Farokh Balsara, Ernst & Young’s Media and Entertainment leader for Europe, Middle East, India and Africa, spoke to Dipali Banka. Excerpts from the conversation:
Q] What are the key trends that you see in the M&E sector in India today?
A big trend in the television segment is the subscription revenue coming and it will only increase with digitisation. The second big trend is the growth in media consumption in Tier II-III cities and the spurt of regional media, be it newspapers or television channels. The third is significant growth in the mobile and internet space, although the overall numbers are still small. We are looking at 30-35% growth and that will exponentially increase with the launch of 4G. We expect the digital media space to grow from the current Rs 800 crore to almost Rs 3,000 crore by 2014. So that is opening up new markets and allowing consumers to share content, create content and view content when they want to do it.
Q] Have you noticed any specific interests of FDI in Indian M&E sector?
We have seen the likes of Disney making a huge investment to acquire UTV; also other large players like Sony or Star or Viacom. They are all looking at acquiring other companies in media, particularly regional ones. We also have seen the entry of RTL and CBS in a joint venture with Reliance. So there is definitely a huge interest. And if you see even from a Hollywood standpoint, you have a constant stream of production houses, actors and directors coming to India like Warner Brothers, Sony Pictures or Fox.
Q] According to the report, the size of the television broadcast industry is estimated to see a marginal decline in growth in 2012 and 2013 at 11.9% and then a 13.5% spurt in 2014. Can you explain the factors influencing this degrowth and then the growth projected for 2014?
The reason for this flat growth for the next two years is that the industry is still dependent on advertising in a big way whereas in 2014, the mix will be tilted towards subscription because of digitisation and the launch of 4G services. Advertisers normally advertise when they feel good and when they want to take risks. Over the last two to three months we have seen a dampening of sentiments and people are not picking up new projects. We see some sort of a slowing down and that will have a ripple effect on advertising spends. We expect it to grow, but not significantly.
Q] The figures mentioned in the report are from CRISIL research dated December 2010. Considering the slowdown in the last five to six months, what according to you is the growth figure for television advertising for 2012?
I will stick with 12% unless there is something different happening on the subscription side. Or you can say that the 15 % advertising growth that we were expecting will come down to 12%.
Q] With increase in number of channels, we are already seeing a lot of fragmentation and clutter. How will this impact the industry?
While there are many channels, almost one-third of them are news type of channels and they cater to particular languages in particular parts of India and to particular groups of people. Many of them may be doing well, but they don’t really generate too much advertising revenues. On the entertainment side of things, while there are newer channels coming up, you also see consolidation happening. All India networks keep acquiring those regional stand-alone channels or bouquet of channels. So although there will be more channels, over a period of time they will all be part of five or six large networks. And they will operate on all-India basis with a regional focus for that particular audience.
Q] According to the report 67% of the total revenue of broadcast industry today comes from advertising. How do you see this ratio of advertising and subscription revenue in the next couple of years?
We expect subscription revenue to go up to 42% by 2014.
Q] How do you see the HD TV segment faring? Do you think there are enough viewers for such channels which will help broadcasters get advertisements?
It will be a highly niche kind of segment as such. You also need that type of transmission, set top boxes and television sets to enjoy the HD experience. It will be there but it will be a very small segment.
Q] With television distribution digitisation now a reality, do you think the distribution industry will be able to meet up to expectations? Is there enough capital for them to invest in STBs?
We’ve been in discussions with many of the MSOs and they are all bullish about it. They think that this time acceptability of digital STBs with audiences will be much higher and they are all in the process of preparing the plans to raise capital as well as to roll out digital networks.
Q] IPTV has not seen much of an off take in India. How do you see it going forward?
Again, it will be very marginal, unless broadband feeds and connectivity improves. So, that will be one of the areas to look out for once the 4G launch happens.
Q] According to the report India’s pay-TV ARPU (Average Revenue per User) is one of the lowest globally at US$3.6. How do you see the industry, which is running on such low ARPU level, grow going forward?
This will be the base level ARPU. But what we will have to do smartly is look at bundling various other services and charging premium pricing for those. We will have to look at how they secure customers based on this base level pricing. Once the customers are secured, how do they retain them so that there is minimal churn and then how can they provide other services whereby they are able to get higher revenues from the same customer.
Q] In the publishing segment, the industry is estimated to grow by 12.7% in 2012 and the growth then dipping to 9.2 and 10.7% respectively for 2013 and 2014. What are the factors influencing this growth and then de-growth?
If you look at newspaper circulation and readership, the growth is very much there in regional media, non-English and Tier II and III towns. But we still do not see advertising for these regional media growing much compared to circulation growth. English language newspapers are still garnering the biggest chunk of advertising. We are in a transition type of period.
Q] How much share would you say English media have in the total print advertising space?
It is difficult to gauge that, because most of these companies are private and often the company which owns an English newspaper also has many regional language newspapers. So what they do is allocate the strengths from large FMCG for their different newspapers based on what they think is best to their convenience. So we do not have any hard numbers to go by. When you talk to the advertisers and the advertising agencies, their preference still is for English language newspapers.
Q] If English newspapers are attracting advertising and if regional readership is growing, do you think regional English papers are likely to grow going forward?
I don’t think so. For example, Mid-day in Mumbai is doing well, but it has not had much success in other parts of the country. Also, take the example of Mail Today in Delhi; it has really not been able to make a dent in the market. Having said that, the reason Mid-day did very well in Mumbai is because it was mainly sold along the sub-urban railway network. And with the growth of metro happening in many other cities, there could be a possibility of English newspapers coming in some of those cities.
Q] According to the report, the share of print advertising is 42%, how do you see this share in the coming couple of years?
The print industry will have to do everything to further maintain that share. Because television will always be looking at how they can eat into the print’s share. In the print business, each of these companies is well established, they have good connect with readers and they are professionally run organisations. So, despite the pressure from television, our sense is that print will be able to maintain this share in the overall advertising business.
Q] The magazine industry has been under pressure and readership has been declining. How do you think it can overcome the challenges?
Advertisers do not get the reach and frequency that they need to really pay for advertising in magazines and the companies are barely able to recover the cost of producing a glossy magazine from the subscription revenue. They just about break even and in many places, they have to heavily subsidise the subscription with offers and free gifts to get subscribers. Magazines are in a Catch 22 situation, unlike newspapers. General purpose magazines find it very hard to survive.
Q] FDI limits in Radio have been increased from 20 to 26%. But many radio companies are still making losses; some of them have just about broken even. Do you think it will still attract FDI?
I don’t think foreign investors will look at Radio, because they do not have the size and scale as such and FDI is restricted to 26%. That is the same problem with print right now. Print is very attractive for global players but investment restriction is preventing FDIs in the segment. Private equity players will be interested in Radio and Print.
Q] Which sector do you think is the most attractive right now for FDI in media?
Private equity will be interested in the print and radio but on an overall basis, television will continue to be the bulk.