INFORMATION, COMMUNICATIONS & ENTERTAINMENT Back in the Spotlight FICCI-KPMG Indian Media & Entertainment Industry Report KPMG IN INDIA Back in the Spotlight FICCI-KPMG Indian Media & Entertainment Industry Report © 2010 KPMG, an Indian 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. FOREWORD Welcome to the 2010 annual edition of the Indian Media and The improved market sentiment in 2010 has set the tone for a Entertainment (M&E) industry report. FICCI takes this opportunity to promising year ahead. The power to convert this sentiment into a thank KPMG, our Knowledge Partner, for having devoted precious reality will rest with the industry players and their ability to attract time and resources to prepare this report at our behest. greater media consumption. Amidst the uncertain economic environment that was prevalent last FICCI acknowledges the valuable inputs provided by the Media & year, the Indian M&E industry has weathered the storm and is Entertainment industry players who have graciously devoted time to showing signs of accelerating its growth. share their views in helping KPMG put this report together. The industry performance in 2009 was a consequence of not only the slowdown, but also several internal factors that lowered the pace of growth for the otherwise flourishing media and entertainment business in India. The multiplex strike, lack of quality content, delay in auctions for phase 3 FM radio and 3G mobile telecom licenses were some of the unexpected events that further impeded the development of this industry. However, there were a several positives that brought in some cheer to the industry. While “3 Idiots” and “Avatar” created history in India through record breaking box office collections, the change in venue to South Africa had little impact on the third season of IPL and saw Yash Chopra substantial growth in advertising revenue for the broadcaster. Chairman FICCI Entertainment Committee The biggest highlight of 2009 was the lessons that the year presented to those in the media and entertainment business. The Karan Johar pressure on margins and curtailed media spend by advertisers Co-Chairman brought a renewed focus on managing costs, innovation and FICCI Entertainment Committee creativity. © 2010 KPMG, an Indian 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. The year 2009 is likely to be remembered as an inflection point for capture the significance and potential impact of this change in the India Media & Entertainment (M&E) industry. While subscription consumer behaviour against the backdrop of an ever evolving revenues grew, advertising revenues were impacted in line with the industry. challenging economic scenario. On one hand, industry players revisited the basics and looked at sustainable cost optimization. On The analysis presented in this report has been put together after the other, they sought means to better connect with their extensive discussions with senior stakeholders of the Indian M&E customers. Leadership across segments was tested: some industry. KPMG is grateful to them and all others who have helped emerged resilient while others renewed their focus on their core us put this report together. business strategy. On the whole, the year 2010 has been welcomed with a renewed sense of hope and a fresh perspective replete with the learnings of 2009. The GDP forecast at is 6.75 percent and 8 percent for the years 2009-10 and 2011-12 respectively looks promising. On the back of several factors, the overall M&E market in India is expected to grow at a compounded annual growth rate of 13 percent per annum through 2014 to reach INR 1.1 trillion. The untapped potential for growth in media reach, impact of digitisation and convergence, better consumer understanding, sustained efforts in innovation, and enhanced penetration of regional markets all augur well for the industry. The Indian M&E industry has evolved significantly over the last decade and the pace of this evolution is only expected to increase Rajesh Jain going forward. With mobile phones becoming ubiquitous, rising Executive Director mobile and internet penetration and increased use of search engines Head - Media and Entertainment and social networking platforms, consumer patterns have witnessed KPMG in India a marked change in India. Throughout this report, we have sought to © 2010 KPMG, an Indian 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. TABLE OF CONTENTS FILM ON THE PATH TO RESURRECTION 01 MEDIA AND ENTERTAINMENT INDUSTRY IN 2009 AN INTRODUCTION 11 ANIMATION & VFX FROM 2D TO 3D AND BEYOND MUSIC 99 DIGITISATION STRIKING 111 THE RIGHT NOTE 165 159 147 KNOW YOUR DEAL CONSUMER ADVERTISING ACTIVITY IT’S ALL ABOUT MOVING TOWARDS AND INVESTMENT YOUR CONSUMER A BRAND LED SOCIETY TRENDS 197 CORPORATE GOVERNANCE POSITIONING THE INDIAN M&E INDUSTRY FOR COMPETITIVE ADVANTAGE 209 TAX AND REGULATORY © 2010 KPMG, an Indian 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. RADIO HIGH POTENTIAL, CHALLENGES REMAIN 39 PRINT LOOKING TOWARDS 87 THE GAINS AFTER THE PAIN TELEVISION THE GROWTH STORY 69 IPL 2 FROM INNOVATION IN 2008... TO A SUCCESSFUL 119 BRAND IN 2009 GAMING 127 GAME ON 137 OUT OF HOME AT THE CUSP OF GROWTH INNOVATION THE DIFFERENCE BETWEEN THE LEADER AND THE FOLLOWER 185 177 HUMAN CAPITAL MANAGEMENT DRIVING BUSINESS THROUGH PEOPLE 217 IMPACT OF IFRS ON MEDIA AND ENTERTAINMENT COMPANIES © 2010 KPMG, an Indian 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. CHAPTER MEDIA AND ENTERTAINMENT 01 INDUSTRY IN 2009 AN INTRODUCTION © 2010 KPMG, an Indian 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. © 2010 KPMG, an Indian 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. MEDIA AND ENTERTAINMENT 01 INDUSTRY IN 2009 AN INTRODUCTION The year 2009 was one of slow growth, owing M&E industry in India is indicating potential for to recessionary pressure growth Indian Media &Entertainment (M&E) industry went through a tough Media spend in India as a percent of GDP is 0.41 percent. This ratio phase in last two years due to the economic slowdown which is almost half of the world’s average of 0.80 percent and is much impacted businesses in the country. The industry which is lower compared to developed countries like US and Japan. This dependent on advertising for almost 38 percent of its revenues, was indicates the potential for growth in spends as the industry in India hit due to shrinking ad budgets of the corporate world. However, the matures. As we move towards a more brand-conscious society, this industry as a whole registered a very modest growth of around 1.4 is likely to get reflected in the future growth rates. percent in 2009 compared to 12 percent in 2008. It is poised for recovery in 2010, riding on the back of improved economic growth. Media spend as a % of GDP The year 2009 was a year marked with innovation and a focus on cost efficiencies across sectors, more as a necessity to combat the 1.20% 1.08% pressures on bottom line. Newer content formats and strategies 1.00% 0.90% adopted by the players in the industry helped ensure that customers 0.78% 0.80% 0.80% 0.75% had more choices which led to the evolution of the industry. Cost 0.60% efficiencies which came about last year proved to be a silver lining 0.41% 0.40% for the industry in a bad year, and many of these measures are here 0.20% to stay and could benefit companies in the long run. 0.00% Some sectors were impacted more than the others like Films, Radio 2009 F and Out of Home (OOH), registered a negative growth during the India UK US China Japan World year. In 2010, they are expected to recover somewhat with a Source: Worldwide Media & marketing forecasts, Group M, Summer 2009 moderate growth rate. Print showed a flat trend and and music grew moderately. TV industry showed a good growth rate, and Internet, Gaming and Animation, brought reasons to cheer for the industry If we compare the contribution of India to the world in terms of with their growth rates touching double digits, albeit on a smaller population, it is second only to China at 22 percent1. China’s media base. spend ratio at 0.75 percent is much in line with the world average, whereas India lags behind. This is largely due to some of the media In spite of the economic slowdown, the industry witnessed a platforms being in a relatively nascent stage. As penetration recovery in the last quarter of the year that is expected to continue increases and more audiences come in the fold of M&E industry, it going forward. The year 2010 is expected to see the industry coming is expected to see higher growth going forward. out of the shackles of the slowdown and witness an increase in ad spends. The current media spend per capita for India is very low at USD 4 compared to the other countries. Even though it is challenging to reach the levels of countries like US, Japan and UK, due to a very large population base and lower spending power per capita, there is scope to follow China and enhance this ratio.