Media in India: Is it Prime Time?
The Indian media industry is on a fast growth track buoyed by recent shifts in the demographics, income patterns and lifestyle coupled with a surging economy. Growing urbanization and consumerism is expected to bolster advertising spend in the country (which is one of the lowest in the world at 0.48% of the GDP as opposed to a global average of 0.98%). In the near term, TV and Print advertising will be the major beneficiaries of this spend. Longer term, industry dislocations such as the growth of digital cable or satellite TV distribution platforms, or the harnessing of India’s 200mm mobile phone users or nascent Internet users creates a dynamic ecosystem that is expected to lead to tremendous value creation in the next 2-5 years.
The Macros
Media Market: The total size of the media sector in 2006 was ~$10B which is expected to grow at a CAGR of ~18% over the next 5 years. This puts India among the fastest growing media markets in the world, as shown in the chart below.
Television and Print: TV and Print are the two largest sectors in Indian Media with $4.25B and $3B in revenues respectively. Additionally, TV is expected to grow at a CAGR of 26% over the next 5 years.
TV accounted for ~43% of the total media market in 2005, a share that is expected to grow to 55% by 2010.
Cable and Satellite (C&S) Penetration: India is the third largest Television market (in terms of number of TV households) in the world after the United States and China. The Indian C&S TV market is the fastest growing in Asia. Additionally, 98% of the 62M C&S HH are on an Analog platform, a scenario that is expected to change dramatically with the advent of Satellite Direct To Home (DTH) and digital cable over the next 5 years.
Advertising Market: Advertising as a percentage of the GDP is among the lowest in the world at 0.48%. Greater media consumption, a younger demographic and a growing economy are all expected to contribute to an increase in the advertising market bringing the ratio closer to the world average.
Realities and Challenges
Unorganized Last Mile: The distribution of cable and satellite services presently operates on a three-tier platform including the broadcaster, multi-system cable operator (MSO) and the local cable operator (LCO). Currently, more than 50,000 local cable operators (LCOs) control the ‘last mile’ distribution of India’s largely analog hybrid fiber coaxial TV broadcasting network.
Under Reporting and Revenue Leakage: There is massive under-reporting of subscriber numbers by the LCOs who declare anywhere between 10-25% of the actual subscriber numbers. Since revenue sharing with the others in the ecosystem (MSOs, Broadcasters, Government) is a function of the subscriber numbers this under-reporting leads to chronic revenue leakage within the value chain. It is estimated that only about 17% of total revenues through subscriptions reach the broadcasters.
Analog Infrastructure: The majority of the C&S households in India are served via aging, bandwidth constrained, analog distribution systems that can accommodate a maximum of 80 channels (of which only 20 can be accommodated in the high quality prime band).
Dislocations
Digitization of the C&S HHs: The growth of digital platforms, such as Satellite TV (DTH) and digital cable (requiring set top boxes or conditional access systems) which today constitute <2% of the total C&S HH but are expected to account for ~40% of the C&S HH by 2012, will help address the revenue leakage and capacity issues of the industry. As a result the broadcasters and content producers are expected to receive over 50% of subscription revenues in the future fueling the growth of new networks / broadcasters.
Growth of the Organized Sector: Faced with regulatory directives, consumer demand for high quality cable and internet services, the unorganized LCO sector is being forced to upgrade their last mile distribution platforms. Given their low levels of technological sophistication and an inability to raise institutional capital, the LCOs are left with no choice but to get acquired by the larger and better capitalized MSOs leading to a consolidation in the industry quite like the one seen in the US in the 1980s/1990s.
Opportunities
In view of the long-term macro trends, industry dislocations, demographics, a growing middle class and a growing economy, there are a number of white spaces emerging in the ecosystem. All of this has resulted in a lot of interest in the space from both public and private equity investors.
We at Battery have had a strong history of success in the media sector as evidenced by our investments. We will be looking to leverage this mindshare with opportunities along the following key themes in India:
- Local Advertising and infrastructure – There are very few mass media avenues available for local advertisers in India today with the exception of Print. We believe there will be tremendous equity value creation in this space in the near-term.
- Audience measurement systems – Infrastructure and Data services companies focused on audience measurement that allow the advertisers to measure the efficacy of their advertising campaigns is another huge area of opportunity in India. Systems that can enable audience measurement across mediums (from TV to Print to Radio) will be key to the growth of advertising revenues in India.
- Niche content / channels – With the growth and maturing of the audience in India, niche content channels focused on Education, Real Estate, Financial Services, Women, Wellness, etc. will be another key area of opportunity in India.
- Intersection with Mobile / Internet – Convergence between new media (mobile and Internet) and old media (TV, Print and Radio) will give rise to new business models for customer acquisition, retention and monetization.
If you have questions or would like to discuss investments in India, please contact Ramneek Gupta at rgupta@battery.com or Mark Sherman at mark@battery.com.
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