India Entertainment & Media
February 2010
Nikhil Vora
(M) +91 9821132471 nikhilvora@idfcsski.com
WELCOME to one of the largest media markets
500+ television channels; 600m viewers 2x the population of United States 100m+ newspaper circulation across 50,000+ editions Next only to China 3.5bn movie tickets sold annually for 1000+ movies 2.5x the size of the second largest market 80m Cable and Satellite homes Next only to USA and China
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A gargantuan OPPORTUNITYUp for grabs
Indian International Financial investors
OPPORTUNITY???
Annual revenues of IEM USD13bn x the size of Comcast Revenues of Indias largest media player USD600m Value of entire IEM USD25bn 1/2x the market capitalization of Disney Cumulative profits of IEM ZERO
4
Scale of every segment - INSIGNIFICANT
50% Rs13bn Rs15bn Growth Rs125bn Rs9bn
Rs130bn Rs184bn
Rs90bn Rs17bn
0% Television broadcasting Print Distribution Filmed entertainment Multiplexes Radio OOH
Rs7.5bn Music Internet & interactive Scale of largest player is <USD50m
ZERO industry profits
Industry value down ~25% since Jan 2008
Annual industry bleed of Rs25bn
Poor Hit to Miss ratio of 15:85
Largest player has 12% RoCE
Entire industry profit at Rs1.2bn by 2012
Largest player (Times OOH) not profitable
Stagnant growth of 1-2%
5 5
Why the IRONY???
Irrelevant YIELDS Revenue SEEPAGES Avenues UNEXPLORED Capital-led CLUTTER and over - EXUBERANCE
6
Irrelevant YIELDS
Cost of entertainment for a family for the entire month
(USD) 60 60 60 Cable ARPU
3/4th of India watches a movie at <Rs20
(USD) 12 Average ticket price 11.0
45
40
9 6.5 6.1 6.0
30 20 15 4 0 US UK France Singapore India
3 0.5 0 US UK France Singapore India
USA
Passion Property Ad rate/30 sec
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India
Cricket IPL Rs2.5m
Football Superbowl Rs88m
Revenue SEEPAGES
C&S homes 80m
x
Average ARPU USD4/ month
=
Annual cable collection USD 3.8bn
Unorganized nature of cable distribution; 7,000 MSOs and 40,000 LCOs Cash ransaction t Lack of addressability analogue distribution
Broadcasters share MSOs and DTH operators share SEEPAGE
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USD 500m USD 500m USD 2.8bn
Avenues UNEXPLORED
Film revenue model virtual absence of home entertainment
(%) 80 Domestic theatrical
Distribution revenues underexplored
(%) 60
60
45
40 20
30
15
0 India Global
0 CNBC TV18 Global Niche player
Till recently, newspaper and news channels the only source of news
News content
Capital-led CLUTTER and over-EXUBERANCE
USD3bn of funds raised since 2005 across sectors
Segment Broadcasting Cable distribution DTH Print Media OOH Multiplex Film Production Players NDTV Imagine, 9X, Colors, UTV Hathway, Digicable, DEN, YouScod18, WWIL Dish TV, Sun Direct Jagran Prakashan, HT Media, DB Corp ENIL, Laqshya PVR, Cinemax, Fame, Big UTV, Network18 (IFC) Funds raised (USD m) 600 400 1000 250 75 150 500
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In FY08-09, everyone RAN to STAY where they were!!!
COLORS toppled Star Plus from leadership position Leaders in print challenged on their home turf Established MSOs busy protecting their subscriber base, while new players built a base of 10m+ UTVi and ET Now rope in people at 2-3x their earlier pays Movie budgets shot up by 2.5x
Leadership was challenged
Survival became critical
Economics deteriorated
11
Is IEM then worth giving a MISS?
NOT REALLY!!!
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OPPORTUNITY to REALITY change is underway
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Advertising pie USD9bn by 2013E
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Change has already commenced
Advertising to GDP up from 0.48x in 2000 to 0.6x in 2009
Price
Rate / 10 sec slot 13 TRP of top content
Penetration
Print circulation and C&S 2x in 10 years Indian consumption story going deeper
Platform
FM Radio 7 cities to 60 cities Emergence of targeted platform - Regional GEC, Niche channels Missing avenues in the past OOH, Internet and new media
140,000 105,000 70,000 35,000 0
FY06
FY10
CPRP up from Rs10,000/10 sec slot to Rs12,000
New advertisers emerge Investments, Insurance, DTH, Education
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India to be a USD1trillion consumption market
Ad spend in India way behind consumption levels
Consumption-led advertising growth
Existing businesses going deeper 120 new telecom licenses issued New businesses emerging DTH, Education, Retail Many international brands yet to come recent Volkswagen blitzkrieg
(%) 2.0 1.5 1.0 0.5 0.0 India
Ad / private consumption 1.9 1.4
0.7
China
US
Ad pie seen at USD9bn by 2013
Yields to improve with niche content and media consolidation Expect advertising CAGR of 17% over 2009-2013
Advertising revenues Rs bn 525 415 350 197 175 235 320
0 2007 2009 2011E 2013E
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Which platform tends to gain?
Changing consumption trend
Product launch phase Rural growth story Premiumization
Which segments would gain?
TV and Radio Regional GEC, Radio Niche Broadcasting, Magazines, Internet, new media
Sectors
FMCG Telecom Auto BFSI and Education Retail
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Which segments would gain?
TV and Radio Regional GEC, Radio, new media TV, Print and Internet Print, OOH and new media Print and Radio
Pay revenues Higher addressability and better ARPU
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DTH 18m subscribers; 7m-8m being added annually
Unorganized cable industry and cable dry areas create opportunity Deep-pocketed players Dish TV, Tata Sky, Airtel, ADAG, Sun Direct USD3bn-4bn of fund chase drives subsidy-led growth A 37m subs home market by 2013E (our estimates of 16m subscribers for CY10 already exceeded)
Indian DTH market growing briskly
(m) 40 35.0 31.0 30 25.0 20 11.0 10 5.0 1.0 0 CY05
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DTH - subscriber base
37.0
18.0
2.0 CY06 CY07 CY08 CY09 CY10E CY11E CY12E CY13E
Cable distribution at the cusp of changeover
Digitization now a reality
Why not so far?
Capitalization of industry <USD350m too low to compete with DTH Funding, if at all, happened for new entrants Digi Cable, D EN, Y ouScod18 PE route of funding (CVC, ChrysCap, Ashmore) - scale over monetization Funds utilized for acquiring critical subscriber base and not for digitization Established MSOs busy protecting their turf Limited threat of DTH low LCO willingness Digitization of cable restricted to just 2.5m subscribers so far
Why now?
Rs16bn being raised through secondary market Critical mass achieved (top 5 MSOs own 27m30m subs) time to secure Only way to secure subscriber base SEED IN SET TOP BOXES Focus shifts - acquisition to digitization (~3m digital subs currently) Public funding pressure to monetize DTH accounts for 20% of C&S market increasing pressure on LCOs Monetization in phases fixed rentals initially and then share of ARPU
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India to be a 27m digital cable market by 2013
Multiplexes driving movie Average Ticket Prices
Multiplex ATP of Rs125 5x the average ATP in India Multiplex ATP 3-5x of like-to-like single screen Theatre collection of Rs15bn from ~700 operational screens Accounts for 25% of revenues for <5% of tickets sold Average ARPU up from Rs17 in 2007 to Rs25 now
Case in Point Average ATP at 3-5x comparable
(Rs) 145.0 PVR's ATP
Helping improve all India average
(Rs) 30.0
ATP
135.0 20.0 125.0 10.0 115.0 0.0 FY07 21 FY08 FY09 FY06 FY07 FY08 FY09
105.0
As these things play out
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IEM to be Rs1trillion business by 2013E
Segmental distribution of IEM 2013 (US$22bn overall market)
Internet 2% OOH Radio 3% 2% Filmed Entertainment 17%
Music 1% Gaming 3% Broadcasting 24%
Print 25%
Television Distribution 23%
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How does one play IEM?
1. IDENTIFY BUSINESSES 2. IDENTIFY SURVIVORS 3. IDENTIFY MODELS 4. IDENTIFY THE PLAYERS
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1. Businesses
Scalability potential
Television broadcasting Television distribution Print Media Film Industry Multiplex Radio Industry OOH
Long term profitability
Capital deployment
Value creation
25
DTH Distribution the pain is behind
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Numbers are ticking 37m by 2013E
Unlike globally, Indian DTH market has 6 players
Dish TV, Tata Sky, Sun Direct, Airtel Digital, Big TV and Videocon (D2H)
Deep-pocketed players ensured USD4bn of funding into industry
customer pull through heavy subsidy
DTH already an 18m subscriber market; adding 7m-8m annually
Indian DTH market growing briskly
(m) 40 35.0 31.0 30 25.0 20 11.0 10 5.0 1.0 0 CY05
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Current market share
Big TV 10% Airtel Digital 13% Dish TV 33%
DTH - subscriber base 37.0
18.0 Sun Direct 19% Tata Sky 25%
2.0 CY06 CY07 CY08 CY09 CY10E CY11E CY12E CY13E
ARPU some time away
ARPU to remain subdued
Digitization still through customer pull ARPU to remain subsidized Content exclusivity not permitted Analogue cable ARPU at USD4 remains the key hurdle DTH reaching cable dry areas ARPU potential to remain low
Expect DTH ARPU to grow to Rs260 by 2013 from Rs140 in 2009 DTH revenues to grow to Rs127bn by 2012
Revenues for DTH operators 3x+ over CY09-13
(Rs bn) 140 111.3 105 81.8 70 35.6 35 21.1 55.5 DTH Revenues 126.5
0 CY08
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CY09
CY10E
CY11E
CY12E
CY13E
Reducing BLEED - declining acquisition cost
Customer acquisition costs have largely stabilized
None other than Sun Direct playing the aggressive PRICE game Airtel and Reliance Big TV pain in telecom business limits ability to bleed Tata Sky and Airtel services over pricing
(Rs/ sub) 3,000
Customer acquisition cost
2,250
1,500
750
0 Q3FY08 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10
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Reducing BLEED fixed content cost model
Increasing share of DTH revenues for Zee Entertainment
DTH revenues - RELEVANT
DTH only mode of digitization so far Accounts for ~33% of domestic pay revenues for lead channels DTH revenues only INCREMENTAL; not coming at the cost of cable revenues
(Rs m) 6,000 4,500 3,000 1,500 0
Analogue revenues
DTH revenues
FY07
FY08
FY09
FY10E
Broadcasters willing to accept fixed content cost deals Content costs to drop from 50% of ARPU revenues to 35%
Easing content cost
Content cost / ARPU 60 52 45 30 15 0 FY09 FY10E FY11E FY12E FY13E 43 38 35 35
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Operating leverage coming to the fore
Almost 20% of the cost structure directly linked to new subscriber addition A larger continuing subscriber base - operating leverage visible for leader
Continuing subscriber generates operating margins of 35%+ Advertising and distribution spends down from 40%+ in FY08 to 15% in Q2FY10, though cost per new sub remains at Rs100-1200
The tipping point - Dish TV profitable at the EBITDA level; expected to generate cash profits by Q2FY11
Industry leader nearing cash profit
Transponder Employee Admin
(Rs m) 500 0 4.8 16.9 3.7 22.1 7.9 34.7 FY10E -500 -1,000 Q3FY09 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q1FY09 Q2FY09 Q4FY09 Q1FY10 Q2FY10 Q4FY11 -1,500 Cash profit
Improving cost to revenue ratios
Content Goods and services ASP
12.8 105 70 35 43.7 0 FY09 33.5 5.3 21.9 6.7
140
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Cable Distribution capital going for good use
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2006-09 digitization remained a concept
The 62m cable home market remains extremely fragmented and analogue-dominated Digitization as low as 4% - at 2.5m subscribers as against 18m DTH subscribers
What has gone wrong for the cable industry?
MSOs not funded for seeding STB Execution a failure - high resistance from LCOs Lack of political will Consumer Psyche If digital is mandated, why not switch to DTH, a professionally managed service Lack of funds to subsidize customer acquisition DTH industry funded to the tune of USD4bn-5bn Subsidies on DTH as high as Rs2500-3000 per connection
Mandated CAS in notified areas
Voluntary digitization
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2006-09 LCOs made merry
USD300m+ funds chase cable business, but largely new entrants
Company
Hathway Digicable DEN Ortel YouScod18
FOCUS Customer acquisition at any cost
Achieving critical subscriber base of prime importance for new entrants High carriage revenues made high-cost customer acquisition viable Customer acquisition cost moves up to as high as 30 months of ARPU
USD m
60 140 50 25 60
Investor
ChrysCapital Ashmore IL&FS, TV18 NSR, Actis, SREI CVC
+
Carriage stream of revenues
Advent of a plethora of channels carriage revenues grew by 40-50% Carriage revenues directly linked to reach and quality of reach Every large MSO earning Rs1.5bn-Rs2.5bn through carriage revenues
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LCOs and MSOs made most of the gains
Then why play cable industry now?
Expect 27m digital homes by 2013 - ~10x the current base
Critical base achieved each MSO claims a 4m+ subscriber reach Time to secure the base Seed STB at consumer home to ensure LCO stays Little scope for growth in carriage revenues focus on ARPU monetization Funded for digitization Rs16bn raised by WWIL, Hathway, DEN and DigiCable Public route of funding increased accountability to report monetization DTH reach at 20% - Increased threat for LCOs to align with MSOs or perish Lower acquisition cost Subsidy as low as Rs600/ sub vis--vis Rs2500 for DTH
Digital cable subscriber base set for an uptick
Digital Cable 30 22 20 14 10 2 0 CY08
35
27
7 3 CY09 CY10E CY11E CY12E CY13E
Then why play cable industry now?
Monetization ARPU led gain only gradual
Rental income initially To ensure easy acceptance, MSOs to monetize rentals MSOs the biggest beneficiary Entire monetization gain to be retained by MSOs ARPU monetization To happen only once digital base reaches 30%+ of individual market Expect ARPU growth on digital platform from Rs180 now to Rs240 by 2012 MSOs share To move up from 6% currently to 20% by 2013 of the overall cable homes
MSOs share of cable revenues to quadruple
(Rs m) 40 30 20 10 0 CY08
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MSOs to get their fair share of cable ARPU
MSOs' share of ARPU 24
MSOs' share of cable revenues
18
12
CY09
CY10E
CY11E
CY12E
CY13E
CY08
CY09
CY10E
CY11E
CY12E
CY13E
Play the television distribution opportunity
There is need for CAPITAL (Industry needs USD5bn) Ability to tide over the GESTATION phase Will need COUPLE of rounds of subsequent funding Superior revenue model - ANNUITY MODEL Highly profitable business 35%+ margins in the long run Distribution the highest VALUE CREATING business Comcast SCALABILITY in the long run as the market consolidates
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Television Broadcasting a natural beneficiary of digitization
Rationale to play the broadcast story pay revenues offer annuity Gains from DTH already visible
Case in point ZEELs multifold growth in DTH revenues
(Rs m) 600 517 450 ZEEL's DTH revenues
Broadcasters share of pay revenues to grow by 2.5x
(Rs bn) 90
Broadcasters' share of pay revenues
60
300 271
30
150 125
0 Q2FY08 Q2FY09 Q2FY10
0 FY08 FY09 FY10E FY11E FY12E FY13E
Gains from cable digitization a long haulMSOs to gain first
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Broadcasters pay revenues to grow from Rs35bn now to Rs79bn by 2013E
Emerging segments The opportunity is BIG
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Radio and OOH at the inflexion point
Radioplaying a new tune!
Why not so far?
Aggressive bidding in Phase II Thus high OTEF paid by players Single frequency; shorter tenure contracts
OOH taking off!
Why not so far?
Fragmented industry Aggressive bidding in the first round Fixed fee agreements; 5-yr contracts
What is changing?
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What is changing?
Industry moving towards consolidation Growth driven by infrastructure development, such as airports Economics to prevail in second round of bidding Revenue-sharing agreement;20yr contracts
Economics to prevail in Phase III of bidding for licenses, and thereby lower OTEF Tier-III cities to open up, thereby aiding in piggyriding the rural boom Longer tenure contracts Multiple frequencies
Entertainment Network and Reliance Media World key players in these spaces
Gaming and animation rich in IPR!
Gamingtime to play!
A US$30bn industry globally Increasing penetration of telecom industry underpinning growth in casual gaming segment Indian corporates testing international shores for console gaming UTV software developing four IPRs in the international market Synergy with DTH: Indiagames has struck a deal with Reliance Big TV to make available eight games on DTH platform for Rs30/month
Animation coming alive!
Indian animation market expected to reach US$1bn by 2012 CAGR of 22% over next 3 years (source: NASSCOM and Ernst & Young) India becoming a preferred outsourcing destination for animation Studios moving up the value chain to own IPRs with Hanuman, Roadside Romeo, etc Indian corporates also acquiring rights for international characters like Charlie Chaplin to create animated content
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UTV Software and DQ Entertainment are key players in these spaces
2. Survivorsare Winners
Globally, same Top 8 players for the past 5-6 decades
Companies
Time-Warner Walt Disney News Corp Comcast Clear Channel Viacom Sony Echostar
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Sector leaders
Film entertainment, Print, Cable, Radio, Music Film entertainment, Internet & Gaming Film entertainment, Television broadcasting Television broadcast, Cable Radio, Outdoor advertising Film entertainment, Television broadcast, Music publishing Music, Television broadcast Television broadcast products, DTH
Year of commencement
1923 1919 1952 1963 1901 1971 1946 1980
Survivorsare Winners
Competition to clutter Identification of opportunities
Mavericks identify opportunities
Media Subhash Chandra Retail Kishore Biyani Aviation Naresh Goyal Telecom Sunil Mittal
Credible players make a foray
Media Tatas, ADAG, TV, NDTV Retail Tatas, Reliance, Bharti, AV Birla Telecom Tatas, Reliance, AV Birla
Capital chases businesses Multifold growth in volumes while yields drop Incumbent leadership at risk Business economics deteriorate
Execution differentiates between who SUCCUMBs and who SURVIVEs
Limited capital availability Business scale-up multifold latent demand gets monetized Business economics favourable
Fragmentation of businesses and deterioration of economics value destruction is inevitable
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A few strong survivorsin the Indian context
Sector Company Characteristics
2 cycles of toughest competition in past decade, yet among the top 3 broadcast players
Broadcasting
Zee Entertainment
Regional broadcasting
Sun TV
Remains the most dominant player in the South India Regional GEC market
Distribution
Dish TV
Despite entry of 5 new players in DTH space, remains the largest player and accounts for 25% of the incremental market
Radio
ENIL
Remains the largest and the only profitable FM Radio player
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3. Models that work
Conglomerates offer scale
TV & Cable: CNN, HBO, etc Print: Time, Fortune, (150 magazines) Films: Warner Bros Online: AOL, Mapquest, Advertising.com
TV & Cable: ABC, ESPN, Channel; Radio: 227 stations Films: Walt Disney, Miramax, Pixar Outdoor Entertainment: Disney theme parks
TV & Cable: TV Stations, Fox Business, NatGeo Print: Wall Street Journal, HarperCollins Films: 20th Century Fox Online: MySpace
TV & Cable: 27 CBS TV stations, MTV, Nick, VH1, Comedy Central, Radio: CBS stations Publishing: Simon & Schuster Films - Paramount & Dreamworks Music: Famous Music
Mkt cap: USD34bn
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Mkt cap: USD60bn
Mkt cap: USD37bn
Mkt cap: USD18bn
Conglomerates in India
Essel Group
Film Entertainment Television Broadcasting Television Distribution Print media Multiplexes Others
Times Group
Print Television Broadcasting Movies and Music Radio and Outdoor New media Times o Money f Timesjobs.com Simplymarry.com Magicbricks.com Economic Times TV
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Conglomerates in India
TV18 Group
Film Entertainment Television Broadcasting Print New Media
JV w ith F orbes Plans to launch Financial news daily
UTV
Film Entertainment Television Broadcasting Television Content New Media
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4. Players
Player
Zee Entertainment
Market cap (US$ m) Characteristics
2,347.2 Survivor in the largest broadcast genre and addressal of corporate concerns Time for monetization of success of Colors and aggressive management
IBN18
405.8
Dish TV
906.2
Largest DTH operator; funding concerns dissipate
PVR
100.2
Largest multiplex operator with 13-14% of box office collection and business beyond multiplex
ENIL
223.7
A strong city-centric model with radio turning profitable; triggers awaited in OOH business
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Disclaimer
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