Broadcasting A Sweet Music To Investors

Music Broadcast Ltd (MBL), subsidiary of Jagran Prakashan Ltd (JPL), is the first and the oldest private  FM broadcaster in India with over  15 years of expertise in the radio industry. MBL operates its radio stations under the brand “Radio City”. The company has presence in 37 cities and operates 39 radio stations through the 'Radio City' brand.  Almost eight radio stations are operated through 'Radio Mantra' . MBL is present in 12 out of the top 15 cities by population, in India. The company also operates online web radio “Planet Radio City”. MBL has 40 web radio stations  and to  allow access to content on the go the company has a ‘Planet Radio City’ mobile app

In Dec 2014, Jagran Prakashan entered the radio segment by acquiring Music Broadcast Pvt Ltd. Jagran Prakashan acquired Music Broadcast Pvt Ltd from private equity firm, India Value  Fund Advisors and Star Group. Star Group is a part of the Rupert Murdoch controlled 21st Century Fox.  As on Feb 2017 MBL has grown its presence from 4 cities in 2001 to 37 cities. The company networks its radio stations located at different cities and operate it from a single hub. MBL derives its revenue purely from radio air time sales which are categorised into fixed commercial time (“FCT”) and non-fixed commercial time (“NonFCT”).  In FY16, national clients contributed around 55% to the revenue & local clients contributed 45% to the total.   The key sectors which advertise on the company’s radio stations are Government/PSU, media, consumer products, e-commerce, real estate and finance.

Radio industry

The media and entertainment industry in India consists of television, print media, films, radio, music, OOH, animation and VFX, gaming and digital advertising.

Media industry has grown at a CAGR of 12.2 % between 2010 and 2015 and is expected to grow at a CAGR of 14.5% from 2016-20E as per KPMG-FICCI report. The radio industry which comprised of 1.7 per cent of the total industry in 2015 is expected to expand to 3.7 per cent by 2020.

Radio industry has grown at a CAGR of 14.5 percent between 2010 and 2015 and is expected to grow at a CAGR of nearly 17 per cent till CY20.   The decent industry growth rate augurs well for the company as it has an opportunity to grow in higher double digits owing to its leadership position in a growing industry.

The radio industry is expected to grow, driven by commencement of the new radio stations and an increase in listenership in tier-II and tier-III cities along with increase in advertisement rates in metros and tier I cities.

The increase in advertising rates in new industries such as e-commerce preferring radio as a medium for advertising has helped growth prospects for the industry.  MBL is in a sweet spot within the radio industry and is positioned well enough to capitalise in the growth opportunities in the radio industry by leveraging its expertise and leadership position.

One of the key strengths of MBL is its content programming and brand recognition. Its pan India presence allows for growth in revenues from operations and has pushed the company in a leadership position in the radio industry. The company's popular content with strong sales capabilities makes it an interesting business to own.

The company's understanding of the audience preferences across India allows the company to customise the content to the taste, language and culture of the local audiences.   Going ahead one can expect MBL to leverage its expertise to attract new listeners as it expands its operations to more cities and town in India.

The company has proven capability of developing creative and innovative content which has helped it expand the base of listeners and advertisers.  The dedicated and large sales team of MBL  helps it reach out to a wider advertiser base This strong sales team also helps develop strong relationship with advertisers and advertising agencies.

Thus the innovative content coupled with strong sales efforts contributes significantly  to the MBLs growth and revenues. Growth levers One of the key lever of growth for MBL will be its focus on expanding to new markets while maintaining profitability. MBL has been able to increase the listenership by constantly developing quality content even as the company continues to invest in market research from third party research agencies such as AZ research,RAM, Aircheck and Ormax Media so that its content is catering to the changing listener preferences.

One of the unique advantage enjoyed by MBL is that it enjoys a strong local brand identity that has been built over a period of time owing to its ability to deliver local content and music in cities in which it operates.   The same successful strategy of localising the content can prove to be extremely profitable when MBL ventures into new cities. The proven capability and MBLs endeavour to create quality content in line with listener's preference will help MBL improve its listenership.

Listenership is the foundation based on which the advertising revenues will increase and lead to improved profitability. Business risks The business model as of now for MBL is such that it is dependant heavily on the advertising revenues. In case there is a shift in volume form radio media to other media i.e print, digital, TV etc the company will be adversely impacted in terms of revenues.  MBL is dependent on 3rd party for the content and there is always a risk of change in policies at the end of content supplier which may adversely impact the company.

Another factor besides possibility of slowing growth in the industry that can adversely impact the growth for MBL is that the increasing competitive nature of the industry may shift loyalty of listeners of MBL towards its competitors. If listenership goes down the financials of the company may be impacted negatively as the advertisement revenues may drop.

Conclusion

With an impressive growth visibility for the radio industry it is easy to identify that MBL is on growth trajectory. Various factors are to the advantage of the leader in the radio industry in India however investors willing to take exposure in the counter need to identify and understand the risks of investing in the stock clearly.   The revenues model is dependent on advertisement and the income is highly dependant on continuous flow of advertisement at effective rates.   Having said that the advertising volume for the overall industry has grown at CAGR of 10.4% in FY11-16 whereas Radio City advertising volume has grown at CAGR of 12.5% in FY11-16. There is a good probability that the advertiser base will also increase owing to expansion strategy adopted by the company.   Investors should also take note that MBL is diversifying its business and is transforming itself from a pure play radio company to an audio entertainment company. This diversification will help the company to reach to the target customer through different modes such as internet. MBL has been consistently number one radio station in terms of average listener ship share. The listenership share in Bengaluru and Mumbai has been 24.1 per cent and 17.2 per cent respectively.   MBL has been growing at a CAGR (revenue) of 19 per cent over three years with profits growing over 54 per cent in the similar period on annualised basis.

The company has maintained steady margins over the same period. Investors can expect diversification in different geographies by MBL while playing music as per audience preferences and attracting listeners to help company capture the rising opportunity from the industry. The higher growth in sales while maintaining margins will lead to higher free cash flow from operations which in turn will improve the ROE and ROCE of the company, going forward.

Raghvendra Singh

Lyricist

Definitely dynamics of media sector in India has changed, due to new technology, multimedia and social media. I think that increasing digitisation and higher Internet usage are like a boon for media sector. Now a day’s media is working faster than earlier.  Social media has crores of registered users. Content, in the form of text or comments, photos and videos are the life blood of social media. Vast information is being uploaded online which may be true or fake. Media needs to be more alert

I believe that number of radio listeners has increased over the previous few years. Radio  has become more popular  with the entry of  FM radio channels .People have a little time to enjoy , but this is a medium  we can enjoy while doing other work also.

 

Key strengths of MBL

> Strong leadership position and pan-India presence in radio industry which is poised for growth

> MBL has consistently been the number one radio station in terms of average listenership share in Bengaluru and Mumbai with 24.17% and 17.10% respectively.

> MBL has a pan-India presence with radio stations in 37 cities as on February 15, 2017  MBL operates 40 web radio stations through planetradiocity.com in eight languages.

>Popular content coupled with strong sales capability

“Growth will be faster in the smaller cities”

Apurva Purohit

Director, Music Broadcast Ltd & President, Jagran Prakashan Group.

In a free-wheeling interview with Joydeep R Ray and Lohit Bharambe at her suburban Mumbai office, Apurva Purohit, Chief Executive of Music Broadcast Limited shares the past, present and future of the recently listed corporate entity. Excerpts:

1. Music Broadcast has been able to cut down its debt-to-equity ratio to 2.93x in FY16 from 5.09x in FY15. What are company’s plans to reduce debt level in current financial year?

The whole reason for an IPO was to reduce debt of the company. By the end of FY17 it will be reduced substantially. Once the debt comes down, then the capital structure of the company will get strengthened. After that, practically no loan and a good looking balance sheet for MBL. We are looking at inorganic growth for the company going forward. There will be organic growth also. As forthe past record of the company, we have acquired 11 more stations. We will grow at least couple of percentage more than the industry’s growth for the next several years. But, apart from that, inorganic growth will help the company to grow at that pace. Asthe lock-in period is getting over by FY18, there will be organisations with individual stations on sale and we will be expanding through these acquisitions.

2.The company has around 5 crore listeners for radio stations. Can you throw some light on what are company’s projections on listeners?

First of all, measurement of the radio industry is done by metrics such as RAM. RAM is available at only four markets. Then,in the industry, each of us conductsour own research. We do listenership survey in 23 markets through the AZ Research Agency. We have more than 5.25 crore listeners’ base. Having said that, I think two-three points within the listenership is seen as interesting growth for this medium. When we started, then it was suddenly seen as youth kind of the medium because RJs were younger and suddenly from the AIR kind of approach got popularity. We have perceived a very youthful kind of medium. However, actually we do profiling of the listeners–what they really like or don’t like and match it exactly with the population of the country. If you look at the age group,the radio listeners have the same contribution as the population. So, finally, it has developed from youth medium to mass medium which is accessible and being listened to. An interesting myth has been shattered from all the research that we do is that it was a thing that either youth or it is only the car listeners and it gets perceived as a niche medium but actually it is a mass medium. In fact, even now, 75 per cent of the listenership is happening at home which people don’t understand.Only 25 per cent is outside, of which only 5 to 6 per cent are car listeners and the balance through the mobile devices. That’s fundamentally the type of listeners we have.

3. In TV and print media, advertisement revenues have been shared and prices for the slotshave dropped heavily in the last 5 to 6 years. Do you see that happening to radio?

In the context of radio, what has happened is that in 2005-06, we were the only radio station in Bengaluru.At that time, we used to quote Rs 2000for one-tenth of a second, DelhiRs 1800. Then fragmentation happened, competition came in, Phase II happened, rates dropped tremendously i.e. from Rs 2000 to almost Rs 600. From that time to 2016-17, all of us are slowly making efforts to increase our rates now, because we had seen situation where the rates were dropping. Suddenly, there were eight stations launched, Reliance came in by dropping rates to gain market share, which impacted too much and everybody knows it. In the last 10 years, all of us have been raising rates and from Rs 600 to almost Rs 1000 and this has barely taken 7 to 8 years. We have done it successfully because we are leaders in the market.With the help of RAM and various research reports,Mirchiis the leader in the market and we have been able to take rate hikes. That’s the philosophy of the market which says that we are a premium player,so we will not have 100 markets,but we will operate in only 40 markets that will be cream markets for us as per advertisers’ point of view. Therefore, the premium advertisers’ philosophy helped us to move rates up. In contrast, if we are selling Mumbai and Delhi stations slots at Rs 1,000 and Rs 1,200 respectively, then Big FM or Red FM are selling at Rs 600.That’s the play in the industry.

Balance growth has come only through volumes as utilisation is going up. We used to sell 12 minutes per hour,i.e. we decided technically to work 18 hours a day. In those 12 minutes, we started filling 40 per cent to 60 per cent i.e. 6 minutes per hour.Over a period of time, we have grown up to 70 to 80 per cent and all of us now are operating a benchmark of 15 minutes per hour. In big markets, that gets filled in by about 60 per cent to 80 per cent and in a small market it is 40 per cent to 50 per cent and in newer markets it is just starting one. So the growth in the past was volume-driven and less rate-driven. Premium players have seen equal mix for the last 3 to 4 years.If we are growing at 14 per cent, then 7 per cent will be coming from rate hikes and 7 per cent from volume growth. Unlike TV,which has just one street, in radio we have 28 streets.Therefore, 28 multiplied by 15 minutes,multiplied by 18 hours in a day. In every market, there is a strategy and a particular point of time when you start taking rate hikes. If you have volumes of 30 to 60 per cent, then you don’t take rate hike; you just grow first and then do rate hike. So that’s how the growth happened. News channels may have dropped rates, but general entertainment channels have not dropped rate for advertisements. We atJagaran and Mid-Day haven’t dropped rates.Such kind of leadership we have. If Star has rate of Rs 12000for 10-second slot, then it has now gone to Rs 22000 for 10-second slot as there is no hyper competition in that space. Unfortunately, news industry has faced steeped competition.

4. What are different types of genre of advertisers to remain for radio industry such as more FMCG, tobacco players, and white good players like way?

In India, peculiarly, category of advertisers are skewed in favour of corporate advertising. We started with an advertisement coming from corporate at 70 per cent and the remaining from local retail advertisers. Over a period of time, that’s gone down, and right now, it is 60 per cent corporate and 40 per cent retail. Over a period of time, it will move the other way round, that is, 40 per cent corporate and 60 per cent retail, which is the international trend. Internationally, Radio is the local popular medium. Now,it is clear channel will have 200 radio stations and originally it started with one city. Consolidation will happen much later. The power of radio in our mind is purely that it is a cost-effective medium for retailers. So it started always as a retail medium. In India,it happened the other way round. But, over a period of time and especially with expansion in Phase III, growth will come suddenly from local advertisers getting an option to advertise on a cheaper medium. Today, there are only 90 cities that have FM. There are more than 200 cities that have businesses,but there is no option for those guys except print. Print is expensive—almost three times expensive than radio. We believe that radio actually empowers them to grow their businesses. Today, for example, entire radio industry has 15k to 18k advertisers. We have almost 5k to 7k advertisers. Jagran alone has 25k advertisers and that’s the expansion it is going to play out.

5. Do you foresee revenue generation from smaller cities in coming time for radio industry?

Number of advertisers from smaller cities have been growing, however, larger advertisers have the money and ticket size is too small. Always from a value sense, still as 40 per cent corporate pie will come from 300 to 400 advertisers and 60 per cent advertisers’ pie will come from 25k advertisers.

Even now, 60 to 70 per cent advertising goes into top 40 cities. So, one is going into Hindustan Unilever, P&G, etc. Radio City has presence in 40 cities which are high yield markets. Tier-II and Tier-III cities will contribute for corporate advertisers in coming times. Growth will be faster in smaller cities. Cities such as Surat, Baroda, Vizag and Coimbatore will grow faster in terms of generating advertisers but the ticket size will be smaller.

6. In the days of Saavn, Gaana.com and Wynk, why should I prefer radio? In the last 10 years. tremendous new ideas have come and there’ll beWhatsApp kind of a thing.Do these scare you to change your business completely?

Every product or service will die if there is no consumer. Therefore, is there a need for radio in days of Gaana, Wynk? The answer will be ‘Yes’. Internationally, the digital is far ahead of us in the days of Pandora, and at an evolved level. Every research that is getting done, later 2017 research internationally is saying that radio or a terrestrial FM is listened to for local news live and gives update of what is happening in my locality, area etc. And it is listened to because of the randomness of music. On Gaana, Saavn, Wynk, iPod I have playlist. I know what will be played next. Third reason why they listen is that they treat RJ as a friend companion when they are alone. Most of the time,people listen to radio when they are alone. So, internationally, all of these streaming devices penetration is 25 per cent in terms of listenership. Radio penetration is 93 per cent in UK and US.In our Planet Radio City, we have 40 internet streams which run variety of music. It can’t be live and certainly cannot be local.

Coming on to whether you are going to be obsolete or not,as far as there is consumer need. Saavn and Gaana replaced iPod, but they can’t replace terrestrial FMs.Jio is giving free music, but the quality of bandwidth is very poor in city like Lucknow. Thesubscription charges for Saavn is Rs 100 and the drop out percentage is 60 per cent. People are dropping out because of repetitive and boring music.

7. The advertisement to GDP ratio in India is 0.35 per cent, but international average is around 1%. So do you see opportunity for your company?

There is hope that entire media and entertainment industry will grow as there is a gap. That is true of any consumption story in the country. If you see penetration of soaps, oats, cars, etc. in any industry,the ratio would be 0.35, i.e. one third of the world. Our country is in the state of one-third consumption as compared to the world. As consumption increases, it will help to grow across entire media industry. So rates of advertisements are also one-third of the world.This will also increase as consumption increases.

8. Is your company open toexploring new geographical territories outside of India for its operational purpose?

9. How do you feel Radio City broadcasting Indian news on Sydney or any part of the world to attract new set of consumers? Does it work?

We have once deployed Mumbai RJ team to New Jersey on D2H radio station and it really worked. Nostalgia really works, but it is not feasible from monetary point of view. Settingup a team for sales, deployment and training cost goes up, and just for attracting very niche consumers. So, cost equation does not work.

10. Can you give us idea about company’s geographical and operational segmental revenue break up?

Our company has as 100 per centadvertising revenue – justvery little part comes from events and activation revenue. From geographical point of view, top 4 heritage markets i.e. Mumbai, Delhi, Bengaluru and Lucknowwould be contributing around 40 per cent, next 4 markets would be contributing around 30 per cent and balance 20-odd markets are contributing the remaining revenue.

11.What is the forecast on company’s topline and bottomline for the current financial year?

We are growing at a rate of 14 per cent CAGR since last 4 to 5 years which is 2 per cent higher than the industry growth rate. We have 22 per cent market share in the industry. So, with the launch of new station zone, 11 new stations that we are launching over the 28 and 11 we have launched, these 39 stations are put together, by this we expect to grow approximately by 18 per cent.

The story of the idiot-boxes and newspapers—what an investor can expect from the sector

Nikita Singh teams up with Subhajit Bhattacharya to bring this report for our reader-investors

Every morning till we go to bed, they remain an integral part of our life and in various formats. A morning never starts well without a newspaper or two, a day is incomplete if we do not surf through the news television channels and life turns very black and white sans those colourful dramatic sops watched on the screens of entertainment television channels. They not only keep us abreast with information in these days of fast news, they also entertain us, keep us happy.

We are talking about the media and entertainment sector which also has been consistently giving handsome returns when we sit for calculations to find out returns on investment. Considering the available statistics and our research, to make it simple, we can say here that if you had invested Rs 100 in each of Nifty and Nifty Media three years back, by now you would have earned Rs 130.17 and Rs 157.90 respectively. If you consider the numbers of last one year, you will see the Nifty Media index outperforming benchmark index Nifty 50 by recording steep high growth at 21.64 per cent. Nifty has grown by 17.43 per cent during the period under consideration. So let us peep into the sector and check out what all has been brewing there these days and how things are shaping up which will guide you and help you to understand if you should stay invested, make an exit or make fresh investments in this sector.

Since its inception in the 18th Century, media and entertainment industry has become an integral part of the socio-economic skeleton of the nation. Indian media is one of the oldest and the largest media of the world which is expected to grow at a CAGR of 14.3% and likely to touch a 3 trillion by the end of 2020, divulged a report.

The television and digital are the two new pillars of Indian media industry which are presently honeymooning with the new breed of viewers. Internet boom in the nation has not only opened new vistas in front of the thriving media and entertainment industry of India but laid new challenges on its way of progress.

Experts believe that radio is also playing a crucial role in changing the face of the media and entertainment industry of India. The industry has gathered momentum since its birth and it is expected to grow manifold in the years to come. In the last few years, Indian media industry have wooed many foreign investors. The government is also planning to boost the inflow of foreign investment in the print media by upping the FDI the cap to 49 per cent from the present 26 per cent. Bollywood is already enjoying 100 per cent FDI and some of the prominent production houses of the world camped in India. Global film studios such as Fox and DreamWorks, Warner Brothers and Disney already pumped in money in different Bollywood productions and even regional cinema and news. 

“The overall global media spends have been projected to rise from USD 1.6 trillion in 2014 to USD 2.1 trillion by 2019, a CAGR of 5.1% over the 5 years. From a segment perspective, digital advertising is expected to grow the fastest at a 12.7% CAGR during 2014-2019, with TV advertising and cinema maintaining their relevance at a 5% and 5.4% CAGR, respectively, over the same period,” said Girish Menon – Partner, KPMG in India during an exclusive interaction with DSIJ. Referring to global trend, Menon also said, “Latin America and Asia Pacific are expected to be the key economies driving growth in the M&E sector globally at 10.6% and 6% over 2014-2019, respectively, while North America and EMEA are expected to grow at 4% over the same period.” He also said the Indian M&E market is poised to grow at a robust 14% CAGR from 2016-2021, with the digital segment growing fastest at a 31% CAGR, mirroring the global growth trends. TV and radio, the traditional segments, are also expected to grow at 14% and 16% CAGR, respectively, driven by deeper penetration in terms of rural reach and regional markets, and improvements due to regulatory interventions.

The films segment, however, is expected to grow at a more modest 7.3% CAGR, owing to infrastructural challenges persisting, and as compared to the relatively robust growth of films globally, the segment performance could be termed as lagging behind, Menon added.

So what is happening in the Indian soil--Balaji Telefilms Limited has raised Rs 150.08 crore (US$ 22.09 million) through allotment of equity shares on preferential basis to catapult the launch and growth of ALT Digital Media, a Business-to-Consumer digital content business segment of Balaji Group.

Reliance Entertainment (owned by Mr Anil Ambani) and DreamWorks (led by Mr Steven Spielberg), along with Participant Media (led by Mr Jeff Skoll) and Entertainment One (eOne) have formed a new film, television and digital content creation company called 'Amblin Partners', and have raised US$ 500 million in debt to develop and produce films.

Walt Disney, who earlier held a 50% stake in UTV, has now acquired a controlling stake in UTV Software Communications.

US-based investment firm Tiger Global Management LLC has acquired a 25 per cent stake in 'The Viral Fever' (TVF), an online video content creator, for US$ 10 million.

Media in India has transformed itself into an economic Goliath and presently contributing in 1% in the GDP of the country. Indian media has grown into an inordinate entity which has failed in crafting an apt public opinion on politics. In recent times several incidents brought the skeleton out from the closet. Exposed the bonhomie between media and politics and raised questions about the integrity of media. Several insiders of the industry have voiced their concerns about this steady decline in reliability, shallowness in reporting which has downgraded the entire climate of the Indian media industry in the recent times. 

Professor MD Nalapat, a close observer of the sector thinks that Indian media is standing at a trajectory and government must take some key steps to make it more investment friendly. Prof Nalapat added, “The low revenue base means that every effort will be made for each to grow at the expense of the others. As mentioned, North Block needs to change its focus from high taxes to high growth as media will rise or fall depending on the overall economy.

Given our pragmatic PM, it is only a question of time before policy gets reconfigured away from revenue through collections at a cost to future growth into growth of revenue through low taxes resulting in high growth created by as many suitable policies as possible.

Hopefully, North Block will move away from the traditional colonial approach to a people's model of functioning designed to encourage growth and innovation through individual enterprise and initiative”.

In this era of reforms, as the USD 22.9 bn media and entertainment industry is growing manifolds with a thriving spending on the industry, the penetration of digital media is taking the conventional media platforms by storm. Despite lagging behind in size in comparison with Asia-Pacific countries such as China, India’s overall spending on the media and entertainment industry has expanded to a compound annual growth rate (CAGR) of 11.6 per cent, edging over China’s 10.9 per cent CAGR and more than double the global media CAGR of 5 per cent. India’s growing earning population and a rural outreach of the industry is further expected to manifest into growth opportunities for the industry.

“The media and entertainment industry has come a long way treading on the path of diversification and democratisation with more news and entertainment networks in the market. However, the prevalence of bias deprecated the industry of editorial integrity. It is a challenging and telling time for the industry.” said Rohit Gandhi, a senior media professional who worked with brands like National Geographic and Zee Media.    

Even as we talk about the new media taking over conventional media businesses in the country, the radio still remains the most accessible and widely distributed media and entertainment platform among both the upper and lower strata of the society within the country.    

The radio segment of the media industry witnessed a strong revival in its market share in the last few years on the back of increasing localisation of FM Radio shows and expansion initiatives by the government along with the private players. Increasing advertisement spending of brands and the inexpensive nature of ads on the radio has also largely stimulated the FM Radio market in the country.

However, technology hit media sector is witnessing a slow yet steady shift of consumption pattern in the radio segment too, with a growing popularity of the fresh concept of internet radio- enabling the Radio network to reach more diverse geographies.

The way ahead-

The Indian media and entertainment industry is thriving and factors such as increasing media penetration and per capita consumption in the sector across India, expansion of the tier-2 and tier-3 cities galloping surge in digitisation, strengthening of the regional media, development of tailor-made content will drive the further skyrocket the growth of media and entertainment industry of India. 

A report tabled by ASSOCHAM and Deloitte on the Indian media industry says that Indian animation industry is all set for an enhanced outsourcing pie from global players.

The slowly but steadily bonhomie between entertainment, information and telecommunication is increasingly impacting India’s overall media and entertainment industry.

Digital media has emerged as the integrating platform for all the other pillars of the industry including print media, television and radio, that predominantly crop each other’s market share. “TV is a thing of past. Digitalisation is the future and we are aggressively heading towards it. We need to introduce all the pillars of media and entertainment industry to digitalisation and actively pursue it to strike a balance,” said Gandhi.

Strengthening 3G and 4G infrastructure in the country is further democratising the digital forum, galloping through the traditional distribution layout.    

Internet advertisement and the new concept of data mining are becoming the main drivers of the digital segment from the profit maker’s motive, experts say, internet advertising at CAGR of 20.4 per cent will contrive as the foremost window of rising spending in India’s digital sector. While internet access has arisen as the second largest segment in the media and entertainment industry with revenues worth USD 3.1 billion in 2013, still lagging behind the revenues from the first-placed TV subscriptions and license fees at USD 6.7 billion.        

However, the internet conducive infrastructure is perpetually adding more people to the internet users bandwagon, hence rapidly extending the gamut of internet advertising as well as the revenue generated from it.

“Indian M&E Industry Is On The Cusp Of Rapid Transformation”    

 Girish Menon – Partner, KPMG in India

What is your view on the growth in media and entertainment (M&E) sector?

* The Indian M&E industry grew at a  steady rate of 9% in 2016, on the back of an 11% advertising growth to reach a size of Rs 1262 billion.

*Growth in digital consumption was a major factor in driving this growth, with the mobile-first India now home to more than 400 mn mobile internet connections, 300 mn+ smartphones and more than 120 mn people consuming video on their smartphones, spurred on by the launch of 4G services in the second half of 2016. The momentum is expected to continue, with 800+ million mobile internet connections by 2020 on 700+mn smartphones, with 80% of them being high speed (3G/4G) based, leading to digital donning a more mass 'avatar'.

* Digital consumption also led to growth of sectors like music and gaming, with mobile becoming the primary source of data consumption. Digital music contributes around 70% of the overall music revenues and game development on mobile is growing at a rapid pace with 1.6 billion games downloaded on iOS and Android in 2016.

* Traditional sectors like TV continued their steady run, with 8.5% growth, backed by advertising revenue growth at 11%, which got impacted by 150-200 bps due to demonetisation. The success of FTA channels post the acceptance of BARC as the de-facto measurement currency bodes well for both broadcasters and advertisers. However, the FTA phenomenon and resurgence of DD Freedish could result in a long term cannibalisation of subscription revenues.

While implementation of CAS remains slow, the eventual completion and expected implementation of TRAI orders will help ensure a fair distribution of TV revenues across the value chain, helping ARPU and subscripton growth in the future.

* Radio growth has been strong, led by volume enhancements in smaller cities, partial roll-out of Batch 1 stations and a marginal increase in effective ad rates. However, with weak uptake in Batch 2 auctions of Phase 3, delays in the roll-out of majority of Batch 1 dampened the sentiment slightly.

The M&E industry continued to witness consolidation in 2016 with Dish TV and Videocon d2h merging operations to form the single-largest pay TV operator and Ten Sports was sold to Sony resulting in a two-player dominance in the sports genre. ZEE also acquired the TV broadcasting business of Reliance ADAG Group and acquired 49 per cent stake in their radio business. The consolidation drive is likely to play out in the near future across the digital/OTT video platforms, with possibilities around integration with distributors like telecom companies.

Thus, while strong economic fundamentals would continue to drive growth, the Indian M&E industry is on the cusp of rapid transformation with digital media taking centre stage across all the sub-sectors, rapidly emerging as a core revenue engine. While M&E organisations are looking to build out digital strategies, the economic and business models required to succeed in the digital landscape are challenging and would require a significant shift in mindset and approach.

What are the challenges faced by the media sector?

* GST impact: Some short term headwinds could result in a muted growth for CY 2017. Demonetisation has led to a slight reduction in GDP estimates and the imminent implementation of GST would invariably pull down growth, with the industry taking time to calibrate to the new tax regime

* TV digitisation delays and TRAI order implementation - Even though the government mandated deadline for completion of digitisation in Phase 3 and 4 has passed, some residual households in Phase 3 and a large base in Phase 4 are yet to come into the digital fold. The completion of the same and subsequent implementation of TRAI guidelines around tariff and interconnect would be the key to long term growth for the TV, which contributes the largest chunk of the M&E industry revenues. However, the implementation of TRAI guidelines could face legal challenges from stakeholders in the near future

* Digital/OTT video monetisation- The rapid uptake of digital consumption has resulted in a proliferation of platforms and players onboard the digital bandwagon. However, digital content monetisation is currently largely

Top 10 Media Stock movement in last one year

Balaji Telefilms

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Network 18 Media & Investment

The share price of Network 18 Media & Investment increased 14 per cent in the last one year. The company’s stock has touched 52-week high at Rs 54.8 on May 16, 2017. Its share price has touched 52-week low at Rs 30.5 on December 27, 2016. Its total debt-to-equity ratio stood at 0.25x in FY17.

TV18 Broadcast

The share price of TV18 Broadcast has declined 11.15 per cent in the last one year. The company’s stock has touched 52-week high at Rs 50 on October 10, 2016.Its share price has touched 52-week low at Rs 33.15 on May 24, 2017. It has managed negligible total debt-to-equity ratio at 0.06x in FY17.

Zee Entertainment Enterprises

The share price of Zee Entertainment Enterprises increased 16.33 per cent in the last one year. The company’s stock has touched 52-week high at Rs 588.8 on October 3, 2016. Its share price has touched 52-week low at Rs 428.5 on December 23, 2016. The blue-chip company has debt-free status as of FY17.

Hindustan Media Ventures

The share price of Hindustan Media Ventures increased 2.79 per cent in the last one year. The company’s stock has touched 52-week high at Rs 313.5 on November 1, 2016. Its share price has touched 52-week low at Rs 252.75 on December 8, 2016. Its total debt-to-equity ratio stood at 0.19x in FY17.

Navneet Education

The share price of Navneet Education has boosted 108.15 per cent in the last one year. The company’s stock has touched 52-week high at Rs 188 on May 31, 2017. Its share price has touched 52-week low at Rs 85.4 on June 8, 2016. Its total debt-to-equity ratio stood at 0.16x in FY17.

Jagran Prakashan

The share price of Jagran Prakashan increased 5.11 per cent in the last one year. The company’s stock has touched 52-week high at Rs 213 on September 8, 2016. Its share price has touched 52-week low at Rs 162.6 on December 15, 2016. Its total debt-to-equity ratio stood at 0.45x in FY17.

HT Media

The share price of HT Media remained flat and reduced just 0.3 per cent in the last one year. The company’s stock has touched 52-week high at Rs 96.3 on November 1, 2016. Its share price has touched 52-week low at Rs 69.5 on December 2, 2016. Its total debt-to-equity ratio stood at 0.58x in FY17.

TV Today Network

The share price of TV Today Network decreased 10.23 per cent in the last one year. The company’s stock has touched 52-week high at Rs 359.85 on November 3, 2016. Its share price has touched 52-week low at Rs 249 on May 23, 2017. It has zero total debt-to-equity ratio in FY17.

New Delhi Television

The share price of New Delhi Television has declined 33.76 per cent in the last one year. The company’s stock has touched 52-week high at Rs 99 on July 13, 2016. Its share price has touched 52-week low at Rs 60 on May 4, 2017. Its total debt-to-equity ratio stood at 0.42x in FY17.