Intheinterval,butreadyfor thenextact FICCI-KPMGMedia&EntertainmentIndustryReport © 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. © 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Foreword Welcome to the 2009 edition of the Indian M&E Industry, prepared jointly by FICCI and KPMG. In many ways, the year 2008 was a testing time for the industry. With the global economic slowdown affecting the advertising spends, sectors like TV, Print, Radio and Outdoor which depend on advertising revenues were affected. Further the liquidity crunch and the consequent lack of access to funds also affected the capacity expansion plans of players across various M&E segments. However, behind every adversity lies an opportunity. Media companies are under pressure to change, innovate and re-examine their existing business models. Players need to draw upon new capabilities to survive in this environment. In immediate future, media corporates are likely to focus more operating margins, and assessing opportunities for consolidation, while building on core strengths. The year was also full of interesting developments. While the GEC space witnessed the entry of new players, entry of new DTH players expanded the penetration of digital TV households. Print media space also saw multiple new launches and expansion activities in the first half of the year. Last year, was also the year where Indian players made their foray in the global arena, through big ticket acquisitions and joint ventures. The dynamics of the industry are changing and the media universe is increasingly becoming more complex, specialized and fragmented. With companies increasingly leveraging cross media platforms and trying to realize synergies, there is a need for paradigm shift and examining the entire M&E industry from the point of view of common drivers, bottlenecks and challenges that affects players across the sectors. We have attempted the same through our detailed and reader friendly report. FICCI takes this opportunity to thank KPMG, our knowledge partner, for devoting precious time and resources to prepare this report at our behest. We also acknowledge the valuable inputs provided by the members of the entertainment committee and all other associated agency and industry players who have provided information and support in preparation of the report. Yash Chopra Kunal Dasgupta Chairman Co-Chairman FICCI Entertainment Committee FICCI Entertainment Committee © 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. “Our greatest glory is not in never falling but in rising every time we fall.” - Confucius The advent of New Year 2009, has heralded interesting yet challenging times for the Media and Entertainment (M&E) industry as a whole. The Indian M&E industry—one of the fastest growing industries in the country over the past couple of years—is no exception. While 2008 showed growth for the industry on the whole, the last quarter of 2008 was impacted by the economic slowdown and liquidity crunch, and this is estimated to continue in the current year. The year gone by, was one packed with several significant developments for the Indian M&E industry, including the entry of DTH players, growing acceptance of the digital TV distribution technology, the success of many small budget movies, and the rising competition in the regional space in print. Finally, it was the year when IPL proved that innovation in traditional formats resulted in runaway success! On the other hand, the after effects of the global economic turmoil are being felt in India as well, and the economy is expected to grow at a significantly lower rate over the next 2 years (between 5 to 7 percent according to various estimates)1. Consequently, advertising spends, which constitute a significant portion of the M&E industry’s revenues have got affected, which in turn has resulted in a lower growth rate for the industry for the current year. Moreover, this trend is expected to continue in 2009. Given the industry’s changing landscape and emerging challenges, the focus of industry players too is changing; with a strong emphasis on profitable growth in the current scenario. Hence, media companies are increasingly concentrating on strengthening existing operations and assessing options for growth through consolidation, while continuing to innovate. Looking at the changing contours of the industry, there are certain drivers which are likely to have an impact across sectors, and we have examined these drivers in detail in this report. Factors like Narrowcasting, Regionalization, Internationalization, Organized Funding, Digitization and Deregulation have become the “buzzwords” in the industry, and we have focused on how these drivers are affecting various players across the M&E industry value chain. The analyses and point of view presented in the report have been validated through extensive discussions with industry players. We take this opportunity to thank the industry players for making this endeavor possible. Russell Parera Rajesh Jain Chief Executive Officer Head - Information, Communication & KPMG in India Entertainment KPMG in India 1 IMF, Cushman and Wakefield Report 2009 © 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. © 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Table of Contents 1. Indian M&E Industry: The Growth Story 01 2. Sector Snapshots 19 3. Narrowcasting 53 4. Regionalization 81 5. Digitization 101 6. Regulatory & Tax Environment 123 7. Internationalization 137 8. Deal Activity and Investment Trends 159 9. Changing Landscape in Audit for M&E 169 10. Internal Processes of M&E Companies 175 11. Way Forward: Sector wise key action steps 193 © 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Indian M&E Industry: The Growth Story 01 Indian M&E Industry: The Growth Story TheIndianM&Eindustrywasoneofthefastestgrowing • Favorabledemographiccompositionandstronglong sectorsinthecountryinrecenttimes,ridingonthebackof termfundamentalsoftheIndianeconomy.Unlikeother abuoyanteconomyandextremelyfavorabledemographics. countries,Indianeconomyisstillgrowing,albeitata AyoungIndian’shigherpropensityfordiscretionary lowerratethanbefore.Further,70percentofIndian spendinghaspropelledmoremoneyflowintheleisureand populationisbelow30yearsofage1,presentingagood entertainmentactivitiesgivingasteadyimpetustotheM&E opportunityformarketers industry.Byembracingmultipleplatforms,expandinginto • AdvertisingtoGDPratioinIndiaisstillatalowof0.47 newgeographies,andexploitingthepotentialofunder percent,visavisdevelopedeconomiesliketheU.S., penetratedgeographies,Indianpromotershavebuiltascale, whereitisashighas0.9percent2 wheretheycannowattractforeignmediacompaniesand • Mediapenetrationinthecountryremainslow.For investors.Newcontentanddeliveryformatshaveemerged instance,therearestill359millionpeopleinIndiawho intheindustrywithnewmediagaininganincreasingly canreadandunderstandanylanguagebutdonotread importantroleinthedistributionportfoliooftheplayers. anypublication.3 Thisrepresentssignificantopportunity ofexpandingthemarket. Succeeding in turbulent times Atthesametime,2009-10spellscautionforindustry players.Thebusinessimperativesinthesetimesneedto However,themarketenvironmenthasbecomeincreasingly undergochange–withincreasedfocusonnewmantras challengingforthemediaandentertainmentsector,onthe suchasthe10shortlistedbelow: backofeconomicslowdownandtheconsequentslowdown • User segmentation toprovideincreasedoptionsfor inadvertisingrevenues,especiallyinthelastquarterof targetedmessagingthroughnichevehicles 2008.Atthesametime,foranindividualplayer,increased • Innovation andflexibility,incontent,formats,delivery complexitieshaveemergedonaccountofgreater mechanismsandmarketingtoreachouttonew fragmentationofaudiencesacrossmedia,anddistribution audiencesandadvertisersinmultipleways platforms,andgreaterneedforaccountabilityand measurabilitydemandedbyadvertisers. • Focusonoptimizing margins,throughre-engineering processes,structures,andworkingcapitalmanagement Notwithstanding,overa5yearperiod,weprojecta12.5 percentgrowthforthesectoronthebackofthefollowing • Leveraging IP tohelpensurevaluemaximizationfrom factors: existinglibraries 1Census 2SSKIResearch,KPMGAnalysis 3IRS2007R2 ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved. 4 • Select market expansion giventhetrendsin Size and Growth of the Industry regionalization,overseasmarketsanddigitalmedia TheIndianM&EindustrystoodatINR584billionin2008,a • Greateraccountability,throughdemonstrationof growthof12.4percentoverthepreviousyear.Overthe effectivenessofmediaproperties nextfiveyears,theindustryisprojectedtogrowataCAGR • EstablishstandardsforCorporate governance and of12.5percenttoreachthesizeofINR1052billionby2013. movetowardsgreaterprofessionalization