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Animation and gaming (1) Document Transcript

  • 1. Animation. Broadcasting. Gaming. On the Cusp of Growthwww.deloitte.com/in
  • 2. Contents Message 3 About ASSOCHAM 5 Animation and Gaming 6 Introduction 6 Global Animation and Gaming Industry 6 Indian Animation and Gaming Industry 8 Animation 9 Introduction 9 Animation Entertainment 9 Entertainment VFX 16 Custom Content Development 17 Gaming 20 Global Gaming Industry 20 Indian Gaming Industry 20 Indian Animation & Gaming Industry: Future Outlook 23 Television 24 Introduction 24 Television – Revenue Streams 24 Television Channels in India 27 Television Genres in India – From Generic to Niche 27 Policy Framework 30 Future Outlook 31 Radio 32 Introduction 32 Key Growth Drivers & Constraints 33 Future Outlook 342
  • 3. MessageThe three focus segments of this paper: Animation, this growing phenomenon. It will be really interestingGaming and Broadcasting all have the potential to see to see if the industry witnesses any consolidation innear future as inflection points in their growth. the coming 12-18 months. Another key thing that I am really awaiting is the reaction of the content providers inAnimation and Gaming reminds me of the the industry to the oncoming 3G Wave.transformation the IT-ITES Industry brought to the Indianeconomy and populace some years back. The Indian The future of radio in this country is primarily dependentanimation industry is well-geared to start grabbing a upon change in the regulations and the mode of thelarger share of the increasing outsourcing pie. As the much-awaited Phase 3 Licensing. The real potential ofeconomy moves out of tough times, there is hope that the medium which lies in its local reach and interactivityanimation houses in India would take the initiative to can never be realized unless radio broadcasting players P N Sudarshandevelop the in-pipeline high budget high quality movies find it commercially feasible to operate in small towns Senior Director,and animation content and showcase their capabilities. and cities, with the freedom to broadcast multiple Deloitte in IndiaPlayers are also expected to leverage the incoming 3G genres.technology and develop end-to-end mobile games (IPs).Promoting gaming / animation as a career in India and Our media spends are abysmally low (USD 4 per capita)working with the Government for higher dissemination compared to our neighbours, China (USD 27 per capita).of related professional education hold the key. There is enough demand in the Indian economy and populace to propel the media industry to show a > 15%As of now, Television, as evident from Indian and growth per annum and slowly bridge this yawning gap.global experiences, does not have a real substitute foreither the audience or the advertiser. However, with I acknowledge the contribution of Sandip Biswas,the unprecedented growth of channels in India, only Director, Deloitte Touche Tohmatsu India Private Limitedthe players who invest in understanding the consumer to this report.and target pre-determined segments with innovativecontent and programming are slated to emerge winners,leaving the others behind. Digitization will be the mostrapidly growing trend in this industry – Players need to P N Sudarshanunderstand the implications and adapt themselves to Senior Director, Deloitte in India Animation. Broadcasting. Gaming. On the Cusp of Growth | 3
  • 4. Message The Indian Media and Entertainment (M&E) industry This White Paper, jointly prepared by ASSOCHAM and stood at USD 12.9 billion in 2009 registering a 1.4 per Deloitte Touche Tohmatsu India Private Limited, mainly cent growth over last year. Over the next five years, the deals with Animation, Broadcasting and Gaming and industry is projected to grow at a compound annual also the future roadmap for the Industry. growth rate (CAGR) of 13 per cent to reach the size of USD 24.04 billion by 2014. Additionally, the gaming I sincerely hope that FOCUS 2010 will be beneficial to segment is expected to be the fastest growing sector the stakeholders in further promoting this Industry. in the M&E industry. The sector showed a 22 per cent growth in 2009 and is expected to grow at a CAGR of 32 per cent to reach USD 705.2 million by 2014, while the animation segment is expected to record a CAGR of (D S Rawat)D S Rawat 18.7 per cent in the next five years. Secretary General, ASSOCHAMSecretary General,ASSOCHAM We are pleased to organise the fourth edition of Global Summit on Entertainment& Media: FOCUS 2010 with the Official Support from the Ministry of Information & Broadcasting, the major Film Trade Associations and active participation from the Industry.4
  • 5. About ASSOCHAMThe Associated Chambers of Commerce and Industry These encompass areas such as: Domestic &of India (ASSOCHAM), Indias premier apex chamber International Trade, Commerce, Industry, Services,covers a membership of over 300,000 companies and Agriculture, Education, Food Processing, IT & BPO,professionals across the country. It was established Economic Affairs, TQM, Energy, Environment,in 1920 by promoter chambers (Bombay Chamber of Capital Market, Banking & Finance, Direct & IndirectCommerce & Industry, Cochin Chamber of commerce Taxation, WTO & IPR, Infrastructure, Pharma, Health,& Industry, India Merchants Chamber, Mumbai, The Biotechnology & Nanotechnology , Tourism andMadras Chamber of Commerce & Industry, PHD Telecom.Chamber of Commerce & Industry) representing allregions of India. Leading Corporates like Aditya Birla Management Corporation Ltd., Boeing, DLF, IBM, RelianceAs an apex industry body, ASSOCHAM represents Communications, Reliance Industries, TATA, Northropthe interests of industry and trade, interfaces with Grumman, Cable & Wireless, Warburg Pincus, SREIGovernment on policy issues and interacts with Infocom, Ernst & Young, Huawei Telecommunications,counterpart international organizations to promote ZTE Telecom, Qualcomm, Centurion Bank of Punjabbilateral economic issues. ASSOCHAM is represented Limited, Diageo India Pvt. Ltd., DSP Merrill Lynch,on all national and local bodies and is, thus, able Geojit Financial Services Ltd., GMR Infrastructure Ltd,to pro-actively convey industry viewpoints, as also ITC Limited, Jet Airways (India) Private Limited, Kotakcommunicate and debate issues relating to public- Mahindra Asset Management Co. Ltd, Microsoft, Spiceprivate partnerships for economic development. Communications Pvt. Ltd., Videocon Ltd., Vodafone are some of the Esteemed Members of ASSOCHAM.ASSOCHAM members represent the following sectors:• Trade (National and International) About ASSOCHAM please log on www.assocham.org• Industry (Domestic and International)• Professionals (e.g. CAs, lawyers, consultants)• Trade and Industry Associations and other Chambers of CommerceASSOCHAM operates through 90 Expert Committeesthat provide an interactive platform to Members forinteraction and aid formulating Policy recommendationsso as to facilitate Economic, Industrial and SocialGrowth. Animation. Broadcasting. Gaming. On the Cusp of Growth | 5
  • 6. Animation and GamingIntroduction Global Animation and Gaming IndustryAnimation, briefly described, is a rapid display of time The Global Animation and Gaming industry, growing atsequenced frames to create an illusion of continuous 12% p.a. (2005-2009) is a USD 115 Billion industrymovement. The sub-segments within Animation and (CY 2009). The industry is estimated to continue itsGaming may be defined as follows: growth rate at 10% p.a. to reach USD 170 Billion by CY2013.Animation Figure 2: Global Animation and Gaming Market• Animation Entertainment: Custom animation devel- Revenues (USD Bn) opment for television, movies, or DVD 170• Visual Effects (VFX): Special effects development % used mainly in movies and ad productions 10• Custom Content Development: Development of 140 custom content catering to multiple segments, including Corporate, Higher Education etc. 115 %Gaming 12• PC Games: Games played on the personal computer; can be single-player or multi-player 74• Mobile Games: Games played exclusively on the mobile handset. Currently consists of mostly single- player short games• Console Games: Games played on dedicated gaming consoles. These boast of better graphics, and controllers than other types of games• Online Games: Games played over the internet. The 2005 2009E* 2011P** 2013P platform can be PC, Mobile, Console * Estimated Source: Nasscom Industry Report 2006, 2009 ** ProjectedFigure 1: Animation & Gaming Industry Segments Animation and Gaming Industry Animation Gaming Cust om Animation Visual Effe cts Content PC Mobile Console Online Entertainment (VFX) Development6
  • 7. Worldwide, US is the largest market for animation. US contributor to the revenues of leading game publishers/has the largest number of animation movie releases developers in the world viz. Nintendo, Electronic Arts(29 in 2008) and houses the 2 largest animation (Refer Figure 3). However, China is the fastest growingmovie studios in the world, namely Disney Pixar and market for gaming. Most of the animation and gamingDreamworks. Major markets for gaming are US, Europe intellectual properties originate from these countries.and Japan, US being the leader. US is the highestFigure 3: Region-wise revenue contribution for leading game publishers North America Nintendo 45% EA 55% Activision Blizzard 61% Europe Asia Nintendo 34% Nintendo 17% EA 39% EA 6% Activision Blizzard 36% Activision Blizzard 3%Source : Analyst ReportsNote : Activision Blizzard figures are for 2008; Rest for 2010 Animation. Broadcasting. Gaming. On the Cusp of Growth | 7
  • 8. The Indian animation and gaming industry derives its revenues majorly from outsourcing. InternationalIndian outsourcing share of the production houses outsource work to Indian studios while international game publishers outsource work toglobal market for animation Indian game development companies. For animation, India caters primarily to US and UK. The domestic share of the Indian animation revenues was only 30% as ofand gaming industry is very 2009.low as compared to the Macro indicators suggest an exponential scope for growth, both on the domestic and the outsourcingcorresponding share in the IT front: Domestic: Indian domestic animation and gaming is aand BPO Industry miniscule 0.6% of the worldwide animation and gaming market, thus indicating a huge scope for growth. Outsourcing: India has the inherent advantages of Indian Animation and Gaming Industry: High outsourcing, which is evident from its success in the IT/ Potential for Growth ITES outsourcing sector. However, Indian outsourcing The Indian Animation and Gaming industry, in spite of share of the global market for animation and gaming a robust growth rate of 32% p.a. (2005-2009) is only a industry is very low as compared to the corresponding USD 739 million industry. share in the IT and BPO Industry. (Refer Figure 5) Figure 5: India’s share of global outsourcing marketFigure 4: Indian Animation and Gaming Industry Revenues (USD Mn) IT Outsourcing and BPO 51% 35% 1316 Animation & Gaming <10% 533 32% 239 1161 Source: Secondary Research 735 64 500 177 2005 2009E 2011P 2013P This shows the immense potential that the Indian animation and gaming industry holds, especially from Animation Gaming overseas outsourcing.Source: Nasscom Industry Report, Secondary Research8
  • 9. AnimationIntroductionAnimation, as mentioned in the previous section, includes Animation Entertainment, Entertainment VFX and CustomContent Development.Figure 6: Animation Segments by Share India: Animation Animation Custom Content Visual Effects (VFX) Entertainment DevelopmentRevenues (2009E) 122 (24%) 83 (17%) 295 (59%)(USD Mn)Animation EntertainmentIndian animation entertainment industry is highly fragmented, with top 10 players contributing less than 15% ofthe overall revenues. Indian players are primarily involved in the labour-intensive production and post-productionactivities, as a ‘Service Provider’ (Refer Figure 8), working on the revenue model of ‘Work-For-Hire’.Figure 7: Animation Entertainment Value Chain Marketing IPR and Content Pre Post Distribution Production Development Production Production and Exhibition • Identification of • Preparation • Development • Final sound • Promotion, an existing IP or of the script, of specifica- recording, color distribution video generation of a character design, tions regarding editing, testing DVD release and new idea storyboard layout the character, and special sound cinema and TV Activities • Involves asset development background effects screening procurement, paint, inking and fund scheduling, painting and and integration visual effects of resources Percentage 5% 10% 45% 30% – Effort Outsourcing Emerging Emerging High Medium – Domestic Emerging Medium High High –Source: Nasscom Industry Report 2009, Deloitte Understanding Animation. Broadcasting. Gaming. On the Cusp of Growth | 9
  • 10. Content Development and pre-production activities are nascent in India, both for the domestic and the outsourcingmarket.Figure 8 : Animation Entertainment Service Models MarketingIPR and Content Post Pre Production Production Distribution andDevelopment Production Exhibition Content Creation Service Provider Integrated Studio – Offshore Facility Co-Production Integrated Studio Owned ContentSource: Animation & Gaming Report, Secondary Research10
  • 11. Size, Growth & SegmentsAnimation Entertainment segment consists of custom animation development for television, DVD, or theatricalmovies.Figure 9: Animation Entertainment Size (USD Mn), Growth & Segmental Split 253 20% 20% 170 55% 14% 122 25% 72 2005 2009E 2011P 2013P Television Direct to DVD Movies for theaterSource: Nasscom Industry Report 2009 Source: Nasscom Industry Report 2009Figure 10: Domestic Animation Entertainment Split This segment is estimated at USD 122 Million (CY 2009) and is expected to show a CAGR of 20% (2009-2013) to reach USD 253 million by 2013. TV contributes to 14% majority (~55%) of the overall Animation Entertainment market, followed by approximately equal share for Movies and Direct-to-DVD. 32% 54% Recent Trends and Growth Indicators The Animation Entertainment Industry in India is expected to be shaped by both domestic (Current Contribution: 25%) and Outsourcing (Current Contribution : 75%) trends and growth drivers. Television Movies for theater DVD Domestic Market TV contributes the largest (~55%) of the domestic animation entertainment market in India, followed by movies. Animation. Broadcasting. Gaming. On the Cusp of Growth | 11
  • 12. Both demand and supply drivers are expected to shape Moreover, the share of kids’ genre in overall TV up the domestic animation entertainment market in Viewership has been rising significantly, which indicates India: the growing demand for animation content in India. Indian Viewership Maturity Demand For Original Indian Content In India there has been a cultural mindset that animation The demand for original Indian content has been is meant for kids only. This has restricted the viewership increasing over the years. For example, Pogo, a leading of animation content till now. However, this mindset is channel for kids has increased its original Indian content gradually changing, leading to increased viewership of from 50 hours in 2004 to more than 200 hours in 2009. animation content among adults. % viewership of kids Similar is the case with Nickelodeon who, inspired by channels in 2009 indicates substantial viewership of the success of Little Krishna, is looking to expand its kids channels among the 14+ age group category (Refer local content. Other channels are expected to follow the Figure 11). Moreover, almost 30-35% viewership across same trend. Cartoon Network and Pogo have been found to be in the 15+ age group. Comics’ Players : Monetization Of Existing Content Comics’ players are looking to monetize their Figure 11: Percentage viewership across age groups content libraries through both TVs and Theatres. of kids channels Indian publishers like Diamond, Raj, Vimanika and Chandamama have announced plans to enter the movie 15.7% space with their famous comic characters: Table 2: Increasing influence of comics’ players in the animation industry 3.5% 3.9% 3.0% 2.7% Diamond comics has announced plans to launch a TV channel targeted at the 4 to14 year age group with 4 to 14 15 to 24 25+ Male 25+ Female 45+ both animation and live action content Source: FICCI-KPMG Indian Media & Entertainment Large production houses are also buying rights from Industry Report 2010 these publishers to produce animated TV series - Big Animation Pvt. Ltd has bought rights from publishers Growing Demand for Kids’ Genre of Chandamama to produce an animated TV series. The number of TV channels dedicated to animation and Toonz Animation India Pvt. Ltd is producing a full- kids has been steadily increasing in India (Refer Table 1). length animated feature film based on a prime In 2009 itself, 3 channels for kids were launched. This property from the library of Chandamama for an trend is expected to continue, which bodes well for the estimated amount of USD 4.5 million, animation entertainment industry in India. Filmmaker Anurag Kashyap has bought the rights of Raj Comics’ popular character – Doga. Table 1: TV channels dedicated to animation and kids Year No. of TV Channels Launched Name of channels 1995 1 Cartoon Network 1999 1 Nick 2004 5 Hungama, Pogo, Toon Disney (Jetix), Disney Channel, Animax 2007 1 Chutti TV 2009 3 Spacetoon, Khushi TV, Chintu TV12
  • 13. Animation in TV AdvertisingThe Indian TV advertisement industry size is expected to increase from USD 1.9 billion in 2009 to USD 3.3 billion in2013, growing at a rate of 13% p.a. This, coupled with growing popularity of animated characters is expected toboost the industry. Animation commercials cost far lower compared to advertisements with celebrities and establisha connect with the target group of children and young adults. They relate to audiences irrespective of language andcultural barriers. All this points to increased usage of animation in TV Advertising.Figure 12: Examples of animation used in Indian TV advertisingAnimation Movies For TheatresIndia lags the global market significantly in terms of number of animation movies produced in India. The box-officefailure of Roadside Romeo, coupled with the effects of recession, made Indian filmmakers shelve their projects onIndian animation movies. However, Hollywood films such as Ice Age 3 and Monsters vs. Aliens enjoyed successon Indian screens. The release of ‘Avatar’, a movie that is a hybrid of live action and computer generated animatedcharacters became the largest grosser in India indicating that Indian audience is interested in animated content. TheHindi, Tamil and Telugu dubbed versions of the film did equally well, highlighting the extremely responsive regionalmarket for animated content in India. As the country moves out of recession and Indian audience matures, animationmovies in the pipeline are expected to see execution.(Refer Table 3 )Table 3: Animation movies in the pipeline for 2010 Movie Name Produced by Sultan Soundarya Rajnikant Toonpur Ka Superhero Kumar Mangat, krishika Lulla Kuchi Kuchi Hota Hai Karan Johar Delhi Safari Krayon Pictures Arjun UTV Alpha and Omega Crest Animation EKEH 2.0 Motion Pixel Corporation and PNC motion entertainment Animation. Broadcasting. Gaming. On the Cusp of Growth | 13
  • 14. Outsourcing Market Figure 13: Split of outsourcing revenues across itsSimilar to the domestic market, TV contributes the sub-segmentslargest (~55%) of the outsourcing animation entertain-ment market in India, followed by Direct-to-DVD.Outsourcing work to India is dependent on the• Animation Content Worldwide 28%• % of Content Outsourced Globally and• % Outsourced to India 55% 17%Trends and growth drivers for each of these param-eters need to be understood / analysed to estimate thedirection of the ‘Animation Entertainment’ Outsourcingpie.Animation Content Television Movies for theater DVDAnimation movies in the largest animation market i.e.US have been growing (US produced 29 animationmovies in 2009). This is primarily propelled by the high % Outsourcedbox-office earnings of these movies The recent recession has forced the production houses worldwide to step up their focus on cost savingsTable 4: Box Office Earnings of certain animation measures. Comparison of production costs coupledfilms worldwide with their increased focus on cost savings is expected to translate into higher % of work outsourced globally. Table 5 provides an indication of India’s advantage over Animation Year of Worldwide Box Office other countries. Film Release Earnings (USD Mn) Shrek 3 2007 799 Table 5: Estimated costs for 30 minutes of animated content Wall E 2008 533 UP 2009 711 India Korea, Philippines North AmericaPlans of the two largest animation houses in the world 2D Hand drawn USD 45,000 USD 60,750 USD 180,000Disney Pixar and DreamWorks point to a similar growth - 50,000 - 67,500 - 200,000for future. Disney Pixar released 8 movies in the last two 3D USD 90,000 USD 121,500 USD 360,000years. It plans to increase the number to 13 movies from Backend USD 200,000 USD 270,000 USD 800,0002009-2012. Similarly, DreamWorks plans to produce production5 movies every two years from 2009 compared to 2 Flash Animation USD 20,000 USD 27,000 USD 80,000movies a year previously. However, in wake of the recenteconomic recession, the budgets for these movies are Source: Analyst Reportexpected to stagnate.14
  • 15. % Outsourced to India Indian Animation Entertainment Industry:Animation Services outsourced to India is not only a Overall Outlookfunction of the cost but also depends on the capability Indian Animation Entertainment Industry is expectedof the Indian players and its recognition world-wide. to witness a significant growth, both in terms ofIndian animation players are surely moving up the value revenue and participation in the value chain. The Indianchain with their experience and are gradually getting animation industry started by doing work for foreignrecognized as well. This is evident from the large no. of companies. Increasingly, it is developing characters,recent co-production deals: lines and voices of its own. Studios are looking at new business models, including partnerships, to produceTable 6: Co-production deals in India films and shows. Sometimes, the partnership may just be an investment. In return, they get to own a big DQ Entertainment: 30+ global Co-productions deals chunk of merchandising rights. Some are even nego- with many leading companies like BBC UK, American tiating distribution rights. This ensures flow of money Greetings Properties, M6 etc. even if there is no cash flow in the short term. Today, global companies are looking at India for co-production. Sanraa Media: Deal with UK based Endemol for the co-production of animated series – The 99 As the industry gains expertise and tries to move up the Toonz Animation: Co-production deal with Spectra value chain, it faces a few daunting challenges, which Animation of Canada to co-produce 52 episodes of a it needs to overcome to come close to realizing its Malayalam animated TV serial ‘Paddy’s Pages’ potential:Improved capability and perception of the Indian players Skilled Manpoweris encouraging for the outsourcing pie of the animation Similar to IT Services, skilled manpower is the basicservices in India. requirement for producing quality animated content. As per Nasscom Industry Report 2009, manpower require- ment for animation in India is expected to grow from 17,500 in 2009 to 29,500 by 2012. However, lack of employable resources poses a large constraint, which is primarily due to the following reasons: Low awareness of animation as a career and non-existence of a stand- ardized and quality curriculum across the handful of institutes in India. Animation. Broadcasting. Gaming. On the Cusp of Growth | 15
  • 16. Lack of Government Support The Entertainment VFX Industry has shown a very high Indian Government has been providing support to the growth rate of 53% over 2005-2009 and is estimated at IT and IT Enabled Services industry in India, thus leading USD 83 million in 2009. 60% of the market is for work to its growth. Indian animation players lack any such done for overseas clients. Government support either through tax rebates or grants. Moreover, competing outsourcing destinations Recent Trends and Growth Indicators e.g.Canada, UK have signed tax treaties with the US. Domestic and overseas markets are expected to shape the Entertainment VFX Industry in India Tight Budgets Indian animation movie is a low budget INR 10-12 Domestic Market crore movie, primarily meant to hedge the involved financial risks. In doing so, the quality takes a beating VFX in Movies and the movie fails to compete with a USD 100-200 The use of VFX in live action films has seen a steady and Mn Hollywood Production. As production houses significant growth over the years. Many live action films grow bigger and financially stronger, the budgets are today include a VFX sequence and the sheer duration of expected to improve. these screen shots has also risen substantially. IP Protection Usage in Broadcast and Advertising Piracy of DVD-based videos is rampant in India, which Usage of VFX in broadcast helps in significant reduction eats into the revenues for the producers and distribu- of costs. Its usage brings down the set creation costs for tors. Weak IP Regulation and ineffective enforcement a broadcast by almost 60-65%, particularly for mytho- discourage animation players in India to produce their logical shows. It also helps in costs savings of 30-40% own IP. Moreover, it also discourages International for commercials. Players, who are generally very protective of their IPs, to outsource to India. Pre-Visualization Trend Pre-Visualization trend is a technique where-in the shots Entertainment VFX can be visualized on computers before they are actually Similar to Indian animation entertainment industry, shot. This increases the efficiency of production and Indian animation VFX industry is a highly fragmented reduces cost of production. Growth of this trend would industry with the top 5 players contributing to ~20% contribute to increased overall usage of visual effects. of the overall market. The revenue model used in animation VFX is ‘Work for Hire’, where revenues accrue Overseas Market on a per hour basis. VFX in Movies Figure 14 : Animation Entertainment VFX Market The whopping success of VFX extensive movies at the Revenues (USD Mn) box office overseas is expected to drive the VFX usage in other movies as well. This, coupled with the cost 222 savings through outsourcing is expected to lead to greater outsourcing. 28% In addition to the demand drivers, players have taken 135 supply side initiatives, which will certainly boost the market in India 83 % 53 Initiatives of Players The Indian players are also increasing their presence 15 overseas to tap the international market and build an outsourcing pipeline for their Indian studios: 2005 2009E 2011P 2013P •  ixion has acquired two London-based studios, P Source: Nasscom Industry Report 2006, 2009 Men-From-Mars and Molinare16
  • 17. •  ixion also plans to acquire a studio in Los Angeles P•  ata Elxsi has launched a new facility of Visual T Computing Labs (VCL) in Los Angeles Indian Entertainment VFX industry facesIndian Entertainment VFX Industry: Overall OutlookIndian Entertainment VFX Industry, similar to theIndian Animation Entertainment industry is on thecusp of significant growth, both on the domestic andoutsourcing front. However, as the Indian industryplayers take initiatives to boost their presence on the numerous challenges :global map, they face similar challenges : Lack of SkilledManpower, low budgets for VFX in a movie and no Lack of skilled manpower,Government support / incentives.Custom Content Development Low budgets, LittleCustom content development, estimated at ~ USD 295Million (2009) has grown at 35% p.a. (2005-09) andis expected to continue its growth at a healthy rate of Government support24% p.a. (2009-13) to reach USD 685 Million by 2013. Corporate (for their training requirements), K-12, Higher Educational Institutes and industries such as Defence,As per leading players in the industry, >90% of custom Aviation for their training requirements are customerscontent development in India is outsourcing work. of this segment. Similar to the animation entertain- ment industry, it is the production and post-production activities which are primarily outsourced to countries likeFigure 15: Indian Custom Content Development India.Market Revenues (USD Mn) 685 Recent Trends and Growth Indicators 24% Domestic and overseas markets are expected to shape the Custom Content Development in India 429 Domestic Market % 295 E-Learning Demand from Corporate Sector 35 As the corporate sector expands its distribution and adopts IT increasingly, demand for custom content 90 development is expected to increase. Most of the increased demand is expected to come from the small 2005 2009E 2011E 2013E and medium enterprises (SMEs) who are currently lowSource: Nasscom Industry Report 2006, 2009 users of e-Learning, but are willing to adopt the cost- effective high-quality channel.Figure 16: Custom Content Development Value Chain Content Owner/ Sourcing Animation Content Developer Platform Owner Content can be for educational This can be done in-house or by an Can publish onto: institutions, corporate or talent integrated studio or outsourced in part of • CD/ DVD development companies full to an animation developer • Website • Learning Management SystemSource: Secondary Research Animation. Broadcasting. Gaming. On the Cusp of Growth | 17
  • 18. Demand From Higher Education Compared to the US where > 90% of the institutes leverage e-Learning, current adoption of e-Learning by higher education institutes in India is very poor. This has The Indian mindset large scope for growth and can only go up, given the current status. emphasises significantly Overseas Market on human interactions Major markets for e-Learning globally are the US and select European nations across both educational institu- and face-to-face tions and Corporate Sector for training purposes. sessions, which has Increased requirement for content Content requirement for corporate e-Learning is to impeded the growth of grow at 11% p.a. (2009-13). e-Learning in IndiaFigure 17: Worldwide Corporate e-Learning Content Revenue (USD Bn) Indian Custom Content Development Industry: 16.0 Overall Outlook 11% 14.0 13.5 Indian Custom Content Development Industry is slated 12.5 to show robust growth, both on the domestic and 10.5 outsourcing front. However, ‘Change in the Indian 9.0 Mindset’ and ‘Government Thrust’ can go a long way in developing the industry: Cultural Constraint The Indian mindset emphasises significantly on human interactions and face-to-face sessions. This has impeded the growth of e-Learning in India. 2008 2009 E 2010 P 2011 P 2012 P 2013 PSource: Skillsoft report Government Thrust Government Aided Institutes do not enjoy any incentive Increased outsourcing for adoption of e-Learning in the institute. The fee for Increased pressure on bottomline for the corporate these institutes is capped, thus restricting the authorities and higher education institutes is expected to increase to pass on the extra cost of an e-Learning initiative to the focus on cost savings, thus leading to higher the students. This impedes adoption of e-Learning even outsourcing. among willing insititues to adopt e-Learning.18
  • 19. Animation. Broadcasting. Gaming. On the Cusp of Growth | 19
  • 20. GamingGlobal Gaming Industry • Console Gaming: Sale of hardware e.g. gamingThe global gaming industry has been growing at ~21% consolesp.a. (2005-2009) to reach ~ USD 40 billion (CY2009). • Online Gaming: Advertising and subscription ofThis growth is expected to reduce to 10% p.a. and is online gamesexpected to reach USD 59 billion by 2013. Gaming services market in India comprises:Figure 18: Global Gaming Market (USD Bn) • Outsourcing development services • Ancillary services such as voice and email BPO 10% 59 support, porting, testing, etc. 49 Gaming industry in India is a fragmented industry, % 40 21 with players present across the value chain. It is the development and post development activities (Refer 19 Figure 21) which are outsourced. Concept creation, feasibility testing and pre-production are still limited to only the online and mobile platforms in India, that too 2005 2009E 2011P 2013P done only by a handful of players.Source: Nasscom Industry Report 2006, 2009 Figure 20: Gaming Value ChainKey segments for gaming are Console Gaming, PC Concept Post FinalGaming, Mobile Gaming and Online Gaming. North creation & Pre Gold Development production Testing / ConsumerAmerica, Western Europe and Japan lead the gaming feasibility Production release & testing Porting testingmarket. However, China is the fastest growing market • nvolves I •  reation of C •  rogramming • nvolves P I •  he final T •  ame made Gespecially for online gaming. concept story board 3-D •  -D Art asset final sound build is compatible 3 creation Pre-production, building: recording, delivered with various character color to the graphicIndian Gaming Industry Overview •  ublisher P drawing This includes testing publisher cards/ mobile validates the characterThe Indian gaming market is estimated at ~ USD 239 concept and •  ame engine G modeling, and special handsets sound (for mobilemillion (CY 2009) and expected to grow rapidly to reach identifies decision (for se design & effects games) the market console, PC modeling~ USD 1.3 billion by 2013, showing a CAGR of ~53%. opportunity and online) texturingConsumer market in India comprises revenues from:Figure 19: Indian Gaming Consumer and Services Figure 21: Presence of Indian Gaming Players Across the Value ChainMarket (USD Mn) Concept Creation Pre Post & Development Final Testing & Feasibility Production Testing 328 / Porting Testing Production % Console 53 Mobile PC 988 150 Online 21% 80 380 Note: For Mobile, PC, and Online Games, concept creation and feasibility testing Limited Presence29 158 and pre-production are done only for domestic clients while the other steps35 Moderate Presence are done for both domestic and overseas clients. For Console Games, all stages 2005 2009E 2011P 2013P except content creation are done only for overseas clients No PresenceSource: Nasscom Industry Report Secondary Research Source: Nasscom Industry Report 2009 Consumer Services• PC Gaming: Sale of CD-based gaming software• Mobile Gaming: Sale of software through mobile downloads20
  • 21. • Integrated companies that have presence in the Mobile Gaming complete gaming value-chain – from conceiving a • Growing mobile subscribers & Introduction of gaming idea, publishing it, developing the complete 3G-enabled handsets game and distributing it across geographies are Mobile phone is the most widely owned screen in again limited to a few companies, that too only for India today and is expected to continue its growth, mobile gaming. given the large scope for further penetration of mobile phones in India. As the Indian populace’Among the various segments exposure to mobiles increases, higher downloads on• Mobile and Online Gaming are the largest the mobile phones are expected. Moreover, it is the contributor to gaming service revenues introduction of 3G in the country, which will enable• Consoles are the largest contributor to Gaming the user experience a high quality game and demand Consumer Revenues. However, one needs to note more. Such a demand will foster innovation in games that a large % of the consumer revenues is shared on the mobile and encourage an ecosystem for with international players viz. Sony, Nintendo, greater development of mobile games. Microsoft, Electronic Arts, etc. • Telecom operators : Declining ARPU and Need forFigure 22: Consumer and Services revenues across Differentiationtype of games (USD Mn) (2009) Telecom sector in India has been experiencing an 7 increase in competitiveness between operators as well as handset manufacturers, which has resulted in a greater need to differentiate themselves from their competitors through Mobile Value Added 23 Applications and Services. Moreover, the ARPUs of 90 telecom operators have been declining: Telcos are looking forward to Mobile Value Added Services 34 as an alternate revenue source. Mobile gaming is 43 16 expected to significantly grow on account of this 12 14 supply driver: Mobile Entertainment being considered Console Mobile PC Online as a means to differentiate and a channel for increased revenues per user. Consumer ServicesSource: Nasscom Industry Report 2006, 2009 Figure 23: Non-voice Revenues per country• Moreover, the margins involved in this distribution business are very low. This high revenue share model China 27 applies to PC and Online Gaming as well, where Indian presence in creating games is limited. Japan 27Distribution business (Low revenue share, Low margins) Korea 26is not a significant contributor to growth of gamingindustry in India. Hence, in this report, trends related to UK 21consumer business of consoles or distribution of gamesof foreign players have not been considered. Both Germany 21domestic and outsourcing trends and growth drivers Italy 17have been analysed to understand the future of gamingmarket in India: India 8Domestic Market Source : IAMAI Paper, Deloitte AnalysisDomestic market is expected to witness high growth, Notes : Data is approximate and is based on the data % of largeboth from the demand and supply side: telcos in respective countries Animation. Broadcasting. Gaming. On the Cusp of Growth | 21
  • 22. Online Gaming Trends and growth drivers for each of these parametersIncreasing internet penetration in India, introduction of need to be understood / analysed to estimate theBroadband Wireless Access (BWA) and growing trend direction of the outsourcing for gaming services in Indiaof Massive Multi-player Online Role Playing Games • Increase in production of console games overseas(MMORGs ) are expected to grow the online gaming and MMORGsmarket in India significantly. Currently, revenues from console game development services are completely derived by providing• Increased internet penetration and Broadband services to international companies. Global console Wireless Access Introduction software market is expected to grow at 11% p.a. Internet penetration in India has increased from a This indicates a greater need for console game mere 0.7% in 2003-04 to a 1.2% in 2008-09. This development services. Similarly, the trend of growing growing penetration, along with introduction of MMORGs worldwide is expected to continue. BWA, which would lead to increased broadband Both these are expected to lead to higher need for penetration would facilitate playing of high end development of games on the respective platforms. online games in India. • Cost SavingsFigure 24: Internet Penetration in India There is a significant cost differential between the production costs in India and that in US. As per 23% Nasscom, game development in India saves > 50%, 1.10% 1.16% compared to the US. 1.00% Figure 25: Production Cost Indices (India Vs US) 0.60% 100 100 2005-06 2006-07 2007-08 2008-09Source: TRAI 41 40• Growing trend of MMORGs All types of games in India can be broadly classified into: Single Player Single Session Games, Multi Player Single Session Games and Multi-Player Online Role Playing Games. Currently in India, Single Player Console Mobile Games dominate the market with 80% of the active Internet using gamers playing such games. Only US India 27% of Indian online gaming populace is playing Source: Nasscom Industry Report 2009 MMORGs. However, it is the fastest growing among the three, not only in India but worldwide as well. • Growing expertise and recognition from Indian Growing MMORGs is expected to boost the online Players gaming in India. As the Indian Players gain expertise across the multiple gaming platforms, they are also earningOutsourcing Market recognition from global publishers. This isToday, majority of gaming services revenues in India evident from the recent co-publishing (Revenuecomes from outsourcing, especially for Console, PC and Sharing) deals between Indian players e.g.Online Gaming. Outsourcing work to India is dependent Trine Entertainment and foreign publishers foron the development of games worldwide and the % development of games.outsourced to India.22
  • 23. Indian Gaming Industry: Overall Outlook by lack of budgets and quality manpower have not Indian Gaming industry is expected to witness large been successful with development of PC / Console changes, primarily in the domestic market. Introduction Games. of 3G and telco’s focus on Value Added Services are • Revenues Sharing with Telecom Operators: Telecom expected to lead to exponential growth for mobile operator keeps a large % of the revenue (60% - gaming in India. This will also lead to the Indian gaming 70%) that accrues from mobile game downloads. players moving up the value chain and getting involved This revenue-sharing agreement does not foster in end-to-end game development and publishing. As the right ecosystem for mobile game developers to the Indian market matures and gains expertise, Indian develop their own IPs and distribute them. players will gain confidence of their foreign counterparts and attract greater % share of the outsourcing pie and Indian Animation & Gaming Industry : Future co-publishing deals. Outlook The Indian Animation and Gaming industry is today at a However, realizing the potential of the Indian gaming nascent stage, but holds significant potential for growth, industry is constrained by factors very similar to the both in terms of its size and moving up along the value animation industry in India: chain. While the abysmally low current share (0.6%) of • Lack of Skilled Manpower: Lack of employable the worldwide animation and gaming market points manpower, primarily arising out of high quality to Indian industry’s potential for domestic growth, the institutes, lack of perception of gaming as a potential <10% share of the outsourced market indicates the career is a key challenge for the industry. large scope for growth from the outsourcing market. • Mindset of Indian Populace: Gaming is considered Increasing number of co-production deals, increasing to be just a means of entertainment and even a focus on development of original content and own IPs, worthless activity by a large section of the Indian setting up overseas offices, recent investments from population. This is the largest factor impeding the Private Equity / Other Funds – All these developments growth of the domestic market in India. are evident of its demonstrated capability and growing • High Standards of Foreign Games: Indian gamer is confidence. However, regular availability of employ- already exposed to the best quality games globally able talent needs to be ensured for the potential to and would expect similar quality games from Indian be realized. Certain Government incentives could also games as well. Indian gaming players, constrained encourage the industry and help it go a long way.Increasing number of co-production deals,development of own IPs, recent investments fromPrivate Equity – All these developments areevident of the demonstrated capability andgrowing confidence of the Indian Animation andGaming Industry Animation. Broadcasting. Gaming. On the Cusp of Growth | 23
  • 24. Television Introduction The television sector in India has grown at a CAGR of Television plays a significant role in dissemination of ~14% (2005-2009) and is estimated to continue to information and is equipped with an innate power to grow. By the end of 2011, the industry is estimated to influence people, their beliefs and their opinions. A reach USD 7.8 billion. While the media & entertainment global Deloitte study on ‘Media democracy’ in 2009 market in India is relatively small when compared across over 2000 respondents offers some interesting with other Asian countries, India has the third largest insights about the popularity of television in current television market in the world after China and the US. times. TV remains a favorite media source for most TV continues to dominate the sector followed by print consumers – 72% of the respondents rank ‘watching and filmed entertainment. TV’ as their top media source. 84% respondents consider ‘advertising on TV’ as the most influential Figure 27: TV Revenue Streams media source to impact their buying decisions. Online TV matters to a minority of viewers, though the share Television of such viewers has gradually increased as compared to content 4% 2008. Indian entertainment today has a far more global Television audience across South Asia, the Middle East, and advertising Television 34% distribution Africa. The large base of expatriates ensures that 62% Indian TV channels and films are a premier medium of entertainment. Indian films and TV channels have been able to attract audience beyond expatriates in the US and the UK – an audience that enjoys and identifies more with the contemporary Indian culture. Figure 26: Size of TV Industry in India (USD Bn) Source: IBEF, Industry estimates 17% Television – Revenue Streams 10.7 In 2009, subscription revenues contributed around 14% 7.8 62% to the total television revenues and stood at 5.7 USD 3.5 billion; while advertising constituted 34% 3.4 at USD 1.9 billion. The television content constitutes 2005 2009E 2011P 2013P approximately 4% to the total television market at Source: IBEF, Secondary Research USD 250 million.24
  • 25. Figure 28: TV Value Chain Content Creators/ Broadcasters Distributors End Users Content Aggregators • Content providers • Further, content is • The distribution • End users get access operating directly or distributed through companies, using to the content afterRole in the TV through aggrega- audio and video signals various technologies, paying a subscriptionValue Chain tors who re-package to transmit programs make the content fee content to an audience available to audienceKey players • In the next 2-3 years • Competition among • Lack of transparency in • Consumers are experi- the companies can broadcasters leading sharing of revenues by menting and openChallenges/ expect to look beyond to drop in Gross Rating distributors has been a to new technologies,Consideration and target local Points (GRPs) especially challenge. Local Cable content and offers viewers with custom- for channels in Hindi Operators still garner ized content in markets GEC space 75% of the subscrip- like North America, tion revenues Europe, Middle East, and AfricaSource: Deloitte analysisi. Television Distribution the DTH platform. DTH is an upcoming segment even inIndia’s television distribution industry is the world’s rural India, increasing its share among all DTH homes tosecond largest with over 105 million cable and satellite 64% in 2010 as compared to 34% in 2008. Digitization(C&S) homes in 20091. New digital mediums are is expected to speed up, not only in Direct-to-home butemerging – DTH, Digital Cable and IPTV. DTH is being also in the hitherto-analog cable segment. An industryinstrumental in the growth of television industry in India. report by IDFC suggests that total digital homes areThere are multiple organized players that are providing expected to increase four times to 86 million by 2015 –satellite signals directly to the homes. There are 22 which would potentially address the ‘under-reporting’million digital homes – 18 million out of these are on of revenues earned by local cable operators. DTH would 1  elevision distribution report T 2009, IDFC Animation. Broadcasting. Gaming. On the Cusp of Growth | 25
  • 26. constitute 48 million homes (18 million in 2009) and cable would be 38 million homes (as against 4 million in 2009). This indicates digitization is underway and the television distribution is moving towards being more organized. Figure 29: Digital TV Homes in India Total potential (in millions of homes) Undeclared homes Undeclared Declared 105 51 mn 140 homes homes 82 mn 23 mn Declared homes 89 mn 30 20 2009 2015E Non C&S Home C&S Home Digital homes 22 million 86 million Source: IDFC, Deloitte analysis India is an extremely cluttered cable and DTH market: The cable distribution industry in India is extremely fragmented, with the presence of over 7000 MSOs and more than 50,000 LCOs. Figure 30 : Cable & DTH Market in India Source: IDFC ii. elevision Advertising T Television advertising in India stood at USD 1.90 billion in 2009 – seeing a marginal growth of 2% over 20082. In 2010, the overall advertising industry is expected to see a y-o-y growth of 13% over 2009.2 BEF, Industry estimates, I Until recently, the growth in TV advertising was largely driven by significant advertising spends by fast growing Pitch-Madison, Edelweiss Research sectors such as banking and financial services, telecom etc. As a result of the economic slowdown, players in these26
  • 27. sectors trimmed their advertising spends especially in the volumes. Players such as HUL, Reckitt Benckiser andfirst half of 2009. P&G intensely compete with each other on television advertising. Many other leading FMCG players haveFigure 31 : Leading Advertising Categories on TV also joined the TV advertising battle; given that TV broadcasting has historically been an effectiveTop 10 TV advertising sectors in 2009 advertising vehicle for consumer products. Apart from FMCG, sectors such as telecom, automobile, banking Top Categories % share & financial services and consumer durables have also Food & beverages 14 joined the TV advertising bandwagon. Personal care/ personal hygiene 11 Services 6 iii. Television Content Telecom/internet service providers 5 Most channels produce their own television content. Hair Care 5 Given the increasing demand for differentiated content, a handful of content creators have emerged who sell Auto 4 television content to channels. This contributed about Banking/finance/investment 4 4% of the overall television industry in 2009 at USD 250 Personal accessories 4 million. Since the number of channels is growing by the Personal healthcare 3 day and there is a need for differentiation, television Household products 3 content segment is expected to surge further.Source: TAM Media Television Channels in India – the Problem of PlentyFood and Beverages leads the charts in advertising The last few years witnessed a near explosion of theon television in 2009 with ~ 14% share, followed by number of television channels in India. From the blackPersonal care / Personal Hygiene at 11%. FMCG firms and white television broadcasting on a single nationalsuch as P&G, HUL, Coca Cola, Pepsi, ITC were the television channel (Doordarshan) in 1980s to over 500leading television advertisers in 2009. channels spanning various genres – Indian television industry has truly come a long way.A win-win for TV AdvertisingLet’s have a look at some interesting advertising spend Television Genres in India – From Generic to Nicheinsights. 9 of the Top 10 advertisers on TV are from The Indian television broadcasting segment currentlyFMCG. FMCG accounts for over 45% of TV advertising has more than six genres. High number of genres isFigure 32 : Evolution of TV Channels in India 2010: Over 500 channels 2015: Annual growth Doordarshan was 1992: 5 new 2003: Entry of already in India rate for the television the single national channels authentic news and another industry is projected broadcaster introduced by channels such 100 waiting to 2006: 2 to be15% over the Hong Kong as AajTak and go live million next 5 years based Star TV Star News digital TV households 2002-03: More Ramayan and 1996: More than 2009: 394 TV channels in international channels such Mahabharat were the 50 channels 2009. Non-news & current as Nickelodeon, Cartoon popular shows with available to affairs TV channels grew Network, VH1, Disney record viewership Indian viewers from 0 to 183; news & were launched in India. current affairs TV channels The number of channels grew to 211 increased to ~ 100 Animation. Broadcasting. Gaming. On the Cusp of Growth | 27
  • 28. primarily driven by the growing need for more and moredifferentiated and niche content. Since the viewerstoday have far greater choice in terms of content, variednational and regional channels have emerged across Regional GECs are almost matching thegenres.I. GEC (General Entertainment Channels)Figure 33: Viewership across TV Genres in India strength of their national counterparts, and have emerged as a key focus area for most players Here are some key highlights of emerging changes in the Hindi GEC space in the last calendar year: • Increasing popularity of reality shows and fiction addressing social and realistic issues • Advertisement rates nose-diving in the IPL month • Channels such as Colors, Imagine going global as they also strongly race for the top slot in the highly competitive TV broadcasting battlefield • Leading GECs acquiring broadcasting rights for new movies for sprucing up the ratings and adding to their viewer base, by reducing the gap between theatre release and time-to-market through television b. Regional GECs: Gaining rigor Regional GECs are almost matching their strength with the national GECs and have emerged as a key focusSource: TAM Media area for most players. The number of regional channels has increased from 114 in 2008 to 135 in 20093. Whilea. National GEC: Cutthroat and competitive the share of advertising on genres such as Hindi News,2009 was a roller-coaster ride when it comes to the Hindi GECs and Hindi Movies almost remained constant,top hindi GEC slot. While Star TV was at the top till the it increased for regional GEC from 22% in 2008 to 24%first half of the year, Colors occupied the top position in 20094. High demand for regional content by viewersand got the highest gross ratings points (GRPs) of 325 settled outside India, low cost of production (relativelyin September 2009. This was also the highest among low talent cost, no carriage and placement fee, lowall Hindi GECs in a span of over a year – 50 GRPs ahead acquisition cost), affordable local advertisement reachingof its closest competitor Star TV and 70 GRPs over Zee the right audience are some factors contributing to theTV. Differentiated content such as its flagship drama success of regional channels.‘Balika Vadhu’ and ‘Utaran’, second season of stunt- 3 Going native’, article ‘based reality show Fear Factor-Khataron Ke Khiladi and Regionalization has caught the eyes of most established published in Financial TimesBigBoss; coupled with meticulous distribution strategy broadcasters, catering to specific interests of the in Oct 2010worked wonders for Colors. viewers: 4 TAM Media28
  • 29. • Tamil, Malayalam, Telugu, Kannada, Bengali and specific type of content. TV Today launched an English Marathi are the key languages in the regional GEC Channel, Headlines Today; and then another Hindi space channel, Tez (meaning fast). Both these channels were • Sun TV Networks has been a leading TV broadcaster aimed at the busy viewer who does not have time for in the South Indian television market long and detailed news bulletins. • Zee Networks that established a strong presence in northern and eastern India with channels in III. Music: Journey away from music Bengali, Gujarati, Marathi and Punjabi by 2004; also Music channels in Indian television are facing winds commands a significant present in South India with of change. Four years ago, there were 12 pure music their first South Indian channel launch - Zee Telugu in channels. Today, there are only four - 9XM, ETC, Music 2005, Zee Kannada in 2006, Zee Tamil in 2008 India and VH1. Audience viewership for music channels is dipping across all age groups. Most traditional music Other broadcasters such as Sony, NDTV, UTV are eyeing channels are also embracing non-music content since the growing regional channel space, intensifying the these channels are finding it increasingly difficult to need for more and more specialized content targeted at retain and attract interest of audience due to growing the regional viewers. competition from GEC and other genres. II. ews channels: Losing steam N IV. Sports: Creating its own niche India currently has about 250 news channels as Sports channels in India have increased manifold over against 215 in 20085– highest as compared to any the last few years. The Indian cricket fans constitute the other country. 42 new news channels were permitted primary viewers of the Indian sports channels. Events in 2009 and 2010. Except for a handful of leading such as Twenty20 World Cup and IPL have offered news channels such as AajTak, most national as well exactly what the Indian cricket fans look for. Games as regional news channels are losing steam to the such as hockey and football are also gaining more GECs. While the GECs are fast catching up with their importance – increased demand and viewership for live differentiated content, the news channels struggle telecasts, along with attracting sponsorships from bigger to strike the right balance between traditional brands. For example, initiatives such as ESPN Star Sports news content such as politics, current affairs; and association with the Indian Hockey Federation to create entertainment content. The news channels also grapple the Premier Hockey league can offer further growth of with holding the viewer’s attention. Some channels have this genre. tried to address this by creating dedicated channels for5  inistry of Information and M Broadcasting. March 2010 Animation. Broadcasting. Gaming. On the Cusp of Growth | 29
  • 30. V. Kids: It will be more quality now GEC as well as non-GEC genres over the last 2 years. Tiny-tots are migrating from other genres of channels In the GEC genre, Colors, NDTV Imagine, 9X and few to the specific genre of cartoon channels for them. The others were launched, while channels such as Discovery channels are responding well enough by incorporating Science, UTV Movies were introduced in the non-GEC increasingly vivid and superior content. While Cartoon genre. Since the Ministry of Broadcasting decided to Network continues to hold the fort in the all-India temporarily suspend the issuance of new licenses to kids segment, the channel has seen a 3% dip over the new channels due to the lack of spectrum in 2009; the previous year to end 2009 with a 24% market share4. increase in number of new channels in 2010 and 2011 Channel Pogo too has managed to retain the number is expected to be driven only by players already holding 2 slot in this space. The channel has seen a rise in its the licenses and are yet to launch the channels. market share from 20% in 2008 to 22% in 20094. This genre has tremendous potential to grow given that the Policy Framework target audience for the ‘kids’ channels is not only kids, TRAI was designated as the regulator for broadcasting but also some viewers from the adult segments. and cable services in 2004. While much is still uncertain A host of new channels were launched across the about the broadcasting guidelines for the newlyFigure 34: Colors – Breaking the Monopoly and Monotony of Family Drama • Colors spiraled to the No. 2 spot in the competitive general entertainment channel (GEC) space within 10 weeks of its launch and became a well-entrenched channel available in 66.8 million homes, with a 24% What did Colors do? market share. • Colors was taking on the challenge of competing with giants like Star Plus, Zee and Sony, who controlled the entertainment space and seemed to have set into a comfortable equilibrium in rankings and revenue. Target Audience • Hindi speaking audience in 90 Indian cities The success strategy was three pronged: Explosive Marketing Differentiated Content Debut with Two Big-Ticket Used all Played ‘Bring the Colors’ disruptive Promotion Routes Difference’ Game programming strategy • 1300 hoardings & road shows across • New hue to the existing Hindi GEC • Launched with two blockbuster country Category properties Khatron Ke Khiladi and • 3000 taxis and 2000 auto rickshaws • Variety of FRESH content across genres Bigg Boss 2, winning the eyeballs painted with Colors brand covering the entire spectrum of immediately • 65000 ad spots booked on TV &15 emotions • Soaps addressing social issues and million SMSs • Content customized to fit evolving stayed away from the family drama. • Big Bazaar stores & McDonald’s helpers viewers with a desire to escape to their and counter-guys flaunted Colors fantasy world, while still remaining T-shirts within the realm of reality30
  • 31. emerging distribution segments, one thing can be stated • Spiraling production costs: Managing productionwith certainty: we have moved into a new era of digital costs is one of the key challenges for contenttransmission of television content. The Government of producers. With the almost waning economicIndia mandated digital conditional access systems (CAS) slowdown, the talent costs are rising again to theand rollout of DTH TV licenses highlights the regulator’s levels they were prior to the pre-recession timesfocus on speeding up the digitization process. The • Falling ARPUs: The highly competitive DTH marketHeadend-in-the-Sky (HITS) policy and a concessional is experiencing lower ARPUs, while also movingcustoms duty of 5% on importing digital headend neck to neck with local cable operators (LCOs) andequipment is expected to give drive the digitization multi system operators (MSOs). Most players areprocess even faster. experiencing and are likely to witness for few more years, a squeezing bottom-line growth. High cost ofFDI policy across various distribution segments: customer acquisition further intensifies the pressure• Cable Network: Foreign investment and portfolio • Evolving viewer interests: The viewer today is not investments are permitted up to 49% only looking for new-fangled content but is also• Direct-to-Home: Foreign investment and portfolio very quality conscious. From new movie broadcasts investments are permitted up to 49%. Within the to the IPL craze, from series such as ‘Balika Vadhu’ limit of 49%, FDI will not exceed 20% addressing social issues to reality shows with more• Head end in the sky (HITS): Foreign investment and and more celebrity appearances – the need for portfolio investments are permitted up to 74% differentiated and fresh content is on an all time high. Regional viewers, both in India and overseas,Since more and more telecom companies are entering are also gaining importancethe broadcasting space, FDI ceilings would need to be • Fragmented viewership: Increasing number ofrationalized to facilitate the anticipated convergence. channels has fragmented the TV audience. The only way to garner a significant market share withinFuture Outlook the viewership is through differentiated content.The television industry is truly transforming. Increasing This would require a deep understanding of thepay TV penetration, multiple channels in each genre consumer segments and their media consumptionracing against each other for TRPs, expanding yet habitsfragmented local as well overseas viewership of Indianchannels, demand for more specific content – clearly Players across the television value chain need a soundsets the stage for the next level of growth and transition action plan to address some of these challenges andfor players across the television value chain. Content harness the opportunities in a growing and highcreators and broadcasters need to be cognizant of the potential sector. While there isn’t any one-size-fits-allever increasing demand for differentiated content. While approach to realize the true potential of this sector,on one hand, new digital content distribution platforms there are some areas that the players may need toare emerging; on the other hand, new formats of focus more on and prioritize. It would be important, forentertainment - computers, mobiles and other handheld instance, to address the demand for regional content;devices are gaining importance. Monetization of content to work closely with the regulator in developingthrough these new media platforms is going to be a key transparent and more accurate techniques to measurefocus area for the content owners. Some key trends and viewership; to influence the regulator for an increasedchallenges that lie ahead are: impetus on digitization; to influence stakeholders across the value chain for controlling production costs; and to• Digital. Digital. Digital: ‘Digital’ is already the enhance value delivered to the end-customer both in buzzword today – digital content, digital production, terms of varied content experience (by content creators digital distribution, digital platforms… It is imperative / broadcasters) and effective customer-service (by for players across the value chain to be digitally distributors). adept to fully garner these opportunities Animation. Broadcasting. Gaming. On the Cusp of Growth | 31
  • 32. RadioIntroductionRadio broadcasting in India has evolved from an All India Radio monopoly (1936) to a Government of Indiacontrolled All India Radio (AIR) and 37 private FM radio companies that operate close to 280 FM radio stations. FMradio stations are contributing to its rapid growth.Figure 35 : Evolution of Radio in India 2005: Second 1993: Private Phase with 338 AIR started its slots up for participation on a services auction experimental basis on FM channels in Delhi & Mumbai1936 Awaiting 1999: Government pulled 2001: First phase of India’s Third Phase 1977: First out the plug on private radio development began and FM service participation Government conducted open auctions issuing 108 licensesRadio industry in India is ~USD 200 million, having grown at a CAGR of 22% (2005-2009). Most of the revenues forRadio are driven by advertisements (~85%-90%), while 10-15% are driven by events and activations on the radio(Refer Fig. 37).Figure 36 : Radio Industry in India (USD Mn) Figure 37: Radio Broadcasting Players (Revenue Split %) 10% 25% 500 54% 36% 22% 350 200 90 2005 2009E 2011P 2013P Events & Activation Local Ads National AdsSource: IBEF, Secondary Research Source: Industry EstimatesAdvertising revenues from radio in India are only ~3% of Figure 38: Radio Ad Revenuethe overall advertising industry in India. This is less than (% of Overall Ad Revenue)50% of the global average (~8%) (Refer Fig. 38). This India 3%clearly indicates the immense potential and scope forgrowth for radio in India. World 8% Selected Developed 15% Countries Source: Secondary Research32
  • 33. Key Growth Drivers & Constraints enabled mobile phones, the radio audience is bound toUniqueness of radio, its utility on the move and the 3rd increase.Phase of Licensing are expected to drive its growth in Figure 40: FM Enabled Mobile Phone GrowthIndia: 392.0Unique value propositionRadio is a unique medium compared to other 261.0advertising media. It is a local medium and can deliver 65%locally relevant content. It is a highly interactive medium 165.0 59%and can be used most effectively for promotional 37%campaigns. This value proposition of the radio isexpected to be increasingly realized and leveraged byadvertisers. 2007 2008 2009 Mobile Subscribers (Mn) % of FM Enabled HandsetsHigh utility on the move Source: TRAI, Business Press, IDC India 2010Radio finds high utility by people on the move, whetherit be inside the car or inside a public transport (viamobile phones). India is a rapidly growing car market 3rd phase of licensing(Refer Fig. 39), which will increase both the number of A significant number of licenses are expected in the 3rdradio listeners and the time spent listening to radio. phase of licensing: 3 in Top 8 Metros, 22 in other top 30 cities and > 600 licenses in smaller cities are expected toFigure 39: Passenger Vehicle Sales India (2009) be made available.(‘000 Units) 1950 While radio, based on both international comparison 13% 1549 1552 and the prevailing drivers in India, carries the potential 1380 to grow at a significant rate, current financial viability 1143 and regulatory restrictions pose large constraints for the 1061 industry. • Type of content: FM radio stations are permitted to play music only. This has kept the private industry deprived of leveraging other potential genres such as news, emerging sports genre in India and other niche content genres. Globally, radio stations have 2005 2006 2007 2008 2009 2010 the freedom to broadcast channels across genres likeSource: SIAM news, sports, fashion, talk shows, religion, weather,Moreover, the growth of mobiles (Refer Fig. 40) bodes cookery e.g. Walt Disney has more than 3000 radiowell for the radio industry. According to Radio Audience channels, each dedicated to everything from weatherMeasurement data, 49 % listeners access radio from to cookery. In the US, radio listeners spend almost 50%their mobile phones. With the availability of low cost FM of their radio listening time on news or talk channels. Animation. Broadcasting. Gaming. On the Cusp of Growth | 33
  • 34. • Number of frequencies per city & networking of content or infrastructure across cities makes it unviable cities: Indian stations are limited to one frequency for radio broadcasting players, especially in non-metros per city. Multiple frequencies per city can help radio and smaller cities. companies earn higher revenues for the same tower infrastructure and enable them to propose bundled Table 7: Cost Structure of Radio Broadcasters in offerings to advertisers. Networking of cities is India currently not allowed. Setting up of radio stations is equally expensive across metros and small cities. Cost % of Revenues While revenue prospects are far higher in metros License Fee 4 and large cities; allowing networking across cities Music Royalty 20** and content syndication will make it feasible for the Tower 12 radio players to reach out to the non-metro small city audience Staff 30 • Initial license fee: The initial license fee for radio ** Some smaller stations pay upto 70% licenses has proved to be very high and cumbersome Source: Business Outlook for the players. Most of the players paid huge sums as license fee to get into the sector: Big FM spent USD 23 million to get licenses for 45 Stations, HT Lack of adequate audience measurement data Music paid USD 15 million for 4 licenses. Revenues Radio Audience Measurement (RAM), launched by earned by radio broadcast players, thus far, do not TAM Media Research is a recent initiative and has a justify the license fee. limited coverage. Lack of such data has restricted radio • Music royalties: Radio operators pay a high broadcasting players to analyse the consumer habits, per needle hour rate ( >USD 12.7) to the India the market potential and plan accordingly, especially for Performing Rights Society (IPRS) and Phonographic smaller cities and towns. Data would be of importance Performance Limited (PPL) , as they are mandated to media planning agencies and radio broadcasters. to do so. This arrangement, which is independent of the earned revenues, becomes very challenging Future Outlook for the operators, especially for the small cities and The fate of the radio broadcasting industry in India is towns where the earned revenues are much lower. primarily dependent on the regulatory support. The 3rd Internationally, in many markets, it is a revenue phase of licensing could prove to be an inflection point sharing model, ranging from 1% - 5% of revenues. for the industry, if it happens with certain reforms and relaxes one or more of the regulations: allows multiple Huge initial license fee, combined with a regular revenue licensing, permits networking across cities, changes the sharing of 4%, high royalty share and inability to use royalty sharing arrangement, permits various type of content on the radio. Unless any of these happen, the industry is not expected to even come closer to realizing its immense potential, especially in smaller towns and multiple cities. For the players, the way forward, inThe fate of the radio addition to influencing the regulators is to use the radio audience measurement data to understand thebroadcasting industry in consumer segments and decide the type of association they would like for their particular station, radio jockey etc. Radio broadcasting players also need to exploreIndia is primarily dependent other avenues for earning revenues eg. Activation and events. They have already realized this and are workingon the regulatory support towards it. However, this does not offer a long-term solution.34
  • 35. Animation, Gaming andBroadcasting all have thepotential to see near futureas inflection points in theirgrowth storyDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of memberfirms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legalstructure of Deloitte Touche Tohmatsu Limited and its member firms.This material prepared by Deloitte Touche Tohmatsu India Private Limited (DTTIPL) is intended to provide general information on a particularsubject or subjects and is not an exhaustive treatment of such subject(s) and accordingly is not intended to constitute professional advice orservices. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Beforemaking any decision or taking any action that might affect your personal finances or business, you should consult a qualified professionaladviser.None of DTTIPL, Deloitte Touche Tohmatsu Limited, its member firms, or its and their affiliates shall be responsible for any loss whatsoeversustained by any person who relies on this material.©2010 Deloitte Touche Tohmatsu India Private Limited. Member of Deloitte Touche Tohmatsu Limited