The Indian entertainment industry is one of the fastest growing in India. Changing lifestyles and increasing disposable income levels has facilitated the increasing penetration levels of the media and entertainment industry. Access to global entertainment avenues, outsourcing of animation business to India and increasing migration of Indian population will lead this industry to increase at a faster pace.

Further, diversification in the value chain of the industry was also witnessed. Companies have moved into different segments to provide a complete package. The entertainment and media sector has grown at a CAGR of 20% over the last 2 years. Going forward, it is expected to grow at a CAGR of 18.5% till 2011 to touch a size of Rs 1 trillion.
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Industry wish list

FICCI's wishlist

• Duties on set top boxes, DTH, IPTV and other broadcast equipments should be reduced. This will boost the domestic set top boxes
• Fringe benefit tax should be reduced/rationalized.
• Waiver of Service tax on lease rentals for multiplex as these would reduce the rentals.
• Scrapping of entertainment tax or exemption from VAT

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Budget Over The Years

Budget 2005-2006

• Service tax on broadcasting services to include charges recovered by broadcasting agencies from MSOs and provision of DTH signals to customers.
• Service tax sound recording to include recording of sound on any media and includes post-production services such as sound mixing or re-mixing.
• Service tax videotape production to include recording of any programme, event of function on any media and includes post-production services.

Budget 2006-2007

• Service tax increased from 10% to 12%. Sale of space or time for advertisement service, excluding that in print media and that by broadcasting agency, brought under the service tax net.
• Sponsorship service, excluding sponsorship in relation to sports events, brought under the service tax net
• Sale of space for advertisement in print media left out of the ambit of service tax.
• Excise duty of 16% levied on set-top boxes and customs duty of 15% brought down to 'nil'.

Budget 2007-2008

• Development and supply of content for use in advertising purposes brought under service tax net.
• Sale of space or time for advertisement service, to specifically include sale of space in business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes brought under service tax net.
• Exemption from CVD has been withdrawn on specified parts of set top boxes.
• Excise duty exemption on recorded video cassettes intended for television broadcasting has been withdrawn and 8% excise duty has been imposed

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Key positives

Going great guns: India is interestingly poised to enter this phase of high growth for the sector. Apart from the macro growth drivers like rising income levels, changing lifestyle and demographic impetus, each segment in the media sector would be driven by other micro factors. Besides increasing penetration of cable and satellite services in rural and semi urban areas, better content quality and niche channels would provide further impetus.

Convergence: Convergence is making consumers more sophisticated in their video consumption habits by moving them to the top of the value-creating hierarchy. This would allow beneficial interaction between consumers, content owners, service providers and networks and will present many opportunities for the industry to create new revenue streams.

Helping hand: Support from the government has also aided the growth of the industry. The government has liberalised the up-linking policy and reduced the rate of basic customs duties on import of certain specified equipments for setting up an earth station to aid broadcasting from India. Further, abolishing of excise duties to fight music piracy is also another positive gesture from the government.

Better technologies: Acceptability of DTH (Direct-To-Home) will curb the menace of under-declaration of subscribers by cable operators. Subscribers will then pay for only the channels of their choice.

Greater choice: Emergence and acceptance of new entertainment avenues like movie multiplexes and radio has provided consumers with greater choices, which will aid the growth of the sector going forward.

Widening ad base: FMCG companies, which have been key contributors to the total ad-spend of the industry, are increasingly concentrating towards rural markets. Broadcasters are launching regional channels to cater to a vast semi-urban/rural population. Moreover, with new sectors opening up like telecom, healthcare and insurance, advertisements by these segments would also aid the ad-spend growth across media segments.

Key negatives

Increasing competition: Competition in the industry has been gathering steam, not just between different segments of the media and entertainment industry but also within the segments itself. This could lead to burgeoning costs of production for media companies in the form of higher compensation in order to retain talent and acquire properties/rights. Increasing number of options for advertisers to showcase their products and services could also cap the potential upside in ad realisations.

Subscriber under-declaration: The revenue model for the cable and satellite companies is still skewed in favour of cable companies. Cable operators are in a commanding position. However, this industry is likely to face consolidation with Multi System Operators (MSOs) like Incablenet, Siticable, Asianet, Hathway Cable and Datacom buying over the small local cable operators (LCOs) and setting up their integrated network.