Analysis of Media and Entertainment Industry

Analysis of
Media and Entertainment

Industry
Table of Contents
Industry characteristics Television
Newspapers
Films
Radio and music
Key Industry Trends
Revenues Outlook
Distribution
Television
Films
Music
Newspapers
Analysis on Profitability
Table Contents
Advertising-internet advertising
Advertising-outdoor advertising
Advertising-regionalization
Digitisation
Project economics-newspaper edition launch
Fm phase 3-background
Fm phase 1,2 and 3
Fm phase 3-feasibility analysis
Multiplex-background
Multiplex-key players
Multiplex-feasibility analysis
Digitization to alter television distribution landscape
Industry
characteristics-television
Television
Introduction
The Indian television industry has come a long way since the launch of
STAR TV and Zee TV in 1992. India, with around 141 million TV
households as of December 2011, is now one of the argest television
markets in the world alongwith China and USA.
There are 831 registered channels (as of March 2012), including 168 pay
channels.
The total Indian television industry revenues stood at around Rs 346
billion in 2011 over Rs 315 billion in the previous year due to a
continued rise witnessed in the advertising revenues.
Television
Introduction
This rise in revenues was due to Cable and Satellite(C&S) penetration
which reached close to 80 per cent in 2011 with a healthy growth shown
by the DTH platform during the year.
Television has the widest reach amongst the primary media delivery
channels.
Key listed players in the category include Balaji Telefilms Ltd, Den
Networks, Dish TV India Ltd, Hathway Cable & Datacom, Network 18
Ltd, New Delhi Television Ltd, Sahara One Media and Entertainment
Ltd, Sun TV Network Ltd, TV Today Network Ltd, Wire and Wireless
India Ltd, Zee Entertainment Enterprises Ltd and Zee News Ltd.
Industry structure and characteristics

The television value chain mainly comprises of the content providers,
broadcasters and the distributors.
Television content providers:
Television content providers supply content either on a commissioned
or on a sponsored basis (explanation below under 'types of television
content').
As their importance is associated with the exclusivity of the content as
well as the reputation of the content house, some of these providers
produce some/all of the content themselves.
Television broadcasters:
Television broadcasters uplink the content supplied by the content
providers to a satellite for broadcasting into TV homes.
There is intense competition amongst the broadcasters due to the low
entry barriers in this space and the large number of options available to
the viewer.
Their current share in the television subscription revenues is around 15
per cent which is expected to increase, once the benefits of digitisation
kick in.

Television distributors:
The television distributor is a link between the broadcasters and the
end consumer.
There are around 5,000 MSOs and 60,000 LCOs in the Indian market.
This is a highly fragmented and unorganised chain.
Further, lack of addressable systems lead to massive under reporting of
the subscribers at the LCO level.
MSOs, control a number of LCOs and act as a link between the LCOs
and broadcasters.
Currently, in a largely analogue environment, carriage and placement
fee received from broadcasters constitutes a substantial part of the
revenues earned by the MSO (40-75 per cent) since LCOs retain a
majority share of the subscription revenues by under-declaring
subscribers.
Hence, the current share of MSOs in subscription revenues remains
lesser.

Subscribers:
There are around 111 million Cable and satellite subscribers in the
country who pay Rs 100-400 per month towards the subscription
charges depending upon the location.
These subscribers often do not have a choice in terms of subscription
mainly due to the monopoly enjoyed by the local cable operators in their
respective areas of operations.
However, this situation is gradually changing with the increasing
acceptance of digital viewing platforms, particularly DTH.
On the cable side too, a shift to digital cable is imminent with the
digitisation deadline mandated by the I&B Ministry.
Television value chain
Television content
Low entry barriers in general entertainment
The television content business, especially general entertainment
programming, is characterised by the presence of large number of
content houses and low entry barriers.
Competition and entry barriers are relatively higher in case of niche
content, where exclusivity and intellectual property rights (IPRs) are
involved (e.g., cricket matches)
Types of television content

Commissioned programmes:
The broadcaster commissions a television content producer to produce
a program in return for a telecast fee. In most cases, the broadcaster
retains the IPRs for the programme.
The broadcaster earns revenue by selling airtime to the advertiser.
The content producer typically works on a cost plus margin basis.
Thus, the broadcaster bears the financial risk, while the television
content producers bear the execution risk.
Types of television content

Sponsored programmes:
The content producer buys a slot from the broadcaster for telecasting a
programme by paying a telecast fee.
Along with the slot, the producer also gets some free commercial
airtime, which typically ranges between 5-7 minutes for a half hour slot.
The content producer usually retains the IPR for the programme.
The excess/deficit of revenue earned from selling commercial airtime
to advertisers over the telecast fee, production cost of the programme
and any other related cost represents the profit/loss to the producer.
The content producer thus bears the financial as well as the execution
risk in this model.
Television broadcasting
Segmentation of the broadcasting industry
The Indian broadcasting industry can be segmented into two categories:
Terrestrial broadcasting refers to broadcast done through transmitters
and received through antennas.
The government-owned Prasar Bharti Corporation is the only
terrestrial television broadcaster in India which operates channels in
Hindi, English and several other regional languages under the umbrella
brand 'Doordarshan', which is available free of cost.
Satellite broadcasting:
Cable and satellite (C&S) broadcasting refers to broadcast through a
satellite transponder. Equipment required for reception of television
signals include dish antennae, amplifiers, modulators and decoders.
C&S channels can be further categorised into the following segments general entertainment (GEC), regional, movie, news, sports, educational
and spiritual.
Several Doordarshan channels are available only through the C&S
broadcasting mode.
C&S channels are either free-to-air (FTA) or pay channels.
Broadcasters struggle for placement of channels in analogue

transmission
A number of new channels are being launched every year.
Analogue television sets can carry only between 80 to 100 channels
which prompts the broadcasters to pay a fee (called carriage and
placement fee) to the multi-system operators and DTH operators.
The carriage fee is merely to carry the channel while the placement fee
would be to place their channels on the prime viewing bands.
In terms of quality of reception, Prime and colour bands are the best
followed by S-band, hyper band and UHF band.
Choked analogue networks have made carriage fee payment an

accepted practice
Most cable television networks in India transmit channels in the
analogue mode through a combination of fibre optic and coaxialcables.
Analogue television networks have limitations with respect to the
number of channels that can be carried given the bandwidth available a maximum of 106 channels can be shown on an 860 MHz bandwidth.
The ever- increasing number of channels coupled with limited space
availability has resulted in cable networks getting choked.
Television: Cable Network Capacity & number of channels that can

be provided

be provided
Digitalisation overcomes the bandwidth constraints of analogue
networks and offers better clarity.
With digitalisation, it is possible to offer a minimum of 6 digital
channels in a bandwidth occupied by a single analogue channel.
Therefore, theoretically, if all analogue channels were converted to
digital, an 860 MHz cable network would be able to offer up anywhere
from 700 to 1,100 digital channels.
Owing to prevailing constraints, there is intense competition amongst
broadcasters to carry their channels on preferred bands and
consequently, get better visibility.

be provided
In order to ensure that their channels are carried, broadcasters pay a
carriage fee to MSOs and cable operators.
In many cases, a placement fee is also paid to place a channel in an
easy-to-catch frequency and competing channels on hard-to-catch
frequencies.
In a way, payment of a placement fee for cable distribution is
somewhat comparable to paying retailers for shelf space to display
consumer products.
However, the element of carriage & placement (particularly placement)
is expected to reduce, once digitisation is implemented as per the
stipulated timelines and the benefits start to accrue.
Revenue streams for broadcasters

Television broadcasters draw their revenues from two main sources,
viz., advertising revenue (revenues earned through the sale of time slots
during programmes) and subscription revenue (proceeds collected from
subscriber households that distributors pass on to the broadcasters).
Television broadcasters also earn income from content syndication and
international distribution of channels.
However, these revenue streams constitute a relatively small
proportion of overall revenues.
Pay channels earn almost their entire revenues from advertising and
subscription charges.
FTA channels, on the other hand, do not earn any income from
subscription charges, and hence rely on advertising only for their
revenues.
Programming genres available

The content transmitted into Indian homes belongs to diverse genres.
General entertainment content catering to undifferentiated audiences,
such as Doordarshan, Star Plus, Colors, Zee TV and Sony Entertainment
Television in Hindi and Sun & Asianet among regional languages
attract the maximum viewership.
The remaining share of viewership is split across myriad content
(ranging from general news and business news to films, music,
children's entertainment, education and spiritual) targeted at specific
audiences.
News and movie channels enjoy higher viewership than other
channels; however, niche channels also draw significant viewership
across specific socio-economic groups.
Television broadcasting: Different genres and key players
Television distribution
Broadcasters, MSOs / DTH operators and LCOs form the television
distribution value chain
The television distribution value chain consists of three main players:
Broadcasters, who uplink the content provided by content providers to
the satellite
Multi-system operators (MSOs) or their franchisees, who downlink
satellite signals and feed the signals into receivers, in case of a FTA
channel OR integrated receivers and decoders (IRDs), in case of a pay
channel (In case of DTH, the DTH operator plays a role similar to an
MSO, though the content is then beamed directly to the customer's
premises)
Local cable operators (LCOs), who control the hybrid fibre coaxial
cables that transmit television signals, modulate the output from the
receivers or IRDs and bring the signals to the customer's premises.
Television delivery mechanism
Emergence of new delivery platforms changing the balance of power

Increasing adoption of addressable distribution platforms like DTH,
digital cable and IPTV will result in a shift in the balance of power in
the distribution space.
Currently, the LCOs wield enormous clout by virtue of their control
over the last mile and the monopoly enjoyed by them.
The emergence of competition would reduce the bargaining power of
the LCOs.
MSOs and consequently the LCOs to majorly digitise their networks
over time, ultimately leading to a more organised distribution market
and a greater share of subscription revenues for broadcasters.
Television: Comparison of various delivery media from the

subscriber's point of view
Television: Comparison of various delivery media from the

subscriber's point of view
Television revenues and advantages

The television advertising market in India has grown rapidly on the
back of increasing television viewership and the number of channels.
While advertising revenues grew by 12 per cent y-o-y to Rs 125 billion
in 2011, subscription revenues grew by 9 per cent y-o-y to Rs 221 billion
during the year.
The advantage enjoyed by television, over other advertising media
such as print and radio, is that television has better audio-visual appeal
and is extremely effective to reach out to large audiences on a cost and
reach basis.
Fast moving consumer goods (FMCG) players are the largest
advertisers on television.
The television industry is expected to grow by around 6 to 8 per cent
in 2012, aided by increasing digital penetration though advertising
growth would be muted, owing to the subdued macro-economic
environment.
Industry
characteristics-newspapers
Newspapers
Introduction
India, along with China, is one of the largest newspaper markets in the
world where readership is growing despite increasing threat from the
internet.
While 62 million copies were circulated on a daily basis in 2011, the
readership increased by 4 per cent y-o-y to 250 million.
The newspaper industry size was estimated to be around Rs 169 billion
in 2011 and expects it to grow by about 6 to 8 per cent in 2012.
The key players in this industry include Bennett Coleman and
Company Ltd (BCCL), Jagran Prakashan, DB Corp, HT Media and
Amar Ujala.

Highly Fragmented industry
The Indian newspaper industry is characterised by extreme
fragmentation and regional diversity.
With over 2,000 daily newspapers in the country, no single newspaper
dominates national circulation.
Out of the total daily newspapers published, around 90 per cent are
Hindi and other vernacular language newspapers, while the rest are in
English.
The newspaper industry can be segmented across languages i.e.
English, Hindi and other vernacular languages or across genres i.e.
general and business.
The content and circulation of English language newspapers are largely
focused on the large urban markets.
Hindi and other regional newspapers have a more local and regional
focus compared to English newspapers and cater mainly to readers in
smaller towns and villages.
Newspaper: Publication and region of dominance
Regional newspapers have a higher readership-to-circulation ratio

Circulation deals with number of newspapers sold whereas readership
consists of people who have read or looked at a publication in its
periodicity (that is, the day before for a daily).
Generally, Hindi and regional language newspapers have a readership
to circulation multiple of 4-6 times, whereas English language
newspapers have a multiple of 2-3 times.
The higher readership-to-circulation ratio of Hindi and vernacular
newspapers in comparison with English language newspapers canbe
attributed to the following reasons:
Regional newspapers have a higher readership-to-circulation ratio

Historically, the cover price of non-English newspapers has always
been higher than English newspapers.
However, this trend is witnessing a change recently with new
Hindi/vernacular editions being launched at at a low cover price, in
order to garner a large circulation base.
The rise in literacy rates, increasing demand for region-specific content,
and expansion by players into new languages and geographies (Tier-2
and Tier-3 cities) to further enhance readership.
The average reader of a non-English newspaper belongs to a lower
income group than that of English newspapers.
Hence, the tendency of sharing the newspaper among family members
and other members of the community is stronger in case of non-English
newspaper readers.
Supply chain for newspapers

Newspaper publishers in India are yet to be affected by the worldwide
proliferation of the internet.
Newspapers, in physical form, continue to record healthy circulation
growth.
News is a highly perishable product and newspaper sales involve
distributing under severe time constraints.
If a subscriber does not get his daily dose of news in time, he is most
likely to switch over to competitors.
Therefore, having an efficient and responsive distribution network
focused on achieving on-time delivery is of utmost importance in the
newspaper publishing industry.
Distribution process
Distribution process
There are three main players in the newspaper supply chain - the
newspaper publisher, distributor and vendors.
Once a newspaper is published, it gets despatched to various
distributors across a region, either through private carriers within the
local area or public transport/couriers in case of longer distances.
The distributors in turn appoint agents/hawkers/vendors who deliver
newspapers at the door step of the subscribers or sell newspapers at
their stands.
Newspaper publishing companies pay a commission for the
distribution of the newspaper, which is usually around 30-35 per cent of
the selling price of the newspaper, which is shared amongst the
distributors and the vendors appointed.
Generally, the vendors, the last link in the supply chain, get the highest
commission.
Newspaper revenues
Newspapers earn their revenues from two primary sources - the sale of
advertising space in publications (referred to as advertising revenues)
and sale of newspapers (referred to as circulation revenues).
Newspaper publishing companies report advertising revenues as net
of commission charged by advertising agencies (usually around 15 per
cent) and circulation revenues as net of commission paid to distributors,
agents and vendors.
Circulation revenues earned by a newspaper are a function of the

following factors:
Price, brand strength and distribution muscle of the newspaper

Intensity of competition among newspapers in a market
Quality, relevance and credibility of content
Advertising revenues earned by newspaper publishers are dependent

upon the following factors:
Readership reach (used by media buyers to determine cost per

thousand readers) and profile.
Geographical coverage and positioning of the newspaper Advertising
mix (advertisement revenues are earned from classifieds, displays,
cinema and entertainment, appointments, matrimonials etc.) and level
of advertising in the newspaper.
Advertising revenues drive the newspaper industry

The newspaper industry grew at 7 per cent in 2011. While advertising
revenues, which are a direct play on overall macro-economic
environment, grew at 7 per cent, circulation revenues grew at a slightly
lesser 6 per cent.
We expect the overall newspaper revenues to increase to around Rs 181
billion in 2012, with continued support from advertising revenues,
which are estimated to grow on the back of events such as the IPL and
the Assembly elections in a few states.
All newspapers heavily dependent upon advertising revenues

Advertising revenues are currently estimated to account for around 70
per cent of the total revenues earned by the newspaper publishing
industry, while most of the remaining comes from circulation.
English newspapers garner the larger chunk of corporate advertising
spends, despite lower circulation numbers as compared to regional
newspapers.
English newspaper readers are considered to be from the higher
income bracket and have better purchasing power than Hindi or
vernacular newspapers; hence, advertisers channel a larger portion of
their advertising spends through English newspapers.
However, this trend is witnessing a change lately, with more of the
advertising spends being directed towards Hindi and vernacular
newspapers.
The recent slowdown in advertising (particularly national advertisers)
has had a comparatively lesser impact on non-English papers, since
they have been able to garner more of the local / regional advertising
pie.
Advantages of print media

Lengthy, complex or detailed information and descriptions can be
communicated through advertisements in print media
Readers have the option to refer back to newspaper advertisements,
which is not possible in any other media
Readers have the freedom to read a newspaper at a time and place
convenient to him/her, which may not be possible in other media.
Films
Introduction
The Indian film industry is the second largest in the world in film production and theatrical
admissions.
The size of the Indian films industry was estimated to be around 112 billion for the year ended
2011, which is nevertheless very small as compared to the other countries in the world.
The two key reasons for the small size of the market are cheaper admission prices and
comparatively low occupancy levels at theatres.
Domestic theatrical revenues contributed to about 73 per cent of the total film revenues
(excluding advertisement) during the year.
The average ticket prices in the industry increased by around 9 per cent y-o-y to Rs 35 in 2011
from Rs 32 a year ago.
The key listed players in the film industry include Reliance Mediaworks Ltd, Eros International
Media Ltd, Cinemax India Ltd, Inox Leisure Ltd, PVR Ltd, Mukta Arts and Shree Ashtavinayak
Cine Vision Ltd
Disadvantages of print media

Viewers tend to switch television channels during commercials, which
they cannot in the case of print.
Viewers have access to multiple channels on television, whereas
newspaper readers read only selected newspapers.
The popularity of print media as an advertising medium has always
been challenged by television.
Now, radio and internet are also establishing themselves as credible
advertising platforms with a wide reach and are gradually eating into
the print media advertising pie.
While the larger newspapers may not be impacted much by this
development over the medium term owing to their wide reach, smaller
players would face challenges in continuing to garner sizeable
advertising revenues.
Industry
characteristics-films
Films
Introduction
The Indian film industry is the second largest in the world in film
production and theatrical admissions.
The size of the Indian films industry was estimated to be around 112
billion for the year ended 2011, which is nevertheless very small as
compared to the other countries in the world.
The two key reasons for the small size of the market are cheaper
admission prices and comparatively low occupancy levels at theatres.
Domestic theatrical revenues contributed to about 73 per cent of the
total film revenues (excluding advertisement) during the year.
The average ticket prices in the industry increased by around 9 per cent
y-o-y to Rs 35 in 2011 from Rs 32 a year ago.
The key listed players in the film industry include Reliance
Mediaworks Ltd, Eros International Media Ltd, Cinemax India Ltd, Inox
Leisure Ltd, PVR Ltd, Mukta Arts and Shree Ashtavinayak Cine Vision
Ltd

Theatrical revenues largely drive the film industry growth, though
share to reduce
The Indian films industry derived almost 73 per cent of its revenues
from domestic box office ticket sales in 2011.
While the cable and satellite rights witnessed a rise in revenues owing
to increasing demand from the broadcasters, revenue share from the
home video segment declined during the year on account of rising
levels of piracy.
Revenue share of the Indian Film industry
Revenue share of the Indian Film industry
This is in contrast to the US film industry, which earns around 35 per

cent of its revenues from box office sales and the remaining 65 per cent
from sales of DVDs and VCDs and C&S and satellite television rights.
However, with new sources of revenues such as wireless and internet
downloads coming in, rapid digitisation and technological
advancement, the industry is expected to leverage these technological
innovations to monetize films on alternate screens, thereby bringing
down the share of theatrical revenues.
Film industry value chain
Therearethreemainplayersinthefilmindustryval
u e c h a i n :- P r o d u c e r ,
- Distributor,and
- Exhibitor.
Film production
The producer decides to make a film and subsequently, arranges for
the shooting, editing and dubbing of the film and finally, delivering the
film to the audience. Producers get a minimum guarantee fee from
distributors before a film is released in return for distributing rights of a
film in a territory or several territories within the country.
Producers with an expectation that their film has the potential to do
well overseas, sell rights for the international distribution of their films
as well.
After a film does well and the distributor has recovered his investment,
any additional inflows usually get divided between the two in
accordance with pre-defined arrangements.
Lately, many producers have entered into revenue-sharing
arrangements with distributors.
Producers finance their films either through internal accruals, bank
finance, private financiers, or through equity. In some cases, cost of the
film is raised by selling the rights upfront to distributors.
In some cases, producers can recover a substantial part of the cost of
the film by pre-selling it to distributors.
Film production process
Multiple revenue streams safeguard film revenues

Producers are turning to alternate revenue streams to augment and
safeguard their returns from films. Following are a few of the
manyopportunitiesexploredbytheproducerscurr
e n t l y :- T h e a t r i c a l e x h i b i t i o n
- Overseasrights
- Cable&Satellitetelecastrights
- Musicrights
- In-filmadvertising
- Digitalrights(internetrights,ringtonedownloa
ds)
- Homevideorights
- Merchandising
Revenue stream for a film producer
Revenue stream for a film producer

These alternate revenue streams bolster the revenues generated by a
film and go on to reduce the risk associated with returns.
With other sources of revenue streams increasingly contributing to the
producer's kitty and finance being available from organised sources,
production has become more organised.
However, producers still have to grapple with three main risks:
Completion risk:Producers face the risk of not completing the film due
to various factors including running out of funds, failure to retain talent
etc.
Time and cost overruns:Not completing the film in the scheduled time
could lead to cost overruns which would negatively affect the
producer's margins.
Changing audience preference:Risks associated with the changing
audience tastes and preferences over the course of the production
process is inherent in films.
The distributor's perception of audience preferences also influences the
acquiring price for a film.
Institutional lending to the film industry

Banks like EXIM Bank, Yes Bank and IDBI Bank are the more active
film financiers in the country in the disbursal of loans for the movie
making process.
A few of the financial institutions also undertake 'slate funding',
committing to finance multiple films of a certain production house.
As per the Reserve bank of India (RBI) guidelines, banks can take
exposure of up to a maximum of 50 per cent of the total production cost
of a film.
Also, the film for which the loan is sought must be insured. Hence, film
producers are increasingly getting their films insured.
The first film to be insured in India was Taal (1999). Since then a
number of films have been insured.
Film insurance generally covers death or injury to actors, damage to
sets, costumes, film equipment and theft.
The premium charged for insurance is generally 1.0-1.5 per cent of the
total budget of the film.
Film distribution
Film distributors buy theatrical distribution rights from a producer for
distributing the films within a territory or across several territories.
The distribution rights are normally purchased for a period of 3 years.
In return, they offer a minimum guarantee fee to the producer.
In some cases, the distributors purchase the distribution rights well in
advance of the release of the film while in most cases lately, the same is
on a revenue-share basis with the producer.
There is no scientific basis for the determination of the amount payable
towards distribution rights; this poses a huge risk in case a film does not
do well at the box office.
Distributors play various roles including part financing of films,
spending on print and publicising the film, selection of exhibition halls
and managing the distribution of the film prints.
Distributors in India are rarely involved at the pre-production or
production stage and they get to see a film only after it is completed.
Film distribution process
Film distribution highly fragmented
The distribution segment of the films industry is highly fragmented

with a majority of distributors having only a limited presence.
Therefore, for theatrical distribution of a film throughout the country,
producers need to typically tie up with a number of distributors.
Some of the largest film distributors in India are Yash Raj Films, Sun
Pictures, Eros Entertainment, Mukta Arts and Reliance Mediaworks
Distribution of revenues between distributors and producers

There are three models followed for the distribution of revenues
between distributors and producers:
Minimum guarantee plus royalty model:In this model, the distributor
shares any overflow of revenues over the minimum guarantee fees,
print and publicity costs and his commission with the producer in a predetermined ratio.
However, in case, the distributor does not earn any overflow i.e. the
revenues earned by him are lower than his costs; he has to bear the
entire loss.
This model is most commonly followed in case of films produced by
established producers and big banner production houses.
The overflow money, if any, is generally shared in in a pre-agreed ratio
between the producer and the distributor.
Distribution of revenues between distributors and producers

Commission model: The distributor does not bear any risk in this
model.
He simply retains a commission on the total amount collected from the
exhibitor and remits the rest to the producer.
With film distributors losing heavily in recent years due to the poor
performance of films at the box office, the commission model is
increasingly gaining acceptance and being adopted by distributors,
especially for small budget films.
Outright sale model:The distributor purchases the entire rights for a
territory or several territories from the producer.
In this model, the distributor bears the entire upside and downside
arising from the outright purchase of rights.
Some film production houses (for example, Yash Raj Films) usually
distribute their films on their own. In such a case, while the risks are
higher, the gains are also higher.
Revenue stream for a film distributor
Film exhibition
Exhibitors, link between the film distributors and the audience, control
the last mile in the box office value chain i.e. the theatre.
Initially, the theatre hire model was the most commonly followed
model, wherein the distributors had to bear the burden of the theatre
rentals irrespective of whether a film ran or not.
In the changing scenario today, revenues collected at the box office get
shared between the theatre owners and the distributors, especially in the
case of multiplexes.
In some small cities, where revenue recording mechanisms are suspect,
distributors preferably enter into fixed hire or minimum guarantee plus
royalty contracts with the exhibitors.
Revenue streams for a film exhibitor
Segmentation of film exhibition

The film exhibition sector can be divided into two segments - single,
double screen cinemas and multiplex cinemas (a movie theatre complex
with multiple screens, typically 3 or more).
Approximately 80 to 85 per cent of the cinema screens spread over the
country are single screen cinemas owned by individual entrepreneurs,
operating in an unorganised environment.
However, the scenario isfast changing with the ushering in of the
multiplexes.
The number of multiplex screens increased to 1,250 in 2011 over 1050
screens in 2010, which constitutes around 15 per cent of the total screens
running in the country.
Multiplex cinemas gaining ground

Multiplex cinemas are fast changing the manner in which movies are
viewed, particularly in big cities. Historically, most movie theatres in
India were set up as single screen theatres with large seating capacities
which vary in the range of 750-1500 seats per screen. However, lack of
investments in maintaining and upgrading facilities at the single screen
theatres resulted in their poor condition which meant a deterrent to the
family audiences.
On the other hand, multiplex cinemas characterised by their limited
seating capacity of about 250-400 seats per screen, good ambience,
quality viewing with high-end sound systems, comfortable seating
arrangements, excellent service as well as good quality food &
beverages have succeeded in attracting family audiences back to the
theatres.
Watching movies in the movie theatre has once again become a highly
preferred source of family entertainment.
Multiplex business mode
Multiplex business mode

Several governments have been announcing policies offering
entertainment tax benefits to multiplexes.
These exemptions, along with consumer demand for multiplexes, have
led to increased investments in multiplexes and have encouraged single
screen owners to convert to multiplexes.
Major players operating/managing multiplexes include Reliance
Mediaworks Ltd.(BIG Cinemas), PVR Cinemas, Inox Leisure, Fame
India Ltd, Cinemax, ECity Entertainment, Wave Cinemas and DT
Cinemas.
Multiplexes, with their superior infrastructure offer significant
economic advantages over traditional single/double screen theatres and
also provide enhanced movie viewing experience to the consumers.
An increase in the number of Multiplex screens should result in an
increase in film exhibition revenues implying a significant growth
opportunity for the industry.
Comparison of multiplexes and single/double screens
Multiplexes to be key growth driver for the film industry

Revenue earning potential is fully exploited:Multiplex cinemas can
shift a movie across various screens depending upon the response to the
movie.
For example, multiplexes often screen a movie in multiple screens in the
first week of its release;
the movie is then shifted to the screen with the largest capacity and
subsequently to smaller capacity screens.
In this manner, the revenue earning potential of a movie can be fully
exploited.
Higher occupancy rates and better realisations:Multiplex cinemas score
over single screen cinemas in terms of occupancy and realisations.
The average occupancy of multiplexes is estimated to be between 30-35
per cent, while that of single screen cinemas ranges between 20 - 25 per
cent.
Multiplex ticket prices are also much higher than single screen tickets.
Multiplexes to be key growth driver for the film industry

Sharing of costs reduces the overhead costs, improving
profitability:All the screens of a multiplex equally share its facilities
such as ticketing window, food and beverages outlets and manpower.
This, consequently, results in lower overheard costs and thereby,
improved profitability.
Diversified revenue stream:Multiplexes have a diversified revenue
model; they earn around 65-67 per cent of their revenues from the sale
of tickets, 15-22 per cent from food and beverages and the rest from
advertising, sponsorship and renting out retail space. On the other
hand, single screen cinemas earn almost all of their revenues from the
sale of movie tickets alone.
Multiplexes beneficial to every stakeholder across the value chain

Consumers:The movie watching experience is much better in a
multiplex than in single screen cinemas with a wider option of movies
to choose from. It also provides enhanced movie viewing experience to
the consumers.
Exhibitors:As stated earlier, average occupancy as well as realisations
in multiplexes are higher than in single screen cinemas.
Multiplex theatre owners also enjoy the flexibility to exploit the
commercial value of a movie in a better manner.
Distributor:All the sales are reported in a multiplex given its
computerised ticketing system leaving little scope for any revenue
leakage on account of under reporting of actual revenues.
Distributors stand to gain through multiplexes, as their returns would
increase when higher collections are reported.
Producers:Higher revenue collections would translate into better
returns for the producer as well.
Multiplexes also provide producers with increased scope for
producing niche and low-budget films.
Distribution of revenues between exhibitors and distributors

Theatre hire model: In this model, the distributor bears the entire risk
of the box office performance of a film.
The exhibitor retains a fixed pre-determined amount of the entire box
office collections (net of entertainment tax and other local body levies)
and passes on the balance to the distributor.
Fixed hire model: This model is the opposite of the theatre hire model.
Herein, the distributor receives a fixed amount from the exhibitor,
irrespective of the fate of the film at the box office.
Thus, the exhibitor bears the entire risk of the box office performance of
the film.
This model is prevalent mainly in case of small-budget films with lowkey promotions, which the exhibitor may otherwise refrain from
exhibiting owing to the lack of a substantial audience.
Minimum guarantee plus royalty model: The exhibitor pays a
minimum guaranteed amount, usually per week, to the distributor.
Net box office collections in excess of the minimum guaranteed amount
are shared between the distributor and exhibitor in a pre-determined
ratio.. If the box office collections turn out to be lower than the
minimum guaranteed amount, the exhibitor bears the losses.
Distribution of revenues between exhibitors and distributors

Revenue share model:
In this model, the net box office collections (after deducting
entertainment taxes and local levies) are shared between the producer
and the exhibitor in a pre-determined ratio. Thus, the risk of box office
performance of the film is shared by both the producer as well
as the exhibitor. The ratio in which exhibitors share net box office
collections with distributors keeps varying from time to time. This
model is widely followed considering that the risks are shared almost
equally between the exhibitor and the distributor in this case.
Currently, revenue-sharing between the exhibitors and the producers /
distributors is on a case-to-case basis, as the arrangement
specified in 2009 ceased to exist since June 2011. The new sharing
method generally gives a large portion of ticket collections to
producers and distributors, with a higher dependence on the
performance of the film at the box office in multiplexes.
Industry
characteristics-radio
and music
Radio
Introduction
Radio is the most local and one of the cheapest modes of media
entertainment.
The state broadcaster, All India Radio (AIR), reaches most of the Indian
population.
A set of new players entered the sector with the implementation of the
second phase of FM radio privatisation.
Implementation of phase III licensing policy shall further extend reach
and is also expected to improve the revenues of the industry.
Radio broadcasting: Brief history
Migration to revenue-sharing regime leads to higher levels of

penetration
The plight of players in the FM radio broadcasting space prior to 2005
was similar to that of operators in the mobile services business prior to
the implementation of the National Telecom Policy, 1999.
There were only seven players providing FM radio services across 12
cities who were struggling to stay afloat given the high fixed licence fee
payments.
The sector received a fillip after the government announced Phase II of
FM radio privatisation, throwing open 338 frequencies across 91 cities to
private players.
More importantly, it shifted from a fixed fee to a revenue-share-based
licensing regime.
The government also allowed foreign investment of upto 20 per cent in
radio broadcasting companies, which was previously not allowed.
Further, Phase III licensing for 839 frequencies, covering a total of 294
cities has been announced and is expected to boost the revenues of the
industry
FM radio broadcasting: Key players and number of stations (as at

March 2012)
Radio advertising versus other media advertising

Cost effective medium of advertising
Radio is a cost-effective advertising medium where the audience is
considered to be more focussed as compared to other mass media.
Radio is a useful means of communication with illiterate consumers. It
can be an excellent complementary medium to television and print.
For local advertisers, radio is a boon, as it enables them to reach out to
their target markets in a highly cost-effective manner.
Advertisers can, at least theoretically, make different ad campaigns to
suit different cities, different times of the day and different brand
objectives.
Low content costs as compared to television
Unlike television, radio does not require any original content to be

commissioned and broadcasted.
Music is the biggest content broadcast on radio.
For playing music on their stations, radio broadcasting companies pay
a royalty to music companies or music industry associations.
Different prime time compared to television
The prime time for radio listenership differs from the prime time for
television viewing.
People usually listen to radio in the morning, afternoon or late at night,
while television viewership reaches its peak during the night slot.
Need for robust measurement system

With the number of operational private FM stations increasing and the
share of advertising spends directed at radio slated to increase, there is a
growing need for establishing a reliable and robust radio listenership
system.
TAM Media and Indian Listenership Track (ILT) from
Media Research Users Council (MRUC) have their respective audience
measurement tools in radio [Radio Audience Measurement (RAM)].
TAM uses the diary method of recording listenership, while ILT uses
the day after recall method.
Phase III of the FM radio broadcasting

Phase III of the FM radio broadcasting (recommended initially by TRAI
in February, 2008) announced in July 2011 aims to expand radio reach to
about 70 per cent as opposed to the 40 per cent achieved in the first two
phases.
Phase III aims at further liberalising the reach and envisages the
following critical changes in the radio licensing policy:ncreasing the
geographical reach for FM radio from city to district and allowing more
number of channels in the same city.
Every city with a population of one hundred thousand and above is
proposed to be covered by a private FM station.
Private operators are allowed to own more than one channel but not
more than 40 per cent of the total channels in a city subject to a
minimum of three different operators in the city.
FDI+FII limits in a private FM radio broadcasting company has been
increased to 26 per cent from 20 per cent prevalent earlier.
Phase III of the FM radio broadcasting

Radio operators have been permitted carriage of news bulletins of All
India Radio.
The limit on the ownership of channels, at the national level, allocated
to an entity has been retained at 15%. However channels allotted in
Jammu & Kashmir, North Eastern States and island territories will be
allowed over and above the 15% national limit to incentivise the bidding
for channels in such areas.
Broadcast pertaining to information like sporting events, traffic and
weather, coverage of cultural events etc. as provided by the local
administrators will be treated as non-news and current affairs broadcast
and will therefore be permissible.
A choice is proposed to be given to the private FM broadcasters to
choose any agency other than BECIL for construction of CTI within a
period of 3 months of issuance of LOI failing which BECIL will
automatically become the system integrator.
Music
Domination of latest Hindi film music
The music industry in India has a unique structure unlike other global
markets.
The new Hindi film segment, which accounts for almost half of the
industry's revenues is one of the most risky segments from the point of
view of music companies, as they may not be able to recover the
upfront cost paid towards the acquisition of music rights (also called as
minimum guarantee) in case an album does not do well.
The acquisition cost for music rights for films have shown substantial
decline from the great heights they touched towards the end of 1990s.
The willingness of the producers to enter into revenue-sharing
agreements with music companies indicates that risks and rewards are
shared more equitably.
Other genres of the music industry are old Hindi film music, English,
ghazals, classical music, regional and devotional.
With the advent of satellite television and increased consumer
exposure to non-film music, other music genres are also gaining
popularity.
Plagued by piracy
The music industry, both in India and globally, is plagued by piracy.
According to estimates by the International Federation of Phonographic
Industry (IFPI), more than 90 per cent of the music tracks were
downloaded without payment to the artist or the company that
produces them.
In India, piracy currently accounts for a substantial part of the total
market. Due to the digital format of music and pirate sites on the
internet, piracy is taking root as a contributor to the revenue leakage.
Till around 2001, piracy mainly assumed the form of physical piracy of
music cassettes, i.e. un-authorised copying and selling music on
cassettes alone. However, with the progress of technology, digital piracy
has increased.
Peer-to-peer sharing (P2P), FTP sharing and local sharing on local area
networks is rampant and it is only recently that softwares or companies
enabling such activity have been penalised (Kazaa in 2005, Napster in
2001). IFPI estimates that for every one legal download, twenty illegal
downloads take place.
Music distribution
Structural change in the global music industry
A dramatic structural change is occurring in the global music industry
with the music distribution worldwide going digital and mobile.
Licensed digital distribution of music and mobile music are buzzwords
in the global music industry and are fast gaining credence over music
distribution in the physical form
. The transition of music from physical to digital platforms is forcing
music companies to redevelop business strategies as well as come up
with innovative methodologies to package and distribute music content.
Driving forces behind structural changes

Increasing penetration of high-speed broadband internet connections &
mobile networks and uptake of high-speed services by telecom
operators
Increased availability and adoption of mobile handsets, with higher
download, storage and playback capacities (mobile handset companies
are increasingly launching music-enabled phones specifically targeted at
the music buffs, who wish to have their choice of music on the go)
Digitalisation of entire music catalogues by players.
Continuous improvements in the technical specifications and
capabilities of digital players.
Social networking sites, promotional tool for the Indian music
fraternity, significant driver for music consumption.
Traditional physical format versus digital and mobile music
Players and consumers embracing preferences in music consumption

increase digital revenues worldwide
Global music majors and technology companies are actively investing

in licensed digital delivery of music through the internet, which serves
to underscore the shift taking place in music distribution.
Apple Computers, through its iTunes facility, offers a digital music
shop on the internet. In India, Indiatimes, Gaana and Soundbuzz offer
legal music downloads.
Consumer acceptance of paid-for music downloads is also rising.
Digital technology driving revenues of the Indian music fraternity

Digital technology driving revenues of the Indian music fraternity
Digital distribution of music gained ground over music distribution in
the physical form during the year 2010.
The year witnessed companies entering into agreements with social
networking sites to promote music content as well as reach out to the
audiences through various interactive platforms.
The revenues from digital music are estimated to have contributed
about 62 per cent to total music industry revenues in 2011 from 50 per
cent a year ago marking a significant shift in the consumer preferences
to consume music in digital formats.
This increase in revenues was due to increasing mobile and broadband
penetration, rollout of high speed data services as well as technological
advances.
On the other hand, physical formats such as audio cassettes and CDs
which accounted for about 44 per cent of the industry's revenues in
2010, contributed around 33 per cent to the total industry revenues in
2011 due to emergence of digital technology, price erosion and rising
levels of piracy.
Music Revenues breakup
Challenges posed by digitisation and Internet worldwide

With digitisation, the internet and growth in the bandwidth of telecom
networks have opened up new avenues and forms of distribution for
the global music industry. Simultaneously, it introduced a new set of
challenges for the industry players.
Sales of music in physical formats, in most countries, have been on a
downward spiral in the past few years.
With music distribution increasingly happening online and on mobile
phones, music companies no longer have complete control over the
content owned by them.
The risk posed by piracy in both digital and physical formats remains
high.
Challenges posed by digitisation and Internet worldwide

Consumers can easily share songs amongst themselves through P2P file
sharing software.
Although the music industry managed to clamp down on and
successfully shut down some file sharing websites (Napster, Kazaa,
Limewire) and establish legitimate digital distribution platforms to the
fore, piracy still remains a glaring problem especially in developing
countries, where anti-piracy rules and regulation are either weak or are
not strictly enforced.
Also, disputes pertaining to the amount of royalty receivable from
radio operators are currently in hearing, a negative ruling on which
could further impact revenues of the music industry.
Challenges faced by the Indian music industry

In May 2009, The Indian Music Industry (IMI) launched Music Mobile
Exchange (MMX), a world mobile licensing arm, in a bid to fight piracy.
Under this initiative, mobile storeowners got legitimate licences from
the right holders and then sold the music without violating copyrights.
Saregama India Ltd, Aditya Music, Tips Ltd, Venus Music, EMI group,
Sony and Universal
signed on with this initiative.
In April 2010, Saregama India launched a WAP portal
(wap.saregama.com), wherein it sold its huge collection of songs in the
digital form to the mobile users.
Challenges faced by the Indian music industry

Most music companies today are treating the mobile music business as a
new distribution channel, with India's mobile subscriber base growing at
a furious pace by the day. When a new album is released in the market,
music companies not only promote the album in traditional ways but also
enter into tie-ups with mobile content aggregators and service providers
for ringtones, etc. to promote the album.
Revenues earned from the sale of mobile music are shared between the
music company, the content aggregator and the telecom operator.
Revenue-share in this case though, is skewed in favour of the telecom
operator, as he holds the crucial billing relationship with the endsubscriber.
Key Industry Trends
Advertising spends to grow at 13 per cent CAGR till 2016 subject to

economic revival
Growth of the media industry in 2012 is expected to be affected by the
weak macro-economic environment that had impacted advertising
revenues.
However, non-advertising or subscription revenues is believed to be
growing at a faster pace than ad revenues, driven primarily by the
impressive box office collections of films.
Overall, revenue growth in 2013 is expected to be higher than in 2012
following an expected improvement in macro-economic conditions.
Over the next 4 years, the industry to grow at a steady pace of over 11
per cent CAGR to Rs 1.2 trillion by 2016.
Advertising spends to grow at 13 per cent CAGR till 2016 subject to

economic revival
Advertising spends to grow at a tepid pace of 7 per cent in 2012.
However, in 2013, growth in ad revenues is expected to increase to 12
per cent subject to a revival in the economy driving up corporate
advertising spends.
Growth is expected to pick up further momentum in the following
years and we expect overall ad revenues to grow at 13 per cent CAGR
over the next 4 years to touch Rs 553 billion by 2016.
The growth will be driven by the launch of new products and services,
fragmentation of media and the consequent need for advertisers to
ensure visibility for their products and services, besides new s e c t o r s
whicharelikelytobeaggressiveadvertisers infut
ure.
Subscription revenue growth to lag advertising growth

Although subscription revenues are expected to grow faster than
advertising revenues in 2012, this trend is set to reverse over the next 4
years.
Subscription revenues are expected to grow at 10 per cent CAGR till
2016 to touch Rs 630 billion.
The key growth drivers of subscription revenues for the various media
are: Increasing adoption of digital distribution platforms like direct-tohome (DTH) and digitisation of cable television
Television: will lead to greater subscription revenues for the television
industry.

Driven by the implementation of the digitisation mandate (which
stipulates the use of set top boxes to view television content), the digital
pay TV subscriber base is expected to increase at a 20 per cent CAGR
between 2011 and 2016.
Print media/newspapers: Growing literacy rates and player expansion
is expected to drive up newspaper circulation and readership.
Consequently, newspaper circulation and readership to grow at a
CAGR of 8 per cent and 4 per cent, respectively, between 2011 and 2016.
Films: Growth in the number of multiplexes and the implementation of

digital technology in cinemas will be the primary revenue drivers for
the film industry.
While the advent of multiplexes has improved the average ticket
pricing, digitisation of film prints has aided in a wider release of films,
reduced distribution costs and reduced the scope for piracy.
Radio: Number of multiplex screens to grow at a 10 per cent CAGR
over the forecast period.

Auction of additional radio stations under FM Phase III is expected to
boost the radio industry's revenues further, enabling a growth of 18 per
cent CAGR between 2011 and 2016.
Music: Sale of music in physical formats such as cassettes and compact
discs has seen a sharp decline. Digital distribution of music, either over
mobile phones or the internet, is gaining traction. We therefore expect
digital music to drive the industry's growth in future. By 2016, digital
distribution of music is expected to contribute to nearly 90 per cent of
the music industry total revenues.
Revenues Outlook
Long-term growth outlook for the sector remains stable

The year 2012 is expected to close as a year of mixed fortunes for the
media & entertainment industry.
While non-advertising (subscription) revenues have witnessed steady
growth, advertising revenues have been impacted by the overall macroeconomic slowdown.
With an expected revival in economic activity, the growth of the
industry is expected to be higher in 2013 than in 2012.
By 2016, the industry is expected to grow at a CAGR of over 11 per
cent, to a size of about Rs 1.2 trillion.
Growth in advertising is expected to be higher than subsciption
growth.
Long-term growth outlook for the sector remains stable

Growth will be driven primarily by: Increase in advertising spends, as
companies raise advertising outlay to reach their target audience Higher
penetration of various media, translating into higher advertising
spends, and higher consumption of media products.
Widespread availability of digital media distribution platforms primarily television, radio and internet - for monetising content
effectively.
Increase in local advertising spends across various regional media as
focus on localisation and regionalisation increases.
Expanding international markets for Indian content.
Media &Entertainment - industry revenues
Advertising growth tapers in 2012

Advertising spends, which had slowed down in 2011 (particularly in
the latter half), slowed down further in 2012 owing to the weak macroeconomic environment.
The overall advertising growth is expected to be only around 7 per cent
in 2012, as compared with 10 per cent in 2011.
While the digital media and television have witnessed good growth,
other media like newspapers and radio have seen growth slow down
over 2011 levels.
From a sector perspective, FMCG was among the few sectors that had
witnessed a healthy growth in advertising spends, while most other key
advertising sectors saw either a marginal growth in ad spends or a
contraction in their adspends owing to budget constraints.
Based on expectation of a revival in economic activity in 2013, growth
in ad spends is expected to be higher than in 2012. Further, over the
longer term, the structural factors driving growth in advertising and
hence ad revenues will remain unaffected as:

Fragmentation of media due to multiple options available to the
consumer, and increasing reach of media will result in advertisers
increasing outlays to reach target markets.
The likely emergence of newer sectors such as e-commerce will lead to
heavy advertising.
Increasing consolidation of various unorganised business units into the
organised sector.
We also expect advertising spends on radio to increase, after the
auction of additional FM frequencies across towns (Phase III) Overall,
we expect advertising spends to touch Rs 553 billion by 2016, translating
into a CAGR of 13 per cent.
Ad spends, as a percentage of GDP, are expected to rise from 0.57 per
cent currently to around 0.75 per cent in 2016.
Forecast - Advertising spends (in Rs billion)
Share of ad spend distribution to witness a shift

Over the longer term, the share of media such as radio and internet will
increase from the current levels.
Radio is expected to constitute 6 per cent of the advertising pie by
2016, as compared to over 4 per cent in 2012.
Meanwhile, the share of digital advertising is expected to almost
double from 4 per cent to 7 per cent of the total advertising spends in
2016.
Share of ad spend distribution to witness a shift

Share of advertising spends directed towards print to follow the global
trend, declining from an estimated 43 per cent in 2012 to 41 per cent in
2016.
Television will continue to remain a preferred medium for advertising.
The reach of television across different strata of society and the
opportunity it offers to create an impact through the audio-visual
medium makes it a must in the advertising portfolio of most advertisers.
Over the next 5 years, the share of television in total advertising spends
is projected to r e m a i n a t a b o u t 4 2 p e r c e n t .
Break-up of advertising spends by media
Further, given the increasing fragmentation of media, the share of local

/ regional advertising is expected to keep rising, as compared to
national advertising.
In fact, in the current slowdown, the performance of the local /
regional ad space has been better than the national average.
Subscription revenues to witness steady growth over the forecast

period
Subscription / non-advertising revenues to touch Rs 433 billion in 2012,
implying a 12 per cent growth from 2011.
Over the forecast period, subscription revenues are estimated to
increase to Rs 630 billion in 2016, at a CAGR of 10 per cent.
This growth will be driven by a combination of factors, such as:
Growing adoption of digital distribution platforms leading to gradual
growth in the average revenue earned per cable subscriber.
The government's mandate to move all analogue subscribers to digital
by 2014 would give a further thrust to the adoption rate.
Subscription revenues to witness steady growth over the forecast

period
Increasing reach of satellite television and expected launch of niche
channels across various genres.
Rising literacy levels, translating into growth in newspaper circulation
and readership.
Continuing growth in theatrical collections of movies due to the
increasing number of multiplexes and average ticket prices (both in
India and abroad), along with increasing revenues from ancillary
streams.
Increasing adoption of music on mobile phones.
Subscription revenues to witness steady growth over the forecast period
However, the share of subscription revenues in the industry's overall

revenues is expected to decline to around 53 per cent in 2016 from an
estimated 57 per cent in 2012, as growth in ad revenues is expected to be
faster.
Some players would take a hit on subscription revenues to ensure
wider reach, and consequently earn higher advertising revenues.
Break-up of advertising and subscription revenues
Increasing digital penetration, advertising spends to drive television

industry growth
Revenues to touch Rs 611 billion by 2016
The year 2012 is expected to be a moderately good year for television,
despite the weak macroeconomic environment.
Overall growth in the television industry at around 10 per cent y-o-y in
2012, with advertising and subscription revenues growing at almost the
same rate.
Growth is expected to be slightly higher at 11 per cent in 2013, driven
by the increase in advertising.
Revenues to touch Rs 611 billion by 2016

The effect of fragmentation on the M&E sector is clearly visible in the
television segment, where advertisers are compelled to purchase more
spots to reach their target markets.
The growing fragmentation in television notwithstanding, television
continues to be the preferred choice for a majority of the advertisers.
We expect advertising revenues to touch Rs 238 billion by 2016, at a 5year CAGR of 14 per cent.
Further, in TV advertising, a key development was the TRAI directive
which restricted ad breaks on TV
Increasing digital penetration, advertising spends to drive television

industry growth
channels to a maximum of 12 minutes per clock hour, without any
averaging of this limit permitted through the day. Broadcasters have
approached the TDSAT against this directive and the case is scheduled
for hearing in December 2012.
If such a directive is implemented, we expect news channels, and to a
lesser extent, sports channels to be the most affected.
Overall revenues of the television industry to increase at a 12 per cent
CAGR to Rs 611 billion in 2016 from Rs 353 billion in 2011.
Television industry revenues
C&S households to reach 156 million by 2016

The number of cable and satellite (C&S) households has been growing
steadily, and the trend expected to continue over the next 5 years on
account of the increasing reach of cable television and affordability,
spurred by rising incomes.
Both the DTH and digital cable subscriber base would witness a
healthy increase over the next 5 years.
Of the estimated 148 million television subscribers in the country as of
2011, close to 80 per cent subscribe to cable services.
By 2 0 1 6 , w e e x p e c t t h i s n u m b e r t o r e a c h a b o u t 1 5 6 m i l
lion.
Television and C&S households
ARPU to increase moderately despite digital adoption

Despite increasing adoption of digital television services in the form of
DTH and digital cable, and a number of new pay channels being
launched, we expect average ARPUs to increase only marginally to Rs
219 by 2016.
The reasons for our view are: Stiff competition amongst various
television distribution platforms is restricting the price rise, leaving only
the subscriber
acquisition route for revenue growth.
Many channels are likely to remain free-to-air due to the fear of losing
advertising revenues, owing to a possible decline in viewership on
converting to a pay channel.
Weighted average ARPU
Revenue growth for newspapers to remain stable

Growth in the newspaper industry's revenues, impacted by the
slowdown in advertising, is expected to be limited to 6 per cent in 2012.
While advertising revenue growth will remain subdued at 4 per cent,
circulation revenues are expected to grow at over 10 per cent.
The higher growth in subscription revenues will come from leading
publications hiking their cover prices in prominent editions and
reducing the discounting on yearly subscription offers.
Driven by an increase in advertising intensity, growth in revenues is
expected to be higher at 10 per cent in 2013.
Over the forecast period, total newspaper revenues are expected to
increase to Rs 278 billion by 2016, translating into a CAGR of 10 per
cent, driven b y a s t e a d y i n c r e a s e i n b o t h a d v e r t i s i n g a n
dcirculationrevenues.
Newspaper revenues
Growing literacy rates and player expansion to drive newspaper

circulation and readership
The rise in literacy rates, increasing demand for region-specific content,
and expansion by players into new geographies and languages will
drive expansion in newspaper circulation and readership.
Circulation growth of Hindi and vernacular newspapers, which
contribute to nearly 60 per cent of the total newspaper advertising
revenues, will be higher than that of English newspapers.
Asmore advertising spends are likely to be directed towards Tier II
and III cities, players in these regions will expand their reach.
Newspaper circulation and readership
Theatrical revenues will continue to drive film industry growth

Revenues of the film industry are estimated to grow at a healthy 15 per
cent in 2012, driven largely by the impressive box office collections of
many films.
Further, an increase in the number of multiplex screens, increased
occupancy levels, and a hike in the Average Ticket Price (ATP) would
also contribute to this growth.
Over a 5-year period, the film industry's revenues are projected to grow
at 8 per cent CAGR to Rs 156 billion, largely comprising theatrical
revenues.
In recent years, the window available for a film to earn revenues at the
box office has shrunk sharply, especially for Hindi films.
Hence, distributors flood the market with prints, looking to garner as
much revenues as possible during the opening weekend of the release.
Due to this trend, most of the film's revenues flows into the value chain
within the first weekend of the movie release, in most cases.
Theatrical revenues will continue to drive film industry growth

Further, with the film available on other platforms like DTH and
distribution within weeks of its release, a sizeable audience prefers to
wait for the same, rather than spend a higher amount to watch it in
theatres.
Domestic box office collections to grow at 8 per cent CAGR from 2011
to 2016, driven largely by an increase in the number of multiplex
cinemas (where ticket prices are much higher as compared with single
or double screen cinemas), and, to some extent, by the wider release of
films on account of implementation of digital technology in cinemas.
Moreover, we expect average ticket prices to increase significantly,
from an estimated Rs 40 in 2012 to Rs 57 in 2016.
Film industry revenues
FM Phase III to act as a growth driver for radio revenues

Radio revenues have been adversely impacted by the macro-economic
slowdown, owing to advertisers directing a lesser proportion of spends
to this medium.
As a result, growth in radio revenues is expected to be a mere 4 per
cent in 2012. Such growth would increase following an expected revival
in advertising activity.
Over the forecast period, revenues of the radio broadcasting sector to
increase to Rs 30 billion by 2016, at a CAGR of 18 per cent. During this
period, the share of advertising spends directed towards radio will
touch 6 per cent, up from an estimated 4 per cent in 2012. Growth will
be driven by an increase in the number of radio stations post
implementation of Phase III of FM broadcasting.

The I&B ministry's plans to e-auction additional FM frequencies (Phase
III) gives us confidence on the launch of new radio stations within the
forecast period.
Development of additional mechanisms to track the listenership of
radio stations (through radio audience measurement) will also serve to
increase the credibility of radio as an advertising medium.
The growth in the radio broadcasting sector will be driven by: An
increase in the number of radio stations, once Phase III of FM
broadcasting is implemented.
FM Phase III Policy proposes to extend FM radio services to 227 new
cities, with a total of 839 new FM radio channels catering to 294 cities

Phase III policy will result in the coverage of all cities with a
population of 0.1 million and above with private FM radio channels.
Local advertisers increasingly using radio as a medium to reach target
markets (Currently, the share of local advertising in total radio
advertising is estimated to be around 35 per cent).
National advertisers continuing to use radio as a complementary
advertising medium, given its growing reach.
Rapid increase in the availability and adoption of mobile handsets with
FM radio.
Radio revenues
Digital distribution of music to drive industry growth

The year 2011 was a year of transition for the Indian music industry,
with digital sale of music (as ring-tones and caller ring-back tones)
exceeding sales through physical distribution.
The trend has continued in 2012, with a decline inthe share of physical
music sales.
While rampant piracy continues to plague the industry, players are
increasingly adapting their business models to capitalise on the
increasing trend of delivery and consumption of music, primarily over
mobile phones in the form of ring-tones, caller ring-back tones and full
track downloads.
We expect revenues of the music industry to increase to Rs 14.5 billion
by 2016, implying a 19 per cent CAGR in revenues between 2011 and
2016, driven largely by continuing growth in the mobile music space.
Music industry revenues
Distribution-television
Shift to digital platforms witnessing steady progress

The analogue television distribution value chain comprises
broadcasters, multi-system operators (MSOs) and local cable operators
(LCOs) catering to 120 million cable and satellite (C&S) subscribers in
the country.
The market is highly fragmented, with the presence of nearly 55,000
LCOs, 6,000 MSOs and several broadcasters vying to acquire a larger
proportion of the subscriptionrevenues.
LCOs provide last mile connectivity, i.e. up to the consumer's home
and enjoy a virtual monopoly in most regions.
This, coupled with the lack of addressable systems (refer to 'Definition
of addressable system' below, had resulted in considerable underreporting of subscriber numbers, and a consequent leakage of revenues
that were due to broadcasters and MSOs.
LCOs retained more than 8 0 p e r c e n t o f t h e r e v e n u e s c o l l e
ctedfromsubscribers.
Shift to digital platforms witnessing steady progress

However, this landscape is rapidly changing with the digitisation of
analogue cable television networks and the expansion of direct-to-home
(DTH) subscriber base.
Further, the I&B Ministry's four-phased digitisation schedule mandates
the complete switch-off of analogue transmission in the country by
December 2014.
Although complete digitisation may not be possible by the cut-off date
owing to various reasons, the analogue subscriber base is expected to
come down to around 12 per cent of the total C&S (Cable & Satellite)
households by 2016.
Over time, increasing adoption of addressable distribution platforms
and digital cable will shift the bargaining power in the distribution
value chain from the LCOs to MSOs, DTH operators and broadcasters.
The JV formed in 2011 between Star Den and Zee Turner (MediaPro
Enterprise) appears to be a step in the right direction, as reflected in Zee
Entertainment's recent subscription revenues which have risen at a
higher rate over the previous years.
Television distribution landscape

An addressable system comprises electronic devices through which
signals of a cable television network can be sent in an encrypted or
unencrypted form.
This can be decoded by the device or devices at the subscriber end,
based on the choice and request of the subscriber, or by the cable
operator to the subscriber.
To view pay channels, subscribers have to purchase/rent a settop box
(STB) either from a DTH or cable operator or a telecom operator.
However, for watching free-to-air channels, an STB is not ] r e q u i r e d

The shift to digital platforms spiked in the 4 metros immediately
before and after the digitisation deadline was extended to October 31,
2012.
However, this deadline has been extended in Chennai and the final
implementation date is pending a decision by the High Court.
The deadline for Phase II of digitisation, which covers 38 citiies, stands
at March 31, 2013.
As per a recent release by the Information & Broadcasting Ministry,

the extent of digitisation in the 4 metros around the end of October
2012 was as under
Digital pay TV subscriber base to touch 126 million by 2016

Till 2008, only MSOs charged a carriage fee to broadcasters for placing
their channels in an easy-to-catch frequency.
However, from the second half of 2008, DTH operators too have begun
to charge broadcasters for carrying on the preferred bundle of channels,
given the limited number of transponders available.
Practice of paying carriage and placement fees will continue over the
next 12 to 18 months, beyond which the quantum of such carriage fee is
expected to come down.
This would be due to subscriber migration to digital platforms as well
as the growing clout of broadcasters.
Steps like the formation of Media Pro Enterprise will also ensure that
broadcasters have stronger bargaining power with the MSOs and the
DTH operators.
Number of digital pay television subscribers in India to increase
exponentially over the next few years, driven by the 2014 digitisation
deadline.
Digital pay TV subscriber base to touch 126 million by 2016

There would be around 64 million digital pay television subscribers
by the end of 2012, representing more than 50 per cent of the total C&S
subscriber base By 2016, we expect this number to accelerate to 126
million, constituting more than 80 per cent of the C&S subscriber base.
This growth would primarily be driven by: Increasing adoption and
penetration of addressable distribution platforms MSOs digitising their
networks in at least the top 50 cities with a population of over 1 million
in order to withstand competition from DTH operators Large-scale
consolidation in the cable operator space, especially in large urban
areas, with MSOs taking over LCOs and upgrading their infrastructure.
Television distribution platform-wise subscribers
Television distribution platform-wise subscribers

From a subscriber viewpoint, digitisation has distinct advantages over
the current largely analogous cable networks. In an analogue
environment, consumers are limited in terms of the number of channels
they can view due to inherent capacity constraints of analogue cable.
Digitisation will enable broadcast of nearly 8-10 times more channels
as compared with a standard television set along with high quality
pictures.
Moreover, in an addressable environment, subscribers will be allowed
to choose the channels, and accordingly pay for the same. Currently,
analogue cable subscribers are forced to view and pay for the channels
relayed by the L C O .
DTH subscriber growth to come down from earlier levels

Number of pay television DTH subscribers (operators other than DD
Direct) to touch 78 million by 2016 from 44.2 million at the end of 2011.
The rate of subscriber additions would come down from the earlier
levels of around 1 million subscribers per month, as operators also focus
on improving ARPUs.
The Indian DTH market is extremely competitive with six large players
- Dish TV, Tata Sky, Sun Direct, Big TV, Airtel Digital and Videocon
D2H - competing for subscriber share.
DTH subscriber growth to come down from earlier levels

In a bid to acquire subscribers, players were earlier offering subsidies
on STBs and engaging in a price war with rapidly declining ARPUs.
However, there has been a reversal in this trend. Besides an increase in
STB prices, Dish TV also announced a hike in its base pack prices.
The same is likely to be replicated by the other players too.
Although the increase in cost for consumers is likely to affect subscriber
additions, it would aid in improving the operating metrics of players.
Over the longer term, consolidation is expected in this space, as has
been the case in most countries.
Dish TV- Subscriber acquisition cost and ARPU
Dish TV- Subscriber acquisition cost and ARPU

The DTH business is more scalable than the digital cable business.
As the
satellites of DTH operators have a pan-India reach, they do not
have to invest in setting up infrastructure in each city, making their

business highly scalable.
he only additional costs for a DTH operator expanding operations to a
new city are the marketing and distribution costs and the subsidies
given for STBs.
However, owing to the limited number of transponders, there is
limitation on the number of channels that DTH operators can currently
carry.
Digital cable subscriber base to grow faster

Total number of digital cable subscribers to reach 48 million by the end
of 2016 - a significant increase from the estimated 12 million digital
subscribers at the end of 2012.
Further, we also expect the rate of subscriber additions in digital cable
to outpace DTH over the next couple of years, when digitisation takes
effect across the country.
It is anticipated that cable operators would get more aggressive in
retaining their existing subscriber base, which may also prompt them to
look at some level of discounted pricing.

On the other hand, a slowdown in subscriber growth is evident in
DTH, which is the result of the operator's focus on improving ARPUs,
besides acquiring subscribers.
Competition from DTH players is driving MSOs such as Hathway
Cable & Datacom, Siticable (earlier Wire and Wireless India), IndusInd
Media, DEN Networks and Digicable to upgrade their cable distribution
infrastructure to the digital platform.
Many of these players have either raised or are in the process of raising
funds to meet their capital expenditure requirements.

Acquisition of LCOs and their subscribers
Acquisition of other MSOs
Collaboration with LCOs and investing in STBs
Laying the cable network from scratch
Digitisation of networks, however, will require huge investments at the
MSO level - the digitisation cost for large networks is Rs 650-750 per
subscriber in densely populated cities and Rs 1,000-2,000 to acquire a
subscriber from another network.
In areashere the density of cable population is lower,, the costs are
likely to be disproportionately high.

The cost of digitisation would include the cost incurred in subsidising
STBs, investing in head-end-in-the-sky (refer to 'Head-end-in-the-sky'
below, although no operators has currently invested in this technology)
as well as the cost of laying or upgrading the fiber network.
Costs also rise due to resistance at the LCO level as they stand to lose
profits because of the lack of transparency in the current system.
To justify investments in digitisation, MSOs will have to earn higher
revenues commensurate with the investments made, which leads us to
believe that digital cable services will be rolled out largely in the top 50100 cities.
Cable subscribers in the larger cities are also likely to be much more
open to paying higher charges for better quality and range of services.
Given that there is also a natural migration of urban customers to digital
platforms, LCOs are also increasingly tying up with MSOs to help urban
subscribers m i g r a t e t o a d i g i t a l c a b l e n e t w o r k .
[ Head-end-in-the-sky (HITS)
Head-end-in-the-sky (HITS) is a satellite-based digital delivery platform of
television signals as against an on-the-ground control oom.
A HITS operator encrypts television channels at a common facility and uplinks
them to a satellite.
Cable operators aligned to the HITS operator can then downlink these
channels for further distribution to subscribers through their cable network in
digital form.
Currently, an MSO or a large independent cable operator downloads each
television channel signal from the satellite of the broadcaster.
Under the HITS technology, it will be possible to download the entire bouquet
of channels from the HITS operator's satellite. Hence, beyond the top 50
cities, the HITS technology will be the preferred mode for digitalising
networks.)
IPTV subscriber base expected to remain low

Internet protocol television (IPTV) is another medium of delivering
television signals to subscribers.
The technology uses the Internet to send video signals over high-speed
net connections, eventually made viewable by using a computer or
television along with an STB.
Aksh Optifibre, MTNL, BSNL, Airtel and Reliance Communications
have already forayed into this space, but are still to make significant
inroads.
Moreover, the scope for IPTV services to compete with other
distribution platforms such as DTH on pricing and range of services o f f
e r e di s l i m i t e d .
Payment of carriage and placement fees to come down over the

medium term
Until 2008, only MSOs charged a carriage fee to broadcasters for
placing their channels in an easy-to-catch frequency.
However, given the limited number of transponders available, DTH
operators too have begun to charge broadcasters for giving preference
to their bundle of channels, from the second half of 2008.
The practice of paying carriage and placement fees will continue over
the next 12 to 18 months, beyond which the quantum could come down
owing to large-scale subscriber migration to digital platforms as well as
the growing clout of broadcasters.
Steps like the formation of the MediaPro JV will also ensure that
broadcasters improve their bargaining power with the MSOs and DTH
operators.
Distribution-films
Digital cinema and mushrooming multiplexes altering the dynamics

of film distribution
The Indian film content distribution industry is evolving with the
growing number of multiplexes (movie theatres with more than two
screens), especially in the larger cities.
This trend has dramatically improved the average realisations per
ticket sold.
Further, increasing adoption of digital technology in cinemas has
enabled the release of films in a larger number of areas, as digital prints
can be easily transported to rural areas too, unlike the physical reels
earlier.
Multiplex screens to keep increasing over the next few years

Over the last few years, multiplexes have grown exponentially and
become the preferred destination for a movie viewing experience, more
so in the bigger cities.
Multiplexes have also successfully attracted family audiences back to
the theatres, despite charging higher ticket prices than conventional
single/double screen cinemas.
Growing disposable incomes, favourable demographic changes
(growing size of the working age population with the ability to spend),
mushrooming of malls and entertainment tax benefits granted to
multiplexes by various states have together helped propel the growth of
multiplexes.
Multiplex screens to keep increasing over the next few years

Multiplexes have lesser capacity per screen (typically 250-400 seats;
some with mini screens too with a capacity of less than 100) vis-a-vis
single/double screen cinema halls, which enables them to showcase
movies of different genres and provide a diverse set of choices to the
viewer.
Multiplexes are known to provide better service than single screens, in
terms of sound systems, ambience and food and beverages, which
translate into a better viewing experience.
By the end of 2012, there would be around 1,350 multiplex screens in
the country.
By 2016, we expect the number to increase to more than 1,900, at a
CAGR of 10 per cent. Increasing construction of malls, which is the
common choice of location for multiplexes, will be a key enabler in the
rollout of multiplex screens over the forecast period.
However, multiplexes will continue to face the following challenges:

As the theatrical window (the period for which a film is screened in
theatres) for films keeps reducing, multiplexes are under pressure to
garner a lion's share of the collections within the first week of the release
of the film.
In fact, a substantial part of the revenues for most films is earned in the
opening weekend.
Given the reducing time period between the release of a film and its
availability on other platforms like DTH and satellite, customers may be
inclined to viewing films on such platforms (at a reduced cost or free of
charge) as against spending a considerable amount at a multiplex.
However, multiplexes will continue to face the following challenges

This adds to the pressure on revenues for a multiplex operator.
The risk of cannibalisation
of film revenues, in case of multiple big-
budget releases on the same day, is high during the festive season and
holidays.
Competition from the IPL had the multiplex owners having an 8-9
week blank window (higher in 2011, as there was the ICC Cricket World
Cup as well). However, the IPL effect appeared to have come down in
2012, with films released during the IPL window too recording good
collections
Multiplex Screens
Digitisation of film prints enabling wider release of films and lesser

piracy
Over the last 3 years, digital technology has been increasingly adopted
by Indian cinema houses, especially in small towns.
The primary reason for the rising popularity of digital film prints is
that it enables wider release of films on the day of the release at a lower
cost.
Initially, the high costs of producing celluloid film prints (Rs 50,00060,000 per copy) and low ticket prices made simultaneous release of a
large number of physical prints unviable for film distributors.

piracy
However, due to digitisation, film distributors have been able to double
the number of prints in the market on the day of the movie release,
thereby enhancing the revenue-generating ability
of distributors as well as exhibitors.
Thus, a big budget Hindi film, which was earlier released with 400-500
prints, is now released with as many as 1,000-1,500 prints.
This goes up to more than 2,000 prints in case of big-budget releases.

piracy
At cinemas, the digitised motion pictures are screened using a digital
projector, server, and scheduling software, the combined capital
expenditure of which varies from Rs 1.5-1.7 million.
Players such as UFO Moviez and Real Image are aggressively pushing
the concept to theatre owners by contributing to the investments and
using innovative payback models.
For example, UFO Moviez does not ask theatre owners to make any
upfront investments for the equipment, except for a refundable deposit
of Rs 200,000 and a non-refundable deposit of Rs 25,000.

piracy
Instead, they chargethe distributors and exhibitors a content delivery
fee per show, and also earn revenues from advertisements played
during the course of the movie.
However, despite its advantages, digital technology is unlikely to
expand significantly into the hinterland because of the poor conditions
of most theatres, low ticket prices and unreliable power supply which
could affect the functioning of the digital equipment.
Moreover, the revenue potential of theaters in the hinterland will be
limited for digital cinema facilitators such as UFO Moviez .
Advantages of digital cinema
Changing equation between players in the value chain

Upfront content monetisation by production houses
Till the global economic slowdown, film distributors had been bidding
for long term contracts of universal rights that included domestic
theatrical rights, overseas, music, home video and satellite rights that
lasted 7-10 years as opposed to the usual practice of 3-5 years, especially
for big-budget Hindi films.
Following the economic slowdown, distributors have become wary of
committing huge sums of money upfront.

As a result, they have begun purchasing rights for shorter time frame,
i.e. 1-2 years.
Also, producers are increasingly de-risking their business through the
sale of distribution, satellite, music and home video rights even before
the film's release. While this has benefitted producers who are able to
recover a large proportion of their production and marketing costs, it
has reduced the theatrical window for the exhibitor.

Lately however, this trend appears to be witnessing a change again,
with broadcasters awaiting the box office performance of most films
before committing sums towards satellite deals.
The change comes after the poor performance of some films - for which
huge sums were paid, at the box office - which also impacted their
satellite viewership.

Further, restriction on airing of films certified 'A' (Adults) by the CBFC
(Central Board of Film Certification) on television has also affected the
producer's revenues.
An example in case is the recent controversy that erupted against the
telecast of films such as
'The Dirty Picture' and 'Jannat 2'.
This has led to broadcasters exercising caution before shelling out huge
amounts for the satellite rights of such films.
Sharing of box-office revenues undergoing changes
In June 2009, producers and distributors of films reached an agreement

with multiplexes to give a larger share of net box-office revenues to
distributors, the proportion of which could vary depending upon the
performance of the film at the box-office.
The parties also agreed that the distribution strategy of the films will be
left to the producers and distributors.
Sharing of box-office revenues undergoing changes

However, if a film released with more than 500 prints collects less than
Rs 100 million across multiplexes, the producers and distributors will be
required to give a rebate of 2.5 per cent to the multiplex operator on net
ticket collections during the second and third weeks.
However, this agreement came to an end in June 2011. Now, revenue
sharing is based on mutually negotiated terms between the exhibitor
and distributor.
Distribution-music
Music distribution - digital music to dominate

Over the last few years, there has been a significant change in the way
music is being consumed.
Owing to the impact of digitisation, music distribution in physical
formats such as cassettes and compact discs are on the decline.
Digital music is being increasingly vended over mobile phones and to
a certain extent, over the internet.
These media provide consumers with the flexibility to download
individual songs from the internet or via mobile phones.
Such sachetisation of music (similar to the FMCG industry practice of

vending smaller packets) has helped in increasing the quantum of
downloaded music content at nominal rates.
Digital delivery of music, be it through mobile or the internet, will
continue to replace physical music as the preferred mode of consuming
music.

The reasons for our view are: Convenience offered by the digital forms to the
consumer due to the wide variety of choice available, greater ability to find the
preferred music and download it in the form desired.
Increasing penetration of mobile services and high-speed internet
connections.
Continuing digitisation of music catalogues by industry players.
Increasing adoption of mobile handsets, with higher music download, storage
and playback capacities.
Increasing adoption of portable digital players that are technically advanced
and have large storage capacities.
Digital music sales to dominate overall music sales in India by 2016

In India, music companies have changed their business models to
adapt to digital delivery of music, a paradigm shift from the situation 56 years ago, when it was considered a threat to their physical medium
revenues.
For example, realising the potential of India's large mobile subscriber
base (more than 900 million subscribers), music companies are tying-up
with mobile content aggregators and service providers to provide
services such as ring-tones, caller ring-back tones, and full-track
downloads to mobile subscribers.
Digital music sales to account for close to 90 per cent of the total music
sales in India by 2016, up from an estimated 65 per cent in 2012.
Digital music sales to dominate overall music sales in India by 2016

Music companies are also using radio as a source of revenue, with the
increasing penetration of private FM radio stations.
These stations are a source of income to music companies in the form of
royalties.
However, revenues from royalties are likely to increase only marginally
over the next few years, as most radio stations have agreed to pay only
2 per cent of their net advertising revenues as royalty to music
companies, as per the revenue-sharing arrangement mandated by the
Copyright Board in 2010.
However, piracy though continues to be a huge threat to revenues, as it
eats in to a substantial portion of industry revenues.
Any measure implemented effectively towards controlling piracy
would aid in boosting the industry revenues.
Profitability-newspapers
Newspaper publishing - revenue and cost heads
Newspaper publishers earn revenues primarily from circulation (sale

of newspapers) and advertising (sale of advertising space).
Circulation revenues depend on the number of newspapers sold and
the average price at which the copies are sold.
The main operating costs for publishers are the cost of publishing a
newspaper, employee costs, cost of procuring content from agencies
such as the Press Trust of India, and wire services such as Reuters and
Associated Press, and marketing and distribution costs.

Of these costs, production costs are the most significant, accounting for
40-50 per cent of total operating costs.
The production cost of a newspaper publishing company depends on:
The cost of newsprint (Hindi / vernacular newspapers depend more on
domestic newsprint, while English newspapers import a majority of
their newsprint requirement)
The nature of forward agreements entered into for the supply of
newsprint
The quality of newsprint used
The number of pages printed
Whether the newspaper is being published at printing facilities owned
by the publisher or outsourced
Cost of procuring content from agencies

Typically, the cost of production of English newspapers is higher than
that of Hindi and other vernacular language newspapers due to the
higher page count and better quality of newsprint used in English
newspapers.
They are, however, mostly sold at prices lower than their cost of
production, because of the stiff competition prevailing among
publication houses to attract readers and thus garner a larger share of
the advertising pie.
The cover prices of vernacular newspapers are generally fixed to cover

the cost of production.
This is because, unlike English language newspapers, the advertising
revenues generated are not enough to compensate the regional
newspapers to sell below their cost of production.
This trend, though, is seeing a shift with an increase in the proportion
of local / regional advertising, boosting up the advertising revenues of
non-English newspapers.
Revenue and margin growth linked to a revival in ad spends
We have considered the financial information of 3 non-English and 2

English newspapers.
Beginning the latter half of 2011-12 to 2012-13 till date, revenues and
profitability have been impacted by the weak economic environment.
However, as the increase in newsprint costs have not as high as seen in
2009-10 and 2010-11, a further slide in margins has been contained.
Financial performance - non-English newspapers
Financial performance - English newspapers
Financial performance - English newspapers

Going ahead, we expect operating margins to increase by around 100 bps over the next 12 to
18 months from the levels of 2011-12.
This would be driven by a revival in ad revenues. During this period, newsprint costs are
expected to remain stable.
Circulation revenues too are expected to see steady growth as newspaper publishers are
holding cover prices, or are increasing it marginally to cover the increase in operating costs.
This is against the trend noticed in 2011, when some new editions were being launched at
reduced cover prices, thereby putting pressure on advertising revenues.
The profits of non-English newspapers in the industry will continue to be higher than those of
English papers, primarily owing to the greater use of low-cost domestic newsprint, and lower
operating costs.
Profitability-films
Cost of talent on the increase; more good quality content needed

The biggest risk for the Hindi film industry, which could impact future
financial performance, are as follows:
The cost of talent and acquiring distribution rights is increasing at a
faster pace than the revenue earning potential of films The lack of
adequate good quality content to feed the expanding exhibition
networks.
The Hindi film industry is a star-driven industry and the price of a
particular film is often decided on the basis of the popularity of the film
and the director.
The cost of acquiring talent and distribution rights over the last few
years had increased considerably as film companies were competing to
acquire talent and good quality content. Although the cost of talent
acquisition cam down during the economic downturn due to restricted
availability of funds, it has started to rise once again recently..
The key challenge before the industry is to reduce dependence on a few
top stars and talent and create a continuous pipeline of q u a l i t y c o n t
entusingawidertalentpool.
Producers to enjoy healthy margins although costs need to be under

check
Higher revenue earning potential of films due to their simultaneous
release to a wider audience following the increasing adoption of digital
technology.
Increasing corporatisation of the film industry, as reflected in the
signing of contracts with actors, insurance cover taken against
unforeseen delays, etc.
Improved production planning and scheduling along with attempts at
cost reduction.
Increase in the number of multiplexes, where a substantial part of the
box office earnings of a film accrue owing to the high ticket prices.
Producers to enjoy healthy margins although costs need to be under

check
Revenues from ancillary sources, such as the sale of satellite and music
rights.
Film producers will, however, continue to grapple with two main risks
- completing a film within the budgeted time and cost, and changes in
audience tastes and preferences reducing the probability of the film's
success at the box office.
Although production costs had shot up in the last few years, producers
were able to make decent margins as acquisition costs for distributors
also increased. Going forward, we believe that producers will continue
to enjoy healthy margins as long as they ensure t h a t t h e e n t i r e v a l
uechainprofitsandkeepcostsundercheck.
Distributor margins to improve

Augmentation in the number of digital and multiplex screens and
growing number of outlets for monetising rights (such as satellite,
digital and home video) have expanded the revenue-earning potential
for distributors.
However, the risks assumed by a film distributor in the value chain
continue to very high, except in cases where a film is acquired on a
commission basis.
For some films, distributors pay a minimum guarantee for acquiring
the rights from producers while for others, there is a revenue-sharing
arrangement in place.
On several occasions, distributors rely on judgment and experience for
quoting the price for a film. In addition, distributors also spend on
making the prints of a film, and promoting and publicising the film.
These costs usually add another 30-40 per cent to the distribution price
of the film.
Hence, in order to break-even, a distributor has to recover not only the
price paid to the p r o d u c e r b u t a l s o t h e a m o u n t s p e n t o n p
rint,publicityandmarketing.
Multiplex margins to expand over the next 2 years

Multiplexes witnessed a strong revenue growth in the first half of 201213 owing to the impressive box office collections of several films.
This was aided by not only an increase in the number of screens
following the expansion by multiplex operators but also by an increase
in the occupancy levels and the average ticket price (ATP).
There has also been an increase noticed in the F&B spend per head
(SPH).
Financial performance - multiplexes
Financial performance - multiplexes

Going ahead, assuming a steady movie pipeline, we expect the
operating margins to expand by 400 to 500 bps from 2011-12 levels,
primarily driven a strong growth in revenues.
A rationalisation of costs is likely in the form of a decline in distributor
share payouts, as multiplexes may be in a position to negotiate better
terms given their increasing importance in box office collections.
Effective entertainment tax rates, however, would keep rising as more
screens come out of the tax holiday window. (Several states have a 5year tax break scheme in place, for multiplex screens.)
Profitability-radios
Growth in radio broadcaster's revenues linked to a revival in the ad

environment
Capital cost of setting up infrastructure such as base stations,
transmission towers and studios
Royalties paid towards music acquisition
Licence fees
Employee costs
Expenses incurred towards marketing, promotion, brand building and
administrative overheads
Of these, the cost of infrastructure does not vary significantly across
players.
Growth in radio broadcaster's revenues linked to a revival in the ad

environment
Further, the expenses incurred towards payment of music royalties to
Phonographic Performance Ltd (PPL) as well as to Indian Performing
Rights Society (IPRS) and South Indian Music Companies Association
(SIMCA) for Hindi film music and South Indian music, respectively, are
also standardised with revenue sharing (except to one of the music
companies) stipulated by the Copyright Board Order of 2010.
However, all the other expenses depend on player strategy .
We have considered the financials of 6 leading radio operators over the
last few years. Revenue growth in the first half of 2012-13 was affected
by the slowdown in corporate spending.
Any improvement in revenues is linked directly to a revival in the
macro environment.
Financial performance of radio broadcasters
Financial performance of radio broadcasters

Over the next couple of years, revenue and margin growth are expected
to be moderate for the overall industry, subject to a revivalin advertising
spends.
As there has been no announcement till date on the Phase III FM radio
auctions, the resultant benefits (like networking of stations, leading to a
reduction in operating costs) are not likely to accrue till the end of 201314.
Two other key aspects that could affect broadcaster profitability would
be:
The pending resolution of the royalty dispute between radio
broadcasters and music companies and Control on selling and
marketing expenses
Profitability-dth
Operating margins of DTH operators to improve from current levels

The success of a direct-to-home (DTH) business will depend upon the
scale of operations that can be built up by garnering subscribers while
managing content costs.
Managing customer acquisition costs will be critical for the
profitability of DTH operators.
We have considered the financials of two DTH operators that are
available in public.
Revenue growth over the past few years has been driven primarily by
a healthy increase in the subscriber base. Operating margins too have
been improving from earlier levels, although operators continue to incur
losses at the net level.
Financial performance of DTH operators
Financial performance of DTH operators

In the coming years, operator will focus on improving ARPUs and
increasing subscriber base.
Most operators have hiked STB prices and the prices of their channel
packs, enabling an improvement in ARPUs.
The rest are expected to do so too.
This is however likely to slow down subscriber additions.
With marketing and distribution expenses expected to stabilise in the
coming years,
the operating margins of operators are expected to
improve by 100-200 bps over the next 2 years.

Content costs, the largest cost component, payable to broadcasters
would be a key determinant of the operator's profits
Profitability-MSO
Operating margins of operators to improve over the next 2 years
Looking at the financial performance of 3 leading MSOs, which have

posted a healthy increase in revenues last year.
This is primarily attributable to the increase in the declared subscriber
base and also owing to better terms of negotiation with the LCO, as a
result of the digitisation mandate.
Financial performance of MSOs

Consolidation is expected in the television distribution space as a result
of the mandate, with MSOs acquiring other MSOs and also many
smaller LCOs.
Over the next 2-3 years, we expect subscription revenues to account for
a larger proportion of revenues, as against the carriage and placement
revenues at present.
Revenue growth would be driven primarily by a spike in the digital
subscriber base, whereas pressure on ARPUs, owing to increasing
competition, will keep its contribution low.

Post digitisation, content costs paid to broadcasters would become a
key monitorable on the cost front as broadcasters are expected to
command a greater share of the subscription revenues.
Besides the content costs paid to broadcasters, another monitorable
would be the movement in carriage and placement revenues, once
digitisation begins to take complete effect in the metros and larger
cities.
We expect the operating margins of MSOs to increase by around 200
bps over the next 2 years from their 2011-12 levels, driven increasing
digital subscriber base, thus ensuring higher subscription revenues for
the MSO .
Profitability-broadcaster
Digitisation to improve broadcaster margins

The current slowdown in advertising has impacted television channels,
though news channels have been more affected than general
entertainment channels (GECs).
Programming costs continue to be high across all channels while the
effect of high distribution costs (in the form of carriage and placement
fees) is again being felt more in news channels.
The following is the aggregated financial performance of 2 GECs and 3
news channels over the last few years.
Owing to the reasons stated above, operating margins of GECs have
been far higher than those of news channels, as the latter struggle to
contain costs and break-even.
Financial performance of GECs
Financial performance of news channels
Financial performance of news channels

We believe that broadcasters will continue to depend on advertising to
achieve revenue growth and improvement in advertising revenues will
come only with a revival in the macro-economic environment .
However, subscription revenues are expected to increase faster than
earlier, as the benefits of digitisation begin to accrue and the broadcaster
gets a larger share of subscription revenues than earlier.
Further, digitisation is expected to bring down distribution costs and
thus benefit broadcasters, particularly news channels.
Controlling production costs without compromising on the quality of
programming will remain a key challenge for all channels.
We expect the operating margins of broadcasters to expand by around
200 bps over the next 2 years from current levels.
Demand forecasting
methodology
Advertising spends forecast - approach and methodology

To forecast growth in advertising spends, we have blended two
approaches - bottom-up approach, which takes into account the
advertising spends of key advertising sectors, and a top-down
macroeconomic approach.
The top-down approach stems from our projections of GDP growth.
The bottom-up approach, which has primarily been used for near-term
forecasts, is based on the forecast of advertising spends across the
FMCG, BFSI, telecom services, automobiles, education, retail, mobile
handsets, household appliances and ready-made garments verticals.
Together, these sectors are estimated to contribute 75 to 80 p e r c e n t o
fthetotaladvertisingspends.
Advertising spends forecast - approach and methodology

The main steps followed to arrive at the bottom-up forecasts are:
The revenues of the large advertising sectors were projected
The ratio of advertising spends-to-revenues of the sector was estimated
using a representative set of companies
The distribution of the resultant advertising spends across various
media platforms was estimated for each sector. For e.g., the FMCG
vertical directs 60-70 per cent of its advertising spends towards
television.
These spends are then aggregated to get the advertising spends on
different media vehicles (such as print and television).
Advertisement forecast methodology

Analysis of Media and Entertainment Industry

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Analysis of Media and Entertainment Industry

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Analysis of

Media and Entertainment

Industry structure and characteristics

Industry structure and characteristics

Industry structure and characteristics

Television value chain

Types of television content

Types of television content

Broadcasters struggle for placement of channels in analogue

Choked analogue networks have made carriage fee payment an

Television: Cable Network Capacity & number of channels that can

Television: Cable Network Capacity & number of channels that can

Television: Cable Network Capacity & number of channels that can

Revenue streams for broadcasters

Programming genres available

Television broadcasting: Different genres and key players

Television delivery mechanism

Emergence of new delivery platforms changing the balance of power

Television: Comparison of various delivery media from the

Television: Comparison of various delivery media from the

Television revenues and advantages

Industry structure and characteristics

Newspaper: Publication and region of dominance

Regional newspapers have a higher readership-to-circulation ratio

Regional newspapers have a higher readership-to-circulation ratio

Supply chain for newspapers

Circulation revenues earned by a newspaper are a function of the

Price, brand strength and distribution muscle of the newspaper

Advertising revenues earned by newspaper publishers are dependent

Readership reach (used by media buyers to determine cost per

Advertising revenues drive the newspaper industry

All newspapers heavily dependent upon advertising revenues

Advantages of print media

Disadvantages of print media

Industry structure and characteristics

Revenue share of the Indian Film industry

Revenue share of the Indian Film industry

This is in contrast to the US film industry, which earns around 35 per

Film industry value chain

Film production process

Multiple revenue streams safeguard film revenues

Revenue stream for a film producer

Revenue stream for a film producer

Institutional lending to the film industry

Film distribution process

Film distribution highly fragmented

The distribution segment of the films industry is highly fragmented

Distribution of revenues between distributors and producers

Distribution of revenues between distributors and producers

Revenue stream for a film distributor

Revenue streams for a film exhibitor

Segmentation of film exhibition

Multiplex cinemas gaining ground

Multiplex business mode

Multiplex business mode

Comparison of multiplexes and single/double screens

Multiplexes to be key growth driver for the film industry

Multiplexes to be key growth driver for the film industry

Multiplexes beneficial to every stakeholder across the value chain

Distribution of revenues between exhibitors and distributors

Distribution of revenues between exhibitors and distributors

Radio broadcasting: Brief history

Migration to revenue-sharing regime leads to higher levels of

FM radio broadcasting: Key players and number of stations (as at