Various government initiatives – Digital India, Make in India, and the like – are creating enabling environment giving further push to the Media and Entertainment (M&E) sector. With the right regulatory and policy framework and creating a climate that will ease the way of doing business in India, the industry can achieve new height and hold an enlarged share of global services trade pie. These conscious efforts of the government to engage with global companies and governments have led to increased investments and participation in India's strategic initiatives. However, simplified regulations and standards, and the establishment of global rules on service such as e-commerce, etc., to facilitate cross-border trade will be critical for future growth.
The Indian M&E industry is a sunrise sector with a rapid growth curve. The market size of M&E industry in India is estimated to be 1370.63 billion in 2016. M&E is one of the industries identified by the government under the Make in India initiative.
India is the world's second-largest television market with 181 million television households in 2016 and 892 television channels as on November 30, 2016. Television industry generated total revenue of 641.8 billion in 2016 with 65.96 percent share coming from subscription and the remaining 34.04 percent from advertising. TV penetration reached 64 percent of total households in 2016. There has been an increase in the share of digital cable and direct-to-home (DTH) as a result of digitization.
The Ministry of Information and Broadcasting (MIB) has mandated that all analog networks be replaced with Digital Addressable System (DAS). Cable television network in the country has undergone complete transition from analog to digital in four phases. Digitization was declared officially complete on March 31, 2017. Viewers can access digital services only through a set-top box (STB).
Phases-I and II focused on India's major metro markets (except Chennai) and 38 Tier-I cities. Phase-III covered urban areas across 34 states and Union Territories, including Haryana, Himachal Pradesh, Lakshadweep, Madhya Pradesh, Gujarat, and Bihar, while Phase-IV covers the entire rural India.
The cable TV market is highly fragmented with more than 230 MSOs to operate in DAS registered with MIB and more than 50,000 local cable operators (LCOs).
Film sector is the third-largest sector in M&E industry. The Indian film industry is the largest in the world in terms of number of films produced between 1500 and 2000 every year in more than 20 languages.
In terms of revenue, the sector has gross box office realizations of 138 billion in 2015, which are expected to grow at 11 percent CAGR reaching 238 billion by 2020. Domestic box office contributes majority of the revenue, representing 74 percent for the sector.
Another sector that has witnessed tremendous growth over last few years is the animation industry. Key growth factors include increased usage of technologies such as 3-D videos, movies, games, and commercials. Cities such as Mumbai, Pune, Chennai, Bangalore, and Trivandrum are emerging as animation hubs. To encourage the growth of this sector, state governments have proposed animation, visual effects, comics, and gaming (AVCG) parks on SEZ model.
100 percent FDI is allowed in television sector including cable TV network, DTH. 49 percent FDI (under approval route) is allowed for up-linking of news and current affairs TV channels. 100 percent FDI in film sector is allowed under automatic route, which has encouraged overseas studios to set up presence in India/co-produce films.
The sector is able to sustain a healthy growth on the back of strong economic fundamentals and steady growth in domestic consumption. Major growth drivers include: rising incomes and evolving lifestyles, rapidly growing young population coupled with increased usage of 3G, 4G, and portable devices, government initiatives and policies such as Make in India and Digital India, increase in FDI inflows on account of liberalization in policy, etc.
Furthermore, implementation of proposed GST will result in transparency in transactions. There are many transactions where the input taxes paid are not available as credit and are regarded as tax cost. Likewise, many transactions attract dual tax levies. GST should address this issue of cascading and dual taxation impact.
International/foreign films gaining box office share, animation, visual effects (VFX), gaming, and digital advertising are also emerging as fast-growing sectors adding to the growth drivers.
Potential for Global Expansion
Indian M&E sector holds much potential for global expansion with US, UK, and China. India looks forward to enter into co-production treaty with the US to promote co-production of films. Liberalization in FDI policy in the information and broadcasting sector, expansion of footprint in terms of distribution of channels by Indian broadcasters in overseas countries, and expansion of territories for distribution of Indian films are adds to positive factors for global expansion.
Digital India paves the way for digitization of cable television in four phases to attract institutional funding and improve profitability and value chain. It also strengthens sectors such as video streaming, online music consumption, and gaming by increasing Internet penetration. Digitization is providing consumer with better control in terms of subscription choices and is also leading to increase in ARPU and subsequently increase in broadcasters' share of subscription revenues.
Make in India helps to promote shooting of foreign films in India, develop technical skills for film production, post-production and VFX, and explore additional film treaties.
The Union Budget reinforced India's huge shift toward digitization, especially with the proposed deployment of high optic cable to increase Internet penetration in rural India. This is a big positive for content creators as it will boost the digital content consumption across online and mobile platforms. Further impetus on digital payments and transactions will eventually help the subscription model.
Shift toward Internet-based delivery platforms. Over-the-top (OTT) platform that uses Internet as a medium to distribute content is emerging as a business model. Disruptive pricing announcements on unlimited data and aggressive Internet plans have benefitted the OTT sector. This sector has witnessed a number of startups, leading production houses, and also several international players foraying into the market.
Visual effects (VFX) and animation services. India is considered as the most sought-after destination for animation and VFX services led by cost-efficient, high-quality service, affluent workforce, and presence of hi-tech animation studios. Entertainment conglomerates are increasingly outsourcing animation and special effects to India. Furthermore, cost of animation production in India is one-fourth of North America and about 35 percent lower than countries such as Korea and Philippines. In addition, several Indian studios have been successful in establishing a strong footprint in international markets.
Promoting India as a filming destination. Ministry of Information and Broadcasting has set up a Film Facilitation Office (FFO) to facilitate efficient approvals and improving the ease of shooting in India. India has signed film co-production treaties with 11 countries.
Collaboration with international studios. Over past few years, international studios have collaborated with local production houses to develop Hindi and regional content. Local film production can leverage the experience of these international studios to expand their international reach and incorporate enhanced project planning and cost controls.
Broadcasting channels overseas. On account of huge Indian population residing overseas, there is an opportunity for Indian broadcasters to expand their footprint overseas by broadcasting channels in such countries. Apart from the above, content syndication now extends to local audiences as well.
Broadcasters and distribution platforms should be accorded infrastructure status so as to obtain better and affordable financing options in the present capital-intensive growth phase. In order to widen the reach of Indian cinema, the Government of India must explore additional film treaties that would help in boosting the film industry as well as developing skills in the local talent pool.
Government should consider providing financing support through tax holidays in respect of conversion of single screen to multiscreen, extra floor space index, and access to capital at lower interest rates. The government must provide quick approvals to help production houses to get all clearances. The governmentshould ensure ease for obtainingapprovals, availability of local talent, production resources, and adequate infrastructure facilities for attracting foreign producers.
Based on a recent CII-Deloitte report, India Services Sector: A Multi-trillion Dollar Opportunity for Global Symbiotic Growth