ANNUAL REPORT 2017-18 EXPERIENCE THE EXTRAORDINARY MANAGEMENT DISCUSSION AND ANALYSIS Indian Macroeconomic Outlook India continues to be one of the fastest While the Indian economy has expanded others, suggests continued strength growing economies in the world. After the at an average annualized growth rate in discretionary spending. Private final temporary deceleration due to the impact of around 7% over the past several consumption is estimated to have of demonetisation and implementation years, there have been patches of grown at a CAGR of 7.0% over FY13-18 of Goods and Services Tax (GST), the slower growth in between. However, in real terms and 12.0% in nominal terms. recovery in economic growth is now largely consumption growth remained quite This, along with the trend of organized complete. It is estimated that GDP grew resilient throughout this period. High businesses gradually gaining market share at more than 7% in the second half of frequency data such as automobile sales, in various sectors, bodes well for growth fiscal 2018. During FY18, there were several air traffic, and credit offtake amongst in advertising spends. positive developments in the economy, which will further accelerate this growth over the next few years. The long-delayed India’s GDP growth Nominal growth in private GST was finally implemented and it will (GVA basis, %) final consumption (%) go a long way in improving the business environment in the country. Government’s FY15 7.2 FY14 15.3 focus on infrastructure development, banking reforms and affordable housing, FY16 8.1 FY15 11.9 amongst others, will support the growth in the medium term. Growth in some FY17 7.1 FY16 11.6 segments of the rural economy has been 11.3 slower in the recent past. However, forecast FY18 6.5 FY17 of a normal monsoon bodes well for the FY19 (E) 7.4 FY18 10.1 agriculture sector and would drive the rural consumption. Source: CSO and RBI Source: CSO India’s Media & Indian M&E Composition Entertainment Industry The Indian media and entertainment During the year, television increased its CY17 1% 15% (M&E) industry witnessed another year reach and engagement with the audience, `1,473 Billion of all-round growth. The pace of growth further enhancing its reputation as the 8% marginally accelerated in CY17, despite default entertainment medium. Print 11% 45% the lingering effect of demonetization and media continued to grow, albeit at a the impact of GST roll-out. According to slower pace, due to multiple headwinds the FICCI-EY Report 2018 (Report), M&E faced during the year. The movie industry 21% industry grew by 12.6% YoY in CY17, to surpassed all previous records riding `1,473 billion. Despite the strong growth on a strong performance at both the over the past several years, India’s per domestic and the international box office. CY20 (E) capita entertainment consumption is much Online video consumption continued its `2,032 Billion 18% lower than not only the developed markets exponential growth due to the increased 1% but also countries with similar income availability of affordable data and content levels. This provides a significant headroom on digital platforms. Following the auction 11% 42% for sustained growth driven by rising of Phase III licenses, FM radio expanded disposable incomes and increasing access into newer cities. Live Events growth was 9% to entertainment content. According to led by premium properties, activations, the Report, the Indian M&E industry is and sports events. 18% expected to grow at a CAGR of 11.3% to `2,032 billion over the next three years, driven by growth in all the segments. TV Print Films Digital Music Others Source: FICCI-EY M&E Report 2018 48 CORPORATE OVERVIEW STATUTORY REPORTS FINANCIAL STATEMENTS PAGE NO. :01-46 PAGE NO. :47-114 PAGE NO. :115-242 Content consumption is on a Growth in data consumption and time long-term growth path spent on television Globally, time and wallet share of leisure As the disposable income rises and 2500 250 activities has a positive correlation with per infrastructure improves further, the growth capita income. Leisure ranges from low- in content consumption could accelerate. 2000 220 involvement low-cost activities like listening Television is the default entertainment to music to an expensive foreign vacation. medium for a household and hence The choice of activity depends on several television penetration will continue to 1500 190 factors, but affordability and ease of access grow. The disparity in content consumption play a vital role. As compared to other forms between rural and urban areas visible today 1000 160 of recreation, content-based entertainment is primarily explained by the difference in scores high on both these factors. power availability. The government’s push to improve electrification of rural areas 500 130 In India, for most of the consumers, watching will help narrow the gap. In several local content on television has been the primary language markets, higher availability of 100 100 source of entertainment, and now digital content gave a fillip to consumption. This is also becoming relevant. Over the past trend will continue as more content is Mar-16 Mar-17 Sep-17 Dec-17 two and half decades, content availability produced in these languages. on television has exploded across genres, Data consumption (Bn MB per month) languages, and formats. This extensive Time spent on television (in minutes) range of content is accessible at an average Source: TRAI; BARC data monthly price of USD 3. Over the past Average Daily Time Spent on TV 18 months, digital has further widened (FY18, in mins) the content choice and availability, at an Advertising growth to affordable price. remain robust 261 India’s content consumption has been in a India’s advertising spends have been secular growth phase. Despite several years 219 growing at a healthy pace over the of growth, it still compares adversely with 207 past several years, driven by increasing developed as well as emerging markets. For urbanization, rising aspirations, and growth example, India’s television penetration is low in discretionary spends. However, the ad at around 64%. Online data usage in India has spends relative to the size of economy is increased by 15 times over the past two years, significantly low, highlighting the long-term but the total digital content consumption growth potential. There are several visible India Mega cities Rural India still pales in comparison with other countries. trends at work which will drive growth in ad spends. Firstly, even in well-penetrated Despite producing the maximum number Source: BARC data (wk’14 2017 – wk’13 2018); of movies every year, the size of the movie Mega cities refers to population above staple consumer goods, like shampoo and industry is small and cinema visits per adult 7.5 million detergent, India’s per capita consumption has room for growth. And, the market for is a fraction of other developing countries. ticketed live events is just opening up. Similarly, penetration of consumer durables Rising smartphone penetration, improving is low. As income rises, spends on consumer data network, and falling data tariffs have staples and discretionary products will added a new dimension to the growth of increase thereby driving ad spends. TV Penetration Comparison content consumption. In India, a television is shared by several people from different Japan 99.4% generations as more than 95% households Ad spends as % of GDP have a single TV. Mobile is fast becoming Australia 97.8% the second screen for many. Interestingly, 1.05% US 96.5% in India, television consumption has grown 0.95% alongside this multi-fold increase in digital 0.75% 0.70% UK 95.4% consumption, highlighting the growth 0.55% potential of the market. As India continues China 95.0% to see growth in discretionary spends, 0.38% entertainment consumption would be one Vietnam 88.8% of the key beneficiaries. Philippines 80.2% Pakistan 75.0% UK US Japan Brazil China India India 64.0% Source: WARC International Ad forecast Source: BARC, Casbaa, ContentAsia 49 ANNUAL REPORT 2017-18 EXPERIENCE THE EXTRAORDINARY Secondly, at present, consumer staples Lastly, alongside strong growth in Multiple growth drivers dominate ad spends in India. Sectors, such consumption, there are a few factors that as BFSI, healthcare, travel and leisure, do not would aid ad spends growth. Digital is for subscription contribute significantly to the advertising bringing small businesses, which found At an average ARPU of USD 3 per month, pie. The addressable market for these traditional media unaffordable, into the India ranks at the bottom in terms of cable services is limited currently. Consumption advertising net. By allowing a large number and satellite (C&S) subscription price. This of these services will increase as disposable of small advertisers to run campaigns, digital is even more stark given that a typical pay income crosses a certain threshold, is significantly expanding the ad market. TV subscriber receives around 100 pay encouraging them to spend more on Separately, organised businesses have been channels. The consumer APPU growth advertising. Incipient signs of the same are gaining market share across categories. As has trailed inflation over past two and already visible with increasing advertising these businesses rely on brands to drive half decades even as content choices for for financial savings products and diagnostic sales, they will continue to increase spends consumers multiplied across languages services. These categories emerging as large on advertising. These factors along with a and genres. The two prime factors that advertisers will provide the next leg strong macroeconomic growth will sustain explain low ARPUs in the country are, a of growth. the advertising growth in the medium to highly fragmented distribution industry long-term.