Sector Update
22 Dec 2012

Media & Entertainment Sector

     
 
 
FDI in transmission may transform the outlook of Media & Entertainment Sector…
The Indian media and entertainment (M&E) industry is one of the fastest growing industries in the country. Its various segments -film; television, animation, print and Out-of-home advertising (OOH) among others have witnessed remarkable growth in the past few years. Rise in digital content consumption, launch of innovative content delivery platforms, higher penetration in tier II and tier III cities, enhancing reach of regional media and regulatory shifts are major factors that are driving the growth of the sector.
 
Television Continues to be the Dominant medium of Entertainment…
2011 had been a challenging year not just for the Indian M&E industry, or even the Indian economy, but also for the larger world economy. While, television continues to be the dominant medium, sectors such as animation & VFX, digital advertising, and gaming are fast increasing their share in the overall pie. Radio is expected to display a healthy growth rate after the advent of Phase III expansion. Print, while witnessing a decline in growth rate, will continue to be the second largest medium in the Indian M&E industry. Also, the film industry had a reason to cheer, with multiple movies crossing the Rs 100 crore mark in domestic theatrical collections, and Rs 30 crore mark in Cable & Satellite (C&S) rights. The chart on the next page , shows the breakup of the M&E market in India. The figure clearly shows the television has the greatest share of 50% and is most dominating sector in media. Following it, is print sector with 24% share and then film sector with 11%. These three sectors have been dominating the Indian media industry for decades. Further, animation, gaming & VFX sector hold 7% share in M&E industry while, the other sectors like radio, online/Internet, OOH and music have relatively low share of 2% each.
 

Digitization of Cable Increasing New Business of Media…
The entire M&E landscape is witnessing a shift; thanks to cable digitization, wireless broadband penetration, increasing direct-to-home (DTH) penetration, digitization of film distribution and growing internet usage. In 2011, the M&E Industry registered a growth of 12% over 2010, to reach Rs 72,800 crore. The growth trajectory is backed by strong consumption in Tier II and III cities, continued growth of regional media, and fast increasing new media business. Overall, the industry is expected to register a CAGR of 15% to touch Rs 1,45,700 crore by 2016. Whereas, advertising spends across all media accounted for Rs 30,000 crore in 2011, contributing to 41% of the overall M&E industry's revenues, advertising revenues witnessed a growth of 13% in 2011, as against 17% observed in 2010.


 
BROADCASTING SCENARIO IN INDIA
 

India is third largest TV household market in the world…
The compound annual growth rate (CAGR) for television industry is estimated to be 16% and the CAGR for the radio industry is projected to be 20% from 2010 to 2015. India has 138 million TV household and is behind only China and US in the world TV market. The country had 600 million TV viewers in 2010, adding almost 140 million viewers from 460 million in 2009. Moreover, the share of broadcasters in the total subscription pie is expected to go up from the current levels of 21% of the overall subscription revenues in 2010 on an average across platforms to 30% in 2015.

FDI in DTH & mobile TV is an area of future growth…
The government has recently raised FDI limit from 49% to 74% in various services of the broadcast sector and except television news channels and FM radio, where the existing 26% limit will continue. The 74% FDI limit will apply to broadcast carriage services providers, including direct-to-home (DTH), head-end in the sky (HITS), multi-service operators (MSOs) and cable TV to bring about uniformity. The 49% FDI will continue to be approved through the automatic route, thereby requiring a clearance from the Foreign Investment Promotion Board (FIPB), but any FDI beyond 49% up to 74% will be allowed through the government. Till now, 49% FDI was allowed in the cable TV and DTH segments while it was 74% in HITS, a satellite multiplex service that provides TV channels for cable operations. Among other segments, 74% FDI also allowed in mobile TV, which is an area of future growth.


Film/Movies Industry
The revenue from Indian film industry is expected to grow by 56% to Rs 12,800 crore by 2015, from Rs 8,190 crore in 2011 due to increasing digitalisation of the sector. Backed with 12,000 theatre screens, 400 production houses and a huge viewership, the country has world's largest film industry in terms of number of films produced and ticket size. The Indian film industry is producing over 1,000 films every year in more than 20 languages in the country. Digitalisation of film distribution and value-added services like movies on demand are set to open up new revenue streams and business models. In addition, the box office collections, at present, contribute about 80% to the total film revenues. Meanwhile, the average number of screens is extremely low in India at 12 screens per million compared to 117 in the US.

 
 

Television & Radio Industry
Television industry is always being the most dominant sector in media industry and further projected to continue to be the major contributor in the industry. The overall television industry is estimated to be Rs 32,900 crore in 2011, and is expected to grow at a CAGR of 17% over 2011-16, to reach Rs 73,500 crore in 2016. The share of subscription to the total industry revenue is expected to increase from 65% in 2011 to 69% by 2016. The TV industry continues to have headroom for further growth as television penetration in India is still at approximately 60% of total households. Though the share of radio in media market is small as compared to television, film and print sector, yet it has shown the good growth in the market. The industry is estimated to grow at a CAGR of 12.2%, reaching Rs 1600 crore in 2014 from the estimated Rs 1000 crore in 2010. It is projected that radio advertisement share will grow from 4.2% to 4.3% in the coming years.

 

Print Media
Print media is the second most dominating sector in media industry; the sector is projected to grow by 7.4% over the period 2010-2014, reaching to Rs 23050 crore in 2014. Print/Publishing is also projected to grow albeit at a slower rate of 5.6%. Newspaper sales in India, China and Japan, stand at 60% in terms of circulation are the highest in the world. In a private survey, it has been revealed that in future also India continues to be one of the favored destinations for publishing outsourcing in the country.

Animation and Visual Effects
India is one of the fastest growing hubs for graphic industries like animation, gaming and Visual effects ((commonly shortened to VFX). The animation industry has been growing at a CAGR of 30-35% while, the industry is expected to maintain its current pace of growth. Companies such as Intel and Advanced Micro Devices (AMD) are reworking their strategies in India to grow their businesses in the computing segment. The move has been triggered by the emergence of high-end games involving real-time 3D rendering. A considerable number of Indian special effects artists and animators are moving up the ranks of established US animation studios such as Walt Disney and DreamWorks Animation SKG and creating a niche for them in the special effects market.

Music and Out of Home Industry
The predictions say that music industry is expected to be the fastest growing segment in M&E industry. It has been estimated that Indian music industry would grow to Rs 2650 crore in 2014 at a CAGR of 29%. However, this industry has been facing lots of challenges out of which piracy is the biggest threat. The other challenges are acquisition rights and the cost of music royalty. While on the other hand, out of Home advertisement was the worst hit industry in 2009 due to the economic recession faced by the country. However, the industry has rebounded with the use of digital technologies and tools. The estimated size of OOH sector was Rs 1250 crore in 2009 and its projected growth is at a CAGR of 11.0%, reaching Rs 2100 crore in 2014.


Major Challenges faced by the M&E Industry

Low Average Revenues
The Indian average revenue per user (ARPU) is still low compared with global averages. The average ticket price for a movie in India is $0.50. However, the large and growing volumes make up for it. Sheer volumes make India a lucrative destination in the global arena. With increased corporatization and value creation, the ARPU is set to increase.

Piracy and Copyright Infringement
The issue of copyright infringement has been a major concern and problem for the M&E industry. With the expansion and advancement of technology, the issue has become a greater problem to gain control over, nearly to the extent that media piracy and copyright infringement have become ordinary practice. The M&E industry has not been able to fully monetize its content due to rampant piracy and copyright infringement. A 2008 report by Ernst & Young estimates industry losses due to piracy to be $4 billion per year in India. However, in recent years the industry has started to adopt cost-effective technologies to curb piracy but still media piracy has become a major problem for the film industry in more recent years, the internet age.

 
 

SWOT ANALYSIS OF M&E INDUSTRY

Strength
In the epoch of advanced & easy accessible technology, M&E seems to be strengthening the role of industry in the economy. Being a second largest populated country in the world India has scope of vast reach of customers. India, which accounts major section of population from middle & lower middle class, is growing to upper section of society. This paradigm shifting and change in life style of emerging population also playing a substantial role in the growth of M&E industry. Apart from this, intense competition with latest technologies from international corporations has reduce the price of components across the globe and in India with the availability of skilled & experienced labour the cost of production in domestic market has significantly came down over the years.

Weakness
The weakness of M&E industry is high fragmentation of market and due fragmentation the duplication of contents reduce the choice & dependability of customers. Industry also suffers a short of unified production & distribution infrastructure, particularly in the case of music industry. M&E industry is also facing the limitation due to lack of effort in the penetration of media, especially among lower middle section of the society.

Opportunities
The M&E industry has prospect to increase the presence in the poor section of society, this fragmented section of the society is very much untapped but having large chunk of population living in underdeveloped areas. The industry can expand the extent of their viewrship across the section. The M&E industry, which is one the highly regulated also, can get the advantage of deregulation that will help it to expand the network by escalating the new & improved distribution channels (such as HD) as per the taste & preferences of the populace.

Threats
M&E industry has always been running under the threat of Piracy and Copyright Infringement, Piracy & violation of intellectual property rights limits & damages the revenue of industry from the authorized contents suppliers. At the time of digitalization, the innovative & latest technological changes are taking place rapidly the customers are also looking for better quality contents at premium prices, so lack of quality contents & stay behind in the race of innovations are also one the major threats for the industry.


GROWTH DRIVERS OF M&E INDUSTRY IN INDIA

Digitalized Content Consumption Growth across Media…
Digitalization of technology continues to revolutionize media distribution be it the rapid growth of DTH and the promise of digital cable, or increased digitization of film exhibition and has enabled wider and cost effective reach across diverse and regional markets, and the development of targeted media content. There has been increased proliferation and consumption of digital media content be it newspapers and magazines, digital film prints, and online video and music or entirely new categories such as social media. As a result, online advertising spends have seen a spurt in growth vis-à-vis spends on traditional media.

Advertising Revenue Dependant Industry
The ARPU (Average Revenue Per User) for television, average newspaper cost for print and average ticket price for films continue to be low on account of hyper competition in these industries. Segments like radio and a significant portion of online content are available free of cost to consumers. Owing to this, the Indian consumer is still not used to paying for content and hence the industry players are sensitive to the impact of the slowdown that affects the budgets of advertisers.

Rise of New age Devices & Users adapting the Newer Technologies…
In the race of innovative & latest technological gadgets such as Smart phones, tablets, PCs, gaming devices, etc, all form the foundation of a new wave in media usage. This is gradually affecting the way content is being created and distributed as well. Multiple media including TV, films, news, radio, music etc are also being impacted with this change. The most interesting factor is that consumers are ready to use and adopt these new pioneering devices across the world. As Indian consumers evolve, there is a heightened need to engage them across platforms and experiences. There is a greater need for integration and innovation across traditional and new media, with changing media consumption habits and preferences for niche content. Media companies today have no choice but to provide more touch points to engage with audiences.

Regionalization
Regional television and print continued its strong growth trajectory owing to growth in incomes and consumption in the regional markets. National advertisers are looking at these markets as the next consumption hubs and the local advertisers are learning the benefits of marketing their products aggressively.

Awaited Regulatory Shifts & Media Policy Reforms…
Last but not the least, apart from the shifts in consumer preferences, company strategies and business models, one big change is awaited for the next growth wave that is implementation of recently enacted regulations on digitization for cable, implementation of Phase 3 expansion and copyright for Radio and the roll out of 4G. These shifts are expected to be game changers in terms of how business is being done currently and what could be the path going forward.


 
M&E Companies with Q2FY13 Results Performance & Key Financial Ratios
YoY Sales Growth (%)
QoQ Sales Growth (%)
YoY OP Growth (%)
QoQ OP Growth (%)
YoY PAT Growth (%)
QoQ PAT Growth (%)
Price as on 20.12.12
Price to Book Value
TTM PE
Industry PE
Market Cap (Rs cr)
Mcap/TTM Sales (x)
ROE (%)
ROCE (%)
ROA (%)
TV Broadcasting & Software Production
Eros International Media Ltd.
50.20
-9.19
32.58
-17.54
36.47
-13.89
207.75
2.58
14.2
29.42
1906.68
1.93
17.99
21.89
8.84
Siti Cable Network Ltd.
40.16
19.88
16.75
-50.62
22.29
-11.81
24.35
-10.13
0.0
29.42
1101.14
3.96
0.00
-6.86
-16.55
Den Networks Ltd.
31.52
2.70
141.44
-5.98
620.90
21.87
204.45
3.45
88.4
29.42
2740.12
5.59
1.07
3.65
0.73
Zee Entertainment Enterprises Ltd.
23.42
6.37
-34.73
-62.44
-42.67
-65.57
221.80
6.61
37.5
29.42
21156.13
8.87
16.60
24.89
13.86
Dish T V India Ltd.
9.98
2.56
18.25
0.06
-213.45
-270.45
78.70
-118.12
0.0
29.42
8379.31
4.05
0.00
1.55
-5.97
Entertainment Network (India) Ltd.
8.94
9.52
3.09
-6.04
14.04
-20.61
247.40
2.54
19.3
29.42
1179.37
3.79
13.72
19.36
10.60
Balaji Telefilms Ltd.
5.81
-3.07
-157.62
-71.63
449.53
-126.54
52.35
0.83
58.0
29.42
341.38
2.59
2.89
2.66
2.71
Sun TV Network Ltd.
-3.97
1.78
-9.97
1.87
-15.81
-7.70
424.65
5.88
26.0
29.42
16734.80
9.78
27.62
41.02
24.20
New Delhi Television Ltd.
-4.97
-5.41
19.96
5.84
42.52
-32.85
75.55
1.27
0.0
29.42
487.08
1.37
-4.45
0.72
-2.63
TV Today Network Ltd.
-4.98
-4.68
-195.58
-153.45
10669.41
2507.98
87.05
1.68
375.6
29.42
517.57
1.70
3.34
5.07
1.95
Zee News Ltd.
-14.36
0.94
6.62
165.06
291.55
1574.79
17.55
2.25
33.7
29.42
420.79
1.56
3.53
11.60
1.98
TV18 Broadcast Ltd.
-19.90
-16.40
-3.46
-35.85
-423.72
223.84
33.60
5.67
0.0
29.42
5751.18
9.86
1.27
7.90
0.68
Film Production, Distribution & Entertainment
Sahara One Media & Entertainment Ltd.
87.59
11.57
-97.27
-104.45
627.83
112.68
104.00
0.76
51.2
32.83
223.86
1.68
-0.08
1.43
-0.06
PVR Ltd.
37.78
11.39
23.88
3.46
21.92
87.47
285.75
2.33
50.6
32.83
826.09
1.45
10.02
11.39
5.13
Mukta Arts Ltd.
32.00
52.97
131.07
-50.70
-1811.11
-22.09
38.10
0.72
11.3
32.83
86.03
0.39
23.75
22.43
11.53
Prime Focus Ltd.
22.09
12.81
-17.59
-27.67
-125.24
-117.23
45.20
1.45
35.1
32.83
838.09
4.44
7.35
7.60
3.07
Inox Leisure Ltd.
20.00
15.95
22.99
29.22
4.51
73.22
84.20
1.52
39.8
32.83
521.16
1.14
3.18
5.55
1.66
Saregama India Ltd.
14.60
21.29
-40.12
4.14
65.15
-56.75
87.35
1.16
0.0
32.83
152.01
0.97
-1.08
6.38
-0.52
Fame India Ltd
12.69
16.64
46.52
62.36
1110.53
-285.48
50.00
1.71
0.0
32.83
276.50
1.24
-9.69
-1.37
-4.72
JMD Telefilms Inds. Ltd.
-0.54
17.05
32.26
-20.13
6.60
-24.09
13.82
2.62
126.9
32.83
99.71
0.40
5.19
7.07
1.88
Nouveau Global Ventures Ltd.
-18.65
-16.35
-2.25
8.96
8.43
7.82
4.83
1.91
154.2
32.83
89.61
0.43
1.56
2.46
0.38
DQ Entertainment (International) Ltd.
-27.06
83.78
-73.80
-253.84
-118.70
-48.91
19.45
0.44
39.0
32.83
154.21
0.85
7.73
10.95
5.32
Cinemax Properties Ltd.
-93.14
7.89
-72.99
5.06
-74.69
14.15
16.60
0.66
0.0
32.83
46.48
0.36
0.64
3.39
0.27
Printing And Publishing
Navneet Publications (India) Ltd.
26.61
-60.74
51.40
-77.21
27.98
-79.48
67.00
3.42
16.4
14.87
1596.04
2.28
22.29
28.04
15.36
Repro India Ltd.
20.82
7.95
23.92
10.42
-3.55
0.49
216.75
1.30
6.5
14.87
235.96
0.64
23.72
14.76
9.23
Sandesh Ltd.
18.73
6.91
45.52
9.56
69.33
-37.69
272.00
0.63
4.2
14.87
232.00
0.96
12.44
18.73
7.89
Orient Press Ltd.
12.81
12.66
20.25
-9.04
-68.76
-28.27
137.50
1.78
11.5
14.87
111.03
0.67
28.49
20.01
13.33
HT Media Ltd.
6.95
7.38
-21.34
-27.23
-5.30
-8.24
99.85
1.70
16.5
14.87
2346.69
1.79
12.89
16.08
7.63
Jagran Prakashan Ltd.
5.69
1.15
19.81
-0.82
51.68
24.58
102.40
3.70
15.5
14.87
3238.58
2.60
24.75
27.73
10.90
MPS Ltd.
5.14
7.97
94.44
51.76
273.09
119.70
124.80
2.78
9.7
14.87
209.95
1.31
15.81
20.56
9.46
Hindustan Media Ventures Ltd.
4.84
-0.36
-8.17
9.93
-2.30
12.05
147.00
2.27
16.5
14.87
1078.89
1.78
16.08
22.11
11.73
DB Corp Ltd.
4.42
-0.35
17.17
5.54
21.80
9.85
222.50
3.86
20.4
14.87
4079.56
2.92
23.07
28.43
11.61

Source: ACE Equity
 
 

Outlook
In India there are 12,000 cinemas, which is available only 12 for every million residents, compared to 117 per million in the US. Even after the landmark deregulation of the radio industry last year, which saw the government award more than 300 new licenses. India now has about 20 FM radio stations compared with 6,000 in the US. All this amounts to huge possibilities for future growth. Meanwhile, the government's decision of 74% FDI in broadcasting will introduce parity among the three platforms of HITS, DTH and cable TV. India is estimated to have about 106 million households with cable and satellite TV. Some 26 million use DTH and 80 million receive feed from cable networks. Digitizing these homes would require an overall investment of over $20 billion, a major portion of which can now be raised from foreign investors. All these platforms are capital-intensive and only people with deep pockets and a long-term interest are capable of investing. Besides, given the fact that digital addressable system (DAS) is round the corner, a lot of investment needs to go to digitizing the existing network, seeding the set-top boxes (STBs) and getting back-end systems and processes up and ready. A lot of action is expected in the coming few months as foreign players have been waiting for long for this policy regime.

More to the points above, the higher limit for FDI in broadcast is a welcome step, in the right direction, and much anticipated. This will help step up the process of digitization where investments by the cable industry are required. This timely announcement will likely enable the TV distribution industry, which has meet the deadline in the Oct ended quarter for mandatory digitisation in the four metros, further in the phase II, Information and Broadcasting ministry has planned for the implementation digitization of cable network in 38 cities that come under phase II. Apart from this, uniformity in the 74% FDI limit across sub-sectors like DTH, cable and HITS is a commendable step, given that we are now in the era of convergence. Meanwhile, third phase of FM radio expansion is expected to boost the confidence of both investors and existing FM radio companies as it envisages the rollout of 806 FM stations across 237 towns. Therefore, the the outlook of the media and entertainment industry in the coming year is seems to be positive and ample opportunity are there for existing and new entrant in the sector.

 

NAME
DESIGNATION
E-MAIL
Varun Gupta
Head - Research
Pashupati Nath Jha
Research Analyst
Vikram Singh
Research Analyst
 
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