4 April, 2008 FICCI FRAMES, 2008 Equities India

Media
4 April, 2008
Event Flash

FICCI FRAMES, 2008

Entertainment & Media – Can it be as big as IT?

Girish Sw ar
gi ris hs war@rathi .c om
+91 22 6626 6770
 The Film Industry. The government is likely to initiate a few programs
to boost growth in the entertainment and media sector. Digital cinema Apeksha Shah
would expand the film market. With Marathi and Bengali films growing apekshashah@rathi.c om
rapidly in the last two years and adding to the regional cinema market size,
regional cinema is commanding a larger slice. The Tamil and Telegu film
industries are outstripping the others. Release windows of distribution
platforms are getting shorter and new distribution platforms (like online
video) add to film revenue.

 Gaming & Animation. Gaming in India is expected to touch Rs38bn by

2010. The first game based on an Indian film is being produced on the
film Dhoom-2. Animation in India would grow substantially only when
Indian studios produce/co-produce content for the global market.

 Out-of-Home Advertising. Sixty percent of the world’s population

would be city dwellers by 2030. This hold promise for the growing out-
of-home advertising segment. Altered consumer lifestyles and fresh buying
avenues drive growth in this segment.

 Radio. Out-of-home radio is extending radio’s reach as the number of

mobile handsets with FM radio is rising. Sports and news, if allowed on
radio, would change the outlook for radio.

 Television. With IPL starting its first season in Apr.’08, sports is looked
upon as a new genre for TV. In the near future, cricket would define
sports as the upcoming genre but whether other sports would attract
eyeballs on TV is still an open question.

 Piracy. Yearly, piracy eats approx. Rs160bn from the Indian Media and
Entertainment sector. Without government support, the industry would
not be able to curb piracy.

Media industry growth, sector-wise

180
15
160
140 13 13
11.5 18
120 11
10
9.3 15
(Rs bn)

100 8.5 8.3 12.5

7.5 10
80 8.5
60 119
102
40 82.5 90.5
71.5
20
0
2007 2008 2009 2010 2011
Box-office-Domestic Box-office-Overseas Home Video Ancilliary Revenues
Anand Rathi
Source: Research 2008 Report
FICCI-PWC 1

ISIEmergingMarketsPDF in-micaahd from 115.249.84.202 on 2014-03-13 10:06:33 EDT. DownloadPDF.

Downloaded by in-micaahd from 115.249.84.202 at 2014-03-13 10:06:33 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
 4 April, 2008 FICCI FRAMES, 2008

Outlook
■ The Film Industry grew steadily, by 14% over the previous year, to Rs96bn, up
from Rs85bn in 2006. In the next five years, a 12.2% CAGR is expected.

■ The government has promised to help fuel growth. Box-office performance

dictates the success of a film. Shorter release windows on all distribution
platforms and new distribution platforms such as online releases would maximize
revenue and tackle piracy to an extent.

Film
The government will aid the growth of the film industry by: developing in Mumbai a
National Museum for Moving Images (by investing Rs600m to establish it). It would
initiate talks with countries around the globe for co-production agreements, build an
interface between the Film and Television Institute of India (FTII) and the industry,
expand the equity base of The National Film Development Corp. (which would
facilitate production of films) and, in the 11th Plan, create a Rs200m fund for
documentary films for a period of four years. Films would be treated as brands to
maximize revenue.

Only 2% of India's population watches films in cinema theatres. There is a need to tap
the other 98% by including various distribution platforms such as “online” and games
based on movies and others.

Released simultaneously on 200 screens in India and 100 screens overseas as well as
online the film, Vivah, got a whooping 6500 downloads worldwide. The entire model
turned out very well and demonstrated the future of online distribution.

Regional Cinema

Regional Cinema feels that the Indian government should do more to put regional
cinema on the world map. For example, to be exported to some countries, a film
attracts censorship and a fee, which is high compared to the regional film budget. The
industry expects government to help it resolve such issues.

The Marathi and Bengali film industry has been growing well in the past two years,
with a few nominations for Oscars and the national film awards. The Tamil and Telugu
film industry are the big daddies of regional cinema. Corporate players have entered the
regional cinema space, and this has helped the industry in obtaining equity funding.

Digital Cinema will change the way films are distributed

Indian companies like UFO Movies and Real Image have digitized around 1,450
screens in India. Major collections by hit movies around the world came from digital
cinema. Animation movies like Beowulf and live action VFX movies like Harry Potter and
Spiderman recorded a major part of their box-office collections through digital theatres
around the world.

Digital cinema cuts costs of releasing celluloid prints and ensures simultaneous releases
on the network, cutting down incentives to piracy. It could help grow alternative
content for the big screen. A major challenge for digital cinema in India is conversion
cost. Different formats of digital cinema give rise to technical diversity, leading to a
lower degree of adoption of the technology by exhibitors.

Anand Rathi Research 2

ISIEmergingMarketsPDF in-micaahd from 115.249.84.202 on 2014-03-13 10:06:33 EDT. DownloadPDF.

Downloaded by in-micaahd from 115.249.84.202 at 2014-03-13 10:06:33 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
 4 April, 2008 FICCI FRAMES, 2008

Flim Industry
1000

800

600

(Rs bn)
400

200

0
2007 2008 2009 2010 2011

Television Industry Film Industry Print Media Animation

Online Advertising OOH Music industry

Source: FICCI-PWC 2008 Report

Anand Rathi Research 3

ISIEmergingMarketsPDF in-micaahd from 115.249.84.202 on 2014-03-13 10:06:33 EDT. DownloadPDF.

Downloaded by in-micaahd from 115.249.84.202 at 2014-03-13 10:06:33 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
 4 April, 2008 FICCI FRAMES, 2008

Outlook
■ Animation recorded the highest growth, of 24%, to Rs13bn (from Rs10.5bn in
2006). In the next five years a 27% CAGR is expected.

■ The animation industry in India would grow substantially only when Indian
studios produce/co-produce content for the global market.

Animation

With global players like Walt Disney, Imax, and Warner Bros. signing contracts
with Indian animation companies for outsourcing and co-production, it is
expected that the animation industry in India could touch Rs38bn by 2009. In the
next five years a 27% CAGR is expected. The cost of half an hour of animation
work in India averages US$60,000. In the US and Canada the same work costs
approx. US$400,000.

Local animation studios are framing content mostly based on mythology.

However, a few studios have ventured into animated films, based on fiction (The
Sultan, produced by Adlabs and Ocher Studios).

Growth drivers for the segment are: creating content that would appeal to global
audiences, direct and indirect collaborations in fields of creativity and finance,
access to media funds and equity funding, exploration of IP rights in various
territories and gaming, and quick roll-out of digital cinema. The government
would help boost the industry by setting up a National Center for Animation,
Gaming and VFX

Animation Industry

35

30
30
25
25
(Rs bn)

20
21
15
16
10
13
5

0
2007 2008 2009 2010 2011

Source: FICCI-PWC 2008 Report

Anand Rathi Research 4

ISIEmergingMarketsPDF in-micaahd from 115.249.84.202 on 2014-03-13 10:06:33 EDT. DownloadPDF.

Downloaded by in-micaahd from 115.249.84.202 at 2014-03-13 10:06:33 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
 4 April, 2008 FICCI FRAMES, 2008

Outlook
■ Out-of-Home Advertising grew 25%, to Rs12.5bn in 2007 (from Rs10bn the year
earlier). In the next five years, a 13.4% CAGR is expected.

■ Sixty percent of the world’s population would be city denizens by 2030, boosting
the growing O-o-H industry. Changing lifestyles and fresh avenues drive growth
here.

Out-of-Home Advertising

The out-of-home advertising industry marked the next highest growth, at 25%
(on a smaller base). The segment climbed to an estimated Rs12.5bn in 2007, up
from Rs10bn the previous year. In the next five years the out-of-home segment
is expected to grow 14% cumulatively, to an estimated Rs24bn in 2012.

Sixty percent of the world’s population would be living in cities by 2030 and this
would boost the growing O-o-H industry since the latter is an urban medium of
communication. Growth drivers in this segment are the change in consumer
lifestyles (today, people are spending more time outdoors), the entry of organized
players and consolidation of ownership in the O-o-H segment, and fresh avenues
such as airport advertising.

Out – of - Home Industry

20
18
19
16
14
17
12
(Rs bn)

10 15
8 13
6
10
4
2
0
2007 2008 2009 2010 2011

Source: FICCI-PWC 2008 Report

Anand Rathi Research 5

ISIEmergingMarketsPDF in-micaahd from 115.249.84.202 on 2014-03-13 10:06:33 EDT. DownloadPDF.

Downloaded by in-micaahd from 115.249.84.202 at 2014-03-13 10:06:33 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
 4 April, 2008 FICCI FRAMES, 2008

Outlook
■ Radio grew 24% over the previous year. It is estimated at Rs6.2bn in 2007 (from
Rs5bn in 2006). In the next five years, a 22.5% CAGR is expected.

■ Out-of-Home Radio is the future, as the number of mobile phone handsets with
FM radio is increasing. Sports and news, if allowed, would change the outlook for
radio.

Radio

Radio has turned socially responsible. The best of radio is yet to come, and this
would happen only when Trai (The Telecoms Regulatory Authority of India)
amendments come in force. Despite the rosy picture, viability is still a problem
for the industry.

Out-of-home radio would widen its reach in future as the number of mobile
phone handsets with FM radio is increasing by the day. Even the lowest
monochrome mobile device has an FM feature today. This would lead to deeper
penetration in smaller towns, villages, and outlying regions. Though FM has
become a regular feature on mobile phones, 85% of FM listeners are still at
home. Content aired currently through radio makes it “home”ly. Sports, news
and the like on radio would push skyward the out-of-home listener-ship
(audience).

Radio Industry
16

14 15

12
12
10
(Rs bn)

8 10

6 8

4
6
2

0
2007 2008 2009 2010 2011

Source: FICCI-PWC 2008 Report

Anand Rathi Research 6

ISIEmergingMarketsPDF in-micaahd from 115.249.84.202 on 2014-03-13 10:06:33 EDT. DownloadPDF.

Downloaded by in-micaahd from 115.249.84.202 at 2014-03-13 10:06:33 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
 4 April, 2008 FICCI FRAMES, 2008

Outlook
■ Gaming grew 32% over the previous year and is estimated at Rs2.7bn in 2007, up
from Rs2.1bn a year ago. In the next five years, a 36.8% CAGR is expected.

■ The fall in prices of gaming software and hardware, coupled with broadband
penetration, would drive the business.

Gaming

The Indian gaming industry is estimated to race to Rs7.4bn by 2010. With the
advent of new technologies like Flash Lite, Android phones (iPhone), cameras
and location-based games, 3D games, etc., mobile gaming has reached a pinnacle.

An Indian animation studio is producing the first ever game based on an Indian
film Dhoom-2. We expect that majority of the action films which are successful
at the Box Office would be used as content by the Indian gaming industry.

Growth drivers for the segment are: the rise in home PCs and broadband
connections, the fall in prices of hardware and software needed for gaming, the
creation of localized content and the worldwide same-day release of big games.

Gaming Business

11.0
10.0
9.0
8.0
7.0
(Rs bn)

6.0
5.0
4.0
3.0
2.0
1.0
0.0
2007 2008 2009 2010 2011
Mobile Gaming Online gaming Console gaming PC gaming

Source: FICCI-PWC 2008 Report

Anand Rathi Research 7

ISIEmergingMarketsPDF in-micaahd from 115.249.84.202 on 2014-03-13 10:06:33 EDT. DownloadPDF.

Downloaded by in-micaahd from 115.249.84.202 at 2014-03-13 10:06:33 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
 4 April, 2008 FICCI FRAMES, 2008

Outlook
■ Television recorded the highest (18%) growth - from Rs191bn in 2006 to
Rs226bn. In the next five years, a 21.2% CAGR is expected.

■ The Sports genre has potential to drive revenue growth in TV if cricket and
another sport can generate a fan wave (as the English Premier League has done in
Europe) and if penetration of digital distribution platforms reaches 50% of C&S
households.

Television – sports, the upcoming genre

Whether sports, as a genre, boosts TV revenue from advertising and subscription

is still unclear. Sports would be a key genre for TV once digital distribution
platforms (like DTH and digital cable) penetrate at least 50% of the Indian TV
market and a minimum of two sports whip up a frenzy in future.

IPL as it involves cricket would be the best programme for sports to be a

revenue-generating genre for TV. The key challenge for IPL would be to attract
women and children and ensure viewer-loyalty towards the leagues/clubs.
Indians love the Indian cricket team more than the sport and IPL is a cricket
tournament involving created leagues and not countries. Hence, the acid test for
IPL would be to attract crowds to watch the matches.

Televsion Industry
552
18
502
452 16
402 175
12.8
352
150
(Rs bn)

302 11
120
252 9.4
100
202
80
152 310
253
102 204
167
137
52
2
2007 2008 2009 2010 2011

Television Distribution Television Advertising Television Content

Source: FICCI-PWC 2008 Report

Anand Rathi Research 8

ISIEmergingMarketsPDF in-micaahd from 115.249.84.202 on 2014-03-13 10:06:33 EDT. DownloadPDF.

Downloaded by in-micaahd from 115.249.84.202 at 2014-03-13 10:06:33 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
 4 April, 2008 FICCI FRAMES, 2008

Outlook
■ Piracy eats approx. Rs160bn from the Indian Media and Entertainment sector
every year.

■ Without the support of the government, the industry would not be able to curb
piracy.

Piracy – the rodent

Every year, the Indian film industry loses approx. Rs38bn, and the television
sector Rs104bn, to piracy. In gaming, piracy eats approx. Rs1.6bn in revenue
while music loses Rs13bn. Films lose a little over half a million jobs and TV and
the music industry, 133,500. In television, the spectre of piracy is raised in two
forms: under-declaration of the subscriber base by local cable operators and airing
of pirated films over local cable networks.

The government should act quickly to contain the piracy issue and pass the
Optical Disc (or similar) Law, which would curtail piracy.. Without government
support, the industry is unable to tackle piracy. Digital Cinema (Real Image) has
introduced new technology that would reduce piracy by tracking the origin of
piracy in specific cases.

Televsion Industry
552
18
502
452 16
402 175
12.8
352
150
(Rs bn)

302 11
120
252 9.4
100
202
80
152 310
253
102 204
167
137
52
2
2007 2008 2009 2010 2011

Television Distribution Television Advertising Television Content

Source: FICCI-PWC 2008 Report

Anand Rathi Research 9

ISIEmergingMarketsPDF in-micaahd from 115.249.84.202 on 2014-03-13 10:06:33 EDT. DownloadPDF.

Downloaded by in-micaahd from 115.249.84.202 at 2014-03-13 10:06:33 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.