Eros International Media Ltd Management Discussions.

Macroeconomic Environment in India

The Indian economy is recovering in 2019 as disruptions related to demonetization and implementation of Goods and Services Tax (GST) are easing up. As per the World Economic Outlook Update published in July 2019, Indias economy is set to grow at 7.0 percent in 2019, further picking up to 7.2 percent in 2020. The downward revision of 0.3 percentage point for both years from the earlier released estimates reflects a weaker than expected outlook for domestic demand. However, as per the Union Budget 2019, the Government has set up an ambitious target to reach US $ 5 trillion in the next five years from the US $ 2.7 trillion recorded in 2019.

Indian Media and Entertainment Industry

With a population of over 1.3 billion, India has as many as 23 languages spoken across the country. Indians have a huge appetite for entertainment and the demand for content in multiple languages is only growing. In CY2018, the Indian M&E sector reached र 1.67 trillion, a growth of 13.4% over CY2017. With its current trajectory, the industry is expected to grow to र 2.35 trillion by 2021. The favorable media metrics and the industry growth is being driven, in part, by increasing digitization, higher penetration in rural markets, rapidly growing young population, increasing online and mobile connectivity, and increasing growth of the Indian middle and affluent classes. According to CIAs World Factbook, India has one of the youngest populations in the world with a median age of 28 years and 59% of the population between 15-54 years is the key driver of the consumption growth. The country is also at an inflexion point in wireless broadband connectivity and infrastructure that, combined with its GDP growth and young demographics, creates the right tailwinds for the Indian Media and Entertainment Industry.

(a) Other includes Radio, Music, Out of Home, Animation/VFX, Gaming and Digital Advertising (b) All figures inर billion, calender years Source: FICCI-EY M&E Report 2019

Theatrical

The Indian film segment grew by 12.2% in 2018 to reach र 174.5 billion. The Indian film entertainment industry is the largest in the world in terms of the total number of films released theatrically. The FICCI-EY M&E Report 2019 estimates that 1,776 films were released in 2018 as compared to 1,807 films in 2017. Despite a decline in the number of films, the year 2018 turned out to be a successful year for the Hindi theatricals segment in terms of the box office with films entering the र 1 billion club almost every month. Going forward, the filmed entertainment is projected to grow to र 236 billion by 2021.

Hindi films contributed approximately 42.1% of Net Box Office collections, despite comprising only 13.4% of the films released. Films in other languages comprised 81% of the films released and contributed approximately 46.9% of the Box Office collections. Hollywood and foreign films contributed the balance. Strong focus from top studios towards regional cinema continues to be driving the growing popularity of regional films. Another major trend that the regional cinema has benefited from has been through the increased consumption of dubbed films by the audiences.

Rapid urbanization has resulted in increased demand for modern cinema screens featuring quality infrastructure, latest audio-visual systems, food and beverage offerings etc. While the multiplexes are at the forefront of providing such facilities to the patrons, many single screen cinemas are also converting themselves into multiplexes or are revamping themselves. O n an overall basis, multiplexes screen count stood at 2,950 screens, which was about 30% of the overall screen count, but contributed approximately 60% of the box office revenues. There continues to be a major opportunity to build more screens, given the low penetration of the screens in India, especially in tier-III, tier-IV and rural markets.

Another trend that has augmented the convenience factor for cinema visits is the increasing adoption of online ticketing from platforms such as BookMyShow, Paytm etc. and also cinemas own platforms. In recent years, well over 50% of ticket sales for multiplexes are being booked online.

Overseas theatricals have emerged as the fast growing revenue stream for film studios. In 2018, overseas theatricals market grew to र 30 billion from र 25 billion in 2017. 120-125 movies, across the Hindi and regional domains, were released in the overseas theatrical markets in 2018. Apart from the big banner releases, several small and medium-sized films made their mark in overseas markets. The main overseas markets for Indian films, where often the release date is the same as in India, are USA, UK, Middle East, Canada, Australia. Apart from these traditional markets, the following of Indian films continues to grow with cross over audiences across many countries in Asia Pacific and Western Europe. China is being cemented as a big overseas market for Indian content. While only 2 films and 1 film was released in China in 2016 and 2017 respectively, 2018 saw 10 films from India being screened in China, accounting for highest collection in this overseas region.

OTT platforms

While the theatrical and television segments are steadily increasing and reporting healthy growth, the exponential growth of digital media and the advent of the OTT platforms in the Media and Entertainment industry is a game changer for India. Internet subscribers grew 28% from 446 million in 2017 to 570 million in 2018. Hence given that there are 4 billion internet users in the world, one amongst eight internet users is an Indian.

Internet penetration was also driven by rural subscriber growth

Dec 2017 Dec 2018
Total internet subscribers 446 570
Narrow band subscribers 83 58
Broadband subscribers 363 512
Urban internet subscribers 314 373
Rural internet subscribers 132 197

At over 500 million broadband subscribers, India has the second largest broadband subscriber base in the world after China. This number is expected to grow to 700 million by 2021, effectively meaning that the broadband access will be available to all internet subscribers. Wireless broadband comprises 96% of the total broadband subscribers, clearly indicating that smartphone is a preferred device for internet access for most Indians.

54% of the total mobile connections were 3G and 4G and data consumption across 3G and 4G networks comprised 12% and 87% of the total data consumption. The average Indian data user doubled consumption from 4GB to 8GB per month between 2017 to 2018 and expected to reach 10GB in 2019. This is an indication that as network rollout progresses further, the data consumption and thereby the OTT viewership is set to grow exponentially. According to FICCI-EY M&E Report 2019, India has the worlds second highest number of internet users after China, with around 570 million internet subscribers, growing at a rate of 13% annually. The impressive scale of the market and a liberal foreign investment environment will continue to be attractive to global streaming platforms looking to capitalize on the countrys fast growing digital consumption.

Digital media is playing an increasingly important role in the Indian media industry. With the rapid convergence of media and technology, entertainment companies are digitizing their content and leveraging digital platforms such as mobile and broadband to monetize their content. Further, with increasing digital infrastructure, Indians are now increasingly getting accustomed to consuming content online. As a result, digital content creation is growing across languages and genres. In 2018, the demand for original digital content increased to around 1,200 hours, also pushing up prices as a result. The telecom companies have been integral to the digital market with over 200 million people accessing digital content through telco data bundles and upto 60% of video viewership volumes generated by telecom companies. According to UC News Feed platform in India, Entertainment was the largest category of mobile content consumption for Indian users, followed Sports and Lifestyle segments.

It is expected that by 2021, 30-35 million paying subscribers and a further 350+ million subscribers will access bundled OTT services from telecom companies. Rollout of fiber to home and 5G services will also significantly improve connectivity from 2020 onwards. This will be beneficial for video consumption, particularly for long form content such as films and digital series.

Television

Since 2016, TV viewership in India has shot up by 12%, according to the Broadcast Audience Research Council (BARC)s Broadcast India survey. According to FICCI-EY M&E Report 2019, the survey report indicates a 7.5% increase in the number of TV-owning households across India to 197 million in 2018 and the number of viewers also rose by 7.2% to 836 million. The TV penetration amongst Indian households increased 66% in 2018 from 64% in 2016 and 88% of the TV households were digitized.

Mode of Signal CY2017 CY2018
Cable 98.5 103
DTH 52 56
Hits 1.5 2
Free TV 31 36
Total 183 197

Television segment in 2018 grew by 12% to reach र 740 billion. Growth was led by a 14% increase in advertising revenues and 11% increase in subscription revenues. This segment is expected to reach र 955 billion by 2021, with advertising growing at 10% and subscription at 8%.

In terms of content consumption trends, 24% of the total content consumed was on films. The broadcast rights for films grew from र 19 billion in 2017 to र 21.2 billion in 2018. Films continue to generate healthy sales on satellite rights as they continue to drive advertising and well as subscription revenues effectively.

Music

Music is an integral part of Indian film promotion and generates additional revenue streams for film companies. The Indian music segment grew 10% to reach र 14.2 billion in 2018. It is expected to grow 10.8% annually till 2021, on the back of increased digital revenues, performance rights and synchronization rights. In India, songs related to films have the highest share accounts for over 80% of the music segments revenues. The three most popular genres amongst internet users in India are new Bollywood music, older Bollywood music and Indian classical music.

Company Overview

Eros International Media Limited (Eros International) is a leading global Company in the Indian filmed and digital Entertainment Industry which co-produces, acquires and distributes Indian language films in multiple formats worldwide. The success is built on the relationships we have cultivated over the past 40 years with leading talent, production companies, exhibitors and other key participants in our industry. Leveraging these relationships, we have aggregated rights to over 2,000 films in our library, including recent and classic titles that span different genres, budgets and languages. We have co-produced/acquired a portfolio of over 130+ new films over the last three completed fiscal years. Film distribution across theatrical, overseas and television and others channels along with library monetization provide us with diversified revenue streams. In addition, Eros International produces and acquires content for Eros Now, parent Eros International Plcs, OTT entertainment service. Launched in 2012, Eros Now has digital rights to over 12,000 films, out of which approximately 5,000 films are owned in perpetuity, across Hindi and regional languages from Eros internal library, as well as third-party aggregated content. As of 31 March 2019, Eros Now has garnered ~ 155 million registered users across WAP, APP and Web and 18.8 million paying subscribers.

Strategic Overview

Our strategy is driven by the scale and variety of our content and the global exploitation of that content through diversified channels. Specifically, we intend to pursue the following strategies:

• Scaling up productions, co-productions and acquisitions to augment our film library and original digital content

• Expand our regional content offerings

• Effectively monetize our strong film library across various platforms

• Create compelling content for our Eros Now, our parent Eros International Plcs OTT entertainment service

• Further extend the distribution of our content to new audiences and platforms

• Capitalize on the highly attractive market opportunity driven by secular tailwinds

Human resources

Within our strategic roadmap, we have 5 distinct themes that guide our actions.

Position Human Resources to support senior leadership in executing on the priorities for the organization.

Enhancing HR systems & process solutions to serve our employees better, while ensuring accountability through policy and reporting.

Maximizing efficiencies and effectiveness in business through process standardization. Our quest to becoming

Employers of choice with our ability to retain, motivate, develop and continue to attract the best talent market has to offer through a stringent promotion, Internal recruitment and job rotation process. Our reward and recognition program forms a core part of the exercise. In order to maintain market leaders position of being an attractive employer, the Company has developed global guidelines on diversity, equal rights and against discrimination.

Employee relations & listening post through an open door policy giving every employee the right and opportunity to discuss any work-related issues directly with the management. In order for us to do so, we have aligned the workplace layout and seating to foster the said culture.

Cautionary Statements

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward-looking statements within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Companys operations include economic developments in India or globally, demand and supply conditions in the industry, changes in Government regulations, tax laws, litigations and employee relations and others.