merchandising on the rise technological standards and are capable of providing quality Licensing and merchandising is another revenue stream output to Hollywood studios, there is significant room being explored by animation studios. Many popular for improvement in terms of technical experience and animated characters are now entering Indian homes in the expertise. form of novel merchandise. Examples of such licensed merchandise include’Jungle Book’ apparel and accessories for babies, kids and teenagers through DQ Entertainment, Lack of incentives and government ‘Roary the Racing Car’ toys through Zapak, ‘Chhota Bheem’ support 5 merchandise from Green Gold, etc. The industry would benefit considerably from government support through measures such as reservation of a certain number of hours of domestically produced content on The AVGC sector has been actively lobbying channels, ‘must-carry’ clause for childrens’ channels and for some much needed and long overdue policy tax benefits and treaties. Incentives and tax benefits have intervention. We need to have co-production been a major driver for the growth of the animation and VFX “treaties with countries like Canada and France; industries in Canada, Korea, Philippines and Indonesia and in the absence of such treaties Indian companies Indian industry clearly needs Indian government support. are not even in the consideration for global co- production deals. Local kids content production Fragmented market for domestic consumption needs to be given a boost by setting up TV and Film Funds, providing The industry is highly fragmented with a large number of tax incentives and starting a Terrestrial Kids small studios carrying out low-end work. One of the largest players, DQ Entertainment, has a market share of 13-15 Channel. All these initiatives form a part of a 4 systemic approach to build a robust industry percent . There is a need for consolidation in the industry

which has strong revenue from domestic as well to effectively compete with larger companies in other

as international markets. This is an accepted countries . models which have served other countries well. Infact other Asian countries like China, “ Singapore and Malaysia have already taken these policy decisions and have today outpaced India in terms of growth and Industry size.

- Munjal Shroff Director & CEO,

Graphiti Multimedia Pvt. Ltd. 04. KPMG in India analysis 05. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms affiliated Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 152 The power ofabillion: in India. Animation isnolongera‘sunrise’ industry There isindeedscopefor animationcompaniestogrow Looking ahead segment, goingforward. content development isexpected togrow intoalarger outsourcing toaco-productionmodel.Besides this,custom many Indiancompaniesaregraduatingfromtraditional destination. Businessmodelstooarechanging, atpresent, andtherecognitionofIndiaasanoutsourcing and gaming, potential newer consumptionsegmentslike education factors such asgrowth oftheoverall M&Eindustry, the begun expansion indifferent directionsprimarilydueto Source: Source: Animation services Animation production Total Segments (INR billion) KPMG inIndiaanalysis KPMG inIndiaanalysis “ way. to preparethemfortheworldinan age-relevant pre-schoolers inanentertaining way, inorder educational andrecreationalneedsofthe (0-4 years).Theprogramsshouldaddress the channel focusmostlyonPre-school age group with KidsChannel.Irecommend that thiskids time forthepublicbroadcastertocome up bright forIndian Animation Industry. Its also Animation content onTV, thefutureshould be a fewhavedonewell. With a boomforlocal of companies have struggledtocarryonwhile lot ofhighsandlowsinthelastdecade.A Indian AnimationIndustryhas gone througha Realizing theIndiandream “ 2012 12.1 4.5 7.6 Green Gold Animation Pvt.Ltd. Founder &ManagingDirector, 2013P 13.4 4.9 8.5 - Rajiv Chilaka 6 , ithas 2014P 15.2 5.4 9.8

06.

www.thehindu.com 2015P 11.1 17.1 6.0 2016P 19.2 12.5 6.7 2017P 21.6 14.0 7.6 CAGR %2013-17 12.3% 13.0% 11.2% The power of a billion: Realizing the Indian dream 153

VFX in India cover the cost of an average Indian movie. However, VFX budgets for Indian movies, including regional cinema, are The VFX industry, a rapidly evolving segment in India, is showing an increasing trend and are expected to boost the estimated at approximately INR 7.77 billion and can be segment. Also, spends by the advertising industry on VFX broadly classified into the following verticals — movies, have been increasing. TV shows and advertisements. As the segment is still at a nascent stage and domestic consumption remains limited, with mainly low-end work being carried out in India, there Outsourcing of VFX work to Indian is considerable dependence on outsourced projects from studios the US and the UK. However, the domestic market is now While outsourcing of animation to Indian studios has a witnessing bigger budget film releases and ad campaigns, relatively longer history, outsourcing to Indian companies for which players have increased spending on VFX so as of visual effects/post-production/3D conversion work of to provide an enhanced visual experience for viewers. The Hollywood films has gained ground in recent years. The segment registered 35 percent7 growth over 2008-2012 7 movie ‘Life of Pi’ changed the way VFX is employed in and is expected to grow approx 20 percent CAGR to reach films, it has not only consolidated the belief that VFX can INR 19 billion in 2017. be used as more than just a gimmick, it has also managed to captivate audiences worldwide with imagery of oceans, realistic animals, etc. Almost 40 percent of the visual VFX Domestic / Outsourcing Revenue Split effects work was done out of Asia, primarily India and Malaysia. This was a landmark film for the industry and the region in many ways which hopes that the quality of work will be a catalyst for the growth of the industry in India. To do work for Hollywood productions, however, requires constant investment in people and technology and the larger studios would need to ensure sustained investment over the short term in order to reap benefits over the long term. Also, there is a dearth of artists with advanced VFX skills, reflecting in high recruitment and training costs.

Testing overseas shores To overcome the challenges of limited domestic demand and residual skepticism of production studios in the US Source: KPMG in India analysis and industry interviews conducted by KPMG in India or the UK in outsourcing work, many dominant players in the VFX space (Tata Elxsi, Prime Focus, Reliance etc) have established overseas offices in order showcase their capabilities and service clients better.

As the team leader @ Technicolor India, 2012 leaves no room for doubt that India 3D conversion market has ascended to the top of the pyramid Hollywood is witnessing a surge in the production and

“when it comes to CG Animation/VFX popularity of 3D films. Over the past three years, half of the productions. MPC’s Life of Pi, Prometheus top 20 grossing films in the U.S. were released in 3D.8

and Skyfall; DreamWorks Dedicated Unit’s -Madagascar 3 and Rise of the Guardians; Technicolor Animation’s“ services in Mattel’s Number of Hollywood 3D films released Barbie& the Pink Shoes, and award winning episodic work for Nick on Kung Fu Panda and Teenage Mutant Ninja Turtles – is proof enough!

- Biren Ghose Country Head, Scan the QR code to hear more from Biren Technicolor India

Key trends VFX budgets On average, Indian movies have limited budgets for visual / special effects. In India VFX budgets are considerably below international benchmarks, even as a percentage of production costs. The VFX budgets for Hollywood movies range from USD 3 million to USD 9 million8, which could

Source: Anand Rathi research report - India Media and Entertainment, August 2012

07. KPMG in India analysis 08. Anand Rathi research report - India Media and Entertainment, August 2012 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms affiliated Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 154 The power ofabillion: 54m generating box-office collectionsofUSD45m In 2012, ‘Star Wars I’and‘Titanic’, were re-released in3D, production stage. greater complexityineditingandadding VFX atthepost- expensive, time-consumingandhaslimitedflexibility stage. The latter approach ispreferred asshooting in3Dis or shootin2Dandlaterconvert to3Datthepost-production To createa3Dfilm,film-makers caneithershootfilmsin3D Hollywood movies Example ofLeading studiosinIndiaundertaking 2D-3Dconversionof 11. 10. 09. Source: TheVoyage oftheDawnTreader The ChroniclesofNarnia: Prime Focus Star Wars I Immortals Men inBlack3 Green Lantern Clash oftheTitans

www.businessweek.com, february 2012 Business insider www.boxofficemojo.com 9 Anand Rathi research report-IndiaMediaandEntertainment, August 2012 respectively. This indicatesthatthereisapotentialfor Realizing theIndiandream Top Gun(re-release) Transformers: Darkofthe The GreenHornet Alice inWonderland Legend 3D Moon Priest 9 andUSD John Carter Jackass 3D The GreenHornet Thor Titanic re-release The Avengers Avenger Stereo D Gulliver's Travels Captain America:TheFirst films. which of20 isa70percentincreaseinthecurrent quota US allowing 14 foreign mademovies intoChinaeveryyear in 2012. Also, in2012 adealwas signedbetween Chinaand worldwide from3,800 screensexploded thenumberof3Ddigital in 2009, low conversion costsinvolved. After therelease of ‘Avatar’ 3D re-releasesofolderhits,especiallygiven therelatively be in3DorImaxtechnology. 10 However, toqualifyfor thelistmovies have to 10 in 2008 toapproximately in2008 43,000 MichaelJackson'sThisIsIt, The ChroniclesofNarnia:TheVoyage of theDawnTreader Immortals Rocket Science3D Dawn Treader Hoodwinked Too! Hoodvs.Evil Harry PotterandtheDeathlyHallows Gulliver's Travels Conan theBarbarian 10

The power of a billion: Realizing the Indian dream 155

Post Production: The future of entertainment The post production segment is poised for stupendous High-Definition tapes and web deliverables and 35mm growth as Indian filmmakers discover the magic of prints. The production and post production stages are also digitisation. Technology has revolutionised the very process converging. Today, it is possible to shoot an entire film/ of filmmaking, especially at the post-production stage. This sequence on a set without actually being on location in, say, has given rise to a plethora of digital labs and studios in another country. This does involve a considerable amount India catering to new age editing, Digital Intermediate (DI) of planning involving VFX crews at the pre-production stage and other digital processes. with relevant software. Mobile Data Management systems for digital camera acquisition, On Set DITs (Digital Imaging The sector is currently estimated at INR 15.5 billion and Technicians) and VFX pre-visualisation will gain more is expected to grow at a CAGR of 16 percent by 2017. Key relevance. contributors to growth are established segments such as DI and also newer ones such as Restoration and Conversion. Additionally, the digital revolution has made the video editing work flow process quicker,from time-consuming (tape to tape) linear video editing to online editing suites and to computer hardware and video editing software such India has grown exponentially, as the global as Adobe Premier®, Final Cut Pro®, as well as incorporation VFX hub, providing world class techno- of Cloud technologies for storage and technology/software creative work. To continue this momentum

“of growth, and deliver high quality creative access.

services, the industry must invest in training The post production segment has moved focus from the immense talent pool that’s available to analogue to new age digital processes. Colour correction the VFX industry“ in the country. The effort via telecine on tapes for edit has replaced the traditional to nurture and build creative talent will then rushes printing process in the processing lab. The Steen become a critical differentiator for India, beck method of editing analogue rush prints in a linear vis-a-vis other countries providing similar manner has given way to film editing on non-linear services. software-based systems such AVID/FCP. DI processes have moved up from 2K resolution to 4K resolution for greater - Merzin Tavaria detail and quality. The final deliverables for film outputs have Co-Founder and Chief Creative Director, increased from only analogue 35mm prints to Digital DCPs, Prime Focus

The road ahead

Segments 2012 2013P 2014P 2015P 2016P 2017P CAGR % 2013-17 (INR in billions)

VFX 7.7 9.3 11.1 13.4 16.1 19.2 20.1%

Post-production 15.5 17.8 20.5 23.8 27.8 32.6 16.0%

Total 23.2 27.1 31.6 37.2 43.9 51.8 17.4%

Source: KPMG in India analysis

Although the outlook for the Animation, VFX and Post Production Indian industry is positive, capitalising on future potential will depend upon the industry’s ability to deal with present challenges and government support, a critical factor for animation given competition from other countries.

The opportunity for this segment lies in tapping the growth potential of the market through expansion beyond traditional markets and segments into areas like education, introduction of local content guidelines by the government, better training of manpower and measures to promote greater awareness which will benefit all stakeholders involved.

Source: KPMG in India analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms affiliated Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 156 The power ofabillion: India ascendsglobalstagewith Animation and VFX quality ‘polish’.quality extend thedirector’s ‘reach’ andallowing for that high addition inandhave reliedon VFX technology for helping etc. -alltheseproductionshave found increasingvalue Dabaang 2;Jab Tak HaiJaan; Houseful2;Bol Bachhan; hundreds ofshotsacrossalltop grosserslike Ek Tha Tiger; strategic lever for thebigfilmsofyear. Take theseveral also hitthebigscreeninIndiaandoverseas. VFX isa such Bheem;DelhiSafari asChhota and Arjun have software toIndia.Inparallel,localanimatedproductions toolsets and extended theirpipelinesandproprietary India talent. This hasbeenenabledaslargerstudios have Jackson; Life ofPi;Skyfall;Prometheus have allused Potters [Part 1and2];PiratesoftheCaribbean;Percy Hollywood movies iswell known -thelasttwoHarry Turtles. In Visual Effects [VFX]India’s contributionto Fanboy andChumthe Teenage Ninja Mutant such asKung Fu Panda; The Penguins ofMadagascar; veritable who’s whoofthefullCGanimationglobaltitles At Bangalore, we have executed projectsacrossa numberoftheirteammembersinIndia. a substantial on thefilm-Rhythm n’ HuesandMPC-bothhaving used Life ofPiwon the VFX Oscarandtwo studios thatworked Just lookatwhatwe have toshow for ourselves inIndia. can bediverseapproaches. usingmultiplestylistic vehicles, motiongraphics,environments andFX,they technology helpsthemhandleconceptsfor characters, in traditionalillustrationfusedwiththelatestdigital to feature filmproductionsasleadartists. Their skill often secondedfrom VFX companiesandare “deputed” artists includingmatte paintersinmajormovies are development work. The world’s leadingconceptual thatgoesintohigh-endvisualeffectsvalue ofartistry There arealways questionsabouthow tocommendthe Bangalore andLondon. includingby recreatedsubstantially ourartistsin digitally frozen loch etc.]-allthiswas actually shotinLondon and all intendedtobeinScotland[rememberGlencoeandthe CG]. Similarly, Skyfall,wheretheclimacticsequencesare shots acrosstheUSEmbassy, etc.thankstothepower of createdIranimpeccablyincarnatedinseveraldigitally single shotwas filmedtherewhereasoneseesseamless Turkey whilethey meanttodepictIranin1979 [nota [Oscar winnerfor Best Picture 2012]that was shotin When itcomestolargescaleproductions,bein Argo recent phenomenon-Disney andMiyazaki excepted! the emergingrecognitionofthisgenreasarelatively winners fromanimationfor several decades. This shows 2001. however, Intheshortfilmcategory therehave been awardedfully animatedmovies asacategory onlysince It’s been85years oftheOscarsandyet we have had Realizing theIndiandream Biren Ghose, Technicolour India Country Head

do what‘Crouching &‘LifeTiger’ ofPi’have donetilldate and Hindiwithworld classCGanimation and VFX will I anticipatethatoneofthesedays afilmmadein English majors andindependents. double digitgrowth for shows frominternationalworld co-productionsandcaptive centresdriving of services, animation [by revenues] isstilltheinternationalbusiness I mustpointoutthatthebigticket syndromein VFX and East partsof Asia, MiddleEastandcertain Africa. arena, notonlydomesticallybutalsoinregionslike South productions inIndiaapotentiallyeven highergrowth of appsandpotentiallythesecondscreenmakes digital by CGin thegamingbusinessandgrowth oftheworld to 20percentp.a. These several segmentscomplemented work is poised for asharpdemandestimated@about18 advertising commercialsbusiness,thepostproduction consequence ofthisplusthegrowing broadcastingand has resultedintheoverall growth incontent,andasa Impossible’s USD11 millionisnow aknow statistic]. This movies have alsodoneextremely well inIndia[Mission houses hastherefore goneuptremendously. International adoption andinvestment in VFX by the Indianproduct Indian filmsthatareusinglargeamountsofCG/VFX. The the revived domestic Indiabox office andmorebigbudget percent CAGR. What willaddtothisgrowth stronglyis will allhelpcontributetoalocalgrowth ofwell over 20-25 [which hasgrown inorganicallythroughM&A]andothers Media Works now hasastrategic stake, Prime Focus Sony Imageworks; Domaininwhich Digital Reliance other citieslike London, Vancouver, New York andLA. drivers for MPC’s productions. They arealsolocatedin in termsofnumberprojects.Indiaisonethekey made Indiatheirstrategicbasefor scalingtheirbusiness and well-known ‘players’ like Technicolor’s MPC have Turtles have goodprecedent for setavery thissegment Holmes, How to Train your Dragonsand Teenage Ninja per annum.Productions like Kung Fu Panda, Sherlock shows -thissectorwill[inmy belief]grow atabout15+ at aswift speedowing totheincreaseinhi-end TV The inIndiaisgrowing demandfor animationservices inCG. of theIndiantalent predictions areconstrainedby the‘productionreadiness’ next 6to7years. The potentialiseven greaterandthese to almost10 IndiaM&Esectorinthe percentofthetotal M&E revenues. That sharehasnow increasedandwillgo wasIndian ameagre2to3percentofthetotal industry the last35to50years. Ifwe goback 5to7years, the developed localand/orinternationalbusinessesover 14 years ascomparedtomany othercountriesthat for only12-India hasbeenintheanimationindustry and issettowitnessaboominthefuture. several others. hasgainedrapidmomentumThe industry EA, Fox, Rockstar, SquareEnixUbisoft andZyngaamong DreamWorks, Sony, Viacom/Nick, BBC,CartoonNetwork, privilege ofworking withglobalmajorslike Disney, WB, production studios have andproductiontalent hadthe has evolved shortspanoftime. rapidlyinavery Yet Indian The Indiananimationand industry VFX entertainment represent theviews and opinionsofKPMGinIndia. expressed hereinarethose oftheauthorsanddonotnecessarily article was provided by Bhiren Ghoshe. The views and opinions noted,allinformation includedinthiscolumn/ Unless otherwise © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 158 Out of Home Advertising 09 Displaying resilience with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 09 approximately INR18 billion industry, which haditsshareofhighsandlows. Brandowners spent However, 2012 wasyear anuncertain for theIndian outdooradvertising impressions aswell. a few. These innovations notonlyattracted eyeballs butmadelasting Vodafone, andthemallmountingsfor SpidermanonUTV Action, toname Mumbai airportfor Volkswagen, Cycle tolightuptheMysore Palace by travel siteExpedia’s launch madecarofscrapatthe campaign,atailor BachchanAmitabh onmobilevans for the TV show KaunBanega Crorepati, something new, somethingmorecreative andappealing-3Dcutoutsof 2012 witnessedbrandsacrossindustriesactively experimenting with possible withtechnology? What isviableinthemarket place? questions thatleadtoinnovation are- What doclientsdesire? What is are ontheverge ofbeingarticulatedinthemarket. Someofthefundamental Innovations takeplacewhenonekeeps acloseeye onevolving needsthat Outlook fortheyear reduced from80percentto60 Tier IIandIIIcities-thetop10-12 markets’ spendhasover thelastfew years and Delhialoneafew years ago,thereappearstobeamarked shift tothe etc. While 50-60percentoftheoutdoorbudgetwas consumedby Mumbai consumer goods(FMCG),durables,insurance,two-wheelers, Rural consumptionincreasedinmostproductcategories –fast moving approximates 5-6percentofadvertisement spends. media. advertisers cuttheirspendssignificantlyordirectedthemtowards other Europe andChina. As theoutlookfor overall growth continuedtostaymuted, rate inIndia,resultingfromdomesticfactors aswell asslowing growth in Last year however was marred by asignificantslowdown ofGDPgrowth 02. 01. Source: KPMG in India analysis and industry interview Source: KPMGinIndiaanalysis andindustry Size (INRBillion) OOH Industry Outdoor

Industry discussionsconductedby KPMGinIndia Industry KPMG inIndiaanalysis Scan theQR codetohearmorefromIndrajit “ Executive Director-IOAAand Promoter-Director, 11.65 2006 location or in thesamevicinity space beingavailabletothemin the same space in view ofonlysomuchexclusive because ofadvertiser’s reluctance to share Digital everywhere elsecontinuestolanguish the regulationsandsteepincreases in fees. also has its usualboutofannual problems with total spends that thismedium sees. Bangalore which togetheraccount for ahugemajorityof This isespeciallytrueinMumbaiandDelhi their toll on thismedium in thelastoneyear. regulations thatimpedebusinesshavetaken fragmentation and a lotofimpractical 2012 hasbeenadisappointing year, increased 1 in2012 onOut-of-homeadvertising which 13.98 2007 Media, Analytics&DesignPLimited 2008 The power ofabillion: 16.08 2 . This trendisexpected tocontinue. 13.67 2009 - 16.50 2010 Indrajit Sen “ Realizing theIndiandream 17.75 2011 18.23 2012 CAGR % 2012) 7.75% (2007- 159

Key sectors Unlike in 2011, when 76 percent3 of Out of Home (OOH) media consumption was concentrated amongst four industry sectors, 2012 saw increased contribution from other industries such as auto, retail, white goods and real estate.

Contribution of various sectors to the OOH Industry

Source: Industry discussions conducted by KPMG in India

Although revenues from telecom had dipped in first was a significant decline in the Financial Services sector. half (H1) 2012, the category gained momentum with a Considering the local presence and strategic importance slew of new tablets and laptops device launches in the of outdoor media, it may be best suited for local brands market, especially in the festive season of second half and it is expected that sectors such as food and beverage, (H2) 2012. FMCG also bounced back with 14 percent education, small format retail and jewellery will contribute growth in the sector3, contributing significantly to outdoor to growth going forward. this year in comparison to earlier years. However, there

03. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 161

Formats Billboards are on course to remain the medium of choice, although other formats may gradually gain share over time.

Revenue split by various formats

Source: Industry discussions conducted by KPMG in India

The transit OOH business in India, especially in airports A step in the right direction and metros, has experienced rapid growth over the past few years. Brands such as Hyundai, Tata Photon, Intel, ING In the union budget for 2012-13, the then Finance Minister, Vysa, Microsoft and others have been prominent. With Shri Pranab Mukherjee announced that ‘selling of space or various airport modernization and new metro projects in the time slots for advertisements other than advertisements pipeline, this format is expected to outpace other segments broadcast by radio or television’ will be exempt from 12 with a CAGR of 11 percent4. Formats such as airport OOH percent service tax’. While this service tax exemption freed are well placed with a well-defined environment and, a budgets for spending on campaigns, the industry did not target audience which can be profiled more accurately. reap benefits due to impacts of the economic slowdown.

Reflective of this trend, two stations of the Rapid Metro Another positive development was Media Research Users Rail Gurgaon line (‘RMGL’) will be branded as Vodafone and Council’s (‘MRUC’) announcement of India Outdoor Survey Micromax stations as the two telecom companies have (IOS) next edition. Along with IOS, IOAA’s announcement entered into a memorandum of understanding with the of ADEX as well as inventory availability information online operator, RMGL, for a full fledged branding exercise. will help build confidence in the medium as well as increase use of OOH not as residual media, but planned media. New channels such as bus shelters, LED billboards and street furniture are not being leveraged as widely in India as The resurgence of media owner-led solution business has they are in other countries, where they form as much as 30 been another noticeable industry move. All major media percent to 40 percent of the total industry5. This is primarily owners are now focusing on direct clients. Also, there attributable to poor infrastructure and the absence of a is emerging consciousness amongst media owners to secure environment (fear of theft or vandalism). Limited limit on bidding for unviable tenders – eg. participation in customization of content to suit the medium is another Amritsar, Guwahati Airport tenders was poor as the reserve obstacle currently. price was ambitious.

• Key challenges

-- Lack of unified common measurement platform

The transit segment continued to make hampering the industry further strides. Digital OOH is paving the Reliable research is crucial for the OOH industry, way for integration of mobile“ and outdoor but the measurement system has not taken off “advertising. The holistic development of as intended. MRUC’s announcement of the next the medium is attracting new categories of edition of IOS and indications of a couple of private advertisers and augurs well for the future of parties also taking this up, appear to be steps in this outdoor advertising direction. - N Subramanian -- Apathy of civic agencies towards outdoor media. Group CFO, There have been widespread calls for tangible steps Entertainment Network (India) Limited to taken by civic agencies to ‘promote’ outdoor media and not to ‘control’ it. Despite heavy license fees and taxes, permissions from various authorities and lack of clarity on regulations continue to create operational challenges for the industry.

04. KPMG in India analysis 05. Industry discussions conducted by KPMG in India with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 162 The power ofabillion: found inpublicplaces. screens,kiosks,andinteractiveincludes stand-alone media screens, kiosks,jukeboxes andjumbotrons.DOOH also arenas andpublicspaces.DOOH feature networks typically including cafes, healthclubs,colleges, bars,restaurants, distributed acrossplace-basednetworksinvenues out-of-home (DOOH)Digital refers todynamicmedia India OOHgrowthin Digital todrive exercises. branding andinteractiveness aroundcommunication audiences onthego.Local transitmediaisalsowelcoming translated intomoreavenues for upwardly targeting mobile businesses goingbeyond bordersandcheaper airtravel has - effectively, makingitattractive toplanners.Further, medium. This mediumdelivers greaterfrequencycost outdoors leadingtoexponential growth ofthetransit and changing lifestyles, peoplearespendingmoretime group movements. increasingworkingWith population destination-based planningthatismappedwithtarget arterial roadstoamoredemographicallytargeted Also, thetrendisvisiblymoving beyond traditional future. involvement, andlastmileconversion interactivity inthe hold, OOH hasimmensepotentialintermsofcustomer these kindsofintegratedcampaignsandinnovation takes to improve itsshareintheoverall OOH ADEX pie. As assists theOOH segment,which isstillatanascentstage, screens and,morerecently, piped-inradiostations. This banners, kioskstorun promotionsfor advertisers, television store window displays, ads onwalls, floors,ceiling-high Big Bazaar hasamonthlyin-storemagazine-My World, Big FM-toairitsprogramsinstoresacrossthecountry. chain, Pantaloon India,struck adealwiththeradionetwork has benefitted theOOH industry. For example, aretail The upswinginspendsbycommunications brandsinretail advertisers andmediahouses. an ‘integratedmedia’approach beingadoptedbothby led toanincreaseinitsrelevance. This hasresultedin The integrationofOOH advertising withothermediahas agencies togrow rootsinIndianmarkets. communications firmsandspecialisedshoppermarketing for business. theretail This factor willalsohelpretail of theadvertisingwell pie,asthemediumisvery suited advertising. Therefore, OOH willalsogarnerafair share expected businessspendin tobeaspurtintheretail approval fromtheCentralGovernment, thereis ForeignWith DirectInvestments gaining (FDI)inretail The silverlining - - Lack measures ofadequatesecurity in thesemediumsbutalsoaddstotheoverall cost. delays campaignsandcreatesexecution challenges furniture andtransitmediaformats. This notonly lack measures,particularlyinthestreet ofsecurity One ofthemajorchallenges isthe facing theindustry Realizing theIndiandream Home media. is expected tocreateenormousopportunities for Outof Rather thanbeingadisruptive force,technology digital • • • • research toconcludeaseriesofpredictions: experts andcarried out interactedwithindustry data, Global Advertisers, anoutdooragency, analysed industry content. distribution pointfor digitized news andentertainment role inOOH mediaandbillboardsarelikely tobecomea new revenue streams.Contentwillplay anincreasing marketing andinternetbasedcampaigns,opening up OOH willdevelop asymbioticrelationshipwithmobile promotionalmarketing. ‘smart’ retail based tradingsystems willunlock thepotentialto drive day-part flexibility;real-timeplanningandnew audience- locationsandtheintegrationof in proximitytoretail The deploymentposternetworks ofnationaldigital distribution andreal-timereactive campaigns. sitescapableoftime-flexiblenetworks ofdigital sites. digital The Targeted segmentwillincludenational numbers ofwell-positionedsitesandpremium static Targeted. The Broadcastsegmentwillincludelarge Two broadOOH sectorswillemerge:Broadcastand create additionallevels ofconsumerreach. sites,butwill siteswillnotsimplyreplacestatic Digital “ Outdoor Agencies campaign, asclientswill demand thisfrom will replace excelplanning for outdoor becoming importantcornerstoneand bespoke for Outdoor, planningandstrategy residual or commoditymedia. Creative chain andwill no longerbeseen as a The OOHindustrywill move upthevalue Percept OutofHome “ - Sanjay Pareek CEO,

OOH industrysize (INRBillion) will usethisasameansofengagingwithyouth, though the inthemarketFlash mobswillalsogainpopularity asbrands of OOH. internet, they needtobe‘intheface’ througheffective use consumers withlimitedaccessand/orexposure to the to have realized thattoreach awideraudience,especially showing alotofinterestinOOH advertising. They seem Further, e-commercecompanieshave recentlybeen media. across markets willhelpimprove oftheOOH thecredibility IOAA’s announcementof ofassets ADEX andonlinedata ofoutdoor.emotional acceptance This coupledwith the yields resultfromoutdoormediaanditdoesn’t remainjust canproveoutdoor industry tobrandsthattheirinvestment category. MRUC hasembarked onanew IOS, so thatthe value chain andwillnolongerbeseenasamere residual It isexpectedwillmove thattheOOH industry upthe Looking ahead Source: KPMGinIndiaanalysis OOH IndustrySize(INRBillion) Outdoor “ innovative yearahead. 2013. Hereiswishingevery one apositive departments to play apositive rolefor hopeful forretail and government/tourism going with few newlaunches. I amvery Automobile should keepthetrendin OOH be agoodnewsfortheyear. Telecom and and haveaintended7pergrowthitwill coming up. If theindustryweretogoahead and moves in termsofnew options/media OOH space may notseesome great shakes Diwali, one inQ2andthe other inQ4.The year where I wanttoseetwoseasonsof I amlookingforwardforagreat 2013. A - 18.23 2012 Mandeep Malhotra DDB MudraMax “ President, 2013P 19.32

2014P 21.06 have’ for bothglobalandlocaladvertisers. trade practices,OOH inIndiawillquickly become a‘must- strategic investments andstays committed toimproving buildsuponthegatheringmomentum ,makesindustry These trendswillemergein2013 andbeyond. Ifthe experience productsbefore they invest inthem. newtotally experience, attracting potentialcustomers to Moreover, in Tier IIandIIIcities,activation provides a medium, especiallywiththespurtinnumberofmalls. Activation asa andimportance isalsogainingpopularity stickiness andbetter leverage for thismedium. from theprintor TV content. This willhelpimprove with specificallycreatedadsandasopposedtoadaptations out-of-home mediasegmentasanindependentmedium, Another graduallyemergingtrendisthetreatmentof able togetpermissionsfromthelocalgovernment bodies. extent oftheirsuccesswilldependonwhetherthey are 2015P 22.96 The power ofabillion: 2016P 25.02 2017P 27.28 Realizing theIndiandream CAGR %(2013-2017) 8.39% 163

from concepttoreality. cross functionalteamstotakethe marketing objective meet clientexpectations.Some ofthemhave created to achieve this,companieshave builtcapabilitiesto to improvement intheROI for thecustomers.Inorder thereby realizingmorevalue. Innovations have alsoled engagement thanjustplainvanilla outdoorsites and areseekingsolutionsopportunities for Demand for integrated solutionsandinnovations sector inthefuture. the drivingforce for growth acrosstheOutofHome creative teamswillmake theintegrationoftechnology recent years. Investment posteranddigital indigital cost ofLEDcomponentshave beenfalling steadilyin media owner’s investment decisionmaking. Average of screensistheothercorefactor weighing heavily in by insecondyear digital sinceitsinception. The cost the Airport, 13 percentoftherevenue iscontributed mediainIndianmarkets. ofdigital the acceptance At byof digital Times OOH atDelhi Airport hasproved growth advertising. isdigital The successfulexecution Rise ofDigitalOOH This much isvery inlinewiththeglobaltrends. audiencethroughatwittersavvy powered billboard. launched theyoung acampaigntotarget technology India. For example, brandslike Allen Sollysuccessfully trend withincreasingpenetrationofsmartphonesin isarising integration ofmobileintheOOH industry technology toinfluencepurchasing decisions. The the outdoorbusinesswithincreasinguseof Integration of Mobile withOOH Customers oflateha One ofthek T Realizing theIndiandream ey drivers ofgrowth for theOOH industry Sunder Hemrajani Times Innovative MediaLtd Managing Director ve become moredemanding

OH mediumwhich traditionallylacked reliable 5. his year canberememberedfor thelargenumber pieoftheoverallhe category businessinOOH has 4. represent theviews andopinionsofKPMGinIndia. expressed hereinarethoseoftheauthorsanddonotnecessarily article was provided by theauthor. The views andopinions noted,allinformation includedin this column/ Unless otherwise primarily beledby& Digital Transit segments. positive withhighergrowth forecast thanFY’13.It would Overall ,theoutlookforinFY’14 IndianOOH industry is increase inthesharefor theorganized players. areincreasing. in outdoorindustry This isleadingtoan large investments infuture projects,thebarriers toentry for brandsshifts down thetopstrata. demandfor With This willhowever change inthefuture asthebattleground percent contributionofthebusinessfromthesecities. to bedependentonthetopsixmetroswithmorethan70 Unlike othermedia,inFY’14, outdoortransitwillcontinue media tomaximize value. infrastructure players arealsodemandingconsolidationof given afiliptoairports,metrosandhighway projects. The projects throughpublicprivate partnershipmodelshave growth oftransitsegment.Investment ininfrastructure isundergoingrapidchangesIndian OOH industry with Future outlook

measureable . in ordertomake& thismediummoreaccountable and mediaplannerswillneedtomake investments tools tojustifyROI toclients.OOH mediaowners organizations have usedtechnology driven analytics customers now demandROI. Internationally, various measurement tools,isundergoingchange as Need for analyticsinOOH at theairports. Indianaudienceswithsuccessfulactivations targeted and premiumautomobilebrandslike Porshe, BMW wallet. Reputed fashion &lifestyle brandslike Chanel toincreasetheirshareof of premiumbrandstrying medium. reached audiencethroughthis outtotheirtarget momentum. Brandslike FlipKartandGoIbibohave M&E andnew categorieslike e-commercegaining changed withsomeoftheexisting categorieslike Rise ofnewcategories O T T The power of a billion: Realizing the Indian dream 165

Outdoor advertising – blundering forward or is there a method in the madness?

spiral that ultimately results in poor or negative revenue growth across the industry – as advertisers and potential advertisers demand better services in every department – planning, creative, operations, maintenance, audits, reporting – and even the biggest names fall short in their Indrajit Sen deliveries. When it comes to attracting better talent – it’s Executive Director - IOAA and the old chicken and egg story – which came first – better Promoter-Director, Media, services or better revenues? Fortunately, however, some Analytics & Design P Limited of the larger companies are now realizing these to be first steps to solve the basic issues of scalability and sustainability. We sincerely hope they succeed and in the process drag the rest of the industry out of simply Overall, 2012 was a disappointing year for the industry. For blundering ahead to a more organized and planned future. the first time in several years, growth in revenues eluded this industry last year. Two old bugbears of this business End of the day, the broad consensus is that Outdoor continue unabated – lack of scalability and sustainable advertising should see around 7 percent growth in 2013. operations. Obviously, pressure is on to find viable growth This is based on launch plans of the leading categories paths. of users – BFSI, Automobiles, Real Estate, Media & Entertainment as well as Mobiles Phones & Services. There are, however, significant silver linings in this Usage in upcountry markets are also significantly otherwise not-so-happy scenario. First and most up – reflecting the drive by marketers to grow market important of these is the concrete dialogue that has shares in tier 2 and 3 cities. This is likely to see increased started between the AAAI and the IOAA to establish a investments in these areas by established players. standard operating procedure that governs all transactions Besides, during 2013 – 14 major new transit locations are between media and agencies. This is expected to close expected to open up – metros in Bengaluru, Hyderabad, by mid-2013 with consensus amongst all stakeholders Chennai and even Mumbai, new airport terminal in and create a reliable and more transparent business Mumbai as well as other cities – so the acquisition and environment. This, then, will foster increased trust from tender related activities are expected to be vibrant this advertisers and go long way to restoring growth. The year. The impending elections should also see significant second is an old one – a fresh attempt to create metrics is spends during second half of the year. So – despite all the progressing in a more systematic way with involvement current gloom, the prognosis is for an exciting year ahead. of all stakeholders. The main difference this time is the acknowledgement by all concerned that metrics are Unless otherwise noted, all information included in this column/ a desperate need of the hour. This change in attitudes article was provided by Indrajit Sen. The views and opinions should result in a product accepted by all concerned and expressed herein are those of the authors and do not necessarily actually put to use. represent the views and opinions of KPMG in India.

Two other critical aspects of the business - regulatory affairs and quality of manpower - continue to be major issues with no clear solution. Impractical regulations that impede business continue to be enacted. With no attempt to officially involve the industry in policy formulation, governance issues will not be smoothened out or be beneficial for all concerned ie authorities, the medium and advertisers. Thus, an opportunity to create much more employment as well as ensure sustenance for the industry, is simply being wasted. A recognition of this issue and well thought out directions from central government authorities is perhaps the best way out – but that cat is yet to be belled !

On the issue of manpower quality, Outdoor Advertising is not, of course, the only industry to suffer – but, amongst the entire media & advertising fraternity, Outdoor definitely appears to be the last priority amongst fresh entrants, talented or otherwise. Both industry training opportunities as well as companies that encourage knowledge and skill upgradation and research are practically nil. This actually has started a downward with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 166

Convergence 10 Waiting for bandwidth with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 10 BWA spectrum in2010 broadband growth, operatorsinIndiapaidover INR100,000 Crores for 3G& Ridingonhighexpectationsforfocusing andvalue ondata addedservices. in largecities.Operatorshave thusintensifiedefforts onrevenue growth by down inthelastfew quarters,penetrationlevels have crossed100 percent 900 millionby900 Sep2012 wireless connectionsgrowing fromlessthan10 toabout millioninFY2002 haswitnessedaphenomenalgrowthThe ratewith Indiantelecomindustry asweittoday.transform understand theM&Eindustry affects asawholeandhas thepotentialto andimpactstheindustry infrastructure, commonconsumersanddevice capabilities. Convergence are getting blurred, enabledby regulations,technology, aconverging summary, theboundariesbetweenplayers inhithertodistinctindustries subscribers, musicproducershave launched YouTube channels, etc.In distribution oftelevision channels, MSOsoffer totheir internetservices M&E industry. For example telecomoperatorshave ventured intosatellite providers venturingalso beingwitnessedfromtelecomservice intothe devices such PC’s, ascellphones,tablets, PDAs etc.Convergence is networksandmakingitaccessibletocustomer wired andwirelessdigital various forms (like print,radio,television,music,etc)through films,gaming, From aM&Eperspective, convergence resultsinoffering contentinits “triple orquadruple play”. over toprovidethe ability arangeofservices singlenetwork,such as television or Asynchronous SubscriberLine(ADSL)or, Digital alternatively, Internet Protocol (IP)orover circuitswitched networks,videoover cable voice ofdifferent (e.g., overability similarkindsofservices networkstocarry definition ofconvergence, althoughgenerallyitisunderstoodtomeanthe The International Telecommunication Unionsays that “There isnouniversal 02. 01. way intotheM&Espace. on thisinvestment by expanding theirbasket ofofferings andnudgingtheir Source:

http://articles.timesofindia.indiatimes.com/2010-06-12/india-business/28287643_1_bwa-spectrum-auction-of-two-slots-mhz TRAI Study Paper on‘Indicatorsfor Telecom Growth’ 2005, TRAI performance indicatorreport2013 Mergermarket, Bloomberg, Venture Intelligenceaccessedon24thJanuary, 2013, KPMGinIndia Analysis 2 . willbekeenThe toderive telecomindustry areturn 1 . Although growth inmobileconnectionshasslowed The power ofabillion: Realizing theIndiandream 167

http://nautanki.tv/advertiser/ enable seamless delivery ofconvergedenable seamlessdelivery services. ofconvergencethe importance andhasbeenframedto The National Telecom Policy (NTP)2012 alsorecognizes providers toprovidetelecom service IPTVservices The Cable TV Act which waspermitting modifiedin2008 Realizing theIndiandream 3

Evolution ofplatformconvergence The power of a billion: Realizing the Indian dream 169

Evolution of platform convergence Connecting (with) the consumer Future possibilities – Google In the backdrop of convergence there is a raging debate disrupts the status quo

between industry players, analysts and observers on the 5 impact of a converged world on telecom, media and other In this section we look at an innovative and disruptive industry sectors. The key questions is, “who owns the business model from Google that has the potential to alter consumer; one camp supports the provider of access and the consumption and distribution of media services in the technology while the other camp supports the provider of US. content”. Both camps have their reasons, but only time will In the middle of last year Google announced a simple value tell when and where a shift in the balance of power will proposition to US consumers based in Kansas city. Pre- occur. register for USD 10 and sign-up to get fiber to the home at One camp is of the opinion that telcos may be relegated an astounding 1Gbps speed (about 100 times faster than to providing connectivity alone. It believes that telcos are prevailing Internet speeds) that can fulfill your information, asset heavy infrastructure providers with a long capex cycle communication and entertainment needs. If enough people that focus on technology as a differentiator to improve in your neighborhood sign-up, Google will install fiber and customer experience. Media companies on the other offer you services at a fixed monthly fee. hand have a focus on type and quality of content as a In the first week of launch, the early adopters signed up differentiator to compete. Media companies will proudly and the offer went viral. Peer pressure began to build as declare their audience viewership statistics while telco’s neighbors who were interested, campaigned to others in outdo each other on broadband connectivity and coverage their locality to try the offer. The value proposition of having statistics. This camp believes that consumers are more a high speed home that is Wi-Fi enabled, has crystal clear inclined to pay for customized content and not so much full channel HDTV, 1TB storage on Google drive (cloud), for higher speed alone. While the amount of bytes flowing network boxes, Nexus 7 tablet and remote, TV box, storage through the world has increased multi-fold over the past box for content, no data caps and other optional add-ons decade, the revenues of telco’s have not kept abreast. from one of the most trusted brands in technology at For example, a movie might be 1GB in size, and cost INR USD 120/month was too hard to ignore. More customers 50 to download, but the consumer values the contents signed-up. With daily statistics by neighborhood being of the movie and not its size. Furthermore, over-the-top displayed, pockets of the city gradually turned from red to technology and mobile applications utilize the telco’s data yellow to green. Within a few months most of the localities connection to stream content and services directly to their where the offer was made had signed-up. Given the high consumers. They don’t need any tie-up or revenue sharing success and scale, Google has offered to wire up public arrangement with the telco. While telcos struggle to schools, libraries and other common areas of interest at change their perception from being pipeline providers, the no additional cost. The expected impact on existing telcos, Apple iTunes Store has increased its revenues manifold. In cable companies, advertising and distribution models, summary while telcos spend the bulk of the money to lay movie theaters, etc who have operated in these localities the infrastructure, upgrade technology and provide better for decades is disruptive to say the least. access to consumers, content aggregators and owners reap the benefits of that investment. The domino effect of this effort is now beginning to show. Tech startups have flocked to Kansas City given the high The other camp believes that telcos in several geographies speeds now available, creating a culture and industry that have moved beyond being providers of a bandwidth to did not exist. True to Google’s mission of “organizing the the consumer. They have a large established subscriber world’s information and making it universally accessible base and have tied up with content aggregators, thus and useful”, the Google Fiber project is a beneficiary of shifting the balance of power to themselves. For example, Convergence that could transform the M&E industry. While Indian telecom operators retain 60-70 percent of VAS other broadband players in Kansas City are now forced to revenues, while content aggregators and owners are left 4 rollout out next generation networks to retain subscribers, to split the rest . By providing the last mile of connectivity, Google might well move on to other cities forcing the they bring content to the consumer through back-end competition along with it. tie ups. Consumers have one point of payment, service fulfillment, and a variety of M&E services channeled through the telco. By maintaining a stranglehold on the consumer and controlling the payment gateway, they keep the bulk of revenues. With the possibility of 4G services being launched widely in India in the medium term, telcos could be the one-stop shop for fulfilling the Information, Communication and Entertainment (ICE) needs of a consumer. Furthermore, advertisers contribute significantly to the total media industry revenues. If 4G players are able to offer a value proposition to segment these consumers, create a compelling value proposition at an affordable price point, and split the advertising revenue pie, they may infringe into the space enjoyed exclusively by media companies today.

04. http://www.livemint.com/Industry/Ftm64F0VLsMXWTcnfDDnGI/Mobile-VAS-companies-turn-to- global-markets-for-survival.html 05. https://fiber.google.com/about/, KPMG in India analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 170 The power ofabillion: change ashasbeenwitnessedover the pastdecade. Significantly higherspeedsdrive thepaceofinnovation and the dynamicsoftelecomandmediaindustry. of fiber, butitstillgives 4Goperatorsahandletochange offered may bynotbecomparabletothat these services throws upinterestingpossibilities. country The speeds acrossthe in India,theimpendingrolloutof4Gservices tohomesmayreality While fiberconnectivity beadistant consumption. encourages heavydata points outthataffordable, high-speedbroadbandavailability trafficresulted indoubling3Gdata monthonmonth.It reveals have thattherecenttariff reductionsin3Gservices 06. on 2Gnetworks networks increasedby 78percentcomparedto47 percent inthefirsthalfof2012. Infacttraffic data on3G trafficnote thatmobiledata increasedby morethan50 have lived uptoinitialexpectations, itisinterestingto inIndiamay not of3Gservices Although theacceptance increase inthesubscriberbaseacrosscountry. increased competition,anddropinpricesledtotherapid cycle ofamaturing interventions, ecosystem, regulatory years ofitslaunch. Over aperiodoftime,selffulfilling inIndiahad aslow uptakeduringtheinitial Mobile services Conclusion Google fibercasestudy

press-releases/mobile-data-traffic-in-india-grows-more-than-50-in-first-half-of-2012 Nokia-Siemens MBitIndex- http://www.nokiasiemensnetworks.com/news-events/press-room/ for individualsubscriptionplans. neighborhood getsfiberized. The usercanthenopt neighborhood reach aminimumthresholdthenthe their connectivity. When votes for aparticular Consumers preregisterfor USD10, vote for Getting fiberized services. the ICEsectorstooffer awidearray ofon-demand Google hastiedupwithseveral contentproviders in and Tablet). Itopensupanew world ofpossibilities. contentonmultiplescreens(Netbook,HDTV,digital point. Itwillenableitsuserstoaccessthesame connection alongwithHD TV atanaffordable price Google fiberiscapableofproviding a1Gbps currently operate. cable, internetandcontentprovider industries FTTH offering thatcouldchange theway traditional go tomarket strategycombinedwithahighspeed Google fiberisarecentexample ofaninnovative 6 . The Nokia-SiemensMbitreportfurther Realizing theIndiandream stay aheadofthepack inaconverged world. time, embracedigitizationandinnovate aremorelikely to customers, analyzethembetter andunderstand inreal- an open-endedquestion.Butthosethatstayclosertotheir that grow withthisexplosion ofdigitized contentremains Which players M&Eindustry buildlonglastingenterprises across multiplesessionsofengagement. personalize contentandhearthevoice oftheconsumer capture trendsinconsumerpreferences early. Ithelps reasonsforcampaigns, understand dis-satisfaction and measureandanalyze customeractivities,launchservices, through theirnetwork.Ithelpsthemimprove of quality analytics tomake proactiveflowing usesofthedata information. Globally, operatorsaredeploying predictive begun leveraging by bigdata converting itintoactionable behavior andpreferences. Telecom operatorshave already relevant solutionstoanalyze byBigData consumer tapping media companieswillfinditincreasinglyusefultostay consumers. Largetelco’s andserve understand and to discover, adaptandutilize theinformation tobetter rapid pace. This is andpresentsanopportunity “Big Data” variety andvaluewillcontinueexpanding ofdata ata An offshoot ofconvergence isthatthevolume, velocity, • • • • • Key marketing strategies include strategy go-to-market Innovative laying thefibernetworkacrosscity. economy thusgetting faster civicclearancesfor initiativea community which willboostthelocal selected for Googlefibernetwork.Projected itas schools andlibrariesiftheneighborhoodis Provided tolocal freeinternetconnectivity the web sign-ups withcolorcodedprogressdisplayed on Round theclock updatesonstatus, numberof ensured increasedpreregistrations Latent peerpressurewithinneighborhoods at low price,withlotsoffreebies Access tohighspeedinternet(100Gbps), HD TV viral withinweeks Simple butpowerful value propositionthatwent businesses plan to increase businesses plantoincrease Source: Sixconverging technology trends,KPMG inIndia-Nasscomreport 2013 The digitalshift Identi Increasing influenceofdigitalchannels Influence ofdigitalchannels acrossallstagesofpurchasing Drivers ofconvergence Drivers their digital marketing their digitalmarketing comes via mobile – more thandouble population which of Need budgets in2013 Of webtraffic fication Of global 13 last year 71 30 is online % % % Seek Information • • • • the internet,B2C and B2B, business transactions on number ofglobal 3G The socialcommercemarketisforecasttoreach of theiradvertisingbudgetonsocialmediachannels achieve customerengagement transaction by up to Nearly Mobile technologies can beused tocutthecostof a financial Leading globalretailersarespendingbetween billion by2015 Evaluation Estimated number of subscribers in the per dayby2020 Growth in the past year 37 90 percent 450 billion % Purchase of top global banks usesocialnetworkingto 80 percent Consumption Smartphones andtablets by mid 2013 –overtaking will be installedglobally billion laptops andPCs 1.5 Amount ofdata in theworldby 20-25 percent zettabytes USD 30 35 2020

Feedback

The power ofabillion: Disruptive technologies Tablet shipment Social Augmented reality Big data Embedded Systems Mobile handsetshipment Cloud 354.1 3132 5.4 1482 2012 2012 2012 1.2 2012 2012 2012 2012 109 85 Realizing theIndiandream No. ofaccounts in millions 4870 48 5155.9 2.4 206.6 1858 304 2016 2016 2016 2016 2016 2016 in USDMillions 2016 In USDTrillion In USDbillion In USDbillion in Millions in Millions 171

11 that inevitablybringsthemtogether. embedded systemswhich andaugmentedreality willhave alogicalmaturity We have cloud,socialmedia,mobility, identifiedsixtrendsviz.bigdata, Technology and enablesenterprisestoadd afourth dimensiontotheirproducts. augmented reality. Augmented enhancesthecustomerexperience, reality and now everyonetohealthcareproviders fromretailers have embraced gave applications, risetothespreadoflocation-based augmentedreality science fiction,tooureveryday lives. The spreadofsmartphones andtablets Over hasmoved thepast24-36months,augmentedreality fromtheworld of Augmented reality(AR) smart chips topatientskeep track oftheirentiremedicalregime. are alsohaving animpactinthehealthcareindustry, attach wherehospitals chips have revolutionized supplychains forEmbedded systems retailers. ubiquitous acrossthebusinesslandscape.Embeddedsystems like RFID The decreasingcostofembeddedsystems hasmadetheirpresence Embedded systems bandwagon,mobility andensurethattheirapplicationsaremobileready. devices asanefficient channel. Enterprisesmustalsojumpontothe products. Governments arealsoreaching outtotheircitizens, usingmobile their mobiledevices for everythingfrombrowsing tocomparingbuying industry. Shoppersareincreasinglyusing products inthefinancialservices of consumers.Mobilebankinghasemergedasonethemostinnovative haveSmartphones andtablets broughtrich, contenttothefingertips digital Mobile devices have changed theway content. peopleaccessdigital Mobility their largerpoolsofcustomers. generatedbyenables firmstousedata thecustomerseffectively toservice withtheirsalesandmarketingmedia intandem functions. This inturn function only,customer service many firmshave nowusingsocial started they want towork with. While mostenterprisesusesocialmediafor their on whatproductstobuy, wheretoshopandeven regardingwhatfirms to various socialnetworks,peoplearenow usingsocialmediafor advice orthegovernment.retailers overWith onebillionindividualsloggedon A socialmediastrategyhasbecomeamustfor allenterprises,beitbanks, Social media vendors. leadingtoerosioninboundariesbetweenITcomputing, andtelecom infrastructure hashelpedtelecomplayers toemergeasproviders ofcloud like have healthcareandretail adoptedpubliccloud.Moreover, theirexisting private cloudmodelduetoinformationconcerns, otherindustries security andgovernmentthe financialservices sectorsaremostlymoving toa isnowproductivity acceptedby bothIT vendors andtheircustomers. While The undeniablepower ofcloudcomputingtofoster innovations andimprove Cloud computing governments directlytotheircitizens. toprovide canusebigdata services of shoppers;itcanhelpbanksweed outfraudulent transactions;while such opportunities’. predictbuying canhelpretailers decisions Bigdata representsandshouldadapttheirITprospect bigdata strategytocapture competitiveunbeatable advantage.Enterprisesneedtorecognize the which Data, data. properlyanalyzed andusedintime,canemergeasan year,Every companiesandindividualsgeneratebillionsofgigabytes of Big data The power ofabillion: Realizing theIndiandream 173

The Digital consumer and Disruptive technologies

Source: KPMG in India analysis

Digital consumerism is also impacting the way companies use technology. Increasingly, the core business platform is no longer the only source of information and insights. We are in an era of technology-led Additional solutions based on disruptive technologies are transformation. Technology will become being integrated on to the core platform. This has led to central and critical to everything we do. a significant increase in the level of insights firms have “Every industry, every process, every about their customers. We are already witnessing micro- business paradigm is being re-imagined,

segmentation of customer, and products and services re-defined and re-engineered. Mobile, cloud

being tailored at an individual’s level. The coming decade computing, big data, anticipatory computing, will only see a rapid increase in this transformation. Internet of things (IoT), augmented reality, unfettered bandwidth, social computing“ will make a huge impact and not limited to just IT vendors will need to change the way they are structured the enterprise; they will impact our personal to deal with these trends. They need to be nimble, and think and social lives as well as the communities on their feet. Rather than being bureaucratic organizations, and societies we live in. IT vendors will need to create internal startups that will work on adopting these trends. They will also need to look - N Chandrasekaran at an inorganic strategy to add to their capabilities in some Chairman NASSCOM and CEO & MD, of these areas. This will also have the added advantage of Tata Consultancy Services brining in talent that will act as a force of disruption in these organizations.

Going forward, IT vendors should seek to work closely with their customers to stay abreast of the latest technological developments, and come up with solutions that can take advantage of the convergence of these technologies. They should seek to use customer input more diligently while innovating / developing solutions and products. The emphasis should be on tapping inputs from various channels, mediums and devices and using these as critical inputs for new solutions and incremental innovations. Industry bodies can also play a vital role in this, and increase awareness about these technological trends. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 175

Rise of the digital consumer The advent of technology has empowered the consumer Today, digital channels play a pivotal role at each of like never before. The rising presence and reach of the these stages. A simple expression of interest on a social internet, coupled with the prolific growth of smartphones, channel or the analysis of consumption patterns can help tablets and related technologies, has provided consumers businesses understand what a consumer may purchase with unmatched access to information on the go, thereby and when in the near future. Based on such information, helping them make informed purchasing decisions. targeted marketing programs can be developed and be made available via different digital channels that could help The adoption of digital media is redefining consumer influence consumers’ purchasing decisions. mindsets, patterns of purchase and decision making. This, in turn, is transforming consumer behavior. The rapid pace A simple comparison engine has made the evaluation of at which digital media is being adopted is also expected to alternatives more cut-throat. Customers can evaluate a propel growth in the use of consumer technology. product on the basis of any feature or metric. Moreover, with the advent of technologies such as augmented reality and artificial intelligence, consumers have the opportunity Effects of digital channels on purchase to virtually experience a product before actually purchasing decisions it. A convergence of various factors — a growing social media Channels through which products can be purchased have user base, the rising presence and reach of smartphones, evolved too. Online transactions, purchases through and the intensifying consumer demand to connect — is mobile-optimized websites and smartphone applications increasingly changing the buying behavior. (apps) are on the incline.

Consumer feedback on products through comments on forums, social media and review sites has created the need Typical consumer buying for heightened monitoring; positive feedback can generate immense goodwill, but negative feedback can spiral into a Identification of full-blown PR crisis. Seek Information Evaluation Need

Purchase Consumption Feedback

Source: KPMG in India analysis

Consumer buying cycle in the digital age

Source: KPMG in India analysis with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 176 The power ofabillion: consumer engagement. drive multi-channel commerceand,above all,strengthen of marketing campaigns,enhanceproductdevelopment, sales by monetizingdemand,improve theeffectiveness The effective useofsuch channels canhelpincrease need of the hour to cater to evolving demands and behavior. consumers, theenterpriseecosystem andchannels isthe in silos. A holisticandintegratedstrategyencompassing as thesechannels andtechnologies arebeingperceived business outcomesandvalue throughsuch initiatives, their brands;however, many fail toproducetheexpected Several strategiesfor companiesarealreadycreatingdigital potential impactonconsumerbehavior. will becomemainstream,itisessentialtoanalyze their when andwhich ofthesenew platforms/technologies patterns. While itmay currently bedifficult topredict technologies alteringpurchasing emerging, areconstantly channels.on digital New information andcommunication world, socompaniesneedtoaimforpresence suitable essential. Customerslive inanintegratedonline-offline online andtheirpurchasing preferences hasbecome Thus, ofcustomerbehavior anin-depthunderstanding companies. interact withbrandspresentsatremendousopportunity for consumers whoshoponline,seekrecommendationsand businesses interactwithcustomers. The riseofdigital is nodoubtthattechnology israpidlyreforming the way and providing anactual purchase experience AR. There interacting withconsumers(blogs,forums, social media) long way, fromjustproviding information (websites) to channelsIn ashortspanoftime,digital have come a The nextbigopportunity “ Realizing theIndiandream intelligence to thedigitalconsumer. with eachothertoprovidemorevalue and gestures and moods, andwill interact Very soondeviceswill respond tovoice, more power-efficient andmoreintuitive. devices that will continue to get smarter, Going forward,wewill see amultitude of technologies enabledontheirdevices. want relatable, intuitive and intelligent of hardwareorsoftware.Theyalso consistent experienceregardless A Digital Consumer expects a seamless, - Kumud Srinivasan President, Intel India “

tectonic shift inthebusiness-consumerecosystem. technologies thatKPMGinIndiathinkswillbringabouta age technologies. Inthefollowing section,we discusssix This phenomenonisthekey driver for convergence ofnew the growth andmaturity oftechnologies andviceversa. adoption andusageoftechnologies by consumers isfueling consumerism anddisruptive technologies. The increasing The diagramabove shows theinterplay betweendigital consumerism Digital

Feeder Cycle Growth and Maturity

converging Disruptive technologies

The power of a billion: Realizing the Indian dream 177

Six trends that could shape the Global cloud computing market, in USD billion future While technologies such as big data and cloud have been dominating the imagination of enterprises for the past couple of years, new disruptive trends like augmented reality and social media have only now started having a tangible presence. As per their studies, leading analyst firms have estimated that the maturity curve of these technologies is to increase at a rapid pace over the next decade, with big data and cloud estimated to reach a market potential of tens of billions of dollars.

1. Big data Source: Forecast Overview: Public Cloud Services, Worldwide, 2011-2016, 2Q12 Update”, Gartner, September 2012 Digitization has made significant strides in recent years — racks of documents and piles of files have been replaced with zettabytes of data stored in the servers of data warehouses. Trends such as the growing use of mobile devices and social media networks are generating Underpinned by both technology and economic disruptions, considerable amounts of data both structured and the cloud will fundamentally change the way technology unstructured. providers engage with business customers and individual users as it is a key driver for mobility and big data. Big data global market size, in USD billion 3. Rise of social media Regarded merely as a hub for high school and college students just a few years ago, social media now exerts tremendous influence over the way people around the world — of all ages — get and share information. The implications for business are immense. Social media accounts & users

Source: Wikibon Big Data Market Size and Vendor Revenues report, http://wikibon.org/wiki/v/Big_Data_ Market_Size_and_Vendor_Revenues, Jan 2013

As per a 2011 analysis, every day, the world creates 2.5 quintillion bytes of data — so much that 90 percent of the data in the world today has been created in the last two years alone1, and even this volume would have been surpassed by now. Analyzing this, big data is likely to become a key basis of competition, underpinning new waves of productivity Social media usage growth, innovation, and consumer surplus by 2020.

2. Evolution of the cloud computing model No trend has had as much impact on the world of information technology over the past decade as Cloud computing. Looking past the current industry hype surrounding it, cloud computing is a sustainable, long-term paradigm and the successor to previous mainframe, client/ server, and network computing eras.

Source: ”Social Media Market, 2012-16, Radicati Group, June 2012, Morgan Stanley, “Internet Trends 2011”, December 2011

01. “Big data: The next frontier for innovation, competition, and productivity”, May 2011, McKinsey with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 178 The power ofabillion: expected tobringthenew wave ofchange. between hardware andsoftware, embeddedsystems are sounds etc. technologyWith erasingtheboundaries electronicstethoscopesfor signsmonitoring, amplifying vital continuing toadvance withmoreembeddedsystems for likeinstallations traffic lights.Medicalequipmentis watchesas digital andMP3players, to largestationary Embedded systemsdevices rangefromportable such 5. ecommerce spendingandonlineadvertising. is affecting anumberofbusiness aspects,including still inactive use.Risingfocus onthemobileweb platform adding tothealreadylargecollectionofdevices thatare continue toharboranaggressive appetitefor such devices, Both consumersandbusinessbuyers aroundtheworld improvement. (2Q12), a27.4 percentincrease y-o-y anda2.8percentq-o-q 267.3 millionunitsshipped inthesecondquarterof2012 —reachedcombination ofPCs,smartphones,andtablets The globalmarket for smart connecteddevices —a asignificantchangeto mobilecomputing, isonthehorizon. playersindustry continuetoshift theirfocus from traditional has createdripplesacrossthecomputingindustry. As computers The ofsmartphonesandtablet surgingpopularity 4. Embedded systems market sizeEmbedded systemsmarket penetration Mobile deviceshipmentsandmobile article/689563/IDC_Embedded_Systems_Market_to_Double_By_2015 2012”, 2012 January Source: Source:

Dominance ofmobility software: towards embed Beyond pure-playhardware & IDC, “Intelligent Systems: The next bigopportunity”, September2011, http://www.cio.com/ Morgan Stanley, “Internet Trends”, February 2011, “Portio Research Free MobileFactbook Realizing theIndiandream ded systems Augmented realityapplicationsmarket For GooglehasintroducedGlasses instance, technology firmshave alsojumpedontothe AR bandwagon. and architecture toeducationandmedicine.Several applications inawiderangeofsegments,fromagriculture power thefuture holdssignificantpotentialfor AR, with in AR. Against thebackdrop ofsteadilyincreasingprocessing The spreadofsmartmobiledevices hasledtorapidgrowth inputsuch sensory assound, video,graphicsorGPSdata. whose elementsareenhancedby computer-generated AR offers alive view ofaphysical, real-world environment 6. the potentialofthistechnology. 02. November 2011 Source:

http://www.nbcnews.com/technology/gadgetbox/google-shows-prototype-augmented-reality-glasses-653835

Augmented reality Research and Markets, ”Global Augmented RealityMarket Forecast by Product 2011-16”, “ from awhole new perspective. puts thealignmentbetweenbusinessandIT should beavailabletothebusinessandit of howeasy, quick andflexible solutions established anewbenchmarkin terms in anorganization.Thecloudhasrapidly increasingly takingatrulystrategicrole Also, theadoptionofcloudis competition. and effectivenesstodifferentiatefrom with greater certainty, andreactwithspeed customer behaviorandmarketconditions data-driven companiesareableto monitor behavior patterns.We haveseen that service changing customerdemandsand organizations tochangethewaythey big dataaremajorthemesthat forcing today. Social media, mobile, cloud, and are driversenablingbusinesschange Connectivity, content andcommunication 2 - Capgemini, India Aruna Jayanthi TM to tap totap “ CEO,

“ reduce timeto market ordriveefficiencies. provide superiorcustomerexperience, accelerate their innovation agenda–to of thesetrendstodrivegrowthand Companies arelookingattaking advantage what Internetdid over thelast20years. products andbusinessmodels,similar to impact allindustries, bringing innew Cloud, Mobility, Social and Big Data will Executive Co-Chairman, - Kris Gopalakrishnan Infosys

“ “ The power ofabillion: the needsofanindividualcustomer. products thatareuniquelydesignedto meet allowing businesses to createanddeliver big dataandsocial media analyticsare Technological advancementsaround on deliveringgreatervalueto the customer. among others. The end-focusofcourseis retail, e-commerce, professionalservices diverse as banking,telecom, e-governance, this changetakingrootinindustriesas and sustain a competitiveedge. We see growth thatisaidingbusinessestogain a wholenew wave ofinnovation and the workforce. Technology isempowering anxious young populationwhichwill enter and consumersalike,atech-savvy, in social and mobileamongenterprises ups, entrepreneurship,heightenedgrowth hotbed fornewtechnologiesandstart- the world’s successfulbusinessempires, a powerhouseoftalent,creatorssome to dowithIndia’s economicdevelopmentas has grownimmensely. A lotofthathasgot The level of technologyadoptioninIndia Realizing theIndiandream - Sandeep Mathur Oracle India MD, “ 179

Aditya May BirlaGroupacquiresstakeinLiving MediaIndia,BusinessStandard, 19th, 2012 KPMG inIndia Analysis Mergermarket, Bloomberg, Venture Intelligenceaccessedon24thJanuary, 2013 GT dealtracker, 2012 consolidating the industry tocementmarket leadership. consolidating theindustry industry, withstrategicandprivateplayers witnesseddeal activity equity consolidation:select verticals, suchIndustry asthefilmexhibition the country, which willresultintransparencyofsubscriberownership. with regionalMSO’s andLCO’s asdigitizationisimplementedthroughout will continuetoevaluate various fundraisingoptionsaswell consolidate Digitization ofC&Shouseholds:bothcableandDTHoperatorshave and content. are focusing ongrowing theirregionalportfolios anddeveloping localized and printpublishershave witnessedinterestfromnationalplayers who Growing ofregionalization:regionalbroadcastingnetworks importance Mergermarket, Bloomberg, Venture Intelligenceaccessedon24thJanuary, 2013, KPMGinIndia Analysis 3 : 4 . Several privatefundshave equity madeinvestments inthe 1 . 2 , Sony Corporation’s acquisitionofa32 The power ofabillion: 2 and Aditya BirlaGroup’s Realizing theIndiandream 2 , versus 42 181

News Corp completes acquisition of ESPN Star Sports, Business Standard, NovemberNews Sports,Business Standard, Corpcompletesacquisition ofESPNStar 8th,2012 Mergermarket, Bloombergaccessed on24thJanuary, 2013 Aditya May BirlaGroupacquiresstakeinLiving MediaIndia,BusinessStandard, 19th, 2012 KPMG inIndia Analysis 2013, KPMGinIndia Analysis Mergermarket, Bloomberg, Venture Intelligenceaccessedon24thJanuary, 6 Majorbroadcasters,intheirquesttobecome 5 . Consolidationhasbeenakey themefor Realizing theIndiandream 7 . 5 the broadcastersandMSOs. equation inthe TV distributionvalue chain willshift towards shifts,cable operators.Given regulatory thepower invest longterm,ascomparedtotheunorganized local ADAG andtheHindujaGroup which have to theability conglomerates such as Tata, Zee,Reliance, Sun, Videocon, The distributionlandscapeinIndiaisdominatedby large percent stakeintheir Asian jointventure Sports ESPNStar part oftheiroverall strategy, News CorpacquiredESPN’s 50 acquired by Providence Partners). Equity Additionally, as ABP Group)andHathway Limited (stake Cable&Datacom selling itsinvestment News inStar (stakeacquiredby the News Corpchose toexit itsnon-corebusinessesinIndiaby Digicable Networkby theSaharaGroup Limited, andtheacquisitionofa90percentstakein Entertainment Limited(radiobroadcastingservices) Entertainment andSynergyand mobileinteractive Media services) subsidiaries, IMediaCorp(providing integratedinternet Limited chose toacquiretheremainingsharesofitstwo out toconsumersatdifferent touch points,DBCorp To maximize crosssynergiesacrossplatforms, andreach lack ofdesiresmallerplayers toexit. has beentemperedduetovaluation issues,coupledwith stakes incompanies.However, inthisspace dealactivity andprivatehave equity from outsidetheindustry taken dominance asalsoby strategicdealswherecorporates by existing players lookingtoexpand regional/language Transactions intheprintspacehave beenlargelydriven market. of panIndianplayers (except BCCL)andahugevernacular of localcentricbusinesses,low PCpenetration,absence suchfundamentals asgrowing literacyrate,emergence value for thenext decade, supportedby strongunderlying world andisexpecteditsgrowth tosustain rateandcreate India isstilloneofthefew growing printmarkets inthe Print digitization timelinesandtokeep upwithcompetition. outlargescaleexpansion planstomeet tocarry activity expect significantconsolidationcoupledwithfundraising to buildtheirbusiness.Similarly, inthecablebusiness,we marketsconsolidate orraisefundsfromthecapital inorder we expectDTHplayers certain toraiseprivate equity, the years, requiringlongterminvestments. Consequently, DTH, too,hasseensignificantbuildupofcompetitionover Limited stake inDENNetworksby Reliance StrategicInvestments in thisspacewhich includetheacquisitionofa1.14 percent FDI. There have, thispastyear, transactions beennotable as the TV value chain realignsbecauseofdigitizationand value creation. These, hopefully, willironthemselves out by anumberofinefficiencies which areimpedimentsto The TV Distributionsegmenthashistoricallybeenplagued broadcasting. markets; Indiaisheadingtowards anoligopolyinsports This couldbeanindicatorthatsimilartointernational House Group, andtheirboltonacquisition of Vikas Publishing Capital’s acquisitionofa35percent stakeinS. Chand privatedealsinthisspaceinclude EverstoneNotable equity 10. 09.

Venture Intelligenceaccessed on24thJanuary, 2013 Rs 37.97 cr,FinancialExpress,December5th,2012 Mergermarket accessedon24thJanuary, 2013, DBCorptobuy remainingsharesintwo unitsfor 10 7 . , theinvestment armofReliance Industries 5 7 . 9 . 8 . The power of a billion: Realizing the Indian dream 183

Going forward, deals in the print industry will be driven The on deck platform, offered by cellular service providers, by expansion and consolidation plans of the large players, may see limited interest with the increased penetration who may choose to raise funds through the private equity of smart phones and competition from competition from route, or IPOs. However, challenges in terms of valuation application providers on for IOS and android operating expectations, and many promoters’ mindset of not letting systems. go of control even at the expense of growth, may prove to be impediments to M&A activity in the sector. Last year we saw Gruner + Jahr AG & Co’s acquisition of SeventyNine Private Limited, an India based operator of mobile applications and advertisement distribution Radio platform, a space where we expect increased transaction In 2010, the Copyright Board approved a revenue sharing activity. Mobile advertising is expected to witness high arrangement between radio broadcasters and music levels of interest from international strategic players companies, leading to significant cost savings in royalty looking to enter or expand their presence in the Indian payments made to music companies by radio stations. market. Personalization, immediacy, interactivity and cost While payments were earlier being made on a per needle effectiveness make this a viable platform for advertisers, hour basis, this has been changed to an advertising revenue and a high growth area for the networks. sharing model. This ruling is considered as a step towards improving the financial health of radio stations, which have been largely making losses until now, prior to the roll out of Other notable deals the Phase III FM auction11. The Sun TV Network won the Hyderabad franchise of the Indian Premier League amidst the controversial termination Regulatory changes such as relaxation of FDI limits, of cash strapped Deccan Chargers. They will pay a fee of granting permission to own multiple frequencies in a city under USD 16 million per year, which is significantly lower and the permission to air news and current affairs hold than what the Kochi and Pune franchises were sold for two the key to the growth of this segment. In the near future, years ago.15 relaxation of regulatory hurdles is likely to facilitate active interest from large international private equity players and Samara Capital Partners acquired a 77.5 percent stake in global radio majors. NewsWire 18 Ltd, a financial data and news agency, for USD 16.5 million, from Network 1813, who have chosen to Films monetize noncore assets. The film exhibition segment witnessed significant deal In the animation sector, Standard Chartered Private Equity activity, with high levels of interest from strategic and acquired a 19.7 percent stake in Prime Focus Limited, an private equity players. Top players in this segment have Indian company providing creative and technical services to made acquisitions and consolidated their business to media companies, for USD 36 million13. Going forward, we achieve market leadership. believe that Indian animation and gaming companies are likely to seek capital infusion to acquire technology, develop L Capital and Multiples private equity acquired 15.82 content and retain people. Also, incumbents will seek to percent stake each in Gurgaon based multiplex major PVR complement their existing portfolios and technologies Cinemas for a combined amount of USD 58 million12. Part through acquisitions in India and overseas. of the money raised was used to acquire Cinemax India Limited. PVR acquired a 69.27 percent stake in Cinemax India Limited from the promoters, and made an open offer Outlook for an additional 26 percent for a combined amount of USD Companies in the Indian M&E industry are currently poised 119 million. This transaction made PVR the largest multiplex for substantial growth, organic as well as inorganic. Among chain in the country with 351 screens, followed by Inox the larger media houses, we expect deals to be driven by Leisure and Big Cinemas.13 expansion and consolidation plans, specifically to tap the latent potential in the fast growing regional markets. Players Keeping with the overall theme of consolidation, Inox in the television segment, broadcasting and distribution, Leisure decided to merge with three of its subsidiaries, may witness significant transaction activity to fund their including multiplex chain Fame India Limited. After the growth ambitions in order to maximize the opportunity merger, Fame is expected to be rebranded as Inox, making presented by large scale digitization of cable. Additionally, it the second largest multiplex chain in the country14. larger advertising companies and media houses may continue to acquire smaller, fast growing companies in Advertising agencies and digital media the digital space, to develop or further strengthen their capabilities. Acquisitions in advertising have been dominated by the Big 5 players acquiring local agencies, with high levels of interest in digital media, to strengthen their presence in the emerging area. Notable transactions include WPP’s acquisition of Hungama Digital Services13, Dentsu’s Over the last 5 years, the media industry has acquisition of a 51 percent stake in Taproot India13, Publicis not only become more integrated with the 13 Groupe’s acquisition of Indigo Systems and Technology mainstream of business, but also learnt how“ and Interpublic’s acquisition of Interactive Avenues. “to be better organised for scale. The financial Going forward, digital advertising agencies may look for investment community has responded very acquisitions abroad due to a highly crowded and relatively positively to this, and I expect an exponential small domestic market. growth in investment into this sector

- Nainesh Jaisingh 11. FM Radio- Royalties Reduced to Global Standards, Nishith Desai Associates, September 17th, 2010 12. Venture Intelligence accessed on 24th January, 2013 Managing Director & Global Co-Head, 13. Mergermarket accessed on 24th January, 2013, With Cinemax buy, PVR beams it to the top, DNA Standard Chartered Private Equity India, 30th November, 2012 14. Fame set to merge with Inox Leisure, Business Standard, June 8th, 2012 15. Mergermarket accessed on 24th January, 2013, Sun TV buys IPL’s Hyderabad franchise for Rs 425 with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative crore, Times of India, 26th October, 2012 affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 184 The power ofabillion: Key transactionsin2012 Source: June June January August/ April August April April April November November November Month March May PE October M&A Mergermarket, Bloomberg, Venture Intelligenceaccessedon24thJanuary, 2013 Target Amar ChitraKatha Star News ESPN StarSportsLimited Digicable Network(India)Pvt.Ltd Entertainment Pvt.Ltd. Hathway Cable&DatacomLtd NaiDunia MediaPrivateLimitied Endemol IndiaPvt.Ltd Hungama DigitalMedia Eenadu TV Multi ScreenMedia Prime FocusLimited PVR Limited Living MediaIndiaLimited Cinemax IndiaLimited Realizing theIndiandream JWT Jagran PrakashanLimited The AdityaBirlaGroup ABP TVPrivateLimited Acquirer Standard CharteredPrivate Sahara IndiaPariwar Sony Corporation Inc. Equity News Corp Investments Limited Network 18Media& Future Ventures L CapitalAsia,Multiples Providence EquityPartners PVR Limited CA Media “ Stake (%) the sectorovernext24months. we expectsignificantPEandM&A activity in particularly inregional markets. Consequently to growbothorganicallyandinorganically expansion capitalfordigital rollout andneed are seeingthreekeytrends; consolidation, Media andEntertainmentsectorparticipants 19.7% 31.6% 17.5% 27.5% 100% 100% 9.2% 95% 50% 90% 51% 32% 49% 26% Undisclosed Undisclosed Undisclosed Undisclosed Deal Value (USD mn) Partner -CorporateFinance, 119 395 271 58 36 10 70 44 52 71 Theatre Animation TV Distribution TV Broadcasting TV Distribution Theatre TV Broadcasting TV Broadcasting TV Broadcasting TV Broadcasting TV Broadcasting Sector Digital Media Publishing Publishing KPMG inIndia - Rajesh Jain “

—— Tax withholding on acquisition of copyright However, Finance Bill 2013, with effect from 1 April Under the IT Act, payments to Indian residents 2013, proposes to restrict the service tax exemption towards acquisition of copyright in content (for only to licensing of copyright in cinematographic films example, satellite rights, home video rights, music for exhibition in cinema hall /theaters. rights, etc.) attracts a 10 percent withholding tax The above mentioned Circular categorically mentions (under section 194J) This withholding rate is excessive that the arrangements mentioned in the Circular considering the profit margins prevelant in the industry will apply to similar situations across all the taxable and has an adverse impact on taxpayers’ cash flows. It services. Hence, the applicability of said Circular will would be worthwhile for the Government to consider a have to be evaluated in all types of revenue sharing lower withholding tax on such payments. arrangements other than the ones pertaining to licensing of copyright in films for exhibition in cinema • Recent developments hall /theatres.

—— Service tax on services of actors and technicians Actors and certain technicians who were not liable • Judicial decision to service tax thus far, now fall within the purview of —— Services provided by overseas entities in service tax and are liable to service tax effective 1 July connection with making logistic arrangements 2012 upon introduction of the negative list regime of for the shooting of different films of taxpayers service tax. outside India were held to be commercial services and not Fees for Technical Services (FTS) —— Temporary transfer, permitting the use or Recently, the Mumbai Tribunal in the case of Yash Raj enjoyment of copyright in cinematographic films Films Pvt Ltd1 (‘Yash Raj Films’) held that the services Licensing of copyright in cinematographic films provided by an overseas entity in connection with formed part of the Mega Exemption Notification making logistic arrangement for shooting of different under the negative list regime and was exempt from films of the taxpayer outside India were in the nature of service tax. Finance Bill 2013, with effect from 1 April commercial services and not FTS. 2013, proposes to restrict service tax exemption to copyright in cinematographic film only for films The production unit of Yash Raj Films used to shoot exhibited in cinema hall/ theaters. Therefore, if films abroad and avail services required in connection enacted, licensing of copyright in cinematographic with shoots from various overseas providers. Services films (other than exhibition in cinema hall / theatres) mainly included arranging for extras, arranging for the will be subject to service tax, effective 1 April 2013. security, arranging for locations, accommodation of Accordingly, CENVAT credit on inputs / input services, cast and crew, obtaining necessary permissions from not attributable to theatrical revenue, will be available local authorities as well as arranging for makeup of the for set-off against output service tax liability. However, stars, insurance cover, etc. there will still be CENVAT credit loss to the extent the same is attributable to revenue earned from exhibition The Tax authorities contended that payments made by of cinematographic film in cinema hall / theatres. Yash Raj Films to the overseas service providers were in the nature of FTS and Yash Raj Films was required to deduct tax at source from the said payments. —— Levy of service tax on distributors / sub distributors / exhibitors of movies The Tribunal held that the nature of services rendered Producers, distributors, sub distributors and exhibitors by overseas service providers to Yash Raj Films such of movies enter into different kinds of arrangements as, (i) arranging for shooting locations (ii) obtaining for exhibition of movies. These arrangements are necessary permits for the assessee (iii) arranging either entered into on a principal-to-principal basis shipping & custom clearances (iv) arranging for (where the movies are exhibited by the exhibitor on ‘extras’, shooting equipment, meals, transport etc. his own account) or on behalf of the distributor / sub (v) rendering help in obtaining visas (vi) arranging distributor / producer or on a revenue sharing basis. for makeup of casts(vii) coordinating for necessary licenses, cannot be treated as technical services under The Service Tax authorities issued a Circular in section 9(1)(vii) of the IT Act. Such services are in the December 2011 which clarified that the levy of nature of commercial services and amount to business service tax would not depend upon the nature of such profit for the service providers, not chargeable to tax in arrangements but upon the nature of the transaction India in the absence of any Permanent Establishment involved. Thus, service tax was applicable on the (‘PE’) in India of the service providers in India. exhibition of movies by the exhibitor, regardless of whether the arrangement with the distributors was on a principal-to-principal basis or on behalf of the distributor / sub distributor / producer or on a revenue KPMG in India’s comments sharing basis. This had the impact of taxing the activity This is a welcome judgment for taxpayers availing of movie exhibition and the tax was ultimately passed of logistic arrangement services in overseas on to viewers by way of increase in ticket prices. jurisdictions, as such services will not attract withholding tax in India. Withholding tax in India on Further, effective 1 July 2012, licensing of copyright in such services would have resulted in additional costs cinematographic films was made exempt from service to taxpayers in case of net of tax contracts, more tax. Accordingly, revenue earned from exploitation of so where overseas service provider does not have copyrights in cinematographic films was exempt from Indian Permanent Account Numbers (PAN). Local service tax. logistic service providers should also be exempt from withholding tax under section 194J of the IT Act.

01. Yash Raj Films Pvt Ltd v ITO – 28 taxmann.com 247 (Mumbai Tribunal) with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 189

Broadcasting industry

• Key tax issues

—— TDS on various payments by TV channel FTCs are of the view that the payment for grant of companies distribution rights is not for any copyright and hence, TV channel companies make significant payments to is not in the nature of royalty (taxable on gross basis software production houses towards production of TV at a specified rate). FTCs have been taking a view that programs. They also pay placement / carriage fees to the payment is in the nature of business income and DTH operators, multi system operators and various is not taxable in India in the absence of a PE in India. cable operators towards placement / carriage of the However, the Tax authorities hold a divergent view channels. The channel companies are of the view that and contend that the subscription revenues are liable such payments attract TDS under section 194C of to tax as royalties. The issue is pending adjudication at the IT Act at the rate of 2 percent. However, the Tax appellate levels. authorities contend that such payments are liable for TDS at 10 percent on the ground that the payments —— Taxation of Transponder charges are towards technical services / royalty. This has Broadcasting companies make payments for resulted in protracted litigation. transponder charges. The Tax authorities contend that payments made towards transponder charges A suitable clarification by the Government to the are in the nature of royalty. However, in the case of effect that tax needs to be deducted on the above Asia Satellite Telecommunications Co Ltd3 (Asia Sat), payments at the rate of 2 percent and not at the the Delhi HC has held that such payments do not rate of 10 percent is much needed to put the above constitute royalty and are not liable to tax in India. controversy to rest. With a view to override the above decision, the —— Taxation of Foreign Telecasting Company (‘FTC’) definition of royalty under the IT Act has been The two primary sources of revenue for FTCs are amended vide the Finance Act 2012 to bring within income from sale of advertising airtime on the TV its ambit payments made for transmission of signals channel and subscription revenues. by satellite. However, non-resident taxpayers can continue to take the benefit of tax treaties entered Taxation of advertisement revenues into with India to contend that such payment is not in Under the IT Act, advertisement revenues of FTCs the nature of royalty under the treaty and hence not are taxable in India in case FTCs have ‘business liable to tax in India. connection’ in India. In case an FTC operates from a country with which India has a tax treaty, the • Recent developments advertisement revenues would be taxable in India only if the FTC has a permanent establishment in —— Service tax on services of actors and technicians India. As is the case in the film industry, actors and technicians who were not liable to service tax in the The taxability in such cases is only on the income Broadcasting industry thus far, will now fall within the which is attributable to the PE / operations carried service tax net and are liable to service tax effective 1 out in India. The circumstances in which the FTCs July 2012. constitute a PE / business connection in India and the determination of income attributable to such PE / operations carried out in India, continues to be —— Taxability of broadcasting charges earned by a contentious issue between the FTCs and the Tax foreign broadcasters authorities. Hitherto, service tax payable on selling of airtime slots, subscription revenue, etc earned by foreign FTCs generally appoint agents in India for marketing broadcasters was discharged by agents of these advertisement airtime slots. Agents also facilitate broadcasters in India. The agents were defined as collection of advertisement revenues from deemed broadcasters and were accordingly made advertisers and its remittance abroad. liable to service tax. Thus, any charges that were The Tax authorities contend that the agent of the FTC, collected by Indian agents or representatives with who concludes contracts on behalf of FTC or secures respect to broadcasting by the foreign broadcasters orders wholly or almost wholly for FTC in India, were liable to service tax in the hands of the Indian constitutes its PE in India. agents or representatives under the taxable service category of ‘broadcasting services’. The Bombay High Court (HC) in the case of SET Satellite (Singapore) Pte. Ltd2. has held that where an However, under the negative list regime, effective FTC has an Agency PE in India (i.e. PE on account of 1 July 2012, the service categories are done away its agent), a payment of arms length remuneration by with and accordingly, the definition of taxable service the FTC to its Indian agent extinguishes its tax liability pertaining to broadcasting services and definition of in India. A similar view has been taken by the Delhi broadcasting agency or organization no longer form HC in the case of BBC Worldwide Ltd. with the matter part of the service tax law. In view of this, instead now pending before the Supreme Court. of the Indian agent or representative, the foreign broadcasters (for the broadcasting services provided Taxation of Subscription revenues in India), will now be liable to obtain service tax Subscription revenues are generally collected by the registration in India and discharge the service tax Indian distributors and subsequently paid to the FTCs. liability on these activities.

02. Set Satellite (Singapore) Pte. Ltd v DDIT(IT) – 173 Taxman 475 (Bombay HC) with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative 03. Asia Satellite Telecommunications Co. Ltd – 197 Taxman 263 (Delhi HC) affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 190 The power of a billion: Realizing the Indian dream

—— Service fee earned by Indian agents of foreign Indian broadcasters are located in taxable territory, broadcasters transponder hire charges paid by them will be liable Typically, an Indian agent collects advertisement and to service tax in their hands. Hence, the ambiguity subscription revenue from customers in India and prevailing in the erstwhile regime has been dispelled. remits this to foreign broadcasters after retaining a service fee. This service fee retained by Indian agent • Judicial decision was also subject to service tax. —— Payment for acquiring satellite rights of films is Thus far, this led to taxation of the same service fee ‘royalty’, liable to withholding tax twice, firstly as part of the revenues collected by the The Chennai Tribunal recently dealt with the issue Indian agent from the customers and secondly as of withholding of tax from payments made for service fee. However, it was argued that if the service acquisition of satellite rights in the case of Shri Balaji fee retained by Indian agents qualified as export of Communication4 (‘Balaji Communication’). In this service, then service tax should not have been levied. case, Balaji Communication had made payment for acquiring ‘satellite broadcasting’ rights of films and Now, under the negative list regime, the Export of programs without deducting any tax on the grounds Services rules have been replaced by the Place of that this was towards exhibition of cinematograph Provision of Service Rules, 2012 (POPS). One of films, covered under the exclusion to the definition of the conditions for a service to qualify as an export the term ‘royalty’. is that the place of provision of service must be outside India. The place of provision of service for an The Tax authorities contended that tax needs to be intermediary/ agent is the location of service provider. deducted under section 194J of the IT Act as these Since the broadcasting agent/ representative, in payments were in the nature of royalty. this regard, is an agent who arranges or facilitates provision of service from the foreign broadcaster to In this regard, the Tribunal observed that as long as the recipient of broadcasting services, and is located transfer is of any right relatable to a copyright of a film in India, the place of provision of service is within or video tape which is to be used in connection with India and accordingly one of the conditions to qualify television, the consideration paid would be royalty. as an export is not fulfilled. Hence, service tax will Accordingly, it held that Balaji Communication was be leviable on the service fee received by the Indian liable for withholding of tax and failure to do so would agent / representative. Effective 1 July 2012, foreign attract disallowance of expenditure under the IT Act. broadcasters without a presence in India will now be liable to register in India and discharge the service tax liability on subscription revenue, advertisement revenue, etc. earned for the services provided in KPMG in India’s comments India; further the service tax on service fee recovered There was some doubt as to whether the exclusion by the agent will be available as credit to such in the definition of royalty for sale, distribution or broadcasters, subject to conditions prescribed under exhibition of cinematograph films applies only the CENVAT Credit Rules, 2004. to acquisition of rights for theatrical distribution/ exhibition of cinematographic films or also to —— Transponder hire charges acquisition of satellite rights of a film. The Tribunal For the purpose of providing services, broadcasters has clarified that the exclusion does not apply to hire satellite transponders. In cases where licensors acquisition of satellite rights. Thus, in terms of this (of transponders) are located in India, service tax on decision, payment for acquisition of satellite rights of the hire charges recovered from the broadcasters is film will be treated as royalty. discharged by the service providers in India (i.e. the licensors). However, in cases where licensors are situated outside India, the liability to discharge the service tax falls on the service recipient in India on a —— Payment by TV broadcaster towards hiring reverse charge basis. charges for transponder does not amount to Thus far, the service tax authorities have been royalty seeking to levy service tax on Indian service The Mumbai Tribunal in the case of B4U International recipients, i.e. the broadcasters, on such transponder Holdings Ltd (‘B4U’) has held that payment made hire charges. However, Indian broadcasters contend for transponder hire charges would not amount to that such services can at best be covered under the royalty. taxable service category of “Supply of Tangible Goods services” in which case, as the transponder is located In this case, B4U made payments to a US company outside Indian territory, this should be exempt from towards transponder hire charges. The Tax authorities service tax in India. This conflicting position resulted held that such payments were in the nature of royalty. in protracted litigation with the service tax authorities. The Tribunal referred to the decision of the Delhi HC in the case of Asia Satellite Communications Co. Ltd However, effective 1 July 2012, Import Rules have wherein the Delhi HC had held that such payments do been replaced by POPS. As per POPS, service tax will not constitute royalty. The Tribunal also held that the be applicable on import of services only if the place of retrospective amendment to the definition of royalty provision of service is taxable territory (i.e. whole of in the IT Act (introduced by Finance Act, 2012) had no India other than the state of Jammu & Kashmir). The effect, as the provisions of tax treaty between India place of provision of services in case of transponder and USA would prevail over the IT Act. The Tribunal hire service will be determined based on the held that under the tax treaty, the payment would not location of service recipient i.e. broadcasters. Since amount to royalty. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 04. ACIT v Shri Balaji Communications – 30 taxmann.com 100 ( Chennai Tribunal) The power of a billion: Realizing the Indian dream 191

Thus, it was held that B4U was not liable to deduct consideration for the same. While there should be no tax at source from the payments made to the US VAT applicable on such a transaction effected without company and consequently, there cannot be any consideration, the VAT authorities of various States disallowance of the payment under the IT Act. are seeking to levy VAT on such transactions on the ground that the installation and activation charges recovered from the customers include the price of STBs.

KPMG in India’s comments This leads to double taxation of the same Despite retrospective amendments to the consideration (i.e. VAT and Service Tax) thereby definition of royalty, the above decision has causing significant damage to the industry. held that payment made for transponder hiring charges is not in the nature of royalty under the Since installation and activation charges are service tax treaty. This is a welcome ruling which will help revenues and service tax is being levied on these, the avert protracted litigation on the issue. same should be kept outside the purview of VAT.

—— Taxability of RCVs Taxability of RCVs for subscriptions has long been a matter of dispute, particularly around whether this DTH industry qualifies as a good or a service. • Key tax issues The industry has been adopting a position that the RCVs are in the nature of actionable claims and —— Withholding tax on discount on sale of Set-top- boxes (‘STBs’) / Recharge Coupon Vouchers cannot qualify as goods. Moreover the intrinsic value (‘RCVs’) of the same is insignificant and the same is used in the course of provision of services. However, the VAT From an income tax perspective, an issue arises authorities of various States have been seeking to vis-à-vis applicability of withholding tax on the levy tax (VAT as well as Entry tax) on such RCVs on amount of discount given to distributors on the sale their face value, treating them as goods. of STBs / RCVs. The Tax authorities are of the view that discount on sale of STBs / RCVs is in the nature While there are judicial precedents which have held of commission, subject to withholding tax at the that RCVs do not qualify as goods, it would benefit rate of 10 percent under section 194H of the IT Act. the industry if the Government released a clarification However, the industry is of the view that the discount and made suitable amendments to VAT schedules, so is not in the nature of commission and hence, section as to avoid litigation across India. 194H is not attracted thereon. This view is supported by the recent decision of the Supreme Court in the case of Ahmedabad Stamp Vendors Association5 • Recent developments where stamp vendors had bought stamps from —— Imports duty on STBs State Government on discount. The tax department Pursuant to Finance Bill 2013, import of set-top-boxes claimed that the vendors were ‘agents’ of the State have become costlier, with effect from 1 March Government and the discount was nothing but 2013, since the Basic Customs Duty on import of the ‘commission or brokerage’, liable to withholding tax set-top boxes has been increased from 5 percent to under section 194H. The Supreme Court held that tax 10 percent. An increase in duty at the critical phase need not be withheld on the vendor’s discount since of the digitization process may impact set-top-box it is not in the nature of commission or brokerage. The penetration and add to the financial burden of DTH ratio of this decision should equally apply to discount and Cable companies. given to distributors for sale of STBs / RCVs. It would benefit the industry if the Government Music industry releases a suitable clarification that discount on sale of STBs / RCVs is not in the nature of commission / • Key tax issues brokerage and not subject to withholding tax, so as to avoid unnecessary litigation across the DTH sector. —— Deductibility of cost of music rights Deductibility of acquisition costs of music rights has been a controversial issue. Issues arise whether such —— Dual levy of tax on DTH service costs are entitled to depreciation (at the rate of 25 The DTH industry is subject to variety of taxes on percent on written down value basis), or are in the various transactions, such as Value Added Tax (‘VAT’) nature of revenue expenditure deductible in the first on sale of STBs, Service Tax and Entertainment Tax on year or to be amortized over the period of license. subscription revenues, etc. Customers are charged The Mumbai Tribunal in the case of Tips Cassettes STB installation charges and activation charges, on & Record6 and the Calcutta Tribunal in the case of which service tax is being levied. Gramophone Company of India7 held the view that payment for acquiring music rightsare in the nature Providing DTH services is the predominant objective of acquiring raw material and hence deductable as of DTH operators. Therefore, to build their subscriber revenue expenditure. Given that it is a timing issue, base, a majority of DTH players have shifted from the it would help the cause of the industry and avoid model of selling STBs to the customers to providing litigation if the Government can issue a circular / the STBs on entrustment basis, without charging any clarification confirming this position.

05. CIT v Ahmedabad Stamp Vendors Association – 25 taxmann.com 201 (Supreme Court) 06. Tips cassettes & Record Co. v ACIT – 82 ITD 641 (Mumbai Tribunal) with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative 07. Gramophone Co. of India Limited v DCIT – 48 ITD 145 (Calcutta Tribunal) affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 192 The power of a billion: Realizing the Indian dream

Digital Media/ Out of Home (‘OOH’) Radio industry industry • Key tax issues —— Service tax implications for sale of space or time —— Deductibility of License fees slots for advertisements Radio broadcasters are required to pay license fees Selling of space or time slots for advertisements, (one time entry fee and recurring annual fees) to other than advertisements broadcast on radio or the Government as per license terms. The issue television, forms part of the negative list of service arises as to whether such fees are in the nature of tax regime. Accordingly, selling of space or time slots revenue expenditure to be claimed as deduction on digital media i.e. internet or selling of hoarding in the year in which they are incurred or are in the space should not be liable to service tax, irrespective nature of capital expenditure, entitled to depreciation. of who the service provider or service recipient is and Since the annual license fee is payable for each the mode of consideration. year of operation, it should be allowed as revenue expenditure. Further, the one time entry fee should —— Withholding tax on payment of banner be allowable as a deduction over the period of advertisements on a portal license. However, another view is that the payment From an income tax perspective, an issue arises as for the one time entry fee could be treated towards to whether payments made to foreign companies license acquisition, specifically covered as an for uploading and display of banner advertisements intangible asset, eligible for depreciation at the rate on their portals is liable to tax in India. Recently, the of 25 percent. This is likely to be an area of dispute Mumbai Tribunal in the case of Pinstorm Technologies between the taxpayer and the Tax authorities. The Pvt. Ltd.8 (‘Pinstorm’) has held that such payments Government could issue a circular or clarification on are not taxable in India. this aspect so as to curtail potential litigation.

In the above case, Pinstorm had made a payment —— Service tax on sale of advertisements to Google Ireland Ltd. (Google Ireland) for uploading and display of the banner advertisement on its portal From a service tax perspective, selling space or time and claimed this as advertisement expenditure. slots for advertisements other than advertisements While making the payment, no tax was deducted at broadcast on radio or television forms a part of the source by Pinstorm on the ground that the amount negative list. Thus, the sale of space or timeslots on constituted business profits of Google Ireland and radio is liable to service tax. The leading players in in the absence of any PE of Google Ireland in India, the industry are of the view that inspite of the fact the amount paid was not chargeable to tax in India. that radio is a cost free and easy medium of mass However, the Tax authorities held that payment made communication, the aforesaid benefit of exclusion to Google Ireland by Pinstorm was chargeable to from the levy of service tax is not granted to radio tax in India either as ‘fees for technical services’ or industry which is an unfair treatment to it. The ‘royalty’ and hence, tax ought to have been deducted Government may consider extending the benefit to at source from the payment made to Google Ireland. the radio industry as well.

The Tribunal relied on its earlier decision in the case of Yahoo India (P.) Ltd. where on similar facts, it was Sports held that the banner advertisement hosting services did not involve use or right to use by the taxpayer of The importance of sports in the country has increased any industrial, commercial or scientific equipment over a period of time with various international sports belonging to Yahoo. Uploading and display of events being conducted in India (such as Cricket, Golf, banner advertisement on its portal was entirely the Formula One,and other events). Taxation of sportspersons responsibility of Google Ireland and Pinstorm was and foreign teams participating in such sporting events only required to provide the banner advertisement to (for example, taxability of participation fee received by the foreign company for upload to Google Ireland’s sportspersons, advertisement and sponsorship income portal. Pinstorm thus had no right to access the portal earned by the participating teams, attribution of income to of the foreign company and there was no evidence of Indian operation, etc) is a vexed issue. positive act of utilization or employment of the portal Clarity on the issues faced by the sector coupled with of the foreign company by Pinstorm. Accordingly, certain tax incentives would contribute towards the such payment was in the nature of business profit development of sports in the country. and therefore, no tax was deductible at source on such payment, in the absence of any PE of Google Ireland in India. Other Issues impacting the M&E industry KPMG in India’s comments —— Clear roadmap for implementation of Goods and Online advertising on internet search engines has Services Tax (GST) become an important advertising and marketing There seems to be no clarity as to the exact date tool for the present day business. This is a of implementation of GST. The introduction of GST welcome ruling for those taxpayers who make would go a long way in reducing the tax costs of the payments for online advertising on the portal of a industry, as credit for taxes paid on purchase of goods foreign company. would be available for set off against taxes payable on services and vice versa.

08. Pinstorm Technologies (P) Ltd v ITO – 24 taxmann.com 345 (Mumbai Tribunal) with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 193

Further, the problem of dual taxation (i.e. levy of Considering the above situation, the Government service tax as well as VAT on certain transaction) is could consider measures to address this. expected to be sorted out with the implementation of GST. Therefore, the industry expects that the —— Tax Residency Certificate (‘TRC’) mandatory to Government will release definitive timelines and avail tax treaty benefit steps for the implementation of GST at the earliest. The Finance Act 2012 has introduced section 90(4) Also, the industry expects that other applicable in the IT Act which makes it mandatory for non- indirect taxes such as entertainment taxes will resident taxpayers to obtain a TRC containing certain be subsumed into a potential GST. If the levy of prescribed particulars from their respective countries entertainment tax is kept out of GST, it would in order to claim the benefit under the tax treaty. be particularly unjustifiable in States such as Maharashtra, where the rate of entertainment tax The Central Board of Direct Taxes (CBDT) issued being levied on films is relatively high. Therefore, a circular in September 2012 prescribing the entertainment tax should form part of the GST. information that the TRC should contain in order to avail tax treaty benefits. Based on a plain reading The Finance Minister, vide Finance Bill 2013, has of the provision, it appears that if the TRC does not taken a step forward towards implementing GST by contain any of the prescribed information, the benefit setting aside a sum of INR 90 billion towards the first of tax treaty may not be available. It needs to be installment of the balance of CST compensation for appreciated that the Tax authorities of the respective States. countries have their own internal procedures / format for issuing the TRC to the tax residents of their country and it may or may not contain all the —— Value Added Tax and Service tax on Copyright information prescribed by the Indian Government. The Union Budget 2012-13, had exempted the If the treaty benefit is denied for want of any of the licensing of copyright in cinematographic films from prescribed information in the TRC, it will cause undue service tax. However, acceding to the film industry’s hardship to the tax payers. request, in Finance Bill 2013 the Finance Minister has proposed to restrict the benefit of the said Hence, the Government should release an service tax exemption to licensing of copyright in appropriate clarification addressing the above cinematographic film for exhibition in a cinema hall / issue, so that the treaty benefit is not denied to theaters with effect from 1 April 2013. the residents of other countries because certain information is not mentioned in the TRC. Separately, the Government of various States have made ‘copyright’ liable to VAT, treating the same as Further, Finance Bill 2013 proposes that for a non- intangible goods resident to claim tax treaty benefit, submission of TRC containing prescribed particulars is necessary Therefore, the dual levy of Service tax and VAT on but not sufficient condition. This amendment is the same transaction / consideration pertaining to proposed to be retrospective from financial year 2012- copyright in cinematographic films continues which 13.This has raised concerns among the non-resident needs to be addressed by the Government. taxpayers that even in the cases where a valid TRC is furnished, the Tax authorities may go beyond such —— Mandatory Permanent Account Number (‘PAN’) TRC and make further inquiries to analyse the claim The Finance Act (No. 2) of 2009 mandated a higher of treaty benefit by the non-resident. withholding tax rate of 20 percent in case of payees To address such concerns of the taxpayers, the (i.e. recipients of income) not having a PAN, by Government immediately issued a press release introducing section 206AA in the IT Act. This provision clarifying that TRC will be accepted as proof of also impacts payment made to non-residents. residency and necessary amendments will be made With the changed dynamics of the industry, the in the law to address the above issue. involvement of non residents in the industry has increased to a great extent. While non-resident —— Withholding tax rate on royalty and fees for technicians assist in film production, a lot of content technical services enhanced by Finance Bill 2013 is also procured by broadcasters from foreign parties. Finance Bill 2013 proposes to enhance the basic withholding tax rate on payments by a resident to Most of the above contracts with non residents are non-resident towards royalty and fees for technical ‘net of tax’ contracts i.e. taxes are borne by the payer. services from 10 percent to 25 percent on gross In case of one-off payments, non residents typically basis. This will have significant impact on payments cannot be expected to apply for Indian PAN at the made for acquisition of content, transponder hire time of receiving the payments from residents (i.e. charges, etc. and therefore, enhance the cost of when tax deduction has to be made). This has given doing business, especially where the tax is to be rise to a situation, where even if the appropriate rate borne by the Indian party. However, there is a silver of tax deduction at source (in terms of the provisions lining here, given that a lower withholding tax rate of the IT Act or the applicable tax treaty) is much under tax treaties can be applied, provided the non- lower, taxes are withheld at a higher rate (in absence resident obtains an Indian PAN and a TRC containing of PAN). This has led to a significant increase in the the prescribed particulars. overall costs of doing business for the Indian entities. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 194 The power of a billion: Realizing the Indian dream

Transfer Pricing (‘TP’) With the increase in cross-border transactions across the scenario. An Indian channel company purchases film globe, the scrutiny by the Transfer Pricing authorities of rights from a related party situated abroad. However, such transactions undertaken between related parties the price paid may vary significantly for various films has also increased manifold. Hence, it is imperative for and would depend on factors such as whether a film companies to have a robust TP policy in place to support is being telecast on television for the first time, the the pricing of cross-border transactions between related timing of telecast, etc. parties. The Indian TP regulations require a taxpayer to undertake ‘international transactions’ with ‘associated Similarly, in the case of an Indian company which enterprises’ on an arm’s length basis. Further, the owns a channel being telecast in a foreign country regulations mandate the use of one of the six prescribed and which grants advertisement rights on a revenue methods as the most appropriate method for the split basis to related parties abroad, the proportion of determination of the arm’s length price. From a compliance split may vary significantly depending upon various perspective, the regulations prescribe maintenance of economic and commercial factors in different years. mandatory documentation by taxpayers on an annual basis in relation to their international transactions and Given the unique nature of transactions undertaken, also cast a compliance obligation on the taxpayers, which this poses peculiar challenges from a benchmarking involves filing of annual transfer pricing certificate (known perspective. Firstly, it is usually difficult to gather as Accountant’s Report) with the Tax authorities disclosing information from the public domain on similar details of such transactions in a prescribed format. independent transactions undertaken in this industry. Secondly, even if some data is available on certain The increased cross – border activity coupled with the similar transactions undertaken between unrelated peculiarities of the nature of transactions undertaken in parties, they can seldom be used for benchmarking the M&E industry poses several practical challenges in the related party transactions because of material establishing the fact that the transactions undertaken differences between the two transactions being between related parties are at arm’s length. The sections compared. For example, in case theatrical rights below provide an overview of TP related issues faced by the of a forthcoming movie are proposed to be sold by M&E industry. a media house in different overseas jurisdictions, some of which may have their own subsidiaries • Key Transfer Pricing issues located overseas, various commercial factors play an important role in arriving at an appropriate arm’s —— Comparability for unique transactions length benchmark for the transaction such as market The Indian TP regulations provide that the perception of the theatrical rights being sold and comparability of an international transaction with value ascribed to movies involving differing star an uncontrolled transaction should be judged with casts in different locations, timing of transaction, reference to: credentials of the transacting parties, advertisement and publicity involved, etc. On account of such • The specific characteristics of the property factors, the determination of the arm’s length price transferred or services provided in either of a transaction with related parties poses serious transaction; difficulties despite data being available for similar transactions undertaken with unrelated parties. This • Functions performed, taking into account assets employed or to be employed and risks assumed, is because it is difficult to quantify the impact of all by the respective parties to the transactions; these different factors in numeric terms so as to facilitate necessary adjustments that may be required • The contractual terms (whether or not such to be made to uncontrolled transactions to render terms are formal or in writing) of the transactions them comparable to controlled transactions. which lay down explicitly or implicitly how responsibilities, risks and benefits are to be —— Difficulty in application of prescribed methods divided between the respective parties to the The Indian TP regulations have prescribed five transactions; methods under law (as prescribed by the CBDT for the purpose of determination of the arm’s length • Conditions prevailing in the markets in which the price, viz., (1) Comparable Uncontrolled Price Method respective parties to the transactions operate, (2) Resale Price Method (3) Cost Plus Method (4) including the geographical location and size of the Profit Split Method and (5) Transactional Net Margin markets, laws and Government orders in force, Method. Further the law enables CBDT to prescribe costs of labour and overall economic development any other method. On May 23 2012, the CBDT has and level of competition and whether the markets notified the ‘Other method’ vide a Notification and are wholesale or retail. Rule 10AB has now been inserted in the Income- tax Rules, 1962 (the Rules). Rule 10AB describes In view of the above mentioned parameters, if the the other method as “any method which takes nature of international transactions entered into into account the price which has been charged or between parties in the M&E industry are analyzed, paid, or would have been charged or paid, for the it can be seen that they are unique and peculiar and same or similar uncontrolled transaction, with or are not comparable to those undertaken in any other between non-associated enterprises, under similar industry, mainly on account of the nature of assets circumstances, considering all the relevant facts.” or intangibles being traded between the parties. The This Rule has come into force from financial year following examples will help better understand the 2011-2012 onwards. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 195

With the introduction of the ‘Other method’, the related parties where tax holiday is claimed under taxpayers may have a little more flexibility to use chapter VIA, Special Economic Zones, etc. and tender documents, third party bids, proposals, payments (expenditure) to domestic related parties. valuation reports, standard rate cards, price The above shall apply in cases where the aggregate quotations and commercial and economic business amount of all such domestic transactions exceeds models etc. to demonstrate arm’s length intent. INR 50 million (approximately USD 1 million) in a year. The application of the ‘Other method’ would be This amendment will come into effect from financial particularly helpful in cases where the application year (FY) 2012-13 onwards. of the other five specific methods is not possible due to difficulties in obtaining comparable data due “Specified domestic transaction” in case of a to uniqueness of transactions such as intangible taxpayer means any of the following transactions, not transfers etc. being an international transaction, namely:

Proper documentation specifying the reasons • Expenditure in respect of which payment has been for rejection for non-application of the other five made or is to be made to persons/entities referred prescribed methods and the appropriateness to in section 40A(2)(b); of the ‘Other method’ based on the facts and circumstances of the case should be maintained • Any transaction referred to in section 80A; by taxpayers in case of application of this ‘Other • Any transfer of goods or services referred to in method’. Being a new method, one needs to wait section 80-IA(8); and watch its application by the tax payers and its acceptance by the revenue authorities. • Any business transacted between the taxpayer and other person as referred to in section 80- IA(10);

• Recent developments • Any transaction, referred to in any other section —— Introduction of Advance Pricing Agreements under Chapter VI-A or section 10AA, to which (APAs) provisions of section 80-IA(8) or 80-IA(10) are With a view to address the increasing TP litigation in applicable; India; the Indian Government through the Finance • Any other transaction as may be prescribed by the Act 2012 introduced APA provisions with effect from CBDT. 1 July 2012. The arm’s length price as determined under the APA provisions will be valid for a maximum Affected taxpayers would now be required to period of 5 consecutive years unless there is a structure their TP policies based on sound business change in the provisions or the facts having bearing rationale and commercial substance and also on the international transaction. With the introduction maintain robust underlying documentation to enable of detailed rules providing a framework for the APA them to successfully defend their transfer prices regime in India in August 2012, the APA program during a TP audit. is seen as one of the more positive amendments introduced by the Finance Act 2012, which should assist taxpayers to obtain certainty on their crucial —— Enlargement/ Clarification of definition of transfer pricing matters, if they so desire. If properly ‘International Transaction’ implemented, APAs would provide certainty on The term ‘international transaction’ has been tax issues of covered transactions during the APA retrospectively amended by the Finance Act, 2012 term. In relation to the M&E industry, the option of to include guarantees, any debt arising during the APAs can be explored in case of complex and high course of business (for example, credit period on value transactions or where the company is already outstanding receivables), business reorganizations or undergoing TP audit scrutiny and hence would be restructuring, irrespective of whether the same has selected for audits again or where the company an impact on current year’s profits, income, losses needs financial certainty with regard to future tax or assets. Intangible properties have been defined in implications. APAs would reduce the need for great detail to include marketing intangibles, human documentation and costs associated with audit and assets, technology related intangibles, location appeals over APA term and facilitate TP planning. related intangibles, customer related intangibles, Double taxation can be avoided in case of Bilateral/ data processing, engineering, customer, contract, Multilateral APAs goodwill related intangible assets and also includes methods, programmes, systems, campaigns, surveys, studies, forecasts, customer lists, etc. or —— Scope of TP expanded to include ‘Specified any other similar item that derives its value from its Domestic Transactions’ intellectual content rather than its physical attributes. Finance Act 2012 included ‘specified domestic transactions’ under the ambit of TP (including This expansion will impact transactions to be procedural and penalty provisions). This has been analyzed from a transfer pricing perspective in the done with the aim of preventing an erosion of the industry, especially in view of intangibles being tax base. Thus, the applicability of TP regulations exhaustively defined. Proper transfer pricing (including procedural and penalty provisions) have analysis would have to be carried out for all kinds been extended to transactions between domestic of intangibles being transferred/ licensed from one entity to another in view of this amendment. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 196 The power of a billion: Realizing the Indian dream

Conclusion Given the overall set-up of the industry, it would be ideal for expenditure incurred directly ‘in connection with’ the Government to consider the difficulties of the industry and not ‘for promotion of’ sales, should not be put players and issue guidelines that enable taxpayers to adopt in the same basket as AMP expenditure. Therefore, the newly introduced ‘Other method’ properly to support bonus/ commission paid to dealers/ sales agent their TP policies as well as enable them to explain the does not constitute AMP expenditure. economic dynamics of their industries that in many cases would help explain the pricing and the results of transactions entered into between related parties. Separately, it is incumbent upon taxpayers to proactively undertake planning KPMG in India’s comments analysis of their complex international transactions and maintain robust documentation to support the arm’s length The Special Bench ruling has laid down certain price of their international transactions. The introduction of guiding principles on the vexed issue of AMP APAs is a positive step for the taxpayers and can be explored expenditure, though in view of dissenting order of as an option in case of companies having complex/high value one of the Members of the Three Member Special transactions after conducting a proper cost benefit analysis, Bench, the scope for further litigation does not as it would provide them with certainty and would help such seem to have reduced. taxpayers to plan their strategies in a better manner. It would be worthwhile for the foreign broadcasting companies operating through Indian AEs incurring AMP expenses to have proper contractual • Judicial decision arrangements in place with detailed analysis and —— Transfer Pricing adjustment in relation to proper segregation of the rights and obligations advertisement, marketing and sales promotion of parties concerned. Further, it shall also be (AMP) expenditure is permissible necessary to demonstrate the consonance of the Recently, the Delhi Special Bench of the Income-tax functions carried out and the risks undertaken by Appellate Tribunal (the Tribunal or Special Bench) in the counterparties with the contractual terms. the case of LG Electronics India Private Limited9 (LG India) held that Transfer Pricing adjustment in relation While the litigation on the matter of AMP spend to advertisement, marketing and sales promotion and consequent creation of marketing intangible (AMP) expenditure incurred by LG India for creating or will most certainly continue, in light of the Special improving the marketing intangible for and on behalf of Bench decision it would be advisable for the the foreign Associated Enterprise (AE) is permissible. Indian entities to proactively analyze not only the It also held that the said function can be construed as quantum but also the nature of AMP expenses and provision of service by LG India to the AE for which, maintain details and documents in this regard. earning a mark-up in respect of AMP expenditure incurred for and on behalf of the AE, is appropriate. While arriving at the cost of the service, the Transfer Pricing Officer (TPO) relied on AMP ratio of certain comparable companies (Bright Line Test). The TPO Tax incentives and Tax planning: proposed to disallow the excess expenditure incurred —— Special Economic Zones (‘SEZ’) by the taxpayer over and above the bright-line. The The SEZ regime in the country allows tax breaks to Dispute Resolution Panel (DRP) not only confirmed eligible entities on export earnings for a period of 15 the action of the TPO and also directed the Assessing years (in a phased manner). Hence, entities engaged Officer (AO) to impute a mark-up on the costs in content development, animation, etc. for exports disallowed by the TPO. abroad, may explore setting up units in a SEZ to claim The Special Bench of the Tribunal observed that – tax holiday benefits. It is pertinent to note that with effect from 1 April 2011, SEZ units are liable to pay • In the display of brand in the advertisements Minimum Alternate Tax at the rate of 18.5 percent coupled with proportionately higher AMP spend by (excluding surcharge and education cess) on book the taxpayer indicated an oral or tacit understanding profits. Nonetheless, the income tax saving (the between LG India and its foreign AE regarding difference between normal tax liability and MAT brand promotion and therefore, the same was in liability), concessions in other indirect taxes, lower cost the nature of an ‘international transaction’. of operations in SEZs, etc make the SEZ route an ideal mode of doing business for export oriented entities. • It further observed that by incurring excess expenditure, LG India had provided services to its AE which owned the brand, requiring justification of —— Intellectual Property Rights arm’s length price thereof. The possibility of tax planning by separating production and distribution rights in films may be explored in • The Tribunal also approved the use of mark-up on certain cases. An offshore special purpose vehicle the costs incurred for providing services by LG may retain and exploit the distribution rights (including India. In this regard, the Special Bench observed satellite broadcasting rights, audio and music that the Bright Line Test is simply a tool to ascertain rights, video rights, etc.) overseas, in a tax effective the cost of the international transaction of provision manner. Such planning would need to be carefully of service and approved the use thereof. evaluated depending upon the business model and in compliance with the Transfer Pricing provisions as also • While dealing with the issue of the constituents of the Controlled Foreign Company (CFC) rules proposed the Bright Line, the Special Bench observed that the to be introduced in the Direct Taxes Code.

09. LG Electronics India Private Limited vs. ACIT (ITA No. 5140/ Del/2011) with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 The power of a billion: Realizing the Indian dream 197

Key regulatory updates

—— FDI in the broadcasting sector As per Press Note 7 (2012 series) issued on 10 April 2012, the Government raised the existing foreign investment limits / liberalized the FDI norms in various key activities in broadcasting sector. Previous and the revised FDI limits in relation to broadcasting sector are tabulated below:

Particulars Previous FDI (%) Revised FDI (%) Means of Entry Broadcast Content Services

Terrestrial broadcasting (FM Radio) 26% 26% Government approval

Uplinking of ‘news and current affairs’ TV channels 26% 26% Government approval

Uplinking of non ‘news and current affairs’ TV 100% 100% Government approval channels / down linking of TV channels

Broadcast Carriage Services

• Teleports (setting up of uplinking HUBs / teleports) Upto 49 percent 74% Upto 49 percent- -Government Automatic route • Direct-to-home (DTH) approval • Cable networks (Multi-System Operators(MSOs) 49 percent to 74 percent- operating at national or state or district level and Government approval undertaking upgradation of networks towards digitalization and addressability)

Mobile TV No specific policy

Cable Networks (MSOs not undertaking upgradation Upto 49 percent 49% Automatic route of networks towards digitalization and addressability -Government and local cable operators (LCOs) approval

Source: Consolidated FDI Policy - Circilar 1 of 2012 issued by Department of Industrial Policy and Promotion

• FDI for uplinking and downlinking TV channels will be subject to compliance with the relevant up-linking KPMG in India’s comments or down-linking policy notified by the Ministry of The increased FDI limits / liberalization in FDI Information & Broadcasting from time to time. norms in respect of broadcasting sector would improve accessibility of broadcasting services, • The Foreign Investment limit in companies engaged in up-gradation of networks towards digitalization the aforesaid activities shall include, in addition to FDI, and addressability across the country, and also investment by Foreign Institutional Investors (FIIs), Non- bring in international best practices in this key Resident Indians (NRIs), Foreign Currency Convertible sector. Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entities.

• In view of national security concerns, the Press Note Conclusion has also detailed out multiple security conditions which have to be fulfilled by the companies in addition The M&E sector has tremendous growth potential and to the respective sectoral conditions. Primarily, these prudent fiscal legislation would help it to perform at its full conditions involve mandatory requirement of key potential. While the Government has taken certain steps to executives of the Company to be Indian citizens, address some of the issues affecting the industry, it may security clearance of foreign personnel and observance help the cause of the industry if the Government can take of certain provisions relating to Infrastructure/ Network/ further steps to resolve the issues highlighted in this Report Software related equipment and monitoring/ inspection/ so as to enable the Indian M&E sector to reach new heights submission of information by the broadcasting and become truly global. companies. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Acknowledgement We acknowledge the efforts put in by

Aditya Shangloo Rajesh Patel Aniket Sheth Ramkumar Iyer Ankit Gupta Reagan Caesar Ayushi Bhardwaj Remedios Dsilva Darshan Hotepatti Ritesh Pandey Gaurav Gupta Rohan Shah Hersh Shah Ronak Soni Jiten Ganatra Sakshi Sodhi Joyeeta Ghosh Sandeep Yadav Madhavan Vilvarayanallur Santosh Dalvi Maulik Mehta Saurabh Jha Melvin Barboza Shashank Shetty Mitul Shah Shilpa Taneja Mohit Mittal Shireen Khan Narayanan Ramaswamy Shivam Tyagi Neha Narain Shweta Mhatre Neha Pevekar Sidharth Tewari Nidhi Dandona Sonal Jain Nikhil Kulkarni Subashini Rajagopalan Niraj Prabhavalkar Subramanyam Ganapathi Nitin Khanapurkar Susha Kaul Payal Thaker Tanvir Khan Pooja Jain Ushma Desai Pranav Desai Vivek Ramakrishnan Priyanka Agarwal Zeel Gala Rahul Shah Zubin Mehta from KPMG in India in preparing this publication. with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. entity. (“KPMG International”), a Swiss with KPMG International Cooperative © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated and a member firm of the KPMG network independent firms Partnership KPMG, an Indian Registered © 2013 KPMG in India Contacts FICCI Contact

Pradeep Udhas Leena Jaisani Head – Markets Sr. Director and Head E: [email protected] FICCI Media & Entertainment Division T: +91 22 3090 2040 E: [email protected] T: +91 22 2348 7505 Jehil Thakkar Head – Media and Entertainment FICCI E: [email protected] Federation House T: +91 22 3090 1670 Tansen Marg New Delhi - 110001 Rajesh Jain F: +91 11 2332 0714 / 2372 1504 Partner – Corporate Finance T: +91 11 2373 8760 / 70 E: [email protected] The power T: +91 22 3090 2370

Aneesh Vijayakar Partner – Transaction Services of a billion E: [email protected] T: +91 22 3090 2131

Himanshu Parekh Realizing the Partner – Tax E: [email protected] Indian dream T: +91 22 3090 2680

Shashank Karnad FICCI-KPMG Partner – Risk Consulting Indian Media and Entertainment E: [email protected] Industry Report 2013 T: +91 22 3090 2652

Varun Gupta Director – Strategy Services Group E: [email protected] T: +91 22 3090 2132 kpmg.com/in

Nidhi Maheshwari Director – Tax E: [email protected] T: +91 124 3074 322

Nandita da Cunha Associate Director – Markets E: [email protected] T: +91 22 3989 6000

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