media and entertainment

“Entertainment in its broadest sense has become a necessity rather than a luxury in the life …”
– Walt Disney

The fast changing lifestyle of consumers, high disposable income, IT boom and technological convergence, makes media and entertainment one of the best performing industries in India. The industry is poised to grow at 19% compound annual growth rate (CAGR) to reach $18.6 billion by 2010. thanks to the strong economic growth, rising income level, consumerism, coupled with technological advancements and policy initiatives taken by the Indian government that are encouraging the inflow of investment, will prove to be the key drivers for the media and entertainment industry. The key drivers of the media and entertainment industry:

Young India: India is considered as one of the youngest nations in the world as 54 percent of the population is below 25 years. The changes in life styles and higher disposable incomes are also toting up the demand. Moreover over 20 million Indians are residing across the globe which fuels the demand for Indian entertainment.

Evolving Distribution System: Distribution is gaining importance in the changed business environment and companies are focusing on more transparency, accountability and better revenue sharing across the value chain. This shift is result of emergence of new distribution channels such as broadband, Internet access and wireless communications. For example the digital cinema facilitates faster access of film industry in rural and semi-urban areas in a cost-effective way. The television distribution industry is witnessing new deliver mechanisms in form of DTH, Internet TV. Music distribution is also witnessing change in form of digital music delivery, online music, downloads on mobile phone. Moreover, FM radio has transformed distribution system in the music industry.

Value Chain Integration: The value chain integrating within each segment of the media and entertainment industry has build scale, increase revenue streams, to mitigate risk, and leverage on opportunities and skill sets. In recent past we have seen film producers venturing into television and television broadcasters foraying into film producing. The value chain integration is fueled by the corporatization of the film industry, the booming television sector, the fast growing radio sector and a growing market for printing and publications.

Advertising Spend: Indian advertising spends as percentage of GDP, at 0.5%, is abysmally low, as opposed to other developed and developing countries, where the average is around 0.98%. Advertising revenues are vital for the growth of this industry.

Government initiatives: The Government policy initiatives that have encouraged the inflow of investment, initiatives by private media companies and technological advancements are some of the key drivers of rapid growth of this industry. The industry has got a lot of support from the government through policies and fiscal measures. Still, the media and entertainment sector needs improvement in the government policies.

Technology: Technology has played a key role in influencing the entertainment industry, by redefining its products, cost structure and distribution. New technologies, such as satellite radio, DTH typically require high initial capital expenditure, but it also offers incremental volume gains through increased reach. It is this trade off that needs to be evaluated before an investment is made in any new technology.

Pricing: large population base makes India an attractive destination for regional, national, and international broadcasters and production houses. However, while prices are significantly lower in India than in other parts of the world, access to volumes makes the market attractive.

CRITICAL ISSUES
From the outside it looks like there is nothing that can stop the Indian entertainment industry from reaching new heights. But there are some trivial issues that still need to be addressed.

Piracy: Piracy is the major challenge. It is cannibalizing 60% revenue of the film industry and 40% of the music industry. Though positive changes in the distribution scenario are taking place, the increasing threat of piracy is offsetting the change. Unless strong penal actions are taken to curtail the revenue loss, the industry will loose out a lot of its creative products.

Entertainment tax: The entertainment tax in India is amongst the highest in the world. To attract new players into the industry and provide assistance to the existing players, the reduction in the entertainment tax is a must. The film industry is subject to varying tax levels, which are as high as 60% since government considers films as luxury, whereas it is not the case in reality.

Financing: The institutional funding for film production forms only 5% of the total industry size, which is very abysmally low. For the industry to flourish and strengthen the business model for film making, more organized funding has to be brought in. The media policies for FDI are not uniform due to which the growth of the industry is hampered.

Coverage: The media and entertainment industry has not yet been able to cover most parts of rural India, which is another factor hindering its growth. The industry must try to increase its penetration level in rural areas to contribute a larger amount to the country’s GDP and economic development

Infrastructure bottlenecks: India’s progress in terms of digital infrastructure presents a wonderful opportunity to regain its past glory in the entertainment sector. The country is facing the challenge of building a broadband digital network to reach every city, every village, every home and every office. Another challenge is that of human resources to build, operate and maintain such an infrastructure, which requires millions of trained engineers, operators and technicians.

THE ROAD AHEAD
Commenting on the future of the industry, Deepak Kapoor (Managing Director, PricewaterhouseCoopers LLP, India) said, “Convergence will play a crucial role in the development of the Indian entertainment and media industry where consumers will increasingly be calling the shots in a converged media world. Broadband access and Internet Protocol (IP) will be the technology enablers that will evolve this new breed of consumers, as opportunities for them to access and manipulate content and services will be overflowing, while their time and attention will be limited. Established approaches of pushing exclusive content through non-linear-channels or networks to mass or segmented audiences will no longer guarantee competitive advantage.” So, what lies ahead of the Indian entertainment industry is a bundle of opportunities and changing trends in all the segments. There exists immense potential in sectors like animation, gaming, mobile entertainment and other blue chip emerging sectors and given India’s excellent international standing in information technology, it appears that entertainment will be the next big wave in the Indian economy.