The Digital March
Media & Entertainment
in South India

India
Media & Entertainment Business Conclave – Bengaluru
For priv...
Disclaimer
This Report and the information contained herein
has been prepared by Deloitte Touché Tohmatsu India
Pvt. Ltd (...
Contents

Message from FICCI					4
Message from Deloitte Touche Tohmatsu India Pvt Ltd 			

5

Executive summary					6
Fil...
Message from FICCI

Mr. A. Didar Singh
Secretary General
FICCI

Dr. Kamal Haasan
Chairman
FICCI Media & Entertainment Busi...
Message from Deloitte
Touche Tohmatsu India
Pvt Ltd (DTTIPL)
The Indian Media & Entertainment industry is rapidly
evolving...
Executive summary

The South Indian Media and Entertainment (M&E)
industry is growing in size, driven by the popularity of...
Tamil Nadu and Andhra Pradesh constitute 70% of
the South Indian M&E industry. The M&E industry in
Tamil Nadu is expected ...
Key emerging trends
Film
The South Indian film industry with 831 films,
accounted for over 50% of total films certified ac...
Radio
The radio industry enjoys greater acceptance in the
South than in the rest of the country and thus stands out
amongs...
Film

South India’s large and active film industry caters
not only to the masses but also to niche segments.
While big bud...
Number of films certified
The South Indian film industry with 831 films, accounted
for over 50% of total films certified a...
While talent for visual effects and digital colorization in
South India matches global standards, skillsets in the
special...
Filming in digital formats and 3D: a leap to the
next level
As per industry sources, about 70-80% of South Indian
films us...
As film makers continue to enhance
their presence on YouTube and
Facebook to engage the youth audience,
some of the player...
•	 Tamil film, 'Vishwaroopam' posted updates about
the film and the experiences of crew members on its
Facebook page. The ...
Regional media on digital platforms
Driven by an increase in mobile and internet penetration
across India, OTT players, pr...
Regional content on national media
Introduction
Over the past three years, the Hindi film industry has
witnessed numerous ...
Human capital challenges in the Film industry
Workforce priorities in the film industry
Given the large number of films pr...
Television

Overview
The South Indian television (TV) industry is continuously
evolving and innovating in response to its ...
Figure 3.2: Share of various constituents of South TV industry in FY 2013* and FY 2017E
South TV Industry – FY 2013*

Sout...
Table 3.1: % share of states in South India’s population vs subscription revenues
State

% Share of South Indian
populatio...
Digitization
India’s large analog cable market is in the process of
getting digitized in four Phases, driven by a governme...
infrastructure for an MSO), other models for delivering
cable may emerge, such as Head-end In The Sky (HITS).
A HITS model...
In South India, in fact, players have already started
hiking ad rates. Sun TV network successfully raised
ad rates for wee...
Content
Market size
Content revenues in the South Indian TV industry were
valued at INR 510 Crore during FY 2013, a growth...
The era of niche channels
With digitization providing a platform for a large
number of channels, and consumers being able ...
However, distribution platforms see HD providing a
strong push for acquiring subscribers. Videocon d2h
for instance report...
Current Scenario
With more and more users wanting to consume
content ‘on the move’, broadcasters are creating
a digital un...
shows among households. However, there are several
challenges faced by the industry today, some of which
are outlined belo...
Conclusion
The South Indian TV industry is expected to continue
on its growth trajectory, with technology aiding the
proce...
Print

South India is one of the strongholds of the Indian print
industry with four states representing about 30% of the
I...
Figure 4.2: Print readership split across languages in India and South India – FY 2013

English*
10%
Vernacular
non-South
...
Figure 4.4: English Print Industry Revenues in South India; E: Estimated (INR Crore)
CAGR
(2013 –2017)

3,440

3,740

3,53...
Figure 4.5: Split of subscription and advertising revenues for each market in FY 2013 (INR Crore)
Tamil Nadu

Andhra Prade...
Advertising revenues contributed between 65% - 70%
of total revenues of South Indian Print industry in FY
2013. Local adve...
Concerns in the print industry
The print industry in South India has been able to
maintain its vigor through tough times, ...
scroll with minute-by-minute updates. It also enables
sharing of articles, photos and videos via email,
Facebook and/ or T...
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’
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FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’

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FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’ pegs Southern Media & Entertainment (M&E) industry growth at 16% CAGR to reach INR 43,600 crore by FY 2017 against the current INR 23,900 crore in FY 2013. Southern India media and entertainment industry’s growth will be mainly driven by popularity of vernacular content, rapid digitization and the evolving ecosystem. More details at - http://bit.ly/1jwuuDC

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FICCI- Deloitte report - ‘Media & Entertainment in South India - the Digital March’

  1. 1. The Digital March Media & Entertainment in South India India Media & Entertainment Business Conclave – Bengaluru For private circulation only October 2013 www.deloitte.com/in
  2. 2. Disclaimer This Report and the information contained herein has been prepared by Deloitte Touché Tohmatsu India Pvt. Ltd (DTTIPL) solely for the purpose of general information. The reader shall not use this Report for any other purpose and in particular shall not use this Report in connection with the business decisions of any party and for advisement purposes. This Report contains analyses that are intended to provide high-level information on the subject and are not an exhaustive treatment of the subject. The analyses in the Report are limited by the study conducted, the time allocated, information made available to DTTIPL or collected by DTTIPL. DTTIPL accepts no responsibility or liability to any party in respect of this Report. This Report is not intended to be relied upon as a basis for any decision and the reader should take decisions only after seeking professional advice and after carrying out their own due diligence procedures, detailed analysis to ensure that they are making an informed decision. This Report is not and should not be construed in any way as giving any investment advice or any recommendations by DTTIPL to the reader or any other party. The reader shall be solely responsible for any and all decisions (including the implications thereof) made by them on the basis of this Report. This Report has been prepared on the basis of information made available, obtained and collected by DTTIPL in association with FICCI. The sources of any material information used in the Report have been mentioned or cited herein. The information obtained and collected from various primary and secondary sources has been used on an “as-is” basis without any independent verification by DTTIPL. DTTIPL shall not be responsible for any error or omissions, or for the results obtained from the use of this information and provides no assurance regarding the accuracy, timeliness, adequacy, comprehensiveness and/ or completeness of such information and provides no warranty of any kind, express or implied, including, but not limited to warranties of performance and fitness for a particular purpose. DTTIPL shall not be liable for any losses and damages arising as a result of any inaccuracy or inadequacy or incomprehensiveness or incompleteness of such information.
  3. 3. Contents Message from FICCI 4 Message from Deloitte Touche Tohmatsu India Pvt Ltd 5 Executive summary 6 Film 10 Television 19 Print 31 Radio 39 New Media 46 Analytics in Media companies 51 Accounting challenges 54 Overview of Domestic Tax 56 Indirect Tax implications 60 Transfer pricing issues 62 M&A in Media – Key opportunities and challenges 65 About Deloitte 68 About Deloitte’s Media Practice 69 Acknowledgements 70 Contacts 71 The Digital March Media & Entertainment in South India 3
  4. 4. Message from FICCI Mr. A. Didar Singh Secretary General FICCI Dr. Kamal Haasan Chairman FICCI Media & Entertainment Business Conclave - South As we present to you the 2013 edition of our South India Media and Entertainment (M&E) industry, FICCI would like to thank Deloitte Touche Tohmatsu India Private Limited, our knowledge partner, for their continued support through the years and their efforts towards developing this year’s report. to embrace technology across the value chain with increasing number of filmmakers as well as exhibitors going the digital way. The TV industry is also adopting high-definition technology while enabling multi-screen viewership of content so as to cater to its consumers. Print and Radio are not far behind in their quest to entertain consumers through the digital medium. The South India M&E industry continues to grow and innovate, owing to the demands of its consumers. All media platforms viz. films, TV, print and radio are pushing content on the digital medium so as to enhance reach. The Government’s digitization mandate for the TV industry and the upcoming Phase III of radio frequency auctions will aid further penetration of the media along with an enhanced consumer experience. The film industry in South India accounts for over 50% of total films certified in India. The industry continues 4 Going forward, quality of content placed on the digital medium as well as the players’ ability to monetize it can prove to be a major revenue earner for the industry. FICCI acknowledges the valuable inputs provided by all industry players and those who have graciously devoted time to share their views in helping Deloitte put this report together.
  5. 5. Message from Deloitte Touche Tohmatsu India Pvt Ltd (DTTIPL) The Indian Media & Entertainment industry is rapidly evolving to reflect the sheer diversity of India. South Indian media industry remains the “poster boy” of the thriving regional Media & Entertainment industry, with people in South India demonstrating a penchant for local content. Marketers are paying heed to the rising disposable incomes and purchasing power in South India. National brands have realized the need to localize campaigns, leverage regional stars as brand ambassadors and use local media to effectively reach target consumers in the South. Our objective through this report is to present a picture of the vibrant Media & Entertainment industry in South India encompassing Films, Television, Print, Radio and New Media segments. The Media & Entertainment industry in South India was estimated at INR 23,900 Crore in FY 2013. The industry is poised to grow at a CAGR of 16% till FY 2017, driven by demands of its ever-discerning consumers and endeavors by media vehicles to expand their presence. While enabling regional media players to reach their target audience, the industry continues to attract national players to explore this growing South market. The market is dominated by Television (~56%), followed by Print (~ 28%) and Films (~11%). Sectors such as New Media and Radio, though smaller than other mediums, are expected to grow at rates higher than the industry average, given their increasing power of engagement. Films rule the hearts and minds of the people in South India. The region churns out more films than Bollywood. South Indian films are also getting bigger by the day, both in terms of gross revenues and budgets. Film stars are idolized by the masses, with superstars like Rajnikant enjoying a cult fan-following not just in South India but in pockets all over the world. Players in South India continue to be pioneers of technology usage in film-making, surpassing even mainstream Bollywood films. The trend of remaking popular South Indian blockbusters continues as producers realize the entertainment value of these films, which transcend regional boundaries. Furthermore, an increasing number of Tamil and Telugu films are being dubbed for satellite broadcasting on national channels. The TV industry in South, as at the national level, is undergoing a metamorphosis with digitization underway in various cities. It is changing the way consumers view television, with broadcasters also seeing an opportunity in creating and showcasing digital content. South continues to be the stronghold of print industry especially due to the reach and engagement abilities of vernacular papers. The regional print industry, having recognized the importance of digital medium and its ability to connect with the youth along with rest of the population, continues to invest in offering customized news/videos through online portals and mobile applications. The Radio industry continues to focus on localized content and differentiated programming in South India. With Phase III of radio frequency auctions expected in FY 2014, players are gearing up to further their reach and strengthen engagement with the consumers. The success of New Media not only depends on accessibility and devices, but also on the development of a viable online eco-system. South Indian media industry holds great potential in leveraging the availability of quality vernacular content to create this eco-system. As the penetration of internet expands beyond key cities in the region, it will be interesting to see how the players in other media take advantage of the New Media platform. We would like to take this opportunity to thank all the industry players for actively participating in this endeavor. We would also like to thank FICCI for partnering with Deloitte to present this report at MEBC 2013 in Bengaluru. The Digital March Media & Entertainment in South India 5
  6. 6. Executive summary The South Indian Media and Entertainment (M&E) industry is growing in size, driven by the popularity of vernacular content among the region’s populace. While the popularity of film stars remains the most powerful trigger for films, digitization in the television sector is providing consumers access to a higher number of TV channels, a better viewing experience, and other value added services. Print, both in its English and vernacular forms, is widening its portfolio and markets to capitalize on the readership base in South India. As listeners become more selective, the radio industry in the South is tuning its programming towards local preferences, thus becoming a more integral part of life in South India. In fact, listeners in South India spend more time on radio as compared to those in other parts of the country. With a rich M&E industry driven by strong local demand, South India is poised to attain a greater position of strength in the coming years. Converting this potential into reality depends on the industry’s ability to continue to develop quality content as well as to deliver it through best-in-class platforms, both within India and abroad. Overview of the South Indian market In FY 2013, the overall South India M&E industry was pegged at INR 23,900 Crore. Owing to the evolving ecosystem and demand, the market is expected to grow at a CAGR of 16% to reach INR 43,600 Crore by FY 2017. Television constitutes the largest segment of the South Indian M&E industry and is currently estimated at INR 13,470 Crore accounting for the largest share of the overall market at 56%. The medium is expected to grow at a CAGR of 20% over the next four years due to benefits of digitization being realized. Print is the second largest segment accounting for 28% of the overall market in FY 2013 at INR 6,680 Crore. With players identifying innovative ways to reach out to their readers, Print industry is also expected to see steady growth going forward. Film, buoyed by an ardent fan following in the South, is the third largest segment at INR 2,680 Crore. Radio, with the upcoming Phase III auction and New Media, propelled by the consumer’s demand to access content ‘anytime, anywhere’, are expected to grow at a CAGR of 19% and 23% respectively, over the next four years. Figure 1.1: Overall South India Media and entertainment market 2013-17; E - Estimated (INR Crore) R– CAG 16% 43,600 23,900 2013* 2017E * 2013 is an estimate of the current size Source: Industry discussions and Deloitte analysis Table 1.1: South India Media and Entertainment market 2013-2017 – Media wise; E: Estimated (INR Crore) 2013* 2014E 2015E 2016E 2017E CAGR (2013–2017) Film 2,680 3,010 3,370 3,780 4,220 12% Television 13,470 16,540 20,180 24,090 27,960 20% Print 6,680 6,950 7,540 8,260 9,020 8% Radio 420 460 560 690 830 19% New Media 690 850 1,050 1,290 1,600 23% Total 23,900 27,800 32,700 38,100 43,600 16% * 2013 is an estimate of the current size Source: Industry discussions and Deloitte analysis. The market size numbers have been rounded off, which might lead to some rounding off error 6
  7. 7. Tamil Nadu and Andhra Pradesh constitute 70% of the South Indian M&E industry. The M&E industry in Tamil Nadu is expected to grow at a slightly higher rate than the other states of the region, with all four media platforms expected to grow faster in the state. Figure 1.2: South India Media and Entertainment market 2013 – Media wise split Figure 1.3: South India Media and Entertainment market 2013 – State wise split 2% 3% 14% 28% 36% 19% 56% 11% Television 31% Film Print Radio New Media Source: Industry discussions and Deloitte analysis Tamil Nadu Andhra Pradesh Karnataka Kerala Note: New Media has not been included in the state level market size calculations Source: Industry discussion and Deloitte analysis Table 1.2: South India Media and Entertainment market 2013-2017 – State wise split; E: Estimated (INR Crore) 2013* 2014E 2015E 2016E 2017E CAGR (2013–2017) Tamil Nadu 8,420 9,970 11,800 13,810 15,850 17% Andhra Pradesh 7,140 8,210 9,620 11,180 12,740 16% Karnataka 4,340 4,980 5,850 6,780 7,710 15% Kerala 3,350 3,800 4,380 5,050 5,730 14% Total 23,300 27,000 31,700 36,800 42,000 16% Note: New Media has not been included in the state level market size calculations * 2013 is an estimate of the current size Source: Industry discussion and Deloitte analysis The Digital March Media & Entertainment in South India 7
  8. 8. Key emerging trends Film The South Indian film industry with 831 films, accounted for over 50% of total films certified across India1. The number of films certified increased by 36% over 2011, primarily driven by a spike in Cable & Satellite (C&S) rights’ prices. However, the number of films released increased by only 8%2 during the same period as some producers chose not to release their films due to the high marketing costs associated, and as a result of a correction in the C&S rights’ prices in some of the markets. With over 90% of exhibitors using digital projection, filmmakers are more inclined to shoot their films digitally3. The industry continues to embrace technology in other parts of the ecosystem as well, be it experimenting with scouting talent through social media, adopting newer film making technologies in terms of sound and filming, distributing films digitally or embracing e-ticketing platforms. Furthermore, with the onset of digital prints, increase in C&S and remake rights’ revenue, the producers are getting opportunities to recoup their costs in a shorter duration. Television The Television industry in South India is on a transformation path, driven by the Government’s digitization mandate. It is one of the most flourishing regional media segment in terms of availability of content, reach and distribution. Over the years, it has seen increased action from regional as well as national advertisers. In fact, regional advertisers now contribute almost 40% of the TV industry’s advertisement revenues in states such as Tamil Nadu and Kerala4. The industry is also leveraging technology to enable multi-screen viewership of television content for viewers who are constantly on the move. Producers and broadcasters are looking to shoot as well as telecast content in high definition (HD) formats. Going forward, developing innovative programming content, identifying niche genres and expanding markets through new content delivery platforms, is expected to drive the South India TV industry. Print South India, driven by a high literacy rate and a sizable vernacular readership base (30% of total readership in India) is one of the strongholds of the Indian print industry. Amongst the four regional states, Tamil Nadu and Andhra Pradesh account for ~58% of the total revenue. Most of the markets in the region are dominated by English print in terms of revenue except Kerala, where vernacular prints accounts for nearly 90% of the revenue. However, the advertising revenue from vernacular print in the region is estimated to grow at twice the pace of that of English, largely driven by local advertisers and increasing focus of national advertiser’s beyond Tier 1 cities. Hence, some of the English players are now launching vernacular dailies to not only consolidate their presence in South India but also partake in vernacular growth. The industry is testing various business models to identify the right monetization opportunities in online space by developing mobile applications and mobile optimized websites. However, the future depends on how well the industry deals with the weak economic environment as well as the key issues of sustaining subscription revenues, monetizing online content and giving advertisers innovative ways to reach out to the readers. 1 2 3 4 8 Film Federation of India Industry discussions Industry discussions Industry discussions
  9. 9. Radio The radio industry enjoys greater acceptance in the South than in the rest of the country and thus stands out amongst its peers. This is indicated by relatively higher average radio listenership in cities like Bengaluru where people spend about 20 hours / week on radio while those in Delhi and Mumbai spend 13-14 hours / week5. The cultural diversity of cities in the South has fueled demand for localized content on radio. This has led to innovations in the type of content as well as the way in which content is being offered, so as to attract and retain audiences in a marketplace which is increasingly becoming crowded. Increasing presence of radio on the digital medium is also enabling it to reach listeners across the globe. With Phase III auction expected in FY 2014, the industry’s horizon will continue to expand. 229 of the 839 frequencies being auctioned are in 83 cities of the four Southern states. Phase III is expected to result in 294 frequencies (existing plus planned) in South India alone6. New Media The internet continues to have a profound effect on consumers’ viewing habits and the proliferation of devices is altering their media consumption behavior. With the increasing popularity of mobile broadband (3G) and the impending launch of 4G LTE services, mobile phones are expected to emerge as the preferred platform for consuming content. India already has over 65 Million smartphone users currently7. Utilization of existing bank of vernacular content, development of vernacular apps and improvement in connectivity infrastructure would define the growth trajectory of New media in South. The shift of users to web and mobile platforms for media consumption is expected to have a direct impact on growth of digital advertising as well. This is expected to grow at a CAGR of about 23% over the next four years. It would be exciting to see how players across M&E sectors experiment and innovate to effectively utilize and monetize new media platforms. 5 Industry discussions 6 Policy document on ‘Policy guidelines on expansion of FM radio broadcasting services through private agencies (Phase-III)’ 7 Report on internet trends, KPCB, May 2013 The Digital March Media & Entertainment in South India 9
  10. 10. Film South India’s large and active film industry caters not only to the masses but also to niche segments. While big budget films continue to account for a large chunk of revenues (~40%)8, smaller budget films with innovative subjects have been gaining popularity as well. The Hindi film industry has taken cognizance of the high entertainment value of South Indian films and has been remaking several successful Tamil and Telugu films. Further, increasing popularity of the digital medium has enabled producers to reach out to the overseas diaspora. Smaller budget films that are often unable to find theatres abroad are exploring web-enabled platforms to have a day-and-date release across the globe. However, the industry continues to face its share of challenges in digital piracy, rising marketing costs, shortage of quality theatres as well as skilled labor. Market size and overview Total revenues of the South Indian film industry were estimated at INR 2,680 Crore in FY 2013 (12% over FY 2012). The market is expected to grow at a CAGR of ~12% to reach INR 4,220 Crore by FY 2017, driven by a fervent fan base and growing revenue opportunities from satellite broadcasters and new media platforms. In 2013, Tamil and Telugu films together accounted for almost 90% of the revenue, with the rest being equally contributed by Kerala and Karnataka. While it is difficult to pick a genre of content that succeeds year-on-year at the box office, FY 2013 has seen reasonable success in comedy films, big star cast family entertainers and large budget action films. Just like Hindi films, South Indian films are witnessing a shorter theatrical window and rely on the initial weekend collections. While wholesome entertainers such as ‘Bulbul’ (Tamil) continue their dependable streak, smaller budget offbeat films such as ‘Attakathi’ (Tamil), ‘Pizza’ (Tamil) and 'Soodhu Kavvum' (Tamil) have also found a sizable audience. Figure 2.1: Film Market Revenues in South India; E – Estimated (INR Crore) CAGR (2013 – 2017) 4,220 3,370 260 200 3,010 2,680 190 150 220 170 300 350 18% 250 12% 1,750 3,780 12% 11% 1,870 12% 220 1,580 1,420 1,280 1,150 1,190 1,340 1,490 FY2013* FY2014E FY2015E * 2013 is an estimate of the current size Karnataka Tamil Nadu Andhra Pradesh Source: Industry discussions and Deloitte analysis 1,680 FY2016E FY2017E Kerala 8 Industry discussions and Deloitte analysis 10
  11. 11. Number of films certified The South Indian film industry with 831 films, accounted for over 50% of total films certified across India. The number of films certified increased by 36% over 2011, primarily driven by a spike in C&S rights prices. However, the number of films released increased by only 8% during the same period, as some producers chose not to release their films due to the high marketing costs associated, and as a result of a correction in the C&S rights’ prices in some of the markets. Increasing prominence of C&S rights Over FY 2013, Malayalam and Kannada markets have seen an increase in the value of C&S rights due to the demand from regional broadcasters. As per industry sources, with 4-5 regional GECs in each of these markets, smaller budget films increasingly rely on C&S revenues for breaking even. However, since the beginning of the current year, the broadcasters have reportedly become more selective in acquiring rights. Industry players believe that this could be due to the use of low-quality digital cameras by small budget films resulting in poor visual appeal on TV and rationalization of rights’ budget by broadcasters. Increase in production, marketing and exhibition costs As per industry sources, non-cast related production costs, comprising technician’s salaries, location rentals, travel expenses etc. have risen by almost 50% over the past year. Although post-production expenses have remained relatively stable, marketing costs and theatrical rentals have also seen a surge. New technology in filmmaking Taking a cue from global trends, South Indian filmmakers continue to adopt digital solutions to reduce costs, enhance quality, condense production time and streamline the overall production process. Film audiences in South India have traditionally been open to diverse genres, thereby encouraging filmmakers to explore themes that require advanced visual effects, such as action or adventure based films. Furthermore, the popularity of historical and mythological films in the past has aided South Indian filmmakers in becoming adept at using latest technologies. Table 2.1: Number of films certified in South India Category 2008 2009 2010 2011 2012 Tamil 175 190 202 185 262 Telugu 286 218 181 192 256 Kannada 162 177 143 138 128 Malayalam 88 94 105 95 185 South India 711 679 631 610 831 Source: Film Federation of India The South Indian film industry has certainly been at the forefront of cinema technology adoption having been first with digital cinema sound, non-linear editing and digital projection. The South has also wholeheartedly embraced digital cameras for film shoots in the last few years. Together, these innovations have truly democratized film making resulting in a significant growth in the number of small films, many of which have gone on to record runs! Consumers everywhere notice good product and technology helps achieve good quality at a lower price. Senthil Kumar Co-founder, Real Image Media Technologies The Digital March Media & Entertainment in South India 11
  12. 12. While talent for visual effects and digital colorization in South India matches global standards, skillsets in the special effects domain are still developing. Increased appetite for action films is inspiring producers to hire younger filmmakers with a formal education in postproduction. Exhibitors and filmmakers expect similar enhancements in audio, with AURO 3 and Dolby Atmos being more widely used over the next 2-3 years. The following table provides a snapshot of the impact that digitization has (or could have) on the various stages of the film making process in terms of time, cost and quality9. Figure 2.11: Impact of Digitisation on Film production, distribution and exhibition stages Pre Production Proportion of production costs 0.25 - 0.5% Production Production Post-Production 80-85% ~5-7% Marketing ~5-7% Distribution - Exhibition - Qualitative* degree of Digitisation Typical time Conventional Film process Digital Process Impact of Digitisation on Timelines Cost impact of digitization Quality/ Creativity considerations 1 - 6 months 3 - 8 months 2 - 3 months 1 - 3 months 1 - 2 months 1 - 3 months • Paper based scripting • Film based location selection, screen tests and costumes • Production using film based cameras • Recording content in film prints • The negative must be processed and scanned to digital for digital intermediate (DI) • Sound sync with picture during post production • Trailers are made in films and distributed • Physical distribution of films • Exhibition using conventional film based projectors • Scripting and storyboarding software • Digital capture, storage and transfer of screen tests and costumes • Capture is done using digital cameras • Recording and storage in digital memory • Footage can go directly into the DI pipeline • Sound in sync with picture during post production • Trailers are distributed in digital prints • Promotion on digital platforms (i.e. YouTube, Facebook etc) • Digital distribution over the satellite links or physical delivery of disks • Exhibition using digital 1K and 2K based projectors • Reduction in time for films with exhaustive location searches • Immediate access to final frame • Reduction in workflow in Sound and DI • Digital distribution of trailers over different medium • Large number of releases simultaneously reduces piracy • Allows producers a wider release possibility • Reduces cost of prints in screen tests • Reduction in raw stock, running expenses ,crew size leads to ~5 % savings • ~50% of consumables cost in postproduction comes down • Savings of about Rs.10-15 lakhs of trailer print for 500 prints • Digital print is only about 1/5th of the cost of film print • Single screen theatres must be viable to recover cost of projector • Increase in choice and improved creativity in costume designs • Accuracy in bringing concept to screen • Makes non-linear editing simpler and boosts creativity • The process is green • None • No major loss in quality from film print • Hollywood films are best viewed in d-cinema which is expensive than e-cinema *Maximum adoption of digitisation *Minimum adoption of digitisation 9 Industry discussions 12
  13. 13. Filming in digital formats and 3D: a leap to the next level As per industry sources, about 70-80% of South Indian films use digital cameras10. The larger budget Telugu and Tamil films are adopting advanced digital cameras, motion control systems and high quality sound and visual effects to match standards set forth by their Hollywood counterparts. Such attempts, although few in number, are raising industry standards. As per industry sources, the Kannada and Malayalam markets have limited number of trained cinematographers with knowledge of digital cameras11. Sound effects: Slow adoption of surround sound innovations With the onset of 3D visuals in films, some filmmakers are looking to adopt 3D sound technology as well. For instance, Kamal Hassan’s ‘Vishwaroopam' is the first Indian film and second film in the world to adopt the Auro 3D format12. However, filmmakers have been slow in adopting this technology due to the presence of only 1-2 studios across South India which offer mixing in Atmos 7.1 surround sound or AURO 3D13. Exhibitors are also less motivated to adopt these technologies due to high upgrading costs of about INR 25-40 lakhs14 associated with it. South India is dominated by three main digital distribution companies, namely Qube systems, UFO Moviez and Prasad PXD. As per industry sources, Qube holds about 65% of the screens in Tamil Nadu while UFO and PXD hold the remaining 25% and 10% respectively16. Way forward As the South Indian film industry continues to adopt digital cameras, advanced surround sound technology and digital prints, there seems to be a need for exhibitors to keep-up with the changing technology, in order to enable an enhanced viewing experience for consumers. However in the scenario where content plays a very important role in attracting audiences, it remains to be seen whether exhibitors would be motivated enough to invest in upgrades and recoup their costs through increased footfalls and/ or by raising ticket prices or will this need go unmet. Despite adopting the latest technology, many South Indian films do not match global sound quality standards. This is primarily due to the lack of skilled audiographers in the region. Digital prints and digital exhibition gains ground Single screens account for 90-95% of the theatres in South India of which almost 90% have upgraded to digital projection. However, some exhibitors in smaller towns of Kerala and Karnataka still use low quality digital projectors which lead to a poor viewing experience15. The increase in digital theatres has also encouraged filmmakers to shoot their films on digital cameras. While Tamil, Telugu and Malayalam have been quick to adopt digital filming technology, the Kannada industry lags behind primarily due to lack of skilled professionals with knowledge about filming in the digital format. However, the onset of digital prints has led to a narrower release window for smaller producers because the big-budget films book almost all the theatres during festive months and long weekends. 10 Industry discussions 11 Industry discussions 12 Kamal Haasan’s ‘Vishwaroopam’ is the first film to use Auro 3D in India, ibnlive.in.com, September 2012 13 Industry discussions 14 SPI Cinemas to install Dolby’s new Atmos tech across 37 screens, thehindubusinessline.com, June 2013 15 Industry discussions 16 Industry discussions The Digital March Media & Entertainment in South India 13
  14. 14. As film makers continue to enhance their presence on YouTube and Facebook to engage the youth audience, some of the players in South India have taken initiatives to monetize content through the ad supported as well as subscription based platforms. As connectivity in India improves, producers should see a larger portion of revenues from these digital platforms. The greatest advantage of new media is the ability to cater to the widespread South Indian diaspora across the globe. Suresh Babu Director, Suresh Productions Private Limited Use of digital media for funding, marketing and distribution Social media aiding crowd funding Social media platforms like Facebook, with over 82 Million monthly users in India17, allow producers to showcase snapshots of their films to a sizable populace. In addition, filmmakers are using the platform to drive engaged users to their blogs to seek investments. Crowd-funding has the potential to drive the production of more independent films; however it is unlikely to account for a significant share of the industry. Some directors who attempted, or are attempting crowd-funding in South India18 • Pavan Kumar, a Kannada film director created a Facebook page and ran a blog on crowdsourcing.org to fund his film titled 'Lucia'. The director was able to raise INR 51 lakhs in 10 days from over 100 investors. According to the director, his film’s unconventional script dissuaded him from approaching regular film financiers. • Karthik Ravi, a Tamil film director, also sourced INR 1.7 lakhs from about 20 people through a crowdfunding website Indigogo.com. 14 • V G Baburaj, a Malayalam film director is looking to raise INR 1.2 Crore through social media for his under-production film 'Chedam'. Academy Award winning sound designer, Resul Pookutty is also part of this project. Drivers for using crowd-funding in South Indian films: • Fragmented financers/producers: The regional film industry is fragmented thus making it difficult for new filmmakers to get funding. • Difficulty for non-star cast films: Popular South Indian film actors are often reluctant to experiment beyond conventional film themes making it more difficult for film-makers with niche subjects and a relatively less popular star cast, to approach financiers. • Ability to reach the global South Indian diaspora: Crowd-funding platforms, such as Kickstarter, can be accessed globally and hence allow film makers to approach the South Indian communities staying abroad. Film marketing on ad-supported platforms and social media The success of 'Kolaveri-di' on digital media has led South Indian film-makers to lay greater emphasis on digital advertising and social media promotion. Promotion on digital platforms particularly helps in reaching the next-generation audience. Digital film aggregators have created online channels on YouTube and Dailymotion which showcase their library of content. These channels have transformed into some of the most subscribed YouTube channels across the country, serving as prime areas to advertise upcoming films. • You Tube channels like ‘Telugu Film Nagar’ and ‘Telugu One’ are amongst the most subscribed channels across India19. These channels showcase full length films, songs, promos and trailers. In addition to digital advertising, social media promotion has gained enormous traction among filmmakers and celebrities. Today, celebrities have their own Facebook and Twitter accounts which are often managed by professional agencies. These platforms are used to keep fans engaged. Furthermore, the high engagement levels on these platforms make them effective tools for film promotion. • Blockbuster Telugu film,'Seethamma Vaakitlo Sirimalle Chettu' used contests on its Facebook page to keep audiences engaged20. 17 FB releases regional data of users: India has 82 Million users, radioandmusic.com, August 2013 18 Crowd-funding show gains pace with Kannada movie Lucia, over 100 people invest through Facebook & blog, Biswarup Gooptu, Sangeetha Kandavel, economictimes.indiatimes. com, April 2013 19 Youtube top 100 most subscribed India channels list, vidstatsx.com, 2013 20 SVSC uses social media for promotion, AW Phani, andhrawishesh.com, January 2013
  15. 15. • Tamil film, 'Vishwaroopam' posted updates about the film and the experiences of crew members on its Facebook page. The page also ran contests and gave fans an opportunity to win exclusive Vishwaroopam prizes21. While marketing on digital and traditional platforms is critical to engage younger audiences, industry sources state that word of mouth publicity will continue to be an important factor that makes a film succeed. New-media models for film distribution Film aggregators have seen the proportion of overseas views shift from 90% a couple of years ago, to around 60% today. With the existing 3G and impending 4G rollout, the portion of revenues driven by domestic viewers is expected to increase further22. In addition to web based platforms, film aggregators are also developing mobile applications to enhance content consumption. These mobile applications essentially provide a bouquet of YouTube channels and are often embedded in smartphones and tablets. According to aggregators, about 50% of the online consumption originates from mobile devices. An innovation in digital distribution The difficulty in releasing smaller budget films, led Kannada film director Pavan Kumar to develop his own web based, pay-per-view platform - hometalkies.com. The platform allows overseas consumers to view some of the latest Kannada films including his crowd-funded film 'Lucia'. The portal also serves as a marketing and distribution tool by providing viewers with a share of the revenue earned from links that they post. Viewers buying a film are given a link to the film, which they can share and earn a portion of the revenue generated by any purchase made through it. Mr. Kumar has been able to gather more than 800 distributors across the world through this innovation23. An initiative to curb online piracy Piracy is threatening both home video and digital revenues. To combat online piracy, the Anti-Video Piracy Cell (AVPC) of the Andhra Pradesh Film Chamber of Commerce (APFCC) has designed a free web application that helps users report cases of piracy to the AVPC instantly. The app is compatible with all smartphones and enables the APFCC to discover the source of piracy (either online or CD). The informants are rewarded for sharing valuable information about the pirates. However, it is too early to see the impact of this initiative24 25. e-Ticketing platforms In order to make purchasing of tickets more convenient, exhibitors in South India offer online ticketing. Some state governments are taking initiatives to expedite this trend: • On November 2012, the Kerala government decided to introduce e-ticketing in cinema houses across the state26. • The Andhra Pradesh Film Chamber of Commerce (APFCC) has partnered with theatre owners and producers to set up an online ticketing portal for about 1,500 single-screen theatres (representing ~50% of total screens27) across the state28. Online ticketing company BookMyShow has also extended its footprint in South India with its acquisition of Chennai-based Ticketgreen. The move has given BookMyShow access to partnerships with over 100 cinemas in southern states. BookMyShow is expected to further expand its footprint in South India29. "Digital distribution platforms and billions of connected digital devices are not only enabling film makers to reach global audience, but are also creating unique content monetization opportunities for the media industry beyond their traditional distribution platforms. Industry associations, film makers and service providers need to embrace digital distribution platforms to monetize on consumer’s evolving media consumption patterns.” Ravi Velhal Global Content Policy and Standards Strategist, Intel Corporation 21 Vishwaroopam creates buzz on social media, Prasant Naidu, lighthouseinsights.in, January 2013 22 Industry discussions 23 Lucia | By the people, Pavitra Jayaraman, livemint.com, August 2013 24 A new app to curb online piracy, Karthik Pasupulate, timesofindia.indiatimes.com, March 2012 25 Anti-piracy mobile app launched, timesofindia. indiatimes.com, April 2013 26 Kerala to introduce e-ticketing in movie halls, PTI, firstpost.com, November 2012 27 Film Federation of India, Industry Discussions, Deloitte Analysis 28 A portal to kill the black ticket, deccanchronicle.com, May 2012 29 Bigtree Entertainment acquires Ticketgreen.com, Peerzada Abrar, Radhika P Nair, economictimes. indiatimes.com, March 2013, Bookmyshow readies for Southern sortie, Bharani Vaitheeswaran, thehindubusinessline.com, September 2013 The Digital March Media & Entertainment in South India 15
  16. 16. Regional media on digital platforms Driven by an increase in mobile and internet penetration across India, OTT players, production houses and content aggregators are aggressively pursuing new digital distribution models. In addition to ensuring that their content can be viewed on mobile phones and PCs, these players realize the importance of regional content and thus have been forming alliances to license and acquire content. • Production Houses - Eros: Eros uses Ayangaran Studio’s Tamil film library on its internet subscription platform ‘Eros Now’32. • Content aggregators - Hungama: Hungama.com launched a digital store, Hungama Movies, in partnership with Intel Insider which offers viewers Hindi and regional content in various languages such as Bengali, Malayalam, Gujarati, Marathi, Telugu and Tamil33. Some examples include: • OTT players - BigFlix: BigFlix has partnered with Unisys Infosolutions, a VAS and enterprise messaging solutions provider, to offer over 200 full-length feature films in various regional languages including Tamil, Telugu, Kannada and Malayalam30. - Spuul: Film streaming service Spuul.com has strengthened its Tamil film library with the acquisition of over 50 Tamil classic titles from Rajshri Media31. Way forward The film ecosystem is showing an inclination towards new media platforms to not only market, distribute and monetize their content but also to source funding for it. However, it remains to be seen how these trends develop over time as the new media infrastructure becomes more widespread. 30 BigFlix partners Unisys Infosolutions for content, Saptarishi Dutta, medianama.com, March 2012 31 Spuul.com bolsters its Tamil film library with Rajshri deal, indiantelevision.com, February 2013 32 Eros Now launches Tamil movie section, indiantelevision.com, January 2013 33 Hungama launches movie offering in the Middle East, exchange4media.com, October 2012 16
  17. 17. Regional content on national media Introduction Over the past three years, the Hindi film industry has witnessed numerous successful remakes of South Indian films such as Ghajini, Pokiri and Singham, to name a few. Today, South Indian films match, and are often considered to be ahead of Hindi films in terms of production value, story-telling and the use of technology. These improvements in the overall quality of South Indian cinema have brought about an increase in interest to showcase dubbed versions of regional films on national broadcasting channels. Broadcasters: An attempt to reduce costs while maintaining ratings The escalating costs of acquiring C&S rights of Hindi films have led national broadcasters to look for alternative sources of content. South Indian films, especially those in Telugu and Tamil, have a high dose of action and drama coupled with good production values. This makes the content appealing to masses across the country. On an average, a Hindi film that has a production cost of about INR 10-15 Crore expects about INR 3-5 Crore for its C&S rights. In contrast, Hindi dubbed versions of South Indian films are available to the broadcasters for INR 1-2 Crore34. Appeal of the South Indian film content along with availability at relatively lower price, has led to an increase in interest among national broadcasters over the past 4-5 years. While the first six months of 2010 saw 25 telecasts of dubbed films on GECs, the number rose to 117 during the same period in 201235. This has also led to an increase in the cost of dubbing rights of about 15-20% over 201136. Remakes: The trend continues South Indian films have been a source of inspiration for mainstream cinema in Hindi for a long time. The entertainment value of the content is not limited to regional audiences. A successful film in South is likely to be a source for making successful content, for producers in other parts of India. Last few years have witnessed, leading Bollywood stars like Aamir Khan, Akshay Kumar, Salman Khan, Ajay Devgan enacting lead roles in Hindi remakes, which has further augmented the trend. This demand for remakes has opened another source of revenue for the producers in the South. Some of the popular remakes that have released in 2013 or are currently under production include37: Film Hindi Remake Stalin (Telugu) Mental Thuppakki (Tamil) Untitled film starring Akshay Kumar & Sonakshi Sinha Ramanna (Tamil) Untitled film starring Akshay Kumar Nuvvostanante Nenoddantana (Telugu) Ramaiya Vastavaiya Saamy (Tamil) Policegiri Thiruttu Payale (Tamil) Shortcut Romeo Kick (Telugu) Kick Pizza (Tamil) Bijoy Nambiar's untitled film Kandireega (Telugu) David Dhawan's untitled film Tamizh Padam (Tamil) Filmy Picture Films across South India have tremendous entertainment value which makes them particularly appealing to the audience not only in the South but across India. Therefore we are seeing an increase in demand from national broadcasters for dubbing rights and Hindi film producers for remake rights. K Vijayakumar Executive Producer, Ayngaran International Films (Pvt) Ltd. 34 Hindi channels dub to dip in the southern flavor, Meenakshi Verma Ambwani, thehindubusinessline.com, July 2013 35 Industry discussions 36 Top 10 upcoming South remakes in Bollywood: Salman Khan’s ‘Mental’, ‘Kick’, Prabhu Deva’s ‘Ramaiya Vastavaiya’ and More, Sangeetha Seshagiri, ibtimes.co.in, April 2013 37 Media reports and industry discussions The Digital March Media & Entertainment in South India 17
  18. 18. Human capital challenges in the Film industry Workforce priorities in the film industry Given the large number of films produced across South India, South Indian cities like Chennai, Hyderabad, Bengaluru and Thiruvananthapuram are hotbeds of skilled and unskilled workforce. However, the industry faces challenges in certain skills/roles; some of which are stated below38 39: • The quality of candidates and their technical skills, among those who are recruited from media schools, are often not up to the mark. Often they possess theoretical/ conceptual knowledge but lack practical training and an understanding of how to apply these concepts to their work. • Technicians are not trained well enough to use the latest equipment. Also, due to budget constraints, the quality of equipment being used by the industry is usually not as per international standards. This further reduces the quantum and quality of output per person. • Project Management: There is a need for thorough planning and efficient execution of the entire film-making process in order to eliminate wasteful expenditure and keep a tight control on costs and timelines. • Need for skilled talent in subtitling: South Indian films can be made palatable for non-Indian viewers by using cosmopolitan themes and English subtitles. • Need for talented workforce in Marketing: − Create an international distribution network for South Indian films which is well-organized and robust. − Create an awareness about the South Indian Film Industry on the international platform. − Identify and explore non-theatrical revenue streams. − Market films, especially for medium and small budget films. Potential solutions40 • Expansion of talent pool: The industry can consider setting up more film institutes or collaborating with existing ones, to expand the pool of acting and 18 technical talent. This would also reduce the overall talent cost for the industry, in the longer term. • Performance-based remuneration for key talent: According to sources, a significant portion of the remuneration for key talent, such as the screenwriters and directors, can be linked to the actual performance of the film at the box office. This would reduce the fixed cost burden on the film and incentivize good performance of these professionals. Producers currently implement such measures for major stars/actors. Conclusion The rich content and sheer entertainment value of films continues to draw audiences in theatres in South India. Filmmakers have been adopting technology across the value chain for various reasons including cost reduction, time saving and quality improvements. Going forward, the South film industry is expected to further leverage digital media for film marketing and distribution. The large consumer base and ever growing demand for regional films along with technology maturity is expected to attract more interest from national filmmakers and broadcasters. As the industry continues to grow, it may see the evolution of certain trends stated below. • Partnerships with national broadcasters, producers and aggregators to reach more South Indian film lovers across the globe. • An increase in the adoption of crowd funding and crowd distribution to allow niche films to flourish. • A push to use technology to enhance the audio and video quality of the films; not just by the producers but also by the exhibitors. • More multiplexes to bring in an untapped segment of consumers willing to pay premiums for a better viewing experience. 38 Single screen theatres hold their ground, Manish Raj, timesofindia.indiatimes.com, July 2012, Film industry in India: New horizons, Ernst & Young, 2012 39 South Indian film industry up against high costs, slack marketing, inability to maximize revenues, indiainteracts.in, November 2009 40 South Indian film industry up against high costs, slack marketing, inability to maximize revenues, indiainteracts.in, November 2009
  19. 19. Television Overview The South Indian television (TV) industry is continuously evolving and innovating in response to its environment, be it the Government’s digitization drive, the impending ad-cap regulation or the demands of its viewers. It is attracting national advertisers, while helping local players to reach their target audience. Broadcasters are creating in-house non-fiction formats to counter the increasing production costs across the industry. They are also investing in niche content to cater to specific needs of the viewers. Players are investing in high definition (HD) technology as well as digital content viewing platforms, in order to meet the demands of today’s discerning consumers. While industry participants agree that on-demand ‘anytime anywhere’ content is a key growth area, and even as the ecosystem to deliver such content is rapidly developing, effective monetization of such content remains a challenge. HD may present a more immediate revenue enhancement opportunity. In the last few years, South regional channels have taken a major leap in quality and nature of programming. From offering international format shows to creating innovative fiction stories, all efforts are being made to pull in new audiences to sample the regional space. Content that is more vibrant, contemporary and fresh is being offered to lure the youth. Anup Chandrasekharan Business Head, Asianet and Suvarna The South Indian TV industry was valued at INR 13,470 Crore in FY 2013. Against the backdrop of sluggish economic growth, the industry grew at a lower-thanexpected rate of 11% during FY 2013 (14% in FY 2012). The South Indian TV industry is estimated to grow at a CAGR of about 20% over the next 4 years, driven by subscription revenue growth; as consumers shift from analog to digital TV, and ARPU levels rise correspondingly. Figure 3.1: Overall market size of TV industry in South India; E: Estimated (INR Crore) CAGR (2013 – 2017) 880 20% 14% 6,780 14% 20,310 23% 27,970 24,090 770 20,180 680 13,470 520 16,540 590 5,990 5,250 4,600 4,000 17,320 8,950 FY2013* 11,330 FY2014E 14,240 FY2015E FY2016E FY2017E * 2013 is an estimate of the current size Content Subscription Advertisement Source: Industry discussions and Deloitte analysis The Digital March Media & Entertainment in South India 19
  20. 20. Figure 3.2: Share of various constituents of South TV industry in FY 2013* and FY 2017E South TV Industry – FY 2013* South TV Industry – FY 2017E 4% 3% 24% 30% 66% Subscription Advertisement 73% Content Subscription Advertisement Content * 2013 is an estimate of the current size, E: Estimated Source: Industry data and estimates, industry discussions, Deloitte analysis Subscription revenues currently represent 66% of the total industry, and advertisement revenues represent about 30%. With digitization of cable and the resulting shift from analog to digital ARPU levels, the share of subscription revenues in overall industry revenue is expected to rise to 73% in FY 2017. Subscription Market size TV subscription market in the South was valued at INR 8,960 Crore in FY 2013, and is expected to grow at a CAGR of about 23% to reach INR 20,310 Crore in 2017. Subscription revenues grew at a rate of 11% during FY 2013 driven by a rise in the subscriber base, as well as an increase in ARPU levels, partly owing to digitization. Digitization is also expected to bring about a shift in the way subscription revenues are shared across the value chain, bringing in transparency and increasing the revenue share of MSOs and broadcasters. Thus, the dependence of broadcasters on advertising revenues is expected to reduce. This would be particularly useful with the 12-minute ad cap per clock hour regulation that may get implemented in the coming months. Tamil Nadu and Andhra Pradesh represent around 70% of the total South TV subscription market. Although Andhra Pradesh is the most populous state in South India, Tamil Nadu contributes the largest portion of subscription revenues owing to the high C&S penetration of about 90% in the state. This is much higher than Andhra Pradesh’s C&S penetration of about 70%. Figure 3.3: TV subscription market in South India; E: Estimated (INR Crore) CAGR (2013 –2017) 20,310 1,790 14,250 1,480 11,340 1,190 8,960 960 1,830 22% 4,010 22% 6,510 17,320 23% 2,100 22% 3,430 2,840 5,580 2,280 4,610 3,700 2,970 25% 3,200 4,170 FY 2013* Tamil Nadu Karnataka Kerala 6,520 7,690 FY 2015E FY 2014E Andhra Pradesh * 2013 is an estimate of the current size Source: Industry discussions and Deloitte analysis 20 5,320 FY 2016E FY 2017E
  21. 21. Table 3.1: % share of states in South India’s population vs subscription revenues State % Share of South Indian population % Share South Indian subscription revenues Tamil Nadu 29% 36% Andhra Pradesh 34% 33% Karnataka 24% 20% Kerala 13% 11% South India 100% 100% Source: Industry discussions and Deloitte analysis The Digital March Media & Entertainment in South India 21
  22. 22. Digitization India’s large analog cable market is in the process of getting digitized in four Phases, driven by a government mandate. While Phase 1 (four metro cities) have largely been digitized (except for Chennai), Phase 2 cities (38 cities with >1 Million population) are in focus currently. Cable TV digitization level has reportedly touched 90% across 38 cities41. 5 out of these 38 cities are in South India. Months after the Union Government’s deadline for Phase II (March 31st 2013) has passed, cities of Bengaluru and Hyderabad in South India are said to have achieved 100%42 digitization, while others are in various stages of completion. The city of Mysore had achieved 80%43 digitization by the end of May 2013, while Coimbatore and Vishakhapatnam appear to be lagging, with only 30%44 digitization achieved by the end of March and April 2013 respectively. Even as DTH operators and MSOs continue to convert subscribers, as well as gradually increase ARPU levels, the industry faces challenges in achieving the deadlines set for digitization. A key issue being faced by players is the shortage of Set Top Boxes (STBs). Most cable operators were not well prepared and did not seem to have created the required inventory of STBs for Phase II. As many cable operators are importing STBs, depreciation of the Indian Rupee has resulted in an increase in prices, almost by INR ~15045 per STB. The price increase has reportedly been passed on to consumers. However, passing on such price increases may be more challenging in Phase 3 and Phase 4 towns. The challenge of “digitized, but not addressable” also persists. Addressability and the ability to deploy packages will become possible as MSOs obtain filled in Customer Acquisition Forms (CAFs) and are able to capture end-consumer information in their systems. Obtaining CAFs has been a longer drawn process than seeding STBs, thereby causing delays in addressability. Addressability and package deployment is key to raising ARPU levels. Impact of digitization Consumers Digitization has led to an enhanced TV viewing experience for consumers. They can watch a greater variety of channels in digital quality and have the option 22 of choosing and paying only for their favorite channels. It has also led to niche channels being launched by broadcasters in order to woo their consumers. Distributors Due to strong regulatory push for digitization, distributors are experiencing increasing traction with viewers for conversion to digital TV. MSOs are seeing assured monetary benefits with the help of revenue sharing agreements being entered into with LCOs. For example, Siti Cable Network Limited has signed a DAS interconnect agreement with 55% of its LCOs, working on a revenue-sharing basis of the carriage fee46. The cable TV distribution space in India is getting increasingly structured with monitoring mechanisms like KYC, CAF being put in place, as well as with consolidation into fewer and more efficient players. With increased transparency due to digitization, the revenue share is shifting from smaller cable operators to MSOs and broadcasters. Small cable operators appear to be selling their consumer connections to the big networks as a result of decreasing profits47. Broadcasters Broadcasters stand to gain an increased share of subscription revenues with all subscribers being accounted for. Digitization has also led to a reduction in the carriage fee to be paid by broadcasters to distributors. Regional as well as national broadcasters have seen a decline of about 30-40% in carriage fee post digitization (in digitized areas). Way forward The third Phase of digitization, including all urban areas not covered in Phase 1 or 2 is to be implemented by 30th September 2014, while the last Phase covering rest of India is to be implemented by 31st December 2014. Digitization of cable will bring in several benefits to the ecosystem, as described earlier, and successful execution of digitization is key for the industry. At the same time, addressability needs to go hand-in-hand with digitization (i.e. seeding of STBs). MSOs are currently focusing on Phases 1 and 2 of digitization. As digitization moves into Phase 3 and 4, where subscriber density is typically low (weakening the business case for the setup of a head-end and other 41 I&B Minister Manish Tewari’s Update on Phase II Digitization data, cablequest.org, April 2013 42 Bangalore’s cable TV network is fully digitized, claims Government, thehindu.com, May 2013, Baffling 194 percent cable digitization in city!, Rahul V Pisharody, newindianexpress.com, May 2013 43 Bangalore’s cable TV network is fully digitized, claims Government, thehindu.com, May 2013 44 TV Digitisation: Consumers can utilize transition period of 10 to 15, PTI, ibnlive.in.com, April 2013, Baffling 194 percent cable digitization in city!, Rahul V Pisharody, newindianexpress.com, May 2013 45 TV Distribution: Green Signals!, IDFC Securities, June 2013 46 SitiCable inks rev-share agreements with cable operators for digitization, Vikas SN, medianama.com, October 2012 47 The Big Digital Dividend, Gurbir Singh, Business World, August 2013
  23. 23. infrastructure for an MSO), other models for delivering cable may emerge, such as Head-end In The Sky (HITS). A HITS model would allow local cable operators to directly downlink content from a satellite, rather than source content through fibre, thus bypassing the need for a head-end on the ground. Various models of digitization are thus available, and the ingredients seem to be in place to convert India into a fully digital C&S country. With the country on the path to digitization, the time is right for deployment of HITS. HITS will help India in going digital, by providing a medium for local cable operators to digitize, while continuing to own the end-subscriber, grow their business and monetize the same. Advertisement Market size TV advertising market in South India was valued at INR 4,000 Crore during FY 2013, a growth of about 11% over FY 2012. Over 60% of TV ad revenues were garnered from the States of Tamil Nadu and Andhra Pradesh, with the rest being equally contributed by Karnataka and Kerala. Even though the South market is said to have grown at a rate higher than the national average in FY 2013, it is lesser than the growth rate attained during FY 2012 (15%). Reasons for this muted growth vary by State. For example, there were power cuts in Tamil Nadu which is estimated to have decreased TV consumption in the State. Going forward, TV ad revenues are estimated to grow at a CAGR of 14% to reach INR 6,780 Crore in 2017. Growth is expected to be driven by both volume (new channel launches) and inflation in ad rates, against the backdrop of the 12 minute ad cap per clock hour being implemented. Tony D’ Silva President, Hinduja Ventures Ltd. Figure 3.4: TV advertisement market in South India; E: Estimated (INR Crore) CAGR (2013 – 2017) 6,780 5,990 5,250 4,600 4,000 730 710 1,030 840 950 1,330 1,200 14% 1,160 13% 1,700 13% 15% 1,040 920 810 1,170 1,070 14% 1,510 1,780 2,050 2,370 2,720 1,530 FY 2013* FY 2014E FY 2015E FY 2016E FY 2017E Tamil an estimate of the Pradeshsize Karnataka Andhra current Kerala * 2013 isNadu Source: Industry discussions and Deloitte analysis Note: 1. Estimates above are estimates for the channels in the home state language. For e.g. Tamil for Tamil Nadu 2. Karnataka is to a large extent, a multi-lingual state, with a strong presence of Hindi, Konkani / Marathi and Tamil speaking population. Hence the share of viewership of Kannada channels in Karnataka is lower than the share of, say, Malayalam channels in Kerala, depressing the ad market size vis-à-vis size of the home state The Digital March Media & Entertainment in South India 23
  24. 24. In South India, in fact, players have already started hiking ad rates. Sun TV network successfully raised ad rates for weekday prime time slots on its flagship channel Sun TV by an average of 19%, while Star Vijay, owned by Star TV and Fox International Channels, also hiked ad rates by almost 25-30%48. These developments suggest that leading broadcasters in South India have some degree of pricing power. Changing advertiser mix Advertisers and genres Traditionally, FMCG players preferred advertising on fiction shows due to their reach and sustenance. However, firms are now adopting a multi-pronged strategy rather than a uni-directional approach. Firms have now started advertising with fiction as well as non-fiction (reality) shows; fiction for sustenance and non-fiction for say, a brand launch. Players across other industries are also casting a wider net as opposed to focusing on a particular genre of content while advertising. National vs local advertising Although national advertisers have always had a larger share of advertising, there is an increasing trend of local players advertising on Southern regional channels. Industry participants believe that local advertisers are becoming aware about the reach of television and it being a relatively cheaper medium of advertising. Local retail comprises 30-40% of advertising on channels in Tamil Nadu (primarily textile) and Kerala (primarily jewelry). Retail advertisers are not as dominant in Karnataka, and represent about 5% of the overall advertising on Kannada channels49. Impact of ad-cap regulation The regulation Recently, there has been increased spotlight around a TRAI regulation for TV channels. As per the regulation, a channel is allowed 10 minutes of commercials along with an additional 2 minutes for in-house ads per clock hour50. The regulation requires time gap between an ad break and programming to be at least 15 minutes, except in the case of a live sports event. This time gap needs to be a minimum of 30 minutes while telecasting films. Popups, part screen, or drop-down advertisements are not allowed. The regulation also requires broadcasters to ensure that advertisement audio levels do not exceed the regular audio levels of the channel. 24 Response of broadcasters The upcoming regulation, while being beneficial for viewers, will cause broadcasters and advertisers alike to re-think their strategies. Currently, news channels sometimes have 30 minutes of advertising per clock hour, and Hindi film channels have around 20-22 minutes. Hindi GECs have about 14-16 minutes of ad breaks per clock hour50. As the supply of ad inventory reduces, broadcasters expect ad rates to rise, though it may not fully compensate for the loss of revenue. Broadcasters may also launch new channels to compensate for the lost inventory – which entails some cost, and brings in some element of risk in terms of garnering viewership. The Government however recognizes that implementation of the ad-cap regulation must be in sync with the digitization process taking place, so that potential loss of ad revenue may be compensated for by an increase in subscription revenue and / or decrease in carriage. The MIB has indicated that news channels may get an extension on implementation of the 12 minute ad-cap, at least till the final Phase of digitization is complete51. TDSAT has also stayed the implementation of the ad-cap regulation till the next date of hearing on October 21, 2013 and/ or November 11, 201352. This is expected to give broadcasters time to decrease ad inventory / increase ad rates in a gradual manner. The reduction in the excessively long advertising breaks will increase programme ratings and subsequently the TRPs. Social media will stand to reap the benefits of the TRAI rule with the internet becoming a mode of delivery since no limits have been set so far. It will mean more business for those who integrate TV and the web. Ashok Vidyasagar Business Director -South, Big Synergy Media Limited 48 Channels hike ad rates to offset time limit, Vidhi Choudhary, S. Bridget Leena, livemint.com, August 2013 49 Industry discussions 50 Movie channels ready script to buck ad cap, afaqs.com, August 2013 51 NBA welcomes Manish Tewari statement on 12-min ad cap, mxmindia.com, September 2013 52 A fractured ad cap mandate dawns, Seema Singh, Meghna Sharma, indiantelevision.com, September 2013
  25. 25. Content Market size Content revenues in the South Indian TV industry were valued at INR 510 Crore during FY 2013, a growth of 11% over the last fiscal. Content revenues are estimated to grow at a CAGR of 14% to reach INR 879 Crore in 2017. Even though content composition in the Tamil Nadu market is gradually changing with more reality/non-fiction shows coming up, it still continues to be a fiction dominated market. This is due to the fact that the state's TV audience primarily comprises 25+ female population who prefer fiction and films. Changing genre mix Although the South Indian TV industry continues to be a fiction dominated market, the share of non-fiction shows has been increasing over the last few years. Each State has its own mix of fiction, non-fiction and film content. The share of non-fiction content varies from 20% to 50% across the four States53. N. S. Easwaran Business Head, Zee Tamizh Industry participants believe that even though non-fiction shows are meant to increase the equity of a channel and are a favorite format among advertisers who want top-of-the-mind recall, it cannot help sustain a channel’s growth. The costs for non-fiction shows (excluding in-house formats and shows like Neengalum Vellalam Oru Kodi i.e. the Tamil version of Kaun Banega Crorepati) could be 5-10 times that for fiction shows54. Regional broadcasters are also investing in in-house non-fiction formats which cost much lesser than the large budget formats. Figure 3.5: TV content market revenues in South India; E: Estimated (INR Crore) CAGR (2013 – 2017) 870 780 680 600 510 120 110 90 180 160 140 150 14% 150 14% 140 120 110 90 140 14% 200 230 13% 220 260 300 340 190 FY 2013* FY 2014E FY 2015E FY 2016E FY 2017E 16% Tamil Nadu Andhra Pradesh Karnataka Kerala Figure 3.5: TV content market revenues in South India; E: Estimated (INR Crore) 53 Industry discussions 54 Industry discussions The Digital March Media & Entertainment in South India 25
  26. 26. The era of niche channels With digitization providing a platform for a large number of channels, and consumers being able to exercise their choice about what kind of content they want to watch, broadcasters are investing in niche content. Higher channel carrying capacity, and the (expected) resulting lower carriage would make it cheaper for broadcasters to launch new channels in a digitized world. but “upgraded” to HD either during the postproduction process or even at the broadcast stage. Post August 2012, various new channels have been launched in the South TV market. These launches primarily targeted specific audiences through niche channels, and a majority of these were targeted at the Malayalam speaking population. Various other launches, across categories, such as Captain Music, Pudhu Yugam (GEC) are also planned during the forthcoming year. Following is a list of notable launches post August 2012. Current scenario Even though consumers in India have had access to HDTVs for a few years now, there has been little motivation for the industry to provide content in HD. This is due to high capital investment required across the production, post-production, broadcasting, and distribution stages. However, with increasing consumer awareness and their willingness to pay for a better TV viewing experience, and with HD even acting as a differentiator, the industry has begun to showcase HD channels. About 35 HD channels are available for viewing in India and many more are in the process of being rolled out55. Table 3.2: TV channels launched post August 2012 Name Genre Language 10TV News Telugu Captain News News Tamil Mathrubhumi News News Malayalam Raj News News Kannada Media One Infotainment Malayalam Kappa TV Music Malayalam, Tamil, Hindi, English Surya Music Music Malayalam Suvarna Plus GEC Kannada Source: Media articles Technology The high definition era HD – What is it? HD or High Definition is a video content format with a resolution typically of 1920 X 1080 and an aspect ratio of 16:9, versus the conventional 720 X 480 or 720 X 576 4:3 TV format. HD pictures are much sharper and clearer, with 1080 rows of pixels available as compared to SD pictures which display only 480 rows of pixels. For optimal picture quality, content needs to be shot and edited in HD and then broadcast to HDTVs via HD-enabled STBs. This may also be termed as ‘true HD content’ as opposed to ‘HD content’ that is broadcast in HD but is shot in SD. In this case, content is shot in SD 26 Interestingly, the next generation of HD is already rolling out to consumers. Described as 4K UHD or 'Ultra High Definition', the video format offers a minimum resolution of 3840 pixels × 2160 lines; nearly twice the horizontal and vertical resolution of the 1080p HDTV format, with four times as many pixels overall. Interestingly, SUN Direct was the first DTH services provider to showcase HD channels. SUN network also provides HD channels such as Sun TV HD, Gemini TV HD, Sun Music HD, KTV HD as part of its offering bouquet56. Channels in other South Indian languages have also been made available in HD. However, only a few shows are available in True HD. As per industry sources, broadcasters like SUN network are trying to convert all shows being currently shot in SD and telecast in HD format to ‘true HD’ format57. Impact of HD In addition to providing consumers with a superior TV viewing experience, deployment of HD will also be beneficial for others in the value chain. Higher rates for HD channel packages will help increase ARPU levels, in turn boosting subscription revenues for distributors and broadcasters alike. Although ad rates on HD channels are currently lower than those on SD channels, broadcasters may start charging higher ad rates for HD channels with increased penetration. Lower number of ads on HD channels is one of the key value propositions of HD in India. Broadcasters, however, will need to maintain a balance, to derive benefit from increasing ad rates, while keeping ad volume below a certain threshold to retain their premium HD subscribers. 55 Growing IT opportunities in the Media sector, Amit Singh, crn.in, July 2013, Industry discussions 56 Research report on SUN network, Emkay, August, 2013 57 Industry discussions
  27. 27. However, distribution platforms see HD providing a strong push for acquiring subscribers. Videocon d2h for instance reports that nearly 15% of new subscribers in Q1 & Q2 of CY’2013 have opted for HD58 services on the back of a sustained marketing effort. With the recent digitization of cable networks, large MultiSystem Operators like Hathway are also pushing the HD experience to subscribers59. Even so, the off take of HD STBs is currently only around 2-3mn60, well below 5% of the total digital universe in India. Challenges in adoption The large file size and complexity of HD content requires complex and expensive equipment to be used in the entire chain, from HD cameras and HD editing equipment to broadcasting in HD. HD content also requires over twice the transponder space on the satellite as compared to SD formats61. Benefits from HD investments may be “slow burn”, and take time to reap returns. Even if content is shot in HD, it may need to be converted to SD in order to cater to the large population with SD set top boxes. A deterrent towards successful implementation of HD content, specifically in the South Indian TV industry may be the unpreparedness of the entire value chain. Suresh Narayanan Chief Operating Officer, Insight Media City (India) Private Limited Way forward As the penetration of HD-enabled TV sets increases, and as income levels increase, the ecosystem is expected to move gradually towards greater HD penetration. Industry discussions suggest that broadcasters and distributors view HD as a key driver to raise subscription revenue, and most industry participants appear to have plans to expand their portfolio of HD channels. Like the US, which saw HDTV penetration increase dramatically post digitization around 2006, India too will experience a transition. But the current production-to-delivery costs associated with “True HD” means it will be a slow process and restricted initially to the larger and betterfunded broadcasters. The benefit of HD though is currently being optimized by distribution platforms. With ARPUs for HD subscribers pegged at nearly twice those of SD subscribers; DTH & digital terrestrial platforms like cable are pushing the ‘HD experience’ to new and existing subscribers - offering HD channels as a product differentiator. Vynsley Fernandes Director, Castle Media Pvt Ltd 58 Indiantelevision.com report, September 2013 59 Hathway selects STMicroelectronics to power its high-definition set top boxes, Thomson Reuters, finance.yahoo.com, September 2013 60 Indiantelevision.com report, September 2013 61 Industry discussions The Digital March Media & Entertainment in South India 27
  28. 28. Current Scenario With more and more users wanting to consume content ‘on the move’, broadcasters are creating a digital universe parallel to the traditional TV watching experience. As per industry sources, national broadcasters like Zee, Colors, Sony are expanding across various digital platforms i.e. online and mobile portals/ applications. Regional broadcasters are not too far behind in this race to innovate and grab digital eyeballs. Regional content has been made available on platforms like Apalya, Ditto TV, NexGTV etc. These platforms showcase content either by partnering with broadcasters directly or indirectly (via content aggregators like IndiaCast, MediaPro etc.). Regional broadcasters are also making inroads in the in-house digital platform space. PeppersTV, a Tamil entertainment channel launched its offerings on mobile platforms last year, making it the first regional channel in India to do so62. Content monetization on digital media The technology to deliver the enterprise with digital at its core is here now. The main challenges are around leading and marshaling the talent and innovative culture needed to make it a reality. Whilst we might be at the end of the digital beginning we are a long way from the beginning of the end of digital. Sanjay Reddy Managing Director, Dream Boat Entertainment Pvt Ltd Regional broadcasters are also exploring other digital platforms like WAP pages, voice services. WAP video content is usually placed on WAP pages of telecom operators while voice services provide the audience with an option to listen to 3-4 minute summaries of their favorite TV shows. For example, the voice service of Asianet TV was launched last year. WAP pages and voice services of more Star network channels are scheduled to be launched this year63. Content monetization Revenues for regional broadcasters from monetizing TV content are still low, as a majority share is retained by the telecom operator or the OTT platform. However, these revenues have risen over the last one year and are expected to continue to follow an upward trend in future. Tamil content seems to be most popular among the four South Indian languages and sees a lot of traction with the international audiences. Revenues from Kannada content are lower vis-a-vis Tamil and Malayalam content. 62 PEPPERS becomes India’s first regional TV channel on mobile, afaqs.com, March 2012 63 Industry discussions 28
  29. 29. shows among households. However, there are several challenges faced by the industry today, some of which are outlined below64 65. We are seeing good traction in the content consumption of our regional channels. Regional is our third largest content segment after Hindi GECs and films. We have been seeing a 15-20% growth in the consumption of regional content on Ditto TV every month. Manoj Padmanabhan Business Head, Ditto TV Challenges Even with existing technology and the innovations being made by players to reach consumers via the digital medium, actual usage may still be low. This may be due to infrastructural issues like low internet speed in India. Further, effective monetization on new media continues to be a challenge. Way forward The end-user ecosystem appears strong, with the availability of large-screen smartphones, and low-end tablets. The rising disposable income of the population may result in a greater willingness to pay. Deployment of 4G and stronger uptake of 3G may represent accelerated solutions to the infrastructure problem. Industry participants all agree that new media is a key area of growth, and this will continue to be a focus area for them, resulting in a greater number of innovations around offerings as well as monetization models. Human capital challenges in the TV industry Workforce priorities in the television Industry There has been a vast change in terms of content offered by the television industry; be it fiction to non-fiction shows or introducing a new genre of entertainment focused on target age groups such as kids, elderly (spiritual) etc. This offers a wide variety of roles for people in the television industry, thus accommodating talent of many kinds. These factors have contributed to the popularity of television It is a challenge to identify the areas of improvement in terms of skill gaps in the industry as there are no available databases that accurately document employment in this sector. Also, there are no comprehensive listings of all employers/ companies operating in the sector. Following are some of the areas of concern typically seen for talent in the industry. • Most of the institutes do not have media degrees/ specializations for media and the quality of candidates and their technical skills are often not up to the mark. • Keeping people commensurate with the changing technologies is a challenge, as often they possess theoretical/ conceptual knowledge but lack practical training and an understanding of how to apply these concepts to their work. • The Television industry employs a large number of freelancers, such as journalists. To determine the quality of work done by such individuals may prove to be a challenge. • Wages and employment for stage-hands are governed by trade unions that do not have any minimum certification or criteria required for enrollment. • The roles and processes are not standardized across the industry e.g. a Director at a small TV channel would work on a very different scale and perform a very different role as compared to a Director for a big budget event. There is a need for project management for thorough planning and efficient execution66. • Many of the channels are managed by promoters and succession planning becomes a key issue. Potential solutions • Professional set-up: Attracting professional talent from outside the promoter group to manage the business, with a profit share and pay for performance. • Expansion of talent pool: Industry-academia tie-ups or collaborating with existing educational institutions to participate in curricula development and adopting campuses to create a sustainable talent pool for technical talent67. 64 Broadcasting industry in ‘cost-rationalization’ Phase, retrenchment fears loom, Prashant Jha, thehindu.com, July 2013 65 TV offers opportunities to every talent: Javed Jaffrey, IANS, timesofindia. indiatimes.com, August 2013 66 Production Manager – TV, creativeskillset.org 67 South Indian film industry up against high costs, slack marketing, inability to maximize revenues, indiainteracts.in, November 2009 The Digital March Media & Entertainment in South India 29
  30. 30. Conclusion The South Indian TV industry is expected to continue on its growth trajectory, with technology aiding the process. With digitization of cable as well as new subscriber additions, subscription revenues are expected to more than double over the next 4-5 years. With greater transparency, broadcasters’ share of subscription revenues are expected to rise significantly, reducing the industry’s dependence on advertisement revenues. 30 Although GECs are expected to remain the mainstay of the industry, several new and niche channel launches are expected, as the cost of carriage decreases with digitization. These channel launches may also help compensate the industry for decrease in inventory due to a cap on ad minutes. The TV industry has begun its journey towards a more robust ecosystem, and successful execution of digitization of cable is key to taking it there.
  31. 31. Print South India is one of the strongholds of the Indian print industry with four states representing about 30% of the Indian market in terms of readership. From providing the latest news and insights to exploring digital media through modern channels, South Indian publishers are trying various means to attract and engage the highly literate readers in the region. The opportunity lies in tapping the growth potential of the market through expansion and deeper penetration while simultaneously building additional capabilities to explore alternate sources of revenues. As in other parts of the country, the South Indian print industry is facing issues of maintaining circulation revenues and monetizing online content. Market size The overall print industry in South India was estimated to be INR 6,680 Crore in FY 2013 (~7% growth over FY 2012). The industry is expected to grow at a CAGR of approximately 8% to reach INR 9,020 Crore by FY 2017, driven by an increase in subscription prices and readership. Low levels of print penetration coupled with growing literacy levels point to clear headroom for growth in the print sector in India. To tap this growth, we have put in a dual strategy of using English brands to tap all urban readers and language brands to address non-metro markets. Critical to implementing this strategy successfully is a relentless focus on innovation across product formats, in our consumer offers and the advertising solutions we offer. Shrijeet Mishra Chief Operating Officer, Bennett Coleman & Co. Ltd. Figure 4.1: Print Industry Revenues in South India; E: Estimated (INR Crore) CAGR (2013 – 2017) 9,020 8,260 7,540 6,680 6,950 1,330 1,430 1,470 1,770 1,970 1,810 2,150 1,600 2,280 FY 2013* Tamil Nadu 9% 1,740 1,890 7% 2,180 2,390 8% 8% 2,460 FY 2014E Andhra Pradesh 1,840 1,670 1,510 1,390 9% Karnataka 2,670 2,900 FY 2015E FY 2016E FY 2017E Kerala * 2013 is an estimate of the current size Source: Industry discussions and Deloitte analysis The Digital March Media & Entertainment in South India 31
  32. 32. Figure 4.2: Print readership split across languages in India and South India – FY 2013 English* 10% Vernacular non-South 26% Hindi 35% South Vernacular 29% Kerala 30% Karnataka 17% Tamil Nadu 28% Andhra Pradesh 25% Source: Industry discussions and Deloitte analysis *This includes English language papers in South India Figure 4.3: Vernacular Print Industry Revenues in South India; E: Estimated (INR Crore) CAGR (2013 –2017) 4,870 11% 1,650 9% 720 11% 1,240 11% 12% 4,320 3,800 3,240 1,170 3,420 1,490 1,340 1,220 470 810 840 790 550 490 870 FY 2013* FY 2014E Tamil Nadu Andhra Pradesh Karnataka * 2013 is an estimate of the current size Source: Industry discussions and Deloitte analysis 940 1,090 970 1,110 1,260 FY 2015E FY 2016E FY 2017E Kerala Vernacular market The vernacular print industry in South India was estimated to be INR 3,240 Crore in FY 2013. Kerala contributed 36% to the overall market in terms of 32 630 revenue, while Andhra Pradesh and Tamil Nadu contributed about 25% each. The industry is expected to grow at a CAGR of 11% to reach INR 4,870 Crore by FY 2017.
  33. 33. Figure 4.4: English Print Industry Revenues in South India; E: Estimated (INR Crore) CAGR (2013 –2017) 3,440 3,740 3,530 160 3,940 170 180 170 1,110 1,050 4,150 5% 190 4% 1,170 5% 1,150 5% 5% 960 980 960 970 1,360 1,410 1,490 1,560 1,640 FY2013* FY2014E FY2015E FY2016E FY2017E Tamil Nadu Andhra Pradesh Karnataka 1,090 1,030 Kerala * 2013 is an estimate of the current size Source: Industry discussions and Deloitte analysis English market South India has a large English speaking population and this is reflected in the fact that the English print market in South India accounts for over 50% of the total South Indian print market in terms of revenue, while the corresponding figure for all India is approximately 40%. The English print industry in South India was estimated to be INR 3,440 Crore in FY 2013. Tamil Nadu contributed 39% of the total market share while Andhra Pradesh and Karnataka contributed about 28% each. Kerala forms a very minor share of the English print industry in South India. The English market is expected to grow at a CAGR of approximately 5% to reach INR 4,150 Crore by FY 2017. Mirroring the all-India trend, the English print industry in South India is expected to grow at a lower rate than the vernacular industry, as a majority of newly literate readers enter the vernacular readership pool. While the English speaking population is expected to increase, the language demographic is such that it may experience the maximum adoption of new media. The Digital March Media & Entertainment in South India 33
  34. 34. Figure 4.5: Split of subscription and advertising revenues for each market in FY 2013 (INR Crore) Tamil Nadu Andhra Pradesh 1,460 1,190 520 36% 45% 530 690 580 270 39% 940 280 64% 48% 660 61% 420 300 Advertising Subscription 52% Subscription Karnataka Advertising Kerala 880 970 310 32% 450 460 160 35% 660 68% 770 Advertising Vernacular Source: Industry discussions and Deloitte analysis 34 11% 88% 110 12% 89% 65% Subscription English 400 50 300 55% Subscription Advertising
  35. 35. Advertising revenues contributed between 65% - 70% of total revenues of South Indian Print industry in FY 2013. Local advertisers remain the key category to drive print advertising revenues68. Overall, as per industry sources, advertising from health, retail and real estate sectors has shown robust growth. Education sector advertising has remained stagnant while growth in the auto sector advertising has been marginal. Further, the industry is expecting increase in Government ad spends (Department of advertising and visual publicity) especially in vernacular papers in the run-up to the 2014 general elections. Overview Introduction While vernacular and Hindi dailies dominate the readership figures across India, advertising revenues are tilted towards English dailies. This trend is also exhibited in South India, primarily due to the urban, higher socio-economic clusters that typically form the target market for English newspapers. In order to lure national advertisers, South Indian publications have established offices in key metros and have been aggressively pitching to media agencies. These national advertisers form a sizable portion of the total advertising revenue. In order to increase penetration, these print houses are not only expanding into other languages but also venturing into other cities. However, economic and business pressures are forcing publishers to increase their subscription rates. Exploring new horizons to broaden reach Print houses are exploring opportunities in the vernacular as well as English market. Some examples include: • The Hindu’s Tamil newspaper: The Hindu is planning to launch a Tamil newspaper in major cities including Chennai, Coimbatore, Madurai and Tiruchy69. In order to expand the publication’s reach, the Group is expected to distribute its Tamil offering as a separate publication and not bundled with its English daily70. • The Times of India’s expected regional entry: The Times of India is contemplating entry into regional languages including Tamil71. • Indian Express enters the South market: The Indian Express group has entered the English print market in South India with the launch of ‘National Standard’ in Bangalore, to target the youth72. It plans to subsequently expand into Chennai and Hyderabad as well73. The long term growth story for regional print remains strong despite the recent slowdown in the macro-economic scenario. Local and national advertisers continue to prefer vernacular papers to reach consumers in the Tier II and Tier III cities. To enhance our offering in the vernacular landscape, we have launched a Tamil language daily with editions across Tamil Nadu as well as a Tamil language news-website. Bharath Ganapathi General Manager - Corporate, The Hindu Upgrading printing technology • Publishers have been upgrading their machinery periodically to enhance the printing quality and increase the capacity of their units. For instance, The Hindu has upgraded to the new Mitsubishi Diamond Spirit printing machine which will enable the company to produce 24-page colour (from the previous 16-page colour)74 in broadsheet, at the rate of 75,000 copies an hour. This new press also has a closed loop ink density control which helps maintain consistency of print across the run, reduces dependence on skilled labor and minimizes startup waste75. 68 Industry discussions 69 Publisher of The Hindu to launch Tamil daily before season time, T E Narasimhan, businessstandard.com, July 2013 70 SKBKS Media &Entertainment report 2013 71 After Kolkata, Chennai to be next newspaper battleground, S. Bridget Leena, livemint.com, July 2013 72 Indian Express launches as National Standard in Bangalore, exchange4media.com, August 2013 73 Indian Express Group to launch National Standard in the South, T E Narasimhan, business-standard.com, July 2013 74 The Hindu in 24-page colour soon, The Hindu, February 15, 2013 75 Automatic closed-loop inking using Diamond Eye, Rushikesh Aravkar, prinweek.in, December 2012 The Digital March Media & Entertainment in South India 35
  36. 36. Concerns in the print industry The print industry in South India has been able to maintain its vigor through tough times, driven by strong growth in semi-urban and rural areas. However the industry continues to face macro-economic pressures. • Weakening Indian rupee: Indian publishers import over 50% of their newsprint76 as local newsprint does not often meet the quality requirements. The Indian rupee has lost about 17% of its value in 2012 - 2013 vis-à-vis the US dollar77, thus increasing the cost of imported newsprint. This is severely impacting publishers’ margins as newsprint constitutes roughly 40% of operating costs78. • Economic slowdown impacting advertising revenues: English newspapers rely on advertising for over 70% of their revenues79. The weakening domestic economic scenario, indicated by the GDP growth rate of 4.4% (lowest in the last 4 years80), has led to softening of advertising revenues in Q2, 2013 for English language papers. However, as per industry sources, vernacular dailies have not experienced any significant dip in advertising revenues due to their reach beyond metros and Tier I cities. Print industry embracing digital media Unlike the West, it might be another 10 years before a majority of readers prefer accessing content on digital devices. However, we have invested in building a presence on web and mobile platforms to brace ourselves for the next wave in news consumption. Malaya Manorama has refined its mobile applications for iOS, Android and Windows platforms and customized its web portal for desktop and mobile viewing. Jayant Mammen Mathew Deputy Editor and Director, Malayala Manorama 36 Industry outlook Both English and vernacular players have established their presence on web and mobile platforms. Although internet based advertising revenues are still miniscule in comparison to revenues from the traditional print medium, newspaper companies want to be ready with their applications, web platforms and mobile customized WAP pages, specifically targeted at the youth. To promote their online offerings amongst the younger generation, these news companies have established their presence on social media platforms such as Facebook and Twitter and have made arrangements with leading web portals to drive more traffic to their webpages. However, players need to chalk out a clear path to monetization from these new platforms. Cross platform integration with content management systems With publishers increasingly making their newspapers, magazines and video content available on multiple digital platforms, content management and sharing has become increasingly important. These systems provide flexibility to editors to quickly re-purpose content not just on multiple platforms but also on multiple portals. For instance, a publisher can make a video available on its TV news channel, web platform and mobile platform simultaneously. Similarly, news articles can be instantly tweeted and listed on a web-portal. Some examples of Content Management Systems (CMS) currently being used: • Mathrubhumi has gone live on the Atex Editorial CMS. This collaboration is expected to help Matrubhumi’s multi-channel newsrooms in creating, managing and delivering content to any print or digital platform81. • Malaya Manorama has acquired Adobe’s CMS to streamline content dissemination on different platforms82. Publishers have launched various mobile applications with multiple functions incorporated, in order to better engage with readers. • Mathrubhumi’s mobile application contains the latest national and regional news, cartoons, videos and photos being streamed live 24/7. • Dinakaran’s mobile application provides users with the latest news, in-depth analysis and speed news 76 Indian print industry hit by depreciating INR & increasing newsprint cost, Maneka Tanwani, exchange4media.com, July 2013 77 Rupee hits life low below 66, posts biggest fall in 18 years, Swati Bhat, Manoj Kumar, in.reuters.com, August 2013 78 Capitaline corporate database – Media, Printing and Stationary 79 Capitaline corporate database – Media, Printing and Stationary 80 GDP growth at 4.4% in Q1, slowest in four years, Asit Ranjan Mishra, livemint. com, August 2013
  37. 37. scroll with minute-by-minute updates. It also enables sharing of articles, photos and videos via email, Facebook and/ or Twitter. Web-presence and customization for mobile phones Most publishers have dedicated websites that are constantly updated to provide consumers with the most recent news updates, pictures and videos. These websites also have links to the electronic version of the printed paper (e-paper), enabling users to catch up with the morning news. However, only a few of these publishers have optimized their webpages for mobile viewing. This entails resizing of the webpage for mobile screens and including navigation aids. Malayala Manorama has been among the pioneers in releasing its mobile website m.manoramaonline.com. • Malayalam News Live: Aggregates news from One India, Mathrubhumi, Mangalam, India Vision TV, Web Dunia and a few other publishers. Way forward As publishers continue to strengthen their presence on digital platforms, the quality, functionality and overall user experience of the applications would be critical to ensure consumer stickiness. The onset of news aggregators brings in new challenges for the publishers by further fragmenting the digital advertising pie. Thus, publishers need to look at other ways to increase penetration of their online applications and possible methods of extracting subscription revenues. 81 Mathrubhumi goes live on Atex editorial content management system, atex. com, August 2013 82 Industry discussions, Malayala manorama partners with Adobe for its digital transformation, indiadigitalreview.com, May 2013 83 Industry discussions Geographic targeting for advertisers News publishers provide marketers with online geographic targeting options which give an advertiser freedom to reach out to readers in a specific geographic area. This is particularly helpful in South Indian markets where a majority of the advertisers are often local retailers. Furthermore, the publishers are able to approach overseas advertisers to reach the South Indian diaspora abroad, many of whom form an affluent consumer base. While the cost per impression from India could be anywhere between INR 90 - 150 per impression, overseas rates often range between INR 200 - 300 per impression83. Third party news applications As per industry sources, while leading publishers such as Malayala Manorama, Eenadu etc have been constantly upgrading their news applications (apps), third party developers have launched news aggregation apps. These apps have been gaining popularity as they provide consumers with news from multiple sources and allow them to browse vernacular as well as English papers. These third party apps currently do not share revenues with publishers. Some third party news aggregator mobile apps include: • Telugu Newspapers: Aggregates news from Eenadu, Sakshi, Andhra Jyoti and many more Telugu publications in addition to business news from Money Control and Economic Times. The Digital March Media & Entertainment in South India 37

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