The Big B, Hindi cinema superstar Amitabh Bachchan, was missing at FICCI Frames, the annual meeting of the entertainment and media (E&M) industry held by the Federation of Indian Chambers of Commerce and Industry. So was information and broadcasting minister Priya Ranjan Dasmunshi, who was supposed to inaugurate the recent three-day event in Mumbai. In his absence, there were no policy pronouncements, something that had been eagerly awaited. But most participants shrugged it off, because the unstated theme this year was not change but three other “C” words: consolidation, corporatization and convergence.
Yet change has, in fact, been occurring. As filmmaker Yash Chopra, the Frames chairman, said at the inaugural session: “New technologies and ideas and young and brilliant filmmakers are here to take the [film] industry forward. A revolution has happened in the industry.” Frames co-chairman Kunal Dasgupta, CEO of Multi Screen Media (formerly Sony Entertainment), was equally optimistic about television. “What is happening in the industry is that the professionals are becoming entrepreneurs and are setting up ventures in various fields like digital distribution and content creation,” he said.
Consolidation is a topic because growth has slowed. According to a report prepared by PricewaterhouseCoopers (PwC) in conjunction with FICCI, the industry grew 17% last year to $12.8 billion. That is lower than the 23% growth of the previous year and the four-year compound annual growth rate of 19%.
The report’s title, “Sustaining Growth,” is a message in itself. A breakdown by industry segment reveals that television, at $5.65 billion, grew 18% last year, compared with 21% in 2006 and 23% in 2005. Filmed entertainment — both Hindi and regional cinema — grew 14% to $2.4 billion, down from 24% growth in 2006. Print, at $3.7 billion, grew at 16%, compared with 17% in 2006. Only online advertising’s growth rate increased, but at $67.5 million, it is just a small part of the larger picture.
PwC says the industry is getting its second wind before galloping again. It projects that the television industry will grow at 23% this year and 22% annually through 2012. The numbers for filmed entertainment are not as heartening: 15% growth this year and 13% through 2012. Print is marginally better off, with projections of 14% growth in both cases.
The comparative growth rates may look small, but in a global context they are impressive. The global entertainment and media industry grew 6.5% last year to $1.53 trillion. The PwC report estimates annual growth for 2007 through 2011 at 6.4%. But even while the Indian E&M industry is a minnow in the international ocean, everyone seems to want part of it.
Private equity and foreign direct investment have been particularly active. Deals struck last year include a $56.6 million investment by Baytree Investments (Mauritius) and others in direct-to-home satellite television player Tata Sky; a $40.2 million infusion by Walt Disney Company in United Home Entertainment (which owns children’s channel Hungama TV); and Reuters Singapore’s investment of $21.9 million in Times Global Broadcasting, the television arm of the Times of India group. Meanwhile, the Abu Dhabi Investment House has announced $400 million in funding for an entertainment city in Navi Mumbai (New Bombay).
“This industry is going to see a lot of investment from various sources — private equity, venture capitalists, the public,” says Rajesh Jain, director of information, communications and entertainment for KPMG India. “As we move toward a brand-driven society, more and more advertising bucks will be placed here.”
There have also been a number of new alliances. George Soros picked up a 3% stake in Anil Ambani’s Reliance Entertainment last year. One of India’s fastest-growing media conglomerates, Network18, snapped up Infomedia, a leader in business directories and B2B and B2C publications. And Temasek Holdings, Singapore’s state-owned investment company, bought into television broadcaster INX Media.
“The E&M industry in India has reached an inflection point,” says Chirag Negandhi, media analyst at Enam Securities. “Opportunities and growth embrace all its segments.” TV channels lead the growth story, he says. Yet while more than 100 are active now, not all of them will survive. A period of consolidation is on the horizon.
Consolidation or Convergence?
But does consolidation or convergence come first? For many, they are two sides of the same coin. The quickest way to fill technology gaps is through mergers and acquisitions. Consider Network18, which has two general news channels — CNN-IBN and IBN7 — and two business channels — CNBC TV18 and CNBC Awaaz, the latter in Hindi. It has an Internet company, Web18. It provides real-time news services through Newswire18. Homeshop18 is the group’s online and on-air retail venture.
Not content with this array, Network18 devoted 2007 to filling its perceived gaps. It formed a joint venture with Viacom, called Viacom18, which will run the channels that were previously under the corporate umbrella of MTV India. Studio18 is a foray into filmed entertainment. The Infomedia acquisition has led to new ventures in print. Network18 now has struck an alliance with Forbes to launch a business magazine in India. The Financial Times of London has broken off its relationship with the Delhi-headquartered Business Standard and formed an online venture with Network18. That arrangement could crystallize into a business newspaper. (The Wall Street Journal‘s collaboration with The Hindustan Times group to produce the business newspaper Mint demonstrates that it can be done, despite restrictions on foreign direct investment in media.) Meanwhile, Network18 has launched a joint venture with Jagran Prakashan, the publisher of one of the largest-selling Hindi dailies, for a Hindi business paper. The Network18 story is being repeated in many E&M houses across India.
Technology convergence, too, has led to alliances. Hindi daily Dainik Jagran has tied up with Yahoo to launch a co-branded Hindi portal. Digital Media Convergence Ltd., owned by Subhash Chandra, has launched a mobile TV application in collaboration with public sector telecom services provider BSNL. Everywhere you look, companies are fitting pieces of the puzzle together, even if the big picture may take time to evolve.
Convergence is a global phenomenon and “it is going to happen here at a faster pace partly because — from a technological point of view — we have leapfrogged,” says Ravi Bapna, associate professor and executive director of the Center for IT and the Networked Economy at the Indian School of Business, Hyderabad. “The wireless networks here, for example, are state-of-the-art and, as soon as 3G rolls out, we are going to see movies on cell phones.”
The synergies created by convergence will “increase the size of the pie,” Bapna says. “This will also foster innovation because, with content being delivered across multiple platforms, it will need to be segmented more effectively … and there will be a need for new pricing models, etc. As the market grows, the competitive forces and innovation will decide who gets what share of the pie.”
Whether India realizes its potential depends on its ability to foster innovation, Bapna says. “Why is it that the new thinking in media like YouTube is not coming out of India?” he asks. “It’s because the ecosystem for entrepreneurship in this area is still at the very early stages. People have good technical ideas but they don’t know how to take them to market. We have the media people and the tech-savvy people but we don’t have people who are coming out with ideas that create new demand from the consumer. The business aspect is where I still see some barriers — our ability to think two years ahead of what the consumers are going to really want and to come up with an application to deliver it. Like in Silicon Valley, the universities and the entrepreneurs here need to work very closely together.”
Jain of KPMG says that consolidation and corporatization have occurred in almost all E&M segments. “Broadcasting was one of the first movers,” he says. “In print, too, consolidation was there earlier. But with the regional print media now being recognized to be as important as national mainstream print, there is increasing consolidation. Outdoor advertising is very fragmented. But several large players with deep pockets have come in to play.”
In the film industry, “a huge amount of corporatization has happened from a viewpoint of where the money comes from,” Jain says. “In distribution, there is a lot of consolidation happening. More and more people are getting into mainstream distribution and this trend will continue.” Direct-to-home is already corporatized like the broadcast industry, he says, while “in the cable industry, because of the fragmentation … the process of corporatization will take time unless regulatory pressures force consolidation.” The advertising industry has always been corporatized, he says.
“The new media is still evolving, but given the large amount of private equity, corporatization is only a matter of time,” Jain says. “As more and more private equity comes into play, it brings in significant improvements in governance standards. Over $500 million has been committed by private equity in the past 12 months in some form or other.
“Many people tend to look at corporatization as a legal structure,” he adds, “but corporatization needs to be viewed in three or four contexts. The mere fact of having a company and a legal corporate structure alone is not corporatization. The governance around it, consolidation and professionalization are the more important attributes of corporatization. From this perspective, corporatization in the Indian media and entertainment industry is not slow. There is a lot of it already happening.”
Except for some very large companies, “we still have miles to go” regarding corporate governance, Jain says. In terms of professionalism, the industry, like many others, is seeing a talent crunch. “One has to realize that this industry cannot be compared with, say, the manufacturing industry. Given the creative nature of the industry, one has to balance the three elements of entrepreneurship, professionalism and creativity. Given that, professionalism is happening and it will continue to grow.”
Bapna of the Indian School of Business agrees. “Corporatization was slow for a long time, but in recent times it has been picking up at a good pace,” he says. “In my opinion, we are over the hump. In the film industry, for example, right now everything is aligned with big business, and the corporate sector can get in and start funding movies. It’s more like a regular business than some kind of street-business model. Going forward it will only increase. It will become more and more like Hollywood. We will also see global players getting involved because this is a large market. We have already seen that big studios from the U.S. have been tapping talent in the animation field. But now, like everybody else, these companies will also look at India as a market.”
Cricket, Cinema, Comedy and Crime
Conference participants raised other areas of concern, among them the credibility of news channels. India has more than 50, all desperate for eyeballs, and news can fall victim to sensationalism. “Today, the consumer demands the 4 C’s, namely cricket, cinema, comedy and crime,” says G. Krishnan, CEO of the India Today Group-owned Aaj Tak Hindi news channel. “There is no option for news channels but to feed the viewers with what they want.”
Speakers at a session on “news entertainment” pointed out that the response was limited when serious issues such as farmers’ suicides were aired. This was not just a matter of perception; it was underscored in audience participation programs that involved telephone call-ins or text messages. “We do carry stories that matter, and we do deal with social responsibility,” Krishnan said. “But at times, when things really get demanding and competitive, in the interests of our channels, we have to go for what the viewers want and not think of social responsibility.”
No consensus emerged, but it was evident that the era of news as entertainment would continue. And that could be dangerous: As another panel on social responsibility pointed out, it could invite government censorship.
Piracy was the other major issue. Asha Swarup, the information and broadcasting secretary who filled in for minister Dasmunshi, touched on the subject the very first day. “Piracy has been hampering the rapid growth of the entertainment business,” she said. “The only way to tackle this is to ensure tight scrutiny from the supply side. Simultaneous or quick release on the Internet or home video could be an alternative to curbing piracy.”
The issue came into sharper focus on the conference’s third day, when U.S.-India Business Council president Ron Somers released a study — “The Effects of Counterfeiting and Piracy on India’s Entertainment Industry” — produced by the Council and consulting firm Ernst & Young India. “This study estimates that the Indian entertainment industry loses some 820,000 jobs and about $4 billion annually to the piracy menace,” Somers said. “This is an unacceptable loss by any measure.”
In some ways, the Indian E&M industry has itself has maintained a cavalier attitude toward piracy. Almost every successful movie abroad has a clone in Hindi. A visitor from New York would find much that is familiar on local TV channels, even though he did not understand the language. And advertising in India, even as little as a decade ago, gave new meaning to the word “copywriter.”
In a globalized environment, intellectual property becomes sacrosanct, and the Indian E&M industry is no longer playing to just a domestic gallery. First, there is the diaspora. Second, in areas including cricket, gaming and animation, India is becoming mainstream. Frames 2008 demonstrated that: Foreign delegates numbered 500. Some of the industry’s big players headed to Las Vegas for April’s National Association of Broadcasters jamboree. The title of one session: “Globalizing Bollywood.”