Thought Leaders | Unblock the capital for M&E to touch $100b: Sanjay Gupta

Media & Entertainment in India is a $15billion industry today. It aspires to touch the $100billion mark, but growing as it is at just 12%, it will take the next 15 years to get there. So how does this industry, comprising of print, TV, films, radio and digital, reach that magic figure? What are the hurdles it faces en-difficult-route to that number? What is the solution? We bring you the views of young industry veteran Sanjay Gupta, Star India COO, from his keynote address at the CII Big Picture Summit 2015. Here’s what he said:

As we plan to get to $100B it is critical that we step back and observe with a dispassionate lens our performance with respect to what we set out to achieve three years back. On an absolute level, accentuated by the rapid devaluation of the rupee, we have barely added 2 billion dollars in these last 3 years. We had spoken that this sector is only 0.8% of the GDP and we should get to a share of 1.5% of the GDP over the next decade. However in the last three years, media as a percentage of GDP has only come down by 2 basis points. The $100B dream remains as distant today as it was 3 years back.

What ails us?

Among a plethora of existing explanations, the most important reason I attribute our stagnant existence to, is the choking of investment. Breakout growth has a fairly recognizable footprint of investment that it leaves behind. Businesses either generate large profits internally which are invested back into the business or they grow on the back of external investments, domestic or international. Our industry boasts of neither. The media and entertainment sector in the last 15 years has barely seen any new entrants and has seen ~4 billion dollars of FDI, out of a total of $400B. To get to $100B we must find an additional investment of at least $50B over the next decade, a proposition that seems rather tough given our past track record.

Breakout growth has a fairly recognizable footprint of investment that it leaves behind. Businesses either generate large profits internally which are invested back into the business or they grow on the back of external investments, domestic or international. Our industry boasts of neither

Why has the flow of capital in media been choked? 

The reason is simple – the media business is an unattractive destination for investments. Investors would much rather pump in billions of dollars into loss making ecommerce setups, driven by a fiercely attractive end state than choose to invest in the fragmented and unprofitable business of media. Most media businesses face a severe challenge with monetization and suffer from extremely poor returns on investment. Beneath the rosy picture of 12% YoY growth lies a sector with a host of unprofitable verticals.

Sanjay Gupta, COO - Star India
Sanjay Gupta, COO – Star India

Allow me to elaborate.

Sports:

Let’s take sports as an industry. It is a $2B industry today, which can easily grow to ~$10B in the next 5 years. There has been no dearth of new sporting leagues and the audiences have only gobbled them up, be it Hockey, Football, Kabaddi or Badminton. Yet, the industry is nowhere near taking off on the back of these investments. Let me take the example of a sport close to my heart, Kabaddi.

We have been investing close to 200 Cr every season for the last two years. The game has captured the imaginations of Indians across the nation and we believe that our investment should break even in the next few years. However, to do so, we need to scale up the volume of content. We need more teams, more players and many more days of Kabaddi in a year and yet a bizarre challenge faces us. Punjab and Haryana contribute large number of Kabaddi players, yet as we think of adding more teams, we cannot have teams based in either of these two states! Why? Because these two states do not have a single indoor stadium that can host a Kabaddi match.

The situation in our largest metropolitan city, Mumbai, is not so different. We have just one indoor facility, which is actually not a sports stadium, the NSCI dome. The biggest constraint in expanding Kabaddi is the availability of facilities. One venue for a city with over 1000 Kabaddi clubs just doesn’t seem adequate, does it? So it is not the consumer interest or the ability to invest that is coming in the way. The sporting infrastructure required to support a sporting nation of our scale, just does not exist. Even worse, there is no plan to change this.

Movies:

Same is the issue in the movies business. With around 7000 screens, India has one of the lowest screen densities in the world. In spite of many breakthrough stories being told like Queen, PK or Bajrangi Bhaijaan, the revenues have been stagnant, while the costs of creating these movies have increased dramatically in the last decade. Hence Bollywood, which sets a billion hearts racing, earns no money. Yes, a billion dollar industry making zero profits!

Bollywood, which sets a billion hearts racing, earns no money. Yes, a billion dollar industry making zero profits!

News:

Sanjay_Gupta-COO-Star-India-MediaBrief13There are 400-plus news channels… In the absence of a robust business model, news channel have no money to invest in their business. Whether you are an English or a regional news channel, whether you are the number one channel or the last, none of the news channels make any money. Why? Because none of these channels earn any money from subscription. Globally, subscription contributes as much as 60-70% of the total earnings of a news channel. A must provide for content owners with no must carry for operators skews negotiations in favor of platforms.

And if this was not enough, all content aggregators like MediaPro or MSM Discovery were disbanded, rendering these singular channels quite helpless. Forced to pay carriage to survive, what should have been a revenue stream for these channels has been replaced by a cost line. How will this business ever make money? The quality of news should not be a surprise to any one of us; it is an outcome of choices we have made.

Television distribution is roughly a third of the total value of the media industry. In the last few years, large amount of investments have been made in both DTH as well as the cable business. However, the tragedy of this sector is that even after many years of continued investment not a single company or business makes any money.

The moment the new state government (in Delhi) came to power they doubled the entertainment tax. It is quite regrettable that distributors pay almost one third of the revenues as entertainment tax, when TV is seen as a basic consumer need and prices are controlled.

Since the sector is considered a basic need from a consumer point of view, the prices at which content is sold by creators to platforms is regulated – prices that were frozen in 2003 and haven’t changed in the last 12 years. In the same period of twelve years, even the price of milk, which contributes significantly to a household purchase basket, has gone up from Rs. 12-15 a liter to Rs. 35-40 a liter! Yes, this is an issue; critical and making the entire television industry bleed.

But this gets worse. Take the example of Delhi. The moment the new state government came to power they doubled the entertainment tax. It is quite regrettable that distributors pay almost one third of the revenues as entertainment tax, when TV is seen as a basic consumer need and prices are controlled. The real unfortunate part is the lack of political alignment and consistency of policy in this sector, rendering it impossible to plan a sustainable business model.

The media and entertainment policy paradigm seems to have been designed to keep serious investment and serious growth just outside our grasp, perennially. A reactive, shuffling and constraining set of regulations; aimed at controlling and managing rather than developing and fostering. What can only be described as an erstwhile overhang of the sensitivity around the news media has crept its way across all media verticals.

Radio:

How else, do you explain that in 2015, where millennials across the country get their daily dose of news from their Facebook feed, we allow radio broadcasters to air news snippets only from the All India Radio?

In India not only have we limited the number of radio stations per city but also limited the content they can put on air. No news please! … Not surprisingly then, even in large cities, where FM exists, the time spent on radio per person is 5 minutes. How on earth would this industry ever make money?

In India not only have we limited the number of radio stations per city but also limited the content they can put on air. No news please! … Not surprisingly then, even in large cities, where FM exists, the time spent on radio per person is 5 minutes. How on earth would this industry ever make money?

In the United States, radio has gone hyper local and people spend an hour listening to radio everyday. This in turn, gives a fillip to local brands by making available a quick and cheap platform to build their businesses. In India not only have we limited the number of radio stations per city but also limited the content they can put on air. No news please! We will find it difficult to monitor and control what you say. Is that right? In a digital era where millions of people are delivering news! Not surprisingly then, even in large cities, where FM exists, the time spent on radio per person is 5 minutes. How on earth would this industry ever make money?

Unblock the capital!

Investors look for a certain and fertile investing environment. We have provided them with neither. So when existing businesses look to route their modest returns out of this sector, can we blame them?  Sadly for media, the flow of capital is choked and we need to clearly “Unblock the Capital”!

The only question remains, how?

Clarity on objectives is a crying need for this sector. We need to understand that a number like $100B in isolation doesn’t mean anything. We need to delve deeper into the constituents of this aspiration. There is an urgent need to make distribution profitable, a great opportunity to position animation as the next wave of export oriented growth, support a serious scale up of exhibition screens and sports stadiums and to allow content innovation in radio. We need a hugely attractive pitch for domestic and international investors, giving them clarity on the policy environment for the next 10 years and confidence of generating sizeable returns on the investments.

Up till now, all stakeholders, businesses, policy makers and regulators have been happy with status quo and incrementalism. In the last fifteen years, the leaders have remained on top, the followers have remained behind and everyone has been content. This new era, on the back of technology will upset all of this as it has in every other sector be it automobiles, financial institutions or something as basic as grocery shopping. Dramatic growth and big disruptions have been made possible by serious flow of capital.

I believe that media will see brave new entrepreneurs, disruptive ideas and unconventional business models but for all this to happen we need to provide the framework to “Unblock the Capital”.

 

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