Media & entertainment revenues to double by 2010

MUMBAI: The media and entertainment (M&E) industry revenues are expected to double on an aggregate basis from an estimated Rs 361 billion (Rs 36,100 crores) in 2005 to Rs 744 billion (Rs 74,400 crores) by 2010 according to Crisil Research.


This double growth in revenues translates into an annual growth rate of 15.6 per cent during this period.


Crisil Research head Nagarajan Narasimhan said, “The media and entertainment sector is expected to be one of the key beneficiaries of the increase in discretionary spending by the Indian consumer. All segments in the industry are projected to grow, but growth in television and radio segments would be particularly impressive. The music industry, however, is expected to continue to show tepid growth.”


Factors such as the presence of multiple players, greater choices to consumers and investor interest have spurred growth in the sector so far. Convergence is now expected to increasingly influence the future growth in the sector. Convergence is changing the way consumers consume content and the way content is delivered to consumers. This will require players to re-tool and adapt their business models to flourish in an increasingly converged world.


Conventional distribution mechanisms in the industry are expected to change. This, in turn, will influence the bargaining power of the different players in the value chain, as also the form taken by content.


“In television, we expect the balance of power to shift in favour of broadcasters with the adoption of alternative distribution platforms such as DTH (Direct-to-Home), CAS (Conditional Access System), and IPTV (Internet protocol television). The implementation of digital technology and the advent of multiplexes as the preferred movie viewing alternative is fast changing the way movies are distributed and seen, and the world of music distribution is rapidly going digital and mobile,” says Nagarajan.


Globally, technological advances and the proliferation of broadband internet are re-defining conventional business models in the sector that are based on pushing content through various distribution media to passive audiences.


Nagarajan adds, “While it is true that developing countries such as India are much less exposed to the disruptive effects of new technology, with internet availability and access increasingly becoming ubiquitous, Indian media barons will still need to adapt their business models to the new conditions. As in more developed markets, in India too, media distribution channels and audiences will get increasingly fragmented, thereby presenting opportunities as well as challenges for industry players and media planners.”


With the M&E sector expected to witness buoyant growth, Crisil Research expects the profitability of industry players, especially that of established large players, to remain strong.


As for films, Crisil Research expects the profitability of players in the multiplex cinemas space to improve, but increasing bargaining power of producers, high real estate prices, increasing competition, and the eventual loss of entertainment tax benefits are potential downsides to profitability. With the economics of film production improving, the financial performance of players should also improve, as long as time and cost budgets are kept under control. Profitability of film distributors will remain volatile.


Television broadcasters are expected benefit from an increase in satellite television subscribers as well as increasing transparency in the cable distribution system. The recent government fixing a cap on pay channel prices in the Conditional Access System (CAS) notified areas is a negative for broadcasters. The demand for television content is bound to increase significantly, but profitability would hinge on the ability of content producers to identify audience tastes and preferences and control programming costs.


Crisil Research expects the financial performance of newspaper publishers to be healthy over the medium-term, as a result of increased circulation and readership. But smaller players may face margin pressures due to price cuts by publishers keen on creating/growing their markets as also high newsprint costs.


The changes in the FM radio licensing regime and expected growth in advertising spends channelled towards radio bode well for existing players as well as new entrants in the nascent radio broadcasting segment. For players in the music industry, profitability and growth would be critically dependent on their ability to monetise content in non-physical form and also controlling their fixed costs.