Indian M&E at a Digital Inflection Point

Indian M&E at a Digital Inflection Point

The opportunities lie in all media, such as print and TV, radio, film, experiential marketing and, of course, OTT. Investments made today will pay dividends over the coming two decades, whether in content, platform, or device, asserts a FICCI-EY report.

The Indian economy is poised to become the third largest economy –and is characterized by increasing per capita income, growing middle class and working population. As a result, there has been a surge in the domestic demand for leisure and entertainment services. As India grows, the M&E sector is bound to flourish. The Indian M&E sector is one of the fastest growing industries in the country. In 2016, the M&E sector registered a growth of 11 percent to reach USD 20 billion. The sector is expected to touch USD 34.8 billion by 2021, witnessing a CAGR of 11.8 percent.

Its various segments – television broadcasting, television distribution, filmed entertainment, print, radio broadcasting, advertising, and digital – have witnessed remarkable growth in the past few years. The main drivers of growth in the sector are increasing rural demand, growing digital consumption and access, emergence of regional media, and expected culmination of the digitization process of television distribution over the next two to three years.

Television continues to dominate the M&E sector, with the segment accounting for 46 percent of the sector’s revenue share in 2016. Television, films, and print segments together accounted for 80 percent market share in 2016. Print media is the second largest segment in the overall M&E sector in India, following which radio, gaming, and out of home (OOH) segments are expected to contribute 2 percent each to the total industry by 2020.

Mature M&E Market

India boasts of one of the most dynamic, vibrant, and differentiated M&E markets in the world. While India has the third-largest English speaking population in the world, English comprises just 3 percent of the total consumption of television viewership in India; content is consumed in over 10 languages. Apart from language differentiation, the other key variable is the vastly varied socioeconomic divide in the country. Media serves a consumer base that is starkly different in terms of socioeconomic and affluence parameters, and that results in the need to provide a clearly segmented offering for advertisers. Accordingly, each subsector of the Indian M&E industry has adapted and innovated its offerings to cater to this huge and varied demand.

Regulatory Framework

M&E sector has gone through a dramatic change owing to the introduction of digital/new media. While the reach of the content has grown multifold benefiting the industry, it has also introduced eccentric challenges to be addressed by the government to maintain parity amongst various platforms. It would be interesting to note that despite the convergence in technologies, the Government of India has maintained an equilibrium by giving certain liberties to the industry to conduct business and, at the same time, protecting the consumer interest and national harmony/culture at large.

Radio

The radio business in India has been growing faster than some traditional media. Large media houses are looking to venture into FM Radio business despite the FDI cap of 49 percent. Presently, interested operators are granted permission to launch FM channels based on a non-refundable one-time entry fees (NOTEF) which is arrived at through an ascending e-auction process. The successful bidder then signs a Grant of Permission Agreement (GOPA) with the Ministry of Information & Broadcasting (MIB) which enables the permission holder to install the radio transmitter, obtain wireless operating license (WOL), and operationalize the channel within the prescribed period. The GOPA provides that the permission holder shall follow the program and advertisement code as followed by All India Radio.

It was on the recommendations of Telecom Regulatory Authority of India (TRAI) that the government incorporated sufficient provisions in the policy for FM licenses to avoid dominance of a single entity and cross media ownership to prevent the abuse of monopolization. The TRAI had also advised the government to lift restrictions on the broadcasting of news and current affairs through FM Radio which, however, is yet to materialize. The Telecom Disputes Settlement & Appellate Tribunal (TDSAT) established under the TRAI Act is the adjudicating authority for the disputes arising in relation thereto.

Television

Television sector in India has witnessed some sweeping changes in the past 2–3 years. With the completion of digitization, the sector has set path on the high growth trajectory and is poised to continue enjoying the lion’s share in terms of absolute revenues as compared to other platforms. The sector also saw the government increasing the FDI limit in non-news TV channels and broadcasting carriage services to 100 percent. While the FDI limit for news TV currently stands at 49 percent, there has been a clarion call from the foreign investors to increase the limit to 100 percent. Currently, TV broadcasters are required to take prior permission from the MIB for TV channels being uplinked/ downlinked into India, in accordance with the uplinking and downlinking guidelines.

It has also recently launched the Broadcast Seva website that acts as an umbrella portal to streamline and address the issues relating to television and radio. Akin to radio, TV broadcasters are also required to comply with the program code and advertisement code as laid down under the cable television rules, 1994. To monitor the content being aired on TV channels, an Electronic Media Monitoring Centre (EMMC) was set up by the MIB to report on any such violations and to forward its findings to the Inter-Ministerial Committee (IMC) for further action.

Today, these industry bodies are efficiently adjudicating not only the complaints filed by the public at large for any alleged violation of the program code/self-regulatory guidelines but also the complaints forwarded by the MIB.

TRAI has also laid down the interconnection regulations and the quality of service regulations which administer the relationship between the broadcasters, distribution platform operators (DPOs), and the last mile cable operators (LCOs). While a broadcaster must provide its channels to the DPOs/LCOs upon demand, there is no provision in the extant regulations for the DPOs/LCOs to must carry such channels on their platforms, which leads to disputes between the service providers.

Digital

The digital platform is on a growth trajectory. Neither are there any requirements for an operating license nor are there any restrictions on content or pricing. With enhanced penetration of smart phones across India, thousands of content creators have emerged who are willing to make available content on this platform which has the power to influence the minds of the viewers. While the government may be wary of such powers and is keeping a close watch on the trends in this space, it will be a herculean task for the government to regulate this medium considering the fact there are too many complexities involved, especially with respect to jurisdiction and, since digital is a global medium, any kind of restriction will hinder the level playing field for local digital content creators and platforms.

Piracy

The M&E industry’s investments are impacted by losses incurred due to piracy. The Government of India has acknowledged the threat of piracy and, as a first step, issued the national IPR policy which lays the future roadmap for intellectual property in India. As an outcome of the same, the cell for IPR Promotion and Management (CIPAM) was formulated as an institutional mechanism through which the national IPR policy would be implemented under the aegis of Department of Industrial Policy and Promotion. In addition, state governments, too, have taken initiatives to address the issue of piracy.

Telangana has established the Telangana Intellectual Property Crime Unit (TIPCU), and Maharashtra has also announced formation of Maharashtra Intellectual Property Crime Unit (MIPCU), respectively, on the lines of UK’s Police Intellectual Property Crime Unit (PIPCU). These initiatives are also being backed by industry players in terms of resources to effectively fight cybercrime and online piracy. To supplement the administrative actions, the industry has also proposed for appropriate provisions to various legislations, which would help the judiciary to take immediate decisions. More partnerships between public and private organizations need to be formulated to address the issue of intellectual property violations for the M&E industry and be recognized as a contributor to the economy at large.

Regulations relating to the M&E sector in India have evolved greatly and can be compared with those of advanced jurisdictions. While a lot more needs to be achieved, given the enormous size of the Indian democracy, the government needs to be applauded for its progressive approach to govern the M&E sector.

Regulatory Changes

FDI policy and inflows. During April 2014–February 2017, FDI equity inflows in information broadcasting totaled to USD 2.6 billion. They grew by 52 percent during 2014–2016. From April 2000 to December 2016, FDI inflows in the sector reached USD 6.3 billion.

Digitization. The Government of India has mandated the digitization and use of addressable systems for TV distribution. India has set its analog sunset date for 2017 and a large part of the country has been digitized. This move has increased transparency and reduced revenue leakage, which had plagued the segment earlier.

TV tariff order. TRAI has mandated a new pricing mechanism for TV content, by defining an MRP for each channel and limiting the discounts that can be offered to consumers. This is a large change from the earlier regime where broadcasters and distributors were free to price their channels differently for different consumers. Along with the must provide rule which restricts a broadcaster from selectively selling content to distributors, this order aims to enable a level playing field for cable, satellite, IPTV, and HITS companies. The matter is currently sub judice.

Phase III radio auctions. As part of the phase III licensing regime, licenses are being awarded for 15 years instead of 10 years as in phase II. The investment limits for FDI and FII in a privately held radio FM broadcasting company have been increased to 49 percent from 26 percent through the government route. Radio is expected to be the fastest growing sub sector among the traditional mediums, propelled by operationalization of new stations and launch of new genres. The strong growth in the sector in the last year was driven by volume increases in small cities. With the FM radio phase III auctions; the FM broadcasting space is opening up new opportunities for other players.

Entertainment tax subsumed into GST. Entertainment tax, which was levied at a state level, is to be subsumed into GST from July 2017. This will reduce compliances and customer pricing in the long run. A local body entertainment tax has been enabled, at the discretion of each state.

Customer first. The government has proposed a slew of measures keeping in mind subscribers and audiences. These include complaint mechanisms, quality of service norms, mainly for TV distribution companies and net neutrality.

Audience Measurement Mechanisms

In 2017, the M&E sector is likely to derive significant value from several new/reviving audience measurement tools that accurately reflect media consumption.

BARC India unifies the three key stakeholders in TV audience measurement – advertisers, broadcasters, and advertising agencies – via their apex bodies – Indian Broadcasting Foundation, Association of Advertising Agencies of India, and Indian Society of Advertisers, respectively. BARC India aims to establish a transparent, robust, and accountable governance framework for determining the data points required for planning media spends more efficiently.

There are currently over 3000 BARC media workstations deployed in the industry. Over 460 channels have adopted its watermarking technology, accounting for more than 97 percent of Indian TV viewership and adverting revenue. The system is actually tracking about 523 TV channels if language feeds are also included.

Ease of Doing Business

Current regulations, policies, and tax incentives offered by the Government of India have helped boost investments in the M&E sector.

Currently, safe harbor rules and advance pricing arrangements (APAs) are in force in India, aimed at providing certainty to taxpayers. GST has turned out to be a landmark event in India’s history. It is a positive step toward overall accelerated growth in the M&E sector.

The government has announced the setting up of the National Centre of Excellence in animation, gaming and visual effects (NCOE). NCOE has a vision to develop training capacity for the animation and gaming industry in India.

Content Going Global

Today, Indian content is exported to over 150 countries. Made-in-India content which gets exported accounts for approximately 4 to 5 percent of the total content in Indian TV. Indian content broadcasters are eyeing the global market, launching channels, as well as signing content-sharing agreements in international markets. The key models used for export include purchase of time slots on foreign channels, sale of content to existing international broadcasters, and launch of owned/operated channels, which could cater to the Indian diaspora or global audiences.

In recent years, the Indian M&E industry has started to strategically focus on international consumers. The main drivers for this trend have been the strong presence of Indian audience in some of these markets, India’s immense soft power with respect to its cultural influence, and increasing demand from viewers for original content. India is also becoming a center for creation of digital content for children.

Taking India to the World

As more mobile devices are being added across global audiences, the growth of digital content will also fuel Indian content growth. VOD platforms, multiplatform networks, and social platforms are giving additional viewership and monetization opportunities. Indian content requires redirection and contextualization for the appeal to grow broader.

The potential for Indian and Eastern factual entertainment content is vast, as this content’s travelling abilities are multifold with digital and social widespread. Audio–visual co-production agreements by the Indian Government with Canada and Korea are just a step in the direction for growing the global Indian content business.

Channel distribution platforms and exhibitions where Indian content is being promoted are increasing by the year. The market is growing fast as awareness that the values of the Indian content experience are intact no matter what the language is growing.

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