Micro Economics Final Presentation

A Complete Report on the ELECTRONIC MEDIA INDUSTRY in general

and the STAR TV network in particular

Saira Ansari (03)

Dhruvin Shah (20)
Rajiv Siddhartha (21)
Suyash Gupta (09)
Vinit Shah (29)

What exactly is a Medium??

Channels of communication that serve many diverse functions, such as

offering a variety of entertainment with either mass or specialized appeal,
communicating news and information, or displaying advertising messages.

Available types of media include print, electronic, out-of-home, and direct

mail. Print usually refers to newspapers and magazines but also includes
directories, school and church yearbooks and newsletters, and programs at
sporting events and theater presentations. Out-of-home media are designed
almost exclusively to serve only an advertising function, and include
billboards, transit advertising, and posters in public places such as stadiums,
airports, and train stations, as well as flying banners and skywriting. Direct-
mail media are advertisements that are mailed directly to prospects. Any
single form of communication is known as a medium.
How is electronic media different from other forms of media??

Electronic media utilize electronics or electromechanical energy for the end

user) to access the content. This is in contrast to static media (mainly print
media), which are most often created electronically, but don't require
electronics to be accessed by the end user in the printed form. The primary
electronic media sources familiar to the general public are better known as
video recordings and audio recordings .One must note that electronic media
may be in either analog or digital format. Although the term is usually
associated with content recorded on a storage medium, recordings are not
required for things like live broadcasting.

Industry Outlook of the Electronic Media Industry

The Indian entertainment and media (E&M) industry, standing at more than
USD 8 billion, is one of the fastest growing sectors of the Indian economy.
The industry is now at an inflection point, with the earlier phase of growth
having run its course; the sector is now ready to enter a second stage of
growth powered by the twin engines of technology and an enabling
regulatory environment. According to a study by FICCI and PwC it has been
estimated that the industry would grow at a CAGR of 19% to reach Rs.
83,740 crores by 2010 from the present levels of Rs.3,530 crore.

Source: ENIL, 2006.

Easy availability of jobs amongst the young Indians (20-24 yrs) have led to a
higher disposable income, with a major chunk being spent on music, cell
phones, books, food and branded clothes (KSA- Technopak).
So what drives the E&M industry? The buoyant economy has given a fillip
to the consumer's income which in turn increases the disposable income that
the consumer spends on E&M 2. This combined with technological
advancement and policy initiatives undertaken by the Indian government has
contributed to the growth of the E&M industry. Factors such as low media
penetration across various socio-economic classes and lower ad spends have
also helped drive the industry. The other key factor is the liberalized foreign
regime, the recent being FDI permitted in the print and radio sectors, while
films, TV and other segments are already open to foreign investments. In
short it can be said that the Indian E&M has everything going for it, be it
technology, digitalization, government support and industry developments.

Source: ENIL, 2006.

The industry needs a consistent and uniform media policy for increasing
investments in all sectors that needs efforts not just by the industry bodies
but also by the government. Investments in technology will call for access to
more institutionalized funds, thus resulting in corporatization, transparent
accounting policies, professionalism and corporate governance. According to
a report by BSE, Annual Market Review 2003, the Indian media business is
no different in terms of exponential potential as compared to its global
counterparts. The difference lies in the structure of the business in India and
that at the global levels. AOL- time, Walt Disney, Bertelsmann, Viacom,
News Corporation and Vivendi Universal are amongst the largest media
companies in the world and their `family brands' consists of business in
almost all areas of the media segment. Whilst in India, we have dominant
leaders in individual segments of the business such as Broadcasting (Star,
Sony and Zee), Content (Balaji, TV18), Music (Saregama, Tips, Universal
etc.), Movies (Mukta Arts, Yash Raj Films) & Distribution (Siticable,
Hathway).

Out of the above television and filmed entertainment form the bulk of the
electronic media. As can be inferred from the above, they have tremendous
potential as can be seen from their projected size.
Interesting things about the Electronic Media
Industry

The stupendous growth which is occurring in the electronic media industry is

without much government support and represents the tremendous
entrepreneurial efforts present in our nation.

An interesting fact is that an urban cable home in the 4 metros currently receives
approximately 100 TV channels. The most popular bouquet is Star, followed by
Zee, Sony and Doordarshan. 60 of these are FTA channels and the balance 40 are
pay channels which are bundled into bouquets and are available at a negotiated
price.

The competition structure in the Electronic Media Industry is one of Oligopoly,

where there are a few networks who have a large market share namely Star, Zee,
Sony and there are others who are just on the edge. It’s essential to note that these
key networks strategically select what programmes to air given their assessment of
other networks. We can see the serials that air on prime time repeatedly compete
with each other for higher TRP ratings.

Scenario in the different forms of electronic media

Television

India has the largest television market in the world today, acquiring the largest
share in the entertainment industry accounting to 42%. The television industry
grew at 15% overall, while the print media had received the much-needed impetus
for growth with approval for FDI in July 2005. Television homes are growing at a
staggering rate of 4% pa in India, thus it can be said that the number of television
homes far exceeds the number of telephone-connected homes. India has 119
million television households that comprise around 60% of the total households in
the country. Of these 119 million TV households, about 50 million receive cable
television services, leading to a penetration of about 42% cable TV households to
total TV households and 25% cable TV households to total households in India. As
can be seen, from these low penetration percentages, there exists a huge untapped
potential growth in this industry
Music

The current size of the Indian music industry is USD 155 million and is expected
to grow to USD 165 million by 2010 with a CAGR of merely 1%. Analysts state
that the music sector is estimated to be about USD 149 million in legitimate sales
of music cassettes and CDs and is pegged to grow at 3% over the next 5 years.
However, this industry has been plagued by piracy and has been showing very
sluggish growth in the physical format over the last few years, both in India and
globally. The industry is seeing a revival of sorts with the growth of `mobile
music' and `licensed digital distribution' services. Earlier, the music market was
completely dominated by film music, as music is an integral part of Indian films
and music rights contributed as much as 15% of an individual film's earnings.
However, in the recent years remix, video-albums, depicting live song-cum-dance
shows, are creating ripples in music industry.

Radio

This Rs.300 crore industry is poised for big growth estimated to reach a size of
Rs.1200 crore (32% growth) by 2010. The PwC report states that there will be a
boom in the radio industry with 22% growth and rationalization of the license
framework will treble its size to about USD 145.9 billion by 2009.
The Indian radio today reaches out to 99% of the population and is currently the
most cost-effective mass communication media in the country (According to a
report by Global Consultancy PwC). The overall ad spends in India is about 3% as
compared to the worldwide average of 8.7%. The radio industry has become the
hottest sector for investment in the E&M space due to the availability of as many
as 338 FM radio licenses for bidding for the private players. These cover 91 cities,
most of which till now were being serviced only by the State Broadcaster. The
private FM radio sector is expected to get foreign investments of USD 111 million
in the next 12 to 18 months.

Film Industry

The Indian film industry is the largest in the world churning out around 1000
movies a year, thus playing a major role in the growth of the E&M sector in India.
The industry stands at an estimated USD 1.5 billion and is expected to grow
around 20% annually to reach USD 3.4 billion by 2010. The sources of revenue
being consumer box office spending for theatrical motion pictures plus spending
on renting and purchasing home video products in both DVD and VHS formats. It
also includes online film rental subscription services, such as those whereby
DVDs are delivered via overnight mail, and streaming services, whereby films are
downloaded via a broadband Internet connection.
This segment is set to grow at 5% a year for the next 5 years, with areas like
overseas markets, domestic box office revenues, ticket prices and home
entertainment consumption seeing growth. The Indian film industry has more than
3.1 billion admissions. The box office collections of this industry are 85% of its
revenues as compared to the US film industry where the collections are only 27%
of the revenues.

Industry Leader
India’s no. 1 network for the sixth year in a row, Star TV Network has been
chosen by us as the representative firm in the electronic media, as we feel that it is
the leading enterprise in this field and has a large market share. Launched in India
in 1991 with just 5 channels STAR pioneered satellite television in India as well as
in Asia and in the process catalyzed explosive growth in the media industry across
the entire region.

Today STAR provides over 60 services in nine languages and offers a range from
sports to documentaries, movies to news. It has redesigned the way we look at
electronic media. Reaching over 300 million viewers in 53 countries across Asia, it
is watched by approximately 100 million viewer’s everyday!!

Channel Bouquet Offered by Star Network

Some information about the popular channels offered by
the Star TV Network

STAR PLUS- India's number 1 cable channel for six years, STAR PLUS regularly
features the top 40 programmes on cable in India every week.
Prime time programmes on STAR PLUS consistently outperform other cable and
satellite channels with the most popular programmes recording more than 50% of
the viewership shares in Hindi speaking general entertainment markets.

CHANNEL V- CHANNEL [V] is Asia's trend-setting music channel that features

the latest chart-topping music videos, music stars and popular VJs. Locally
produced programming, packaging and presenters ensure [V] reflects the tastes
and attitudes of its huge youth audience.

STAR MOVIES- STAR MOVIES brings audiences the biggest blockbusters from
Hollywood powered by all the leading Hollywood studios including 20th Century
Fox, DreamWorks etc.

ESPN & STAR SPORTS- Viewers in Asia the most exciting sports action from
around the world. The channels mix of regional and international programming
ensures fans enjoy the most comprehensive sports coverage.

NATIONAL GEOGRAPHIC - National Geographic Channel showcases the

expeditions of dynamic and committed explorers, filmmakers, and researchers on
assignment around the world.
Challenges facing STAR TV network in
particular and the Electronic Media as a whole

The problem of piracy has impacted all segments especially films, music and
television. The lack of appropriate measure taken up by the government to
enforce anti-piracy laws is encouraging the menace of piracy.

Most sectors of the Indian E&M industry have traditionally operated under
various agencies of the Indian Government, which were later opened to the
private players in various stages. Thus the major benefactors in terms of
broadcasting rights have been the incumbents like AIR and Doordarshan, at
the cost of other networks such as STAR. For instance, limited frequencies
have been opened for the private players with a license fee, which is not
currently applicable to AIR.
The broadcast media pricing has been frozen for over a year now, as per the
notification issued by the TRAI. Since the market has been so efficiently
regulated through competition, price regulation would limit the broadcaster's
ability to shape their business models based on the market demand and the
competitive environment. STAR is thus bound with this regulation.

India has the challenge of building a broadband digital network to reach

every city, every village, every home and every office. In addition, building
a broadband digital network calls for huge server fans and new devices, this
requires good support of technology.

Thus the challenge of having proper human resources comes into existence.
Since the entertainment industry is highly fragmented and disorganized,
there is an urgent need for the government to facilitate digital entertainment
to involve as an industry.

There are also concerns with the rival channels such as ZEE and Sony
steadily eating up the market share of STAR. As is evident with the
declining share of STAR from 65% in 2005 to 58% in 2006, with its
competitors rising steadily. ZEE has increased its market share from 17% in
2005 to 27% in 2006, while Sony’s market share is about 15%. Thus there
will be a need to consistently upgrade technology and constantly upgrade the
quality of the content shown, to counter the rising popularity of ZEE and
Sony.
OPPORTUNITIES

As is evident in the recent years, the channel bouquet of STAR has expanded
to include several regional channels that are a prime source of growth, as
much of the untapped potential is in the rural markets. STAR Utsav, STAR
Vijay to name a few have been instrumental in catering to local tastes and
encouraging local participation. This provides much needed fodder for the
steadily declining market share of STAR.

Consumer needs are expanding beyond the mass media and segmented
media to ‘Lifestyle Media’, a new approach that will help consumers
maximizes their limited time and attention to create a rich, personalized and
social media environment. This approach presents many opportunities for
STAR TV to create new avenues to generate revenue.
The STAR TV network along with Television industry as a whole will
continue enjoying a lions share in the E&M industry and is expected to
continue growing rapidly and reach INR 371 billion by 2010.

Regression Model

Multiple Regression model is used in our

demand forecasting model.

Y= a +b1X1+ b2X2, here the dependent variable

Y is the total income of the STAR TV network,
while the independent variables X1 and X2 are
the advertising revenue of the company and
the no. of channels respectively.

We can therefore forecast the demand using

the above tools.
x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x