Re-imagining India's M&E sector March 2018 2 Re-imagining India's M&E sector | FICCI-EY report 2018 Uday Shankar Chairman FICCI Media & Entertainment Committee 2017 has been an eventful year for the Indian Media & Entertainment industry. The macro- economic mood of the nation remained bearish for most part of the year, reflected in the economic pressures faced by industries across and media being no exception. We also saw strides towards several regulatory reforms, with GST finally becoming a reality to a near complete digitization of TV distribution. However, in an environment of volatility and dynamism, this industry has continued to grow at a rapid pace year-on-year. In the process it has also become a critical contributor to the economic and social narrative of the country. The sector today generates millions of jobs directly and indirectly, contributes to economic growth with a rate almost twice the GDP and provides an immeasurable ancillary contribution by serving a platform for the growth of several other industries. All the segments of the M&E sector are showing growth, consolidation and innovation led by digital, both on the consumer side and through the content supply chain. The transition to Foreword embracing digital in this industry has perhaps been the smoothest. The increasing ubiquity of camera, internet and the availability of cheap computing power in one’s handheld devices has democratized media consumption and production like never before. Digital has transformed the access to content and participation in media, and the consumers have shown affinity towards great content on newer screens. As I look ahead, the next few years are poised to be even more exciting. The number of users on internet in India is expected to cross 500 Mn this year. M&E can play an increasingly stronger role in informing, empowering and inspiring the nation. As many more businesses as well as the regulators take cognizance of this, the time is now to reimagine what the new consumer experience should be, reimagine the boundaries of creativity and content, reimagine business models and even reimagine regulation to foster this new landscape. The time is also to invest in creating the requisite skills and institutions to serve the demand of the new digital consumer. The future of M&E is getting built on 3 pillars – engineers, designers and storytellers – and it has the potential to usher in a growth paradigm that couldn’t have been imagined before. Through this report, we aim to capture some insights into this the exciting and fast growing world of Indian media and entertainment. FICCI recognises the valuable inputs provided by the members of the M&E sector and all the associated agencies to create this report. We also take this this opportunity to thank EY, our knowledge partner, who have devoted significant time and resources into the development of this report. We do hope you find this report useful. 3 Amitabh Bachchan Actor The Media & Entertainment sector has always been the most prominent global brand ambassador for India. The creativity and knowledge of the nation, translated across television, film, print, radio and digital media creates a powerhouse of content which is unmatchable in the world. India produces the maximum number of hours of content globally, across 2,000 films, 800+ television channels, 250+ radio stations, 100,000+ newspaper and magazine editions and thousands of live events. The Indian M&E sector is in the midst of rapid change today. Reach is improving significantly, not only for traditional media like television, radio and print, but the digital revolution which is underway is enabling a move towards personalization of content and experience. More than ever before, Indians are consuming content of their choice, in the language of their choice, at a time and place of their choice. News and knowledge have truly been democratized. Foreword This trend will only increase the demand for content, and provide the Indian M&E sector the opportunity to grow internationally, as a provider of news and escapism to billions. India’s animation, VFX and post production facilities have moved up the value chain, and the world has recognized their potential as high quality service providers, with a cost advantage. This report by EY and FICCI captures these and many more trends, and showcases the important role the Indian M&E sector plays in development of the nation. I’m sure you will find it insightful. 4 Re-imagining India's M&E sector | FICCI-EY report 2018 Farokh Balsara Media & Entertainment Sector Leader Ernst & Young LLP Foreword Ashish Pherwani India M&E Advisory Leader Ernst & Young LLP 5 Has India’s M&E sector reached it's digital tipping point? Welcome to the 2018 edition of the FICCI-EY report on the Indian media and entertainment (M&E) sector. The Indian economy is growing and the M&E sector is a reflection of this. The year 2017 saw India recover from demonetisation only to face the new challenges and opportunities provided by the implementation of GST. However, the Indian economy continued on its growth trajectory and so did the M&E sector. Favourable demographics, a rise in consumer income and a huge demand for knowledge, escapism, sports and news aided the growth of the M&E sector in the country. The reach of television increased to 64% of India, and with distribution now largely digitized, this has brought in more addressability. Bucking international trends, the print and radio segments continued to grow, as well as build their digital presence. Indian films – both Hindi and regional - grew their international appeal with several doing well at the global box office. Increase in the demand for global content has resulted in growth of the animation, VFX and post production segment, where India has become known for its high quality and efficient capabilities. Digital subscription and online gaming are showing signs of exponential growth – albeit from a small base - on the back of rising per-capital GDP and falling data costs. The Indian M&E sector now finds itself at its digital tipping point. India is now the second largest smartphone market in the world, and more than half the country is expected to have access to affordable broadband by 2020 which could result in over 500 mn online video consumers. Rural and women audiences are expected to grow fastest, which will change the type and genre of content being consumed. The digital micro-payments ecosystem is also growing rapidly across both urban and rural markets. These changes will grow digital content consumption significantly, and this presents M&E companies, both foreign and domestic, with an exciting opportunity to develop businesses and cater to the new generation of Indian digital consumers. Through this report we aim to showcase this exciting and fast growing sector. We are certain you would find this report to be insightful. 6 Re-imagining India's M&E sector | FICCI-EY report 2018 M&E Sector Overview 08 M&E Sector 2017: Key trends 10 Indian economy and its impact on M&E 16 The global perspective on Indian M&E 20 Segmental trends 26 Television 28 Print 54 Filmed Entertainment 76 Digital media 104 Live events 132 Radio 144 Out Of Home media 150 Online Gaming 154 Animation and VFX 166 Music 182 Sports 192 7 M&A Activity 208 Impact of GST 218 Operating model 2020 232 Global M&E trends 242 About this report 252 Glossary 254 Acknowledgements 258 EY’s M&E leadership team 260 Contents 8 Re-imagining India's M&E sector | FICCI-EY report 2018 M&E Sector overview 9 10 Re-imagining India's M&E sector | FICCI-EY report 2018 M&E sector 2017: Key trends 11 The sector grew to INR1.5 trillion The Indian M&E sector reached INR1.5 trillion (USD 22.7 billion) in 2017, a growth of almost 13 percent over 2016. With its current trajectory, we expect it to cross INR2 trillion (USD 31 billion) by 2020, at a CAGR of 11.6 per cent. CAGR Segment CY2016 CY2017 CY2018E CY2020E 2016 - 20 Television 594 660 734 862 9.8% Print 296 303 331 369 5.7% Filmed 122 156 166 192 11.9% entertainment Digital media 92 119 151 224 24.9% Animation and VFX 54 67 80 114 20.4% Live events 56 65 77 109 18.0% Online gaming 26 30 40 68 27.5% Out Of Home media 32 34 37 43 7.7% Radio 24 26 28 34 8.6% Music 12 13 14 18 10.6% Total 1,308 1,473 1,660 2,032 11.6% All figures are gross of taxes (INR in billion) 12 Re-imagining India's M&E sector | FICCI-EY report 2018 M&E sector’s growth in 2017 was led by digital, film, gaming and events Segmental growth in 2017 over 2016 13% Digital 29% Film 27% Animation and VFX 23% Gaming 18% Events 15% TV 11% OOH 8% Music 7% Radio 6% Print 3% M&E Sector Average Growth was led by the digital segment, showing that Subscription growth outpaced Ad growth in advertising budgets were following the changing content 2017… consumption patterns of consumers. As India’s digital infrastructure matures, it has given a boost to gaming as a Industry tailwinds favourably impacted subscription segment, which witnessed significant growth in 2017, albeit revenues, including: from a small base. The film segment also led on the growth • Wider implementation of cable TV digitisation front, mainly due to the international revenues generated by Indian films, and that – along with India regaining its stature • Higher realisation from domestic and foreign box office as an efficient and high quality outsourcing destination – collections of films led to corresponding growth for the animation, VFX and • Increased adoption of subscription OTT platforms and post production business.