MSM – Industry Update and the Road ahead Man Jit Singh 10 June 2013 - Confidential - 0 Agenda Multi-Screen Media – 5 year outlook 2 ― Advertising Market Overview 4 ― Update on Distribution & Digitization 9 Market developments ― Impact of New Media 16 ― Market landscape and Competition Update 19 ― Regulatory Update 29 The Road Ahead 33 Strategic New Initiatives 39 Recap – Putting it all together 95 - Confidential - 1 Multi-Screen Media – 5 year outlook - Confidential - 2 FY13 has been a good year… Total Revenues* and EBIT (USD M) 23% 25% 600 CAGR 26% 20% 22% 16% 18% 593 14% EBIT % 553 250 USD M USD 363 396 10% 266 6% 5% 2% FY09 FY10 FY11 FY12 FY13 -100 -2% -1% Revenue EBIT % EBIT (3.5) 16.4 65.2 138.0 140.0 MSM is well poised to progress in the next 5 years *Net of Payouts - Confidential - 3 Advertising Market Overview - Confidential - 4 Advertising spend is expected to hit a tipping point in the next 5 years Despite the increase in ad revenue in recent years, the advertising to GDP ratio in India is still at a low of 0.53% versus developed economies like the U.S, U.K. and China, indicating significant potential for future growth Television ad market has grown steadily over the last several years; from USD 1.3 Billion (INR 71 Billion) in advertising revenues in 2007 to an estimated USD 2.5 Billion (INR 139 Billion) in 2013 and a projected USD 4.4 Billion (INR 240 Billion) in 2017 Projected increase in total advertising spend, coupled with strong growth in television viewership, makes India a very lucrative television market Size of Media spend as a % of GDP Projected Ad Revenue Growth of TV Industry US 1.08 CAGR 4,364 4,500 14% 3,764 Japan 0.90 3,273 2,855 3,000 2,527 UK 0.78 2,273 China 0.75 1,500 USD USD Million India 0.53 0 0.0 0.3 0.6 0.9 1.2 2012 2013 2014 2015 2016 2017 Source: FICCI-KPMG Indian Media and Entertainment Industry Report 2013; PWC Report – Indian entertainment and media outlook 2011, - Confidential - 5 HSM markets constitute more than half of India’s GDP, growing at 9% with approx 50% of C&S HH 63% of the total population of # HSM Language India 1 UP and UK Hindi PHCHP – Punjab, Haryana, 2 Chandigarh and Himachal Hindi/Punjabi Pradesh 3 Bihar and Jharkhand Hindi/Bhojpuri 55% of the total GDP of India 4 Gujarat Hindi/Gujarati 5 Delhi and NCR Hindi MP, Chhattisgarh and 52% of the total 6 Hindi TV HH in India Rajasthan 49% of the total 7 Maharashtra Marathi/Hindi C&S HH in India “Between 2007 and 2010, the average economic growth rate for the southern states decelerated from 7% to 6.5%, while that of the northern states accelerated from 4.5% to 6.8%” – Ruchir Sharma, Author BreakOut Nations Source: FICCI-KPMG; Jefferies 2012 and estimates - Confidential - 6 Growth in GDP and Ad/GDP ratio will result in Ad expenditure growth in India 12,000 2,869 Adex 2012 Adex 2015 9973 1,627 8,000 7104 730 5596 900 749 INR Crs INR 445 3969 4,000 3,342 3083 2,612 258 2,688 2,154 2334 1,709 1,788 468 726 0 UP and UK PHCHP Bihar and Gujarat Delhi NCR MP, Chhattisgarh Maharashtra Jharkhand and Rajasthan # HSM Ad/GDP 2012 Ad/GDP 2015 With the projected growth in the GDP 1 UP and UK 0.30% 0.32% across states and the increasing 2 PHCHP 0.19% 0.20% consumption, it is expected that the 3 Bihar and Jharkhand 0.11% 0.13% marketers will increase the Adex 4 Gujarat 0.25% 0.29% spends in these markets 5 Delhi and NCR 1.10% 1.20% MP, Chhattisgarh and 6 0.25% 0.27% The Ad expenditure growth would be Rajasthan 35% and GDP by 24% over the next 3 7 Maharashtra 0.52% 0.56% 8 Other Indian States 0.30% 0.33% years Source: TAM estimates - Confidential - 7 Advertising – the MSM Network has the highest power ratio amongst the large Networks Revenues % Revenues Channel Share Power Network # Channels (INR Crs) Share % Ratio STAR Network 17 3,300 27% 19.5% 137 MSM Network 8 2,251 18% 12% 153 Zee Network 28 2,200 18% 13% 134 Viacom 7 1,100 9% 7% 129 TV industry 12,400 100% 100% MSM network including IPL garnered 18% share in the TV ad revenue pie against owning 12% of the viewership share in FY13 with a revenue share index of 153 *Star network does not include Sports TG: CS 4+; All India including IPL - Confidential - 8 Update on Distribution & Digitization - Confidential - 9 Digitisation along with expansion by DTH operators will drive subscription revenue growth Subscription fees have become an important and predictable revenue foundation for the television industry Rural households present the next growth opportunity, with only 53% of households owning a TV compared to 89% amongst urban households Subscription revenue is projected to grow at a higher CAGR of 20% over 2012-17 compared to 11% over 2007-11 which will be driven by digitalization The share of broadcasters in the total subscription pie will go up from 29% in 2012 to 37% in 2017; share of subscription to total broadcaster revenue will go up from 36% in 2012 to 48% in 2017 Projected Sub Revenue Growth of TV Industry 2013 TV Households: Large town vs. Small town 11,036 11,400 CAGR 160 154 20% 9,418 7,764 120 7,600 6,273 82 5,109 80 74 4,455 80 71 66 3,800 USD USD Million Millions of HH 34 40 25 0 0 2012 2013 2014 2015 2016 2017 Large Town Households (Mn) Small Town Households (Mn) Total HH TV owning HH C&S HH Digital Source: FICCI-KPMG Indian Media and Entertainment Industry Report 2013; TAM Universe Update 2013 - Confidential - 10 Digitisation will increase share of the broadcaster Subscription revenues from the audiences Share of Subscription fees to Broadcasters (USD M) Subscription revenues share of broadcasters is expected to be higher 4500 In 2 way split (with DTH players) the 3600 broadcasters will get approx 35-40% of the total Subscription revenues 2700 4,073 In 3 way split of Subscription revenues 3,473 2,836 USD USD million 1800 2,109 the broadcasters will get approx 20-25% 1,582 of the revenues 900 727 618 525 446 379 0 2013 2014 2015 2016 2017 Carriage Broadcasters share Carriage will come down in the outer years Source: FICCI-KPMG Indian M&E Industry Report 2013 and Industry estimates - Confidential - 11 Digital Addressable System (DAS) - Current On Ground Reality There are still a few gaps for seeding boxes - ― Phase 1 - 90-92% of Delhi/Mumbai and Kolkata are covered, while only 25-30% of Chennai has been covered ― Phase 2 - 60-65% of the 38 cities have been seeded Unencrypted Analog signals are still accessible – Addressability of subscribers continues to be a concern area, hence actual numbers are not yet reported and leading to piracy Only 35% of the Customer Relationship Forms (CRF) received from the end households, hence complete clarity on actual subscriber numbers is still pending MSOs are still not ready with packages / backend infrastructure ARPUs have not increased – lack of packages, CRFs. The on ground customer not willing to pay extra Unavailability of institutional finance to MSOs Court stay orders have hindered the roll out in certain states AP, MP where the order has now been lifted MIB / TRAI pressure tactics to force operator deals - under threat of 6 months status quo - Confidential - 12 Digital Addressable System (DAS) – the Ideal Scenario for LC1 and FTA Channels No more constraint of Bandwidth with the MSO FTA and Niche channels will be greatest benefactor MSOs can offer higher number of channels at no extra cost MSO entering these markets will improve the quality and variety in the customer offering With LC1 falling in Phase 4 of digitization, the MSO focus has already started shifting towards these towns in terms of acquisition - Confidential - 13 What is Competition doing in LC1 markets? Competition (Star) entered the LC1 markets 2-3 years ago for first mover advantage Have on ground presence – 300-400 resources (on rolls/contract) in these market to monitor competition and crack new deals Star is willing to spend on carriage. Focus on channel placement within the EPG Star Utsav presence on DD Direct ensured reach within the LC1 market. Currently delivers more reach than Star Plus in LC1 - Confidential - 14 The upcoming 5 years are positive… EBIT (USD M) 200 150 100 200 USD M USD 185 170 150 150 50 0 FY14 FY15 FY16 FY17 FY18 Network is likely to show sustained growth till FY17 reaching a peak of USD 200M Standalone without any investments in the Network we should be able to sustain our growth path MSM will be profitable- Confidential -in the medium term 15 Impact of New Media - Confidential - 16 Impact of New Media – 174m Internet users, 25% of TV viewers India – Internet Connections India Internet vs. TV Penetration 386 873 400 900 848 820 CAGR 791 333 55 762 25% 731 300 272 47 600 208 40 496 426 200 168 34 351 331 Millions 124 29 276 286 300 226 Million connections 25 232 100 174 174 139 99 0 0 2012 2013P 2014P 2015P 2016P 2017P 2012 2013P 2014P 2015P 2016P 2017P Wireless Connections Wireline Connections Internet Users TV Viewers The mobile story has begun to play out in India, with the user base expanding significantly over last year The number of internet users reached 174m in 2012, about 25% of the size of the total TV viewers in the country and is expected to reach over 60% of total TV viewers by 2017 Source: FICCI-KPMG Indian M&E Industry Report 2013 - Confidential - 17 Digital Advertising market is growing at over 30% Advertising Revenues (USD M) CAGR 11,458 11,500 9,855 1,585 32% 496 8% 8,558 1,184 9,200 498 17% 455 7,440 889 413 6,585 418 6,900 675 340 5,953 384 4,509 11% 515 280 395 351 4,036 331 255 USD M USD 231 3,636 4,600 3,255 2,945 2,727 2,300 4,369 14% 3,767 2,847 3,275 2,269 2,520 0 2012 2013P