The Indian broadcasting and cable TV industry revenue for 2011 is estimated at `38,500 crore. The industry is projected to grow at a CAGR of 12 percent to reach Rs. 54,720 crore (US$11.4 billion) by 2014. The continued digitization of distribution infrastructure, the demand for regional and niche content, and low TV penetration will drive growth in this segment. India is the second-largest pay-TV market in the world, with 108 million subscribers and a reach of 48 percent of Indian households. With more than 600 television channels, India's vibrant media and entertainment (M&E) industry, at Rs. 64,600 crore in 2010, provides attractive growth opportunities for global corporations.

Enticed by economic liberalization and the huge volume of demand for leisure and entertainment, many of the global media giants have been present in the Indian market for more than two decades. However, in recent years, with near double-digit annual growth and a fast-growing middle class, there has been a renewed surge in investment in the country by global companies. Companies in the United States and Western Europe link their growth with emerging giants like India, which is why they are now focused on the best way to enter, grow and brand their business in this market. India's favorable regulatory environment and recent reforms are creating investment opportunities in a number of M&E sectors. Entry restrictions for foreign companies have been relaxed and foreign direct investment (FDI) caps have been increased in key sectors, including DTH and radio.

The majority of India's urban consumption comes from non-metro cities (referred as Tier 2 and Tier 3 towns) - regional markets with distinct cultures, languages and content preferences. These regional markets provide global M&E companies with a variety of opportunities to deliver localized content. Many global film studios and TV broadcasters have already entered these markets and are producing regional-language content.

Television Broadcasting

Television represents an integral part of the industry. The industry was estimated to be Rs. 30,650 crore in 2010 showing a growth of 15.4 percent over 2009. DTH was the major growth driver for the industry with the addition of 12 million subscribers.

The medium is also popular for advertisers, representing 44.5 percent of the overall Indian advertising market share. The TV broadcasting industry is dominated by Hindi and regional general entertainment channels (GECs), which collectively account for 52 percent of total viewership. International broadcasters have long been present in this segment, spurred by conducive regulatory norms that allow 100 percent FDI in TV broadcasting (except for news broadcasting, which is capped at 26 percent).

Increase in number of channels. A number of new TV channels continue to appear across genres such as general entertainment, news and movies, as well as niche genres such as lifestyle, kids and infotainment. In 2010, 612 TV channels were on air, including 300 news channels. The increasing number of channels is resulting in more audience fragmentation. The intense competition among these channels is leading to investments in differentiated content and diversification into niche and regional channels.

Broadcasters expect increased broadband adoption and the introduction of 4G to spur the demand for TV content portals and streaming content online. Broadcasters are planning destination site for users, with multiple content and services and multiple revenue streams. Broadcasters may also partner to aggregate popular shows and channels and invest in services that allow catch-up TV, while sharing revenue, risks and costs.

DTH Leading Digital Distribution

DTH accounts for 82 percent of all digital TV subscribers in India. DTH players are aggressively expanding into cable-dark rural areas and areas served exclusively by analog operators. A rough estimate indicates that the combined score of the six players of the DTH industry is 45.5 million subscriptions in November 2011. The industry to expected to add 11-12 million subscribers annually for the next couple of years. However, intense competition among DTH operators is affecting the profitability of the segment, with earnings before interest, taxes, depreciation and amortization (EBITDA) margins of 20-25 percent as compared to 30-40 percent in other emerging markets. The segment is likely to raise ARPUs by focusing on premium services and may partner with telecom operators to offer triple-play services to compete with digital cable. The government has recently increased FDI limits in the DTH segment to 74 percent to spur investments in product innovation and subscriber acquisition. This remarkable surge in the DTH industry has given an impetus to the broadcast equipment industry too.

India's pay-TV Average revenue per user (ARPU) is one of the lowest globally at Rs. 173, compared to Rs. 3360 in the United States. Intense competition in the digital cable and DTH segments, fragmentation, and underreporting in the analog segment, and a price-sensitive market have constricted ARPUs. However, ARPUs are expected to increase, stimulated by the consolidation of analog TV operators and the growth of premium digital TV services.

The Digital Trends

India is at the cusp of a revolution in digital and HD adoption, with content companies and broadcasters evaluating new media and content delivery alternatives as well as planning significant capital expenditures to upgrade their infrastructure over the next 3-5 years.

The conversion from analog to digital television broadcasting will pave the way for broadcast equipment manufacturers, television broadcasters and broadband service providers. Newer ways of distribution of content including IPTV and mobile TV are creating further opportunities for growth.

Today around 5 percent of the broadcast channels are transmitted in HD and around 30 percent of the television households have access to digital television services in India. It has been estimated that India will be an emerging and potentially high-growth market for digital media companies in the next 5 years. Several broadcasters including Star India Private Limited and ZEEL are running channels in the HD mode. While conversion of Standard Definition (SD) channels to HD does not require a large capital outlay, it leads to higher realization per user. Hence, broadcasters have been focusing on converting their SD channels to HD. For instance, ZEEL, which is already running five channels in HD mode, has earmarked around Rs. 80 crore for conversion of its other SD channels to HD. The actual monetization of the opportunity, however, would depend on effective roll out of HD enabled television sets, which however currently remains low. With the proliferation of digital content and HD channels, demand for HD-capable TV sets will also increase, which in turn will motivate improved audio/video quality, making way for digital and HD equipment, be it professional cameras, digital sound equipment, or T&M instruments.

The consumption of digital content in India is at an inflection point. In conjunction with the country's mobile phone user base, of more than 750 million subscribers, the scale and impact of potential digital content consumption is enormous. This presents M&E companies, foreign and domestic, with an exciting opportunity to develop digital businesses that cater to a new generation of broadband users.

The world digital asset management market is expected to cross US$ 530 million in 2011 and grow at over 20 percent CAGR from 2011 to 2016. Cloud-based services are a fast-growing segment within this market, and Indian companies such as Tata Communications, Prime Focus Technologies, and Airtel are eyeing this space for future prospects.

Over-the-Top (OTT). Another trend that is fast catching up and is likely to change the dynamics of digital media in the Indian subcontinent is OTT or multimedia video consumption. With over 100 million Internet subscribers and about 900 million mobile subscribers, India potrays a high usage of broadband/mobile-delivered content, prodding several content companies to capitalize on this media. However, OTT video delivery requires an efficient set of technologies and infrastructure to facilitate seamless delivery, along with a growing emphasis on online advertising and video analytics. The video content delivery networks market globally is expected to cross US$ 540 million in 2011 and grow at a healthy CAGR of nearly 30 percent from 2011 to 2015, while online video advertising market is expected to cross US$ 4 billion in 2011 and quadruple by 2015, globally. The media industry in India is rapidly changing, new technologies are being deployed across the board - from media capture to media storage and management, to broadcasting global content to the Indian audience; the Internet is playing a pivotal role in changing the industry dynamics.

Mandatory digitization and fierce competition has increased pressure on DTH and digital cable operators to roll out premium services, including HD, 3D and triple-play. The introduction of 4G is expected to drive further product innovation and hasten the introduction of VoD, peer-to-peer gaming and content portability. This may also allow digital cable operators to bridge the last mile through partnerships with 4G providers to enable the delivery of video, voice and data services to cable-dark areas. Broadband availability could also surge the growth of IPTV and Web TV, which have faced limited uptake due to bandwidth constraints.

The Ministry of Information & Broadcasting (MIB) in consultation with TRAI has now finalized a way forward which includes amendments to the Cable Act, timelines for a four phased transition, increase in FDI limits, and other incentives required to be given to the industry. The move from analog to digital will also incorporate the movement of the industry from MPEG2 to MPEG4, and complete integration of equipment to their HD-ready counterparts.

Broadcasters are creating strategic alliances with digital networking companies and teaming up with Internet companies and wireless providers to stream programming, both over the Internet and mobile devices. Technology companies are also creating alliances to support the expansion of digital and mobile distribution of content. In India, however, the mass proliferation of these services will still take a long time.

The empowered consumer. The consumer of today is looking to consume content which is not only engaging but available on the platform or device of his/her choice anytime, anywhere. With the explosion of digital content, consumers have choices and volumes of content several magnitudes greater than five years ago, much of it available free or at no extra cost above cost of access. Therefore, an industry that must generate profits to invest in new content experiences, needs to know what the consumers will pay for.

Conducive Regulatory Environment

There is active cooperation between the government of India, regulatory bodies and M&E companies to introduce reforms that aid the development of the Indian M&E industry and spur further growth in the sector. The government is encouraging digitization and addressability in the television industry by making it mandatory for cable TV operators to convert to digital addressable infrastructure by March 31, 2015, which is expected to drive significant growth in digital cable and DTH. Furthermore, the FM Phase III auction of radio licenses is expected to add approximately 700 radio stations in Tier 2 and Tier 3 towns and metros, and increase the long-term profitability of the radio industry.

The government has relaxed entry regulations and restrictions governing foreign companies in India and has raised foreign direct investment (FDI) limits in the radio, TV, direct-to-home (satellite TV) and cable segments. Presently, FDI up to 100 percent is allowed in the film and advertising industry and 100 percent in TV broadcasting (except news). The government has also increased the FDI limits for DTH and IPTV from 49 percent to 74 percent respectively. Some segments within the M&E industry have received a new lease on life due to critical policy changes. The migration from fixed license fee regimes to revenue-sharing license fee regimes has been a trigger for the radio segment, and the mandatory digitization of TV distribution has been a landmark development in the TV segment.

Challenges

The challenges faced by this market include a slow regulatory process to define digitization deadlines for cable multiple system operators (MSOs) and broadcasters, inadequate drive among stakeholders to increase investments in digitization, rapidly changing technologies in recent times that slow CAPEX decisions, and legacy of content on tape across various verticals.

At present ISRO has 187 transponders from nine Indian communication satellites including transponders of GSAT 12. It has taken 86.5 transponders on lease basis from foreign operators through its marketing arm, Antrix Corporation Ltd. ISRO plans to increase the transponder capacity by building and launching communication satellite GSAT-9, GSAT-10, and GSAT-11. ISRO's move comes in the wake of acute Ku-band transponder shortage that Indian DTH industry faces as it seeks to add channels and offers HD services. ISRO will need to speed up the satellite launches in order to meet demand.

One of the biggest challenges is the legacy of tape and the requirement of rapid digitization, along with efficient asset management solutions. End users in this market want a centralized content repository, fast and intuitive search, easy-to-use UI, seamless and collaborative workflows for creative and business aspects of digital media, asset security, ability to manage and transform the maximum possible media formats, meaningful analytics and reporting for asset workflows, and cross-channel content publishing, and monetization.

Competitive pressures have further intensified with clearance of licenses for 75 new channels. In 2009, the MIB had put a freeze on new applications for permission to uplink and downlink channels in India on the grounds of reviewing the working of existing channels, assessing the net worth of the channels and checking the spectrum availability. During May 2011, the MIB has cleared 75 new channels from among 150 applications received during these interim two years seeking permission to start new channels and/ or replicate the existing ones in HD.

These are further in addition to the already cluttered Indian television broadcasting space with around 600 channels as on date, where broadcasters are already fighting an intense battle for viewership and struggling to retain its share of the advertising pie. But now the entry into the broadcasting sphere has been made more stringent. This will go a long way in keeping away non-serious channels. The networth criteria for uplinking of non-news and current affairs channels has been revised from Rs. 1.5 crore to Rs. 5 crore; for news and current affairs channels from Rs. 3 crore to Rs. 20 crore; and for teleports to Rs. 3 crore.

The carriage fee. The Indian TV distribution industry is dominated by analog cable operators, which is highly fragmented and includes about 60,000 LCOs and 1,000 multi-system operators (MSOs). Around 78.5 percent of cable & satellite (C&S) homes in India are connected through analog cable while the rest are connected through DTH/ digital cable, which provides a near monopoly power to the analog cable in terms of last mile connectivity. The bandwidth constraints of analog cable (capacity of around 100 channels against 400+ active channels) drive these operators to limit the number of channels on a frequency band and to charge carriage fees to broadcasters to increase the placement of their channels. As per industry estimates, the carriage cost paid by Indian television broadcasters was around Rs. 1,300 crore during 2010-11 and is expected to be around Rs. 1,600 crore during the current financial year. The S-Band and UHF band (channel numbers 60-85) on analog medium are estimated to cost around Rs. 25 crore per annum, while the prime and color bands are available at an even higher carriage cost. In contrast, DTH operators charge around Rs. 1.5-Rs. 2.5 crore per channel per annum, albeit offering a much smaller pool of viewers. Broadcasters have formed distribution alliances to strengthen their ability to negotiate with distributors, control their carriage fees and minimize losses in subscription revenues due to underreporting. However, fierce competition among DTH operators and a recent government policy mandating the digitization of cable TV is driving the growth of digital TV.

With increasing penetration of digital medium, the carriage capacity is expected to improve which is likely to have a positive impact on carriage fee. However, the monopoly over last mile connectivity is expected to rest with large DTH operators/ MSOs controlling the digital distribution network. With consolidation at the distribution end - the carriage fee for the overall broadcasting industry may not see a significant decline; however, the cost is expected to rationalize for mass genres such as general entertainment channels (GEC) and sports channels where the current carriage fee remains disproportionately high.

Digitization of cable TV is also expected to provide support to niche genres through access to targeted audience at lower carriage fee. These channels are economically unviable at the current carriage fee charged by analog distributors on account of their lower viewership as opposed to GECs/ other mass genres where the target audience remains large and huge investments in carriage cost are justified.

India's growing middle class, rising disposable incomes, high volume of content consumption and conducive regulatory environment hold significant growth potential for all segments of the broadcasting industry. Digital adoption will create additional opportunities for global companies to cater to a new generation of digital consumers. In order to succeed, companies need to understand and adapt to economic and cultural nuances and invest in content and services tailored for local and regional markets. The ongoing structural and regulatory reforms and the development of corporate governance norms will surely mitigate threats including local competition, fraud, corruption and piracy.