Sudipta Datta

FOR THE media and en-tertainment industry,2011 was a bit of a mixedbag. On the one hand, itwill be considered as the

yearinwhichdigitaltransformationof theindustrybegantotakehold,ontheother,theeconomicdownturndidimpact revenues, with advertisinggrowth somewhat muted in the sec-ondhalf of theyear.ButastheFICCI-KPMG Report on Media and Enter-tainment Industry 2012, released inMumbaiduringFICCIFRAMES2012on Wednesday, revealed, the mediaand entertainment industry, whichgrew 12% in 2011 to R72,800 crore, isnow better prepared for a financialmeltdown, having seen a focus onmanaging costs, innovation and re-search since the recessionary pres-suresof late2008and2009.

While television continues to be inthedriver’sseat,representingaround45% of the entire M&E sector, grow-ingtoR32,900crorein2011fromR29,700crore in 2010, the year saw importantdevelopments in terms of multiplefilms crossing the R100 crore-mark atthe box office. The year 2011 also sawgrowing commitment from the cableindustry to pursue digitisation as perthe government’s mandate, regionalmarketsdefiedrecessionarytrendsinterms of growth of television andprint, the government’s increasedcommitment towards phase 3 for ra-dioandthegrowthof newmedia.

ExcerptsfromtheFICCI-KPMGre-port on the top three sectors—TV,printandfilms—andthefastgrowingnewmediasector:

Television: Digitalroute to growthTelevision is the largest medium formedia delivery in India in terms ofrevenue,representingaround45%ofthe total media industry. The TV in-dustry continues to have headroomforfurthergrowthastelevisionpene-tration in India is still at approxi-mately60%of totalhouseholds.Indiacontinues to be the third largest TVmarket after the US and China, with146milliontelevisionhouseholds.Ca-ble and satellite (C&S) penetration oftelevisionhouseholdsiscloseto80%,withDTHdrivingasignificantpartofthegrowthinthepast12months.Withtheimpendingdigitisationof allana-log cable subscribers imminent, pen-etrationlevelof digitalhouseholdsis

expected to increase significantly.The TV industry is expected to growat a CAGR of 17% over 2011-16, toreach R73,500 crore in 2016. The totalnumberof TVchannelsinIndiawentupto623in2011,andmanymorechan-nels are awaiting approval for broad-cast. There has been a significant in-crease in demand for satellitebandwidth, with the introduction ofHD channels, DTH expansion andnewchannellaunches.

Whiletherehasbeenasignificantincreaseinadvertisementinventory,advertisement rates generally re-mained flat or declined in 2011, withadvertiserscuttingadbudgetsduetothe economic slowdown. However,with a large number of untapped ad-vertisers who are currently usingonly the print platform, there is po-tential for further growth for TV.

The cable television industry inIndiaispoisedforoneof itsmostsig-nificant developments in the lastdecade—atransformationtotheDig-ital Addressable System (DAS) fortelevision distribution. Cable opera-torsinaDASregimewouldbelegallybound to transmit only digital sig-nals. Subscribed channels can be re-ceivedatthecustomer’spremiseson-ly through a set-top box equippedwith a conditional access card, and asubscriber management system(SMS). In a nutshell, each user in thenetwork would be uniquely identifi-able to the service provider. Digitaltelevision is expected to provide theconsumeraccesstoahighernumberof TV channels, customised tariffs,

availability of broadband and othervalue-added-services,andenhanceduser experience through betterviewing quality and consumer ser-vice. While the transition towardsdigitisation is not expected to be en-tirelysmooth,andthereareboundtobe implementation challenges, theoverall indicators appear positive,and the industry believes that digiti-sationof cablenetworksacrossIndiaislikelytobelarge-ly successful. Infact,theremaybeadelay of six to 12months for com-plete digitisationacross metros. AsRonnie Screw-vala,MD,WaltDis-ney India puts it:“There is likely tobe delay in digiti-sation due to prac-tical difficulties…but the two bigthemes for 2012 and 2013 are digitisa-tion of cable and broadband.”

Print: Consolidation;new frontiersIn the calendar year 2011, the R20,900crore print industry grew by 8.4%fromR19,300crorein2010,slightlylow-erthanexpectations.Eventhoughthelongtermgrowthstoryof Indianprintindustry remains promising, the sec-tor was impacted due to the overallmacroenvironmentbeingdepressed.Themacroeconomicenvironmentre-mained challenging and dampened

advertisementspends.Theprintplay-ers continued to adopt a cautious andpragmaticapproach,withprimaryfo-cus on consolidating their position incore markets. The growth in adver-tisementrevenueshasbeenataCAGRof 8.7%, whereas circulation rev-enueshavedisplayedaCAGRof 3.7%between 2007 and 2011. The advertise-ment revenues continued to be themain source of revenue for the print

industry, contribut-ing 67% to the in-dustry’srevenues.

TheIndianprintindustry has to belooked at from twoperspectives—theurban centres andthe emerging cen-tres of consump-tion. Thus far themetros and tier-Icities were the hubof economic ac-tion; however, the

focus is now shifting to the next 40cities which are experiencing rapidurbanisation and greater economicgrowth. Powered by strong con-sumerism, these centres have beeninsulated to a large extent from theimpactof globalslowdown.Theplay-ing field in both these markets isquite different.

The urban centres observe highlevels of media penetration, fasteradoption of technology, deeper pene-tration of Internet and mobile and arapidchangeinconsumerbehaviourandmediaconsumptionpatterns.

On the other hand, the tier-II andtier-III markets continue to be at-tractive due to increased affluenceand a consumerist outlook. The in-dustry is beginning to treat the ur-ban consumer on a par with theglobal citizen and developing con-tent and delivery platforms whichare in tune with the changing times.On the other hand, the industry willhave to connect with the consumerin emerging consumption centresby establishing strong relation-ships through local language con-tent, quality service, innovativebusiness models and bringing com-fort of familiarity. The rate of ad-spend growth in smaller cities hasacceleratedandovertakenthetradi-tional markets.

Films: Scripting aturnaroundThe Indian film industry has recov-ered from a two-year slowdown in2011, and was estimated to be of a sizeof R9,300 crore in 2011, indicating agrowth of 11.5% over 2010. With thecricket World Cup and IPL takingaway four months in the first half of2011, there were only about 40 avail-ableweekendsforfilmreleases.Body-guard, Singham, Ready, Ra.One andDon2breachedtheR100-croremarkindomestic theatrical collections. Theindustry took just one year to morethan double the count of films in thiselite club of high revenue generatingHindicinema.Asteadyincreaseinav-erage ticket price on account of thegrowing multiplex culture, increas-

ing content with mass connect, starpower and digitisation—facilitatedcountrywidereleases,allcontributedtheir part in this turnaround. In theyear gone by, not only did A-list starcast films do well, but niche/focusedcontent from independent film mak-ers also gained widespread accep-tance. Ragini MMS, Murder 2 andTanu weds Manu performed well atthe box office in 2011. Entertainingstories were appreciated across gen-res. Themes that were women orient-ed, such as No One Killed Jessica andThe Dirty Picture, horror-basedHaunted, urbane life-based ZindagiNa Milegi Dobara, Delhi Belly and ro-mance-based Ladies v/s Ricky Bahlwereallboxofficehits.

Cable and satellite revenues con-tinue to account for a sizeable pre-re-lease recovery of high budget Hindifilms.C&SratesforRa.OneandDon2wentpasttherecordsetbyThreeIdiotsin 2009. Continuing the trend, Ag-neepath and under productionTaalashgarneredoverR40croreeachin C&S revenue by end of 2011. Albeiton a much lower base, C&S revenuesforregionalcinemaalsostrengthenedduring the year. Aggressive market-ing and promotion tactics becamecommonplacein2011.

While Ra.One had the longest andmost elaborate marketing cam-paigns in the history of Indian cine-ma,evenmediumbudgetfilmsspentincreasingly higher amounts to getstrong pre-launch visibility. Some oftheotherkeythemesof 2011werein-creasing digitisation of theatres,widening acceptance of 3D exhibi-tion, increasingmultiplexfootprint,rising trend of cinema advertising,imposition of service tax on film ex-hibition and a growing presence ofHollywood. Although film budgetshave increased sharply over theyears, the commercial success ratioof films has remained roughly thesame at 15-17%. Spending more didnot necessarily increase the likeli-hoodof commercialsuccess.PatialaHouse,MausamandGamedidnotdoas well as anticipated despite havingstar casts, supporting budgets andwide marketing.

New media: Onthe fast trackNew media continued its growth tra-jectory in 2011, with estimatedgrowthinadvertisingrevenuesinex-cess of 40% over last year. Coming inat approximately R1,540 crore rev-enue in 2011, digital adspend reachedapproximately5%of totalmediaandentertainment industry advertisingrevenue. This share is expected tocontinue to grow over the comingyears, driven by significantly highergrowth rates in online advertisingspendcomparedtotraditionalmedia.

This is good news for the industryas it comes to terms with the impactof the Internet on its traditionalbusinessmodelsandbeginstoevolvethem for monetising its content inthe digital world. The digital mediaecosysteminIndiaisevolvingrapid-ly.ContinuedgrowthinInternetpen-etration and mobile device access isexpectedtodriveconsumption.Thiswill further drive adoption by adver-tisers and developments in the pay-ment ecosystem to facilitate bettermonetisation.

The overall M&E market in Indiais expected to grow at a compoundedannual growth rate of 15 % per an-numoverthenextfiveyears,toreachR1,40,000 crore in 2016. The potentialfor increase in media penetration,growing importance of regionalmarkets,increasingconsumptionintier-IIandIIIcities,impactof regula-tory changes, more focused con-sumer research, innovation in con-tent, marketing and deliveryplatforms to serve different niches,increasing device penetration likemobiles,tablets,PCs,etc,allpointto-wards a very positive future for theindustry, the report said.

THURSDAY l MARCH 15 l 2012Show Business w w w . f i n a n c i a l e x p r e s s . c o m12

THE MEDIA & entertainment(M&E) industry stands on thebrink of a revolution, as new

technologies and platforms are trans-forming the way we experience and en-joycontent.Itisbecomingincreasinglyimportant to ensure that tax laws notonlyrecognisethis,butalsoprovideforplatform neutrality to ensure that con-sumptionof contentoverdifferentplat-forms and screens have consistency interms of tax treatment.

In recent years, the ability of theM&E industry to grow at the desiredpace has been marred by myriad taxesin various forms and multifariousstatutorycompliances.Whilewerecog-nisetheindustryaspartof ourculturalheritage, the average indirect tax bur-den of 40-45% on films is on a par withproducts such as alcohol and tobaccoand goods with negative externalities(such as polluting products).

Provided below are the key issuesaffecting the sector and a wish list

ahead of the Budget this year:

Rationalise taxes forfilm industryHigh entertainment tax is a majorthreat to the sector’s survival. Such ad-ditional economic burden on an indus-try that showcases Indian art and cul-turetotheworldisunjustified.Hence,itis imperative that entertainment taxstructure across the country is ratio-nalised by bringing down rates of en-tertainment taxes in states like Maha-rashtra, Delhi, UP, West Bengal,Gujarat, Haryana, etc. High entertain-ment tax also acts as an impediment tolive entertainment industry, which ison a growth path.

Film producers generate revenuesfrom theatrical and non-theatricalrights, both of which are liable to ser-vice tax. Separately, various state gov-ernments classify ‘copyright’ asgoods, thereby levying value added

taxontransfer/licensingof copyrighton non-theatrical streams. To preventmultiple taxation on the same item,the government is requested to ex-empt ‘copyrightintheatricaldistribu-tionof cinematographfilms’ fromser-vice tax levy. The government shouldinclude ‘copyrightin theatrical distribu-tion’ in the list ofnegative services.

Under the negativelist- based service taxlegislation, govern-ment has proposed tolevy service tax on the‘right to enter anypremises’. Entry intopremises such as films,theatres, amusementparks could be liable toservice tax. Since these activities arealready liable to high entertainmenttaxes by states, it is suggested that en-try into such premises should be ex-

cluded from the service tax levy.Multiplexeshavehelpedinbringing

audiences back to theatres. Availabili-ty of multiplexes in tier-II and tier-IIIcities is significantly lower vis-à-vispopulation. Further, tax incentivesshouldbeofferedfordigitisationof cin-

emastoexpeditegrowthprospects in these citiesand curb piracy.

The law requires for-eign performers, enter-tainers,etc, toobtainin-come-tax clearancecertificate (‘TCC’)before departure. Theprocedure of obtaining

TCC is time consumingandonerous.It issuggest-ed that an alternatemechanismforclearance

oramonetarythresholdfortriggeringTCC provisions is provided, as thecurrentsetupandadministrativebur-den discourages foreign talent to

shoot in India.Presently, amount paid to non-resi-

dent Indians for participation in anysport in India is liable to tax at conces-sional rate of 10% on gross basis. It isrecommended that a similar provisionbe introduced to tax foreign artistes,performers and entertainers.

The government should take a cuefrom steps taken by federal/ state gov-ernments across the world such as Sin-gapore, the UK, Germany, South AfricaandtheUSandshouldworktowardsin-centivising the film industry through awell defined plan for content creationand infrastructure.

Foreign cos: Clarify statusForeigntelecastingcompaniesgeneral-ly grant distribution rights for theirchannels to an Indian company, whichin turn transfers these distributionrights to the cable operators etc. Thepayment for grant of distributionrights is not for the ‘copyright’ in the

content and hence, is not in the natureof royalty. However, divergent viewstaken by tax authorities in characteris-ing these receipts as ‘royalty’ or ‘busi-ness income’ has led to protracted liti-gation. A clarification that thesepayments do not qualify as ‘royalty’ issought to settle the dust.

The government should considergranting relief from levy and collec-tion of service tax on subscriptioncharges received by cable operatorsand DTH operators, since thesecharges are already subject to enter-tainment tax. The weighted deductionof 200% of the actual expenditure in-curred on in-house research and devel-opment of the Act is currently avail-able to only certain segments of M&Esector. It is suggested that this benefitshouldbemadeavailabletoproductsaswellasproductionservicescompanies.

Rakesh Jariwala is partner and taxexpert, Ernst & Young

Budget: A wish list from media & entertainment sector

The FICCI-KPMG report on the media and entertainment industry says the sector is nowbetter prepared for a financial meltdown, having seen a focus on managing costs,innovation and research since the recessionary pressures of late 2008 and 2009

Entering theDIGITAL AGE

THE OVERALL M&EMARKET IN INDIA ISEXPECTED TO GROW ATA COMPOUNDEDANNUAL GROWTH RATEOF 15 % PER ANNUMOVER THE NEXT FIVEYEARS, TO REACHR1,40,000 CRORE IN 2016

RAKESHJARIWALA

IMAGING: SADHANA SAXENA