Indias entertainment-economy oct- 2011

Spotlight on India’s
entertainment economy
Seizing new growth opportunities

India’s entertainment economy is growing rapidly, and the world is taking note. The
country is among the world’s youngest nations, with more than half a
billion people under the age of 25. With favorable demographics and a rise in
disposable incomes, the propensity to spend on leisure and entertainment is
growing faster than the economy itself.
Enticed by economic liberalization and the huge volume of demand for leisure and
entertainment, many of the global media giants have been present in the Indian
market for more than two decades. However, in recent years, with near double-digit
annual growth and a fast-growing middle class, there has been a
renewed surge in investment in the country by global companies. Companies
in the US and Western Europe see their growth increasingly linked to emerging
giants like India, which is why they are now focused on the best way to enter,
grow and brand their business in this market.
The Indian media and entertainment (M&E) industry now finds itself at a
new inflection point — digital media. A surge in mass broadband adoption is
expected, led by the launch of 3G and 4G services. In conjunction with the
country’s mobile phone user base, more than 750 million subscribers, the scale
and impact of potential digital content consumption is enormous. This presents
M&E companies, foreign and domestic, with an exciting opportunity to develop
digital businesses that cater to a new generation of Indian digital consumers.
To succeed in this market, there are several success factors that global
companies need to take into account. While there are many opportunities to
tap, there are also unique challenges in the areas of content localization,
distribution and pricing, regulations and piracy.
In this report, we examine India’s M&E landscape and provide an overview of
the key opportunities, challenges and critical success factors in doing
business there.

John Nendick Farokh T. Balsara
Global Industry Leader EMEIA Leader
Media & Entertainment, Media & Entertainment,
Ernst & Young Ernst & Young

Spotlight on India’s entertainment economy

Table of contents
Executive summary 01

Economy and demographics 03
India’s entertainment economy:
Trends, growth drivers and challenges 04

Sectors and growth opportunities 10

Investing in the Indian M&E industry: key regulations 28

Doing business in India 29

Conclusion 35

Media & Entertainment contacts 36

Spotlight on India’s entertainment economy

Executive summary

India is surging. The second fastest growing global economy Media sectors regarded as “sunset” industries in mature
and the fourth-largest economy in terms of purchasing power markets are flourishing in India, presenting global media
parity, India’s increasing per capita income, growing middle companies with exciting opportunities to counter declining
class and working population are generating huge domestic revenues. For example, the newspaper industry, which is facing
demand for goods and services — including leisure and declining readership in many international markets because of
entertainment. digital media, continues to thrive in India, driven by increasing
literacy rates, consumer spending and the growth of regional
Global enterprises are taking notice. India ranked as the most
markets and specialty newspapers. Newspapers account for
important market for sales in Ernst & Young’s recent survey,
42% of all advertising spend in India, the most of any medium.
Competing for growth: how business is growing beyond
boundaries, which interviewed some 400 C-suite and marketing India’s favorable regulatory environment and recent reforms
professionals from global corporations. As global business are creating investment opportunities in a number of M&E
leaders start to compete again for growth opportunities, there is sectors. Entry restrictions for foreign companies have been
an increasing sense of urgency among them to seize the relaxed and foreign direct investment (FDI) caps have been
prospects offered by the Indian market. recently increased in key sectors, including direct-to-home (DTH)
and radio. The mandatory digitization of the country’s TV
With more than 600 television channels, 100 million pay-TV
distribution infrastructure has spurred growth of digital cable and
households, 70,000 newspapers and 1,000 films produced
DTH and created a need for these companies to fund expansion.
annually, India’s vibrant media and entertainment (M&E)
And the third round of radio license auctions (phase III), expected
industry provides attractive growth opportunities for global
in the near future, will see radio networks adding around 700 radio
corporations. Enticed by economic liberalization and high
stations across the country.
volumes of consumption, many of the world’s media giants have
been present in the Indian market for more than two decades. And then there are India’s diverse content markets. The
However, in recent years, with near double-digit annual growth majority of India’s urban consumption comes from non-metro
and a fast-growing middle class, there has been a renewed cities (so-called Tier 2 and Tier 3 towns) — regional markets
surge in investments into the country by global companies. with distinct cultures, languages and content preferences.

1 Spotlight on India’s entertainment economy

These regional markets — huge “markets within a market” —
provide global M&E companies with a variety of opportunities
Summary of key points
to deliver localized content. Many global film studios and TV • Localize content: To succeed in India, global media
broadcasters have already entered these markets and are companies need to localize their content and be sensitive to
producing regional-language content. local culture. Content needs to be repurposed to suit local
audiences.
Finally, there is the evolution of digital content consumption.
The consumption of digital content in India is at an inflection • Assess pricing and distribution channels: Global companies
point. Although internet penetration is currently low, the need to thoroughly assess the market and distribution
recent launch of 3G services and the eventual launch of channels to price content appropriately. The price point
4G are expected to bring a “late surge” in wireless-based in India is just a fraction of what consumers would pay in
broadband adoption. In conjunction with the country’s mobile a developed market due to competition, regulations and
phone user base, of more than 750 million subscribers, the piracy. However, the huge and fast-growing volumes more
scale and impact of potential digital content consumption than make up for the low prices.
is enormous. This presents M&E companies, foreign and
• Understand regional nuances: India has several
domestic, with an exciting opportunity to develop digital
internal markets with different languages and consumer
businesses that cater to a new generation of broadband users.
preferences. For example, the M&E market in South India is
While there are many opportunities to tap, there are distinctly different than that of northern India. To succeed,
also unique differences and challenges. Diverse content global companies need to adopt different strategies for each
preferences and the low price point and high volumes of region, as there will be differences in demand, the type of
content consumption are some of the critical differences that content desired, the mode of distribution of content and the
global M&E companies need to assess when entering the revenue models employed.
Indian market. Companies that understand and adapt to the
• Financial risk mitigation: Foreign investors should
economic and social fabric of the Indian operating
remember that the due diligence process in emerging
environment and that invest in tailored content and services
markets such as India can pose unique challenges. Lack of
are likely to maximize their success.
transparency and concerns over the integrity of financial
M&E companies operating in India continue to be exposed to data can significantly diminish the ability to get a true
risks ranging from local competition to fraud, corruption and picture of the financial results. Investors need to understand
piracy. Although the development of corporate governance their exposure to financial contingencies. Identifying key
norms and ongoing structural and regulatory reforms are risks and exposures will increase the chances of completing
expected to mitigate these threats, global M&E companies successful transactions in India.
should develop flexible business plans and identify and
develop mitigation strategies for key risks.

Spotlight on India’s entertainment economy 2

Economy
and demographics

The Indian economy is on a path of robust growth, with annual (compared with 29.3 in Brazil, 35.5 in China, and 38.7 in
growth in GDP over the last three years averaging 8.6%.1 India’s Russia).4 The country has the second-largest English-speaking
GDP stood at US$1.54 trillion in 2010.2 The country remains the population in the world5 and also has a large regional market,
second fastest growing major economy in the world after China with 2 of its 22 official languages ranking among the top 10
and the fourth-largest economy in terms of purchasing power spoken across the world (Hindi with 490 million and Bengali with
parity (PPP). 215 million).6

The country is headed for a demographic sweet spot. Besides A growing middle class, rising per capita income7 and a rise in
having the second-largest population in the world (1.21 billion the working population are expected to fuel growth and
in 2011),3 it is a young nation with a median age of 26.2 years demand for goods and services in the future.

Figure 1: India economic indicators

Indicators
GDP1 (US$b) 1,540
GDP growth (% change from 2009)
4
8.3%
GDP per capita4 (US$) 3,400
Official language Hindi/English
Urbanization 4
30%
Literacy rate8
74%
Population3 (millions) 1,210
Median age (years)
4
26.2
Working population between 15—64 (% of population)
4
64%
Advertising expenditure to GDP ratio 9
0.40
TV households10 (% of total households) 57%
Internet users11 (% of total population) 7%
Broadband subscribers (% of total population)
12
1%
Mobile subsbcribers (% of total population)
12
62%

1
“State of the Economy and Prospects,” Economic Survey 2010-11, http://indiabudget.nic.in/, accessed 23 May 2011.
2
“World Economic Outlook Database,” International Monetary Fund, http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/index.aspx, accessed 23 May 2011. 3
“Census of India,” Website of Census of India, http://www.censusindia.gov.in/2011-prov-results/prov_results_paper1_india.html, accessed 23 May 2011.
4
“India,” CIA World Factbook website, https://www.cia.gov/library/publications/the-world-factbook/geos/in.html, accessed 24 May 2011.
5
What’s next for Indian media and entertainment, Ernst & Young, 2008.
6
“Vernacular content market in India,” Internet and Mobile Association of India (IAMAI), September 2010, via ISI Emerging Markets.
7
“India’s middle class population to rise, key driver for Asia’s rise by 2050,” The Times of India, 6 May 2011, via Dow Jones Factiva, © 2011, The Times of India Group. 8 RN
Bhaskar, “The unemployable literates of India,” DNA Sunday, 17 April 2011, via Dow Jones Factiva, © 2011, Diligent Media Corporation Ltd.
9
“AdStats: fact book on advertising expenditures,” J.P. Morgan, 1 September 2010, via Thomson Research.
10
“Update on Indian M&E industry,” CRISIL Research, December 2010.
“Interesting Facebook India Statistics,” Trak.in, 24 June 2011, via Dow Jones Factiva, © 2011 Trak.in.
11

12
“TRAI performance indicators: October to December 2010,” Telecom Regulatory Authority of India (TRAI) website, http://www.trai.gov.in/WriteReadData/trai/upload/
Reports/54/Indicator_Report_Dec-10.pdf, accessed 21 May 2011.


India’s entertainment economy:
trends, growth drivers and
challenges
The Indian M&E industry was valued at US$16.3 billion in 2010. The industry is forecast to grow
at a compound annual growth rate (CAGR) of 12% to reach a value of US$25.8 billion in the next
four years.

Figure 2
M&E industry revenue by segment (2010E to 2014E)
30
25.8
25 23.1
20.6
20 18.3 Other*
16.3 Music
15 Radio

Films
10
Publishing

5 Television

0
2010E 2011E 2012E 2013E 2014E

Source: “Update on Indian M&E industry,” CRISIL Research, December 2010
*Other include outdoor, internet and mobile advertising

India’s M&E industry is one of the fastest-developing in the country, driven by changing
consumption patterns, increasing middle-income households and the propensity of consumers to
spend on leisure and entertainment.

M&E companies in India are rapidly diversifying beyond their traditional domains to leverage
synergies and build a presence across multiple segments of the M&E industry.

Digitization of content and platforms, redefinition of prevalent business models, globalization
of the M&E industry, relatively easier access to capital and the emergence of multiple
entertainment options have been some of the key trends that are shaping the M&E industry
in India.


With a conducive regulatory environment
and high volumes of content consumption,
India holds significant potential for
foreign investments across all segments
of the M&E industry. Many global M&E
conglomerates have been present in
India for more than a decade, and others
continue to make forays.


Key trends and growth drivers
1. Increasing per capita consumption and media
Figure 4
penetration: India’s growing per capita consumption
and low media penetration are key drivers for the
M&E industry’s future growth. Increasing per capita
consumption, helped by a growing middle class, is driving a Content
rise in discretionary spends on leisure and entertainment.
A 2010 report by Ernst & Young indicates that between
2004 and 2008, Indian household income grew by
11% in the country’s 20 largest cities.13 This increase
Digital content
in consumption signals a potential for growth in media
consumption
penetration, also backed by India’s low advertising to GDP
ratio. Currently at 0.34% — half the world average of 0.75%
and lower than the US, UK and China — advertising spend is
poised to increase as the economy grows.

Figure 3
Advertising to GDP ratio 2. Wireless broadband content consumption: Indian M&E
1.2% companies have yet to face the “digital disruption” that
has substantially transformed the business models of
0.97%
1.0% their global counterparts. Internet penetration in India is
0.8% 0.64% currently 7%, very low compared with countries such as
0.6% 0.44% Brazil (31%), Russia (41%) and China (34%).14 However,
0.4% 0.34% the rapid convergence of networks, devices and content
0.2% — core elements of the digital entertainment process — will
0.0% dramatically alter the Indian M&E industry going forward
India North Western China (Figure 4). M&E companies in India are in a unique position
America Europe to learn from the experiences of their global peers and
to develop new digital business models as they seek to
Source: “India: Media — publishing and printing," J.P. Morgan, 28 January 2011
capitalize on growing digital media consumption.

13
The new market shehers: tapping potential beyond the metros, Ernst & Young, 2010.
14
“Internet penetration to reach double digit in 3 yrs,” DNA Money, 4 March 2011, via Dow Jones Factiva, © 2011 Diligent Media Corporation Ltd.; “China internet
users grow to 457m end-2010,” ET net news, 19 January 2011, via Dow Jones Factiva, © 2011 ET Net Limited; “Chile leads internet, cable penetration in LatAm,”
Telecompaper Americas, 9 December 2010, via Dow Jones Factiva, © 2010 Telecompaper; “Total number of Internet users in Russia up 22 % in 2010,” SKRIN Newswire, 10
May 2011, via Dow Jones Factiva.


a. Networks: India is likely to witness a “late surge” in b. Devices: Competition in the Indian smartphone
wireless-based broadband adoption and leapfrog market is drastically reducing handset prices
wireline broadband technologies, which were and increasing adoption rates. The cheapest
pivotal to the mass adoption of the internet in other smartphone has dropped to US$93 (as of early
countries. The reach of mobile phones in India is 2011) from US$267 in 2009.16 The increasing
enormous; there are currently more than 750 million adoption of smartphones allows users to consume
mobile phone subscribers. The recent launch of 3G content-rich digital content that was previously
allows Indian mobile phone subscribers to access unavailable on older devices.
broadband at substantially less cost and investment
c. Content: Despite current bandwidth constraints,
than fixed-line broadband. Moreover, the rollout of
the consumption of mobile content is prevalent in
mass-market 4G services (based on the Long-Term
India. A recent study revealed that 77% of Indian
Evolution Time Division Duplex standard) is expected
smartphone users have an average of 30 apps
by mid-201215 and will further increase the availability
on their phones.17 Mobile subscribers in India are
of wireless broadband services. It is estimated
also more likely to consume mobile video than
that there will be 166 million wireless broadband
their counterparts in North America and Europe.18
subscribers in India by 2015 — 8.1 times as many
Lower data subscription tariffs and increasing
wireline subscribers (Figure 5).
customer awareness are driving the market
for these mobile apps, with music and social
networking the most consumed.19
Figure 5
3. Regional markets: Consumption in India is dominated
Projected broadband subscribers (in millions)
by Tier 2 and Tier 3 towns, which account for 73% of
200 India’s urban consumption.20 Advertisers are shifting
spends to these regional towns to capitalize on
150 increasing consumer spending amid growing saturation
in the major metros (Delhi, Mumbai, Kolkata, Chennai,
100 166.1
128.5 Bangalore, Hyderabad). Between 1999 and 2009,

105.9 the share of English-language newspapers in print
50 73.4
7.8 36.7 advertising declined from 39% to 32% in favor of Hindi
0 9.4 11.3 13.3 15.8 18.4 20.5 and regional-language newspapers.21 A similar trend is
2010 2011F 2012F 2013F 2014F 2015F occurring in TV, where ad volumes on regional
channels have surpassed those on national channels.22
Wireline broadband Wireless broadband
The growing importance of regional media is leading
domestic and international M&E companies to invest in
Source: “Global broadband forecast,” Ovum Research, July 2010 these markets. Similarly, regional M&E companies are
looking to build scale and expand nationally.

15
“BWA, still a distant dream in India?,” CIOL, 29 April 2011, via Dow Jones Factiva, © 2011, Cybermedia. 16

“Smartphone market in India,” Netscribes (India) Pvt. Ltd. March 2011, via ISI Emerging Markets.
17
“Nokia reveals India’s app and music download trends from the Ovi Store,” Digit, 4 February 2011, via Dow Jones Factiva, © 2011, Nine Dot Nine Mediaworx Pvt. Ltd. 18 “How
people watch: a global Nielsen consumer report,” Nielsen website, http://www.nielsen.com/content/dam/corporate/us/en/reports-downloads/Global%20Video%20 Report
%20How%20People%20Watch.pdf, accessed 18 May 2011.
19
Nokia reveals India’s app and music download trends from the Ovi Store,” Digit, 4 February 2011, via Dow Jones Factiva, © 2011, Nine Dot Nine Mediaworx Pvt. Ltd. 20 The
new market shehers: tapping potential beyond the metros, Ernst & Young, 2010.
M&E newsreel, Ernst & Young, February 2011.
21

22
Sohini Mitter, “Regional media mkt sees resurgence as demand for local content grows,” Financial Express (India), 26 March 2011, via Dow Jones Factiva, ©
2011 Indian Express Pty Ltd.


4. Niche content: Changing lifestyle patterns and growing the Government of India, regulatory bodies and M&E
disposable income have spurred the demand for niche companies to introduce reforms that aid the development
content, supported by strong advertiser interest in of the Indian M&E industry and spur further growth in the
targeting wealthy and urban consumers. TV broadcasters sector. The Government has relaxed entry regulations and
have recently launched new niche channel genres such as restrictions governing foreign companies in India and has
home shopping, crime, science, travel and lifestyle, while raised foreign direct investment (FDI) limits in the radio,
newspapers have launched special interest supplements TV, direct-to-home (satellite TV) and cable segments.24
focused on luxury brands and youth. The Government is also encouraging digitization and
addressability in the television industry by making it
5. Digitization of distribution: The digitization of the
mandatory for cable TV operators to convert to digital
Indian M&E industry’s distribution channels is a key
addressable infrastructure by 31 March 2015,25 which is
growth driver, helping to increase industry revenues,
expected to drive significant growth in digital cable and DTH.
curb piracy and reduce costs. The Indian film industry is
Furthermore, the phase III auction of radio licenses is
implementing a large rollout of digital cinema, currently
expected to add approximately 700 radio stations in Tier 2
at more than 1,800 digital screens. This has reduced
and Tier 3 towns and metros26 and increase the long-term
piracy and substantially increased the scale and reach of
profitability of the radio industry.
theatrical releases across the country — a game-changing
phenomenon whereby 60% of box-office collections are 7. Focus on profitable growth: Indian M&E companies
realized in the first week of a movie’s release.23 The implemented a number of cost-reduction initiatives during
digitization of India’s analog-dominated TV distribution the economic slowdown in 2008-09. However, renewed
infrastructure is reducing the revenue leakages associated growth has increased competition and is putting further
with underreporting and is increasing broadcasters’ pressure on their margins. This is leading several M&E
subscription revenues. This is also expected to control companies to improve on the efficiencies achieved during
the high carriage fees currently paid by broadcasters for the slowdown by standardizing and centralizing repetitive
distribution on analog cable. processes, setting up shared services centers and adopting
technology to drive efficiencies. Indian print companies
6. Conducive regulatory environment and positive
have made initial progress in this area by outsourcing
policy changes: There is active cooperation between
printing facilities.

“The M&E industry in India has been, and will continue to be,
one of the biggest beneficiaries of India’s favorable demographics. Being
one of the youngest nations in the world, with high volumes of content
consumption, a vibrant indigenous content creation industry and a
favorable regulatory framework, makes India an attractive investment
destination for global M&E companies.”
Farokh T. Balsara, Media & Entertainment Leader,
Ernst & Young India

23
M&E newsreel, Ernst & Young, April 2011.
24
“India plans to raise FDI cap in DTH, IPTV, FM radio,” Telecompaper Asia, 25 May 2011, via Dow Jones Factiva, © 2011 Telecompaper. 25

“Regulatory push towards digitization,” IDFC Research, 7 February 2011, via Thomson Research.
26
M&E newsreel, Ernst & Young, September 2010.


Challenges
1. Low average revenues, although compensated by high
2. Piracy: The M&E industry has not been able to fully
volumes: The Indian average revenue per user (ARPU)
monetize its content due to rampant piracy. A 2008 report
is still low compared with global averages. The average
by Ernst & Young estimates industry losses due to piracy
ticket price for a movie in India is US$0.5.27 However, the
to be US$4 billion per year in India.28 However, in recent
large and growing volumes make up for it. Sheer volumes
years the industry has started to adopt cost-effective
make India a lucrative destination in the global arena. With
technologies to curb piracy.
increased corporatization and value creation, the ARPU is
set to increase.

27
“India dominates world of films,” 29 July 2009, The Economic Times, via Dow Jones Factiva, © 2009 The Times of India Group. 28

The effects of counterfeiting and piracy on India’s entertainment industry, Ernst & Young, 2008.


Sectors and growth opportunities

Broadcasting and cable television
Broadcasting and cable TV industry revenue for 2010 was
estimated at US$7.2 billion, up 13.3% from the previous Television broadcasting
year, mainly driven by a 19% growth in advertising revenue.29 Television, which reaches 133 million, or 60%, of households
The industry is projected to grow at a CAGR of 12% to reach in the country, represents an integral part of the Indian
US$11.4 billion by 2014.30 The continued digitization of M&E industry.31 The medium is also popular for advertisers,
distribution infrastructure, the demand for regional and niche representing 44.5% of the overall Indian advertising market
content, and low TV penetration will drive growth in this share.32 The TV broadcasting industry is dominated by
segment. Hindi and regional general entertainment channels (GECs),
which collectively account for 52% of total viewership.33
Figure 6 International broadcasters have long been present in this
Television industry size segment, spurred by conducive regulatory norms that allow
100% FDI in TV broadcasting (except for news broadcasting,
12.0 which is capped at 26%).
10.0 13.5% • Increase in number of channels: A number of new TV
channels continue to appear every year across genres
8.0 6.7 such as general entertainment, news and movies, as well
6.1 as niche genres such as lifestyle, kids and infotainment.
6.0 5.5
In 2010, 612 TV channels were on air, including 300

4.5 5.0 news channels.34 This growth in channels, mainly in the
4.0 11.9% 11.9%
12.1% GEC and news genres, and largely due to low barriers to
2.0 entry, is increasing audience fragmentation. The intense
4.0 4.7
2.7 3.0 3.5 competition among these channels is leading to
0.0 investments in differentiated content and diversification
2010E 2011E 2012E 2013E 2014E into niche and regional channels.

Advertising Subscripton
• Digitization driving growth in subscription revenues: Pay-
TV broadcasters are dependent on advertising revenue
(which generates 67% of their total revenues35), mainly
due to significant underreporting of subscribers by analog
local cable operators (LCOs). However, the digitization of
TV distribution infrastructure is increasing addressability
and plugging revenue leakage in the broadcasting value
chain. The growth of digital TV subscribers has also allowed
broadcasters to charge premium prices for new content
formats such as high definition (HD). As a result,
subscription revenues are expected to increase.36

29
30
31
32
“The idiot box becomes intelligent,” 1 February 2011, Pitch, via Dow Jones Factiva, © 2011 Adsert Web Solutions Pvt. Ltd. 33

“Hindi GECs inch ahead of southern counterparts,” Mint, 26 August 2009, via Dow Jones Factiva, © 2009 HT Media Limited. 34

“The decade in media,” Mint, 1 February 2011, via Dow Jones Factiva, © 2011 HT Media Limited.
35
“Indian TV to see moderate growth in 2009 says research organization,” BBC Monitoring Media, 22 April 2009, via Dow Jones Factiva, © 2009 The British Broadcasting
Corporation.
36
“India Entertainment & Media,” IDFC SSKI Research, February 2010, via Thomson Research.

Digitization is creating exciting
opportunities across the broadcasting
value chain and providing more choice
to consumers. DTH and cable operators
are expanding aggressively and focusing
on premium services. Broadcasters
are leveraging the lower cost of digital
delivery to expand by focusing on
regional and niche content.


• Broadcasting alliances: Fragmented analog cable operators
dominate the Indian TV distribution industry. The bandwidth
constraints of analog cable drive these operators to limit
the number of channels on a frequency band and to charge
carriage fees to broadcasters to increase the placement
of their channels. Broadcasters have formed distribution
alliances to strengthen their ability to negotiate with
distributors, control their carriage fees and minimize losses
in subscription revenues due to underreporting.
• Focus on regional content: Consumption growth in Tier 2
and Tier 3 towns is driving advertiser interest in regional
broadcast markets. A large local player typically dominates
these markets, with a strong focus on relevant regional
content. Regional broadcasters have recently increased
their presence in niche genres such as music, youth and
comedy in local languages. National broadcasters are
actively looking to build a presence in regional markets by
acquiring or partnering with local broadcasters.
• Launch of niche channels: International and domestic
broadcasters have launched niche channels in India.
Changing lifestyle patterns and increasing disposable
income have spurred the demand for niche content, which
commands premium ad rates and reaches a focused target
audience. Niche channel genres such as soccer, children’s
channels and lifestyle are underdeveloped in India relative
to mature markets such as the US and the UK.37

37
“Going niche is the future for Indian television,” Reuters News, 20 October 2010, via Dow Jones Factiva, © 2010 Reuters Limited.


Television distribution
India is the second-largest pay-TV market in the world, with 108
• DTH leads digital distribution: DTH accounts for 82%
million subscribers and a reach of 48% of Indian households.38
of all digital TV subscribers in India.41 DTH players are
The TV distribution industry is dominated by analog cable,
aggressively expanding into cable-dark rural areas and
which is highly fragmented and includes about 60,000 LCOs
areas served exclusively by analog operators. However,
and 1,000 multi-system operators (MSOs).39 However, fierce
intense competition among DTH operators is affecting
competition among DTH operators and a recent Government
the profitability of the segment, with earnings before
policy mandating the digitization of cable TV is driving the
interest, taxes, depreciation and amortization (EBITDA)
growth of digital TV.
margins of 20-25% as compared to 30-40% in other
• Digitization of the last mile: The Government’s mandate
emerging markets.42 The segment is likely to raise ARPUs
for a compulsory nationwide shift to a digital infrastructure
by focusing on premium services and may partner with
by March 2015 is leading to aggressive expansion by digital
telecom operators to offer triple-play services to compete
cable and DTH operators. The number of digital pay-TV
with digital cable. The government has recently increased
homes is projected to more than double from 32 million
FDI limits in the DTH segment to 74% to spur investments in
in 2010 to 69 million in 2014.40 Rising digitization is likely
product innovation and subscriber acquisition.
to plug revenue leakage prevalent in analog distribution
infrastructure. Analog cable operators, who face high churn • IPTV is a niche segment: Internet protocol television
rates because of competition from DTH, are expected to (IPTV) has been recently introduced in India. However,
compete more effectively once digitization takes place by low broadband penetration (currently 1%43) is limiting the
offering HD, video-on-demand (VoD), interactive services uptake of IPTV services to niche and wealthy consumers
and location-based advertising. who can afford the high broadband speeds required. The
introduction of 4G services may eventually drive increased
• Consolidation in the cable industry: Cable operators
adoption of IPTV.
need to make significant investments in digitizing their
distribution infrastructure to meet the Government deadline • Low but growing ARPUs: India’s pay-TV ARPU is one of the
for mandatory digitization. This is driving a number of cable lowest globally at US$3.6, compared to US$70 in the US and
operators to raise funds and to consolidate. US$80 in the UK.44 Intense competition in the digital cable and
DTH segments, fragmentation and underreporting in the analog
segment, and a price-sensitive market have constricted ARPUs.
However, ARPUs are expected to grow, stimulated by the
consolidation of analog TV operators and the growth of
premium digital TV services.45

38
”TV distribution: carpe diem,” IDFC Research, June 2010, via Thomson Research.
39
40
41
Update on Indian M&E industry,” CRISIL Research, December 2010.
42
Ashish Sinha, “India to host largest number of DTH viewers by 2012,” Indian Express, 19 May 2011, via Dow Jones Factiva, © 2011 The Indian Express Limited. 43

“Global broadband forecasts,” Ovum Research, July 2010.
44
45
“India Media: Pay TV Market: Consumer Preferences Indicate a Leg Up in Digitization,” Morgan Stanley, 30 November 2010, via Thomson Research.


The impact of digital media on...
...broadcasting and cable television
Broadcasters are using digital media to foster
greater engagement with young audiences who are Government has also announced plans to allocate a
increasingly online and multitasking while watching dedicated spectrum for mobile TV broadcast services
TV.46 Young audiences are increasingly looking for an on the Digital Video Broadcasting-Handheld (DVB-H)
online experience that complements traditional TV platform.50 This will allow digital TV broadcast signals
programming, including exclusive video and gaming to be beamed directly to DVB-H enabled mobile
content and social media that they can consume at phones, and is expected to improve video quality and
their convenience. Approximately 40% of active Indian drive further growth of the medium in India.51
internet users consume TV content online, although that • TV content portals: Broadcasters expect increased
content is mostly limited to short highlights of shows. broadband adoption and the introduction of 4G
Going forward, increased bandwidth availability will allow to spur the demand for TV content portals and
broadcasters and distributors to deliver full-length catch- streaming content online. Broadcasters are planning
up TV and leverage the interactivity of the online medium destination site for users, with multiple content and
to create greater engagement with audiences. services and multiple revenue streams. Broadcasters
• Digital is enabling “virtual” audience participation: may also partner to aggregate popular shows and
Broadcasters are using text messages and interactive channels and invest in services that allow catch-up
voice response (IVR) on mobile phones to increase TV, while sharing revenue, risks and costs.
engagement with audiences during game and reality • Wireless broadband is expected to drive the reach
TV shows. Around 45 million urban Indians send text of digital TV: Mandatory digitization and fierce
messages during reality TV shows, which are charged competition has increased pressure on DTH and
at premium rates, in turn generating the majority of digital cable operators to roll out premium services,
broadcasters’ digital revenue.47 Broadcasters have including HD, 3D and triple-play. The introduction of
also launched online versions of reality TV shows 4G is expected to drive further product innovation
targeted at young audiences, some of which allow and hasten the introduction of VoD, peer-to-peer
users to participate in the televised show. gaming and content portability. This may also allow
• Mobile TV adoption is expected to grow: The use digital cable operators to bridge the last mile through
of streamed mobile TV services is increasingly partnerships with 4G providers to enable the delivery
popular among Indian audiences, with the recent of video, voice and data services to cable-dark areas.
Cricket World Cup and the Indian Premier League Broadband availability could also kick-start the growth
driving uptake.48 Indians are 64% more likely to of IPTV and web TV, which have faced limited uptake
consume mobile TV than the global average.49 The due to bandwidth constraints.

46
“11 for 2011,” Financial Express (India), 28 December 2010, via Dow Jones Factiva, © 2010 Indian Express Pty. Ltd.; “What do young people want,” Impact, 22 May 2011,
via Dow Jones Factiva, © 2011 Adsert Web Solutions Pvt. Ltd.
47
“The Missed Call Platform,” Pluggd.in (India), 13 March 2010, via Dow Jones Factiva, © 2010 HT Media Limited.
48
“Apalya bags global rights for mobile video streaming of IPL for 2011 and 2012,” Alootechie, 10 May 2011, via Dow Jones Factiva, © 2011. Alootechie; “FM to TV,
cricket marks another generational change in phones,” Indo-Asian News Service, 3 April 2011, via Dow Jones Factiva, © 2011 Indo-Asian News Service.
49
“How people watch: a global Nielsen consumer report,” Nielsen website, http://www.nielsen.com/content/dam/corporate/us/en/reports-downloads/Global%20Video%20 Report
%20How%20People%20Watch.pdf, accessed 18 May 2011.
50
“DD plans mobile TV with private sector,” Indian Business Insight, 18 August 2009, via Dow Jones Facitva, © 2009, Informatics (India) Ltd. 51

The M&E Quarterly, Ernst & Young, July-September 2010.


While in a number of international markets
the newspaper industry is facing declining
readership because of digital media, the
print industry in India is thriving, driven
by an increase in consumer spending,
a rise in literacy rates and the growth
of regional-language and specialty
newspapers.


Publishing
Indian publishing industry revenue for 2010 was estimated at
US$4.7 billion and is projected to grow at a CAGR of 11% to Newspapers
reach US$7.1 billion by 2014.52 A low readership penetration of While in a number of international markets the newspaper
30%53 compared with a literacy rate of 74% underscores the industry is facing declining readership because of digital media,
potential for further growth for publishing in India. the print industry in India continues to grow, driven by an
increase in advertising spend, a rise in literacy rates and the
growth of regional-language and specialty newspapers. The
Figure 7
Indian newspaper industry is one of the largest in the world,
Publishing industry size
with more than 74,000 newspapers in 22 languages and a
8.0 12.7% readership of 325 million.54 Newspapers are very popular with

7.0 10.7% advertisers in India, accounting for 42% of all advertising spend,
6.0 12.4% 9.2% the most for any medium.55
1.6
5.0 • Diversification beyond print: Growth aspirations fueled by
1.3 1.4
4.0 0.9
1.1 capital availability have led publishers to enter into other
media and forge partnerships with TV channels. Newspaper
3.0 companies are entering into other businesses such as
2.0 3.8 4.6 5.0 5.5 internet, TV, education, events and experiential marketing,
4.1 radio and out-of-home advertising.
1.0
0.0 • Growing Hindi and regional print markets: The Indian
2010E print industry has witnessed a continued shift toward
2011E 2012E 2013E 2014E
regional and Hindi markets due to rising literacy rates and
Newspapers Magazines increasing disposable incomes in non-metros, as well as
advertiser interest in targeting these segments. Between
1999 and 2009, the share of English-language newspapers
in print advertising declined from 39% to 32%.56 The Hindi
and regional markets are expected to grow faster than
the English-language market, with the combined share of
the Hindi and regional markets estimated to be 44% by
2015.57 Print players are also launching hyper-local editions
dedicated to particular areas, communities or sections of
society to increase their reach in regional markets.58

52
53

M&E newsreel, Ernst & Young, February 2011; “More than 74,000 newspapers are registered in India,” The Pak Banker Daily, 29 July 2009, via Dow Jones Factiva, © 2009,
54

Right Vision Communications Private Limited.
55
”Global advertising forecasts,” GroupM, Autumn 2010.
56
“Jagran Prakashan,” Deutsche Bank, 3 December 2010, via Thomson Research.
“DB Corp. Ltd.,” J.P. Morgan, 28 January 2011, via Thomson Research; “Jagran Prakashan,” Deutsche Bank, 3 December 2010, via Thomson Research.
57 58



• Low cover prices: Indian newspapers have extremely Magazines
low cover prices, with leading dailies being sold at less
than US$0.10, and typically packaged with a second free Magazines comprise around 19% of the total publishing industry in
newspaper. Subscription revenues remain negligible for India. They are viewed as a luxury product, and rely heavily on
most newspapers, with distribution costs recovered through newsstand sales rather than subscription sales.
advertising sales. • Growth of specialty magazines: India’s economic growth
• India is becoming a popular destination for media services has created a demand for content, covering niche segments
outsourcing: Globally, media companies are outsourcing such as travel, health care, finance and lifestyle.62 Niche
print media services such as layout design, classified and magazines are underpenetrated in India, with about 3 to 4
display design, graphics and data compilation to India, magazine titles for each niche category versus 7 to 10 titles
seeking to take advantage of low costs and a qualified globally.63 This has led to 278 niche magazine launches in India
English-speaking talent pool.59 between 2005 and 2010.64 A number of niche
magazines have increased their cover prices from about
• Newsprint and distribution costs: The print industry’s
US$0.50 a few years ago to US$2 today.
key areas of concern remain the costs of newsprint and
distribution. Newsprint, which forms the largest element of • Increase in foreign investments: Foreign magazine
cost, fluctuates significantly based on several uncontrollable publishers are actively entering the growing Indian
factors. Distribution cost is linked to petroleum prices and magazine market, spurred by the relaxed entry norms
labor costs, both of which have seen significant increases over for international print companies that the Government
the last few years. implemented in 2008. Foreign players can form a
partnership with an Indian publisher to print the Indian
• Streamlined operations have improved profitability:
edition of a magazine with up to 100% foreign content. This is
Newspapers have streamlined their operations by
likely to provide Indian readers with foreign magazines at
outsourcing non-core functions (including printing),
affordable rates.65 Between 2008 and 2009, 189
reducing editorial and marketing costs and increasing
Indian editions of foreign specialty, technical and scientific
automation.60 These initiatives and a rise in advertising
magazines received Government approval.66
volumes are leading to increased EBITDA margins for
English and Hindi newspapers, projected to rise from around • Need for effective distribution: The absence of a cost-
16% in 2010 to more than 20% by 2013.61 effective and secure distribution network results in few readers
opting for subscriptions, and hence, more than 80% of sales
are through newsstands. This results in uncertain revenues for
publishers. The lack of adequate sales outlets is also
hampering the spread of distribution.

“Publishing: India remains top outsourcing destination,” Business Standard, 27 January 2010, via Dow Jones Factiva, © 2011 Business Standard Ltd.
59 60

61
Media industry update, CRISIL Research, December 2010.
62
The Indian magazine segment — navigating new growth avenues, Ernst & Young, September 2010.
63
64
65
Sruthijith K.K, “Govt gives green signal to editions of foreign news magazines,” Livemint, 19 September 2008, via Dow Jones Factiva, © 2008 HT Media Ltd. 66



...publishing
Online news consumption in India is growing, up 37%
year-over-year to 15.8 million unique users in 2009.67 spend, Indian publishers have launched internet
However, in contrast to other countries where digital portals in categories such as jobs, dating, education
consumption has led to falling traditional readership, print and real estate.70 Publishers have also launched
circulation in India is seeing strong growth. Publishers e-commerce and group buying sites that allow them
expect that traditional print will continue to dominate in to leverage their large readership and network of
India, backed by strong consumer preferences and the advertisers.
continuing penetration of the medium in smaller towns. • Online news editions are likely to remain ad-
Indian publishers also cite the examples of Japan and supported: The top 20 Indian newspapers by
South Korea, where consumption preferences remain readership have all launched ad-supported online
aligned with the traditional medium, despite high rates of editions. These online editions are likely to remain ad-
internet adoption.68 Although Indian publishers remain supported, as Indian customers are accustomed to
focused on circulation, they are launching internet consuming print at a very low cost.
portals and e-commerce solutions to supplement the • Personalized news and opinion: There is evidence
traditional medium with online offerings. that Indian consumers are increasingly using the
• Internet portals and e-commerce dominate internet to consume opinion. For example, a recent
publishers’ digital revenues: Online classifieds is survey revealed that most Indian Twitter users
the largest category of online advertising in India, access the service to follow news.71 New online
estimated at US$200 million in 2010 and expected news portals have been launched with opinions and
to grow at more than 30% annually.69 The cost of blogs from well-known journalists, which allow users to
classifieds is substantially cheaper online than in print post their views and interact with contributors. There is
and provides advertisers and users with search and a growing opportunity for newspapers to leverage their
interactive features not possible in the traditional brands and editorial resources to
medium. To capitalize on growing online classified create engaging “opinion-based” online editions
that attract online audiences.

67
“Economictimes.com top financial & business news website,” Economic Times, 24 February 2011, via Dow Jones Factiva, © 2011 The Times of India Group. 68

“World press trends — 2010,” World Association of Newspapers and News Publishers, 2010.
69
“Indian internet has finally arrived!.” Caris & Company, 16 September 2010, via Thomson Research.
70
Vanita Kohli Khandekar, “Big Media Goes Online,” Businessworld website, http://www.businessworld.in/index.php/Big-Media-Goes-Online.html, accessed 21 May 2011;
“Don’t believe apps will replace publishing business,” Mint, 3 March 2011, via Dow Jones Factiva, © 2011 HT Media Limited.
71
“Majority of Indians use Twitter for news,” The Times of India, 6 November 2009, via Dow Jones Factiva, © 2009, The Times of India Group.


Films
The Indian film industry is the largest in the world, with
The Indian film industry is projected to grow from US$3.2
more than 1,000 films produced every year in more than 20
billion in 2010 to US$5 billion by 2014 at a CAGR of 14.1%.74
languages. With 3.3 billion tickets sold annually, India also has
Growth is expected to come from the expansion of multiplexes
the highest number of theater admissions.72 The Indian film
in smaller cities, investments by foreign studios in domestic and
market derives almost 90% of its revenue from non-English
regional productions, the growing popularity of niche movies
language movies,73 largely dominated by Hindi films, followed
and the emergence of digital and ancillary revenue streams.
by South Indian films and other regional films.

Figure 8
Figure 9
AfaYf Õde afmkljq j]n]fm]
J]n]fm] Zj]Ycgof g^ AfaYf Õde afmkljq
6.0
Cable and satellite/

Ad revenue
5.0 13.4% 13.0% ancillary rights 2%
12.1% 6%
Home video
4.0
10.3% 8%
3.0

4.5 5.0 Domestic
2.0
3.6 4.0 Zgp g^Õ[]
3.2 Overseas
1.0 Zgp g^Õ[] 75%
9%
0.0
2010E 2011E 2012E 2013E 2014E

Source: “Update on Indian M&E industry,” CRISIL Research, December 2010 Source: “Update on Indian M&E industry,” CRISIL Research, December 2010

72
Tune in to emerging entertainment markets: spotlight on BRIC, Ernst & Young, March 2010.
73
“Once upon a time in the east,” The Economist, via Dow Jones Factiva, © 2011 The Economist Newspapers Limited, London.
74


• Rise of multiplexes: Multiplexes continue to gain • Small-budget films go mainstream: Small-budget niche
prominence across major Indian cities, and companies have films with high-quality scripts have recently gained
lined up investments to accelerate multiplex penetration in acceptability among mainstream audiences. Strong content
smaller towns.75 The number of multiplex screens is and word-of-mouth marketing have helped studios to
expected to double in the next five years, from 900 to generate high returns from these films, thereby diversifying
1,775 screens.76 their risk from big-budget movies.
• Digitization is providing scale and reducing piracy: Digital • Outsourcing of film services: Services such as
prints cost 80% less than conventional film prints, allowing postproduction, animation, visual effects, and 2D to 3D
producers to reach five times the number of screens at conversion are being increasingly outsourced to India,
the same cost. This has significantly improved realization, driven by the availability of a skilled workforce and the low
as 60% of box-office collections are now earned within cost of services.
the first week of a movie’s release.77 Digital cinema allows • Globalization of the Indian film industry: Indian producers
companies to control exactly where movies are showing are improving the international marketability of large-
and how many times they are shown. It also expands the budget Indian movies by building partnerships with
reach of releases, from large cities to remote towns and international screenwriters, composers and technicians.
villages across India.78 International film studios are also producing and distributing
• Emergence of new sources of revenue: In the last few Hindi and regional movies. Of the top six international movie
years, the window available to monetize a film’s revenues studios, four are involved in distributing or producing Indian
at the box office has shortened considerably. This is driving movies. A number of Indian film studios and M&E companies
film studios to exploit ancillary streams of revenue such are also expanding their international footprint by acquiring
as pay-per-view, mobile, online gaming, and licensing and international theater chains and production studios.
merchandising. The revenue from these ancillary streams • Organized film financing and incentives: Film financing
and cable and satellite (C&S) rights are projected to grow in India, which was traditionally dominated by informal
at a CAGR of 16% from 2009 to 2014.79 The pre-sale of sources, is migrating toward organized sources such as
satellite and home video rights has also gained momentum. banks and film funds. Film producers are also tapping other
• Regional-language cinema forms an integral part of means of finance, including incentives, in-film branding and pre-
India’s film industry: 60% of all movies produced in India sale bridge finance. India has co-production agreements with
are in the four South Indian languages of Telugu, Tamil, various countries such as the UK, Germany, Italy and Brazil,
Kannada and Malayalam.80 This market is witnessing rising and a protocol with France. The rebates and grants offered by
investments from Indian and foreign studios, with a gradual these agreements can directly fund films on
shift in favor of regional films as compared to Hindi films. the basis of the locations in which they are shot, while tax
Studios are also releasing dubbed versions of popular credits are allowed postproduction.
Hollywood films, while multiplexes are increasing their
screenings of regional movies.

75
“Multiplexes revive plans to expand into smaller towns,” Mint, 23 November 2010, via Dow Jones Factiva, © 2010 HT Media Limited. 76

77
M&E newsreel, Ernst & Young, April 2011.
78
79
80


...films
Indian film companies are using digital media to generate
new ancillary revenues and to promote films through • Licensing content for games and mobile apps:
direct-to-consumer engagement. Indian audiences are Consumption of film-related mobile content, such as
actively consuming digital film content; film-related songs, games and mobile themes, accounts for 50%
songs, games, and mobile themes account for 50% of of overall VAS revenues in India.83 Initial experiments
Indian mobile value-added service (VAS) revenues.81 with “pre-loading” exclusive feature-length movies
Going forward, studios will integrate digital media onto mobile phones have proved unpopular with
more effectively, including social networks, games, and Indian customers,84 indicating an affinity to consume
exclusive video and music content, to engage audiences, long-form film content on larger screens. Instead,
promote theatrical releases and develop new revenue studios are focusing on bandwidth-light games and
streams. Increased bandwidth availability will also open apps that engage consumers and create “stickiness”
new revenue streams for studios to exploit bandwidth- for their films.
heavy content, including feature-length films and online • Using social media to market movies: Indian studios
multiplayer gaming. are realizing the importance of direct-to-consumer
• Innovations in theatrical 3D content: Recent releases engagement through social media to generate
of Hollywood movies in 3D have generated higher positive word of mouth during the release of a
returns for studios by allowing theaters to charge a film. Some are charging customers to participate
premium to audiences and maintaining exclusivity to in exclusive online chats between lead actors and
technology-enabled theaters. Domestic studios are audiences prior to a release.85 Studios are also
investing in 3D for local films to improve profit and trying to mitigate the spread of negative reviews
reduce the impact of piracy. of films (a significant risk given shorter theatrical
release windows) and can adopt practices from
• Studios experimenting with new release windows:
their global counterparts, using social networks to
Studios are releasing films in different media in
gather feedback at different stages of a movie — from
distinct windows and charging differentiated prices
development through release.
to consumers. Films are now available for home
theatrical screening the day of theatrical release, • Web-based home entertainment: The Indian home
and beamed directly to homes by digital cinema. entertainment market represents just 8% of film
Customers pay a onetime membership fee to join industry revenues due to relative high pricing and
this exclusive service and are also charged between piracy.86 As a result, film studios are unable to fully
US$444 to US$1,560 on a per-screening basis.82 exploit their large libraries of content. However,
Studios are also making films available on pay-per- studios expect the introduction of 4G and mass
view, with DTH, digital cable and IPTV distributors broadband availability to open a new market for home
offering movies at prices as low as US$0.55 per entertainment through the online delivery of movies
screening supported with advertising. over internet-connected TVs, PCs and tablets. As
broadband penetration increases, there is a growing
need to develop effective distribution models and for
studios in India to invest in digitizing and meta-tagging
content for digital delivery.

81
“Mobile VAS in India,” IAMAI, July 2010, via ISI Emerging Markets.
82
Deepak Ajwani, “Your Movie, Your Show,” Moneycontrol website, http://www.moneycontrol.com/news/features/your-movie-your-show_540394.html,
accessed 31 May 2011.
83
“Mobile VAS in India,” IAMAI, July 2010, via ISI Emerging Markets.
84
Kushan Mitra, “Mobile Navigator,” Business Today, 16 December 2007, via Dow Jones Factiva, © 2007 Living Media India Ltd.; Ernst & Young research. 85
“Chat-bug bytes Aamir Khan,” The Times of India, 9 June 2001, via Dow Jones Factiva, © 2001 The Times of India Group.
86


Radio and music
The radio and music industries contribute just 2.4% of the total
Indian M&E industry revenues.87 Both segments, however, Radio
provide highly popular forms of entertainment; FM radio In India, the Government-controlled All India Radio (AIR),
reaches 30% of Indians, while Indian youth are the second- together with 36 private radio companies that operate nearly
largest audience for paid digital music globally.88 Combined, the 246 FM radio stations, cater to the radio segment.90 Following
radio and music industries were expected to generate US$445 the opening of the sector to private players in March 2000, the
million in 2010 and are projected to grow at a CAGR of 17.3% to completion of the second round of radio license auctions
reach US$844 million by 2014.89
(phase II) in 2005 provided a further thrust to the sector.
• Increase in radio advertising: Advertising volumes for radio
Figure 10 in the top four Indian metros increased 39% year-over-year
Radio and music industry revenue in 2010,91 driven by on-ground activation campaigns for
advertisers. The lack of an effective audience measurement
900 10.2%
mechanism and the need to create greater value for their
800 advertisers has led Indian radio companies to develop
700 9.8% 10.0% 222 integrated marketing solutions, including out-of-home

600 222 advertising, events and activations. The increased reach
500 200 of radio audience measurement (currently in the top four
metros but expected to expand to nine additional cities) will
400 178
156 9.0% increase advertisers’ willingness to use the medium.
300
556 622 • Growth impetus through phase III FM radio licensing
200 policy: The yet-to-be-announced phase III FM radio licensing
356 444
100 289 policy is likely to give further impetus to the FM radio
0 industry and open up the sector to licenses for almost 700
2010E 2011E 2012E 2013E 2014E new stations across 220 towns.92 The policy may also allow
multiple licenses in a city to a single player and allow radio
Radio Music companies to share back-end infrastructure.


87
88
M&E newsreel, Ernst & Young, July 2010; “Indian youth keen on paid music downloads Music Matters survey,” Radio & Music, 27 August 2009, via Dow Jones Factiva, © 2009
Radioandmusic.com.
89
90
“The Indian telecom services performance indicators,” TRAI website, http://www.trai.gov.in/WriteReadData/trai/upload/Reports/54/Indicator_Report_Dec-10.pdf,
accessed 1 June 2011.
91
“Media sector update,” Centrum Broking, 30 March 2011, via Thomson Research.
92
Tune in to emerging entertainment markets — spotlight on BRIC, Ernst & Young, March 2010.


• Reduced royalty costs will encourage scale: Previously,
radio networks were required to pay a “needle hour” royalty
to music companies of US$14.7 per hour of music played.
The cost of these royalties amounted to 10%-50% of a
radio station’s annual revenues.93 A recent order by the
Indian Copyright Board has fixed royalties to 2% at radio
stations’ net revenues, which will help make smaller stations
commercially viable.94

Music
• Film music dominates the music industry: Film music,
including Bollywood and regional film music, accounts for
67% of music sales in India.95 Film producers typically create
an album for a film and license the exploitation rights to
a music company.96 The acquisition costs for these music
rights can be prohibitive and are typically 25% to 30% of
a film’s total cost.97 Music companies bear the entire risk
for an album’s success, which is closely linked to the film’s
success. Because of the dominance of film music, the Indian
music industry is less focused on developing stand-alone
artists than in other countries.98
• Music companies are diversifying: Music companies have
diversified into film production, edu-tainment content for
children and non-film music.99 They are also entering into
artist management to increase non-film music revenues100
and are exploring the concert promotion business to meet a
growing demand for live entertainment.101

93
94
“SC vacates stay on Copyright Board Music Royalty order; sends matter back to Madras HC,” Radio & Music, 5 April 2011, via Dow Jones Factiva, © 2011
Radioandmusic.com.
95
“Bhushan Kumar: TV, Radio networks are our partners in spirit,” Radio & Music, 7 March 2011, via Dow Jones Factiva, © 2011 Radioandmusic.com.
96 97

M&E newsreel, Ernst & Young, July 2010.
98
“A&R: industry’s unsung catalysts,” Radio & Music, 7 March 2011, via Dow Jones Factiva, © 2011 Radioandmusic.com; M&E newsreel, Ernst & Young, July 2010. 99
100
101 “White Spirits Market in India 2010,” Marketresearch.com, 30 August 2010, via Dow Jones Factiva, © 2010, Marketresearch.com; “Out with frustration, bring in the

funny,” DNA, 14 May 2011, © 2011 Diligent Media Corporation Ltd.; A&R: industry’s unsung catalysts,” Radio & Music, 7 March 2011, via Dow Jones Factiva, © 2011
Radioandmusic.com; “M&E newsreel,” Ernst & Young, July 2010.


...radio and music
India’s large mobile phone subscriber base and active
mobile content consumption are providing exciting • Digital dominates music industry revenues: Digital
opportunities for radio and music companies to extend music contributes more than half of Indian music
their reach. Indian radio companies already derive 30% industry sales105 with ringtones and caller ring back
of their listenership from mobile phone users102, and tones (CRBT) on mobile phones, garnering about 75%
digital mobile music sales dominate Indian music industry of these revenues.106 Music companies, however, do
revenues — contributing to about 50%103 of total sales. not maintain a direct relationship with customers,
However, in the current mobile entertainment ecosystem, as telecom operators control the point of sale and
telecom operators own the relationship with the end dictate pricing and revenue sharing. Revenue sharing
customer, leaving radio and music companies with little norms for mobile VAS in India are typically 30:70
control over pricing of digital products and services. in favor of telecom operators — a strong contrast to
Increased bandwidth availability and smartphone global norms, where content providers typically have
adoption will allow radio and music companies to a majority share.107
establish a direct-to-consumer model for mobile content • Opportunities for direct-to-consumer mobile
delivery based on music streaming services over data streaming services: Increased wireless broadband
networks. and smartphone adoption is allowing radio and music
• Radio networks are using digital to extend reach: companies to develop mass market music streaming
Indian FM radio companies are leveraging the reach services on mobile devices. Radio and music
of mobile devices to target listeners in metros and companies can stream content directly to consumers on
Tier 2 and Tier 3 towns with live radio feeds from 3G (and eventually 4G) networks through mobile apps.
stations across their national networks.104 Listeners Music companies are exploring subscription, advertising
access radio feeds through a dedicated interactive and hybrid-based services that will allow users to
voice response (IVR) provided by their mobile service stream, search, share and recommend
provider and use voice commands to select any content from their extensive libraries.
station from the company’s broadcast network. Radio
networks share in the subscription income generated
by telecom operators for these services.

102 “Radio City is using digital for distribution: Apurva Purohit,” Exchange4media.com, 5 May 2011, via Dow Jones Factiva, © 2011 Adsert Web Solutions Pvt. Ltd.;
“Users dump CDs, move to digital music, Business Standard, 23 April 2011, via Dow Jones Factiva, © 2011, Business Standard Ltd.
103
“The Asian Pay TV surge,” Business Standard, 8 November 2010, via Dow Jones Factiva, © 2011 Adsert Web Solutions Pvt. Ltd.
104
105
“The Asian Pay TV surge,” Business Standard, 8 November 2010, via Dow Jones Factiva, © 2011 Adsert Web Solutions Pvt. Ltd. 106
“DIGITAL: The rest of the world,” Music Week, 9 April 2011, via Dow Jones Factiva, © 2011 CMP Information Limited.
107
“OnMobile Global,” Morgan Stanley, 9 June 2010, via Thomson Research.


Sports
Cricket is the most popular spectator sport in India, and follows
Figure 11
movies as the second-biggest form of entertainment. The
recently formed Indian Premier League (IPL) is already one of Revenue distribution of IPL teams, 2011
the most valuable sporting brands in the world, currently valued 6% 3% 1%
at US$3.7 billion.108 Interest in other sports has increased since
India hosted the 2010 Commonwealth Games,109 challenging 15%
the notion that it is a single-sport country.110 This momentum, 38%
combined with a young population and a rising propensity to
spend on leisure, presents the sports industry with a number of
growth opportunities.
• IPL sets the benchmark for Indian sports franchises: The
15%
IPL is the largest commercial sports franchise in India. The
league generates revenue from broadcasting, sponsorships,
licensing and merchandising and ticketing. This revenue is
shared with teams, which earn additional revenue from their 22%
own sponsorships, prize money and player trading. The
IPL uses a shortened, innovative game format to increase Central broadcasting Team sponsorship
entertainment for audiences, which is also well suited for TV Central sponsorship Gate receipts
consumption. The league has also monetized other media In-stadium advertising Merchandise sales
through the sale of rights for mobile TV, online streaming Prize money
and video, gaming and theatrical exhibition.

Source: “India - Media,” IIFL Research, 3 May 2011, via Thomson Research

108“IPLs value down 11 to 3.67 bn as honeymoon period is over BrandFinance,” Indiantelevision, 11 April 2011, via Dow Jones Factiva, © 2011 Indiantelevision.com.
109“Medal tally,” XIX Commonwealth Games website, http://www.cwgdelhi2010.org/medal-tally, accessed 22 May 2011.
110“Indian Businesses See Openings Beyond Cricket, Business World website, http://www.businessworld.in/bw/2010_05_25_Indian_Businesses_See_Openings_Beyond_
Cricket.html, accessed 26 May 2010.


• A growing interest in other sports: Sports other than management companies and associations to develop other
cricket continue to grow in popularity, including field sports such as basketball, boxing, soccer, golf and tennis.
hockey, soccer, wrestling and tennis. The 2010 Hockey The companies have announced long-term contracts
World Cup, held in India, recorded strong viewership of 53 with sports bodies to nurture talent and develop a
million, up from 39 million in the 2006 edition.111 Recent comprehensive commercial model of professional leagues
performances by Indian athletes at various international and franchises. The Basketball Federation of India recently
sporting events, including the 2008 Beijing Summer signed a 30-year contract with a sports management
Olympics, the 2010 Commonwealth Games and the company to commercialize basketball in India.
Badminton World Ferderation Super Series, have also built • The sports industry is spurring the growth of ancillary
a following for non-cricket sports personalities. In addition, businesses: Businesses such as online ticketing and sports
foreign sporting events continue to make gains. For management, which act as enablers to the monetization
example, viewership of the English Premier League (EPL) of sports, have recently grown. Sports management
has risen 18%, from 32.6 million in 2008 to 38.5 million companies are beginning to invest in developing talent and
in 2009.112 This has led European soccer clubs to increase infrastructure to create marketable sports personalities.
their presence in India through licensing and partnerships, There is also a growing opportunity for facilities
with some clubs introducing their own coffee chains and management companies to invest, operate and monetize
theme shops.113 stadium infrastructure in India. Of the 770 million people
• Investments in sports development: In the last year, below the age of 35 in India, only 50 million have access to
large private groups announced partnerships with sports organized games and sport facilities.114

Although cricket is the most popular
spectator sport in India, interest in other
sports has recently increased significantly.
This momentum, combined with a young
population and a rising propensity to spend
on leisure, presents the sports industry
with a number of growth opportunities.

111“Sports+TV=big money,” Business Today, 2 May 2010, via Dow Jones Factiva, © 2010 Living Media India Ltd.
112“Here’s the kicker,” Mint, 13 January 2010, via Dow Jones Factiva, © 2010 HT Media Limited.
113“English, German, Spanish clubs scout for India partnerships,” Economic Times, 29 November 2010, via Dow Jones Factiva, © 2010 The Times of India Group.

114India...get, set, go...: The evolving sports ecosystem in India, Ernst & Young, March 2010.


...sports
Digital media provide a targeted platform for Indian
sports leagues and teams to reach, engage and monetize mobile games are particularly popular — more
audiences between live matches. Internet usage in India than 50% of the 15 million mobile apps and games
is dominated by male audiences aged 15 years and over, downloaded in India during the first quarter of 2011
providing an effective medium for sports teams to target were cricket-related.118
their core fan base and enhance their brand value. Males • Online and mobile live streaming: Despite internet
aged 15 years and over make up 60% of Indian cricket bandwidth constraints, online and mobile streaming
TV viewership115 and 83% of Indian soccer viewership.116 of live cricket games is prevalent in India. YouTube,
Because of its strong following, the IPL has been the online broadcast partner for the third edition
particularly effective at leveraging digital media to license of the IPL, recorded 50 million page views for the
digital content, develop its brand presence and provide tournament in 2010.119 Licensing fees for online
additional value to its sponsors. and mobile broadcast rights for cricket tournaments
• Enhancing brand reach through social networks: are also providing significant ancillary revenue to
Indian sports teams are engaging directly with fans organizers. Rights holders are enhancing the online
through online platforms such as blogs and social viewing experience by integrating interactive features
networks. Some IPL teams have more than 1 million such as scores, match schedules and statistics.
registered fans on their Facebook pages.117 Through • Online ticketing: Ticketing companies are simplifying
interactive engagement on these platforms, teams the ticket-booking experience through online and
are extending the reach and impact of their brands mobile platforms. These platforms provide greater
and providing an additional activation medium for transparency in ticketing sales and increase ticketing
their sponsors. revenues — earlier a marginal contributor to overall
• Mobile apps and games: Sports teams are partnering revenue. Indian ticketing companies allow teams to
with developers to create games and mobile apps. sell premium tickets and create innovative bundles
These innovations provide an additional touch point with merchandise and travel packages. Some ticketing
for fans to interact with their favorite teams and for companies have integrated their booking platforms
team sponsors to engage with audiences. Cricket with social networks to promote and market sporting
events online.

115 “ICC World Cups: myths and realities,” TAM Media Research website, http://www.tamindia.com/tamindia/ICC_World_Cups_Myths_and_Realities.pdf,
accessed 22 May 2010.
116 “Football consumption by Indian TV audience,” TAM Media Research website, http://www.tamindia.com/tamindia/NL_Tam/TAM%20Sports%20-%20India%20Football%20
Forum.pdf, accessed 22 May 2011.
117“Mumbai Indians gets a million fans on Facebook,” Indiantelevision, 22 March 2011, via Dow Jones Factiva, © Indiantelevision.
118“Bigger bucks for game developers,” Financial Express (India), 26 February 2011, via Dow Jones Factiva, © 2011 Indian Express Pty Ltd.
119“Clean sweep for cricket across digital platforms,” Business Standard, 21 February 2011, via Dow Jones Factiva, © 2011 Business Standard Limited.


Investing in the Indian
M&E industry: key regulations

• A conducive regulatory environment for the M&E industry: In recent years, the Government has relaxed entry regulations and
restrictions governing foreign companies in India. Presently, FDI up to 100% is allowed in the film and advertising industry, 100%
in TV broadcasting (except news) and 26% in publishing newspaper and periodicals dealing in news and current affairs.120 The
Government has also increased the FDI limits for DTH and IPTV from 49% to 74%.121

Figure 12
FDI and foreign institutional investor (FII) investment by segments

Segment Sectoral limits (%)
Broadcasting
FM radio 26 (FDI+NRI1+PIO2+FII)
Cable network 49 (FDI+NRI+PIO+FII)
DTH 74 (FDI+NRI+PIO+FII)
Headend-in-the-sky (HITS) 74 (FDI+NRI+PIO+FII)
Setting up an uplinking facility/hub 49 (FDI+FII)
Uplinking news and current affairs channel 26 (FDI+FII)
Uplinking non-news and current affairs channel 100

Print media
Publishing of newspaper and periodicals dealing with news and current affairs 26 (FDI+NRI+PIO+FII)
Publication of Indian editions of foreign magazines dealing with news and current affairs 26 (FDI+NRI+PIO+FII)
Publication of scientific, technical or specialty magazines, journals and periodicals 100
Publication of facsimile editions of foreign newspapers 100

Others
Advertising 100
Films, music and live entertainment 100
1
A Non-Resident Indian (NRI) is a person resident outside India who is a citizen of India or is a person of Indian origin.
2
A Person of Indian Origin (PIO) is an individual (not being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan) who:
• At any time held an Indian passport,
Or
• Whose father, mother, grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

Source: Ministry of Commerce and Industry — Department of Industrial Policy and Promotion

• Favorable policy changes: Some segments within the M&E industry have received a new lease on life due to critical policy
changes. The migration from fixed license fee regimes to revenue-sharing license fee regimes has been a trigger for the radio
segment, and the mandatory digitization of TV distribution has been a landmark development in the TV segment. The film
segment has been accorded an industry status, and multiplexes have been exempted from entertainment tax. India imposes no
restrictions on the number of Hollywood films that can be released in a year.

120 “Facsimile editions of foreign papers get govt nod,” The Times of India, 13 February 2009, via Dow Jones Factiva, © 2009 The Times of India Group.
121 “Automatic nod for 49% FDI in DTH,” Financial Express (India), 6 June 2011, via Dow Jones Factiva, © 2011 Indian Express Pty Ltd.


Doing business in India

This guide provides global M&E companies with a general
overview of business organizations, taxation and business
Funding of Indian businesses
principles in India. For further information, please refer to Modes of funding need to be carefully evaluated when investing in
Ernst & Young’s detailed reference guide to doing business in India because of the country’s foreign exchange regulations. This
India, available at http://www.ey.com/IN/en/Services/Tax. section outlines the various options through which an
Indian subsidiary can be funded.
• Equity share capital: Equity share capital is a conventional
Entry options method of funding a local Indian subsidiary company.
• Liaison/representation office: Foreign corporations are • Preference share capital: Foreign corporations can also
permitted to open liaison/representative offices in India invest in India through the issuance of preference shares.
to undertake specific liaison activities on their behalf, Foreign investments through convertible preference shares
including acting as a communication channel between that are fully and mandatorily convertible into equity
them and Indian customers. The opening of a liaison/ shares are treated as FDI. Preference shares that are not
representative office is subject to approval by the Reserve mandatorily convertible into equity shares are considered
Bank of India (RBI). Applications by companies are typically external commercial borrowings (i.e., debt) and need to
subject to close scrutiny. conform to external commercial borrowing (ECB) guidelines
• Branch or project office: Foreign corporations may open (discussed in the following section).
branch offices to conduct activities permitted by the RBI • Debentures and borrowings:
after obtaining approval from the RBI. Setting up a branch
• Debentures: Companies can raise funds by issuing
office without RBI approval is possible within a special
debentures, bonds and other debt securities or by
economic zone (SEZ), subject to certain conditions. accepting deposits from the public. Debentures can
• Local Indian subsidiary companies: Foreign corporations be redeemable; perpetual, bearer or registered; and
can set up subsidiary companies in India, subject to FDI convertible or non-convertible. Like preference shares,
guidelines. Further, foreign corporations can set up a joint the treatment of debentures as FDI or ECB depends on
venture company with an Indian or foreign partner. their convertibility into equity shares.
• Limited liability partnership (LLP): An LLP provides • ECB: Debt raised in foreign currency (from internationally
more flexibility in operations compared with a subsidiary. recognized sources) falls within the purview of the
Recently, FDI has been permitted in LLPs subject to definition of ECBs (as per the regulations), and they are
prescribed conditions. regulated by the Ministry of Finance and the RBI. ECBs
can be accessed under two routes: the automatic route


Repatriation of capital and income
(without RBI approval) and the approval route (with RBI
Foreign capital invested in India is generally allowed to be
approval). The funds raised can be used for prescribed
repatriated in the form of dividends or interest payments after
purposes and are subject to end-use restrictions. M&E
payment of taxes due, provided the investment was made on a
companies need to carefully evaluate debt funding
repatriation basis.
options, as the sector is not normally covered under
the automatic route. All cases outside the purview of Other payments, like royalties, technical service fees and
the automatic route are reviewed by an empowered consultancy fees, are permitted, subject to conditions.
committee of the RBI.
• Trade credits: Trade credits for imports are also Incentive regimes/benefits/other
permitted in some situations.
beneficial provisions
• Other forms of funding: These include the issue of
• SEZs: Units can be set up in SEZs for manufacturing,
American Depository Receipts, Global Depository Receipts,
trading or services activity. Profits derived by undertakings set
and Foreign Currency Convertible Bonds.
up in SEZs are allowed as a deduction from the
computation of taxable income for income tax purposes subject
Mergers and acquisitions to prescribed conditions. However, income earned by SEZ units
will be subject to Minimum Alternate Tax (MAT) starting in
Corporate reorganization can be carried out in the form of financial year 2011-12.
mergers, demergers, arrangements, capital reductions, slump • Intangibles: Certain prescribed intangibles are entitled
sale, buy-back, acquisitions, etc. Some of these are driven by to depreciation at 25%. Film production costs or costs of
court processes, while others can be carried out by corporate acquisition of distribution rights for a film are entitled to
law processes without approaching the court. Further, 100% amortization, depending on the date of release of
certain reorganizations also require procedures involving the the film.
Competition Commission of India.
• Others:
• Expenses on research and development can be entitled
to a weighted deduction of 200% of the cost incurred,
subject to conditions.
• There are provisions under the Income Tax Act, 1961 (IT
Act), that allow income tax exemption on certain income
from international sporting events held in India, subject
to conditions. Further, specified income of non-resident
sportsmen may be subject to tax at 10% (plus applicable
surcharge and education cess).
• Under the IT Act, income from the sale, distribution or
exhibition of cinematographic films is not covered under
the definition of royalty. Income of a non-resident from
activities confined to shooting of a film in India can be
evaluated for exemption from income tax.


Direct taxes
• Corporate income tax: The Indian tax year for companies corporations should evaluate filing a ROI in India if they
extends from 1 April to 31 March of the following year. conduct business in the country. Non-resident corporations are
Corporations reporting international transactions are taxed on the income earned from a business connection in
required to file their Return of Income (ROI) by 30 India or from other Indian sources. If there is a tax treaty
November. All other corporations are required to file an ROI between India and the country of residence of the taxpayer,
by 30 September, even in the event of a loss. Non-resident the provisions of the IT Act or the tax treaty, whichever is more
beneficial, will apply.

Figure 13
Corporate tax rates

Particulars Percentage1
Corporate income tax for domestic corporations 30
Corporate income tax for foreign corporations 40
Corporate income tax for LLPs 30
MAT on book profits 18.5
Alternative minimum tax on book profits for LLPs 18.5
Dividend distribution tax 15
Withholding tax on dividends 0
Withholding tax on royalties or fees for technical services 102
Withholding tax on interest to non-resident corporations 203
Wealth tax 14

Capital gains Percentage1
Long-term capital gains 205
Short-term capital gains 30-406

Net operating losses Years
Carryforward 8
Unabsorbed depreciation Indefinitely
1 The rates listed have to be increased by applicable surcharge and education cess.
2
These rates apply for agreements entered into on or after 1 June 2005 and that satisfy other conditions.
3
This rate applies to interest on foreign currency loans given to an Indian concern or to the Government of India.
4
Wealth tax is applicable on certain specified assets if the taxable value of a corporation’s net wealth exceeds INR3 million.
5
Long-term capital gains arising from the transfer of equity shares or the units of an equity-oriented mutual fund on any recognized stock
exchange in India are exempt from tax if Securities Transaction Tax (STT) has been paid on such transactions.
6
In general, short-term capital gains are taxed at normal corporate tax rates. However, short-term capital gains arising from the transfer of equity
shares or the units of an equity-oriented mutual fund on any recognized stock exchange in India on which STT has been paid are taxed at 15%.


• Other considerations:
• India has a strict withholding tax regime, and, therefore,
• Some important provisions of DTC 2010 include:
tax withholding from payments requires careful
evaluation. • Introduction of general anti-avoidance rules,
which permit the revenue authorities to declare an
• Payments in the absence of a tax registration number
arrangement that has the main purpose of avoiding
may be subject to a higher rate of tax withholding. •
tax (beyond a specified threshold) as impermissible.
The Authority for Advance Ruling (AAR) can be
approached for questions relating to the tax liability of a • Controlled Foreign Company (CFC) rules for taxability
of income earned by a foreign company controlled by
non-resident from a transaction that has already taken
resident shareholders.
place or one that will be undertaken. The rulings of the
AAR are binding on the tax authorities as well as the • The definition of royalty will also include:
applicant. • Income from distribution of cinematographic films
• Amalgamations and demergers are tax-neutral, subject to • Payments for transfer of rights to live coverage of
the satisfaction of prescribed conditions. Non-satisfaction events
of conditions also has implications on losses to be carried • Payments for use of transmission by satellite,
forward. cable, optic fiber
• Direct Tax Code (DTC) 2010: This section summarizes • The current profit-based incentive regime will be
the various provisions introduced under the DTC 2010, replaced by an investment-based incentive regime.
which will go into effect on 1 April 2012 and will replace the
existing direct tax legislations (IT Act and the Wealth Tax
Act). Tax rates proposed under DTC 2010 are summarized
in Figure 14.

Figure 14
Proposed tax rates under DTC 2010

Particulars Percentage1
Basic tax rate for domestic and foreign corporations 30
MAT 20
Branch profit tax (which includes tax on profits attributable to a permanent establishment) 15

Net operating losses Years
Carryforward Indefinitely
1
The rates listed have to be increased by applicable surcharge and education cess.


Transfer pricing tax of 10.3%. Traditionally, service tax was payable on a
cash basis. However, recently, the Central Government has
The Indian transfer pricing regulations require that any issued Point of Taxation Rules (POT) to shift tax liability
international transaction between two or more associated on invoicing (if invoiced within 14 days of completion)
enterprises (including permanent establishments) must be at an or receipt, whichever is earlier. Export rules have been
arm’s length price (ALP). Currently, safe harbor rules and framed to allow service providers to grant an exemption
advance pricing arrangements (APAs) are not in force in India, from tax and allow a refund of input tax paid. Similarly,
although the DTC 2010 proposes implementing them. import of taxable services (including recharges) is subject
to tax under reverse charge. Service providers are eligible
for exemption from certain taxes levied by the Central
Indirect Taxes Government. However, state taxes paid by service
providers are generally an additional cost. Over the years,
India has federal and state structures to levy indirect taxes and
compliance with service tax law has become complicated
hence, has multiple indirect taxes. The Government is making
and the Government has introduced prosecution provisions
efforts to introduce a unified Goods and Services Tax (GST).
for certain defaults. Service tax has always provided
The key indirect taxes levied by the Central Government are an opportunity to service providers to structure their
a customs duty, an excise duty and a service tax and a set of operations to maximize tax benefits.
mechanisms under the Central Value Added Tax (CENVAT) • Entertainment tax levied by state and local governments:
regime. At the state level, the Government has transitioned to a State and local governments levy entertainment tax
VAT regime (applicable on sale and deemed sale of goods) from on various entertainment and amusement activities.
the earlier Sales Tax regime. Additionally, states levy Traditionally, film exhibition, cable and DTH subscriptions,
entertainment tax, entry tax and luxury tax. Some of the states video games, amusement parks and events have
have delegated certain powers to local bodies to collect entry been subject to entertainment tax. Some of the states
tax, show tax and entertainment tax. Apart from this, the are considering entertainment provided through
Government provides various incentives to a goods and services telecommunications and the internet to be subject to
exporters in the form of import licenses, tax rebates and tax- entertainment tax. Entertainment tax rates are fairly
free imports. high as compared to taxes levied on other luxury goods
• Service tax levied by the Central Government: More than and services. For example, the entertainment tax rate for
100 specified services are liable for service tax in India. movie exhibition in Mumbai is as high as 45% while the
Most M&E services, such as broadcasting, advertising, sale same movie sold on a DVD is liable to a 20% tax rate. Most
of advertisement space or time, subscriptions, temporary of the states offer entertainment tax exemptions to new
transfer of intangibles, sponsorships, postproduction, multiplexes, sporting events and certain films subject to
photography and event rights, are subjected to a unified specific conditions.


• VAT/sales tax levied by state governments: Each state • Newsprint (uncoated and coated paper used for printing
government in India levies VAT on sale or deemed sale of newspaper and periodicals)
of goods in its respective state. Central Sales Tax (CST), • Royalty paid on import of films, music, gaming software
which is levied for interstate transactions, is collected and on specified media
administered by the originating state. VAT varies between
• Digital high-end projects relating to DTH operations
12.5% to 15% across different states; and a lower rate,
between 4% to 5%, is applied on certain goods (including • Goods and Services Tax (GST): It is proposed that the
intangibles, video compact discs and DVDs). Certain current indirect tax regime in India be replaced by a
essential goods (including books) have been exempted comprehensive dual GST to be levied concurrently by the
from VAT. Generally, setoff is available on VAT paid on Central Government (CGST) and the state governments
procurements within the state. VAT is also applicable on (SGST). In order to introduce GST, certain constitutional
transfer of intangibles (either temporary or permanent) amendments are required to provide powers to the Central
such as copyrights, trademarks, franchise rights and and state governments to tax the supply of goods and
patents at a rate of 4% to 5%. VAT exemption is available in services. The draft constitutional amendment bill (now in
certain states for the temporary transfer of copyrights in Parliament) seeks to subsume the following taxes:
films meant for theatrical distribution. • Union levies:
• Central excise duty levied by the Central Government: • Central excise duty and other specified excise duties
Excise duty is applicable on the manufacture of goods within • Taxes on newspapers and advertisements
India and is payable by the manufacturer. Most products
• Taxes on services
attract a uniform rate of 10.3%. Excise duty is generally
levied as a percentage of value of goods manufactured • State levies:
and cleared from the factory. Exemption to excise duty is • Entry tax (not levied by local bodies)
available if units are set up in specified areas. Standard or • Taxes on sale and purchase of goods
lower rates are applicable to goods used by the M&E sector. • Taxes on advertisements
• Customs duty levied by the Central Government: Customs
• Taxes on entertainment, betting and gambling (not
duty is levied on the import and export of goods into India
levied by local bodies)
under the Customs Act 1962. The present effective rate
of customs duty is 26.85%. However, the Government has The new tax structure will have a significant impact on all
granted certain exemptions to imports relating to the M&E aspects of business in India. However, many of the design
industry: features of the GST have yet to be finalized and are being
• Temporary period import of equipment by a foreign film discussed at the central and state level.
unit to shoot a film in India


Conclusion

India’s growing middle class, rising disposable
incomes, high volume of content consumption and
conducive regulatory environment hold significant
potential for foreign investments across all segments
of the M&E industry. Digital adoption, at a tipping
point due to wireless broadband availability, will
create additional opportunities for global companies
to cater to a new generation of digital consumers.
As global M&E companies start to compete again for
growth opportunities globally, there is an increasing
sense of urgency to capture the opportunities
offered by the Indian market.
In order to succeed in India, it is necessary for
companies to understand and adapt to economic and
cultural nuances and invest in content and services
tailored for the local market. Global companies need
to thoroughly assess the market and distribution
channels to price content appropriately and adopt
different strategies to serve the several internal
markets that exist in the country. While M&E
companies operating in emerging markets like
India continue to be exposed to risks ranging from
local competition, fraud, corruption and piracy,
ongoing structural and regulatory reforms and the
development of corporate governance norms will
mitigate these threats.


Media & Entertainment contacts

Telephone Email
Global Media & Entertainment Area Leaders
John Nendick, Global and Americas Sector Leader (Los Angeles) +1 213 977 3188 john.nendick@ey.com
Farokh T. Balsara, EMEIA Leader (Mumbai) +91 22 6192 0280 farokh.balsara@in.ey.com
David McGregor, Asia-Pacific Leader (Melbourne) +61 3 9288 8491 david.mcgregor@au.ey.com
Yuichiro Munakata, Japan Leader (Tokyo) +81 3 3503 1100 munakata-ychr@shinnihon.or.jp

India Service Line Leaders
Ashok Rajgopal, Business Advisory Services Leader +91 22 6192 0190 ashok.rajgopal@in.ey.com
Ashish Pherwani, Risk Advisory Services Leader +91 22 6192 0427 ashish.pherwani@in.ey.com
Rakesh Jariwala, Tax and Regulatory Services Leader +91 22 6192 0450 rakesh.jariwala@in.ey.com
Ajay Shah, Transaction Advisory Services Leader +91 22 6192 0640 ajay.shah@in.ey.com
Govind Ahuja, Assurance Leader +91 22 6192 0300 govind.ahuja@in.ey.com

Global Sub-Area Leaders and Advisory Panel Members
Howard Bass (New York) +1 212 773 4841 howard.bass@ey.com
Glenn Burr (Los Angeles) +1 213 977 3378 glenn.burr@ey.com
Peter YF Chan (Hong Kong) +852 2846 9936 peter-yf.chan@hk.ey.com
Neal Clarance (Vancouver) +1 604 648 3601 neal.g.clarance@ca.ey.com
Jonathan Dharmapalan, Global Telecommunications Leader (San Francisco) +1 415 894 8787 jonathan.dharmapalan@ey.com
Pat Hyek, Global Technology Leader (San Jose) +1 408 947 5608 pat.hyek@ey.com
Gerhard Mueller (Munich) +49 891 4331 13108 gerhard.mueller@de.ey.com
Michael Rudberg (London) +44 207 951 2370 mrudberg@uk.ey.com
Ken Walker (Los Angeles) +1 805 778 7018 kenneth.walker@ey.com

Global Service Line Leaders and Advisory Panel Members
Mark Besca, Global and NESA M&E Assurance Leader (New York) +1 212 773 3423 mark.besca@ey.com
Mark J. Borao, Global M&E Advisory Services Leader (Los Angeles) +1 213 977 3633 mark.borao@ey.com
Thomas J. Connolly, Global M&E Transaction Advisory Services Leader (New York) +1 212 773 7146 tom.connolly@ey.com
Alan Luchs, Global M&E Tax Leader (New York) +1 212 773 4380 alan.luchs @ey.com

Area Service Line Leaders and Advisory Panel Members
Ian Eddleston, Americas Assurance and West Sub-Area M&E Leader (Los Angeles) +1 213 977 3304 ian.eddleston@ey.com
Bruno Perrin, EMEIA M&E Assurance Leader (Paris) +33 1 46 93 6543 bruno.perrin@fr.ey.com
Chris Pimlott, Americas M&E Tax Leader (Los Angeles) +1 213 977 7721 chris.pimlott@ey.com

Global Media & Entertainment Center Team
Sylvia Ahi Vosloo, Marketing Lead (Los Angeles) +1 213 977 4371 sylvia.ahivosloo@ey.com
Karen Angel, Global Implementation Director (Los Angeles) +1 213 977 5809 karen.angel@ey.com
Matt Askins, National Accounting M&E Resident (New York) +1 212 773 0681 matt.askins@ey.com
Raghav Mani, Knowledge Leader (Los Angeles) +1 213 977 3200 raghav.mani@ey.com
Jennifer Weiker, M&E Sector Resident (Los Angeles) +1 213 977 3916 jennifer.weiker@ey.com


Ernst & Young

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About Ernst & Young
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advisory services. Worldwide, our 152,000 people are united by our
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information about our organization, please visit www.ey.com
About Ernst & Young’s Global Media & Entertainment Center
Whether it’s the traditional press and broadcast media, or the
multitude of new media, audiences now have more choice
than ever before. For media and entertainment companies,
integration and adaptability are becoming critical success
factors. Ernst & Young’s Global Media & Entertainment Center
brings together a worldwide team of professionals to help you
achieve your potential — a team with deep technical experience in
providing assurance, tax, transaction and advisory services. The
Center works to anticipate market trends, identify the implications
and develop points of view on relevant industry issues. Ultimately
it enables us to help you meet your goals and compete more
effectively. It’s how Ernst & Young makes a difference.

© 2011 EYGM Limited.
All Rights Reserved.
EYG No. EA0052
This publication contains information in summary form and is therefore intended for
general guidance only. It is not intended to be a substitute for detailed research or the
exercise of professional judgment. Neither EYGM Limited nor any other member of the
global Ernst & Young organization can accept any responsibility for loss occasioned to
any person acting or refraining from action as a result of any material in this publication.
On any specific matter, reference should be made to the appropriate advisor.

The views of third parties set out in this publication are not necessarily the views of the
global Ernst & Young organization or its member firms. Moreover, the views should be
seen in the context of the time they were expressed.

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