12 Show Business

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THURSDAY l MARCH 15 l 2012 ing content with mass connect, star power and digitisationfacilitated countrywidereleases,allcontributed their part in this turnaround. In the year gone by , not only did A-list star cast films do well, but niche/focused content from independent film makers also gained widespread acceptance. Ragini MMS, Murder 2 and Tanu weds Manu performed well at the box office in 2011. Entertaining stories were appreciated across genres. Themes that were women oriented, such as No One Killed Jessica and The Dirty Picture, horror-based Haunted, urbane life-based Zindagi Na Milegi Dobara, Delhi Belly and romance-based Ladies v/s Ricky Bahl wereallboxofficehits. Cable and satellite revenues continue to account for a sizeable pre-release recovery of high budget Hindi films. C&S rates for Ra.One and Don 2 wentpasttherecordsetby ThreeIdiots in 2009. Continuing the trend, Agneepath and under production Taalash garneredover R40croreeach in C&S revenue by end of 2011. Albeit on a much lower base, C&S revenues forregionalcinemaalsostrengthened during the year. Aggressive marketing and promotion tactics became commonplacein2011. While Ra.One had the longest and most elaborate marketing campaigns in the history of Indian cinema, even medium budget films spent increasingly higher amounts to get strong pre-launch visibility . Some of the other key themes of 2011 were increasing digitisation of theatres, widening acceptance of 3D exhibition, increasing multiplex footprint, rising trend of cinema advertising, imposition of service tax on film exhibition and a growing presence of Hollywood. Although film budgets have increased sharply over the years, the commercial success ratio of films has remained roughly the same at 15-17%. Spending more did not necessarily increase the likelihoodof commercialsuccess. Patiala House, Mausam and Game did not do as well as anticipated despite having star casts, supporting budgets and wide marketing.

Sudipta Datta OR THE media and entertainment industry , 2011 was a bit of a mixed bag. On the one hand, it will be considered as the year in which digital transformation of theindustrybegantotakehold,on theother,theeconomicdownturndid impact revenues, with advertising growth somewhat muted in the secondhalf of theyear.ButastheFICCIKPMG Report on Media and Entertainment Industry 2012, released in MumbaiduringFICCIFRAMES2012 on Wednesday , revealed, the media and entertainment industry , which grew 12% in 2011 to R72,800 crore, is now better prepared for a financial meltdown, having seen a focus on managing costs, innovation and research since the recessionary pressures of late 2008 and 2009. While television continues to be in thedriversseat,representingaround 45% of the entire M&E sector, growingto R32,900crorein2011from R29,700 crore in 2010, the year saw important developments in terms of multiple films crossing the R100 crore-mark at the box office. The year 2011 also saw growing commitment from the cable industry to pursue digitisation as per the governments mandate, regional marketsdefiedrecessionarytrendsin terms of growth of television and print, the governments increased commitment towards phase 3 for radioandthegrowthof newmedia. ExcerptsfromtheFICCI-KPMGreport on the top three sectorsTV , printandfilmsandthefastgrowing newmediasector:

The FICCI-KPMG report on the media and entertainment industry says the sector is now better prepared for a financial meltdown, having seen a focus on managing costs, innovation and research since the recessionary pressures of late 2008 and 2009
expected to increase significantly . The TV industry is expected to grow at a CAGR of 17% over 2011-16, to reach R73,500 crore in 2016. The total numberof TVchannelsinIndiawent upto623in2011,andmanymorechannels are awaiting approval for broadcast. There has been a significant increase in demand for satellite bandwidth, with the introduction of HD channels, DTH expansion and new channel launches. While there has been a significant increaseinadvertisementinventory , advertisement rates generally remained flat or declined in 2011, with advertiserscuttingadbudgetsdueto the economic slowdown. However, with a large number of untapped advertisers who are currently using only the print platform, there is potential for further growth for TV . The cable television industry in India is poised for one of its most significant developments in the last decadeatransformationtotheDigital Addressable System (DAS) for television distribution. Cable operatorsinaDASregimewouldbelegally bound to transmit only digital signals. Subscribed channels can be receivedatthecustomerspremisesonly through a set-top box equipped with a conditional access card, and a subscriber management system (SMS). In a nutshell, each user in the network would be uniquely identifiable to the service provider. Digital television is expected to provide the consumer access to a higher number of TV channels, customised tariffs, availability of broadband and other advertisementspends.Theprintplayvalue-added-services, and enhanced ers continued to adopt a cautious and user experience through better pragmaticapproach,withprimaryfoviewing quality and consumer sercus on consolidating their position in vice. While the transition towards core markets. The growth in adverdigitisation is not expected to be en- tisementrevenueshasbeenataCAGR tirelysmooth,andthereareboundto of 8.7%, whereas circulation revbe implementation challenges, the enues have displayed a CAGR of 3.7% overall indicators appear positive, between 2007 and 2011. The advertiseand the industry believes that digitiment revenues continued to be the sationof cablenetworksacrossIndia main source of revenue for the print islikelytobelargeindustry , contributly successful. In ing 67% to the infact,theremaybea THE OVERALL M&E dustrysrevenues. delay of six to 12 MARKET IN INDIA IS The Indian print months for comindustry has to be EXPECTED TO GROW AT looked at from two plete digitisation across metros. As A COMPOUNDED perspectivesthe Ronnie Screw- ANNUAL GROWTH RATE urban centres and vala,MD,WaltDis- OF 15 % PER ANNUM the emerging cenney India puts it: OVER THE NEXT FIVE tres of consumpThere is likely to tion. Thus far the YEARS, TO REACH be delay in digitimetros and tier-I R 1,40,000 CRORE IN 2016 cities were the hub sation due to practical difficulties of economic acbut the two big tion; however, the themes for 2012 and 2013 are digitisafocus is now shifting to the next 40 tion of cable and broadband. cities which are experiencing rapid urbanisation and greater economic Print: Consolidation; growth. Powered by strong connew frontiers sumerism, these centres have been In the calendar year 2011, the R20,900 insulated to a large extent from the crore print industry grew by 8.4% impactof globalslowdown.Theplayfrom R19,300crorein2010,slightlylowing field in both these markets is erthanexpectations.Eventhoughthe quite different. longtermgrowthstoryof Indianprint The urban centres observe high industry remains promising, the seclevels of media penetration, faster tor was impacted due to the overall adoption of technology , deeper penemacro environment being depressed. tration of Internet and mobile and a Themacroeconomicenvironmentrerapidchangeinconsumerbehaviour mained challenging and dampened and media consumption patterns. On the other hand, the tier-II and tier-III markets continue to be attractive due to increased affluence and a consumerist outlook. The industry is beginning to treat the urban consumer on a par with the global citizen and developing content and delivery platforms which are in tune with the changing times. On the other hand, the industry will have to connect with the consumer in emerging consumption centres by establishing strong relationships through local language content, quality service, innovative business models and bringing comfort of familiarity. The rate of adspend growth in smaller cities has accelerated and overtaken the traditional markets.

DIGITAL AGE

Entering the

IMAGING: SADHANA SAXENA

New media: On the fast track

New media continued its growth trajectory in 2011, with estimated growth in advertising revenues in excess of 40% over last year. Coming in at approximately R1,540 crore revenue in 2011, digital adspend reached approximately 5% of total media and entertainment industry advertising revenue. This share is expected to continue to grow over the coming years, driven by significantly higher growth rates in online advertising spendcomparedtotraditionalmedia. This is good news for the industry as it comes to terms with the impact of the Internet on its traditional businessmodelsandbeginstoevolve them for monetising its content in the digital world. The digital media ecosystem in India is evolving rapidly .ContinuedgrowthinInternetpenetration and mobile device access is expected to drive consumption. This will further drive adoption by advertisers and developments in the payment ecosystem to facilitate better monetisation. The overall M&E market in India is expected to grow at a compounded annual growth rate of 15 % per annumoverthenextfiveyears,toreach R1,40,000 crore in 2016. The potential for increase in media penetration, growing importance of regional markets, increasing consumption in tier-IIandIIIcities,impactof regulatory changes, more focused consumer research, innovation in content, marketing and delivery platforms to serve different niches, increasing device penetration like mobiles, tablets, PCs, etc, all point towards a very positive future for the industry , the report said.

Television: Digital route to growth

Television is the largest medium for media delivery in India in terms of revenue, representing around 45% of the total media industry . The TV industry continues to have headroom for further growth as television penetration in India is still at approximately60%of totalhouseholds.India continues to be the third largest TV market after the US and China, with 146milliontelevisionhouseholds.Cable and satellite (C&S) penetration of television households is close to 80%, withDTHdrivingasignificantpartof thegrowthinthepast12months.With the impending digitisation of all analog cable subscribers imminent, penetration level of digital households is

Films: Scripting a turnaround

The Indian film industry has recovered from a two-year slowdown in 2011, and was estimated to be of a size of R9,300 crore in 2011, indicating a growth of 11.5% over 2010. With the cricket World Cup and IPL taking away four months in the first half of 2011, there were only about 40 availableweekendsforfilmreleases. Bodyguard, Singham, Ready, Ra.One and Don2 breachedthe R100-croremarkin domestic theatrical collections. The industry took just one year to more than double the count of films in this elite club of high revenue generating Hindicinema.Asteadyincreaseinaverage ticket price on account of the growing multiplex culture, increas-

Budget: A wish list from media & entertainment sector

ahead of the Budget this year:

HE MEDIA & entertainment (M&E) industry stands on the brink of a revolution, as new technologies and platforms are transforming the way we experience and enjoycontent.Itisbecomingincreasingly important to ensure that tax laws not only recognise this, but also provide for platform neutrality to ensure that consumptionof contentoverdifferentplatforms and screens have consistency in terms of tax treatment. In recent years, the ability of the M&E industry to grow at the desired pace has been marred by myriad taxes in various forms and multifarious statutorycompliances.Whilewerecognisetheindustryaspartof ourcultural heritage, the average indirect tax burden of 40-45% on films is on a par with products such as alcohol and tobacco and goods with negative externalities (such as polluting products). Provided below are the key issues affecting the sector and a wish list

Rationalise taxes for film industry

High entertainment tax is a major threat to the sectors survival. Such additional economic burden on an industry that showcases Indian art and culturetotheworldisunjustified.Hence,it is imperative that entertainment tax structure across the country is rationalised by bringing down rates of entertainment taxes in states like Maharashtra, Delhi, UP, West Bengal, Gujarat, Haryana, etc. High entertainment tax also acts as an impediment to live entertainment industry, which is on a growth path. Film producers generate revenues from theatrical and non-theatrical rights, both of which are liable to service tax. Separately, various state governments classify copyright as goods, thereby levying value added

tax on transfer/ licensing of copyright cluded from the service tax levy . on non-theatrical streams. To prevent Multiplexes have helped in bringing multiple taxation on the same item, audiences back to theatres. Availabilithe government is requested to ex- ty of multiplexes in tier-II and tier-III empt copyright in theatrical distribu- cities is significantly lower vis--vis tion of cinematograph films from ser- population. Further, tax incentives vice tax levy. The government should shouldbeofferedfordigitisationof cininclude copyright emastoexpeditegrowth in theatrical distribuprospects in these cities tion in the list of and curb piracy . negative services. The law requires forUnder the negative eign performers, enterlist- based service tax tainers, etc, to obtain inlegislation, governcome-tax clearance ment has proposed to certificate (TCC) levy service tax on the before departure. The right to enter any procedure of obtaining RAKESH premises. Entry into TCC is time consuming premises such as films, and onerous. It is suggestJARIWALA theatres, amusement ed that an alternate parks could be liable to mechanism for clearance service tax. Since these activities are or a monetary threshold for triggering already liable to high entertainment TCC provisions is provided, as the taxes by states, it is suggested that en- current set up and administrative burtry into such premises should be ex- den discourages foreign talent to

shoot in India. Presently, amount paid to non-resident Indians for participation in any sport in India is liable to tax at concessional rate of 10% on gross basis. It is recommended that a similar provision be introduced to tax foreign artistes, performers and entertainers. The government should take a cue from steps taken by federal/ state governments across the world such as Singapore, the UK, Germany , South Africa and the US and should work towards incentivising the film industry through a well defined plan for content creation and infrastructure. Foreigntelecastingcompaniesgenerally grant distribution rights for their channels to an Indian company, which in turn transfers these distribution rights to the cable operators etc. The payment for grant of distribution rights is not for the copyright in the

Foreign cos: Clarify status

content and hence, is not in the nature of royalty . However, divergent views taken by tax authorities in characterising these receipts as royalty or business income has led to protracted litigation. A clarification that these payments do not qualify as royalty is sought to settle the dust. The government should consider granting relief from levy and collection of service tax on subscription charges received by cable operators and DTH operators, since these charges are already subject to entertainment tax. The weighted deduction of 200% of the actual expenditure incurred on in-house research and development of the Act is currently available to only certain segments of M&E sector. It is suggested that this benefit shouldbemadeavailabletoproductsas wellasproductionservicescompanies. Rakesh Jariwala is partner and tax expert, Ernst & Young