By: Sheikh GULZAAR
Srinagar : The domestic entertainment industry was estimated at nearly Rs 225.0 billion and provided employment opportunities for nearly 6.0 million people in the year 1999. In terms of foreign exchange earnings, the industry contributed around Rs 4,000.0 million in the year 1999. In the current year, this is likely to increase to around Rs 10,000.0 million. This projected growth is likely to occur on account of the increasing migration of the Indian population across the globe, extensive outsourcing of content such as animation by world leaders in the entertainment industry and the imminent broadband revolution in the industry. However, massive investments are required in the area of telecommunication infrastructure with industry friendly government policies. With the domestic consumer already having access to global entertainment avenues, globalization in this industry will only increase at a far greater pace in the coming years.
Changing lifestyles and increasing disposable income levels has facilitated the increasing penetration levels of the media and entertainment industry. Recent estimates indicate that around 68.0% of total adult population have access to the conventional forms of media. The urban middle class population has grown over the years and currently accounts for over 40.0% of the total population. The southern states have a distinct edge in terms of media penetration. For instance, Tamil Nadu and Kerala have penetration levels of over 80.0% in case of mass media. Similarly, in the case of televisions, penetration levels increased to an estimated 75.0% of all urban households in the country. Satellite channels have been the fastest growing category in this segment.
Product Profiling AND SegmentationIndia is a vast country with numerous official languages and a literary history that can be traced back to the birth of civilization. Over the years, the industry has made tremendous progress in terms of technology and attaining self-sufficiency. With around 10,000 publishers and around 40,000 new titles every year, the domestic market is indeed a large market. In recent times, global authors have started to get their works published by domestic majors. This is likely to give a fillip to the industry in the near term. Simultaneously, domestic authors are gaining popularity across the globe. The low cost of production acts as a major attraction to global publishing houses.
From around Rs 6.0 billion in the year 1998-1999, production levels increased to around Rs 7.0 billion in the year 1999-2000. During the same period, import levels increased from Rs 1.4 billion to around Rs 1.50 billion. Similar to its counterparts in the entertainment industry, domestic publishers are witnessing a rapid inflow of pirated books. Recent estimates peg the level of piracy in the domestic market at around 80.0%.
The Indian Music Industry- Exponential Growth Ahead…The Indian entertainment industry is incomplete without the inclusion of music. Over the years, the importance of music has only increased, especially in case of the movie industry. Of late, movies have gone on to become huge successes largely on the backdrop of good music. While the popularity of film music increased, it also resulted in the growth of other segments such as remix, Indi-pop etc.
Distributors- Enjoying High Bargaining Power…Despite major changes occurring in the industry, reliability on distribution network still persists. Timing is highly crucial in the music industry. New releases have to reach the target audience well on time. Hence, only majors with a wider reach are able to sustain their leadership and generate profits. Furthermore, distribution companies retain a major part of the profits generated in this industry. As a result, several music companies have diversified into setting up of their own retail stores. HMV is a pioneer in this area and has an excellent chain of stores at its disposal. This helps the company to gauge the consumers’ changing perceptions and revamp its product offerings accordingly.
Low Margins- A Major Problem Area…
Estimates peg the cost of producing a cassette at around Rs 35. Purchase of the music rights is the single largest cost component. This is compounded by the incidence of taxes and royalty that account for another Rs 2-Rs 3 per cassette. Furthermore, margins to the traders, manufacturing and transportation charges account for a large chunk of costs.
This tendency to pay rather low prices for Indian music titles is prevalent even in the overseas markets. For instance, while a consumer is willing to pay around US$9-US$11 per cassette for an international music album, he is ready to pay only US$2 for an Indian music album. Such low margins results in music stores only unwilling to retail Indian titles. Consequently, Indian music titles are predominantly found only in Mom and Pop stores in the US.
Generally, in the domestic context, prices are determined mainly by the acquisition price of the music title, the stars involved and the target audience. With music not being on the priority list of a huge chunk of the population, any price hike results in demand shifting to pirated products. Also, there exists a differential pricing policy with regard to classical/ devotional music albums. While the target audience for film music is rather large, the customer base for classical/ devotional music is rather low. Hence, these albums are retailed at higher prices. Also, demand for classical/ devotional music tends to be seasonal in nature. This has a strong bearing on pricing policies.
The Indian Motion Picture IndustryFrom the days of shaky pictures and poor sound quality, the domestic film industry has gone on to become highly sophisticated in terms of infrastructure and product offerings. Furthermore, the domestic film industry is the largest in the world, producing over 800 films per annum, across 52 different languages. The industry generates employment opportunities to nearly 2.5 million people. By the year 2005, this is projected to increase to over 4.0 million. Currently, the industry is witnessing a period of rising pre and post-production costs.
The Changing Television Industry…Since the advent of deregulation in the domestic television industry, the going for Door Darshan has been rather tough. Various private satellite channels have emerged as strong competitors. This is evident from the recent decline in the revenues of Door Darshan. From around Rs 5.7 billion in the year 1996-1997, revenues declined to Rs 3.99 billion in the year 1998-1999. The year 1999-2000 has seen a improvement to Rs 5.0 billion, largely on account of cricket revenues of Rs 1.6 billion.
Simultaneously, revenues for DD Metro have also declined from over Rs 786.0 million in the year 1998-1999 to Rs 460.0 million in the year 1999-2000. Similarly, in terms of coverage and viewership, DD has witnessed an increased in the year 1999-2000.
Around 90.0% of the country’s population had access to DD, while area-wise coverage was estimated at around 75.0%. During the period June 1999-January 2000, viewership of DD’s programs during primetime increased by over 57.0% in the metros and mini-metros. Major reasons for this increased viewing is on account of improvement in the reception quality of signals, presentation of programs and a wider range of programs for viewers.
Satellite Cable Television- A Major Growth Engine…The boom in the satellite cable television segment has been a major cause for the high growth in the entertainment industry. The cable subscriber base has increased from around 0.05 million in the early 90s’ to around 24.0 million in the year 1999-2000. This is further estimated to increase to nearly 48.0 million by the end of the current year. With the rapid proliferation of channels (over 75), and imminent possibilities of the privatization of Door Darshan, growth in this segment is projected to be rather high.
The Coming of Regional Channels…The satellite television and software (content) industries are all set to witness a surge in demand in the coming years. Increasing emergence of regional channels is the major growth driver behind this likely growth. Subsequent to the advent of satellite television in the early ‘90s, regional channels are currently the key focus areas for majors. This is likely to offer a wider range of programs to viewers across the country. Furthermore, factors such as a decline in the pricing of color televisions, technological advancements etc have resulted in a wider audience base. This has resulted in regional advertisers clamoring for a bit of the action. With only around 30% of all households in the country speaking Hindi, this development was inevitable.
While in the past, Door Darshan monopolized the regional landscape with its 14 channels, over 20 regional channels are likely to make their debut this year. While in the South, the current trend is to diversify into news based channels, other markets such as Gujarat, Maharashtra, Punjab etc are witnessing their first dose of regional satellite television. This huge demand has even prompted global major News Corp and market leader Zee TV to look at this market.
Emerging Trends and New DevelopmentsSome of the major fast growing segments in the domestic industry include the music, cable and satellite advertising, infrastructure, exports, animation and FM. The domestic music industry was estimated at around Rs 17,000.0 million in the year 1999 and is projected to grow to around Rs 30,000.0 million by the end of the current year. The export segment is also expected to increase from around Rs 4,000.0 million to around Rs 10,000.0 million during the same period. Revenues from the animation segment are also forecasted to increase from Rs 2,200.0 million to nearly Rs 4,400.0 million by the end of the current year.
In order to capitalize on this fast growth ahead, companies are making large-scale investments in terms of infrastructure. For instance, the Modi Family has invested around Rs 1,500.0 million towards the construction of multiplexes that can screen around 16 films simultaneously. At the same time, majors such as Zee Telefilms and Eenadu TV are expanding their horizons to other markets as well.
TheGlobal Media AND Entertainment Industry- A Snapshot…Changing consumer choices, advent of new technologies and rapid globalization has been the growth drivers of this industry. Increasing penetration of the Internet has changed the dynamics of the industry. The US market has witnessed the maximum impact on account of these changes. Reports indicate that entertainment related expenditure is projected to increase from around US$675 per person in the current year to around US$814 by the year 2003.
Despite such increased spending, majors are also witnessing faster increases in costs. With margins coming under pressure, majors are trying to develop new distribution channels to minimize the impact of such cost increases.
Emerging Trends and New DevelopmentsIn the long term some of the major developments likely to have a deep impact on the global media and entertainment industry include,
· Shifting Preference For Internet-Based Content And The Emergence Of Interactive TV
· Proliferation Of Wireless Application Devices
· Large-Scale Migration To E-Tailing
· Development of Sophisticated Telecommunication Technologies
· Faster Globalization
· Growing Popularity of Mega- Theaters, Super Stores Concept etc
· High Degree of Consolidation in the Industry
· Increasing Digitization in the Industry
· Convergence of the Entertainment, Information and Telecommunication Segments and
· Rapid De-regulation in the Industry
Phenomenal growth in the cable and satellite television business has presented new revenue streams for global entertainment majors. Reports indicate that movie majors are projected to witness revenues of around US$ 11.0 billion by the year 2002 on the sale of their content to satellite television networks. This represents an increase from the 1998 level of nearly US$7.0 billion. As a part of the ongoing “Americanization” of the world, companies such as CNN, HBO, Espn etc have started to focus on their regional versions. Consequently, the scenario in the European, Asian and Latin American markets is fast changing.
However, this globalization process is likely to take some time with the respective governments of various countries still protecting their domestic media industry. This is largely on account of the politically sensitive nature of this medium. With the liberalization process gathering momentum across the globe, these companies will be forces to reckon with in the future.
However, Piracy Remains a Key Issue…Piracy remains the single-most important issue across the global entertainment industry. Estimates indicate that the revenues lost on account of piracy in case of the music industry is around 25%. Furthermore, this level is likely to increase to 40% in the near term. Consequently, the music industry could be affected to a larger extent than its counterparts. This is largely on account of the highly fragmented nature of this industry. Smaller players are likely to suffer the most.
In this regard, the major initiative taken by the industry to protect its intellectual capital is the launch of the Secure Digital Music Initiative (Sdmi). The Sdmi comprising of around 150 companies has adopted the first set of standards to prevent the piracy of music. April 2000 was decided as the deadline for the second phase of regulations. The members of this initiative include music distributors, on-line PC communications service providers. PC manufacturers, home electronics appliances manufacturers etc.
The Internet is not perceived to be a threat by certain majors. Sony Music for instance has been aggressive in formulating an e-strategy. The company has forayed into activities including the promotion of digital broadcasting. Also, strategic alliances have been forged with majors such as EMI, Universal Music, Warner and IBM in order to facilitate the download of full-length CDs. IBM and Microsoft are intensely competing to gain a foothold in this emerging area. IBM and Sony Music have formed a partnership to deliver pirate-free songs over the net. Microsoft, on the other hand tied up with Musicmaker.com to enable users to access the latter’s entire product catalog over the net. Other players including AT& T, Matsushita and Seagram are also trying to foray into this segment. Seagram has formed an alliance with Bertelesmann AG, Germany in order to compete in the on-line music retail segment.
However security protection is still in a primitive stage in this area. For instance, when Microsoft launched its Wmdm software, hackers cracked the software code within hours and distributed the same over the net. Despite such initial problems, there exists a huge potential for music software. In the long-term, companies need to develop technologies that facilitate the freer flow of content rather than trying to enforce more stringent regulations that are only difficult to monitor.
Future Outlook…
The Indian entertainment industry is on a high growth path. Domestic majors are finding better earnings potential in the huge overseas markets. At the same time, corporatization is finally starting to emerge in this highly unorganized industry. This is likely to instill a greater discipline in the functioning of the industry and lead to greater consolidation in the future. The domestic consumer will opt for more sophisticated technology in the near future. Consequently, domestic majors will have to redefine their product offerings.
With literacy levels forecasted to increase in the future, the publishing industry will continue to witness growth. Advent of new technologies such as e-book etc will take a longer time to have an impact on the domestic market when compared to the global markets. While piracy levels are declining slowly, better copyright laws and the rapid implementation of the same are imperative to preserve the creative talent in this industry. The government needs to implement the same in order to facilitate the high growth in this industry.
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