The current challenging global economic environment has led to moderate expectations for the Indian media & entertainment industry for 2009, but the projections for the coming years are still strong. While the sector grew 15% annually in the last five years to a $11.68-billion (Rs.584 billion) industry in 2008, the growth rate is expected to remain subdued at 7.5% in 2009 and 10% in 2010, according to a latest report by the global consultancy firm KPMG and the Federation of Indian Chambers of Commerce and Industry (FICCI), India’s premier trade organisation representing more than 1,500 companies and more than 500 chambers of commerce and business associations.

Even the projection for 2009-13 has been reduced to 12.5% compound annual growth rate (CAGR) from the earlier prediction of 18% for the period of 2008-12. Yet, over the next five years, the industry is projected to cross the mark of $21 billion from $11.68-billion in 2008. The table given explains how the growth rate is expected to improve again in the years to come: 

 Present Tense, Future Perfect

The KPMG-FICCI report has rightly mentioned that in many ways, 2008 was a testing time for the industry. “With the global economic slowdown affecting advertising spends, sectors like television, print, radio and outdoor that depend on advertising revenues were affected,” says the study. Despite this situation, the report looks forward for better days, saying that “Behind every adversity lies an opportunity. Media companies are under pressure to change, innovate and re-examine their existing business models. Companies need to draw upon new capabilities to survive in this environment.”

Even after lowering the growth projections compared to the earlier figures for 2008-12, the growth rate during 2009-13 is pegged at 27.9% for Internet, 14.5% for television industry, 14.2% for radio business, 12.4% for advertising industry, 9.1% for film industry and 9% for print media. The highest growth of 33.5%, however, is projected for gaming, which is worth only $130 million as of now.

Television, which forms the largest chunk of the Indian media & entertainment industry, is expected to grow to $9.45 billion in 2013 from $4.81 billion in 2008, registering a CAGR of 14.5%. Print media, the second largest segment of the industry, is expected to grow to $5.32 billion in 2013 from 3.45 billion in 2008 with a CAGR of 9%. Film business is projected to grow to $3.37 billion in 2013 at 9.1% CAGR from $2.18 billion in 2008. Animation business, in which a number of Indian companies have started making their inroads in to the International markets, is predicted to touch $788 million in 2013 from $348 million in 2008 growing at 17.8% annually in this period.  

Surviving The Downtrend, Preparing For The Future Growth

The current phase of challenging environment, however, will force the media & entertainment companies to innovate and revamp their strategies. Considering the slowdown in advertising revenue, television and print companies may increase their thrust on subscription revenue. The total annual subscription fee received by all the TV channels is estimated at $0.5 billion, only about one sixth of the total subscription revenue of the television industry, suggesting that there is a huge scope for improvement on this front.

The media companies are also bound to feel the need of cost-rationalisation, leading to restructuring of programming costs, carriage fee and compensations etc. The current annual outgo as the carriage fee is pegged at $0.3 billion, which is expected to come down this year. The growing acceptance of the digital TV distribution technology will help the broadcasters on both the fronts of reducing carriage fee and increasing subscription revenue. The Indian government has already given an indication that it is considering a policy intervention to prescribe a period of five years for the existing and new multi service operators (MSOs) and local cable operators will have to digitalise their network.

Also, the entry of new direct-to-home (DTH) service providers will not only heat-up the competition in this segment, but also expand the overall market size. The DTH subscriber base in India has already gone up to 10 million in 2008 from one million in 2005. The KPMG-FICCI report predicts the DTH subscriber base to reach at 28 million by 2013.

The pressure to reduce the cost will be there on the print media also. Yet, the size of print media is expected to move up to $5.32 billion in 2013 from $3.45 billion in 2008, registering a CAGR of 9%. While the subscription revenue of print media is expected to increase to $1.84 billion in 2013 from $1.28 billion in 2008, the advertising revenue of the segment is projected to move up to $3.48 billion from $2.16 billion during this period.

The film industry of India, which is the largest producer of movies in the world, also seems to be following a similar storyline. Although the year 2009 is predicted to be a no growth year for this industry, the CAGR during 2009-13 is pegged at 9%, with the size of the industry moving up to $3.38 billion in 2013 from $2.18 billion in 2008. Domestic theatrical business will continue to be the largest chunk of the pie contributing more than 70% of the total business of film industry. Domestic theatrical business is expected to increase to $2.4 billion in 2013 from $1.6 billion in 2008. The overseas theatrical business, however, is expected to almost double in this period, to $0.38 billion in 2013 from $0.2 billion 2008. Film Industry’s revenue from home video is also expected to move up to $0.32 billion in 2013 from $0.18 billion in 2008.

Projections For Advertising Also Lowered, But Five Year Outlook Still Decent

The KPMG-FICCI study has lowered the projections for the advertising industry also, which had registered a growth of 20% in the period of 2004-07. The KPMG-FICCI report suggests that the compound annual growth rate in the next five year period of 2009-13 will be 12.4%. Earlier, in the previous year’s report prepared by PricewaterhouseCoopers (PWC)-FICCI, the advertising industry was projected to grow at 18% annually in the five year period of 2008-12. Despite this slowdown, the Indian advertising industry is placed in a much better situation compared to the U.S. or Europe. Just for a comparison, the advertising rates in the U.K. have reached the bottom of last 20 years. 
 

 
Economic Growth: The Key Driver For Indian Media & Entertainment Sector

As discussed earlier, a number of factors that are expected to drive the growth of Indian media & entertainment sector will actually drive the entire Indian economy. There is a direct co-relation in the performance of the Indian economy and media & entertainment sector. The advertising industry grew by 17.1% CAGR during the three years of 2006-08, as the Indian economy delivered more than 9% growth in the gross domestic product (GDP) during these years. Now, with the growth of Indian economy cooling down to about 7%, a slowdown in the media & entertainment industry is quite natural. Yet, the growth projections for the period of next five years put this sector as one of the most lucrative investment opportunities.

There are a number of reasons to be optimistic about India’s media & entertainment industry, including the factors that contribute to the high growth of the Indian economy. Despite the high growth achieved during the recent years, almost all the segments of the media & entertainment industry have a low penetration compared to the international average. For example, the cable & satellite penetration in the country is just about 50%, leaving half the market untapped. The advertising spend-to-GDP ratio is also very low compared with the developed countries. On the other hand, the growing middle class, young population and increasing discretionary spending are the factors that not only help the overall economy to grow at a healthy pace, but also create a conducive environment for the media & entertainment industry. Apart of that, low average revenue per user (ARPU) in various segments of the industry is both a challenge as well as an opportunity from an investor’s point of view. Due to the growth prospects coupled with the low valuations, Indian media & entertainment companies offer attractive investment avenues to foreign investors.