Digital access to fuel M&E growth to 13.1% over next five years: KPMG report
The media and entertainment industry is now on the road to recovery after facing headwinds due to fallout of major regulatory interventions such as demonetisation, GST and RERA, resulting in lower consumption and ad spend during FY18. According to KPMG’s report, titled ‘Media Ecosystems: The Walls Fall Down’, strong and consistent economic growth, fueled by a rise in consumption and growth in digitisation provided support, has enabled the Indian Media and Entertainment (M&E) industry to grow at 11 per cent over FY17 to reach Rs 1,436 billion in FY18.
The report states that the long term outlook for the sector remains strong on the back of a buoyant Indian economy, robust domestic demand, particularly in rural and regional markets and growing digital access and consumption. Girish Menon, Partner and Head, Media and Entertainment, KPMG in India, pointed out, “This industry is expected to grow at a CAGR of 13.1 per cent over the next five years to reach Rs 2,660.2 billion by FY23.”
Mritunjay Kapur Head – Technology, Media and Telecom, KPMG in India, remarked, “Digital technology, coupled with radical shifts in consumption patterns have undeniably resulted in blurring of boundaries that define the Telecom, Media and Technology (TMT) sectors. TMT Convergence is now a reality and will likely cause significant disruptions across the value chain. Media organisations would need to re-evaluate their existing strategies and operating models to leverage the emerging opportunities and sustain against new evolving challenges.”
Size of the Indian media and entertainment industry
Industry performance — Historical
Industry advertising revenues — Historical
The KPMG report points out that the television industry had a relatively subdued year in FY18, with advertisement revenues facing headwinds due to the implementation of GST and middling growth in the overall economy. At the same time, subscription revenue growth was lower than expected as the DD FreeDish subscriber base soared to 30 million and Direct-to-Home (DTH) ARPUs declined with increase in competitive intensity.
Television is expected to grow at a CAGR of 12.6 per cent on the back of growing TV penetration, strong advertising demand, growth in domestic consumption and major events supported by better distribution realisations due to operationalisation of TV digitisation.
Industry performance — Projected
Industry advertising Revenues — Projected
The print sector witnessed a significant adverse impact due to the after effects of demonetisation, coupled with a weak advertising demand due to implementation of GST and RERA. This resulted in a growth rate of 3.4 per cent during FY18, which was the lowest in a decade. Hindi and regional newspapers fared comparatively better (4.6 per cent and 4.2 per cent, respectively), while English newspapers struggled, registering a growth of 1.5 per cent during this period.
Likely to see muted growth at 5.9 per cent CAGR due to sluggish growth in English newspapers and pressure from the digital platforms. This will be offset by strong growth in language newspapers.
Commenting on the print sector’s growth, Girish Menon said, “If you look at the growth of print which is at 3.4 per cent in FY18, it is because print had to face the double impact of GST and RERA (Real Estate Regulatory Act) on ad spends.”
“However, next year print will grow at about 6-7 per cent, which is more representative of a steady growth. The reason print will continue to grow is because of Hindi and other vernacular newspapers have a lot of room for growth in terms of readership, penetration and circulation price. These are some positive indicators in the market for overall print to grow. But it will not grow at say, 10 per cent or so, because print is now seeing the effects of digital and we are beginning to see the trend of people switching to digital,” Menon pointed out.
Digital advertisements have been growing rapidly in India, and the trend continued in FY18, driven by developments in digital infrastructure, increased inclusion and adoption of regional non-urban users, increase in penetration of mobile phones and increase in maturity in the digital ecosystem driven by public and private investments.
According to the KPMG report, digital adoption is expected to spearhead strong growth in digital advertising at 30.2 per cent CAGR.
When asked about the impact that Government regulations would have on digital, Menon replied, “Privacy concerns and government regulations trying to come in will definitely impact digital negatively. But I think the sheer headroom that digital has to grow will compensate for it. It’s not that problems won’t exist, but the numbers won’t really be significant enough. The digital user base still has a lot of headroom to grow and the consumption has just started, and it is only in the last 12 to 18 months that such consumption has started.”
Adding further, Menon said, “Only when the market matures will such problems start coming up and will have a negative impact, but currently there won’t be any dramatic change.”
The radio industry witnessed muted growth in FY18 on the back of the GST rollout as local ad spends were significantly reduced. Oversupply from launch of new radio stations also resulted in pressure on ad rates, which stayed flat. While small players, especially newly launched ones in non-metro cities, reduced their ad rates to attract local businesses, bigger broadcasters increased their ad rates to drop advertisers that do not fit in with their brand image.
According to the KPMG report, the radio industry is expected to grow at a 10.2 per cent CAGR over the next five years to FY23.
Out Of Home
In contrast, the Out Of Home (OOH) industry shows signs of a promising year ahead after a slow start in the first half of FY18. The bounce back was aided by advertisement expenditures from State and Central Governments, e-commerce, and technology players, with important contributions from automotive, FMCG and financial services sectors staying secular. Upcoming State and General Elections are expected to sustain this momentum. Moreover, the controlled environment of the airport segment continued to be one of the significant contributors to OOH growth, with the segment also witnessing traction from smaller airports situated in Tier 2 and 3 cities.
The KPMG report pegs the OOH segment’s growth at 9.2 per cent CAGR over the next five years to FY23.
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