Sea TV Network Ltd Management Discussions.

India has emerged as the fastest growing

major economy in the world and is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. Indias GDP is estimated to have increased 7.2 per cent in 2017-18 and 7 per cent in 2018-19. With the improvement in the economic scenario, there have been various investments in various sectors of the economy.

India has been the growth leader amongst major economies including Emerging Markets and Developing Economies (EMDEs) over the last five years. It surpassed China in terms of real GDP growth in 2014 and has remained higher since. According to International Monetary Fund World Economic Outlook (October-2018), GDP (nominal) of India in 2018 at current prices is US$2,690 billion. India contributes 3.17% of total worlds GDP on exchange rate basis. It comprises 17.5% of the total world population and 2.4% of the worlds surface area. India is now the seventh largest economy of the world. It is behind sixth ranked France and fifth ranked United Kingdom, by US$105 billion and US$119 billion respectively and is expected to overtake them in 2019, when Indias economy is expected to reach US$2,958 billion. India will be ranked third in 2019 on the basis of purchasing power Parity (PPP).

The Indian M&E Industrial Structure & Developments

As per FICCI-EY Report edition 2019 A billion screens of opportunity estimates and reports, The Indian M&E Sector reached INR 1.67 Trillion (USD 23.9 Billion, a growth of 13.4 percent over 2017. With the current trajectory, we expect it to grow INR 2.35 trillion (USD 33.6 Billion by 2021).

The reach of television increased to 66% of India, and with distribution now largely digitized, this has brought in more addressability. Bucking international trends, the print and radio segments continued to grow, as well as build their digital presence. Indian films-both Hindi and regional-grew their international appeal with several doing well at global box office.

In India approximately 2.5 million consumers are only digital and do not use the traditional media. The customer base is expected to grow to 5 million by 2021. Digital consumption will grow, and monetization avenues will see great innovation to cater to the new Indian customer segments.

Further, Digital media has grown significantly over the past few years, and continues to lead the growth charts on advertising. Even as subscription revenues are emerging and are expected to make their presence felt by 2020, digital media grew 29.4% (27.8% net of the impact of GST) on the back of a 28.8% growth in advertising and 50% growth in subscription in 2017 which was just 3.3% of total digital revenues in 2016, is expected to grow to 9% by 2020.

The Indian M&E Industry: Projections

The Sector grew to INR 1.67 Trillion

DY>
Overall industry size (INR billion) CY2017 CY2018 CY2019E CY2021E CAGR (2018 2021)
Television 660 740 815 955 8.8%
Print 303 306 317 338 3.4%
Filmed Entertainment 156 175 194 236 10.6%
Digital Media 119 169 223 354 28.0%
Animation and VFX 67 79 93 128 17.4%
Live events 65 75 86 112 14.0%
Online Gaming 30 49 68 120 35.4%
Out of home media 34 37 41 49 9.2%
Radio 29 31 34 39 8.0%
Music 13 14 16 19 10.8%
Total 1476 1674 1887 2349 12.0%

All figures are gross of taxes (INR in billion)

Source: FICCI-EY report edition 2019 A billion screens of opportunity.

Television Industry: India is the second largest pay-TV market in the world in terms of subscribers after China, with 197 million TV households growing at 7.5% y-o-y. Pay-TV penetration in India has more than doubled from 32% in 2001 to 66% in 2018 (by comparison in 2018 pay-TV penetration in the US was 78% and over 90% in China). While the size of the Indian pay-TV market in terms of revenue is smaller than its peers, the runway for continued growth provides exciting opportunities for global players.

The Television industry grew 12% in 2018 to reach INR740 billion. Growth was led by 14% increase in advertising revenues and 11% increase in subscription revenues. We expect growth for the segment to average 9% over the next three years, taking this segment to INR955 billion by 2021. Advertising comprised 41% of segment revenues in 2018 and this is expected to reach 42% by 2021. Number of channels increased to 885 in 2018, of which 43% were news channels. Television owning households increased to 197 million, which is a 7.5% increase over the previous Broadcast India survey.

During the same period, total Indian households increased 4.2% to reach 298 million. Correspondingly, TV penetration increased to 66% in 2018 from 64% in 2016. High-end television sets grew from 14% of all television sets in 2017 to 21% in 2018. In addition, smart TV sets have crossed 10 million, though as few as 10% of them could be connected. The time spent increased marginally to 3 hours 46 minutes per day, led by megacities, which had 4 hours 32 minutes and south markets, at 4 hours 14 minutes. Around one trillion man minutes were spent per week on television, which is at an all-time high and the television industry will retain pole position as the largest segment, digital will overtake filmed entertainment in 2019 and print by 2021.

Print Industry: As per FICCI-EY Report edition 2019 A billion screens of opportunity static says that Print segment grew 0.7% in 2018 to reach INR305.5 billion. Advertising revenues grew 0.4% in 2018, while circulation grew 1.2%. Circulation revenues contributed 29% of the total revenues of the print segment. Magazines contributed about 4% of total print segment revenues.

Print segments share in total advertising reduced to 29%. Advertising revenues were INR217 billion in 2018. Newspaper advertising revenue grew 1% while magazine advertising fell 8% Hindi newspaper publications continued to lead with 37% of total ad volumes, while the share of English publications stood at 25%. English magazines dominated magazine ad volumes with 54% share 245 million individuals consumed news online, with page views growing 59% in 2018. Print media segment has always performed well in India, however the print industry saw some degrowth in English language advertising and moderate growth in the Hindi and regional language segments.

Broadcasters have also witnessed growth in subscription revenue:

Broadcaster share of subscription revenues increased to INR110 billion which is around 25% of the total ground collections. However, once the subscribers migration from old tariff regime to the new tariff order regime is implemented across India, the broadcasters share is expected to go up significantly, especially from cable subscribers and International distribution started to go direct to customer in January 2019.

BROADCASTERS REVENUE (Figures in INR BILLION)

The TRAI Order on tariff continues to remain sub-judice:

The TRAI had released the telecommunications (Broadcasting and Cable) Services (Eighth) (Addressable systems) tariff order, 2017 (No. 1 of 2017) which is currently sub-judice. As per the FICCI discussion with the broadcaster and distributors, if the order is implemented, it would have significant impact on the broadcasters, distribution companies and consumers. According to this tariff order, Broadcasters are required to offer their pay channels on a standalone or a-lac-carte basis. They would have to declare the monthly maximum retail price (MRP) of each channel with the condition that no pay channel which is a part of bouquet is priced above INR 19. Free-to-air (FTA) and pay channels would have to be segregated in different bouquets with the MRP of pay channel bouquet being not less than 85% of the standalone cost of all the pay channels forming it. The Key impact of order would be a possible reduction in channels of end consumers, closure of non-performing and under-performing TV channels, and regulation of channels prices, level playing field for smaller distribution companies and more power to distribution companies to create bouquet.

Some broadcasters believe that regulating their right to price their channels could impact their competitiveness and their ability to invest.