Raj Television Network Ltd Management Discussions.

India continued to be the fastest growing major economy despite the challenges faced during the year. In FY19, the GDP of the country grew by 6.6% on GVA basis, a marginal deceleration from the previous year. While the growth in the first half of the fiscal was strong, it moderated during the second half due to liquidity concerns and stress in the agriculture sector. This impacted consumption and discretionary spending, especially in the rural markets, during the latter half of the year. However, after a strong mandate, the expectation is that the new government will address these concerns on priority and inject stimulus to revive economic activity. Three consecutive interest rate cuts by the Reserve Bank of India and their accommodative stance will help revive consumption and growth in the near term. Forecast of a normal monsoon in 2019 also bodes well for the agriculture sector and is expected to drive rural consumption. From a medium-term perspective, the governments focus on infrastructure development, job creation and bankingreforms will support growth. One of the biggest structural reforms, Goods and Services Tax (GST), despite transient issues, is alreadyhelping formalize the economy and will go a long way in improving the business environment in the country.

INDIAS MEDIA & ENTERTAINMENT INDUSTRY

The Indian media and entertainment (M&E) industry witnessed another year of all-round growth. The pace of growth acceleratedmarginally in CY18 despite the challenges faced by the economy towards the end of the year. According to the FICCI-EY Report2019, (the Report), the M&E industry grew by 13.4% YoY in CY18, to Rs 1,674 billion. India is witnessing a significant increase in contentconsumption due to increase in availability and improvement in affordability. Be it the growing number of mobile and televisionsets, improving multiplex penetration or smaller cities getting their own radio stations, availability of content is improving acrossplatforms and is expected to get better going ahead. However, Indias per capita entertainment consumption is still lower thanmost of its peers, representing a significant room for sustained growth which would be driven by rising disposable incomes andincreasing access to content. According to the Report, the Indian M&E industry is expected to grow at a CAGR of 12.0% toRs 2,349 billion over the next three years, with growth in all the segments. During the year, television increased its reach and engagement with the audience, retaining its position as the default entertainment medium for Indian consumers. Growth in online video consumption accelerated, helped by the increased availability of affordable data and content on digital platforms. Print media continued to grow, albeit at a much slower pace. The movie industry surpassed all the previous box-office records on the back of strong performances in both domestic and international markets. Radio, in addition to entering new cities, is diversifying into new business offerings like concerts and activations. Growth in live events was led by premium properties, sports events and digital integration.Of all the entertainment options at Indian consumers disposal, content consumption scores high on two important parameters -availability and affordability. With these two aspects becoming increasingly consumer friendly, we are witnessing an exponentialgrowth in content consumption, driven by increasing choices and easy access. As consumption rises, more content producersare coming forward to meet the demand. This virtuous cycle is fuelling Indias content consumption story. In India, due to low levels of penetration, all forms of media are seeing an increase in consumption. That said, television and digital are appropriating an overwhelming proportion of this incremental growth. Television continues to witness an increase in subscriber base aswell as time spent and remains the mainstay for family entertainment. Digital, on the other hand, is becoming the default second screen for many in the predominantly single TV household environment of India. Consumption on television as well as digital is on a secular growth path.

ADVERTISING: TV AND DIGITAL VIDEO TO DRIVE GROWTH

Indias advertising spends grew by 13% in CY18 and as per the Report, it is expected to grow at a CAGR of 11.4% over the next 3 years. Despite the double-digit growth over several years, Indias ad-spends are significantly low relative to the size of the economy. Indias strong economic growth, rising income levels, and consequent increase in consumption provide a solid foundation for advertising growth. In this conducive macro environment, the emergence of new advertising categories, increasing share of organized sector, and tapping of SME advertisers will drive sustained growth in adspends.

SUBSCRIPTION: DIGITAL OPPORTUNITY SUPPLEMENTING TELEVISION

Television subscription has multiple growth drivers in place. The digitisation of Indian distribution space over the past few years hasimproved transparency in the value chain. Implementation of the new tariff order gives consumers an option to choose and pay forcontent while simultaneously allowing pricing flexibility to broadcasters. These initiatives have laid down a solid foundation for growthin the coming years. Rising penetration of television and high-definition channels will further add to the subscription growth forthe industry. Digital opportunity is expected to become sizable, driven by the rapidly growing number of smartphones and broadband penetration. So far, advertising video on demand (AVOD) has dominated online content consumption due to low television ARPUs, a price-sensitive consumer base and aversion to online payments. To capitalize on the subscription opportunity, the platforms will have to establish a strong value proposition by offering a vast array of differentiated content. This will need to be complemented with innovation in pricing and bundling of content with other services, especially telecom. We are already witnessing a lot of activities on both these fronts which will help develop the subscription market gradually.

The Telecom regulatory Authority of India(TRAI) has brought in the new Tarif order which will be implemented w.e.f 31.01.2019 as per latest information,is a significant pronouncement for the Cable TV broadcasting and distribution sector as it paves the way for augmenting and strengthening consumer choice and also creating a level playing field for all the stakeholders. The basic aim of this tariff is that broadcasters come out with realistic and reasonable la carte rates which has a logical relation to the bundling price instead of going totally out of line where the consumer and operator is concerned. The other thing is recognizing MSOs as a platform and the concept of distribution fees. As per the new tariff order, Rs 130 which is laid down for the first 100 SD channels which is a clear revenue model for the distribution platform and it should contribute to the bottom line of the MSOs, and equally for Broadcasters who currently are bleeding and finding it difficult to sustain.

Company Overview:

Raj Television Network Ltd (Rajtv) is one of Indias largest entertainment content company. Starting with the launch of Indias Second Tamil satellite channel, RAJTV, in 1994, RAJTV has evolved into an integrated entertainment content company over the last two and a half decades. The Company incorporated in 1994, broadcasts thirteen channels presently in various southern languages. Raj TV, its flagship television channel launched in 1994 was the fi-rst general entertainment channel of the Company. The Company caters to the entire spectrum of customers entertainment needs with production of content across different formats and platforms, such as fiction and reality shows for television, movies, music, digital, plays and live events. Over the years, the Company has built strong a content library of 100,000+ hours reaching over a billion viewers globally. Your company has a Strong content creation capability, over the last two and a half decades, we have built strong in-house content creation expertise and developed an eco-system that seamlessly delivers engaging content at a competitive cost. We have long-standing partnership with the artist fraternity and our leadership position makes us their preferred partner. While we work with multiple creative partners, with an in-house TV studio, movie production and distribution company and a music label, we are uniquely positioned to offer a range of content for diverse audience.

Business of the Company:

Raj TV currently operates 13 television channels in -ve languages including Tamil, Telugu, Kannada, Malayalam and Hindi.

The company earns its revenue from following main segments:-

a. Advertisement

b. Air Time Charges

c. Pay Channel Distribution Revenue

d. Subscription Revenue,

e. Sale of Rights

f. Sales export Revenue

Business Description

Raj Television network content offerings span across the globe. Today, we have a footprint across more than 172 countries with a portfolio of channels catering to the Indian and south Asian diaspora as well as local audiences of the 12 channels in the international markets, 1 Channel is dedicated to non-Indian audience, offering them entertainment content in their native languages. Our network covers USA, EUROPE, MENAP, AFRICA AND APAC regions.

Regional Entertainment Channels Tamil Movie Cluster
RAJTV is one of the largest providers of regional entertainment in India, with a bouquet of 13 channels of 3 GECs (Tamil, Telugu & Hindi), 4 News channels (Tamil, Telugu, Kannda& Malayalam) 1 movie channel (Tamil) and 4musix Channels (Tamil, Telugu, Malayalam, & Kannada) channels. The regional por tfolio is spread across 5 languages – Tamil, Telugu, Malayalam, Kannada & Hindi are leaders in their segments,. RAJTVs regional channels uniquely position it as a pan-India provider of high-quality entertainment content, appealing to a wide variety of audiences. RAJTV has a portfolio of 1 SD channel (Raj digital plus) catering to different segments of audiences and genres. The flagship channel, raj DIGITAL PLUS, is a family entertainer, with movies that appeal to all age-groups. &pictures caters to the urban audience with edgy content. RAJTVs is Indias leading destination of retro Tamil films with an extensive library of all-time hits.

The company undertakes several production projects with the right mix of self-produced and outsourced productions, to mitigate -financial risk and obtain large revenues. With self-produced content, the company gets complete right over the content, and can build its own intellectual property base. RAJ Network has an advantage of being a mass channel with its extensive line up of attractive programming to cater the entire family. The channels of the network reach a wide variety of audiences as it satisfi-es people of all ages, The Channel offers a right mix of movies, serials, debates, cultural, educational, cookery, handicrafts and religious programmes satisfying the needs of the entire community ranging from Urban to the rural audience.

The year 2018-19 has been good in many ways In the changed economic Scenario, we are constantly reviewing the business models to create a robust system that will be resilient enough to stay above the economic tides. The year witnessed discontinuous changes in all aspects of entertainment and for the consumer, freedom of choice, enhanced connectivity and multiple screens, have given new dimensions to overall entertainment consumption. During the year in the fourth quarter, implementation of the long-awaited TRAI tariff order negatively impacted the growth. Given that this regulation allows the consumers to choose and select individual channels or bouquets, the distributors infrastructure was put under immense pressure as the back-end had to cope with implementing millions of combinations.. It also ensures uniform pricing of content for all distributors. The improved value proposition for consumers and increased transparency in the system will accelerate the growth of the overall subscription pie. We are positive that once the impact of the regulation settles, subscription growth will revert to its normal course.We believe that once the implementation issues are overcome, this regulation will be beneficial for all the stakeholders. The consumer will have the ability to choose and pay for the content they like, makingpay-TV service more relevant to them. For the first time, broadcasters have the power to price their products directly for the consumers.It also ensures uniform pricing of content for all distributors. The improved value proposition for consumers and increased transparency in the system will accelerate the growth of the overall subscription pie.

Future Outlook

The future outlook for TV is positive, with the industry expected to grow to INR 1,098 billion in 2020, at a CAGR of 15 per cent. The number of TV households is expected to increase to 200 million, with paid C&S subscriber base expected to grow to 174 million by 2020, representing 87 per cent of TV households. TV advertising in India is expected to grow at a CAGR of 15 per cent between 2015-20, to reach INR 365 billion. Subscription revenue for broadcasters is expected to grow at a CAGR of 18 per cent between 2015-20 to INR 203 billion, driven by increase in the declared subscriber base in Phase III and IV, increase in subscription revenues collected on the ground due to channel packaging and increasing HD penetration, and increase in revenue share of broadcasters in the subscription pie. Looking ahead, we remain excited about the growth opportunities for the industry and the Company. As digitisation of analogue subscribers is nearing completion, it will improve monetisation of our viewership in newly digitised areas. This coupled with effective implementation of TRAIs tariff order could lead to acceleration in ARPU growth for the industry, which has been lagging for several years.