Indian TV Industry

Kavita Sethi prepared this note under the supervision Mr. Jim Laurie.

© 2006 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong.

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JIM LAURIE

THE CHANGING FACE OF THE INDIAN TELEVISION INDUSTRY: 2006

Television in India has been around for just over four decades. For the first 17 years, transmission was restricted to black and white, and sale figures for television sets were minimal. The liberalisation of the Indian economy, however, brought with it many changes, including the entry of a number of global players, both in manufacturing and broadcasting. In a span of just over ten years, the broadcasting industry grew from a single public service provider to a thriving sector with over 300 channels beamed across India. Sales of televisions, though characterised by a low penetration rate, also continued to grow steadily. By 2005, India’s potential as one of the world’s largest viewerships was attracting the attention of international media giants. Paradoxically, infrastructure and the prevailing regulatory environment brought into question the abeyant growth of the industry. This was especially so for rural India, typically characterised by low levels of disposable income. Looking at the industry from broadcasting and manufacturing perspectives, this note explores the dynamics, challenges and prospects of Indian television.

India: World’s Second Most Populous Nation

Geopolitical Aspects India is a subcontinent with a landmass of approximately 3.3 million sq km, extending nearly 2,400km from north to south and 1,900km from east to west. The country has a federal setup with 28 states or provinces and seven union territories [see Exhibit 1 and 2]. Whereas states have elected governments, union territories are administered by the central government through their appointed lieutenant governors. State boundaries are demarcated basically on a linguistic basis and are independent entities for all purposes except defence, foreign affairs, telecommunications and railways, which are controlled by the central government. Railways and telecommunications are well developed and connect all major cities, unifying a geographically and culturally diverse country.

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Although India occupies only 2.4% of the world’s land area, it supports over 15% of the world’s population. By July 2005, the Indian population was reported at over one billion and growing at an annual rate of 1.4 %.1 With a population density of 334 people per sq km and based on a family norm of five individuals, there are approximately 200 million households in India. Two-thirds of the population lives in rural India, while the rest resides in the metros, big and small cities. Urban India supports an average literacy rate of over 70%, dropping to 45% in rural areas [see Exhibit 3]. Hindi is the national language while English is the link language between most States. At the state level, the regional language is predominant, with either English or Hindi as the second language in use. South India is an exception, where, besides English, four regional languages collectively form the mainstream for communication.

Indian Economy Since the reforms introduced in 1991, the Indian economy had been growing at an average rate of 6%. In 2004, with a per capita GDP of US$518.17, the Indian economy was reported to be the fourth-largest in the world, measured by purchasing power parity. Despite the rise in oil prices, high global commodity prices and abnormally low rains in many parts of the country, the economy grew at 8.1% during the first quarter of 2005–2006, as against 7.6% the year before.2 Unfortunately, the fruits of growth were unequally distributed across the country and the population. Considerable variations in economic well-being and development existed amongst different regions. For example the north-eastern region, comprising the states of Assam, Meghalaya, Tripura, Mizoram, Manipur, Nagaland and Arunachal Pradesh, fell short both of the western region (Maharashtra, Gujarat and Goa), and the north-western region (Punjab, Haryana and Himachal Pradesh). There was also a widespread disparity reported in income levels in urban and rural India [see Exhibit 4]. Consumerism in its classic sense had yet to set roots in India. Although consumer financing was picking up momentum, a majority of the purchases were based on traditional values, ie, a real need for the product and affordability, which remained critical factors when buying consumer durables, or for that matter, any product.

Erratic Electricity Supply Power cuts remain a way of life in India, with only a few privileged geographical pockets lucky enough to regard them as an interruption rather than the norm. According to the Central Electricity Authority of India, power generation over the past decade had grown at a compound annual rate of 5.5%, but demand had grown even faster. Experiencing an average power shortage of 7%, which reached as high as 12% during peak demand, India faced an acute power crisis. The gap between demand and supply had sustained over the last two decades despite capacity additions [see Exhibit 5]. The Reserve Bank of India’s annual report of 2004–2005 stated that the demand–supply gap in power availability was becoming the most critical issue in India’s economic development. According to the report, a number of factors had exacerbated the shortage:3

1 According to the data released by the government of India, the population estimate as of December 2003 was 1028.7 million, [www document] http://www.censusindia.net/results/population.html (accessed October 12th 2005). 2 “Quarterly Performance Analysis of Companies (July–September 2005)”, QPAC- Indian Media & Entertainment Industry, July–Sept 2005, Cygnus Business Consulting & Research: Hyderabad, India. 3 “Energy: Electricity”, Monthly Review of the Indian Economy, September 2005, Centre for Monitoring Indian Economy.


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• Inadequate generation capacity • Poor utilisation of existing capacity and inter-regional transmission links • Inadequate and ageing sub-transmission and distribution network • Slow pace of rural electrification • Inefficient use of electricity by the end user.

In 2005, per capita consumption of electricity in India was reported as one of the lowest in the world. India’s population of one billion used, on average, just 526 units (kilowatt-hour) of electricity a year, compared with 1,247 units in China and over 12,000 units in the US.4 Rural India, where more than two-thirds of the population lives, accounted for less than 13% of the total consumption. In these regions, electricity was made available only for a few hours a day, primarily for agriculture purposes and was of such poor quality that power surges routinely wrecked equipment. Most of the households in rural India remained without electricity in the evenings, even in those states, which claimed 100% electrification of villages. This situation has had a direct bearing on the demand and sales of all electric appliances, including televisions. Acknowledging that the long-standing power shortage was severe enough to constitute a constraint on the country’s overall economic development, the government initiated ambitious power reforms. Under the “Power for all by 2012” mission, some of the initiatives included:

• The Electricity Act 2003 • The special APDRP (Accelerate Power Development and Reform Programme)

scheme for transmission and distribution • A one time settlement of all state electricity board dues • Allowing private players to set up plants for captive consumption.

Emphasising the power reforms, the finance minister, in his budgetary speech on February 28th 2005, outlined a massive program for rural electrification which envisaged covering 0.125 million villages in power deficient states within five years. This would provide electricity to 23 million households. The government also planned to add 100,000 MW in power generation capacity by 2012, to which the National Thermal Power Corporation would add 9160 MW in the 10th plan (2002–2007) and about 17,000 MW in the 11th plan (2007–2012). The remaining capacity enhancement would come from various state governments.5 Although these initiatives painted a picture of healthy progress, they did not match local perceptions. Implementation issues besieged privatised distribution in Delhi and Orissa, the pioneering states for electricity reforms. After massive public protests, by September 2005, the local government in Delhi had withdrawn the increase of about 10% tax levied on residential electricity tariff. Consumers alleged that they were being robbed by rigged meters and forced to pay exorbitant first-world prices for unimproved, erratic third-world services. Much of the accusations were directed against the new digital meters installed by the two firms involved in the privatisation process—Reliance and Tata. Political lobbying also slowed down implementation of the proposed reforms.6 Efforts to attract private investment, particularly from abroad, into power generation were proving to be

4 “Underpowering”, The Economist, September 2005. 5 Written reply of the power minister in Rajya Sabha on August 9th 2005, reported in electronic and print media on August 10th 2005. 6 Communist parties (on whose votes the government, led by Mr. Singh’s Congress party, relies for a parliamentary majority) in the interest of public sector workers who oppose unbundling and privatisation, want to water down the 2003 Electricity Act.


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more difficult than anticipated, given the much-publicised Dabhol fiasco.7 However, the huge amount of investment planned by the government across the power value chain had, to an extent, succeeded in creating an optimistic forecasting scenario for future sales of televisions.8

Early Years of Indian Television

Just after Indian independence, a cabinet decision disallowed any foreign investment in Indian media. Subsequently, in 1959, two-hour broadcasts a week were initiated on an experimental basis. This was done through the state-run radio company, Akashvani (All India Radio). Operating through a small transmitter and a makeshift studio, regular daily transmission of television commenced in Delhi as late as 1965, followed by similar endeavours in the remaining three metro cities of Mumbai, Chennai and Kolkata.9 Moving forward, in 1976 the government, under the aegis of Doordarshan (Television) separated television (TV) from radio broadcasting. Doordarshan, substantially subsidised by the government, retained monopoly rights over terrestrial broadcasting. As it was a public service provider, revenue generation was not its primary objective. So in order to supplement earnings, Doordarshan adopted a model that included both licence fees and advertising revenue through a limited number of commercials. Sponsorship of programs was unheard of. Broadcasting was in a black and white (B&W) format, with programs primarily covering education, farming inputs for the agricultural community, social upliftment messages and news broadcasts. Entertainment programs were drawn mainly from the Indian film industry. These included weekly telecasts of “Chitrahaar”/“Chhayageet” (songs from Hindi movies) and a regional language movie broadcast on Saturday evenings. The highlight of the week, however, was a Hindi movie every Sunday evening, for which viewers across the nation stayed glued to their sets. Until 1977, sales of TV sets, as reflected by licences issued to buyers, were reported at just 676,615. Manufacturing activity was limited to the assembly of imported kits from Japan, Germany and other European countries. The byword for manufacturing was “import substitution”. Bharat Electronics Limited, a government undertaking, played a pivotal role in the indigenisation of TV components like B&W picture tubes, and glass and electron guns for B&W picture tubes. This largely reduced dependence on imports for TV components. By 1980, production of B&W television sets had crossed the one million mark. Sets were manufactured with 14- and 20-inch screens, the former being portable, with an option of being battery operated. Segment wise, the share for 14-inch screens was 70%, with 17- and 20-inch screens completing the pie.

The 1982 Transition

The ninth Asian Games hosted by India in 1982 ushered in the first wave of transformation for broadcasting. Two radical programming and distribution initiatives implemented by the government were:

• The transmission format was changed from B&W to colour. • In an attempt to increase nation-wide terrestrial coverage, a large number of small

transmitting stations were established throughout the length and the breadth of the 7 The 2,200 MW Dabhol power project in Maharashtra, which started operations in 1999, shut down in 2001 after a row between its promoter Enron, a collapsed American energy giant, and the MSEB, Maharashtra State Electricity Board. The project is now restarting, after, in effect, being nationalised. 8 Xavier, F., “CTV in India in 2010”, Francis Kanoi Marketing Planning Services, CETMA CE Vision 2010. 9 Formerly called Bombay, Madras and Calcutta respectively.


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country. According to Mr. Masaldan, 2004–2005 president of Consumer Electronics and Television Manufacturing Association (CETMA), in 1984, one low power transmitter was set up every day.10 Doordarshan, however, retained its monopoly over broadcasting and distribution and no private enterprise was allowed to either set up a television station or transmit signals [see Exhibit 6]. Government representatives claimed that by 1991, nearly 80% of the population had been brought under terrestrial television coverage.

These moves led to inroads in both programming initiatives as well as advertising opportunities [see Exhibit 7]. Well received by viewers were commercially sponsored “serials” (the Indian equivalent of soaps) like “Hum Log” (1984) and “Buniyaad” (1984), as well as mythological epics like the “Ramayan” (1987–1988) and “Mahabharat” (1988–1989). The 1980s also saw Doordarshan capturing audiences through the live telecast of cricket matches. However, programs remained limited in their diversity, largely due to the government’s insistence on developing content for the rural audience. Despite the limited improvement of the quality and reach of broadcast programs, the demand for TV sets, colour televisions (CTVs) in particular, grew between 70% and 140% per year [see Exhibit 8]. This trend continued until 1988. Since the power situation had not kept pace with the increase in demand for televisions, battery operated B&W sets continued to hold their own, accounting for nearly 80% of total TV sales. While CTVs sold well in the 20- and 21-inch screen sizes, the market for B&W televisions was predominantly restricted to 14- and 17-inch screens. On the manufacturing end, in an effort to provide protection to the domestic industry, the government completely barred imports of TVs. In addition, high import tariffs were imposed on essential components like colour picture tubes. As a result, three homegrown TV manufacturers, BPL, Onida and Videocon, emerged as dominant national players. In addition, there were a host of smaller regional players in different states. While national players commanded 70% of the market, the share of regional players was limited to 30%. Another first was the emergence of original equipment manufacturers in the television industry—brand leaders started outsourcing their production from such manufacturers. The main reason these manufacturers sprung up was because each state provided tax exemptions and other benefits to small-scale industries to set up production. Entrepreneurs with small investments took advantage of these schemes and established units to assemble TV sets. Manufacturing was, therefore, largely fragmented, affecting costs and pricing. This period also saw the commencement of the production of colour and B&W picture tubes in the private sector. There were three units with foreign collaboration to manufacture colour picture tubes (Samtal India, JCT Limited and Uptron) and six units, primarily using indigenous technology, were setup to manufacture B&W picture tubes (Samtal India, Prakash Industries, Hotline Group, Tosha International, Ramavision Limited and Suchitra Industries). Indigenised manufacture of other components also kept pace with the increasing demand of TV sets. However, between 1988 and 1991, the Indian economy went through a bad balance of payment crisis. The government increased tariffs, because of which prices of consumer durables, including TVs, skyrocketed. Consequently, sales fell by about 14%. By 1991, in a country with a population of nearly 850 million, domestic sales of TVs were a mere four million units per year, of which CTVs accounted for less than one million.

10 As quoted in an interview by Mr. Masaldan in November 2004, president of CETMA in 2004.


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The Market Opens

The 1991 Gulf War proved to be the second turning point for broadcasting in India. Concerned relatives of Indian workers in the Gulf invested in satellite dishes to receive 24-hour live transmissions by Cable News Network (CNN), while others flocked to venues where such dishes were installed. For the first time, Indian viewers were exposed to content far different from that offered by the public service broadcaster, Doordarshan. Concurrently, in line with the process of liberalisation, transmission through satellite commenced, with the government permitting private participation in broadcasting. This brought in foreign players like CNN and Asia Television Network (ATN), followed by Star TV and subsequently the home grown Jain TV, Zee TV and Sun TV. Not to be left behind, Doordarshan responded to the satellite invasion by launching a commercially driven entertainment channel, and also increasing the entertainment content on its terrestrial network. In 1995, it also licensed to CNN the use of an Indian satellite for an annual fee of US$1.5 million, and 50% of advertising revenue when it exceeded US$1.5 million.11 By 1996, the number of channels offered on cable had increased to over 50. Star TV, Sun TV and Zee TV started offering bouquets of 6–8 channels covering entertainment, news, sports, movies and regional language programs, with Zee TV leading the pack. In contrast, even though the number of channels offered by Doordarshan had increased, as had its advertising revenue, it had not compromised on its public service mandate. With the content offered by cable channels being far more interesting than that offered by Doordarshan, there was a perceptible shift in the viewership’s loyalty, especially in urban areas. In another blow to Doordarshan, the Supreme Court of India passed a ruling that ended the government’s monopoly of the airwaves. Doordarshan and All India Radio were brought under a statutory autonomous body called Prasar Bharati (the broadcasting corporation of India). The primary duty of the Corporation was to conduct public broadcasting services to inform, educate and entertain the public, and to ensure a balanced development of broadcasting on radio and television.12 Subsequently in 2000, the door was opened for private players to own and operate communication satellite systems. The local INSAT system was also offered for commercial use by private agencies.

The Union Government has taken a decision on 25th July, 2000 to further liberalise its Uplinking Policy and permit the Indian private companies to set up uplinking hub/teleports for licensing/hiring out to other broadcasters. The new policy also permits uplinking of any television channel from India. It also allows the Indian news agencies to have their own uplinking facilities for purposes of newsgathering and its further distribution.13

Since it was neither practical nor viable for people to have individual dish antennas to receive direct satellite signals, cable operators mushroomed in areas of concentrated television viewership. The subscriber base for some of these local entrepreneurs, whose relay was at times limited to less than ten channels, was as low as 50 users. On the other end of the spectrum were multi-system operators (MSOs) capable of delivering more than 30 channels [see Exhibit 9]. In order to regulate operations and bring a sense of order to the disorganised growth, in 1995 the government passed a Cable Television Networks (Regulation) Act and 11 “Television in India”, http://vigyanprasar.com/comcom/develop78b.htm (accessed January 17th 2006). 12 The Prasar Bharati Act, 1990; The Broadcasting Bill, 1997, [www document] http://www.indiantelevision.com/indiabrodcast/legalreso/legal resources.htm (accessed December 21st 2005). 13 “Guidelines for Uplinking from India”, [www document] http://www.indiantelevision.com/indiabrodcast/legalreso/legal resources.htm (accessed December 21st 2005).


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levied taxes on the 60,000-odd operators. While this was a step forward, it was not until 2002 that the Cable Television Networks (Regulation) Amendment Bill, was passed. With this bill, conditional access system (CAS) was made mandatory to view pay channels, while free-to-air (FTA) channels formed part of the basic tier.14 Also, on the policy front, the government lifted the ban on Ku-band direct-to-home (DTH) broadcasting, paving the road for alternate platforms for distribution. The burgeoning market attracted many channels from overseas. But the channels that remained popular with the masses were those that offered dollops of local fare in local languages: Zee TV, Star Plus, Sony Entertainment, ESPN Star Sports, Doordarshan and even the local cable operator-run pirated movie channel. Regional language players like Sun TV and ETC reigned supreme in their respective territories. A large number of English and foreign language services, despite being beamed down by hopeful telecasters, had practically no takers. 15 Another escalating niche attraction was the news channels. Besides the homegrown Aaj Tak, BBC and CNN were the other popular choices. In attempts to catch up with viewership numbers, Doordarshan launched DD Sports as a pay channel, cashing in on exclusive Indian cricket rights, successfully negotiated for five years by Prasar Bharati. The show that came to dominate cable broadcasts was “Kaun Banega Crorepati” (KBC). Based on the popular US game show “Who Wants to Be a Millionaire” and hosted by the Indian movie superstar Amitabh Bachchan, KBC catapulted Star Plus into a leading position. Also leading the charts were Star TV’s daily family dramas, “Kyunki Saas Bhi Kabhi Bahu Thi” and “Kahaani Ghar Ghar Ki”. In terms of content providers, Balaji Telefilms ruled the roost. Apart from the phenomenal success of “Kyunki Saas Bhi Kabhi Bahu Thi” and “Kahaani Ghar Ghar Ki” on Star Plus, Sony’s “Kkusum” and Zee TVs “Koi Apna Sa”, which rated consistently in the list of top 50 programs, were also produced by Balaji Telefilms. In 2001, the gross rating points (GRPs) of Balaji Telefilms were eight times that of its competitors: Creative Eye, Sri Adhhikari Brothers and Cinevista. With content calling the shots, the increased bargaining power of content providers vis-à-vis satellite channels was demonstrated by Balaji Telefilms’ increase in the fixed price component for all its four daily serials on Star Plus [see Table 1]. (In thousand US$/hour)

Fixed Show 2001 2002 % Change 2001 2002

% Change

Kyunki Saas Bhi Kabhi Bahu Thi

29.28 40.54 38.50 6.75 18.02 166.70

Kahani Ghar Ghar Ki

29.28 32.20 10.00 6.75 9.68 43.30

Kahin Kisi Roz 20.27 27.03 33.30 6.75 13.50 100.00 Kasauti Zindagi Ki 20.27 27.03 33.30 6.75 13.50 100.00

Source: Adapted from Media Sector Update, SSKI Securities, January 25th 2002.

Table 1: Price Increases, Balaji Telefilms (2001–2002) The growth of cable and satellite television also opened a new vista in advertising. By the end of 2000, the cable and satellite industry was growing at a compound annual growth rate (CAGR) of 21% in terms of reaching homes, and a CAGR of 30% in terms of advertising

14 Subsequently, implementation of CAS invoked considerable controversy, specifically in relation to the rate freeze imposed by the Telecom Regulatory Authority of India (TARI). With the politicisation of the issue, the impasse between the broadcaster, cable industry and consumer has yet to be satisfactorily resolved. 15 “Current Status of the Indian Television Market”, [www document] http://www.indiantelevision.com/indianbroadcast/curstatus/currentstatus.htm (accessed December 21st 2005).


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revenues.16 Given that the broadcasting business is characterised by asymmetrical payoffs, the top five channels accounted for 90% of the advertisement spending. Channels unable to attract and retain viewership were bleeding, as their advertising revenues were not sustainable.17 All these developments, coupled with aggressive advertising, fuelled the demand for TV sets, both in the urban and in rural areas. Deregulation of the economy had opened the market for a large number of multinational companies (MNCs) such as Philips, LG, Samsung, Sony, Panasonic and Thomson, followed by Chinese companies such as Haier, TCL and Konka. Choices available to consumers had increased, as had the competition. As a result, on one hand the quality and features being offered, especially on CTVs, improved; on the other hand, prices fell.18 Notably, there was a perceptible change in buying patterns. In the past, a typical characteristic of the TV market was that consumers rarely replaced their sets. The change in market dynamics brought with it substantial growth in the replacement segment [see Exhibit 10]. Between 1999 and 2001, while CTV sales grew marginally, there was a sharp decline in the sales of B&W televisions. Delayed monsoons augmented the situation. The resultant cash crunch in agricultural incomes greatly affected television sales in rural areas, the primary market for B&W televisions.19 As unbranded low-priced products accounted for half the B&W market, the drop in demand created large unutilised capacities for local television manufacturers like BPL, Onida and Videocon. This put them at a further disadvantage when trying to compete with the new global players in the market. Also, with the future of B&W television looking bleak, there was a corresponding shift in the TV component industry: manufacturers started gearing up for the colour explosion. Glass plants for B&W picture tubes set up by Samtal India and Hotline in the early 1990s were converted into colour component manufacturing units. Subsequently other players, including Videocon, Hotline and BPL, also established plants to manufacture glass parts for colour picture tubes.

Current Trends

The estimated total market size of the media and entertainment industry in India, including prominent segments like print, films, television, radio and music, was more than US$4.5 billion at the end of 2005. This figure reflected exponential growth and was largely a result of entrepreneurial efforts in an environment marked by regulatory uncertainties. The majority of these revenues were contributed by the television industry which reported revenues of US$2.9 billion. Of this, subscription revenues from distribution accounted for nearly 60%, television and cable advertising for 35% and software exports for 5%. Industry analysts projected that the television industry would grow at a CAGR of 18%, reaching revenues of nearly US$6.75 billion by 2009.

China and India are the two main attractions for overseas investors in all sectors. But China is completely closed for investors in the media sector. All this while the Indian media sector was, more or less, run by the Government. Now with the gradual liberalisation in the sector, the overall market is

16 “Sector Snapshots”, Lotus Consultancy Analyst Reports, Lotus Consultancy Services, November 27th 2000. 17 Viewership of channels is defined as 10 or more continuous minutes per channel. 18 The average price of a 20-inch CTV dropped from US$400 in 1996 to US$200 in 2002. 19 Agriculture in India is largely dependent on the bounty of the monsoon rains. Agricultural production in 2001 dropped by 57% in 1998–1999 in Gujarat, by 65% in Rajasthan and by 68% in Madhya Pradesh. In addition, the cotton crop in Maharashtra and the wheat production in Punjab were also affected.


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growing very rapidly. This has made India a good investment option for foreign investors who are badly battling for retaining market shares in their own countries.20

- A. Srivastava, CEO, Mindshare India Characterised by changing technologies, new platforms for delivery and a proliferation of new channels, Indian broadcasting, of late, had inevitably become more fragmented. In addition to the launch of satellite channels in various genres, new content formats emerged, including reality shows and niche channels. The industry also awakened to the needs of the 20 million Indians residing outside India. Making forays into the US, UK, Canadian, Middle Eastern, European and South-East Asian markets, content was being specifically developed for this audience. At home, regional channels thrived because advertisers were better able to target audiences. The focus, however, remained on developing content for urban viewers. By the end of 2005, of the over 100 million television homes, 43 million could receive only terrestrial television, thus limiting their reception to Doordarshan. Despite the amelioration, the industry awaited decisions on a number of regulatory issues, including digitalisation, convergence and carriage. Concurrently, although the sale of TV sets had reached an all time high, the manufacturing industry was beset with problems. Prime among these were concerns regarding cost disadvantages for Indian manufacturers vis-à-vis imports, a result of the bilateral foreign trade agreements with Thailand and Singapore.

Changing Times, Digitally Despite its phenomenal growth, the fragmented distribution network for cable television in India remained packed with contradictions. On one hand, the motley mix of channels crossed 300. On the other hand, infrastructure constantly hampered conversion of viewer’s choice into a willing purchase. As the number of channels increased, there was an oversupply of content while the distribution capacity remained relatively static. One of the biggest problems the industry encountered was finding space on cable networks. While news channels pampered the market by hiking carriage and placement rates, the second bouquet of distribution companies further choked bandwidth on cable networks. At the same time, the industry saw the launch of direct-to-home (DTH) broadcasting and the broadband-based internet protocol television (IPTV), both potential threats to the traditional cable industry. DTH would circumvent cable operators by directly delivering a bouquet of channels to the end user; all they needed was an antenna to receive the signals and a decoder to unscramble the encoded audio/video signals. Concentrating on optimising carriage fees, cable operators, who had not faced any competition for over a decade, did not seem to realise the future impact of alternate distribution channels—it was only towards the end of 2005 that they woke up to the impeding reality of digitalisation.

Cable networks were more engaged in collecting carriage or placement fees than in securing their future against DTH operators. We should have been more prepared for the battle that will unfold in 2006. More time was spent on negotiating carriage fees and everybody forgot the future.21

- A. Saraf, founder and promoter, 7 Star

20As quoted in “Liberal Rules Attract Overseas Media Firms”, [www document] www.newswatch.in/index.php?itemid=2944 (accessed February 3rd 2006). 21As quoted in Das, S., “Distribution: Channel Oversupply in a Time of Capacity Logjam”, [www document] http://www.indiantelevision.com/ye2005/distribution_yearender05.htm (accessed February 3rd 2006).


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Comparing cable television and DTH, international trends show that the first mover had always retained a higher market share. In the US, cable television penetrated way ahead of DTH, and yet holds the market lead. In Europe, both DTH and cable were launched during a similar timeframe, hence DTH was able to grab a higher share of the market. In India, while talk of DTH surfaced as early as 1996, it was not until 2003 that actual implementation started. By then, cable television had already established a foothold. With high costs of implementation, the challenge for alternate platforms was to drive numbers. In 2004, IPTV had not made its foray into the market, while DTH held a very small niche of around 2.5%. However, industry analysts project that by 2008, these alternate platforms will make their presence felt, with the share of DTH increasing to 15% and IPTV to 7%.22 Despite costs of implementation pegging DTH as an up-market premium product, its advantages over cable are:23

• Higher subscriber accountability. Since the service provider was eliminated, there would be no under-reporting of subscribers.

• Improved quality of picture and audio. • DTH would be more accessible in remote areas or where reach of extended cable was

a problem. • As the digital technology adopted in DTH transmission allowed between 8 to 10

channels to be compressed on a single transponder, plenty of transponder space would be set free.

Another raging debate in the industry was the digitalisation of cable. In 2004, digital TV accounted for an insignificant 0.5% of the market, with no real thrust by operators to push it forward. However, once DTH and IPTV arrived, offering better quality, content and value-added services, pressure would build up for digitalisation of cable TV. This problem could be addressed by independent operators installing low-cost digital headends. It would solve the bandwidth problem on analog cable, and would substantially increase the number of channels being carried. Digitalisation would also enable two-way interactivity with the subscriber, allowing for value-added services like introduction of pay-per-view channels, home shopping, video-on-demand and interactive program guides.

Cable TV will have to go digital if it has to fight against DTH. MSOs should have indulged in more aggressive marketing of digital cable in 2005. We hopefully will correct that this year, which will see cable face real competition from DTH. Better marketing, cross selling, promotion and attractive pricing will have to be used to make digital cable acceptable.24

- K. Jayaraman, CEO, Hathway Cable & Datacom

Leaders in the Game Besides Doordarshan offering 30 channels on its free-to-air DTH service, the first private player was Dish TV. Launched by Zee TV mogul Subhash Chandra in October 2003, Dish TV logged in 15,000 subscribers within two weeks of its operation. Seeing the lucrative business ahead, in February 2004 the Star Group, controlled by Rupert Murdoch, entered into a joint venture with Tata Sons to launch Space Television, their DTH initiative. However, it was only a year later, in June 2005, that the project got government clearance. The other contender on the market was Sun TV, the leading player from South India. By the end of 2006, all four service providers were expected to be vying for a slice of the pie. Also gearing 22 Industry Monitor, Media and Entertainment, Vol. 602, February 2006, Cygnus Business Consulting & Research. 23 Industry Monitor, Media and Entertainment, Vol. 512, December 2005, Cygnus Business Consulting & Research. 24 As quoted in Das, S., “Distribution: Channel Oversupply in a Time of Capacity Logjam”, [www document] http://www.indiantelevision.com/ye2005/distribution_yearender05.htm (accessed February 3rd 2006).


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up to take off in 2006, broadband providers including MTNL, BSNL, Reliance, Bharati, Infocomm and VSNL were in various stages of development to offer IPTV. Wanting to cash in on the international popularity of the triple play option, the challenge for these operators would be to develop content acceptable to the Indian audience.

Regulatory Environment for Broadcasting in India25 The problems encountered while implementing the conditional access system (CAS), and the growing chaos among various stakeholders including the MSOs, cable operators and broadcasters, prompted the government to appoint the Telecom Regulatory Authority of India (TRAI) as the regulating body for the broadcasting industry in January 2004. This decision was in line with many developed countries having a single regulator responsible for both the telecommunications and the broadcasting sectors. According to the government notification, TRAI would:

• Facilitate competition and promote efficiency in the operation of broadcasting services.

• Regulate revenue sharing arrangements between service providers derived from broadcasting and cable services.

• Ensure compliance of terms and conditions of licences in the case of unlinking, and monitor technical compatibility and effective inter-connection between different service providers.

Soon after being commissioned, TRAI floated several white papers on broadcasting, distribution and digitalisation of the television industry. It also indefinitely deferred the implementation of CAS in four metro cities, until proper rules for implementation were drafted. In specific, TRAI would recommend:

• The terms and conditions on which addressable systems (set-top boxes for CAS) would be provided to consumers

• The parameters for regulating maximum time for advertisements on pay channels as well as on FTA channels

• Standard norms for revision of rates of pay channels and their periodicity • Standards of quality service to be provided by service providers in the interest of

consumers.

Initiatives on Digitalisation In January 2005, TRAI publications focussed on the need to adopt a national plan for digitalisation of cable TV between April 2006 and March 2010. Gearing up for the 2010 Commonwealth Games, TRAI made certain recommendations:

• Introduction of digital services in all cities, rural or urban, with more than a population of one million by 2010

• Licence requirements for all digital services; new entrants to be issued licences, while existing anolog operators to be automatically issued a digital licence

• Rationalisation of import and domestic duties by April 1st 2006 • Reduction of custom duties on set-top boxes for cable television from 15% to 10%.

While TRAI’s regulatory influence was welcomed by the industry, according to analysts, the effects of implementing the policy would only be visible by early 2007.26

25 Unless otherwise specified, this section is summarised from Industry Monitor, Media and Entertainment, Vol. 6, February 2004, Cygnus Economic and Business Research. 26 Ganguly, R., “India Media Industry”, JP Morgan Asia Pacific Equity Research, May 12th 2005.


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Development of Niche Channels When you look at data in multiple TV homes, you get phenomenally stark new audiences, which are engulfing channels that are completely genre based in nature … This can happen even in a non-multiple TV set home, but the fact is that in multiple TV sets homes intensive viewing is happening parallely.27

- L.V. Krishnan, CEO, Tam Media In the recent past, general entertainment channels seemed to be losing their grip on viewers. The shift from an “on-cast” to an “on-demand” model created new opportunities for niche operators who developed content for well-defined demographic segments. In 2001, the general bloc held 54% of the market. By 2004, this viewership had dropped to 40%, major gainers being the news and regional genres.28 On a macro level, in the coming years, the industry expected a more focused growth of niche and regional programs.

News Channels29 Witnessing double-digit growth, news as a genre sprung into prominence in the last few years. A number of new players entered the arena, while old hands consolidated their position. A vast change from the time when the only source of news was Doordarshan, by 2002, the total number of news channels on air were 11. By 2005, this number had reached 30. A study initiated by Tam Media in 2005 revealed:30

• The news category comprised four genres: Hindi news, Regional news, English news and Business news.

• From 2003 onwards, the news genre witnessed consistent double-digit growth. Registering over 50% growth in 2004 over 2003, by August 2005 the category had grown by 20% over 2004 [see Exhibit 11].

• While Hindi news commanded the largest share, 69%, it had been rapidly losing out to the regional news segment. Hindi news dipped by 11% in 2004 over 2003, while the share of regional channels grew by an astounding 108%. In 2005, Hindi news went down by an additional 5%, whereas regional news experienced a 21% year-on-year growth. Among the regional languages, Telgu and Tamil (predominant languages used in South India) commanded the largest share of viewership.

• News channels were also proactively involved in tapping the international arena. Prominent amongst these were NDTV and TV Today.

Among the new launches was the 24-hour business channel NDTV Profit, which followed CNBC–TV18’s 24-hour Hindi channel Aawaaz, and Zee’s personal finance channel, Zee Business. As can be seen from Exhibit 12a, in 2004, while NDTV 24x7 remained the undisputed leader in the English news genre, competition in the Hindi news segment was on the rise. As new channels like Sahara Samay and NDTV India came into the arena, Doordashan overhauled its image to emerge a strong contender in the segment. In the last quarter of 2005, the race for the number one position in the Hindi news segment was between long time leader Aaj Tak and Star News [see Exhibit 12b]. NDTV India and Zee News were

27As quoted in “Making Sense of Boom and the Digital Puzzle”, December 26th 2005, [www document] http://www.indiantelevision.com/ye2005/lvk_yearender05.htm (accessed February 3rd 2006). 28 TAM Media Research, Industry Monitor, Media and Entertainment, Vol. 507, July 2005, Cygnus Business Consulting & Research. 29 All quotes in this section have been taken from interviews documented in Bhattacharjee, M., “News Channels Shifting Gears, Positions”, October 5th 2005, [www document] http:www.indiantelevision.com/special/y2k5/news_shifting_gears.htm (accessed February 15th 2006). 30 “News Channels Stay on High Growth Curve; Regional Leads Charge”, September 8th 2005, [www document] http:www.indiantelevision.com/special/y2k5/news_channel.htm (accessed February 15th 2006).


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close contenders for the third position. According to Aaj Tak executive news director Q.A. Naqvi:

Aaj Tak has been able to retain its position as India’s leading news and current affairs channel primarily because it has stayed steadfast with its core principles—credible, authoritative and insightful. We recognise that the appetite of the audience for news has changed and we have changed to accommodate these without changing our basic values.

The Ayodhya attacks, the Mumbai deluge and the tsunami disaster confirmed that man-made or natural disasters boosted viewership on news channels as did “sting operations” (which temporarily shot up India TV’s ratings in March 2005). But sustained viewership could only be generated through content and programming. Otherwise, stray viewers went back to the news channel they were loyal to. Aptly summarised by KPMG’s associate director Anindya Roychowdhury:

Although there has been a shift in (channel) positions, nonetheless it needs noting that news channels have sticky eyeballs, which is unlike entertainment channels.

Also important to the success of news channels was distribution. With news expected to become more fragmented in 2006, the challenge of distribution was on the rise. Almost all industry leaders concurred that carriage fees was an open secret and news channels paid up handsomely to get carried on cable networks. According to Star News CEO Uday Shankar:

Distribution is very important. You may have the best of product, but if viewers or the target audience do not get to see it, what use is the product.

Regional Channels The diverse range of spoken languages and dialects across the country led to the development of regional channels, which offered locally relevant content in local dialects. National expansion through regional entry had always been looked upon as a favourable way forward, but a number of attempts met with mixed results. Zee made its first move in the late 1990s by launching regional channels in Bengali, Marathi, Gujarati, Punjabi and, more recently, Zee Telugu in 2004. Except for Bengali and Telugu, Zee did well in the rest of the pockets. While Star had a presence in Tamil (Vijay TV) and Bengal (Star Ananda), its experience with South India had made it cautious while moving into other regions. Stat India’s COO Samir Nair felt that dubbing Hindi programs into regional languages to test their popularity as special feeds on Star Utsav would give Star an idea of the prevalent consumer sentiment in different regions.31 While the regional genre was fast gaining popularity, what was of interest is the way the market was shared between existing players. In most regions, one big player accounted for almost 50% of the market, with other smaller competitors vying for the rest. Smaller players were hindered by poor infrastructure, limited resources and poor advertisement revenues. This made it easier for the larger networks to consolidate their positions. Down south, dominating the market was Kalanithi Maram’s Sun Network, while ETV and Zee Marathi controlled

31 Nair, S., COO Star India, “2006 Will Bring a Dramatic Shift in Status Quo”, December 24th 2005, [www document] http:www.indiantelevision.com/ye2005/sameer-yearender05.htm (accessed January 17th 2006).


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broadcasting in Marathi. ETV was also dominant in Bengal, while ETC Punjabi and Zee Punjabi together ruled Punjab.32

Children’s Channels In 2004, while there were 47 million children under 19 years of age in the 40 million cable TV homes, the content targeting this audience was negligible. In contrast, in the UK there were 20 channels for the 16 million children under the age of 19. Advertisers fast came to realise that with families increasingly becoming nuclear, children’s power on the remote as well as on buying decisions was on the rise. The upturn in advertising revenue proved to be a boom for the genre. Tapping this market, Zee Turner was amongst the first to launch its 24-hour channel Pogo. Other prominent players in this segment included Cartoon Network, Disney, Hungama TV, Toon Disney and Nickelodeon.

English Entertainment As channels fought to hold their share, content was becoming increasingly important in the English entertainment segment. Although the movie channels reported the highest ratings, the average viewing time was on the decline. HBO notched 5 min 8 sec per week in 2005, as compared with 7 min 8 sec in 2004, while Star Movies experienced a drop from 7 min 20 sec to 6 min 30 sec per week. TAM data for five metros shows that in the overall English entertainment scene in 2005, Discovery was in third place behind Star Movies and HBO [see Table 2].

Channel TVR Rating Star Movies 0.15 HBO 0.13 Discovery 0.08 AXN 0.06 NGC 0.06 Animal Plant 0.05 Star World 0.05 Zee Studio 0.03 Zee Café 0.02 The History Channel 0.02 Discovery Travel and Living 0.02

Table 2: TVR Ratings, Overall English Entertainment Space, 8–11 pm Band (2005)33

If you look at the English Entertainment space, then movie channels lead in terms of share. Also what is good in our space is that there are just two major players—Star Movies and HBO.

- Shruti Bajpai, South Asia Country Manager, HBO34

According to Star Movies’ senior vice-president of marketing and communications, Ajay Vidyasagar, the emergence of new technologies such as DTH would provide a boost to English movies as early adaptors to these technologies would overlap with the English movie 32 Bijoj, A.K., “Unraveling the Regional Riddle”, January 21st 2006, [www document] http:www.indiantelevision.com/special/y2k6/entry_regional.htm (accessed February 3rd 2006). 33 Adapted from Pinto, A., “Discovery: Pushing the Boundaries of Infotainment”, August 20th 2005, [www document] http://www.indiantelevision.com/specisl/y2k5/discovery.htm (accessed January 17th 2006). 34As quoted in Pinto, A., “Time Spent on English Movie Channels Down in 2005”, December 30th 2005, [www document] http://www.indiantelevision.com/special/y2k5/english-movie05.htm (accessed February 16th 2006).


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audience. However, considering the rising competition from other genres, other channels like NGC and Discovery would have to increase the total viewing experience, focusing on more on-ground events with a local flavour if they wished to retain audiences as well as grow their share of the market.

Spiritual and Religious Channels By the end of 2005, there were nine spiritual channels on air. With a market share of just over 1%, they drew viewers primarily from the older population. Content included mythological movies, serials, interactive astro-solutions and alternative living and healing programs. Prominent among these channels were Aastha, Sanskar and Zee’s Jaagaran.

Changing Formats Going with the popular theory “People watch programs, not channels”, industry leaders maintained that content was the current buzzword of the industry. With the general entertainment segment threatened by niche segments, broadcasters were looking towards alternate programming formats aimed at attracting and retaining viewership. According to Star India’s COO, Sameer Nair:35

The number of hours spending watching (television) is going down because of alternate sources of activity. This is being masked to an extent due to the growth of the market. The mature side of the spectrum of the television viewing population is actually consuming less. While it is the new viewers that are making up the slack … Audiences today are in an age of distraction. Unless you have an extra strong and compelling property to keep them glued and engaged, you are at a loss.

Reality Television Catches On While the home-grown Zee’s Antakshari continued to hold audiences with more than 600 shows aired since its launch in 1993, the unprecedented success of Star TV’s “Kaun Banega Crorepati”, Sony’s “Indian Idol” and Zee’s “India’s Best Cine Star Ki Khoj”, finally broke the mindset that “reality sucks in India”. “Indian Idol” received over 40 million votes through short messaging and phone calls, while “India’s Best Cine Star Ki Khoj” garnered over 0.75 million votes in its final episode alone. Star TV, in wanting to ride the wave, was planning to launch the Indian version of “The Apprentice”. Not to be left behind, Zee planned to launch “Business Baazigar” with the catch line “Idea lao, paise le jao” (Bring in the idea and take the money). However, according to industry leaders, there was a danger of the fatigue factor setting in.

While reality shows just as game shows can temporarily raise channel ratings, they cannot become mainstays of a channel permanently.36

- S. Nair, COO, Star India

35 As quoted in “2006 Will Bring a Dramatic Shift in Status Quo”, December 24th 2005, [www document] http://www.indiantelevision.com/ye2005/sameer_yearender05.htm (accessed January 17th 2006). 36 As quoted in “2006 Will Bring a Dramatic Shift in Status Quo”, December 24th 2005, [www document] http://www.indiantelevision.com/ye2005/sameer_yearender05.htm (accessed January 17th 2006).


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Hindi Movies—The Evergreen Winner Apart from dedicated movie channels, Hindi movies were also aired on mass entertainment channels during prime time. This trend of allocating part of the prime time to Hindi movies was largely due to the advertising income that it generated, as movies remained the top favourite with Indian viewers. Feature films were amongst the top program genres on all mass channels, in terms of ad duration. A comparison of channels revealed that while Zee and Sahara drew the maximum mileage from screening films, Sony and Star Plus were less dependent on feature films.

Serials Stay Popular While adaptations of international formats were successful for game and reality shows, serials based on the intricacies of Indian family relationships continued to be the mainstay of prime time viewing. Even during the week of the “Indian Idol” finals, Star Plus retained viewership with the family sagas “Kyunki Saas Bhi Khabhi Bahu Thi” and “Kasauti Zindagi Ki” [see Exhibit 13].

Going Global While Zee Telefilms remained the largest Indian broadcaster internationally, competition in the news genre was fast catching up. To that end, TV Today tied up with Echostar in the US market, while NDTV announced its partnership with DirecTV in the US and with BskyB in the UK. These distribution tie-ups opened up new revenue streams in the form of subscriptions. This revenue was projected to equal advertising revenues, since globally the ratio of subscription revenue to advertising revenue was 50:50. According to industry analysts, these partnerships would soon garner a subscriber base of at least half that of Zee Telefilms, albeit at much lower average revenues per user [see Table 3]. Other players in the global arena were SAB TV, which entered into programming contracts with TV Asia in the US, Pehla Network in the Gulf and MATV Channel 6 in the UK.

Broadcaster Global subscribers (million)

ARPU (US$/sub/month)

Total pay revenue (US$ million)

Zee Telefilms 1.0 5.5 67.5 NDTV 0.5 1.0 6.0 TV Today 0.5 0.5 3.0

Source: Vora, N. and Gajaria, B., SSKI India Research, Media Sector, Event Update—Going Global, November 24th 2005.

Table 3: International Subscription Revenues

Advertising With revenues exceeding US$1 billion in 2005, advertising was one of the main forces driving the growth of television in India. As can be seen from Exhibit 14, advertising revenue from television constituted over 40% of the total revenue generated by the Indian media industry. This trend was projected to continue, with revenues from television advertising expected to double by 2010 [see Exhibit 15].37

Emerging Trends

• Topping the list of advertisers on television was the fast-moving consumer goods (FMCG) industry, followed by finance companies, insurance and the telecom sector.

37 Industry Monitor, Media and Entertainment, Vol. 512, December 2005, Cygnus Business Consulting & Research,


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With a large number of domestic airlines going international, the share of ad spend by the aviation sector was also growing fast.

• To counter the problem of fragmented television audiences, advertisers resorted to focused advertisements for niche channels. This trend was expected to increase as the market became fragmented with digitalisation and the launch of alternate platforms of delivery. Larger players like Zee and Star, offering channels across all genres, stood at an advantage when bargaining with advertisers and distributors.

• The past few years saw the rising popularity of “in-program” or “engagement” advertising. Traditional commercial breaks, which statistics revealed were used by viewers to review content being offered by other channels, were on the decline.

• With content reigning supreme, channels were luring customers by offering innovative promotions of program content offered by the channel. Broadcasters were increasingly using these “promo contents” which included cross channel promos. In the recent past, more than 50% of the commercial time was used by show promos. While this resulted in revenue loss for broadcasters, the trade-off increased TRP ratings.

• With regional channels and news genres eating into the market share, ad spend was being distributed across different segments. In 2001, when the overall size of the television advertising market was nearly US$790 million, general entertainment channels held 60% share. By 2004, while the total ad spend went up to US$1,050 million, general entertainment channels raked in only 54% or US$570 million.38

Penetration According to industry analysts, by the end of 2005, television coverage had reached 108 million Indian homes, up 32% since 2002, thus crossing 50% of households for the first time. Located primarily in urban regions, households with access to cable and satellite jumped from 40 million in 2002 to 62 million in the first nine months of 2005.39 However, television ownership in India remained very low as compared with other countries [see Exhibit 16]. Also, as can be seen from Exhibit 17, ownership rates varied dramatically across urban and rural areas. While there was nearly complete penetration in the metro cities, with nearly 7% homes having more than one TV set, rural ownership of televisions was less than 30%, and restricted primarily to B&W sets.40 A number of factors contributed to this variance: Infrastructure A direct relationship was seen between the availability of power and the sale of television sets across different regions. Regions with comparatively better supply of power reported higher penetration rates (Delhi, Punjab and Haryana). Eastern India, with a penetration of 12% as against 30% in the rest of India, sported the poorest power distribution system in the country. Transportation systems are also not well developed in rural areas. At times, a villager might travel on foot or use archival means of transportation, like bullock carts, to reach the nearest train or bus station. According to Tam Media’s CEO L.V. Krishnan:41

38 TAM Media Research, Industry Monitor, Media and Entertainment, Vol. 507, July 2005, Cygnus Business Consulting & Research. 39 “Quarterly Performance Analysis of Companies (July-September 2005)”, QPAC- Indian Media & Entertainment Industry, July–Sept 2005, Cygnus Business Consulting & Research: Hyderabad, India. 40 At a national level, 16% of the socio-economic class (SEC) A have more than one set, while in markets like Delhi , Uttar Pradesh and Punjab, almost 30% of SEC A homes are multi-set homes; Sohrabji, J., “Multi-Set Homes Pose New Challenge for Media Planning”, Media, August 26th 2005. 41 As quoted in “Making Sense of Boom and the Digital Puzzle”, December 26th 2005, [www document] http://www.indiantelevision.com/ye2005/lvk_yearender05.htm (accessed February 3rd 2006).


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If there are 110 million Indian homes, which don’t have a television set, it is not because they can’t afford one but because they know that is worthless with the power fluctuations and load shedding. Broadcasters should set aside 10% or Rs. 5 billion 42 of all annual revenues of Rs. 50 billion for developmental purposes and give it to the government to create infrastructure, especially power supply … that will lift the broadcasting industry by 100% more than it is growing today.

Viewership There exists a sharp contrast in viewership patterns across urban and rural India. Even though the average family size in urban India saw a decline between 2002 and 2005, the number of viewers of satellite television grew from 134 million in an average week of 2002, to 190 million in 2005.43 The rise in multiple television homes and resultant parallel viewing was expected to give these numbers a boost. In contrast, in rural India, dozens, if not hundreds of people, often watch a single TV set.

Content Availability Since satellite television is dependent on advertising for revenues, there has been no incentive to develop programs or reach out to rural India. Infrastructural problems, a given in rural regions, have also not helped. As a result, most of rural India is still largely dependent on staid Doordarshan broadcasts. The lack of content availability, especially in regional telecasts, offers little or no encouragement to purchase a TV set.

Advertising/Sales Promotion While there were well-developed models for selling TVs in urban areas, rural India presented a different story. Although audiovisual media was making inroads, a large part of rural India was not exposed to print and electronic media; the primary mode of entertainment was the radio. As target consumers were non-television owning households, television itself was not a viable advertising medium. Other conventional media was not of much use either. Companies had to resort to wall paintings in public places, printing advertisements on fertiliser bags and demonstrations through the local panchayats.44

Sales and Distribution Network The sales and distribution network in rural India was also very weak. According to a survey conducted by CETMA, a villager would have to travel in a radius of approximately 60–70 kilometres to buy a TV set. The lack of infrastructure posed an immense challenge to manufacturers, causing them to pursue unconventional channels such as tying up with cycle, radio and fertiliser dealers.

Credit Facilities According to CETMA, more than half the consumer durables sold in India were under the hire purchase/financing schemes. Research also showed that on average, a rural household could spare no more than US$0.02 per day towards the purchase of consumer durables. Lack of such financing schemes in rural India greatly influenced the sale of TVs.

42 Average currency exchange rate January 2006, US$1 = INR44.23, http://www.x-rates.com/d/INR/USD/hist2006.html (accessed February 21st 2006). 43 “Quarterly Performance Analysis of Companies (July–September 2005)”, QPAC- Indian Media & Entertainment Industry, July–Sept 2005, Cygnus Business Consulting & Research: Hyderabad, India. 44 A village council, generally formed of the elders and respected members of the village.


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Increasing Popularity of CTVs The 2002–2003 national budget raised excise duty on B&W televisions from 4% to 8%. Barely recovering from the agricultural downturn, this additional tax dashed the hopes of many in rural India to own a cheap television. By 2004, B&W sales were down to 2.5 million whereas CTV sales had surged to 8.5 million, average industry growth being 22%. The onslaught from foreign manufacturers also continued. While in 2002 Indian brands accounted for 53% of the total market and MNCs accounted for 47%, by 2004 the competitive landscape had changed. Barring Onida, the share of domestic brands had declined. LG emerged as the undisputed market leader in CTVs [see Exhibit 18]. Recalling the success of his company, S.S. Kim, president of South-West Asia LG Electronics and managing director of LG Electronics India Pvt. Ltd. said:45

In a short span of seven years LG Electronics has achieved the position of a premium brand in India. The company’s phenomenal success story is a result of various factors like technology, aggressive sales and marketing, resources focussed on single differential leadership in advertisement expenditure, appropriate pricing and a contemporary product range.

Product Mix In 2004, the TV manufacturing industry in India was reported to be worth US$2.3 billion, manufacturing over 11 million sets, of which nearly 80% were CTVs. The current capacity of colour picture tubes was around 25 million units per year, supported by indigenous glass production. Since production of glass for B&W picture tubes was being phased out, analysts predicted that in the future, the demand (primarily in rural areas) would be met through the unorganised sector, whereas the organised sector would concentrate on CTVs.46 To combat the power situation, companies were looking to launch CTVs which would specifically target the rural market. These included battery-operated CTVs with an entry-level price point of US$100 for a 14-inch screen. Because of intense competition, the conventional cathode ray CTV market was characterised by significant price erosion, an increase in consumer choice and declining margins, particularly in the case of small volume manufacturers. Adding to their woes, conventional television was threatened by flat television technology. Propelled by declining prices and an aggressive thrust by manufacturers to upgrade consumers to flat screens, this segment was fast becoming the first choice of CTV buyers in the country. For example, in 2004, Samsung India set a new price benchmark in the flat television market by introducing a 15-inch model at US$175. Seeking to develop the market for flat televisions in India, it launched its aggressive “Gol do, Flat lo” (Give curved, Take flat) exchange offer. Through this offer, consumers could exchange any 20-inch television in working order for a flat screen model by paying the difference in price. Driven by volume sales, the 21-inch flat screen segment was growing at the expense of 14-, 20- and 21-inch conventional televisions [see Table 4].47 LG and Samsung were the dominant players in the flat segment, accounting for nearly half the market share. LG, in particular, was aggressively pushing sales, and by the end of 2005, envisaged half its volume from 21-inch flat screens. If this trend continued, analysts felt that manufacturing of 21-inch conventional CTVs would be phased out in the next couple of years. 45 As quoted in TV Veopar Journal, Annual Issue 2005. 46 As quoted in an interview by Mr. Masaldan in November 2004, president of CETMA 2004. 47 As quoted in an interview by Mr. Masaldan in November 2004, president of CETMA 2004.


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Screen Size (inches) 2003 (%) 2004 (%) 14 21.0 18.0 15 1.0 2.5 20 33.0 25.0 21 (Conventional) 17.0 15.0 21 (Flat) 24.0 33.0 25 and above 4.0 6.5

Source: CETMA 2005.

Table 4: CTV Market 2003–2004 By 2004, the growth of high-end televisions, including projection TVs (PTVs), plasma TVs and liquid crystal displays (LCDs), was high, even though the market base reported was very small [see Table 5]. This was because prices were high, ranging from US$2,500 for the low-end models to US$20,000 for the high-end ones. With production facilities for components of the high-end televisions limited, most of the kits were imported for assembly in India. Sony claimed to be a market leader in the high-end products, reporting a 35% market share. Concomitant to the models moving along the technology cycle, prices were projected to fall with demand percolating from high- to mid-level customers, thus leaving scope for segment expansion [see Exhibit 19 for drivers of CTV demand in India]. According to CETMA, companies would more aggressively market the nascent high-end segment to bolster wafer-thin margins offered by conventional CTVs. Ravinder Zutshi, vice–president of Samsung India, is quoted to have said:48

It is a segment which is poised for more than 100 % growth over five years. As internationally companies shift focus to manufacturing flat panels, prices will also keep coming down, fuelling demand in India.

(units sold)

Type 2003 2004 2005 (Projected)

PTV 5000 8000 15000 PLASMA 1900 4500 9000 LCD 500 1800 6000 TOTAL 7400 14300 30000

Source: TV Veopar Journal, February 2005.

Table 5: Sale of High-End Televisions 2003–2004

Television Exports Before liberalisation, because of the government’s protection of the homegrown industry, local television manufacturers were content with selling their products in the domestic market. As margins were high, they showed no inclination towards exporting their products (component manufacturers did export 8–10% of their production, main destinations being South Asia, Africa and Russia).

48 As quoted in Vivek, T.R., “Plasma, LCD TV Sales Seen Doubling Next Year”, Business Standard, December 4th 2004.


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Post-liberalisation, the scenario changed. First, prices of televisions in the Indian market dropped, and second, the entry of MNCs who had set up large manufacturing facilities either independently, or in joint ventures with local companies, created a surplus manufacturing capacity. Manufacturers started looking at other countries for markets. The progress was, however, slow, and by 2004 a mere 0.8 million sets were exported. A primary reason for this was the costs associated with poor infrastructure. For example, the freight cost of a 40-foot container from Mumbai to Singapore was around US$400, but the same from Delhi to Mumbai exceeded US$1,200. Loading and discharge delays at ports were also three to five times more than those prevailing at other international ports. With MNCs, national players and a host of regional brands competing for a slice of the pie, competition in the industry was fierce with declining margins. Survival of the smaller players was definitely under question, as was their ability to compete globally. As a counter measure, the government established a number of Special Economic Zones (SEZs) where local manufacturers were extended various facilities and concessions, in an endeavour to provide a level playing field when competing globally. However, these zones continued to be plagued with a number of disabilities, particularly with respect to the infrastructure and power availability.

Foreign Trade Agreements In 2004, the government’s efforts to boost trade with South-East Asia translated into foreign trade agreements (FTA) with Thailand and Singapore. While these agreements aimed at improving bilateral trade between these countries, some Indian industries suffered a cost disadvantage when compared to their Thai counterparts. The adverse impact of cheaper Thai imports was felt, in particular, by the Indian colour television and picture tube industry. While analysts maintained that the FTA with Singapore would increase foreign direct investment (FDI) flow into India, the agreement with Thailand was widely criticised.49 The National Council of Applied Economic Research (NCAER) went so far as to accuse the government of not doing its homework before signing the agreement. Stating that the FTA with Thailand was politically motivated, NCAER warned that in the long run this approach would prove to be detrimental to Indian trade.50 The FTA with Thailand stipulated a reduction of import duties in a phased manner over a period of three years. The new trading dispensation would result in a huge surge in imports from Thailand, while exports from India would not benefit much, given the small size of the Thai market. The agreement had a direct affect on the television industry as the 82 early harvest items included CTVs and colour picture tubes. Given the lower tax structure in Thailand [see Exhibit 20], analysts predicted that these agreements would exert immense pressure on the prices of CTVs in the domestic market. Thailand’s composite value added tax (VAT) imposed at the manufacturing stage, and thereafter adjusted at each stage with no cascading effect, resulted in a lower tax and cost structure as compared with India. According to a survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI):

Thailand is being looked upon as a cheaper manufacturing option and there are indications that some Indian and foreign companies are likely to shift their manufacturing bases to Thailand or outsource from the country making use of their excess capacity. Some sections of the domestic industry, however,

49 “FTA with Singapore to Benefit India: NCAER”, Financial Express, June 26th 2005. 50 “NCAER Slams India–Thailand FTA”, Indian Express, October 23rd 2004.


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feel that such goods if imported into India could threaten domestic industry owing to its cost advantage.51

Gauging the initial impact of the FTA, a report published by FICCI pegged the projected imports of the 82 early harvest items at US$104.84 million for April–December 2005, as against US$84.44 million for the same basket of commodities for the whole of 2003–2004. The report also indicated that three segments that would face major difficulties vis-à-vis imports from Thailand were the colour picture tube industry, the colour television industry and the auto components industry. Following the agreement, an industrial delegation of television and component manufacturers visited Thailand, Malaysia and Singapore in August 2004. Their report on this visit emphasised the critical necessity of addressing the infrastructural shortcomings in India.52 By 2005, direct consequences of the FTA with Thailand were evident across the industry. For example, Sony stopped manufacturing televisions in India, shifting its base to Thailand. Sony televisions for the Indian market were being imported from Thailand, and sold at prices lower than those of the local players. Prices were projected to be under further pressure when the import duty was eliminated for products imported from the Association of South East Asian Nations (ASEAN countries). This trend was a growing cause of concern for both television and component manufacturers.

Key Players in the Industry

Broadcasting As can be seen from Table 6, excluding Doordarshan, there were only a few large industry players that dominated the national market.

Broadcasting Distribution* Content** Bouquets across segments Specialists TV18 a a Zee a a TV Today a NDTV a Balaji a Star TV a a Sony a Note: * The cable industry remains largely fragmented. Large MSOs include Siticable (Zee) and Hathway (Star 26% stake). Zee’s DTH business, Dish TV, is in the nascent stages. ** Fragmented industry, little differentiation besides top tier companies.

Source: Adapted from Ganguly, R., India Media Industry, JP Morgan Asia Pacific Equity Research, May 12th 2005.

Table 6: Business Lines and Major Players—Indian Broadcasting

51 FICCI Survey, India –Thailand FTA: Emerging Issues, June 2005, Federation of Indian Chambers of Commerce and Industry. 52 As quoted in an interview by Mr. Masaldan in November 2004, president of CETMA 2004.


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Doordsarshan The dominant position of Doordarshan, which at one point was the country’s officially anointed public service provider, had paled in the cable-infested cities. However, it remained the prominent broadcaster in rural India. At the end of 2005, Doordarshan was airing 19 channels. These included two all-India channels, 11 regional language satellite channels, four state networks, an international channel and a sports channel. As of March 2005, Doordarshan claimed to be the largest terrestrial network in the world, with 1,314 transmitters, 56 studio centres and 23 satellite channels.53

NDTV One of India’s largest private producers of news and current affairs, New Delhi Television was started in 1988 providing content first to DD National (a Doordarshan channel) and then under the Star News umbrella. In 2003, Prannoy Roy, the driving force behind NDTV, broke away to launch two independent channels, NDTV 24x7 in English and NDTV India in Hindi. Subsequently in 2005, NDTV launched NDTV Profit, a 24-hour business channel. Moving aggressively forward, it went public in 2004. Revenues for the company grew a whopping 150% from US$12.8 million in 2004 to over US$32 million in 2005. NDTV’s vision was to use its experience, expertise, technology and reach to create an unmatched coverage of the latest in domestic and international news and entertainment for viewers not only in the country but also throughout the world. Giving reality to rhetoric, the company, besides pursuing a hard line local distribution strategy, also entered into joint ventures to expand its scope internationally. For 2006, NDTV was looking at introducing a general entertainment channel to consolidate and diversify its presence in other segments.

TV18 Engaged in the production of programs since 1993, TV18, besides providing content to CNBC, emerged as one of India’s premier business news broadcasters. Backed with a 10% stake by CNBC Asia, the company launched India’s first-ever Hindi business channel Aawaz in 2005. With distribution rights held by Zee Turner, TV18 attracted a wide viewership from the business/investor community.

TV Today (Aaj Tak) The TV Today Network, one of the first broadcasters to uplink from India, launched a 24-hour Hindi news channel, Aaj Tak, in December 2000. This was followed by the launch of Headlines Today in March 2003. While Aaj Tak remained the most popular Hindi news channel, Headlines Today targeted the English-speaking audiences.

Zee Telefilms Zee Telefilms, promoted by Indian media mogul Subhash Chandra Goel, was the pioneer of satellite broadcasting in India. Keeping pace with technological advancements and new delivery platforms, as well as increasing its diversity in content, Zee Telefilms emerged as the largest vertically integrated media and entertainment company in India. Having a presence in nearly all the segments, including regional channels, Zee also reported a strong global viewership. Siticable, the company’s subsidiary, was the largest MSO in India, with an estimated reach of 6.5 million households. Besides entering the DTH platform, 2005 also saw Zee develop a new logo, assigning a common identification to all the company’s channels and brands. With Zee signing a 10-year exclusive telecast right with the All India Football Federation for broadcasting domestic football, 2006 looked good for Zee.

53 www.ddindia.gov.in/About+DD/DD+National (accessed February 1st 2006).


24

Balaji Telefilms Headquartered in Mumbai, Balaji Telefilms was launched in 1994 by the Hindi film star Jeetendra, his wife Shobha and daughter Ekta Kapoor. Its maiden show was a fiction thriller called “Mano Ya Na Mano” for Zee TV. Thereafter, there was no looking back. Consistently tapping into the market pulse, in 2005, 20 of its programs dominated the top 25 prime time shows on leading entertainment channels. Ranked as India’s largest and most successful content provider, the company produced software in Hindi, as well as in a host of regional languages, including Telugu, Tamil and Kannada. Its diverse portfolio, which was very attractive to advertisers, allowed it to demand a premium for inventory. The company also boasted a rich content library that rated a high re-run value.

Star TV A wholly owned subsidiary of News Corporation, Star TV entered the Indian market in 1991 as a purely English-language programming channel. Leveraging its content library, its initial forays into the local medium included Hindi-dubbed versions of the “Bold and the Beautiful” and “Baywatch”. By 2005, the Star Network had catapulted into the leading position offering 15 channels on air. Star Plus, with its daily dose of popular serials, remained a favourite with Indian viewers. Making inroads in distribution with Hathway, Star TV was also one of the pioneers to enter the DTH platform in India through its joint venture with the industrial house Tata.

Sony Entertainment Television Although Sony was a late entrant in the Indian market, first going on air in 1995, by 2005 it had gauged the market pulse well. The runaway success of “Indian Idol” not only boosted its ratings but also opened a new vista for formats in India. As part of the one alliance, also included in its second bouquet were popular channels such as NDTV, Ten sports and MTV.

Television Manufacturing

Indian Manufacturers

Onida In 1983, Mumbai-based MIRC Electronics Ltd., through a technical collaboration with JVC of Japan, started manufacturing CTVs under the brand name Onida. By 1992, it had crossed the 1 million milestone for CTV sales. In 2003, it was one of the first domestic players to enter the high-end market with the launch of plasma display panels (Plasma TV or PDP). Its controversial advertising campaign, featuring the “Onida Devil” and the by-line “Neighbour’s envy, owner’s pride” had captured the interest of Indian consumers. By 2004, Onida was the leading domestic brand with a market share of 12%. In the financial year ending March 2005, although the company reported a marginal year-on-year increase in sales, profits declined by 17%, reflecting the diminishing margins in conventional televisions. Challenged by the Korean giants, it was no longer the neighbour’s envy in a market that was global in terms of technology, scale and brands. That is why after over two decades of operation, Onida shifted focus to a wholly new strategy—one of attaining a global presence. Establishing a sales and marketing office in Dubai, Onida planned to step up exports, focussing on the East African markets (Uganda, Tanzania, Kenya and Ethiopia) and the South Asian Association for Regional Cooperation (SAARC) countries. In addition, to cater to the emerging market in the Commonwealth of Independent States (CIS), it relocated some key sales people and appointed original equipment manufacturers who could assemble CTVs in Russia and Ukraine.


25

Abroad, buyers want to know what you are doing. If you say you are doing 2-3 lakh units [200,000–300,000], it has no global relevance. To survive in this business, Onida must have a global relevance. - Gulu Mirchandani, CEO, Onida54

Videocon Videocon International was established in 1985 through a technical tie-up with Toshiba Corporation of Japan, its major manufacturing facilities concentrated in Chitegaon and Aurangabad (Maharashtra). The company adopted a multi-brand strategy—apart from its mid-priced brand Videocon, it also sold Toshiba, a premium brand, and low-priced brands Akai and Sansui. Videocon, as a part of its advertising policy, was one of the leading sponsors of sporting events, cricket in particular, including the triangular cricket series featuring India, New Zealand and Zimbabwe held in August 2005. For the fiscal year ending September 2003, the group reported a decline in profits of nearly 40%. By 2004, Sansui remained its most popular line with a market share of 7.5%. Although other lines were losing market share, taken together the company ranked among the leading players in the market with a market share of 20.6%. Its product mix comprised of 14-, 20- and 21-inch conventional CTVs as well as 21- and 29-inch flat televisions. At the high end, it also sold 34-inch screens as well as plasma TVs and LCDs. Looking beyond India, Videocon was the first Indian company to win the CE approval for exporting CTVs to Europe. The company also announced plans to enter the world market, establishing sales and marketing offices in the Middle East, Europe, Indonesia and South Africa. In a bid to create a vertically integrated global presence, in June 2005 the Videocon group took over the French giant Thomson SA’s entire global colour tube manufacturing business, including units in China, Poland and Mexico for US$290 million.55 BPL Reporting substantial losses in the fiscal year ending September 2003, the once undisputed leader of the Indian market saw its market share decline rapidly. Acknowledging its problems were primarily a result of the advent of strong global players, in 2004 it announced its partnership with Sanyo Electric Company Limited of Japan to create a joint venture for CTVs in India. BPL transferred its entire CTV business undertaking to the equal partnership joint venture; this constituted the manufacturing, sales, service, marketing and distribution infrastructure of CTVs. Executives from Sanyo-BPL maintained that the company would adopt a dual brand strategy, wherein the Sanyo brand would be used for high-end products including plasma TVs and LCDs, while the BPL brand would be used for mass market and B&W televisions.56 Regional Brands Regional brands like Beltek, Oscar, Salora, Texla, Televista and Western, to name a few, have over the years constituted nearly 20% of the Indian market. Focusing on the low-end products and sales confined to smaller markets, these players competed primarily on price. Analysts envisaged the market share of these brands being limited as the larger players, including the MNCs, consolidated the market.

54 As quoted in Sarkar, R., “The Return of the Devil”, [www document] http://www.businessworldindia.com/oct1104/indepth04.asp (accessed October 30th 2005). 55 “Videocon Buys Thomson Colour TV Tube Business”, The Hindu, June 29th 2005, [www document] http://www.thehindu.com/2005/06/29/stories/2005062903951900.htm (accessed October 26th 2005). 56 “BPL Rules out Sanyo Global Rejig [SPELLING?] Impact”, Business Standard, October 4th 2005, [www document] http://www.rediff.com/money/2005/oct/04bpl.htm (accessed October 25th 2005).


26

Multinational Players

LG The undisputed leader in CTVs and other home appliances, LG Electronics India Pvt. Ltd. (LGEIL) was established in January 1997 in Greater Noida, Uttar Pradesh (near Delhi) as a wholly owned subsidiary of LG Electronics, South Korea. This facility manufactured CTVs, washing machines, air-conditioners and microwave ovens. In 2002, LG achieved its target of 1 million CTV sales a month ahead of schedule. By 2003, it had emerged as the leader in CTVs. LG was one of the first companies to recognise the emerging change in consumer needs and to position their products based on technology that appealed to consumers on the basis of health and environmental benefits. Its success was largely built on its ability to penetrate semi-urban markets through its extensive distribution network comprising 79 remote area sales offices, 86 central sales offices and 51 branch offices. In 2004, LGEIL also up its second manufacturing unit in Pune, Maharashtra. Although the planned focus of this plant was the production of GSM handsets, the company announced that it would also manufacture CTVs and other home appliances. LG’s CTV product range included conventional TVs, flat TVs, plasma TVs and LCDs. LG India planned to become the export hub for LG worldwide, primarily catering to the Middle East and African markets. The company aimed to touch an export turnover of US$3 billion by 2010, which would contribute to 30% of LGEIL’s turnover. The contribution of mobile phones and information technology was anticipated to be 65% while the remaining 35% would be from consumer electronics and home appliances. According to S.S. Kim:57

The success in India has been phenomenal and we foresee the Indian subsidiary to contribute to 10% of the total worldwide turnover by 2010. The Pune factory is in line with the parent company’s strategy of using the Indian subsidiary as an export hub for several South Asian countries.

Samsung Samsung India Electronics Ltd., a subsidiary of the South Korean electronics giant, Samsung Electronics, set up its CTV factory in Noida in 1997, with an installed capacity of producing 400,000 units per year. By 2000, it had achieved sales of 1 million CTVs. In 2004, with a capacity to manufacture 1.5 million television sets, Samsung India boasted a market share of over 17% in the highly competitive CTV market, and held the second place in the flat television category. Besides a wide range of models in conventional CTVs ranging from 14- to 29-inch screens, Samsung’s product range also included a range of flat screen models, plasma TVs, LCD models and PTVs. From being a virtually unknown entity when it entered the Indian market, Samsung built its brand largely through sports and entertainment marketing, successfully leveraging its association with cricket and cinema in the form of “Team Samsung” and “Samsung IIFA Award”. Samsung India also sponsored the high profile “Samsung Cup” India–Pakistan cricket series in 2004. To display its products in a more lifestyle ambience and to communicate product benefits in a more interactive manner, Samsung India set up a widespread network of Samsung Digital Worlds, Digital Homes and Digital Plazas all over the country. The Samsung-brand shop network complemented the over 8,500 retail points for Samsung products located across the length and breadth of the country. Company representatives maintained that it planned to

57 As quoted in the inaugural speech, http://www.lgezbuy.com/aboutus.aspx?CatID=”&MaiCatID=0, (accessed October 17th 2005).


27

continue enhancing its penetration levels to reach out to more and more Indian consumers. In addition, Samsung “Made in India” CTVs were exported to the Middle East, CIS and SAARC countries from its Noida manufacturing complex. Philips A subsidiary of Royal Philips Electronics, Philips India Ltd. started operations in India at Kolkata in 1930, as a sales outlet for Philips lamps imported from overseas. Currently, Philips derived its revenues mainly from two major segments—lighting and consumer electronics. Its position in these two businesses was a striking contrast. Philips was the undisputed leader in lighting and lighting accessories with an ever-increasing share of the market. In the consumer electronics business however, and more specifically in the CTV segment, Philips India had been at the receiving end of the intense competition. Its market share, which was around 12% in 1996, slipped to 5.3% in 2004. This decline was largely attributed to its limited product range in 14- and 21-inch CTVs. Along with the decline in market share, the intense competition left an indelible scar on the profitability of this segment, and the company seemed to have shifted focus on streamlining its audio business, which boasted 47% market share in 2004.58 Sony Sony India was set up as a wholly owned subsidiary of Sony Corporation, Japan in 1995. One of the pioneers of flat CTVs in India, it retained its focus on the high end of the market. Having a broad product mix including audio, video and mobile phones, the company offered a world-class shopping experience to discerning consumers through its chain of exclusive stores—Sony World. Contemporary, techno-led, with sleek interiors and aesthetic displays, these showrooms offered an ease of browsing supported by customer-friendly and informed sales persons. According to market reports, although Sony was a global leader, its strategy in India was not oriented towards the price-conscious consumer. Constrained by high duties on the import of high-end picture tubes, in 2004 Sony’s share of the television market was limited to 3.4%.

Future Concerns

While India has the potential to emerge as the global hub for television, the opportunity comes with two main concerns: the first is the regulatory environment and the second is the infrastructure and the implementation of reforms.

Regulatory Concerns

Intervention by the Telecom Regulatory Authority of India (TRAI) As technology advancements enable convergence of information technology, broadcasting reaches out to new platforms of delivery and a new set of value-added services. What is most important is continued support from the government. While TRAI made certain inroads, the regulatory body needs to focus on:

• Regulation on convergence: Having clear-cut directives on all convergence issues. The communication convergence bill introduced in 2002 has yet to see the light of day.

58 Subramanian, S., “How Philips India Doubled Sales”, Business, [www document] http://www.rediff.com/money/2005/apr/27spec.htm (accessed October 27th 2005).


28

• Regulation on carriage: How telecom players offering television distribution can level the field with the existing fragmented cable distributors. This includes breaking the impasse over the CAS issue, as well as finalisation of policies for DTH services.

• Regulation on digititalisation: While TRAI has an ambitious national plan for digitalisation by 2010, there are plenty of implementation hurdles, many of which will require regulatory intervention.

• Encouraging inflow of foreign investment into the sector: Currently the sectoral equity caps [see Table 7] and the processing formalities serve as a deterrent for many players wanting to enter the market.

Sector FDI Cap (%) Activities Satellite broadcasting

49 TV channels, irrespective of the ownership or management control, to uplink from India provided they undertake to comply with the broadcast (programmer and advertising) code.

News channels 26 FDI investment of 26% allowed. The Ministry of Information and Broadcasting approved FII & FDI limit of 26%. This is yet to be ratified by the Cabinet.

Setting up of hardware facility, such as unlinking, HUB etc.

49 Private companies incorporated in India with permissible FII/NRI/OCB/PIO equity within the limits to set up teleports for leasing or hiring out their facilities to broadcasters.

DTH 20 Companies with a maximum foreign equity holding of 49% will be eligible to obtain a DTH licence. Within the foreign equity, FDI component not to exceed 20%.

Cable network 49 Foreign investment allowed up to 49% of the paid-up capital. Companies with minimum of 51% of paid-up share capital held by Indian citizens are eligible under the cable television rules to provide services.

Terrestrial TV No private operator is allowed in terrestrial television transmission.

Source: Adapted from Ganguly, R., India Media Industry, JP Morgan Asia pacific Equity Research, May 12th 2005.

Table 7: Sectoral Equity Caps for FDI

India–Thailand FTA While the government maintained that the FTAs would help domestic companies to go global, industry apprehensions centred on the comparative shortcomings of the Indian infrastructure. After the FTA, Thailand was being looked upon as a cheaper manufacturing option, with growing concerns that both Indian and foreign companies would shift their manufacturing bases to Thailand or outsource from there. The major disabilities faced by the Indian industry are:

• Low cost of production in Thailand • Higher import duty on raw materials in India • Low quality infrastructure at a high cost • High rate of taxes and duties • Low labour productivity • Cumbersome government procedures.


29

Looking Inwards: Implementation of Reforms

Improving the Infrastructure Existing infrastructure, in terms of ports, airports and roads, need to be upgraded to support the movement of a large volume of goods at internationally competitive rates. As the availability of power is directly linked to the growth of television in India, of particular importance is the successful implementation of the power reforms initiated by the government.

Rationalisation of the Tax Structure The incidence of indirect taxes in India is substantial and adds onto the final price of the products. The recent changeover to the VAT regime was hailed as a step in the right direction. However, neutralising the effect of multiple taxes including octroi, entry tax, sales tax and the abolition of central sales tax remain issues that need to be resolved. The duty paid by Indian companies on imported raw materials is, in some cases, higher than the corresponding rates paid by manufacturers elsewhere. While the 2005–2006 national budget reduced the peak rate of customs duty on non-agricultural items from 20% to 15%, the rates were not yet in alignment with the ASEAN levels. Also included in TRAI’s recommendations for the national digitalisation plan was the rationalisation of import and domestic duties, the reduction of customs duties on set top boxes for cable television from 15% to 10% and other import duties from 15% to 8%. In order to eventually have one duty regime, it was also recommended that ultimately import duties should be brought down to zero and excise duty levied at a uniform rate of 16%.

Availability of Low Cost Finance Cost of financing and the rates of interest paid by Indian companies on working capital and long term loans are on the higher when compared with their international competitors. The problem is graver for smaller companies. Strengthening the Development Financial Institutions (DFIs) would help in securing long tern financing at competitive rates.

Flexibility in Labour Laws Labour laws in India are excessively restrictive—a sentiment shared not only by Indian companies but also by foreign direct investors.

Conclusion

With battle for stakes in a television market of any worth perhaps being fought for the last time, the Indian television industry remains arguably one of the most fascinating in Asia. From the black and white days of state-controlled Doordarshan, to the highly colourful tunes of Channel [V] and MTV, the medium has undergone a phenomenal change. Post-1991, Indian telecasting witnessed the entry of new channels to cater to the diverse needs of Indian audiences. Channels were launched across different genres in English, Hindi and regional languages. Global leaders entered India after testing a number of markets worldwide. This set the stage for an enterprising battle of wits among brands. However, a confluence of a number of factors, including frequent changes in government policies, a poor infrastructure and an erratic power supply, led to a stunted growth of the industry, especially in rural India. In contrast to many new industrialised economies, the Indian television industry derived most of its revenues from the domestic market. With the number of television-owning homes in India having a long way to go and Indians having to watch twice the amount of television that


30

they are currently watching to match international viewing habits, the market promises a definite potential for growth; provided that the government takes a proactive stance in resolving various regulatory issues, as well as improving the infrastructure, in particular rural electrification and power sector reforms. So although it remains a lucrative market, the vision of India competing globally and becoming a thriving hub for electronics manufacturing services will remain an illusion until some fundamental changes are made.


31

EXHIBIT 1: STATES AND UNION TERRITORIES OF INDIA

States Area (000 sq km) Population (millions)

Language

1 Andhra Pradesh 275.04 75.73 Telugu/Urdu 2 Arunachal Pradesh 83.74 1.09 Monpa 3 Assam 78.44 26.64 Assamese 4 Bihar 94.16 82.89 Hindi 5 Chhattisgarh 135.19 20.80 Hindi 6 Goa 3.70 1.43 Konkani/Marathi 7 Gujarat 196.03 50.60 Gujarati 8 Haryana 44.21 21.98 Hindi 9 Himachal Pradesh 55.67 6.08 Hindi 10 Jammu and Kashmir 222.2 10.07 Kashmiri/Urdu 11 Jharkhand 79.71 36.91 Hindi 12 Karnataka 191.79 52.74 Kannada 13 Kerala 38.86 31.84 Malayalam 14 Madhya Pradesh 308.00 60.79 Hindi 15 Maharashtra 307.71 99.75 Marathi 16 Manipur 22.33 2.38 Manipuri 17 Meghalaya 22.42 2.30 Khasi 18 Misoram 20.98 0.89 Mizo 19 Nagaland 16.58 1.99 Angami/Ao 20 Orissa 150.70 36.70 Oriya 21 Punjab 50.36 24.30 Punjabi 22 Rajasthan 342.24 56.47 Hindi 23 Sikkim 7.90 0.54 Lepcha/Limboo 24 Tamil Nadu 130.06 62.11 Tamil 25 Tripura 10.49 3.19 Bengali/Kokborak 26 Uttaranchal 53.48 8.48 Garhwali/Kumani 27 Uttar Pradesh 238.57 166.10 Hindi/Urdu 28 West Bengal 88.75 80.22 Bengali

Union Territories Area (000 sq km) Population (millions)

Language

1 Andaman and Nicobar 9.20 1.02 Hindi 2 Chandigarh 0.15 0.87 Hindi/Punjabi 3 Dadra and Nagarhaveli 0.49 0.22 Gujarati 4 Daman and Diu 0.11 0.16 Gujarati 5 Delhi 1.48 13.80 Hindi/Punjabi/Urdu 6 Lakshadweep 1.10 0.21 Hindi/Urdu/Malayalam 7 Pondicherry 0.48 0.97 Tamil

Source: Longman Atlas, 2004 Edition.


32

EXHIBIT 2: MAP OF INDIA

Source: http://www.lib.utexas.edu/maps/faq.html, originally produced by the US Central Intelligence Agency, Maps and Publications.


33

EXHIBIT 3: LITERACY LEVELS IN INDIA

Urban (%) Rural (%) Total (%) Male 81.1 57.8 64.1 Female 64.1 30.6 39.3 Total 73.1 44.7 52.2

Source: Compiled from “A Demographic Profile of India”, [www document] http://www.indiatelevision.com/marketdatabase/demographics/literacy.htm (accessed December 21st 2005).

EXHIBIT 4: DISTRIBUTION OF INDIAN HOUSEHOLDS BY ANNUAL INCOME

Number of Households 40106 102334 142440 53488 134704 188192 69202 152744 221945 (000s) Urban Rural All India Urban Rural All India Urban Rural All India 1989-90 2001-02 2009-10

Source: Based on the “Indian Market Demographics Report, 2002”, National Council of Applied Economic Research, released March 2004, as reported in Why is India Shining? http://www.rediff.com/money/2004/mar/09shining.htm (accessed October 14th 2005).

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

Below US$1000 (Low) Between US$1000 and US$2000 (Middle low) Above US$2000 (Middle big)


34

EXHIBIT 5: POWER DEMAND AND SUPPLY SITUATION Base Power Demand vs. Supply

200250300350400450500550600

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

(bill

ion

kWh)

Demand Supply

Peak Power Demand vs. Supply

30000

40000

50000

60000

70000

80000

90000

100000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

(MW

)

Demand Supply

Source: Adapted from Bhatt, N., “Igniting the Future”, Power Sector Report, Angel Brokering, October 5th 2005.


35

EXHIBIT 6: GROWTH OF DOORDARSHAN NETWORK (1980–1991)

Year Program Production Centres

Number of Transmitters

Coverage of Population (%)

Coverage of Area (%)

1980 10 18 25 13.5 1983 10 44 26.4 15.4 1985 17 173 56.2 36.5 1987 17 199 70.3 46.8 1989 18 339 73.9 51.4 1991 20 531 78.7 57.7

Source: Adapted from DD National, [www document] http://www.ddindia.gov.in/About+DD/DD+National (accessed February 1st 2006).

EXHIBIT 7: DOORDARSHAN GROSS REVENUE (1976–1991)

Financial Year Gross Revenue (US$ million)

1977 0.17 1978 0.46 1979 1.12 1980 1.38 1981 1.82 1982 2.54 1983 3.58 1984 4.05 1985 7.08 1986 13.56 1987 21.02 1988 30.71 1989 36.34 1990 47.35 1991 57.20

Source: Compiled from “Commercial Service”, [www document] http://www.ddindia.gov.in/About+DD/Commercial+Service (accessed February 1st 2006).


36

EXHIBIT 8: YEARLY SALES OF COLOUR AND B&W TELEVISIONS

0

2

4

6

8

10

12

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Uni

ts (i

n m

illio

ns)

Colour TVs B/W TVs All TVs

Source: Compiled from data taken from Xavier, F., “CTV in India in 2010”, Francis Kanoi Marketing Planning Services, CETMA CE Vision 2010.


37

EXHIBIT 9: BROAD STRUCTURE OF INDIAN CABLE TELEVISION MARKET (WITHOUT DTH)

Source: Adapted from Lilladher, P., “Indian Media Sector”, Analyst Report, Mumbai, July 1999.

Content Providers

Broadcasting Companies

Satellite Owners

Cable Operators

Upl

ink

Dow

nlin

k

Cab

le

Dis

tribu

tion

National Advertisers

Local Advertisers

Downlink Cable Distribution

Multi-system Operators

Subscribers and Viewers


38

EXHIBIT 10: CTV MARKET (1999)

First CTV, 12%

CTV to CTV, 32%

B&W to CTV, 56%


EXHIBIT 11: GROWTH OF NEWS CHANNELS (2002–2005)

Source: Compiled from Industry Monitor, Media and Entertainment, Vol. 507, July 2005, Cygnus Business Consulting & Research.

100119

172195

0

50

100

150

200

250

2002 2003 2004 Aug-05

Inde

xed

on 2

002


39

EXHIBIT 12a: MARKET SHARE OF DIFFERENT NEWS CHANNELS (2004)

English News (June 2004) Channel % Share CNN 2.6% NDTV 24x7 44.7% CNBC 28.9% BBC 13.2% Headlines Today 10.5%

Hindi News (June 2004)

Channel % Share Aaj Tak 25.6% Sahara Samay 7.6% NDTV India 20.6% Star News 13.6% Zee News 14.3% Doordarshan 17.3%

Source: Compiled from “Quarterly Performance Analysis of Companies (July–September 2005)”, QPAC- Indian Media & Entertainment Industry, July–Sept 2004, Cygnus Business Consulting & Research: Hyderabad, India.

EXHIBIT 12b: MARKET SHARE OF HINDI NEWS CHANNELS (FIRST THREE QUARTERS, 2005)

Channel Jan Feb Mar Apr May Jun Jul Aug Sep

Aaj Tak 29% 28% 25% 25% 25% 26% 27% 25% 25%

Star News 18% 17% 17% 17% 16% 16% 20% 24% 24%

NDTV India

21% 21% 21% 21% 20% 19% 17% 17% 16%

Zee News

15% 15% 16% 17% 18% 19% 19% 18% 18%

Sahara Samay Rashtriya

6% 6% 6% 6% 5% 5% 5% 7% 6%

India TV

5% 6% 8% 7% 7% 6% 6% 5% 6%

Others including Doordarshan

6% 7% 7% 7% 9% 9% 6% 4% 5%

Source: Compiled from Bhattacharjee, M. (2005) “News Channels Shifting Gears, Positions”, October 5th 2005, [www document] http://www.indiantelevision.com/special/y2k5/news_shifting_gears.htm (accessed February 15th 2006).


40

EXHIBIT 13: TOP 20 PROGRAMS ON THE WEEK OF INDIAN IDOL FINALS

Channel Program TRP Reach (%) Star Plus Kyunki Saas Bhi Khabi Bahu Thi 7.04 9.03 Star Plus Kyunki Saas Bhi Khabi Bahu Thi 7.04 8.86 Star Plus Kyunki Saas Bhi Khabi Bahu Thi 6.34 8.86 Star Plus Kyunki Saas Bhi Khabi Bahu Thi 6.17 7.99 Star Plus Kasuatii Zindagii Kay 5.84 8.53 Star Plus Kahani Ghar Ghar Ki 5.78 8.56 Star Plus Kahani Ghar Ghar Ki 5.7 8.34 Star Plus Kahani Ghar Ghar Ki 5.4 8.47 Star Plus Kahani Ghar Ghar Ki 5.4 8.11 Star Plus Kasuatii Zindagii Ki 5.4 7.73 Star Plus Kasuatii Zindagii Ki 5.33 7.58 Star Plus Kasuatii Zindagii Ki 5.25 7.93 Star Plus Saara Aakash 4.47 7.72 Sony Jassi Jaissi Koi Nahin 4.43 9.07 Star Plus Kahin To Hoga 4.29 7.1 Star Plus Kahin To Hoga 4.17 7.97 Sony Indian Idol Aakhri Jung 4.11 7.62 Star Plus Kahin To Hoga 3.85 7.22 Star Plus Kehta Hai Dil 3.84 7.27 Star Plus Kkavyanjali 3.78 7.20

Source: Data from TAM, as quoted in Ganguly, R., India Media Industry, JP Morgan Asia Pacific Equity Research, May 12th 2005.

EXHIBIT 14: SHARE OF ADVERTISING REVENUE—DIFFERENT SEGMENTS OF THE INDIAN MEDIA INDUSTRY

Segment % Share of Advertising Revenue (2004)

% Share of Advertising Revenue (2005)

Cinema 1.2 1.1 Print 47.1 47.9 Out-of-home 7.3 6.8 Radio 1.9 2.4 Internet 0.5 0.8 Television 42 41

Source: Adapted from 2005 Advertising Industry Report Card, December 21st 2005, [www document] http://www.indiantelevision.com/ye2005/adexyearender05.htm (accessed February 3rd 2006).


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EXHIBIT 15: TELEVISION ADVERTISING REVENUE AND PROJECTIONS (YEAR ENDING MARCH 2001–2010)

0

500

1000

1500

2000

2500

FY01 FY02 FY03 FY04 FY05(P) FY06(P) FY07(P) FY08(P) FY09(P) FT10(P)

US

$ (M

illio

n)

Source: Adapted from Ganguly, R., India Media Industry, JP Morgan Asia Pacific Equity Research, May 12th 2005.

EXHIBIT 16: TELEVISION PENETRATION IN SELECT COUNTRIES

0 100 200 300 400 500 600 700 800 900

United States

Canada

Japan

Russia

Singapore

South Korea

Israel

Brazil

China

Mexico

South Africa

Egypt

Philippines

Sri Lanka

Pakistan

India

Television penetration per 1000 people

Source: Statistical Outline of India 2003–2004, Tata Services Limited (Department of Economics and Statistics).


42

EXHIBIT 17: OWNERSHIP OF TELEVISIONS IN INDIA BY DIFFERENT CRITERIA By Population Strata

0102030405060708090

100

Metro Cities 1 million pluscities

0.1 -1 millioncities

Towns Rural areas

Location

% P

enet

ratio

n of

Tel

evisi

ons

B&W Televisions All Televisions

By Geographic Zones

East 12%

West30%

North 30%

South28%


43

EXHIBIT 17 (CONT.): OWNERSHIP OF TELEVISIONS IN INDIA BY DIFFERENT CRITERIA

Across States

0 20 40 60 80 100

All India

Delhi

Punjab

Haryana

Maharashtra

Kerala

Gujarat

Tamil Nadu

Karnataka

West Bengal

Andhra Pradesh

Assam

Madhya Pradesh

Rajasthan

Uttar Pradesh

Orrisa

Bihar

Percentage penetration



44

EXHIBIT 18: MARKET SHARE OF MAJOR PLAYERS IN THE CTV INDUSTRY

(in %) 1999 2000 2001 2002 2003 2004

LG 9.0 11.0 14.4 15.3 20.1 25.5 Samsung 6.5 9.0 11.0 13.5 15.2 17.3 Onida 10.5 13.0 12.5 12.1 11.2 12.0 Videocon 14.7 19.0 15.6 10.7 8.5 7.4 Philips 11.0 5.5 4.7 6.3 6.0 5.3 Akai 4.1 3.2 3.7 3.5 4.5 4.3 Sony 4.5 3.0 5.1 4.0 3.7 3.4 BPL 22.3 20.3 18.6 9.8 6.3 2.7 Others (including regional brands)

17.4 16.0 14.4 24.8 24.5 22.1

Source: Compiled from CAN-ORG Marg, CETMA and various press reports.

EXHIBIT 19: DEMAND DRIVERS FOR CTVs IN INDIA


Economic Growth

Power

Policy

Competition

Customer attitudes and priorities

Demand

Prices Technology


45

EXHIBIT 20: COMPARISON OF TAXES AND COSTS—INDIA VS. THAILAND

India (% unless otherwise

specified)

Thailand (% unless otherwise

specified) Customs Duty

1 Raw material 0–20 0

2 Components 0–10 0–5

3 Tuners, cabinets etc. 20 0

4 Colour picture tubes 20 0

5 Colour glass parts 20 0

6 ACs, refrigerator compressors 20 30 (5% from ASEAN

countries) Excise Duty

1 Electronics 16 Composite VAT of 7%

2 ACs 24 Composite VAT of 7%

Sales Tax /VAT

1 Central sales tax (CST-Centre) 4 Composite VAT of 7%

2 Local sales tax (LST-States) 12–17 Composite VAT of 7%

3 Purchase tax 2–4 Composite VAT of 7%

Other costs

1 Financial cost 12 4–5

2 Diesel (INR/ litre) 22.00 16.00

3 Petrol (INR/litre) 40.00 20.00

4 Power (INR/kwh) 5.00 2.50

5 Labour cost (INR/month) 3500.00 6000.00

6 Infrastructure Weak Good

Source: CETMA, August 2005.

Documents

Indian TV Industry