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Business
A paradigm shift
A visitor looks at Philips MP3 audio range. — AP
THE INDIAN entertainment has witnessed phenomenal changes sector after it was granted `industry' status by the Government last year. Several announcements and measures have been taken to boost the prospects of the industry.
The granting of institutional finance for the film industry was a major step. Multiplexes have helped improve film exhibition infrastructure and the Union budget 2002 extended tax benefits to them in non-metros. A step towards rationalisation of entertainment tax across States with a cap of 60 per cent was welcomed and the film and cable TV industries have joined hands to combat piracy, a menace of huge proportions.
``If roadblocks to growth like piracy, lack of corporatisation and financing limitations are removed, the entertainment sector has a potential similar to that of the software industry,'' says Nawshir Mirza, director, Ernst & Young, which is working with significant players in the entertainment business both in India and abroad.
The entertainment industry in India is around Rs. 12,800 crores according to a FICCI-Arthur Andersen report. Piracy is probably the single largest threat to the film business and according to a report by CII-Ernst & Young, there should be in place both stiffer penalties and rigorous enforcement in place. For example, fines ranging up to Rs. 25 lakhs and imprisonment for five years for DVD, VCD piracy. Further, the report recommends anti-piracy cells within the state police and the judiciary.
Combating piracy
Also recommended is the creation of a national anti-piracy umbrella body for the film and music industries, limited tax exemption to income generated from film financing, an entry fee for FM Radio operators and revenue sharing with the government and the development of a pricing model between television channels and multisystem operators.
Amit Khanna, chief executive officer, Reliance Entertainment, and president, All India Film Producers' Council, said, ``Piracy is basically copyright theft. It is there in films — piracy on cable networks and in music — counterfeit cassettes, CDs and MP3 and in broadcasting through theft of pay channel signals. In fact, technology is making it easier to pirate and has compounded the situation. As far as the consumer is concerned, he is not averse to using the product/service, unlike in the pharmaceutical or foods industry, where there is a tangible effect of using counterfeit products.''
Further, Mr. Khanna said, ``There is enough legislation in place but implementation is the key. A lot depends on the Convergence Bill to be passed later this year — having a super regulator.''
A segment-wise analysis shows that the films segment has been growing steadily at 15 per cent over the last few years. In 2001, more than 1,000 films were produced; up 18 per cent. The size of the segment in terms of cost is around Rs. 2,500 crores and in terms of revenues, it is around Rs. 4,500 crores, according to the FICCI-Andersen report.
Bobby Bedi, film producer and convener, FRAMES 2002, said, ``Steps are being taken by the industry which are in the direction of corporatisation. Owing to the industry status, it has a forum now and access to finance has become easier. After all, Rs. 150 crores has come into the industry at 1:1 debt equity meaning Rs. 300 crores.''
In the immediate future, it is expected that an increased access to institutional finance will boost film production and digital technology will improve the quality of film content and its distribution.
The segment is affected by issues like piracy which cause significant revenue loss and high entertainment tax rates and the control on ticket pricing inhibit the development of theatre infrastructure. Also, to have access to institutional finance and investors, the players have to corporatise, implement transparent accounting policies and adopt corporate governance.
Rapid rise of TV sector
The TV segment has grown rapidly in the last decade and its reach now spans almost eight crore homes including 3.8 crore cable and satellite homes. In terms of total revenues in 2001, the size is Rs. 9,400 crores of which TV broadcasting accounts for Rs. 3,600 crores, according to the FICCI-Andersen study.
Further, while the total segment grew 38 per cent in 2001, TV broadcasting, cable TV and TV software grew by 19 per cent, 68 per cent and 27 per cent respectively.
Mr. Bedi said, ``The TV industry has grown steadily but this year, it has seen a setback because revenues depend on adspend and subscription and the slowdown has taken its toll.''
While broadcasting would grow on account of increasing advertising revenues and an increasing share of subscription revenues from cable and satellite households, cable TV growth would be driven by the growth in the number of homes and increasing subscription rates. TV software business growth will come from increase in programming rates. The FICCI-Andersen report says the TV segment could grow to Rs. 22,000 crores by 2006 with TV broadcasting, cable TV and TV software growing to Rs. 8,100 crores, Rs. 10,400 crores and Rs. 3,500 crores respectively.
A consolidation is expected in broadcasting through bouquetisation and channel acquisitions, in cable TV through continued last mile acquisition by multisystem operators (MSOs) and acquisitions by broadcasters and in TV software through closure or acquisition of the smaller content companies.
After a decade of high growth, the music segment grew only 8 per cent in 2001. In revenue terms, the segment size is Rs 1,350 crores. It is estimated that piracy accounts for 40 per cent of the market and legitimate size of the market is Rs 810 crores.
In the short to medium term, growth would come through CD penetration, increasing NRI demand for Indian music and the growth of the organised music industry. Also, growth in the period would be governed by the extent of piracy control and evolution of digital technology that will change the distribution methods preferred by consumers. The segment is expected to grow to Rs. 2,000 crores (Rs. 1,200 crores legitimate sales) by 2006.
Issues confronting the industry are piracy, disparate sales tax structure across States and high excise duty on CDs. The need is for rationalisation of sales tax across States and reduction of excise duty on CDs. The proposed 4 per cent excise on music cassettes would impact price sensitive music market.
Radio segment
The privatisation of Frequency Modulation (FM) radio has given a fresh impetus to the languishing radio segment. The Rs. 190 crore radio segment gets a paltry 2.5 per cent of the total adspend in spite of the fact that it reaches over 90 per cent of the population.
Future prospects depend on the success of the privatisation efforts. Privatisation has led to improved content and this would lead to higher popularity. Also, digital satellite radio is expected to rise in popularity with increasing penetration.
It is expected to gradually increase its share in adspend to 4 per cent over the next five years and reach Rs. 490 crores by 2006.
The critical issue facing private broadcasters is licence fees. Unless the structure is reworked to offer a low upfront fee and a reasonable share of annual revenue, private players will suffer. Other restrictive measures like ban on news and current affairs and restrictions on individual station content could be dispensed with.
Ramnath Subbu
in Mumbai
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