Management Discussion and Analysis MANAGEMENT DISCUSSION AND ANALYSIS CORPORATE OVERVIEW OVERVIEW OF ECONOMY and wresting back the mantle of fastest growing economy from GLOBAL ECONOMY OVERVIEW China on the back of a rebound in industrial activity, especially manufacturing and construction and an expansion in agriculture. The acceleration in global activity that started in 2016 gathered Reserve Bank of India has estimated GDP growth in a range steam in 2017, reflecting firmer domestic demand growth in from 7.4% to 7.9% for the Financial Year 2019-2020. (Source: advanced economies and improved performance in other OECD and Economic Times) large emerging market economies. Global growth is set to be just over 3.5% in this calendar year 2018, the fastest for seven Fiscal deficit for 2017-18 is revised to INR 5.95 lakh Cr at 3.5% NOTICE years, with improved outcomes in both advanced economies of the GDP which is approximately the same as 2016-17 inspite and the EMEs. Confidence measures and levels of new orders of transformation in the economy. In addition to initiatives like; for businesses remain strong. This long awaited lift to global “Make in India”, “Housing for All”, “Digital India” government growth, supported by policy stimulus, is being accompanied by has also introduced “Sagar Mala” and “Bharat Mala” initiatives solid employment gains, a moderate upturn in investment and which are expected to boost the domestic growth of the country. a pick-up in trade growth. The continued expansion depends (Source: IBEF and Trading Economics) on robust global growth and governments’ support for right DIRECTORS’ trade policies. However, there are signs that escalating trade MEDIA & ENTERTAINMENT INDUSTRY REPORT tensions may already be affecting business confidence and The Indian M&E sector reached INR 1.5 Tn (USD 22.7 Bn) in investment decisions, which could compromise the current 2017, a growth of almost 13 percent over 2016. With its current outlook. (Source: IMF and OECD). trajectory, it is expected to cross INR 2 Tn (USD 31 Bn) by 2020, at a CAGR of 11.6 per cent. INDIAN ECONOMY OVERVIEW Indian economic growth is giving a positive signal for the current The Media and Entertainment sector grows with the economy DISCUSSION and future scenario. It is projected to strengthen to above 7%, although at a higher pace and its medium - term outlook is MANAGEMENT gradually recovering from the transitory adverse impact of rolling bright. The M&E industry’s continual growth is a reflection of ANALYSIS out the Goods and Services Tax (GST) and measures to choke the growing disposable income led by stable economic growth. off the black economy, including demonetisation. India’s GDP The Television segment will grow in 5 years @ 9.8% CAGR by AND grew 7.2% in the third quarter of 2018, surpassing expectations CY2020E. The Indian Media and entertainment industry size and projections: GOVERNANCE CORPORATE Segment CY2016 CY2017 CY2018E CY2020E CAGR 2016 - 20 ON REPORT Television 594 660 734 862 9.8% Print 296 303 331 369 5.7% Filmed entertainment 122 156 122 156 11.9% 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% STANDALONE STATEMENTS FINANCIAL 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% (Gross of taxes, INR billion) CONSOLIDATED Source: EY Analysis STATEMENTS FINANCIAL 69 ANNUAL REPORT 2017-18 Hathway Cable and Datacom Limited In 2016, the Indian television, film and digital media Industry Customer Segments in India by 2020 was at INR 808 Bn. It is growing with a CAGR of more than 12% 2017 2020 and is expected to reach INR 1,242 Bn by 2020. The addition of (Subscribers in (Subscribers in over INR 434 Bn by these 3 segments is expected to transform Mn) Mn) the way the content is produced, delivered and accessed by the Digital Only 1 to 1.5 4 consumers leading to an exponential growth in value creation Tactical digital consumer 6 20 for the entire ecosystem Mass consumers 200+ 500+ Consumers, who have at least one Pay TV subscription and/or Source: MPA Analysis OTT subscription are driven by sachet pricing of content, would provide a high volume-lower value subscription base to content Indian Broadband Industry distributors. This segment could, on the back of digital and India’s internet market has grown significantly in recent years, micro payment systems being rolled out in the country, reach as with total internet subscribers increasing by a CAGR of 17.9% high as 20 Mn households from 6 Mn in 2017. from 238.7 Mn subscribers in 2013, to 446.0 Mn in 2017 according to TRAI. Mobile internet has led this growth, driven by Mass consumers would form the largest segment of the M&E the proliferation of internet-enabled mobile devices and 3G/4G sector in 2020. These consumers would consume traditional network deployments by telecom operators (Telco’s). Mobile media (either pay or free) and free OTT content, on the back internet subscribers grew at a CAGR of 18.9% from 220.4 Mn of falling data charges and growing free Wi-Fi access. These in 2013 to 424.7 Mn in 2017. Wired internet subscribers grew consumers are expected to cross 500 Mn by 2020 from around over the period at a CAGR of 5.5% from 18.3 Mn subscribers in 200 Mn in 2017. 2013 to 21.3 Mn in 2017. Overview of Broadband Internet in India India metrics CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 March 2018 India’s Internet Subscribers (million) 213.7 238.7 267.4 331.7 391.5 445.9 493.9 Wireless 188.4 220.4 248.5 311.7 370.0 424.6 472.7 Wired* 25.3 18.3 18.9 20.0 21.5 21.3 21.2 From the UN Report titled “World Urbanisation Prospects The 2014 Revision” published at Https://www.un.org/development/desa/ publications/ publication last accessed in January 2018 and TRAI. * Including Narrow band Wireline Broadband Internet penetration in India While the advent of 3G/4G services has led to a rapid increase in mobile broadband penetration per capita (from 2.6% in 2013 to 17.2% in 2016, based on MPA estimates), fixed broadband penetration has only improved marginally from 5.5% of total households as of 31 December 2013 to 6.8% as of 31 December 2017. MPA believes both fixed and mobile broadband penetration will expand at a robust pace over the next five years as mobile and fixed broadband incumbents ramp up their existing networks. Mobile broadband penetration will surge from 23% of the population in 2016 to 37.9% by 2022. During the same period, the country’s fixed broadband penetration of households will increase from 6.8% to 7.4% in CY2018 driving the growth in India’s fixed broadband subscriber base at a CAGR of 10.4% from 17.86 Mn subscribers in 2017 to 32.4 Mn subscribers by 2022. Key Fixed Broadband Technologies Deployed In anticipation of impending consumer and enterprise demand, fixed broadband providers are investing in technologies that offer faster broadband services. As of 31 December 2017, MPA notes that over 70% of fixed broadband homes in India are still connected through legacy ADSL networks. The future fixed broadband deployments in India will be led by FTTx-based technologies such as GPON. Average Revenue Per Unit (ARPU) India has one of the lowest broadband ARPUs across Asia Pacific, but the scale of the market puts it in the top five in terms of broadband revenue. MPA forecasts that India will generate USD 4.8 Bn in revenue in 2022, putting it ahead of more advanced broadband markets such as Thailand and Taiwan. India is a long way away from achieving the revenue levels of markets such as China or Japan. However, India will be the fastest growing fixed broadband market in Asia Pacific during 2017-2021, exhibiting a CAGR of 10.9%. 70 Management Discussion and Analysis Fixed Broadband ARPU in Key Markets 50.0 47.1 CORPORATE 43.7 OVERVIEW 40.0 34.3 32.5 32.9 30.0 28.6 24.5 20.0 16.6 14.3 11.4 10.0 9.1 7.9 Markets (2017) (US$/Month) Fixed Broadband ARPU in Key Fixed Broadband 0 NOTICE India US UK S. Korea HK Singapore Australia China Japan Thailand Malaysia Indonesia Source: Media Partners Asia 2017 Fixed Broadband ARPU growth in India - Fixed Broadband ARPU India US$/Month DIRECTORS’ 14 REPORT 13 13 13 12 12 12 11 11 10 10 9 9 DISCUSSION 9 MANAGEMENT ANALYSIS 8 CY-2015 CY-2016 CY-2017 CY-2018 CY-2019 CY-2020 CY-2021 CY-2022 AND Source: Media Partners Asia 2017 Fixed Broadband Internet Industry Revenue Forecasts According to Industry reports, the factors discussed above will contribute to fixed broadband growth from a USD 1.9 Bn industry in GOVERNANCE CORPORATE 2017 into a USD 4.8 Bn market by 2022. ON REPORT Fixed Broadband Revenue growth in India Fixed Broadband Revenue US$ Bn 6.0 4.8 5.0 4.1 STANDALONE 4.0 3.5 STATEMENTS FINANCIAL 2.8 3.0 2.2 1.9 2.0 1.6 1.4. 1.0 0 CY-2015 CY-2016 CY-2017 CY-2018 CY-2019 CY-2020 CY-2021 CY-2022 CONSOLIDATED STATEMENTS FINANCIAL Source: Media Partners Asia 2017 71 ANNUAL REPORT 2017-18 Hathway Cable and Datacom Limited The Competitive Landscape of India’s Fixed Broadband In addition, there was one Headend-in-the-sky (HITS) operator.