MANAGEMENT DISCUSSION & ANALYSIS INDUSTRY REVIEW GLOBAL ECONOMY The world economy experienced in the past two years, encountered demand from advanced economies, subdued growth for another new headwinds during 2013 on both but tighter nancial conditions will consecutive year in 2013. The global international and domestic fronts. dampen domestic demand growth. economy grew by approximately 2.9% in 2013, its slowest rate since Recently, the global economy has INDIAN ECONOMY 2009. Underperformance in the world begun to look much healthier. Because The Indian economy weathered the economy was observed across almost of their scale, a recovery in advanced global nancial crisis rather well and all regions and major economic economies is likely to boost global quickly recovered from the decline in groups. Most developed economies growth to 3.6% in 2014, accelerating growth rate in 2008-09 to a healthy continued struggling in an uphill to 3.9% in 2015, according to World growth that averaged around 9% battle against the lingering effects Economic Outlook of International annually in 2009-10 and 2010-11. of the nancial crisis, grappling in Monetary Fund (IMF). In the emerging India’s Gross Domestic Product grew particular with the challenges of markets and developing economies, by 4.7% during FY2014, as against 4.5% taking appropriate scal and monetary growth is projected to pick up in the previous scal year of FY2013. policy actions. A number of emerging gradually from 4.7% in 2013 to about The World Economic Outlook (WEO) economies, which had already 5% in 2014 and 5.3% in 2015. Growth update released by the International experienced a notable slowdown will be helped by stronger external Monetary Fund (IMF) in January 2014 22 Balaji Telefilms Limited About Us Business Overview Our People MD&A has estimated a better year ahead for INDIAN MEDIA & environment, the industry continued the Indian economy. Several reform ENTERTAINMENT to bene t from increasing digitisation of media products and services. measures have been undertaken INDUSTRY Directors’ Report including clearance of several large Gaming and digital advertising were The Indian Media & Entertainment projects by the Cabinet Committee the two prominent industry sub- (M&E) industry registered a moderate on Investment, which should help sectors which recorded strong growth growth of 11.8% to touch ` 918 billion revive the economy and investment in 2013, albeit on a smaller base. in 2013. This was despite sluggish GDP sentiments. In addition, resurgence According to KPMG-FICCI estimates growth which impacted consumer of exports, prospects of revival in the up to 2018, digital advertising is demand and advertising spend by global economy and moderation in expected to display the highest CAGR corporates. The growth was majorly Governance in ation observed recently, point to a of 27.7%, while all other sub-sectors driven by television and print media better outlook for the Indian economy are expected to grow at a CAGR in a which together accounted for 72% in 2014-15 vis-à-vis 2013-14. range of 9-18%. Overall, the industry is of industry revenues, having grown expected to register a CAGR of 14.2% by 12.7% and 8.5%, respectively, in to touch ` 1,786 billion by 2018. 2013. Amidst a subdued operating Financial Statements GROWTH RATE IN INDIA’s GDP 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Source: RBI Database Annual Report 2013-14 23 MANAGEMENT DISCUSSION & ANALYSIS SIZE OF INDIA’S MEDIA & ENTERTAINMENT INDUSTRY OVERALL 2012 2013 GROWTH 2014P 2015P 2016P 2017P 2018P CAGR INDUSTRY IN 2013 (2013-18) SIZE OVER (%) 2012 (%) TV 370.1 417.2 12.7% 478.9 557.4 672.4 771.9 885.0 16.2% PRINT 224.1 243.1 8.5% 264.0 287.0 313.0 343.0 374.0 9.0% FILMS 112.4 125.3 11.5% 138.0 158.3 181.3 200.0 219.8 11.9% RADIO 12.7 14.6 15.0% 16.6 19.0 23.0 27.8 33.6 18.1% MUSIC 10.6 9.6 -9.9% 10.1 11.3 13.2 15.1 17.8 13.2% OOH 18.2 19.3 5.9% 21.2 23.1 25.2 27.5 30.0 9.2% ANIMATION 35.3 39.7 12.5% 45.0 51.7 60.0 70.2 82.9 15.9% AND VFX GAMING 15.3 19.2 25.5% 23.5 28.0 32.3 36.1 40.6 16.2% DIGITAL 21.7 30.1 38.7% 41.2 55.1 69.7 88.1 102.2 27.7% ADVERTISING TOTAL 821 918 11.8% 1039 1201 1390 1580 1786 14.2% Source: FICCI-KPMG Indian Media and Entertainment Industry Report 2013; All Figures in ` Billion THE TV INDUSTRY GREW BY 12.7% TO ` 417 BILLION IN 2013. THIS WAS PRIMARILY DRIVEN BY HIGHER SUBSCRIPTION REVENUES WHICH GREW BY 15% IN 2013 TO ` 281 BILLION. THIS GROWTH WAS PARTIALLY OFFSET BY A LOWER GROWTH OF 8.8% IN THE ADVERTISING REVENUES. 24 Balaji Telefilms Limited About Us SIZE OF INDIAN TELEVISION INDUSTRY 885 Business Overview 900 800 772 253 700 672 221 600 567 195 479 500 417 172 370 Billion 400 152 551 632 Our People ` 329 297 136 In 257 125 477 300 241 395 103 116 327 200 82 88 281 245 100 194 214 158 169 - 2008 2009 2010 2011 2012E 2013P 2014P 2015P 2016P 2017P 2018P MD&A SUBSCRIPTION REVENUE ADVERTISEMENT REVENUE Source : KPMG in India Analysis, Industry discussions conducted by KPMG in India Note: Figures are rounded to nearest integers and may not add up exactly to column totals INDIAN primarily driven by higher subscription MSOs and broadcasters, it is expected Directors’ Report TELEVISION INDUSTRY revenues which grew by 15% to ` 281 to take another 2-3 years for them to billion, partially offset by lower growth witness the subsequent growth in The Indian television (TV) industry of 8.8% in the advertising revenues. subscription revenues and Average went through several key fundamental Revenue per User (ARPU) driven by shifts in 2013. This impacted its The television advertising had to cope appropriate channel packs, premium current operating environment and with the economic slowdown which content channels, high de nition will determine its growth prospects caused the corporates to cut their channels, pay-per-view and other Governance in the near future. The TV industry advertisement spends. In addition, value added services. grew by 12.7% to ` 417 billion in 2013, the operating environment further got affected by the Quality of Service GROWTH DRIVERS regulation introduced by The Telecom The content producers are also set to Regulatory Authority of India (TRAI) in capitalise on cable digitisation drive Financial Statements March 2013, capping the duration of and improvise their business model. advertisement to 12 minutes per hour. Digitisation has pushed content producers to invest more in content, The subscription revenues continued upgrade the content quality, offer to bene t from increasing digitisation customised and localised content and of cable in Phase I & II cities. In launch of new premium channels with addition to better transparency due reduced carriage fees. Furthermore, to digitisation of cable, TRAI also the content producers are also focussed its attention on improved increasingly recognising the need for subscriber addressability for which it owning Intellectual Property (IP) rights. directed all Multi-system Operators A majority of the TV programmes (MSO) to maintain their subscriber currently produced in India are management system (SMS) after commissioned, where the IP rights for collection of customer application the content and the characters remain forms (CAF) and proper customer with the broadcaster. Owning of IP veri cation. The MSOs also started rights will help the content producers moving their subscribers from net to gain from multi-platform content billing to gross billing which includes monetisation through licensing entertainment tax and service tax in content and formats in international the bill amount. While the digitisation markets, dubbed or remade versions of cable has achieved the transparency on regional language channels, and and subscriber addressability for the digital media. Annual Report 2013-14 25 MANAGEMENT DISCUSSION & ANALYSIS PENETRATION OF CABLE & SATELLITE IN HOUSEHOLDS INDIAN FILM INDUSTRY The Indian lm industry continued 250 to display its consistent performance 95% year over year in 2013 both in terms 200 191 of content and box of ce collections. 161 There has been a signi cant growth 154 backed by differentiated content, 150 larger releases across digital screens and aggressive promotions by 86% Million 100 production houses. The growing ` In 84% box of ce collections indicate the 50 audiences’ growing appetite for differentiated content. This has resulted in shift in industry focus - from ‘blockbuster’ movies to movies 2012 2013 2018P driven by good quality niche and TV HOUSEHOLDS C & S PENETRATION OF TV HOUSEHOLDS thematic content. Rapid development of the digital infrastructure including digital movie prints and expansion Source : KPMG in India Analysis, Industry discussions conducted by KPMG in India of multiplexes, has helped the content to reach the audience in the CABLE & SATELLITE SUBSCRIBER BASE most effective manner. Increasing corporatisation of production houses 200 181 has also resulted in higher investment 173 165 10 and focus in content development. 180 157 9 148 9 160 139 9 Furthermore, formation of alliances 130 9 140 9 75 119 9 72 between production houses 44 56 70 120 105 8 37 from various regional markets has 5 34 100 31 enhanced the availability of quality 28 25 content through exchange of talent Million 80 6 19 40 ` 5 60 and movie remakes in different In 60 91 81 87 languages.