Media-ecosystems-The-walls-fall-down.pdf - Media ecosystems The walls fall down KPMG in India\u2019s Media and Entertainment report 2018 September 2018

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Unformatted text preview: Media ecosystems: The walls fall down KPMG in India’s Media and Entertainment report 2018 September 2018 kpmg.com/in Media ecosystems: The walls fall down KPMG in India’s Media and Entertainment report 2018 We would like to thank all those who have contributed and shared their valuable domain insights in helping us put this report together. Image courtesy Makuta VFX Prime Focus Ltd Reliance Animation Sony Pictures Network India Toonz Animation Viacom 18 Media Pvt Ltd Yash Raj Films Zee Entertainment Enterprises Ltd • The information contained in Media ecosystems: The walls fall down report is of a general nature and is not intended to address the circumstances of any particular individual or entity. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. • Although we have attempted to provide correct and timely information, there can be no guarantee that such information is correct as of the date it is received or that it will continue to be correct in the future. • The report contains information obtained from the public domain or external sources which have not been verified for authenticity, accuracy or completeness. • Use of companies’ names in the report is only to exemplify the trends in the industry. We maintain our independence from such entities and no bias is intended towards any of them in the report. • Our report may make reference to ‘KPMG Analysis’; this merely indicates that we have (where specified) undertaken certain analytical activities on the underlying data to arrive at the information presented; we do not accept responsibility for the veracity of the underlying data. • In connection with the report or any part thereof, KPMG does not owe duty of care (whether in contract or in tort or under statute or otherwise) to any person / party to whom/which the report is circulated to and KPMG shall not be liable to any such person/party who/which uses or relies on this report. KPMG thus disclaims all responsibility or liability for any costs, damages, losses, liabilities, expenses incurred by any such person/party arising out of or in connection with the report or any part thereof. • By reading the report the reader shall be deemed to have accepted the terms mentioned above. • The views and opinions expressed herein are those of the interviewees/survey respondents/quoted individuals and do not necessarily represent the views and opinions of KPMG in India. © 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Table of contents 1. Foreword 1 2. Executive summary 3 3. Digital consumption trends 15 4. Sectors a. Television - Firmly entrenched 21 b. Print - Hanging on 35 c. Digital advertising - Supercharged growth 51 d. Films - On a comeback trail 57 e. Radio - Going local 71 f. Music - Streaming the future 81 g. Animation, VFX and post production - Redefining storytelling 91 h. Gaming - Ready to play 107 i. Out of home - Technology comes out to play 115 5. Global Themes 123 6. Themes a. TMT convergence - Building ecosystems 139 b. OTT consumption - Reaching a tipping point 153 c. Rural segment - Scalability from hinterlands 165 d. Social media - Driving meaningful conversations 171 e. GST one year on - Teething pains 179 f. Data analytics - Every detail counts 185 g. Audience measurement - Need of the hour 201 h. Consolidation and M&A 211 i. Tax landscape 217 7. Technology trends a. Cutting the TV cord - Harmonious coexistence 225 b. Artificial Intelligence - Blending science and creativity 231 c. Augmented and virtual reality - Reality reimagined 241 d. Blockchain - Hype or disruptor 255 8. Acknowledgements 261 © 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 01 Foreword Foreword The Indian Media and Entertainment industry (‘M&E’) industry faced some head winds in FY18 due to the adverse impact on ad spend following the lingering impact of demonetisation and teething issues with the Goods and Services Tax (GST) rollout. This was reflected in an industry growth of 10.9 per cent in FY18 on the back of advertising growth of 11.5 per cent. However, the industry has bounced back from these challenges, and its long term outlook remains strong. The global economy showed signs of recovery with real GDP growth rising from 3.2 per cent in 2016 to 3.8 per cent in 2017 — driven by faster growth in Europe, Japan, China and the U.S.1 On the other hand, India experienced a decline in the growth rate from 7.1 per cent in 2016 to 6.7 per cent in 2017, primarily on account of demonetisation and implementation of GST.2 Despite this slowdown, the economy is on its way to recovery with the real GDP expected to grow by 7.4 per cent in 2018 and 7.8 per cent in 2019.3 GST rollout, residual effects of demonetisation, and RERA resulted in the holdback of ad spends by advertisers across sectors, and, particularly, affected local advertising by smaller businesses. The resultant lower ad spends, coupled with the middling growth in the overall economy, adversely impacted growth rates across advertising dependent sectors such as television, print, radio and Out of Home (OOH). Digital access and consumption has seen a rapid growth over the last 24 months following the rollout of 4G, aided by falling data costs and rapid growth in smartphone penetration. As a result, digital usage has become more democratised and widespread. This had a significant positive impact across multiple sectors with the a direct impact being noticed in digital advertising and mobile gaming — both of which witnessed growth rates in excess of 30 per cent in FY18. Additionally, growing demand for digital content had a positive impact on films and music segments as well as animation and VFX segments. On the flip side, growing digital consumption has started placing significant pressure on traditional print players, particularly in the English language segment, which is seeing a migration of both readers and advertisers towards digital. 1. World Economic Outlook, International Monetary Fund, April 2018 2. Real GDP Growth, International Monetary Fund, accessed on 27 July 2018 3. Real GDP Growth, International Monetary Fund, accessed on 27 July 2018 © 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Foreword 02 Another key growth driver has been the growing demand from rural and regional markets, which is attracting the attention of both advertisers and content platforms. The growing rural media consumption has been highlighted by measurement providers such as Broadcast Audience Research Council (BARC) in TV and Indian Readership Survey (IRS) in print. Growing media penetration in these markets across TV, print, radio and digital has been supplemented by increased focus on mass and regional content aimed at increasing the monetisation of the audience. In the long term, these markets are expected to provide significant support for growth of the Indian M&E industry. However, in FY18, the Indian M&E industry witnessed the beginnings of a major structural shift as lines between various players across the value chain started blurring with the Technology, Media and Telecom (TMT) convergence starting to become a reality. This convergence has begun to give rise to the media ecosystems, particularly with telecom and technology players realising the importance of M&E as a key driver, to engage with and monetise their consumers. While, these changes are providing multiple opportunities to media organisations in the short term, they also have the potential to fundamentally change how media is created, distributed and consumed, and, therefore, completely disrupt the existing media value chain. Looking ahead, the future of the M&E industry may therefore revolve around TMT convergence. Media companies will need to proactively look at their strategies and business models to operate and thrive in this new paradigm. Mritunjay Kapur Girish Menon National Head, Markets and Strategy Head - Technology, Media and Telecom Partner and Head Media and Entertaintment © 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Executive summary Executive summary 04 Introduction The global economy has been gaining momentum, with real Gross Domestic Product (GDP) growth rising from 3.2 per cent in 2016 to 3.8 per cent in 2017 — driven by faster growth in Europe, Japan, China and the U.S.1 Growing trade, investments and manufacturing activity haves powered the global upswing since mid-2016.2 However, in the long term a marginal decline to around 3.7 per cent CAGR is expected following risks from growing protectionist measures, fallout from Brexit, ageing workforce and rise in borrowing costs.3 In contrast with the global economy, India’s real GDP growth rate declined from 7.1 per cent in 2016 to 6.7 per cent in 2017 — primarily on account of demonetisation and implementation of Good and Services Tax (GST).4 However, the Indian economy is already on its way to recovery as the negative impact of these two measures is fading, overall investment sentiment is improving, construction is recovering from a slump and the farm sector is also witnessing growth.5 India’s real GDP is expected to grow by 7.4 per cent in 2018 and 7.8 per cent in 2019.6 Moreover, unlike the expected decline in global economy, the Indian economy is expected to further strengthen with around 8 per cent y-o-y growth during 2020–23.7 Strong and consistent economic growth fuelled by a rise in consumption and growth in digitisation has boded well for the Indian Media and Entertainment (M&E) industry which has grown at a CAGR of approximately 11 per cent over FY14-FY18 to reach INR1,436 billion in FY188. However, in recent years, the sector was adversely impacted by major regulatory interventions by the government around demonetisation and the Goods and Services Tax (GST). These initiatives had a temporary adverse impact on both consumption and advertising spends, resulting in a slower than expected growth rate of 10.9 per cent during FY18. However, the industry is now well on the road to recovery, and aided by a buoyant Indian economy, strong domestic (particularly rural) demand and growing digital access and consumption, the sector is expected to grow at a CAGR of 13.1 per cent over the next five years to reach INR2,660.2 billion by FY239. Size of the Indian media and entertainment industry Industry performance — Historical Overall industry size (INR billion) FY14 FY15 FY16 FY17 FY18 Growth in FY18 over FY17 TV 433.7 489.9 551.7 595.3 651.9 9.5% Print 248.2 268.4 288.4 308.4 318.9 3.4% Films 126.4 126.9 137.1 145.0 158.9 9.6% Digital advertising 32.5 47.0 64.9 86.2 116.3 35.0% Animation and VFX 41.0 46.5 53.2 62.3 73.9 18.6% Gaming 20.3 24.3 27.6 32.4 43.8 35.1% OOH 19.9 22.3 25.5 28.6 32.0 11.9% Radio 17.2 19.8 22.7 24.0 25.9 7.9% Music 8.5 10.2 11.2 12.6 14.4 14.7% 947.6 1,055.1 1,182.3 1,294.7 1,436.0 10.9% Total Source: KPMG in India analysis, 2018 based on primary and secondary research 1. World Economic Outlook, International Monetary Fund, April 2018 2. World Economic Outlook, International Monetary Fund, April 2018 3. Global economic growth has peaked, says World Bank, Financial Times, 10 January 2018 4. Real GDP Growth, International Monetary Fund, accessed on 27 July 2018 5. Press Note on Provisional Estimates of Annual National Income, 2017-18 and Quarterly Estimates of Gross Domestic Product For the Fourth Quarter (Q4) of 2017-18, MOSPI, 31 May 2018 6. 7. 8. 9. Real GDP Growth, International Monetary Fund, accessed on 27 July 2018 Real GDP Growth, International Monetary Fund, accessed on 27 July 2018 KPMG in India analysis, 2018 based on primary and secondary research KPMG in India analysis, 2018 based on primary and secondary research 05 Executive summary Industry advertising revenues (INR billion) FY14 FY15 FY16 FY17 FY18 Growth in FY18 over FY17 TV 138.4 160.0 183.7 202.6 223.5 10.3% Print 166.0 179.6 192.3 204.4 210.6 3.1% Digital advertising 32.5 47.0 64.9 86.2 116.3 35.0% OOH 19.9 22.3 25.5 28.6 32.0 11.9% Radio 17.2 19.8 22.7 24.0 25.9 7.9% Total 374.0 428.7 489.1 545.7 608.3 11.5% Source: KPMG in India analysis, 2018 based on primary and secondary research • • • • Television had a relatively subdued year in FY ’18, with overall revenue growing at relatively slower rate of 9.5 per cent to reach INR651.9 billion. Advertising revenues faced headwinds due to the implementation of GST and associated issues with compliance, and middling growth in the overall economy. Although national broadcasters were less impacted due to GST than the local broadcasters. At the same time, subscription revenue growth was lower than expected as the DD FreeDish subscriber base soared to 30 million and DTH ARPUs declined with increase in competitive intensity The print sector was adversely impacted due to the after effects of demonetisation, coupled with weak advertising demand due to implementation of GST and Real Estate Regulation and Development Act (RERA). This resulted in a growth rate of 3.4 per cent during FY18, which was the lowest in a decade. Hindi and regional newspapers fared comparatively better (4.6 per cent and 4.2 per cent respectively), while English newspapers struggled, registering a growth of 1.5 per cent during this period Film segment revenues grew by 9.6 per cent during FY18 to reach INR 158.9 billion on the back of a resurgence over the last couple of years driven by strong domestic box office performances, coupled with growing overseas contributions particularly through entry into new markets such as China. Additionally, growing revenues from digital rights are supporting the overall growth Digital advertisement revenues have been growing rapidly in India, and the trend continued in FY18 with a growth of 35 per cent to reach INR 116.3 billion. Key growth drivers were developments in digital infrastructure; increased inclusion of and adoption by regional, non-urban users; increase in the penetration of mobile phones; and increase in maturity in the digital ecosystem driven by public and private investments. • The Indian animation and VFX industry which has been on a strong growth trajectory clocked a growth of 18.6 per cent in FY18 to reach INR 73.9 billion with a strong overseas demand for animation and VFX services as Indian players move up the value chain along with growing demand from linear TV for local animation content. Digital Video on Demand (VOD) platforms, both global and Indian, have provided an additional impetus with demand for kids’ and VFX content on platforms continuing to rise, as is the improvement in production values. • Growing digital and smartphone penetration has significantly deepened the gaming user base with the mobile-first model driving user behaviour. Launch of lower priced Chinese smartphones in the Indian market, declining cost of data, rising disposable incomes, and acceptance of digital payments have resulted in the dramatic migration of online gamers to mobile phones. The interplay of these factors has led to the gaming segment growing by 35.8 per cent in FY18 to reach INR43.8 billion. • The Out of Home (OOH) segment grew by 11.9 percent in FY18 to reach INR 32.8 billion primarily on the back of growth in controlled environment of the airport segment, with the segment also witnessing traction from smaller airports situated in tier 2 and tier 3 cities. The growth was aided by advertisement expenditures from State and Central Governments, e-commerce and technology players. Executive summary 06 • The radio industry witnessed muted growth in FY18 at 7.9 per cent on the back of the fallout of GST rollout as local advertisement spends were significantly reduced. Over supply from the launch of new radio stations resulted in pressure on advertisement rates which also stayed flat. • The Indian music industry continued to see a resurgence in recent years primarily on the back of rapidly expanding digital consumption and distribution, particularly since the rollout of 4G. Data penetration and increased use of smartphones are two key contributors towards the growing consumption of music on digital. Industry performance — Projected Overall industry size (INR billion) FY19 FY20 FY21 FY22 FY23 CAGR % (2018-2023) TV 746.4 855.3 959.1 1,066.6 1,179.6 12.6% Print 338.5 357.8 378.6 400.8 424.9 5.9% Films 171.7 185.4 199.3 213.9 228.8 7.6% Digital advertising 154.7 202.6 263.4 339.8 435.0 30.2% Animation and VFX 86.7 100.9 116.8 133.5 151.8 15.5% Gaming 55.4 70.9 84.7 103.3 118.8 22.1% OOH 35.7 38.6 42.0 45.7 49.7 9.2% Radio 28.3 31.8 34.8 38.8 42.1 10.2% Music 16.6 19.1 22.1 25.6 29.6 15.5% 1,633.9 1,862.5 2,100.7 2,368.0 2,660.2 13.1% Total Source: KPMG in India analysis, 2018 based on primary and secondary research Industry advertising revenues (INR billion) FY19 FY20 FY21 FY22 FY23 CAGR (20182023) TV 255.0 291.5 330.1 373.0 425.3 13.7% Print 223.7 236.4 250.1 264.7 280.7 5.9% Digital advertising 154.7 202.6 263.4 339.8 435.0 30.2% OOH 35.7 38.6 42.0 45.7 49.7 9.2% Radio 28.3 31.8 34.8 38.8 42.1 10.2% Total 697.4 800.9 920.4 1,062.0 1,232.7 15.2% Source: KPMG in India analysis, 2018 based on primary and secondary research The Indian M&E industry is expected to grow at a CAGR of 13.1 per cent during FY19 to FY23 to reach INR2,660.2 billion by FY23. Advertising revenues are expected to grow at a CAGR of 15.2 per cent to reach INR1,232.7 billion by FY23. 07 Executive summary Key segmental trends • Television is expected to grow at a CAGR of 12.6 per cent on the back of growing TV penetration, strong advertising demand on the back of domestic consumption and major events (two cricket world cups and a general election in the next five years) supported by better distribution realisations due to operationalisation of TV digitisation • Print is likely to continue seeing muted growth at 5.9 per cent CAGR as sluggish growth in English newspapers — due to pressure from digital platforms — could be offset by strong growth in language newspapers. Hindi newspapers are also starting to witness pressure on growth rates • The film segment is expected to remain resilient with a 7.6 per cent CAGR on the back of strong demand from digital platforms and growing overseas revenues • • Digital advertising is likely to continue seeing strong growth at a 30.2 per cent CAGR on the back of continued deepening of digital adoption and usage particularly from regional markets providing advertisers with the opportunity to offer customised advertising to wider demographics The animation and VFX industry is expected to show strong growth of 15.5 per cent on the back of strong digital demand, increasing production values and technology changes • With a growth rate of 22 per cent over the next five years, the gaming sector in India is expected to touch INR118.8 billion by 2023 on the back of continued smartphone penetration, growing gaming user base and improved monetisation supported by increased localisation and technology innovations around data and analytics, augmented reality/virtual reality and so on • The OOH segment is expected to grow at a 9.2 per cent CAGR on the back of Indian government’s smart cities’ campaign, promotion of public welfare schemes and expansion of the airport network. A nation-wide policy, single window clearances, citywise exclusive licences on a long-term basis as well as ...
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