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Animation. Broadcasting. Gaming.
On the Cusp of Growth
Contents
Message 3
About ASSOCHAM 5
Animation and Gaming 6
Introduction 6
Global Animation and Gaming Industry 6
Indian Animation and Gaming Industry 8
Animation 9
Introduction 9
Animation Entertainment 9
Entertainment VFX 16
Custom Content Development 17
Gaming 20
Global Gaming Industry 20
Indian Gaming Industry 20
Indian Animation & Gaming Industry: Future Outlook 23
Television 24
Introduction 24
Television Revenue Streams 24
Television Channels in India 27
Television Genres in India From Generic to Niche 27
Policy Framework 30
Future Outlook 31
Radio 32
Introduction 32
Key Growth Drivers & Constraints 33
Future Outlook 34
2
Message
The three focus segments of this paper: Animation,
Gaming and Broadcasting all have the potential to see
near future as inection points in their growth.
Animation and Gaming reminds me of the
transformation the IT-ITES Industry brought to the Indian
economy and populace some years back. The Indian
animation industry is well-geared to start grabbing a
larger share of the increasing outsourcing pie. As the
economy moves out of tough times, there is hope that
animation houses in India would take the initiative to
develop the in-pipeline high budget high quality movies
and animation content and showcase their capabilities.
Players are also expected to leverage the incoming 3G
technology and develop end-to-end mobile games (IPs).
Promoting gaming / animation as a career in India and
working with the Government for higher dissemination
of related professional education hold the key.
As of now, Television, as evident from Indian and
global experiences, does not have a real substitute for
either the audience or the advertiser. However, with
the unprecedented growth of channels in India, only
the players who invest in understanding the consumer
and target pre-determined segments with innovative
content and programming are slated to emerge winners,
leaving the others behind. Digitization will be the most
rapidly growing trend in this industry Players need to
understand the implications and adapt themselves to
this growing phenomenon. It will be really interesting
to see if the industry witnesses any consolidation in
the coming 12-18 months. Another key thing that I am
really awaiting is the reaction of the content providers in
the industry to the oncoming 3G Wave.
The future of radio in this country is primarily dependent
upon change in the regulations and the mode of the
much-awaited Phase 3 Licensing. The real potential of
the medium which lies in its local reach and interactivity
can never be realized unless radio broadcasting players
nd it commercially feasible to operate in small towns
and cities, with the freedom to broadcast multiple
genres.
Our media spends are abysmally low (USD 4 per capita)
compared to our neighbours, China (USD 27 per capita).
There is enough demand in the Indian economy and
populace to propel the media industry to show a > 15%
growth per annum and slowly bridge this yawning gap.
I acknowledge the contribution of Sandip Biswas,
Director, Deloitte Touche Tohmatsu India Private Limited
to this report.
P N Sudarshan
Senior Director, Deloitte in India
P N Sudarshan
Senior Director,
Deloitte in India
Animation. Broadcasting. Gaming. On the Cusp of Growth | 3
Message
The Indian Media and Entertainment (M&E) industry
stood at USD 12.9 billion in 2009 registering a 1.4 per
cent growth over last year. Over the next ve years, the
industry is projected to grow at a compound annual
growth rate (CAGR) of 13 per cent to reach the size of
USD 24.04 billion by 2014. Additionally, the gaming
segment is expected to be the fastest growing sector
in the M&E industry. The sector showed a 22 per cent
growth in 2009 and is expected to grow at a CAGR of
32 per cent to reach USD 705.2 million by 2014, while
the animation segment is expected to record a CAGR of
18.7 per cent in the next ve years.
We are pleased to organise the fourth edition of Global
Summit on Entertainment& Media: FOCUS 2010 with
the Ofcial Support from the Ministry of Information
& Broadcasting, the major Film Trade Associations and
active participation from the Industry.
This White Paper, jointly prepared by ASSOCHAM and
Deloitte Touche Tohmatsu India Private Limited, mainly
deals with Animation, Broadcasting and Gaming and
also the future roadmap for the Industry.
I sincerely hope that FOCUS 2010 will be benecial to
the stakeholders in further promoting this Industry.
(D S Rawat)
Secretary General, ASSOCHAM
D S Rawat
Secretary General,
ASSOCHAM
4
About ASSOCHAM
The Associated Chambers of Commerce and Industry
of India (ASSOCHAM), India's premier apex chamber
covers a membership of over 300,000 companies and
professionals across the country. It was established
in 1920 by promoter chambers (Bombay Chamber of
Commerce & Industry, Cochin Chamber of commerce
& Industry, India Merchants Chamber, Mumbai, The
Madras Chamber of Commerce & Industry, PHD
Chamber of Commerce & Industry) representing all
regions of India.
As an apex industry body, ASSOCHAM represents
the interests of industry and trade, interfaces with
Government on policy issues and interacts with
counterpart international organizations to promote
bilateral economic issues. ASSOCHAM is represented
on all national and local bodies and is, thus, able
to pro-actively convey industry viewpoints, as also
communicate and debate issues relating to public-
private partnerships for economic development.
ASSOCHAM members represent the following sectors:
Trade (National and International)
Industry (Domestic and International)
Professionals (e.g. CAs, lawyers, consultants)
Trade and Industry Associations and other Chambers
of Commerce
ASSOCHAM operates through 90 Expert Committees
that provide an interactive platform to Members for
interaction and aid formulating Policy recommendations
so as to facilitate Economic, Industrial and Social
Growth.
These encompass areas such as: Domestic &
International Trade, Commerce, Industry, Services,
Agriculture, Education, Food Processing, IT & BPO,
Economic Affairs, TQM, Energy, Environment,
Capital Market, Banking & Finance, Direct & Indirect
Taxation, WTO & IPR, Infrastructure, Pharma, Health,
Biotechnology & Nanotechnology , Tourism and
Telecom.
Leading Corporates like Aditya Birla Management
Corporation Ltd., Boeing, DLF, IBM, Reliance
Communications, Reliance Industries, TATA, Northrop
Grumman, Cable & Wireless, Warburg Pincus, SREI
Infocom, Ernst & Young, Huawei Telecommunications,
ZTE Telecom, Qualcomm, Centurion Bank of Punjab
Limited, Diageo India Pvt. Ltd., DSP Merrill Lynch,
Geojit Financial Services Ltd., GMR Infrastructure Ltd,
ITC Limited, Jet Airways (India) Private Limited, Kotak
Mahindra Asset Management Co. Ltd, Microsoft, Spice
Communications Pvt. Ltd., Videocon Ltd., Vodafone are
some of the Esteemed Members of ASSOCHAM.
About ASSOCHAM please log on www.assocham.org
Animation. Broadcasting. Gaming. On the Cusp of Growth | 5
Animation and Gaming
Introduction
Animation, briey described, is a rapid display of time
sequenced frames to create an illusion of continuous
movement. The sub-segments within Animation and
Gaming may be dened as follows:
Animation
Animation Entertainment: Custom animation devel-
opment for television, movies, or DVD
Visual Effects (VFX): Special effects development
used mainly in movies and ad productions
Custom Content Development: Development of
custom content catering to multiple segments,
including Corporate, Higher Education etc.
Gaming
PC Games: Games played on the personal computer;
can be single-player or multi-player
Mobile Games: Games played exclusively on the
mobile handset. Currently consists of mostly single-
player short games
Console Games: Games played on dedicated gaming
consoles. These boast of better graphics, and
controllers than other types of games
Online Games: Games played over the internet. The
platform can be PC, Mobile, Console
Global Animation and Gaming Industry
The Global Animation and Gaming industry, growing at
12% p.a. (2005-2009) is a USD 115 Billion industry
(CY 2009). The industry is estimated to continue its
growth rate at 10% p.a. to reach USD 170 Billion by
CY2013.
Figure 1: Animation & Gaming Industry Segments
Animation and
Gaming Industry
Animation
Animation
Entertainment
Visual Effects
(VFX)
Custom
Content
Development
Gaming
PC Mobile Console Online
Figure 2: Global Animation and Gaming Market
Revenues (USD Bn)
115
140
170
74
2005 2011P** 2009E* 2013P
Source: Nasscom Industry Report 2006, 2009
1
2
%
1
0
%
* Estimated
** Projected
6
Worldwide, US is the largest market for animation. US
has the largest number of animation movie releases
(29 in 2008) and houses the 2 largest animation
movie studios in the world, namely Disney Pixar and
Dreamworks. Major markets for gaming are US, Europe
and Japan, US being the leader. US is the highest
contributor to the revenues of leading game publishers/
developers in the world viz. Nintendo, Electronic Arts
(Refer Figure 3). However, China is the fastest growing
market for gaming. Most of the animation and gaming
intellectual properties originate from these countries.
Figure 3: Region-wise revenue contribution for leading game publishers
Source : Analyst Reports
Note : Activision Blizzard fgures are for 2008; Rest for 2010
North America
Nintendo 45%
EA 55%
Activision Blizzard 61%
Europe
Nintendo 34%
EA 39%
Activision Blizzard 36%
Asia
Nintendo 17%
EA 6%
Activision Blizzard 3%
Animation. Broadcasting. Gaming. On the Cusp of Growth | 7
Indian Animation and Gaming Industry: High
Potential for Growth
The Indian Animation and Gaming industry, in spite of
a robust growth rate of 32% p.a. (2005-2009) is only a
USD 739 million industry.
The Indian animation and gaming industry derives
its revenues majorly from outsourcing. International
production houses outsource work to Indian studios
while international game publishers outsource work to
Indian game development companies. For animation,
India caters primarily to US and UK. The domestic share
of the Indian animation revenues was only 30% as of
2009.
Macro indicators suggest an exponential scope for
growth, both on the domestic and the outsourcing
front:
Domestic: Indian domestic animation and gaming is a
miniscule 0.6% of the worldwide animation and gaming
market, thus indicating a huge scope for growth.
Outsourcing: India has the inherent advantages of
outsourcing, which is evident from its success in the IT/
ITES outsourcing sector. However, Indian outsourcing
share of the global market for animation and gaming
industry is very low as compared to the corresponding
share in the IT and BPO Industry. (Refer Figure 5)
This shows the immense potential that the Indian
animation and gaming industry holds, especially from
overseas outsourcing.
Figure 4: Indian Animation and Gaming Industry Revenues (USD Mn)
Figure 5: Indias share of global outsourcing market
Indian outsourcing share of the
global market for animation
and gaming industry is very
low as compared to the
corresponding share in the IT
and BPO Industry
Source: Nasscom Industry Report, Secondary Research
177
64
2005 2009E 2011P 2013P
3
2
%
3
5
%
500
735
1161 Source: Secondary Research
51%
<10%
IT Outsourcing and BPO
Animation & Gaming
Animation Gaming
239
533
1316
8
Introduction
Animation, as mentioned in the previous section, includes Animation Entertainment, Entertainment VFX and Custom
Content Development.
Animation Entertainment
Indian animation entertainment industry is highly fragmented, with top 10 players contributing less than 15% of
the overall revenues. Indian players are primarily involved in the labour-intensive production and post-production
activities, as a Service Provider (Refer Figure 8), working on the revenue model of Work-For-Hire.
Figure 6: Animation Segments by Share
Revenues (2009E)
(USD Mn)
122 (24%) 83 (17%) 295 (59%)
Figure 7: Animation Entertainment Value Chain
India: Animation
Animation
Entertainment
Visual Effects (VFX)
Custom Content
Development
Production
IPR and Content
Development
Pre
Production
Post
Production
Marketing
Distribution
and Exhibition
Activities
Percentage
Effort
Outsourcing
Domestic
Source: Nasscom Industry Report 2009, Deloitte Understanding
Identifcation of
an existing IP or
generation of a
new idea
Involves asset
procurement,
fund scheduling,
and integration
of resources
Preparation
of the script,
character design,
storyboard layout
development
Development
of specica-
tions regarding
the character,
background
paint, inking and
painting and
visual effects
Final sound
recording, color
editing, testing
and special sound
effects
Promotion,
distribution video
DVD release and
cinema and TV
screening
5% 10% 45% 30%
Emerging Emerging High Medium
Emerging Medium High High
Animation
Animation. Broadcasting. Gaming. On the Cusp of Growth | 9
Content Development and pre-production activities are nascent in India, both for the domestic and the outsourcing
market.
Figure 8 : Animation Entertainment Service Models
Content Creation Service Provider
Integrated Studio Offshore Facility
Co-Production
Integrated Studio Owned Content
IPR and Content
Development
Pre Production Production
Post
Production
Marketing
Distribution and
Exhibition
Source: Animation & Gaming Report, Secondary Research
10
Size, Growth & Segments
Animation Entertainment segment consists of custom animation development for television, DVD, or theatrical
movies.
This segment is estimated at USD 122 Million (CY 2009)
and is expected to show a CAGR of 20% (2009-2013)
to reach USD 253 million by 2013. TV contributes to
majority (~55%) of the overall Animation Entertainment
market, followed by approximately equal share for
Movies and Direct-to-DVD.
Recent Trends and Growth Indicators
The Animation Entertainment Industry in India is
expected to be shaped by both domestic (Current
Contribution: 25%) and Outsourcing (Current
Contribution : 75%) trends and growth drivers.
Domestic Market
TV contributes the largest (~55%) of the domestic
animation entertainment market in India, followed by
movies.
Figure 9: Animation Entertainment Size (USD Mn), Growth & Segmental Split
Television Direct to DVD Movies for theater
55%
25%
20%
Source: Nasscom Industry Report 2009
2005
72
122
170
253
2009E 2011P 2013P
1
4
%
2
0
%
Source: Nasscom Industry Report 2009
Figure 10: Domestic Animation Entertainment Split
Television Movies for theater DVD
54%
32%
14%
Animation. Broadcasting. Gaming. On the Cusp of Growth | 11
Both demand and supply drivers are expected to shape
up the domestic animation entertainment market in
India:
Indian Viewership Maturity
In India there has been a cultural mindset that animation
is meant for kids only. This has restricted the viewership
of animation content till now. However, this mindset is
gradually changing, leading to increased viewership of
animation content among adults. % viewership of kids
channels in 2009 indicates substantial viewership of
kids channels among the 14+ age group category (Refer
Figure 11). Moreover, almost 30-35% viewership across
Cartoon Network and Pogo have been found to be in
the 15+ age group.
Growing Demand for Kids Genre
The number of TV channels dedicated to animation and
kids has been steadily increasing in India (Refer Table 1).
In 2009 itself, 3 channels for kids were launched. This
trend is expected to continue, which bodes well for the
animation entertainment industry in India.
Moreover, the share of kids genre in overall TV
Viewership has been rising signicantly, which indicates
the growing demand for animation content in India.
Demand For Original Indian Content
The demand for original Indian content has been
increasing over the years. For example, Pogo, a leading
channel for kids has increased its original Indian content
from 50 hours in 2004 to more than 200 hours in 2009.
Similar is the case with Nickelodeon who, inspired by
the success of Little Krishna, is looking to expand its
local content. Other channels are expected to follow the
same trend.
Comics Players : Monetization Of Existing Content
Comics players are looking to monetize their
content libraries through both TVs and Theatres.
Indian publishers like Diamond, Raj, Vimanika and
Chandamama have announced plans to enter the movie
space with their famous comic characters:
Year No. of TV Channels Launched Name of channels
1995 1 Cartoon Network
1999 1 Nick
2004 5 Hungama, Pogo, Toon Disney (Jetix), Disney Channel, Animax
2007 1 Chutti TV
2009 3 Spacetoon, Khushi TV, Chintu TV
Table 1: TV channels dedicated to animation and kids
Diamond comics has announced plans to launch a TV
channel targeted at the 4 to14 year age group with
both animation and live action content
Large production houses are also buying rights from
these publishers to produce animated TV series - Big
Animation Pvt. Ltd has bought rights from publishers
of Chandamama to produce an animated TV series.
Toonz Animation India Pvt. Ltd is producing a full-
length animated feature lm based on a prime
property from the library of Chandamama for an
estimated amount of USD 4.5 million,
Filmmaker Anurag Kashyap has bought the rights of
Raj Comics popular character Doga.
Table 2: Increasing inuence of comics players in
the animation industry
Figure 11: Percentage viewership across age groups
of kids channels
4 to 14
15.7%
3.0%
3.5%
3.9%
2.7%
15 to 24 25+ Male 25+ Female 45+
Source: FICCI-KPMG Indian Media & Entertainment
Industry Report 2010
12
Animation in TV Advertising
The Indian TV advertisement industry size is expected to increase from USD 1.9 billion in 2009 to USD 3.3 billion in
2013, growing at a rate of 13% p.a. This, coupled with growing popularity of animated characters is expected to
boost the industry. Animation commercials cost far lower compared to advertisements with celebrities and establish
a connect with the target group of children and young adults. They relate to audiences irrespective of language and
cultural barriers. All this points to increased usage of animation in TV Advertising.
Animation Movies For Theatres
India lags the global market signicantly in terms of number of animation movies produced in India. The box-ofce
failure of Roadside Romeo, coupled with the effects of recession, made Indian lmmakers shelve their projects on
Indian animation movies. However, Hollywood lms such as Ice Age 3 and Monsters vs. Aliens enjoyed success
on Indian screens. The release of Avatar, a movie that is a hybrid of live action and computer generated animated
characters became the largest grosser in India indicating that Indian audience is interested in animated content. The
Hindi, Tamil and Telugu dubbed versions of the lm did equally well, highlighting the extremely responsive regional
market for animated content in India. As the country moves out of recession and Indian audience matures, animation
movies in the pipeline are expected to see execution.(Refer Table 3 )
Figure 12: Examples of animation used in Indian TV advertising
Movie Name Produced by
Sultan Soundarya Rajnikant
Toonpur Ka Superhero Kumar Mangat, krishika Lulla
Kuchi Kuchi Hota Hai Karan Johar
Delhi Safari Krayon Pictures
Arjun UTV
Alpha and Omega Crest Animation
EKEH 2.0 Motion Pixel Corporation and PNC motion entertainment
Table 3: Animation movies in the pipeline for 2010
Animation. Broadcasting. Gaming. On the Cusp of Growth | 13
Outsourcing Market
Similar to the domestic market, TV contributes the
largest (~55%) of the outsourcing animation entertain-
ment market in India, followed by Direct-to-DVD.
Outsourcing work to India is dependent on the
Animation Content Worldwide
% of Content Outsourced Globally and
% Outsourced to India
Trends and growth drivers for each of these param-
eters need to be understood / analysed to estimate the
direction of the Animation Entertainment Outsourcing
pie.
Animation Content
Animation movies in the largest animation market i.e.
US have been growing (US produced 29 animation
movies in 2009). This is primarily propelled by the high
box-ofce earnings of these movies
Plans of the two largest animation houses in the world
Disney Pixar and DreamWorks point to a similar growth
for future. Disney Pixar released 8 movies in the last two
years. It plans to increase the number to 13 movies from
2009-2012. Similarly, DreamWorks plans to produce
5 movies every two years from 2009 compared to 2
movies a year previously. However, in wake of the recent
economic recession, the budgets for these movies are
expected to stagnate.
% Outsourced
The recent recession has forced the production houses
worldwide to step up their focus on cost savings
measures. Comparison of production costs coupled
with their increased focus on cost savings is expected
to translate into higher % of work outsourced globally.
Table 5 provides an indication of Indias advantage over
other countries.
Figure 13: Split of outsourcing revenues across its
sub-segments
Table 4: Box Ofce Earnings of certain animation
lms worldwide
Animation
Film
Year of
Release
Worldwide Box Ofce
Earnings (USD Mn)
Shrek 3 2007 799
Wall E 2008 533
UP 2009 711
Table 5: Estimated costs for 30 minutes of animated content
India Korea, Philippines North America
2D Hand drawn USD 45,000
- 50,000
USD 60,750
- 67,500
USD 180,000
- 200,000
3D USD 90,000 USD 121,500 USD 360,000
Backend
production
USD 200,000 USD 270,000 USD 800,000
Flash Animation USD 20,000 USD 27,000 USD 80,000
Source: Analyst Report
Television Movies for theater DVD
55%
28%
17%
14
% Outsourced to India
Animation Services outsourced to India is not only a
function of the cost but also depends on the capability
of the Indian players and its recognition world-wide.
Indian animation players are surely moving up the value
chain with their experience and are gradually getting
recognized as well. This is evident from the large no. of
recent co-production deals:
Table 6: Co-production deals in India
DQ Entertainment: 30+ global Co-productions deals
with many leading companies like BBC UK, American
Greetings Properties, M6 etc.
Sanraa Media: Deal with UK based Endemol for the
co-production of animated series The 99
Toonz Animation: Co-production deal with Spectra
Animation of Canada to co-produce 52 episodes of a
Malayalam animated TV serial Paddys Pages
Improved capability and perception of the Indian players
is encouraging for the outsourcing pie of the animation
services in India.
Indian Animation Entertainment Industry:
Overall Outlook
Indian Animation Entertainment Industry is expected
to witness a signicant growth, both in terms of
revenue and participation in the value chain. The Indian
animation industry started by doing work for foreign
companies. Increasingly, it is developing characters,
lines and voices of its own. Studios are looking at new
business models, including partnerships, to produce
lms and shows. Sometimes, the partnership may just
be an investment. In return, they get to own a big
chunk of merchandising rights. Some are even nego-
tiating distribution rights. This ensures ow of money
even if there is no cash ow in the short term. Today,
global companies are looking at India for co-production.
As the industry gains expertise and tries to move up the
value chain, it faces a few daunting challenges, which
it needs to overcome to come close to realizing its
potential:
Skilled Manpower
Similar to IT Services, skilled manpower is the basic
requirement for producing quality animated content. As
per Nasscom Industry Report 2009, manpower require-
ment for animation in India is expected to grow from
17,500 in 2009 to 29,500 by 2012. However, lack of
employable resources poses a large constraint, which is
primarily due to the following reasons: Low awareness
of animation as a career and non-existence of a stand-
ardized and quality curriculum across the handful of
institutes in India.
Animation. Broadcasting. Gaming. On the Cusp of Growth | 15
Lack of Government Support
Indian Government has been providing support to the
IT and IT Enabled Services industry in India, thus leading
to its growth. Indian animation players lack any such
Government support either through tax rebates or
grants. Moreover, competing outsourcing destinations
e.g.Canada, UK have signed tax treaties with the US.
Tight Budgets
Indian animation movie is a low budget INR 10-12
crore movie, primarily meant to hedge the involved
nancial risks. In doing so, the quality takes a beating
and the movie fails to compete with a USD 100-200
Mn Hollywood Production. As production houses
grow bigger and nancially stronger, the budgets are
expected to improve.
IP Protection
Piracy of DVD-based videos is rampant in India, which
eats into the revenues for the producers and distribu-
tors. Weak IP Regulation and ineffective enforcement
discourage animation players in India to produce their
own IP. Moreover, it also discourages International
Players, who are generally very protective of their IPs, to
outsource to India.
Entertainment VFX
Similar to Indian animation entertainment industry,
Indian animation VFX industry is a highly fragmented
industry with the top 5 players contributing to ~20%
of the overall market. The revenue model used in
animation VFX is Work for Hire, where revenues accrue
on a per hour basis.
The Entertainment VFX Industry has shown a very high
growth rate of 53% over 2005-2009 and is estimated at
USD 83 million in 2009. 60% of the market is for work
done for overseas clients.
Recent Trends and Growth Indicators
Domestic and overseas markets are expected to shape
the Entertainment VFX Industry in India
Domestic Market
VFX in Movies
The use of VFX in live action lms has seen a steady and
signicant growth over the years. Many live action lms
today include a VFX sequence and the sheer duration of
these screen shots has also risen substantially.
Usage in Broadcast and Advertising
Usage of VFX in broadcast helps in signicant reduction
of costs. Its usage brings down the set creation costs for
a broadcast by almost 60-65%, particularly for mytho-
logical shows. It also helps in costs savings of 30-40%
for commercials.
Pre-Visualization Trend
Pre-Visualization trend is a technique where-in the shots
can be visualized on computers before they are actually
shot. This increases the efciency of production and
reduces cost of production. Growth of this trend would
contribute to increased overall usage of visual effects.
Overseas Market
VFX in Movies
The whopping success of VFX extensive movies at the
box ofce overseas is expected to drive the VFX usage
in other movies as well. This, coupled with the cost
savings through outsourcing is expected to lead to
greater outsourcing.
In addition to the demand drivers, players have taken
supply side initiatives, which will certainly boost the
market in India
Initiatives of Players
The Indian players are also increasing their presence
overseas to tap the international market and build an
outsourcing pipeline for their Indian studios:
Pixion has acquired two London-based studios,
Men-From-Mars and Molinare
Figure 14 : Animation Entertainment VFX Market
Revenues (USD Mn)
2005
15
83
135
222
2009E 2011P 2013P
5
3
%
2
8
%
Source: Nasscom Industry Report 2006, 2009
16
Pixion also plans to acquire a studio in Los Angeles
Tata Elxsi has launched a new facility of Visual
Computing Labs (VCL) in Los Angeles
Indian Entertainment VFX Industry: Overall Outlook
Indian Entertainment VFX Industry, similar to the
Indian Animation Entertainment industry is on the
cusp of signicant growth, both on the domestic and
outsourcing front. However, as the Indian industry
players take initiatives to boost their presence on the
global map, they face similar challenges : Lack of Skilled
Manpower, low budgets for VFX in a movie and no
Government support / incentives.
Custom Content Development
Custom content development, estimated at ~ USD 295
Million (2009) has grown at 35% p.a. (2005-09) and
is expected to continue its growth at a healthy rate of
24% p.a. (2009-13) to reach USD 685 Million by 2013.
As per leading players in the industry, >90% of custom
content development in India is outsourcing work.
Corporate (for their training requirements), K-12, Higher
Educational Institutes and industries such as Defence,
Aviation for their training requirements are customers
of this segment. Similar to the animation entertain-
ment industry, it is the production and post-production
activities which are primarily outsourced to countries like
India.
Recent Trends and Growth Indicators
Domestic and overseas markets are expected to shape
the Custom Content Development in India
Domestic Market
E-Learning Demand from Corporate Sector
As the corporate sector expands its distribution and
adopts IT increasingly, demand for custom content
development is expected to increase. Most of the
increased demand is expected to come from the small
and medium enterprises (SMEs) who are currently low
users of e-Learning, but are willing to adopt the cost-
effective high-quality channel.
Figure 16: Custom Content Development Value Chain
Indian Entertainment
VFX industry faces
numerous challenges :
Lack of skilled manpower,
Low budgets, Little
Government support
Figure 15: Indian Custom Content Development
Market Revenues (USD Mn)
2005
90
685
429
295
2009E 2011E 2013E
3
5
%
2
4
%
Source: Nasscom Industry Report 2006, 2009
Content Owner/ Sourcing Animation Content Developer Platform Owner
Content can be for educational
institutions, corporate or talent
development companies
This can be done in-house or by an
integrated studio or outsourced in part of
full to an animation developer
Can publish onto:
CD/ DVD
Website
Learning Management System
Source: Secondary Research
Animation. Broadcasting. Gaming. On the Cusp of Growth | 17
Demand From Higher Education
Compared to the US where > 90% of the institutes
leverage e-Learning, current adoption of e-Learning by
higher education institutes in India is very poor. This has
large scope for growth and can only go up, given the
current status.
Overseas Market
Major markets for e-Learning globally are the US and
select European nations across both educational institu-
tions and Corporate Sector for training purposes.
Increased requirement for content
Content requirement for corporate e-Learning is to
grow at 11% p.a. (2009-13).
Increased outsourcing
Increased pressure on bottomline for the corporate
and higher education institutes is expected to increase
the focus on cost savings, thus leading to higher
outsourcing.
Indian Custom Content Development Industry:
Overall Outlook
Indian Custom Content Development Industry is slated
to show robust growth, both on the domestic and
outsourcing front. However, Change in the Indian
Mindset and Government Thrust can go a long way in
developing the industry:
Cultural Constraint
The Indian mindset emphasises signicantly on human
interactions and face-to-face sessions. This has impeded
the growth of e-Learning in India.
Government Thrust
Government Aided Institutes do not enjoy any incentive
for adoption of e-Learning in the institute. The fee for
these institutes is capped, thus restricting the authorities
to pass on the extra cost of an e-Learning initiative to
the students. This impedes adoption of e-Learning even
among willing insititues to adopt e-Learning.
Figure 17: Worldwide Corporate e-Learning Content Revenue (USD Bn)
11%
Source: Skillsoft report
2008
9.0
10.5
2009 E
12.5
2010 P
13.5
2011 P
14.0
2012 P
16.0
2013 P
The Indian mindset
emphasises signifcantly
on human interactions
and face-to-face
sessions, which has
impeded the growth of
e-Learning in India
18
Animation. Broadcasting. Gaming. On the Cusp of Growth | 19
Global Gaming Industry
The global gaming industry has been growing at ~21%
p.a. (2005-2009) to reach ~ USD 40 billion (CY2009).
This growth is expected to reduce to 10% p.a. and is
expected to reach USD 59 billion by 2013.
Key segments for gaming are Console Gaming, PC
Gaming, Mobile Gaming and Online Gaming. North
America, Western Europe and Japan lead the gaming
market. However, China is the fastest growing market
especially for online gaming.
Indian Gaming Industry Overview
The Indian gaming market is estimated at ~ USD 239
million (CY 2009) and expected to grow rapidly to reach
~ USD 1.3 billion by 2013, showing a CAGR of ~53%.
Consumer market in India comprises revenues from:
PC Gaming: Sale of CD-based gaming software
Mobile Gaming: Sale of software through mobile
downloads
Console Gaming: Sale of hardware e.g. gaming
consoles
Online Gaming: Advertising and subscription of
online games
Gaming services market in India comprises:
Outsourcing development services
Ancillary services such as voice and email BPO
support, porting, testing, etc.
Gaming industry in India is a fragmented industry,
with players present across the value chain. It is the
development and post development activities (Refer
Figure 21) which are outsourced. Concept creation,
feasibility testing and pre-production are still limited to
only the online and mobile platforms in India, that too
done only by a handful of players.
Gaming
Figure 20: Gaming Value Chain
Source: Nasscom Industry Report 2006, 2009
1
0
%
Figure 18: Global Gaming Market (USD Bn)
2005 2009E 2011P 2013P
59
49
40
19
2
1
%
Concept
creation &
feasibility
testing
Pre
Production
Development
Post
production
& testing
Gold
release
Final
Testing /
Porting
Consumer
Involves
concept
creation
Publisher
validates the
concept and
identies
the market
opportunity
Creation of
story board 3-D
Pre-production,
character
drawing
Game engine
decision (for
console, PC
and online)
Programming
3-D Art asset
building:
This includes
character
modeling,
se design &
modeling
texturing
Involves
nal sound
recording,
color
testing
and special
sound
effects
The fnal
build is
delivered
to the
publisher
Game made
compatible
with various
graphic
cards/ mobile
handsets
(for mobile
games)
Figure 21: Presence of Indian Gaming Players Across the Value Chain
Console
Mobile
PC
Online
Concept Creation
& Feasibility
Testing
Pre
Production Development
Post &
Testing
Production
Final Testing
/ Porting
Note: For Mobile, PC, and Online Games, concept creation and feasibility testing
and pre-production are done only for domestic clients while the other steps
are done for both domestic and overseas clients. For Console Games, all stages
except content creation are done only for overseas clients
Limited Presence
Moderate Presence
No Presence
Source: Nasscom Industry Report 2009
Figure 19: Indian Gaming Consumer and Services
Market (USD Mn)
Source: Nasscom Industry Report Secondary Research
35
29
2
1
%
5
3
%
2005 2009E 2011P 2013P
158
380
988
80
150
328
Consumer Services
20
Integrated companies that have presence in the
complete gaming value-chain from conceiving a
gaming idea, publishing it, developing the complete
game and distributing it across geographies are
again limited to a few companies, that too only for
mobile gaming.
Among the various segments
Mobile and Online Gaming are the largest
contributor to gaming service revenues
Consoles are the largest contributor to Gaming
Consumer Revenues. However, one needs to note
that a large % of the consumer revenues is shared
with international players viz. Sony, Nintendo,
Microsoft, Electronic Arts, etc.
Moreover, the margins involved in this distribution
business are very low. This high revenue share model
applies to PC and Online Gaming as well, where
Indian presence in creating games is limited.
Distribution business (Low revenue share, Low margins)
is not a signicant contributor to growth of gaming
industry in India. Hence, in this report, trends related to
consumer business of consoles or distribution of games
of foreign players have not been considered. Both
domestic and outsourcing trends and growth drivers
have been analysed to understand the future of gaming
market in India:
Domestic Market
Domestic market is expected to witness high growth,
both from the demand and supply side:
Mobile Gaming
Growing mobile subscribers & Introduction of
3G-enabled handsets
Mobile phone is the most widely owned screen in
India today and is expected to continue its growth,
given the large scope for further penetration of
mobile phones in India. As the Indian populace
exposure to mobiles increases, higher downloads on
the mobile phones are expected. Moreover, it is the
introduction of 3G in the country, which will enable
the user experience a high quality game and demand
more. Such a demand will foster innovation in games
on the mobile and encourage an ecosystem for
greater development of mobile games.
Telecom operators : Declining ARPU and Need for
Differentiation
Telecom sector in India has been experiencing an
increase in competitiveness between operators as
well as handset manufacturers, which has resulted
in a greater need to differentiate themselves from
their competitors through Mobile Value Added
Applications and Services. Moreover, the ARPUs of
telecom operators have been declining: Telcos are
looking forward to Mobile Value Added Services
as an alternate revenue source. Mobile gaming is
expected to signicantly grow on account of this
supply driver: Mobile Entertainment being considered
as a means to differentiate and a channel for
increased revenues per user.
Figure 22: Consumer and Services revenues across
type of games (USD Mn) (2009)
Consumer Services
Source: Nasscom Industry Report 2006, 2009
Console Mobile PC Online
90
43
12
14
34
16
23
7
China
Japan
Korea
UK
Germany
Italy
India
Figure 23: Non-voice Revenues per country
8
27
27
26
21
21
17
Source : IAMAI Paper, Deloitte Analysis
Notes : Data is approximate and is based on the data % of large
telcos in respective countries
Animation. Broadcasting. Gaming. On the Cusp of Growth | 21
Online Gaming
Increasing internet penetration in India, introduction of
Broadband Wireless Access (BWA) and growing trend
of Massive Multi-player Online Role Playing Games
(MMORGs ) are expected to grow the online gaming
market in India signicantly.
Increased internet penetration and Broadband
Wireless Access Introduction
Internet penetration in India has increased from a
mere 0.7% in 2003-04 to a 1.2% in 2008-09. This
growing penetration, along with introduction of
BWA, which would lead to increased broadband
penetration would facilitate playing of high end
online games in India.
Growing trend of MMORGs
All types of games in India can be broadly classied
into: Single Player Single Session Games, Multi Player
Single Session Games and Multi-Player Online Role
Playing Games. Currently in India, Single Player
Games dominate the market with 80% of the active
Internet using gamers playing such games. Only
27% of Indian online gaming populace is playing
MMORGs. However, it is the fastest growing among
the three, not only in India but worldwide as well.
Growing MMORGs is expected to boost the online
gaming in India.
Outsourcing Market
Today, majority of gaming services revenues in India
comes from outsourcing, especially for Console, PC and
Online Gaming. Outsourcing work to India is dependent
on the development of games worldwide and the %
outsourced to India.
Trends and growth drivers for each of these parameters
need to be understood / analysed to estimate the
direction of the outsourcing for gaming services in India
Increase in production of console games overseas
and MMORGs
Currently, revenues from console game development
services are completely derived by providing
services to international companies. Global console
software market is expected to grow at 11% p.a.
This indicates a greater need for console game
development services. Similarly, the trend of growing
MMORGs worldwide is expected to continue.
Both these are expected to lead to higher need for
development of games on the respective platforms.
Cost Savings
There is a signicant cost differential between the
production costs in India and that in US. As per
Nasscom, game development in India saves > 50%,
compared to the US.
Growing expertise and recognition from Indian
Players
As the Indian Players gain expertise across the
multiple gaming platforms, they are also earning
recognition from global publishers. This is
evident from the recent co-publishing (Revenue
Sharing) deals between Indian players e.g.
Trine Entertainment and foreign publishers for
development of games.
Figure 24: Internet Penetration in India
0.60%
2005-06
Source: TRAI
2006-07 2007-08 2008-09
1.00%
1.10%
1.16%
23%
Figure 25: Production Cost Indices (India Vs US)
100
Console
Source: Nasscom Industry Report 2009
Mobile
41 40
100
US India
22
Indian Gaming Industry: Overall Outlook
Indian Gaming industry is expected to witness large
changes, primarily in the domestic market. Introduction
of 3G and telcos focus on Value Added Services are
expected to lead to exponential growth for mobile
gaming in India. This will also lead to the Indian gaming
players moving up the value chain and getting involved
in end-to-end game development and publishing. As
the Indian market matures and gains expertise, Indian
players will gain condence of their foreign counterparts
and attract greater % share of the outsourcing pie and
co-publishing deals.
However, realizing the potential of the Indian gaming
industry is constrained by factors very similar to the
animation industry in India:
Lack of Skilled Manpower: Lack of employable
manpower, primarily arising out of high quality
institutes, lack of perception of gaming as a potential
career is a key challenge for the industry.
Mindset of Indian Populace: Gaming is considered
to be just a means of entertainment and even a
worthless activity by a large section of the Indian
population. This is the largest factor impeding the
growth of the domestic market in India.
High Standards of Foreign Games: Indian gamer is
already exposed to the best quality games globally
and would expect similar quality games from Indian
games as well. Indian gaming players, constrained
by lack of budgets and quality manpower have not
been successful with development of PC / Console
Games.
Revenues Sharing with Telecom Operators: Telecom
operator keeps a large % of the revenue (60% -
70%) that accrues from mobile game downloads.
This revenue-sharing agreement does not foster
the right ecosystem for mobile game developers to
develop their own IPs and distribute them.
Indian Animation & Gaming Industry : Future
Outlook
The Indian Animation and Gaming industry is today at a
nascent stage, but holds signicant potential for growth,
both in terms of its size and moving up along the value
chain. While the abysmally low current share (0.6%) of
the worldwide animation and gaming market points
to Indian industrys potential for domestic growth, the
<10% share of the outsourced market indicates the
large scope for growth from the outsourcing market.
Increasing number of co-production deals, increasing
focus on development of original content and own IPs,
setting up overseas ofces, recent investments from
Private Equity / Other Funds All these developments
are evident of its demonstrated capability and growing
condence. However, regular availability of employ-
able talent needs to be ensured for the potential to
be realized. Certain Government incentives could also
encourage the industry and help it go a long way.
Increasing number of co-production deals,
development of own IPs, recent investments from
Private Equity All these developments are
evident of the demonstrated capability and
growing confdence of the Indian Animation and
Gaming Industry
Animation. Broadcasting. Gaming. On the Cusp of Growth | 23
Television
Introduction
Television plays a signicant role in dissemination of
information and is equipped with an innate power to
inuence people, their beliefs and their opinions. A
global Deloitte study on Media democracy in 2009
across over 2000 respondents offers some interesting
insights about the popularity of television in current
times. TV remains a favorite media source for most
consumers 72% of the respondents rank watching
TV as their top media source. 84% respondents
consider advertising on TV as the most inuential
media source to impact their buying decisions. Online
TV matters to a minority of viewers, though the share
of such viewers has gradually increased as compared to
2008.
Indian entertainment today has a far more global
audience across South Asia, the Middle East, and
Africa. The large base of expatriates ensures that
Indian TV channels and lms are a premier medium of
entertainment. Indian lms and TV channels have been
able to attract audience beyond expatriates in the US
and the UK an audience that enjoys and identies
more with the contemporary Indian culture.
The television sector in India has grown at a CAGR of
~14% (2005-2009) and is estimated to continue to
grow. By the end of 2011, the industry is estimated to
reach USD 7.8 billion. While the media & entertainment
market in India is relatively small when compared
with other Asian countries, India has the third largest
television market in the world after China and the US.
TV continues to dominate the sector followed by print
and lmed entertainment.
Figure 26: Size of TV Industry in India (USD Bn)
Figure 27: TV Revenue Streams
Television Revenue Streams
In 2009, subscription revenues contributed around
62% to the total television revenues and stood at
USD 3.5 billion; while advertising constituted 34%
at USD 1.9 billion. The television content constitutes
approximately 4% to the total television market at
USD 250 million.
Television
distribution
62%
Television
advertising
34%
Television
content
4%
Source: IBEF, Industry estimates
2005 2009E 2011P 2013P
3.4
5.7
7.8
10.7
1
7
%
1
4
%
Source: IBEF, Secondary Research
24
i. Television Distribution
Indias television distribution industry is the worlds
second largest with over 105 million cable and satellite
(C&S) homes in 2009
1
. New digital mediums are
emerging DTH, Digital Cable and IPTV. DTH is being
instrumental in the growth of television industry in India.
There are multiple organized players that are providing
satellite signals directly to the homes. There are 22
million digital homes 18 million out of these are on
the DTH platform. DTH is an upcoming segment even in
rural India, increasing its share among all DTH homes to
64% in 2010 as compared to 34% in 2008. Digitization
is expected to speed up, not only in Direct-to-home but
also in the hitherto-analog cable segment. An industry
report by IDFC suggests that total digital homes are
expected to increase four times to 86 million by 2015
which would potentially address the under-reporting
of revenues earned by local cable operators. DTH would
1 Television distribution report
2009, IDFC
Figure 28: TV Value Chain
Role in the TV
Value Chain
Key players
Challenges/
Consideration
Content providers
operating directly or
through aggrega-
tors who re-package
content
In the next 2-3 years
the companies can
expect to look beyond
and target local
viewers with custom-
ized content in markets
like North America,
Europe, Middle East,
and Africa
Further, content is
distributed through
audio and video signals
to transmit programs
to an audience
Competition among
broadcasters leading
to drop in Gross Rating
Points (GRPs) especially
for channels in Hindi
GEC space
The distribution
companies, using
various technologies,
make the content
available to audience
Lack of transparency in
sharing of revenues by
distributors has been a
challenge. Local Cable
Operators still garner
75% of the subscrip-
tion revenues
End users get access
to the content after
paying a subscription
fee
Consumers are experi-
menting and open
to new technologies,
content and offers
Source: Deloitte analysis
Content Creators/
Content Aggregators
Broadcasters Distributors End Users
Animation. Broadcasting. Gaming. On the Cusp of Growth | 25
constitute 48 million homes (18 million in 2009) and cable would be 38 million homes (as against 4 million in 2009).
This indicates digitization is underway and the television distribution is moving towards being more organized.
Figure 29: Digital TV Homes in India
India is an extremely cluttered cable and DTH market: The cable distribution industry in India is extremely fragmented,
with the presence of over 7000 MSOs and more than 50,000 LCOs.
ii. Television Advertising
Television advertising in India stood at USD 1.90 billion in 2009 seeing a marginal growth of 2% over 2008
2
. In
2010, the overall advertising industry is expected to see a y-o-y growth of 13% over 2009.
Until recently, the growth in TV advertising was largely driven by signicant advertising spends by fast growing
sectors such as banking and nancial services, telecom etc. As a result of the economic slowdown, players in these
2 IBEF, Industry estimates,
Pitch-Madison, Edelweiss
Research
Total potential
(in millions of homes)
Digital homes
Source: IDFC, Deloitte analysis
Undeclared
homes
82 mn
Undeclared
homes
51 mn
Declared
homes
89 mn
Declared
homes
23 mn
Non C&S Home C&S Home
22 million 86 million
2009 2015E
105
140
30
20
Figure 30 : Cable & DTH Market in India
Broadcasters: 400+ channeIs
/,000+ Mu|t| System Operators (MSOs) E lndependent sate|||te operators (lSOs)
LCO
LCO LCO LCO
LCO
LCO
LCO
LCO
LCO
LCO
LCO
b0,000 + LCOs
MSOs MSOs MSOs MSOs lSOs
6 L operators
8/m subscr|bers
18m subscr|bers
Source: IDFC
26
sectors trimmed their advertising spends especially in the
rst half of 2009.
Figure 31 : Leading Advertising Categories on TV
Top 10 TV advertising sectors in 2009
Top Categories % share
Food & beverages 14
Personal care/ personal hygiene 11
Services 6
Telecom/internet service providers 5
Hair Care 5
Auto 4
Banking/nance/investment 4
Personal accessories 4
Personal healthcare 3
Household products 3
Source: TAM Media
Food and Beverages leads the charts in advertising
on television in 2009 with ~ 14% share, followed by
Personal care / Personal Hygiene at 11%. FMCG rms
such as P&G, HUL, Coca Cola, Pepsi, ITC were the
leading television advertisers in 2009.
A win-win for TV Advertising
Lets have a look at some interesting advertising spend
insights. 9 of the Top 10 advertisers on TV are from
FMCG. FMCG accounts for over 45% of TV advertising
volumes. Players such as HUL, Reckitt Benckiser and
P&G intensely compete with each other on television
advertising. Many other leading FMCG players have
also joined the TV advertising battle; given that
TV broadcasting has historically been an effective
advertising vehicle for consumer products. Apart from
FMCG, sectors such as telecom, automobile, banking
& nancial services and consumer durables have also
joined the TV advertising bandwagon.
iii. Television Content
Most channels produce their own television content.
Given the increasing demand for differentiated content,
a handful of content creators have emerged who sell
television content to channels. This contributed about
4% of the overall television industry in 2009 at USD 250
million. Since the number of channels is growing by the
day and there is a need for differentiation, television
content segment is expected to surge further.
Television Channels in India the Problem of
Plenty
The last few years witnessed a near explosion of the
number of television channels in India. From the black
and white television broadcasting on a single national
television channel (Doordarshan) in 1980s to over 500
channels spanning various genres Indian television
industry has truly come a long way.
Television Genres in India From Generic to Niche
The Indian television broadcasting segment currently
has more than six genres. High number of genres is
Figure 32 : Evolution of TV Channels in India
Doordarshan was
the single national
broadcaster
Ramayan and
Mahabharat were the
popular shows with
record viewership
1996: More than
50 channels
available to
Indian viewers
2002-03: More
international channels such
as Nickelodeon, Cartoon
Network, VH1, Disney
were launched in India.
The number of channels
increased to ~ 100
2009: 394 TV channels in
2009. Non-news & current
affairs TV channels grew
from 0 to 183; news &
current affairs TV channels
grew to 211
1992: 5 new
channels
introduced by
Hong Kong
based Star TV
2003: Entry of
authentic news
channels such
as AajTak and
Star News
2010: Over
500 channels
already in India
and another
100 waiting to
go live
2015: Annual growth
rate for the television
industry is projected
to be15% over the
next 5 years
2006: 2
million
digital TV
households
Animation. Broadcasting. Gaming. On the Cusp of Growth | 27
primarily driven by the growing need for more and more
differentiated and niche content. Since the viewers
today have far greater choice in terms of content, varied
national and regional channels have emerged across
genres.
I. GEC (General Entertainment Channels)
a. National GEC: Cutthroat and competitive
2009 was a roller-coaster ride when it comes to the
top hindi GEC slot. While Star TV was at the top till the
rst half of the year, Colors occupied the top position
and got the highest gross ratings points (GRPs) of 325
in September 2009. This was also the highest among
all Hindi GECs in a span of over a year 50 GRPs ahead
of its closest competitor Star TV and 70 GRPs over Zee
TV. Differentiated content such as its agship drama
Balika Vadhu and Utaran, second season of stunt-
based reality show Fear Factor-Khataron Ke Khiladi and
BigBoss; coupled with meticulous distribution strategy
worked wonders for Colors.
Here are some key highlights of emerging changes in
the Hindi GEC space in the last calendar year:
Increasing popularity of reality shows and fction
addressing social and realistic issues
Advertisement rates nose-diving in the IPL month
Channels such as Colors, Imagine going global as
they also strongly race for the top slot in the highly
competitive TV broadcasting battleeld
Leading GECs acquiring broadcasting rights for new
movies for sprucing up the ratings and adding to
their viewer base, by reducing the gap between
theatre release and time-to-market through television
b. Regional GECs: Gaining rigor
Regional GECs are almost matching their strength with
the national GECs and have emerged as a key focus
area for most players. The number of regional channels
has increased from 114 in 2008 to 135 in 2009
3
. While
the share of advertising on genres such as Hindi News,
Hindi GECs and Hindi Movies almost remained constant,
it increased for regional GEC from 22% in 2008 to 24%
in 2009
4
. High demand for regional content by viewers
settled outside India, low cost of production (relatively
low talent cost, no carriage and placement fee, low
acquisition cost), affordable local advertisement reaching
the right audience are some factors contributing to the
success of regional channels.
Regionalization has caught the eyes of most established
broadcasters, catering to specic interests of the
viewers:
Figure 33: Viewership across TV Genres in India
Others
errestr|a|
Cab|e
K|ds
Sports
Mus|c. Reg|ona|
Mus|c (genera|)
News. Reg|ona|
News. |nd|
Mov|es. Reg|ona|
Mov|es. |nd|
CLC. Reg|ona|
CLC. |nd|
4.6
3.4
3.2
3./
1.9
1./ 2.1
2.4
3.2
2.8
b.1
b.b
9.3
/.9
2.b 2.1
4.2 4.3
0
10
20
30
40
b0
60
/0
80
90
100
2008 2009
22.b
26.2
2b
24.2
11.b
11./
4./
4
Source: TAM Media
Regional GECs are
almost matching the
strength of their national
counterparts, and have
emerged as a key focus
area for most players
3 Going native, article
published in Financial Times
in Oct 2010
4 TAM Media
28
Tamil, Malayalam, Telugu, Kannada, Bengali and
Marathi are the key languages in the regional GEC
space
Sun TV Networks has been a leading TV broadcaster
in the South Indian television market
Zee Networks that established a strong presence
in northern and eastern India with channels in
Bengali, Gujarati, Marathi and Punjabi by 2004; also
commands a signicant present in South India with
their rst South Indian channel launch - Zee Telugu in
2005, Zee Kannada in 2006, Zee Tamil in 2008
Other broadcasters such as Sony, NDTV, UTV are eyeing
the growing regional channel space, intensifying the
need for more and more specialized content targeted at
the regional viewers.
II. News channels: Losing steam
India currently has about 250 news channels as
against 215 in 2008
5
highest as compared to any
other country. 42 new news channels were permitted
in 2009 and 2010. Except for a handful of leading
news channels such as AajTak, most national as well
as regional news channels are losing steam to the
GECs. While the GECs are fast catching up with their
differentiated content, the news channels struggle
to strike the right balance between traditional
news content such as politics, current affairs; and
entertainment content. The news channels also grapple
with holding the viewers attention. Some channels have
tried to address this by creating dedicated channels for
specic type of content. TV Today launched an English
Channel, Headlines Today; and then another Hindi
channel, Tez (meaning fast). Both these channels were
aimed at the busy viewer who does not have time for
long and detailed news bulletins.
III. Music: Journey away from music
Music channels in Indian television are facing winds
of change. Four years ago, there were 12 pure music
channels. Today, there are only four - 9XM, ETC, Music
India and VH1. Audience viewership for music channels
is dipping across all age groups. Most traditional music
channels are also embracing non-music content since
these channels are nding it increasingly difcult to
retain and attract interest of audience due to growing
competition from GEC and other genres.
IV. Sports: Creating its own niche
Sports channels in India have increased manifold over
the last few years. The Indian cricket fans constitute the
primary viewers of the Indian sports channels. Events
such as Twenty20 World Cup and IPL have offered
exactly what the Indian cricket fans look for. Games
such as hockey and football are also gaining more
importance increased demand and viewership for live
telecasts, along with attracting sponsorships from bigger
brands. For example, initiatives such as ESPN Star Sports
association with the Indian Hockey Federation to create
the Premier Hockey league can offer further growth of
this genre.
5 Ministry of Information and
Broadcasting. March 2010
Animation. Broadcasting. Gaming. On the Cusp of Growth | 29
V. Kids: It will be more quality now
Tiny-tots are migrating from other genres of channels
to the specic genre of cartoon channels for them. The
channels are responding well enough by incorporating
increasingly vivid and superior content. While Cartoon
Network continues to hold the fort in the all-India
kids segment, the channel has seen a 3% dip over the
previous year to end 2009 with a 24% market share
4
.
Channel Pogo too has managed to retain the number
2 slot in this space. The channel has seen a rise in its
market share from 20% in 2008 to 22% in 2009
4
. This
genre has tremendous potential to grow given that the
target audience for the kids channels is not only kids,
but also some viewers from the adult segments.
A host of new channels were launched across the
GEC as well as non-GEC genres over the last 2 years.
In the GEC genre, Colors, NDTV Imagine, 9X and few
others were launched, while channels such as Discovery
Science, UTV Movies were introduced in the non-GEC
genre. Since the Ministry of Broadcasting decided to
temporarily suspend the issuance of new licenses to
new channels due to the lack of spectrum in 2009; the
increase in number of new channels in 2010 and 2011
is expected to be driven only by players already holding
the licenses and are yet to launch the channels.
Policy Framework
TRAI was designated as the regulator for broadcasting
and cable services in 2004. While much is still uncertain
about the broadcasting guidelines for the newly
Figure 34: Colors Breaking the Monopoly and Monotony of Family Drama
What did Colors do?
Target Audience
The success strategy was three pronged:
Explosive Marketing Differentiated Content Debut with Two Big-Ticket
Colors spiraled to the No. 2 spot in the competitive general entertainment channel (GEC) space within 10
weeks of its launch and became a well-entrenched channel available in 66.8 million homes, with a 24%
market share.
Colors was taking on the challenge of competing with giants like Star Plus, Zee and Sony, who controlled
the entertainment space and seemed to have set into a comfortable equilibrium in rankings and revenue.
Hindi speaking audience in 90 Indian cities
Used all
Promotion Routes
1300 hoardings & road shows across
country
3000 taxis and 2000 auto rickshaws
painted with Colors brand
65000 ad spots booked on TV &15
million SMSs
Big Bazaar stores & McDonalds helpers
and counter-guys aunted Colors
T-shirts
Played Bring the
Difference Game
New hue to the existing Hindi GEC
Category
Variety of FRESH content across genres
covering the entire spectrum of
emotions
Content customized to ft evolving
viewers with a desire to escape to their
fantasy world, while still remaining
within the realm of reality
Colors disruptive
programming strategy
Launched with two blockbuster
properties Khatron Ke Khiladi and
Bigg Boss 2, winning the eyeballs
immediately
Soaps addressing social issues and
stayed away from the family drama.
30
emerging distribution segments, one thing can be stated
with certainty: we have moved into a new era of digital
transmission of television content. The Government of
India mandated digital conditional access systems (CAS)
and rollout of DTH TV licenses highlights the regulators
focus on speeding up the digitization process. The
Headend-in-the-Sky (HITS) policy and a concessional
customs duty of 5% on importing digital headend
equipment is expected to give drive the digitization
process even faster.
FDI policy across various distribution segments:
Cable Network: Foreign investment and portfolio
investments are permitted up to 49%
Direct-to-Home: Foreign investment and portfolio
investments are permitted up to 49%. Within the
limit of 49%, FDI will not exceed 20%
Head end in the sky (HITS): Foreign investment and
portfolio investments are permitted up to 74%
Since more and more telecom companies are entering
the broadcasting space, FDI ceilings would need to be
rationalized to facilitate the anticipated convergence.
Future Outlook
The television industry is truly transforming. Increasing
pay TV penetration, multiple channels in each genre
racing against each other for TRPs, expanding yet
fragmented local as well overseas viewership of Indian
channels, demand for more specic content clearly
sets the stage for the next level of growth and transition
for players across the television value chain. Content
creators and broadcasters need to be cognizant of the
ever increasing demand for differentiated content. While
on one hand, new digital content distribution platforms
are emerging; on the other hand, new formats of
entertainment - computers, mobiles and other handheld
devices are gaining importance. Monetization of content
through these new media platforms is going to be a key
focus area for the content owners. Some key trends and
challenges that lie ahead are:
Digital. Digital. Digital: Digital is already the
buzzword today digital content, digital production,
digital distribution, digital platforms It is imperative
for players across the value chain to be digitally
adept to fully garner these opportunities
Spiraling production costs: Managing production
costs is one of the key challenges for content
producers. With the almost waning economic
slowdown, the talent costs are rising again to the
levels they were prior to the pre-recession times
Falling ARPUs: The highly competitive DTH market
is experiencing lower ARPUs, while also moving
neck to neck with local cable operators (LCOs) and
multi system operators (MSOs). Most players are
experiencing and are likely to witness for few more
years, a squeezing bottom-line growth. High cost of
customer acquisition further intensies the pressure
Evolving viewer interests: The viewer today is not
only looking for new-fangled content but is also
very quality conscious. From new movie broadcasts
to the IPL craze, from series such as Balika Vadhu
addressing social issues to reality shows with more
and more celebrity appearances the need for
differentiated and fresh content is on an all time
high. Regional viewers, both in India and overseas,
are also gaining importance
Fragmented viewership: Increasing number of
channels has fragmented the TV audience. The only
way to garner a signicant market share within
the viewership is through differentiated content.
This would require a deep understanding of the
consumer segments and their media consumption
habits
Players across the television value chain need a sound
action plan to address some of these challenges and
harness the opportunities in a growing and high
potential sector. While there isnt any one-size-ts-all
approach to realize the true potential of this sector,
there are some areas that the players may need to
focus more on and prioritize. It would be important, for
instance, to address the demand for regional content;
to work closely with the regulator in developing
transparent and more accurate techniques to measure
viewership; to infuence the regulator for an increased
impetus on digitization; to infuence stakeholders across
the value chain for controlling production costs; and to
enhance value delivered to the end-customer both in
terms of varied content experience (by content creators
/ broadcasters) and effective customer-service (by
distributors).
Animation. Broadcasting. Gaming. On the Cusp of Growth | 31
Radio
Introduction
Radio broadcasting in India has evolved from an All India Radio monopoly (1936) to a Government of India
controlled All India Radio (AIR) and 37 private FM radio companies that operate close to 280 FM radio stations. FM
radio stations are contributing to its rapid growth.
Radio industry in India is ~USD 200 million, having grown at a CAGR of 22% (2005-2009). Most of the revenues for
Radio are driven by advertisements (~85%-90%), while 10-15% are driven by events and activations on the radio
(Refer Fig. 37).
Advertising revenues from radio in India are only ~3% of
the overall advertising industry in India. This is less than
50% of the global average (~8%) (Refer Fig. 38). This
clearly indicates the immense potential and scope for
growth for radio in India.
Figure 35 : Evolution of Radio in India
Figure 37: Radio Broadcasting Players
(Revenue Split %)
Figure 38: Radio Ad Revenue
(% of Overall Ad Revenue)
1936
AIR started its
services
1977: First
FM service
1993: Private
participation on a
experimental basis
on FM channels in
Delhi & Mumbai
1999: Government pulled
out the plug on private
participation
2001: First phase of Indias
radio development began and
Government conducted open
auctions issuing 108 licenses
2005: Second
Phase with 338
slots up for
auction
Awaiting
Third Phase
Figure 36 : Radio Industry in India (USD Mn)
2
2
%
2
5
%
2005 2009E 2011P 2013P
90
200
350
500
Source: IBEF, Secondary Research
10%
36% 54%
Events & Activation Local Ads National Ads
Source: Industry Estimates
India
World
Selected Developed
Countries
15%
Source: Secondary Research
3%
8%
32
Key Growth Drivers & Constraints
Uniqueness of radio, its utility on the move and the 3rd
Phase of Licensing are expected to drive its growth in
India:
Unique value proposition
Radio is a unique medium compared to other
advertising media. It is a local medium and can deliver
locally relevant content. It is a highly interactive medium
and can be used most effectively for promotional
campaigns. This value proposition of the radio is
expected to be increasingly realized and leveraged by
advertisers.
High utility on the move
Radio nds high utility by people on the move, whether
it be inside the car or inside a public transport (via
mobile phones). India is a rapidly growing car market
(Refer Fig. 39), which will increase both the number of
radio listeners and the time spent listening to radio.
Moreover, the growth of mobiles (Refer Fig. 40) bodes
well for the radio industry. According to Radio Audience
Measurement data, 49 % listeners access radio from
their mobile phones. With the availability of low cost FM
enabled mobile phones, the radio audience is bound to
increase.
3rd phase of licensing
A signicant number of licenses are expected in the 3rd
phase of licensing: 3 in Top 8 Metros, 22 in other top 30
cities and > 600 licenses in smaller cities are expected to
be made available.
While radio, based on both international comparison
and the prevailing drivers in India, carries the potential
to grow at a signicant rate, current nancial viability
and regulatory restrictions pose large constraints for the
industry.
Type of content: FM radio stations are permitted to
play music only. This has kept the private industry
deprived of leveraging other potential genres such
as news, emerging sports genre in India and other
niche content genres. Globally, radio stations have
the freedom to broadcast channels across genres like
news, sports, fashion, talk shows, religion, weather,
cookery e.g. Walt Disney has more than 3000 radio
channels, each dedicated to everything from weather
to cookery. In the US, radio listeners spend almost 50%
of their radio listening time on news or talk channels.
Figure 39: Passenger Vehicle Sales India (2009)
(000 Units)
1
3
%
2005 2006 2007 2008 2009 2010
1061
1143
1380
1549
1552
1950
Source: SIAM
Figure 40: FM Enabled Mobile Phone Growth
2007
165.0
37%
59%
65%
261.0
392.0
2008 2009
Mobile Subscribers (Mn) % of FM Enabled Handsets
Source: TRAI, Business Press, IDC India 2010
Animation. Broadcasting. Gaming. On the Cusp of Growth | 33
Number of frequencies per city & networking of
cities: Indian stations are limited to one frequency
per city. Multiple frequencies per city can help radio
companies earn higher revenues for the same tower
infrastructure and enable them to propose bundled
offerings to advertisers. Networking of cities is
currently not allowed. Setting up of radio stations
is equally expensive across metros and small cities.
While revenue prospects are far higher in metros
and large cities; allowing networking across cities
and content syndication will make it feasible for the
radio players to reach out to the non-metro small city
audience
Initial license fee: The initial license fee for radio
licenses has proved to be very high and cumbersome
for the players. Most of the players paid huge sums
as license fee to get into the sector: Big FM spent
USD 23 million to get licenses for 45 Stations, HT
Music paid USD 15 million for 4 licenses. Revenues
earned by radio broadcast players, thus far, do not
justify the license fee.
Music royalties: Radio operators pay a high
per needle hour rate ( >USD 12.7) to the India
Performing Rights Society (IPRS) and Phonographic
Performance Limited (PPL) , as they are mandated
to do so. This arrangement, which is independent
of the earned revenues, becomes very challenging
for the operators, especially for the small cities and
towns where the earned revenues are much lower.
Internationally, in many markets, it is a revenue
sharing model, ranging from 1% - 5% of revenues.
Huge initial license fee, combined with a regular revenue
sharing of 4%, high royalty share and inability to use
content or infrastructure across cities makes it unviable
for radio broadcasting players, especially in non-metros
and smaller cities.
Table 7: Cost Structure of Radio Broadcasters in
India
Cost % of Revenues
License Fee 4
Music Royalty 20**
Tower 12
Staff 30
** Some smaller stations pay upto 70%
Source: Business Outlook
Lack of adequate audience measurement data
Radio Audience Measurement (RAM), launched by
TAM Media Research is a recent initiative and has a
limited coverage. Lack of such data has restricted radio
broadcasting players to analyse the consumer habits,
the market potential and plan accordingly, especially for
smaller cities and towns. Data would be of importance
to media planning agencies and radio broadcasters.
Future Outlook
The fate of the radio broadcasting industry in India is
primarily dependent on the regulatory support. The 3rd
phase of licensing could prove to be an inection point
for the industry, if it happens with certain reforms and
relaxes one or more of the regulations: allows multiple
licensing, permits networking across cities, changes the
royalty sharing arrangement, permits various type of
content on the radio. Unless any of these happen, the
industry is not expected to even come closer to realizing
its immense potential, especially in smaller towns and
multiple cities. For the players, the way forward, in
addition to inuencing the regulators is to use the
radio audience measurement data to understand the
consumer segments and decide the type of association
they would like for their particular station, radio jockey
etc. Radio broadcasting players also need to explore
other avenues for earning revenues eg. Activation and
events. They have already realized this and are working
towards it. However, this does not offer a long-term
solution.
The fate of the radio
broadcasting industry in
India is primarily dependent
on the regulatory support
34
Animation, Gaming and
Broadcasting all have the
potential to see near future
as infection points in their
growth story
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