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The Indian Media Business [4 ed.]
 2013031350, 9788132113560

Table of contents :
Cover
Contents
Foreword
Preface
Acknowledgements
Special Credits
The Future of Indian Media
1 -
Print
2 -
Television
3 - Film
4 - Music
5 - Radio
6 - Digital
7 -
Out-of-home
8 - Events
References and Select Bibliography
Index
About the Author

Citation preview

Praise for earlier editions ‘A well researched guide to the difficult yet dynamic terrain of the Indian media business.’ –The Financial Express ‘This best-selling book presents a comprehensive analysis of the current state of the Indian media industry.’ –The Times of India ‘This book presents a comprehensive history and up-to-date analysis of the Indian media industry.’ –DNA ‘This book provides the business history, technology, valuation norms, and industry trends in print, television, radio, internet, out-of-home media and events-not covered by any business books so far.’ –The Pioneer ‘A must read for media professionals and for anyone planning to invest in the Indian media and entertainment business.’ –Free Press Journal ‘This book combines data with rigorous analysis to offer a complete introduction to the media scenario in India.’ –The Hindustan Times ‘The result of Vanita Kohli’s diligent labour is evident in the book—it has a very exhaustive account of the media as they function today.’ –Deccan Herald

The Indian Media Business

The Indian Media Business Fourth Edition

Vanita Kohli-Khandekar

Copyright © Vanita Kohli-Khandekar, 2013 Copyright © Vanita Kohli-Khandekar, 2010 Copyright © Vanita Kohli-Khandekar, 2006 Copyright © Vanita Kohli, 2003 All rights reserved. No part of this book may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without permission in writing from the publisher. First published in 2003 This revised fourth edition published in 2013 by

SAGE Response B1/I-1 Mohan Cooperative Industrial Area Mathura Road, New Delhi 110 044, India SAGE Publications Inc 2455 Teller Road Thousand Oaks, California 91320, USA SAGE Publications Ltd 1 Oliver’s Yard, 55 City Road London EC1Y 1SP, United Kingdom SAGE Publications Asia-Pacific Pte Ltd 33 Pekin Street #02-01 Far East Square Singapore 048763 Published by Vivek Mehra for SAGE Publications India Pvt Ltd, typeset in 11/13pt Minion Pro by Diligent Typesetter, Delhi and printed at Saurabh Printers Pvt Ltd, New Delhi. Library of Congress Cataloging-in-Publication Data Kohli, Vanita.   The Indian Media Business / Vanita Kohli-Khandekar. — Fourth Edition.    pages cm   Includes bibliographical references and index.   1. Mass media—India. I. Title.  P92.I7K64    302.23’0954—dc23   2013   2013031350 ISBN: 978-81-321-1356-0 (PB) The SAGE Team: Sachin Sharma, Shreya Lall, Nand Kumar Jha and Rajinder Kaur

To Suman Kohli and Kedar Khandekar

Thank you for choosing a SAGE product! If you have any comment, observation or feedback, I would like to personally hear from you. Please write to me at [email protected] —Vivek Mehra, Managing Director and CEO, SAGE Publications India Pvt Ltd, New Delhi

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This book is also available as an e-book.



Contents

Illustrations ix Cases xi Foreword by Uday Shankar

xiii

Preface xv Acknowledgements xvii Special Credits The Future of Indian Media 1. Print 2. Television

xxi xxiii 1 67

3. Film

159

4. Music

227

5. Radio

263

6. Digital

299

7. Out-of-home

349

8. Events

387

References and Select Bibliography

415

Index 425 About the Author

443

Illustrations

Figures Figure 0.1 Figure 0.1a Figure 0.1b Figure 0.1c Figure 0.1d Figure 0.1e

The time spent on media and the reach of media Weekdays Sundays/Holidays Growth in media Time spent on print versus reach Time spent on TV versus reach

xxviii xxviii xxix xxx xxx xxxi

Tables Table 0.1 Table 0.2 Table 0.3 Table 0.4 Table 0.5 Table 1.1a Table 1.1b Table 1.2 Table 2.1 Table 2.2

The Indian media and entertainment landscape xxxi Advertising spend on media xxxii The investment into the media and entertainment business xxxiii The leading media groups in India xxxiii Indian media and entertainment—The journey so far xxxiv The top advertisers in print—Product categories 49 The top advertisers in print—The companies 50 The print industry in India—The big picture 52 The growth of TV broadcasting in India— The basic numbers 135 The television business—India and the world—A snapshot 137

x  THE INDIAN MEDIA BUSINESS

Table 2.3 Table 2.4a Table 2.4b Table 3.1 Table 3.2 Table 3.3 Table 4.1 Table 5.1a Table 5.1b Table 6.1 Table 6.2 Table 7.1 Table 8.1

The growth of Indian TV broadcasting—The programming genres 139 The top advertisers on television—Product categories 141 The top advertisers on television—Companies 142 The shape of the Indian film industry 218 The big guys in film retail 219 The Indian film industry: Spot the differences 219 The shape of the Indian music industry 255 The top advertisers on radio—Product categories 294 The top ten advertisers on radio—Companies 295 The shape of the Indian digital media market 336 The digital media market—The big picture 337 The shape of the Indian outdoor market 380 The shape of the Indian events business 410

Cases

Case study Cross media or across media—The sad story of regulation in media xxxv

Caselets Caselet 1a Caselet 1b Caselet 1c Caselet 2a Caselet 2b Caselet 2c Caselet 3a Caselet 3b Caselet 4a Caselet 6a Caselet 6b Caselet 7a Caselet 8a

The Digital Devastation—The American story 52 The rising power of Hindi newspapers 56 The Indian readership survey and why it is changing 59 Everything you wanted to know about digitisation 144 How to fix the news broadcasting business 149 Television and the online world— The American story 151 The diversifying revenues of Indian films 220 In film placements—A brief history 221 The new copyright act and what it means 256 Social media, defamation and libel—The legal guide 337 The rise of social media 341 Why the world hates outdoor media? 383 The encompass story 412

Foreword

For most of us in the media and entertainment industry, we chose this profession because we were excited by the possibility of telling a great story that has not been told before, of putting the spotlight on consequential moments, of inspiring the imaginations of millions. We were acutely aware of the important role of the media in influencing minds and shaping narratives. We knew too that we could help shape the story of an old civilisation and a young country engaging with each other to craft an exciting new India. The reasons to be a part of this industry continue to stay true and continue to be compelling. Without question, these are exciting times for us. The audience for our stories is growing. Our ability to attract exciting talent into the industry continues. Our interest in the world, and the world’s interest in us, is translating to compelling new relationships and alliances. And our collective appetite to experiment and take risks is enormous. All of these have translated to robust growth in each sector of this industry. It is, therefore, important to step back and reflect on what is truly important and consequential. And, in my mind, there are two important changes that are currently underway in the industry that have an enormous impact on its health and direction. The industry is in the midst of a massive buildout of a modern infrastructure that will allow its story tellers to engage new audiences across the country in formats that are old and new. This buildout is happening across a diverse set of distribution platforms including cable and satellite, fixed and mobile telecommunication networks, and digital and analogue theatre systems. The changes will create new consumption habits and behaviours; make some devices obsolete even as new ones find their place; and facilitate the emergence of new winners. Through all this, the power will continue to lie in the ability to tell a great story.

xiv  THE INDIAN MEDIA BUSINESS

But, what is consequential is that these changes also offer all of us an opportunity to get rid of many old habits that are destructive. From not being aware of our consumers to not knowing how much they are charged, from disrespecting intellectual property rights to undervaluing our content, many unhealthy habits were also the result of an antiquated distribution system. The dramatic changes currently underway offer us an opportunity to create new practices that reward participants in the value chain in a fair and transparent manner, directly proportional to the value they bring in shaping consumers’ experiences. An even more consequential issue is the one on freedom of speech. This perhaps is the only major democracy in the world where, after over 60 years of independence, there continues to be a debate on how much freedom can be given to the media. It is shocking that there are still groups and interests who continue to debate on the right amount of freedom that can be granted to media; as if this is something to be granted and as if this is even negotiable. There is a strong relationship between creativity and the space for free expression. So, what is troubling is that in a very competitive world, we are questioning the scope of free speech—one of the few real sources of advantage for us. China and Russia are way ahead of us in most areas of business and industry. But we, as a democracy, should be unquestioningly leveraging the democratic advantage that we have over them and many other competitors to become a global media and entertainment giant. All of us agree that the role of media is to question the status quo. But with the right to question must come the right to provoke and the right to offend. In the absence of these, there is no debate and without debate there is no clarity. It is time for us to recognise that free speech is what is sacrosanct, not the right to be offended. Clearly, these are consequential times for the Indian media and entertainment industry. Through her articles and columns, Vanita has played an important role in putting the spotlight on the industry with incisive research and thoughtful analysis. Her book is a valuable effort to use data and research to explain how the industry works, and the many changes that are underway. Uday Shankar CEO, Star India Limited

Preface

The book you are holding is now in its tenth year. When I started writing the first edition of The Indian Media Business, the coverage of media and entertainment was patchy. Not too many people saw it as seriously as IT or telecom. By the time the first edition hit the market, in 2003, we were on the cusp of a boom in news channels, there was a lot of excitement about the film industry, and television was a big, fat profitable market. By the time the third edition came out in 2010, every major foreign investor was here. The Media and Entertainment (M&E) business brought just under one per cent of GDP and created millions of jobs. There was no doubt that this was a serious business, way beyond the song and dance or tear-jerkers that symbolised it. The third edition was, arguably, the toughest. It took over 18 months to write. The book was templatised, two new chapters added on outdoor media and events, and a format was created that would meet the requirements of a very disparate set of readers— students, foreign investors and entrants into the industry. By that time the book had also become part of the curriculum at most major mass communication schools. So I put in lots of caselets to illustrate the variety of things happening. This edition follows the template created in edition three. It looks at each segment—print, TV, films, and so on—from a variety of perspectives. These are the business dynamics, history, regulation, the big changes and challenges the business faces, valuation norms and so on. So the book sticks to its basic premise, one it began with in 2003—that of being an in-depth, ready reckoner for anyone looking at the business. There are however four significant changes. One, I have done away with the chapters on the internet and telecom. Instead, I have added a comprehensive one on digital media. Two, I have tried to standardise the numbers as much as possible. So even though I don’t agree with the numbers in the FICCI-KPMG 2013

xvi  THE INDIAN MEDIA BUSINESS

report completely, for the sake of consistency, I have used those. Three, as several segments of the industry grow from their entrepreneurial phase into a more mature one, regulation will become more critical to facilitate growth. So, this edition does a lot more of regulation caselets than the earlier ones. Four, this edition, more than any of the others, is quite blunt in tackling the softer, more qualitative issues on ethics, paid news, ratings scandal, among other things. As usual, feel free to revert to me with feedback at [email protected]. You can follow my work at https://twitter.com/vanitakohlik. Vanita Kohli-Khandekar

Acknowledgements

My heartfelt thanks to the following people for sharing their time and insights with me. Without them this book would not have been possible: A.K. Bhattacharya—Editor, Business Standard. Anish Dayal— Advocate, Supreme Court of India • Ameen Sayani—radio professional • Ashni Parekh—media lawyer • A.S. Raghunath—media consultant • Arvind Kalia—Patrika Group. Amit Khanna—Reliance Entertainment • Ajay Sekhri—chartered accountant • Ajay Shanghavi—Metalight Productions • Ajay Bijli—PVR. Arpita Menon—Star India • Apurva Purohit—Radiocity • Alok Mittal— Canaan Partners. Amrit Shah—film industry veteran • Ashok Mansukhani—Hinduja TMT • Ajit Balakrishnan—Rediff.com •Amit Chopra, former CEO, Hindustan Media Ventures Ashok Desai—ABP Private Ltd • Amol Dhariya, director, IDFC Capital. Ajay Gupta—ABP Private Ltd • Ajay Upadhayay—MediaGuru • Arvind Kalia, national head of marketing, Patrika Group. Ashvini Khandekar—TAM Media Research Basant Rathore—Jagran Prakashan • Bhaskar Ghose—former I&B secretary • Bala Deshpande—NEA • Bharat Kapadia—Ideas@bharatkapadia. com • Brian Tellis—Fountainhead Promotions • C.A. Gupta— Deloitte Haskins & Sells. Cyriac Mathew—Mid-Day • Chandan Mitra—The Pioneer • Dinyar Contractor—Satellite & Cable TV Magazine • Deepak Choudhary—EMDI • Deepak Nanda—investment banker • G.S. Randhawa—Press Information Bureau • G.K. Krishnan—Ex-Aaj Tak • Gita Ram—Omnicom • G.P. Sippy—Sippy Films •Girish Agarwal, director, DB Corporation Hemant Mehta—IMRB • Harish Bhimani—radio professional • Hormuzd Masani—Audit Bureau of Circulations • Hiren Gada— Shemroo. Indrajit Sen— OAAI • Ishan Raina—OOH Media • Jagjit Kohli—Digicable • Jaideep Chakraborty— BCCL • Kapil Ohri—afaqs! Campus. Katy Merchant—ex-IMRB • Kalpesh

xviii  THE INDIAN MEDIA BUSINESS

Vora—Creation Publicity • Kanchan Sinha—Amarchand Mangaldas • L.V. Krishnan—TAM Media Research • N. Murali—The Hindu • Nitin Gupta—Ernst & Young • Namrata Datt—Ernst & Young • Maheshwar Peri, the head of Pathfinder Publishing. Mohan Nair—Mathrubhumi • Roop Sharma—Cable Operators Federation of India • Mr Saxena—Press Institute of India • Mammen Mathew—Malayala Manorama • Mangesh Borse—Symbiosis • Maneck Davar—Spenta Multimedia • Mohan Mahapatra—exVirgin Music • Meenakshi Madhvani—Spatial Access • Mahendra Swarup—Smile Technologies • Michael Menezes—Showtime Events • Mohit Hira—JWT • Mohammed Morani—Cineyug • Mandar Thakur—Times Music • Neeraj Roy—Hungama Digital Media. Niren Shah—NVP India. Nikhil Pahwa –Medianama. Pankaj Wadhwa—ex-Kidstuff Promos • Pradeep Guha—Culture Company • Pratap Pawar—Sakal • Pradeep Chanda—consultant • Prashant Powar—WPP • Prem Panicker—Independent journalist• Punitha Armugham—Google India • Prashant Panday— ENIL • Prakash Chafalkar—Multiplex Association of India • R.S. Narayan—ex-Star India • Radha Namboodri—AIR Mumbai • Ramesh Lakshman—RLC • Raj Singh—Ergo • Rajesh Jain— emergic.org • R.P. Singh—Sirez Group. Rajesh Tahil—Hillroad Media • (late) Rajesh Kanwal—afaqs! • Ratish Nair—AdMagnet. Roshan Abbas—Encompass • Sreekant Khandekar—afaqs! • Sanjay Gupta—Jagran Prakashan • Sankara Pillai—ex-ORG— MARG • Shyam Malhotra—ex-Cybermedia • Samir Kumar— Inventus India Advisors. Satish Shenoy—formerly with IL&FS Bank • Sameer Kale—PR consultant • Sreedhar Pillai—film expert • Shobha Subramanyan—ex-ABP Private Limited • Sanjay Chakraverti—WPP Media • Sevanti Ninan—media columnist • Shravan Shroff—Shringar Cinemas • S. Keerthivasan—ex-Fever FM • Suresh Thomas—Crescendo Music • Sunil Lulla—Times TV • Shashi Gopal—ex-Magnasound • Shaju Ignatius—entertainment consultant • Supran Sen—Film Federation of India • Siddharta Dasgupta—Blackberry India • Siddarth Roy-Kapur— UTV. Sanjeev Sharma—ex-Nokia • Sachin Kalbag—Mid-Day • S.C. Khanna—AUSPI • Sunil Rajshekhar—BCCL • Sanjiv Agrawal—Ernst & Young • Siddhartha Mukherjee—TAM Media Research • Shabiir Momin—Zenga TV. Sunaman Sood—Acendo Capital • Siddharth Jain—iRock Media • Sumantra Dutta—Star Group • Sweta Agnihotri—Big Music and Home Entertainment

ACKNOWLEDGEMENTS  xix

• Sajith Pai—BCCL • Sumeet Chatterjee—RPG Group • Tariq Ansari—Mid-Day Multimedia • Tarun Katial—Big FM • Tushar Dhingra—DHR International • Uday Singh—MPAA • Viney Kumar—IDBI • Vinod Mehta—Outlook • V.Sudarshan—Hansa Research Vivek Couto—Media Partners Asia Vijay Dixit—AIR Mumbai • Vikas Joshi—Dainik Jagran • Vikash Mantri—ICICI Securities • Vandana Borse—Symbiosis • Yash Khanna—Independent Consultant • Yogesh Radhakrishnan—ex-ETC Networks • Yogesh Shah—ex-ETC Networks My special thanks to the following people for giving me the professional and logistical support to research and write various editions of this book: A.K. Bhattacharya • Samit Sinha, Aveek Sarkar, Niranjan Rajadhyaksha, Prosenjit Datta, Avinash Celestine, Sheril Dias • Mangesh Borse, Vandana Borse • Yogendra and Namita Arora • Vijaya Khandekar.

Special Credits

Research assistant—Sinduja Rangarajan—has worked as a qualitative researcher with TNS India and with Colors (Viacom18 Media). She is currently studying journalism at University of Southern California. She tweets at @cynduja and blogs at musingmistletoes.wordpress.com.  Regulation section updated by Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath in Bangalore. He can be reached at [email protected]. He specialises in media, broadcasting and technology regulation. A huge debt of gratitude to A.K. Bhattacharya, editor, Business Standard for the permission to excerpt and quote from my work for the paper over the last five years. Thank you, AKB.

The Future of Indian Media

It is the hundredth year of Indian cinema.1 Private television broadcasting has just completed 20 years. The internet turned 18 this year. And private radio broadcasting is more than a decade old. The book you are holding is in its tenth year. This then is a good time to ask the question, where are we headed? All the research that went into this edition and the previous ones, points to three trends:

One, there will be more media and more mass media in the coming decade.



Two, the battle for scale and margins will continue.



Three, we will become a nation of local media ghettoes.2

There are other broad trends—digitisation, the spread of devices, the rise of digital media, the rising political ownership of news media, among others—which this book covers in great detail. But most of these are subsumed by the broader trends that these pages talk about. For instance, digital media too faces the same issues of scale and profitability that other media does. On then to what the future holds for the Indian media and entertainment (M&E) business.

More Media, More Mass Media and More Fun India is a hugely under-penetrated media market (see Table 0.1). Except perhaps in mobile phones and TV screens, we haven’t reached large parts of the potential market. For example, at over 60 per cent literacy levels, the headroom for growth in print is another 300 million people. So, one part of the growth will come

xxiv  THE INDIAN MEDIA BUSINESS

from the sheer numbers that haven’t even been exposed to or reached by various media (see tables 0.1 a, b, c, d and e and Table 0.2 for growth over the years). Now, look at where the money is going. While the figures in Table 0.3 don’t give a break-up, it is evident from the deals that make up these totals. The major private equity deals in the last three years have been in digitising cable, in DTH, in digital cinema, or in smaller companies which provide services to India’s fledgling digital media industry. Ad networks, payment gateways and so on are very popular with investors. The major M&A deals were Disney–UTV and PVR–Cinemax among others. They are driven by strategic reasons or a desire to scale up. Then there is the money that companies raise through debt, internal accrual and private investors. None of these get tabulated or added to the total. For instance, hardly a fraction of the $4 billion sunk into DTH shows up in the public numbers. A bulk of the investment in M&E is going into increasing the reach of print, TV, mobile and cinema. It is also going into production studios, outsourcing services, more offices, news bureaus or expansion into the Indian and overseas market. All of it has the effect of creating better media infrastructure. That is the thing most needed if we are to monetise the whole promise of being the world’s second largest TV, newspaper and mobile market, largest producer of films or one of the fastest growing internet markets. All those volumes mean nothing if we cannot monetise them. And we cannot monetise them unless we reach all the consumers who can pay for or be advertised to, at level one. Historically, there is a strong correlation between investment in media infrastructure and the growth of audience and revenues. Take a look at Table 0.5. I have used the decade between 2002, when the first edition of this book was being written, and 2012, to do a simple analysis of what happened in each media segment. Each of them has grown as money was pumped into DTH, broadband networks, multiplexes, digital theatres and so on. This growth is heartening to say the least. But, to repeat myself for the umpteenth time, I wish it had been more profitable. The US, for instance, did over $10.8 billion from the sale of 1.36 billion tickets. We did $1.7 billion from 3 billion tickets. And, mind you, Hollywood makes less than half the films we make.

THE FUTURE OF INDIAN MEDIA  xxv

Even if you choose to ignore the US, since it is a more mature and richer market, look at Brazil or Indonesia. Their TV markets are nowhere close to ours in size, but twice as profitable. You could sneer at profit, but without profit there is no ploughing back money into the business. Television is a classic example of an industry which had size but was headed nowhere till both consolidation and digitisation began a couple of years ago. (See Chapter 2—TV)

The Battle for Scale And that brings me to the second prediction—that for the coming five, maybe 10 years, scale and profitability will continue to be issues. Look at Table 0.4. After almost two decades of growth of private media, we finally have two media groups with a top line of over a billion dollars. The country’s largest telecom provider Bharti Airtel’s revenues in 2012 were 86 per cent of the size of the entire M&E industry. To repeat, the US film industry makes almost 10 times as much money for half the films made and tickets sold in India. Every investor you speak to will say that scale is the biggest issue, be it at a firm level or the industry level. Why is scale an issue? Because the industry doesn’t have pricing power. Extreme fragmentation and ad hoc regulation limit pricing power with consumers and with advertisers. The fragmentation in some parts of the media business is now legendary. There is always a cable operator in your neighbourhood willing to offer you a better deal. Ditto for DTH. Within broadcasters, hyper-competition and a heavy dependence on advertising revenues has meant that inventory of ad seconds has kept rising even as the rate per ten seconds kept falling. In 2002, we had 408 million TV viewers, about 80 channels and `96 billion in revenues from advertising and pay. At that time, operating margins were at 30 per cent or more. In 2012, we have over 800 channels, 740 million viewers and `400 billion in total revenues. But margins average between 13–15 per cent for many broadcasters. Much of this is now changing. In television, for instance, the forces of consolidation and digitisation will help improve margins as discussed in detail in the relevant chapter. More than 65 per cent of all TV viewership is now shared by five television networks.

xxvi  THE INDIAN MEDIA BUSINESS

This is bringing pricing power back to the industry. For the first time in perhaps a decade, some networks increased ad rates in 2012. On the other hand, digitisation will bring in transparency and more pay revenues. This in turn means a better handle on what consumers like and more variety in programming. In the film industry, while the production end remains largely fragmented, the retail end is reasonably consolidated, thanks to the mergers that happened last year. In the newspaper market, things are becoming clearer. In Hindi, the top five brands— Dainik Jagran,3 Dainik Bhaskar, Hindustan, Amar Ujala and Rajasthan Patrika—control roughly 60 per cent of the audience and total revenues. In English the top three groups—The Times, HT Media and The Hindu—control a chunk of the readership and revenues. More consolidation continues to happen as brands either die or are snapped up.4 You could argue that at 85 per cent, TV and print form the biggest chunk of the M&E business. If they are finally consolidating, it means that scale and profitability will start coming in. The reason for pessimism: Indian M&E companies have done well in a growth market. But their ability to build organisations, processes and systems that could handle growth is suspect. With hyper-competition and growth come ethical, business and people dilemmas that require strong, mature organisations. But time and again, Indian media companies crumble at the first sign of crisis. Some happily give up on ethics, price points or run to regulators to queer the pitch in their favour. And the large chunk of companies which do not do this, maintain a stony silence, instead of working together to fix things. So, it will be a long, painful haul before we see the emergence of multibillion dollar media companies that are truly representative of the power of 1.2 billion consumers. These will raise tricky regulatory questions, such as those on cross media regulation, tackled in the case study that accompanies this section (Case Study: Cross media or across media—The sad story of regulation in media).

Little Islands of Media The last, albeit more textural, comment is about what the growth of media is doing to us as consumers and Indians. It will make India an agglomeration of media ghettoes that may or may not talk to or

THE FUTURE OF INDIAN MEDIA  xxvii

even be aware of one another. Why is that so? All media growth is coming from going deeper into India, into more languages, regions, towns, villages and cities. Add the fact that thanks to digital technology, in TV or radio, in print or on the internet or telephone, slicing and dicing consumers has become easier. So multiplexes can time, price and schedule different kinds of films for different sets of audiences—Peepli Live for urban audiences and Dabangg for smaller towns. In the online world, I can create a news list on Twitter that feeds me news only about the business of media and entertainment. You can subscribe to an online service that offers only Carnatic music or jazz. You can buy an app that allows you to read only golf magazines. You could, post TV digitisation, be watching only sports channels and choose not to take anything else. This segmenting of the market, combined with the customisability of digital means we isolate ourselves in our languages, regions, tastes, beliefs and values. By choosing to block out other media, we block out other points of view or things that would have interested us earlier. We choose to stay with a set of people or subjects or languages that matter to us. For instance, there may be things happening in the pharma or IT businesses that I should theoretically know if I am to connect the dots. However, since I like reading only about the media business, I limit my world. Similarly, millions of us are limiting our worlds. There is no right or wrong about it. This is inexorably where the market, technology and our own proclivities as consumers are pushing us. It will turn us into insular groups of consumers who will probably not be tuned into the larger picture on anything. It is worth noting that the journey has begun.

Time spent in minutes. All India 12+

No of users ( in millions)

Time spent in minutes. All India 12+ 65

3

64

122

114

Time spent in minutes. All India 12+

No of listeners ( in millions

333

32

232

2000

No of viewers (in millions)

Time spent in minutes. All India 12+

No of readers (in millions)

Source: Hansa Research & IRS. Note: 12+ refers to age group.

Internet

Radio

TV

Press

Figure 0.1a Weekdays

65

5

63

105

110

343

31

233

2001

Figure 0.1  The Time Spent on Media and the Reach of Media

66

8

66

101

112

350

30

231

2002

58

12

80

138

108

370

29

252

2003–04

60

12

80

153

106

386

35

360

2005

61

14

74

162

95

423

30

300

2006

69

11

69

173

92

437

27

302

2007

68

14

81

178

98

460

26

320

2008

79

42

73

158

100

569

28

351

2012

Time spent in minutes. All India 12+

No of users ( in millions)

Time spent in minutes. All India 12+ 68

2

67

120

139

No of listeners ( in millions

334

Time spent in minutes. All India 12+

35

223

2000

No of viewers (in millions)

Time spent in minutes. All India 12+

No of readers (in millions)

Source: Hansa Research and IRS.

Internet

Radio

TV

Press

Figure 0.1b Sundays/Holidays

66

4

65

104

129

349

34

225

2001

69

6

68

103

129

357

32

222

2002

57

10

81

131

124

376

31

261

2003–04

59

11

83

149

122

390

37

370

2005

60

11

78

156

113

418

33

291

2006

68

10

74

166

110

431

29

298

2007

67

11

83

175

111

462

27

317

2008

81

39

78

152

117

564

30

348

2012

xxx  THE INDIAN MEDIA BUSINESS Figure 0.1c  Growth in Media All India Reach (Urban + Rural) [million] 2008

2012

12+ India

842.9

909.3

7.9

Literacy

572.3

656.3

14.7

Any Publication

323.4

353.3

9.2

Any Daily

313.4

345.5

10.2

90.7

83.0

–8.5

TV

467.4

571.4

22.3

Radio

Any Magazine

% change

180.4

159.8

–11.4

Cinema

83.3

81.4

–2.3

Internet

17.3

42.3

144.5

Source: Hansa Research and IRS. Note: 1) AIR is average issue readership. 2) 12+ refers to age group.

Figure 0.1d  Time Spent on Print Versus Reach 400 350

32

300

35

31 30

250 200

36

360

232

233

231

300

302

252

50

30

30

28 28 27

26

2001

2002 2003–04 2005

Source: Hansa Research and IRS.

2006

2007

26 24

Press No of redaders (in millions) Press Time Spent in minutes. All india 12+ 2000

34 32

29

150 100

320

351

22 2008

2012

20

THE FUTURE OF INDIAN MEDIA  xxxi Figure 0.1e  Time Spent on TV Versus Reach 650

114

120

112

110

108

550

423

450 350 250

333

150 50

343

350

370

569

106 95

98 100 437 92 460

2001

80 60

423

40 20

TV No of viewer (in millions) TV Tims spent in minutes. All India 12+ 2000

100

2002 2003-04 2005

2006

2007

2008

2012

0

Source: Hansa Research and IRS.

Table 0.1  The Indian Media and Entertainment Landscape

Segment TV Print Film Events Digital Outdoor Radio Music Total

Media Reach (million people) 765 351 81.5 na 900 na 158 na

Media Revenues (2012, ` billion) Advertising 125 150 3 na 21.7 18.2 12.7 none

Pay 245 74 112.4 na na none none 10.6

Total 400 224 115.4 28 21.7 18.2 12.7 10.6 830.6

Sources: FICCI-KPMG 2013, EY’s The Business of Experiences Report 2012, author estimates. Notes: 1) All figures are for 2012. 2) For print reach refers to readership. For TV it refers to viewership, for radio to listenership. For digital (internet & telecom), I have used the reach of mobile phones instead of just the internet which reached 120 million people in 2012. Pay revenues in digital will be the ones from VAS ones such as caller tunes etc. However since they are already added to the revenues of the respective industries such as radio or music, have left that cell blank. 3) The TV and film revenues are different from FICCI’s because of the addition of cable advertising and in cinema advertising respectively. na: not available. Data compiled and analysed by Vanita Kohli-Khandekar. This data may be reproduced only with due credit either to The Indian Media Business or Vanita Kohli-Khandekar.

xxxii  THE INDIAN MEDIA BUSINESS Table 0.2  Advertising Spend on Media (` Mn)

Year

Print

TV

Internet/ Total Radio Cine­ma Outdoor Digital (` million)

1991 10690

3900

680

70

1584

na

16924

1992 13250

3950

590

80

1080

na

18950

1993 15550

4960

680

90

1632

na

22912

1994 22390

8480 1020

100

2152

na

34142

1995 27350 13450 1340

90

4064

na

46294

1996 30470 19750 1130

110

7072

na

58532

1997 31280 25840 1360

410

8800

na

67690

1998 35030 33670 1400

500

10512

na

81112

1999 39240 39410 1450

620

11200

na

91920

2000 43160 44390 1460

700

6400

na

96110

2001 43250 45640 1760

790

6400

300

98140

2002 44240 47170 2110

790

4392

500

99202

2003 46890 50940 2270

820

5488

540

106948

2004 60348 58020 2769

984

6860

702

129683

2005 79290 67460 3600 1160

9940

1229

162678

2006 84900 60500 6000

na

11700

2000

165100

2007 100200 71100 7400

na

14000

3900

196600

2008 108000 82000 8400

na

16100

6000

220500

2009 110400 88000 8300

na

13700

8000

228400

2010 126000 103000 10000

na

16500

10000

265500

2011 139400 116000 11500

na

17800

15400

300100

18200

21700

330400

2012 150000 124800 12700 3000

Source: Lodestar Universal, FICCI-KPMG 2013 and author estimates. Notes: 1) The data till 2005 is sourced from Lodestar Media (now Lodestar Universal). From thereon the source is KPMG’s reports for FICCI Frames. 2) For cinema advertising I have used my own estimates. 3) Since the sources are varied there are several discrepancies in the numbers that I am unable to reconcile. Data compiled and analysed by Vanita Kohli-Khandekar. This data may be reproduced only with due credit to either The Indian Media Business or Vanita Kohli-Khandekar.

THE FUTURE OF INDIAN MEDIA  xxxiii Table 0.3 The Investment into the Media and Entertainment Business Year

PE Deals (` billion)

M&A Deals (` billion)

2010

165.42

263.96

2011

300.33

774.3

2012

417.55

988.32

Source: VCCedge, a data service from VCCircle. This data may be reproduced only with due credit either to The Indian Media Business or Vanita Kohli-Khandekar.

Table 0.4  The Leading Media Groups in India Revenues (` billion) Company/Group

FY 2011 FY 2012 FY 2013

The Times Group (BCCL, TV, internet and ENIL)

na

55

67

Zee Group (broadcasting, DTH, cable and news)

50.27

56.48

63.5

Star India

29.52

42

Bharti Airtel (VAS & DTH only)

29.56

37.14

42.7

30

31.2

Sony (broadcasting only)

na

61

HT Media (Group)

18.1

20.78

20.48

Network 18 (Group)

16.93

20.77

24

Sun Network

20.13

18.48

19.23

Tata-Sky

13.54

15.9

na

Hathway Group (publishing and cable)

13.78

14.98

15

DB Corporation

12.79

14.75

15.92

Prasar Bharati Corporation

10.5

11.83

15.53

Jagran Prakashan

12.47

14.02

15.25

Reliance (ADAG-media)

9.76

11.29

14.9

Malayala Manorama

7.27

9

11

Kasturi & Sons (The Hindu)

9.45

na

11

(Table 0.4 Contd.)

xxxiv  THE INDIAN MEDIA BUSINESS (Table 0.4 Contd.) Revenues (` billion) Company/Group

FY 2011 FY 2012 FY 2013

Disney-UTV

na

12.75

na

ABP Limited

na

10

na

Sources: Annual reports, company websites and officials, Business Standard Research Bureau, Capitaline, Media Partners Asia, Crisil and Indiantelevision.com. Notes: 1) The Times Group’s numbers are estimates of the total of its listed and unlisted businesses. 2) Star India includes ESPN-Star Sports which it bought out last year. 3) Bharti Airtel’ s VAS revenues are assumed at an India average of 10 per cent of the revenues from mobile services. From this figure 40 per cent, the industry average for peer-to-peer SMSes is eliminated. The remaining has been added to the DTH figure to arrive at an estimate of total media revenues. 4) The Hathway figures include the revenues for their listed cable company and estimates for the unlisted Asianet Cable and the publishing one (Outlook et al.). 5) The Reliance numbers do not account for its unlisted media businesses such as film production and gaming. They are a total of two firms—Reliance Broadcast Network and Reliance Mediaworks. The Reliance Mediaworks topline number is for 18 months. Data compiled and analysed by Vanita Kohli-Khandekar. This data may be reproduced only with due credit to either The Indian Media Business or Vanita Kohli-Khandekar.

Table 0.5  Indian Media and Entertainment—The Journey So Far Media

2002

2012

408

740

96

400

252

351

63

224

2800

3000

39

113

101

158

TV Audience size (mn viewers) Industry size (` billion) Print Audience size (mn readers) Industry Size (` billion) Films Audience size (mn tickets sold) Industry size (` billion) Radio Audience size (mn listeners) Industry (` billion)

2.1

13 (Table 0.5 Contd.)

THE FUTURE OF INDIAN MEDIA  xxxv (Table 0.5 Contd.) Media

2002

2012

21

227

Digital Audience size (mn users) Industry size (` billion)

0.5

22

Source: Hansa Research and IRS, TRAI, TAM Media Research, The Indian Media Business (editon three), FICCI-KPMG 2013. Note: 1) Audience size data on print and radio is sourced from Hansa Research and refers to audience on weekdays. For TV it is calculated on the basis on TAM numbers for 2012. 2) The industry size for all these businesses includes pay revenues across distribution platforms. 3) Internet user data has been derived from TRAI numbers. The 2002 internet user data actually refers to users in 2003, since data for 2002 was not available. 4) the Internet revenue data is the figure for digital advertising from the FICCI-KPMG 2013 report. This would include mobile advertising also. Data compiled and analysed by Vanita Kohli-Khandekar. This data may be reproduced only with due credit to either The Indian Media Business or Vanita Kohli-Khandekar.

Case Cross Media or Across Media—The Sad Story of Regulation in Media5 In 1998 the government granted industry status to the film industry. Within ten years the business grew by almost eight times in revenue, became more profitable and cleaner. This was the result of just one piece of positive regulation. Look at TV. The digitisation mandate, passed in 2011, will over the next five years clean up the whole business. More than US$2 billion will get released into the ecosystem as revenue leakages are plugged and transparency comes in. More importantly digitisation will bring choice and programming variety to TV audiences. These examples prove that the power of regulation to be a force for good is phenomenal. Therefore there is immense frustration with how few and far in between good pieces of media regulation are in India. Largely it has been ad-hoc and dictated by political (Case Contd.)

xxxvi  THE INDIAN MEDIA BUSINESS

(Case Contd.) compulsions or fear. The industry’s need for growth, the audience’s need for better prices and variety and the economy’s need for the taxes and employment this industry generates have largely been ignored. Take cross-media norms for instance. The Telecom Regulatory Authority of India (TRAI), which functions as the broadcast regulator, had done a paper on this in 2008. At the request of the ministry of Information and Broadcasting (MIB) it did another one in in 2013. Sure cross-media monopolies are worrying and several have already emerged in Tamil Nadu, Andhra Pradesh or Punjab among many other states. They could be fixed by having ownership and share of voice caps. The norms are set in dozens of countries. All we need to do is apply them to India. And in places with existing cross-media monopolies, the concerned companies have to be given enough time to reduce their holding or market share. The building of cross-media monopolies, however, is not as worrying as the ownership of media. More than a third of news channels are owned by politicians or builders affiliated to them. Many are just political vehicles, others peddle influence for builders. As a result the companies that want to make money by running a good old-fashioned news outfit end up competing with ones that have no shareholders or investors to answer to. An estimated 60 per cent of cable distribution systems are owned by local politicians. There are dozens of small and big newspapers that are owned by politicians or their family members which influence the course of several local elections. Many newspaper chains with political affiliations also own broadcast networks. Most now have internet portals. It is imperative that we discuss the political ownership of media and its impact on the nature, quality and course of debate in the country. What harm is it doing to the long term fabric of this business? Will it make it unviable in the long run, will it put off legitimate Indian and foreign investors (Case Contd.)

THE FUTURE OF INDIAN MEDIA  xxxvii

(Case Contd.) because policy could be changed to accommodate this class of owners. In 2013, the TRAI recommended, for the second time in four years, that state or central governments should not be allowed into the business of broadcasting or distribution of television channels. There has been no reaction to this. While the MIB should be looking at political ownership of media and how it violates the basic tenets of democracy it is busy trying to muscle its way into television ratings. In the last five years there have been three reports and several references to the television rating system. Sure there are issues with it. These are discussed in detail in the chapter on television. But it is an industry matter. If the government is not needed to check the box-office gross of a film or the readership numbers of a newspaper why is it needed to check the ratings of a TV channels. Let the industry fix the system. Put some pressure on it to do so, but keep away from it. Then there is content regulation. The MIB keeps making references to it though it hasn’t done anything. The selfcensorship norms in TV and print exist and are working, albeit, imperfectly. The last thing we need is the government telling us what show to watch or not. Here are some things the government could look at but is ignoring completely—rationalising entertainment tax in films, doing away with double taxation on DTH, making it easier to hire space on a private satellite since ISRO is woefully behind on meeting demand. These however are not anyone’s priority. And that brings one back to the point that media regulation in India is warped in its priorities and focus and is too ad-hoc. This is because no one body has the big picture in their head. That is why, even before we start debating cross-media norms, we need an independent-of-the-government media regulator a la Ofcom or Federal Communications Commission (FCC). There is no way a coalition government will ever be able to arrive at a consensus on cross-media or any other (Case Contd.)

xxxviii  THE INDIAN MEDIA BUSINESS

(Case Contd.) media rules that involve any control. Largely governments are either too afraid to touch media (the paid news scandal in newspapers) or love to meddle with it (content). Either way its intervention does not come from a neutral, big picture perspective. If the media a regulator is truly independent—like SEBI (Securities and Exchange Board of India) or IRDA (Insurance Regulatory and Development Authority)—it is stronger. It is backed by an act of parliament and its decisions are usually harder to challenge creating more stability.For instance the TRAI’s (Telecom Regulatory Authority of India) coming as broadcast (carriage) regulator actually helped clean up a lot of the on-ground mess in cable. This media regulator could then decide on a policy vis-avis ownership and the dozens of other issues that the industry faces. The question is which government will show the ‘political’ will give up media regulation.

Notes 1. All of these are the timelines for these media in India. Unless specified media industry, media and entertainment (M&E) industry refers to the Indian M&E business. 2. For many of you who have been reading my columns, or have been students or heard me speak at public forums, this will sound familiar, since I have been saying this for some time now. 3. Disclosure: I write a fortnightly column for Mid-Day, a paper owned by Jagran. 4. The print part is excerpted from my column Coping with Consolidation, Business Standard. December 18, 2012. 5. Excerpted in large parts from my writings on regulation in Business Standard.

Chapter 1

Print The Indian print industry’s death-defying growth will continue for a long time.

I

t is quite tiring to attend any forum to do with the print media these days.1 The talk always turns to the ‘death of print, growth of online,’ ‘the rise of social media,’ ‘smartphone and tablet penetration,’ and so on and so forth. None of these are wrong. But there are other facts that are more important. Fact one, the growth trajectory for print and online in the emerging world is completely different from that in the declining markets of the US and parts of Europe. Print in India, China and Brazil, among dozens of other countries, is growing and will continue to grow along with online and other media. At over 110 million copies sold every day, India is the second largest newspaper market in the world. It is also one of a handful of markets that is growing in double digits. Of the top 100 paid-for dailies in the world, 19 are from India, second only to China which has 25.2 Newspapers reach just over 38 per cent of Indians according to Hansa Research and the Indian Readership Survey (IRS) that it does. On the back of growth and rising revenues, some of the top newspaper groups in India have operating margins upwards of 25 per cent—a figure that American newspapers achieved at their peak (down now to 10 odd per cent). Aided by rising literacy in India, total revenue in print is slated to grow at a CAGR3 of 8.7 per cent between 2012 and 2017. It stood at over `224 billion in 2012 (see Table 0.1). Even as new advertisers come into the fray, older ones have been increasing the money they spend plus the volumes of space they buy in print (see Table 1.1a and 1.1b). Fact two, the newspaper industry is one of the most profitable and stable parts of the media business in India. Ever since India

2  The Indian Media Business

opened up foreign direct investment (FDI) in print media—and particularly in the last five years—scores of print publications, largely magazines, have been launched in the country.4 From 2010 to 2012, the Indian media business has attracted private equity and mergers and acquisitions (M&A) investment of over a billion dollars. Large bits of this have come to print.5 (See Table 0.4) This has resulted in a lot of action. The last few years have seen dozens of new editions and brands being launched. There is Ei Samay, a Bengali tabloid from the Times Group, and Ebela from ABP Limited, the incumbent in West Bengal. Fortune India and Forbes India launched their India editions; many of the Hindi papers went to Jharkhand and expanded into other languages. Jagran for instance, bought the Mumbai tabloid Mid-Day in 2010.6 The Hindi newspaper market is, in fact, going through its most competitive and exciting phase (See caselet 1b). Are we getting unduly influenced by the despair hitting the newspaper business across the developed world? Possibly. Almost every week, there are reports of dropping circulation and revenues as well as staff cuts at some newspaper or the other in the UK, Europe or the US. For example, the total revenues for newspapers in the US shrank from US$ 60 billion in 2005 to US$ 33.8 billion in 2011 on the back of falling circulation (see Caselet 1a for more details).7 The thought in everybody’s mind, therefore, is: Is this a foretaste of the future in India? Not yet, says almost every analyst and report. ‘While publications in economies like Brazil and Chile are not suffering from the immediate loss of advertising and readership experienced by many Western newspapers, and hold a generally optimistic view for the future of print, they can see their audiences moving online. News markets in Asia, Africa and South America may not have matured fully yet, but they should expect to be faced with similar challenges in the next 10 to 20 years’, says one global report.8 There are two reasons for this. One is the sheer headroom for growth given that penetration is so low. The other is that newspapers in India are delivered at home. In the US or UK, a bulk of newspaper sales come from newsstands. So there is volition involved. Till the home-delivery model works economically, it will be difficult to dislodge dailies from the family’s media basket.

Print  3

There are, however, several signs that online could hit the English paper market soon. Going by IRS data, in the six years ending 2011, while the circulation of English newspapers has gone up by over 70 per cent, readership has crawled by just 2 per cent. In the same period, the time spent on English newspaper has dropped by 6.5 per cent. The English papers then should have been the biggest investors online. Yet, for an industry that is frothing at the mouth about digital, the Indian print business has done little to deal with it. Because the core business is so profitable and large, the enormity of what the net could do has not hit them. Most pay lip service to building the digital side of their businesses but very little serious investing has happened. This is dangerous. Indian publishers can see what is happening in, say, the US or Europe. They have the luxury of time. So they could be doing much more than just putting up their newspaper or magazine online. Much of this ineptness online has to do with the mindset more than anything else. Newer publishers such as Forbes India are better at leveraging online simply because they have no legacy and no baggage. The other key challenges are those of a growing business. For instance, there is the issue of building scale. In spite of the huge amounts of cash they generate, newspaper companies have not been able to meet investor expectations on returns because scale has remained elusive. India is a hugely fragmented print market as you will read later. The best way of becoming a large-sized company is to buy out smaller rivals in cities or languages where you do not have a presence. However, Indian newspaper publishers have had very little luck with that. This is because small papers with monopolies in a few cities or a district hate the idea of giving up control over their fiefdoms. Besides the trouble with a maturing English paper market or the challenges of scale, there is a more important issue that publishers face: the corruption of content and the erosion of the currencies in the business as you will read in the following section. The paid news scandal and the print industry’s abysmally sanguine reaction to it are not good portents for both the business and the ethical health of the industry. It is also the sort of thing that gives government a convenient stick to beat print companies with.

4  The Indian Media Business

The Shape of the Business, Now Over the years, the print industry in India has morphed into something that is quite different from most markets in the world. There are several factors that set us apart. The first factor is literacy. For all our pretensions of having English as a link language, the fact is that just over sixty per cent of all Indians can read or write. An even smaller percentage is capable of reading the issues that a newspaper writes about since literacy is defined as the ability to sign one’s name. Unlike TV or radio, this factor automatically limits the growth of print. The flipside is that the English language press commands a premium because of this reason since advertisers automatically value anyone who can read an English newspaper. Of course the gap in ad rates between English and non-English publications has been narrowing. (see ‘The Way the Business Works’). This is because the evidence of the rise in purchasing power, across the country, is so solid and in-your-face that media buyers can no longer hide behind their English/Metro bias. Pradeep Guha, former President, BCCL,9 points to the second factor that sets the print market apart from elsewhere in the world: ‘In India the sense of nation is very strong. All newspaper groups have a strong national presence.’ The Times Group, The Hindu, Hindustan Times, all strive to be national papers in English. The growth for even large Indian language groups, such as DB Corporation or Jagran, hinges on their ability to offer a national or pan-regional footprint. That is not how the market developed elsewhere in the world. The US has just one national newspaper, USA Today, which is weak competition for the thousands of local papers that take away more than 80 per cent of print ad revenues. Indian advertisers, therefore, have had very few options that were local or community specific. Radio was limited to All India Radio (AIR) and TV had not yet developed. This has changed in the last few years. A whole lot of print options began developing the moment TV—and especially local cable channels—started taking off. By 1997, city- or locality-based newspapers started appearing. Third, as N. Murali, the former Joint Managing Director, Kasturi & Sons (publisher of The Hindu) says is, ‘over-dependence on advertising. It distorts the market and makes the industry

Print  5

more vulnerable to a slowdown.’ That is because there is a strong positive correlation between the growth of GDP (gross domestic product) and advertising. It is debilitating for publishers to sell for between `1–4, newspapers that cost anywhere between `15–20 a copy just to produce (this does not include fixed costs). That means that circulation brings in just about 5–15 per cent of the revenues for English language newspapers and about 30–45 per cent for language ones.10 This puts most newspapers in India at the mercy of advertisers (see the next section). While cover price cuts are common in the UK or the US (where circulation forms 40–60 per cent of revenues), these are usually short term. In India, cover price cuts have been used year after year by, say, TOI in Delhi. You could of course argue that price cuts have also expanded the print market leading to a rise in local advertising.

The Issues There are two main issues the business faces. These are structural and, therefore, difficult to tackle, but if the industry gets around to doing that, it could help increase both revenues and credibility for the medium.

Lack of Unity To understand the problems of the Indian print industry just try reading up on the American or European publishing businesses. The amount of research put out by the Newspaper Association of America (NAA), the Newspaper Advertising Bureau, the Magazine Advertising Bureau, among others, in the US is amazing. Remember that these are markets in decline. But they clearly spend large amounts of money and time in trying to convince advertisers that the medium works. Most of the research, done by professional research agencies, seeks to compare newspapers or magazines with other media on every parameter possible— reach, audience composition, efficacy, time spent and so on. In the last few years, the NAA has launched aggressive initiatives to help newspaper owners, especially small local brands, with the Internet. Some of these initiatives include appointing consultants, essentially newspaper managers, on projects in other papers,

6  The Indian Media Business

to help them figure out the net. Then there are reports, such as the Digital Edge Report, that provide a sensible step-by-step guide to building and sustaining readership. These reports, available online for free, are wonderful sources of information on the texture of the market and its extreme competitiveness. When you read them, you realise how little the Indian newspaper, magazine or even the TV business does as an industry, to either protect its interests with advertisers or lobby with the general public or government. In fact, a bulk of the research that my assistant did only came up with examples from how print could, should or is dealing with online.11 That is the first big issue that the Indian print industry needs to deal with—its ability to act as one on a variety of issues: robust metrics, standardised tools for buying and selling, lobbying for regulatory changes and a gentleman’s agreement on content. Take metrics, for instance. The two currencies of readership and circulation have been increasingly under fire from the very people who should be ensuring their good health. It is normal for publishers to jump in and out of circulation audits depending on whether it suits them to show their numbers.12 In other years, they sue, question or generally harangue both the bodies that monitor circulation and readership even as they twist the rules themselves. It is routine for newspaper publishers to despatch suburban editions from a metro if they want to show increased circulation for a metro edition. (For example, a publisher could send the Gurgaon edition from New Delhi.17) Some have even been known to try bribing surveyors of readership data. This even as the bodies that monitor the metrics are run by publishers in association with advertisers and media buyers.13 There are, to be fair, issues at the research end too. ‘Since most research agencies come from markets where newspaper circulation is declining, they have very little incentive to invest in newspaper research and measurement and make it more real-time,’ says Guha. That may be true, but the onus of demanding more intensive and authentic research rests with publishers, because they stand to gain the most from it. As the Media Research Users Council (MRUC) along with the Audit Bureau of Circulations (ABC) rethinks the way readership is measured and analysed this is changing (see section on metrics).

Print  7

Compromising Content The second is its ability—or not—to keep the forces of corruption of content at bay. This sensitive issue essentially stems from its extreme dependence on advertising revenues as mentioned earlier. Compromise could take one of several forms. The standard form  This is usually advertising intrusions into editorial space or the pure selling out of editorial for ads. Many advertisers talk openly about what they pay to get their company featured in a newspaper or magazine. Most usually expect ‘editorial support’ from the media they advertise in. It is routine for large, profitable media companies to offer such support, so smaller ones get pressured too.14 None of this was institutionalised or widespread till the paid news scandal. It was discovered that editorial pieces were paid for by politicians—who either wanted positive coverage on themselves or negative coverage on their rivals during the Lok Sabha elections from April to May 2009. In July 2009, the Press Council of India (PCI) put together a two-member subcommittee comprising of independent journalist and educator Paranjoy Guha Thakurta and K. Sreenivas Reddy of the Arunachal Pradesh Union of Working Journalists (APUWJ). It has anecdotal evidence from dozens of politicians including MPs, independents and former ministers cutting across party lines on their experiences with media organisations during the elections. Many are on record on rates, dates and publications that asked for money to cover a candidate or a party. There are politicians from Punjab, Haryana, UP, Andhra Pradesh, Maharashtra among other states. It also has depositions or representations from media firms such as Dainik Jagran, Punjab Kesari, Hindustan, Eenadu and Sakshi among others. All of them deny any wrongdoing. 15 The report had no clinching evidence against any publication. A bulk of the transactions was in cash and there were no officially printed rate cards for the packages allegedly sold by most publications. Most potential buyers were approached with a sheet of paper that had some options with the rate on it. Almost all the evidence came from the complainants and the pieces published for or against a candidate. The most significant among the draft report’s recommendations is an amendment to Section 123 of the Representation of

8  The Indian Media Business

People Act 1951. The section lists bribery, undue influence, and appeal on the ground of religion and caste, among other things as corrupt practices. The report suggests making the practice of paying for news coverage in newspapers and television channels an ‘electoral malpractice’ or an act of corruption and a punishable offence. The only reaction to this report has come from the Election Commission of India. It has sought to crack down on the ‘paid news market’. It reckons that paid news is means for candidates to overshoot on the ceiling for campaign expenses. The implications are obvious. As readers or viewers, the way we think, live, work and the choices we make are influenced greatly by our media consumption. If readers stop trusting a brand, they will stop using it, advertisers would leave, rates would fall and, eventually, so would valuation. That is the theory. In practice, it would seem that selling editorial is based on the fact that readers do not know and even if they did, they do not seem to adequately care. Media managers argue that a newspaper is just like shampoo or a packet of noodles, so editorial is fair game. Take that analogy further. Would Nestle deliberately put spurious stuff in its noodles or soups to cut costs and increase profits? I do not think so. Media companies manufacture content; the rest of it is packaging and marketing. If the content is good, the business usually does well. Some of the best news brands in the world, The New York Times, Washington Post, The Economist, The Wall Street Journal and so on, are the ones with the greatest credibility. There is no conflict of interest between having a good, credible media brand and a profitable one. It is a conflict that Indian media companies are creating in response to their pressures. In fact, Indian publishers face less pressure than their Western counterparts who are struggling in a market where people are simply not picking up newspapers and magazines. India is at least a growing market. The non-standard forms  Another via media that several media companies have hit upon is private treaties. In 2005, BCCL started buying anywhere between 5–15 per cent stakes in small to medium scale companies, such as Celebrity Fashions or Today’s Writing Products. The idea is to ‘invest’ in firms that need mass media to build their brands but cannot afford it. In exchange for the stake,

Print  9

BCCL offers a fixed amount of advertising space in its brands, TOI or The Economic Times among several others. When these companies raise money through an IPO,16 BCCL sells its stake. That is when it makes its money. In many cases, it barters not equity, but real estate or high value goods such as cars for media space. At last count, BCCL had ‘invested’ in 175 companies. This has since, become a favourite way for many media companies, not just in print, to attract advertisers. BCCL’s argument is that it is simply expanding the population of advertisers and actually getting in companies that would not have perhaps explored mass media options otherwise. That is true. In a way, BCCL is getting in an entirely new category of advertisers—small and medium companies—that would have baulked at spending in the top media brands. However, to my mind, there is an inherent conflict of interest in private treaties, whichever the media company. In a private treaty situation, a media company’s ability to make money on its exit depends— among other things—on its ability to ensure that the stock does not get negative coverage. However strong the editorial ethics and policies at a newspaper company, the fact is the temptation to either talk up the good news about a private treaty client or ignore the bad news remains. Across the industry, a hot debate rages on about this issue. However, no publishing company, for all the public posturing on how truth matters, has spoken out against this.

Falling Time Spent and Digital Many analysts will add a third problem to these issues, the dropping time spent on reading and the Internet eating away at print revenues. According to IRS data, the daily time spent reading print fell from 32 minutes in 2000 to 28 minutes in 2012 even as the number of readers grew from 232 million to 351 million. So, more Indians are reading, albeit for less time. However, this has to be juxtaposed against the time spent on other media. Given that all media in India is booming simultaneously, print has lost surprisingly less reader time (see the series of tables and graphs under Figure 0.1).

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As for the Internet, until India’s literacy, electricity and broadband problems are taken care of, it is a long way from being a threat to any media, let alone print. At last count (in December 2012), India had 127 million net users.17 This is more than 18 years after the Internet’s arrival in the country. You could argue that if TV, which depends on electricity, could reach 153 million homes and over 700 million people, why can’t the Internet? Besides electricity, the big limitation on the growth of the Internet versus TV is literacy and the ability to use computers and software. This, say experts, is a gap that mobile Internet could exploit better. The tablet already does it well. The many reading apps available on tablets have brought hope to the print market. For more details on how newspapers in the US are coping with digital, see Caselet 1a.

The Trends, Opportunities and Growth Areas Given all that is happening and the shape of the print industry in India, the major opportunities and trends are:

Outsourcing The growing belief in mature markets is that newspapers will bounce back. However, they will not do so with the 20 per cent plus margins that they are used to. And to make those sub-20 per cent margins, they will need to take steps on the cost and investment fronts. Many of these present opportunities for India in addition to the opportunities that the domestic market already offers. The shrinking of the print market overseas and the consequent axe on jobs creates opportunities in India to manage outsourced editorial, advertising or subscription work. More than half a dozen specialist firms, such as Mindworks Global Media Services, are catering to this demand. Several mainstream media companies are also exploring it. Many newspapers in the US and Europe have outsourced parts of the low-end work—pre-press, press and post-press—to save money and streamline production.18 Some newspapers are outsourcing ad production to companies in India. A nine- to 12-hour time difference allows a design firm based in India to turn over ads in 24 hours, returning them by

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the beginning of the American workday. However, outsourcing is a somewhat sensitive topic and most American newspaper and magazine publishers are loath to admit that they outsource anything.19 The other issue is that with the market disintegrating rapidly, what could they outsource? As one analyst says, if there are no people reading newspapers then the issue is not just about cutting costs, but about having newspapers in the first place.

Language Newspapers While it is hardly a new trend, the growth of language newspapers continues to surprise the market pleasantly. Hindi, Bangla, Malayalam and other languages continue to grow as competitors vie with each other to appeal to consumers in tier two and tier three towns of India. These towns are now the new growth engines of India. According to the FICCI-KPMG 2013, Hindi will grow at a CAGR of 10.8 per cent from 2012–2017 compared to 4.8 per cent for English in the same period. Other languages, which the report unfortunately doesn’t give a break up of, will grow at 10.9 per cent between 2012 and 2017. (See Table 1.2.) Hindi is actually a good illustration of the kind of hyper-competition and expansion happening in each of these markets. So do read Caselet 1b. However, the next round of hyper-growth and competition will come from markets such as Bangla, Marathi and Malayalam, which have seen a lot of action in the last two years. Also, there is significant headroom for growth in these markets. This is because against a 54 per cent share in total readership, non-Hindi language print media got only 31 per cent of total revenues. For a 36 per cent share of total readership, Hindi gets a 31 per cent share of total revenues. This gap is much lower than it was, say, a decade back. So just like Hindi has narrowed the gap between share of readers and revenues, so will non-Hindi publications.

Niche Magazines In 2011, the Association of Indian Magazine Publishers (AIM) commissioned a qualitative research through Quantum and followed it up with a quantitative one. The latter, done by Indian Market Research Bureau (IMRB), surveyed 3,600 people across 10

12  The Indian Media Business

cities. The findings, released in a series of presentations across the country in 2012 are startling. They confirm something most of us know intuitively—that we spend quality time reading magazines and it is a media that engages us much more than others. More than three-fourths of the people who read magazines do so to relax and when they are alone. More than 87 per cent of them do not do anything while reading a magazine. And magazines have the lowest ad avoidance compared to newspapers, television or radio.20 Now factor in the number of foreign publishers coming in, the number of titles launched, or the rise in ad spend.21 There are currently an estimated 6,000 odd titles competing for revenue of `16.5 billion (advertising plus pay) pie that is growing in double digits.22So, the whole ‘magazines are in decline’ thing is somewhat exaggerated. The reason magazines show poorly on readership data is because the IRS was designed for large circulation products. It catches unerringly the stagnation and decline in news magazines, which dominate the numbers and therefore the sentiment. There is a lot of growth, especially for specialised consumer magazines such as GQ, Dataquest or Cosmopolitan or for business-to-business ones, such as Power Line. Till very recently, speciality magazine publishers used existing surveys and metrics, which do not flatter them, to sell. The entry of foreign publishers such as BBC or Axel Springer and FIPP (a global magazine media association) who have tackled similar problems across the world changed that. Maheshwar Peri, the head of Pathfinder Publishing, says that FIPP pushed AIM to do the survey, a la other magazine associations across the world. For many publishers, shrinking home markets have pushed them to look at India, China, Brazil and Russia. India has the added advantage of a large English speaking population (over 100 million). Additionally, the Indian market is at a stage where publishers are looking to launch specialist titles since general interest magazines are in decline thanks to news channels and the Internet. The regulatory regime for magazines in India is pretty simple—100 per cent foreign equity is allowed for specialised titles. Publishers such as The Outlook Group, the India Today Group and ABP Limited have been launching several titles in quick succession with British, American or German publishers, among others. Brands such The Rob Report, GQ, Forbes India, Fortune, among dozens of other foreign titles, have been launched in the last five years.

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These could be licensing or franchising arrangements, joint ventures or direct launches on their own by the overseas publishers. There are hundreds of unexplored or under-explored niches in India—from pets, to children, to office décor to holidays. The coming of telecom, retail, golf and wedding magazines—among dozens of others—for special groups of consumers or speciality consumer magazines even as similar BtoB titles are launched for people in the trade is a welcome trend.23

Local Newspapers The growth of the language press has proved the latent demand and the need for news in the languages that people are comfortable with. Localisation will now move beyond just language and plug into localities, areas or even mindsets—what in mature markets is being called the ‘hyperlocal’ approach. There is already a slew of papers that offer local news—some are free, some paid for and others as a supplement of national newspapers—for example, Annanagar Times in Chennai and iNext in 12 cities across the Hindi belt. The idea is to plug into the local community and its problems and offer this local audience to both local and national advertisers. ‘The local advertiser is more demanding than the national one because he wants to see a correlation between sales and advertising, he wants those walk-ins. Once you succeed locally, you succeed nationally,’ says Sanjay Gupta, editor and CEO, Jagran Prakashan. However, there is not enough enthusiasm about local newspapers yet. According to one publisher, local newspapers don’t make enough money because advertisers don’t take them seriously. That could be either because of the outrageous circulation claims made by publishers or because it is more lucrative for the distributor to sell the paper as raddi—or waste—and make money. In fact, some of the local experiments such as Metro from Mid-Day Multimedia in Mumbai have been shuttered.

Free Publications In mature markets, free newspapers are helping stem the slide in circulation. It all began with the Swedish Metro in 1999. Now dozens of mainstream titles in the US and Europe—from Time

14  The Indian Media Business

Out magazine to the Manchester Evening News—are going free in a bid to stem falling sales. Most European newspaper groups see these ‘freesheets’ as a way of reaching new readers while offering advertisers access to a previously hard-to-reach market—young urban commuters. Freesheets are usually heavy on entertainment news and gossip. Articles are short and the tone is light. This often works. The free newspaper trend dovetails very nicely with the growth in the demand for local newspapers. Yet, not too many newspaper companies in India are keen on them. That is because the most expensive Indian newspapers retail for a fraction of what it takes to produce them. Most are, for all practical purposes, free. In mature markets, newspapers are priced because companies make money on them. In India, they are priced so that a distribution system is incentivised. This means that, by putting a price tag of `1–4 on a newspaper, publishers ensure that the retailer makes more money from selling it to a consumer than from selling it as raddi or for recycling. This happened a lot in the 1990s. To show increased circulation, many newspapers cut prices. This created a situation where hawkers kept taking additional copies because they could make more money by selling them as raddi (recycled paper). So, even while the newspaper was not being read, it showed circulation increases. (Raddi, incidentally, is a completely Indian concept.)

Tabloids By the end of 2012, more than 100 newspapers across the world had moved from broadsheet format to compact, Berlinner or tabloid. The last big brands to do that were The Age and The Sydney Morning Herald, from Fairfax Media. This was done primarily to cope with falling circulation, to cut costs and also to appeal to younger audiences. The reshaping has had some impact on circulation. The Times in London, and The Independent, both saw double-digit circulation rises, but this was in the short run.24 In the long run, the decline in sales has continued. In India, MidDay is probably one of the oldest tabloids. In 2007, Mail Today was launched in tabloid form. In the same year, the financial daily Mint (from HT Media) made its appearance in the Berlinner format. Besides upsetting printing schedules and making it

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more convenient for people to hold the paper, how size impacts either revenues or profits is hazy. In the UK market, one clearly identified downside of cutting size is that a tabloid delivers 10 per cent less saleable advertising space than does a broadsheet. The long-term impact of going smaller is not clear.

Other Media The rise of the Internet, mobile and other media offers publishing companies growth opportunities. Many are investing heavily in outdoor, events and in radio because the local connect is stronger. It becomes easier to get a national advertiser with a large footprint, but who wants specific local solutions. Adding, say, hoardings in Kanpur to the local edition and a brand activation or two, helps a newspaper charge a premium or get a larger share of the advertiser’s wallet.

The Past The Beginnings James Augustus Hicky, a ‘rambunctious and irreverent Englishman’, gave India its first newspaper in January 1780.25 The weekly Bengal Gazette, also known as Hicky’s Gazette, was a rag of sorts with gossip about English society in Bengal, the centre of the British East India Company’s existence at that time. More than a year later, in June 1781, he was in jail for defamation. Undaunted, Hicky edited his paper from jail and his audacious column continued to appear. After a second prosecution in 1782, his press was confiscated and his career as an editor came to an end. If that seems to have been an unpromising beginning for India’s publishing industry, it was not. Here was an Englishman with the impudence to question the governor general and chief justices appointed by his own country. Hicky symbolises, in many ways, that essential element of a vibrant print industry—freedom. Combine that with the other element—that of government censorship and control. Across the developed and developing world, the history of the press is littered with examples of governments

16  The Indian Media Business

trying to browbeat, scare, cajole and bludgeon the freedom that the Hickys of this world want—to write what they think—for the people who want to read it. In the end, this freedom survived. It did so partly because there was a business in selling books, periodicals, newspapers, pamphlets, fliers and other such material to people. It survived because people paid good money to read them. It thrived because other people—advertisers—paid even more money to reach the people reading them. This happened in spite of government attempts to choke newsprint supplies, to cut off power to newspapers or to censor them outright, as for example, during the Emergency (1975–77). By the time the first newspaper was launched in India, printing was a booming industry elsewhere in the world. The Chinese who invented ‘moving metal type’, printing somewhere around 970, did not find much use for it.26 Neither did the Koreans who apparently invented it in the 14th century. The Chinese language is based on approximately 40,000 distinct ideographic characters. The Chinese found that traditional woodblock printing was easier to handle such a complicated script. The Koreans came to the same conclusion and they too abandoned the movable type technology. No wonder then that history crowns Johannes Gutenberg of the German town of Mainz as the inventor of printing. In 1455, with the help of a ‘movable type press’ based on the winepress, the Gutenberg Bible became the first substitute for the handwritten or manuscript book. It took two years to complete and the business of printing took off. The first big customer was the church, which wanted copies of religious publications in the form of pamphlets, books and booklets, usually in Latin. In India, after Hicky’s Gazette, came a succession of newspapers and periodicals, several of them out of Bengal and many created by Englishmen. There was the India Gazette, another weekly from B. Messink Welby and Peter Reed in 1780, and the Calcutta Journal, a bi-weekly from James Silk Buckingham in 1818. The first Indian-owned, Indian language newspaper was launched—rather appropriately—by the noted social reformer, Raja Rammohun Roy, in 1820.27 Sambad Kaumudi was a weekly Bengali newspaper. Between 1780 and until India’s independence in 1947, more than 120 newspapers and periodicals were

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launched in almost every Indian language: some were owned by Englishmen, others by Indians, and still others by missionaries. Almost all of them began with a cause—either to speak out against British imperialism or to spread the message of Christianity among the ‘natives’. None of them, it seems, had making money as its primary objective.

The Pre-independence Years India, in those days, was struggling to discover its identity and fight British rule. The need of the hour was to spread the message of independence. Newspapers sprouted all over the place—and shut down with equal speed. Many editors of defunct newspapers usually managed to get the funds to start another one. Roy started the first Indian-owned English daily, Bengal Gazette, in 1816. When the newspaper shut down, he launched Sambad Kaumudi, which shut shop in 1823. Before that, in 1822, he started the Persian weekly, Mirut-Ul-Akhbar (Mirror of News). This too shut down eventually. Another of his publications was the religious Brahminical Magazine brought out to counter missionary propaganda. In the south, The Malayala Manorama, now one of the largest selling dailies in India, began as a weekly in 1888. The first editorial, recalls Mammen Mathew, managing editor and grandson of one of the paper’s founders, was about free education for untouchables. It was distributed by boats or cars borrowed from rich family members. For over nine years between 1938 and 1947, the Diwan of Travancore shut down the newspaper because of its demand for an independent Travancore. It was only because the family owned a rubber factory and a bank, among other businesses, that the newspaper was able to re-launch in 1947. By 1953, Malayala Manorama had a circulation of 35,000 copies but was still not making money. ‘Till the sixties it was a hand-to-mouth existence,’ says Mammen Mathew. That’s when one of the family decided that it was necessary to be profitable. This essentially meant an emphasis collecting ad revenue.28 The aim of these newspapers was always a cause, a revolt, a message, and a tool to counter propaganda or spread some of their own. Many of the top publications today are the ones that have lived through the freedom struggle. Times of India (TOI), Mumbai

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Samachar, Malayala Manorama, AnandaBazar Patrika (ABP) and The Hindu, among others, are all veterans of the Indian freedom struggle. It is ironical that these cropped up and played a role in bringing down the British Empire in what was then, a largely illiterate country. Many were financed by benevolent or patriotic businessmen or through public donations. Even after Independence, most had a cause to see to the birth of a nation and to watch over it in its early years. Several wealthy businessmen continued to support these newspapers. They could afford to do so because most had other successful businesses: for example, the Goenkas who owned Indian Express also owned real estate. For a very long time, the Indian newspaper industry could not or would not get out of the ‘I am here to fight a battle, not to make money’ mindset. While it was one thing to have that approach during the fight for freedom, things continued that way for decades after India had achieved independence. Because they were family owned, newspaper firms never looked beyond their own general reserves and the owner’s limited vision for growth. Though most dailies in the US, for example, also began as family-run businesses they soon grew, became profitable, raised money, listed on stock exchanges, expanded into other media and did all the things that Indian publishing could not.

The 1950s The only recorded instance—of a look at publishing as a business— that I came across was in the First Press Commission’s report (1953). Appointed by the Indian government to look at press laws in the light of the country’s freedom, the commission took a detailed look at the capital invested, returns generated, revenues and costs of newspapers. However, like many other things, the report is a product of its times. The heavy influence of socialism—and the notion of protecting anything small against anything big—is in evidence throughout the report. It talks about trying to limit the growth of large metropolitan newspapers. There is a proposal to make it mandatory for large newspapers to increase their price when they increase their pages. This proposal later morphed into the Newspapers [Price and Page] Act.29 For some sense of what the thinking was in those

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days, sample one comment from the report: ‘The great advantages possessed by the metropolitan press has tended to draw away from the districts the talent that might have gone into the development of a local press. We do not consider concentration of the press in metropolitan cities a desirable feature, however inevitable it was in the early stages.’ The meat for this book, however, is in some interesting tidbits in the chapters on the economics of newspapers and capital investment. A sample of 127 dailies had total revenues of `110 million. The split between circulation and advertising revenues was a healthy 60:40. It showed that the industry was not completely advertising driven and that readers were paying the bulk of the cost of producing and selling a newspaper. Currently, on an average only 5–15 per cent of the revenue of an English newspaper is recovered from circulation revenue. Advertising is the biggest and only alternative source for most newspapers. A few things remain constant. It was an owner-driven, capitalintensive, long-gestation business and it remains that way. Out of 47 companies (for which the commission had figures) only the 19 that were more than 15 years old gave a return of more than 10 per cent on capital invested. As a whole, the industry generated a profit of `0.6 million or less than 1 per cent on a capital investment of about `70 million. The calculation may look rather simplistic. However, it provides a rough and ready indicator of what the industry looked like in 1951, the year for which these statistics were calculated. Why then did proprietors continue to remain in the business? According to the Press Commission’s report, there were two reasons. One, because the rest of the industry was flush with post-second-world-war profits which were parked in various businesses. Print was one of them.30 Two, as the Commission put it, money also came in ‘from persons anxious to wield influence in public affairs. The fact remains that as an investment a new newspaper undertaking does not look very tempting.’ Many of the things the Press Commission said in its 1953 report remain true today. Newspapers continue to be a capital intensive, long-gestation, low-return business. So why do people continue to be drawn to it? As before, there are two reasons for that. First, if you are the leader in the newspaper business you tend to get a disproportionate share of revenues and profits. BCCL,

20  The Indian Media Business

which publishes India’s leading English daily TOI, generates anywhere between 25–35 per cent in operating profits. In the financial year 2011–12 its profit after tax was `5.71 billion on a revenue of `48.52 billion. The second reason remains the same as that in 1951. Newspapers are still treated as tools of influence. The actual losses of the business, when weighed against the power it gives a business house or an individual in the corridors of ministries, seems to be a small price to pay. You could actually say that lobbying would have meant spending at least that much money. This is evident in the fact that while the Registrar of Newspapers for India (RNI) has more than 86,754 titles registered with it, only 1,000 are members of the INS. The number of Audit Bureau of Circulations (ABC) members is even fewer at 411.31 Every serious publishing house is a member of these bodies. Many companies and people just register a newspaper title. They then use it for purposes other than to make money from the newspaper.32

The 1960s and the 1970s The ‘business’ of publishing was also a difficult one to be in. The low returns and high capital investment in the business were combined with an acute shortage of the primary raw material, newsprint. Many major events in the business can be correlated with the rise and fall in newsprint prices.

Tough Times To this, add tight governmental controls on it through the Newsprint Control Order of 1962. It acted as an indirect hold over the industry. There were quotas based on the number of pages a newspaper or magazine had and its circulation. Every few months, publishers had to apply to the RNI for newsprint quota with a chartered accountant’s certificate as proof of circulation. Publishers tried to get their quota increased through all sorts of means, say insiders. Even if a publisher got a big quota, under the control order, only 30 per cent of his total requirement could be imported and that too only through the State Trading Corporation. The remaining 70 per cent had to be purchased from domestic, usually state-held

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newsprint producers. Most of these sold poor quality newsprint at the landed price of the imported material.33 Then there were the problems of importing printing machinery, a nightmare, with duties as high as 100–150 per cent in some years. The cost and headache involved, and the other sundry permissions required from the Reserve Bank of India (RBI) and the RNI ensured that importing the equipment never ever paid back in increased efficiencies. There were also arbitrary levies on newsprint, a wage tribunal that mandated salaries, so on and so forth. Get a publisher to recall the 1960s and 1970s and all he will talk about is what a nightmare it was to simply get the newspaper out every morning. Investing in technology, systems, people and expansion was beyond the scope of what they were occupied with in those days.34 The other indirect tool was the Press Council, a statutory body formed during Indira Gandhi’s regime. Her father, Pandit Jawaharlal Nehru, clearly did not want to mandate the formation of a press council. As prime minister, he believed that even a bad press was acceptable as long as it was free and self regulated. The first Press Commission had suggested a mandatory Press Council, but the bill never got past the Lok Sabha, and finally lapsed before being revived during the Indira Gandhi years. Her government’s time was marked by political, social and economic turmoil, much of which was blamed on the press. All of this culminated in the Emergency declared on 25 June 1975. One of the tools to harass the press then was to cut off the power supply to Bahadur Shah Zafar Marg, New Delhi’s Fleet Street, which houses some of the largest publishing companies in India. The next 18 months saw the most humiliating period in the Indian press history. During this time, several laws were amended and others passed making it almost impossible to criticise anything that the government did. The censorship meant newspapers could not report what was actually happening. This gave birth to underground magazines reporting on the realities of India.35

Growth, Change and Languages The transformation of the publishing industry into a business began post-1977, after the Emergency was lifted. The Janata government, which came to power in the post-Emergency elections,

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repealed most of the regressive laws. Across the country, people bought more newspapers because they wanted to know what had happened in the preceding months. The best account of these years is recorded in a series of 11 essays on the language press and a book, both by Robin Jeffrey (2000). In the essays and the subsequent book, Jeffrey traces the growth of the Indian language press from 1977–99.36 He puts it down to three factors: the growth of literacy, the rise of capitalism and the spread of technology. The last refers to offset printing technology coupled with communications technology that allowed the use of facsimile or satellite editions. The 1970s and the 1980s are littered with examples of new companies and brands that hastened to tap into this growth and make money. Ramoji Rao was clear from the beginning that he wanted a newspaper for Andhra Pradesh that would bring local news to local readers. He already had several successful businesses—Margadarsi Chitfunds, Priya Pickle as well as hotels. When he decided to launch a newspaper from Visakhapatnam in 1974, Indian Express’s Andhra Prabha was the leader with 74,000 copies. The second newspaper, Andhra Patrika, was losing circulation. In 1975, when Rao’s Eenadu was launched in Hyderabad it divided the city into target areas, recruited delivery boys three months before publication and gave away the newspaper free for a week. In each subsequent town that it was launched (Tirupati, Ananthapur, Karimnagar and others), the newspaper was marketed in an interesting new way. By 1978, within four years of its launch, Eenadu had surpassed Andhra Prabha’s circulation. By 1995, two rivals—Andhra Patrika and Udayam— had folded up and Eenadu commanded 75 per cent of the audited circulation of Telugu dailies.37 Meanwhile, in 1979, Mumbai saw the launch of its first successful afternoon daily, Mid-Day, which eventually led to the closure of TOI’s Evening News. The 16-page tabloid was priced at 25 paise.38 It was successes such as Mid-Day and Eenadu that pushed other proprietors to invest in offset technology, satellite editions and distribution to improve circulation. The old set of proprietors finally began to view their publications as a business while the newer ones looked at it as nothing but that. It seems rather obvious today, but remember that we are talking about a time when editorial, marketing and circulation operated on different planets. There

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was seemingly no connection between what people wanted to read and how the product was to be marketed or sold.

Magazines Take Off ‘With India Today (launched in the mid-1970s) independent magazine publishing got a boost,’ says Maneck Davar, owner of Spenta Multimedia. Till then, the idea was that only big publishing houses had the financial muscle to launch their own magazines. India Today, together with Sunday, Stardust with Savvy, Debonair and Society set off a trend of sorts. These magazines took off because they offered much more than the staple political fare that the newspapers of the time did. They gave readers a mix of features on politics, films, home, women and lifestyle. A lot of this was in colour, then a new element. It also made a huge difference to how much advertisers and readers were willing to pay for the same product. Chitralekha, a small Gujarati magazine, was one of the first to take to offset printing in the late 1970s and got its first computer in 1981. As a result, it could take colour ads and pushed up its cover price from 60 paise to `1.80. ‘It paid rich dividends,’ remembers former associate publisher Bharat Kapadia.39 The quality and newsiness improved and deadlines shortened. A cover story that had to be released 10 days prior to hitting the stands could be sent in for printing five days earlier. Magazines could be more ‘newsy’. It also gave the marketing department the flexibility to accept a colour ad closer to the press deadline. Sensing an opportunity, newspapers launched supplements in black and white and colour. ‘Colour,’ thinks Cyriac Mathew, chief operating officer, Mid-Day Multimedia, was ‘the next big revolution for newspapers.’ The Saturday Times, The Sunday Review, Brand Equity and a whole lot of other colour supplements were a response to the success of general or specialised magazines around 1990. Eventually, they did help newspapers suck back ad revenues from magazines. It was an indolent time. The business had the luxury of time to deal with its own problems. That is because TV had still not taken off in India. Roughly, 80 per cent—may be more—of the total advertising spend in 1980, went to print. Doordarshan (DD), radio and cinema got the rest.

24  The Indian Media Business

The Samir Jain Years Tariq Ansari, Managing Director of Mid-Day Multimedia, joined his father’s newspaper business in 1983. When asked to name the big milestones in the newspaper business in India, he immediately mentioned the entry of Samir Jain. It is an opinion cutting across publishing companies that the biggest change in the ‘business’ of publishing came with the entry of the reclusive Jain. Most young newspapermen who took over their fathers’ businesses in the early 1990s use Jain and BCCL as benchmarks of what they want to achieve. The story of how he used simple marketing principles and good business sense to transform the down-in-the dumps publishing company into a profit machine is documented in a cover feature that Businessworld magazine did in 1995.40 From `47 million in 1987–88, BCCL’s profit before tax jumped to `1.3 billion on revenues of `4.79 billion in the 12 months ended July 1994. Currently, BCCL is one of India’s largest media companies at `48.52 billion in revenues and `5.71 billion in profit after tax in July 2012.41 ‘The Jains were the first to look at return on investment, pricing, promotion. That’s their outstanding contribution to the business’, thinks Ansari. While many publishers criticise Jain for starting the price wars and eroding circulation revenue, most followed his lead. They added more colour, pushed up circulation, added more finesse to their marketing efforts and reaped the benefits. Many Hindi dailies like Dainik Bhaskar, Dainik Jagran and Amar Ujala took several leaves out of the TOI book. ‘In the ’90s we went into expansion and for the first time saw profits in millions,’ says Mammen Mathew. Adds Murali of The Hindu, ‘The business mentality started creeping in in the ’90s.’ G. Krishnan, the former CEO of TV Today Network and an old TOI hand, remarks, ‘Till then the market was driving media; by the late ’80s media started driving the market.’ ‘It [price cutting] spread like a disease. But the flipside [of Jain’s contribution] is that newspaper managements woke up,’ adds Shobha Subramanyan, formerly of ABP. Through his utter devotion to the bottom line, Jain managed to bring about a mindset change desperately needed at that point. His timing was impeccable. It was not only Jain’s example that other newspaper proprietors were following. The post-liberalisation air was also opening up opportunities for them. By 1992, both newsprint and printing machinery were placed under the

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open general licence, making their import easier.42 Add to it one other fact. Advertising too was changing hands with multinational corporations (MNCs) taking charge of the ad industry. Says Subramanyan, ‘They [the foreign agencies] had a different mindset.’ It was one that matched TOI’s. As an aside, also notice that the industry was so busy discovering the business of publishing that it missed the opportunity of the future—TV. It was during these years that cable was taking off in India, but except for BCCL, Living Media and Business India, nobody saw an opportunity in broadcasting or cable. It took a CNN and a Star TV to make publishers realise the potential in broadcasting. Many then scrambled into it—Hindustan Times, Eenadu and Living Media, among others.

The Satellite TV Years When satellite TV finally took off in 1995, print was growing— in editions, products, revenues and size.43 It had a dominating 70 per cent or so of the advertising market. Rate negotiations were unheard of. However, TV did eventually change the press. ‘Television changed the concept of news in print and because television is good at certain things, print had to adapt,’ says Vinod Mehta, the former editor-in-chief, Outlook Group. TV made newspapers less newsy. They could not just report the news; they had to offer analysis and informed opinion on it. Besides news, TV was also eating seriously into the share of entertainment reading. With TV broadcasting the news, in addition to entertainment, sports and a whole lot of things, general interest magazines suffered. And special interest ones took off. By the end of 1992, on the back of the primary issue and technology boom, specialised magazines were picking up speed. A&M, Dalal Street Journal, Dataquest and Health & Nutrition, among a host of others, sought their readers and actually managed to expand the market.44 By 1997, however, things started going wrong. The ad industry went into a slowdown; TV began eating into print’s share of the audience and ad-spend. Newsprint prices started rising again. Print companies reacted by pushing up ad rates. That year also saw another trend—of local print brands taking off across the country. While national newspapers took a share of it with city and suburban editions, local newspapers too jumped into the fray.

26  The Indian Media Business

The FDI Years In India, proprietors’ love for their stake in the company has proved to be stifling. Most of them are used to dominating small regional markets and have long been protected from any competition except from domestic companies. That is, of course, part of the heritage of having newspapers that began as nationalistic vehicles. Add to it the fact that a 1955 cabinet resolution did not allow foreign investment in print. In any case, most publishers did not even feel the need for capital since other businesses were bankrolling this one. It was when expansion became an imperative in the early 1990s that the clamour for allowing foreign capital went up. In 1993, when ABP wanted to tie up with the Financial Times, it made a proposal to the government, and the debate about allowing foreign money in print started all over again. When media valuations were running high in 2000, some like Mid-Day decided to offer their shares to the public. When Mid-Day’s public issue was about to hit the market in the early part of 2001, rather belatedly the government realised that FIIs too could trade in its shares or pick up at least 40 per cent equity. Overnight, the RBI changed norms to disallow FIIs from investing in publishing companies. Finally, under pressure from many publishers, the government allowed 26 per cent FDI into Indian print in June 2002. Since there were too many restrictions, which meant not too many investors came in, this was liberalised further in 2005. That is when FIIs were allowed to be a part of the 26 per cent foreign cap. These two decisions set in motion the process of thinking about surviving in a competitive—rather than a protected— environment. Meanwhile, a generational shift was taking place across the country: young blood had begun taking over the business. From Malayala Manorama in Kerala to Jagran Prakashan in Uttar Pradesh, almost every major publishing company in India has seen younger managers, usually the sons, nephews or heirs of the publishers taking over. Many of them had been educated abroad and wanted to grow their businesses. It was a young Samir Jain who had taken over an ailing BCCL in 1986 and transformed it into one of India’s largest and most profitable media company. This transformation was being repeated in almost every major publishing house in India.

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These young print barons actively sought expansion, capital, partners and competition, something their elders, brought up in a different era, did not. The first big investment in print came in 2003 when Henderson Asia Pacific Equity Partners picked up a stake of over 19 per cent in HT Media for about `1 billion. Others like Business Standard–Financial Times45 and Jagran Prakashan– Independent followed. It was Hyderabad-based Deccan Chronicle Holding’s primary issue in 2004 that gave the market a big impetus. Its issue was oversubscribed 9.5 times.46 In August 2005, HT Media raised `4 billion and made it to the top 10 media IPOs in Asia over 2004 and 2005.

The Way the Business Works The Variables The numbers for revenues and costs, and, therefore, margins in publishing, depend on several factors:

Position This variable applies to most if not all media—the number one or two in a market get a disproportionately higher share of revenues. The number three and four usually just about survive. For instance, in Mumbai, the market leader, TOI, gets the lion’s share of ad revenues directed at the city. Hindustan Times, MidDay or DNA do not yet get a decent share of the ad pie. The same is true in virtually all the other cities.

Language The whole cost–revenue equation changes drastically from English to other languages and even within languages at times. The typical circulation to readership ratio in English is 1:1.5 or 2, whereas in Hindi and other languages it is 1:4 or more. Add to this another fact: most language publications like Malayala Manorama or Dainik Jagran have a very high circulation. This in turn means extremely high printing costs. Typically, even top

28  The Indian Media Business

language brands cannot charge more than, say, one-third the ad rate of an English language publication. According to one statistic, an English reader is valued five times more than a Hindi reader and 13 times over a non-Hindi, language reader. This is largely due to a perception of better demographics.47 Language papers recover money by having a cover price that gives them at least 30–45 per cent of their revenues. English newspapers on the other hand get only 5–15 per cent of their revenues from their cover price. Language publications are bigger and faster growing. Going by IRS 2012 data, the largest selling Hindi newspaper, Dainik Jagran, has more than 16.5 million readers while the largest selling English daily, The Times of India has 7.6 million readers.48(See caselet 1b).

Newspapers versus Magazines Again, the whole cost–revenue equation changes from newspapers to magazines, because everything from the quality of paper, to frequency and depth of content changes. In 2012, at `16.5 billion in revenues, magazines had, roughly, a 7 cent share of the overall print industry. In general, the magazine business has been under attack largely because newspapers have taken over many of special features that magazines earlier offered—in-depth coverage, opinion, analysis. For example, general news magazines are the ones most hit by the boom in news channels, Internet and mobile news outlets. As a result, the overall reach of magazines declined from 90 million in 2008 to 83 million in 2012. This, however, includes only mainstream magazines. Speciality consumer magazines or BtoB titles have in fact led the growth of magazines in India in recent years.

The Economics Costs The cost of producing a newspaper or magazine depends on the number of pages, the extent of colour used, the quality of paper, circulation, and the degree of competition in the market, among several other factors. These could change from year to year. The typical cost heads are:

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Production/printing  These are variable costs which vary with the size of the print run. Newsprint forms 50–60 per cent of the production cost, and its prices oscillate anywhere between US$ 400 to 1,000 per tonne, depending on demand. The more the number of copies printed, the more money is lost—unless every jump in circulation fetches an increase in advertising revenues that is more than or equal to, the rise in printing costs.   Typically, advertising revenues have subsidised the real price of newspapers for readers. According to one calculation, a newspaper costs anywhere between `15 to `20 to produce, but it sells for Re 1 to `4.49 Assume that it sells for Re 1 to `2.50 like most English dailies. That would bring back roughly Re 0.6 to `1.5 back to the publisher’s kitty after taking out trade commission. In the years that the ad spend on print was growing slowly, there was no incentive to invest in circulation for it would eat into profits. Many leading newspapers and magazine companies deliberately cap circulation. It is routine for publishing companies to drop in and out of ABC in the years when newsprint costs are high. Those are the years they do not spend on increasing circulation.   A distinction has to be made here between language and English newspapers. Paradoxically, though the former reaches a less affluent audience, the cover price is higher. This could range between `2.5 to `5 depending on the language and also on whether it is a weekend edition. This is because even with higher circulation, the ad rates they can command are significantly lower than those for English newspapers. The actual proportion varies across brands, languages and regions. English newspapers usually get anywhere between 25–50 per cent more on cost per thousand, according to one estimate.

People costs  What remains more or less fixed is staff costs and other overheads. Roughly, people costs vary between 12–20 per cent of revenues depending on whether it is English or an Indian language publication. Over the past few years, however, as more brands have been launched and competition has increased, there has been a shortage

30  The Indian Media Business

of people in the business. As a result, people costs have gone up by about 2–4 times of what they were in 2006.



Marketing costs  This is a new imperative in the age of multiple editions and multi-media competition. To ward off competitors within print and from TV, radio or other media, it is crucial that a brand creates its own identity. A magazine such as Time Out does not only compete with Delhi Beat or First City, its main rivals in the magazine business. It competes with the weekly supplements of mainstream newspapers. So, Delhi Times, Mumbai Times or Mumbai Mirror are active competitors. When it comes to the advertiser’s priorities it competes with everything from NDTV Good Times, a lifestyle channel, local cable channels, local radio stations and outdoor media. Further, when it comes to the reader’s attention, it fights with anything—general magazines, TV channels like Star Plus or Zee TV or even a visit to the theatre. The battle is for the reader’s time. To get more of it, Time Out has to stand out. It has to offer a compelling reason to be bought and read, which is where marketing helps.

Distribution costs  This includes trade margins and the cost of returns or ‘unsolds’ (the copies that come back). Mumbai has an estimated 70 depots or points where newspapers are dropped. There are an estimated 10,000 stall owners and hawkers who pick up the newspapers from the depot when they are dropped there, usually around 3 to 3:30 in the morning. Hawkers then pass the papers on to line boys who drop the newspaper in homes, usually by 6 to 7 am. This is called ‘line sales’ in industry parlance.   The hawker who collects the money from readers’ homes usually pays the salaries of the line boys. The hawker, in turn, makes anything between 18–25 per cent on the cover price of the newspaper. The commission could vary according to the publication, the area, the city and the norms there. It could be significantly higher if the newspaper or magazine is not an ABC member and therefore not subject to its rules. The unsolds are a regular part of the business; the average volume of these returns varies between 1–5 per cent depending on the city and its trade

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norms in the case of newspapers. In magazines, unsolds could be as high as 10–25 per cent, moving progressively upwards as the frequency of the magazine increases.   According to one analysis for large publishing brands such as TOI and Dainik Jagran, selling and distribution expenses are roughly 7–8 per cent of gross sales.

Revenues Revenues essentially come from the following: Circulation  This is the money brought in from the cover or retail price of a magazine or a newspaper after deducting trade margins and the cost of unsold copies. The ratio could change depending on a number of things—circulation, language, price and frequency. Advertising  About 80 per cent of a publication’s revenues come from advertising, and the rest from circulation. This again could vary by language, frequency, price, the market it addresses, and so on. The best way to look at ad growth is to look at both advertising rates and volumes. Subscriptions  Inspired by publications like Reader’s Digest, magazines such as Outlook or Femina launched high-profile subscription schemes. Earlier, these were treated as a revenue stream. The fact is that most subscription schemes are subsidised with free gifts. While they do bring in cash they also involve a huge cost, of more copies to be printed, transported as well as the cost of marketing the subscription offer. So, subscription schemes are really about buying circulation—unless the magazine is actually making a profit on every additional copy sold to the subscriber, which it does not. Most subscription schemes are used to ramp up circulation numbers and demand a higher rate from advertisers.

Brand extensions  There are several ways in which a magazine or newspaper can extend the same brand to tap into different revenue streams. These include, among others, events, TV programmes, compact discs

32  The Indian Media Business

(CDs), seminars, roundtables, syndication of content and education. This is especially true for specialised magazines or papers. ‘For us they started off by helping the print brand grow, now they contribute to the top line and bottom line,’ admits Shyam Malhotra, former director at Cybermedia, a specialist technologypublishing firm. In many specialist media companies, brand extensions could bring in anywhere between 30– 50 per cent of revenues. Internet/Mobile/Apps  Most Indian newspapers and magazines have been ramping up their Internet and mobile presence to generate revenues using their original content. However, both are not yet significant contributors to revenue except in the case of BCCL where the Internet brings in under 10 per cent of the total revenues for the company.

The Metrics The Backdrop There are all kinds of metrics used in the publishing business— to measure the efficacy of a brand or a title from an advertiser’s perspective and to measure the efficacy of the business from an owner’s perspective. The latter will be tackled in the section on valuation; here, we will look at it from the advertiser’s point of view. Until satellite TV took off in 1992, buying and selling space in newspapers was a simple affair. A media buyer had to figure out which market a brand was addressing. He would then advertise in the leading dailies and magazines in that market and decide on how best to spread the budget among them. The media, in order of importance were: dailies, magazines and DD, remembers Apurva Purohit, who entered the business in 1991.50 Purohit was a buyer for many years. Since the magazine boom was still going strong, the real analysis took place while buying magazines. ‘Should I take the cover story or the back cover, is there an editorial fit between the magazine and the brand,’ are the kind of decisions Purohit remembers making. Innovations that would make an ad stand out in

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a magazine were just about beginning to happen. For a skin-care product, one brand attached a tissue for readers to test how clean their skin really was. ‘We used to analyse magazines then the way we analyse niche channels,’ remembers Purohit. In the late 1980s and early 1990s, buyers did not negotiate with newspapers: they usually took whatever rate they offered. ‘Print used to be the toughest to negotiate with,’ remembers Gita Ram, another former media buyer. A big media buyer like Hindustan Unilever Limited (HUL) probably got a discount for signing a contract. A contract meant that it was committed to, for example, ads of 2,000 column centimetre (cc) in a certain publication for a year. This meant that it could get a bulk discount. The only ones offering discounts were the magazines, which usually walked away with all the colour advertising throughout the 1980s. The big difference between then and now is the respect that language publications have gained. As late as the early 1980s, Indian language magazines or newspapers did not get colour ads. This was because media planners dismissed the purchasing power of the people who read these publications.51 Though English continues to command premium ad rates, language publications carry far more weight than they ever have. One big similarity between then and now of course remains: dailies were and still are the most powerful vehicles to advertise in. That, maintains Purohit, remains unchanged. ‘If I was to do a four-metro plan, dailies are still more cost efficient and if I want a geography-specific impact then dailies is the best way to go,’ she says. Earlier, most print buying was about scheduling and anybody with a head for numbers would become a media planner. The important task was not deciding what brands to buy—that was evident from the ABC numbers. It was eliminating the duplication of readership. If a planner considered TOI and Hindustan Times in Delhi he had to eliminate any duplication of readership before judging the plan for reach or effectiveness. Around 1989, IMRB introduced the software called PEM that helped do the ‘duplication tables’ faster. The biggest change in the buying and selling function in the last few years has been consolidation of media buying. It started somewhere in the mid-1990s. It has completely changed how all media, including print, is bought and sold. Currently, more than

34  The Indian Media Business

60 per cent of all organised media buying is done by about half a dozen media agencies.

The Key Measures These are:

Circulation This variable is measured by the Audit Bureau of Circulations (ABC). It was set up in 1948 and is made up of advertisers, advertising agencies and publishing companies. The ABC certifies audited NET PAID circulation figures of publications enrolled with it for continuous and definite six-monthly audit periods. It then supplies copies of the ABC Certificates issued for such publications to each member. Any free distribution and bulk sales are also shown separately on the certificates. It certifies circulation based on the publisher’s records on copies shipped, newsprint purchased, machine rooms, and even carries out surprise checks on the printing facilities at times.52

Readership This refers to the number of readers—as opposed to the number of buyers for a magazine or newspaper. It is also defined as a multiple of circulation. For example, the circulation to readership ratio in English is 1:1.5 or 2, whereas in Hindi and other languages it is 1:4 or more. In 1974 the first NRS (National Readership Survey) was initiated using an urban sample size of 50,000. It was a simple report by ORG–MARG that used monthly household income to determine purchasing power and looked at cinema-going and reading habits. There was hardly any TV, since Doordarshan was the only TV channel. In press, a handful of companies owned the brands with the largest readerships—ABP, The Express Group or BCCL. ‘We never thought we would be doing it continuously,’ remembers Katy Merchant.53 The second NRS was done jointly by IMRB and ORG. Even then, ‘since the clientele was small it could not evolve into anything more than a readership-demographic study,’ says Merchant. By the third

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NRS in 1981, the research became ambitious. Products were linked to reading habits and demographic profiles. If you read The Hindu and earned `1,200 a month, the research would also show whether or not you were a user of, say, Horlicks. That helped advertisers focus their message. By 1984, NRS covered all cities. This was long before computers became common, so there was no software to run it all. Doing a large-scale survey such as the NRS—to collect the data, tabulate and analyse it—took years. It was only in 1991, remembers Merchant, that NRS started using software to sift through the numbers. The fundamentals of the survey remain the same—media exposure and their linkages to product consumption. Readership is measured using the masthead method. Respondents are shown a black and white reproduction of the mastheads of newspapers and magazines. For a daily like the TOI, the estimated number of readers is equal to the number that has looked at any issue of that daily ‘yesterday’. Similarly, the time interval for a weekly publication is in the ‘last seven days,’ the last 15 days for a fortnightly and so on. This is called the ‘recent reading method’. In NRS 2001, the estimation of ‘average issue readership’ for both urban and rural India is based on this. The average issue readership also segregates readers into heavy, medium and light readers. Heavy readers are people who read for more than 10 hours a week, medium readers give it between three to 10 hours while readers who give it less than three hours a week are rated ‘light’. To counter the NRS, which was supported by large newspaper groups some media users got together to create the Media Research Users Council (MRUC) in 1994.54 The idea was to offer members a readership and market study to rival the NRS. The first IRS was out in 1995. The next one came after a gap of a year. From 1997, it was released biannually before becoming a quarterly study in 2010. It is a continuous readership study with a sample size of over 256,000. The data is collected and released twice a year to mitigate any seasonal biases. In the last few years, IRS has added the angle of Household Premiumness Index (HPI) to help marketers overcome the problems with the typical socioeconomic classification or SEC as it is popularly known.55 Many media research users and advertisers used both the IRS and NRS. However, in 2006, the NRS was suspended following anomalies in data. In 2009, the Media Research Users Council

36  The Indian Media Business

(MRUC), which owns the IRS, and the Audit Bureau of Circulations (ABC) which tabulates circulation data, came together to pool their resources. The result was the Readership Studies Council of India (RSCI) which was set up in October 2011. It has been mandated to bring out the IRS. For more on what the changes in the IRS could be please see Caselet 1c.

Reach This is measured in circulation and readership numbers. It could also be calculated as a percentage of the population penetrated in a certain target group. It is not only the number of readers, but also the proportion of readers of, say India Today, which fall within the target audience for say a Santro. ‘If I look at SEC A, the number of readers is highest for India Today and Business Today and the least for India Today Plus. Then I look at how many of my target group are readers of India Today Plus and India Today and the numbers could be 5 per cent and 50 per cent. So, not only is India Today high on the overall readership but a large proportion on my target audience is reading it,’ explains Arpita Menon, a former media buyer.56 Establishing a more precise connect between reach and purchasing power is what IRS’ HPI aims to do.

Cost per Thousand This refers to the cost of reaching a thousand people through a particular newspaper or magazine. These days, planners go a step ahead and look at the average cost per issue versus the readership. Unlike TV, where monitoring takes place on a day-to-day, hour-to-hour basis, numbers for print flow in every three months from the IRS and six months from ABC. Therefore, ‘once you know what works, it holds’, says Menon. If there is a rate hike, only the cost per thousand has to be calculated again. However, with multiple editions and publishing companies offering a variety of rates for buying space in different editions, planning has got slightly complicated. Most planners find TOI’s basket perplexing. That’s because the company offers markets

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where it is strong (Mumbai) with ones where it is weak (Kolkata) and it does this across brands (TOI, Economic Times), editions and products (magazines and newspapers). That makes calculating the actual cost paid per column centimetre in a BCCL publication particularly difficult. CPT or CPM as it is now called is becoming an important tool for comparison between media. In the US almost three-fourths of advertising clients pay on the basis of CPM.57

Integrated Reach As newspapers experiment with the Internet and mobile, they try to measure the total audience they offer across media forms. In 2007, The (American) Audit Bureau of Circulations, Scarborough Research and NAA launched the Audience-FAX initiative to measure total reach. It incorporates circulation, readership and online measures into ABC’s reports. Some newspapers, which are part of this initiative, have even renamed their circulation departments as ‘audience development and membership departments’. It is the addition of online reach (drawing on Nielsen/Net Ratings) that is most important. Even as print versions of newspapers lose audience, their online versions have more than made up.58 The combination of online statistics and circulation information aids advertisers to compare reach with other forms of media, such as TV and radio.

The Regulations59 The History If the television-broadcasting industry had almost no regulation to begin with, the press has historically been over-regulated. Till 1798, there was no law on the press except for some precensorship or cases under libel laws and in extreme cases, deportation. Sometimes, people aggrieved by what the press had written simply had them beaten up. Acharya Dr Durga Das Basu (1996) documents the earliest attempt to suppress the press,

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which was in 1798 by the then Governor General, the Marquis of Wellesley. He was angry with The Asiatic Mirror for revealing the details of the strength of the East India Company and Tipu Sultan’s forces. The first set of regulations were issued in May 1799 by Governor General Wellesley to control the ‘conduct of the whole tribe of editors’, breach of which was punishable with deportation. It required newspapers under the ‘pain of penalty’ to print the names of the printer, publisher and editor of the newspaper (this continues to date). All material published had to be given for pre-censorship to the Government of India (not necessary now). Many other ordinances and regulations followed in 1823, 1835 (Metcalfe’s Act), 1857, 1860, and so on. The important ones are:

The Indian Penal Code, 1860 While it did not deal with the press specifically, portions of it laid down offences that could relate to any writer, editor or publisher: for example, with regard to obscenity. It also introduced the ‘law of sedition’ (that is, prohibition of incitement or attempts to incite disaffection against the Government).60 This comprehensive Code, which is still in force and governs criminal law in India, introduced, for the first time, offences for defamation and obscenity.

The Press and Registration of Books Act, 1867 The idea was not so much to control as to regulate printing presses and newspapers by a process of registration and also to preserve copies of books and other matters printed in India. This Act still exists.

The Vernacular Press Act, 1878 It was aimed at punishing Indian language newspapers writing ‘seditious’ articles. It empowered the government for the first time to issue search warrants and enter the premises of any press without court orders. It was repealed in 1881. In a fantastic move,

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Amrita Bazaar Patrika, a Bengali newspaper set up in 1868, converted overnight into an English daily in 1878 to escape being punished under the Vernacular Press Act. Just like the Vernacular Press Act, 1878, various other acts that were directed against ‘seditious’ writing came into being at various points of time in the 19th and 20th centuries. These were: the Official Secrets Act, 1889; the Newspapers (Incitement to Offences) Act, 1908; the Indian Press Act, 1910; the Indian Press (Emergency Powers) Act, 1931. Some involved payment of a security deposit, which left most publishers too poor to print. Others involved a forfeiture of the press. Many of these were later repealed. It was decades later, during the Emergency of 1975–77, that some of the grim excesses against the print media were committed. The government introduced the Prevention of Publication of Objectionable Matter Ordinance, which was a rehash of a 1951 Act that had been repealed because of its extreme powers for censorship. The Janata government of 1977 repealed many of the retrograde steps taken in 1975. Even without legislation the government used indirect ways such as newsprint quotas to keep the press in line.

The Freedom of the Press After Independence, the Government of India appointed a Press Laws Enquiry Committee to review the press laws of India. It suggested various amendments and repealed several acts. What was finally decided was not to spell out a separate clause for freedom of the press, but rather that it remained as part of the right to freedom of speech and expression which every citizen of the country was guaranteed through Article 19(1)(a) of the Constitution. The only exceptions to the right guaranteed under Article 19(1)(a) were contained in Article 19(2) which allowed imposition of ‘reasonable restrictions’ on the exercise of the rights conferred by the Constitution in the interests of ‘the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality, or in relation to contempt of Court, defamation or incitement to an offence.’ These constitutional guarantees form the bedrock of the right which the press enjoys in India.

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This right has been put under judicial scrutiny on a number of occasions. The Supreme Court of India has implicitly read into this freedom of the press a number of other concomitant rights such as:61 1. The right to circulate and disseminate information and opinion. Any restrictive law which directly affects the circulation of a newspaper has been held to amount to a violation of the freedom of speech, by the Supreme Court.62 2. The right to decide its size, volume and price and the extent of advertising it can carry.63 Earlier in 1956 the government had used this as a means of controlling the press through the Newspaper (Price and Page) Act of 1956, which was annulled by the Supreme Court in 1962. The Act laid down that a newspaper could not increase the number of pages it gave without increasing the price proportionately. It was an illogical piece of legislation that claimed to protect small newspapers. 3. The right to criticise the government has been held as part and parcel of the freedom of speech and any act of the government to curtail this freedom [for example, through pre-censorship regulations], except for serious danger to the foundations of the State, has been quashed by the Supreme Court.64 4. The right to interview and the right to protect its sources of information. The Supreme Court has held that the press has a limited right in this regard and the willing consent of the person sought to be interviewed is essential.65 There is, however, no particular provision which protects the Press from being compelled to disclose its sources, except for a generally recognised principle. 5. The right to advertise has been read into the freedom of speech by the Supreme Court interpreting it as the right of ‘commercial speech’.66 The Supreme Court observed that ‘for a democratic press, the advertising subsidy is crucial.’ 6. The Press also enjoys the right to its intellectual property that is its content, under the Law of Copyright. This right is available under the Indian Copyright Act 1957 and it subsists in the physical expression of the thought and

Print  41

not in merely an idea. The proprietor of the newspapers, magazines or periodicals are the principal owners of the copyright since the content published, albeit authored by different reporters/journalists, is commissioned under a contract of service. For articles that have external authors, the copyright has to be assigned to the newspaper by the author. The process of ‘syndication’ by the Press involves essentially a contract of assignment for limited use by the periodical or newspaper of content like cartoons, puzzles, photographs, etc.

The Restrictions on Press These include:

Right to Privacy There is a duty toward respecting an individual’s right to privacy. Although there is no specifically defined right toward privacy in the Constitution of India, the Supreme Court has carved out a right under Article 21 [Right to Life and Liberty]. In R. Rajagopal vs. State of Tamil Nadu (1994) 6 SCC 632, the Supreme Court held that there was a right to be let alone and no person has the right to publish anything relating to personal matters without the consent of the person concerned except where the matter is of public record or if the conduct relates to a discharge of official duties by a public official. A number of other legislations also impose restrictions on the press, in the interests of privacy. For example, The Children’s Act, 1860, prohibits publication of names and other particulars of children involved in proceedings; The Hindu Marriage Act, 1955, restricts publication of reports concerning proceedings of matrimonial disputes; The Copyright Act, 1957, puts a restriction on unauthorised publication of certain documents, photographs, etc.; The Code of Criminal Procedure, 1973, puts a restriction on publication of reports concerning legal proceedings like rape trials; The Indecent Representation of Women (Prohibition) Act, 1986, prohibits ads and publications containing indecent representation of women.

42  The Indian Media Business

Foreign Investment In 1955, the central cabinet passed a resolution that debarred foreign companies from launching Indian editions of their print brands and from investing in Indian print companies. While it was never converted into a law, it has been treated like one for all the decades that followed. Technically, nothing stopped a foreign magazine from selling in India or launching an Indian edition or investing in a publishing company in India. However, the 1955 cabinet resolution, which never became a law or an ordinance, remained the defining word on this issue for decades. During the 1990s, various companies that wanted to launch foreign print brands in India or bring in a foreign investor were prevented from doing so. Finally, in June 2002, the cabinet passed a resolution allowing 26 per cent FDI in print. This was amended in 2005 to allow FII and further amendments were made in March 2006. The salient points about the foreign investment policy in Indian print are: 1. FDI up to 100 per cent is permitted in publishing/printing scientific and technical magazines, periodicals and journals in India. 2. FDI up to 26 per cent is allowed for publishing newspapers and periodicals dealing in news and current affairs subject to guidelines issued by the Ministry of Information and Broadcasting. This 26 per cent includes investments by NRIs, FII, Persons of Indian Origin (PIO), subject to these entities having sound credentials and international standing. 3. The 26 per cent FDI is allowed only in cases where the resultant entity is a company registered under the Indian Companies Act, 1956 and the 26 per cent forms part of the paid-up equity. Further, the equity held by the largest Indian shareholder, should be at least 51 per cent of the paid-up equity, excluding the equity held by public sector banks and public financial Institutions. 4. Half or 50 per cent of the 26 per cent FDI shall be by fresh equity, while 50 per cent may be inducted through transfer of existing equity. 5. The permission for the 26 per cent FDI is conditional on at least three-fourths of directors on the board of the

Print  43

resultant entity and all key executives and editorial staff being resident Indians. 6. An Indian company is allowed to publish a facsimile edition of a foreign newspaper provided at least threefourths of the directors on the board of the resultant entity and all key executives and editorial staff are resident Indians. The facsimile edition should not carry any ad aimed at Indian readers in any form and also any locally generated or India specific content, which is not simultaneously published in the original edition of the foreign newspaper. The facsimile editions have to obtain prior permission from Ministryof Information and Broadcasting and the title has to be registered with RNI. 7. As regards ‘syndication arrangements’, including photographs, cartoons, crossword puzzles, articles and features from foreign publications, the automatic approval route is allowed subject to the restriction that the total material so procured and actually printed in an issue of the Indian publication does not exceed 20 per cent of the total printed area of that issue and does not include full copy of the editorial page or the front page of the foreign publication. The mast head of the foreign publication cannot be utilised and the credit has to be given as a prominent byline in the Indian publication. In addition to this the Consolidated Foreign Investment Policy (Circular 1 of 2012), which came into effect on April 10, 2012, consolidates and supersedes all other policy instruments concerned with foreign investment. This consolidated policy permits foreign investment of up to 26 per cent (including investments by NRIs, FII and PIOs) in Indian editions of foreign magazines67, subject to guidelines issued in this regard by the Ministry of Information and Broadcasting. A magazine, as per the consolidated policy, is defined as a periodical publication that is published or brought out on a non-daily basis and contains public news or comments on public news68. These guidelines issued by the Ministry of Information and Broadcasting indicatively require that69 1. the entity publishing the Indian edition must be an Indian company incorporated under the Companies Act, 1956

44  The Indian Media Business

2. the title of the magazine must be registered with the RNI 3. the publisher of the foreign magazine must be of sound credentials 4. at least three-fourths of the directors on the Board of Directors of the Indian company, and all key executives and editorial staff (except such foreign residents whose appointment has been approved by the Ministry of Information and Broadcasting) must be resident Indians 5. the foreign magazine should have been published continuously for at least five years and have a circulation of at least 10,000 paid copies in the last financial year in the country of origin.

Other Restrictions A number of legislations impose certain other restrictions on the Press. Following are some of these restrictions: 1. The Press and Registration of Books Act, 1876, mandates that all publications be registered in India. An RNI has been created under the Act.70 The provisions also require every book or newspaper in India to carry the names of the printer or publisher, place of printing and of the editor in case of a newspaper. 2. The Indian Post Office Act, 1898, makes the transmission of obscene matter which is sent by post, a punishable offence.   3. The Customs Act, 1962, allows the government to prohibit the importation of matter which is likely to offend standards of decency or morality.   4. The Official Secrets Act, 1923, prohibits activities which may be harmful to the sovereignty and integrity of India and the security of the state.   5. The Emblems and Names (Prevention of Improper Use) Act, 1950, restricts use of certain emblems and names like the national flag or seal of the government.   6. The Prevention of Insults to National Honour Act, 1971, makes any act amounting to an insult to national honour, an offence.

Print  45

  7. The Delivery of Books and Newspapers (Public Library) Act, 1954, mandates that one copy of every newspaper published would be delivered to specified public libraries.  8. The Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954, forbids publication of ads for drugs used for certain purposes like sexual disorders, menstrual issues or drugs making false claims of their efficacy.   9. The Working Journalists and other Newspaper Employees (Conditions of Service and Miscellaneous Provisions) Act, 1955, and the Working Journalists (Fixation of Rates of Wages) Act, 1958, prescribe the minimum standards of working conditions for journalists and newspaper employees. 10. The Young Persons (Harmful Publications) Act, 1956, makes it an offence to print/publish any publication which would lead to the corruption of anyone under the age of 20 years. 11. The Atomic Energy Act, 1962, prohibits disclosure on atomic plants, their purposes and methods of operation. 12. The Civil Defence Act, 1968, empowers the government to prohibit the printing/publication of any newspaper, etc., which may contain matters prejudicial to matters of the defence of the country. 13. The Prize Competitions Act, 1955, and the Prize Chits and Money Circulations Schemes (Banning) Act, 1978, makes publication of matters concerning unauthorised lotteries an offence. 14. The National Security Act, 1980, allows the government to detain any person to prevent him from acting in a manner prejudicial to the defence of India or to the security of the state. 15. The Representation of Peoples Act, 1951, forbids publication of any false statement of fact in relation to the personal character or conduct of an election candidate, besides other election related restrictions. 16. The Police (Incitement to Disaffection) Act, 1922, prohibits any act intended to cause disaffection among members of a police force.

46  The Indian Media Business

17. The Unlawful Activities (Prevention) Act, 1967, makes it an offence to do any act intended to bring about secession of any part of India. 18. The Protection of Civil Rights Act, 1955, prohibits making of comments that would encourage the practice of ‘untouchability’. 19. The press is subject to the long recognised right of an individual not to be defamed or disparaged and to protect his reputation and integrity. Defamation in India gives right of a civil remedy for damages as also is a criminal offence under the Indian Penal Code, 1860. There is no statutory immunity for the managing editor, resident editor or the chief editor against prosecution for the publication in a newspaper over which these persons exercise control.71 The following are recognised as defences to an action for defamation: justification of truth of the statements, fair comment on matters of public interest, privilege (absolute or qualified) and consent. 20. The Press Council of India promulgated guidelines to accommodate concerns relating to the reporting of children and of persons affected by HIV/AIDS in the media. The guidelines in relation to the reporting of persons affected by HIV/AIDS were amended in 2008 and require media personnel (in print, visual and electronic media) to ensure objective, fair, accurate and balanced reporting and cautions against the promotion of myths or unsubstantiated traditional remedies in relation to the transmission and treatment of HIV/AIDS. 72 21. With respect to children, the Press Council of India’s has updated the Norm on Journalistic Conduct in 2010 and requires that while reporting on children, their identity and privacy should be respected; in particular, in cases where children are subjected to sexual assault or are the offspring of sexual abuse, forcible marriage or illicit sexual union.73   The press, its interests and issues are managed in India through the Press Council formed under the Press Council Act, 1978, which has the task of preserving the freedom of the press as well as improving its standards and be a watchdog. Rules of procedure have been formulated for handling complaints from the public regarding the Press.74

Print  47

The Valuation Norms75 The Key Variables Till about 2003, only a handful of publishers had raised money from the market. Also, it should be noted that the industry is extremely closed about numbers. So, any analysis on how valuations worked was extremely difficult. There were just a few listed print companies—Sandesh, Infomedia and Mid-Day Multimedia. It was after foreign investment was allowed in 2002, that some private equity deals and later initial public offers of print companies took place. However, post 2005, several larger print companies listed— Deccan Chronicle Holdings, HT Media and Jagran Prakashan. There is now a clear sense of how valuations work in this business. The important variables are:

Position, Scale and Market Share As mentioned earlier, if a company is the leader or number two in the segments it operates in, it will get a disproportionately large share of revenues and profits. The TOI is a good example of this. Its leadership position in the English newspaper spaces means a disproportionately high share of revenues and profits. Its ability to cross-sell other publications (for example, The Economic Times or Navbharat Times), to cross-sell other media (TV, internet, radio) or do events (Filmfare Awards) is much better than smaller rivals.

BtoB or BtoC A BtoC or business-to-consumer magazine or newspaper is targeted at a larger, more general mass of people, say Outlook or India Today. A BtoB or business-to-business publication is targeted only at people within a certain trade or business. BtoB is usually a more profitable bet. However, BtoC makes up with a higher topline, so the quantum of profits is higher even if the percentage margins are lower than BtoB. Also it is the more stable part of the business, says Amol Dhariya, director, IDFC Capital.

48  The Indian Media Business

He reckons that since BtoB is used more for below-the-line activity, it becomes the first thing to be cut in a downturn.

Return on Capital Employed or ROCE Till there wasn’t much activity in print, the ROCE ratio was a good way to measure a company’s efficiency, especially in M&A deals. Typically, print is a capital-intensive, long-gestation business. Most companies in the business have long since depreciated plants and assets. Therefore, ROCE is a good indicator of how much they have managed to get out of the capital they had put into the business. Companies operating at optimum efficiencies can get as much as 30–40 per cent. However, as the need to grow and expand within print and to other media increases, ROCE doesn’t work as well. Dhariya reckons that printing has now become a variable expense, since it can be outsourced. A newspaper company doesn’t invest in a printing press every time it expands. ‘ROCE is important, but one can’t correlate it strongly to valuations in the media business’, says he.

Market Dynamism If the market is fragmented and in a state of high growth, the possibilities for both organic growth and M&As are very high. This is when free cash flow, management depth and the ability to leverage are crucial. Then, EBITDA76 is a measure for valuation and market growth influences valuation.

Synergy This, says Dhariya, applies to all media. ‘You may not be the market leader but your ability to drive profits through owning multiple media (like TOI) or through a vertical presence in the value chain (a television broadcast company owning a DTH and cable firm), make up for the lack of any leadership in any individual region’, says Dhariya.

Print  49 Table 1.1a  The Top Advertisers in Print—Product Categories Top 10 Super Categories in 2010 in Print Rank

Super Categories

% Share

 1

Services

12

 2

Education

12

 3

Banking/Finance/Investment

11

 4

Auto

7

 5

Retail

5

 6

Personal Accessories

4

 7

Durables

4

 8

Personal Healthcare

3

 9

Textiles/Clothing

2

10

Corporate/Brand Image

2

Top 10 Super Categories in 2011 in Print Rank

Super Categories

% Share

 1

Services

14

 2

Education

11

 3

Banking/Finance/Investment

9

 4

Auto

8

 5

Retail

5

 6

Personal Accessories

5

 7

Durables

4

 8

Personal Healthcare

3

 9

Textiles/Clothing

2

10

Food & Beverages

2

Top 10 Super Categories in 2012 in Print Rank

Super Categories

% Share

 1

Services

14

 2

Education

11

 3

Auto

9

 4

Banking/Finance/Investment

8 (Table 1.1a Contd.)

50  The Indian Media Business (Table 1.1a Contd.) Rank

Super Categories

% Share

 5

Personal Accessories

5

 6

Retail

5

 7

Durables

4

 8

Personal Healthcare

4

 9

Food & Beverages

2

10

Textiles/Clothing

2

Source : Adex India, a division of TAM Media Research. Note: The ranking is based on volumes of advertising. Volumes being measured in column centimetres.

Table 1.1b  The Top Advertisers in Print—The Companies Top 10 Advertisers in 2010 in Print Rank

Advertisers

% Share

 1

Naaptol.com

1

 2

Tata Motors Ltd

1

 3

Pantaloons Retail India Ltd

1

 4

Maruti Udyog Ltd

1

 5

Lg Electronics India Ltd

1

 6

Gitanjali Gems Ltd

1

 7

Dell Computer Corporation

1

 8

SBI (State Bank of India)

0.5

 9

General Motors India Ltd

0.5

10

Videocon Industries Ltd

0.4

Top 10 Advertisers in 2011 in Print Rank

Advertisers

% Share

 1

Tata Motors Ltd

2

 2

Naaptol.com

1

 3

Gitanjali Gems Ltd

1

 4

Tvc Skyshop.com Ltd

1 (Table 1.1b Contd.)

Print  51 (Table 1.1b Contd.) Rank

Advertisers

% Share

 5

General Motors India Ltd

1

 6

Samsung India Electronics Ltd

1

 7

Maruti Udyog Ltd

1

 8

Pantaloons Retail India Ltd

1

 9

Mahindra & Mahindra

0

10

Videocon Industries Ltd

0

Top 10 Advertisers in 2012 in Print Rank

Advertisers

% Share

1

Gitanjali Gems Ltd

2

2

Naaptol.com

2

3

Tata Motors Ltd

1

4

Maruti Udyog Ltd

1

5

SBI (State Bank of India)

1

6

Hero Motocorp Ltd

1

7

Samsung India Electronics Ltd

1

8

Hindustan Lever Ltd

0

9

Sbs Biotech Group Of Company

0

10

Bajaj Auto Ltd

0

Source: Adex India, a division of TAM Media Research. Note: The ranking is based on volumes of advertising. Volumes being measured in column centimetres.

52  The Indian Media Business Table 1.2  The Print Industry in India—The Big Picture Revenues (` bn) Language

2011

2012

English (Total)

83

86

Advertising

57

59

Circulation

26

27

Hindi (Total)

62

69

Advertising

41

45

Circulation

22

24

Other Indian languages (Total)

63

69

Advertising

42

46

Circulation

21

23

Total advertising revenues

139

150

Total circulation revenues

69

74

209

224

Total print industry revenues

% of % of ad readership revenues 10

39

36

30

54

31

Source: FICCI-KPMG Report 2013, IRS and Hansa Research. Note: % readership refers to average issue readership in IRS's round three in 2012.

Caselet 1a  The Digital Devastation—The American Story* ‘We will stop printing the New York Times sometime in the future, date TBD’, publisher and chairman Arthur Sulzberger, Jr, said to attendees of the International Newsroom Summit. For a glimpse into the future of newspapers, there is no market like the US. It is a Petri dish of what the Internet could do and what newspaper companies should or should not be doing. Let’s look at the facts first. The newspaper business in the US has shrunk even as operating margins have fallen from (Caselet Contd.)

Print  53

(Caselet Contd.) 25 per cent to 15 per cent. Total advertising revenues continue to fall and have more than halved from $49.3 billion in 2006 to $24 billion in 2011. Online revenues are on a rise though this doesn’t compensate for the loss from the print revenues. In fact, in 2012, in media companies, the ratio of print to online revenues was 10:1 according to a research in the State of the News media report. Paid circulation is witnessing a steady drop from 62.3 million in 1990 to 55.8 million in 2000 to 43.4 million in 2010. The time spent on the Internet reading newspapers has risen from an average of 41 minutes in 2006 to 66 minutes per person per month in 2011, indicating that readers are moving online. Meanwhile, online advertising continues to grow year on year. Internet ad spend increased by 22 per cent and mobile advertising by 149 per cent in the US in 2011, according to research conducted by PricewaterhouseCoopers for the Interactive Advertising Bureau. There is money to be made in online advertising; it is just that the newspapers are still not able to tap into it. The American newspaper industry is undergoing a period of massive upheaval and transformation. There is a marked change in the way audiences consume news. New York Times’ Nick Krystof once said in an interview that, ‘We’re moving from a format where we “proclaimed the news” to the world on a fixed schedule to one where we converse with the world on a 24/7 basis.’77 This greatly impacts the landscape of journalism and the newspaper businesses. With a lot of information available on the Internet for free from myriad sources, and the financial recession in 2008, the newspapers have a perfect recipe for losing their audiences. Newspaper companies are bravely responding to this change by coming up with various strategies to increase their revenues. These can be broadly divided into three areas: One: Investment in technology and social media: The Knight foundation for journalism has invested around (Caselet Contd.)

54  The Indian Media Business

(Caselet Contd.) US$150 million in technology-related projects to pave a way for the future of journalism. Several journalism schools have initiated interdisciplinary programs that involve students of computer science, journalism and design to develop software and technology conducive to digital journalism. One such project called ‘Newsfeed’, by students of Northwestern University, is a website built for iPhones that offers news packages for a reader pressed for time. The website has articles tagged as ‘appetizers’ (news briefs in five minutes), ‘entrée’ (consisting of four full-length stories) and desserts (consisting of two funny, light-hearted pieces.). Companies have begun to acknowledge the importance of having a comprehensive and well–thought-out social media strategy and investing in it. Social media channels help in improving promotion, interactivity with their brand and widespread dissemination of information when consumers comment, rate articles, post links, share articles from these newspapers directing more audiences to their websites. Two: Diversification into media and non-media businesses beyond news delivery and content creation. According to research by Capstone for World Newsmedia Research Group (WNRG), companies are using their brand name to create product line extensions. The New Yorker and the German newspaper Frankfurter Allgemeine Zeitung offer archives for a fee. Some of them offer specialised in-depth reports in certain areas like finance or law for a fee. A Chilean newspaper called El Mercurio has launched a second website where all articles are behind pay walls, and offers analysis and articles in only a few areas. Businesses are also using their brand name to sell goods through their store. For example, New York Times has a store that sells everything from mugs to other collectibles. In their food section, they sell wineries from locations other than the USA. The Guardian, on the other hand, sells reviewed books, while Süddeutsche Zeitung, a German newspaper recommends and sells books and DVDs. Many of the newspapers are also diversifying (Caselet Contd.)

Print  55

(Caselet Contd.) into other types of businesses like creating a local social network that the local advertisers can use for getting to a specific target pool or conducting workshops including editing classes and medical conventions. Three: Adopting different pay wall strategies. While companies don’t have any qualms asking their audiences to pay for content, the trouble is that with so much information available online for free, consumers don’t want to pay for it. In a US Senate hearing, Simon, an ex-Baltimore newspaperman called content aggregators as ‘leechers’. He said, ‘.…Aggregating websites and bloggers contribute little more than repetition, commentary and froth. Meanwhile, readers acquire news from aggregators and abandon its point of origin, namely the newspapers themselves. The parasite is slowly killing the host.’ Newspapers have come up with different ways of making the consumer pay for their content. The New York Times, for example, lets you read a certain number of articles for free and then asks you to pay if you want to read more or allows you to only read articles which are directed through online search or social media websites. The New York Times also throws in a free digital subscription for all the print subscribers, though the reverse is not true. Consumers have several options to choose their digital subscription from. USA Today or The Guardian provides all content for free, relying solely on advertising. On the other hand, Wall Street Journal expects consumers to pay for any specialised articles while some generic news articles are for free. Companies like the Times of London are completely behind a pay wall—if you want to read anything from these websites, you have to pay. It remains to be seen how these strategies will impact revenues in the long term. *Caselet researched and written by Sinduja Rangarajan, a former qualitative researcher with TNS India and Colors. She is currently studying journalism at University of Southern California.

56  The Indian Media Business

Caselet 1b  The Rising Power of Hindi Newsapers§ Till 2005, English papers got 60 per cent of all the print media advertising in India. All the other Indian languages, including Hindi, got the remaining 40 per cent. That ratio is now reversed. ‘The potential, size and vibrancy of the market is now getting reflected’, says Girish Agarwal, director, DB Corporation (Dainik Bhaskar). As middle-class families in small towns prosper, advertisers want to reach out to them. While this has led to a boom in all languages, Hindi happens to be the biggest of them. The language, spoken by roughly 500 million Indians across 13 states and union territories, makes up a print ad market of `75 billion growing at 10.8 per cent, way above the average 8.7 per cent that print as a medium is seeing78. All other Indian languages put together get the same revenue as the Hindi market. For any publishing company wanting to go national, Hindi is critical. Of the `224 billion newspaper industry (2012), Hindi has a share of 31 per cent, up from 20 per cent only five years back in 2008. The three listed publishers, Dainik Jagran, Dainik Bhaskar and Hindustan, have been expanding rapidly. Ditto for the unlisted ones such as Rajasthan Patrika and Amar Ujala, which are defending their territories and getting into new ones. Most are discovering that the fragmented Indian newspaper business makes for a nightmarish M&A market. There are more than 32,000 Hindi publications (a bulk of them newspapers) in India. Most are irrelevant. Many of the good brands, Amar Ujala, Rajasthan Patrika or Prabhat Khabar, are not really interested in selling. Others such as Nai Dunia, have already been snapped up (by Jagran in 2012). Why are acquisitions and scale important? At almost 64 million readers, Hindi papers have over three times the audience that the English ones do. Yet the ad rates that an English paper commands are about five times more than Hindi. This is better than the 10–12 times it was just about seven years (Caselet Contd.)

Print  57

(Caselet Contd.) back because the ‘perception of advertisers about the Hindi newspapers is very positive today’, points out Arvind Kalia, national head of marketing, Patrika Group. Therefore, as literacy increases and small towns continue to expand, additional growth will come by improving rates vis-à-vis the declining English newspaper market. This will happen only for brands that can deliver the Hindi market en bloc. For instance, even if Dainik Bhaskar doesn’t lead in all the cities in Madhya Pradesh, as long as it is the leader in the state, advertisers will take it in their plan. Ditto for Hindustan, the leader in Bihar. But when it comes to a national ad plan, a Dainik Bhaskar, which has more editions across the Hindi belt than Hindustan which operates only in four states, wins. That explains why everyone has rushed to expand. When five really big brands do that, price cutting is inevitable. ‘The big trouble is they are entering into each other’s market. As a result circulation revenues for Hindi print have fallen from 25–30 per cent of sales to 20 per cent over the last five years’, says Vikash Mantri, vice president, ICICI Securities. Remember that traditional Indian language papers have had healthy subscription revenues unlike the 10 per cent of the total that English gets. So this drop in an annuity income worries investors. It did not matter till 2011 when advertising was growing at 10–12 per cent. But as overall ad growth slumps to an estimated 7 per cent and less and newsprint costs rise by 20 per cent, thanks to a depreciating rupee, margins are being squeezed. There are two things that Hindi publishers can do. One, ramp up readership and circulation numbers in each state through acquisitions or organic growth to get better ad rates. Most are trying to do that very seriously. For example, there was a skirmish between Jagran and Zee to acquire Amar Ujala in 2012. At roughly 8.6 million in readership, Amar Ujala leads in three states—Jammu & Kashmir, Uttarakhand and Himachal Pradesh. Dainik Jagran, the (Caselet Contd.)

58  The Indian Media Business

(Caselet Contd.) largest read Hindi daily, is present in 15 states. However, it is only in Uttar Pradesh (UP) that it is a leader on readership. Taking over Amar Ujala can give it leadership in five key states, including Delhi. ‘The combination (of Amar Ujala and Dainik Jagran) would ensure that rivals such as Dainik Bhaskar and Hindustan are miles behind in the national ranking’, says A. S. Raghunath, a media consultant. For Zee, the paper has synergies with its Hindi television news business and its English paper, DNA. ‘The only state for which Jagran can command its own ad rates is UP. For all the other states it has to negotiate’, says one media analyst. And in UP, Dainik Jagran faces HT Media’s Hindustan. The paper is racing ahead of Dainik Jagran in key towns such as Lucknow. ‘The AUPL acquisition (if it happens) could help keep Hindustan in check’, says another media consultant. Two, stay put and consolidate. In the five years ending in 2012, Hindustan has doubled revenues and grown operating profits by 10 times by sticking to only four states—Bihar, Jharkhand, UP, and Uttarakhand. Its presence in UP is now more or less complete. It has no plans for expanding outside of these states. ‘In a state that already has 3 or more players, it is not easy for a new player to build a business with scale. Also, it is very expensive’, says Amit Chopra, former CEO, Hindustan Media Ventures. He points out that it could take more than five years for a daily to achieve breakeven in a new state. Does any of this matter when the internet is taking away large chunks of the audience? While that is true for the metroEnglish speaking market, ‘in the Hindi belt newspapers are the last word on anything’, says Chopra. The aspirational value of newspapers and the fact that they have right of way into homes, unlike the internet, makes them powerful media vehicles much like English papers were in a Mumbai or Delhi in the nineties. Besides, Hindi papers reach barely 20 per cent of a market where literacy is about 65 per cent. So the headroom for growth is significant. § Excerpted from Business Standard, December 13, 2012.

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Caselet 1c The Indian Readership Survey and Why it is Changing± The IRS is the currency used to buy and sell advertising in the `224 billion Indian print industry (advertising plus pay). It measures readership, viewership et al. of newspapers, magazines, TV, radio, internet and cinema in India every quarter. It also offers a demographic map of Indian consumers and a look at their consumption patterns across categories like consumer durables, cars, consumer products and so on. In 2009, the Media Research Users Council (MRUC), which owns the IRS, and the Audit Bureau of Circulations (ABC), which tabulates circulation data, came together to pool their resources. The result was the Readership Studies Council of India (RSCI), which was set up in October 2011. It has been mandated to bring out a new improved IRS. Paritosh Joshi, principal at Provocateur Advisory, heads the technical committee of the RSCI. He reckons that the problems with IRS stem from sampling and non-sampling issues. Take the non-sampling ones first. It takes one and a half hour to administer one questionnaire. The quality of the response, therefore, is suspect because by the end of 30–45 minutes, most respondents tend to fade out. ‘Internationally, it is acceptable to do data fusion instead of trying to capture every answer in one sitting’, says Joshi. The idea is to do a suite of studies each with one set of questions and then fuse the data. The data collection could happen from different samples. ‘This way you get a lot of data without increasing sample size and overloading the respondent’, says Lynn De Souza, chairperson, RSCI. Then there is the suspicion that IRS can be tampered with. Theoretically, the field researcher could be influenced to tamper with the responses. So, the technical committee has recommended the use of data capture technology instead of pen and paper. ‘You could geo tag every interview. The moment an interview is over in any city or town, you can lock it down. Once it is sealed and encrypted, nothing in it can (Caselet Contd.)

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(Caselet Contd.) be changed by anybody’, says Joshi. Much of this reduces the possibility of tampering. The technical committee, therefore, abandoned the notion of incremental change and decided to rebuild IRS de novo. The major changes it has recommended and that are being implemented are: 1. Pen and Paper interviews will be replaced in toto by CAPI (Computer-Assisted Personal Interviewing). Double Screen CAPI, the technology of choice has never been deployed on this scale anywhere in the world. 2. ‘Aided’ questions, like those for publication readership recency and frequency, will be randomised by the CAPI system, thereby eliminating presentation order bias. 3. Interview durations will be capped at less than 40 minutes. The current IRS interview goes well beyond an hour. 4. Data Fusion and Ascription will enable comprehensiveness by extracting greater efficiency from every interview. 5. Highest emphasis has been placed on security and integrity. Geo-tagging, voice recording and live interviewer route tracking will deter would-be fraudsters. 6. The IRS technical committee morph from being an administrative overseer of the study to an ideas laboratory that will constantly generate evolutionary and revolutionary initiatives to drive ahead the study’s agenda. ±The first part is excerpted from A New Readership Survey in the Works, Business Standard, May 18, 2012 and the second part of the main changes in IRS written by Paritosh Joshi, principal, Provocateur Advisory.

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Notes 1. 2. 3. 4. 5. 6. 7.

8. 9. 10.

11. 12. 13.

14. 15. 16. 17.

18.

Throughout this chapter publishing or print industry refers to the Indian newspaper and magazine industry. This does not include books. World Press Trends 2008. Compounded annual Growth Rate. In 2005 when FII or foreign institutional money was allowed is when the investment really started flowing in. Table 0.4 has a total of all investments in media over 2010–2012. Disclosure: I write a fortnightly column for Mid-Day. For the most lucid analysis on the impact of the net do read ‘The State of the News Media, 2013’ (thestateofthenewsmedia.org) available online for free. A lot of my understanding of what’s happening in the US market comes from it. The Future of Print Media, The Capstone Report 2011. After BCCL Guha was with the Zee Group for a few years before he set up his own firm Culture Company in 2008. Circulation refers to, literally, the number of copies a newspaper or magazine circulates. A bulk of these are copies bought and paid for by readers. It does not include free copies. Circulation revenue refers to the money that newspaper companies collect from the cover price after deducting trade margins. Sinduja Rangarajan worked as a qualitative researcher with TNS India and in the research team of Colors, at Viacom18 Media. She is currently studying journalism at University of Southern California. See section on metrics for more details on what the currency is and how it operates. For more on what publishers do, do read ‘Time to grow up, Indian media,’ in Mint, Sep 22, 2008 by Pramath Raj Sinha. Sinha is currently CEO of Nine Dot Nine Mediaworx and was earlier the head of ABP, the publisher of The Telegraph and Businessworld, among other brands. Most of what I have written in this portion has appeared in my columns or other pieces of work that I have done over the last few years. So it may sound familiar to people who have read me on this earlier. http://presscouncil.nic.in/HOME.HTM Go to the Sub-Committee report link under the sub-head ‘Paid News’ on the website to read the report. Initial Public offer or a company’s first listing of shares on the stock market. Net users refers to surfers. This is usually a multiple of the number of subscribers. In India the multiple is assumed to be five people per net subscription, therefore 127 million users (based on a 25.33 million subscriber number). Source: The Telecom Regulatory Authority of India or TRAI website. These are processes in the production of newspapers and magazine— pre-press means the process before production, press literally means the production and post press means post-production.

62  The Indian Media Business 19. Eight Trends to Track in 2008, From measuring total audience to hyperlocal news coverage, newspapers are auditioning new business practices in 2008, PRESSTIME staff writers, Newspaper Association of America. 20. Log on to http://www.aim.org.in/aim_cms/uploaded_files/engagementguide.pdf 21. A title is an individual magazine or newspaper brand. For instance Dainik Jagran is a title of Jagran Pakashan or Time Out is a title licenced to Paprika Media. 22. These numbers maybe at odds with the `13 billion figure you see in the FICCI-KPMG report 2013. This is because the `16.5 billion is taken from an EY report on magazines that I reckon is closer to reality. 23. A BtoC or business-to-consumer magazine or newspaper is targeted at a larger more general mass of people, say Outlook or India Today. A BtoB or business-to-business publication is targeted only at people within a certain trade or business. 24. ‘Size Matters, but for who?’ Jim Chisolm, futureofthenewspaper.com 25. Jagannathan, N.S., 1999. 26. Roughly individual letters of the alphabet are moulded out of metal and joined together in a sequence of sentences to print. A page made thus is imprinted on any variety of materials, such as bromides or rubber plates. These in turn carry the impression on to paper. 27. There are some differences in the dates for the launch of many of these newspapers depending on the source. According to two different sources, Sambad Kaumudi was launched in 1820 and 1821. For the sake of consistency I will stick to only one of these. N.S. Jagannathan, 1999. 28. Mammen Mathew’s grandfather’s brother, Kandathil Varghese Mappillai, was the founder of Malayala Manorama. Mammen Mathew’s father (K.C. Mammen Mappillai) followed in his footsteps. 29. See portion on regulation. 30. Even the film industry during this time was flush with post-war profit. For more details see chapter on Film. 31. Data from INS, RNI and ABC sites in March 2013. RNI registers all print titles, though its name suggests that it registers only newspapers. The Audit Bureau of Circulations audits circulation numbers and The Indian Newspaper Society is an industry body. 32. This incidentally is true for TV news channels too now. 33. A large part of this was the result of a foreign exchange shortage that was constant in those days. 34. Of course publishers too were not blameless. Most industry insiders admit that many publishing houses were guilty of under invoicing of newsprint when they had actually bought more. The surplus was sold off in the black market. In some years publishers made more money from the sale of newsprint than from publishing. Others registered newspapers got licences to import newsprint which was then sold at exorbitant rates. 35. The Press Institute of India in New Delhi still houses some of the magazines brought out during the Emergency.

Print  63 36. The 11 essays appeared in the Economic and Political Weekly during January–March, 1997. Jeffrey’s work is by far the most comprehensive and insightful piece of writing on the Indian press that I came across. 37. Much of the Eenadu experience has been sourced from Jeffrey’s essays. 38. Mid-Day positioned itself as an ‘All Day’ paper from April 2011. It now sells more than 70 per cent of its copies through home delivery. 39. Chitralekha is a leading Gujarati and Marathi weekly. Kapadia has been with the Lokmat Group and DB Corporation before setting up a firm. [email protected] specialises in media consulting. 40. Most of the data for this part comes from old Businessworld articles and BCCL’s annual reports. 41. BCCL’s financial year is June–July. 42. While newsprint is indeed under open general licence (OGL), it is still a restricted item. A publishing company needs an authorisation letter from the RNI before it can import newsprint. 43. While satellite TV came into India in 1991, it really took off after Zee and several other private broadcasters, like Sony, Home TV or Sun TV came into the market between 1991 and 1995. That is why I refer to 1995 as the take off point. 44. A&M and some of the other magazines have since shut down. 45. The two parted ways in 2008. 46. Deccan Chronicle expanded in a frenzy and piled up too much debt. It is now in financial difficulties and could be taken over. 47. For more on this read ‘The Dhoni Effect’, a report on the growth of smalltown India from EY and ‘Is regional the new national?’, a two-part series I did on the growth media in small town India on afaqs.com in August 2008. 48. Indian Readership Survey or IRS data for quarter 3, 2012—sourced from the MRUC website. 49. The actual cost will vary depending on the number of pages and amount of colour in that particular edition. 50. Later she joined Zee TV, then Zoom and in 2005 she joined Radio City as CEO. 51. Part of the reason was also because language newspapers did not have the best technology for colour reproduction. 52. See http://www.auditbureau.org/guide/ for the guidelines. 53. Merchant was formerly with IMRB and had worked on NRS from its inception till she quit IMRB. She is now retired. 54. Data on IRS is sourced from the Media Research Users Council’s website, www.mruc.net. 55. The HPI is based on a calculation of 50 variables derived from IRS. The SEC or socio-economic classification is proving inadequate when it comes to explaining propensity to buy. HPI tries to address that. Of the 50 variables, 22 are about durables ownership, 18 are on FMCG usage and the rest are demographic variables—highest education in household (HH), chief wage earner’s (CWE) education, the housewife’s education. The durables and FMCGs are chosen on the basis of penetration—there is an

64  The Indian Media Business inverse relation between penetration and the durable chosen. So, between a 2-wheeler-owning HH and an AC-owning one, the latter is the choice. Each HH is scored and then a composite score is arrived at. This composite is then indexed to 1000 so that it is comparable to all rounds of IRS data. You could look at the data in different ways—look at all HH with an HPI of more than 200. In Delhi how many HH are in the top one percentile or Delhi’s average versus some other city, so on and so forth. This is invaluable for advertisers who want to correlate product consumption to media consumption. 56. She is currently with Star India. 57. Cost per Mille or Cost per Thousand or cost percentage. In Latin Mille means thousand. 58. Eight Trends to Track in 2008, From measuring total audience to hyperlocal news coverage, newspapers are auditioning new business practices in 2008, PRESSTIME staff writers, Newspaper Association of America. 59. Up to 2008, this section has been put together by me along with Anish Dayal, Advocate, Supreme Court of India and a specialist in media and entertainment law. All updates post 2008 have been done with the help of Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath, Bangalore. 60. This provision is still on the statute book under Section 124A of the Indian Penal Code and prescribes punishment up to life imprisonment. 61. Supreme court refers to the Supreme court of India throughout this chapter, unless stated otherwise. 62. See Bennett Coleman vs. Union of India (1972) 2 SCC 788, AIR 1973 SC 106; Sakal Papers vs. Union of India AIR 1962 SC 305; Indian Express Newspapers vs. Union of India (1985) 1 SCC 641. 63. Express Newspapers vs. Union of India AIR 1958 SC 578. 64. See Romesh Thapar vs. State of Madras AIR 1950 SC 124; Brij Bhushan vs. State of Delhi AIR 1950 SC 129. 65. See Prabha Dutt vs. Union of India (1982) 1 SCC 1; State vs. Charulatha Joshi (1999) 4 SCC 65. 66. See Tata Press Ltd. vs. Mahanagar Telephone Nigam Ltd. (1995) 5 SCC 139. 67. See Consolidated FDI Policy, paragraph 6.2.8.2, Ministry of Commerce and Industry, Government of India. 68. See Consolidated FDI Policy, paragraph 6.2.8.2.1(i) Ministry of Commerce and Industry, Government of India. 69. Guidelines for Publication of Indian Editions of Foreign Magazines Dealing with News and Current Affairs, Number 14/4/2008-Press (Part-1) dated December 4, 2008, issued by the Ministry of Information and Broadcasting. 70. The RNI is a notoriously bureaucratic and difficult body to deal with. Most permissions to launch a title or even change the name of one, take more than 6–12 months, if not more. 71. See K.M. Mathew vs. K.A. Abraham (2002) 6 SCC 670. 72. Guidelines on HIV/AIDS and the Media, Press Council of India, available at http://presscouncil.nic.in/guidelines%20on%20HIVAIDS.pdf

Print  65 73. See Media Reporting on Children, Press Council of India, available at http:// presscouncil.nic.in/Guidelines_on_Media_Reporting_on_Children.pdf 74. The Press Council (Procedure for Inquiry) Regulations 1979. 75. A huge thanks to Amol Dhariya, director, IDFC Capital for help with this section. 76. Earnings Before Interest, Taxes, Depreciation and Amortisation. 77. http://www.fastcompany.com/1806749/new-york-timess-nick-kristofjournalism-digital-world-and-age-activism 78. FICCI-KPMG Report 2013.

CHAPTER 2

Television The Indian television market is finally coming into its own.

O

n the face of it, television1 is doing as well or as poorly as the rest of the media and entertainment industry. If you look at the numbers for growth, these are on par with those of the industry at about 12.5 per cent CAGR.2 That, however, is misleading. If there is one segment of the media business that has got its act together between the last edition of this book and this one, it is television. From an operational and structural point of view, the Indian television business is finally entering a stage that should become the stepping stone to higher growth. It is now hugely consolidated at both the broadcasting and the distribution end. On the broadcast side, five networks—Star, Sony, Zee, Sun and Network18—control over 65 per cent of all TV viewing in India. On the distribution side, six large direct-to-home (DTH) operators control over 51 million homes homes.3 Within cable, too, a handful of large players—Hathway, InCable, DEN Networks— are emerging. In many ways, digitisation is driving this consolidation and making some of the most fundamental changes to the television business. Thanks to DTH and a 2011 legislation that has mandated cable digitisation, the Indian television market is set to emerge from the profit-squeezing, structural chaos that has dominated its existence so far. Simply put, digitisation increases the capacity of the pipe that delivers television signals to your home by 10 times and more. (More on this in Caselet 2a—Everything you wanted to know about digitisation.) So these two trends—consolidation and digitisation—will dominate everything about this `400 billion business in the coming years. In the last edition, I had talked about why the industry was doing badly—it was going through the pain of transition. In the five years

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ending 2010, the operating margins for Indian broadcasters had halved to about 13 per cent. They were half of what print media earns and less than half of what the TV business in Brazil would earn. That transition is still happening, but the worst is over. Going by the deadline set by the government, by the end of 2014, all of India’s 153 million TV homes should be digital. By 2016, many of the benefits of digitisation should start kicking in. That is when the twin effects of consolidation and digitisation will start kicking in. And that is when the world’s second largest TV market should finally start to deliver on the promise of its volumes (see Table 2.2). We should see the emergence of a television market that has more revenue flexibility, less dependence on advertising revenues, more programming variety, more niche programming and better profitability. Some of the early signals are already coming in. The launch of three kids channels in 2012, the focus on youth programming and English entertainment are a result of the data that digital homes, already one-third of the total, are throwing up. Going by the Television Audience Measurement (TAM) research data for the first few weeks post digitisation, there are many more surprises.4 For example, the sampling of, say, Tamil programming is going up in Delhi (see Caselet 2a).Then, there is the effect on revenue: for most broadcasters, DTH now contributes more to pay revenues than analogue cable.5 (See ‘The way the Business Works’.) DTH was the first mode of digital distribution to come into India in 2003. As cable digitises too, thanks to the new law, pay revenues should go up from 10–15 per cent to 30–40 per cent of the topline for most large broadcasters. There couldn’t be better news. At over 46 per cent of the top line of the Indian media and entertainment industry, TV has a huge influence on its mood and shape (see Table 0.1). It is, along with films, the segment that defines the contour, body and tastes of the Indian market. This, however, is where the good news ends. To cash in on the opportunities that the combined forces of consolidation and digitisation unleash, several things have to fall in place. The metrics, regulation and pricing are just a few of them. Most are in a state of flux, either because the industry cannot deal with them in unison or because the regulator simply doesn’t get it. Take metrics for instance. There was a huge

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ruckus in 2012 when NDTV filed a billion dollar plus lawsuit against Nielsen Holdings in a New York court alleging corruption in ratings. The question of doctored ratings remains.6 But what is amazing is that the industry continues to drag its feet on kick-starting BARC7, the body that was supposed to devise and implement a new rating system. Take the case of news broadcasters. While television news is being reviled for various reasons, discussed later, news broadcasters are blocking the very moves that will help change things. They are so hung up on carriage fees and costs that they simply cannot see beyond the next six months into a fully digital future where commodity news will become irrelevant. What they should be working on is differentiating their content, investing in it and giving up on short-term advertising gains for now. The news broadcasters who start the process now are the ones most likely to survive. Or take the regulator, the Telecom Regulatory Authority of India (TRAI). It is hell-bent on applying to television, the principles it applied while regulating telecom. The effects so far, have been disastrous on most counts—primarily price regulation.

The Shape of the Business, Now The Issues To be fair, the TV business has got its act together in getting the two main bodies that represent it—the Indian Broadcasting Foundation (IBF) and the News Broadcasters Association (NBA)—up and running. They lobby on issues, inform the media about its stance and actually perform a critical role in the whole fractious ecosystem that has defined the Indian television business for long. The IBF, in fact, has been responsible for pushing through the legislation on digitisation. So, some hygiene factors are in place, but huge gaps remain.

Lack of Unity In mid-2012, NDTV filed a lawsuit against Nielsen Holdings, alleging that the latter brought out corrupt data. Ever since then, there has been a stream of invective against TAM and a large

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noise for change. However, the fact is that TAM was appointed by a joint industry body that simply did not do its job (see section on Metrics). More than six years ago, the whole idea of the Broadcast Audience Research Council (BARC) was floated. It is a joint venture between the Indian Society of Advertisers (ISA), the Advertising Agencies Association of India (AAAI) and the Indian Broadcasting Foundation (IBF). Its job is to commission audience research. But it remained in deep freeze. In 2008, for some reason, the TRAI first brought out a policy paper on ratings. In 2010, a committee under Amit Mitra did the same thing. Finally, the industry woke up. The lawsuit and the government’s increasing interest in ratings finally forced it to re-look into BARC, which is up and functioning now (more on the ratings in the section on Metrics). The whole ratings issue is just an example of one of the most upsetting traits of this otherwise dynamic industry. It simply cannot seem to speak in one voice when it matters most. On anything from price regulation and service tax to ratings and carriage fees, the television business has trouble coming to any agreement and, therefore, cannot lobby as one. News broadcasters have a different set of demands from those in the entertainment segment; DTH firms have their own agenda and multi-system operators or cable distributors are on another trip altogether. This is the sort of situation a government loves. It gives it room to manipulate policy to suit political objectives rather than take a route that has the industry’s growth as a priority. Says Atul Phadnis, CEO of What’s-on-India, ‘It is very convenient to bash up TAM but there is a larger issue of methodology and accountability. And accountability in this case cannot be dumped on one individual entity alone. There has to be a collective sense of responsibility at the industry level.’ 8 In most parts of the world, the industry gets together to fight this battle using research, lobbying and what is called co-opetition. For instance, in the US, the Federal Communications Commission (FCC) is a fairly powerful regulatory body. When the FCC wanted to push through ‘a la carte’ pricing in cable, the National Cable and Telecommunications Association (NCTA) worked with an army of researchers, both outside and within, to prove that applying the principles of voice telephony to determine television content pricing does not make sense. In India, the data on this is

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available. Yet, there is hardly any concerted economic argument that is being thrown at the TRAI. You hear disjointed voices from within the industry and the occasional CEO whining at a public forum on carriage fees. But when it comes to spending money and time commissioning research to bolster their arguments and to actually convince the government, the media and consumers of their point of view, the business doesn’t make the effort. Some change is taking place with the issuance of the content code by both the NBA and the IBF. Then, there is BARC. As I said, some of it is getting tackled but not fast enough. What it proves is that the industry is capable of getting together if it wants to.

Regulatory Issues While there are several regulatory issues, most stem from one single factor—ad hocism. Media regulation is dependent on the mood of the government of the time. While TRAI, the broadcast regulator, comes up with some of the finest consultation papers and recommendations on issues to do with broadcasting, the MIB either pays no attention to them or often changes them beyond recognition. There is no overarching legislation that evens out the playing field, either in terms of investment or technology norms, for segments across the broadcasting value chain. Without these basic enablers in place, the ad hocism gets a free hand. For some reason, an excellent piece of legislation that could have dealt with all of this, The Communications Convergence Bill, has been put into cold storage and replaced with a half-baked Broadcasting Bill that has, thankfully, lapsed. Studies of broadcast markets across the world show that where the regulator is technology-neutral and allows for a level playing field among different distribution technologies, digitisation increases. This is seen, for instance, in a study done by the Cable and Satellite Association of Asia (CASBAA) in Hong Kong and the UK. As a result, consumers in these markets receive pay-TV channels and other services through multiple, competing technologies. Digital has penetrated 100 per cent of Hong Kong’s pay-TV homes. You could argue, of course, that CASBAA is an industry body and will lobby for more freedom and also that Hong Kong is a fraction of India’s size and complexity. However, the fact remains that even

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in large democratic markets—say, the US—evenness of regulation has resulted in a robust television market. The key regulatory issues in India are: Pricing  In 2004, on the back of rising protests over cable prices, the TRAI froze and later mandated a 7 per cent increase in tariffs for television in 2005. Later, in 2007, it extended this to all cable networks across India. While the Telecom Disputes and Settlement Tribunal (TDSAT) rejected the order, in March 2009, the Supreme Court upheld TRAI’s decision.9 However, TRAI’s penchant for price regulation is completely at odds with the nature of the business. The authority is applying the same logic that it applied to voice, a commodity service. It pushed through mandatory pricing in telecom and as competition increased, consumers benefited, volumes rose and firms started cutting prices themselves. Yet, they made money because the volumes rose. In television, however, the product is not a commodity— television content comes in different shapes, sizes, textures and it costs differently. For instance, a cricket tournament lasting a few days could cost million of dollars while a top-rated talk show might take half a million rupees an episode. So much depends on the stars, the production house, how much the channel spends on promoting the show, its success and therefore advertisers’ willingness to pay for it. Mandating prices of the television signals that carry these shows is like insisting that all fruits and vegetables should sell at the same price. For long, broadcasters have complained about this, but without effect. The best way to understand this is through the debate that took place between the NCTA and the FCC in the US some years back. The FCC wanted to push through ‘a la carte’ pricing because it believed that cable prices in the US have been rising. On the other hand, the NCTA argued that the FCC was using the wrong measures to look at cable pricing. It questioned the FCC’s logic of using telecom as a benchmark to regulate cable video prices. Both average revenue per minute and the Consumer Price Index (CPI) are essentially metrics used for voice. The NCTA proposed using Price per Viewing Hour (PPVH),10 similar to the average revenue per minute metric in the wireless telephone industry.

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Since the FCC had no mechanism at all that adjusts for quality, it showed that cable prices were moving up. When measured using PPVH, the real price of expanded basic cable service was shown to have steadily declined in the US. Unfortunately, in India, while such data exists, broadcast associations do not use economic logic to beat down price regulation. They just lobby with long-winded arguments. Even if they just plotted average cable prices per home, irrespective of hours watched, and adjusted them for inflation, the chances are it would show a fall in real terms. Even without that data, there is enough evidence across the world to show that flexible, free markets such as Australia, New Zealand, Hong Kong, the UK, Malaysia and Singapore, among others, have the highest rates of digital pay-TV penetration. Satellite space11  The other major regulatory issue that could stump growth, especially of pay revenues, is that of Ku-Band transponders. Essentially, these are the satellites that are needed for DTH transmission. Each Ku-Band transponder can pack in between 9 to 14 channels of good quality with MPEG 2 (moving picture experts group) technology and twice that number with MPEG 4. Both of these, MPEG 2 and MPEG 4, help compress audio–video data and are called ‘compression technologies’. As luck would have it, a bulk of the DTH operators in India are on MPEG 2, so their ability to increase channels on their existing transponders is limited. To this, add a satellite capacity constraint. Regulations state that for licence applications, preference should be given to firms using Indian satellites. The problem with doing that is though Indian Space Research Organisation’s (ISRO) Insat satellite system has done a great job, it cannot fulfil the market demand for Ku-Band services required by DTH licence holders. According to a CASBAA report12 only 18 of the 73 transponders used by DTH companies such as Sun Direct or Dish TV, are on Indian satellites. The rest are all on foreign satellites. By 2017, India is expected to have 1,600 licenced channels and about 1,300 operational ones. This will need DTH operators to use 222 transponders. However ISRO’s capacity is not expected to increase to more than 50 by 2017. There are enough private foreign satellites over India that offer Ku-Band capacity. While access to foreign satellites is technically permitted, it is, however, through ISRO. So,

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effectively, foreign satellite operators are barred from providing services directly to DTH operators in India. This in turn means that DTH operators, especially the ones with MPEG 2 technology, cannot offer more channels. They just don’t have the capacity to do it and leasing the transponders is not that easy since ISRO is a stumbling block.

Technology Many of the streaming technologies (such as IPTV or mobile TV) or the ones that offer a personal/digital video recorder (PVR/DVR) such as TiVo on DTH, allow consumers to skip ads. A US study showed that homes with DVRs watch 25 per cent fewer commercials than non-DVR homes. This has tremendous implications for advertisers. For one, it means that they can link rates to actual commercial watching. And also they can target homes that are watching only their commercials. But it also kills the mass nature of the medium. However, it is only when streaming technologies such as IPTV are adopted on a large scale that the implications will be clear. There is also a threat to advertising revenue from the growth of the Internet, especially in mature markets, say analysts. In the US, for instance, cable network audience size is matched by some Internet properties.13 To this, add the Internet’s ability to convert a decision into an action (buying something or signing up). It makes the Internet an attractive substitute for cable network advertising (See Caselet 2c). Much of this, however, is some way from hitting India.

The Opportunities and Trends Like I mentioned earlier, the two biggest trends are consolidation and digitisation. These in turn give rise to multiple opportunities to generate revenues and to improve profitability.

Consolidation More than 65 per cent of the total TV viewing audience is now controlled by five large networks: Star India, Sony, Network18,

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Sun and Zee Group. Please remember that this refers to the audiences they control as networks. For instance, Star has 35 channels, Sony has six and Sun has 30.14 The total of their combined viewership, totted up, comes to over 65 per cent. Already digitisation is moving on schedule. This means that the fragmented distribution side of the business will get consolidated too. Currently six DTH operators control over 51 million TV homes or one-third of the total TV homes in India. It is safe to assume that by the time digitisation is completed in December 2014, four large cable companies and six odd DTH operators will be controlling the 153 million home Indian TV market. Both fragmentation and hyper-competition have squeezed broadcasters between rising costs and falling ad rates (see ‘The Way it Works’). Factor in pay revenues which have not delivered. That explains why operating margins fell in the five years ending 2010. As their networks scale up, broadcasters will get pricing power with advertisers. As the cable, DTH and other companies that distribute TV content grow in size, their ability to pay better share to the broadcaster improves. Eventually as digitisation spreads and they can market channels in tandem with DTH or cable operators, average revenues per user (ARPUs) too should go up. Already operating margins for some of the bigger TV firms are creeping back to the 15–18 per cent level. In 2012, for the first time in three years, general entertainment channels (GECs) pushed up their advertising rates.

Digitisation Please see Caselet 2a—Everything you wanted to know about digitisation Some of the other opportunities are:

IPTV This is essentially a way of delivering television signals on the same network that you get your telecom or Internet services on, using Internet protocol. So, IPTV could be provided by telecom operators and even Internet service providers. A set-top box—similar to the one given by a DTH operator—at the consumer’s end decodes the

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data, and converts it into standard television signals. This set-top box is connected to your television and contains a hard disc (a data storage device) which saves and streams programmes. Theoretically, this brings flexibility to your viewing as the stored programmes can be treated like a video tape. Functions such as forward, rewind and pause can be used with such a service. This is essentially what PVRs or DVRs, such as TiVo, currently provide to DTH or satellite TV consumers in the US. Tata Sky offers the same with its Tata Sky Plus service in India. The reports on IPTV’s success are mixed. Currently, China with 23 million and Korea with 6.5 million subscribers are among some of the largest IPTV markets globally (see Table 2.2).

TV on the Internet Most of the entrepreneurs investing in television over the Internet are doing it on the back of falling server prices, the rise in broadband offtake and the rise of peer-to-peer (P2P) distribution services. A combination of these elements allows the scaling up of Internet TV at little cost. Much of this caters to the popular notion that in the future, consumers will want their entertainment on devices and at times that are convenient to them. Some of the popular channels on YouTube out of India— T‑Series, Rajshri TV, Shemaroo—give you some sense of what is working. But these are not pure TV plays. Also, their revenue from this source is as yet negligible.

Mobile TV Mobile television broadcasting is a kind of terrestrial broadcasting (see ‘The Way the Business Works’). Currently terrestrial television broadcasting remains the exclusive domain of DD under Prasar Bharati. A TRAI paper states that most of the existing handsets can be used to view mobile television services and new handsets are not required by subscribers of third generation (3G) mobile telecommunications networks. There are two ways in which mobile TV could be offered:15 Through traditional mobile networks A mobile subscriber has a two-way link with the airtime operator. This telecom link is used

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to carry voice (and very often data) to and from the subscriber. The same link can also be used to deliver video content. So, in its simplest form, a mobile phone user can access content stored on the server of his airtime operators—which is what we do when we download a song or ringtone from Vodafone’s system. The same system can offer stored films, sports or news. While this is not live TV, it is streaming content that can meet several needs for information, entertainment and create a revenue stream for mobile and TV companies, just like music or wallpapers currently do. (See Chapter 6—Telecommunications.) It liberates the subscriber from the programme schedules and allows him to store such programming on other devices. However, there is an issue with this technology. It needs separate dedicated channels for delivery of the same content to different users. That means if 10 people are watching a news clip on their mobile, there will be 10 channels reaching out to those people, each using different slices of spectrum. Just like IPTV this is a spectrum-inefficient technology and could cause network congestion if several users want the service simultaneously. With clogging and poor service quality already impacting the quality of voice services, it seems impossible for operators to offer mobile TV services within the same 2G–2.5G system. However, broadcasters such as Zenga TV have found technology solutions that enable mobile broadcasting over 2G networks.16 Besides this, 3G has already been rolled out, and several companies offer edited films and other long form content on the mobile. Also, since this is not live broadcasting, it is difficult to offer some of the things that could appeal to a mobile subscriber— live news, sports—the kind of content that consumers may want when they are on the go. Broadcasting technologies  A one way (terrestrial) broadcast network can also be used to sell mobile television. The content delivery here is very similar to the FM radio tuner in mobile phones. A mobile subscriber listening to the FM radio on his handset uses the battery and speakers of the telephone, but the content is carried on the FM broadcast spectrum. Similarly, the handset can be used to view mobile television by using television broadcasting frequencies. Various broadcasting technologies are being tried for mobile television services around the world. According to the TRAI paper on mobile broadcasting, Digital Video Broadcasting–Handheld

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(DVB–H) is more popular in Europe, Media Forward Link Only (Media FLO) has been used in the US. In Korea TerrestrialDigital Multimedia Broadcasting (T-DMB) and Satellite-Digital Multimedia Broadcasting (S-DMB) are in use. In Japan it is One Segment Broadcasting (OSB). The use of broadcasting technologies for mobile television services delivers better picture quality as compared to 3G video streaming. However, these technologies deliver live programming with little interactivity or personalisation. Streaming video, on the other hand, offers both interactivity and personalisation even though it cannot offer live telecast.

The Other Revenue Opportunities Some of the revenue opportunities that are increasingly standing out are: Syndication As portals offering TV content or phone services offering news take off, the opportunities for syndication are on the up for most television broadcasters as well as content companies. So the revenue shares from mobile operators or portals such as Rajshri. com (See Chapter on Film and Telecommunications) are now beginning to add up. Plus there are the syndication opportunities in overseas markets, especially Asian ones where the cultural connect with Indian content is better. For instance, at one point some years back, dubbed-in-Sinhalese versions of Kyunkii Saas Bhi Kabhi Bahu Thi and Kahanii Ghar Ghar Kii were the top-ranking shows in Sri Lanka. Similarly Tamil soaps do well in Singapore and Malaysia and Malayalam shows are popular in the Middle-East.

Pay per view Several DTH operators now offer pay-perview services in India. A good movie could get anywhere between 200,000–300,000 views. At `30–50 per home, that is a maximum of `15 million. Multiply that by ten such films per year and you know why there is an opportunity there. In 2013, Kamal Haasan’s Vishwaroopam tried to use this window by releasing the film on DTH on the same day as the theatrical release for `1,000. While theatre owners

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blocked it for Vishwaroopam, eventually the pay-per-view window will emerge as a significant one, once digitisation is complete (See Caselet 2a—Everything you wanted to know about digitisation and also Chapter 3: Film). Mobile Every time a dance or reality show has a polling component, it is a revenue opportunity for the television station which gets a share. Most broadcasters, even DTH operators, now try to build in contests, polling opportunities or SMSing (short text messaging) opportunities into their programming. For instance, many television stations airing films usually have a ‘answer this question now’ kind of contest about a scene or a fact from the film. The plots of popular soaps are sought to be changed based on audience feedback.

The Programming Opportunities Take a look at Table 2.3. Across the last five years, one thing is evident: that several other genres of programming are flowering and finding an audience. Kids, news and (non-Hindi) language programming in particular have shown substantial jumps in viewership time. Now dovetail this with digitisation which is throwing up its own patterns (see Caselet 2a). The viewing patterns in digital homes show a skew towards youth, sports, niche programming. What most of this indicates is that the different audiences within this large country have now started showing on the metrics. So, more segmented programming will soon follow.

The Past The Beginnings The first experiment with television broadcasting in India involved a makeshift studio at Akashvani Bhavan in New Delhi, a low-power transmitter and 21 television sets. These were installed in the homes of various bureaucrats and ministers. Some of the equipment was a gift from a west European government. Bhaskar Ghose, who went on to become Information and Broadcasting secretary, was just a child then. He recalls with amusement that

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his early memories included listening to music on television. The accompanying video: that of the gramophone playing it! It sounds primitive, but that is what television looked like in India in September 1959. An entire generation, which grew up on black and white television, Krishi Darshan and Films Division cartoons, can recall the utter lack of imagination in the programming. From those beginnings, it is hard to believe the scale that the television broadcasting business in India has achieved today—and more incredible, that it is neither government-owned nor controlled (see Table 2.1).17 Of course the government, in all its wisdom and folly, did control television for more than three decades after India saw its first television broadcast. The first school television service was commissioned in New Delhitwo years after the first few experiments. This was for the institutions run by the Delhi Municipal Corporation. By 1965, television broadcasting matured to a one-hour service, which included a news bulletin. In 1972, television went to Bombay (now Mumbai), India’s commercial capital and by 1975 five more cities each had a television station called Doordarshan Kendra. All this time, television broadcasting was largely a terrestrial phenomenon available in cities where the government had set up transmitters of varying ranges. Currently, according to DD’s website, there are 1,400 transmitters spread across India. According to TAM there are 134 million television homes that can receive the signals that DD sends out.18 Several milestones mark the journey from 21 sets to 134 million of them: regional kendras, the first commercials, national network, DD Metro, and colour television, among others.

The Doordarshan Years Today, many of us dismiss DD and what it dishes out. All the same, it was DD that shaped the television broadcasting industry in India—not by design, but by its very existence. In most parts of the world, except in the US, it is the public service broadcasters (PSBs) who have done the pioneering work. From the BBC to the Canadian Broadcasting Corporation, PSBs have set higher and higher benchmarks for private broadcasters to follow. The BBC, for all the bad press it gets in the UK, keeps its head above water

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(just about) and yet fulfils its role of being a PSB admirably well. It could be argued that it is the licence fees from British taxpayers that ensure BBC’s survival. A closer look at its accounts shows that BBC gets an increasing share of its income from syndicating its content. In India, too, DD showed great promise in the early days. The first satellite television experiments were undertaken by DD as early as 1975–76. It was under the Satellite Instructional Television Experiment (SITE) that the Indian government used the US-based National Aeronautics and Space Administration’ (NASA) Satellite ATS-6 for educational programme broadcasts in Indian villages. It was trying to solve the problem of weak transmission to distant villages through the terrestrial network. SITE was an attempt to see if bouncing the signal off a satellite would increase its coverage. It did. By 1978, the government was encouraged enough to implement its own satellite system. This was contracted out to Ford Aerospace and Communication Corporation. Then came the Indian National Satellite (INSAT) programmes, a joint effort by the ISRO, Indian Posts and Telegraph Department, Ministry of Civil Aviation and MIB. The INSAT series of satellites helped fulfil the objectives of getting DD into the maximum number of community television sets. Colour transmission began in 1982, thanks to the Asian Games, hosted in New Delhi. It was around this time, in the early 1980s, that the commercial contours of the industry started taking shape. During these years DD had been serialising novels and other works of literature. However, these did not make money; not that they were supposed to. In 1983, came India’s first sponsored programme, Show Theme, produced by TV personality Manju Singh.19 Then, in 1984, a US-based non-government organisation (NGO) approached the MIB to do a serial. This would actually be a family-planning message couched as entertainment. It was an experiment that had worked successfully in Catholic Mexico, where overt family planning messages could not be used. So, soap operas conveyed the message and helped push down the birth rate. The idea appealed immensely to the Indian government. That is how India’s first soap opera, Hum Log, was first aired in July 1984. The idea was to show a family beset with all the problems typical to a large lower-middle class Indian family: poverty, alcoholism

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and illiteracy. These have also been the hallmarks of India’s problems with population, then as well as now. At the end of the show, veteran actor Ashok Kumar would come on screen to say, in subtle ways, that a large family was at the root of all trouble. Unfortunately, for family planning—and fortunately for commercial television—the message was lost in the serial’s mad popularity. More than 80 per cent of the 3.6 million Indian television sets at that time tuned in to Hum Log every week. Eventually, as former bureaucrat Ghose puts it, the serial developed a life of its own. Maggi Noodles, a brand owned by Nestlé India, sponsored the first soap on Indian television. The multinational paid for the telecast fee and production cost of Hum Log and got about five minutes of commercial time in exchange. It used this to advertise its brands. The success of Hum Log egged DD on to create more entertainment programming. Buniyaad, Katha Sagar, Khandaan, Nukkad and a host of other popular serials and sitcoms followed in the mid- to the late-1980s. Telecast fees and commercial airtime rates on DD began rising. From `170 million in 1983–84, DD’s revenues rose to `2.1 billion in 1989–90. By the early 1990s, DD began charging anywhere between `100,000 to `500,000 as minimum guarantee or telecast fees. In exchange it gave a certain portion of the programme’s airtime to the producer.

The Cable Years If the beginning of commercial television in India seems like a cute accident, the origins of cable broadcasting that began around the same time appears even more amusing. While the precise date of cable television’s appearance is difficult to arrive at, it is clear that it began in the early 1980s in Mumbai. Dinyar Contractor, editor of Satellite & Cable TV magazine, reckons that cable took off with the introduction of colour television and the hosting of the Asian Games in New Delhi in 1982. On the other hand, Yogesh Radhakrishnan, one of the earlier entrants, believes that cable took off with the Los Angeles Olympics in 1984 which kicked off a second spurt in the sale of colour TV sets. It is likely that both these events contributed toward the phenomenon. The cable years can be divided into the following three phases:

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First Comes Plain Cable Regardless of the year, it began with viewers’ desire for a sharper reception, especially in Mumbai where tall buildings hampered the quality of terrestrial transmission. That is how entrepreneurs like Siddharth Srivastava (ATN), Radhakrishnan, Jagjit Kohli, Yogesh Shah, Ronnie Screwvala and companies such as Nelco stepped in.20 Men like Shah and Kohli offered to set up one master antenna for entire buildings with one cable running from the antenna. This eliminated the problems of multiple antenna for different flats with their multiple wires criss-crossing the building and cluttering the terrace. Anyone who lives in Mumbai will know that the terrace is a precious space. The cooperative societies that run these buildings were glad to have someone clear them up. In exchange for doing this, these one-man outfits were paid installation charges of `500 and `40 or so per household per month for service.21 In evolutionary terms, therefore, cable growth in India is somewhat similar to that in the US. In the US, cable television evolved because homes in hilly regions could not get a clear reception of terrestrial broadcasts. The growth of cable in both markets rode, to begin with, on the terrestrial network. The difference is that it happened in the US in the 1960s and 1970s, whereas in India, the beginning was in the mid-1980s. The other big difference is that local authorities quickly took over in the US and territories were sold to the highest bidder, so that only one cable operator or company controlled cable operations in one area. In India, that did not happen. Since there were no official guidelines, operators mushroomed, propelled first by the video boom and then by the coming of satellite television.

Cable TV Joins Video Around the same time that cable began to snake its way around Mumbai, the video boom hit India. Since each building was wired up through a common cable, it could be easily plugged into a video cassette recorder (VCR) at one end to show a movie and, therefore, earn extra money. Thus began the true growth of cable television in India. The local cable operator in most areas

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would show a couple of Hindi movies daily. The tapes were of poor quality and there were too many ads, but it was manna from heaven for an entertainment-starved country. There are many stories about how cable originated and expanded in India, one of the more interesting ones is narrated by Contractor. The Nelco story  Contractor was working with the beleaguered colour television set manufacturer, Nelco (a Tata Group company) at that time. The senior management saw cable as a means of pushing the sales of its TV sets. It began selling the idea of a cable hook-up to five-star hotels. If a hotel bought its television sets, it would throw in an additional three VCR channels plus two of DD at `20 per day per television per occupied room. The three VCR channels were essentially re-runs of programmes and movies taped overseas. Just like hot water or telephone, the hotel could offer cable television to its patrons. Nelco managers toured towns like Jaipur and Udaipur selling the concept and almost all the Tata Group hotels, like The Taj and the President, bought into it. Ronnie Screwvala, one of the many entrepreneurs who emerged at that time, did the programming tapes and maintenance. He was paid `1.25 per room per day. ‘In two years our business peaked,’ recalls Contractor. The cable entrepreneurs  There are other equally interesting stories on how cable operators emerged. For example, as a young man, Yogesh Shah had a lot of time to spare after working at the family business of trading in textile chemicals and dyes. When he saw some people checking out his uncle’s television at Shanti Nagar in South Mumbai for a common antennae system, he offered, on impulse, to do it. Within a few days he had the contract, wired-up the building with 120 connections and was charging `60 per home for showing two movies a day. Similarly, Jagjit Kohli, a textile engineer, saw a cable system in operation in South Mumbai in 1986—and was hooked. He decided to wire-up one building in Andheri, a northern suburb of Mumbai, for a lark. A year later, in 1987, he wound up the small textile business he was running to concentrate on the cable operation. By this time, he had 700 cable connections in the suburbs paying him `70 each per month. ‘Those days a size of 500 (subscribers or connections) was considered very good,’ remembers Kohli.

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The lure of cable for all these young men was very clear— money. It did not need too much investment, just the chutzpah to decide that it was perfectly safe to invest in running cables across trees and roads. This, when no one was sure whether it was legal (as it turns out, it was illegal). All it needed was a VCR and the money to rent a few video tapes a day plus a man to go and collect the money from people’s homes. That roughly meant an investment of `15,000 and approximately another `3,000 to `5,000 in running expenses, taking the total to roughly `20,000 a month. This could yield anywhere between `50 and `80 per home. Multiply that by an average of 100–150 subscribers that a typical operator had. Many of the youngsters who set up these businesses were making anything between `50,000 and `75,000 a month, a lot of money in those days. Not surprisingly, thousands of people jumped into the business, overcrowding it, undercutting each other and stealing customers. By 1990, there were 3,500 cable operators in Mumbai, though how many homes they covered in that year is not known. Incidentally, till this time cable television had not seriously spread beyond Mumbai. The convenience of wiring up a building and getting a dozen or more households at one go was possible only there. It was somewhere around the late 1980s, early 1990s, that cable television moved to Delhi and other parts of India. Also, till the early 1990s, cable was limited to small-time entrepreneurs showing movies. There was the odd video magazine like Newstrack from the Living Media Group. However, except for BCCL and Living Media, no major media house showed the slightest bit of interest in this new opportunity. The other players who entered the business were either film producers or small-time entrepreneurs, or even creative people such as Amit Khanna.22

The Cable Skirmishes The other bit of important history, from the same time, is that of the skirmishes between film producer, cable operator and video right owner. Typically, video rights were given away with all other rights. However, most producers or video right owners

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never thought that one tape would be shown to hundreds of homes at the same time. This robbed them of revenues they would have earned if the tape had been rented by each home that was viewing it on cable. There are many examples of legal cases, consortiums and infighting, which marked the industry throughout this period. In 1989, in a landmark judgement, Justice Sujata Manohar of the Mumbai High Court maintained that broadcast via cable was public viewing and that cable operators needed a copyright to show films.

The Satellite Years Thus, in its own disorganised, albeit entrepreneurial, fashion cable continued to grow and prosper. Strangely, a government that loved regulating just about anything, seemed not to have noticed this phenomenon. The first piece of legislation came only in 1995. Industry observers quip that it is precisely because there was no regulation that television has achieved the growth that it has.

CNN Comes to India What propelled cable, however, was satellite broadcasting of a popular cable news channel from America! To repeat a piece of popular history, when the Gulf War broke out in early 1991, fivestar hotels bought dish antennae that allowed guests to watch the war live. These hotels were already networked with cables and all they needed was an antennae that could catch the Cable News Network (CNN) signal. Cable operators too took to satellite broadcasting immediately. For them, it meant an investment of `200,000 (which soon fell to `25,000) in the dish antenna. All they had to do was catch the signal and transmit it over the wires already connecting subscriber homes to their control rooms. They also needed a few thousand rupees more for amplifiers to boost the signal. Soon, satellite dishes became a common sight throughout the country. Thus, it was CNN, the first cable news channel in the US, that brought satellite television to India.

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According to the news reports from that time, there was talk of CNN charging US$ 1 per hotel room that it was being screened in. CatVision, one of the few companies selling dish antennae, was the exclusive licensee for CNN. In effect, CatVision franchisees were the only people allowed to bundle CNN along with the dish antennae they sold. The reports also detail the problems that arose because CatVision claimed to be authorised to collect pay revenues on behalf of CNN. The next logical step for anyone in the business was to launch a satellite channel. Unfortunately, there weren’t too many satellites that could beam onto the Indian subcontinent. Most were beat up Russian satellites like Gorizont and these were not geostationary: operators had to keep twisting their dish every now and then to receive clear signals as the satellite moved across the sky. Siddharth Srivastava, a cable network owner, attempted to launch ATN on one such satellite only to shut it down.

The Birth of Star and Zee A little earlier, in 1990, Hong Kong-based billionaire Li Ka Shing’s Hutchison Whampoa Group, had bought ASIASAT 1, the only geo-stationary satellite over the Indian Ocean. It was a scrapped Chinese satellite that had its own parking space. Shing repaired it and gave it to his son, Richard Li. He then launched Star (Satellite Television Asian Region), the only channel beaming into China and India, in August 1991. Star began by beaming Prime Sports; it later added MTV (Music Television), BBC and Star TV to its bouquet. Around the same time, Li Ka Shing was also looking for companies that could buy space on his satellite. Almost every major Indian cable network owner approached him. So did BCCL’s Times TV and a then little-known entrepreneur, Subhash Chandra. Finally, Chandra won the much-coveted slot on the satellite and started broadcasting Zee TV. Asia Today Limited was formed as a 50:50 joint venture between Star and Zee. Subhash Chandra’s Zee TV, launched in October 1992, became India’s first privately-owned, Hindi satellite channel. It began with three-hour, largely film-based programming broadcasts before graduating to a 24-hour broadcast of sitcoms and soaps.

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Zee was what Indian television audiences had been waiting for. As they rushed to get this exciting new channel on their television sets, cable operators thrived and penetration increased. By the end of 1992, India had 1.2 million cabled homes; by 1993, the number had more than doubled to 3 million. In 1994 even that figure had quadrupled to 11.8 million homes (see Table 2.1 as given earlier).

The Forex Crisis, Murdoch’s Entry and Other Happenings As luck would have it, India went through a gut-wrenching foreign exchange crisis in 1991. The effect of this was felt in 1993 when an Reserve Bank of India (RBI) circular said that only companies with more than `1 million in exports over each of the two previous years could buy the dollars needed to advertise on a Star or a Zee. There are some who believe that the foreign exchange crisis was used as an excuse to hurt potential competitors to DD. It created a piquant situation where even multinationals that wanted to advertise on these channels could not unless they had RBI clearance. Some advertisers got a case-by-case clearance from the RBI while others used the State Trading Corporation, which was allowed to use dollars for this purpose.23 Around this time, Li Ka Shing had sold off 63.6 per cent of his stake in Star to Rupert Murdoch’s News Corporation for US$ 525 million. By March in the same year, Star had broken up with MTV and BBC. By 1994, there was talk of pay and encryption, again, rather accidentally. Star Movies claims it was the first to encrypt its analogue signals. That was because it had the right to show movies only in certain countries, but the satellite footprint went beyond them. That brought up the thorny issue of paying right holders for beaming a movie in, say, Afghanistan, when it had rights to show it only in India. So, it had to encrypt its signal. This period also saw the entry of what are now India’s largest non-Hindi television players. Sun TV began broadcasting with one Tamil channel. This has now gone up to 30.24 Sun currently dominates the viewership in all the four Southern states and is one of the country’s largest broadcasters. It was also marked by the rapid expansion of cable into regional markets—led by broadcasters themselves, most of the time, such as Sun TV’s Sumangali

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Cable. In others, it was a natural corollary of the popularity of cable television. For example, in Andhra Pradesh, the launch of Eenadu TV saw cable penetration take off.

The Growth Years By 1995, India had begun to resemble a respectable broadcasting market, prompting research agencies to offer electronic rating systems (explained later in this chapter). It also created a scramble in the media buying and selling world, as options other than print and outdoor exploded. Soon, larger Indian players jumped into the market. Home TV from the stable of Hindustan Times (now HT Media), Sony Entertainment Television (now Multi Screen Media) promoted by Sony Corp subsidiary Columbia Tristar (along with a bunch of Indian investors), Eenadu TV from Andhra Pradesh’s largest publishing company and a whole lot of serious players started entering the market. What was so far a cottage industry of types, run by cable operators offering channels from Star, Zee or local cable channels, was becoming bigger and bigger. This year also saw the passing of the Cable Act (see ‘The Regulations’). As the number of channels kept increasing, so too did the problem of small cable operators who did not have the space or the money to continue investing in dish antennae, cables and amplifiers. Besides, when broadcasters started charging operators for showing their channel, it meant two things. First, the operator had to start paying anywhere between `2 to `30 for a bouquet of channels and second, he had to invest in decoders. A pay channel is broadcast in an encrypted signal, which cannot be received without a decoder. Star Movies, one of the first to encrypt, offered operators a package of `40,000, of which `23,750 was the cost of the decoder. All in all, for a small cable operator with 200–300 subscribers, the whole operation was becoming unwieldy.

The Birth of MSOs25 This is when multi-system operators (MSOs) made their first appearance. Major broadcasters or cable companies backed by serious corporations or consortiums of cable operators began setting up large control rooms or ‘headends’. These had the dishes and

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the equipment capable of receiving many more channels than a small cable operator could afford. They offered the signal to the small cable operator on the basis of a fee per subscriber. In turn, the small cable operator could give this signal to the subscriber, over whom only he had control/access. For example, in 1994, United Cable Network (UCN), a consortium of five South Mumbai operators, was one of the first few companies to set up a headend or master control room. Broadcasters like Zee set up Siti Cable (now Wire and Wireless Limited or WWIL). Other large players such as Hathway Cable from the Rajan Raheja Group, RPG Cable and InCable from Hinduja, all started offering signals or the ‘feed’ as it is called in industry lingo, to smaller operators for a fee.26 As small operators started aligning with MSOs; their numbers reduced from about 60,000 nationwide, to the current 30,000.27 If it sounds a little confusing, think of cable television distribution in India as a chain that starts from the signal that broadcasters send to the cable operator. Cable operators then relay this signal into our homes. By mid-1995–96, this chain had a new player, the MSO in the middle. The MSO is a wholesaler of the signal while the small operator remains the retailer. Of this chain, the small operator was and still is the most powerful link. That is because he controls the last mile to your home. He is the person who collects the money from you every month. He, therefore, controls a significant portion of the revenues in the TV broadcasting business. If we take an extremely conservative average of `150 per household per month, for India’s 153 million cable and satellite (C&S) households over12 months, the total is over `275 billion.

The Arguments for Pay According to estimates just about 15–20 per cent of this `275 billion ends up with MSOs and broadcasters.28 This happens because small operators routinely under-declare their subscriber base. You just have to touch upon the issue to see broadcasters, MSOs and cable operators all go on the defensive, each for a different reason. While many of the arguments probably don’t hold in light of a rapidly digitising India, it is important to understand them to fully appreciate why digitisation is such a boon.

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The cable operators’ argument Cable operators love to point to markets in developed countries. In the US, a cable company charges a certain amount for a basic package of channels. The rest is then bundled and sold in different packages at different prices. Households buy the package they want and pay for that alone. This is made possible through a set-top box called a Conditional Access System or CAS system, installed in subscriber homes. This is referred to as ‘addressability’. Think of the set-top box as an electric metre. It enables the operator to supply the channels that you want. In most markets across the world pay TV, whether digital or not, is possible only with a set-top box. How else can a household be billed? When cable operators point this out, they have a valid argument. Most TV channels in India encrypted themselves without providing addressability. As a result, if an operator covered 1,000 homes of which only 600 watch a certain channel, he had to pay the broadcaster and the distribution network for all the 1,000 homes. Therefore, if he had 1,000 subscribers, he may admit to 250. Then the next year’s negotiation would yield another 100 and so on. The yearly negotiation on declarations is usually full of fights and switch-offs. ESPN–Star Sport has possibly had the maximum number of stand-offs with operators. The Maharashtra Cable Sena banned it as early as 1996. Some years back, the Mumbai High Court ruled that cable operators could not cut off signals when they fought with broadcasters since that would affect a third party which is not at fault—the consumer. The broadcaster/MSO stance Most broadcasters/MSOs dreaded the transparency addressability would bring. Many lobbied hard against it when the government mandated it in 2002 with the CAS amendment to the Cable Act. Also, it involved an investment of roughly `3,000 to `5,000 per box per household. Even if you take a lower-end box of `3,000, the whole enterprise could cost roughly `126 billion. Then, there is the `50,000 to `100,000 per channel per cable system for hardware, and `1 million for subscriber management software at the cable operator level.29 Unless MSOs or broadcasters were sure that they could control the last mile or access to revenues, they were not willing to make this kind of investment.

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The Growth Pangs The joint venture agreement between Star and Zee created interesting accidents in broadcast history. For example, one clause stated that not more than 50 per cent of Star’s programming could be in Hindi. Similarly, Zee could not launch sports channels because Star already had Prime Sports. However, by 1999, Star and Zee had broken up: very loudly and very publicly. Zee paid Star US$ 322 million for its stake in the joint venture and both Chandra and Murdoch heaved a sigh of relief—and the battle for eyeballs reached a different level. Once it was free of the no-Hindi clause, Star re-launched itself as a full-fledged Hindi channel. Around this time, regional channels too were appearing on the scene at regular intervals. Besides Sun and Eenadu there were now several channels in every major Indian language. The reasons for this rush were easy to understand. Transponder costs had crashed from about US$ 3 million at the beginning of the decade to US$ 200,000 to US$ 300,000 by 2003. The other is the manner in which the ad market has expanded to absorb more channels. As a percentage of the total ad market, TV has been steadily increasing its share. There are several genres that gained as a result—news and children, for example (see Tables 2.3 and 2.4 a, b).

DD Gets Hit The struggling state broadcaster never recovered from the body blow of audiences fleeing to cable and satellite channels. It attempted to flank its revenues through DD Metro, a full-fledged entertainment channel; and to its credit it did succeed to some extent. Then, in July 2000, it leased a three-hour slot on DD Metro for `1.21 billion to HFCL-Nine Broadcasting for a year. As a result, for the first time in more than five years, DD began to make inroads into the lucrative cable and satellite homes with ratings for some programmes touching six television rating targets (TVRs). However, DD refused to renew HFCL-Nine’s contract in 2001 and put the same slot up for re-bidding. HFCL-Nine, a joint venture between Kerry Packer’s Publishing and Broadcasting Limited and Indian-owned Himachal Futuristic Communications Ltd, then shut its Indian operations.

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Today, the only captive audience DD has is the 10 million homes that have no other option. According to IRS 2005, cable and satellite penetration, especially in rural India—DD’s stronghold—grew at twice the rate at which it has grown in urban India. In May 2000, former Nasscom head Kiran Karnik, Infosys founder Narayana Murthy and consultant Shunu Sen submitted a report on Prasar Bharati.30 The report contained an analysis of its main problems—overstaffing and a lack of direction. It made some sensible recommendations on how the corporation could work better. The report was largely ignored. The government keeps deciding how one of India’s largest broadcasting companies will be run. That’s sad because DD happens to have some of the best assets in the business. If its roughly 1,400-tower network is put to good use, as the Shunu Sen Committee report suggested, it could do both—public service broadcasting and generate revenues. Till now, DD relies on a budgetary support that keeps rising every year. In 2011–12, its revenues stood at `14 odd billion. This covered just about 48 per cent of its operating cost of `28.9 billion. The rest of the money came from taxpayers. There is talk of cutting budgetary support down. Till DD is financially independent, it cannot administratively or otherwise be free of government control; and because it depends on the government financially, it can never be free to make money. There is now another committee under Sam Pitroda that is looking at DD. The one sliver of good news from DD is the launch of DD Direct Plus in 2004. This free DTH service for which subscribers just have to buy a box and the antennae themselves from any dealer is doing very well, going by reports. In 2012, it was estimated that DD Direct Plus was in 8–10 million homes.

Forcing Addressability In the absence of a seriously competitive terrestrial broadcaster, cable has had a free hand in India. It was during 2000–02 when blackouts, court cases and consumer complaints kept erupting that the government tried to usher in addressability. An amendment to the Cable Television Networks (Regulation) Act, 1995, in mid-2002 made it mandatory to watch pay channels only with an STB.

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The flaws in CAS  This amendment and the government’s subsequent attempts to force it through had two inherent problems that led to its failure. First, the law and the notifications that followed it mandated that 6.7 million homes in the four metros should become CAS-enabled by mid-July 2003 or within six months of the act being amended. Anywhere else in the world, a CAS roll-out is staggered over several years, with maybe 100,000–200,000 homes being covered at a time. Considering that India is an opaque market where conditional access technology had not been tested it seemed logical to attempt this one city/area at a time. Second, the amendment was silent on who would foot the bill. Since MSOs and broadcasters had no control over the last mile, they were reluctant to put up the money. By default, it had to be the consumer. Globally, industry reaps the maximum benefits of addressability. That is why it subsidises part of the cost of installing set-top boxes. In fact, in most markets the demand and the initiative for addressability have come from within the industry— not been mandated. On the ground, too, cable operators and broadcasters lobbied hard to have the amendment changed, revamped or dropped. Neither wanted the transparency: operators because their ‘real’ coverage would come to light, and broadcasters because their ‘real’ viewership would be apparent. Only MSOs like Hathway and InCable, among others, invested money in buying CAS boxes and systems. However, the amendment was eventually whittled down and then ignored altogether. It was during this mess that the TRAI was appointed as the broadcast regulator for carriage (not content).

The Logjam Gets Worse By 2003 it was evident that something was seriously wrong with the way TV signals were being sold in India. There was—and still is—a logjam on cable. There are over 800 TV channels aimed at India whereas a TV set can take in only 56–106 of them. This is besides the hundreds of local cable channels, the ones that show pirated films. Both MSOs and operators started charging a carriage fee, literally a fee to carry a channel, on their system. Many

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also started demanding a placement fee in addition to that. This was a fee to place, say, an IBN 7 just before NDTV India or to shove Star News on to a hard-to-catch frequency and Aaj Tak on a better one. This started putting tremendous pressure on stand-alone broadcasters. Almost every new channel launch brought more money for cable operators and MSOs since they controlled the pipes. As long as there were 50–60 channels, it did not matter. But, as the numbers grew, the structural problems of cable—its fragmented, unorganised, opaque nature—were beginning to impact both advertising and pay revenues. The industry’s advertising revenues are hit when cable operators keep shifting channels and viewership falls. Between 2002 and 2004, advertising growth on TV began to slow down. For the two years starting 2003, yield per 10 seconds of ad time on TV actually fell for a majority of broadcasters. Second, pay revenues were hit because even popular channels now had to pay a placement fee, cutting into their subscription revenues. Since there is a mandated 7 per cent increase in cable rates, by TRAI, the scope for broadcasters to keep increasing rates to make up on this was limited.31 The problem was accentuated by the limitations on TV sets. Like elsewhere in the world, TV sets in India can only receive analogue signals. And, as with TV transmission systems across the world, the last mile in India is analogue. That explains the limit of 56–106 channels in spite of the quantity of spectrum this uses—between 550 and 750 Mhz. Currently, all channels are transmitted in the digital mode. Most of the MSOs convert them to analogue and then send them to operators.

The Ways Out of the Logjam Digitising the last mile was therefore critical. Any digital delivery into consumer homes could only happen with a set-top box, regardless of who was selling the TV signals—a terrestrial, cable, broadband (IPTV) or DTH operator. If set-top boxes were installed in every home that bought digital TV signals, addressability and 100 per cent transparency was guaranteed. There were

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therefore three solutions to this logjam: One, digitise cable; two, and/or push for alternate modes of broadcasting such as DTH or IPTV; three, digital terrestrial television. Option one  A digitised cable system can easily be made twoway. That means it becomes capable of offering voice or access to the Internet, or other services that require interactivity. But more importantly, it simply expands capacity by anywhere between 10–14 times. That is because the space that one analogue channel uses can accommodate between 10–14 digital ones. Just digitising the current network could increase capacity to 560–1,000 channels on the existing network. There were, however, two issues involved. The capital cost of digitisation (we are talking of figures around 2002–04) was anywhere between `700–3,000 per subscriber on a good urban network depending on the number of subscribers, according to a TRAI paper. That meant the total cost could be anywhere between `42–180 billion on just the headend.32 Then there are the set-top box costs. The more the people, the lower the capital cost according to TRAI’s paper on digitisation. This would require price deregulation during the transition to digital, tax sops on the equipment, licencing the cable business, increasing the foreign investment levels for cable (49 per cent then) and allowing operators to offer voice. All of that would add up to a substantial incentive to invest. Look at the way multiplexes took off after they were given a tax holiday in some markets. Then there was the time and the patience digitisation demanded (and still demands). That went beyond the capacity of a chaotic market like India. It took (and takes in the countries still digitising) 7–15 years going by the standards of developed countries. Remember, they are smaller, less complicated markets than India. The UK, which began mandatory digitisation in 1998, will complete the process only by 2012. While the pipelines are being upgraded, signals are being simultaneously broadcast in digital and analogue mode. In India, after over 20 years of unregulated growth it would be too much to assume that this will happen smoothly. The problems are evident when you consider that in 2009, seven years after CAS was mandated, there were just about 1.3 million digital cable homes in India against 20 million (paying)

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DTH homes. The 1.3 million includes homes in areas which do not fall in the mandatory CAS zone. Option two  This was my favourite option; a broadcaster or MSO could decide to seed the market with set-top boxes and spend money, time and pain on digitising, say at least 10 million homes. Assuming he has that many homes signed on, his ARPU will automatically rise since his ability to offer Internet access, gaming or even voice telephony increases and he could charge more. That in turn would encourage other companies to jump in as happened in digital cinema.33 Mukta-Adlabs decided that there was potential and seeded 70 theatres with `1 million worth of equipment in each. When theatre owners began earning more money, others came in to make India one of the world’s largest digital-theatre countries in the world. If seeding of the market takes place in cable, it would be wonderful. That is because, technologically, cable is the best broadband pipe for entertainment. Option three  Incentivise alternatives to cable: this is probably the most practicable of the lot. The progress on this front was pretty slow till 2004. When the DTH policy was announced in 2001 it came with several restrictions that put investors off. Then in October 2003, the Essel Group, that owns Zee, launched Dish TV. In 2006 another operator, Tata Sky, came in. By 2008, India had half a dozen large players—such as Airtel’s Digital TV and Sun TV’s Sun Direct—fighting to put set-top boxes in TV homes and sell TV signals. That is what led to the growth of the market from 0.75 million homes in 2005 to over 51 million in 2012.34 The other technology besides DTH that could be incentivised is IPTV. In 2004, when TRAI recommended unbundling the last mile that telecom companies owned, there was some hope of IPTV taking off. But it never became policy. If anybody—cable operators or Internet service providers (ISPs) or other telecom companies—had been allowed to use Mahanagar Telephone Nigam Limited (MTNL) or Bharat Sanchar Nigam Limited’s (BSNL) last mile copper to offer television to the 32 million homes they reach, there could have been immediate competition for cable. Eventually, of course, digitisation was the consequence of DTH. And the amendment to the Cable Act in 2011 now mandates that all TV homes in India have to have a digital addressable system.

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This means that analogue cable too will have to digitise. The process has already begun (See Caselet 2a).

The Way the Business Works The product of what started in 1959, moved forward in 1984 and took off in 1992 is what we call the Indian television broadcasting industry. Its structure is rather haphazard, unlike the US market, the world’s favourite benchmark for any media business. The Indian broadcast industry has a DNA, a genetic code that is its own, that has little or nothing to do with how the US market, guided by the FCC, evolved. There are several cross-media restrictions based on readership and viewership in the US. In contrast, the Indian industry has had no regulation whatsoever, except for some acts from 1885 and 1933 that determined the state’s hegemony over broadcasting. Its imperatives for growth, adopting technology or business are home-grown to a great extent. For example, television software is still a separate industry unlike in the US, where most broadcast companies buy out software producers or integrate backwards by setting up their own production arms. The Indian television broadcast industry can thus be regarded as a chain with three links: broadcasters, distributors and television software makers. Each is an important component in ensuring that the final product—viewer experience—is good. The television software industry is the first link in the chain. It is the point at which all the value in the business—that is, the programming—is created. This is then sold to broadcasters who package channels around this programming; throw the signals at a television tower or a satellite. These can be downlinked and distributed in several ways.

Software Though it is probably the smallest link in size, television software is the origin of all value creation in the broadcast industry. At a time when the bulk of the investment in broadcasting is going into creating a distribution infrastructure, the importance of software cannot be overemphasised. This becomes apparent looking at China: because it lacks a democracy, it has inhibited

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the growth of a robust software industry (a complex set of rules means that the authorities frown on a vast variety of programmes which would be considered perfectly innocuous in India). This has created a demand–supply gap that is now seriously affecting the growth of the Chinese TV broadcasting industry. All the money put into building great television distribution is pointless unless there is programming to be carried on that network.

The Backdrop The Indian television software industry is largely an offshoot of the film industry. In the initial days when DD was looking for software, it was the film industry that had the people, the skills and the equipment needed to churn out entertainment software. The trend continues. Some of the best-known names in the business have their roots in the film industry. Remember that Manohar Shyam Joshi wrote Buniyaad and Ramesh ‘Sholay’ Sippy directed it. Dheeraj Kumar, a former film actor, started his own production house, Creative Eye. In DD’s heyday, Creative Eye was a fixture on its network with serials like Adalat. It churned out some hugely popular mythologicals like Om Namah Shivay and Shree Ganesh for private broadcasters. Later, Asha Parekh, a former film actress, produced the very popular Kora Kaagaz on Star Plus and then, Kangan. Aruna Irani, another actress, has had a big hit in weekly soaps, Des Mein Nikla Hoga Chand. Actress Radhikaa’s software firm, Radaan Pictures, has produced some of the biggest hits in Tamil and Telugu languages. And of course, the largest TV software company in India, Balaji Telefilms, was created by Ekta Kapoor, the daughter of veteran actor Jeetendra. The size  Ever since the satellite TV boom hit India in 1991, the software industry has enjoyed a scorching pace of growth. The demand for entertainment software, films, shows, soaps and sitcoms has continued to rise. From a few hours for DD, there is a need for at least five to eight hours of original programming a day for over 50 channels. That’s a mind-boggling 91,250 hours a year, not including news channels that do their own programming.35An average cost of `150,000 for every 30 minutes, pegs the industry’s size at `13.68 billion. This growth

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has increased the number of software firms from a handful in the 1980s to approximately 6,000 currently. These are primarily one-man outfits. This has meant extreme fragmentation and thin profits for individual firms. There are very few firms with the scale and the staying power to generate hundreds of hours of software, consistently over several years like the `1.2-billion Balaji Telefilms (as of 2011–12). The costs  The second thing that has happened as supply rushed to meet demand is that costs have jumped exponentially. From about `30,000 to `50,000 per 30-minute episode in the 1990s, the cost of making a show (for a broadcaster) has gone to anywhere between `50,000 to `1 million. A soap opera (a long-running continuous story), a talk show or a sitcom (situational comedy) will all have a different set of costs. For instance, a sitcom or talk show is relatively less expensive to produce. The cost paid for an episode of fiction range between `400,000 and `1.2 million. For non-fiction, the prices could go up to over 10 million since many of them have celebrity hosts. They come at a steep price tag. Of course, much depends on the genre, the language, the production house and the broadcaster.

The Software Revenue Streams Software houses typically depend on two revenue streams:

Selling or leasing36  Selling is the outright sale of software to broadcasters, all rights included. Alternatively, the software company could lease telecast time from a broadcaster. It could then sell the airtime. This is how it works for DD and for at least 50 per cent of the programming on Sun TV. In such a case, the software house owns the rights to the programme after a one-time telecast.



Syndication, dubbing and overseas markets  These are additional revenue streams that software firms owning the copyright can exploit, just as broadcasters can. This money is pure profit since the cost of the software is usually recovered from the first telecast. Firms like Creative Eye or Cinevistaas sit on a lot of software that was made

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for DD but to which they own the copyright. This can be used to generate revenues through syndication, dubbing or online through a YouTube kind of outlet. Many shows from software houses or broadcasters are dubbed in Tamil, Telugu or other languages either for markets within India or overseas. For instance, one of Zee TV’s biggest hits in recent years has been Pavitra Rishta. It is a remake of Thirumathi Selvam, a Tamil show that aired on Sun TV first and was made by Vikatan Televistas. There is a large Tamil population in Malaysia or a Malayalam-speaking group in the Middle East. There are many Indian software firms like Balaji Telefilms or UTV that sell their Indian shows to broadcasters in these markets.

Broadcast The second link in the chain is the broadcaster.

The Broadcast Business Models There are two different business models that the television broadcast industry uses:

Buy and Telecast  Broadcasters buy programming outright from television software companies. The price could range from `50,000 to `1 million, or more per episode. It depends on several things, the language, the genre and the production house among other things. Sitcoms and talk shows are less expensive to make since they are studio-based. Soaps are more expensive. Similarly, game shows may seem cheaper to make since they are studio-based but if the anchor is a big name—Kaun Banega Crorepati (KBC) would be an extreme example— the cost could be high. A soap or sitcom in Marathi or Bangla costs a fraction of what it would in Hindi, a highly competitive genre.   Broadcasters then package the software with promos, which are advertisements for the channel or network’s

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own programmes. Star News could carry promos for Star Plus’ soaps or Star Gold’s films and vice versa.

Lease and Telecast  A second business model is the one used by DD and Sun TV.37 Typically, DD gives away airtime in slots of 30–60 minutes for a telecast fee or minimum guarantee. This could range from `0.3–0.4 million depending on the time slot and advertising revenues it expects the programmes to generate. It also gives the producer a fixed proportion of seconds, called free commercial time (FCT), which he sells in order to recover his money. The producer can pay extra to buy additional seconds. The seconds that he has not used can be ‘banked’.   Production companies like Balaji Telefilms and Creative Eye that have traditionally been suppliers to DD and Sun TV, have built up their own ad-sales teams, which sell airtime. More significantly, after a one-time telecast, DD or Sun TV do not have any right over the software since they do not buy it; they just lease out airtime to telecast it. Sun TV, for example, prefers this to the ‘commissioning model’ where the software belongs to the channel. Sun’s Chairman, Kalanithi Maran, reckons that the telecast model ensures basic cash flows since producers pay money upfront for the slot. Broadcast networks in the US too used this model for a long time before deciding that there is a lot of value in integrating vertically into making their own software or buying it outright. Cable networks, on the other hand, charge a premium for creating original programming that you could watch only on that channel, for example HBO.

The Broadcasting Revenue Streams This packaged software is then used to generate revenue from the following streams: Advertising  This is the revenue generated through airtime sold to advertisers. This is done through advertising agencies or through media houses such as GroupM or Madison. While the international norm is five minutes of advertising time per 30 minutes of programming, it is normal for Indian channels to

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stretch their ad seconds into the programme if they find buyers for an exceptionally popular show. India is probably one of the few markets in the world where, while the volume of advertising sold on television has risen dramatically in the last few years, rates have actually fallen in real terms, because there is so much discounting and bonusing. This refers to the practice of giving bonus seconds on sister channels or programmes as an add-on to advertisers buying on prime time. Bonus seconds are also offered for not delivering on television rating targets (TVR). Typically, bonus seconds drag down average realisation per 10 seconds. To capture more of the advertising rupee going to other genres, broadcasters started putting together ‘bouquets’. Zee TV has a general entertainment channel, Zee Cinema (a movie channel); Zee News; Zee Cafe, regional channels and so on, taking the total to 34. In this way, Zee has more advertising seconds to cross-sell. If an advertiser is taking a package of, for example, Zee and ETV Marathi, Zee could offer him Zee Marathi and Zee TV as a package to ensure that all the money comes into the Zee kitty. Pay  This revenue is the money that comes from subscriptions. Internationally, advertising to pay as a proportion of revenues hovers around 55:45. In India it is 80:20 (see ‘The Past’). The overseas market  In the past few years, the overseas market has emerged as a key revenue stream. Indian channels like Zee TV or Sun TV have discovered sizeable audiences in the UK and the US. Zee, for instance, reaches out to 650 million people across 168 markets in the world.38In the year ending March 2012, going by its annual report, the company had an overseas turnover of over `4 billion, or 13 per cent of the company’s revenues. The company beams its 22 international channels through various distribution platforms such as BSkyB, DISH Network, Comcast, Time Warner and NTL. That means that a subscriber wanting to see Zee TV in the UK, for instance, has to pay his cable operator anywhere between £ 9.99 and £ 16.99 a month depending on the package he chooses. A share of this comes to Zee TV. The distribution of channels overseas is lucrative for broadcasters because programming costs are negligible and the market is almost entirely pay driven. Most broadcasters re-run the soaps that are made for the Indian market with fresh promotions and ads from the local market where

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the channel is being telecast. Almost every major broadcaster— Star, Colors, Sun, NDTV, among others—has forayed into the international market in the last few years. Mobile and Internet  These are emerging streams for broadcasters and could take various forms. It could be simple contests, audience reactions to shows or a news story or pure broadcast of television on mobile. For instance, Viacom18 has a deal with Zenga TV which then retails Colors on the mobile.

Distribution The other important constituent of the broadcast industry is the distributor. This could be a cable operator/MSO combine, a DTH operator or a telecom or broadband company (see Table 2.5).

The Distributors The three distribution platforms currently used in India are: Cable  This has been discussed in great detail in ‘The Past’. Just to add, the cable signals that we get on our television sets are broadcast on the C-band, which has a wider arc and therefore a wider spread. First, MSOs catch the signal, and sell them to cable operators who in turn resell them to consumers. When these signals are sold without a set-top box, they make for a non-addressable market. With an analogue or digital set-top box, it is easier to track who is buying what. DTH  DTH operates like regular broadcasting, the only difference being the frequency at which the signal travels (DTH operates in the Ku-Band) and how it is received. The viewer has to buy a dish and a set-top box and can then receive the signals that a DTH operator sends directly. Therefore, unlike cable where there are two intermediaries, the MSO and the cable operator in DTH there is only one—the DTH operator. Every DTH service has an electronic programme guide (EPG). Think of an EPG as a website’s homepage on the Internet. The EPG is an on-screen guide that details all programmes according to genre, time and channel. It can be navigated with a common

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remote control both for the television and the DTH. If there is an interesting film, the EPG could give a quick synopsis that can help subscribers make up their mind on whether they want to watch it. You could choose to see what is on various channels in small pictures or text. For example, Active News on Tata Sky allows the subscriber to view what each news channel is doing and choose accordingly, similarly for films. Showcase, Tata Sky’s pay-per-view channel, allows viewers to choose a film every 30 minutes. Then there is a high-end service which includes a digital video recorder (DVR).39This allows a viewer to ‘time-shift’: he can pause live programming and come back to it after attending, say, a phone call.40 It can be programmed to record even while the viewer is not home. It can record up to 100 hours of programming. This is the equivalent of what Tata Sky is offering as Tata Sky Plus. The equipment is installed and maintained by the DTH operator. It involves wiring, a set-top box and a dish antenna. A smart card, which is usually topped with credit beforehand, is inserted into the box and a subscriber can only watch what he has paid for. In case he wants to watch a film on a channel he does not subscribe to, he calls in for the amount to be debited from his account. An account can be topped up from the mobile phone, online or through direct payments. Terrestrial  This form of broadcasting is currently the exclusive domain of the state-owned DD. It works by relaying signals across the 1,400 plus towers. There are various possibilities for increasing the capacity of terrestrial broadcasting by digitising signals. This is called Digital Terrestrial Broadcasting or DTT. Then there are the possibilities for mobile television broadcasting, best done through a terrestrial network.

The Distribution Revenue Streams There are three main revenue streams for most distributors: Subscription  It currently forms the biggest chunk of distributor revenues. This is the money cable operators/MSOs or DTH operators collect from homes. They charge anywhere between `100–500 per household per month, depending on the city, locality, the package and so on. If the operator is affiliated to an

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MSO, `50–100 per subscriber per month goes to the MSO (refer to the part on ‘cable industry’). Anywhere from `5–40 per subscriber per home goes to individual broadcasters. In the case of Dish TV, a DTH operator, it may give a commission to the dealers who hawk its dishes and set-top boxes. Advertising  It is another major stream. Most operators and MSOs have their own channel, such as CCC from Hathway. These are advertisements from local retailers or regional brands or for local events. A retailer in Lajpat Nagar, New Delhi, could be advertising on a cable network in South Delhi, the area where the potential buyers for his store would reside. These advertisements are broadcast along with the films shown. While exact numbers on the size of cable advertising are hazy, a safe estimate would be `11.71 billion.41 Carriage and placement revenues  Currently, there is a logjam on India’s cable pipes. Since bandwidth is limited, cable operators and MSOs now make money from carriage and placement. Carriage is a fee literally for carrying any channels. Placement on the other hand is the charge for placing it in a favourable band or position vis-à-vis competition (see ‘The Past’). This is a temporary revenue stream till digitisation is complete (See Caselet 2a). The carriage rate that some really large MSOs charge is anywhere between `0.5 and300 million per network per year. These could be higher for channels which are new launches and need carriage desperately. Placement, the money paid by a broadcaster to ensure that his channel is on a good frequency, may also be paid separately. It could be paid to ensure that a channel, like CNBC-TV18, is placed before its competitor, say NDTV Profit, on the viewer’s television set. The shifting typically happens in three cases. One, when there are many launches, as in 2007. The old channel pays to retain its position on the television set and the new one to keep it close to popular channels such as Star Plus or Sony, so that the opportunity to sample it is higher. Two, in the 225 TVR towns:42 that is where TAM’s Peoplemeters, the ones that track viewership patterns, are installed. Many broadcasters try to ensure their presence on the cable system to ensure that their viewership numbers do not fall. If they do, advertising drops.

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Three, in an area, say Lokhandwala, Bandra or Versova in Mumbai, where many media buyers or advertisers have their homes. This ensures that the channel is available in all the places where key decision-makers on advertising might be watching.

The Metrics The Basic Metrics To understand how media buying and selling operates in the television business and the essentials of why a channel gets better rates than others it is critical to understand ratings, airtime and advertising rates.

Ratings There is currently a lot of debate on the adequacy or the lack thereof in the rating system. So, delving a bit into its history might give some perspective. But first, a definition. What is a TRP?  Many of us read and talk about ratings or TRPs/TVRs, but what precisely is it?43 A TVR is a time weighted average of the total time that people in the sample homes spend watching a certain soap or programme. If 10 people in 10 homes spend different amounts of time watching Kolangal on Sun TV, the average of this, weighted by the time each has spent, becomes the rating the programme gets. Ratings can be for one minute, five minutes, 15 minutes or 24 hours. When channels share their ratings, they typically cherry-pick the time that suits them best. If music channels are most watched from 7 to 8 pm, MTV might pick only the time slot that shows it at the top. In that time period, MTV might have a rating of five, but on a 24-hour basis it may actually have a rating of 0.06. It is extremely crucial to understand what, why and how ratings are arrived at. This is because every decision—on whether to advertise on a channel, the products and brands to advertise for, when to air them, and which programmes to choose—is based on ratings. Ratings help in deciding what genres are working, what are not and to change the channel strategy accordingly. In 2004–05, when comedies

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began to do well, several channels launched sitcoms. Similarly, 2007 and 2008 saw a wave of reality shows of all hues and colours. How ratings began  Indian broadcasting has had a healthy history of using tools to measure audiences and their responses. According to Hemant Mehta, senior vice president, IMRB International, the first measurement of television was formulated in 1983. IMRB, the research arm of ad agency Hindustan Thompson Associates (now JWT), did a viewership study on what people saw and when. The data on the actual launch of continuous ratings measurement systems is hazy, but according to Sankara Pillai, former general manager, media research at ORG–MARG, it began in 1986. Three research agencies, IMRB, MRAS-Burke and Sameer (then the research arm of Mudra Communications) introduced a system to measure the popularity of programmes on DD. It was the only broadcast channel in India then, the rest were cable channels. Pillai, who was with IMRB then, remembers that one of the projects he was part of was the launch of the diary system of measuring ratings. IMRB distributed roughly 3,600 diaries in eight Indian cities based on the demographics of the people that advertisers wanted to talk to. There were many people who did not own a television set then. They watched it at a neighbour or friend’s home. As a result, IMRB had two diaries—primary and secondary. Both the television owner and the secondary (guest) viewers filled them out. Anyone who watched a programme for five minutes or more was considered a viewer. Along with the gender, income and age of the person writing in it, the diary was meant to record what that person saw for five minutes or more. The diary had time slots; and all a viewer had to do was fill in what programme he or she was watching at that time. If Ramayan had an 80 per cent rating, it meant that 80 per cent viewers (in single-TV homes) had watched it for five minutes or more. These reports were then collected, the data collated and ratings arrived at. It was a fairly rudimentary method, no different from how it began in developed markets like the US. The birth of TAM  After 1991, it became important to also capture what cable and satellite households were watching, and that is when IMRB and (then) MARG introduced rating reports for cable and satellite homes. The method was the same, only this

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time viewers had to write what they were watching on say Star or CNN or MTV, instead of just DD. By 1995, the crush of satellite channels was so immense that both IMRB and (by then) ORG– MARG finally decided to invest in Peoplemeters. While accurate costs are not available, it is estimated that a metre costs several million to install and maintain. A joint industry body (JIB)—comprising advertisers, agencies, channels etc., was constituted. Three agencies were supposed to pitch. Just before the pitch, A.C. Nielsen and IMRB joined hands to offer the Television Audience Measurement (TAM). In July 1996, the joint industry body chose this. However, since funds were a problem, TAM did not take off immediately. Meanwhile ORG-MARG launched INTAM and started offering its service. A year after the joint industry body’s proposal, TAM finally obtained the funds to launch its service. That is how India ended up with two television measurement systems. ‘In most countries there is only one system,’ says L.V. Krishnan, CEO of TAM Media Research. The takeover of A.C. Nielsen internationally by VNU (the parent of ORG-MARG) meant the merger of these two services in 2002. While TAM is currently the currency for television ratings in India, in 2004 another agency, aMap, too started a service in India. How TAM works  TAM uses the frequency-matching technology. Rather simply, the metre attached in viewer homes registers the frequency of the channel the viewer is watching for a minute or more. It then matches this with the map of the frequencies for each channel in its bank. If you were on the Zee TV frequency for more than a minute, you are a Zee TV viewer. The method could have one problem. Cable operators routinely change the frequencies at which they send the signal for a channel. Krishnan maintains that by monitoring cable operators regularly, TAM catches any change of frequency at which a channel is broadcast and updates its system accordingly. The data is downloaded, either in tape form or via a laptop onto the agency’s servers. It is then collated and analysed. There are scores of different kinds of reports—by genre, demographics, channel, languages, cities, states, areas and so on—that are generated using the data. The typical consumers of this data are software houses, television channels, advertisers, ad agencies and media-buying

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agencies. In 2006, the last year for which this figure is available, they paid anywhere between `400,000 and about `10 million a year as subscription fees, depending on the reports they buy. These reports are then used to devise marketing, programming, distribution or advertising strategies.44 In July 2013 TAM covered 225 towns in India with 9,500 Peoplemeters that covered 36,000 people.45 The birth and death of a Map  In mid-2004, Ahmedabad-based Audience Measurement and Analytics set up an alternative rating system called aMap. It started with 1,000 metres in Mumbai, Delhi and Ahmedabad and, when last tracked in 2008, it had 6,000 meters. Though it used the same method as TAM to record the ratings, it was different in one major respect. TAM picks up the data from viewer homes every Saturday. There is a lag of at least a week before anyone knows what happened to a show or a match. However, the aMap server logged into the meter between 2 am to4 am every morning and picked up the data. This was possible because it used a GSM (Global System for Mobile communications) modem to get real time access to the data. So, buyers and advertisers could actually see the ratings online and decide that they wanted to change their media plan. This was especially useful for big-ticket reality shows or during elections or budget analysis when the window of opportunity to schedule advertising spots was limited. An overnight or online look at ratings helped utilise it better. The market however could not support two rating system and aMap is no longer in existence. 46 Other rating systems  Besides these two systems, DD has its own Doordarshan Audience Research Television Ratings. The trouble with ratings47  Till 2005, there were very few complaints about TAM ratings. The trouble began when competition and then hyper-competition kicked in. From 354 channels in 2006, India had almost 700 in 2012. TAM responded by increasing its sample to 9,602 meters. This covers 35,000 people but is hugely inadequate in a market with 153 million TV homes and about 700 million viewers. Soon niche genres in growth mode started having problems. Take news. From about 39 in 2005 there are currently over 135 news channels in India. The competition and resulting revenue

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pressure forced business heads to start slicing and dicing the data to somehow prove that they were ahead of competitors. However, cutting data too fine on a small sample size, threw up all sorts of weird skews. For example, a really obscure show could emerge on top of the charts. ‘If you apply statistical significance, the error of sampling is 34 per cent for niche areas such as news’, says Sunil Lulla, Group CEO, Times Television Network. The skews were used as examples of corrupt data. Then whispers on data fixing too started. It is against this background that the government got into the act. TRAI first came up with a policy paper on ratings in 2008. In 2010, a committee under Amit Mitra suggested increasing the sample size to 30,000 meters, forming BARC and a cess on the industry to fund the growth. In 2012, NDTV sued Nielsen Holdings, one of TAM’s parent companies, in a court in New York. The birth of BARC  In 2007, industry associations in the advertising and media industries had got together to form the Broadcast Audience Research Council (BARC) to oversee and control the TV audience measurement system in India. The idea was to have a not-for-profit body with share capital coming in equal measures from the Indian Society of Advertisers (ISA), IBF and Advertising Agencies Association of India (AAAI). However, nothing happened for six years. When the government started showing interest in ratings and the NDTV-Nielsen skirmish happened, the industry revived BARC. The implementation of BARC indicates three big positive changes. One, it separates the research vendor (say, TAM) from the professionals who decide the methodology. ‘A vendor owned-vendor managed system is always suspect. The Indian Readership Survey (IRS) is less prone to attack because of MRUC (Media Research Users Council)’, says Paritosh Joshi, principal, Provocateur Advisory. MRUC, an industry body, commissioned readership research till recently. Two, an industry-commissioned research breaks the whole process, thereby reducing error and corruption. BARC has broken the process into four parts. The establishment survey, being done by IBF’s Broadcast India, will determine sample size, panel homes and so on. Then comes designing the survey. The third

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part is metering the panel homes and the last phase is processing the data. Globally, there are only four agencies capable of working on TV metrics: RSMB, Ipsos Mori, Nielsen and Kantar. TAM is a joint venture between Nielsen and Kantar, two of the largest ratings agencies in the world, in India. So in all probability TAM will be part of any new system. Three, a body such as BARC can ensure constant monitoring of methodology. This is critical in fixing issues other than sample size. This includes representation of, say, rural areas, of different clusters of audiences and viewing patterns. For instance, many advertisers are spending increasing amounts on digital media. They want to have a comprehensive look at what people are watching. The current system does not offer that. The big issue? The funding. ‘BARC was formed only when broadcasters raised money’, says Lulla. So the big question that TAM has raised over the years, on who will foot the bill, will come back to haunt the industry. The cost of an additional 22,000 meters is estimated at `6.6 billion. And if, as Lulla says, there should be ‘one meter for every 1,000 homes’, the cost could go up to `30 billion. There are no clear answers on this. Joshi reckons that if the broadcast industry agrees to spend at least half a per cent of their revenues on research instead of the current 0.01 per cent, funding should not be a problem even if advertisers don’t pitch in. Remember that advertisers in any case do not buy ratings data; broadcasters and media agencies do.

Advertising Rates The rates are usually fixed for every 10 seconds or 30 seconds of advertising time bought. These are called spots. Ad rates differ according to the time of the day for which they are bought. The ad seconds bought during prime time, usually from 8 to 11 pm, are the highest-priced on any channel anywhere in the world. This is the time entire households generally watch television. The rates during the other parts of the day, called non-prime time rates, are usually lower. If a particular part of the day starts registering higher viewership, the ad rate of that slot goes up. All television broadcasting companies have a rate card; almost nobody follows it in practice. Discounting is common and average realisation per 10 seconds could vary wildly from channel to channel.

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There are various ways in which discounts can be given. One, as a straight percentage cut on the card rate. This could vary anywhere between 20–70 per cent depending on the channel, the time of day and how desperate it is. Two, discounts could be given as bonus seconds. If HUL buys, say, 20 spots on prime time on Star Plus, it could get five bonus spots on non-prime time shows as a preferred buyer or because a show it advertised on did not deliver on the promised TVRs. The bonus then becomes a way of making good. India is not unique in this respect. In the US, some spots (ad seconds) on the four networks—ABC, NBC, CBS and Fox—are auctioned in advance.48 These upfront buys could get quantity discounts of up to15 per cent. The rest of prime time inventory is sold closer to the broadcast dates and if a programme is a big hit, like Who Wants to be a Millionaire on ABC, a network could hike rates dramatically to reap huge profits. In India too, the system of upfront buys, before a programme begins airing, exists. However, many of these are locked in rating deliveries. If Pepsi buys time on a new soap on Zee TV, it will do so for 13 episodes on the guarantee of certain rating points. If Zee TV cannot deliver on those rating points, it makes up with a hefty discount or with bonus seconds. That explains the rise in the volume of ad seconds without a commensurate rise in broadcasting revenues.

Airtime The economics of airtime buying and selling operate similarly anywhere in the world. For any television channel, airtime is just like the number of rooms in a hotel or seats in an aircraft. For an airline, selling a ticket at a discount or even a loss is better than not selling it at all since filling capacity is crucial. Similarly, when there are huge tracts of unsold airtime it is logical to recover at least a fraction of variable costs. Of course, a lot of broadcasters in India stretch the argument the other way around. It is normal for several to eat into programme time during a hit show to make more money. While the international norm is five minutes of ad time per 30 minutes, it is not unusual to see top rung channels in India carrying 10–15 minutes of advertising on popular shows. There is a downside to it, though: it puts off viewers. In

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2012, TRAI released a consultation paper that talked about enforcing a rule under the advertising code in the Cable Act of 1995, which limits advertising to 12 minutes per clock hour. In March 2013, it issued a note enforcing that ruling. It has also made it mandatory for broadcasters to file regular reports on how much advertising they carry. Under an agreement arrived at between broadcasters and the TRAI, the former have agreed to reduce ad time gradually by October 2013. From October 1, 2013 the TRAI will monitor ad time very strictly and issue show-cause notices to violators. 49 Due to bonus seconds, discounting or stretching, the way in which efficiency is measured or even media budgets are planned is not quite cut and dried. Advertisers do factor in discounts and shrink their budgets accordingly. Which is why it is essential to look at some of the ways advertisers/buyers try to get media efficiency out of airtime buys.

The Efficiency Metrics When DD was in its heyday, the media planning and buying assignments were not about getting maximum reach, efficiency or impact—the otherwise usual goals for a media buyer. It was about scheduling advertising seconds on the best shows. That is because reach was a given since DD was the only channel. A popular show or a Hindi film ensured an audience of 70–80 per cent of TV homes. The only job for a media planner and buyer was to decide how to split his money between DD and print media. Most of them booked slots for the year. They then spent the rest of the time scheduling the right ad with the right show. Of course, some judgement had to be exercised on which serials would do well. ‘Media innovation was getting into serial production,’ says Arpita Menon a former media buyer.50 That is because DD gave all the commercial time on a show to a sponsor. Therefore, advertisers preferred to finance the producer and get all the commercial time on the show. From 1992 onward, a media planner’s job became more complex. He or she had to juggle a few more channels, with DD and print vehicles. The whole science of airtime buying and selling started evolving. Media planners and advertisers began looking at target audiences, the kind of people who watched a channel

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or a programme. They could decide that it made more sense to advertise a woman’s product during Amaanat on Zee. The image of a channel and that of a programme came into play. Media planners, who had been starved for options so far, were glad that there was something to choose from. Some of the efficiency metrics that evolved over the years that private television has been in existence are:

Effective Rate It is calculated by dividing the total money paid by the total seconds bought on a channel. If the prime time rate on Sony is `200,000 per 10 seconds and if an advertiser buys 10 spots, that is `2 million. Assume that he gets two spots free or as a bonus. That gives him 12 spots for `2 million, taking the effective rate to `167,000 per 10 seconds. Most buyers usually look at the effective rate before negotiating.

Cost Per Gross Rating Points (CPGRPs) The effective rate does not adequately factor in the amount of reach a channel could give. Reach is measured by the number of people watching a programme on a channel. If an advertiser buys time during a programme on Sony, at an effective rate of `167,000, it could well be a day-time soap that very few people are watching. To get over that fact, CPGRPs are used. The total money that might be paid to a channel is divided by the total rating points on all programmes bought on a channel to arrive at the CPGRP. If the air time on three programmes can be bought for `1 million and if the total rating that these three generate is 20, the cost per rating point works out to `50,000. However, this method too has its weakness. It cannot take in adequately the huge difference in impact that advertising on one show with very high ratings, like KBC, can make. If Sony puts together a basket of different programmes, with say 4–6 rating points each, to give an advertiser 20 TVRs at `50,000 each, the plan looks efficient. However, the advertiser can also get the same ratings with one high-impact programme. These are the type of issues planners take into account before making a buying decision.

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The Regulations51 The History The surprising part about regulation in Indian television broadcasting, frankly, has been its complete absence for a very long time. There was nothing in the books that said foreign broadcasters could not send signals from outside Indian soil, though broadcasting was government controlled. There was nothing that said you could not hook-up a VCR to a common cable for the entire building. Many portions of the television broadcast industry have been lucky (or unlucky, depending on how you view it) to escape regulation. This has meant growth at a scorching pace, like in cable, without the trouble of getting licences or permissions. The utter absence of a regulatory framework has also meant chaos, copyright violation and the use of the underworld to settle disputes.

The Origins of TV Regulation The MIB is the apex body for the formulation and administration of rules, regulations and laws relating to information, broadcasting, films and television. For very long, the Ministry along with the Indian Telegraph Act of 1885 and The Wireless Telegraphy Act of 1933 were the two points from which any regulatory indicators came for the broadcasting industry. Government control over radio and television broadcasting is derived from the Telegraph Act where ‘telegraph’ is interpreted to cover the generating of signals for telecasting. The Emergency in 1975 created the demand for autonomy. As a result, a working group was formed to look into autonomy for AIR and DD, the first attempt at broadcasting reform in India. The Akash Bharati Bill of 1978, which had lapsed, was re-examined and presented as the Prasar Bharati Bill in 1989. Although the Bill was passed in 1990, it was notified only in 1997. Under the Act, AIR and DD were converted into government corporations to be overseen by a statutory autonomous authority established under the Prasar Bharati (Broadcasting Corporation of India) Act, 1990. The Prasar Bharati Corporation was envisaged

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to be the public service broadcaster of the country, which would achieve its objectives through AIR and DD. It was only in the early 1990s, when the Prasar Bharati Bill was still collecting dust, that there was talk of regulating the cable industry since there was much litigation surrounding it. This had to do with copyright, with the right to string wires from one end of the street to another, and so on. Strangely enough, while the cable industry was technically still illegal in 1993, the government slapped it with an entertainment tax. Some media reports from the time detail the protests about the tax. However, by 1994, the cable market had changed from being small entrepreneurdriven to one where the big players were coming in. That is when it finally caught the regulator’s eye and was declared as illegal under the Indian Telegraph Act.

Airwaves are Public The turning point for broadcasting regulation came after a landmark judgement by the Supreme Court, which finally lent legitimacy to private broadcasters. In the judgement on a suit filed by the MIB against the Cricket Association of Bengal for the telecast rights of the Hero Cup 1994, the Supreme Court ruled that the airwaves are not the monopoly of the Indian government.52 They are public property and have to be used to foster plurality and diversity of views, opinions and ideas. This was implicit in Article 19(1)(a) of the Indian constitution, granting the right of free speech to citizens, said the judgement. Therefore, the supremacy of a few bodies or individuals to dominate the airwaves can cause the domination of media and would harm—not serve—the principle of plurality.

The Convergence Bill It was after this forward-looking judgement that talk veered around to drafting a Broadcasting Bill. After several drafts and many delays, the Broadcasting Bill mutated into the Communications Convergence Bill. It was modelled on the Convergence Bill of Malaysia and sought to be a master legislation for information technology (IT), telecom and media. The Bill addressed both ‘carriage’ or distribution and ‘content’ or software issues. It

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also provided for a super regulator, that is, the Communications Commission of India (CCI), an FCC kind of body that would govern IT, telecom and media. The CCI would handle all licencing and regulatory functions in these three areas. The Bill also provided for a spectrum management committee, essentially a body that would allocate frequency for telecom, IT or media purposes. The formation of a CCI could have been a dramatically forward-looking step. A CCI is the ideal solution in an industry where technology changes every few months, bringing about changes in business imperatives. Therefore, having a law that locks into a certain technology would stunt the industry. The Digital Millennium Copyright Act of 1998 (DMCA) in the US was a response to a technology, MP3. Users have moved beyond MP3 and the law has become largely obsolete. In a convergence scenario, locking any one part of the IT, telecom or media trio to any one technology could hamper growth. However, the Convergence Bill never saw the light of the day. The example of Prasar Bharati shows that the government still has a big role in the running of the ‘autonomous body’. Prasar Bharati relies on budgetary support from the government and is therefore not really independent. At various forums and even internally, broadcast industry representatives have expressed the fear that as with Prasar Bharati, the Communications Commission would not be truly independent. The Convergence Bill, tabled in Parliament in the last part of 2001, was referred to a standing committee and finally lapsed.

Acts and Guidelines It was only post-1994, after the Supreme Court judgement that the regulation of the business began in earnest.

The Cable Act, 1995 It began with The Cable Television Networks (Regulation) Act, which came into being in March 1995. Essentially, it regulates the setting up, content and equipment used by cable television operators in India. There are provisions making it mandatory for all cable television operators to register at a cost of `500 with the

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postmaster of the local post office. It also put a foreign equity cap of 49 per cent on cable network companies. Then came The Cable TV Networks Amendment Bill, 2000. This made it mandatory to carry three DD channels in the prime band.53 It also made it the cable operator’s responsibility to ensure that he does not carry any programme in respect of which copyright exists under the Indian Copyright Act without the requisite licence. This implies, says media lawyer Ashni Parekh, that it is the cable operator’s responsibility to first get the permission for retransmission of any programme or film on cable TV. To this Bill, the government added an amendment in 2002, making conditional access systems mandatory. The government’s intention was good, but the amendment was flawed. It was silent on who would bear the cost of the technology and gave the government too much power to decide what channels will be watched, where and at what price (see ‘The Past’).

TRAI Becomes Broadcast Regulator, 2004 To deal with the litigation, protest and the mess surrounding CAS in January 2004, the MIB issued a notification expanding the scope of the expression ‘telecommunication services’ to include broadcasting and cable services as well. As a result, TRAI is now empowered to regulate these services. TRAI can make recommendations on issues regarding tariffs, interconnect and so on. It cannot, however, regulate content. Even TRAI could not do much about the CAS amendment, which collapsed under the weight of its own contradictions. TRAI has, however, taken its role of broadcast regulator seriously. It has frozen cable rates, then allowed a 7 per cent increase, issued consultation papers and guidelines on everything from digitisation of cable TV to DTH. For whatever it is worth, it has thrown up for debate all the issues surrounding distribution of TV signals, invited everyone for its open house debates and generally played the regulator’s role with some degree of common sense. In an industry where there was no regulation to one where issues of competition, pricing and technology are thrown up for discussion and where detailed consultation papers have been issued, this is a long way to have travelled from 1991. (See the TRAI website for more details.)

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Direct-to-home Broadcasting (2001) Earlier, in 1997, the government had banned the Ku-Band after Star TV advertised that it was launching a DTH service. In 2001, it opened it up for broadcasting. However, the policy states that a broadcasting or cable company cannot own more than 20 per cent in a DTH venture. The total foreign equity cap in DTH was 49 per cent including FIIs, Overseas Corporate Bodies (OCBs), NRIs and others.54In 2012, this was increased to 74 per cent. Also, a DTH operator cannot create exclusive content or programming and therefore its own channels. It cannot enter into any exclusive contracts to distribute television channels. The set-top box that a DTH operator provides to its subscriber must have open architecture that meets the Bureau of Indian Standard (BIS) specifications set out in 2003. That means another DTH operator should be able to offer a service with the same box. There is no limit on the number of DTH licences that can be issued, each for a 10-year period.

The Broadcast Bill Around 2006, renewed efforts were made to draft a Broadcasting Service Regulation Bill which, again, has gone through many mutations and versions. The government, in its wisdom, has circulated many drafts of the bill to elicit the opinion of the industry and the public at large in order to work toward a holistic legislation. The Draft Bill of 2006 provides for the establishment of an independent authority, the Broadcast Regulatory Authority of India (BRAI), to facilitate and develop in an orderly manner the carriage and content of broadcasting. It encompasses all forms of broadcasting including cable, DTH, radio services, satellite radio and so on. The Bill seems to place restrictions on cross-media ownership to prevent monopolies. It restricts the shareholding of a content provider in a broadcaster and vice versa. It suggests caps on the total number of channels a company can have. The Bill also imposes public service broadcasting obligations on every broadcaster. It proposes to repeal the Cable Television Networks (Regulation) Act, 1995. The bill was not passed by parliament in 2007 and since lapsed.

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Guidelines for Uplinking from India When satellite television came to India, foreign broadcasters were not allowed to uplink from India.55 In June 1998, the government stated that Indian companies with Indian equity of not less than 80 per cent and effective management control in Indian hands were allowed to uplink from India through Videsh Sanchar Nigam Limited (VSNL).56 For this purpose, they needed clearance from the MIB. In 1999, the cabinet allowed all Indian broadcast companies to uplink without making the mandatory use of VSNL. This was further liberalised in 2000. All broadcasters, irrespective of their ownership and management, are allowed to uplink from India. The only caveat is that they have to adhere to all the other norms, such as the advertising and broadcasting codes. In March 2003, these norms were further changed. Any news and current affairs channel that uplinks out of India cannot have more than 26 per cent foreign equity or foreign holding of any kind. The policy also states that any channel that has even a small component of news will be treated as a news channel and has to adhere to the guideline. There is no restriction on foreign equity in production of software, marketing of TV rights, airtime and advertisements. The uplinking guidelines were amended in October 2011. These amendments fell under two heads. Those for the uplinking of non news/current affairs channels are: • For the first channel, the minimum net worth of the applicant company has to be `50 million. For every additional channel, this figure goes up by `25 million. • The Chairperson or Managing Director or Chief Executive Officer or Chief Operating Officer or Chief Technical Officer or Chief Financial Officer of the applicant company must have not less than three years’ experience in a similar position in a media company that operates non-news/ non–current affairs channels. • There is a permission fee of `200,000 per annum for each non-news/non–current affairs channel. • The channel must be operationalised within one year of grant of permission.

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Those for the uplinking of news and current affairs channels are: • For the first channel, the minimum net worth of the applicant company should by `2 billion. For every additional channel, the figure rises by `50 million. • The Chairperson or Managing Director or Chief Executive Officer or Chief Operating Officer or Chief Technical Officer or Chief Financial Officer of the applicant company must have not less than 3 years’ experience in a similar position in a media company that operates news/current affairs channels. • There is a permission fee of `200,000 per annum for each news/current affairs channel. • The channel must be operationalised within one year of grant of permission. Much of this has been done with a view to dissuading nonserious players from coming into news broadcasting. There have been changes in rules also for teleports and hubs.57

Guidelines for Downlinking In November 2005 the MIB came out with guidelines for downlinking of channels that are uplinked from outside India. In essence, these make it mandatory for such broadcasters to have companies registered in India. The idea is to ensure that they are tax-paying entities that do not repatriate the money they earn in India. These state that no person/entity shall downlink a channel, which has not been registered by the MIB under the following guidelines: • The entity applying for permission for downlinking a channel, uplinked from abroad, must be a company registered in India under the Indian Companies Act, 1956, irrespective of its equity structure, foreign ownership or management control. • The applicant company must have a commercial presence in India with its principal place of business in India. • The applicant company must either own the channel it wants downlinked for public viewing, or must enjoy, for

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the territory of India, exclusive marketing/distribution rights for the same, inclusive of the rights to the advertising and subscription revenues for the channel and must submit adequate proof at the time of application. • In case the applicant company has exclusive marketing/ distribution rights, it should also have the authority to conclude contracts on behalf of the channel for advertisements, subscription and programme content. The downlinking guidelines were amended in December 5, 2011. These introduced the following changes. However, do note that unlike the uplinking guidelines, these do not differentiate between news/current affairs channels and non-news/non– current affairs channels. The main changes are: • The minimum net worth of applicant company, for the first channel, has to be `50 million. Every additional channel would need `25 million. • The Chairperson or Managing Director or Chief Executive Officer or Chief Operating Officer or Chief Technical Officer or Chief Financial Officer of the applicant company must have not less than 3 years’ experience in a similar position in a media company that operates news/current affairs channels or non news/current affairs channels as the case may be. • The registration period is 10 years, and with respect to channels uplinked from India, in tandem with the uplinking permission. • A permission fee of `500,000 per annum for each non news/current affairs channel uplinked from India and `1.5 million per annum for each non news/current affairs channel uplinked from abroad. • The channel must be operationalised within one year of grant of permission.

Programme Code This broadly prohibits the criticism of friendly countries, attack on religions, communities, anything obscene, defamatory or inflammatory, affecting the integrity of the nation and so on.

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Advertising Code It prohibits the advertising of tobacco products including pan masala and liquor. Ads should also not project a derogatory image of women or endanger the safety of children. The products and services advertised should be in consonance with the laws enacted to protect the rights of the consumer. The Cable Act has a similar advertising and programme code.

Mandatory Programme Sharing Since the acquisition price for live sports events increased progressively and exponentially from the 1990s, it became more and more difficult for the public broadcaster DD to acquire the rights. Moreover, private media companies all over the world who had greater financial leverage purchased rights for major sports events like the Wimbledon Tennis Tournament, the Grand Slam Tennis Tournaments, the World Cup Cricket Event, the Olympics and so on, from rights owners for long 5–10 year periods. Issues arose when cricket matches of great interest, say one between India and Pakistan were being telecast by private satellite channels and were available in only the 83 million cable and satellite homes and not in the 51 million terrestrial homes that get only DD. As a result of public interest petitions filed before the courts, to ensure telecast by Doordarshan, issues of dilution of exclusivity and public interest arose.58 In this context, the government issued an ordinance to ensure mandatory sharing of signals relating to specified sports events, which was later promulgated as an Act in 2007. The Act provides that no content rights owner or broadcaster shall carry a live television broadcast in India of sporting events of ‘national importance’, unless it simultaneously shares the live signal, without its advertisements, with Prasar Bharati to enable them to retransmit on its terrestrial networks and DTH in such manner and on such terms and conditions as may be specified. It further provides that the ad revenue sharing between the rights owner and Prasar Bharati shall be in the ratio of not less than 75:25 in case of television and 50:50 in case of radio. The Act mandated that the government would specify the sporting events to which this Act would be applicable. In exercise of

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powers under the Act, the MIB issues notifications from time to time identifying sports events of ‘national importance’ and, therefore, liable for mandatory sharing. Every content rights owner intending to carry a live broadcast of a sporting event of national importance has to inform Prasar Bharati of the same at least 45 per days prior to the proposed date of telecast and offer to share live signals in a manner and on such terms as specified. Such mandatory sharing regulations exist in the US, the UK and other markets. For instance, in Australia, the Broadcasting Services Act, 1992, empowers the minister to specify an event through a gazette notification which ought to be made available to the general public. However, there is justifiable angst among private broadcasters about this. Anywhere in the world the exclusive right to telecast events (like a live sports tournament) on a television channel is the raison d’être of the existence and sustenance of television firms. It is the exclusivity of the proprietary rights that determines the cost of acquiring the broadcasting right and consequently its revenue earning capacity. This ordinance, therefore, directly affects the revenue earning capacity of private channels.

The Current Status There are a number of issues and bills being debated within government, TRAI and MIB circles. Some of these are:

Content Regulation Content in any form of the media including broadcasting is subject to restrictions which are reasonable given the fundamental right to free speech guaranteed under Article 19(1)(A) of the Constitution of India. Some of these restrictions have been either made part of legislations over a period of time or have been introduced as codes and guidelines by the government. Some of these restrictions imposed either through statute, codes or self regulation are:  1. The Indecent Representation of Women (Prohibition) Act, 1986.   2. The Young Persons (Harmful Publications) Act, 1956.

126  THE INDIAN MEDIA BUSINESS

  3. The Indian Penal Code, 1860.   4. The Emblem and Names (Prevention of Improper Use) Act, 1950.   5. The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954.  6. The Pre-Natal Diagnostic Techniques (Regulation and Prevention of Misuse) Act, 1994.   7. The Transplantation of Human Organ Act, 1994.   8. The Drugs and Cosmetics Act, 1940.   9. The Prize Competition Act, 1955. 10. The Prize Chits and Money Circulation Schemes (Banning) Act, 1978. 11. The Cigarettes and other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003. 12. The Representation of People Act, 1951. 13. The Cable Television Networks (Regulation) Act, 1995, which further prescribes the Programme Code and the Advertisement Code. 14. The Cinematographic Act, 1952. 15. Code for Commercial Advertising on DD. 16. Code for Self Regulation in Advertising adopted by the Advertising Standards Council of India (ASCI). 17. Guidelines on the Coverage of Elections by Akashvani and DD. 18. Guidelines for coverage of Parliamentary Proceedings by AIR and DD. 19. The Press Council of India’s Norms of Journalistic Conduct. 20. The Voluntary and Self Regulatory Code adopted by the Tobacco Institute of India for marketing of tobacco products in India. 21. The Confederation of Indian Alcoholic Beverage Companies or CIABC Code of Practice for the marketing of alcoholic beverages in India. In spite of the presence of all these Acts, the government had been debating the appointment of a content regulator. This is because there have been complaints—and at least one instance of a public interest litigation (PIL) being filed—against obscene

TELEVISION  127

content on television. Finally in 2007, under pressure from PILs and a shrill debate on falling standards on news channels, the government floated a draft content code. That is when broadcasters got their act together to create a set of guidelines under the aegis of the IBF and the NBA. These are not law, but act as a mechanism that forces broadcasters to police one another. As a result, the quality of reportage on news channels has improved somewhat since 2008. The Self Regulation Guidelines for the Broadcasting Sector, 2008, are available on the website of the MIB as also on the NBA and IBF websites.59 In addition to this in a notification of March 2013, TRAI has sought to enforce some of the existing norms within the advertising code and the Cable Act, on advertising time on television channels. These are: • The picture and the audible matter of the advertisement shall not be excessively ‘loud’. • All advertisements should be clearly distinguishable from the programme and should not in any manner interfere with the programme. This refers specifically to the use of the lower part of the screen to carry captions, static or moving alongside the programme. • No programme shall carry advertisements exceeding 12 minutes per hour, which may include up to 10 minutes per hour of commercial advertisements, and up to 2 minutes per hour of a channel’s self-promotional programmes.

Piracy Any programme broadcast has essentially two elements to it—the content and the broadcast itself. While the creator of the content owns the copyright in the content either by original ownership or by licence or assignment from the original owner, the right in the broadcast is with the broadcasting organisation. This special right of a broadcaster is known as Broadcast Reproduction Right and subsists until 25 years from the beginning of the calendar year following the year in which the broadcast is made. No person without a licence from the broadcaster can re-broadcast or make any recording of the broadcast and so on.

128  THE INDIAN MEDIA BUSINESS

The Copyright Act lists out situations in which this broadcast right would not be deemed to be infringed. These are if it is used solely for purposes of bona fide teaching or research, private use of the person recording it and most importantly, use that is consistent with ‘fair dealing’: for instance, the use of excerpts of a broadcast in the reporting of current events. This latter exception of use of excerpts for news reporting has erupted into a major controversy in the last few years and has become a bone of contention between broadcasters of live sports events or high viewership programmes on one hand and news channels on the other hand. This is more popularly called ‘illegal use of footage’ which has become rampant since there is no existing definition of what would amount to ‘fair dealing’. Some disputes have reached the courts, but no decision exists till date on the limits or restrictions which can be imposed on news channels, that is, in terms of the length of the excerpts utilised, the number of times it is repeated and to what extent it can be commercially exploited.60 The other issues which arise as regards illegal usage is in situations of ‘over-spill’ of the broadcast beyond the boundaries of India and its illegal downlinking as also the broadcast by cable operators on their local channels of unlicenced content, particularly films. While overspill issues are dealt with under contractual relationship of the parties, piracy by cable operators can be tackled under the Cable Act of 1995.

The New Distribution Platforms There has been some thinking on the new distribution technologies and TRAI has come up with specific recommendations for most. Some of these are: IPTV  TRAI submitted its recommendations on IPTV in January 2008. The recommendations envisage that telecom companies, ISPs and cable operators can provide IPTV service without getting a new licence or getting registered afresh. The service provider would have to pay the licence fee on IPTV revenue in addition to its telecom/ ISP licence. It was further recommended in June 2008 that there should be a non-discriminatory price regime

TELEVISION  129

for the composition of bouquets and pricing of channels for IPTV services at par with that offered to DTH service providers. The idea of the regulator is to move to a uniform pricing regime for different addressable delivery platforms. There were issues of regulation of content on IPTV since it does not fall within the Cable Act and the telecom licences do not have content restrictions. It was therefore suggested by some that only broadcasters bound by uplinking/downlinking guidelines should be providing content for IPTV.   The MIB has amended the Downlinking Guidelines, through a notification in September 2008, to enable IPTV service permitted to provide such services as per their telecom licences. The MIB also issued policy guidelines for the provision of IPTV services in India, which permit licenced telecom service providers and ISPs, having a net worth in excess of `1 billion, to provide IPTV services. These guidelines also set out the terms of payment of licence fees for provision of IPTV, the requirement of compliance with the Programme and Advertisement Code and the ability of the ministry to prescribe certain must-carry channels and mandate that the signals for provision of IPTV must be sourced directly from a broadcaster alone and not an MSO or other intermediary organisation.

Headend in the sky or HITS  This is a satellite-based delivery platform for delivering multi-channel television signals to cable operators across the country, in digital form. The HITS operator uplinks signals of different broadcasters to the HITS satellite in the sky. Cable operators then downlink these channels from across the country without the need for an MSO. The TRAI released a consultation paper in July 2007 on HITS. In 2009 the MIB formulated and issued policy guidelines for providing HITs. The key provisions of the policy guidelines are:



• The applicant company must be an Indian Company, with a net worth of at least `100 million. • The permission issuable to such company will be for a period of 10 years from the date of issue of the wireless operational licence.



130  THE INDIAN MEDIA BUSINESS









• The application fee is `100 million, with no annual fee although the licensee fee for the wireless operational licence would be due and payable. • The key managerial personnel of the company would have to be security cleared by the MIB. • The permission-holding company must not carry any channels that are prohibited by the ministry, and must ensure compliance with the Programme and Advertisement Codes. • The permission-holding company must provide access to content on a non-discriminatory basis and must not enter into an exclusive distribution agreement with any TV channel. • The Government, MIB or any authorised representative is entitled to inspect the equipment and facilities of the permission-holder and monitor its conduct. Mobile television  TRAI recommends that there should be a new class of service providers for provision of mobile television services using broadcasting technologies. The existing telecom operators having CMTS or UASL licences would not require any further licence or permission for offering mobile television services on their own network using their own spectrum.61 The licences have been recommended for a period of 10 years on a licence fee basis. FDI up to 74 per cent is now permitted in mobile TV.

The Digitisation Law In 2011, the Cable Act of 1995 was amended. The effect is that digital addressable systems (such as conditional access systems) are required to access both free-to-air channels or pay-to-view channels, in contrast to the Amendment Act of 2003 which required that CAS systems would be mandatorily required to access only pay channels. The amendment also expressly designates and defines TRAI as the appropriate authority for the regulation of cable network broadcasting in India. The changes also enable licenced cable operators to lay cables and other infrastructure under or over immovable property owned or controlled by public authorities, and facilitates the grant of way by such public authorities to cable operators for this purpose.

TELEVISION  131

FDI Limits In 2012, the MIB finally moved to relax FDI limits on DTH, cable, mobile TV and teleports to 74 per cent from the earlier 49 per cent. It has not increased the FDI limits on MSOs, which continue to be 49 per cent.

The Valuation Norms The Variables Value in the television business is derived from ‘content or distributionassets’. That is jargon for the programmes that are made and shown on television and the ownership of networks that have last mile control over your home. Last mile control usually implies control over the consumer and the actual cash collected. In television broadcasting parlance, both content and ownership of last mile are assets, just like plant and machinery in manufacturing. This is because a show can be used to generate revenues in the future throughre-telecast, syndication, dubbing and so on. Similarly, control over 10 million cable homes or five million DTH homes means steady annuityrevenues. Some of the variables that determine valuation are:

The Point in the Value Chain How an investor views a company in the television business depends to a great extent on where in the value chain it is placed. These three points are: Software or content  How this would be valued depends to some extent on whether you are a broadcaster or a software producer. If Zee TV was to place equity with private investors or list a proportion of its shares, one of the first things investment bankers would look at are its library and the equity of its channels among viewers. The valuation of the library is a fairly easy business. Take, for example, Saat Phere, a popular soap on Zee TV. Now, assume that Zee was to run it again in India, after three

132  THE INDIAN MEDIA BUSINESS

years. If Saat Phere got a TVR of five, three years later it could perhaps fetch a TVR of four. At that level of rating, what revenues could Zee generate based on future ad rates multiplied by advertising seconds that it could sell on Saat Phere? Any potential revenues that Saat Phere could get from airing on Zee TV UK or US, or any of its other international channels or from dubbing or syndication rights, are added. The total is then discounted for inflation and the cash flows add-up over the period that the serial will be aired. Saat Phere is a soap opera, or a long running continuous story. It has the potential to be re-aired. There are other genres of programming that may or may not have similar value. A talk show like Koffee with Karan or a sitcom (situational comedy) such as Sarabhai v/s Sarabhai, either of which the viewer can sample without being involved with the story, has less value after three years because it is topical by nature. These, incidentally, are also less expensive to produce. A feature film, on the other hand, has a lot of value, especially if it has been a hit. That explains why broadcasters pay good money to get the satellite broadcast rights of films under production. On the other hand news programming has, arguably, the least value. That is because except for historical purposes or some syndication of the footage for documentaries, it has little re-run value. So, the total number of programming hours that a broadcaster has is of little relevance. It is the composition of the total hours, by genre that is more important. Again, within each genre, the judgement of what will click is also one that cannot be taken easily. For example, Kyunkii… was an extremely popular soap that ran for eight years. But what can one make of its re-run potential five or 10 years later? Audience tastes may have changed by then. Alternatively, it may find a huge following with the starved-for-Indian-culture overseas audience. If Balaji Telefilms were to value its library, the exercise would be similar. The only difference is that unlike Zee, Balaji does not have its own channel. Also, it does not own everything that it makes. Most of its shows are commissioned by broadcasters who then own all the rights. For this, Balaji will be valued on its ability to deliver hits. On the other hand there are some shows, which it may sell to Sun TV or DD channels that work on the telecast

TELEVISION  133

fee model. The rights to these shows revert back to Balaji. On these, Balaji will be valued based on their potential for re-selling to other channels, overseas or syndication. Distribution  Globally, distribution is valued in terms of per subscriber or per household. There are two things that are taken into consideration. First is the revenue and profit that a network is generating per subscriber. Second, its potential to increase that number. This is calculated by looking at the cost of upgrading a network, say Hathway or WWIL, and the improved cash flow this would generate. Integration  While some companies may be pure broadcasters, content companies or distribution companies, many have a finger in more than one pie. In such a case, the company is likely to be valued better assuming it manages to leverage the fact that it exists across the chain. In India, it is rare for broadcasters to own content companies, since outsourcing is cheaper. However, distribution, where a better control over pay revenues is possible, is an area almost every major broadcaster is in. Through parent Essel Group, Zee owns WWIL, a cable network, and the Dish TV DTH network. It is also planning to invest in HITs. Sun has Sumangali cable and now a DTH network.

Market Share Just like in all media businesses, the position of a broadcaster, content company or distributor in the market is critical. Those occupying the number one and two positions will always do better. A broadcaster with at least one or two channels with large viewership and therefore advertising, commands a better valuation even if its other channels are laggards. This is because the popular channels and shows make it easier to command better rates, distribution and returns for the others too.

Management The management structure, corporate governance, brand equity and the likes are also taken into account as for any other company.

134  THE INDIAN MEDIA BUSINESS

Market Size and Growth Rate This is one variable on which Indian companies always rate better. At 153 million TV homes, India is the second largest TV market in the world. In revenues terms too it is growing in double digits compared to other developing and mature markets. As a result it has attracted over the last decade or so every major broadcaster in the world—from Disney to Turner to NBC. All of them are looking for growth as their home market, the US, sees drops in TV viewership and penetration.

Year 1959 1969 1979 1989 1992 1993 1994 1995 1996 1997 1998 2000 2001 2002 2003 2004 2005

Total TV homes 0.000021 0.012303 1.1 22.5 34.9 40.3 45.7 52.3 57.7 63.2 69.1 40 79 81.57 na 100 108

C&S homes (million) none none none none 1.2 3 11.8 15 18 na 29 33 40 40.49 49 55 61

DTH homes (million) none none none none none none none none none none none none none none na na 3.75

Revenue Streams (` Million) Cable/local Advertising advertising Subscription none NA none none NA none 61.6 NA none 1612.6 NA none 3950 NA 1008 4960 NA 2520 8480 NA 9912 13450 NA 18000 19750 NA 21600 25840 NA na 33670 NA 34800 44390 NA 39600 47,940 NA 48000 47170 NA 48588 50940 5000 88200 58020 5500 99000 67460 6050 111600

Table 2.1  The Growth of TV Broadcasting in India—The Basic Numbers

(Table 2.1 Contd.)

Total Revenues (` million) na na 61.6 1612.6 4958 7480 18392 31450 41350 na 68470 83990 95,940 95758 144140 162520 185110

Total TV homes 112 117 123 123 134 141 148

C&S homes (million) 68 72 83 91 103 116 120

DTH homes (million) 5.2 8 15 20 24 40 51

Revenue Streams (` Million) Cable/local Advertising advertising Subscription 60500 6655 131760 71100 7320 144000 82000 8052 167400 88000 8857 199800 103000 9742 228600 116000 9742 253800 124800 9742 266400

Total Revenues (` million) 198915 222420 249400 296657 341342 379542 400942

Sources: Doordarshan annual reports, Ministry of information and broadcasting releases, NRS, Satellite and Cable TV Magazine, Lodestar Media (now Lodestar Universal), TAM Media Research, TRAI, Zenith Optimedia and industry estimates. Note: 1) The pay revenues from cable in the initial years are impossible to determine since there are no estimates of how many households were connected. From 1992-94 cable revenues are calculated at `70 per connected household per month. From 1995-2002, they are calculated at `100 per home per month and from thereon at `150. 2) From 2011 onwards since the gap between only DD homes which do not pay anything and Cable & Satellite and DTH homes is very low, all TV homes are considered pay homes for the sake of calculating subscription revenues. 3) To the advertising revenues I have added, from 2003 onwards, cable advertising revenues of `5 billion assuming a 10 per cent increase every year. These are assumed to have stagnated post 2010 when DTH truly took off. 4) The figures for DTH homes do not include DD Direct, DD’s free-to-air service. 5) The average subscription for DTH operators per subscriber is also taken `150 though the actual ARPU varies from `80-130. 6) Till 2005 the ad revenue figures are from Lodestar Media (now Lodestar Universal), post that the source is FICCI-KPMG Reports. na: not available. Data compiled and analysed by Vanita Kohli-Khandekar. This data may be reproduced only with due credit to either The Indian Media Business or Vanita Kohli-Khandekar.

Year 2006 2007 2008 2009 2010 2011 2012

(Table 2.1 Contd.)

(mil.)

(mil.)

(%)

(%)

(mil.)

(mil.)

(mil.)

(mil.)

(%)

(mil.)

(mil.)

(mil.)

(mil.)

(mil.)

Households

Total TV Homes

TV Pen./HH

Fixed BB Pen./HH

Pay – TV Subs

Cable

DTH

IPTV

Pay – TV Pen./TVHH

Digital Pay – TV Subs

Cable

DTH

IPTV

Total Digital Subs

2012

57.0



32.4

14.6

43.5

82.7%



32.4

95.7

128.2

5.7%

60.8%

154.9

254.7

India

226.6

23.0



137.7

160.7

54.1%

23.0



209.8

232.8

40.8%

97.2%

430.5

442.7

China

4.4

1.4

0.0

1.1

2.5

97.7%

1.4

0.04

1.1

2.5

92.3%

99.5%

2.6

2.6

HK

Table 2.2  The Television Business—India and the World—A Snapshot

15.5

6.5

3.8

5.2

15.5

133.3%

6.5

3.8

14.9

25.2

99.1%

99.7%

18.9

19.0

Korea

4.5



3.3

1.2

4.5

14.3%



3.3

4.3

7.6

16.5%

95.2%

53.3

56.0

Brazil

38.0

0.1

8.8

3.3

12.2

47.3%

0.1

8.8

3.3

12.2

60.1%

99.6%

25.8

25.9

UK

7.7

1.1

1.9

3.5

6.5

30.0%

1.1

1.9

13.3

16.3

13.4%

94.6%

54.3

57.4

Russia

(Table 2.2 Contd.)

191.4

2.0

32.0

43.0

77.0

88.4%

9.5

34.0

57.7

101.1

64.4%

96.5%

114.4

118.6

US

(mil.)

(%)

(US$)

Free (DTT)

Digital Subs/TVHH

Pay – TV ARPU/month 2,777

3.4

36.8%

13.5

43.5

India

11,238

4.2

52.6%

65.9

160.7

China

466

18.8

171.5%

1.9

2.5

HK

3,035

8.2

82.0%



15.5

Korea

12,926

4.4

8.4%



4.5

Brazil

5,222

65.5

147.2%

25.8

12.2

UK

62,129

73.8

167.3%

114.4

77.0

US

4,820

6.3

14.2%

1.2

6.5

Russia

Source: Media Partners Asia. Note: 1) IPTV in Korea primarily consists of voice-on-demand VOD services from KT’s MegaTV and SK Broadband’s HanaTV. 2) HH is Households, ARPU is Average Revenue Per User, DTH is direct-to-home and IPTV is Internet Protocol Television. 3) FTA is Free-to-air television, DTT is Digital Terrestrial Transmission.

TV Advertising (FTA, Pay – TV) (US$ mil.)

(mil.)

Pay

2012

(Table 2.2 Contd.)

2004

0.1

11.4

0.7

1.4

0.3

24.2

10.0

3.7

1.2

2.7

1.7

1.4

28.8

Programming genre (%)

Business News

Cable

English Entertainment

English Movies

English News

Hindi GEC

Hindi Movies

Hindi News

Infotainment

Kids

Music

Others

Regional GEC

28.0

0.7

1.6

4.0

1.0

4.2

9.9

23.6

0.3

1.1

0.5

10.6

0.4

2005

26.6

0.6

1.8

5.8

1.0

4.5

10.5

23.0

0.5

1.0

0.4

9.9

0.5

2006

25.6

1.0

2.1

5.9

1.0

4.8

10.5

22.6

0.7

1.0

0.3

10.6

0.5

2007

24.8

0.5

2.5

5.4

0.8

4.8

11.6

23.2

0.6

0.8

0.2

8.7

0.5

2008

Year

Table 2.3  The Growth of Indian TV Broadcasting—The Programming Genres

23.3

13.2

2.1

5.5

0.9

3.6

6.5

23.0

0.4

0.8

0.2

7.8

0.2

2009

22.1

18.7

2.4

5.9

1.0

3.4

6.9

26.4

0.3

0.7

0.1



0.2

2010

21.2

14.1

3.4

7.0

1.2

3.2

9.0

29.1

0.2

1.0

0.2



0.1

2012

(Table 2.3 Contd.)

22.1

16.3

3.0

6.2

1.0

3.8

7.6

25.5

0.3

1.0

0.2



0.1

2011

4.6

1.0

1.2

0.7

4.8

Regional Movies

Regional Music

Regional News

Religious

Sports

3.9

0.9

1.5

2.4

5.4

2005

3.8

0.8

1.7

2.6

5.2

2006

3.2

0.9

2.4

2.5

4.7

2007

3.3

0.8

2.7

2.1

4.6

2008

Year

2.0

0.2

3.7

1.8

5.1

2009

1.8

0.2

3.5

1.7

4.7

2010

3.0

0.2

3.8

1.7

4.2

2011

2.1

0.2

3.4

1.8

4.0

2012

Source: TAM Media Research. Note: 1) The genre shares indicated here above are simple approximates. The reason being that there could have been re-categorisation of specific TV Channels under newer/different genres given their change of focus in programming/content. 2) The figures are the percentage share of the genres listed in TV viewing in cable and satellite homes, all India, in the target group of four years plus.

2004

Programming genre (%)

(Table 2.3 Contd.)

TELEVISION  141 Table 2.4a  The Top Advertisers on Television—Product Categories Top 10 Super Categories in 2010 on TV Rank

Super Categories

% Share

 1

Food & Beverages

14

 2

Personal Care/Personal Hygiene

13

 3

Services

6

 4

Hair Care

5

 5

Personal Accessories

4

 6

Telecom/Internet Service Providers

4

 7

Auto

4

 8

Banking/Finance/Investment

3

 9

Household Products

3

10

Personal Healthcare

3

The top 10 Super Categories in 2011 on TV Rank

Super Categories

% Share

 1

Food & Beverages

13

 2

Personal Care/Personal Hygiene

13

 3

Services

7

 4

Hair Care

5

 5

Personal Accessories

5

 6

Auto

4

 7

Telecom/Internet Service Providers

3

 8

Banking/Finance/Investment

3

 9

Personal Healthcare

3

10

Household Products

3

Top 10 Super Categories in 2012 on TV Rank

Super Categories

% Share

 1

Food & Beverages

14

 2

Personal Care/Personal Hygiene

12

 3

Services

7

 4

Personal Accessories

5

(Table 2.4a Contd.)

142  THE INDIAN MEDIA BUSINESS

(Table 2.4a Contd.) Rank

Super Categories

% Share

 5

Hair Care

5

 6

Auto

4

 7

Personal Healthcare

4

 8

Household Products

3

 9

Building, Industrial & Land Materials/Equipments

3

10

Telecom/Internet Service Providers

3

Source : Adex India, a division of TAM Media Research. Note: The ranking is based on volumes of advertising. Volumes being measured in seconds of advertising.

Table 2.4b  The Top Advertisers on Television—Companies Top 10 Advertisers in 2010 on TV Rank

Advertisers

% Share

 1

Hindustan Lever Ltd

9

 2

Reckitt Benckiser (India) Ltd

3

 3

Cadburys India Ltd

2

 4

ITC

2

 5

Procter & Gamble

2

 6

Coca Cola India Ltd

2

 7

Colgate Palmolive India Ltd

1

 8

Ponds India

1

 9

L O'real India Pvt Ltd

1

10

Smith Kline Beecham

1

Top 10 Advertisers in 2011 on TV Rank

Advertisers

% Share

 1

Hindustan Lever Ltd

8

 2

Reckitt Benckiser (India) Ltd

3

 3

Cadburys India Ltd

2

(Table 2.4b Contd.)

TELEVISION  143

(Table 2.4b Contd.) Rank

Advertisers

% Share

 4

ITC

2

 5

Procter & Gamble

2

 6

Ponds India

1

 7

Coca Cola India Ltd

1

 8

Colgate Palmolive India Ltd

1

 9

Bharti Airtel Ltd

1

10

Smith Kline Beecham

1

Top 10 Advertisers in 2012 on TV Rank

Advertisers

% Share

 1

Hindustan Lever Ltd

8

 2

Cadburys India Ltd

2

 3

Reckitt Benckiser (India) Ltd

2

 4

ITC

2

 5

Procter & Gamble

2

 6

Colgate Palmolive India Ltd

1

 7

Ponds India

1

 8

Coca Cola India Ltd

1

 9

Samsung India Electronics Ltd

1

10

Marico Ltd

1

Source: Adex India is a division of TAM Media Research. Note: The ranking is based on volumes of advertising. Volumes being measured in seconds of advertising.

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Caselet 2a Everything You Wanted to Know About Digitisation

What is Digitisation? Digitisation essentially means that the capacity of your TV to get more channels goes up. There are two ways you get your TV signals currently—via cable and DTH. Digitisation broadens the cable pipe, adding 10 times as much capacity. DTH is born digital in India. So any discussion about mandatory digitisation is only about moving cable from analogue to digital.

Why is There Such a Fuss About it? To really understand the fuss around it and the monumental impact it will have on this business, here is a quick recap. Television signals are delivered, largely, through cable pipes. Just like most TV sets across the world, Indian ones can take only analog signals. And just like TV transmission systems across the world, we have a last mile that is analog. Therefore, a typical TV can only take a maximum of 106 channels. Till about 10 years ago, there were only about a 100 channels. By 2005, however, this figure rose to 160. This is besides the hundreds of local cable channels, like CCC from Hathway or CVO from InCable that you get from your MSO and local cable operator (LCO). By 2012, this figure had gone to over 800 channels. This put tremendous pressure on cable companies. While they can deliver so many channels, the Indian television universe is not geared to take them. This capacity constraint created the carriage fee phenomenon. Cable companies and operators routinely charge a hefty fee to carry channels, especially smaller and new ones. This meant two things. One, you were being denied variety as a viewer. Two, broadcasters were not making much money from subscription, though the average consumer payout is `150–200 per month. This makes them overdependent on (Caselet Contd.)

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(Caselet Contd.) advertising. This in turn meant that programming innovation went out of the window. You need to broaden the pipe that gets TV signals into your home. Digitisation does that by compressing signals. Roughly for every analogue channel, you could carry 10 digital ones. So capacity goes up by 10 times if you digitise.

How is it Done? By attaching a digital set-top box to the TV and transmitting signals through that. It increases the capacity of your TV to take signals. But this means that the transmission has to be digital and there has to be subscriber management software in place with the cable operator and distributor to track what you buy. Think of it as an electricity meter. It will meter your television, track what you buy and bill you accordingly.

Why didn’t it Happen Earlier? It involves a huge amount of investment. One estimate puts the cost at `3,000 per subscriber or `300 billion for 100 million cable only homes. Because ownership of the last mile, as you read in the chapter, has never been clear, nobody wants to invest. Also, digitisation forces transparency. Because all TV homes can be tracked, everyone—broadcasters, cable operators and MSOs or signal distributors—have to come clean on revenues, taxes, viewership numbers, everything. This was something large parts of the industry resisted. Broadcasters did not want to lose advertising revenues because digitisation would show their true reach. MSOs did not want to lose carriage fees which were born out of capacity constraints. And cable operators wanted the freedom to keep a bulk of the money, passing on only 20 per cent or so to the broadcasters and distributors. Even at the current revenue (Caselet Contd.)

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(Caselet Contd.) level, more than `100 billion could come into the system if all TV homes in India became digital.

Why is it Happening Now? In 2003, DTH operators started selling Digital TV signals and boxes. Currently, India has over 51 million DTH subscribers. All of these are, as mentioned earlier, born digital. These have, largely, no bandwidth issues62. Channels are packaged and billing happens through prepaid. The success of DTH and the fact that it took viewers away from cable created enough support for cable digitisation. After two unsuccessful attempts, the government finally mandated digitisation with an amendment to the Cable Act in 2011. The all-India deadline is December 2014. At the time of going to press three of the four metros – Mumbai, Delhi and Kolkata – were fully digital. Chennai and 38 other cities were still going through the steps, with some delays.

What are the Implications of Digitisation per se? DTH operators have blown up over $4 billion on setting up digital networks. Most are yet to make money. This tells you that there is some logic to doing this whether or not there is a mandate. Ideally the cable industry should not have waited for a government mandate. There are four reasons digitisation is the best thing to have happened to the Indian TV industry. One, it brings 100 per cent transparency to the system. This means more pay revenues. This is evident in the fact that broadcasters already get a higher share of pay revenues from the 51 million DTH homes rather than the 100 million cable homes (see Table 2.1) This is because every DTH home is accounted for. Imagine a scenario where all the 153 (Caselet Contd.)

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(Caselet Contd.) million TV-owning homes are digital. Once a fair share of revenue from those comes in, broadcasters can become less dependent on advertising. Also, as capacity constraints ease off, there is no reason for MSOs to charge carriage fees. This means lower costs and, therefore, better margins. Two, it will bring programming back into focus. The increased cash flows have to go into better programming. The next round of growth will come from that. It is the ability to craft, package and sell the most interesting channels and programming that will help broadcasters make a winning pitch for viewers’ wallets. By removing bandwidth shortages from the equation, digitisation changes the nature of the broadcasting game—from an eyeball-driven, advertisercentric one to a pay-driven, consumer-centric one.

What Does Digital Do to Viewing Behaviour?63 Going by TAM data on viewing patterns within existing digital homes three things are evident. One, sampling has increased. This in turn has led to an increase in time spent and reach for several genres. There has been, for instance, a 79 per cent jump in sampling for English entertainment in Delhi. This is because of availability and easier navigation. Since there are no capacity constraints, all channels are available to anyone wanting to watch them in digital homes. For instance, Discovery Network’s channels now rate higher in the digital universe than the analogue one, because the availability is higher in digital. Add to this the electronic programming guide or EPG which improves a viewer’s ability to navigate within a genre or between genres. This has also led to increased sampling. Two, differentiation becomes critical. ‘Even as stickiness (or time spent) increases, content that is commoditised in nature will lose’, says L.V Krishnan, CEO, TAM Media Research. This means that news, music, or any category with (Caselet Contd.)

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(Caselet Contd.) low or no differentiation will be hit first. Take news for instance. You could get it anywhere—in newspapers, online or on free-to-air TV channels. You would subscribe to a news channel only if there was something exceptional about it. Three, digitisation helps increase the ‘long tail’ of content either by shifting the place or the time of consumption. It allows broadcasters to reach out to new markets or smaller clusters of audiences profitably. The sampling of Tamil films and general entertainment channels (GECs) went up by a whopping 76 per cent in Delhi, considered a ‘Hindi’ market. The possible reason? Delhi gets the highest flow of migrants from all over the country. There must be, within the city, sizeable chunks of Tamilians devouring what operators such as Airtel, with its 27 Tamil channels (among others), offer.

What are the Implications of Changes in Viewing Patterns in Digital Homes? ‘The people who do not invest in content will be decimated’, says Sanjay Gupta, COO, Star India. Star has been spending heavily on movies, dramas and chat shows such as Satyamev Jayate. In 2012, it paid a whopping `38 billion for cricket rights from BCCI. In the same year its Channel V morphed from being a music channel to a youth one. The reason: digital homes show a clear skew towards youth programming, just one of the niches that data is throwing up. Also, ‘We see a lot more shows being commissioned by niche channels’, says Anupama Mandloi, content head, Fremantle Media India, the producers of India’s Got Talent and Indian Idol, among other shows. Besides identifying and investing in content, packaging and pricing too will become critical. Someone in Nagpur may want two Malayalam channels and the system should be flexible enough to give those. In the analogue mode it wasn’t. In digital, it is because (Caselet Contd.)

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(Caselet Contd.) of all the backend investments in call centres and subscriber management software. ‘The ability to handle customer preference at single channel level is the biggest advantage we (DTH operators) have’, says Shashi Arora, CEO, DTH and media, Bharti Airtel. Remember that in telecom, the soft drink marketers were hired in the last decade simply because they knew how to package and price telecom into smaller bits. That is what will happen in TV where a strong line-up of FMCG executives has been hired. Many years ago, multiplexes brought the ability to slice and dice audiences by price, time, show timings and genres. This helped improve ticket prices and, therefore, realisations from theatres. In the last decade, growth has come from computerised multiplexes, so transparency is a given. All of this put together has unleashed the creative potential of the Indian film industry, leading it to grow by over eight times in a decade. This is what will happen to television once digitisation is complete. The multiplexing of TV has begun.

Caselet 2b  How to Fix the News Broadcasting Business It is not too difficult to understand what is wrong with the news business in India. What is difficult is figuring out how to fix it.64 TAM Media Research tracks 105 news channels in the country. But the total news channels available are over 135 according to estimates. This is the highest number of news channels anywhere in the world. They are fighting over an ad pie that has held stagnant at `18–`20 billion for several years now. The overall viewership of news has stagnated between 7–8 per cent of total TV viewing in the last three years. Of the five listed TV news companies only three—TV Today, Zee News and Network18—have managed to scrape (Caselet Contd.)

150  THE INDIAN MEDIA BUSINESS

(Caselet Contd.) a profit out of the business in the year ending March 2012. Most of the unlisted ones, except perhaps for MCCS (which owns ABP News and other channels) are making a loss. A cursory analysis of the list of 135 channels shows that roughly one-third are owned by companies or individuals not interested in building a news brand. ‘Many of the regional channels are just political vehicles’, says one industry insider. Many of the new players have come into the market because they want to use a news channel as a tool of influence, favour or threat. These could be builders, politicians or even large companies from other industries. As a result, the companies that want to make money end up competing with ones that have money to burn and no shareholder questions to answer. Many of the non-serious firms refuse to become members of the NBA. That would force them to adhere to the content code. As competition in every language increases, the fight for ad revenues, the mainstay of the business goes up. This race for eyeballs has encouraged a race to the bottom on quality and standards. That explains why news channels have become an object of ridicule, hate and pity at times. As one broadcaster puts it, ‘When our whole business model is predicated on killing out main product—the content—every night, how will we survive?’ There are two things that could help lift this market out of the muck it is in. One, if digitisation takes off. As discussed in Caselet 2a, digitisation will force commoditised content out. So, all the channels that only occupy space on your TV will go as consumers choose what they want to watch. The only reason a consumer would pay to watch a news channels in a completely digital world is because it offers something special, something differentiated. Of course, many could stay freeto-air, like they are right now. Two, if Doordarshan gets its act together. Globally, a strong news brand needs huge amounts of, usually unprofitable, investment into content. The best way you can generate (Caselet Contd.)

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(Caselet Contd.) good credible news is through an independent editorial body that has no revenue pressure. The BBC is one such brand. It uses the British taxpayer’s money to great effect to create one of the best news brands in the world. This has forced private broadcasters to maintain a certain level of quality. DD, which is subsidised to the tune of `19 odd billion every year, would do the nation a huge service if it simply became a good, independent news channel funded by Indian taxpayers. That will force the others to clean up their act.

Caselet 2c Television and the Online World—The American Story* The Internet has already charmed its way and disrupted the music, newspaper and the publishing industry. Now it’s slowly finding its ground in the television industry. Content aggregators like Netflix, Hulu plus and Amazon Instant Prime Video offer content that users can watch anywhere, anytime on a host of devices like their smartphones, tablets and computers, thus fundamentally altering TV viewing habits that have been prevalent for decades. This has great implications for the future of all the stakeholders in the industry—the players, the advertisers and consumers. On the face of it, if we look at the numbers, it would seem like there is nothing major for the television industry to worry about. At least not for a few more years. According to a study done by Nielsen, in the last quarter of 2012, an American spent an average of 33 hours a week watching television. This is about half a per cent less than the time he spent watching television in the last quarter of 2010. A little under 5 per cent of American households are classified by Nielsen as ‘Zero TV households’ or households that don’t watch traditional television but only stream videos online using different subscriptions across multiple devices. (Caselet Contd.)

152  THE INDIAN MEDIA BUSINESS

(Caselet Contd.) This number has grown from 2 million homes in 2007 to 5.1 million homes in 2013. Though this category of consumers, labelled as ‘cord cutters’, is continuously increasing, the figure of 5.1 million (number of homes only with a broadband connection) seems a lot lesser as compared to the 80. 8 million homes that have both cable and broadband connections and even the 22.3 million homes that only have a cable connection. The networks don’t seem to be very concerned about these Zero TV households yet. HBO’s Chief executive Bill Nelson says in an article in The Economist, ‘There are roughly 105 million multichannel TV households in America, of which 77 million do not subscribe to HBO. By contrast, there are only about 3 million households with broadband connections and reasonable amounts of money but no multichannel TV. It makes sense to go after the bigger group. ...Let’s assume that in ten years’ time there has been a significant shift away from multichannel subscriptions, in that environment, HBO may reconsider its position.’ 65 Does the television industry really have reasons to worry? Here are some indicators. In the current environment, it is much cheaper to only have a broadband connection and subscribe to content aggregators like Netflix, Hulu Plus or Amazon Prime (Subscriptions cost less than $10 dollars a month) or pay the likes of iTunes and Amazon instant video to watch an episode (cost per episode/movie ranges from $0.99 to 2.99) as compared to spending $100 every month on a cable subscription that gives over 500 channels, most of which viewers don’t watch at all. These subscriptions are also ad-free or with very little ads and accessible on demand on different platforms adding to user convenience. The advantages of having cable are getting to watch live telecast of sports and television episodes and HBO. There is no legal way to watch HBO shows except for buying their DVDs or having a cable connection. Compelling advantages, but debatable if they are worth the extra money, especially when cable costs continue to rise year on year. (Caselet Contd.)

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(Caselet Contd.) The answer to who these consumers are lies in another Nielsen report that exclusively studies Zero TV households. The fact: 75 per cent of these households actually have a television set. But 67 per cent get content on other devices apart from TV and 48 per cent of them watch TV content through subscription services. More than 50 per cent of these viewers are below 35. So, young and savvy consumers are opting out of viewing cable television. This number is bound to grow over time. While this much is clear that audiences will move online, it isn’t going to be easy for any other player to dominate this space either. Netflix and Hulu Plus, two of the biggest players in this space, didn’t start out intending to threaten cable television. Both started out as services that were to augment cable TV subscription by making old episodes of television series and movies available. In fact, Netflix started out in competition to DVD rental services. Over a period of time, Netflix, Hulu and others not only saw the subscription base grow continuously but also that a number of these subscribers were beginning to cut the cable cord. Netflix has a subscription base of 27.1 million for its growing streaming service and 8.2 million for its dipping DVD service. Hulu Plus has around 3 million subscribers as of December 2012. In 2010, Netflix signed a deal with Relativity Media, a studio, that their theatrically released films will be licenced directly and exclusively to Netflix, thus bypassing the television channels in the process. It invested $100 million to make two seasons or 26 episodes of ‘House of cards’. The American adaptation of a BBC political drama stars, among others, Kevin Spacey. The entire first season was released on February 1, 2013 and each episode ran without a break. Netflix claims that it added 3 million subscribers for its streaming service as a result. At $8 a subscriber however, the math doesn’t quite work out for Netflix and analysts have been giving it mixed reviews. On the other hand, studios are getting increasingly hostile. There is talk of some of the big boys such as Apple, Amazon or Google getting into it. (Caselet Contd.)

154  THE INDIAN MEDIA BUSINESS

(Caselet Contd.) But what does all this mean for advertisers? While online advertising continues to grow for the newspaper industry, it doesn’t compensate for the drop in the print revenues, leaving the industry bleeding. This surprisingly may not happen to television. Here is why. First, while it is cheaper to subscribe to Hulu Plus, Netflix or buy movies off iTunes, the consumer has to pay for almost all the content he wants to see. There is hardly any good content available for free. Second, the television industry is protected by the nature of the content that it produces, i.e. content production is expensive and not replicable by everybody. The Internet biggies (like Netflix or YouTube) can change the nature of content distribution but the inherent value offered currently is still preserved. So while YouTube is great for music videos and user generated content like cute cats purring on the rooftop, audiences will have to end up going to ABC or HBO for the next dose of their soap. Third, advertisers are very positive about online video advertising. In almost any study conducted in the US more than three-fourth of the advertisers surveyed think that Internet video advertising is a medium that is equally if not more effective than TV. Online video advertising is beneficial as it allows advertisers to target specific audiences and provides interactivity for audiences. For example, Hulu Plus offers only one ad per ad break and allows users to rate these ads and also choose which ads they would like to see. Hulu then charges a premium to the advertisers. Testing studies have shown that fewer ads make them more memorable, a win-win situation for both advertisers and users. Companies have started including mobile and tablet advertising in their media plans to complement TV advertising. * Caselet researched and written by Sinduja Rangarajan, a former qualitative researcher with TNS India and Colors. She is currently studying journalism at University of Southern California.

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Notes 1. Television refers to the Indian television business unless specified otherwise. 2. Compounded annual growth rate. Source for growth figures: the FICCIKPMG report 2013. 3. This does not include an estimated 10 million DD Direct subscribers. DD Direct is a DTH service from the state-owned broadcaster. It is however a free-to-air service which involves only a one-time payment for the kit. All the channels available on DD Direct are all free-to-air. The DTH figure is based on TRAI’s estimates. 4. TAM Media Research is the largest provider of ratings and other data on the TV business in India. The number of TV homes and related Indian figures from TAM differ from those provided by Media Partners Asia (MPA) in Table 2.2 differ, but for the purposes of this chapter, we will stick to the TAM estimate. MPA is a Hong Kong based consulting firm. 5. Subscription and pay revenue mean the same thing and have been used interchangeably throughout the chapter. 6. In February 2013 the New York Court dismissed NDTV’s case on the grounds that it could be better dealt with in India. NDTV has appealed against the decision. 7. Broadcast Audience Research Council – see The Shape of the Business, Now. 8. Quoted from The Trouble with Television Ratings, Business Standard, 17 August 2012.   9. TDSAT, a specialised independent tribunal, was created to exclusively adjudicate upon disputes in the telecommunications sector, which was later amended to include the broadcasting sector also. The TDSAT rejection of the 2007 order is sourced from media reports in 2009. 10. PPVH can be calculated by dividing the price of the service by the amount of time that an average household spends watching the service. 11. Much of the data for this part has been sourced from Asian Satellite Services, An Asia-Pacific Regulatory Environment Index, CASBAA, 2007. 12. All the figures in this part on satellites are from Easing India’s Capacity Crunch, a report released by CASBAA in March 2013. CASBAA is the Cable and Satellite Broadcasting Association of Asia. The report was put together by PricewaterhouseCoopers. 13. Cable networks in the US refer to cable channels such as HBO. These are transmitted only via cable. The four broadcast networks (ABC, NBC, CBS and Fox) are terrestrial channels that still command huge unduplicated audiences. 14. Figures sourced from company websites in April 2013. 15. A bulk of the information on mobile TV is sourced from TRAI’s Consultation Paper on ‘Issues Relating to Mobile Television Service’, September 2007. 16. See Rise of the Aggregators, Business Standard, 10 April 2012 . 17. Wherever not specified, government refers to the Indian government.

156  THE INDIAN MEDIA BUSINESS 18. Wherever it is not specified, DD means Doordarshan, the state-owned broadcaster. 19. Whether Show Theme or Hum Log was the first sponsored programme on DD is a matter of debate. 20. Shah, Radhakrishnan and Kohli later set up a broadcasting company, ETC Networks, and a cable outfit called Win Cable. Zee Telefilms bought a 51 per cent stake in ETC Networks in 2002. Screwvala is the founder and CEO of UTV which was acquired by Disney in 2011. He and Srivastava were among the first two entrepreneurs to wire up South Mumbai. Screwvala operated under a company called Nemula which was part of the Western Outdoor Group. 21. A huge part of the numbers and facts here relies on the memory of the entrepreneurs and business writers of that time. The figures might not be precise but are approximately correct. 22. Khanna is a creative person who set up his own company, Plus Channel. He was till recently chairman, National Committee of Media and Entertainment, CII (Confederation of Indian Industry). 23. This circular was revoked in 2004, see the section on regulation. 24. The number of channels is as in April 2013. 25. Multi-system operators or wholesale distributors of television signals. 26. RPG Netcom, which later became Indian Cable Net, was sold to Siti Cable Network, a Zee Telefilms subsidiary, in 2005. Siti Cable is now demerged from Zee and is called Wire and Wireless Limited. The Zee Group split into four companies in 2006 and the flagship company Zee Telefilms is now Zee Entertainment Enterprises. 27. The numbers of cable operators are estimates based on conversations with industry experts such as Dinyar Contractor, editor of Satellite & Cable TV magazine. 28. As a result of so much cash sloshing around unaccounted in the system, the cable industry has become a bit like what the film industry was earlier. In the nineties the underworld was called in at times to sort out territorial disputes. According to some estimates currently about 60 per cent of the cable systems in India are owned by politicians or their relatives. This unaccounted money, say industry sources, has become a huge cash source for fighting local elections. 29. These figures are relevant for 2003 and 2004, the years in which a lot of the CAS turmoil happened. 30. NASSCOM is the National Association of Software and Services Companies. Sen passed away in 2003. 31. However when new pay channels are launched, rates do go over 7 per cent. Cable operators and broadcasters circumvent this by creating a separate bouquet, for which consumers are charged without informing them what it is for. So, across metro cities, most homes have seen cable rates go up to `400 per home per month. 32. If we take the cost at `700 to `3,000 per subscriber for 60 million homes in 2006. 33. See Chapter 3—Film. 34. All numbers as in April 2013.

TELEVISION  157 35. Assume that of the 106 channels about 50 buy original programming. Many, like say Cartoon Network or HBO do not need to do original programmes. Cartoon Network dubs some of its shows in Indian languages while HBO is a purely English movie channel. The others, like news channels, develop their own software. 36. These two models are discussed in detail in the portion on broadcast. 37. At one point, about 50 per cent of the programming time on Sun TV was sold for a telecast fee, the rest was used by in-house or commissioned programming. The current break-up for is not known. 38. Zee’s annual report for 2011–12 and a corporate presentation dated June 2012 on its website. 39. Branded as TiVo in the US. 40. What actually happens is that the DVR keeps recording the programme. When you play the television again what you are watching is what was recorded when you went to take the call. While you are watching the show from the point where you left it, it continues to record the live broadcast and show it to you in the right sequence. 41. Taking 2003 a base year and a conservative estimate of `5 billion as cable ad revenues in that year, we arrive at a figure of `11.71 billion for 2012. This is based on the assumption that these revenues grew at 10 per cent every year. 42. Data sourced from TAM. 43. The term ‘TRP’ though still in use, describes ratings in the diary system. When the Peoplemeter service was introduced, the term was changed to TVR. Both mean the same thing. 44. The figure for what TAM charges now varies widely depending on who you speak to. Also TAM was chary about sharing figures. So I am going with the 2006 figures. 45. According to TAM an additional 715 meters are getting added in the boost up for SEC AB homes in the 6 Metros. This will take the total meters to 10,317 meters by end of 2013. 46. There is no official note on aMap’s shut down. This information comes from media reports in 2011. 47. Trouble with ratings and The birth of BARC are excerpted in large parts form an article I did for Business Standard. See The Trouble with Ratings, Business Standard, August 17, 2012. 48. A network in the US refers to a terrestrial channel like CBS, being distributed via cable operators. 49. This was in July 2013. TDSAT is the Telecom Disputes Appellate Tribunal, a specialised independent tribunal, created to exclusively adjudicate upon disputes in the telecommunications sector, which was later amended to include the broadcasting sector also. 50. She is currently with Star India. 51. The data on the legal updates from 2008 to 2012 was collated by Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath in Bangalore. The updates on the legal section between 2006 to 2008 were done by Anish Dayal, advocate, Supreme Court of India and a specialist in media and entertainment law.

158  THE INDIAN MEDIA BUSINESS 52. The Cricket Association of Bengal had sold the rights of the Hero Cup to ESPN, a new private entrant into India at that time. However, being a foreign broadcaster, ESPN was not allowed to uplink from India. This made it impossible for it to broadcast the match live from Kolkata. The Supreme Court judgement was born out of the litigation that followed this controversy. 53. The prime band is a frequency that all television sets in India can receive. It can, however, accommodate only 11 channels. Therefore, having a channel on the prime band is crucial to ensuring complete reach. 54. FII—Foreign Institutional Investors; OCBs—Overseas Corporate Bodies; NRIs—Non-resident Indians. 55. Uplink means sending a television signal from the ground to the satellite. The satellite then bounces it back to the targeted location. The process of catching the signal sent back by the satellite with a dish antennae is called downlinking. Typically cable operators or MSOs do this. 56. VSNL, a government concern, was acquired by Tata Communications in 2002. 57. See http://mib.nic.in/writereaddata/html_en_files/tvchannels/FinalUplinkingGuidelines05.12.2011.pdf 58. One of the first cases related to the telecast of the India–Pakistan Cricket Series held in Pakistan in March 2004. It was acquired by Ten Sports from the Pakistan Cricket Board for a huge consideration. The Madras High Court directed that the Ten Sports signal would be carried by DD and some compensation for dilution of exclusivity would be paid to Ten Sports. This arrangement was confirmed by the Supreme Court. 59. For the news broadcasters content guidelines—http://www.nbanewdelhi. com/pdf/final/NBA_code-of-ethics_english.pdf   For the entertainment broadcasters content code—http://ibfindia.com/ guidelines.php 60. In the case of Prasar Bharati vs. Sahara TV Network, the High Court of New Delhi made some interim arrangements for use of cricket footage. The Court also desired the constitution of an expert committee to recommend the extent of use. The committee submitted its report in relation to cricket matches under the Board of Control for Cricket in India. A similar ‘illegal use of footage’ case, between ESPN Star Sports and Global Broadcast News was argued at the Appellate Stage before the High Court of Delhi. The Court observed that repeated use of footage beyond an acceptable period was not fair dealing and therefore not sustainable. 61. CMTS is Cellular Mobile Telephone Service licence. UASL is United Access Service Licence. 62. As the number of channels goes up they will have issues because satellite space is a problem. See The Shape of The Business, Now. 63. Edited excerpts from The New Rules of Content, Business Standard, March 5, 2013. 64. Some parts of this caselet are edited excerpts from India’s Broken News Business, Business Standard, March 25, 2011. 65. The Winning Streak, August 20, 2011, The Economist.

CHAPTER 3

Film In its hundredth year, Indian cinema looks young, fit and with it.

W

atch Kai Po Che, Vicky Donor or Peepli Live in Hindi. Or watch any other small or medium budget successful film in an Indian language of your choice to understand this chapter. Take Kai Po Che for example. It is a warm, funny and yet upsetting look at the lives of three friends and their coming of age. It is set against the background of the Bhuj earthquake of 2001 and the Gujarat riots of 2002. It doesn’t make any political statement. It simply tells the story of three friends trying to live their lives at that time. The film, produced by Disney UTV1on a budget of `300 million, did exceptionally well at the box office. The film has a completely unknown cast and crew. And yet they are clearly talented. The last five years have seen an avalanche of talent coming out of the woodwork and into the Indian film industry—directors, actors, writers and musicians among hundreds of others. You never heard of them and yet they are creating some good and successful films. Kai Po Che is just one among them. Vicky Donor and Peepli Live among dozens of others, use a largely unknown cast and crew to tell an unusual story. They are perhaps the best examples of all that is going right with the Indian film business in its hundredth year of existence.2 It is now becoming a creative hotspot where filmmakers and writers are telling their own stories with a confidence and panache that didn’t exist 20 years ago. These may be urban stories, rural stories, stories about housewives or construction workers or just intellectual meanderings. But the strange thing is that these stories are being told, they are being sold and, more often than not, they are finding buyers.

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Much of this creative unleashing has happened because the business has delivered. And that is the point that Kai Po Che or any of the other films illustrate. In 1983, an unknown director called Shekhar Kapoor made a film called Masoom.3Another unknown called Mahesh Bhatt made Saaransh, another wonderful film.4Both of them were great pieces of work but they had a tough time getting money, backing or distribution (see ‘The Past—The Messy 70’s and 80’s’ below). What has changed between then and now is that studios such as Eros, Disney UTV and Yashraj are pushing these films with a distribution and marketing muscle that was unheard of in the 80’s.5 Large chains such as PVR or Inox and thousands of digital screens are happy to screen them. What has changed is that India is no longer a one-size-fits-all Sholay market. It is a market for many different kinds of films, all of which are managing to find their audience though multiplexes or single screens, on TV, online and even on the mobile. Its volumes and heterogeneity are much better represented in the variety of films coming out than on the programming served on TV. And what has changed is that this market is delivering steadier returns than it ever did. It is hard to imagine that this business was a basket case just a dozen years ago. Clearly, the Indian film industry has learnt the lesson of its bad years and learnt it well. It has cleaned up its act spectacularly. The two big challenges now—size and profitability—are evolutionary rather than structural. On size, the gleaming new companies are as yet small—the largest, Disney UTV, is close to `4 billion in revenues. The largest media group, Times, clocked revenues of just over `67 billion in March 2013. That makes it roughly six times the size of the entire Indian film industry (see Table 0.4). So, film has a long way to go. On revenues and profitability, India looks particularly bad because it is the largest film-making country in the world. In 2012, for instance, the thousand-or-so movies made in India led to the sale of over 3 billion tickets for about `85 billion in home box-office revenues. Add other revenues—home video, satellite rights, overseas and so on—and Indian films made over `112.4 billion from the content they generated.6 That is just over US$ 2 billion (see Table 3.1). Hollywood, on the other hand, released 677 films and generated US$ 10.8 billion from the sale of 1.36 billion tickets

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in the domestic market alone in 2012. The total revenue it generated, including overseas and home video, was about US$ 40 billion. You could argue that the size of the two economies and the purchasing power of its people are so different that it is silly to compare the two. And you would be right. The idea is not to put down the achievement of the Indian film industry but to point out that it has a long way to go before it makes the most of its prolific nature. One part of the answer involved getting organised and attracting capital, both of which the industry has managed to do. Over the past 5–7 years, it has been transformed beyond recognition into a regular business. The other part is pushing for growth— by increasing the reach of cinema (see Figure 0.2c), pushing up average ticket prices and expanding into markets within and beyond India. Many of the larger companies are now investing in distributing films abroad and in producing films in different Indian languages. Almost all of them have an online presence and are very conscious of its potential. So, the journey that will make Indian film companies bigger, better and more profitable has begun.

The Shape of the Business, Now The Issues In terms of the numbers of films produced, the Telugu industry is the largest segment in India, followed by Hindi films (see Table 3.1). The essential character of the business is as yet fragmented and somewhat insular. The language cinema is a world within itself and this creates the first issue.

Lack of Unity As in publishing, the extreme fragmentation in the film business has meant that the industry speaks in different voices on different issues and never gets its act together as one. The multiplex owners have an association of their own which lobbies for one set

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of things while owners of single screen have a separate agenda. Within these two there are the North and South divides. Within the production community, there is a sharp divide between Hindi and all other languages. The Southern industry refuses to acknowledge that Hindi has moved way ahead of the South on cleaning up its act and corporatisation. At a FICCI-Frames7 conference in Chennai in 2009, several speakers and people in the audience kept talking about the ‘underworld money in Mumbai’, in spite of the fact that the industry is absolutely clean. Most of the southern film people talked to foreign investors from a silo that only considers their language and market. Some of this stems from the media coverage Hindi films get in mainstream media. Except for a Robot or a ‘Kolaveri Di’ from the film 3, rarely anything finds a mention in the national papers. The other part stems from the fact that though they do tell nice stories in Tamil, Telugu and Kannada, these films rarely get nationally acknowledged. The thing is that there are a huge number of issues on which the industry needs to talk as one, the biggest of these being taxation. Entertainment tax varies wildly from state to state: from 50 per cent and more in Maharashtra and Bihar to nothing at all in Himachal or Punjab. Then there is the whole issue of granting infrastructure status to the building of cinema screens and multiplexes. These are the battles the industry should be getting together to fight.

Protectionism In 2006, the Telugu film industry (based in Andhra Pradesh) decided to impose curbs on dubbing non-Telugu films into Telugu. It was taking a cue from the neighbouring state of Karnataka. This was in response to a perceived threat from Tamil movies which draw a good collection, especially the ones with stars such as Kamal Haasan and Rajnikanth. In 2011, producers such as Mahesh Bhatt in Mumbai and others in Chennai began the chorus for a ban on dubbed Hollywood films. These films dubbed in Hindi, Tamil, Telugu and Bhojpuri, among other languages, have managed to find wider audiences. Their contention was that Hollywood movies were eating into the share of local films. This argument is silly. According to the FICCI-KPMG report of 2013, roughly 35 per cent of the revenues of a Hollywood film

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come from dubbed versions. The rest comes from the original in English. For all the dubbing, Hollywood’s share in total box-office collections in India remains at 8.5 per cent, says the report. It has always hovered between 5–10 per cent. Read any international report or analysis on the global film industry. India, along with South Korea and China, has the strongest local industries in the world.8 And unlike China or parts of Europe, India has no quotas or limitations on how many films can be imported. So why are we worried? And there is another reason this argument does not hold. If as a Hindi/Marathi speaking person, I can watch Tamil or Telugu films, it helps the industry make more money and, theoretically, gives me access to the entire repertoire of about 1,600 films made in India in 2012. Similarly if I can watch English, French or Iranian films with dubbing or subtitling, on TV or in the theatres, it simply expands the array available to me. It is my right, as a paying consumer, in a democratic country. The way to fight a competitor, whether it is an Indian movie or a global one, is by making better movies, not by stopping viewers from watching these movies. Then there are other forms of protectionism. One of the big trends, as you will read later, is of national studios expanding their bases across the country into Kolkata, Hyderabad and Chennai. This has made local firms raise their guard. The Tamil film industry, for instance, is insular and conservative. So, a Disney UTV or a Fox Star cannot become members of the Tamil Film Producers Council (TFPC).An analyst points out that Ronnie Screwvala, managing director, Disney UTV, is registered as an individual member with the TFPC. His company Disney UTV is registered with the Film and Television producers Guild of South India. The membership of this body is critical to get a censor certificate, while the membership of TFPC is needed to register the title of the film. ‘The TFPC is a fiercely pro-Tamil body which is against allowing any companies from Mumbai becoming members. They believe that they will come here and spoil the market’, says Sreedhar Pillai, a Chennai-based film expert. But going national is a business imperative and I doubt if these small barbed fences around regional markets will prevent the studios from growing. Most usually brush off these concerns. ‘There was a certain amount of trepidation to start with but now it is cool’, says Siddharth Roy-Kapur, managing director, studios, Disney UTV.9

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The Dependence on Stars While new talent continues to come into the business, the fact is that it is still highly dependent on stars. ‘Talent make up roughly half the cost of a film. That is 30–40 per cent more than it should be’, says Siddarth Roy-Kapur, managing director, studios, Disney UTV. This skews the economics somewhat. As a result, several stars have now chosen to become producers and take a revenue share instead of asking for higher fees. This way the risk gets divided. The puzzling question: if the studios have the muscle in distribution and marketing to promote films with new talent, why then does the overdependence on stars continue? Ajay Bijli, chairman and managing director, PVR, reckons that it is because stars mean low risk. Most of the studios make at least one or two high-budget films every year. And that is the one they do not want to take any risk with, so they prefer to stick to a star who will at least draw the audience in during the first weekend.10While even Hollywood has this issue, as it matures and find better ways of doing big budget films—using technology to create creatures like dinosaurs or talking lions or making Spiderman fly—the results are heartening. As the creature films, the big spectacle films tell their stories as well as those with humans, the dependence on stars does go down, but only gradually.

The Glut in Production It is time to rethink the tag of being the world’s largest film-making country or the one that sells the maximum tickets (see Table 3.1). India is an unprofitable film market, not just because average ticket prices are lower at, say, half a dollar against US$7–12 elsewhere in the world. It is an unprofitable market also because we simply make too many films. There isn’t much data to support this contention but here are the results of a small analytical exercise I did in 2011. India released about 1,200 films as opposed to 677 films by Hollywood in 2010. The three big Indian studios released a total of 138 films in 2010. These accounted for 10 per cent of the total revenues of the Indian film industry in that year. In the same year, in the US, 50 films by four large studios accounted for 70 per cent of the total revenues of the industry. Warner Brothers

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was the largest studio in that year. It released 23 films such as Harry Potter and the Deathly Hallows (part one) and Inception. Its filmed entertainment division earned close to US$12 billion or just about half of parent Time Warner’s total revenues in that year. Disney released 16 films and its film division did US$6.7 billion in revenues. The four studios averaged between US$400 million – US$500 million per release.11 On an average the largest studios in the world did 12–16 films a year or roughly one every month. So they don’t make too many films. What they do is squeeze every dollar possible out of these films; that is where their big competitive advantage lies. In India studios such as UTV average 12 films, Eros does over a 100 films a year and Yashraj does three or four.12Siddarth RoyKapur, managing director, studios, Disney UTV reckons that 12– 15 is the sweet spot for most studios in India. However, it is the ‘squeezing revenues’ bit where the problems come in. One part being there aren’t enough screens and average ticket prices are still low. But the biggest reason is that we simply make too many films. So out of 1,200 films in 2010, if 300 had a chance of making 30–50 per cent profits, only 50 probably did. This is because there are very few times of the year a film can be released without too much competition from say school and college exams, IPL or other such events. Given that there are probably 30 weekends when it makes financial sense to release a film, 1,200 is a lot of films jostling for those weekends. This means that even the 300 films that had a chance of making decent returns never manage to reach their potential. The reason we make too many films is because, just like news channels, films too get a lot of random, glamour-struck investors who jump in to spoil the party. These could be real-estate barons or jewellers or anyone with a little extra cash. They don’t mind losing money for their one-off film. But their entry spoils the market for the professionals wanting to build a business.13

The Talent Crunch Siddharth Jain, founder and CEO, iRock Media,14 reckons that one of the big things that could hold up the film industry’s growth is the lack of producers—or individuals who have the ability to be what a conductor is to the orchestra. It is good producers—with

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the ability to pick scripts, read them, visualise the best director, star-cast, production or finance company that would fit the film, who are instrumental in creating hits. You could argue that in an industry with so much talent across functions—acting, writing, direction and so on—how difficult can that be. While there is a lot of talent in the business, the problem, says Jain, is that it is too spread out. It is a producer who brings it all together. ‘Why is growth not happening at a faster speed (considering the amount of action)?’ he asks rhetorically. That is because if a production company has 10–15 projects, it needs as many line producers, writers and so on. Generally the same team works across projects and that slows growth down, because ultimately one producer can oversee only one film at a time. ‘Most good producers do not want to join studios because they pay badly. Also studios can’t seem to be able to do deal with them,’ thinks Jain. For instance, some of the top producers in the business—Ritesh Sidhwani (Dil Chahta Hai, Lakshya and Don) or Sajid Nadiadwala (Mujshe Shaadi Karogi, Judwaa), would prefer to put together a film project in the way they see fit and make money on the upside, rather than work for a studio. In television, the problem of scaling up is solved with executive producers, who handle one or two projects at a time. In film companies, that is yet to happen. It is not just at the production end that the problems in the eco-system show up. Even at the retail and distribution end the issues are similar. For example, while scale is crucial in the multiplex business, there aren’t enough good architects or construction companies according to one former CEO of a multiplex company. In 2009 the government set up a Media and Entertainment Skill Council or MESC under the National Skill Development policy. The MESC will act as an accreditation body for training and focus on various segments of the industry—films, print, TV and so on. It will form institutes to train technicians, spot boys, stuntmen needed in the film business.

The Opportunities The need to scale up and get better at making money along with the changes the market is going through throws up a lot of opportunities. Some of these are obvious, such as getting into the

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market for other Indian language cinema or selling Indian films to the lucrative overseas audience. Others are more subtle such as digitisation and the corresponding rise in average ticket prices that it brings. Here is a look at some of them:

Going National Eros, Disney UTV, Reliance, almost all the big studios are now investing in other Indian languages in their bid to scale up.15 Each of them has anywhere between 4 and 10 non-Hindi films under production. These are in almost all major languages—Malayalam, Tamil, Telugu, Bangla, Marathi and Punjabi, among others. The non-Hindi market brings in only one-fifth of total revenues for the industry. This figure is small because not enough has been done to monetise films in other languages. So while Tamil is big in Tamil Nadu, the fact is it could have a market elsewhere too with the help of DTH or satellite TV. One of the big things that data collected by TAM post digitisation in the metros shows is that the long tail of content is increasing. For example, the consumption of Tamil channels has shot through the roof in Delhi post-digitisation in late 2012. That means that some unmet demand is now being met thanks to DTH and digital cable. Investing in Tamil, Telugu, Marathi or Bangla cinema brings three advantages to the studios. One, the average budget for these films is less than half that for a Hindi production, so in percentage terms the margins are better, even if the revenues are not as big as Hindi (see Table 3.3) Two, it brings economies of scale especially in distribution and marketing, the costs of which are going through the roof. Three, it helps cross-pollinate ideas and people between different markets and sensibilities. The South, for example, has a better handle on storytelling and scripts, something the Hindi market misses, especially for big-budget films. Investing in Tamil films could get the Mumbai studios access to new writers and ideas. A lot of the non-acting talent is happy to work across languages making remakes easier and lucrative. One of the biggest Hindi hits in 2011, Singham, was co-produced by Reliance in Tamil. It then remade the Hindi version. Eventually most studios expect 30–50 per cent of their revenues to come from languages other than Hindi.

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The Overseas Market The other big growth area is the overseas market which this book has talked about across all editions. It is finally delivering serious results. The FICCI-KPMG report of 2013 reckons that Indian films generated `7.6 billion at the global box-office in 2012.16 About 70 per cent of this came from three markets—the UK, USA and the Middle East. Tamil films are popular in Singapore and Malaysia. For the top 10 Tamil films, more than three-fourths of the overseas revenue came from Malaysia. 3Idiots, one of the biggest Indian hit in the overseas markets recently, is a great example of the possibilities (see Caselet 3a). The overseas market presents Indian firms with an audience and market to exploit should they want to scale up the business and milk the films a little more. But global markets need distribution and marketing muscle. Many of the Indian studios—UTV, Yashraj, for instance—have set up distribution arms overseas. The biggest hits in India release with anywhere between 1,500–3,500 prints. To make a serious dent in the global market a company would need to release at least the same number of prints overseas.17 Then there are the usual questions about the length of Indian films, their tendency to use songs as part of the narrative, the language they use and all of that. Yet, venturing overseas is an imperative especially if Indian film companies want to scale up. Consider that about 69 per cent of the US$ 34.7 billion that American films made at the box office in 2012 was made outside of America.18 This means that an overseas opportunity exists for any film industry that seeks it. There are four ways in which the Indian film companies can tap into it. With Indian content  The audience for Indian content is not just the diaspora but also people who are culturally aligned to Indian sensibilities. These could be other Asians or people of Indian origin, such as those in South Africa, Fiji or Surinam, who identify with Indian films. One EY report estimated that there are two billion people overseas who have cultural affinity to Indian content. For long this market has been served by dodgy operators and distributors. However, the Internet and home video now offer an outlet for films wanting to tap into the smallest segments of these markets. In addition to this the obvious popularity of

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Indian films at the box office in several mature markets such as the UK, means more theatre chains are willing to pick up Indian films for mainstream release. Besides this Indian films are finding cultural affinity in unusual places. 3 Idiots had some unusual success in markets such as Hong Kong, Mainland China and South Korea where it grossed $3.5 million each. Kahanii was the other film that did well in China and Hong Kong. With global content  A more risky game is to create films that have global appeal. These may or may not have Indian themes and their story should be able to cut across cultures. This is a tough one to figure out and several Indian companies have stumbled trying to do it—Marigold, released in 2007 by the erstwhile Adlabs, is one example. But harnessing this opportunity means access to the global market for films, not just the one for Indianthemed content. It needs Indian film companies to work with the Hollywood majors now setting shop in India to cook up scripts, distribution and marketing strategies that will make this happen. This means forming relevant alliances, like the one between Viacom and Network 18 or between Disney UTV. The all out strategy  Another approach is to go all out for the global market, by acquiring companies, expertise or retail and distribution muscle in those markets. For example, in 2008 Anil Ambani’s Reliance invested $325 million into Steven Spielberg’s somewhat cash-strapped DreamWorks which went on to make the Academy award-winning Lincoln, among other films, with this money. Then there were other smaller deals with individual production houses. However, not too many film companies in India have that kind of money. But just as Bharti Airtel expanded into Africa or the Tatas into the UK and other countries, film companies too will spread their wings once they achieve scale in India. Outsourcing  The last approach is finding opportunities for doing outsourced work for Hollywood Studios, from India. Much of the outsourced work Indian companies have done so far has been in the area of animation and special effects. The Chronicles of Narnia: The Lion, the Witch and the Wardrobe, are among the other major hits where a lot of work was done in India.

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Hollywood in India For decades, India was a ‘bottom of the chart’ country for most of the big studios on box-office collections. It is still a laggard. According to the FICCI-KPMG report the box-office share of Hollywood films was 8.5 per cent of the total box-office takings in India in 2012. This, in spite of the fact that currently no import restrictions, such as the quotas—that several European countries or China have—apply to films coming into India. The reason is simple. Indians love their entertainment in their own lingo and context. While typical Hollywood fare such as Avatar or Spiderman do good business (especially after being dubbed), most of the others find favour either only in the metros or on the home video circuit. This skew toward local fare along with an unprofitable market, meant that the studios never saw the point in investing in India. In any case, Hollywood has an extremely poor record on localising in most markets. It prefers to sell its own content in dubbed or sub-titled version. Between 2006 and 2008 almost every major Hollywood production company went on to announce local productions. Sony Pictures Releasing of India, made its first Indian film, Saawariya with filmmaker Sanjay Leela Bhansali. Viacom tied-up with Network 18 to create Viacom18 (Kahanii, Gangs of Wasseypur) and Twentieth Century Fox (News Corporation) set up shop with Fox Star Studios (My name is Khan, Jolly LLB).19 The reason this happened is simple. Almost every major Hollywood studio is the property of a media conglomerate. Twentieth Century Fox is owned by News Corporation, Paramount by Viacom, Sony Pictures by Sony Corporation and so on. All these companies have seen phenomenal growth in their India revenues in television after localising their fare. Two per cent of News Corporation’s global revenues now come from India. Disney, Viacom, Time-Warner, all have seen their television businesses in India grow and become dominant in their Asia portfolio. The business logic for localising, even in films, was therefore irrefutable. The birth of a few small but solid Indian film companies is the cherry on the cake. As the business corporatised, the money coming back into the studios kitties increased, and it has become easier to do business in India. Plus there are the opportunities for joint ventures and acquisitions. Notice that most studios have tied-up with local companies.

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This is very good for the Indian industry as it corporatises. These competitors and joint ventures will force them to clean up their processes and build organisations instead of settling for the one-man show that most of film production in India has been for so long.

Digitisation Across the value chain—from production to distribution and exhibition—digitisation is making inevitable changes. It is pushing down the cost of making, distributing and watching a film. The area where this change is having the biggest impact is in exhibition or what we call the theatrical release of films. Roughly 70–80 per cent of all the prints for a film are now digital. That’s because almost 80–90 per cent of the screens in India are now digital. The digitisation which began in the beginning of the millennium is now nearing completion in India. (See Table 3.2.) This has phenomenal impact on everything. The cost of a digital print is less than one-tenth that of a regular celluloid print. This means that even the average film can release with 1,000 prints or more and reach out to the largest number of theatres possible. The bigger films release with 2,000 to 4,000 screens. Dabangg 2 (2012), for instance, released at over 3,500 screens. This ensures that a film gets the widest release possible. It gives a better viewing experience and also kills piracy because the film is available across India on the same day. Eventually, this along with better theatres should help improve average ticket prices, another way in which the film industry could improve profitability. (More details on digitisation and how it began in ‘The Birth of a New Film Industry, 2002–2006’.)

The Trends Three broad changes are emerging:

The Rise in Cinema Advertising20 Over the last four years, cinema advertising has found new life all over again. Almost every major chain has seen a doubling of the money advertisers are spending inside theatres—either on the

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screen or off-screen within the theatre premises (See Table 3.2). According to estimates the total money spent on advertising in cinemas was `3 billion in 2012–13. This is roughly one-fifth the money spent on radio or 13 per cent of that spent on digital. Going by estimates, it is growing three times faster than advertising on radio and about as fast as digital. This growth is not coming from a local coaching class or the neighbourhood restaurant. Instead, it is the consequence of large national advertisers such as Dabur, Lufthansa or Tata DoCoMo adopting the medium. From almost nothing many of these brands are now spending bigger slices of their advertising budget on cinema. For instance, more than 80 per cent of PVR’s advertising revenue comes from national brands. None of these names would have ventured into cinema advertising five years ago even though its reach is phenomenal. Remember that India sells between 3–4 billion tickets every year. That is a lot of people walking into its 10,000 odd screens. Though this reach was available earlier too, three things changed recently. One, the theatre chains have started selling their own ad space instead of relying on concessionaires such as Dimples or Salvos. Two, the audience with purchasing power has started coming back to the theatre thanks to multiplexes and digital single screens. These are the people advertisers want to reach. Three, as the clutter on other media increases, cinema offers the best way of reaching captive audiences. Think about it. You are helpless against an ad when you are in a theatre—there are no doorbells, no colleagues, no other media and certainly no remote control. This makes anyone in a film theatre a very coveted target. However, this holds true only in mature media markets such as Mumbai, Delhi and so on. More than 80 per cent of the advertising revenue that PVR makes is targeted at these cities.21 As advertising grows, digitisation spreads and more people come back to the theatre, ad revenue should increase. It already accounts for between 5–20 per cent of revenue for multiplex and single screen chains. (See Table 3.2) What could impede growth somewhat is the lack of metrics. Unlike ratings in TV or readership in newspapers there aren’t any established metrics to measure the effectiveness and reach of cinema. Some chains benchmark their rates and reach to TV.

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The Falling Windows In January 2013, actor Kamal Haasan said that he was in talks to release his bilingual film Vishwaroopam on DTH before the theatrical release.22 The idea was to charge `1,000 per home for a premiere across a chunk of India’s 51 million DTH homes. Protests from theatre owners in Tamil Nadu, Haasan’s key market, made him drop the plan. Nevertheless, several unknown film makers have done the same thing and known ones are trying to reduce the gap between the theatrical release and the appearance of the film on other formats. Mr aur Mrs Khanna (2009) was on DTH within four days of its theatrical release. Kaminey, a big hit in 2009, was on DTH within a month of its release. The gap between the theatrical release and the film’s appearance on other formats is called the window. It was anywhere between 6 months to 3 years depending on the market, the format and the language. For example, in the conservative South the windows were much longer than in the commercially savvier Mumbai market. Over the years it has shrunk in response to business imperatives. Everytime there is a push to reduce it further, there is a huge backlash from the theatre owners. The reason film companies want to keep compressing it is to fight piracy and capture all the potential revenues for the film. Pirates exploit two things. One, any gap in the release on different formats such as home video, DTH, online. Two, any time lag between the release across cities or audiences. For example, if the film is released first in the top 30 cities and then in the rest, the potential in the smallertowns is killed by piracy. The more delay there is in releasing it on all the formats to all audiences, the more the likelihood of piracy, bad prints and of losing audiences to sheer disinterest and poor word-of-mouth. To avoid the loss caused by all of these factors, production companies are constantly negotiating with theatre chains. Over the years the release windows have fallen. But the push from digital has made even a few weeks seem too long a gap. Pirated versions of a film can be found on peer-to-peer networks or certain websites the same day as its theatrical release or even earlier. Therefore the inexorable push to reduce the windows especially for other formats. Though home video is shrinking, television

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is a big revenue stream and pay-per-view on DTH is emerging as a serious contender. “A decent movie gets 200,000-300,000 views on DTH and this is a completely new revenue stream. You can create this window from day zero to day 21 or more. On day zero a film could be priced at `1,000 on DTH, decreasing progressively and going to `50 per view in the last phase,” says Harit Nagpal, CEO, Tata-Sky, a DTH company.23Then there is YouTube or the net, a great way to reach the overseas audience and break the whole barrier of distribution. Unfortunately, piracy eats away a lot of this market too. There are, however, sites such as Shemaroo, Rajshri and T-Series which are among the top ten online channels out of India.

Consolidation in Retail In 2012, PVR acquired Cinemax India to become India’s largest multiplex chain. (See Table 3.2) In 2010, Inox Leisure acquired Fame. Multiplex chains have been consolidating. On the other hand, on the single-screen front, digitisation is leading some kind of proxy consolidation through digital cinema companies such as UFO Movies and Real Images. Roughly 70 per cent of the active screens are now owned or controlled by organised entities. This makes for a simpler and more streamlined market. Remember that until ten years ago, dealing with 11,000 different theatre owners was the biggest block to a national release. Film companies can now actually tie up a release by negotiating with 10–12 companies. This makes for a market where economies of scale come into play and revenue leakages get plugged further. With any luck this will translate into more cash for investing in more screens.

The Past The Beginnings After Thomas Edison perfected the Kinetograph, a camera capable of photographing objects in motion, the first motion picture studio was formed to manufacture Kinetoscopes. These first few movies, essentially filmstrips viewed through a peephole

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machine, were then shown at a ‘Kinetoscope parlour’ on lower Broadway in New York. It was extremely popular and crowds milled around to see it. Soon after that, films came to India. The first film was screened in India on 7 July 1896, at The Watson’s Hotel, Bombay (now Mumbai). The Arrival of a Train at Ciotat Station and Leaving the Factory, the first reels ever shot of a real film had been screened just six months ago in Paris, at their ‘world premiere’. The Lumiere operator Maurice Sestier was on his way to Australia. He stopped over in India to show what The Times of India hailed as ‘The marvel of the century’. The film was presented to an audience of English folk and some ‘westernised’ Indians. A week after the Sestier screening, Novelty Theatre started projecting short films from the Lumiere repertoire. These were accompanied by an orchestra and—of course—ran to full houses.24 Soon, there were travelling theatre companies screening films in theatres and maidans across the country. There were James B. Stewart’s Vitagraph shows in 1897 and the Moto-Photoscope created by Ted Hughes. By this time, the first few screenings had been made in Calcutta (now Kolkata) and Madras (now Chennai) too. The projection of short films with titles like The Races in Poona or A Train Entering the Station in Bombay began. Many of these were shot by European cameramen or by Indian enthusiasts like Hiralal Sen. Other subjects included bazaars, religious processions, plays and monuments. A lot of the impetus for these films came from the English. By 1901, Indians became good at using the medium too. Sakharam Bhatavdekar, a Marathi photographer from Bombay, echoed nationalist sentiments in the film, The Return of Wrangler Paranjpye to India. Paranjpye was a mathematician who had been honoured at Cambridge. Sen and Bhatavdekar are referred to as the first Indian filmmakers. The business of cinema started almost as soon as the medium took off in India. Whether it was setting up studios, theatres or importing the equipment, enough people got into the act. The investments came largely from American or European companies like Pathe. It was one of the first few to open a branch in Bombay in 1907 to sell equipment. Gaumont, Éclair Vitagraph and others followed. In 1905 came the Elphinstone Bioscope Company from Jamshedjee Framjee Madan. The films his company made were

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nationalistic—like Jyotish Sarkar’s films on the protest rally against Partition. J.F. Madan quickly spread his wings with a chain of ‘picture palaces’ (cinema halls) across the country and, by 1927, owned 50 per cent of the Indian cinema distribution network. He also dominated film production in India for a long time. There were others like Abdulally Esoofally, who moved with tents, cameras and projectors to show their wares to hungry audiences across the country. Clearly, cinema had taken off. From the urban to the rural areas, people switched from theatre to cinema. In response to the growing demand, ‘picture palaces’ or ‘permanent cinema halls’ or theatres as we know them started to appear in 1906–07. By 1909, within 15 years of the first film being screened, there were more than 30 theatres in India. Audiences were watching mostly American and European (largely French art) films on these screens. Most of these were newsreels on, say, the Boer War or the funeral of Queen Victoria.

The Birth and Evolution of Indian Cinema There is some ambiguity about the first Indian feature film. Chronologically, it seems to have been Pundalik, a religious film released in 1912. It was directed by Nanabhai Govind Chitre, Ram Chandra Gopal Torney and P.R. Tipnis, all of them belonged to Marathi theatre. However, Dhundiraj Govind Phalke is crowned as the father of Indian cinema. He produced, directed, processed and did everything to make the first proper Indian feature film, Raja Harishchandra. Unlike most film-makers of those days Phalke did not have the westernised audience in mind. His vision was to use the medium to narrate an Indian story to an Indian audience. Raja Harishchandra was released on 21 April 1913, and needless to say, became a great hit. It went on to be released in 20 versions and in eight languages. The importance of this film is not its position in India’s chronological film history, but in the three important things it signified. First, the mass of the audience was Indian and, therefore, making a film for Indians would get more people involved and interested. Second, Indians like to be told a story they are familiar with. At that time, mythology provided the basic fare. Everyone knew the story of Raja Harishchandra. In fact, for a large chunk

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of the illiterate audience, the explanatory texts in Hindi, Urdu and English made no sense. The live accompaniment of text and chanting did. And that is the third point: song and dance have been an integral part of cinema’s narrative form from the very beginning. The narrative form of Indian films was influenced by mythology. Earlier they were made into plays, with song and dance as an essential part of the narrative. Films followed the narrative style of drama. Indian audiences, long used to it, were completely comfortable watching it on screen. This is pertinent. Many Indians feels sheepish about the songs and dances in our movies, but there is a historical context to them. For generations, storytelling in India has been a combination of the spoken word, song and dance.

The Studio Years Soon Phalke set up his own studio, The Hindustan Films Cinema Company. He followed up with several mythologicals like Bhasmasur Mohini and Kaliya Mardan. Several other studios came up. There was Ardeshir Irani’s Star Film Company, R.S. Prakash’s Star of the East Film Company in Madras, Rewashankar Pancholi’s Empire Film Distributors in Karachi and Lahore, among others. By the beginning of the 1920s, the pioneering phase was over and the business had begun in earnest. Studios vied with one another for actors, actresses, storywriters and lyricists. By 1923, an entertainment tax at 12.5 per cent was levied on films in Bombay. By 1927, a few film magazines—Movie Mirror (Madras); Kinema (Bombay) and Photoplay (Calcutta)—were also launched. Bombay, Madras and Calcutta were beginning to dominate the action in Indian cinema. At this point in time only 15 per cent of the films being distributed in India were Indian. The rest were foreign, of which more than 90 per cent were American. World War I had almost killed European cinema, leaving the field wide open to Hollywood. To counter these ‘American imports’ with censorship, the English government appointed The Indian Cinematograph Committee. It published its report in 1927–28. The report did not recommend preferential treatment for British films. Instead, it suggested a series of measures to promote Indian films. These

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were: financial incentives to producers, the abolition of raw stock duty and a reduction in entertainment tax. The British administration just ignored the report. As luck would have it, successive governments did the same and the film industry never did get the hearing it deserved till 1998. Let us go back to 1931 when Alam Ara, the first talkies, was released. It was one among 28 films made that year. The breakup of these films gives an insight into that time: 23 of these were in Hindi, four in Bengali and one in Tamil. Bombay was already becoming the centre of the cinema business. By the 1940s, films were a proper business with Bombay Talkies, Prabhat and Wadia Movietone, among the top film companies. The corporatisation did not take away from the joy of cinema if one goes by the material from the period.

The Fun of the 1940s It was an exciting time to be in films, whether as an actor, a writer, a lyricist or even as a journalist. It was an informal world where intellectual bonding mattered more than money or connections. Many financiers and producers would actually put up writers and actors in their homes till they ‘made it’. Many actors started their own companies. Ashok Kumar, for example, broke away with a few of the employees of the top-rated Bombay Talkies, to form Filmistan. Bombay became very much like Hollywood, a rich cauldron of intellectual, sexual and creative energy that kept the dream factories going. It is clear from much of the writing of that time, or even from conversations with people from that era, that cinema was one of the few progressive/modern bastions in the country. Everybody—irrespective of religion, political leanings, nationality or social background—found a place in this world. There were courtesans and their daughters who played the female roles that ‘respectable’ women did not. There were Leftists, Right-wingers and sons of rich families who financed the films as also directors and actors from Germany, England and Russia, among other countries.25 They enjoyed the creative process thoroughly, yet it was clear that making films was a business. The system worked like a

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well-oiled machine. Writers and actors and all the rest were on the payrolls of major studios. Most were modelled on the European or American film industry, which were organised. If someone wanted to make films, they formed a studio, hired lots of writers, lyricists, actors and actresses and churned out films. The best studios were the best paymasters with the best staff—be it in acting or writing or making music. For example, the famous Hindi novelist, Munshi Premchand, was hired by Ajanta Cinetone as a scenarist for a salary of `8,000 per year—huge, going by the standards of 1934. A film was budgeted once a studio decided on it. Amrit Shah, who worked with Bimal Roy from 1955–68, remembers that he would add 10 per cent extra for unforeseen expenses after the budgeting. The studio then split up the budget among the distributors of the various territories that India was divided into. For instance, Delhi would pay 20 per cent of it. The ratio remained the same for decades. The agreements between the distributor and the studio were based either on minimum guarantees, advance or on commission or on a combination of all the three (refer to ‘The Way the Business Works’). The usual distribution agreement was minimum guarantee (MG) plus cost of print. Once that was in place, work on a film began.

The Break-up of the Studio System These fun years did not, however, last long. From the mid-1940s onto the late-1990s, the film industry went through the roughest possible patch any business can. The wonder is that it survived and is doing so well. By 1944, the studio system had started breaking up. Bloated with war profits, financiers tried to launder their money through the studio system. Star salaries and budgets got bigger and as did the egos. Breakaways became more common. Things started changing in other ways too. In 1949, post Independence, entertainment tax was raised to 50 per cent in the Central Provinces and to 75 per cent in West Bengal. In the same year, the government appointed a committee under S.K. Patil to report on all aspects of cinema. In 1951 (and this is pertinent), the committee reported on the shift away from the studio system towards independents. It noted the entry of black money and the

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star system into films. This may sound familiar, but remember this was the first time anyone was pointing it out. The committee recommended major state investment in films, the setting up of a film finance corporation, a film institute and film archives. The report, like others before it, was ignored for more than a decade. Some of the recommendations were finally implemented in 1960 with the setting up of the Film Finance Corporation, a film institute at Poona (now Pune), The Institute for Film Technology in Madras and The Hindustan Photo Film Manufacturing Company. Later, in 1965, the National Film Archive of India was also set up in Poona. Many of these moves along with others—canalising imports of raw stock through the State Trading Corporation (STC) and later the Film Finance Corporation (FFC), and censorship—increased the government’s hold on the film industry.

The Messy 1970s and 1980s These were arguably the worst years for Indian cinema. That is not necessarily a comment on the quality of films made, but on the state of the business. The break-up of the studio system had led to financial and systemic chaos that the film industry had yet to recover from. Studios of that time hired employees who would turn out about half-a-dozen films over a year or two. This spread the risk of making films, helping them cover a bad film’s losses with the gains from a good one. With the break-up of the studios, many individuals became producers. There were now numerous producers bearing the individual risks of making one film each instead of a handful of studios bearing the collective risk of 5–10 films each. This fragmentation changed the economics of the game in many ways.

The Financing The first thing that changed was the colour of money coming into the industry. Since there was no industry status and, therefore, no institutional finance, most of the money flowing into the industry came from people who had a lot of black money that they wanted

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to park.26 The estimates of unaccounted money range from 25–50 per cent of the total money floating around in the industry. Most producers did not question where the money came from because they were desperate. The interest rates that distributors and producers were paying on this money could range from 48–60 per cent per annum. The people making the films agreed to pay them because the risks of the business had gone up dramatically. Anybody putting their money in a film had a 2–3 per cent chance of making profits. It was like gambling with high stakes. The returns were stupendous if the film became a mega hit. It may be argued that earlier too black money could have flowed into the studio system—but the proportion must have been minuscule. In the 1940s, studios operated on salaries and cheques just like regular companies did. It was not so easy to put black money past them. In the 1960s, 1970s and 1980s, it seems that the only time cheques were issued was when raw stock was purchased and excise duty was paid on completion. When a producer announced a film, depending on his star cast, not the story or the director, distributors would line up to pay an advance.27 A Raj Kapoor or a Yash Chopra had no problem getting money because they usually got the big stars who ensured a basic collection at the ticket windows. If Amitabh Bachchan starred in the film, it meant that people would flock to see the film at least for 2–3 weeks, if not more. The chances of recovering costs and making more money were higher than when the cast was completely unknown. That is the reason he was called a ‘one-man-industry’. Also, filmmakers like Chopra or producers like Gulshan Rai found it easier to raise money because they had—and still have—a good sense of what is popular. It was Yash Chopra’s instincts that the financiers were betting on.28 If a smaller producer announced a film with relatively unknown actors, he had a tough time raising money. Such producers would raise money on their own, through financiers; shoot a few reels and show these to the distributor. If the latter liked what he saw, he would agree to pay an advance for the film. The shooting of the film would begin, again. Some of this money was borrowed, some came from the distributor’s own pocket. The glamour and the need to be associated with film-land, in spite of its endemic business problems, were so high that money kept

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pouring in. Unlike the men who put their money in the old studios, these new financiers wanted to dictate terms on scripts, stars, directors, music and everything else. The high risk of making a film had killed creativity to some extent, this only added to it.

The Star System and Formula The words ‘formula’ and ‘star system’ were born. ‘Formula’ was the safest kind of film to make. What the formula was, depended on the trend at that time. If romantic films were doing well then, then romance was the formula; if action movies were all the rage, then action it was. Nobody wanted to take a risk with an unknown subject or stars, certainly not the distributors who were bankrolling the film. It was not as if experiments did not happen. These, however, were few and usually financed by the government through the National Film Development Corporation (NFDC). The ‘parallel’ cinema movement was the result. Even that had its caste system. Actors like Shabana Azmi, Om Puri and Naseeruddin Shah—the icons of parallel cinema—were a must if the film sought state funding. The economics of the business had the disastrous effect of choking creativity. As for the ‘star system’, that too was as much a result of the economics. If actors like Rajesh Khanna (at the peak of his stardom) or Amitabh Bachchan were signed on, it did not matter if the film was bad or delayed: it was financed. So stars became very important. This is something that happens in Hollywood too; only it is more structured. If Julia Roberts, a popular Hollywood actress, is a box-office draw, the market chases her and everybody wants her in his/her film and prices do get pushed up. However, when she signs on, she reports to a studio and is under contract to complete the film. She has to be totally professional about coming on time, completing the film and so on. In India, except for the odd individuals with impeccable professional credentials, such as Amitabh Bachchan, things like punctuality and a respect for deadlines went out of the window from the 1960s onwards. Delays and protracted shooting schedules resulting in higher costs were endemic. Over the decades, the clamour to grant industry status to films was becoming louder. It had, however, become a chicken-and-egg

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situation. Since there was no institutional finance, producers depended on stars to pull in the money from dodgy financiers. This in turn meant low creativity, a bad product and an unprofessional system. It also meant a risky, loss-making business. According to one estimate, barely 2 per cent of the 763 films released in 1982 were mega hits, 16 per cent were moderate successes and 12 per cent broke even. Of all the films released that year 70 per cent sank without a trace, along with the billions of rupees that must have gone into making them. The bottomline—films were an unattractive investment for a bank even if the business was given industry status. The studios of the past did not just ‘put together’ the film. They aggregated the risk. When 10 films are made at the same time, their budgets, subjects and artistes would vary. A studio could make two large-budget formula-based films, three medium budget films and try several smaller, more experimental ventures. The risk was spread across a clutch of products. Some would work, others wouldn’t; leaving the studio to either breakeven or eventually make a profit. From the 1950s onwards, individuals increasingly began bearing the risk. Depending on one’s point of view, either the risk was greater or their capacity to bear it was lower. Since they could make only one product there was no portfolio and—hence—no de-risking. Plus, since there was no money to put in more than one product, they depended on only one film.

The Lack of Alternate Revenues Add to this the complete lack of alternative revenue streams. Except for theatres, there were no other ways for producers, distributors and financiers to recover their money. The overseas market—with some exceptions—had a patchy record. Satyajit Ray’s Pather Panchali had a successful 226-day run at Playhouse on Fifth Avenue in New York, breaking a 30-year record for foreign releases in the US. Raj Kapoor had similar success in Russia. None of this translated into huge business for the industry since marketing and distribution remained dollar-intensive. In those days of foreign-exchange shortages, Indian filmmakers could not develop the overseas markets. Most producers sold their overseas rights for a song to companies like Eros International. In 1982,

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the only year for which this figure is available, the overseas market brought in just `146 million. Music companies, another source of revenues later, hardly paid anything since HMV (now Saregama) was a virtual monopoly. As for theatres in the 1980s, they were dying. Land prices were high, there were impractical rules for cinema halls, and there was an entertainment tax of anywhere between 50–80 per cent, depending on the state. Theatre owners or exhibitors charged as much as 50–60 per cent of a film’s collections as rent and yet they could not make money. In order to do that, they had to either under-declare revenues or make do with very low returns—anywhere between 3–5 per cent—on their investment. In cities like Mumbai or Delhi, where land prices are high, most chose to morph into shopping complexes. Others ignored the need to renovate, maintain clean toilets, paint or put air conditioning systems. As a result, the number of theatres together with the theatregoing habit, especially in big cities, went into a long decline. Between 1989 and 1993, the number of theatres fell from 13,355 to 13,001. According to the NRS data29, the number of cinemagoers has been falling from the late 1980s. While the steep decline steadied after the 1990s, it has nevertheless continued to fall for a long time. According to IRS 2008 figures, the number of people cinema reached across urban and rural India fell by 6.2 per cent from 2005 through to 2008. It has, however, started climbing since then. Currently cinema reaches about 13 per cent of the Indian population.30 (See Figure 0.1c.) New revenue streams such as cable or video did come up in the 1980s. However, instead of adding to a film’s revenues, they took away from it. Cable TV in India began on the back of video piracy. The early cable operators hooked entire buildings onto one VCR and aired the latest Hindi or English film (refer to the Chapter 2—Television). This hit film revenues in two ways. One, it reduced the walk-ins into a theatre thereby reducing box-office revenues. Two, it did not bring in the royalties that screening old or new films on television usually entails. This holds true even now. The latest hits are shown on local cable TV channels. Nobody pays for these; they generate advertising in multiples of tens of millions, none of which ever gets passed on to the film industry.

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It is not as if the government or progressive minds within the industry were not aware of these problems. Right from the S.K. Patil Committee Report in 1951, to the Estimates Committee in 1973–74, and later, the Working Group on a National Film Policy in 1980, each group had referred to these. They repeatedly stressed the need to give industry status to the sector and allow for institutional financing to be made available through banks. Some of the 1980 committee’s remarks are telling. ‘Popular entertainment films have to be liberated from the over-dependence on standard box-office ingredients. These films should also provide an opportunity for creative expression. This can only be done if the production of popular films is freed from the clutches of financiers.’ Earlier reports had pointed to the entry of black money in films. The evidence was there and the solution was obvious as well but nothing was done.

The Glimmer of a New Beginning (The 1990s) By the end of the 1980s, the industry was in extremely bad shape. When satellite television hit India in 1991, the mood was despondent. However, the industry was destined to go through more before things changed.

A Brief Respite For a brief period things changed: partly because the industry found innovative (for that time) ways out of its conundrum, and partly because the market had altered in four ways. One, due to cable TV, video and later satellite television, films had competition for the first time. Till the mid-1980s, films had— for better or for worse—a captive audience. People had no other avenue for entertainment except films. There was one television channel and one radio station. The competition for the viewer’s time had begun, and the viewer was choosing to watch a pirated film at home rather than visit a dirty, smelly theatre. His attention span too had reduced because he had more options. He was less likely to sit through a bad movie even if it had big stars. Two, by this time Amitabh Bachchan, the last of the big stars, was on the decline. In fact, he retired (but only for a bit) after

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Khuda Gawah (1992). There was no other major star on the horizon; at least nobody who could attract both financiers and audiences the way Amitabh Bachchan or Rajesh Khanna had. Three, video and cable TV cut the time a film had to recover its money—in the theatres—to less than half. Earlier, distributors and exhibitors could wait for word-of-mouth to catch on by the second week of a film’s release. If it clicked they could then keep it in the theatres for 10–12 weeks. However, by this time, video pirates leaked prints of the film quickly. These were then picked up by cable operators and aired into thousands of homes. This killed a lot of potential revenues and meant that a film had just 2–3 weeks to recover its cost and make some money. And four, costs had gone out of hand. In 1982, a really expensive film cost `20 million to make. By 1993, this figure had gone up to `30 to `50 million. These figures may seem small compared to the budgets of some recent releases, but they were huge numbers then especially since there was no other way of recovering this money except through theatres. The theatres in turn were in no shape to welcome audiences. Most had reverted to a rental system by then, so they did not care whether the audience turned up or not. Clearly, things had reached some kind of nadir. The film industry did react—and with amazing chutzpah for that time. It did three things:

Discovering music  The first was to use the music more effectively. By this time the music industry was booming. Music companies were vying with one another to pay advances to filmmakers for music rights (refer to the chapter on Music). The rights to Subhash Ghai’s film, Khalnayak, were sold for a reported `10 million. This became a crucial source of revenue/working capital. Other filmmakers tried to get in film advertising, and sponsors for some scenes or songs, so that some of the costs could be taken care of. The fact that these two—sponsorship and music—could cover part of the cost, was a boon to many filmmakers. It not only saved them interest but also got the film free promotion as a result of the tie-ins with music or a brand.

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Marketing comes to the movies  The second was the use of some very rudimentary marketing techniques that had never before been used by the film industry. Since music was the best way to draw audiences, it became common to release it a few months before the film—instead of after the film’s release. The ‘Ek do teen’ song from Tezaab, for instance, played a huge role in making the film a hit in 1988. Other tactics such as teaser campaigns, promotions, offering free gifts, story contests and even advertising the film heavily, were also being used. From almost nothing, producers started spending roughly 10 per cent of a film’s budget on promotion. Earlier, it was only the distributor who spent on radio spots, posters or trailers.



The carpet bombing on distribution  Piracy, competition from other media and short attention spans meant that the amount of time within which a film had to recover its money had been cut short. Therefore, the pressure to recover it quickly within the first weeks increased. So, it made sense to release the film in a burst in a large number of theatres. This is common in the US. By doing so, a filmmaker pulled in a major chunk of potential viewers before a film’s video-copy came into circulation. It also did not allow negative word-of-mouth to catch on. Movies like Hum and Khuda Gawah were released in 450–500 theatres nationwide: against the average of 200 of that time. Releasing them simultaneously in so many theatres ensured a huge ‘initial’ or the first rush of viewers walking in, given that the pre-release marketing was good. This was an expensive strategy, because every additional print of the film cost more than `60,000 and 450 theatres meant 450 prints.

The Birth of Alternative Revenue Streams Many of these moves helped ease the pressure on revenues. By the late 1990s, music, overseas markets and satellite television emerged as major revenue streams, bringing some more good news. The music of a really big-budget film could bring in as much as 25–30

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per cent of the film’s cost. Lagaan fetched a reported `60 million from Sony Music; and Yaadein, `85 million. By 1998, the overseas market had emerged as a major source of income, bringing in 30 per cent or more of the total revenue of the film at times. The television and Internet meant a smaller world where the tastes of urban Indians matched those of Indians living overseas. Both wanted a heavy dose of culture, weddings and songs—all garnished with the right costumes and colour. Neither wanted to know anything about the angst of the other India. The overseas market came to everyone’s notice because of the 1994 family saga, Hum Aapke Hain Kaun, which did very well in the UK. It was followed by Dilwale Dulhania Le Jayenge(DDLJ, 1995), set partly in the UK and partly in India, followed by a host of other films. DDLJ alone grossed about `200 million at the overseas box-office against `500 million in India.31 Soon, films like Taal, Pardes, Mohabbatein and Kuch Kuch Hota Hai were being made with the NRI audiences in mind. Many of these films did well in semi-urban India, but really made money in Indian metros, the UK and the US markets. It was a market that looked set to grow. The 25 million Indians, living overseas, had high purchasing power. The difference in the currency value alone hiked what each ticket brought in. A film ticket at US$ 10 was more profitable than the maximum of `80 to `100 that could be charged in India then. This translated into increasingly more films with weddings and songs and dances thrown in. Note that none of the big local hits of the mid- to late1990s, Satya, Sarfarosh and Company, which used other themes, did significant business overseas. The only other really big overseas hits were Mani Ratnam’s Dil Se and the Tamil, Muthu—both for some unknown reason in Japan. Cable and satellite broadcasters became big buyers of films, bringing in roughly 10–15 per cent of a film’s revenues. Some were sold for even more than that. Most broadcasters recovered that money from advertising. If a channel paid `30 million to screen Dil To Paagal Hai, most of this money could be recovered through one or two telecasts of the film. Finally, satiated with satellite television and the repeats of old and new movies, audiences started coming back to the theatres. That prompted theatre owners to begin refurbishing cinema

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halls. It also meant that ticket prices rose—to as much as `200 in some theatres. By 2000, music, satellite television and the overseas market were totting up roughly 70 per cent of a film’s revenues. It meant a fundamental shift in the way filmmakers thought, and producers planned. It also meant filmmakers could take more risks—creatively and financially: financially, because the business seemed to be de-risked; and creatively, because smaller, offbeat subjects or films like the 2000 release Astitva that explored a theme with limited appeal, could be made.32 Earlier Astitva would have probably have had a weak run for a week in some seedy theatre. Instead it now ran to packed houses in smaller, 50–100-seat theatres.

The Hidden Devils A lot of this apparent ‘de-risking’ and growth drew a welcome and organised interest in the film industry. The government, consultants, analysts, investment bankers and foreign investors all turned the spotlight on Indian films. First was the announcement granting the business industry status in mid-1998.33 This meant that film firms could corporatise, lobby for organised funding from banks, raise money and in general operate just like any other industry with its own lobby groups and demands for reduction in entertainment taxes and so on. Around the same time came a FICCI conference on the entertainment business. This was followed by the decision to allow 100 per cent foreign direct investment in films. Later tax-free multiplexes too were encouraged. Meanwhile, the Indian Banking Association announced norms for film financing. All this meant that banks and financial institutions could now lend to the film industry. There was, through 2000 and 2001, a very positive air surrounding the industry. This was evident at the FICCI and CII conferences on the business.34 All this hoopla impacted filmmakers too. Budgets went up in expectation of the easy finance and increased revenues. So, did the price for music, satellite and

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overseas rights. A lot of this well-meaning excitement missed two things.

The inequity in risk bearing  The first was the inherent inequity in the way films were still being made—take Baba (2002) as a case in point. According to reports, the `100-million film sold its domestic theatrical rights to 150 theatres in the four southern states for `330 million. Overseas rights were sold for another `80 million and music for `30 million. Add in product endorsements worth `60 million. The distributors, music companies and overseas buyers bought the film based on some rushes.   Even before its release, Baba had made an estimated profit of `400 million, without anybody having seen it. However—and this is very pertinent—the profit went only to a handful of people, in this case, to the film’s actor, Rajnikanth himself, since he was also the producer. All the theatres that picked up the film, the music company and the one that bought the overseas rights, lost money when the film failed.35   Now, multiply the Baba experience across five decades and thousands of films. Since distributors advanced money to producers (refer to ‘The 1970s and 1980s’), there was an inherent inequity in the way Indian films were financed, distributed and sold. The entire risk was being borne by the distributor and/or the theatre owners. It was routine for theatre owners and distributors to under-declare revenues for good films to make up the losses on the terrible ones.36 The fragmentation of India  Second, from the late 1990s onward, sharp schisms had cropped up in Indian film viewing habits. The divide between A and B class India had become wider. The urban, upmarket viewer and the overseas audience, both connected with, say, a Dil Chahta Hai (an urban slice of life story about three friends). The rest of India could not. Audiences in semi-urban and rural India, which has over 50 per cent of the total theatres, prefer conservative fare. The 2002 release, Ankhiyon Se Goli Maare (an old-fashioned formula film), did twice

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the business in the interior than it did in the cities. More importantly, urban audiences were willing to pay `100 or more (against the average of `20) to watch something that appealed to them, and in a good theatre. The market was demanding more variety—in filmmaking, screening and pricing of tickets. Many filmmakers missed the point and continued to make one-theme-fits-all kind of films. A bulk of the new investment went into trying to reach a pan-Indian audience, at a time when there was none left. As a result, movies started flopping. Music companies, overseas buyers and domestic distributors started losing money. Each of them reacted by shunning the business. Additionally, satellite channels such as Sony or Zee had paid very high prices for films in 1995–96 when they were hungry for a spike in their ratings. As viewers started getting hooked to soaps, there was no need to throw so much money on films. At its best, a blockbuster such as Kuch Kuch Hota Hai generated TVR of 11 and revenues, arguably, in excess of `50 million when it was televised later. As the reach of television increased, a hit show could do more on both counts: TVRs and revenues. The result was that satellite channels began buying under-production rights or libraries. Mukta Arts sold its library—with blockbusters such as Karz, Karma and Ram Lakhan among others—to Sony for `160 million in 2002. Sony also bought the Indian satellite telecast rights for Lagaan after watching the film, but before it was released and before it was declared a hit. The overseas dream soured, too, because greed and over-expectation hiked the acquisition cost for all films. Producers also discovered, late in the day, that milking the overseas potential needed marketing dollars. In a sub-billion-dollar, highly fragmented industry, not everybody had that. Yash Raj Films had been the only one till then to set up its own distribution offices in the UK and the US. Others still depended on shady distributors. In addition there was piracy, especially on DVDs that were out within the first week of the film’s release. Most Indian film companies did not have the resources to fight it. That is why among the hundreds of films made every year, the odd Lagaan, Kabhie Khushi Kabhie Gham, Mohabbatein, Muthu and Taal remained the only overseas successes.

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However, the biggest blow was reserved for theatres. If producers had greedily pushed all the new revenue sources too far, distributors had done likewise. The bidding for films reached some terrific highs in 2000–01. Distributors who paid advances for Yaadein suffered heavy losses when the film did not do well. As a result, 2002 turned out to be one of the worst years for the film business. Even the most successful of films ended up with margins of just 25–30 per cent as against the traditional 100 per cent plus.

The Birth of a New Film Industry (2002–2006) This churn in the business, combined with alterations in policy, finally forced two structural changes on the Indian film industry between 2002–2005:

Cleaning up the Finances The first was that advances were out. This was the first and most important structural change that the slowdown of 2002 brought into the film industry. This meant that for the first time in 50 years, films were being bought after they are made, on a commission basis. All the revenues and profits they earned started being shared along the distribution chain—with exhibitors, distributors, producers—instead of just one man, the producer, making money at the expense of everybody else. Therefore, film companies and producers had to work hard at getting organised finance. This could be through bank finance (to the extent of 50 per cent of the film’s cost), own resources, co-productions or private equity, among other sources. This need for organised money in turn forced consolidation. This is because banks, venture capital firms and even private equity firms, prefer not just companies but large companies. So UTV, Yash Raj Films or Percept Picture Company, started signing deals with creative houses like Ram Gopal Verma’s or with dozens of individual directors. This created a pipeline of films. This consolidation at the production end gave these companies both distribution and retail heft. Film companies started operating

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like any other consumer product business; the greater the variety and scale a company had, the greater its clout with retailers and distributors. This consolidation also worked across segments of the business. Yash Raj Films forayed into music, home video, international and domestic distribution. Reliance Big Entertainment produces and retails films; it then got into domestic and international distribution and international production. This in turn forced some discipline on to the process of filmmaking itself. UTV or Yash Raj Films insist on a written-andbound script before they discuss any project. This is then vetted. The Industrial Development Bank of India (IDBI), which offers financing for films, had an advisory committee of 12 people that vetted scripts every quarter. The script is translated to screenplay, shooting schedules, casting and dates; every detail about the movie has to be put down on paper. It is now standard for pre-production to take anywhere between 4–9 months, compared to a few days earlier. The idea is to have every detail down on paper and have alternative plans or shooting schedules for every scene—down to location and the things needed there—completely organised, before the spending begins. The pre-production process would involve hardly a dozen people, as against the scores that actual shooting would. It makes sense to iron out the details before the company starts spending money.

The Retail Revolution The second important structural change was in retailing. Multiplexes, digital theatres and home video, the three major ways in which consumers watch films, started attracting investments. The impact of this change cannot be overemphasised. Remember that cinema still reaches less than 10 per cent of Indians, so the need for expanding the reach of cinema through more formats is evident. The formats which led the retail revolution are: Multiplexes Half a dozen multiplex chains—Fun Republic, PVR Cinemas, Adlabs (now Big), Fame Cinemas and

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Inox Leisure among others—came up across different cities in India (and continue to sprout).37 In April 2013, there were over 1,100 multiplex screens, according to an analysis done by a broking house (see Table 3.2). That makes it easier to screen and make money on all kinds of films, from Race and Sivaji to Bheja Fry and Peepli Live. This is because unlike a regular 1,200–1,700 seat theatre with one screen, a multiplex has four or five screens with 200–400 seats each.   This gives the entire business a lot of flexibility. In the first few weeks, a film such as 3 Idiots can be shown in a 400-seater. Later, as collections start dipping, it can be shifted to a smaller screen. On the other hand, an offbeat film like Vicky Donor can be screened in a smaller auditorium to start with. If it works, the number of shows could be increased. The permutations and combinations that a multiplex offers—to mix films, shows, timings and prices—makes it easier to make money with even mediocre films. This is because they can charge much more than the national average of `30. The average ticket prices (ATP) in multiplexes range between `150–200. PVR, for instance, has the highest ATP among multiplex chains at `170 per ticket sold. As a result, even with an occupancy of between 30–50 per cent, most end up making a healthy profit thanks to food and beverages and advertising (See ‘The Shape of the Business Now’ and Table 3.2). Since ticket booking is computerised and transparent, there is no leakage of revenue, an endemic problem earlier.

Digital theatres  The logic for digitising theatres was simple: the greater the number of copies of a film print that are released, the higher the chances of milking it in the first few weeks. Ideally, a film should have 11,000 prints, one for each screen in India38. At `60,000 to `70,000 per celluloid copy, this was not viable. An average film released with 200–400 prints nationally, and a very big one—such as an Om Shanti Om—would be released with 1,000 prints nationally. Once it exhausted all the business in the top theatres, it moved to smaller theatres in big cities and then to smaller towns. In the interim, piracy

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soaked up all the potential business. When the prints did reach these markets, they were scratchy and difficult to watch.That is why the film going habit in small towns had been falling.   Digital technology, meaning a server and a digital projector, cost anywhere between `1 to `10 million to install in 2003. This enabled the theatre to show the film from a digital file. This could be a hard disc that is changed every week, or the film could be received via satellite and stored on the hard disc of the computer. It is then played for an agreed number of times before the file disintegrates. The first copy, from 35 mm to digital, costs about `100,000 to `200,000. Every subsequent copy on a hard disc retains the visual quality of the original and costs about `2,000 to `3,000. It ensures that every screen in the country can get the film on ‘first day, first show’—killing piracy, pushing up attendance and getting more revenues back into the industry.   For years, nobody, in Hollywood or anywhere else, wanted to take the plunge. That is because while everyone gained, nobody wanted to make the investment. In China and several other countries, governments decided on digitising theatres and the projects moved. In India, in June 2003, Adlabs began seeding theatres with its `1 million digital system. In September 2003, it floated Mukta Adlabs Digital Exhibition in a joint venture with Subhash Ghai’s Mukta Arts to seed theatres. It quickly signed on over 50 theatres, either on a revenue-share or a lease basis. In some cases, the equipment was sold outright. Then came Dhirubhai Shah’s Time Cinemas followed by the Sushilkumar Agrawal’s Ultra Group. While the models were different the idea was the same: getting moribund B&C class theatres up and running.   One hundred and thirty theatres later, in January 2004, the results were startling. In digitised theatres in Maharashtra, Punjab, Uttar Pradesh and West Bengal, average occupancy had jumped from 8–10 per cent to 20–50 per cent. On good days it could go up to 100 per cent. Audiences were coming back to the theatres. By May 2005, about half a dozen digital cinema projects were underway.

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Though the Mukta-Adlabs project petered at some point it set the tone for digital cinema in India.   The area of contention is usually the choice of technology. The essential difference in the quality and cost of a digital cinema solution is the projector, since servers and satellites costs are fairly standard. The globally accepted DLP Technology from Texas Instruments is licenced to several projector companies—Barco, Panasonic, Christie’s. However, Hollywood approves, through its Digital Cinema Initiative or DCI, only very high-end DLP projectors.39 A DCI-approved DLP Cinema Projector could push the cost of the entire solution up to `3–4 million.40 On the other hand a non-DCI compliant projector costs between `1 to `1.2 million. These are figures for 2012. In 2005, the gap between a DCI-compliant and a nonDCI compliant solution was ten times. Not surprisingly Mukta-Adlabs chose the non-DCI route. The difference, incidentally, is not just in the cost but also the fact that only DCI compliant theatres can play Hollywood films. As a result the Mukta-Adlabs solution and most of India’s digital cinemas, which are non-DCI compliant, were branded e-cinemas. The technology, nevertheless, took off. There are several business models around digitisation with theatre owners paying for each film screened or for every ‘virtual print’. In either case everything they earn is shown on the books and recorded as collection. The software will not allow them to decrypt the film file otherwise. This means the money comes back into the industry, as in the case of multiplexes.   In April 2013 there were 6,000 single-screen digital theatres in India. (See Table 3.2). To this add the multiplexes, many of which are digitising rapidly. According to one estimate 80–90 per cent of India’s 10,000-odd screens are now digital. As a result most films usually release with at least 70–80 per cent of digital prints. A theatre that is digital can also screen celluloid films since all theatres retain the equipment to do so.

Home video  The other part of the retail revolution was home video. It is defined as entertainment on any device

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than can be seen at home. Currently, this includes primarily VCDs and DVDs. Globally and in India too home video, which brought in 15–20 per cent maybe more of a film’s revenues is no longer considered that important. This is because of the options such as pay-per-view, online viewing on YouTube and other sites.

The Changing Eco-system (2006–2009) The major changes between 2006–2009 that the last edition captured in more detail were:

Production

Domestic co-production  A handful of production companies had been working hard at scaling up, an imperative in the business. They tried listing and raising money, looked at co-productions that increase the number of films they can make, did co-financing deals or tied up with smaller production companies. For instance, Network 18’s film firm, Studio18 (Now Viacom18 Motion Pictures), tied-up with Shri Asthavinayak Cine Vision Limited (SACVL) in 2006. The duo was to produce four films with a total budget of `1 billion, 40 per cent of which was to be funded by SACVL. Co-production, cofinancing or tie-ups help ensure that production companies have a slate of films ready for the trade every year, a great negotiating tool. They mitigate the natural risks in the entertainment business. Co-production also instils confidence in investors looking at parking funds in the film business.

International co-production Several countries—the UK, Italy, Germany and Brazil among them signed coproduction treaties with India. These treaties help access international financing, location, expertise and a wider audience. The cost-competitive post-production and animation sectors in India also get business in the process.

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The rise of the small film  In the days of the 1,000-seater theatre, small movies had a tough time finding buyers. Now with an average of 200–300 seats a screen and a more evolved audience, small movies were making a profitable comeback (see ‘The Past’). Films like Bheja Fry, Happy Days, Mantra, Anasuya and Mee Shreyobhilashi, were among the small films that did well. Bheja Fry, for instance, was made at a cost of `6 million and netted `120 million at the box office.41



The rise of language cinema  In 2003, Sandeep Sawant’s Marathi film Shwaas broke new ground by drawing non-Maharashtrian audiences. It won the Golden Lotus National Award in 2004 and was also India’s official entry to the 77th Academy Awards. Other Marathi films such as Not Only Mrs Raut, Anahat and Uttarayan too won applause. Like Marathi, films in various languages— Bangla, Bhojpuri or even Awadhi—are rising after a long hiatus.

Marketing The major changes in marketing were:

Rising marketing costs  In 2007, more than 35 per cent of a film’s average theatrical cost of US$ 106 million for the large studios in Hollywood was spent on marketing. In India too, the marketing budget was around 30–40 per cent of the total budget, though the base was small at anywhere between `50 million to `500 million as the cost of a film. Marketing costs had been rising by 10–20 per cent every year because most companies ‘front load the grosses,’ in trade parlance. The idea is to reach as many people as possible in the first—or at most the second—week to avoid piracy and negative word-of-mouth. ‘More than 90 per cent of a film’s box-office gross comes in the first four weeks, after that just 10 per cent would trickle in,’ says Tushar Dhingra, formerly with Big Cinemas. This means spending a lot on creating awareness, hype, demand and

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pull for the film and then on ensuring that it hits the maximum screens possible. These days the marketing blitzkrieg builds up months in advance of a film’s release. Most big films release with about 2,000–4,000 prints nationally.42 The 2012 blockbuster Dabangg2, for instance, released across 3,500 screens in India and 450 screens internationally.

Co-branding or brand tie-ins  Co-branding started becoming one of the biggest tools in a film company’s kitty to mitigate the rising costs of marketing a film. In 2007, Hindustan Unilever associated with Krrish to market its largest selling soap brand—Lifebuoy. In a deal like this, usually the company which associates with the film spends on the media in exchange for the right to use characters or other elements from the film in its advertising message. This means free media for the film. In the case of Kkrish–Lifebuoy, it also involved printing pictures of Kkrish’s character on its Lifebuoy packs and giving away merchandise based on the film. In 2006, Lenovo tied-up with director Madhur Bhandarkar to sponsor Corporate, where actress Bipasha Basu was seen endorsing Lenovo’s product portfolio.



The use of Internet and mobile for film marketing  At about 127 million Internet and over 867 million mobile subscribers both the media are a great way to connect with the young and well-to-do who frequent multiplexes. The Indian film industry has been proactive in its use of the Internet (and even the mobile) for marketing. Almost every major film has a mobile partner, a web partner and a website.

Merchandising  So far, merchandising has been more about creating hype for the film and the brand associated with it, rather than about earning any real revenue. The attempts at merchandising therefore remain limited. In 2007, Shoppers’ Stop entered into a marketing agreement with the makers of Om Shanti Om for its apparel rights. The tieup marked the launch of four new brands for Shoppers’ Stop. Other films such as Ra.One have used it too.

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The Way the Business Works The Value Chain There are three elements to the film value chain: production, distribution and retail:

Production Anyone who has an idea for a film needs money and people to put it together. The person with an idea could be a rank outsider and may not necessarily make the film. Or, it could be someone from within the industry—a director, financier, an actor or a writer. These days it is typical to approach a film company such as Yash Raj Films or UTV with the idea or a script and take it from there. The basic processes involved would be pre-production planning, which could take 4–6 months to get right. This includes scouting for locations, costumes, deciding on the cast, briefing them and doing everything that can be done before the camera starts rolling.

Distribution There are two categories of agreements here, the one between the distributor and the producer/film company and the other between the distributor and the exhibitor or theatre owner. These arrangements have remained the same for as long as anyone associated with the industry can remember. ‘What has probably changed is that the actual numbers involved have gone up with the cost of film making rising’, says accountant Amrit Shah.43 So has the number of territories. While geographically, India is divided into 14 territories, the overseas market and satellite television give enough returns to be classified as separate territories.44 The agreements between the distributor and producer  Any of the following four types of agreements between distributors and film companies depends on the film, the producer, the distributor, the territory he owns and the expectation each of them has from the film:

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Minimum guarantee (MG) It is also referred to as Royalty MG in industry lingo. If a distributor buys the rights to screen Kahanii at `10 million for the Mumbai territory, the price is usually based on or is a percentage of the production cost of the film.45 Usually, about 30–40 per cent— maybe more—is paid in advance and the rest against the first print. In addition, the distributor will bear the cost of prints in his area. If the film is being released in 100 theatres in Mumbai and there is a need to make 75 prints, he will bear the `60,000 or so each print costs, plus the cost of publicity. Assume that his total bill for screening the film is `20 million. Assume also that the agreement allows him to charge the producer a 20 per cent commission. If there is more money coming in after his expenses (` 20 million) plus his commission (` 2 million) has been recovered, the ‘overflow’ (in trade parlance), is split halfway with the producer.

Advance  If the distributor does not want to take a risk then he will just advance the money to the producer. The rest of the arrangement on prints, publicity and commission, remains the same. If the film does not make enough money to cover the advance, then the producer has to reimburse the money to the distributor.

Commission Basis  Under this agreement, the distributor does not take any risk. He just takes the film and releases it throughout his territory for maybe a 10 per cent commission on the takings. The entire risk is borne by the producer. This is now becoming the more popular form of distribution. Earlier in 2009 a stand-off between multiplex owners and production companies resulted in the following arrangement for revenue share between production companies/producers and multiplex owners. Producers/production companies will get 50 per cent of the revenue from ticket sales in week one, 42.5 per cent in week two, 37.5 per cent in week three and 30 per cent from the fourth week onwards. In case a movie collects more than `175 million at the top six multiplex chains (excluding single screen and independent multiplexes), than producers would get 52.2 per cent in the first week,

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45 per cent in the second week, 37.5 per cent in the third week and 30 per cent from the fourth week onwards.There is currently some wrangling going on over changing this arrangement to improve the share multiplexes get.46

Outright  The distributor pays a lump sum to the producer and picks the film up for exploiting in his territory for five years or so. After that, the rights for that territory will revert to the producer. This is usually done for a Hindi film being distributed in, say, Tamil Nadu, where it is difficult to determine how much it will really earn. ‘In the old days,’ remembers Shah, ‘99 per cent of overseas rights were sold outright, so there are no statements, no accounts of how much the movies actually made there.’

The agreements between distributor and exhibitor (the theatre owner) These could be of three types:

Theatre hire basis  This essentially works like a fixed rental. Assume that the maximum financial capacity of a theatre is `1 million a week. If the thumb rule for that area is 50 per cent, then the exhibitor will keep 50 per cent of the full-house capacity and give the remaining to the distributor. If the film collects `1.2 million, the exhibitor keeps `500,000 and gives the remaining to the distributor. However, if the film collects `700,000 even then the exhibitor will keep `500,000 and the distributor gets only `200,000 that week. If the film does less than 50 per cent of its full-house capacity, say, `400,000, the exhibitor’s share is nevertheless `500,000. So the distributor will pay him `100,000. However, in practice the distributor does not pay the exhibitor immediately. The final settlement takes place only when the accounts are squared off after the film has been pulled out of the theatre.   Note that the capacity of the theatre is measured not in number of seats but in terms of the money it can make. That is because entertainment tax and local state rules tend to create huge variations in ticket prices. Theatre hire is the most popular way of letting out theatres, especially in metros where ticket prices are very high so exhibitors

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can make enough money if they get a fixed percentage of peak capacity. It de-links the exhibitor’s fate from that of the film completely. This is now changing. Many theatres are willing to take a smaller hire charge but want a share of revenues or overflows.

Percentage Basis  This type of agreement is not used much now, according to Shah. Under this agreement, the exhibitor keeps a fixed percentage of 40–50 per cent of the collections every week. If the collections are high, he makes money, if not he doesn’t.

Fixed Hire  Under this agreement, the exhibitor takes all the risk. He pays the distributor a fixed amount every week irrespective of the weekly collection. If the capacity is `200,000, the fixed hire could be `100,000 a week. If there is a surplus, he could share it with the distributor depending on the terms of the agreement. Usually when the film is given in the interiors of the country where it is difficult to measure the capacity or estimate how popular it could be, the distributor takes the safe way out and gives it away on fixed hire. However, according to Shah, who has handled thousands of cases of unpaid dues between distributors, producers and exhibitors, this system has an inherent scope for mischief. It is common for distributors to take money in cash from the exhibitor and declare a loss on paper in order to underpay the producer.   This is very common in Bihar, Uttar Pradesh and Punjab where a bulk of the transactions are in cash and films rarely show a profit. The exhibitors, especially in smaller towns, have a monopoly. They probably own the only theatre in town so the film keeps making money for months after the producer thinks it is out of the theatre. However, all he sees is that collections were small, so after paying the hire to the distributor, it seems that the theatre owner has nothing left. There is little a distributor can do. Even if there are three theatres, the owners/exhibitors could get together and decide that they will pay only `100,000 a week as fixed hire, so distributors too have no option but to work with one of them.

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  To avoid leakage and other problems many film companies such as UTV have got into film distribution to have better control over the value chain.

Retail The completed film is then either screened in theatres in India, overseas, released on television, home video, available for streaming on the net and in any other form of retail. Usually the other retail formats get the film a month or so after the theatrical release (detailed in ‘The Past’).

The Economics Typically, the revenue streams (discussed in detail in the main section and shown in Table 3.1) are: • • • • • • • •

Theatre release Cable, satellite release Dubbed versions for regional or foreign markets DVD, VCD release Internet Pay-per-view on DTH Music rights Mobile rights for ringtones, wallpapers or clips

The main elements of cost (also discussed throughout the main section) are: • • • •

Production Artistes Distribution (including prints) Marketing

The Metrics The main metrics in the film business would vary depending on which part of the value chain a company operates in.

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Walk-ins Just as in any retail store, walk-ins are very important in multiplexes or film theatres. They determine not only the box-office gross, but also how much food and beverages are sold and how much premium advertisers attach to putting money into a theatre or a chain of theatres. This translates into capacity utilisation. For most film retail chains about 35–40 per cent utilisation combined with robust food and beverage sales and advertising helps to break even.

Average Ticket Prices These are by far one of the lowest in India. The admission price was US$ 7.96 in the US in 2012. In India the price has been inching toward US$ 3 in the metros. However, overall, it is about `30 per ticket or about 50 cents.

Box-office Gross This is the total money that a film collects in theatres in a week or a day. However, this is by no means the revenue of the film. The entertainment tax and other taxes have to be deducted from this figure to arrive at the net gross. Then the distributor and theatre owner’s share has to be deducted to arrive at some real estimate of what the film company has made. For a quick understanding here is a rough guide. The production company typically would get one-third the film’s gross. This is then added to all the other revenues—such as home video, overseas, music, advertising and so on to arrive at the total revenues for a film.

The Regulations While there has been plenty of regulation of the film industry, most of it has been centred on content. There has been very little on financing, distribution or exhibition, areas in which it could have helped the business. In fact, whenever there was any suggestion of

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improving regulation to create a good business infrastructure for the film industry, it has been ignored. Some cases, laws and history are outlined as follows:

The History A brief look at how film regulation evolved in India:47 1918:

The Indian Cinematograph Act, modelled on the British Act, sets the terms for censorship and cinema licencing. 1927–28: The Indian Cinematograph Committee (1927–28). 1932: The Motion Picture Society of India (taken over by The Film Federation of India in 1951). Later, different states formed their own motion picture associations. 1943: State control on raw stock distribution. The Defence of India Act, 1971, is amended to force all distributors to pay for and show the Indian News Parade. Both these restrictions were removed in 1946. 1944: The government appoints a Film Advisory Committee. 1949: Films Division is set up and the Cinematograph Act, 1952, amended. More importantly, entertainment tax is raised to 50 per cent in the Central Provinces and 75 per cent in West Bengal. The S.K. Patil Committee is appointed. 1950: Jawaharlal Nehru announces a freeze on building theatres; it is finally lifted in 1956. 1951: S.K. Patil Committee report on improving film financing. Film Federation of India is set up. Film censorship centralised under a Central Board located in Mumbai. 1968: G.D. Khosla Committee Report on film censorship. It criticises censorship norms saying that if the censorship guidelines are strictly adhered to, not a single film, Indian or Western, is likely to be certified. It sparks off a debate on whether censorship violates our constitutional right to free speech.

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1973–74: The Estimates Committee blames the government for ignoring earlier enquiry committee reports that suggested making institutional finance available to the industry. It points out that the result had been the large-scale entry of black money into the industry. 1980: FFC is merged with the Indian Motion Picture Export Corporation to become NFDC. 1980: The working group on national film policy points out that the sector should be recognised as an industry and institutional finance be made available through banks. 1982: Andhra Pradesh and Orissa give it industry status. 1984: Infringement of copyrights in films is made a cognisable offence. 1994: The censor code is amended, following the song Sarkailo Khatiya from Raja Babu.

Rights and Piracy48 A film is an amalgamation of various components and therefore, legal rights. A movie consists of a script (which is a copyrighted literary work), performance by the actors, the lyrics of a song (which is also a copyrighted literary work), the music composition (copyrighted musical work), the recording of the song (copyrighted sound recording), graphics and art (copyrighted artistic work). Each of these elements constitutes a separate Intellectual Property Right. This means a copyright is conferred on each by the Indian Copyright Act, 1957. A producer must, therefore, first obtain permission from all these rights owners, which would merge into the final product that is the film.

Copyrights The copyright in a cinematographic film is provided under The Indian Copy-right Act. The author of a cinematographic film is the producer thereof. The term of copyright in cinematographic films is for 60 years from the beginning of the calendar year following the year in which the film is published. The copyright

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does not subsist in a cinematographic film if a substantial part of the film is an infringement of the copyright in any other work. The owner of the copyright in the film has the exclusive right to: 1. Make a copy of the film, including a photograph of any image forming part of the film. 2. Sell or give on hire or offer for sale or hire a copy of the film regardless of whether it has been done earlier. 3. Communicate the film to the public through a theatrical right (release in theatres) and broadcasting right (broadcast on television channels). An infringement of cinematographic film is by means of copying the film on any medium by any means. Making another film which resembles the earlier film does not fall within the expression of making a copy. The reproduction of a literary, dramatic, musical or artistic work in the form of a cinematographic film shall be deemed to be an infringing copy. Tests to determine the infringement of a film were laid down by the Supreme Court of India in R.G. Anand vs. Deluxe Films (1978) SCC 118. The following principles were laid down: 1. There can be no copyright in an idea, principle, subjectmatter, themes, plots or historical or legendary facts and violation of the copyright in such cases is confined to the form, manner and arrangement and expression of the idea by the author of the copyrighted work. 2. Where the same idea is being developed in a different manner, it is manifest that the source being common, similarities are bound to occur. In such a case, the courts should determine whether or not the similarities are on fundamental or substantial aspects of the mode of expression adopted in the copyrighted work. If the defendant’s work is nothing but a literal imitation of the copyrighted work with some variations here and there, it would amount to violation of the copyright. In other words, in order to be actionable the copy must be a substantial and material one which at once leads to the conclusion that the defendant is guilty of an act of piracy.

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3. The surest and safest test to determine whether or not there has been a violation of copyright is to see if the reader, spectator or the viewer after having read or seen both the works is clearly of the opinion and gets an unmistakable impression that the subsequent work appears to be a copy of the original. 4. Where the theme is the same, but is presented and treated differently so that the subsequent work becomes a completely new work, no question of violation of copyright arises. 5. Where, however, apart from the similarities appearing in the two works, there are also material and broad dissimilarities which negate the intention to copy the original and the coincidences appearing in the two works are clearly incidental, no infringement of the copyright comes into existence. 6. Where, however, the question is of violation of the copyright of a stage-play by a film producer or a director, it becomes more difficult for the plaintiff to prove piracy. It is manifest that unlike a stage play, a film has a much broader perspective, wider field and bigger background, where the defendants can, by introducing a variety of incidents, give a colour and complexion different from the manner in which the copyrighted work has expressed the idea. Even so, if the viewer after seeing the film gets a totality of impression that the film is by and large a copy of the original play, violation of the copyright may be said to be proved. Specific defences to infringement of Copyright in a cinematographic film are specified in The Indian Copyright Act.49 A composer of a lyric, a musical work, cannot complain of infringement of his copyright, if the owner of the cinematographic film causes the lyric of music work which is part of the sound track of the film to be heard in public for profit or otherwise. The composer, however, retains the right of performing it, in public for profit, otherwise.50There have, however, been significant changes to the Copyright Act vis-a-vis music in films under an Amendment Act passed in 2012. Please refer to Chapter 4—Music.

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Piracy Piracy of films is a major issue despite the various laws. This includes cable piracy as well as on VCD, LD, DVD, online or in any other format. Films appear in rental libraries and on VCDs almost as soon as they are released, and sometimes even before that. Some amendments to the Cable Act in 2000 recognised the fact that cable operators also require copyright licences for exhibiting software on their networks and any breach was an offence within the Act. Piracy also occurs through video parlours and rental libraries, which do not have any basic permission or licence to rent unless they use authorised versions. In 1984, the Copyright Act was amended to combat piracy by extending the provisions of the Act to video films and computer programmes. The producers of records and video films are under statutory obligation to display certain information on the packaging and disc. However, enforcement of copyright law continues to be ineffective. The central government has constituted a Copyright Enforcement Advisory Council (CEAC) to review measures for enforcement. A number of anti-piracy measures have been adopted by various state governments. For instance, separate cells have been set up in police headquarters. A special mention must be made of the Tamil Nadu government which included film pirates under the Goondas Act which allows detention of the offender up to one year without trial and further imposed heavy monetary fines on exhibitors of pirated films. The Andhra Pradesh Film Chamber of Commerce has created an anti-video piracy cell since May 2005, which is led by a retired Superintendent of Police and which works in tandem with the government to fight piracy. There is some role which is also played by SCRIPT, the registered copyright society for Indian Producers of Films and Television (which plays a role similar to that of IPRS—Indian Performing Right Society Limited— and PPL—Phonographic Performance Limited—for the music industry; see Chapter 4—Music—for more details). The Courts have also adopted a strict stand and construed provisions to assist in tackling piracy.51 In response to issues of piracy in films52, the courts have taken to issuing ‘John Doe’ orders (termed ‘Ashok Kumar’ order in India)

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against existing as well as potential persons engaged in piracy. A ‘John Doe’ order is an import from civil law in the United Kingdom. It is employed widely as a means of copyright protection in the United States and Canada. A ‘John Doe’ order operates as an injunction against an anonymous defendant, that is a ‘John Doe’ or an ‘Ashok Kumar’, that is, a defendant who is not known to the petitioner at the time of filing. Such an order can be relied on by the petitioner to restrain any person from engaging in the activity barred by the order. Such an order is typically taken out by the producer of a film or musical composition against internet service providers, telecommunications service providers and individuals in general, to enable the operation of the injunction against all persons in the entire causal chain in piracy operations. These injunctions are premised on the protection of the copyright in the film or musical composition in relation to which they are issued, and as they are against unknown defendants, are ex-parte proceedings (proceedings without a hearing of the defendant). They are issuable where there is a significant threat of infringement of a right and the remedy against such infringement is not timely or effective. The first ‘John Doe’ order issued in India was by the Delhi High Court in Tej Television v. Rajan Manda53 against unlicensed cable operators, restraining them from marketing and broadcasting the Football World Cup 2002. Similar orders against unknown or anonymous defendants have been issued in ESPN Software India Private Ltd. v Tudu Enterprise, Ardath Tobacco Company Ltd. Vs. Mr. Munna Bhai and Others, Reliance Big Entertainment Private Limited v. Jyoti Cable Networks and Others and R.K Productions v. BSNL, Ashok Kumar and others.

Import of Foreign Films The Director General of Foreign Trade has notified a policy allowing the import of foreign cinematographic films without a licence as long as the importer complies with provisions of all applicable Indian laws governing the distribution and exhibition of films, including a requirement to obtain a certificate for public exhibition under the Cinematographic Act, 1952. No unauthorised or pirated films are allowed to be imported. Foreign

212  THE INDIAN MEDIA BUSINESS

reprints of Indian films too are not permitted without the prior permission in writing from the Ministry of Information and Broadcasting.

Content Regulation Under The Cinematograph Act, 1952, a Board of Film Certification, for the purpose of sanctioning films for public exhibition, has been set up. An application has to be made to the Board for a certificate by any person wanting to exhibit any film. The Board grants a ‘U’ Certificate or a ‘UA’ Certificate, if the film is suitable for unrestricted public exhibition. In case a film is unsuitable for unrestricted public exhibition, it gets an ‘A’ or ‘S’ certificate. Any person who exhibits a film that has been restricted by the Board is punishable with three years of imprisonment or a fine of `100,000 or both in case of a continuing offence. This may extend to `20,000 for each day during which the offence continues. Also, if a film without a certificate or one with an ‘A’ certification is exhibited to the general public, the police has the power to seize it. Under the Cinematographic Act, producers who are aggrieved by the decision of the Board are allowed to appeal against them. In 1986, the Film Certification Appellate Tribunal consisting of a retired High Court judge and four other members was formed. It is empowered to set aside decisions of the Board. In addition, Section 6 of the Cinematographic Act mandates that the central government may at any stage call for the record of any proceeding in relation to any film which is pending before the Board or has been decided by the Board/Tribunal and make such order as it thinks fit. An issue arose relating to the requirement for certification of films for exhibition in film festivals. After the recommendation of a committee of filmmakers and academicians in 2005, films meant for screening at film festivals were given exemption from 2006, the logic being that festivals are non-commercial in nature and viewership is confined to delegates. A request for exemption from the process of certification has to be made with certain information (to be sent by the director of the festival) and the request would be disposed of within 15 days from the date of receipt of the complete proposal.

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Issue relating to obscenity and indecency in films and the resultant issues of certification and non-exhibition have been dealt with by the Supreme Court in various cases.54

Financing and Taxation Financing of films can be a complex process and taxation issues can arise since it involves a number of components. Following are a few:

Foreign Investment Automatic approval is available for up to 100 per cent FDI in the film industry (that is, film financing, production, distribution, exhibition, marketing and associated activities relating to film industry) subject to the following: • • • •

Companies with an established track record in films, television, music, finance and insurance are permitted. The company should have a minimum paid up capital of US$ 10 million if it is the single largest shareholder and at least US$ 5 million in other cases. The minimum level of foreign equity investment would be US$ 2.5 million for the single largest equity shareholder and US$ 1 million in other cases. Debt equity ratio of not more than 1:1, that is, domestic borrowings shall not exceed equity.

Right to Use Copyright in Film In the case of C.I.T. vs. N. Subramaniam—(2006) 200 C.T.R. 678 (Mad.), it was argued that the payment of royalties for assignment of copyright should be allowable as a revenue expenditure. The issue was finally decided by the Appellate Authority and upheld by the Madras High Court which decided that since the benefit of film songs is for a short duration and does not accrue for very long, it should be regarded as revenue expenditure and not capital expenditure.

214  THE INDIAN MEDIA BUSINESS

Entertainment Tax Entertainment tax on films and cinemas is levied by state governments. This has created tremendous disparity with rates ranging from Zero to 60 per cent across different states. For example, it is 45-55 per cent in Maharashtra depending on the value of the ticket and 20 per cent in Delhi. Film tickets are tax-free in Punjab, Haryana and Jammu & Kashmir among some other states. In the interest of rationalisation, the central government recommended a uniform ceiling of 60 per cent with each state free to fix duty rates below or at this ceiling. It also called for treating the entertainment industry at par with information technology sector in regard to concessional and local taxes. However, the entertainment industry has always argued in favour of it being put on the Concurrent List, so it can enjoy tax concessions under central regulations and is not controlled by the state government. The burden has become even greater due to the imposition of VAT and service tax by the central government.

VAT on Film Distribution Under current VAT Rules, film distribution amounts to assignment of copyright and is therefore liable to VAT. This is against the legal view that film production is not a contract for sale of goods but is a production of work of art, which involves the skill of an artist and therefore, should not attract VAT.

Fee to Actors not a Capital Expenditure In the matter of Amitabh Bachchan Corporation Ltd. vs. Dy. C.I.T. (2006) 9 SOT 208 (Mumbai), the question of whether fees paid to actors for professional services constituted a business or capital expenditure was considered. It was held by the Appellate Authority that since the payment was in the nature of using a brand or talent, which is transient, it did not constitute acquisition of a capital asset and was, therefore, allowable as business expenditure in the year of payment.

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Service Tax Service tax continues to be applicable on the various services involved in the production of a film, such as the director’s services, actors services is applicable. In this respect, pursuant to the Budget of 2012, actor’s services are liable to a service tax of 12.36 per cent. Further, in the Budget speech of 2013, the Finance Minister indicated that the demand for exemption from service tax for cinema exhibitors (cinema halls and multiplexes) has been accepted. It is to be seen if such exemption is incorporated in the promulgated Finance Act, 2013.55

Other Laws and Regulations Various laws and regulations apply to cinema particularly in relation to exhibition in theatres. Each state has its own act and rules which have been promulgated over a period of time. Some examples are as follows:41   1. The Cine Workers Welfare Fund Act, 1981   2. The Cine Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981   3. The Andhra Pradesh Cinemas (Regulation) Act, 1955   4. The Delhi Cinematograph (Exhibition of Films by Video Cassette Recorder/Player) Rules, 1986   5. The Gujarat (Bombay) Cinemas (Regulation) Act, 1953   6. The Haryana Cinemas (Regulation) Act, 1952   7. The Karnataka Exhibition of Films on Television Screen through Video Cassette Recorder (Regulation) Rules, 1984   8. The M.P. Cinemas (Regulation) Act, 1952   9. The Bombay (Maharashtra) Cinemas (Regulation) Rules, 1966 10. The Mizoram Exhibition of Films on Television Screen through Video Cassette Players Act, 1990 11. The Orissa Cinemas (Regulation) Act, 1954 12. The Tamil Nadu Cinemas (Regulation) Act, 1955 13. The Uttar Pradesh Prohibition of Smoking (Cinema Houses) Act, 1952

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14. The West Bengal Cinematograph (Regulation of Special Exhibitions) Order, 1987

The Valuation Norms In 2000, several media companies raised money from the stock market. These included film companies such as Pritish Nandy Communications, Mukta Arts and Adlabs. In the same year, Shringar Cinemas was one of the few companies to raise money through private equity. It sold 26 per cent of its shares to GW Capital for `158 million. When Shringar raised money through the primary market in 2005, it got a valuation that was just over four times what it got in 2000. This is how GW Capital, which sold 14.9 per cent of the 26 per cent that it owned during the IPO, made its money and more. However, such examples were few and far in between. Film companies largely made for disappointing investments since their business performance—and therefore stock market value—has been lackadaisical. As a consequence, till 2003, there were very few examples of private equity placement in the film business. ICICI Venture picked up a stake in PVR Cinemas in 2003. Other than that, some of the biggest film deals, so far, happened only in 2004 and 2005. Most of these were in the area of multiplexes and digital theatres. Reliance-Adlabs, where the former took a majority and controlling stake in the latter, is one such instance. More recently the consolidation within the multiplex segment has led to some straight merger deals between PVR-Cinemax and Inox-Fame.

The Variables The valuation of a film company, irrespective of the basic multiples that will be used, would centre around the following variables:

Integrated Since the film business in India is extremely fragmented, companies which have a presence across the value chain (production, distribution and retail)—or are building it—fetch a better

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valuation. This is because their ability to capture a bulk of the value that a film generates, at each stage, is much better. For instance, Disney UTV was earlier only into production; it subsequently entered distribution because it felt that middlemen were not able to milk and exploit the film as it could and also because with a fuller pipeline, its ability to deal with retailers or exhibitors improved.

The Point in the Value Chain If a company is not integrated, a lot depends on the part of the value chain it operates in. So we could go by the point in the chain the company operates in: Production  For a production company the value of its library, its long-terms contracts with writers, directors or actors, its pipeline, its ability to scale up and market more films every year, have a good mix of films and its ability to command better trade terms, are all crucial elements in the valuation exercise. The logic for valuing film content is the same as that for television software. The potential for future revenues though different revenues streams, theatres, DVDs, satellite rights, music, syndication and dubbing are calculated based on a discounted cash flow to value a film. For an existing or older film production company, the value of its film library is a crucial asset when it comes to raising money or valuing the company. Distribution  A distribution firm’s strength stems from its pipeline. The more films it has to offer the retailer (theatre owner), the better is its ability to negotiate. The second factor that gets a good valuation for a distribution-only company, the kind of territories it is present in, the spread it has across India and or overseas, the better the spread, the better is its ability to make money. Retail  This is currently the favourite part of the value chain for most investors, simply because it is easy to understand, measure and the returns are almost immediate. The best way to describe what works for a multiplex or single screen company is, scale. The more screens it has the better economies of scale and therefore its ability to squeeze profits out of the infrastructure it has built. A film theatre chain (multiplex, digital, single screen) is primarily valued on the number of screens it has, walk-ins, capacity utilisation, the

218  THE INDIAN MEDIA BUSINESS

ATP it can charge and the mix of revenues. The less dependent it on the ‘film’ itself, the happier an investor. Typically, a theatre chain gets 50–70 per cent of its revenue from ticket sales, 15–25 per cent from food and beverage sales and about 5–12 per cent from advertising. (See Table 3.2) Table 3.1  The Shape of the Indian Film Industry Year

2009

2010

2011

2012

1325

1288

1274

1255

1602

Hindi

248

235

215

205

221

Telugu

286

218

184

192

256

Others

791

835

875

858

1125

3

3

10020

10020

Total films certified

Admissions (tickets sold, bn units)

2008

3.25

Number of screens Units) 10120

2.9 10070

Domestic box office (` bn)

80.2

68.5

Overseas box office (` bn)

9.8

6.8

Home video (` bn)

3.8

4.3

TV rights (` bn)

7.1

Ancillary revenues (` bn) (music, digital media, et al) Total revenues (` bn)

2.7 10020 62

68.8

85.1

6.6

6.9

7.6

2.3

2

1.7

6.3

8.3

10.5

12.6

3.5

3.5

4.1

4.7

5.4

104.4

89.3

83.3

92.9

112.4

Sources: FICCI-KPMG Report 2013, Film Federation of India, Central Board of Film Certification, Focus 2012–World Film Market Trends – European Audiovisual Observatory and author estimates. Notes: 1) The figure for box-office gross is an underestimate as money usually leaks out of the distribution system. Also the average ticket price (ATP) has been going up. Even at a very low average of `30 nationally, the box office revenues from 3 billion tickets is `90 billion. 2) The number of screens is taken as constant since enough data is not available. Data compiled and analysed by Vanita Kohli-Khandekar. This data may be reproduced only with due credit to either The Indian Media Business or Vanita Kohli-Khandekar.

FILM  219 Table 3.2  The Big Guys in Film Retail Multiplexes Company

PVR

Screens (controlled 383 or owned) Revenue (FY 2013, ` billion) % revenues from advertising

10.9 9

Inox 279

Digital screens Big 248

7.65

6

5

8

UFO 3156

Real Image 2980

1.1

1.9

33

21

Source: Annual reports, Analyst reports and companies. Note: 1) Real Image has installed 2980 screens of which 2000 are installations with ad rights. `1.9 billion is its revenue from digital cinema against a total revenue of `2.06 billion. 2) Both Real Image and UFO are digital technology vendors not theatre owners. They may or may not control a theatre or some screens. However PVR, INOX and Big are film retail companies whose main income comes from owning the screens. 3) Most multiplexes too are digitising. 4) UFO's financials are for FY12. 5) The Big Cinema numbers are for its screens in India only. Data compiled and analysed by Vanita Kohli-Khandekar. This data may be reproduced only with due credit to either The Indian Media Business or Vanita Kohli-Khandekar.

Table 3.3  The Indian Film Industry; Spot the Differences Language

Hindi

Marathi/ Punjabi/Bangla

Tamil/Telugu

Average budget 200–250 (` million)

6 to 20

100–150

Distribution

free

free

ceiling on ticket rates/shows

Marketing costs

high

low

budgets are capped by default (Table 3.3 Contd.)

220  THE INDIAN MEDIA BUSINESS (Table 3.3 Contd.) Language

Hindi

Marathi/ Punjabi/Bangla

Tamil/Telugu

Box-office

80% in first longer 2–3 weekends theatrical runs

longer theatrical runs

Satellite and music rights

30–40 per cent almost no music 20–30 per cent contribution to rights very little revenues earning on satellite

Source: The Mumbai Film Studios Regional Gambit, Business Standard, April 5, 2012.

Caselet 3a  The Diversifying Revenues of Indian Films Film—3 Idiots (Hindi, 2009) Details Total Budget

` mn 400

Revenues Domestic box office

2020

Overseas revenues

1000

Television rights Ancillary Total revenues

300 180 3500

Source: Vinod Chopra Films. Notes: 1) The total budget figure does not include actor fees and print and publicity cost. 2) The domestic box office figure is net of entertainment tax. 3) Ancillary revenues include digital, home video and music. 4) The overseas revenues figure includes some ancillary revenues in that market.

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Caselet 3b  In Film Placements – A brief history The use of products in films has been around for long. From the Rajdoot bike in Raj Kapoor’s Bobby in the 1970s, to the Coca-Cola in Subhash Ghai’s Taal in the 1990s, filmmakers have tried to raise working capital using situations in a film that could suit a brand. The exercise, however, is getting more organised now, thanks to film companies which look at this as revenue stream to start with, instead of later. Marketers interested in using films for placements keep in touch with film company executives in charge of marketing and ask them for a dekko at scripts that could suit their brands. Sometimes, this works well for, say, a Lenovo in Madhur Bhandarkar’s Corporate. At other times even though it works well, the brand cannot leverage it. An example is the 2006 release Lage Raho Munnabhai– Worldspace placement. When the Worldspace marketing team saw the script, it was evident that there was a great product placement opportunity here. With a little tweaking of the script, Worldspace was in. The film’s release was meant to coincide with the launch of portable Worldspace receivers, but the government permission for portable satellite radio did not come through by then. The film was released, became a big hit and Worldspace got some great mileage. But while the brand in the film is shown as a portable brand which has a talk show by a radio jockey, Worldspace did not offer either of these things in its actual on-the-ground service in India then. Yet in-film placement is popular with marketers for two reasons. One, an ad cannot be skipped. It is part of the script, so however much you dislike the placement, you are likely to sit through it. Hum Tum had a teeth-grittingly large number of in-film placements—from Radio Mirchi and The Times of India to Kodak. But the film nevertheless worked and that benefited all the brands. Two, while there are no estimates of this, even if the film is a moderate success, the cumulative reach it delivers across (Caselet Contd.)

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(Caselet Contd.) retail formats—theatrical, cable TV, DTH, home video, overseas—is by far the best value for money deal you could get, say media planners. For instance, Worldspace had estimated that it would reach around 50 million viewers, across theatrical, cable TV, home video and other modes of delivery cumulatively. Lage Raho Munnabhai crossed that mark within the first year of release itself. The first airing of a hit film, say Main Hoon Na, on television itself could bring in a rating of 10. That is more than what the top serials fetch. For filmmakers there are revenue possibilities, more so at the production stage, bringing in precious working capital. For instance, Main Hoon Na (2004) brought in `15 million in in-film placement revenue from Café Coffee Day, Pizza Hut and other brands. Mere Dad Ki Maruti (2013) was a script that Maruti was obviously very happy to associate with. According to insiders it sponsored a large chunk of the budget.

Notes   1. UTV is now a part of Walt Disney India.   2. Unless specified, the words ‘industry’, ‘film industry’ or ‘film business’ refer to the Indian film industry.   3. Kapoor went on to make Mr. India and the award winning Bandit Queen and Elizabeth among other films.   4. My apologies to the readers who speak other Indian languages. I am more familiar with Hindi, Marathi, Punjabi and Gujarati as languages. So I can comment on films from those languages from a creative standpoint. However, I am unable to judge cinema from the South, East or other parts of the country, texturally. The business part of it is easy to analyse but without knowing the language, the richness of the story or what it seeks to convey is almost impossible to gauge.   5. Some of the lines and thoughts in this part are excerpted from my column Kai Po Che and other Stories, Business Standard, 12 March 2013.   6. Again for the sake of consistency I am going with the FICCI-KPMG numbers this year. However I do believe that they understate film revenues grossly. My own estimate of the film business is that it is closer to `160 billion.   7. From 2000 onward, The Federation of Indian Chambers of Commerce and Industry (FICCI) has held an entertainment industry event every

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  8.   9. 10. 11.

12.

13. 14.

15. 16. 17.

18. 19. 20. 21. 22.

summer. From 2001, it was branded as FRAMES and is popularly referred to as FICCI-Frames. It is a 2–3 day entertainment industry event held in Mumbai. In the last few years regional versions of Frames have been held at Hyderabad, Chennai and Kolkata too. Focus 2012, World Film Market Trends, European Audiovisual Observatory These quotes are excerpted a piece I did along with a colleague T.E. Narasimhan, The Mumbai Studios’s Regional Gambit, 5 April 2012, Business Standard. Siddarth Roy-Kapur and Ajay Bijli’s comments have been excerpted from interviews I have done with them for Business Standard. Lunch with BS, Ajay Bijli, 20 April 2013 and Q&A: Siddarth Roy Kapur, 4 June 2011. The revenues that a film company makes is not strictly attributable to the number of films it releases in that year. Some of the revenues are from the releases of previous years and some from releases on other formats such as home video. But if you did a trend analysis over a decade or so the average would hold. Note that Eros is more like a trader. It acquires any and all films it can and releases them. UTV and Yashraj, largely, produce their own films. Therefore there is a large variation in the numbers. Reliance on the other hand did not get back on its numbers. Large parts of The Glut in Production are excerpted from my column on The Case for making fewer films, Business Standard, 24 May 2011. iRock Media is a company invested in by Manmohan Shetty, the founder of Adlabs which got acquired by Reliance in 2005. iRock develops film scripts and projects and then sells them to the studios. Its first project was Ragini MMS. Much of the data and points in this paragraph comes from a piece I did along with a colleague T.E. Narasimhan, The Mumbai Studios’s Regional Gambit, 5 April 2012, Business Standard. I would add a whole lot of ancillary revenues—home video, satellite rights to foreign broadcasters, streaming rights and ad revenues from online sites—to this figure and put it closer to `10 billion. The number of prints has a direct correlation with marketing and distribution expenses. At anywhere between `60,000 to `70,000 are expensive. However over the years, digital prints, which cost less than one-tenth the celluloid ones are becoming more popular as theatres digitise. Anywhere between 70–90 per cent of the total prints that a film releases with in India are now digital. Motion Picture Association of America (MPAA) statistics. The films mentioned against the names of these studios are just a few of the ones from these studios. It is not a comprehensive list of the film these studios have produced or distributed in India. Excerpted in parts from my piece on Cinema Advertising—Rising from the Ashes, Business Standard, 31 January 2012. Have used PVR as an example because it is India’s largest multiplex chain and therefore representative. Vishwaroopam was the Tamil version and Vishwaroop the Hindi one.

224  THE INDIAN MEDIA BUSINESS 23. Quoted from The New Rules of Content, 5 March 2013, Business Standard. 24. The background on the industry, names of films and dates has been sourced from three books. Thoraval (2000), Rajadhyaksha and Willemen (1994) and Vogel (2004). Each of them is outstanding in the range and depth of information they offer. The Lumiere was a brand of camera. 25. The Bombay film world of the 1940s is very interestingly presented by Saadat Hasan Manto (1998). The English book is a translation of the original short pieces written by Manto in Urdu. 26. One part of the reason could also be that income tax rates were terribly high. So, there was less declaration and undeclared black money found its way into the industry. 27. A producer is the man who usually puts together the entire film, from money to cast to directors. The idea may come from a writer or director, but the producer literally gives birth to the film. A distributor is like a wholesaler. He buys the film for a particular territory and then hawks it to different retailers—cinema hall owners in this case. For the purposes of distribution India is split up into 14 territories. There is usually a clutch of distributors who dominate each territory. 28. Both Kapoor and Chopra are no longer alive. 29. NRS is the National Readership Survey. It was later merged with IRS, the Indian Readership Survey. See Chapter 1—Print. 30. See earlier editions of this book for numbers before 2005. This is based on a sample and refers to population aged 12 years and more (MRUC website). 31. Most of the figures for collection are as reported in the press at that time. 32. The film starring Tabu looked at a woman’s infidelity and its impact on her and her family. 33. While the announcement granting industry status to the entertainment sector, including films was made in 1998, it was notified under the IDBI Act of 1964 only in 2000, according to Siddhartha Dasgupta who was formerly with FICCI. 34. CII is the Confederation of Indian Industry. FICCI is the Federation of Indian Chambers of Commerce and Industry. 35. According to reports Rajnikanth returned the money to distributors. 36. If one takes very conservative numbers—an average ticket price of only `10 for the 3.2 billion tickets sold in 2001, Indian films should have grossed over `32 billion at the box office in that year. They actually did only `25 billion. The fact is money leaks out of the system in large quantities and then resurfaces either as finance for films or in other industries. 37. Some of these have now merged or consolidated with other firms. See The Shape of the Business, Now. 38. This is a floating sort of number that ranges from 10,000 to 12,000. Am using the number around when digitisation of theatres started. 39. DLP is a registered trademark of Texas Instruments and stands for Digital Light Processing. It is a technology used in projectors and video projectors. It was developed in 1987 by Dr Larry Hornbeck of Texas Instruments. DCI a body of seven major Hollywood studios. 40. According to the FICCI-KPMG 2013 report.

FILM  225 41. Ibosnetwork.com 42. Anywhere between 70–90 per cent of the total prints that a film releases with in India are now digital. 43. A chunk of the information on different types of agreements between distributors, producers and exhibitors comes from Amrit Shah. Septuagenarian Shah has been handling the finances of producers in the Indian film industry for more than five decades now. 44. Many of the old-fashioned agreements hold true for single-screen theatres not for multiplexes. 45. The amounts mentioned are for the purposes of illustration. They are not actuals. 46. Multiplex Operators Seek Higher Revenue Share, Aminah Sheikh, Livemint and Wall Street Journal, 10 February 2013. 47. The best source for regulation history was Rajadhyaksha and Willemen (1994). 48. From Rights and Piracy the onwards, the legal section has been put together by Anish Dayal, Advocate, Supreme Court of India and a specialist in media and entertainment law. 49. For example, Fair dealing [Section 52(1)(b)], performance in an educational institution [Section 52(1)(i)], inclusion of an artistic work publicly available [Section 52(1)(u)]. 50. See Indian Performing Rights Society Ltd. vs. Eastern Indian Motion Pictures Association AIR 1977 SC 1443. 51. See the regulation section in the music chapter for more details. See Supreme Court in State of Andhra Pradesh vs. Nagoti Venkataramana (1996) 6 SCC 409 recognising the loss due to piracy. 52. This update was provided by Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath in Bangalore. 53. The defendant is actual Taj Television (the former owners of Ten Sports). But a clerical error in the noting of the case has meant that it is now cited as Tej Television. 54. This aspect has been dealt with in the section on regulation in Chapter 2—Television. 55. This update was provided by Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath in Bangalore.

CHAPTER 4

Music The music industry best symbolises the possibilities and perils of digital.

T

he Indian music business, it would seem, is rocking. India was one of the three markets worldwide with exceptional growth in numbers, along with Brazil and Mexico in 2012.1 Much of this happened on the back of digital, which, after battering the music industry with piracy and peer sharing services is finally delivering results. In 2012, the Indian music industry grew to `10.6 billion, up from `7.4 billion in 2008.2 The important thing is that almost 60 per cent of this came from selling music in new formats or non-physical sales. These could be downloads, streaming music or ringtones, caller tunes via mobile operators. These are all clubbed under digital (see Table 4.1). The global business too started showing signs of revival in 2012. Globally, the music business clocked US$ 16.5 billion in revenues, a figure that grew by 0.3 per cent over 2011. This is the first time the industry has recorded a growth since 1999 says the IFPI. 3Of this, one-third came from digital which is growing at 9 per cent. What then does this tell you? That digital can really trouble you, disrupt your business and make life miserable for you, but if you can harness it, it can deliver. For the last 15 years, the music industry has been battered by every technological change that ever hit the media and entertainment industry. Since music is the lowest bandwidth product, it has always been the first to be hit by everything that comes along—compression technology, the internet, streaming, peer-to-peer sharing and so on. It has been, like I mentioned in the last edition, the Petri-dish of all that is happening to the media and entertainment business. And finally it seems that the experimentation is coming to an end. Or at least that there is some light at the end of this tunnel.

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Much of this has happened because smartphones and other devices make it easier to subscribe to or download and listen to music from services such as Spotify, iTunes, Deezer or Vevo. Over 100 countries now have services that offer legal downloads and streaming against only 23 in 2011. This means that a lot of users, who would have otherwise chosen a pirated service, now have a convenient, affordable option. It has also happened because music companies have finally learnt to go with the flow instead of resisting every new thing that comes along. The music industry has a history of protesting against every new technology. One of the first complaints was against recorded music. In the 1940s, live musicians went on a protest because they were worried that vinyl records would ruin the live concert business, then the largest source of revenues for the industry.4 As luck would have it, the share of the live concert business went down and that of recorded music rose. Now one of the hottest emerging revenue streams for recording companies seems to be live music as the numbers show. Life, it seems, has turned full circle.

The Shape of the Business, Now The Shape In many ways, the Indian music industry is fairly global. It reacts and acts just as business does elsewhere. Yet, in many ways it is uniquely Indian. There are three things that distinguish it: One, the dominance of film music. More than 70 per cent of the revenues of the music business—digital or non-digital—come from film music. Once this fact is internalised, understanding the Indian music industry is not so difficult. It makes it easier to comprehend the industry’s structure which is completely different from anything else in the world. Many international and Indian companies have tried to break the hold films have over the Indian music market. Some of them have been mildly successful. That is why the share of films in the total music market fell from about 95 per cent in early 1990s, to between 60–70 per cent of the music market in 2007. Two, the relatively high levels of piracy, about 25 per cent as recorded at the last estimate.

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Three, the extremely fragmented nature of the business. There are hundreds of music companies and scores of associations that represent them. For instance, the South Indian Music Companies Association (SIMCA) or the Indian Music Industry Association (IMI). Even then several large companies—T-Series or Yashraj Films for instance—are not members of these organisations.

The Big Changes The three major changes that have taken place in the industry in the last 3–4 years are:

Royalties Go Down In 2010, the Copyright Board ruled that private FM stations need pay only 2 per cent of revenues as royalties. This came after years of friction between private radio operators and music companies. Here is what happened.5 Whether it is playing recorded music in public places, in ads, on radio, on the net or on the mobile phone, music companies have been at loggerheads with almost all categories of users. One part of the mess stems from India’s complicated royalty administering regime. The other is that most aggregators and media companies baulk at paying 20–30 per cent of their revenues for music acquisitions. Nowhere is this more evident than in radio. Radio companies pay royalties to three organisations: PPL (Phonographic Performance Limited); the Indian Performing Rights Society (IPRS) for Hindi film music and SIMCA for South Indian music. In addition to these, some companies such as Yashraj Films sell their music as individual right-holders and not through industry bodies. In India, royalty is a flat rate charged per hour per station. So, if Red FM plays a song in Delhi, (a large advertising market) or Big plays it in Hissar (a smaller market), the absolute amount of royalty remains the same. As a percentage, this could range from 7 per cent of revenue for big city stations to 40 per cent for small town stations. This put cost pressure, especially on the smaller stations.

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Then there is performing rights—a nightmare to implement. How many weddings, parties, pubs or restaurants can the industry educate and monitor in a country like India? Telecom operators on another hand are notorious for under-sharing revenues with content companies. It is evident that the ability of music companies to make the most of the content they create is severely limited. Music companies also have a somewhat intractable attitude to this whole issue. This stems largely from their global parents. Even in mature markets such as Europe, successful online media brands have trouble persuading music companies to do deals with them. Much of this therefore led to the wrangling which finally went to the Copyright Board.

Copyright Act Goes Through a Transformation Much of this wrangling was happening along with one other change. Led by artistes like Javed Akhtar, there was through 2010 and 2011, a huge lobbying effort to change the Copyright Act. The idea was to ensure that all the new revenue streams emerging from digital delivered for everyone—the lyricist, the musicians, the composers et al.—and not just the music company. As a result of this lobbying, the Copyright Act (Amendment) Bill was passed in May 2012. (See Caselet 4a). It basically makes the songwriters, composers and others the owners of the music they create and does not allow them to assign the rights to film producers or music companies. It makes it mandatory for radio and television companies to pay a royalty to the owners of a copyrighted piece of music, every time it was broadcast. The idea is to make the publisher of the music the central figure in the game. So far, music companies had appropriated the whole rights and royalty game.

Digital Music Takes Off, Legally One of the biggest changes is the way digital music, in legal form, has taken off. Going by the FICCI-KPMG 2013 and the IFPI numbers, it is evident that there is a huge change sweeping across the music market. There are several ways in which digital music is being sold and consumed in India. These are:

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• Caller tunes, ring back tones, ringtones and their ilk sold through mobile phones or through internet portals directly. • Music streaming services such as gaana.com, saavn.com. These offer streaming services for packages ranging from $1.99–$7.99 a month as subscription fees.6 • Downloads through sites such as iTunes, Flyte or Hungama.com. These sell single songs at prices ranging from `7–`15. They also offer streaming music services for anywhere between `100 and `200 a month. • Music bundled with hardware such as smartphones or tablet computers. This was discussed as an opportunity in the last edition and it seems to have finally materialised. There couldn’t be better news. Legally sold digital music becomes a deterrent for piracy, the scourge of the industry so far. The estimates for piracy range from 25–50 per cent of the market. My guess is that pirated music perhaps sells as much as the legal version. As digital penetration increases, the avenues through which music can be heard and bought increase. At over 867 million mobile users in April 2013, India is one of the largest and fastest growing mobile markets in the world. Many mobile phone users pay anywhere between `5 and `30 to have tunes of, say, 3 Idiots, as ringtones on their mobiles. As mobile penetration and usage rise, music and mobile companies both stand to gain. As a result of this move towards digitisation, all kinds of aggregators, such as Hungama.com or Indiatimes.com have grown. These help open up the overseas markets too. Hungama.com, for instance, holds the worldwide digital rights to 2.5 million pieces of digital content in different languages. This includes, largely, music and videos from Indian films, games and other things. It serves content across 47 countries through tieups with mobile operators and Internet Service Providers (ISPs) in these countries.7 This is good news for both the film and music industries. The overseas market was a promising revenue stream coming up in the mid-1990s. At one point, it brought in as much as 30 per cent of a music album’s revenues. Piracy and the lack of distribution and marketing money, however, limited Indian music companies from exploring the overseas market. Digital music, whether on the Internet, mobile or satellite radio, can help unlock this potential.

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The Opportunities and Trends Most stem from the nature of the media market in India.

Outsourcing Just as in television or film, opportunities for doing outsourced work, especially in a low-bandwidth product like music, exist. It is just that they never attracted attention till recently. In 2008, Contech BPO Services, an Ahmedabad-based business process outsourcing company, got into back-office operations in music. It does a host of things like music typesetting, music transcription, music conversion from different formats, among scores of other services. Music in fact is one of the specialised services it offers. While it doesn’t give any names some of the largest American music companies are clients.

Live Music or Concert Revenues The decline in physical sales and the rise in digital and free music has led to an increase in the demand for live music. This, incidentally, is true globally. It is the rise of digital music and filesharing technologies that has boosted this trend. This is because the sampling and word-of-mouth happens pretty fast on these media. And they give rise to the need to see a good singer or performer live. There are entire markets, such as Brazil, where music is given away free to start with and once sampling creates a fan-following, the singer and musicians make money on live performances. The proof that live concerts will become bigger also comes from recording companies which are now asking for 360-degree deals from artistes. That means the labels get a share in the artist’s touring revenues, merchandise and other revenues that would have usually gone directly to the singer. In a bid to stem the slide in physical sales, most companies such as Sony had started redoing contracts to be involved in everything to do with an artiste’s career—touring, performances, merchandising and so on. In India so far, concerts have not brought in that kind of money. This is not because there is no demand for them. The issue is

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that constraints from the event management side—no concert venues, high taxes—all act as dampeners to the business (see Chapter 9—Events). Besides, the notion of ‘free passes’ is very strong in India. According to one event management firm, just about 20–30 per cent of the revenues of a concert come from ticket sales. The bulk of the money comes from advertisers. The FICCI-KPMG 2013 report and several other sources talk about the growing popularity of concerts in India. The report pegs the amount that the music industry made from concerts at `0.9 billion. (See Table 4.1).

Bundling Music with Hardware and Other Services This option is routinely used by personal computer (PC) and mobile phone companies. Now almost every device that we use— smartphone, tablets, PCs, mobiles—comes bundled with some music or access to a music streaming service. Similarly, ISPs could bundle a music streaming/download service with your month broadband package. Globally, some of the most successful subscription services, such as Spotify, have taken off on the back of bundling.

Radio, Television and Other Formats As private FM radio stations and TV channels keep rising, they are becoming critical revenue streams. Though the Copyright Board actually reduced royalties to be paid to music companies by radio operators to 2 per cent of revenues, the next round of growth will make up for it. Currently there are 242 radio stations. When phase three of radio licensing happens, over 800 more FM stations will come into the fray. This means a bigger demand for music, which forms 90 per cent of what they air. Then add TV. India already has over 800 TV channels. Many use music on their shows or as part of the backdrop in some programme or another. These two revenue streams have been growing fast to hit `1.6 billion in 2012, going by the FICCI-KPMG 2013 report. After the changes in the Copyright Act in 20128, one of the big changes happening is the overhauling of the royalty collection bodies. So

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far these have done a shoddy job of collecting money on behalf of artistes and music companies. With any luck, they will become more efficient and get more from TV, restaurants or other places where music is played.

The Past The Backdrop Till Thomas Edison invented the phonograph in 1877, the music business was largely about live concerts. By 1890, a German immigrant in the US, Emile Berliner, perfected the phonograph for home use. This was later modified to the gramophone which was introduced by The Victor Talking Machine Company. Competing technologies like radio put huge pressure on the music business in the early part of the 20th century. There was confusion about who would pay royalties to whom and for how long. Radio station owners insisted that once they had bought a recording it was theirs to use without any further financial obligation. There was the usual outcry against these new technologies. The record business was in limbo for a long time after World War II, because of a protracted musicians’ strike. They sought compensation from record companies for income lost because more people were listening to recorded performances, which meant that the demand for live performances declined. Back home in India, during the 1890s in Bombay (now Mumbai) and Calcutta (now Kolkata), many traders had taken on the phonograph as an additional item of trade, along with their other merchandise. By early 1900s, they were offering ‘private cylinder’ recordings of eminent singers to induce potential buyers9Later, one of these traders, Valabhdas Runchoddas of Bombay, became the first official wholesaler for Edison, Columbia and Pathe Products. In 1901, the first music company in India, The Gramophone and Typewriter Company of India Limited, also called Gramco (now Saregama) arrived.10Set up as a trading company, it was the first overseas branch of the Gramophone and Typewriter Company established in London in 1898. Soon after setting up the branch office, some officials came down from London and took about 550 recordings in Calcutta in the latter

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half of 1902. These were then pressed into discs in Hanover, Germany, and sold in India. During the early part of the 1900s, Gramco had competition from several European and Indian companies. There was Singer Records, The James Opera Record from The James Manufacturing Company, Beka records, Rama-Graph Disc Record, H. Bose’s Records and Royal Record and Binapani Disc Record, among others. The competition forced Gramco to start manufacturing out of Calcutta in 1907. That gave it a competitive edge as it could press discs faster than rivals who had to send them to Europe. It remained the only gramophone records manufacturing company in India till 1970. In its early years, it made both gramophone records and the gramophones themselves (incidentally it also used to sell electric irons, refrigerators, etc., imported from the parent company in the UK). By 1912, many of its competitors shut down while Gramco continued to record hundreds of titles in various parts of India. In 1925, it introduced the HMV label in India. In 1928, competition came from the Columbia Gramophone Company. However, Gramco lived long past all real and potential rivals to become bigger and stronger in India. One reason was the international merger of Columbia, Gramophone, Odeon and Pathe; all rival brands into one company—Electric and Musical Industries Limited or EMI, in 1931.11

The Gramco (HMV) Years From the 1930s onward, the ‘talkies’ or films with sound came into India and film music started dominating what was earlier a classical and light music market. That has remained the shape of the market to date. Various labels from the south and north tried to break Gramco’s monopoly over the market by luring singers onto their side, but most folded up soon. The setting up of a recording plant and selling them was a capital-intensive business and Gramco had a head start. Not too many companies could therefore survive against it. By the 1960s, Gramco had grown into a monopoly. Most other rivals were insignificant. That is because almost all of them— Hindustan and Megaphone in east India; Ace, Sangeetha, Hathi

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and AVM in south India; and Brijwani and Marwari in north India—used to be manufactured by Gramco. The first time Gramco faced a serious threat to its monopoly over film music was when Polydor came into the market in the late 1960s. Producers and music composers finally had an alternative and were glad for it. It was a new experience for Gramco to not have every piece of film music created, come to it. Old-timers remember that Gramco would boycott composers or producers who sold the rights of their film’s music to Polydor (later called Music India). According to one estimate 50 per cent of all the music ever recorded in India is with Gramco under its HMV label. Shashi Gopal, who used to work with Gramco in the 1970s and later set up Magnasound12 remembers: ‘[T]hat was a different time. There was no information on the international market, new technologies, there was only one television channel and one radio station. We were a total monopoly. Even artistes who later became very famous had to wait outside the office of the general manager A&R (Artistes and Repertoire) for two months or more before they were given a hearing’. The A&R department in a music company searches for new talent which can be recorded and sold by the company. Think of it as the department that goes through all the creative raw material and tries to find the good pieces. The early part of the 20th century was also the richest in terms of music. Some of India’s most talented music directors, lyricists, singers—Lata Mangeshkar, Mohammad Rafi, Naushad, S.D. Burman, K.L. Saigal, Suraiya, Sahir Ludhianvi, Hemant Kumar— among hundred of others, recorded their best work on a Gramco record or cassette. It was a highly profitable business. Gramco, the market leader, made net margins of 20 per cent on the records business, though the consumer electronics business usually pulled the actual figure down to 5–10 per cent throughout the 1970s. It was during this time that Polydor with a national repertoire, CBS in Western music and Inreco with Eastern Indian music too became known names.

The Indian Market Shifts In the 1970s, cassettes were taking off internationally. The way they changed the market is a story by itself.

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Gramco Slips The market leader dismissed cassettes as ‘just a technology’, say insiders. Instead it poured money into a new record factory in Calcutta. It set up a music cassette plant in the late 1970s with a licenced capacity of 1.2 million units per year. The licence came with a 75 per cent export obligation. That meant that of the 1.2 million cassettes Gramco made, it had to export 0.9 million cassettes— only 0.3 million could be sold in India. At that time, this condition did not make much of a difference to Gramco. The thinking within the company was that its main business was records. It did not do anything to popularise cassettes, since it wanted to avoid eating into the share of records. The prices of cassettes were kept deliberately high so as to discourage consumers. It seems silly in retrospect; but remember that Gramco was the only major company selling music in India for over 70 years. It had never seen real competition and had no need to fear it. Besides, its manufacturing was in high-cost, union-led Calcutta. The incentive to keep those plants going even when the record factory in Bombay was shut down in 1981 was very high. It had a consumer electronics division that was a millstone around its neck. As a large sector player, it had to pay 25–35 per cent duties as compared to the 10–15 per cent for small-scale companies. Then, there were high overheads plus labour costs. Much of this made the record player unit unviable. In 1968, when it had to make a choice between shutting it down and investing more to make it viable, Gramco chose the latter. By the late 1970s, Gramco had lost the market to better players from Philips, Sonodyne and Cosmic. The company was very taken-up with what it had and, therefore, what it could sell. Somewhere along the way, Gramco lost sight of a crucial fact. While record manufacturing involved billions worth of investment, making cassettes was a cottage industry. If a company did not pay royalty or taxes, a cassette could be produced for as little as `8 per unit according to one estimate. As against this, each gramophone record cost `20 to make. Tape manufacturing involved putting together easily procurable things like cassette covers, liners, shields and screws and getting the tapes copied by the multiple cassette duplicating systems from a master or original tape. The cheapest duplicating system was available for `50,000; the most expensive was `5 million. The

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whole operation could be put together by almost anyone with some money and a small place. However, from Gramco’s perspective, since records made for a capital-intensive business and piracy was unknown, it did not expect any competition. Till 1980, the total music market worth `200 million comprised only records and organised players. By 1982 though, Gramco’s world had turned upside down.

Gulshan Kumar and Cassettes In the early 1980s, Gulshan Kumar, a former fruit-juice seller, discovered a loophole in the Indian Copyright Act of 1957. As long as he used new singers, he could use the same tunes that Gramco owned. Kumar started a cassette manufacturing operation with completely unknown singers rendering popular Lata Mangeshkar, Mohammad Rafi or Kishore Kumar songs. These were called ‘version recordings’. To get around licencing and taxation problems, he had a series of companies, each a smallscale operation, so that there were no capacity restraints. Unlike Gramco, which depended on just dealers, Kumar distributed through every possible retail outlet—paan shops, on the streets and through kirana (grocery) shops—at anywhere between `10 to `15 per cassette. It was alleged that it was by evading sales, octroi and excise duties that Kumar’s company, Super Cassettes Industries (that sold under the T-Series label), could price its cassettes so low. This changed in a very fundamental way the power equations in the music industry and made music accessible to a large chunk of Indians. In 1983, the cost of a cassette was `25 against `40 for a record. A cassette player cost `600 while a record player, `1,000. Combine the low cost of entry with the low cost of usage and it was evident that the market would grow. Initially, Gramco continued to use only 25–50 per cent of its cassette-making capacity. The red ink resulting from the loss on record sales, and the bleeding consumer electronics division, pushed the company further down. From `204 million in 1981–82, revenue dropped to `137 million in 1983–84. It then pushed up production to about a million cassettes by sourcing them from outside. That backfired. First, because the

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contract manufacturers got hold of the master copy and started producing illegal copies. Second, quality was a problem. The dice was further loaded against any organised sector manufacturing of cassettes because the budget of 1982 imposed an excise duty of 26.75 per cent on pre-recorded music cassettes. Also, there was a 13 per cent royalty to be paid to artistes and 15 per cent sales tax that the pirates never paid. All of this served to widen the gap between the pirate’s prices and that of Gramco. Just like T-series, a host of other players started getting into the act. There came up not one but several alternatives to both T-series and Gramco, like Venus and Tips. Many others started off just like T-series by first copying original Gramco tunes and then starting their own legitimate business of buying rights and selling the music. As a result, the market took off and penetration increased. From `200 million in 1985, Gulshan Kumar’s T-Series brand hit `1.3 billion in revenues by 1989. While the way some of these companies started could be questioned, their contribution to the business cannot be ignored. When the leader overlooked a new, cheaper technology that could give consumers a better option, others grabbed the opportunity. Kumar’s entry is important not only because it expanded the market, but also because what he did symbolises the larger truth about music—or for that matter any media product. New technologies always offer the promise of faster, easier access. It is up to existing companies to make something of these opportunities. In the 1980s it was the cassette, in the 1990s the CD and now it is the Internet and mobile telephony.

Gramco Reacts Back in the 1980s, Gramco reacted in many ways. It shunned film music completely, lobbied for a clampdown on piracy. The Indian Copyright Act was amended to make piracy a cognisable offence and an excise duty was slapped on blank cassettes, the main raw material for the pirates. It also got the industry to rally around and form the Indian Phonographic Industries Association (IPIA) in order to fight piracy. Gramco, CBS, Polygram, Master Records and InReco were the founding members.

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IPI later became IMI—Indian Music Industries Association, the current industry body.13 Finally, it also got the excise duty on pre-recorded cassettes abolished in 1984. As a result, the price of a cassette dropped to a minimum of `18 and a maximum of `34, in the organised sector. By the time Gramco managed to do all this, it had become a sick company thanks to its non-performing consumer electronics division and the almost defunct record business. In 1984–85, it shut the year with a loss of `59 million on a turnover of `141 million: this, at a time when the market was booming. It needed money to expand its cassette-making capacity, to pay off its debts and to run its operations. Finally, EMI found a saviour in RPG Enterprises, which took over the Gramophone Company of India (GCI). The RPG Group has interests in other businesses such as tyres, carbon black, tea and chemicals.

The Good Years In September 1985, Pradeep Chanda took over as CEO of Gramco.14 He started out with a voluntary retirement scheme (VRS) to cut costs. But it was the changes he made in the music business that reaped returns for the company. The first was a fundamental change in its marketing—a function that never got much attention earlier. Till it could earn enough money to buy film music, Gramco decided to use its rich repertoire to generate revenues. Its HMV had been the only major label for over seven decades. Every piece of Hindi music ever recorded in India, from K.L. Saigal to Kishore Kumar, was (and is) in its library. All it had to do was repackage it in as many forms as possible. The Collector’s Series of Indian Greats was retailed to institutions like Citibank, which used them for promotions. The Golden Collection was promoted for more than seven months and is still paying off. It was a good idea in media business terms. Any sale from the repertoire adds straight to the bottomline, since the cost of creating the music (or any other content) is zero. Second, and crucially, it went back to film music albeit in a different way. Gramco started offering an advance (royalty) to producers against the music rights. Till then, the whole system

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operated only on payment of royalties after the music was released and sales tabulated for each year. By paying an advance Gramco took the risk on betting that the music was good, but it also meant getting the music cheaper than it would be if it proved to be successful. This practice became very popular. It became a means of getting working capital for perpetually cash-strapped film producers. Gramco would then promote the music of these films heavily, something it had never done earlier. Sunil Lulla, who was with Gramco in the early 1990s remembers, ‘with (the film) Darr we did everything you could do with a soap. There were even Darr matchboxes.’15 The company had a good run with hits like Chandni, Ram Lakhan and Saudagar, but the film that turned it around, according to Chanda, was Maine Pyar Kiya. A totally unknown film from a down-in-the-dumps production house, Rajshri, became a runaway hit and sold over eight million cassettes. By the early 1990s, many music companies like Tips and Venus also started financing films completely, instead of just offering advances. The music industry was beginning to look very robust compared to the film industry which was plagued by piracy and falling attendance. At one point, there was talk of the music industry overtaking the film business in size. That, of course, never happened but the link between the success of a film’s music and the film became stronger. If people liked the music of Taal, for instance, it inevitably meant higher box office collections for the film and vice versa. Third, just like Super Cassettes, Gramco began investing in new, non-film artistes. Among others, it ‘discovered’ Alisha Chinai and Malkiat Singh. Super Cassettes had used this route of betting on absolutely unknown music composers, lyricists and singers quite successfully. Young unknown singers and musicians are happy to work for small sums of money. The only cost that a recording company incurs is of mass manufacturing the tapes and distributing it. If the singer is a hit, the returns are disproportionately high compared to the investment. In the process, Super Cassettes discovered some popular singers like Sonu Nigam. In a way this is something that all music companies’ A&R division is supposed to do; though, in reality, most prefer to bet on safe and established voices.

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Finally, Gramco also expanded its dealer network from 2,500 in 1985 to 35,000 retailers whom wholesalers sold to by 1991. While earlier it threatened withdrawal of dealership rights, this was a different market and Gramco had learnt the rules. All of this worked. By 1989–90, the company was in the black again with a small profit of `1.6 million on revenues of `284 million. Meanwhile, Kumar too had been very active. He had forayed into a variety of businesses—tape decks, film magazines, CD players, video cassettes, television sets, and even washing powder! His most important diversification, however, was into films. As Kumar said, in a Businessworld story chronicling his success, ‘A hit film means increased turnover and profit for many of my divisions.’ For the second time, Kumar had recognised an essential truth about the music business (of that time) that his old, respectable rival had missed. Since films brought in 90 per cent or more of a music company’s revenue and since (by now) music companies paid huge advances to acquire film music, it made business sense to integrate forward into making the film itself. That way a music company could have a greater sense of the risks involved and would be better placed to reap the benefits of a hit. Venus, Tips and a whole lot of other music companies followed in Kumar’s footsteps. Earlier in the decade, CBS had tried the strategy with the moderately successful Sadma, Agar Tum Na Hote, and a few other films. The first few films from Kumar’s were—Aashiqui (a hit) and Lal Dupatta Malmal Ka (a moderately successful video film).

The Satellite TV Years By the early 1990s, music was operating like an industry, thinks Chanda. Around this time three important events gave another cassette-like fillip to the market.

The Rise of Music Channels The first was the birth of music channels—like MTV and Channel V, Zee Music, ATN and, later, ETC—and of music videos. These channels gave music an audio-visual feel which was like watching the song on film, in a theatre or watching Chhayageet, a TV show

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based on film songs.16 Till that time, no singer had ever had a music video. Nor was there a Billboard-type of listing or ranking of popular music. Soon, music videos became very popular with audiences and with music companies. They exposed listeners to different types of voices and music and gave the industry several 24-hour platforms to promote their products. Making a video alone could cost anywhere between `0.5 to `1 million; then, there was the airtime bought on a music channel. Therefore costs doubled. The good part was that new artistes started getting breaks since television made it easier to promote them. If Gulshan Kumar had taught the industry a lesson in distribution and pricing, music channels took it a step further and taught them the importance of promotion and brand tie-ins. As a result of music channels airing music videos, non-film music, especially segments like Indipop, ghazals and devotional music, grew significantly from about 10 per cent of the market to about 30 per cent.

The Coming of the Big Boys The entry of big multinational and Indian companies into music software and retailing changed the size, scope and expectations of returns from this business. Sony Corp set up Sony Music in India in the late 1990s.17 At one point in 1999, the total investment coming into the industry was pegged at `1.5 billion. A chunk of this was in the area of retailing. BCCL started investing in Planet M, its chain of music retail stores across India.18 The south-based LMW Group set up 12 stores across the region; and there were also stand-alone stores that came up—like The Groove in Mumbai, and RPG Enterprise’s own chain, Music World. This was the most crucial investment in the business so far. After Kumar’s attempt at expanding distribution through paan and kirana shops, nothing had really happened on that front. Except for Rhythm House, Mumbai did not have a single large music retail store till Planet M or The Groove came up. Music companies needed larger retail stores to display their latest releases and catalogue albums (a collection of archival music). Typically catalogues generate 50–60 per cent of the sales for large companies.

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Without the depth and space that a large store can offer, it was impossible to tap into this market.

The Coming of the CD The CD did not take the Indian market to a digital world immediately as it did in other countries. India remained a cassette-driven market. Both the price of the CD (about `300 to `600 as against `25 to `100 for a cassette) and CD players were a deterrent to its growth initially. In 2001, only six million of India’s 50 million or so middle-class households owned a CD player, since it is a high-cost hardware. Also, for some reason CDs were associated with international music. Just 2 per cent of film music volumes came from CDs whereas 10 per cent of international music volumes come from CDs, the highest in any genre. However, in 2002, most music companies dropped CD prices to `99. It led to a doubling of CD volumes to about 15 per cent of the total music volumes sold in 2005.

The Bad Times The music industry went through a particularly bad time from 2001–04. This was due to piracy, mediocre music and the rising cost of buying rights. Tips paid `85 million for Yaadein only to make a loss of `55 million on it. Of the 13 albums Tips released in 2001, it reportedly made a loss on nine. Gramco lost `160 million in Fiscal Year 2002, thanks to film music. Piracy struck again. At some point in the mid-1990s, when it hovered between 25–40 per cent of the market, it looked like piracy had been controlled. That was because of the raids and seizures made by ex-super-cop Julio Rebiero and his band of former police officers across the country. Incidentally, piracy is endemic to most of Asia. Pakistan does not have a music industry because piracy eats away more than 90 per cent of the market. In 2003, after two years of stagnation and one of de-growth, IMI increasingly became active on both raids and public awareness campaigns. But the level of piracy had already jumped to 50 per cent according to IMI. Piracy combined with high fragmentation explained (and still does) why a lot of international companies did not see any merit

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in investing in India. Universal did so, somewhere in late 1990s, as did Sony. The others had a peripheral presence in India. If international companies had not achieved much, none of the top 10 companies in India like Super Cassettes or Saregama have any size to boast of, considering that they have been around for decades. While the revenues of Super Cassettes, the largest company, are over `4 billion,19 those of Saregama, the oldest company were at 1.5 billion in March 2012.

The Rise of New Revenue Streams This is when hope and growth came from several new avenues of distribution.

Internet and Mobile The IMI was probably one of the first bodies in the world to give out experimental licences to Internet radio stations and portals that offered streaming music or downloads in 2000. Several companies like Hungama.com bought these licences. (More on this in ‘The Shape of the Business, Now’.)

Radio and TV As private FM stations went live all across India, they created another revenue stream for music companies. In 2012 there were 242 stations with over 839 more expected from the next phase of licensing. So the revenue possibilities for music companies keep rising. Of total industry revenue, about 13 per cent came from royalties from radio and TV companies. (See Table 4.1.)

Satellite Radio, Streaming Services, Internet Radio et al. Stations such as SiriusXM are big buyers of music rights for their subscription-based services. While this may or may not become a big revenue source, it is a great way to market a repertoire that cannot sell big numbers in the physical format. Then there are channels such as YouTube or services such as iTunes or iMusti which offer legal downloads or streaming services. These have

246  THE INDIAN MEDIA BUSINESS

become critical sources of revenues for the music industry. (See The Shape of the Business, Now.)

Home Video A music company is usually among the first ports of call for most film companies launching a new project. That is because the sale of music rights brings in working capital. Many music companies started leveraging this to pick up home video rights too. The distribution channels remain largely the same as music—Planet M or MusicWorld or any of the mainline music stores also stock DVDs and VCDs. However, with the physical format under threat, this market has been shrinking.

The Way the Business Works While the value chain in the music industry is fairly uncomplicated, the economics varies according to the music on sale. The three broad categories in which business is done in the music industry are:

Film Music When Aamir Khan Productions made Lagaan, it sold the rights to the film’s music and songs to Sony Music (then Sony-BMG) for a reported `60 million. For Aamir Khan Productions, the money was a part of the working capital for the film. Sony Music then packaged the music in tapes and CDs and pushed it through music and other retail outlets. This is an outright sale. Sony Music retains the rights to the music of the film completely and bears the cost of promoting it and the risk of its failure, and the rewards of its success as well.20 After paying the cost of promotion, Sony Music needed to sell 3.5 million tapes of Lagaan to break even: it sold 3.2 million to start with. In all probability it more than made up on its shortfall over the next few years. So, the costs are those of acquisition, promotion, marketing and distribution. The operating margins could be as high as 30–50 per cent. After the album has achieved breakeven, all the

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money is added directly to the profits. It is a high-cost high-risk strategy, especially since the cost of acquiring films had peaked to unrealistic levels at one point. This is completely different from the way it works anywhere in the world. However, in the non-film market, the Indian music business operates as anywhere else.

Non-film Music There are some music companies that do not buy film music since the cost of acquisition is high. They try to discover new talent. The cost of producing an album differs according to the artiste. To record and market a small-time unknown artiste costs between `1 to `5 million. If he becomes successful, like Adnan Sami some years back, the company can promote him aggressively to get higher sales.

The Portfolio Approach Saregama nurtures new talent and acquires film music. Not all the films that it acquires might produce successful music. It could buy high-cost rights to two big-banner, expensive films, three medium budget ones, a couple of small films and maybe introduce a couple of new singers. The idea is that at least one of them will deliver a blockbuster. The logic is the same as that of a mutual fund—invest in some high-risk, high return, and some low-risk low-cost stocks, so that both average each other out.

Catalogue There are some years when nothing works. In 2001, none of the big albums broke-even or made money. Except for Adnan Sami, nobody saw a single hit that year. How do music companies manage in years like that? They depend on the steady sales from their libraries. Saregama has the best catalogue in the Indian music industry with about 25,000 hours21 of music a chunk of this from films. From April–September 2004, in a particularly bad phase for music, it got 40 per cent of its revenue from its catalogue, essentially of old Hindi film songs. This money goes directly to profits since there are hardly any costs involved in putting these

248  THE INDIAN MEDIA BUSINESS

on shop shelves, except promotion and trade margins. Internationally, most music companies get about 60 per cent of their revenues from catalogue sales.

The Metrics There are no major metrics that are used in the industry. Most would revolve around the quality of music. The others are generic, like copies sold or downloads.

The Regulations22 The Backdrop Till liberalisation in 1991, there was no specific regulation impacting the music industry. Just as in other sectors, it could not get foreign labels or money into India easily. The IMI represents the recording industry of India and is affiliated to the International Federation of the Phonographic Industry (IFPI). This is a world industry body with some 1,400 members in 66 countries and affiliated industry associations in 55 countries. Of these IMI is the Indian chapter. The IMI has over 80 Indian music companies as members23 and strives to protect the rights of phonogram producers and in the process promote the development of musical culture. It also acts as the face of the industry for lobbying and other purposes. Piracy has always been a big issue. However, with the advent of digital music in compressed formats such as MP3, protecting original recordings and legitimate distribution has become the burning issue for the music industry. There are various issues around which regulation in the music industry revolves. The biggest has to do with copyrights and piracy.

Rights and Piracy Within this there are various permutations and combinations of issues such as the following:

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Rights  The basis of the right in a musical work has three elements to it, that is, the lyrics (which is a literary work and, therefore, has its own copyright), the musical composition (which is a musical work) and the recording of the music on any media (which is a sound recording). Each of these elements is protected under the Copyright Law as long as they are original. The Copyright Amendment Act of 1994 also introduced a ‘Performers Right’ for the benefit of various performers like singers. The composer of a musical work is its Author. The owner of a Copyright in a musical work has the exclusive rights to: 1. Reproduce the work in any material form including storing of it on any medium by electronic means. 2. Issue copies of the work to the public. 3. Perform the work in public. 4. Make any cinematographic film or sound recording in respect of the work. 5. Make any translation of the work. 6. Make any adaptation of the work.24 Infringement of copyright in music has to be determined by an assessment of whether the copying is substantial. Courts have internationally held that if the copying is relatively slight, but on closer examination if it becomes apparent that the piece copied is the heart of the composition, it would lead to an actionable infringement.25 A sound recording means recording of sounds on any medium, copyright in which subsists, even though there is a separate copyright of the work from which the sound recording is made. However, the author of the sound recording has to make sure that he has a licence to record the copyrighted material, which could be a musical work or a performance, except material which is in the public domain, folk songs for instance. If in the making of the sound recording copyright has been infringed, then such a sound recording would be deemed as an infringed copy. The producer of the sound recording, which is the owner of the copyright in the sound recording, has the exclusive right to make other sound recordings embodying the same. The term of the copyright in a sound recording subsists until 60 years from the beginning of the calendar year next following

250  THE INDIAN MEDIA BUSINESS

the year in which the sound recording is published. The person publishing the sound recording must display on the same and the container, the name and address of the person who has made the sound recording, the owner of the copyright in such work and the year of its first publication. The contravention of this obligation is punishable with imprisonment or fine. Even if the right is assigned or licenced, the author of a copyrighted work shall always have a ‘special right’ to claim authorship of the work and to restrain or claim damages in respect of any distortion, mutilation, modification or other act in relation to the said work, which would be prejudicial to his ownership or reputation. Copyright is infringed when any kind of dilution to the exclusive right or any profit is made from an unauthorised use. Section 52 of the Indian Copyright Act, 1957, lists out various situations (including private listening of a sound recording or performance in public as part of an official ceremony) which do not amount to infringement of copyright. Anyone who is the author of the work, automatically by operation of law, is the first owner of the copyright. Registration of a copyright is not mandatory for protection of copyright, but acts as an additional safeguard providing prima facie evidence that the person who has registered it is the owner of the copyright. Infringement of a copyright entitles the owner of a copyright to all remedies, both civil and criminal. Civil remedies are available by way of injunction, damages and otherwise. Section 63 of Chapter XIII of the Indian Copyright Act, 1957, states that any person who knowingly infringes or abets the infringement of the copyright in a work shall be punishable with imprisonment for a term not less than six months, extendable to three years and with a fine not less than `50,000 that could go up to `200,000. An enhanced penalty is provided for subsequent offences. The offence is cognisable and non-bailable. The police has power to seize, without warrant, all copies of the work and all plates used for the purpose of making infringing copies. In 2012, significant changes were made to the Copyright Act after strong lobbying by several artistes, led by lyricist Javed Akhtar. As a result of this, the Act was amended significantly. The main changes are encapsulated in Caselet 4a. The idea is to ensure that all the people who contributed to making a song or album get

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revenues from its repeated use across formats—digital or otherwise. The biggest change, however, is that the new act makes rights non-assignable. This protects artistes and their heirs.26 Piracy  In India, piracy is a big issue in the music industry and takes place through counterfeiting (unauthorised copying), bootlegging (recording of a performance without permission) and pirate recordings (unauthorised copying into compilations and combinations). It is the unauthorised duplication of an original recording for commercial purposes without the consent of the rights owner. The IMI, a society established in February 1936 (as IPI), was promoted by major music companies to preserve and develop the rights of phonogram producers. It spearheads initiatives against piracy. IMI lists the various kinds of piracy as follows:27 End User Piracy  This is defined as: • Copying the same software onto more than one computer. • Copying office software onto a home computer. • Loaning your software to someone else so that the person can make a copy. • Making a copy and selling the software to someone else. • Selling old software. Reseller Piracy  This takes place when an individual or company that buys one copy of software deliberately reproduces it with fake certificates so that those who purchase it believe it is being purchased from the company that developed it. Many fake copies may have the same serial number. BBS/Internet Piracy  This refers to: • The distribution of copyrighted software via the Internet or a bulletin board system (BBS). • P2P downloading. • P2P networks that do not look at individual requests for media to determine if they are for licenced materials or not. Even though as much as 90 per cent of files shared on P2P networks are copyright protected, making a copy of copyrighted song available to others on P2P service without a licence is illegal.

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• Sharing uncopyrighted artistic creations and files over a P2P network is completely legal. • Downloading MP3s. • Creating a compilation of songs from CDs and converting to MP3 does not in itself constitute infringement. Infringement occurs when you facilitate the distribution of those files. Permission is always required unless use meets criteria of Fair Use. Trademark/Trade Name Infringement  This refers to the improper use of a registered trademark. Other aspects of piracy regulation and enforcement have been dealt in some detail in other parts of this book.28 One of the technological initiatives taken for the first time by the film producers was in the 2003 film Joggers Park. The music of the film was released on a copy-control CD which prevented it being copied on another CD (despite the fact that the production cost of such a CD was three times the normal).

Copyright Societies Chapter VII of the Indian Copyright Act, 1957 provides for registration of Copyright Societies. These are essentially collecting societies to administer the rights of owners collectively. The two main Societies in India which relate to the music industry are, IPRS and PPL. The IPRS is a non-profit making body set up in August 1969 and is registered under The Copyright Act, 1957. The new Copyright Amendment has a few specific provisions such as the requirements that the licences for musical and dramatic works incorporated in cinematographic work be undertaken through copyright societies alone. IPRS  The IPRS administers and controls the performing rights, mechanical rights and synchronisation rights in musical work on behalf of its members as well as on behalf of members of other sister societies with which it has reciprocal agreements. Its membership includes virtually all Indian composers, authors and music publishers, whose works are publicly performed. They execute deals assigning their public performing right in respect of their

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literary or musical works which they may produce in the future. IPRS collects royalties from users of the music and thereafter, disburses the same to the owners of the copyright, whose interest it represents. The rates of royalty are decided collectively by the members. The IPRS is affiliated to 202 world societies of authors and composers. In April 2013, it had 3,379 members, largely music companies, authors, lyricists and composers. PPL  PPL is an association of record companies and is also a registered society under The Indian Copyright Act, 1957. It has affiliates in 45 countries in the world and coordinates the collection of royalties and grant of licences on behalf of each other. Currently, PPL collects licence fees for 260 music companies scattered throughout the country. This distinction between creator’s right and associated rights represented by IPRS and the music company’s rights represented by the PPL is historically self-created and not a mandate under The Copyright Act. This creates some confusion. If a company wants to broadcast a song from a Hindi film then it has to obtain two licences for the same, that is, one from IPRS for the lyrics and musical work and from PPL for the sound recording. The practice of obtaining two separate licences is a burden on the broadcaster and often gives an actionable right to either of the two societies to proceed against the illegal and unlicenced use. This confusion has had some unexpected fallouts. One of the major owners and publishers of music in India is Super Cassettes Industries (T-Series), with a 60 per cent share of the market. It also controls (reportedly) about 70–80 per cent of new music releases. In 2003, when T-Series had problems with PPL and IPRS, it withdrew from the membership of both these bodies. It then set up its own T-Series Public Performance License (TPPL). TPPL is the owner of all the copyright in the company’s repertoire. The TPPL was therefore required by all who wished to play Super Cassettes’ music in public, that is, events, concerts or use it in broadcasting on television, radio or a cinematographic film. After having its own regime for over 4.5 years, TPPL reached an understanding with PPL/IPRS in June 2008. According to

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media reports, all usage of T-Series music on radio/satellite/cable/IPTV and so on will be licenced by TPPL while all usage in public places, will be licenced by IPRS/PPL.

The Valuation Norms The Backdrop After breaking away from Magnasound, Suresh Thomas set up Crescendo Music in 1992. Four years later, in 1996, he sold 51 per cent of the company to BMG Music, an arm of the German Media conglomerate Bertelsmann. At that time, the `20 million Crescendo was valued at `8 million. Assuming that profit after tax was `2 million, Crescendo got a valuation of four times its earnings.29 In those days there was only one listed company, Gramco. There was very little history of either private placement or primary issues in the music industry. That is true even today. The only recent entry to the listed club has been Tips Industries in the latter part of 2000.

The Variables The variables that determine valuation in the music business are:

The Library Usually, the valuation game in music works on libraries and their potential to generate cash flow, which is then discounted for the future just like in other media businesses. The big difference is that a library or catalogue is more valuable in music than any other media. Films or television serials wear off or go out of fashion after a couple of viewings. An S.D. Burman album or an Asha Bhonsle hit, from the 1950s or 1960s, is being sold even today. It holds appeal to a new set of consumers and the older one keeps replacing their worn out software because they want to continue listening to it. Notice how many singularly untalented

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people make money from re-mixing popular old songs. However, a re-release of Buniyaad, the biggest hit on DD in 1987, did not generate the same excitement (or revenues) 10–12 years later. While the re-release of Lagaan four years later may generate excitement, the music of Lagaan is more likely to generate steady revenues year after year. A music library’s ability to generate money also depends on how many distribution formats it is used across. Earlier there were only retail stores. Now, there are radio stations, music channels, the Internet, mobile, smartphones and tablets among a host of devices or channels on which music can be heard. The better the music company is at mastering these technologies, the greater its chances of getting a good valuation with a good library.

Artistes & Repertoire (A&R) Artistes & Repertoire is usually a function within music companies that looks for new talent. Think of it as the creative department. The stronger this arm, the better the hit record of the company and therefore its revenue and valuation.

Table 4.1  The Shape of the Indian Music Industry Revenues (` billion) Format

2009

2010

2011

2012

Digital

2.6

4.2

5.2

6

Physical

4.5

3.2

2.6

2.3

Radio & TV

0.5

0.7

0.6

1.4

Public Performance

0.2

0.5

0.6

0.9

Total

7.8

8.6

9

Source: FICCI-KPMG Report 2013.

10.6

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Caselet 4a  The New Copyright Act and What it Means* The Copyright Amendment Act, 2012 (Amendment Act) came into effect on June 8, 2012, and gave effect to a number of significant changes to law of copyright in India. The major amendments are : 1. Earlier if any work (including an artistic work) was produced at the instance of any person or pursuant to a contract of service with any person, the person commissioning the work would be deemed to be the first owner of the work, and not the original author. However, after the Amendment Act, in case such work is produced and incorporated in a cinematograph work, the author would be deemed the first owner and will be entitled to exercise the copyright over the same. In all cases other than cinematographic works, the original position continues to be applicable. 2. With respect to the assignment of copyright, the Amendment Act grants authors of literary and musical works incorporated in any cinematographic film or in any sound recording (not incorporated in a cinematographic film) with an un-assignable (except to legal heirs and registered copyright collection societies) interest in future royalties. It should be noted that this amendment does not prohibit or limit the assignment of the work to the producer of the cinematographic film or sound recording, but enables the author to claim an equal share in royalties arising out of any utilisation of the sound recording or cinematographic film (for any purpose other than display in a cinema hall).   The best way to understand these changes is through a hypothetical example. The movie Talaash was produced byAamir Khan Productions (Producer) . The musical score for the movie was produced by Ram Sampath, the lyrics of its songs (Caselet Contd.)

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(Caselet Contd.) by Javed Akhtar and the script/screenplay has been produced by Reema Kagti and Zoya Akhtar. Let’s assume that the Producer has the copyright in the musical score, lyrics and script/screenplay from each individual assigned to it for an aggregate amount of `10 million.    Furthermore, let’s assume that the Producer then sold the distribution rights to Reliance Entertainment for `50 million, for distribution and exhibition in cinema theatres (Cinema Rights), sold licences to the music and lyrics of the songs to broadcasters for an aggregate amount of `15 million (Music  Broadcast Rights) and granted Colors the licence to broadcast the movie on its channel for an amount of `10 million (Channel Broadcast Rights).    In such a scenario, as per the un-amended Copyright Act, the individual artists—Ram Sampath, Javed Akhtar, Reema Kagti and Zoya Akhtar—who assigned their copyright to the Producer would  be entitled to receive the amount of `10 million alone, and would have no further interest in the commercial exploitation of their work. Pursuant to the amendment, while the assignment of the copyright in each artist’s work would be effective, such assignment would not disentitle them from receiving royalties for the commercial exploitation of the work. Thus, while they would not be entitled to receive any share of the Cinema Rights, as these rights are being granted for the display of the work in cinema halls, they will be entitled to an equal share in the other licence grants.    Thus, in the Music Broadcasting Rights, the Producers, Ram Sampath and Javed Akhtar will be entitled to equally share the licence fee for the Music Broadcast Rights, that is, each will be entitled to an amount of `5 million. Similarly, the Producer, Ram (Caselet Contd.)

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(Caselet Contd.) Sampath and Javed Akhtar  and Reema Kagti and Zoya Akhtar (together) will be entitled to equally share the Channel Broadcast Rights, and can thus claim a share of `2.5 million each. (It should be noted that as Reema Kagti and Zoya Akhtar can be considered to have jointly authored the script/screenplay, on the face of it, its appears reasonable that for the purposes of the Amending Act they would   be considered one person for the purpose of computing their share to royalties, that is, they would jointly participate in the sharing of royalties). 3. The Amendment Act has also sought to respond to disconnect arising out of electronic rendering or delivery of content, by specifically enabling the owner of a copyright in an artistic work to exercise control over the storage of such works in electronic media as well as the ability to render such works in either three-dimensional or two-dimensional (as the case may be) forms. 4. In addition to bolstering the roster of rights attached to a copyright, the Amendment Act has also sought to incorporate limitations tailored to electronic communication of content by rendering the incidental storage or display (performance) in the course of electronic transmission or the storage and provision of links and access to content as a non-infringing activity. However, the latter limitation may be an actionable infringing activity in case the storing or hosting person can be reasonably expected to know that the content infringes any person’s copyright or such person continues to host and provide access to the content after receiving a notice indicating the same from the owner of the copyright. This provision is similar to the notice and take-down process set out in the Digital Millennium Copyright Act, 1998 of the United States of America, but in a significant (Caselet Contd.)

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(Caselet Contd.) departure, places the onus on the owner of the copyright to establish the existence of the right, by permitting the hosting entity to restore access to the content unless an order from a competent court is issued to restrain the same within a period of 21 days from the date of receipt of the initial complaint. This provision offers internet intermediaries, such as hosting sites and internet-service providers, with the means to avoid any liability for copyright infringement for the content submitted by their users, and thereby seeks to promote the use and growth of user-generated media content. 5. Other measures include the specific recognition of the constituents of performer’s rights, pursuant to which performers can control the audio and visual recording, reproduction and communication of their performance, and the commercial exploitation of any recordings of the same, and determine whether or not to permit incorporation of the same in a cinematographic film. Performers have also been granted certain moral rights (subject to prescribed limitation), which are exercisable post-assignment, to ensure identification with the performance and to precept any distortion or mutilation of the performance. Additionally, with broadcasters, the Amending Act requires the broadcaster of copyrighted content or a performance to obtain the consent of the owner or performer in case it wishes to licence the reproduction of the same. These amendments seek to provide performers, such as dramatists or music performers, with right akin to copyright, and to control the recording and use of their performance, and to ensure that they are appropriately credited for the performance. 6. The provision for grant of compulsory licences in case of un-exploited works has been extended to cover foreign works as well, and there are specific (Caselet Contd.)

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(Caselet Contd.) provisions designed to enable the grant of licences by the Copyright Board for the benefit of disabled users, for cover versions and for broadcasting of content. These amendments seek to ensure an equitable balance between the copyright holder’s rights and the interest of a broadcaster or artist in disseminating content, by enabling the grant of licences in case a copyright holder seeks excessive or exploitative terms or is otherwise not available for negotiation of terms. *Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath in Bangalore. He specialises in Media, Broadcasting and Technology regulation.

Notes   1. Much of the global data is from the IFPI recording industry numbers for 2013 and its digital Music Report 2013. The IFPI is the International Federation of the Phonographic Industry.   2. These numbers are from the FICCI-KPMG report and vary significantly from the numbers in the last edition. This is because they do not include the disorganised sector and also because the sources and their methods of calculating are different. However for the sake of consistency I will stick to the FICCI-KPMG numbers.   3. International Federation of the Phonographic Industry.   4. In the 1970s, it was a war against analogue tapes and home taping. In the 1980s, it got the law to grant a levy on blank CDs, which would compensate for any ‘unauthorised’ copying.   5. This decision has been referred to in the radio chapter too.   6. FICCI-KPMG Report 2013.   7. Figures as in April 2013 from the Hungama website.   8. See Caselet 4a.   9. Before recorded discs, wax cylinders reproduced songs. 10. Gramco, GCI and HMV are used synonymously throughout this chapter. They refer to the same company—Gramophone Company of India. It was renamed Saregama some years back and is part of the RPG Group. 11. Till 1964, Gramco was managed directly by EMI representatives. By the next year, The Gramophone Company of India (Private) Limited was formed. In 1968, the company went public. In 1976, the foreign holding was further diluted to 40 per cent under the now defunct Foreign

MUSIC  261 Exchange Regulation Act (FERA). During the 1960s and 1970s, besides gramophones and the records to play on, it manufactured record playing equipment, music systems, radio receivers, wooden cabinets, wooden flash doors, sewing machines and so on. That is because gramophones used wooden cabinets and the company had excess capacity to make wooden articles. During this time, Gramco also sold calculators and tape recorders among other things as traded items made by third parties. In March 2005 EMI sold the last of its 7.71 per cent stake in Saregama to Reliance Energy, an investment company. 12. In 2004, Magnasound went into liquidation according to newspaper reports. 13. As far as I can make out Super Cassettes is still not a member of the IMI. 14. A large part of Gramco’s background and what happened in those days has come from an interview with Chanda who finally managed to turn Gramco around. 15. Lulla is currently chairman and managing director, Times Television Network. 16. In the one channel-only state-owned Doordarshan era, Chayageet was one of the hottest shows on television. 17. It later became Sony-BMG and has now become Sony Music again. 18. In 2007, BCCL sold Planet M to Videocon for `2 billion. 19. Estimates only pertain to its music business. 20. A lot of this depends on the agreement between the music company and the production company. It is possible for a music company to pay a smaller amount upfront and tie the producer in for a share of revenues. 21. Data from company website in April 2013. 22. All updates on the legal front from 2008 onwards were provided by Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath in Bangalore. Before this, till upto 2008, the legal section had been put together by Anish Dayal, Advocate, Supreme Court of India and a specialist in media and entertainment law. 23. Source: IMI website in April 2013. 24. Adaptation is defined in Section 2(a)(iv) as any arrangement or transcription of the work. 25. See Elsmere Music Inc. vs. National Broadcasting Company (1980) 206 USPQ 913. 26. You could open the following link to see the main changes in the amended act too: http://www.copyright.gov.in/Documents/CRACT_ AMNDMNT_2012.pdf 27. Refer to www.indiaimi.org 28. See ‘The Regulations’ in Chapter 3—Film. 29. Crescendo is now an Indian company since BMG sold its stake.

CHAPTER 5

Radio The radio business really needs to move on.

I

t is the one medium that reaches almost all Indians. Yet radio in India has been stagnant for over four years now. Its story is full of the promise of potential stymied by several factors—the eccentricities of regulators, the conflict of interest between lobbying operators and the success of every other media. As luck would have it, radio was set free along with all other media and this, more than anything else, has made it the has-been, stepbrother to television, print and digital. From 2008 to 2012, radio advertising has grown from `8.4 billion to over `12.7 billion in 2008 (see Table 0.2).1In a market with the potential for more than 3,000 stations, India has only 242 private FM radio stations. This is in addition to the 326 radio stations from the state-owned All India Radio (AIR).2 According to an EY report, out of the 30 odd private radio operators, only three are profitable at a post-tax level.3 After 12 years of privatisation, radio remains one of the smallest slices of the Indian media and entertainment industry. The internet, with only a fraction of the reach of radio, does twice as much in revenues. Radio’s share of the national ad pie is just under 4 per cent while digital gets under 7 per cent. At US$ 34.3 billion the global industry gets over 7 per cent of global ad spend. The ratios vary by country. In the US, a good benchmark market, radio gets under 11 per cent of national advertising spends.4 Radio’s poor growth in India is frustrating the industry and listeners both. Especially because it grew very well for the first few years after its somewhat messy privatisation in 2000. After the second phase of licensing in 2006 it quickly went up to 242 stations. To grow further, offer variety, push down costs and

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become profitable, the radio industry needs to scale up. To do that, it needs to have more radio stations to operate. However, the phase three of radio licensing, which should open up 839 FM stations has not been implemented yet. The policy and rules for this phase were cleared by the cabinet in July 2011. There are various reasons for the delay as you will read in the next section. The biggest, however, is the whole fear about making a decision on anything to do with spectrum, even radio spectrum, after the telecom scandal which hit India over 2011 and 2012.5 With any luck, this phase will take off in the financial year 2013–14, according to the ministry of information and broadcasting. If it does, then bigger issues, like those of localisation and variety in content could get sorted. The plurality that radio in its many hues was supposed to usher has not happened because the industry is stuck dishing out the same music to everybody. This happens largely because of its inability to create economies of scale, thanks to regulation. For instance, one radio operator cannot own more than one station in a city. This ensures that everyone plays the same music because with only one station in a city they need to go for the jugular on both listenership and revenues. Ideally, a company needs to have at least 3–4 stations in a city which play different genres of music and cross-subsidise each other. The other issue is the inability to offer news—not just political news, but simple weather and traffic updates too are not allowed under current laws. The new policy allows for news from AIR. (See section on The Regulations). It classifies things like cultural events, weather, traffic conditions, or exam results and so on under ‘non-news and current affairs’ and gives private stations permission to broadcast these. So, the ability to create more talk radio and localise better too is around the corner. To be fair, there has been a big change in costs between last edition and this one. Music royalty costs have gone down from 7–42 per cent of costs to 2–3 per cent. This is thanks to hectic lobbying by radio operators that led to a Copyright Board ruling in 2010 allowing radio operators to pay royalty costs of 2 per cent of revenues. The next round of growth in radio, therefore, will come after the auctions for phase three have happened. It will also come because of the explosion in the variety of distribution platforms available for radio. There is Internet radio, satellite radio, cable

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radio, radio on mobile and so on. These are opportunities that are already delivering results for operators. In the US for instance digital now brings in about 4 per cent all radio revenues.

The Shape of the Business, Now The Issues A quick surf between half a dozen stations will invariably throw up the same popular chartbusters. Radio operators argue that three things—the prohibition on broadcasting news and the ban on having more than one station in a city (multiple frequencies)— have impacted the variety of programming, the ability to localise and profitability. That is somewhat misleading. None of these reasons, except the inability to have more than one station in a city (or the ban on multiple frequencies) is perhaps a serious impediment to variety. The market for differentiated content is not yet significant enough to demand attention. So the big issues are:

The Third Phase of Licensing As mentioned earlier, the third phase of licensing will allow operators to own more than one station in each city and therefore offer variety. It will also allow for news broadcasts albeit with feeds from AIR. But the policy has been held up over three things.6 One is the auction process itself. In phase I, in 2000, an open, ascending auction ended in overbidding. Therefore, in phase II, closed bids, with a reserve price of zero were used to good effect. For phase III, the cabinet has recommended an open, ascending, e-auction. This is clearly in reaction to the 2G scam. The ‘e’ part helps transparency and no one opposes that. It is the ‘open, ascending’ bit that could lead to overbidding, unsustainable licence costs and impossible break evens, a la phase I, that worries everyone. Also in an open, ascending auction, the reserve price is fixed. This is the highest bid for a town in a similar category in the same region. So, for example, the phase II bid of `156 million for Chandigarh, becomes the reserve price for, say, Saharanpur despite

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the fact that the advertising potential and profile of the two cities is completely different. More than 90 per cent of the licences to be auctioned in this round are in tier 2 and 3 towns such as Amravati, Muffzafarnagar or Salem. Ashish Pherwani, partner, EY, estimates that the total cost base in these small towns has to be in the range of `4–7 million if they are to make economic sense. Since the prices in phase III will form the basis for phase IV, radio operators are worried. The second issue is frequency allocation. One of the things holding back the government was the scarcity of spectrum, large parts of which are with AIR or defence services. The industry’s solution—the gap between two private radio channels is 800 MHz, reduce it to 400 MHz and auction the additional frequency. The third issue: it is not clear whether the licences issued in phase I will be renewed and at what price. With the licences set to expire in another three years, most players going to investors for phase III financing face a tricky question—how to make a business plan if you don’t know whether you still have a licence and at what price. According to the EY report, only Radio Mirchi has consistently reported operating and net profits for the last seven years. Among the other listed players, Big FM (Reliance), My FM (DB Corp) and Fever FM have reported EBITDA (earnings before, interest, taxes, depreciation and amortisation) break even in recent years. With licences due to expire soon, there is very little time left to recoup accumulated losses estimated at `24 billion. The ability to own more than one station in a city (not allowed currently) and a lower licence fee will give a double boost to experimentation. The companies that are profitable, Radio Mirchi or Big FM, have done it by having 50 or more stations and offering a region or a state to advertisers. But, given that radio is a supplementary, background sort of medium, rates are still a problem, with some stations getting as little as `50–100 per ten seconds. For both rates and ad spend to grow, therefore, expansion is an imperative.

People The industry is just beginning to acknowledge this as an issue. Its size doesn’t attract the best talent to the radio business. Plus, there is not enough training available for radio professionals.

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Deepak Choudhary is managing director, Greycells. The firm owns and runs EMDI Institute of Media and Communication. It is already a popular destination for radio companies. It also offers a six-month course on being a radio jockey, plus courses on programming and management of radio stations. But students are interested only in being jockeys, says Choudhary. He thinks that the promise of radio is not being fulfilled because the backend is not ready. ‘In the next phase when news, community radio, multiple frequencies and so on are allowed, then the boom will be different’, says he. In the EY report, talent acquisition and retention was the fourth biggest challenge for the industry after issues such as inability to deliver adequate returns and get effective rates.

The Trends and Opportunities The biggest opportunities for radio come from the multiple distribution formats coming up all over. The others come from programming and technological trends that the business is seeing across the world. These offer the promise of higher penetration and also of subscription revenues.

The Distribution Platforms Besides FM, some other interesting variations of radio are emerging worldwide. Though not all of them are in India yet, they are very likely to hit this market soon. More importantly, some of them also have possibilities for subscription revenues. Internet or streaming radio  This is radio broadcast via the Internet. It may or may not be over a broadband network. There are thousands of such stations across the world. For example, in February 2008, nearly 4,000 on-air radio stations reached listeners with a streaming component in the US. That means one in every three radio stations in America was reaching consumers on a platform that did not exist 10 years ago. More than 89 per cent Americans tuned into online radio in 2011 and roughly half of them use only online portals and services to listen to radio.7Pandora, a popular internet radio service in the US, had reached 66 million users in 2012. 8

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Satellite radio  Satellite radio broadcasting operates very much like satellite television. There are channels that are genre- or country-specific. The Washington DC-based WorldSpace Inc., the parent company of WorldSpace India, is the pioneer of satellite radio. It is credited with the invention of the medium. Through its two satellites, AfriStar and AsiaStar, the company beams music and information. In the US, however, the only satellite radio service is SiriusXM. In 2012, it had 23.9 million subscribers. SiriusXM offered 140 channels at subscription rates ranging between US$14.49 a month to US$17.49 a month. In December 2012, SiriusXM also launched an online service. In India, WorldSpace offered a range of about 40 radio stations across genres—from jazz to classical, to old Hindi film music and rock. These were 24-hour, advertising-free radio stations in languages ranging from Tamil and Telugu to Bengali, Hindi and even French. WorldSpace also offered news and information channels like NDTV, Bloomberg and CNN, among others. AIR too launched a satellite radio service for the Indian subcontinent in 2002 on the WorldSpace platform. Just before it shut operations in 2009, WorldSpace was reported to have 175,000 subscribers in India. Later Timbre Media, a Bangalorebased start-up, acquired the licence to it and in 2012, Airtel introduced WorldSpace channels on its DTH service. Now Vodafone too offers it. The WorldSpace service now offers 10 channels of different kinds of music such as ghazals, classicals and so on in different languages. Radio over broadband9  Just like television or telecom, radio signals too can travel via cable or any other broadband network. The stereo or the television can catch a radio broadcast via cable. Many DTH and cable operators in India already offer this service. HD Radio  HD or hybrid digital radio is a technology that allows AM and FM stations to transmit audio and data by using a digital signal embedded within a station’s existing analogue signal. This allows a listener to hear the same show in HD (digital) or in standard format. HD got FCC10 approval in 2002. However, HD radio sets were very expensive—upwards of US$ 200—to start with. Though prices have dropped to US$50 now, people still prefer to listen to standard AM/FM signals in their cars or homes instead of buying a new receiver for radio.11As a result hardware

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manufacturers now push car companies to install HD radios in cars. Currently, there are over 2,000 radio stations broadcasting in HD in the US. Podcasting  This allows anyone with a personal computer to create a ‘radio’ programme and distribute it freely, through the Internet to the portable MP3 players of subscribers around the world.12 Podcasting helps make radio more portable, intimate and accessible. Podcasts are not exclusive to iPods, but can be played on a variety of generic media devices and computers. Podcast as a term is used for any audio content downloaded from the Internet. Virgin Radio13 was the first UK broadcaster to begin daily podcasting. For Virgin Radio, it was a new way of reaching listeners and then getting advertisers in. Another example is the BBC Radio Player which offers the archives of BBC radio and allows audiences to ‘listen again’ to programmes they have missed or want to hear again. In many ways this is time-shifting of content to hear it at a convenient time rather than the actual time of broadcast. In India, Big FM Hyderabad and Chennai began podcasts of on-air shows on its website big927fm.com in 2008. Through this new offering, Hyderabadis or Tamilians from anywhere in the world could catch up with their favourite radio shows and jockeys. Now almost every major radio network offers podcasts. Globally, there is a lot of debate on which radio broadcast technology will dominate the market—analogue terrestrial, digital or satellite. The one fact emerging is that internet radio advertising works well, either on its own or in combination with regular radio broadcast. The response rates to an ad go up by 2 to 3.5 times if internet radio comes into play according to one study. 14

The Other Opportunities Besides distribution formats, there lie opportunities in content formats, different audiences and in the way India is growing too. Localisation  Radio, particularly FM radio, is essentially a local medium. The signals from an FM radio tower can rarely be received beyond a 100 km radius. That makes it an ideal medium to reach small, tightly focused groups and communities. When

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Radio City talks about the condition of the roads in Bangalore or Radio Mirchi about the traffic situation in Mumbai, it allows these FM radio stations to tap into local advertising—from restaurants, coaching classes, retailers to every mom and pop store in a given locality—much more easily than TOI’s Bombay Times can. It is on the back of local advertising, its ability to connect with the music business and with new media that radio has grown in the rest of the world. In the US, retail (read local) advertisers bring in 80 per cent of radio advertising. In India, one estimate puts all local advertising at over `100 billion in 2012. This is growing at 10–20 per cent, against national advertising’s current growth rate of 7–10 per cent. To convince first-time advertisers, the industry needs lots of players who can spend money developing the market. The whole localisation push works at two levels—localisation of content as well as getting more local advertisers. Localisation of content  Most radio operators are currently localising only at the language level. Big FM plays Bundeli music in Jhansi, Dogri in Jammu and Bhojpuri in Ranchi to get audiences to switch to FM. Tarun Katial, CEO, Reliance Broadcast Network (which owns BIG FM) points out that in many cases, it has revived the local music industry, as in Orissa, where ringtones and downloads have made Oriya music viable. It is, however, on the advertising front that there is far better connect. However, localisation moving beyond language into the local milieu and context will mean broadcasting local news. And that is something that the law doesn’t permit currently. Though, the third phase policy permits news. It allows private FM operators to broadcast AIR’s news bulletins. More importantly, it categorises exam results, local festivals, cultural events, traffic and weather among several other things as ‘non-news and current affairs’. This gives operators leeway to create talk shows and content centred around more local events. Getting more local advertisers  ‘The advertiser interest in small towns is driven not just from Mumbai and Delhi but from many regional small and medium enterprises (SMEs) wanting to go national’, says Katial. He points out to local brands such as Wagh Bakri Chai (Maharashtra) or Verka cheese (Punjab), which are big in their regions and spend a few million rupees

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on advertising every year. According to the EY report, about 40 per cent of the revenues of the radio industry came from local advertisers. This figure is closer to 75 per cent in most developed country markets. There is another plus to the localisation story. Katial points out that the listening pattern on radio in small towns is flatter, since there is little commute time. ‘It means that unlike the metros advertisers can utilise all time bands, not just morning and evening’, says he. Not everybody agrees with the localisation bit though. ‘The whole notion of local radio is outdated, it is coming from the US’, says Rajesh Tahil, director, Hillroad Media, a content publishing and outsourcing company. (Tahil was earlier head of Mid-Day’s radio business.) In the US, radio stations were born as local entities. The popular talk-show host was someone you would bump into at the mall, a la Frasier. With consolidation, radio in the US is about large national behemoths. In India, radio (and almost every other media) is growing the other way. The operators who manage to make money are the large national players who have 25 or more stations. ‘Local is a non-starter in India. Only 2–3 radio players are not part of a large company’, points out Tahil. That does not mean that local content or advertising does not happen on radio. Only that it is not as big a driver. Community radio  Community radio is literally radio meant to be broadcast over a short radius (5–10 km against 60–100 km for FM) and to a tightly defined audience. A school or a university could have a community radio station of its own, for news and information that is relevant for the students and faculty. Mudra Institute of Communications, Ahmedabad (MICA) has a community radio station for people in the surrounding villages to help them deal with health and other issues. However, community radio’s promise, that it would help tackle developmental issues through mass media, remains unfulfilled. When the first round of privatisation happened in 2000, the government had mentioned that about 1,000 community radio stations would be up and running by 2002. But bureaucracy and the refusal to give licences to non-governmental organisations (NGOs) meant that the community radio revolution did not happen.

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In December 2006, the norms were liberalised to include radio stations by NGOs or non-profit organisations (NPOs) and educational institutions. However, only NPOs working with the community for more than three years qualify, on condition that the station airs educational, developmental, social and cultural programmes produced specifically for the local community. The process though remains cumbersome. It takes clearances from several ministries before a community radio station can be set up. As a result, two years after the announcement of the policy, only three of the 48 functioning community radio stations were owned by developmental organisations. The rest were campus community radio stations.15 In February 2013, there were 144 operational community radio stations in India. Most of them were those operated by education institutions.16 Visual Radio  This offers, through the radio’s digital display, immediate access to factual content related to the songs playing, the group or the singer playing, their background details, history. There could be quizzes, participation in audience polls and even the facility to download ringtones and wallpapers related to the song. Mobile users can also buy tickets for concerts or movies from which the song is being played. Several radio stations such as Mirchi and telecom operators such as Vodafone offer visual radio in select markets.

The Past The Beginnings In February 1920, the Marconi Company made the first successful attempts at radio broadcasting in England. By November 1922, the British Broadcasting Corporation (BBC) was on air with regular programmes. In the US too, radio had become a popular medium by the mid-1920s, on the heels of recorded music taking off (see the chapter on Music). AM (amplitude modulation) radio was the first to take off. FM, which is now the more popular form of radio, did not become commercially viable till the late 1960s and early 1970s.

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Radio Comes to India In India, it was in August 1921 that TOI, in collaboration with the Post and Telegraph department, broadcast from its Bombay (now Mumbai) office a special programme of music at the request of the governor of the province, Sir George Lloyd. He listened to it in Poona (now Pune). Thereafter, as H.R. Luthra documents in great detail in his book, Indian Broadcasting (1986), the development of radio took place in fits and starts. In 1923, after a meeting with manufacturers and the press, the government set about preparing licences for radio broadcasting. Meanwhile, temporary permission was given to the Radio Club of Bengal in November 1923 and later to the Radio Club of Bombay and the Madras Presidency Radio Club. Most of these stations were operated by enthusiasts and were put together with small budgets. They broadcast European music, stories, music lessons and church services. To reach out to people, who had not even heard of radio, six loudspeakers were installed at public places in cities like Madras (now Chennai). After a lot of public debate, it was decided that radio broadcasting in India should be a private enterprise since it was a capital-intensive business. In 1925, the government issued a 10-year licence offering a five-year monopoly to the Indian Broadcasting Company (IBC). The biggest shareholders in the IBC were Raja Saheb Dhanrajgirji Narsinghirji and The Indian Telegraph Company. Numerous individual shareholders held the balance. Most of the employees were English. On 27 July 1927, the Bombay station went on air, and was soon followed by Calcutta (now Kolkata). About a fortnight before the launch of these stations the IBC also launched a magazine, Indian Radio Times. It carried details of programmes that would be broadcast. These were classified as European and Indian. European music was sourced under an agreement with the Performing Rights Society, London, by paying a royalty of 150 pounds a year. Indian music was sourced from the largest music company at that time, GCI, now Saregama. The GCI was content with the publicity generated from its songs being played on the radio. The initial hype and speeches around radio broadcasting were full of the hope that it would be a good ‘public service’. Since

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the feeling of Indian nationalism ran strong then, radio was a much-censored medium. The (British) government banned the broadcast of any political or industrial statement. Unfortunately, for the IBC, people did not take to radio. From about 3,000 radio sets in December 1927, the number crawled up to barely 6,000 in one year and to a little over 7,500 by the end of 1929. The IBC had two revenue streams: advertising and licence fees. While the first was minuscule, the second had the problem of unlicenced sets estimated at 50 per cent of the total. As a result half the listeners were not paying the licence fee of `10 per set that IBC was banking on for its operating costs. By the end of 1928, it was clearly in trouble, having spent a chunk of its subscribed capital on setting up the Bombay and Calcutta stations.

All India Radio is Born In March 1930, when the company went into liquidation, the government finally took over IBC. For some time it was called The Indian Government Broadcasting Service, Bombay (and similarly for Calcutta). By October 1931, even the government found it difficult to run the service and it was shut down. When there were protests from members of legislatures and the press, the service was resumed in May 1932. To increase revenues the custom duty on radio and wireless equipment was increased. The Indian Wireless Telegraphy Act was amended to make stricter the provision about evasion of licence fees. At the same time, in 1932, the BBC had started its empire service with strong short wave transmitters. This gave a fillip to radio. By the end of 1934, there were over 16,000 licensees and 6,000 subscribers to the Indian Radio Times. As a result, in the four years from 1930 to 1934, the government actually made a profit on radio.17 This encouraged it to invest more money in the medium. It was during this expansion phase that the name All India Radio came into existence. None of the dates or milestones can ever capture the joy that AIR brought or the many struggles that went behind the scenes to get good programmes on air. ‘Before independence, the whole of the 1940s and maybe a little into the early 1950s, AIR was one of the finest radio broadcasting organisations in the world,’ remembers Ameen Sayani, one of the oldest and most familiar radio

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voices in India. Some of the best speakers, presenters, newsreaders and well-known people from the world of literature would work for AIR, he remembers. It used to be a matter of pride to do that. Old-timers remember Durga Khote, Ravi Shankar, Naushad, Ustad Bismillah Khan and Hari Prasad Chaurasia, among other big names. Working for AIR presented some piquant cultural problems. Some of the singers and musicians invited to AIR’s north Indian studios came from what was politely called a ‘dubious social background’. They were invited because there were not enough musicians from ‘good families’ to fill in the need for programming hours on AIR. It sounds hilarious now, but it was a serious issue in those days. It meant that many families were not willing to allow their young sons and daughters associate with radio. Luthra illustrates this with an anecdote about Saida Bano, the first woman announcer at the Lucknow station who compèred children’s programmes in the early 1940s. To overcome the strong opposition from her orthodox family, she lied to them. She said that there was a separate entrance for the ‘immoral professional singing girls’ and that she never came in contact with them. Through all of this, the man who had the maximum influence and impact on AIR’s functioning was the imperious controller of broadcasting, Lionel Fielden, a programme producer from BBC, a man who enjoyed seeing creativity flourish on radio. He worked hard to keep bureaucrats out of programming decisions and make AIR less of a government organisation and more of a creative hotspot for talent. One of the things he did to ensure that all kinds of amateurs came on to AIR was to have payments made on the spot, that is, as soon as the artiste had finished his performance in the studio. This was a big incentive for singers and musicians who were hard up for cash. All of Fielden’s efforts came to naught. By 1950s, the bureaucracy started raising its ugly head—not only in the administrative, but also in the creative aspects of AIR. Soon, many administrative people started coming into programming. They were often brilliant IAS officers. But they did not know anything about broadcasting and they started dictating to people who did. ‘The quality of programming started deteriorating,’ thinks Sayani. Even Fielden was aware of this. He said in his memoirs, ‘I had done my utmost with careful rules of promotion to avoid the rise of clerks

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who knew nothing about programmes. To keep rewards and prizes for those who possessed originality and vigour however intractable their personalities may be. But I could not stop the growth of red tape or the accumulation of a deadly routine.’18

AIR Stumbles A classic case of interference during this period almost rendered AIR without an audience. It came from B.V. Keskar, who was the Minister for Information and Broadcasting from 1952– 61. Keskar disliked film music because he believed that it corrupted Indian classical music. He decreed that AIR would not play any film music. He then put in motion moves to encourage and nurture classical music on radio, through events like the ‘Radio Sangeet Sammelan’. While that was great for classical music, it was disastrous for AIR. ‘This happened at a time when Indian film music was the best medium for the spread of the national language and for the spread of togetherness. Banned records were broken or thrown away. This was the golden period when the giants of Indian music were creating some great music. They did not stop producing but AIR was devoid of their talent,’ remembers Sayani. They went elsewhere. In the late 1940s, when Ceylon (now Sri Lanka) became independent, some transmitters from the British Southeast Asian command were handed over to Radio Ceylon. It used these to run its commercial service in Hindi and English. The Hindi service had nothing except Indian film music. Within three months, almost everybody had switched to Radio Ceylon. Soon the sponsors of a popular Western music show, ‘Binaca Hit Parade’, wanted to experiment with a Hindi programme. That is how ‘Binaca Geetmala’ was born. Keskar’s move had given birth to one of the biggest hits on radio. Against an expected 50 letters for the first show, ‘Binaca Geetmala’ got an astounding 9,000 letters, remembers Sayani, who hosted the programme. Though film music formed barely 10–15 per cent of the total programming on AIR, it was (and is) extremely popular. Finally, in 1957, AIR did respond with Vividh Bharti, but it was years before it regained its former popularity with listeners. The period throughout 1960s and 1970s were full of incidents like these.

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Commercials were not allowed on AIR till 1967 because earning revenues was not considered important.

Radio’s Second Life FM was first introduced by AIR in 1977. But the real thrust came in 1993. That is when AIR allowed private companies to buy time slots on AIR FM, brand it and make money through commercial time. Mid-Day, TOI, Star Entertainment (no connection with Star TV) and Vaishali Udyog acquired the first few slots on the Mumbai station. It did not take off immediately. For every hour of programming, operators were allowed nine minutes of commercial ad time. On an average, even Times FM managed to get only 90 seconds of advertising per hour. These companies had paid `6,000 per hour as licence fees, and were spending anything upwards of `15,000 per hour on programming. Therefore, they were making a loss every hour. Advertisers were not spending money on radio because they had no way of gauging its reach or listenership. There was no rating system for radio and the NRS came out only every four years. It looked like radio’s first brush with privatisation would fail. It did not. Listener response in the form of letters and callins finally convinced advertisers and FM took off. From the `590 million in 1992, revenues more than doubled to `1,400 million 1998. Within a few months, FM was in people’s homes and cars. ‘Why did FM become so popular?’ asks Sayani rhetorically. He has the answers. First, because there was the freedom to do anything as long as one did not violate the programming code. The big advantage was that there was no pre-censorship. The new operators were also playing Western music. It was not available on AIR but was popular with youngsters. The freedom and the lively approach these companies brought to radio created a breezy listening experience. In spite of all this, unexpectedly and overnight in mid-1998, private FM stations were pulled off air by the then Prasar Bharati chief. Advertisers, media companies (TOI and Mid-Day) and listeners were stunned. Its popularity and heavy lobbying by media companies meant that the government could not ignore the medium any longer. Especially as private television had been broadcasting for more than six years by then.

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Full Privatisation In March 2000, the government held an open auction for 108 radio licences. Once a company had a licence it could run the station on its own and pay licence fees (with 15 per cent annual escalation as a built-in clause) to the government every year. The bidding went awry because companies overbid. Against the `800 million it was expecting to collect, the government ended up making `3.86 billion. The highest price for a licence in Mumbai was `97.5 million against a reserve price of `12.5 million. Ten licences were sold in Mumbai, a city that got less than `200 million in radio advertising then, for `975 million. The Mumbai story was repeated nationally. It looked unlikely that a market worth `1 billion could sustain the annual burden of the licence fees (` 3.86 billion) plus operating costs, and yet enable companies to make money. Many radio operators now admit to being a little carried away in the hype over the 15 days that the bidding took place. The real reason was valuations. In those days, media companies were being valued at anywhere between 50–100 times earnings. Many hoped to make up in valuations what they lost in licence fees and operating costs. By the time they got the licences, valuations had plummeted and many companies like Zee and Modi Entertainment withdrew. What was left were a handful of companies with 37 radio stations. Finally, only 21 channels in 12 cities became operational. Considering India’s size—606 districts, 384 urban agglomerations and 5,161 towns—this was clearly inadequate.

Fixing FM Privatisation (Round Two) Private operators lost money but the market too expanded as penetration, listenership, and revenues increased.19 From about `1 billion in 2001, when privatisation took off, radio advertising revenues grew to over `3.6 billion in 2004.20 AIR alone saw a doubling of revenues within the first year of privatisation, proving that it was good for everybody. After much lobbying and debate, in 2003, the government finally appointed a committee to look at radio reforms and changes

RADIO  279

in licensing rules for the second phase. The Radio Broadcast Policy Committee under Dr Amit Mitra made 19 very sensible recommendations. If many of them had been adopted in the policy that came out in July 2005, it would have pushed down the cost of operating a radio station. There was one that suggested permitting operators to own more than one station in a city, making local radio networks with different programming on different stations a possibility. Another suggestion was doing away with the mandatory colocation of radio towers, which had caused no end of trouble so far. Indeed, this had been a major reason for a nearly two-year delay in the launch of the Mumbai and Delhi stations during the first phase of privatisation. The government insisted that radio stations should get together and set up only one tower in the metros. When companies could not see eye to eye, delays were inevitable. Many such recommendations of the Radio Committee were ignored. Some liberalisation did take place, though, like a 4 per cent revenue share instead of the annual escalating licence fee. As a result the second phase of radio privatisation which auctioned 337 stations in 91 cities was much neater. The closed bidding was completed in January 2006 and almost every company that took part agrees that it was transparent and fair. By June 2009, 248 stations were broadcasting across 91 cities.21 More importantly there are at least five large national players with more than 25 stations each emerging. There is Kalanithi Maran’s South Asia FM and Kal Radio (Suryan), Anil Ambani’s Reliance Broadcast Network (Big FM), BCCL-owned ENIL (Radio Mirchi) and India Value Fund-Music Broadcast owned (Radio City).

The Way the Business Works In India radio coverage is available in AM mode (short wave/ medium wave) and FM mode. In terms of reach, MW broadcasts cover almost 99 per cent of the Indian population and about 90 per cent of its geographical area, while FM broadcasts cover about 40 per cent of the population and around 25 per cent of the geographical area.

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The Economics Most radio companies are adopting an operating model at either at the national level (30 or more stations), a key ad sales market level (6 to 20 stations) or regional cluster level (5 or less stations).

Costs The costs for a radio station just starting up in India include: Licence fees  In the first phase of privatisation, the annual licence fee that private operators agreed to pay after a bidding process, came with a built-in escalation clause: the fee increased by 15 per cent every year, for 10 years. Under the new radio policy, this has changed to a 4 per cent revenue share or 10 per cent of a one-time entry fee— whichever is higher. According to the Ey report in 2012, licence fees formed 5–8 per cent of the total costs of a radio station. Set-up costs  While individual station costs vary significantly, the average investment to set up a radio station is `15 to `25 million for smaller stations and `40 to `50 million for a metro or big city station.22 These costs usually include transmission, studio equipment, station and office premises, office equipment and networking infrastructure. Operating costs  Again, according to the EY report, the key elements of operating cost are payroll (30–40 per cent of costs), marketing (10–20 per cent of costs), music royalty (2–3 per cent of costs), overheads and utilities (20 per cent of costs).

Revenues The main sources of revenues are: Advertising and sponsorship  These remain the main revenue stream for radio companies. In mature markets the split between national and local advertising on radio is 20:80. In India the split is closer to 60:40. Subscription  For satellite radio companies like SiriusXM, subscriptions are the main source of revenue. There is perhaps a limited

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upside for subscription radio currently. In most media it is only after audiences have had their fill of a variety of free content that they feel the need to pay for content. While television has reached that stage in India, radio is far from getting there.

The Metrics The Buying and Selling Dynamics AIR began by selling time, through sponsorship and spots, when it was set up as a private company in 1927. In 1934, the government disallowed advertising on AIR and re-introduced it only after the Chanda Committee recommended it in 1967. In that year Vividh Bharti, the film music channel of AIR, began accepting commercials. It made `1.9 million from ad revenue in 1967–68, and the amount kept rising. There was only a fledgling DD for competition within broadcasting. Newspapers, in fact, were the main competition to radio. So happy was the AIR experience with advertising that in 1982, even the primary channel started accepting spots. One media buyer remembers buying time on radio in the mid1980s. Most of the deals were made on contract with the central sales office in Mumbai. To reach the metro audience, advertisers used Vividh Bharti and later, FM. AIR’s primary channels, aimed at different cities or areas, were better for reaching semi-urban and rural India. In Gujarat, while Ahmedabad, Baroda and Rajkot could be reached by Vividh Bharti, advertisers needed primary channels to go beyond that. If they sponsored a programme they got free commercial time. The contracts were for a period of 13–52 weeks. Since radio hardly had any competition, airtime and even sponsorships on some really popular programmes—like Hawa Mahal or Modi Ke Matwale Rahi—were booked six months in advance. Spot buys or sponsorships rates also depended on the category. Prime time on radio in 1980s, 8–9 am and 7–8 pm, was classified as Category One. If an advertiser wanted a fixed time on Category One, there was a premium of 25 per cent. This is in contrast to the current scenario where average utilisation of advertising time on FM stations is just between 65–75 per cent.

282  THE INDIAN MEDIA BUSINESS

As television began gaining popularity, radio was relegated to targeting lower income audiences that did not have television or could not read newspapers. While a toothpaste company would advertise its toothpaste in newspapers and on television, the tooth powder was put on radio. That changed again from 1993, with FM. ‘Radio started fitting,’ says Apurva Purohit, a former media buyer and currently CEO, Radio City. FM, a largely metro phenomenon then, had given advertisers another avenue to talk to city audiences.

The Changes As more channels get into the game, radio advertising is bound to change in two ways. One, as the number of channels grows they will have to specialise in something and get focused advertising. Most advertisers buy time on radio in monthly contracts of anywhere between 3–10 spots of 10 seconds each, or maybe more, a day. Depending on the station, the time of day and the show, the spots could cost anywhere from `400 to `2,000 per 10 seconds. As the channels increase in number and specialise in different genres of programming, ‘the qualitative calls in buying will come in,’ thinks Arpita Menon.23 For instance it makes for a better fit to advertise Smirnoff Vodka when people are driving home in the evening rather than when they are driving to work. When stations start specialising, advertisers could know that, for instance, listeners of old Hindi film music are most likely whisky drinkers. Or, hard rock listeners are also more likely to buy jeans. They could then advertise only on specific channels and time-bands. The second potential change is the cross-media buys that radio, a much smaller medium than print or television, could force. BCCL owns TOI, India’s largest selling English newspaper, plus Radio Mirchi. These ‘combos’ as media planners call it will turn out to be more interesting and will offer more value to advertisers. If a good deal in Mumbai Mirror also gets you spots on Radio Mirchi at an attractive rate, advertisers stand to gain. Alternatively, a buyer could combine it with television from a media company like Sun TV that owns television news channels as well as radio stations.

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In practice, though, most media companies do not cross-sell their brands and even those that do, do so half-heartedly. For example at ENIL (an arm of BCCL), out-of-home, radio or events are not sold together, says Panday. ‘What is shared is access to clients and knowledge of clients,’ says he. Nevertheless many radio companies offer activation or on the ground promotions along with a radio campaign. ‘In many small towns, more than reach radio is a great activation medium,’ says Keerthivasan24 former CEO of Fever FM. (See Chapter 9—Events for more details.)

The Measures Currently the measures available are: AIR  The state-owned radio company has an in-house Audience Research Unit. It conducts research on listening habits. The unit, which is spread across India, uses interviews, panel studies and other regular research tools to arrive at numbers on listenership and patterns. Since 1937 it has been the only source of information on radio listenership or even radio sets in India until NRS came along in 1980s. In 1998, under pressure from advertisers, AIR evolved a system for measuring ratings of programmes on radio—radio programme listenership (RPL) ratings. Indian Listenership Track or Wave  The Indian Listenership Track (ILT), is a syndicated radio study, carried out by MRUC and its partner agency, ACNielsen ORG-MARG.25 The research is based on Yesterday Listenership (YDL) data in Mumbai and Delhi. However there has been no ILT research released after 2006. Adex India  This is a division of TAM Media Research’s Radio. Adex looks at advertising patterns—volume, value, clusters of advertisers—on radio. (See Table 5.1a and Table 5.1b.) Radio Audience Measurement or RAM  In 2007, TAM also rolled out Radio Audience Measurement or RAM, a rating metric. This diary-based method, starting with three cities, now covers 13.26 It measures listenership on radio across devices such as mobile phone and car radios among others.27 So far most studies have focused on listenership. This could be according to demographics, city, advertiser or station. This

284  THE INDIAN MEDIA BUSINESS

data could provide all sorts of insights into how the market is shaping up.

The Regulations Currently, the Prasar Bharati Corporation, an autonomous body that comes under the MIB, regulates AIR. All forms of private radio broadcasting are regulated by The Telecom Regulatory Authority of India or TRAI, the broadcast regulator. Both are overseen by the MIB, Government of India, which is in charge of all media regulation.

The History This part is best understood through some regulatory milestones. 1964: Indira Gandhi appointed former auditor general A.K. Chanda to look into the problems of radio and television. The Chanda Committee gave its report in 1967. Some recommendations like permitting commercial broadcasting on a limited scale, and the delinking of DD from AIR were accepted. The committee also pointed out the very high level of overstaffing in AIR. It recommended using commercials on both radio and television to generate revenues. 1966: The Vidyalankar Committee was set up to recommend ways to use radio for improving the state of rural India. It suggested extending the duration of rural programmes. This eventually led to the formation of the farm and home unit at 10 AIR stations to provide timely and relevant information on crops, weather and other technical matters to farmers. 1977: The B.G. Verghese Committee was asked to look into the issue of granting autonomy to DD and AIR. The subsequent report in 1978 suggested the formation of the Akash Bharati, a national broadcast trust to look after both AIR and DD. As a result, the Prasar Bharati Bill came into Parliament in 1979. It became an Act only in 1997 (see Chapter 2—Television). This is also the year political parties were allowed to use radio and television for electioneering. 1999: The privatisation of FM was announced and the policy unveiled.

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FM Begins In March 2000, the government invited the private sector into FM radio broadcasting by opening up the frequencies in the FM band (87.5–108 MHz). In this Phase One of FM radio privatisation, operators were invited to bid for a 10-year licence to set-up and operate FM radio stations. The original plan was to set-up 108 FM radio frequencies across 40 cities. 101 bids were received, aggregating to a licence fee of approximately `3.86 billion.

The Phase One Policy When radio licences were auctioned in 2000, the following regulations were applicable: 1. The licence fee to be paid to the MIB shall be increased by 15 per cent every year (compounded). 2. Ban on news and current affairs programming. 3. Advertising had to follow the advertising code. 4. While a company could own any number of stations, each station had to be unique in content. That meant the same show could not be broadcast over, say, all of Radio City stations, at the same time.

Privatisation Phase Two28 The unusually high licence fee structure and year-on-year annual escalation of 15 per cent hampered the growth of the medium. Operators lobbied hard for a change in policy. As a result in 2003 the government set up a committee under Amit Mitra of FICCI to look into radio licencing and other issues of the radio industry. The committee was also supposed to suggest ways out of the problems that had cropped up during the first phase. The policy for expansion in phase two was formed on the basis of this committee’s recommendations which were announced in July 2005. Following are some of the important points that the committee made that then became policy:

286  THE INDIAN MEDIA BUSINESS

1. It marked a shift from the annual licence fee regime to a 4 per cent revenue share or 10 per cent of the reserve onetime entry fee limit—whichever is higher. Gross revenue for this purpose is calculated as gross revenue without deduction of taxes. 2. The licence is valid for a period of 10 years from the effective date and is non-transferable.  3. The permission is governed by the provisions of the Telecom Regulatory Authority of India Act, 1997, Indian Telegraph Act, 1885 and Indian Wireless Telegraphy Act, 1933.  4. The permission holder or radio company cannot outsource, through any long-term production or procurement arrangement, more than 50 per cent of its total content, of which not more than 25 per cent of its total content can be outsourced from a single content-provider.   5. No permission holder can hire or lease more than 50 per cent of broadcast equipment on a long term basis.  6. The permission holder has to ensure that there is no linkage between a party from whom a programme is outsourced and an advertising agency.   7. The permission holder cannot carry out networking of its channels with any other channel. What this means is that a radio company is not allowed to broadcast the same channel that it has in one city, in another one. However, networking or broadcasting of the same channel is allowed if the radio company has licences in C and D category cities (essentially smaller towns). It could then use the same channel in another C or D category city within the same region.   8. Every applicant and its related entities is allowed to bid for only one channel per city provided that the total number of channels allocated to an applicant and its related entities does not exceed 15 per cent of the total channels allocated in India.   9. Certain companies are disqualified from getting permission for FM licence. These could be companies not incorporated in India, a company which is an associate of or controlled by a Trust, Society or NPO, a company controlled by or associated with a religious body or a political body.

RADIO  287

10. In the applicant company, total foreign investment, including FDI by OCBs/NRIs/PIOs and so on, portfolio investments by FIIs (within limits prescribed by RBI) and borrowings, if these carry conversion options, shall not exceed 20 per cent of the paid up equity in the entity. More than 50 per cent of the paid up equity excluding equity by banks/lenders must be held by Indian individuals and corporates. The majority shareholders must be vested with the management control. Only Indian residents can be directors and all executive personnel must be Indian residents. 11. The majority shareholder can only transfer shares changing ownership of the company with prior permission of the MIB. No permission was originally allowed for the first five years from the date of operation of the station. In September 2008, the Union Cabinet allowed FM radio broadcasters to set up subsidiaries, amalgamate or demerge through transfer of shares of companies less than five years in operation. The relaxations for the creation of subsidiaries and mergers within the same group are subject to the condition that the promoters must continue to remain the majority shareholders with at least 51 per cent of the total shares. The new entities, thus created, would have to maintain the FDI component as per the norms and the grant of permission agreement. In addition, not only will the new company (demerged or amalgamated) have to sign a fresh agreement with the government on identical terms for the remaining licence period but the transfer of shares would also be allowed only once during the first five years of operationalisation. 12. If during the currency of the permission period, government policy on FDI/FII is modified, the permission holder is obliged to conform to the revised guidelines within a period of six months from the date of such notification. 13. In the event of a permission-holder letting its facilities being used for transmitting any objectionable, unauthorised content, messages or communication inconsistent with public interest or national security or failing to comply with other directions mentioned in the tender document,

288  THE INDIAN MEDIA BUSINESS

the permission can be revoked and the permission holder shall be disqualified to hold any such permission in future, apart from liability for punishment under other applicable laws. 14. In the event of any question, dispute or difference arising under the Grant of Permission Agreement it shall be referred to the TDSAT, New Delhi.

Privatisation Phase Three Through an order dated July 25, 2011, the Ministry of Information and Broadcasting (MIB) has approved and issued the policy guidelines for Radio FM (Phase-III). Its key points are:   1. The allocation process is now in the form of an e-auction and not closed bids in response to a tender.   2. The minimum net worth for an applicant company will vary in accordance with the city of application, from `5 million lakhs to `100 million.   3. The single largest Indian shareholder (either as an individual, a Hindu Undivided Family (HUF) or as a company or group of companies with the same management) should hold at least 51 per cent equity in the applicant company.   4. All directors, key executives, CEO and head of the channel to be resident Indians.   5. The period of permission/licence is 15 years, and is nontransferable or sub-licensable.   6. In the states of the North East, in Jammu and Kashmir and the Island states, annual fee of 2 per cent of gross revenue or 1.25 per cent of the successful bid amount (whichever is higher) will be applicable. Otherwise the annual fee is 4 per cent of gross revenue or 2.5 per cent of successful bid amount (whichever is higher).   7. A single entity cannot hold more than 15 per cent of all channels allotted in the country (excluding channels located in Jammu and Kashmir, the North Eastern States and Island states) and more than 40 per cent of the total channels in a city, subject to there being a minimum of three different operators.

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  8. FDI limit as per the policy has been increased to 26 per cent (the Consolidated FDI policy of 2012 reflects this change).29   9. Any transfer of shares in a permission holding company or reorganisation within a group of companies is only permitted with the consent of the MIB. 10. The allotment of channels shall be by e-auction, and the coverage of issuable licences has been extended to all cities in India. 11. Radio channels are not permitted to carry any news or current affairs programs, but are permitted to carry unaltered news bulletins of All India Radio. However, information concerning sports events (excluding live coverage), live commentaries of sporting events of a local nature, information concerning traffic and weather, or cultural events and public announcement (health alerts or announcement concerning civic amenities or calamities) by local administrative authorities are specifically excluded from the purview of news and current affairs programs, and can thus be carried by licenced FM stations. 12. At least 50 per cent of programmes broadcast must be produced in India 13. The licence holder can outsource content production and lease content development, provided such activity does not impact the right of the licence holder to act as an FM broadcaster or have any effect on the control of the FM channel by the licenced company. 14. Networking of channels is permitted within a licenced organisation’s own network in India, provided that at least 20 per cent of the broadcast content (which may include advertisements or content spoken by a radio jockey) in any day is in the local language and promotes local content. Networking between channels operated by two entities is not permitted. 15. Co-location of transmission equipment is not mandatory, immaterial of whether the transmission infrastructure of Prasar Bharati is available or not. 16. The licence to operate an FM channel is also subject to any other terms and conditions prescribed under the Wireless

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Operational License, which the licenced company must obtain from the Wireless Planning and Coordination Wing of Ministry of Communications.

Community Radio In December 2002, The Government of India approved a policy for grant of licences for setting up community radio stations (CRS) to well-established educational institutions in India. In December 2006, this was liberalised to include NGOs or NPOs having a proven record of at least three years of community service. The organisation must be a legal entity like a registered society. Individuals, political parties and affiliate organisations are not allowed. The permission is for a period of 5 years and is non-transferable. A bank guarantee of `25,000 has to be submitted to ensure timely performance of the permission agreement. The content of the CRS is subject to strict restrictions and should be of relevance to the community. CRS are expected to cover a range of 5–10 km.30

Satellite Radio Even though a satellite radio service was in operation in the country, there was no policy or regulatory framework for this sector as against clearly laid down policies for other media segments. This gave rise to various issues, such as a level playing field between satellite and private FM Radio, regulation of broadcast content, licence fee, interoperability requirement in case of a new satellite radio service provider and so on. The Amit Mitra Committee in its report on private sector FM broadcasting had suggested that a satellite radio policy should be laid down by the government. In December 2004, TRAI brought out a consultation paper on issues relating to Satellite Radio Services. It also held an Open House discussion on the issue in February 2005 in Delhi. Based on the responses received from various stakeholders on the consultation paper and in the Open House discussion, the Authority had sent its recommendations on ‘Issues relating to Satellite Radio Service’ to the government in June, 2005. The MIB has informed that the recommendations made by TRAI have been accepted with some modifications by the Government of India. Accordingly, the Ministry has framed

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the draft Satellite Radio Policy Guidelines on which TRAI has sent the final comments. The main features of the draft policy are: 1. It makes a distinction between provision of satellite radio service (that is, carriage of radio channels) and provision of content (radio channels) to such satellite radio service providers. 2. Accordingly, two different types of licences or permissions are envisaged. One type of licence is for providing the satellite radio service for carriage and broadcasting of channels and the other permission entitles the permission holder to get registration for satellite radio channels which he will in turn provide to satellite radio service operator for broadcasting. 3. It permits a satellite radio service provider to hold the permission for registration of satellite radio channels also. 4. The licence will be for a period of 10 years initially, with a provision for further extension for 10 years. 5. The licensee will have to pay an annual licence fee of 4 per cent of gross revenue. The draft guidelines also provide for appropriate obligation on the licensee to roll out the service within one year of getting the licence. Till April 2013, this policy was still in limbo.

The Formation of AROI In 2006 the Association of Radio Operators of India or AROI was set up to lobby on the industry’s behalf and to act a bridge with advertisers and investors. All radio operators are members.31

The Valuation Norms The Backdrop After the first phase of privatisation, a Canadian Financial Institutional Investor (CPDQ), picked up a 20 per cent stake in Radio Mirchi. In 2005 GW Capital picked up a 75 per cent stake

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in Music Broadcast Private Limited’s (MBPL’s) Radio City. The details on neither are available. In 2006, Entertainment Network, the BCCL subsidiary that owns Radio Mirchi raised funds through an IPO. In 2006 the Kuala Lumpur based Astro All Asia Networks joined hands with NDTV and Value Labs to buy out Living Media’s Red FM brand in 3 cities. Astro was aided by Sun Network’s South Asia FM. In the same year BBC Worldwide along with investor Rakesh Jhunjhunwala picked up an undisclosed stake in Radio Mid-Day West. So, by the time the stations from the second phase were being launched, there was a better sense of the valuations around the radio business in India. Radio valuations are done using the same metrics as in television broadcasting. Listenership, reach, the number of stations a network has, management bandwidth, and the ability to scale are the factors that investors look for. Unlike television, there is no library valuation involved in radio, unless a station creates in-house programming.

The Variables Some of the key variables that come into play are:

Market Growth As mentioned across this book, this factor is true for most sectors in India. Typically, Indian companies would get a better multiple because of the double-digit growth rate that most media show. However, given the uncertainty over the third phase of licensing, it is not clear if this growth premium would hold, at least in the short term.

Inventory Utilisation This means the capacity utilisation of advertising time available on a radio station or network. The capacity or inventory utilisation only looks at ad time that is paid for by an advertiser and not the time used for barters or self-ads. The time allocated to advertising varies from 8–12 minutes in one hour of programming

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time. During prime time this figure could go up to 15 minutes in one hour. According to the EY report, the average utilisation for most stations was 65–75 per cent. The actual inventory utilisation varies across stations. It depends on number of stations, the city, ability to get new advertisers and the availability of robust measurement metrics. For example, the 10 largest cities recorded a utilisation of 85 per cent.32

Revenue Mix There are various ways of looking at revenue mix when it comes to radio: Local versus national  Though radio is a local medium, investors for some reason are more comfortable with radio companies that have a lot of national advertisers who use them for their local needs. According to the EY report, on an average, 35–40 per cent of revenues came from local advertisers while the remaining came from national ones. Larger radio companies had a higher share of national advertiser revenues. That is a fairly healthy national to local split. National advertisers are bulk advertisers who take large chunks of airtime at discounted rates. But in a slowdown, they are the first ones to withdraw. Local advertisers, on the other hand, are more likely to buy less time, but pay card rates, making them high-margin advertisers. The biggest change in the Indian market is the growth in the numbers of small local and regional advertisers on radio, TV and print. As their numbers grow, they become a good alternative to national advertisers. (See ‘The Shape of the Business Now’.) Traditional versus non-traditional  The Internet, emerging digital technologies, cross-media sales and activation could bring in more to the ad pie for a radio company. Therefore, a radio company that has its stations on podcast, the Internet, cable or on satellite radio among other platforms is likely to get a better multiple. Big versus small stations  The term ‘big stations’ usually refers to those in large metros such as Mumbai or Bangalore and ‘small stations’ to those in smaller towns, say Kolhapur or Surat. The ability of each to earn revenue differs and so too does the

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valuation. A company with a good mix of big and small stations is likely to get a better valuation than one with a concentration of either. For example, though ENIL has focused hard on metros it has also picked up lots of non-metro licences in towns with a high growth potential. That is because typically while a Mumbai market is more lucrative, it is also by definition more competitive. The investment required to milk a market such as Mumbai will be higher than the one required to get more out of, say, Hissar or Indore. Table 5.1a  The Top Advertisers on Radio—Product Categories Top 10 Super Categories in 2010 on Radio Rank

Super Categories

% Share

 1

Services

15

 2

Food & Beverages

11

 3

Telecom/Internet Service Providers

7

 4

Banking/Finance/Investment

7

 5

Retail

7

 6

Personal Accessories

5

 7

Education

5

 8

Auto

3

 9

Personal Care/Personal Hygiene

3

10

Telecom Products

3

Top 10 Super Categories in 2011 on Radio Rank

Super Categories

% Share

 1

Services

18

 2

Banking/Finance/Investment

8

 3

Food & Beverages

8

 4

Retail

7

 5

Telecom/Internet Service Providers

6

 6

Auto

5

 7

Personal Accessories

5 (Table 5.1a Contd.)

RADIO  295 (Table 5.1a Contd.) Rank

Super Categories

% Share

 8

Education

4

 9

Telecom Products

2

10

Durables

2

Top 10 Super Categories in 2012 on Radio Rank

Super Categories

% Share

 1

Services

23

 2

Food & Beverages

9

 3

Banking/Finance/Investment

6

 4

Retail

6

 5

Auto

5

 6

Personal Accessories

5

 7

Education

4

 8

Telecom/Internet Service Providers

4

 9

Building, Industrial & Land Materials/Equipments

3

10

Durables

2

Source: Adex India, a division of TAM Media Research. Note: The ranking is based on volumes of advertising. Volumes being measured in seconds of advertising.

Table 5.1b  The Top Ten Advertisers on Radio—Companies Top 10 Advertisers in 2010 on Radio Rank

Advertisers

% Share

 1

Bharti Airtel Ltd

2

 2

Vodafone Essar Ltd

1

 3

Tata Teleservices

1

 4

Pantaloons Retail India Ltd

1

 5

Nokia Corporation

1

 6

Ministry Of Health & Family Welfare

1 (Table 5.1b Contd.)

296  THE INDIAN MEDIA BUSINESS (Table 5.1b Contd.) Rank

Advertisers

% Share

 7

Hindustan Lever Ltd

1

 8

Coca Cola India Ltd

0.9

 9

Idea Cellular Ltd

0.9

10

Quick Heal Technologies P Ltd

0.8

Top 10 Advertisers in 2011 on Radio Rank

Advertisers

% Share

 1

Tata Teleservices

2

 2

Ministry Of Health & Family Welfare

1

 3

Bharti Airtel Ltd

1

 4

Pantaloons Retail India Ltd

1

 5

Maruti Udyog Ltd

1

 6

Nokia Corporation

1

 7

Life Insurance Corp Of India

1

 8

Tata Motors Ltd

0.9

 9

Hindustan Lever Ltd

0.8

10

Cadburys India Ltd

0.8

Top 10 Advertisers in 2012 on Radio Rank

Advertisers

% Share

 1

Maruti Udyog Ltd

1

 2

Gujarat Tourism

1

 3

Bharti Airtel Ltd

1

 4

Tata Motors Ltd

1

 5

Bharatiya Janata Party

1

 6

Life Insurance Corp Of India

1

 7

Samsung India Electronics Ltd

1

 8

Hindustan Lever Ltd

0.8

 9

Pantaloons Retail India Ltd

0.8

10

Coca Cola India Ltd

0.8

Source: Adex India – a division of TAM Media Research. Note: The ranking is based on volumes of advertising. Volumes being measured in advertising seconds on radio.

RADIO  297

Notes   1. These figures are from the FICCI-KPMG report for 2013.  2. The figures for total radio stations are as per a TRAI press release in September 2012. The AIR figures are from its website.   3. Poised for Growth, FM Radio in India, EY. The Report was released at a Confederation of Indian Industry (CII) roundtable on the radio business in December 2012.   4. Zenith Optimedia and Radio Advertising Bureau (US) website.   5. The scandal involved the allocation of spectrum to telecom companies and involved several ministers, bureaucrats and top telecom company managers.   6. A large part of this section is edited excerpts from a story I did for Business Standard. What is Ailing the Radio Industry? Business Standard, 1 January 2013.   7. The State of the News Media, 2012.   8. Digital Music Report 2013, IFPI – The International Federation of the Phonographic Industry.   9. Radio signals could travel over narrowband or broadband connections which may or may not provide Internet. This part specifically refers to radio over broadband only. 10. FCC is the Federal Communications Commission, the media and telecom regulatory authority in the US. 11. The State of the News Media, 2013. 12. ‘Will the iPod kill the radio star? Profiling podcasting as radio.’ Richard Berry in Convergence: The International Journal of Research into New Media Technologies, 2006. 13. Virgin Radio was acquired by India’s ENIL, the company that owns Radio Mirchi. 14. Internet radio advertising impact study, a Parks Associates white paper for TargetSpot. (endorsed by the Internet Advertising Bureau and the Radio Advertising Bureau in the US). 15. Vinod Pavarala and Kanchan K. Malik’s book Other Voices: The Struggle for Community Radio in India by Sage Publications (2007) and the website of Community Radio India: http://www.communityradioindia.org/index. html 16. Ministry of Information and Broadcasting website. http://mib.nic.in/default.aspx 17. According to Luthra, the radio business made a profit of `0.22 million on revenues of `1.28 million. 18. Quoted from Luthra (1986) p. 157. 19. According to TRAI data, in 2003–04, 20 licensees had total revenues of `1.15 billion and expenses of `2.37 billion. So they were all making huge losses. Of the expenses, licence fees alone amounted to `1.08 billion. TRAI is also the broadcast regulator. 20. This figure for radio advertising revenues is from the numbers Lodestar Media (now Lodestar Universal) had put together for earlier editions of this

298  THE INDIAN MEDIA BUSINESS book. Even if we factor in discounts, the total ad spend on radio was at least `2.7 billion. AIR alone had revenue of `1.58 billion in 2004–05 according to a press release by the Ministry of Information and Broadcasting. 21. There is a discrepancy between the 242 station number that TRAI gives and the actual number of stations that became operational after phase two. In fact in between TRAI mentioned a figure of 245. So the actual number is a bit hazy. 22. EY report (2008). The costs of set up have remained largely the same. 23. She was formerly the head of Lodestar Media (now Universal Lodestar) and is currently with Star India. 24. He was formerly CEO of Fever FM and is currently studying overseas. 25. MRUC is the Media Research Users Council. 26. This was up to 2011. This is going by the data available on the TAM website in April 2013. TAM Media Research provides metrics for the television and radio business. 27. For more details log onto the TAM website and go to the section on RAM. http://www.tamindia.com/tamindia/Images/RAM_Baseline_Study_ Universe_Update_2011.pdf 28. From regulation phase two to satellite radio, the regulation section was put together by, largely, by Anish Dayal, Advocate, Supreme Court of India and a specialist in media and entertainment law. From 2008 onwards all updates have been provided by Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath in Bangalore. 29. FDI is foreign direct investment. 30. Detailed policy guidelines and other details are available at http://mib.nic. in/CRS 31. http://www.aroi.in/index.htm 32. These calculations assume a 13-minutes-per-hour, 17-hour day from 7 a.m. to midnight. EY report 2012.

CHAPTER 6

Digital Stop, take a breath digital. Think about where you are headed.

A

t a two-day workshop on digital marketing by afaqs! Campus in 2013, the anti-offline feeling was strong. The trainers, good minds from some of India’s best agencies, were utterly contemptuous about all other media, including TV and print. The young audience seemed to mirror their opinion. So do many people in the media and entertainment industry, media students and other people I meet in the course of my work. All the ‘old’ media are viewed as dinosaurs that will die. And in conversation they are already dead. Young people seem to think that digital is where the world exists and everything else doesn’t matter. Not only that, the bosses at some of India’s largest media buying agencies talk as if digital death is imminent. This is silly.1 TV reaches over 740 million people, print reaches 354 million and digital reaches just over 200 million.2 Advertisers spent more than 90 per cent of their money on all forms of mass media last year. Only 6 per cent went to digital. This proportion has remained largely constant for the last many years. There is not a single digital company among India’s largest media companies, as yet. This is not to negate the growth of digital or its power. It is the biggest phenomenon of our times. All the same, there is need for some perspective. Most people like to believe that digital is some kind of utopian ideal in media consumption and freedom. It isn’t, for four reasons. One, digital operates much like any other medium. Just like any other media, it needs large audiences and scale for a company to make money.3As with other segments of the media

300  THE INDIAN MEDIA BUSINESS

business, as more people spend more time on it, the greater will be the ad rupees that digital will attract. Digital is different in texture of course. It allows you to interact, transact, share and do a host of things that other media don’t. But the basic, economic underpinning of this business is just like that for any other media. Two, four large companies—Apple, Amazon, Facebook and Google—dominate the digital media, globally. This is unlike other segments where there is more competition and, therefore, variety available. Digital is, in many ways, actually less utopian and equal than we would like to think. These four dominate not just in sheer audience power, but also on revenues. Google has a vicelike hold on the search market and, therefore, on advertising. About 18 per cent of all advertising on the internet goes to Google. As its Android becomes the default operating system on mobile phones, it is now getting a lion’s share of search revenue on the mobile too.4 There is nothing wrong or right about this. Some company may come up with a better search engine and dominate the market. Another may find a way to get more users and make more money than Facebook can on social media. But to romanticise the medium might lead to disappointment. Worse still, it would mean that as consumers we give up too much privacy and power to digital platforms which may or may not handle it responsibly. Three, unless digital can work at bringing adequate returns for professionally generated content, there will be a long-term problem. Think about it. Newspapers are losing audiences offline and gaining them online. Their cost of creating the content that gets this audience online, remains roughly the same. However they are not gaining the same revenue online. A newspaper in the US loses 16 ad dollars for every ad dollar it gains in digital.5 Yet, during an election or a crisis, readers flock to the sites of known brands such as CNN or BBC. That means they trust them and want to follow them wherever they are. If it is their content that is generating traffic and advertising for, say Google, what will do the trick once all newspapers have died? Or once all TV companies give up and say, all right, YouTube can do what it wants. Thankfully some alternative models based on pay, such as Netflix or Hulu commissioning original programming, are emerging. Eventually that is what will emerge. The digital

DIGITAL  301

majors will become what the old media majors were: supporters of original, professionally generated, content. Four, a good combination of offline and online media could actually get fantastic results, as is evident in several markets around the world. See the work being done for Ikea or Coca-Cola both online and offline. Understanding offline could also help online get better advertising rates, something the mass media professionals have mastered. If only the online devotees would get over their need to snigger at mass media, they could swap so many nuggets of knowledge with the big boys. Why are we looking at digital media separately? Television is, for all practical purposes, digital. In printing almost the entire backend, up to the time you read the newspaper, is digital. Music has completely moved into cyberspace. Radio is halfway there and in films, except for the production process, the distribution and exhibition is 80 per cent digital. If all media is digitising, why then do we have a chapter called Digital Media at all? It is a question that will haunt all of us as we seek conceptual clarity in a world where the shapes and forms of everything we know are changing, shifting, morphing so fast, that is impossible to give them a name. This chapter then is an attempt to create a structure around all the forms of media emerging as a result of the affairs and marriages between old and new formats, between technology and content, between the medium and the message. It collapses the two chapters on internet and telecom into one overarching one. This chapter will deal with the business of media and entertainment in the online world. This is irrespective of the method of access (Wi Fi, Wi Max, wireline et al) or device (laptop, tablet, phone, smartphone or phablet) or content (TV programmes, music, films, news, advertisements). It does not get into ecommerce, except if it talks about music or films being sold or streamed online. What, then, is digital media? What are its shape, size and contours in India? Take a look at Table 6.1 It roughly maps how we consume digital media currently. But that is only half the story. What do we do in the online world—we watch films, listen to music, talk to friends, buy something. It is when we do this that we either spend time, money or both on online media. And that is how companies make their money. They try

302  THE INDIAN MEDIA BUSINESS

to reach us through advertising on the sites that we go to, or by offering to sell us something or by informing us about their products. This is, as Nikhil Pahwa founder and editor, Medianama. com, puts it, ‘one of the most exciting junctures in the history of digital media. There is an unprecedented increase in traffic numbers and in advertising revenues.’ At a total of 127 million internet users and 100 million users on other devices India is now a significant digital media market (see Tables 6.1 and 6.2).6 Just totalling these to 227 million however will not give us the total audience for digital media, since there is a lot of duplication between, say, people using their laptops, mobiles or tablets to access the internet. According to the IAMAI7 about 16 per cent of the total traffic on the internet came through mobile phones in 2012–13.8 The advertising spends on reaching out on digital, across devices or access types, was `21.7 billion in 2012 going by the FICCI-KPMG 2013 numbers. On the other hand, pay was a bigger revenue source at over `250 billion. However, a bulk of this came from caller tunes, ringtones and other value added services sold by telecom companies. About 80 per cent of this was retained by the telecom companies. The remaining 20 per cent was split between content companies and aggregators (read ‘The Way the Business Works’). The content company’s share gets added to its respective industry—music sold digitally is added to the top line of the music industry. Therefore pay revenues for digital media are not added to its total numbers. It makes sense to look at it separately only to understand the structure of the industry. The benchmark US market did a massive $36.6 billion in digital advertising.9 This includes $3.6 billion spent on mobile advertising. There were no credible estimates for the total pay market for digital media in the US. At over 270 million people online, it is not the world’s biggest market by volumes, China is. But the US is by far the world’s largest digital media market in revenue terms. The Chinese market did an estimated $12 billion in digital advertising. Globally, digital ad spends were US$88 billion in 2012, going by Zenith Optimedia. There are varying estimates for the pay market for digital media, none of them very credible. This is where all the ‘buts’ begin. While digital is a powerful medium, a lot of its power is as yet untapped because India

DIGITAL  303

is evolving differently. In India, digital is coming into its own when almost every other media—newspaper, television, radio—is also booming. This is unlike, say, the US, where first newspapers took off, then radio, then television and so on. It gave every media time to evolve. In India, everything from the mobile phone to the internet and radio, have had little breathing space to make mistakes and go through their evolution cycles. This simultaneous boom across media also means that the competition for capital is intense. Even if you argue that the quantum of money needed for digital is not on the same scale as, say, DTH television, the fact remains that the amount is significant. The big challenge for digital is not potential. That is evident and growing. It is mastering the revenue-making ability of newspapers and television, getting better rates, managing scale, all the everyday issues of running a media business.

The Shape of the Business, Now The Issues The poor power and infrastructure situation in India is a drag on the growth of digital though the mobile has helped deal with that to an extent. Then there are bandwidth issues as broadband penetration takes its time to take off.10 The other issues are -

Monopolistic Mindsets There is a monopolistic mindset that has now become part of the digital ecosystem: be it Google’s monopoly over search, Facebook’s over social media, or telecom operators with their hold over Indian consumers. Across the internet and telecom, dominating platforms11 are taking away large chunks of the revenue. This doesn’t leave enough in the ecosystem for content creators and aggregators to survive. Entire categories of content creators, such as music or newspapers, are struggling. This is not just because their readers or listeners are moving online,

304  THE INDIAN MEDIA BUSINESS

but because they are not being able to monetise them. It could be either because their content is being offered free by aggregators such as Google or because it is being pirated (as in music) or because advertisers do not consider an online reader worthy of paying good money for. The value-added-services or VAS industry in India is a good example. Of the `250 billion in VAS revenues, just about 5–15 per cent went to companies that owned copyright over the material such as a song. Anywhere between 15–20 per cent went to companies such as Hungama, Indiatimes or OnMobile, which act as the aggregators and/ or technology enablers. The rest, between 60–80 per cent is retained by the telcos. This is an exact reverse of the revenue split in most mature mobile markets. In Europe and Japan, for instance, content companies get a bulk of the revenue. So aggregators and content companies in India are now finding ways of selling directly to consumers, through embedded content on smartphones and tablets or through branded portals such as Hungama. (See ‘The Rise of the Aggregator’.)

A Fragmented Ecosystem “Though the leaders in the field are trying to bring some order to the chaos, the digital media ecosystem is pretty fragmented,” says Niren Shah, managing director, NVP India. The fund has investments in several digital media ventures such as Komli and Quickr. Shah has put his finger on the one big thing that is continuing to hamper both scale and profitability in this industry. There are several issues with the ecosystem. Here are the five major ones – One, digital media currently gets the lowest realisation for every 1,000 people it reaches out to. Some part of this is because digital has spent so much time marketing itself as a transparent medium that even display advertisers demand results. “A pay per performance (or cost per action) campaign in most cases takes the last click as the only success indicator. This attribution of conversions to the last click is flawed. Advertisers need to look at the internet beyond just a click,” says Ratish Nair, co-founder, AdMagnet, an ad network. He adds that, “Almost all digital properties in India (with the exception of Google)

DIGITAL  305

are struggling to generate revenues, be it portals or niche websites (am not getting onto e-commerce here which could be in an even worse state). While CPMs may have grown somewhat, that would be just correction for inflation, so no real growth has happened.” The other part of the reason ad rates don’t grow is that digital cannot offer the richness and engagement of TV, according to some research Nielsen did in the US. Device size is an issue too. On the mobile, the fastest growing device for internet access, the rates are five times lower than for a user accessing it on the laptop. Two, Nikhil Pahwa, founder and editor, Medianama.com reckons that digital firms are not spending enough time on gaining an audience since they are happy with the ad dollars that Google doles out. Digital companies simply do not focus on hiring high quality sales people who could evangelise the whole space. Alok Mittal, managing director, Canaan Partners, agrees: ‘There is very little thinking on what works on digital even through the infrastructure and technology exist’, says he. ‘Content is a big issue. A lot of content consumption happens on non-Indian sites’, says Ratish Nair, co-founder, AdMagnet, an ad network. This is because there isn’t enough original Indiacentric content in English and there is hardly anything in other Indian languages. Three, the payment terms for digital media companies are not cast in stone. They are rarely paid on time or within credit limit periods. It is normal for credit periods to stretch for 18 months and more. In many cases the payment never comes and becomes a bad debt. This is because unlike say IBF or INS, the industry associations for the television and print businesses, there is no industry body that stands up for members if advertisers do not pay on time. ‘No one messes with Google, Yahoo! and Microsoft and the IAMAI is toothless’, says Pahwa.12 Four, payment gateways on the mobile are an issue. Life is simple if you are buying something through your telecom operator. The moment you try to buy something on your own, through the mobile phone, things get complicated. This, says Pahwa, is because backend payment gateways on the mobile are very complicated for Indian companies who have to follow the local rules. This means logging in with a password, on the mobile, to do a one-time payment. This has stymied the growth of content

306  THE INDIAN MEDIA BUSINESS

streaming and download services on the mobile and actually helped propel mobile advertising, says Pahwa. The fifth and last issue with the ecosystem is that metrics and analytics that help marketers compare digital media to print and TV are missing. “Globally consumers are combining social media to old media like television. But in India there no way to analyse the effectiveness of advertising across media,” says Alok Mittal, managing director, Canaan Partners. (See caselet 6b)

Getting Old and New Media Talking What adds to these anomalies is the fact the print, TV or other media companies just haven’t managed to crack digital on their own. “The content industry and the digital media ecosystem are still not in a participative mode,” says Neeraj Roy, CEO, Hungama Digital Media. Television companies still go to YouTube (Google) and then grumble about the revenue share. Maybe you need more search engines bidding for content for prices and revenue shares to go up. To operate in the ecosystem as it exists now, content creators need to be more proactive. Newspaper publishers have a ten-year period before digital will truly hit all of them in India. Yet most haven’t even started looking at it seriously. “Why can’t every movie that comes out have another form factor called gaming? We need some re-imagination of what can be done,” says Roy. If the digital media professionals interacted with print and TV more closely they could also pick up stuff on how to improve rates, invest in content and so on. There is a lot of room for cross-media knowledge sharing that will help both to improve scale, variety and profitability.

The Opportunities and Trends Most of the opportunities and growth areas are emerging from the problems facing digital. For instance, the single biggest change in digital media is the shift to off-deck services or ones that bypass platform owners such as the telecom companies or Google. It is along with the others the single biggest opportunity to create new media majors who could correct the anomalies in

DIGITAL  307

the digital media ecosystem as it exists today. The other is the growth of mobile within the whole digital ecosystem.

The Rise of the Aggregator13 Zenga is a mobile TV operator that offers more than 100 channels such as Aaj Tak, DD News, or Mahua along with a host of other content. It had in April 2013, about 25 million unique users a month who consumed 250–300 million video views. Zenga TV is ad-supported; you don’t need to pay your mobile operator to use it. According to Shabiir Momin, co-founder of Zenga, the firm, which was set up in 2009 has had two profitable financial years 2011–12 and 2012–13. At roughly `1.5 billion in revenue, it is now generating enough cash to commission its own shows meant only for the mobile and web. It eventually hopes that a mainstream broadcaster will buy these shows too. Zenga is not just a successful mobile TV company. It symbolises the churn in the digital media market with the middlemen or aggregators now aspiring to become ‘Digital media Brands’ or ‘New Media Companies’, as Neeraj Roy, CEO, Hungama Digital Media, puts it. Hungama calls itself a publishing, development and distribution company for digital content. The shift—from telco-delivered entertainment services to aggregator-branddominated ones—is the single biggest shift in the Indian market in recent years. This is because it will determine who will be the gatekeepers to the market for digital media in India. This shift is happening for four reasons that are critical to any understanding of the digital media eco-system. One, competition. India’s rapid mobile growth attracted more players putting pressure on prices and margins. There are aggregators now for content, technology, content plus technology and a host of other things, crowding what is essentially a `50 billion pie, this being the share of content creators plus aggregators. Two, only about 5–15 per cent goes to companies that own the copyright over, say, a song or a film clip. Anywhere between 15–20 per cent goes to the aggregators. The rest, between 60–80 per cent, is retained by telcos. When the aggregator market was not crowded it did not matter. But over the last five years, well-funded technology or content start-ups don’t see the need to take a lower share.

308  THE INDIAN MEDIA BUSINESS

Three, the arrival of smart devices, such as an iPad or an iPhone has made things easier. Aggregators or content firms can sell apps or simply embed a service into the device. That means dealing directly with the device makers, making them and not the telcos the power centre. The fourth is complexity. One request to play a song or download one on a device needs a backend that can decode the device, the song, the operating system and language among many variables. According to one estimate in 2012, the job of a large number of Hungama’s 300 engineers was to ensure that its 2.5 million pieces of content works across 2,800 different platforms. This complexity and the need to service it then demands better margins which is what aggregators seek by going ‘off deck’ or direct to consumer. To these four factors, add one more variable. In July 2011 the TRAI ruled that telcos must have confirmation in writing from a user before activating any value-added services or VAS services as ringtones et al are called. Till then they were automatically renewing the subscription for data services. This has already led to a decline in VAS revenues. This decline is now helping standalone aggregators such as Saavn.com or Hungama.com, reckons Pahwa.

The Hope from Pay Revenues The rise of the aggregator or the independent digital media brands dovetails nicely with an international trend that has, in its own small way, come to India: the growing popularity of pay revenues in the digital world. About 450 of the 1,380 dailies in the US are adopting pay plans. Added to their print subscription revenues and other revenues, these are actually bringing back pay revenues in the focus for the newspaper industry.14 The New York Times, The Economist and Atlantic are some of the brands seeing good results from pay revenues on digital. In music, for the first time since digital hit the industry in 1999, there has been growth, on the back of legal digital downloads and streaming. In television there has been no major movement of audiences to online. The shift to Netflix etc is a good thing since it is a paid model. Earlier in 2013 Netflix premiered The House of Cards, an original series it commissioned. By all estimates Netflix, which the movie studios and TV companies

DIGITAL  309

have hated so far, made money on it. Shemaroo, which started as a video cassette company, now sits on a digital gold mine that it has just managed to monetise well. It is among the top ten channels on YouTube besides being on a whole lot of mobile platforms. And the growth rate of revenues from digital is now faster than non-digital reckons Hiren Gada, director, Shemaroo Entertainment. This then behoves well for an industry that is struggling with the question of how to finance good, professional content. The rise of pay revenues across different content forms, platforms and media segments is, to my mind, one of the most positive developments for the future growth of the digital media business. You could argue that in the mobile ecosystem almost everything is pay. But on other devices such as laptops or tablets, where huge amounts of video, text and other content is being consumed in much larger quantities, pay is just becoming a popular word. “We are on the cusp of enablement of the same consumer into a transaction economy,” says Neeraj Roy, CEO, Hungama Digital Media. If even 100 million of the 227 million people on digital in India spend money on their online digital consumption it could translate into a lot of money simply because the volumes are so huge.

The Growth of Offline Media While the simultaneous growth of other media has, in many ways, delayed digital from taking its rightful place, it has also provided a boost to it. The growth of offline typically leads to a growth in revenues for digital. R.P. Singh, the former head of McCann Erickson’s digital business explains.15The better an offline campaign in TV or print does, the more it drives people to look for details online. For example, everytime Nokia’s gross rating points or the measure of total viewership of its ads increased, the searches for its phone, online would shoot up, says Singh, who handled the brand for a bit. This invariably led to an increase in its sales. This, then, is true for banking, financial services or even for other consumer durables such as a refrigerator or a car. If an ad appeals, you look for more information online and finally end up buying the product. This is one of the reasons that the list of top advertising categories on the internet now includes FMCG or fast moving goods, consumer durables and telecom companies.16

310  THE INDIAN MEDIA BUSINESS

The Growth of Video One of the biggest reasons why digital advertising revenues are growing is because a lot of people are spending a lot more time online watching films, TV clips, entire shows, amateur videos and what not. In the US, 183 million unique viewers spent 1,200 minutes each in March 2013 watching video.17They consumed over 39 million videos according to comScore. Of these, Google’s YouTube topped the list for maximum traffic. Vevo, Facebook, Viacom and Turner were among the other large sites. In July 2012, there were 44.5 million unique video viewers in India and they spent 459 minutes watching video online according to comScore data. According to one statistic India ranks third in the world in watching videos online through a PC/laptop and fourth in the world when it comes to watching videos on the phone. This trend is important because it helps overcome one of the biggest barriers to digital’s growth in India—literacy and language. Video does to digital what TV has done in the offline world, helping connect a whole lot of people online. Usage and therefore traffic goes up. The legal download market is already helping revive the music industry as you read in the chapter on music. A similar thing for TV and films will bring in a nice slice of revenues for content creators. T-Series, Shemaroo and Rajshri routinely figure in the list of top ten YouTube channels. Even within video there are some interesting trends. For instance, soon after it started Zenga got 95 per cent of its traffic from live television. Now it gets 70–80 per cent from video-ondemand, which could be TV, user generated content, clips, music or anything else. This has prompted new models such as Humaramovie.com, which showcases fresh films by unknown directors. These are curated by professional filmmakers such as Anurag Kashyap and Imtiaz Ali, among others.

The Growth of Social Media Platforms like Facebook, Twitter and Linkedin have proved great so far for people to chat, exchange songs, films, pictures or take part in one another’s lives over great distances. India is now the third largest on the list of Facebook’s billion plus users. The

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growth of social media has three positive impacts on the whole ecosystem. One, “it drives net usage,” says Ratish Nair, co-founder, AdMagnet, an ad network. India is already the third largest going by the number of internet users. This then pushes platforms and content creators to experiment more which, in turn, increases usage and so on it goes. Two, social media provides media and entertainment with a great platform to promote its products and services. Three, Facebook had 78 million users in India in the first quarter of 2013.18Eventually these kind of high levels of traffic and engagement could be leveraged into, “transaction,” thinks Neeraj Roy, CEO, Hungama, Digital Media. He points to Tata DoCoMo which has over 13 million fans. So the next logical step would be to monetise this base. Some of the stuff that marketers in the US are doing provides interesting clues. See Caselet 6b.

The Growth of Devices This is stating the obvious. But it is the growth of all kinds of devices from basic mobiles to smartphones to tablets and laptops that has led to the massive rise in consumption of content on digital. Apart from more people coming on board, it also helps create alternative revenue streams. For example, apps are emerging as a potentially lucrative revenue stream for print, thanks to tablets. The music industry has revived in part because smartphones and, therefore, streaming services have taken off.

The Past The Internet The ‘Internet’ is a global group of connected networks that allows people to access information and services. It includes the World Wide Web, electronic mail (e-mail) file transfer protocol (FTP), Internet relay chat (IRC) and USENET (Unix User Network, news service).15 Today, the Internet is a network of millions of computers allowing constant communication throughout the world. It is a worldwide mechanism for information dissemination, collaboration

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and interaction between individuals through their computers irrespective of their geographic location. It works by taking data, breaking it into separate parts called packets and then sending them along available routes to a destination computer. The packet switched network uses available wire space for only fragments of a second as it transfers a digital message in one direction. To connect to the Internet, one has to subscribe to the services of ISPs. These could be a plain ISP, a telecom or a cable company depending on the structure of the market. Four computers located each at the University of California at Los Angeles, the University of California at Santa Barbara, the University of Utah and the Stanford Research Institute, were part of the early beginnings of the Internet. The work was initiated and funded by the U.S. Department of Defense through the Advanced Research Project Agency (ARPA). This network was designed to be a centralised system, which could divert communications in the event of an attack on an individual network. It was intended as a military network of 40 computers connected by a web of links and lines. The ideas that created this network, which later became the Internet, were floating around long before that. In August 1962, J.C.R. Licklider of the Massachusetts Institute of Technology (MIT) first discussed a ‘Galactic Network’, or a globally interconnected set of computers to access data and programmes from any site. Licklider was the first head of the computer research programme at Defense Advanced Research Projects Agency (DARPA) starting October 1962 (Leiner et al.).19 There he convinced his successors, which included MIT researcher Lawrence G. Roberts, of the importance of this networking concept. Leonard Kleinrock at MIT published the first paper on packet switching theory in 1961 and the first book in 1964. Kleinrock too talked to Roberts about how feasible it was to use information packets, not circuits. That became one step along the path toward computer networking. The second was to make computers talk to one another. By August 1968, Roberts and the DARPA-funded community had refined the overall structure and specifications. By the end of 1969, four host computers were connected together into the initial ARPANET; the Internet was off the ground. It was based on the idea that there would be multiple independent networks of different designs with the ARPANET as the pioneering packet switching network. Later, others like packet

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satellite networks or packet radio networks could join in. Transmission Control Protocol (TCP) or IP was adopted as a defence standard in 1980. By 1983, ARPANET was being used by a significant number of defence, R&D and operational organisations. By 1985, both the Internet and e-mail were being used across several communities, often with different systems. Englishman Tim Berners-Lee introduced the World Wide Web in 1991. In 1993 the first web-browser, Mosaic, was developed at the US-based National Center for Supercomputer Applications (NCSA).20 The web-browser can be understood as a graphical user interface to the Internet. It is that part of the Internet that most users see and use—Internet Explorer and Mozilla Firefox and now Chrome are the common ones. It has led to tremendous growth both in terms of the size as well as the use of the Internet. On 24 October 1995, the Federal Networking Council passed a resolution defining the term ‘Internet’. This definition was developed in consultation with members of the Internet and IPR communities.21

India Goes Online It was around this time that India discovered the Internet. In 1995, Internet access in India was restricted to a few major cities and everything was in the hands of the government. The (then) state-owned VSNL, which was responsible for providing Internet services, did so with erratic connectivity and very little bandwidth in a market where phone lines were in perpetual shortage.22 It was normal for users to be cut off while surfing the net. The rates for this level of service were among the highest in the world at that time. Indian users paid approximately US$ 2 per hour and leased lines were available at over US$ 2,000 per month for a 64 kpbs line. Only a few companies could afford to have leased lines. As a result, by the end of 1998, there were barely 150,000 Internet connections in India. None of this dampened the enthusiasm of dozens of entrepreneurs who jumped into the fray. Just as with cable TV, these entrepreneurs led India’s first steps into this world and its subsequent growth. There were people like Ajit Balakrishnan (Rediff. com), Rajesh Jain (IndiaWorld.com) and Haresh Tibrewala and

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Sanjay Mehta (Homeindia.com) who gave in to the lure of a networked world among others.23

The Boom and Bust Years What made things easier was the availability of money to set up Internet businesses. Many foreign venture capital firms had set up shop in India. India’s software successes made them think that the Internet would give them similar returns. By 2000 positive investor sentiment about the net was fuelling the growth of all kinds of websites—on marriage, games, gossip, work, cooking, working women and so on.24 A lot of the capital coming in, which fuelled these rising salaries and overheads, was based on dodgy valuations since there were no profits or revenues that could be used as a basis. Anything from hits to pages was used to estimate the popularity of a website and value it. Between 1999–2000, more than 100 dotcom valuations happened according to one estimate. The media, including business magazines, joined enthusiastically in cheering on what looked like the birth of a medium. Many companies got in because of the fear of being left behind. It was clear in several cases that they either hadn’t understood the medium (fair enough, considering it was new) or they had not thought through what they wanted to do with it. This is true not only for Indian companies but even for American corporations. Walt Disney spent millions of dollars on Go.com, which did not, well, go anywhere. News Corporation wrote off more than US$ 300 million worth of investments that it had made on Internet businesses during this period. Everybody got a little carried away and later, because they felt silly, many dismissed the medium. The ‘dot-com crash’ as it has now been branded, happened over 2000–01. It was about bloated valuations and share prices of Internet companies finally falling to reflect the companies—many non-revenue generating, non-profit making, non-businesses that had hitched a ride on the back of investors who were supposed to know better. But the fact is that the investors, many of them looking at the Internet at the same time as the entrepreneurs they were funding, were equally clueless.

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There was no ‘big’ crash in India, but it affected the market. The venture capital sentiment turned against Internet companies and finally the flow of capital dried up. Dozens and dozens of web businesses disappeared overnight or ran out of funds. But the ones that survived did so either because they were solid businesses to start with or because they changed their business models.

Telecom Telecommunications is the process of conveying information with the use of electrical energy. It evolved out of an earlier system involving optical energy. Until less than 250 years ago, the transmission of information was limited in reach by the speed at which it could be conveyed and the distances it could cover. The first primitive communications system based on an electrical technology was invented in 1747 in England. That is when William Watson demonstrated electrical transmission using an electrostatic source. George Lesage showed a primitive telegraph in Switzerland in 1774, but it was not until the early part of the 19th century that the first practical systems began to emerge to meet the needs of commerce and industry for more advanced forms of communication. The modern age of telecom began in 1839 when Samuel Morse developed an effective system for coding signals and completed the electric telegraph system from Baltimore to Washington DC. Guglielmo Marconi’s transmission of signals by radio demonstrated the potential of wireless technologies and since then the basic technologies on which the early systems were built have been extended and improved to create the worldwide telecom network.25

Telephony Comes to India The first telegraph network was set up in India in 1856.26 Its initial use was during the First War of Independence the following year. For many years, therefore, the development of telecom was driven by military and governmental concerns, rather than by consumer issues or commercial factors. Originally, telecom was part of the Post and Telegraph (P&T) ministry. Telegraph lines existed till the

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1950s, but gradually the telegraph came to be abandoned and telegrams were transmitted by telephones and tele-printers. The Ministry ran two businesses, P&T and telephones. The postal service was much more widely used than telephones. Although the telephone service was highly profitable, it was used to cross-subsidise postal services. That is why very little of the money that telephones earned went into expansion and consequently there was a long waiting list for telephones. These shortages have marked Indian telecom history all along.

Liberalisation Begins This came with the prime ministership of Rajiv Gandhi in 1984. Sam Pitroda, a telecom engineer who had returned from the USA, became his advisor. Pitroda set up a Centre for Development of Telematics (C-DOT), a research and development (R&D) organisation to develop electronic switches. In January 1985, two separate departments were created for Posts and Telecommunications. This ended telecom’s cross-subsidy of postal services. In 1986, a new ministry of communications was created. In the same year, two businesses were separated from the ministry. MTNL was set up to manage telecom in Bombay (now Mumbai) and Delhi, and VSNL to run international services.27 However, the rest of the telephones remained with the ministry; the service was run by the Department of Telecom (DoT). Paradoxically, it remained in charge of the regulatory role in telecom. So, a Telecom Commission was created in 1989 to formulate policy, regulate implementation and also prepare the budget for DoT. In January 1992, DoT invited bids for mobile services in the four metros. In May 1994, the government opened local basic and value-added telecom services to competition. Mobile services were introduced on a commercial basis in November 1994. The first mobile telephony service in the metros started in August 1995.

The Mess Begins And it is from here that the regulatory mess, which was to mar the growth of telephony in India, began. For perspective, contrast this with private television broadcasting where no regulation

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existed for over 10 years after cable TV took off in India in the mid-1980s. The first law governing cable came in 1995 long after consumers had tasted private fare. There was no licensing involved to start with (refer to Chapter 2—Television). There was only one state-owned broadcaster as a fairly passive, rather ineffectual competitor.28 A few months after the arrival of satellite television in India, by the time the first Hindi satellite channel was launched in 1992, it was evident that private broadcasters could offer much better variety. Now add the fact that a private cable network, owned by thousands of entrepreneurs, was already in place. Most new channels just rode on it by selling their signals to these operators. In case of telecom, the onus of service was put on private operators, but they were forced to use the network of the incumbent and price their services in line with the incumbent. DoT did everything to ensure that private telephone operators could not make money. The wrangles over subsidies, accessdeficit charges, interconnect-rates and calling party pays (CPP) standards, are well documented. Frankly, they are also tedious to read. Unlike broadcasting, if you read the first 10 years of the history of Indian telecom it does not seem as if there was light at the end of the tunnel. According to Dr Desai’s study29, most private operators ended up making losses not only because they had paid high licence fees and interconnection and other charges to DoT, but also because the business was unviable. In anticipation of the launch of private services, DoT started meeting the pending demand. As a result, the projections made by private operators went awry.

The Birth of the New Telecom Policy By 1998, eight mobile service operators and all the landline operators were in default of their licence fees. An ICICI study of 22 mobile service operators found that only one, Bharti TeleVentures, had made a small profit of `25 million in 1997–98. Seventeen per cent of the subscribers had not used their phone at all, and 37 per cent had bills of under `500 per month. Another TRAI study in 1999 found the same problem of low user off-take, low ARPU continuing. The recommendations of these studies

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generated debate in the media and legal wrangling followed. Finally, the Group on Telecom, an inter-ministerial committee, resolved the issue. The result was the New Telecom Policy of 1999. This brought about four major changes. One, all circle operators were required to pay 2.8 to 2.9 years’ licence fee at the old rates before migrating to a revenue-sharing formula. Two, DoT and MTNL were allowed to enter the mobile phone business. Most mobile operators were already offering services below the `8.40 per minute maximum set by DoT. With two more players in the fray, a price war was imminent. Three, private landline operators were allowed to give CDMA mobile connections. So far cellphone technology in India had been based on GSM.30 Finally, it was no longer necessary for private operators to route intra-circle calls through DoT and MTNL. They could build their own networks. The government monopoly in domestic long-distance traffic was abolished in April 2001, and in international traffic in April 2002. By all accounts, it looked like telecom was finally getting on with it after shedding a decade of nitpicking, losses and regulatory hassles. Landline companies began using CDMA wireless connections to push costs down and mobile phone operators were free of the licence fee. As call charges fell, the market expanded. This was when TRAI began experimenting with tariff regulation. In 1996, it cost `16.80 per minute to make a phone call. Even this fell by half in 2000, one year after the New Telecom Policy.

The Boom Years The total cost of ownership, that is the cost of the phone as well as the airtime costs went down as a result of the New Telecom Policy of 1999. By 2002, the government brought down the duties on handsets from 72.5 per cent to about 14 per cent. These came down further to 4 per cent, allowing hardware companies like Nokia to offer mobile phones for as little as `5,000. Then came the Reliance Infocomm (now Reliance Communications) mobile service, in December 2002, at low prices. The market never

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looked back after. The effective rate of making a mobile phone call dropped to under `2 per minute and the number of users kept jumping.

The Way the Business Works The Value Chain There are two ecosystems in play in digital, the one on the mobile and the other on the internet. ‘On the mobile pay models are evolved, but on the internet largely everything is ad supported’, points out Hiren Gada, director, Shemaroo, Entertainment. If you combined both into the digital media ecosystem, there are three key players in the digital media play:

Platform Owners These could be Airtel or Google or Vodafone or Yahoo! among others. These are the big stations or stops we go to when we are looking for something in the online world. Some of them depend on advertising, others on pay revenues, some on a mix of both. All of them offer a basic service—search (Google), voice (Airtel, Vodafone)—and then top it with other services such as songs, email, and so on. The platform owner keeps a bulk of the advertising or pay revenues that is made through content put up on his platform. For instance, telecom operators keep about 60–80 per cent of the money they bill you for a song. The remaining is split between aggregators and content creators. This, however, is not the norm. YouTube, for instance, shares roughly half of its ad revenues with content owners.

Aggregators Companies such as OnMobile or Hungama act as a link between platforms and content companies wanting to use digital to generate revenues. Hungama aggregates 2.5 million pieces of content

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(songs, films, clips, wallpapers etc) across 400 different content companies. It offers this in 47 markets through partnerships with mobile operators or ISPs (Internet service providers) in those markets.31 Similarly, there are aggregators for technology, backend services or payment systems. Essentially, since the value per transaction is low (say, `5–10), the volume is high, it makes sense for specialists to take over these services. This helps platform owners to keep costs and, therefore, prices low. Content aggregators/technology enablers get anywhere between 15–20 per cent of the revenue that mobile operators collect from subscribers. The revenue share content owners/aggregators from non-telco owned platforms are substantially better.

Content Creators These could be music, film, newspaper companies among other content creators who sell the digital rights to their content to the aggregators or technology enablers and get a cut on revenues. Some content companies also prefer to have their own short code and sell directly, with the aggregators remaining at the backend. Equally TV companies could be licensing the rights of shows they own to YouTube or someone else for a share in advertising revenues. Typically, content companies get 5–40 per cent of the retail value of the content sold in digital. The advertising share they get is completely dependent on the deal with the aggregator or the platform owner.

The Clusters There are various ways to look at digital media. But since advertising is such a big revenue stream here is a look at it from a marketer’s perspective. There are three distinct clusters in which digital falls as far as the advertiser/marketer is concerned –

Owned Digital Media These are websites, microsites, apps, widgets or any other public forms of data that a brand, say Coca-Cola, owns. A CocaCola will however not want outside advertising on its site. All

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it wants is for its users to be engaged with its site or download its app.

Paid Digital Media This is media that a brand pays for. The platforms, content creators, aggregators or anyone else could own it. Marketers use it for advertising which falls roughly in the following categories: Search  This is the money digital media companies make when advertisers pay to list and/or link their company site domain name to a specific search word or phrase (includes paid search revenues). For instance, if you ran a search for ‘Hotels’ in New Delhi, the Taj Mansingh could come up either on the right hand side of the search results or within the search results. The right hand side results are the sponsored links or the stuff advertisers pay for. The results on the left hand side are the ones from organic search. This cannot be sponsored but the results can be improved through search engine optimisation. To do this its website may need to change or modify its programming code. Various online agencies specialise in helping companies come up on tops in the search results. This is called being part of the natural search.   Paid or not, search is the biggest and fastest growing part of the digital ad pie. In 2012, paid search was 47 per cent of all advertising money spent online in the US. In India, it is about 38 per cent of all the ad money spent online (including mobile). About 85 per cent of the money spent on search in 2012 was spent on search engine marketing or buying adwords that would ensure that your brand name cropped up on the right hand side of a relevant search result. The remaining 15 per cent was spent on search engine optimisation.

Classified advertising  This is exactly the same form of advertising that you see in newspapers or magazines. The only difference online is that you can respond to the classified ad immediately. There are all sorts of specialised classified sites in India for jobs (Naukri.com), finding homes (99acres.com or magicbricks.com), finding a partner (shaadi.com) and

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so on. These sites make money when advertisers buy space on the site to place their ads and also through search advertising. For instance, if you are looking for a job in a private bank, chances are that while running through Naukri.com you will see display ads of banks looking for people.

Display advertising  This works just as in other media: an advertiser pays to have his ad displayed on a website or on the phone screen of a user. Usually the rates would vary depending on what part of the website is used, the size, graphics, frequency and other variables. There are ads with video, without video, with simple flash or with heavy or light pictures. Typically, the home page, just like the cover page of a magazine, is more expensive. The ads on the other parts of a website are called ‘Run of site’ ads. Mobile ads typically are a fifth as expensive as the online ones.



Social media advertising  This refers to any type of text, display, stamp ads on social media sites such as Facebook or Twitter.



Email advertising  This means sending an advertisement on the mail to potential or current consumers.



Mobile advertising  This works just as in other digital media: there are search, banner, display or classified ads on the mobile screen. It could also be games created by advertisers. There is also in-app advertising which is becoming very popular.

Earned Digital Media This is any media that the advertiser does not pay for—by creating a website or by placing an ad. Typically this term applies to social media and would include comments, tweets, shares or likes. Facebook owns the eponymous networking site, but the comments by users about brands on that site are not something that a marketer can buy.

The Revenue Streams The main revenue streams for companies in digital are:

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Access This is the monthly charge that users pay to access the internet or have a telephone connection. Access charges could vary between `200 to `1,000 per month depending on the package bought, the hours of usage and the bandwidth used.

Subscription This could come from fee-based services such as a streaming music or film service.

Advertising There are different ways in which a website could earn advertising revenues depending on the different forms of advertising mentioned above. The ad space on a mobile screen, iPad or on a website can be bought directly from a platform owner, say Yahoo!. It could be bought through representatives such as Aidem or Publicitas which aggregate some of the larger sites. Or it could be bought from an ad network. This is an aggregator who puts together hundreds and thousands of sites together and actually plans your digital media for you. There are several ad networks in India such as Komli and Tribal Fusion. The difference between ad networks such as Komli and independent representative such as Aidem is that Komli will not tell you where the ad will run. As an advertiser of, say financial services, you could choose a genre of sites that you want to be seen across. Then the Komli software will play out the ad across relevant sites in the contracted period.

The Costs The main elements of cost are technology, people and marketing. The variations depend on the kind of business, scale of operation, and so on. For instance, a B2B content-driven portal, say afaqs!, will spend a large amount on people costs in editorial or content while the big expense of Naukri, which is into classifieds, would the cost of its sales force.

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The Metrics The metrics you look at depends to a great extent on your perspective: are you a platform owner, an advertiser, a content creator or an aggregator. But largely they will be a combination of traffic and pricing/revenue metrics.

The Traffic Metrics In India media buyers and advertisers go mostly by comScore data to gauge which websites to include in their media plan. Having done that, they measure performance of the site concerned by one among three major options: CPM when the advertiser buys ‘impressions’; CPC when the buyers wants to pay based on the number of people who ‘click’ on an ad or banner; or CPA when the advertiser wants to pay on the ‘acquisition’ of a customer. Whatever route chosen, performance is always measured closely. Some of the common metrics and terms, which may or may not be defined by IAB, but are used while doing business on the net are:32

Page A page is the starting point of every measurement on digital. It is a document with a specific URL. It is made up of a set of associated files. A page may contain text, images, and other elements. It may be static or dynamically generated. It may be made up of multiple frames or screens, but should contain a designated primary object which, when loaded, is counted as the entire page.

Hits When a user accesses a website, the computer sends a request to the site’s server to begin downloading a page. Each element of a requested page (including graphics, text and interactive items) is recorded by the site’s server as a ‘hit’. If a user accesses a page containing two graphics, those hits will be recorded once for the page and once for each graphic. That means that everything on

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a web page—a picture, a graphic, a text box, all of which are different files—will be counted as a hit, even if just one person has been to that page. While hits were the first metric used when the net took off, they were soon discarded. Since page design and visit patterns vary from site to site, the number of hits bears no relationship to the number of pages downloaded. Hits, now, are acknowledged as a bad measure of traffic. They are used by the websites only to check the workloads on their servers.

Page Impressions This refers to the number of times a page was requested by a user. ‘Page views’ are used to when a web page is actually seen by the user. This is not measurable today; the best approximation is provided by page displays. There are several questions even on page display or impression. Does the server record it when a user downloads a page or when it is requested? It could also be when a tracking pixel, a tiny file placed on a page for counting page views, finally reaches the surfer’s screen. If you ask for a page, but lose patience if it is taking time to download, chances are that it will be recorded as a page view though you left the site long back.

Click The pricing of digital advertising could vary across devices and access formats. It could vary by category of advertisers, by medium, device, formats and a whole lot of things. But the fundamental units used are pages and clicks. There are three types of clicks: click-throughs, in-unit clicks and mouseovers. These include following a hyperlink within an advertisement or editorial content to another website or another page or frame within the site.

Reach The IAB (Internet Advertising Bureau) defines reach as unique users that visited a site over the course of the reporting period. It is also called unduplicated audience. ‘Unique users’ could also refer to the total number of people who are ‘served’ an ad. ‘Unique

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users’ are unique individuals or browsers that have either accessed a site or have been served unique content and/or ads such as e-mail, newsletters, interstitials and pop-under ads. User registration or cookies can identify unique users. A cookie is a file on the user’s browser that uniquely identifies him. A browser such as Chrome, Internet Explorer or Mozilla Firefox is used to surf. There are two types of cookies: session cookies and persistent cookies. Session cookies are temporary and are erased when the browser exits. Persistent cookies remain on the user’s hard drive until he erases them or they expire.

Churn This is the number of people who give up on a service or fall out of the subscriber/user list. This could happen for a variety of reasons. In the course of market expansion, a company may have picked up subscribers who can barely afford the service and have subsequently dropped out. On the other hand, poor quality of service may be a reason for subscribers opting out. Whatever the cause, digital media brands keep track of churn rates.

Likes, Fans and so on With social media there is a rise in metrics like cost per like and cost per fan and maybe some more “irrelevant metrics,” says Ratish Nair, co-founder, AdMagnet, an ad network. He reckons, however, that when it comes to social media, advertisers are increasingly looking at metrics which could measure engagement, brand awareness and so on. “These metrics (fans, likes) have increased in popularity because of the way users interact with social media,” says Nair.

The Revenue Metrics CPM/CPL/CPC and Others The pricing of digital advertising could vary across devices and access formats. It could vary by category of advertisers, their advertising objective, product category and son. It could be based

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on performance or on traffic or other things. It operates very much like mainline advertising. The only difference is that the permutations and combination are many. The interactivity of the medium and its inherent transparency lends itself to far more number crunching. There is cost-per-action which is based on a surfer taking some defined action in response to an ad. This could mean buying something or signing up for a service or just clicking on an ad, among other things. Alternatively, ad rates could be based on cost-per-click, or the number of clicks received. Then there is cost per lead, cost per video viewed33, cost per download. About twelve years ago, cost-per-click, or cost per lead were the rage says R.P Singh, the former head of McCann Erickson’s digital business. Now many advertisers prefer CPM because they have become chary of ‘click fraud’. 34This happened because the digital media owners would get random people to mass click on a brand’s advert since they were being paid on a per click or per lead basis. CPM or Cost per Mille (cost per thousand) also makes it easier to compare the cost of digital with other media. However, performance based metrics such as cost-per-click or lead, work for financial services or banking, categories where a response is critical. They are not always a good measure for pricing advertising whose aim is to build awareness.

ARPU or Average Revenues Per User This is, by far, the most important metric from a pay revenue perspective. A streaming or download service typically will track this closely. Just like telecom companies track it for revenues on voice and non-voice services.

The Regulations35 Digital Media encompasses the dissemination and consumption of information through electronic means, largely consisting of online or internet based consumption. Such dissemination of information may be in the form of user generated content (such as content available on youtube.com or social networking sites)

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or of professional or industry produced content (such as content available on television channel streams or news websites or web services like Netflix.com). The legal regulation of digital media occurs at two distinct levels, the content side and the platform side. The content side is concerned with the matter being disseminated, while the platform side is concerned with the means through which it is being disseminated. The content side regulation in the broader context relies on passive and reactive forms of regulation, such as tort or civil proceedings (through actions such as privacy, defamation, nuisance etc). In instances of grave violations these could go to criminal proceedings. Such passive regulation encourages content producers and distributors to self-regulate. The regulatory scheme also relies on industry specific regulation of a more active nature, which is relevant to particular professions or media formats (such as the Norms for Journalistic Conduct issued by the Press Council of India, or the Programme and Advertisement Codes issued by the Ministry of Information and Broadcasting). The content side of regulation has been addressed in the various parts of the book that are concerned with the media format in question, for example, the Programme and Advertisement Codes are summarised in the Television chapter and the Norms for Journalistic Conduct are dealt with in the Print Media chapter. This section is concerned with the platform side of regulation. In the broader context, online media is governed by the Information Technology Act, 2000. It is supplemented with certain platform specific forms of regulation in the narrower context.

The Information Technology Act 2000 The Information Technology Act, 2000 is an umbrella legislation that is designed to cover all forms of activity that relies on electronic media. Thus, it accords recognition to documents executed in electronic form, regulates the operation of digital signatures, sets out rules concerning take-downs of infringing or defamatory content, and security of certain forms of personal information. It should also be noted that the Information Technology Act accords specific exemptions from liability and protections to entities involved in facilitating the operation of the internet, that is

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organisations providing the back-bone infrastructure of the internet (such as websites, hosting servers, network service providers, internet service providers etc.)36. This exemption from any and all liability is accorded to intermediaries in case they act as mere conduits of information and are diligent in acting in case of receipt of any complaints concerning infringement of rights37. In relation to the operation of this exemption, the Department of Electronics and Information Technology has issued Information Technology (Intermediaries guidelines) Rules, 2011 (“Intermediaries Rules”). These require internet intermediaries to conduct their activities with diligence and ensure as reasonably possible that no harmful or unlawful content is displayed or is accessible through their systems or networks. Furthermore, they prescribe a notice and takedown measure similar to that under the Digital Millennium Copyright Act of the United States, with the requirement that on notice of any infringing content, the intermediary must take down such content within 36 hours of notification to avail of the exemption from liability provided under Section 79 of the Information Technology Act, 2000.

The IT Act Amendments (2008) The Information Technology Act, 2000 was amended in 2008 to introduce a provision concerned with data privacy and security. This exempts an entity from liability for any losses occasioned by a loss of sensitive personal data in case such an entity demonstrates that it implemented reasonable security policies and procedures. In relation to this provision, the Department of Electronics and Information Technology has issued the Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011 (“Privacy Rules”). The Privacy Rules define sensitive personal information and data to include personal information (concerning a natural person) such as password, financial information (bank account, credit card etc), health information, sexual orientation, medical history and biometric information, and require certain consent based to be followed for the collection, use or transfer of such information. These rules require the implementation of security

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measures commensurate to the information being protected. They recommend the implementation certain security standards. Furthermore, in relation to the content side, the Information Technology Act, 2000 has been amended in 2008. It now incorporates a general limitation to prevent the use of electronic communication devices to send grossly offensive or menacing information, or any information that is calculated to cause annoyance, inconvenience or insult. This provision accords criminal liability with an imprisonment term of a maximum of 3 years and/or a fine. As it is fairly broad-based, it has raised concerns of excessive or abusive use. In response to certain excessive and disproportionate instances of the exercise of this provision, the Department of Electronics and Information Technology has issued an advisory cautioning against the wanton use of the provision. The advisory requires that any enforcement of the provision must be sanctioned by an officer at or above the rank of the Inspector General of Policy (in cities) or Deputy Commissioner of Police or the Superintendent of Policy (in districts). This provision has also been challenged on the grounds of violation of constitutionally guaranteed fundamental rights (such as the liberties of speech and expression) before the Supreme Court of India38. The matter is currently pending before the Supreme Court.

Platform Specific Regulation The various elements and platforms employed for accessing digital media, such as internet service providers and telecommunication services providers, are separately regulated. The Department of Telecommunications (‘DOT’) and the Telecom Regulatory Authority of India (‘TRAI’) are the two bodies which do it.39 The policy framework supporting them consists of :

The National telecom Policy (2012) The National Telecom Policy 2012 replaces the New Telecom Policy of 1999. Its key provisions and initiatives are: •

Incentives for expansion of rural broadband networks and provision of affordable broadband services in rural areas.

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• • •

• • • •

Introduction of secure transactional services through mobile devices. Incentives and measures to promote the research and development and manufacture of telecom terminals and network equipment in India. Introduction of mobile virtual network operations, which are entities that lease mobile bandwidth or spectrum from spectrum licensees and offer mobile services on such leased bandwidth. Simplify licensing framework, and introduce a single licence for the entire country. Work towards free roaming and full mobile number portability across the country. Further liberalisation of VoIP (Internet Telephony) services, by enabling recognition and interconnection with telecommunication services. Promote the growth of internet telephony in India.

With respect to Internet Telephony in particular, the DOT has suggested the creation of a single unified internet service framework to provide VoIP services in India.40 This framework will help facilitate the implementation of registration and interception processes for VoIP communication to respond to security concerns.41 The DoT has adopted a Strategic Plan for the expansion of telecommunication services in India during the period 2011–2015. The key strategies and measures devised for this purpose by the strategic plan are: • Review spectrum management and governance, particularly to move away from command and control structures of spectrum management and enable allotment of licence free spectrum for low power devices or applications; • Create incentives for efficient use of spectrum; • Delink licences from spectrum allocation; • Consider technologically neutral licensing and regulation; • Ensure efficient allocation of resources and management of infrastructure to enable expansion of broadband network; • Assist and fund broadband service provision (particularly mobile broadband) in rural areas;

332  THE INDIAN MEDIA BUSINESS

• Incentivise the provision of rural communication services and use of non-conventional energy sources for infrastructure; • Support and strengthen public sector units in the telecom sector, particularly where such units undertake loss-making socially desirable activities (such as ensuring universal connectivity). • Incentivise and promote research and development in the manufacture of telecommunication equipment. The strategic plan also contains an implementation plan for each of the key strategies and measures, and accords weight to each. For example the policy on delinking of spectrum and service provider licences is listed as high and is proposed to be implemented in the financial year 2013.

Licensing The DOT also uses licensing agreements to enable telecom service providers to access and utilise radio spectrum for the purpose of providing telecommunication services in India. The DOT issues licences (and related guidelines) to service providers in the form of Unified Access Service Licenses (‘UAS Licenses’). This enables licensees to choose the appropriate technology to provide any breadth of services, as may be possible within the limits of the spectrum range allocated, such as voice telephony, data transmission, IPTV etc. The UAS Licenses represents an upgradation from the earlier forms of licencing, such as Cellular Mobile Telephone Service licenses, which restricted the licensee to one or two activities in relation to the allocated spectrum. The DOT has provided licensees holding such licences with schemes to migrate to the UAS Licenses. The key terms of the licensing arrangements of the DOT concern ensuring • the service provision is restricted to licenced areas • spectrum is not concentrated within the hands of a few business groups • promoters and key shareholders of the licensee do not transfer their interest in the licensee for a particular period

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• allocated spectrum is efficiently and effectively utilised • entities do not engage in any uncompetitive or unproductive activities, such as spectrum hoarding. The DOT similarly regulates internet service providers through the issue of internet service provider licences and guidelines related to such licences. The key terms of the licences seek to ensure that: • service provision is limited to the licence service area • the nature and forms of service that may be provided • the manner of connecting with other intermediaries and internet gateways • customer-centric protection such as provisions to ensure non-discriminatory service provision and charges. With respect to the licence fee payable, the DOT charges licensees an initial fee for the grant of the licence or spectrum, and thereafter charges a percentage of the Adjusted Gross Revenue of the service provider as the licensee fee in each year. The percentage varies with the service area.

TRAI Regulations The ambit of TRAI regulatory and supervisory authority extends to the operations of telecom service providers as well as internet service providers. In this respect, TRAI has published and adopted regulations concerned with the minimum quality of service to be provided. These parameters deal with unsolicited commercial communications, ensuring effective mobile number portability, facilitation and terms of interconnection agreements between service providers and tariff orders, among others.

Foreign Investment The limits on foreign investment are specified in the Consolidated FDI Policy, circular 1 of 2013 effective April 5, 2013. This policy circular sets the FDI limit for telecom service providers42 at 74 per cent. This limit includes—foreign direct investment,

334  THE INDIAN MEDIA BUSINESS

foreign institutional investment, investment by non-resident Indians, investment by foreign entities through foreign currency convertible bonds, American depository receipts, global depository receipts or convertible preference shares. Of this limit, 49 per cent is permissible through the automatic route, and the remaining is subject to the approval of the FIPB or the Foreign Investment Promotion Board. Furthermore, the FDI policy circular adds certain limitations and conditions to the service provider. These are: • the chief officer in charge of technical network operations and the chief security officer must be resident Indians • the majority of the board of directors of the service provider must be Indian citizens.   Similarly, Internet Service Providers (whether with or without gateways) have an FDI limit of 74 per cent (Automatic upto 49 per cent and subject to the FIPB’s approval thereafter). Infrastructure providers, electronic mail and voice mail providers have a limit of100 per cent (Automatic upto 49 per cent and subject to the FIPB’s approval thereafter).

The Valuation Norms43 There aren’t enough examples of homegrown digital media companies in India. Most are early-stage ventures and given the lack of broadband services and penetration, most companies seem to be working with mobile apps for telcos or are vendors to telcos with some kind of revenue share. To value them, one would have to evaluate them in terms of the segments and sub-segments they operate in or whether they are able to traverse across subsegments and generate additional value. The question from a valuation perspective therefore, is: who controls the platform? In India, the power is still either with the telco or the content owner. In some cases, though, it is shifting to the aggregators. In this context, Komli Media, which has built a media advertising platform (including a mobile ad network) is a greater beneficiary at the moment (enabling monetisation of traffic,

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viewership, etc.) than individual companies trying to sell services to the consumer either directly or by partnering with the telcos. The valuation considerations for startups are not entirely objective and have a degree of subjectivity to it. The key elements are: • Attractiveness of the business if it succeeds—potential upside • Market benchmarks at the specific stage of investment • Especially at mid-later stage, thinking through exit scenarios and defining the range of entry pricing relative to expected returns • Quality of team • Competition amongst venture capitalists for the deal The above list applies to digital media as well as other businesses.

Visit websites

Watch Video (Youtube website or app)

Email websites/apps

Horizontal (Yahoo!, MSN etc) & Ver™cal sites (Moneycontrol, Carewale etc.)

Search Engine/Search app

Social Networking websites/apps

Mobile TV

Size: `25 billion (mainly adver™sing revenue)

Watch Video (Youtube)

Email like Gmail, Yahoo! Mail

Horizontals (Yahoo!, MSN and so on) & Ver™cals (Moneycontrol, Carewale and so on)

Search Engines

Social Networking websites

Download & Use apps

Visit Websites

Download, use widgets

What users do on internet ?

90 million users

120 million users

What users do on internet ?

Access via mobile phone, tablet, data card

Access via desktop/laptop comp.

Internet

Access via Smartphone

Size: `250 billion (gross value of ringtones, games sold on mobile: excluding voice and text)

Access internet to download & use apps, websites etc. Social Networking and E-mail dominates Mobile internet usage.

Download & Use • Apps – Social Networking, Messaging (eg WhatsApp), Email and so on • Games • Wallpaper • Ringtones • Songs

Watch (Video & Mobile TV)

Text/SMS

Talk

What users do on mobile ?

600 million total users, approx . 85 per cent feature phone users

Access via Feature Phone

Mobile

Table 6.1 The Shape of the Indian Digital Media Market—Infographic by Kapil Ohri, Former Head, afaqs! Campus, the Knowledge and Training Arm of afaqs.com

DIGITAL  337 Table 6.2  The Digital Media Market—The Big Picture Total online users (million)

227

PCs/Laptops et al (million)

127

Mobile, tablet, other devices (million)

100

Total digital ad revenues (` billion, 2012)

21.7

Search advertising (% share)

38

Display (% share)

29

Social media (% share)

13

Mobile (% share)

10

Video (% share)

7

Email (% share)

3

Total digital pay revenues (` billion)

250

Source: IAMAI, TRAI, FICCI-KPMG Report 2013, industry estimates. Note: The figure for total online users does not factor in duplication between laptop owners who also go online with their phone or iPad owners who use a phone. Data compiled and analysed by Vanita Kohli-Khandekar. This data may be reproduced only with due credit to either The Indian Media Business or Vanita Kohli-Khandekar.

Caselet 6a Social Media, Defamation and Libel – The Legal Guide Publication of content over social media is often of a conversational and personal nature, and may contain representations about other persons. In normal circumstance voicing personal opinions or having a conversation with someone about someone else may not materially affect their reputation since the audience for such information is limited to specific persons or a confined group. However, having such a conversation or voicing such opinions over social media enables the content to reach a greater audience. In such cases it could invite legal action for being defamatory. (Caselet Contd.)

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(Caselet Contd.) Defamation is a cause of action in response to false statements or representations that have the effect of lowering the reputation of a person in the eyes of others. It is actionable as a civil wrong, for damages due to the loss of reputation and as a criminal wrong. Indian courts only recognise two types of actions in defamation, civil and criminal. They do not differentiate between libel (defamation in print) and slander (defamation in speech).

Civil Defamation There are four principle constituents of defamation, (1) the statement must be false (2) the statement must be made about the aggrieved person’s reputation or business (3) the statement must be understood by a reasonable person to be of or concerning the aggrieved person (4) the statement must be made out to a third person. It should be noted that in the case of Tata Sons Limited v. Greenpeace (2010), the Delhi High Court was concerned with a complaint of defamation arising out of the use of the Tata logo within an online game. Here the court adopted and applied the principles and tests applicable in case of defamation in the real world to the virtual world. Tata Steel was involved with the development of the Dhamra port. In response to the possible impact that the port would have on the Olive Ridley turtles’ nesting and breeding grounds, Greenpeace created an online pac-man style game titled “Turtle vs Tata.” The game involved having a user who guided a turtle through a maze while avoiding four ‘Tata demons’ (drawn to closely resemble the Tata logo comprising of a T in a circle). The game’s description also added that if the turtle ate a power pill, it would be able to ‘vanquish the demons of (Caselet Contd.)

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(Caselet Contd.) development.’ The impression created by the game, the statements describing the object of the game and the use of the Tata name and logo in the online game were challenged by Tata Sons as being defamatory. The court denied an injunction against the game. The case went back to the trial court. The ultimate outcome is not known from public records. Additionally, with respect to public figures, statements concerning such person or an evaluation of such person’s performance (even if such statements are false) would not be actionable as defamation unless such statements are precipitated by malice44. With respect to defences, alongside other remedies available in claims of civil wrongs (consent, accord and satisfaction, limitation), a claim of defamation may be defended by establishing that any one of the above listed factors is absent in the case. Thus, the principle defence available against a claim of defamation is either (1) that the statement was true or (2) the defendant did not intend the statement or publication to be viewed by any person other than the complainant45. Furthermore, the principle of privilege permits certain professions a degree of latitude in response to claims of defamation. In this respect, journalists are provided some latitude (qualified privilege) through the dilution of the ‘truth’ defence, in that they can defend a claim of defamation in case they can establish that their statement is based on reasonable verification of facts46.

Criminal Defamation With criminal defamation, the Indian Penal Code offence of defamation extends to statements or visual representations that are made in relation to a person with the knowledge or reasonably belief that such statement will harm the reputation of such person, and such statement either directly or indirectly, (Caselet Contd.)

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(Caselet Contd.) lowers (1) the moral or intellectual character of such person, (2) the character of such person’s caste or calling, (3) the credit of such person or otherwise creates an impression that the person’s body is in a loathsome state or in a disgraceful state. The IPC also lists out ten exceptions to defamation, which relate to statements made in good faith. These could include, among others, the public conduct of public servants, the merits of a public performance or censures by persons having authority (either in law or contract) over another in relation to matters that fall within the ambit of that authority.

Re-publication Social media also has the ability to refer to or re-publish any content published elsewhere. Where this content is defamatory, a court may consider its re-publication to give rise to a new action for defamation47. However, in case such re-publication consists of reporting of a statement of the originator, without any alterations or additions to the statement, it may be possible to argue, that the re-publisher is exempt from liability by reason of acting as an intermediary. The cause of action will then lie against the originator. For example, suppose a person uploads a video clip onto YouTube.com that defames another person. In such a case YouTube.com has not edited, changed or altered the content, and is only passively involved in the process of dissemination of the defamatory content. On this basis it can respond to any charge of defamation by the person affected by relying on the exemption provided to intermediaries under the Information Technology Act, 2000. Therefore the only person against whom the charge of defamation would lie will be the initial producer of the video clip. Similarly, as evidenced in the case of Harbhajan Singh vs State of Punjab (See footnote 45) a defamatory statement may be uttered by a person and quoted by a newspaper in the course of reporting (Caselet Contd.)

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(Caselet Contd.) on a event. In such a case, provided that the newspaper has not edited or altered the content of the defamatory statement, the cause of action for defamation would lie against the person making the statement rather than the newspaper. Caselet by Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath in Bangalore.

Caselet 6b  The Rise of Social Media “You are what you share.”  —Charles Leadbeater We Think: The Power Of Mass Creativity If there is one thing that marketers around the world will unanimously agree on, it is the unprecedented growth of social media in the last 5 to 10 years. According to a report by Comcast, social networking was the most popular online activity worldwide in 2011, accounting for 19 per cent of all time spent online. This is up from 6 per cent in 2007. Social networking sites now reach 82 per cent of the online population worldwide or about 1.2 billion users, says a report from comScore. The numbers for the North American market reflect this. According to Nielsen’s Social Media Report, 2012, Americans spent 20 per cent of their total time on the PC and 30 per cent of their time on the mobile, on social networking. The perception is that it is a young people’s thing. The reality—between the second quarter of 2012 and the first quarter of 2013, Twitter’s fastest growing demographic was 55–64-year-olds while Facebook and Google+’s was 45–54 year olds, according to a report by GlobalWebIndex. Facebook is the leader in this market with more than a billion users in the world. Facebook tops the social media (Caselet Contd.)

342  THE INDIAN MEDIA BUSINESS

(Caselet Contd.) category with an 83 per cent share of total minutes spent followed by the Tumblr (5.7 per cent), Pinterest (1.9 per cent), Twitter (1.7 per cent) and Linkedin (1.4 per cent). It’s not just that more people are spending time on different kinds of social networks, but their online behaviour is beginning to affect their offline behaviour in interesting ways. ‘Social TV’ is a case in point. Almost 30 per cent of twitter users tweet about what they are watching on television according to Nielsen’s Social Media Report in 2012. About 41 per cent of tablet owners and 38 per cent of smartphone owners said they used their devices daily while watching television. They are not just chatting with their social connections but also looking up at deals or shopping or searching for information related to the advertisements they are viewing. This means that marketers can use multiple platforms simultaneously to catch the same viewer. This typically pushes up ad effectiveness. In mature markets such as the US, consumers wary of push advertising are beginning to rely on their global peers for tastes, opinions and preferences thus changing the ‘consumer decision journey’ along the traditionally accepted ‘linear purchase funnel’. In fact, word-of-mouth and online reviews scored the highest in global trust in an advertising survey conducted by Nielsen in 2012. In this study, television, newspaper and magazines, all dropped by around 20 per cent since 2009 on their trust scores. While marketers continue to invest similar amounts on television, what is going to differentiate their strategy is how they engage with their consumers to earn goodwill in the form of likes, positive comments or feedback. With social media being such an important part of people’s lives, marketers are exploring the medium and tapping into its potential in innovative ways either by using free channels like YouTube, Twitter and Facebook or paid advertising options on the same channels and sponsoring blog content. Some of the key learnings from their experiments are: Content is king, especially when distribution is free:  Over 89 per cent of advertisers use some form of free social media advertis(Caselet Contd.)

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(Caselet Contd.) ing on YouTube, Facebook, Twitter, Pinterest and others. Social media is different from other forms of advertising because consumers can play an active role by providing instantaneous feedback and promoting content by sharing or retweeting, giving content the potential to go viral.  One of the best examples of success for this is a quirky, funny video released by the One Dollar Shaving Club on their website. This was a small start-up and couldn’t afford to spend on traditional advertising. Their video went viral and the company’s server crashed within an hour of its release. More than 12,000 people signed up for their service in the first 48 hours. It also illustrates the democratisation of advertising and how small brands can use social media effectively without spending a ton of money. Social media speaker and author, Jay Baer says, ‘The goal of social media is to turn customers into a volunteer marketing army.’ Several successful social media campaigns don’t just provide ads, but entertainment videos for their consumers. Engaging with consumers: Companies have the opportunity to engage with their buyers in a big way by using social media. Cadbury UK thanked its fans when it reached one million fans on its Facebook page by releasing a video that was shot in a room filled with post-its of consumer comments. The video then went on to construct a huge ‘Facebook-like’ button made of chocolate and expressed gratitude to all its fans. This video itself made their page more popular and many consumers felt connected to the brand. Several brands conduct online surveys, quizzes, and contests to get consumers involved. By communicating with disgruntled consumers, they can control the conversation and prevent consumers from ranting on third party platforms like Yelp. Going ‘Glocal’: Brands can hyper-target audiences from a very specific area as well as run a nationwide campaign at the same time using social media.  Food Lion, a grocery supermarket store in the US, launched its new private label brand using social media conversations only. Consumers had (Caselet Contd.)

344  THE INDIAN MEDIA BUSINESS

(Caselet Contd.) to enter a contest on Facebook telling Food Lion what made their neighbourhood special and based on replies they stood to receive a cart full of groceries at their doorstep. Food lion used Facebook to locally target consumers in three cities and Twitter for mass communication to their entire fan base. Following each food drop, Food lion posted challenges and scavenger hunts on Twitter with a hashtag #Grocerydrop. It invited all of its customers to join the conversation to win $100 gift cards. The campaign achieved a social media reach of 1.4+ million and 8.2 million media impressions and won a Shorty award for the best use of social media by a consumer brand. While a few brands have jumped on to this bandwagon, most advertisers are actually proceeding with caution. Almost 70 per cent of them currently spend about 0-10 per cent of their advertising budgets on social media in 2012, according to the ‘Paid social media advertising report’ by Vizu, a Nielsen company. And although 64 per cent of the advertisers have indicated that they would like to increase their spending budgets in the future, it will only be by a modest 0-10 per cent. One issue: the disconnect between the metrics media sellers offer and the one marketers want. The metrics on offer are specific to digital—click-throughs, views and likes. However, traditional advertisers demand metrics similar to offline advertising. This helps them make effective cross platform choices. Caselet researched and written by Sinduja Rangarajan, a former qualitative researcher with TNS India and Colors. Sinduja is currently studying journalism at the University of Southern California.

Notes   1. Excerpted in parts from my column This Digital Snobbery, Mid-Day, 22 March 2013.   2. See Table 6.2.   3. This does not refer to digital’s ability to facilitate e-commerce, trade or exchanges of any kind. It refers on to the medium’s ability to be a tool for communication and entertainment.

DIGITAL  345   4. See Battle of the Internet Giants, The Economist, 1 December 2012.   5. The State of the News Media 2013, PEW Research Center.   6. While India has over 900 million mobile users, the real number is closer to 600 million if you factor in dual-sim cards or people with two phones and people who have dropped out and no longer use their phone. 90 million is the number of mobile users who are actively using it for internet access.   7. IAMAI: Internet and Mobile Association of India.   8. Digital Advertising in India, IAMAI—Internet and Mobile Association of India.   9. Internet Advertising Bureau report for 2012, done by PricewaterhouseCoopers. 10. Broadband is an Internet connection that delivers a relatively high bit rate—any bit rate at or above 100 kbps. Cable modems, DSL and ISDN, all offer broadband connections. In India, TRAI has defined broadband as data speed of 256 kbps or above. 11. Platforms refers to the big brands that own key digital platforms such as Google or Vodafone. See How the Business Works for details. 12. IBF:Indian Broadcasting Foundation: INS: Indian Newspaper Society: IAMAI: The Internet and Mobile Association of India. 13. Excerpted in large parts from The rise of the aggregators, Business Standard, 10 April 2012. 14. The State of the News Media 2013, PEW Research Center’s project for excellence in journalism. 15. Singh was a trainer in a digital marketing workshop I attended in February 2013 by afaqs! Campus. Much of what is attributed to him in this chapter is from that workshop. My husband Sreekant Khandekar is a director in the company that owns afaqs. 16. See Digital Advertising in India, 2013, on the IAMAI’s website. 17. comScore data. See http://www.comscore.com/Insights/Press_Releases/ 2013/4/comScore_Releases_March_2013_U.S._Online_Video_Rankings for details. 18. Social media and Lok Sabha Elections, April 2013, IAMAI—Internet and Mobile Association of India. 19. See A Brief History of the Internet, Leiner et al. Some parts of the India background has been put together in 2005 by Amarchand & Mangaldas & Suresh. A Shroff & Company, a New Delhi-based law firm for the second edition of this book released in 2006. The Advanced Research Projects Agency (ARPA) changed its name to Defense Advanced Research Projects Agency (DARPA) in 1971, then back to ARPA in 1993 and then again to DARPA in 1996. The ISOC website refers to DARPA throughout the history portion. 20. According to the Internet Advertising Bureau’s glossary, a browser is a software programme that can on request, download, cache and display documents available on the World Wide Web. Browsers can be either textbased or graphical. 21. The resolution read—The Federal Networking Council (FNC) agrees that the following language reflects our definition of the term ‘Internet’. ‘Internet’

346  THE INDIAN MEDIA BUSINESS refers to the global information system that: (i) is logically linked together by a globally unique address space based on IP or its subsequent extensions/follow-ons; (ii) is able to support communications using TCP/IP suite or its subsequent extensions/follow-ons, and/or other IP-compatible protocols and (iii) provides, uses or makes accessible, either publicly or privately, high level services layered on the communications and related infrastructure described herein. 22. VSNL was acquired by Tata Communications in 2002. 23. The stories of Rajesh Jain, Ajit Balakrishnan and of Indiatime are recounted in Edition two and three. 24. During 1998–2001, I was writing on information technology and specifically on the Internet out of Mumbai, so I saw some of this excitement first hand. 25. David Gillies & Roger Marshall, Telecom Law, Butterworths, London, 1997. 26. A large portion on past history was put together by Kanchan Sinha of Amarchand and Mangaldas and Suresh A. Shroff & Company, a New Delhibased law firm, for the second edition in 2005. Some of it was sourced, with lots of gratitude, from Ashok V. Desai’s study on the Indian telecom industry for The National Council for Applied Economic Research. Dr Desai, who was my colleague at Businessworld, was kind enough to share this study with me while it was at the draft stage. The third important source on the past history and evolution of the business was a paper put together by Lara Srivastava of the Strategies and Policy Unit of the International Telecommunication Union (ITU) and Sidharth Sinha of the Indian Institute of Management. This study is part of a series of Telecommunication Case Studies produced under the New Initiatives Programme of the Office of the Secretary General of the ITU. It was downloaded from the Internet for the research on this chapter.In all the different sources the dates for when the first system was set up are different. For the purposes of this book, I am going with the one in the ITU paper. 27. VSNL was acquired by Tata Communications in 2002. 28. Later advertisers were not allowed to buy airtime in dollars on foreign uplinked channels broadcasting into India, ostensibly to protect DD. However, this was done away with in 2004. 29. See Footnote 26. 30. CDMA is Code Division Multiple Access. According to the CDMA Development Group’s website, CDMA is a technology that allows many users to occupy the same time and frequency allocations in a given band/space. It assigns unique codes to each communication to differentiate it from others in the same spectrum. In a world of finite spectrum resources, CDMA allows many more people to share airwaves at the same time, than any other technology.   GSM is Groupe Speciale Mondiale or Global System for Mobile Communication. GSM is an open, non-proprietary system and is one of the most widely used telecom standards in the world today. According to the GSM world website, GSM differs from first generation wireless systems in

DIGITAL  347 that it uses digital technology and time division multiple access transmission methods (against code division in CDMA). Voice is digitally encoded via a unique encoder, which emulates the characteristics of human speech. Both these technologies compete with each other currently, though eventually they will become one. 31. Hungama’s website May 2013. 32. IAB—Internet Advertising Bureau. A lot of the data on the definition of metrics is sourced from the IAB’s website, especially the glossary of terms. 33. If 25 per cent of a video is viewed, then it is counted as one video view. For example if 2.5 minutes of a ten minute video is viewed then it is one view. Or if 15 seconds of a 60 second video is viewed. 34. CPM refers to Cost per Mille or Cost per Thousand or cost percentage. In Latin, mille means thousand. 35. This section has been put together by Abhinav Shrivastava, an associate with the Law Offices of Nandan Kamath in Bangalore. 36. Each of these organisations are collectively termed intermediaries; see section 2(1)(w) of the Information Technology Act, 2000. 37. See section 79 of the Information Technology Act, 2000. 38. Shreya Singhal v. Union of India, Writ Petition(Criminal) 167 Of 2012 (next hearing scheduled for 19 July 2013 as of the writing of this section). 39. TRAI has been established under the Telecom Regulatory Authority of India Act, 1997. It is the regulator for telecom and carriage regulator for broadcast services. 40. http://articles.economictimes.indiatimes.com/2012-01-08/news/ 30604493_1_high-security-communication-pan-india 41. http://www.hindustantimes.com/News-Feed/SectorsInfotech/Providesolution-to-intercept-VoIP-within-a-month-Govt/Article1-851651.aspx 42. The ambit of telecom services as per paragraph 6.2.15.1.1 of the Consolidated FDI Policy (Circular 1 of 2013) includes Basic, Cellular, Unified Access Services, National/International Long Distance, V-Sat, Public Mobile Radio, Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added services. 43. These have been put together thanks to a detailed note from Amol Dhariya, director, IDFC Capital and Alok Mittal, managing director, Canaan India. Canaan is a global venture capital firm. 44. Ibid; R Rajagopal v. State of Tamil Nadu, AIR 1995 SC 264. 45. Tata Sons Limited v. Greenpeace, I.A. No.9089/2010 in CS (OS) 1407/2010 (Delhi High Court). 46. R Rajagopal v. State of Tamil Nadu, AIR 1995 SC 264 relying on New York Times Co. v. Sullivan, 376 U.S. 254 (1964). 47. Harbhajan Singh v. State of Punjab, 1961 CriLJ 710; In Re: E.V.K. Sampath, AIR 1961 Mad 318. It should also be noted that in Watkins v. Hall, 1868 (3) QB 396, the Queen’s Bench suggested that repetition of a slanderous statement grants it greater weight and may result in greater injury to the person affected.

CHAPTER 7

Out-of-home The similarities between out-of-home media and cable TV are startling.

I

n the summer of 2006, Sumantra Dutta, (then) managing director, News Outdoor India (NOI) had spent over six months talking to about 90-odd Out-of-Home (OOH) media owners across nine Indian cities.1 NOI was a subsidiary of the Russiabased News Outdoor Group which, in turn, is a part of the US$ 34 billion News Corporation, controlled by Rupert Murdoch.2 The idea, said Dutta, was to set up a pan-Indian OOH media company that controlled either by owning or by leasing at least 20 per cent of the total OOH media in India. By the end of the year, NOI changed its direction and started wooing civic authorities for long term contracts on bus shelters and other civic infrastructure. Dutta made 21 presentations to chief ministers in as many states. ‘We asked them for an opportunity to beautify one stretch and then take a call on whether to award us the contract),’ remembers Dutta. This too did not work out. The administration’s expectation of revenue did not match NOI’s willingness to pay. By the summer of 2008, just over two years after setting shop in India, NOI had shut operations. This followed a global decision to ‘go slow’ on the outdoor business.3 Read that as: Shut it down or hive it off gradually. The reason, say sources, was the unorganised nature of the business across the world and the different and difficult regulatory regimes in each market. The septuagenarian Murdoch is one of the most tenacious media players in the world. His company is the largest DTH operator globally and leads in some really tough markets such as Italy, UK and Australia. He owns some of the largest newspaper brands,

350  THE INDIAN MEDIA BUSINESS

many bought after bitter negotiations—The Wall Street Journal for instance. He has not given up on the Chinese broadcasting market after over 15 years of losses. Yet, he was giving up on OOH media. NOI’s withdrawal illustrates the nature of the OOH media business and is also a comment on its texture. Globally, it is a fragmented, factitious, corrupt business that is more often than not a regulatory tangle. The conflicting interests of civic authorities, OOH media owners, landlords, media agencies and advertisers makes it even more problematic perhaps than cable. ‘The ground reality is that worldwide the OOH business is the same (fragmented, corrupt and a regulatory nightmare),’ says Indrajit Sen, former president projects, Laqshya Media.4 That is the reason why most people turn their nose up at OOH media. It regularly gets attacked in newspapers—even in those dailies whose owners have an interest in outdoor (see Caselet 7a). Across the developed world, the OOH media industry commissions a huge amount of research to fight this negative perception. There are studies to prove that outdoor media does not cause accidents, is not harmful to the environment, contributes to infrastructure spending, reduces civic bodies’ dependence on taxes and helps the taxpayer. The lack of love for OOH media perhaps also stems from the fact that unlike other media, it provides no content. There is nothing to read, watch or hear. The medium just gives advertising messages, so the medium and the message are the same thing. Historically, OOH advertising referred to just billboards (bulletins and posters). These are the traditional forms of outdoor media. In recent years, the Outdoor Advertising Association of America or OAAA and several other industry associations across the world have expanded the term to include all forms of ‘out-ofhome’ advertising. This could include bus shelters, kiosks, buses, subways and rail, among other non-traditional forms of outdoor media (see ‘The Way the Business Works’). Whether or not it is liked, OOH media is a great business to be in. If you get it right, operating profits could be anywhere between 30–50 per cent depending on several factors—the mix of a firm’s portfolio (billboards versus street furniture versus transit media), the sites a company owns, its long-term contracts and so on.

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In 2012, the Indian outdoor media market stood at `18.2 billion (or US$ 364 million) in ad revenues according to the FICCI-KPMG report. Most industry insiders reckon the figure is an underestimate. Much depends on what you term as out-of-home media. So far instadia, transit or other forms of outdoor have not been factored into the spend numbers. The global OOH market stood at over US$32 billion.5 In the two years between 2006 and 2008 the Indian outdoor media industry attracted a lot of investor interest. Private equity players pumped in an estimated `9.64 billion into OOH media companies. For instance, in each of the three years from 2006 to 2008, Laqshya raised a total of `4.67 billion from investors like Warburg Pincus, UTI and Amwal Al Khaleej. Similarly in January 2008, GS Strategic Investments (Goldman Sachs) and LB India Holdings Mauritius (Lehman Brothers) bought an 8.28 per cent in Times Innovative Media, the OOH subsidiary of ENIL for `20 billion.6 Much of this came to naught when the global markets collapsed in 2008 and advertiser sentiment turned in India. The industry has hardly grown by over 2 per cent going by FICCIKPMG’s numbers. But the fundamental reasons why investors found it attractive in the first place remain. The more mass media there is, the more fragmented it gets. Add to this rising purchasing power and falling attention spans. The fact is that young people are reading less and also watching less television. The fact is also that people are spending a lot of time outside their home—studying, walking, travelling, working, hanging out. OOH media tries to attract them at these times, either in the ambience of their consumption or in that of their travel or work. A growing economy means more people enter the workforce exposing a larger audience to outdoor advertising messages. Advertisers like OOH media for its local flavour and because it is difficult for people to avoid the message. Unlike television, radio or newspaper, you cannot change the channel or turn the page. These are the generic reasons. At a broader level, there are three reasons why the Indian market is attractive. First, one of the biggest areas of investment in India for private and public sector alike is infrastructure. The supply of good

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roads, train tracks, airports, bus shelters, skywalks, overbridges and other such facilities is so poor in India, that this investment is going to last for long. This investment in infrastructure has a direct correlation with the growth of OOH media. Across the world, infrastructure projects usually factor in advertising as a revenue stream since they create a new supply of billboards. The modernisation of existing airports, the development of new ones, growing organised retail, construction of long-distance highways and the increase in theatre chains and multiplexes are expected to boost the growth of OOH media in India. Two, the penetration of both cars and two-wheelers in India is increasing. As it grows further, it will mean there will be more people on the move or stuck in jams and, therefore, a larger audience for outdoor media. In fact, globally, vehicular traffic is taken as an indicator of how well OOH media will work in a market. Rising traffic congestion is a primary driver of OOH advertising’s ‘audience’ and thus its revenue. The largest OOH media markets are the ones that have the longest average annual traffic delays. In Delhi, the city with the maximum vehicular traffic, periods of peak congestion now last for up to five hours a day (morning and evening included). Statistics such as these make commuters moan but the OOH industry smile. In study after study in the US, Canada, Australia, UK and several other mature markets, vehicular traffic is a big indicator of the potential for OOH media. It is also used as an input for arriving at metrics on the viewership and impact of outdoor media. Three, the rise of organised retailing—in consumer goods, apparel, hardware and films—will boost outdoor media in a big way. That is because retail is not just one of the largest spenders on outdoor globally; it is also one of the biggest organised suppliers of it. In a fragmented and disorganised market such as India, this is a big plus. A good example of this is Future Media which was launched by Kishore Biyani’s Future Group on the back of its stores. It basically exploits the media possibilities that exist in owning hundreds of retail stores across millions of square feet. Future Media offers television, print, activation and a host of other services, just like any other media company. It works particularly well with companies wanting to reach small-town India. There are many other reasons; but at a broad level, these are the key indicators on whether a market is ready to take off or not. The rise of these indicators in India coincides with the growth

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of product categories that need a heavy dose of OOH advertising in their media plan. Media and entertainment is itself one of the fastest growing categories of spenders on outdoor. If you live in Mumbai, you probably know about every new film, serial or show that has been launched before anyone else in the country does, because the city is plastered with hoardings. Then there are financial services, retail, telecom and automobiles.7 Therefore, the rising investment in infrastructure, organised retailing and increase in urban traffic are driving the excitement we see in the Indian OOH media market. These are creating a supply of OOH media from organised firms, say a Future Media or UFO Moviez8 —that own it in large numbers across the country. This is advertiser heaven. The facility of being able to deal with just a few companies and civic bodies makes life easier for him. So far, the advertiser had been dealing with a large but disorganised market with thousands of OOH media owners. The emergence of large organised sellers of OOH media is also forcing consolidation in the disorganised part of the business. So, while a bulk of the investment is going into funding the new consolidated sources of OOH media supply, some of it is going into helping outdoor media owners consolidate by acquiring smaller firms. This investment comes not just from professional investors, but also from large media companies such as BCCL and Jagran Prakashan. Over the last decade most media companies have been busy building a presence in OOH media. It helps add to the offering of a media company—outdoor goes especially well with radio and newspapers, both local in flavour. This means better rates from advertisers. And of course it helps bring in a better valuation. In addition to this, the last eight years have seen several multinationals trying to crack the Indian OOH media market. Among these are JCDecaux, Clear Channel and Stroeer. They are as yet minnows in a market that is dominated by half a dozen large Indian players and thousands of small ones.

The Shape of the Business, Now While it is just over 10 per cent of the Indian cable industry in revenue size, outdoor media has striking similarities with it—in the way in which it has developed, in the way it is structured and even in its growth trajectory.

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The Similarities with Cable Therefore to understand the key characteristics of the outdoor industry in India, a comparison with cable is inevitable. Some of the commonalities between the two are:

Fragmentation Just like cable, the OOH media business is extremely fragmented. This remains its biggest challenge. In Mumbai, the only city for which any figures are available, an estimated 2,500 hoardings (billboards) are owned by about 800 small outfits (Mumbai continues to define the contours of both the cable and the outdoor business). ‘Fragmentation of the business is the biggest challenge,’ says Sunaman Sood, director, Acendo Capital, a boutique advisory firm focussed on media and entertainment. There are thousands of sites in India owned probably by an almost an equal number of firms or individuals.

Ad hoc Regulation Again, just like it happened for cable in the beginning, regulation is non-standardised, ad hoc and differs across states. The model in outdoor, according to Dutta, is based on picking up sites from landlords at a pittance and selling them at a high price to advertisers. There is no regulation on size or zones where hoardings could be allowed and so on. News Outdoor’s plan of building by acquisition did not work because the companies it was seeking to acquire were living precariously. Their survival usually depended on a stay order from some court or the other. Many of their prime properties or sites were in litigation. Dutta reckons that in small-town India, only 20 per cent of the OOH media is legal. In many cities, the outdoor media business is synonymous with a disorganised element much like the cable business. However, unlike cable—which the lawmakers just forgot—regulators have benefitted with the growth of OOH media because licences and permission are needed and civic bodies make money every time someone wants to put up a hoarding.

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Even with a licence a hoarding could come down if the civic body decides to change policies. Similarly in cable proving ownership has always been an issue. After the Cable Act of 1995, ownership of different areas of operation was not clear because the operators were not given licences for each area. Anybody who had a licence could operate in any area. Therefore, more than one operator could claim last-mile ownership of the same area at the same time. That made outside investment almost impossible.9 The moment a foreign buyer comes in, says Dutta, OOH media companies start spouting the valuations of information technology (IT) or OOH media companies in the US. However, the framework within which this business operates in India is not yet in place. In fact, many of the small Indian companies believe that foreign firms cannot survive because it is a corrupt business. The foreign companies on the other hand believe that: ‘Consolidation is not happening because these guys (small players) don’t want money, they want future-proofing,’ says Sen. It sounds like a mess and it probably is one too. As mentioned later, the fundamental currency of this business is contracts, whether with landlords, civic agencies, retail chains or any other owner of real estate where a hoarding could come up. It is only when investors have contracts of some duration in place that they are willing to put money into beautifying a park, setting up bus shelters or maintaining airports. Until the regulatory regime around which the business is being done remains unclear, the contracts are open to being challenged. The very foundations of the business remain shaky. Therefore, putting in money becomes difficult.

Disorganised and Entrepreneurial In the early eighties cable started as an unstructured, entrepreneurial business10 (so did outdoor, though there are no clear dates on when it all started). It is not a consolidated business. Investors prefer size and a clear legal entity to deal with, so all the money is now going into funding platforms that compete with cable—DTH, IPTV or even mobile TV (for more details, see Chapter 2—Television). That is exactly what is happening in

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OOH media. Investment has started coming into options that compete with the unorganised billboards business—in airports, bus shelters, malls and multiplexes. This supply from non-traditional and organised sources is increasing. This in turn is forcing the billboard business to pull-up its socks. This new supply of inventory also comes with the possibilities that digital technology is opening up for OOH media worldwide. Among these is the possibility of having multiple advertisers on the same ‘site’ or ‘display’ and the ability to measure its impact.11For instance, there are companies such as Ishan Raina’s OOH Media trying a digital-only strategy. The company which was set up in May 2007 offers everything from event tie-ups to creative services, to advertisers wanting to capture audience attention in spaces where they have time. Most of OOH Media’s 4,500 screens are in office buildings, elevators and residential buildings. ‘We have made our presence felt in almost all retail formats including malls, in-stores, restaurants, bookstores, cafés, multiplexes etc. besides other locations such as corporate parks and residential societies,’ says Raina.

The Past The International Past According to Outdoor Association of America’s website, OOH advertising can be traced back to the earliest civilisations. Thousands of years ago Egyptians used tall stone obelisks to publicise laws and treaties. In 1450, after Johann Gutenberg discovered printing the handbill became one of the first forms of advertising (see Chapter 1—Print). It was only with the coming of the lithographic process in 1796, however, that the illustrated poster was born. Advertisers then started trying to figure out ways of keeping a message on for a longer period of time. Later, to offer better locations in heavy traffic areas, posters started getting their own structures.12 To begin with, roadside advertising in America was local. Merchants painted signs or glued posters on walls and fences to tell people passing by that what their shops sold. In 1850, exterior advertising was first used on street railways. By 1870, close to

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300 small sign-painting and bill posting companies existed. By 1900 a standardised billboard structure was created. This led to a boom in national billboard campaigns. From Connecticut to Kansas, advertisers such as Kellogg and Coca-Cola began massproducing billboards for the national market. Meanwhile, interesting things were happening outside the US. French OOH company, JCDecaux created bus stop shelters in 1962. These immediately became popular with civic authorities because shelters are built at no cost to municipalities and rely on ad revenue for their upkeep. Around this time, the downside in the business was evident in the USA. In 1965, the Highway Beautification Act was brought in. It sought to control billboards on interstate and federal-aid primary highways, by limiting them to commercial and industrial areas, requiring states to set size, lighting and spacing standards. In the 1970s, a clutch of billboard companies commissioned studies at MIT in the painting of bulletins by computer. This ultimately led to computer painting on vinyl. By 2002, Arbitron and Nielsen began testing the feasibility of developing ratings to measure viewership of OOH media.13 The American OOH media industry has had only three bad years in the last 40 years. These were in 1992 (in the wake of the Gulf war), in 2001 (a recession, the 9/11 terrorist attacks and the bursting of the dot-com bubble) and in 2009 (post the Lehman Brothers crash and its impact on the global economy).

The Indian Years Back home in India, there are no clearly documented dates on the genesis of the outdoor media business. But it had been around for some time, before the firms you and I hear of came into being. Like most other media businesses, OOH media first took off in Mumbai. Creation Publicity, one of the largest billboard firms in Mumbai, was set up about 60 years ago by four brothers. The first few initiatives involved cinema slides, among other things. In 1992, when Kalpesh Vora joined the family business, it was relatively uncomplicated, he remembers. There were hardly any players and most hoardings were hand painted, a process that took 2–3 days. ‘It was a relaxed though laborious business. There

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were no mobile phones and we dealt directly with clients,’ says he. Most advertisers usually booked hoardings for 3–6 months, making it a fairly steady business. Fresh from the US, Vora tried his hand at various initiatives. To entice advertisers, in 1994, Creation started offering seven days of extra display in lieu of painting charges. There were, he estimates, no more than 30–40 hoardings in Mumbai, most in the upmarket Southern part of the city. Around the same time, in 1992, Vandana Borse, a pathologist by training, was looking at business ideas that would offer flexibility in terms of time in addition to a good income.14 That is when she spotted hoardings. The math was simple—if she had the permission from a landlord to put up a hoarding, she could make anything over `25,000 a month in profit. All she needed was a NOC or No Objection Certificate from the secretary of the co-operative society where she wanted to put up the hoarding in order to apply for municipal permission. It took her almost an entire year to get her first permission from the (then) Bombay’s municipal corporation, Brihanmumbai Municipal Corporation (BMC).15 Subsequently, every time she applied for permission to set up a hoarding, it took seven to eight months, each. Her firm, Symbiosis Advertising, currently has 100 sites with different media units across Mumbai. The history of the OOH media (and cable) business in India is littered with examples such as Borse’s.16 She says, just like Vora, that in the early 1990s the business was simple and the rules clear. ‘The ownership had to be clear, there had to be enough space around, it had to fit into the BMC guidelines and nobody should have objected to it,’ she rattles off the conditions. From 1993– 2000 everything was very strict and proper. ‘The guidelines were very clear and there was strong logic to them,’ she says. As liberalisation took off the overall share of OOH media in the ad spend pie rose from 6 per cent in 1992 to 12 per cent in 199917 (see Table 0.2). One of the biggest fillips to the OOH media business—paradoxically enough—came from another medium, television. In the mid-1990s, when private entertainment channels such as Zee and Sony were growing, they made extensive use (and still do) of outdoor media to announce new shows and channels. Feature film producers, traditional users of outdoor, too upped their marketing spend. It was at this time that the technology changed from handpainted hoardings to acrylic cut signage to vinyl. Of these, the

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last is what ushered in the sleek looking hoardings that are so popular now. According to one estimate the early eighties is when vinyl printing first came into the market. This meant that outdoor media companies and creative people could use computers to design posters. So the consistency of a Lux poster in Bhilai matched that in Mumbai because the design and printing were common—only the sizes varied.

The Mad Growth Years After 2000 several changes took place in the business. As the business started growing quickly, getting permission became easy and ‘every Tom, Dick and Harry started coming into the business,’ says Borse.18 That is when the deliberate misinterpretation of guidelines began in collusion with those in authority. Dodgy money started entering the business. Politicians, local toughies, everyone got into the act of shoving a couple of poles wherever they wanted to put up billboards. And yet the demand kept outstripping supply. This prompted the entry of specialist OOH media agencies. Earlier, OOH media was bought by the sales department of companies.19 There was a historical reason behind this. Outdoor is an extremely local medium. Dealers and local sales offices have their own promotional budgets. Many used these to advertise specific promotions or events in local print, radio or outdoor. Hoarding owners sold their sites directly to the local sales offices of, say, LG or Hyundai. By 2002, a larger portion of local buys were taking place centrally because small-town India had started growing. As ad spends on OOH media rose and the buying got more complicated, advertisers started paying it more attention. It was no longer about buying just one hoarding in a city or a few cities. It could be 20 in one city, 10 in another and so on and forth for varying periods of time. The buy could, in the same city, consist of 10 hoardings, 20 bus shelters, 20 train station panels and so on. Vora thinks that one of the first companies to use the whole multiple hoarding strategy well was television brand Akai, then marketed by Kabir Mulchandani under his firm Baron Electronics.

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In order to bring method to the business, advertisers began asking their regular ad agency to handle the buying of OOH media, just like they managed the buying of television time or newspaper space. Ogilvy & Mather, JWT and Mudra, all set up divisions that would look specifically at buying OOH media across a bewilderingly fragmented national market. The other change was that large media companies got into the act. Just like the agencies this was about providing a 360 degree communication solution to advertisers.20 Of these, outdoor was one among other options such as activation, events, digital or other media. Jagran Prakashan launched Jagran Engage, BCCL has Times OOH under ENIL, Mid-Day came in (and later joined hands with Clear Channel). For most media owners it was a natural extension of their business. Last, the technology of the business and even its terminology started changing. The word ‘hoardings’ became a no-no. You were either a part of the OOH media industry or sold street furniture (see ‘The Way the Business Works’). Clearly, the entry of the big boys in both the buying and ownership of the business put a greater emphasis on these things, especially because investors understood the language. Just as ‘the last mile’ and ‘digitisation’ became common in cable, so did ‘OOH’ and ‘digital’. All these changes were the result of an expanding economy and growing ad spend. There was growth of new categories of advertisers such as telecom, auto and financial services, all of which needed serious local connect. Some of the larger players spent as much as 30–40 per cent of their media spend on OOH.

The Way the Business Works The Influencing Variables The economics of the OOH media business depends on a few variables. These are the OOH format, location, regulation and length of contract. These impact everything, revenues, costs and margins, for every player in the value chain that starts from the site owner and ends with the advertiser. It is important to understand these before figuring out the players in the chain.

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The Formats The different kinds of ‘displays’ or OOH media are roughly clustered into traditional and non-traditional (see Table 7.1).21 Traditional OOH media  These could be bulletins, posters, large (or what are called spectacular) displays among other things. The names vary according to sizes and countries, but this is essentially the good old hoarding or billboard. The Indian OOH industry is still driven by billboards which form 60 per cent of all OOH media by value. Globally, the structure varies depending on which country or company you are talking about. For instance, in the US, 74 per cent of the industry is billboards, while in Europe street furniture forms over half the market. Non-traditional OOH media  There are three types of non-traditional outdoor media, essentially clustered based on location. Some could easily fall into either of the clusters. These are: Street furniture  Street furniture includes bus shelters, streetlights, trash bins, newspaper stands, benches, shops and phone booths, among scores other things. This form of OOH media includes anything that is on the street and can be used for display or advertising. The street furniture business took off in 1962 in France and was ‘invented’ by JCDecaux. The company remains the largest street furniture operator in Europe.22 The idea is to provide towns and cities with civic infrastructure and maintain it for the life of the contract free of charge. This is offset by the right to sell ad space on such construction. Street furniture contracts tend to have a duration of anywhere between 8–25 years. In France, the largest market for this format, the tenure is generally 10–15 years. Street furniture contracts are usually won through competitive bidding processes. Transit media  This includes any media that tries to capture the attention of consumers when they are in transit; thus, posters and billboards at airports, inside trains and elevators, among scores of other places are termed as transit media. The contracts with transit authorities last for five to 10 years and involve revenue sharing and/or minimum guarantees to the authority that owns these places. There is some wastage in transit because the message

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meant for some of the areas a bus is going to, may also end up going to other areas which are not targeted. Ambient media  This is by far the most interesting, evolving form of OOH media. This refers to media put into place within the ambience of various activities that a consumer does through the day. This could be media inside a retail store, in a building (a café, a physician’s clinic, a residential building, movie theatres), at an automated teller machine (ATM)23 and dozens of other places. Future Media and OOH Media are good examples of companies that own ambient media.

The Location Just like as in real-estate, location is the key in outdoor media. It determines everything from rates to regulation. ‘OOH is like the real-estate business, you grab land, get contracts. Advertising is the revenue, so there is a media connection, otherwise there is no similarity to media,’ says Dutta. ‘You can make all the judgements you want about OOH on a map,’ says Mangesh Borse, director, Symbiosis Advertising and associate dean at Welingkar Institute of Management. So, all the well-known locations in Mumbai such as Haji Ali and Marine Drive command the best prices because these areas are home to a target audience that every advertiser hankers after and also home to the decision-makers on those ad spends. And they are the conduit to the city’s commute toward work. The location not just within a city, but within a country or in the world, is also key. For example, sites or displays in areas prone to storms trade at a discount. Clear Channel has operations in markets such as New Orleans and Miami which were hit by hurricanes. Within India, sites in small towns will command lower rates than those in big cities.

The Regulation Since outdoor is a local medium, regulation varies from city to city and country to country. Analysts do not like OOH media companies with high exposure to international markets because

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of the extreme variations in regulation. In the US, for instance, the OOH media company owns the permit that allows it to solicit advertising on a display and not the owner of the site or land on which the hoarding exists. When a lease expires, the OOH media company is the one in a position of power. If the landowner or site owner, the person who owns the location on which that display exists, is not happy with the terms of a lease, the billboard company can remove the display because it owns the permit. So the site owner loses the rental income. It works the other way in Europe—site owners own the permit to solicit advertising on a display. When a lease expires, the landowner can call for new OOH media firms to bid. As a result, the media companies compete for the right to sell advertising time, but do not own the assets that give them the right to do that. In many cases, the outdoor media companies offer revenue sharing or revenue guarantees to the site owners to sweeten the deal. This difference in regulation explains why lease or rental expenses are often 20 per cent of the revenues of an OOH media company in in Europe against 5–10 per cent in the US.

The Length of the Contract The length of the contract is an important variable in determining revenue stability and therefore valuation of the OOH media company. Longer-term contracts reduce the industry’s volatility relative to other media. The length of contract also depends on the format. For instance, street furniture contracts tend to have a duration of 8–25 years. In France, the largest market, the general length is 10–15 years. In the US, contracts are typically for one, six or 12 months. In the UK, the length of advertising contracts is typically 7–15 days, just like in India. This makes for a more volatile market.

The Technology So far, billboards and other forms of outdoor media have used vinyl, the last major technological breakthrough in this medium. These are static. That means they do not move or change over the contract period. A digital billboard, on the 24other hand, shows a

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static message for six seconds and then transitions to another advertisement. Digital billboards are energy-efficient and resemble ads printed on vinyl or paper. They are controlled via electronic communication and are on a secure network. The copy or message is created on a computer. Converting static displays into digital opens up a whole range of possibilities. It allows several advertisers—instead of just one—to occupy a site. That translates into multiple advertisers who bring in multiple revenues per site. In 2005, when Clear Channel was experimenting with digital displays in a few markets, the revenue per site jumped over three times with inventory still available to sell. When Lamar, an American company, implemented digital displays in some of its markets, the revenue per site went up eight times, from US$ 5,000 to US$ 40,000 a month. In the UK, 20 per cent of outdoor advertising revenues already comes from digital. Advertisers are willing to pay more because digital sites help them change the ad to accommodate either last-minute sales opportunities or advertise different products during different day parts. For instance, a media company can promote a newspaper in the morning and an alcohol company could promote a whisky brand on the same board in the evening.

The Value Chain Given these variables, how is the business structured? Think of the outdoor media business as a value chain with four players involved, each with its own business dynamics. The first link in the chain is the site owner, the second is the OOH media company, the third is the media agency and the fourth is the advertiser.

The Site Owner Depending on the form of OOH media, billboards, transit or ambient, the ownership of the place where the hoarding or media is placed will change. For example, if OOH Media (the company) wants to install three screens in a restaurant, it will have to deal with the owner of the restaurant. If ENIL wants to offer airports to its advertisers, it does a deal with the Delhi International Airports Authority (DIAL) for Delhi and with a similar body for Mumbai,

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and so on.25 In case of street furniture, the owner is usually a civic body, so tenders come into play. A company that wants to put up a billboard at a building or residential complex has to deal with the housing society or resident’s association. The nature of the site owner differs according to the location and deals. The revenue streams for site owners could be: Advertising  If Creation owns, say, 65 sites across Mumbai, it could market them on its own to advertisers such as Vodafone or Reliance. Alternatively, it could go through an agency such as Portland from JWT which buys billboard space on behalf of advertisers. Rental  This is the biggest source of revenue for small OOH media companies. For instance, if Creation does not have enough to offer advertisers in Bandra it may decide to take on lease sites owned by smaller operators such as Symbiosis. The latter rarely sells ad space on its own hoardings, it just leases them out to larger player such as Creation who in turn aggregate, say, 100-such hoardings and sell them to advertisers or their agencies. This makes it an annuity income business for Symbiosis which does not have to bear the risk and gets no share in the upside. Unless, of course, it is worked out in its agreement with Creation that after, say, `200,000—which is guaranteed—a percentage share of the revenue would come to Symbiosis. This is called a minimum guarantee deal. In either case—plain rental or a minimum guarantee deal—the site infrastructure and maintenance is the responsibility of the owner, Symbiosis in this case. The marketing and revenue is Creation’s job. In billboards, rental depends on when the deal was done, says Mangesh of Symbiosis Advertising. Some of the older hoardings in prime spots in Mumbai were locked in with old rental agreements that continue to date. In transit, ambient or street furniture, rental is just one aspect of revenues. That is because in these cases the site owners are residential buildings or civic authorities that have multiple revenue sources. The Bombay Electric and State Transport (BEST), which runs buses in Mumbai,26 earned almost `600 million from tenders issued to Times OOH and Prithvi Associates in 2006. Its total income from plying buses in the city was about `12 billion in 2006–07. Rental plus advertising  This would apply to players like Symbiosis. It leases out a bulk of its sites and also sells a few directly to advertisers.

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Lead generation  Tagit, a tagging software, enables mobile phone users to respond to ads. It allows ‘tagging’ a brand’s advertisement with digitised 2D (two dimensional) bar codes in newspapers, television or billboards. Tagit enables anyone to pull any content on to a multi-media phone. Think of the possibilities if you could just aim your phone at a hoarding (or a television or theatre screen) and respond to an ad or take part in a contest. Similarly, Bluetooth campaigns have already been growing in the UK, allowing consumers to download content from advertising signs they pass by. There are several such technologies in an experimental stage. A site owner would get a percentage of the money that mobile companies make from messages sent after seeing their displays and/or from companies that get leads on consumers. For instance, if 100 people called to enquire about an insurance policy after seeing a hoarding that displays an ad of HDFC-Standard Life, then the site owner stands to make an agreed upon amount per enquiry. The typical costs for a site owner are: Capital costs  These are very high in the case of transit and street furniture. An average bus shelter needs an investment of anywhere between `0.6 to `0.8 million27 The operating cost is roughly `35,000 to `50,000 a year and the revenue could be anywhere between `45,000 and `250,000 a month. This cost remains the same whether you put up the shelter in Mumbai, a larger ad market compared to, say, Nagpur. Also, a bulk of the money is spent in making the shelter or putting up whatever investment is needed in, say, beautifying a park or a heritage building. The rest of it is overheads. To offset the higher costs, media companies usually look for long-term contracts, over 20–30 years in order to recoup their investment and make money. Rental  If the firm selling the billboard is not the owner, the rental is a cost for the company (as in the example of Creation and Symbiosis in the earlier section). This could make up 30–40 per cent of costs. Taxes, licences and others  These are the environmental costs of operating that business in any city and could go up to 30 per cent of the total costs. Other overheads  These include everything from staff to administration costs and could be 10–15 per cent of total costs.

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Operating margins could range from anywhere between 30– 50 per cent (15 per cent net) depending on the combination of variables at play. Billboard operating margins usually range between 13–20 per cent in mature markets while transit could be 5–10 per cent.

The OOH Media Company It may seem as if the site owner and the OOH media company are one and the same. That, however, may not always be true. In the earlier example Creation is the OOH media company and so is Symbiosis. For instance, Times OOH does not own the bus shelters it runs, it has got them on lease from the civic authority in Mumbai. Jagran Engage may take on lease sites from a large number of small players such as Symbiosis. So far, this industry has been full of site owners who also run the outdoor media company. But as the big boys come in and the structure of the business changes—the site owner may not necessarily be the OOH media company. Also, some of the new formats such as ambient media create entirely new categories of site owners such as retailers who own millions of square feet across the country and usually sell the media space in their own stores. For clarity’s sake, we could define the OOH media company as an aggregator which may or may not own sites. The revenue streams for outdoor companies will be the same as that for site owners. The proportion may, however, vary. For instance, for Future Group, the proportion of revenues from its core retailing business would be far higher than the media business. The costs too would differ and so would the margins. There would be a higher proportion of overheads for media companies, the margins would be thinner but on a larger spread since most operate at a national level.

The OOH Agency The OOH media agency is a relatively new entity in the Indian context. Most are barely 5–7 years old. They help figure out the role of outdoor in a campaign based on the marketing objectives. Then comes the planning and the buying for which they are paid 1–2

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per cent of the spend as are media agencies. For instance, Mudra or Milestone Brandcom, plan and buy OOH media on behalf of clients from telecom, media automobiles and other categories.

The Advertiser Just like in other media advertisers could be from across categories of products and services that are widely consumed in any market. The only difference is that local advertising could be a big component for outdoor. In India, as in the UK, the big advertisers are those with a national presence. A large chunk of the buying is ‘network’ buying. The way the advertiser looks at OOH media is, however, hugely determined by metrics, a contentious and problematic area in India as elsewhere in the world.

The Metrics The need for metrics on cost per thousand, reach, frequency and time spent in OOH media is the same as in any other media. Measuring the efficacy of hoardings, billboards and other forms of outdoor, across thousands of different localities for dozens of formats, in hundreds of towns and cities is a nightmare in a country like India. It is compounded because the industry is as yet fragmented. In its fight for ad budgets, OOH media does not have a currency such as ratings (used for buying ad time on television) or readership (used to gauge print) that is easily accepted by advertisers.

The Global Market Scenario Mature markets have measures in place because they have been at it for longer. The quality of infrastructure and consolidation within the industry in Europe makes it easier to put metrics in place. For instance, in the UK, development of audience measurement began in the 1990s. There was a strong feeling within the OOH media industry that competing with television, radio or other media would be impossible without these yardsticks. When the measures were derived and used, the share of OOH media in total ad spends rose from 5–6 per cent to 10–11 per cent. This is true for most

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markets—spends on OOH media have usually doubled once the metrics fell in place. The UK’s Postar28 (Poster Audience Research) was established as the OOH advertising industry’s official audience measurement system. Globally, it is acknowledged as a robust methodology that combines a survey of people’s movements with detailed panel quality classification. This, in turn, is used to provide a measure of the likelihood of an individual seeing a particular display. According to most of the research material available, Postar gets the closest to the relationship between ‘opportunity to see’ and ‘actually seen’ for OOH media. In the US, Italy and Switzerland, audience measurement systems have incorporated GPS or Global Positioning System technology to measure the movement of audiences exposed to OOH media.

The Indian Scenario In India, ‘There are no metrics for OOH media, it is only watching, noticing and reading. It is a business of judgement,’ says Mangesh. Besides pictures, dates, some kind of certification and traffic numbers there is not much that is done. As a result, many media buying agencies either have their own systems or do research on and off. These are then used to plan for advertisers or to pitch to new clients who are looking for help in buying OOH media. Some of these studies are also conducted by media owners for use in selling their sites to advertisers. There are three such examples that I came across. One of the earliest attempts reportedly was OSCAR (Outdoor Site Classification and Audience Research)—a study was conducted by Mode, Aaren and O&M in Mumbai in 1993. The idea was to evaluate the major sites in the city and develop a weightbased index on variables such as visibility, angle, competition, deflection, obstruction, height and illumination. The purpose of the index was to arrive at a gross Opportunity to See (OTS) for each hoarding. This meant accounting for things like the number of pedestrians, the angle of vision, vehicles passing by, proximity to other ads, environment and lighting.29 Another attempt later was at Mudra’s Prime Site by then CEO, Indrajit Sen.30 He claims he set in motion certain basic housekeeping measures. These were photographing the hoardings after

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the ad had appeared as proof that the campaign had indeed happened. (It is routine for agencies and media companies to accept two or three bookings for a hoarding in the same period.) Then there was monitoring to check if the lights were working, getting them fixed, insisting on compensation for the evenings when a billboard was not visible due to poor lighting. Prime Site also commissioned research on the effectiveness of some sites versus others, on traffic counts, waiting times and so on. All the parameters—size, illumination, angle to read and visibility—got rated and a combination rating was devised. Then weights were added to these. What it discovered, not surprisingly, is that location and creative were most important in determining effectiveness. In the mid-1990s, BOTS or the Burnett Outdoor Tracking System by (the then) Chaitra Leo Burnett was a study of the outdoor medium using research findings in Bangalore, Delhi and Mumbai. It was based on the similar studies conducted by Leo Burnett abroad.31 These, however, were isolated individual attempts. It was only in 2007 that MRUC32, the industry body that commissions the IRS, decided to come up with a research product to measure the effectiveness of outdoor media. There are three objectives to this research. One, develop an outdoor media planning tool for use by advertisers and advertising agencies. Two, provide insights into the quality of an outdoor site through a visibility index. Three, provide coverage and frequency information for an outdoor campaign across cities, by city and by location. The status of this research however was not very clear in April 2013.

The Possible Metrics The metrics for different forms of outdoor media differ depending on, among other factors, location. There are on most days separate studies for airports, shopping malls or theatre chains. Some of the metrics that the industry monitors globally to check efficacy are:

People Traffic Whether it is a street, highway, mall or retail store, this is the basic variable needed to know what kind of potential audience size is being talked about. This is pertinent for all kinds of OOH media.

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Vehicular Traffic Whether it is trains, buses or cars, vehicular traffic is a key to understanding the effectiveness of OOH media. For instance, speed, volume, number of daily commuters, traffic jams, whether a larger percentage of people are driving themselves or being driven, what kind of vehicles they are driving— all of these are used to arrive at measures of reach and effectiveness. Under POSTAR, for instance, even within vehicular traffic there are parameters on angle to road, line of sight, obstructions, illumination and so on. Studies in several markets have shown that the mode of travelling has a direct bearing on the probability of exposure. Pedestrians and travellers in cars are discounted by 50 per cent to allow for the non-viewing, while bus passengers are discounted by 75 per cent.

The Time and Distance for Commuting This stems essentially from tracking vehicular traffic. For instance, Canadian studies show that the population of commuters is growing faster than the overall population of people. On an average, people spent 65 minutes a day commuting over 50–90 km. The average vehicle mileage, commute times, all become indicators of time spent outside and not with other media. Another piece of research, this one in the US, shows that a bulk of the mega-milers—or the people who spent a long time commuting—do not read newspapers as much as do others. This presents an opportunity for transit media.

The Time Spent Out of Home In a typical week, Canadians spend 35 per cent of their time out of home in some activity or the other such as travelling, pubbing, shopping and so on.33 This, then, becomes an indicator of the potential for OOH media.

The Period of the Display A billboard is most potent when it is new. It becomes invisible to a passer- by after some time because the brain becomes used to seeing it. Research from mature markets suggests that billboards

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become invisible after 30 days. This metric is used differently by different types of OOH media. For instance, in a locality, the advertiser could roll over ads as soon as possible to retain freshness. At airports where the audience changes every hour, the same ad could run for a longer time depending on the need of the campaign.

Cost per Thousand Even with the metrics in place, outdoor media is generally priced at a discount to other competing media. In the US, OOH media CPMs are usually one-fifth of other media.34 That is because traditionally outdoor media has not been able to offer detailed or real-time audience data like TV, radio or print. Also its impact is less than that of an ad in a blockbuster show or film. Not all out-of-home networks become large networks that offer efficacy. In India, for example, except for cinema and retail chains there are not too many options for the advertiser wanting to buy OOH media on a national scale. He has to deal with dozens of individual players. This apparently is a natural process of evolution across the world.

The Regulations35 The Basics The government of each state can promulgate laws, rules and regulations to govern OOH advertisements, including their location, installation, fee or tax and general terms and conditions. Since the state is divided into districts and districts into town/ cities, each of which is governed by its own municipality or administrative body, the regulations laid down by the local city municipalities determine the extent and nature of control on OOH media. The local bye laws and regulations of the city and metro councils in particular are important since they govern the details of how, in what manner and at what price the rights to OOH media will be provided. Therefore, the regulations and policy formulations of the Municipal Corporation of Delhi (MCD) or BMC come into the

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picture. This is also based on the principle that ownership of public spaces or anything which impacts the public is under the control of public bodies and therefore it has an intrinsic power to regulate. There is no overarching regulation that governs the OOH media across India except for issues which arise under the common law of the land, such as constitutional restrictions or principles enunciated and applied by the Supreme Court of India. For instance in 1997, the Supreme Court of India, in a public interest litigation relating to traffic issues in the National Capital Region (NCR)—MC Mehta versus Union of India—directed that any advertisement, which is a distraction to the motorist, should not be permitted in Delhi. The civic authorities including the Delhi Development Authority, the Railways, the Police and Transport authorities, were directed to identify and remove all hoardings on roadsides which were considered hazardous.

The Delhi Policy The matter was revisited by the Supreme Court. In its order dated 24 April 2007, it directed various authorities to submit their policies within four weeks to the Environmental Pollution (Prevention and Control) Agency (EPCA) authority for the NCR. Thereafter, in an October 2007 order, the Supreme Court accepted the guidelines prepared by the MCD and directed them to be implemented. However, various objections were filed by private advertisers, public interest organisations, Railways and the Delhi Metro Rail Corporation (DMRC). After considering these, the EPCA has now submitted its finalised report on the Outdoor Advertising Policy in Delhi and NCR to the Court in August 2008. This is one of the most comprehensive attempts in India to look at the principles of OOH advertising and its impact on civic issues. Some of the salient features of the report are: • The policy for OOH advertising will be driven, not by revenue imperatives, but by city development imperatives. • The policy will explicitly work to discourage visual clutter. This will be done by increasing the space between the billboards and in restricting large billboards to select areas of the city, like its commercial hubs.

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• The policy will actively promote large-size billboards in commercial areas. These are defined as the metropolitan city centre, district centre/sub central business district and community centre/local shopping centre, among others, in the master plan. In this case, the civic agency will work to maximise the revenue gains, which can be used for city development. • The policy will promote the use of advertising in what is commonly known as street furniture. These are devices placed on public service amenities of the city like railway carriages, buses, metro trains, commercial passenger vehicles, bus shelters, metro shelters, public toilets and public garbage facilities, to name a few. • The New Delhi Municipal Council (NDMC) in its submission to EPCA made it clear that it does not intend to permit any hoardings in its area in the light of the historical/ heritage character of its areas and which would have a direct impact on urban aesthetics. Instead advertisements have been limited to street furniture, street lighting poles and on utilities—bus shelters, public conveniences and so on. • No sign must block opportunities for natural light or ventilation in buildings or across open spaces. • No sign must be located to obstruct movement. Neither should it be placed in a manner or technique that causes risk to life or operations. • Negative advertisements like those presenting nudity, having sexual overtones, glorifying violence, weapons or are psychedelic or illegal under any applicable law like the Drugs and Cosmetics Act, 1940, would be prohibited. • The guidelines prepared by MCD, divide the advertising devices into four categories depending on the structure and size. The guidelines lay down restrictions on the content, colour, size and placement for each category of the advertising device. In brief, the four categories are:

(i) Billboards, unipoles, bypoles, railway bridge panels, flyover panels and building wraps. (ii) Public amenity mounted devices such as pole kiosk, protection screen/nallah culvert advertising devices,

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informal advertising display boards, banners, posters, vehicle-mounted devices, air borne mounted devices, roof mounted devices and demo stations. (iii) Bus shelters, parking landscape advertising devices and traffic barricading. (iv) Self advertising on fascia signs, awning sign and projects signs, footway and roadside vendor sign for self advertising, real estate advertising, welcome sign and construction sign for self advertising.

This policy was adopted by the court and thereby made applicable to the MCD. After the Supreme Court’s order, the Outdoor Advertising Policy was also adopted by the Central Pollution Control Board. This, therefore, makes it applicable to all of India. 36

The International Lessons The EPCA further assessed some of the policies which are adopted internationally. A few illustrations mentioned in its report are: • The Australian government’s Report of the Road Safety Committee on the Inquiry into Driver Distraction makes it clear that visual clutter impacts driver safety. It also quotes that a motor insurance company observed from its investigations that the clutter of road signs and advertising accounted for a number of crashes. • The City of Malborough in New Zealand, for instance, in its OOH advertising policy says that there is a need for signs, but they may have an adverse effect on visual amenities and traffic safety. It adds, that in particular, from a traffic safety viewpoint, careful consideration needs to be given to the location, design, size or type of sign along major arterial routes, where the potential for conflicts with traffic safety are highest. Their policy is to avoid the display of OOH advertising which may adversely affect traffic safety by causing confusion or distraction to, or obstructing the view, of motorists or pedestrians. • Beijing has decided to remove all hoardings within the city. Its officials say this is being done to ‘to sanitise the city’s image’

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and cranes have dismantled many of the 90-odd billboards lining the city roads. An advertising ban has been extended across most of the city. City officials want to prevent Beijing from becoming one very big Times Square. Now, billboards are to be allowed only along the fifth ring road encircling the city—many miles away from the city centre. • In many cities of the UK, local councils have removed hoardings in the interest of improving the visual environment and image. These cities say that the objective of the OOH advertising policy is ‘to seek the enhancement of the physical character and visual appearance of the city’. These cities argue that ‘promotion signs’—hoardings which advertise products—can significantly add to the visual clutter in a locality and, therefore, are not encouraged.

Case History A few of the salient cases in outdoor media are: Nova Ads vs Secretary  It has been argued that any restriction on OOH advertisements is like a restriction on ‘commercial speech’ and therefore has to be under the reasonableness prescribed by Article 19(2) of the Constitution of India.37 This contention was however negated by the Supreme Court in Nova Ads vs Secretary where the Court held that ‘the fact that the hoarding is on a building or on private land does not take away the regulatory measures relating to hoardings. There can be cases where because of the size and the height, it can be dangerous to public and also be hazardous. There is no structural safeguard in respect of such hoardings. There have to be regulatory measures. The Advertisement Rules do not regulate advertisement. They regulate putting of the hoarding which is found to be objectionable, destructive or obstructive in character. It cannot be said that there is infringement of freedom of speech.’ P Narayana Bhat vs State of Tamil Nadu  In this case the Supreme Court stated ‘that the authorities concerned are empowered either to refuse or grant licence/renewal or to remove the existing hoardings only if the same is hazardous and a disturbance to safe traffic movement.’

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The Valuation Norms The roughly half a dozen deals in India in the last couple of years have meant that there are enough benchmarks for valuation. In any case OOH is a fairly straightforward medium to value.

The Variables The valuation of an OOH media company usually takes into account the following variables:

Market Size The size of the Indian outdoor media market is hardly a sliver of any of the mature markets. So far it was the growth rate that excited analysts. But as that slows down, there have been no major deals.

Revenue Mix The traditional billboard business, with its high barriers to entry and high operating margins, is considered to be the best segment of the domestic OOH media industry.

Exposure to National Advertising In some markets if a higher proportion of an OOH media firm’s revenues comes from national advertising, it has an edge. This is because national advertisers tend to book bulk, and fill up the order book over a longer period of time.

Average Market Share A share of 30–40 per cent or more always pleases the analysts. The belief is that it is easier to manage pricing when you are the biggest provider in each market. This of course holds true in a

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tight supply market. When supply is still increasing and the leaders are not yet established, it is a free for all.

Technology The more digitised the network of hoardings an outdoor media company has, the better its valuation. Digital technology allows several advertisers to occupy the same site at different times; that means multiple advertisers who bring in multiple revenues per site. If an OOH media company has tagging software or some other lead generating mechanism in place, it opens up another stream of revenues and, therefore, a better valuation.

Market Mix Expansion outside of home markets normally reduces valuation for most global OOH companies. JCDecaux and Clear Channel lose brownie points when they expand outside their home markets because of the uncertainty of the regulatory framework. This is especially true if a company is looking at organic growth in foreign markets and not at acquisitions. Funnily enough one of the biggest reasons Laqshya Media has got `4.67 billion in investment in three years is because it is expanding not just in India but also in countries such as Sri Lanka, UAE, Africa and Southeast Asia.

The Length Of Contracts For this, see the section ‘The Way the Business Works’.

Occupancy The occupancy of a billboard or the amount of time it is booked in a year indicates the health of the business and helps analysts make estimates on future revenues. According to some estimates, average occupancy in Mumbai is nine months a year or

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about 75 per cent of the time. In the US or the UK, a 70–80 per cent occupancy is considered a good number.

Media Mix An OOH media company’s presence in other media also influences valuation. For instance, radio and outdoor media complement each other. Outdoor is viewed only outside of home. More than one-third of radio listening happens on the move. Therefore, for both media, the time-consumers spend commuting is treated as prime time by advertisers. So, the local connect and therefore plug-in with local advertising is very strong. It is matched only perhaps by newspapers. So, an OOH media company with a strong presence in radio will get a better valuation than a rival without a radio station.

Dependence on Other Media If an OOH media company does not have any other businesses, comparing it with others who do is a problem, especially as the solo player will have a higher capital outgo. JCDecaux’s global competitors are Clear Channel and Viacom. For both these US companies, OOH advertising represents a small part of their overall business. For JCDecaux, it is the only business. So, relative to other media companies, a direct comparison is difficult.

Kiosks Gantries Mobile billboards News Stands Phone booths Telephone and electricity poles

Non-traditional Street Furniture Bus Shelters

The formats Traditional Bulletins Posters Spectacular displays Wall Murals Vinyl Wrapped Posters

Civic authorities/ government

Selvel Creation Pioneer Symbiosis Advertising Bright Advertising Roshan Publicity

Site owners

JCDeceaux Times Innovative Media Serve & Volley Outdoor Laqshya Media

Clear Channel

Jagran Engage Reliance (BIG Street) Serve & Volley Outdoor Pioneer Prime Site Selvel Creation

Ogilvy Landscapes Portland (JWT)

The players Outdoor media company Media buying agency

Table 7.1  The Shape of the Indian Outdoor Market

Vodafone ICICI Bank Tata Sky

Advertiser/client

Airports/planes Subways/rail Trucksides Taxi displays Elevators Autos Gas stations Ships/boats (Non-traditional) Ambient Convenience stores Shopping malls Arenas/stadiums Resorts/leisure areas Restaurants/pubs/cafés Health clubs/spas Colleges/university campuses

Transit Buses/trams

Future Media OOH Media

Civic/transport authorities

Future Media OOH Media Laqshya Media

Laqshya Media

TDI International

(Table 7.1 Contd.)

Site owners

The players Outdoor media company Media buying agency Advertiser/client

Source: Author. Notes: 1. The companies listed against different types of players are examples of firms in the space. They may or may not be in another space. For instance, Creation is an outdoor media company and a site owner. 2. The list of agencies and advertisers is just to illustrate a point and is by no means exhaustive. Data compiled and analysed by Vanita Kohli-Khandekar. This table may be reproduced only with due credit either to The Indian Media Business or Vanita Kohli-Khandekar.

The formats Movie theatres Hospitals/physicians’ clinic Office buildings Residential buildings Hair salon/parlours ATMs Book shops

(Table 7.1 Contd.)

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Caselet 7a  Why the World Hates Outdoor Media? Across the world, OOH media is the target of ridicule, anger and protest. In the US, The Federal Highway Administration faced flak in 2007 for saying that billboards do not lead to accidents. In Brazil, in 2007, authorities in Sao Paulo, the largest city in the country mooted the idea of a ban on all OOH media. It sparked off a debate. City planners, architects and environmental advocates argued that the prohibition would bring the prosperous South American city a step closer to an imagined urban ideal. The other side of the debate had advertisers and corporates who said the proposal could be injurious to society, an attack on free expression and a danger to a $133 million industry that provided 20,000 jobs. According to them, consumers would have less information on which to base buying decisions and streets would be less safe at night with the loss of illumination from OOH advertising. (The city finally did implement the ban and currently Sao Paulo remains free of outdoor media.) The pro-OOH media lobby has a point. The positive impact of outdoor media is conveniently ignored in most public debates about it in India too. OOH advertising companies contribute hundreds of thousands of dollars in donations and free advertising space to charities and communities, and provide public infrastructure which saves taxpayers millions of dollars. Each pedestrian bridge which is provided for and maintained by OOH advertising usually means a local or state government body can divert funds to something else. There are markets where OOH media is viewed positively by the public. Especially where local associations are active in building bridges with society and informing them about the benefits of OOH media and its contribution to the building of civic infrastructure. According to January 2008 data from The Outdoor Media Association of Australia, advertisers provided Australian US$ 205 million (approximately US$ 182 million) worth of community infrastructure in Australia, including bus shelters, tram shelters, street kiosks, park benches, bins (Caselet Contd.)

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(Caselet Contd.) and billboards, for use in advertising council services or road safety messages. Little wonder then that an AC Nielsen study released in September 2007 showed that 87 per cent of Australians thought it was important for OOH advertising to continue funding public infrastructure.38

Notes   1. Outdoor, Outdoor media and OOH have been referred to interchangeably in this book. They mean the same thing. For a comprehensive list of what OOH includes see Table 7.1. Also these terms refer to the Indian OOH business, unless otherwise specified.   2. In August 2008, News Outdoor Group was the sixth largest outdoor media company in the world, according to its website. News Corporation’s financial year is June-July. Dutta is now country head, Middle East, Africa and Pakistan, Star Group.   3. By the end of 2008, News Corporation started looking for buyers for its outdoor business. But after three years, in July 2011, News Corporation finally managed to sell News Outdoor Russia for one-fifth of its asking price. And it also sold News Outdoor Romania.   4. In March 2008 when I had interviewed him for this chapter, he was CEO, Stroeer Out-of-Home Media India.   5. Source: Zenith Optimedia.   6. ENIL is Entertainment Network India Limited, the radio, OOH and events subsidiary of Bennett, Coleman & Co.   7. In most mature markets the biggest advertiser on outdoor media, is retail. For instance some years back JC Decaux, Europe’s largest OOH media company got about 10 per cent of its revenues in France (its home market) from retailers. When the French government passed an order allowing retailers to advertise on television from 2007 onwards, analysts went into a huddle to calculate its impact on the JC Decaux’s topline and, therefore, its valuation.   8. UFO Moviez is a chain of digital theatres with 3192 screens (in April 2013) across India.   9. See Chapter 2 on Television for more details. 10. This is also wonderful in some ways because cable grew unfettered by regulations which could have choked its growth in the formative years. See Chapter 2 on Television for more details. 11. Display refers to an outdoor ad, just like a television or online ad. 12. All the information under ‘The international past’ comes from the OAAA website. 13. Arbitron Inc is an international media and marketing research firm that caters to OOH media, radio broadcasters, cable companies, advertisers and advertising agencies in the US and Europe.

OUT-OF-HOME  385 14. Vandana Borse is my sister. She and her husband Mangesh run Symbiosis Advertising. Symbiosis is one of the few verifiable examples one could use for this book. 15. Brihanmumbai Municipal Corporation. 16. Much of this bit is Mumbai-centric because that is the only market where we interviewed OOH media owners. Also it is the largest OOH media market in the country. 17. It has fallen to 5.5 per cent in 2012, though on a larger base. 18. Borse’s comments are only in the context of the Mumbai OOH media market where her firm operates. 19. It still is in many companies. 20. A 360-degree solution literally means offering all the options of communication that a consumer is likely to be exposed to. So, whether a media company invests directly or partners with someone, it would offer, OOH, radio, Internet, mobile and so on, so that advertisers have less reason to go to competitors. In case of agencies (creative and media), this means the ability create an ad, plan and buy space or time across these media. 21. The reader may have to keep referring to Table 7.1 which clusters different types of OOH media, to better understand this section. 22. Going by Figures available in April 2013. 23. ATM machines are used by banks to dispense cash. 24. Sexy Signage, The Economist, 26 January 2013. 25. Mumbai and Delhi are now run by private companies. In most other parts of India, the Airports Authority of India or AAI runs airports. 26. And also the electricity network. 27. These estimates are as in April 2013. 28. Sourced from the website of the Outdoor Advertising Association of the UK. 29. The details of OSCAR were sourced from Supriya Madan (1998). 30. Sen was CEO at Prime Site from April 2000 to 2005. He later joined among other companies including Stroeer and Laqshya. He is currently the vicechairman of the Indian Outdoor Advertising Association. 31. Now, Leo Burnett. It is one of the leading advertising firms in India. 32. Media Research Users Council. 33. Out-of-home Marketing Association of Canada study conducted in 2006. 34. Cost per Mille or Cost per Thousand or cost percentage. In Latin Mille means thousand. 35. This section was put together in 2008 by Anish Dayal, advocate, Supreme Court of India and a specialist in media and entertainment law for the third edition. There have been no major updates since then. 36. Update provided by Abhinav Shrivastava an associate with the Law Offices of Nandan Kamath in Bangalore Source - http://www.cpcb.nic.in/upload/ NewItems/NewItem_119_Delhi_outdoor_advt_policy2008.pdf 37. Advertisements were classified as ‘commercial speech’ by the Supreme Court in Tata Press Ltd. v. M.T.N.L. and Others. 1999 (5) SCC 139. 38. There has been no further update on that study. But it is an interesting example of the strife-ridden relationship OOH has with society.

CHAPTER 8

Events Everything is an event.

H

ow do you define an event? Is it a presentation to a roomful of dealers; is it a marriage, a product promotion at a mall, a music concert or an award ceremony? There are hundreds of such ‘events’. Do all of them constitute a business opportunity? How big, anyway, is this opportunity? Coming to grips with the event business is no mean task and some of the global research I went through confirms that. Therefore, the big triumph for the Indian events industry is that there is a structure emerging to the business, that revenue streams are becoming visible (see ‘The Way the Business Works’ and Table 8.1). Some of the credit for this should go to the big boys of the Indian events industry—Wizcraft, Percept D’Mark, Encompass or Showtime. In the middle of hyper-growth, most have worked hard at figuring it out for themselves. For instance, at one point in 2008, Wizcraft, one of India’s largest event management companies, hired the services of consulting firm EY. The idea was to understand where it stood and where it could go from here. In the hustle and bustle of growth, Wizcraft needed someone to make sense of it all. In the same year many of the large firms joined hands to set up the Event and Entertainment Management Association of India (EEMA). Its primary objective is to lobby on behalf of its members. The frenzied growth has pushed up the average size of event firms in India to anywhere between `0.3 to `1 billion. It has made them attractive companies to either buy or do business with. Between 2008 and 2012 there were nine major deals in the events space. For instance in 2008, JWT bought Encompass Events and in 2012 it bought Hungama digital for an un-disclosed amount.1

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Figures on how much money was invested totally or in individual deals is not publicly available, but the action suggests some consolidation and clear investor interest in the area. In addition, some foreign players—Reed Elsevier, EMap and George P. Johnson—too have set up shop in India. Just like the investment numbers, those on size and growth are also not very clear. ‘It is very difficult to map this business, the biggest chunk is private events and that is not even a structured part of the business’, says Shaju Ignatius, an entertainment consultant. According to EY, the events and activation business did `28 billion in top line in 2012. However, it is estimated that only 40 per cent of the industry is organised. This means that the real size of the business is closer to `70 billion. Even then, it is a fraction of the total Indian media and entertainment industry (see Table 0.1). Again, there are no benchmarks on what it is globally.2 Therefore, we have a long way to go. On growth, the Indian market, as usual, does well. The industry is growing at an average of 20 per cent, says the EY report. Almost all the companies surveyed by EY claimed to be profitable average operating margins of about 19 per cent of revenues. That is not bad for a business that almost everyone looked down upon as a ‘caterer’s and tent suppliers’ business’, till some time back. Prashant Powar is general manager, Roundtrip Events & Production Tanzania, Scangroup, Africa. Scangroup is a part of WPP, one of the world’s largest marketing services group.3 He says: When I started my career people asked me what is event management? Today it is considered a glamorous and exciting field. Despite the erratic working hours and immense hard work, the biggest and most gratifying change is the pace at which this industry has evolved.

This then, is the second biggest change, after the structural change. Event management, which was not considered a promising and credible profession, today ranks amongst some of the top career options for those aspiring to be in the media business. Many mass communication schools and colleges are now including event management in their curriculum. There are two fundamental factors driving the growth of this business. One, the investments going into below-the-line (BTL) have jumped significantly.4 Of the US$ 8-odd billion that companies in

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India spent on marketing in 2012, more than 30 per cent went to non-advertising or BTL options. In mature markets, BTL accounts for half or more of all marketing spend. In India, it has risen from about 10–15 per cent in 2003 to about 30–40 per cent of total marketing spends now. More BTL essentially translates into higher spends on events, because most of BTL involves events in some form or the other—either as an activation, contest or promotion among many other things. The live brand experience is becoming a powerful tool in experiential marketing according to research.5 This trend toward higher BTL spends is global. It is usually born out of mass media fragmentation which results in a smaller bang for the above-the-line (ATL) buck, a reality for India too. Two, is the growth of small-town markets.6 In several product categories, such as telecom, financial services and durables, growth in the metros is slowing down and that in small towns is very high. Earlier, communicating to reach this growth, even in the top 100 non-metro towns was a problem. Compared to Mumbai, Delhi or Bangalore, the mass media options in Hissar, Tirunalvelli or Sangli were limited—a local cable channel, the local DD station, the local newspaper and AIR. Marketers desperate to reach small towns, therefore, started using outdoor advertising and events. Now, though mass media options are increasing, thanks to the spread of radio, cable TV, DTH and other media, events still form a significant proportion of spends in non-metro India. Both these reasons combined to create an inexorable push toward more events and form the underpinning of growth in this business.

The Shape of the Business, Now The Big Issues When I asked Powar whether foreign event companies could do business in India and help change the structure of the market, his response encapsulated the nature of the business very succinctly. In my view the (foreign) company would find it extremely difficult to do business in India. They are habituated to strict time lines, skilled manpower, schedules to the tee, unlike Indians who are used to organised chaos. After working outside the country, I have seen that the new and developing trend in India of working erratic late hours is very rare in countries abroad. Considering the enormous

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competition in India people are constantly compromising on personal lives, spending more and more time at work rather than at home. Also the foreign company may have better material resources but they are limited to the same vendors within India who work for all the other local event companies. It is not possible to outsource to international vendors for every project. Moreover, there are already so many established and successful Indian companies that in my view it will be complicated for a foreign company to survive the competition and win the rat race. It is difficult but not impossible. While the demand is high and things are moving in a positive way, Powar mentions several issues that dog the industry. Some will get sorted as the business evolves, others will need a regulatory or industry-led solution. These are taken up one by one as follows.

Fragmentation The first issue, fragmentation, and a somewhat haphazard structure, affect most other media segments in India. Companies are still relatively small. The largest company, Wizcraft, had an estimated revenue of `2.43 billion in the financial year ending March 2012. Compare that with £536 million which Informa, one of the largest event firms made in the financial year ending 2012.7You could put the difference down to currency, purchasing power and size of economy differences. Also, analysts recommend that the number of events is a better metric for comparing size. That is because revenue per event could vary with labour cost, size of the economy and average spends per event. This stems from several factors, the biggest of which is the lack of entry barriers. Just as anything can be an event, anyone can claim to be an event manager.

A Pressure Cooker Business The fragmentation means not just price and time competition, but also makes the business a high pressure one. ‘The rest of the world does not accept deadlines we do. We are willing to be exploited and end up stressing ourselves,’ thinks Michael Menezes, managing director, Showtime Events. In 2007, when his team reached the US, three months before the Incredible India at 60 event, that Showtime was putting together, they thought they had loads of time.

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‘The Americans said that there is no way you could do it, there is too little time,’ remembers Menezes.8 Showtime did pull off the event, but the strain was phenomenal. Almost everyone in the business seconds him on this—the business is tense and not just because of its fragmented nature. ‘It is a very very stressful business because there are too many eventualities,’ says Mohammed Morani, director, Cineyug Group of companies. Powar says: Due to the prevalence of so many event companies, concept presentations are taken from one company and given to the other for execution. There is often no confidentiality or transparency which is why a lot of companies have started charging a basic fee for concept presentations.

The Talent Crunch Inspite of its increasing respectability the events business faces a severe paucity of people. This again is true for most media businesses (in fact most businesses) in India. Though its image is changing, ‘What was true for retail or radio a few years back is true for the events business: people don’t want to join it. Radio is sexy now, events is not so sexy’, says Sumeet Chatterjee.9 Events is a fairly people intensive business. The more people you have the more events you can manage. Though there are no estimates on the shortage, Deepak Choudhary, managing director, EMDI Institute of Media and Communication, reckons there are 6,000 event management companies in India, with as few as four people in some of the smaller companies. This has, among other things, led to bloated salaries. According to the EY report, payroll costs in the events business are about 13 per cent of total costs. This is higher than the average of 10 per cent for other segments of the media and entertainment business.

Lack of Infrastructure Most of the issues mentioned earlier are evolutionary and will get sorted by and by. The lack of infrastructure, however, will need some regulatory support. There are no concert venues, no

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auditoriums in India that can hold large audiences. For example in Mumbai there are no concert venues except the Andheri Sports Complex and the MMRDA (Mumbai Metropolitan Region Development Authority) ground. In the US or UK, an agency can just get in with the artist, plug and play. There are hydraulic stages, removable seats and roofing among dozens of other concert and event venue facilities. For instance, in the UK, auto exhibitions are held only on grounds where a consumer can try driving a car too. In the US, there are specific indoor concert venues. In India, since commercial, residential and retail land use have a higher demand and bring in more money than live entertainment and sports spaces, there is very little possibility of growth in venue infrastructure unless its development is incentivised. For a parallel consider multiplexes. When they were made taxfree in some states (such as Maharashtra) for five years, it created an incentive for real-estate firms and film companies to invest in their development. Finally, their success prompted the growth of multiplexes even in states where they were not tax free.

Technology The availability of technology also means mature markets work faster with lesser manpower. For instance, it takes twice the amount of time to put up a set in India as compared to some developed markets. Part of it is simply experience but the other part is the ability to import and implement technology easily. The Indian event business cannot do it because tax structures and licences make it unviable to bring in equipment or gizmos which could jazz up an event. Also the fact is that the scale of the business is as yet very small, the revenues for doing so are not very assured. Of course you could argue that someone has to give it a shot.

The Bureaucracy and Taxes This issue too needs regulatory support. Permissions and taxes are a big ‘headache’, say all event management companies. ‘Multiple permissions are unique to India’, says Menezes. One estimate

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puts the total number of licences needed to host a public event at 17. For example, the entertainment tax in each state is different plus there are a range of taxes on almost everything—from hosting a corporate event in a hotel to having it at an open-air venue. In Maharashtra, entertainment tax is 50 per cent whereas in Delhi it is 20 per cent. There are service taxes, tax on professional fees paid to artistes and so on. At every point in the business there is a tax—not just at the end or the beginning. According to an estimate, taxes form about 13–20 per cent of all costs for an event management company. This includes the cost of greasing palms even when there is a legitimate event going on. The founder of an event company recollects how he had put ‘bribes’ as an expense head in an invoice he raised for his client. The accountant just shoved it under miscellaneous. The obvious solutions—rationalisation of taxes and a one-window clearance.

The Way Forward The reason valuations for event companies haven’t been high (see ‘The Valuations’) is because they have no apparent strength or asset that can be valued. If there are two equally efficient event management companies, how do you judge them? Compared with ad agencies they do not seem to have a steady client relationship, much of it seems one-off. Increasingly consultants and investors reckon it is the right over original events or IPR (Intellectual property rights) that distinguish these firms.10 A company which has invested in creating an IPR (like Wizcraft has in IIFA) or creating a core competency that cannot be replicated easily (like Kidstuff Promos had in promotional marketing)11 will be valued more seriously. The big leap of faith for most event management companies is to move up the value chain from being organisers and logistics people to being the equivalent of the creative agency when it comes to events. Or in having their own branded events that advertisers want to get on to. This is difficult for the following three reasons. One, usually media companies, sports bodies or anyone else that hires an event company owns the IPR (see ‘The Way the Business Works’). It is an expensive back-breaking process for an

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event company to build IPR. The industry is cluttered with firms churning out similar events—film awards are a case in point. It is almost impossible to distinguish one from the other. And at the end of it, there is no guarantee that a branded event will make money. The most profitable part of Wizcraft’s business is its corporate events. That is what fills up its order book. However it is IIFA that Wizcraft is known for and which excites investors most.12 Two, if the IPR for the brand is established very strongly sponsors do not like getting involved because they believe that the event itself is a stronger brand name—for instance though it has changed several sponsors, most people think of Antakshri, as Close up Antakshri or Saregama as TVS Saregama.13 The brand connection has been made over the years and it is difficult to break the mould. Also strong media event properties, such as Filmfare Awards, are impervious to the sponsor brand. So, whether Idea or Manikchand comes on board, Filmfare as a brand remains the stronger one. ‘Basically what is required is for investors to pump in money into properties that clearly belong to event companies— like IIFA. Such events can afford to change their investors every few years and can guarantee enough mileage to sponsors,’ thinks Powar. Three, Indian companies lack major properties because sponsors commit for a maximum duration of two years and what is required at minimum is a five-year sponsorship deal. This rarely happens. The F awards, launched some few years back to reward excellence in fashion, are a case in point, says Powar. The event died in its third year because of lack of sponsorship or investors. ‘It is a funny situation—if there are investors, there are no properties and where there are properties there are no sponsors,’ says he.

The Past The Beginnings The joke about the events industry is that it all started with ‘tambu/bambu wallahs’—meaning those who rented out the tents and poles for events. From being food suppliers, caterers or decorators, small mom-and-pop operations grew to doing corporate events or large concerts. Some—such as Wizcraft or

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Showtime—made the cut, most did not. ‘Many of the so called “event companies” are good at quoting on equipment,’ says Chatterjee. ‘Vendors are turning into event management companies,’ adds Ignatius. A sample from the stories of the ones who made it is interesting from the history perspective.

The Cineyug Story Mohammed Morani’s father used to supply fireworks to the Indian film industry.14 His brother Karim, who studied with actor Sunny Deol in school, ended up producing the latter’s first film (Betaab) and many more. So, there was a firm connection with the film business and the players in it. In 1988 the Moranis went to London for a show with Indian actors (including Deol’s dad Dharmendra) organised by someone else. ‘It was very badly organised, terribly unprofessional’, remembers Mohammed. So, the Moranis decided that they would do good shows abroad with Indian actors. Their first show at Wembley Arena in London went off well. Soon they started helping people get the stars for their show. ‘We used to be the Bollywood backend for Wizcraft’, says Mohammed who swears by Wizcraft. Each show the Moranis put together was like a film production. Its team of 80 people (then) put together about12 shows a year. In operational terms, this worked a bit like a film unit, they would produce, direct and script the show. It cost between US$ 1 million to US$ 1.2 million to put a show together. Cineyug, the firm the Moranis own, was the backend, so the success or failure of the show did not affect them. In 1997 the Moranis organised a show by themselves. Now the firm does both—back-end work for say a Zee Cine Awards as well as its own shows.

The Showtime Story Michael Menezes’ story is different. He owned an advertising agency called Madhyam which he ran for 20 years. When he did a few events for clients such as Hero Honda and KLM in 1997 he discovered that they were more exciting than advertising. For Hero Honda, for instance, Madhyam had to launch Hero Honda Street in 34 cities across India. His team was on the road for three months and

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did a show every three days. ‘MNCs (multinational corporations) especially the auto guys, understood events’, says Menezes. When he sold Madhyam to Publicis in 2001, he set up Showtime Events, now among the top event management companies in the country.

The Fountainhead Story In the 1980s, Brian Tellis, a sales executive with an airline, doubled as a musician and theatre personality. The latter were his interests while the former paid the bills. So, in his spare time Tellis compered shows on radio and sang as well. In 1993 when private FM took off in India he was on air. As his schedule became impossible, Tellis decided that he had to choose one profession over the other. That is when conversations with friends—Otis D’Souza and Neale Murray—led to the forming of Fountainhead, an event management company in partnership among the three in 1995. ‘We felt there was a need for good quality events; companies were doing events that were handled by the administration departments,’ remembers Tellis.

The Growth Years Ignatius reckons that in 1995–96 there were 4–5 major players. Wizcraft in major events, DNA Networks in the business of organising concerts and getting international artistes in and so on. ‘By 1998–2000 the specialists started moving in, Encompass, Showtime ...’ says Ignatius. Four factors were pushing growth. They are:

A Growing Economy The first and most important one was a growing economy. Increasingly, companies were spending on everything from training to inductions. So, a lot of the stuff that comes under corporate events actually may not have much to do with marketing. One example is motivation or corporate strategy workshops which are usually organised by outside agencies. According to one estimate, large corporations were spending anywhere from `300 to `400 million on internal corporate events.

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The Rise of BTL Activation became big from 2003, says Pankaj Wadhwa, the founder of Kidstuff Promos.15 Marketers, tired of the low returns that advertising was delivering wanted more touch points with consumers and wanted to offer a 360 degree brand experience. Brand managers started seeing the advantage of piggybacking on the reach of an event to communicate with their target audience. So a Nokia, Pepsi or an Airtel would sponsor a music concert if they wanted to connect with young people, a theatre festival for a more evolved target audience, and so on. Finally, the variety of events on offer—specialised business to business, specialised business to consumer or pure business to consumer—kept rising, giving more options to advertisers. People like the Moranis, Tellis and his partners or Menezes were fulfilling the marketers’ need to engage audiences—either through a brand promotion at a theatre or a public space or through a concert or college festivals. Advertising agencies, till then the custodians of the brand, could not help with this because events were—frankly speaking—too downmarket a business. Events fell under BTL whereas agencies handled only what was known as ATL. By 2004 it was evident that one could not just look at ad spends but had to look at marketing spends and BTL was claiming a growing share of the pie for most of the large advertisers. It was also evident that creative agencies did not have any strength in this area. This was something only the specialists could do. This is when agencies started feeling the need to get into the act—either by setting up their own divisions, as Ogilvy & Mather did, or through acquisitions. In 2005, Mudra acquired Kidstuff Promos and Publicis took over Solutions Integrated Marketing Services (now Solutions Digitas). Among other services, Solutions offers, direct, digital and promotional marketing services.

The Growth of Television There have always been a couple of big events that were hugely popular on television—Filmfare Awards, the Femina Miss India Contest to name two. However, from two channels in 1990, India

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had, over 10 years, grown into a market with more than 160 channels by 2006.16 Most wanted original content for at least 8–10 hours a day. The large scale events, especially the ones which were film and beauty-based, drew great viewership and ad revenue. So, broadcasters started vying for rights to major events across the board—in films, music, business, sports, and so on. Many commissioned events or created their own brand of events—the Star Parivar Awards, the Zee Cine Awards, an entire string of them for CNBC. These in-house or commissioned events helped create content and generate revenues—from sponsorships of the live event and from ad time sold for its telecast.

Big Media Gets into Events Soon media companies found that it made sense to convert some of their content properties into events. ENIL17 operates its event management business under the brand 360 Degrees which is now Absolute Brand Solutions. ENIL, a part of The Times Group, has been managing the Miss India and Filmfare awards, large national events. Now ENIL is developing more of its own properties in the hope of better margins. This is true for Network 18, NDTV, Zee, Star and a host of media companies. Many of them have half a dozen or more events, which milk their content from other media and use that to get a larger share of revenues from existing and new advertisers. For instance, Network 18 has scores of investors meets annually under the CNBC brand and also awards for tourism or the best states. The demand for events—from corporate India, from marketers, from television channels and from individuals—has kept increasing. But the eventual push for a structure to emerge came from the growth of corporate and marketing-led events.

The Way the Business Works ‘The events business is a combination of hospitality, creative and technology,’ explains Morani. There is no formal way in which this business could be studied. The structure you see in Table 8.1 is something that I created for my own understanding. It

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seems as good a way as any to figure out the broad contours of the business and what makes it tick. Essentially, there are two elements to understanding the business—the types of events and the value chain. These determine everything from cost and profit to valuation.

The Types of Events There are primarily three types of events:

Private These are, as the word suggests, events that are hosted privately and are not intended to make money. So, a wedding, a party, a get-together are all events. Until now, we would never have dreamt of asking professionals to organise these for us. Now, however, as the scale of things changes—the glitter, status tag, expense and headaches—there is a demand for professional help. It started with high profile weddings in large business families. It is now routine for even upper middle-class families to employ wedding organisers. Some of these may actually be one-man shows. Most large event management companies prefer not to do personal events. If at all they are organised the reason is to maintain client relationships. By their very nature, private events remain the most unorganised part of the event business.

Public These include any event where a general audience, against a focused or specifically targeted audience, is involved. These are exhibitions, award ceremonies, fund raisers, sports events, marathons and concerts, among other things. One of the most profitable events, according to industry estimates, is the Filmfare award ceremony. Wizcraft’s IIFA is estimated to have a top line of roughly `120 to `130 million. Cineyug specialises in film shows, either for other companies or its own. Many of these are crucial programme drivers on television.

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Corporate Events These form the bulwark of the growth that the organised event industry is seeing. The usual corporate event could range between `0.5 to `5 million in ticket size. Corporate events are by far the steadiest revenue stream with a steady level of profit. For some of the large event management firms, corporate events bring in over 70 per cent of their revenues and more than 80 per cent of profits. These events signal the increasing importance of BTL spends in the marketing mix. Because of their nature, corporate events have seen the maximum specialisation and also M&A activity. For instance Kidstuff Promos, acquired by the Mudra Group in 2005, is strong in brand promotions or activation work. About 60 per cent of Encompass’s top line came from corporate events such as sales meets, dealer conferences and so on. Another 30 per cent comes from brand activation, taking the total from corporate events to 90 per cent. Corporate events could be sub-classified into the following three types: Brand activation  This roughly refers to any event which involves getting in touch with the consumers—whether through a loyalty programme, a demonstration, a contest, a promotion, at a mall or a multiplex among dozens of other locations. The idea is to ‘activate’ the brand, engage the consumer directly and allow him to experience the brand through a contest or a demonstration. The consumer ‘touch points’ could be anything— multiplexes, malls, housing societies, parks, schools, colleges or corporate houses. ‘Activation has taken over the brand,’ says Wadhwa of Kidstuff. The firm started off offering promotions across 4–40 cities. Now each major promotion is run across 400–600 cities and towns, says he. It is, however, still an urban phenomenon. The operation is difficult because of the scale. It is more expensive because the cost-per-contact or CPC is 20–25 per cent higher than mass media. Internal events  Any event organised to meet the needs of an internal audience—employees, dealers, retailers, vendors and so on will fall under this category. Strategy workshops, sales meets,

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dealer meets, motivational workshops, doctor conferences would all form part of what are called internal events. External events  Any event organised to meet the need of an audience that is external to an organisation—summits, conferences, seminars, exhibitions, expositions (or expos)— would be part of external corporate events. It sounds like public events but external corporate events are different. The latter are targeted at a well-defined audience. An investor summit is meant for investors or a doctor conference for doctors and medical practitioners. For instance, Petrotech, a large event organised by ONGC twice every year, is reportedly a very profitable event. The critical factor in external events is the event management company’s relationship with trade bodies and government organisations.

The Costs and Revenues The ticket size of an event or its total budget could be anywhere from `5,000 to `50 million. However the industry has very few `10 million plus events, the bigger numbers are in the `2 to `4 million cluster. The other cluster is `1 million and below. The margins are better here and most of the activation work falls in this category. The margins could range from 2–30 per cent. Exhibitions usually net margins of 20 per cent or so. ‘Unless you make 25–30 per cent operating margins, you cannot make money,’ says Menezes flatly.

The Revenue Streams Depending on the kind of event and the ticket size, there are usually three revenue streams for event management companies: Advertising revenues  Traditionally, these make up about 60–70 per cent and maybe more for most events. These are more relevant for public events—say film and music shows. Ticket sales  These account for only 20–30 per cent of the revenue of events. ‘Everybody wants a free ticket or an invitation to an event,’ quips Tellis. In the overseas markets, however, ticket

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sales form a bulk of the revenues especially for film-oriented shows or concerts. Retainer or fee  This usually works for organising corporate events. The fee could be a percentage of the ticket size, a flat fee or a retainer. According to Abbas, a percentage share of the ticket size works only for very large events, say with a total outlay of `3 million or more. If the event is worth less than `3 million, the time consumed is less so a flat fee works better. Another way of charging is by the hour, like consultants or lawyers. However, most clients are reluctant to pay on a time basis. Television  A fourth revenue stream emerging for event companies is producing television content. Usually, event companies are contracted to put together an event for a television station—say, the Zee Cine Awards. Alternately, it sells the rights of its own event to a station just as Wizcraft does with its IIFA. Instead of doing that, Wizcraft puts together the event and creates a show out of it and sells it to the station. Wizcraft, Encompass and many other event firms have found that it makes sense to get into the television production of reality shows. For instance, Wizcraft put together Nach Baliye season 3and 4 for Star, among other shows.

The Costs The costs for event management firms depend on a number of factors. In a corporate event, for instance, it depends on the bells and whistles needed, on the artistes, and the objective of the event. ‘Event management is all about customisation, there is no rack rate. Therefore in an event of `50,000 to one worth `10 million, the differences are huge, in lighting, sound, stage, artistes and technology ...’ says Ignatius. The direct variable costs are sound, light, video, and so on. There is a range of technical options for which costs keep changing. Some of the major cost heads are: Technology and infrastructure  These are stage setting, décor, lighting, and infrastructure and could form 30 per cent of costs Artistes  This could form 20–25 per cent of costs.

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Permissions or the cost of regulation  Typically, permissions constitute anywhere between 13–20 per cent of all costs for an event management company. Music licencing costs  This is the royalty paid to music companies or collection societies for use of music at events. This could form 3–5 per cent of costs.

The Value Chain Given the types of events mentioned earlier, the value chain has the following three players:

The Client He defines everything; the kind of event, its scale, costs, nature of fees, everything. It is a bit like advertising; a bad brief will get a bad ad. The client could be an individual, a family, an industry association, government ministries, a company et al. While advertisers want a national presence in the events business, they are more comfortable with a firm whose base is in the city they are doing the event in. For instance, if Vodafone wants to do a brand promotion in a shopping centre in Bhopal, it prefers to deal with a Bhopal-based event company rather than Wizcraft or Showtime’s regional offices.

The Event Management Firm The event company puts together the whole event. It may or may not own the event—if it does, like Wizcraft owns IIFA—then the client is the event company itself. However, a bulk of the events organised in India are commissioned and the execution is done by the event company.

The Advertisers and Sponsors Sponsors usually finance various elements of the event—say air tickets, hotel stay, clothes, and so on. When you read on a podium that the airline partner is Jet Airways it means that Jet has paid for

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the tickets of the speakers, performers and organisers of an event. Advertisers usually take up space at the venue to advertise or buy airtime on the televised version of an event. The nature of advertisers differs according to the event. Some events may not have any advertisers—for instance private events, brand activation or internal corporate events—are not meant to generate revenues for the client.

The Metrics Earlier, the usual reaction within companies was: ‘Why an event management company, couldn’t we do it on our own?’ Much of the scepticism about the event management business stems from the inability to measure what it brings to the table; clients are not sure if they are being overcharged or getting value-for-money. Globally too, measuring accurately what events bring is somewhat difficult. The kind of metrics the business has or needs can be broken up into the following:

The Metrics for Clients The metrics clients would look at are:

Audience/Walk-ins or Ticket Sales For public events like concerts or film awards, the audience size and ticket sales could be a measure.

Cost per Contact The most essential measure for many of the clients, especially the ones using brand activation, will be on costs and audiences that events bring versus other media. While a cost per touch or contact is used, that is about all there is.

Internal Measures For clients using events for internal purposes—say, a strategy workshop or one on motivation—the impact on performance is

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something that only the company can monitor internally. This can be in the form of improved productivity of people or better revenues.

Rating Points Since most events are meant for television these days, the ratings an event gets also determines how much advertisers are willing to spend on it in the future. So, the historical TVR becomes an important metric for clients to sponsor it.18

Metrics for Measuring Business Efficiency These are essentially the metrics that the event management companies should be tracking to know how they are doing. These would also be part of the main variables that determine the valuation of event management companies and have been clubbed under ‘The Valuations’ (from ‘Revenue to overhead ratio’ to ‘Contracts’).

The Regulations19 The Permissions The nature and scope of events includes a vast range and variety of public events and private events from birthday parties and weddings to sports extravaganzas. Since these are held in public areas, municipal and local laws, regulations and rules come into the picture. Wherever public infrastructure is being utilised, various permissions of public bodies like the local municipal authority, the police and so on are required. While it is impossible to give an exhaustive list of such regulations and how each varies from event to event, and from town to town and state to state, an illustrative list of the nature of permissions required would give some perspective of what may be required. Some of the permissions that may be required are: • A No Objection Certificate or NOC from the local town Collector’s office or the equivalent district administrative head.

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• An NOC from the local police, of which the Commissioner of Police is the head in a city. • An NOC from the fire department. Also information related to the layout of the event venue, location of fire fighters and fire extinguishers are required to be furnished. • Permission is needed from the traffic police for arrangement on traffic movement to the event, particularly for processions, public rallies, meetings, public campaigns, film shootings, morchas and competitions. • An NOC from the Works Department of the municipal authorities for installing of electric generators. • An NOC from the local municipal authority particularly in cases where marquees, tents or coverings are being used. • A liquor licence from the excise department if liquor is to be served. • For any stage performances, censor certificates may be required. For example, in Mumbai, one has to obtain it from the Stage Performance Scrutiny Board, Government of Maharashtra. • A performance licence from the police. • If a park needs to be booked for an event, then permission from the Horticultural Department is required. • If foreign artistes are performing then an additional NOC is required from the Home Ministry Department of the state government and all necessary documents like copies of passports, visas, contracts, have to be submitted. All municipal and police authorities have the right to prevent any public nuisance from being caused. For instance section 397 of the Delhi Municipal Corporation Act of 1957 prohibits nuisance in any public street or place, including any disturbance by singing or using loudspeaker. Various other sections give powers to the Commissioner of the Municipal Corporation of Delhi to remove nuisance and grant licences for permitted use. Similarly, the Delhi Police Act of 1978 empowers and enables the Commissioner to make rules for regulating public events and movement of people and vehicles, for preventing disorder. The Act also provides for fines and punishment for those who fail to obtain licences. The municipal authorities also enjoy the power to impose taxes on such events.

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The Copyright Licences If a live performance involves use of any copyrighted music or if there is use of any pre-recorded music, then licences need to be obtained from the Copyright Societies. These are essentially collecting societies set up by various categories or rights owners to administer the rights collectively. The two main societies in India which relate to the music industry are IPRS and PPL.20

The Valuation Norms Since there have been about half a dozen deals where event companies have sold out to large marketing groups, there is a lot of material available on what works for the buyers. Typically, event management firms in India are valued at 4–6 times EBITDA, says Chatterjee.21 This could go to 10–13 times too.

The Variables There are a number of factors that determine a good valuation such as the following:

A Clean Balance Sheet When Encompass was looking to hook up with a big marketing services group the one thing that worked in its favour was its clean balance sheet. Encompass was valued on its historical performance, since it had no long term contracts or branded properties. The world’s second largest marketing services group, WPP, bought a 60 per cent stake in Encompass in early 2008 taking it to over 90 per cent after a few years (see Caselet 8a).

IPR or Branded Events ‘Wizcraft is the number one in events but its valuation comes from IIFA,’ says Chatterjee. His point is that having an IPR or an own-branded event is key to building a competitive advantage in

408  THE INDIAN MEDIA BUSINESS

a market where entry barriers are pretty low. If a sports body or a media company owns the rights to an event, it is, says Chatterjee, in a better position to create properties. (See ‘The Shape of the Business, Now’ for more details.) ‘The game in outdoor is acquisitions, in events it is “building your brand”’, says Chatterjee.

Content An event company that puts together great content for event after event makes more revenues and, therefore, gets a better valuation. This is especially true for firms that organise corporate events such as business seminars and investor summits where the quality of speakers is crucial. That explains why events owned by media companies get a better return from advertisers.

The Revenue Mix Many large events contribute hugely to turnover, but are low on profit contribution, so their wealth-creating capability is poor. Encompass and Wizcraft make a bulk of their revenues from the more steady corporate events.

Revenue to Overhead Ratio This ratio indicates how efficiently an event company is spreading its costs to generate more revenues out of the same rupee. In 2008, it was 6.7 times for Pico, one of the largest event companies in the world and based out of Thailand. This indicates a very good use of the same overheads to generate additional revenues.

Revenue per Person Since events—like software—is a people intensive business, this is a good metric to measure business efficiency.

EVENTS  409

Revenue per Event Again, because the nature of events, its ticket size and profitability vary hugely, on an average what a company makes per event too is a good measure of efficiency. Needless to say, this number has to be tempered with profitability.

Contracts The length of contract and renewability of contract is another measure for robustness. For several large international players, average contracts are for four years and more and renewability could be as high as 80 per cent. In India, by contrast, most contracts are only for a single event.

Individuals, families

The Possible Clients

Brand activation (for example, promotions, contests, demonstrations, direct marketing, loyalty programmes) Internal workshops (for example, strategy, marketing, sales meets, dealer meets, doctor conferences)

Corporate Telecom, FMCG, Financialservices, auto, liquor and other companies Industry associations Governments Trade bodies

Consumer exhibitions Award ceremonies (for Media, liquor, auto, example, film, TV, banking, any type of awards) financial services, other Concerts Marathons, sports events Games, film companies, music bands festivals, City festivals Fund raisers (for politicians, causes or other things)

Public

Weddings Birthday parties Large scale personal celebrations

Private

The Event Formats

Table 8.1  The Shape of the Indian Events Business

Encompass Wizcraft Fountainhead Percept D’Mark Showtime Kidstuff Promos Candid Marketing Solutions DigitasReed

Wizcraft Fountainhead Percept DNA Networks 360 Degrees RAMs Cineyug

Wizcraft Percept D’Mark

The Event Management Firms

Usually doesn’t have advertisers, the client is the only advertiser.

Vodafone Standard Chartered Manikchand Videocon Nokia ICICI Bank

Usually does nothave advertisers

The Advertisers

InformaEMap

Source: Author. Notes: 1. Reed and Informa are foreign majors in the BtoB events space. 2. The list of clients, event companies and advertisers is not exhaustive but indicative. Analysis and compilation by Vanita Kohli-Khandekar. This chart may be reproduced only with due credit to either The Indian Media Business or Vanita Kohli-Khandekar.

External events (for example, summits, conferences, seminars, expos) Trade exhibitionsInvestor SummitsConventions

412  THE INDIAN MEDIA BUSINESS

Caselet 8a  The Encompass Story Roshan Abbas was a mass communications graduate from Jamia Milia University. As a student, he hosted radio shows, anchoring TV programmes, compering fashion shows and ghazal nights plus doing theatre in the mid-1990s. ‘Then, event companies were not event companies, they were middlemen. There was a huge content gap for events and not even 15–20 per cent of the need for content was being serviced,’ says he. There was a lot of avoidance of live events by clients, says Abbas. That is because, ‘In TV or print advertising the variables are controlled. In live events there are too many variables that can’t be controlled,’ says Abbas. In 1996, Rediffusion had put together a sales meet for Singer. At this meet a 15-minute piece on change had to be presented. Abbas cooked up the script, the singers, dancers: ‘I ended up doing an event,’ he laughs. That led to other shows and Abbas and his partner Sukrit Singh became defacto event managers for marketers looking for help with promotions, sampling or other below-the-line action. Since Abbas had hosted enough shows, he knew the disasters that could occur and he avoided those. That is also the year Singh and Abbas set up Encompass. In 1997 Encompass did its first big show, the launch of flexi-paging in India by Motorola. The bill for the event was `2 million and Encompass was in business. After burning their fingers with a couple of clients, Abbas and Singh decided that they did not want to be ‘abused vendors’ and that they would focus only on corporate events. Both had successful other careers—Abbas in television and radio and Singh in theatre—so they could survive even if the events business was not making money. When they did get an event, Abbas usually ending up hosting the show free of cost for clients. ‘We were blessed with great clients—Colgate, Fuji, Opel, Motorola, Gillette and so on. We were in fact an ad agency which was doing all the live experiential marketing stuff for them,’ says Abbas. There was no metric for what was a (Caselet Contd.)

EVENTS  413

(Caselet Contd.) successful event. In early 2001–02 there was buzz about the big fat Indian wedding, but Encompass stayed away from it. That is when the partners decided that Encompass’ philosophy was to bring brands to life as experiences. Since events were becoming programming drivers for television, it made sense to get into television content too. When KBC was being launched in 2000, Star Plus needed to do on-the-ground promotions that help it get in touch with audiences directly.22 Various ideas were floated, doing street plays and road shows was one. However doing this across 10 cities on the same day with creative integrity and very few variances was difficult. Also it wouldn’t create euphoria or give a sense of the true scale of the show. The final idea was to do a promotion across 10 cities and shower people with `10 million in false notes with the announcement that to make this `10 million real, they had to watch KBC. ‘The idea was to let people experience money,’ says Abbas. That is when, ‘we realised that we were getting into promotional marketing,’ says Abbas. He describes his time from 1996 to 2006 as his ‘live MBA’. In 2008, WPP, the world’s second largest marketing services group acquired a majority stake in Encompass and took this up to 90 per cent soon. Though Abbas and Singh still own 10 per cent between them. Encompass is now aligned to JWT, the ad firm which is a part of the WPP network in India.

Notes   1. The data on deals and many of the other details on size, growth et al are sourced from The Business of Experiences, a report on the events and activation industry released by EY in 2012. The report is based on interviews the firm did with 32 CEOs in the events business.   2. Each report I came across carries parts of the events business clubbed with something else. So, it is virtually impossible to calculate the total size of the business globally.   3. Powar was earlier in senior positions at Wizcraft and Percept.   4. BTL essentially is any form of non-mass media communication, against typical mass-media communication which is advertising, also referred to

414  THE INDIAN MEDIA BUSINESS

  5.

  6.

  7.   8.   9. 10.

11. 12.

13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

as above-the-line or ATL. BTL includes among other things, events, public relations, product design, direct marketing. The global survey was conducted by The International Experiential Marketing Association (see www.ixma.org) and its interactive newsgroup, The Experiential Marketing Forum (see www. experientialforum.com). The informal online survey polled members in 159 countries and sovereign nations to determine the most successful experiential marketing tactics implemented internationally, as well as the tactics that have the most potential to negatively affect the brand experience. Fifty eight per cent of the respondents said that a live brand experience is the single most powerful experiential marketing tool (Experiential Marketing Forum 2007). This is not rural India, but small-towns. Think of them as non-metro India or rest of urban India. These are towns with a population of anything between 100,000 to under 4 million. Several marketers also include towns with a population of 50,000 or more in this. Informa’s overall group revenues in 2012 stood at £1.23 billion. However the events business brought in £536 million. The remaining came from the group’s academic, commercial and professional information businesses. This, incidentally, is true for most businesses in India. By mature market standards, our willingness to accept crazy deadlines and kill ourselves trying to meet them is way higher. Chatterjee was earlier head of 360 Degrees, BCCL’s events arm. He is currently head of brand and communications for the RPG Group. Just like a film or a piece of music, the copyright or the right to have that event under that brand name, say IIFA, belongs to Wizcraft. This therefore creates an asset, much like a film or a piece of music which will be valued as an asset. Kidstuff Promos & Events was bought by Mudra in 2005. IIFA is an annual film award function that Wizcraft created. It is held outside of India every year and a chunk of Indian film personalities then congregate at this venue. Amsterdam, Bangkok, Dubai, Yorkshire are some of the cities where IIFA has been held. These were among some of the most popular shows on Indian television. Mohammed Morani is director of the Cineyug Group of companies. The firm he formed with his family members. It was sold to Mudra in 2005. There are now more than 800 channels going by TRAI numbers in April 2013. ENIL is a listed subsidiary of one of India’s largest media groups, The Times Group. TVR is Television rating for an event. This section was put together by Anish Dayal, advocate, Supreme Court of India and a specialist in media and entertainment law in 2008. There have been no significant additions to it in this edition. IPRS - Indian Performing Rights Society. PPL—Phonographic Performance Limited. See Chapter 4 on Music for more details. Earnings before interest, taxes, depreciation and amortisation. The licenced Indian version of the game show ‘Who wants to be a Millionaire’, on Star Plus, that became a huge hit.

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420  THE INDIAN MEDIA BUSINESS Levitt, Leon (Year). ‘Aggregating and Segmenting Audiences’, Cox Newspapers, Newspaper Association of America (NAA). Leyden, Johm (2007). ‘Oz Government Pushes Mandatory Net Filters, Yellow brick road blocks’, December. Lodestar Media Research. Lowry, Tom (2006). ‘Fox’s Crafty New Media Deal’, BusinessWeek, 13 April. Luthra, H.R. (1986). Indian Broadcasting Publications Division. Government of India: Ministry of Information and Broadcasting. MacMillan, Douglas (2007). ‘Trying to Figure out HD Radio’, Businessweek, 29 May. Madan, Supriya. 1998. ‘Outdoors, A Study to Identify and Explore the Factors Affecting the Advertising Recall of Hoarding’. Ahmedabad: Mudra Institute of Communication. Manorama Year Book (2002). Manto, Saadat Hasan (1998). Stars from Another Sky: The Bombay Film World of the 1940’s. India: Penguin Books. Market summary – Outdoor, UK market, downloaded from the net. Mathai, Palakunnathu G. (1995). ‘Is this Really the Final Episode?’ Businessworld, 8–21 March, 14(25). Mid-Day (2013). ‘This Digital Snobbery’, Mid-Day, 22 March. Ministry of Information and Broadcasting, Government of India (1982). ‘Mass Media in India’ (1980–81), compiled and edited by the Research and Reference Division. Government of India: The Director Publications Division. ——— (2000). ‘Information Technology and Communications’, final draft report of the sub-group on convergence. ——— (2001–02). Annual Report. ——— (2002). ‘Entry of Foreign Print Media and Foreign Direct Investment in Print’, Standing Committee on Information Technology, 32nd Report presented to the 13th Lok Sabha, 22 March. National Readership Survey (2001). Round 213, All India. A.C. Nielsen, IMRB and Taylor Nelson Sofres Mode (TNS Mode). New Technologies in OOH, Australia, October 2006 Newspaper Association of America (NAA) (2007a). ‘Newspaper Online Operations: Performance Report 2006’, NAA, October. ——— (2007b). ‘Newspaper Footprint, Total Audience in Print and Online’, NAA. ——— (2008a). ‘The Online Community Cookbook, Recipes for Building Audience Interaction on Newspaper Websites’, Digital Edge Report, NAA, March 2008. Available online at www.naa.org. ——— (2008b). ‘Eight Trends to Track in 2008: From Measuring Total Audience to Hyperlocal News Coverage, Newspapers are Auditioning New Business Practices in 2008’, PRESSTIME staff writers, NAA. ——— (2008c). ‘The Online Community Cookbook, Recipes for Building Audience Interaction on Newspaper Websites’, Digital Edge Report, NAA, March. Newspaper Association of America (NAA) and American Society of Newspaper Editors (2007). ‘Growing Audience, A New Approach to Product Development’, December, Clark, Martire & Bartolomeo, Inc. ——— (2008). ‘Growing Audience, Innovation in Action—Nordjyske Medier Integrates Ad Sales’, Editorial Production, April 2008.

REFERENCES AND SELECT BIBLIOGRAPHY  421 Growing Audience—Schibsted Media, a model for global innovation, Newspaper Association of America (NAA) and American Society of Newspaper Editors, December 2007. Out-of-home Marketing Association of Canada study conducted in 2006. Outdoor Advertising Association of America (OAAA) ‘History of Outdoor Advertising’. Available online at http://www.oaaa.org/outdoor/sales/history. asp ——— (2003) ‘Industry Practices Paper’. ——— (2007). ‘Regulating Digital Billboards’. Outdoor Media Association Inc, Australia, media release, January 2008. Page, Will (2007). ‘Article name’, Music Ally. Parks Associates. ‘Internet Radio Advertising Impact Study’, a Parks Associates white paper for TargetSpot (endorsed by the Internet Advertising Bureau and the Radio Advertising Bureau in the US). Pavarala, Vinod and Kanchan K. Malik (2007) Other Voices: The Struggle for Community Radio in India. Delhi: SAGE Publications. Phillips, Leigh (2008). ‘European Media in the Digital Age’, EU observer. Portrayal of Women Advisory Committee (2002). ‘Report on The Portrayal of Women in Outdoor Advertising’, Australia. Prabhudas Lilladher (2008a). ‘PVR: Leveraging on Core Business’, July. ——— (2008b). ‘Entertainment Network India Limited’, August. ——— (2008c). ‘UTV Software Communications’, Annual Report analysis, August. Prasad, Shishir (1999). ‘Satyam’s Prize Bid’, Businessworld, 13 December, 19(31): 44–47. Prasar Bharati (2000, 2002, 2003). Annual Report, from Doordarshan, Delhi, and http://mib.nic.in Press Information Bureau (PIB) (2005). ‘Regulation of News and Entertainment Channels’, 8 August. Government of India: PIB. Press in India (2001). Registrar of Newspapers in India (RNI). Press Institute of India, archives. PricewaterhouseCoopers (2002–06, 2003–07, 2008–12). Global Media and Entertainment Outlook. PricewaterhouseCoopers and FICCI (2008). ‘The Indian Entertainment and Media Industry’. Profitable Channels LLC (2006). ‘Adding Out-of-Home Digital Advertising Networks To The Marketing & Media Mix’, August. Radar (2002). ‘IMRB’s Syndicated Establishment Plus Listenership Studies’. IMRB International, Outlook. Radio Ad Lab (2004–05). ‘Radio’s ROI Advantage, Radio’s Return on Investment Compared to Television’, A study by Millward Brown and Information Resources Inc. ——— (2007). ‘Radio and the Internet: A New Study of How Radio Ad Can Complement Internet Campaigns’, Study conducted by Harris Interactive. Radio Marketing Guide and Fact Book for Advertisers (2000–01). Radio Advertising Bureau. Rajadhyaksha, Ashish and Paul Willemen (1994). Encyclopaedia of India Cinema. Delhi: Oxford University Press, in arrangement with the British Film Institute. New revised edition, 1999.

422  THE INDIAN MEDIA BUSINESS Reserve Bank of India (2004). Foreign Exchange Management Act (FEMA), 1999—Current Account Transactions—Liberalisation—A.P. (DIR Series) Circular No. 76, 24 February. Report of the First Press Commission appointed in 1951. Report of the First Press Commission 1953. ‘Capital Investment and Turnover’, Chapter III, pp. 40–48 and ‘Economics of Daily Newspapers,’ Chapter IV, pp. 49–59. Report of the Indian Banks Association (1999). Working Group on Bank Finance for the Film Industry. Saffo, Paul (Year). ‘From Gutenberg to Galaxy: There Has Never Been a Better Time to be a News Entrepreneur’, Newspaper Association of America (NAA). Available online at http://www.naa.org/Resources/Articles/FONFrom-Gutenberg-to-Galaxy/FON-From-Gutenberg-to-Galaxy.aspx? Samuel Raja D. http://www.business-standard.com/india/news/tata-sons%5Cfy08-net-rises-13/335899/ Saregama India (1999–2000 and 2001–02). Annual Report. Satellite & Cable TV magazine, archives. Schenker, Jennifer L. (2007). ‘Babelgum’s Big Bet on Internet TV’, BusinessWeek, 11 June. Shankar, Kumud (2008). ‘Bhojpuri Cinema, A Journey through the Heart of India’, Dissertation, Mudra Institute of Communication Ahmedabad, Ahmedabad. Shekhar, Shashi and Vijay Srinivas. 1990. ‘Music Mughal’, Businessworld, 7–20 November, 10(15): 62–69. Sinha, Supriya (1999). ‘Outdoor Tracking’. Ahmedabad: MICA. Swendner, Sharon (2006). ‘Real Estate Advertising, A Look into the Future’, NAA, February. Tewari, Santosh Kumar (2001). ‘Provisional Press Councils Needed’, Vidura, (Magazine of the Press Institute of India), July–September, 38(3): 6–7. The Brand Reporter (2008). ‘The Single TV Home’, The Brand Reporter, 16–31 May. The Economic Times (2006). ‘Indiatimes 8888 and Soundbuzz Launch 23,000 MP3 Ringtones’, November. The Economist (2005). ‘How the Internet Killed the Phone Business’, 15 September. ——— (2005). ‘The War of the Wires’, The Economist, 28 July. ——— (2011). ‘The Winning Streak’, The Economist, 20 August. ——— (2012). ‘Battle of the Internet Giants’, The Economist, 1 December. ——— (2013). ‘Sexy Signage’, The Economist, January 26. The Hindu and The Hindu Business Line—archives. The Kelsey Group (2006). ‘Competing with Free Classifieds’, Presentation from The Kelsey Group, February. The Press and Registration of Books Act (1867). Available online at http://mib. nic.in The Press in India, RNI (2003–04). Telecom Regulatory Authority of India (TRAI) (2005a). ‘Digitalisation of Cable Television’, Consultation Paper No. 1/1005, 3 January.

REFERENCES AND SELECT BIBLIOGRAPHY  423 Telecom Regulatory Authority of India (TRAI) (2005b). ‘Financial Analysis of Telecom Industry in China and India’, Study paper No. 1/2005, 16 June. ——— (2005c). ‘Indicators for Telecom growth’, Study paper No. 2/2005. ——— (2005d). ‘Next Generation Networks’, Study Paper, 15 July. ——— (2007). Consultation Paper on Issues Relating to Mobile Television Service, 18 September. ——— (2008a). Consultation Paper on Growth of Value Added Services and Regulatory Issues, 28 May. ——— (2008b). ‘Study Paper on Measures to Improve Telecom Penetration in Rural India—The Next 100 Million Susbscribers’, 16 December. Samuel Raja D, John (2008). ‘Tata Sons FY08 Net Rises 13%’, Business Standard, 30 September. Shekhar, Meenu (1994). ‘Enter Big Bucks in the Cable Industry’ Businessworld, 30 November–13 December, 14(18): 138–43. Shekhar, Shashi and Vijay Srinivas (1990). ‘Music Mughal’, Businessworld, 7–20 November, 10(15): 62–69. Sinha, Pramath Raj (2008). ‘Time to Grow Up, Indian Media,’ Mint, 22 September. Thoraval, Yves (2000). The Cinemas of India 1896–2000. India: Macmillan India. UBS Investment Research (2005), JCDecaux, September 2005. Vidura—Press Institute of India’s magazine archives. Vishwanathan, Vidya (1999). ‘Masters of the Web’, Businessworld, 24 May, 19(3): 30–35. Vogel, Harold L. (2004). Entertainment Industry Economics: A Guide for Financial Analysts. 4th edition. USA: Cambridge University Press. Williams, Roy (2003). ‘Outdoor Ads that Get Results’, August. Available online at entrepreneur.com Willmore, Larry (2001). Government Policies toward Information and Communication Technologies; A Historical Perspective. United Nations. World Press Trends (2007). World Association of Newspapers. ——— (2008). World Association of Newspapers. Websites www.Afaqs.com www.eventia.org.uk www.eventfaqs.com All India Radio (AIR). www.allindiaradio.org Audit Bureau of Circulations (ABC). www.auditbureau.org Community Radio India. http://www.communityradioindia.org/index.html. Experiential Marketing Forum. http://www.experientialforum.com International Federation of Phonographic Industries. www.ifpi.org Indian Performing Rights Society. http://www.indiavibes.com/iprs/ Internet Advertising Bureau .www.IAB.net Ministry of Information and Broadcasting. http://mib.nic.in Ministry of Information and Broadcasting website. http://mib.nic.in/default. aspx Motion Picture Association of America (MPAA) News Broadcasters Association

424  THE INDIAN MEDIA BUSINESS Media Research Users Council (MRUC). http://mruc.net/ Newspaper Association of America. www.naa.org Outdoor Advertising Association. http://www.oaa.org.uk/ Outdoor Advertising Association of America The Indian broadcasting Foundation Zee Television. www.zeetelevision.com

Index Aaj Tak, 95 above-the-line (ATL), 389, 413n4 ABP Limited, 2, 12, 24 actors fees, 214 Adalat, 99 addressability, 91. See also Conditional Access System (CAS) system Adex India, 283, 296 Adlabs, 169, 193, 195–96, 216 Advanced Research Project Agency (ARPA), 312 advertiser(s) on media, xxxii in print industry (top) categorization of products, 49–50 companies in, 50–51 on radio industry (top) categorization of products, 294–95 companies, 295–96 on television industry (top) categorization of products, 141–42 companies, 142–43 advertising cinema (see cinema advertising) code, mandatory programme sharing for, 124–25 correlation between GDP and, 5 impact on MNCS, 25 over-dependence on, 4 rates, 112–13 Advertising Agencies Association of India (AAAI), 70, 111 The Age, 14

aggregator, rise of, 307–8, 319–20 Airtel, xxv, 319 Airtel’s Digital TV, 97 airtime, 113–14 Akash Bharati Bill of 1978, 116, 284 Akashvani Bhavan, New Delhi, 79 Akhtar, Javed, 257–58 Akhtar, Zoya, 257 Alam Ara, 178 All India Radio (AIR), 4, 116–17, 263, 389 declining of, 276–77 in-house Audience Research Unit, 283 origin of, 274–76 alternative revenue system in Indian film industry, birth of, 187–92 Amar Ujala, 7, 56, 58 Amazon, 300 Ambani, Anil, 279 Amit Mitra Committee, 290 A&M magazine, 25 AM mode, 279 Ananda Bazar Patrika (ABP), 18, 39 Andhra Patrika, 22 Andhra Prabha, 22 Andhra Pradesh Film Chamber of Commerce, 210 Ankhiyon Se Goli Maare, 190–91 Annanagar Times, 13 Ansari, Tariq, 24 Antakshri, 394 Apple, 300 Arbitron Inc, 384n13 Arrival of a Train at Ciotat Station film, 175

426  THE INDIAN MEDIA BUSINESS Arunachal Pradesh Union of Working Journalists (APUWJ), 7 The Asiatic Mirror, 38 Asia Today Limited, 87 Association of Indian Magazine Publishers (AIM), 11–12 Association of Radio Operators of India (AROI), 291 Atlantic, 308 ATN, 242 Atomic Energy Act, 1962, 45 ATS-6 Satellite, NASA, 81 Audience-FAX initiative, 37 Audit Bureau of Circulations (ABC), 6, 20, 34, 36, 59 Average Revenues Per User (ARPU), 327 Axel Springer, 12 Bachchan, Amitabh, 181–82, 185–86 Balaji Telefilms, 99–100. See also Jeetendra; Kapoor, Ekta Balakrishnan, Ajit, 313 Basu, Durga Das, 37 battle for scale, xxv–xxvi BCCL, 4, 283, 353 buying of stakes in small and medium companies, 8–9 funds raising through IPO in 2006, 292 operating profits in 2011-12, 20 profit in 1987-88, 24 below-the-line (BTL), 388–89, 413n4 Bengal Gazette, 15, 17. See also Hicky’s Gazette B.G. Verghese Committee (1977), 284 Bhansali, Sanjay Leela, 170 Bharat Sanchar Nigam Limited’s (BSNL), 97 Bhasmasur Mohini, 177 Bhatt, Mahesh, 160, 162 Bhuj earthquake (2001), 159 Big FM radio, 268, 270, 279 big radio stations, 293–94 Bijli, Ajay, 223n10 Bloomberg, 268 Bombay film world of 1940s, 224n25

Bombay Talkies, 178 Bombay Times, 270 Borse, Vandana, 385n14 box-office gross, 205 Brahminical Magazine, 17 brand activation, 15, 400. See also corporate events Brand Equity, 23 brand extensions, 31–32 Brazil, TV industry of, 68 Brihanmumbai Municipal Corporation, 385n15 British Broadcasting Corporation (BBC), 12, 80, 88, 272, 300 British imperialism, 17 broadband meaning of, 345n10 networks, xxiv radio over, 268 Broadcast Audience Research Council (BARC), 70–71, 111–12, 155n7 broadcasting industry, in India broadcast business models, 101–2 revenue system in from mobile and internet, 104 through advertising, 102–3 through overseas market, 103–4 Broadcasting Limited, 92 Broadcasting Service Regulation Bill, 2006, 120 broadcasting technologies, 77–78 Broadcast Regulatory Authority of India (BRAI), 120 Broadcast Reproduction Right, 127 BSkyB, 103 BtoB magazine, 47–48 Buckingham, James Silk, 16 bulletin board system (BBS) piracy, 251–52 Buniyaad, 82, 99, 255. See also Joshi, Manohar Shyam Bureau of Indian Standard (BIS), 120 Burman, S.D., 236 business of English newspapers publishing issues in, 5 metrics of, 32–34

INDEX  427 requirement of high capital investment for publishing, 20 shape of, 4–5 way of working, 27–28 of films, 216–17 Business India, 25 business-to-consumer (BtoC) magazine, 47–48, 62n23 Business Today, 36 Businessworld magazine, 24 buying and selling function, challenge in recent years, 33 Cable Act 2011, 97 Cable Act of 1995, 114, 118–19, 128, 130 Cable and Satellite Association of Asia (CASBAA), 71, 73, 155n12 cable networks in US, 155n13 Cable News Network (CNN), 25, 86–87, 268, 300 Cable Television Networks (Regulation) Act, 1995, 93 cable TV industry, in India, 82–89, 184 crisis in 2002, 93 logjam in 2003, 94–95 methods to get out of, 95–98 Calcutta Journal, 16 calling party pays (CPP), 317 Canadian Broadcasting Corporation, 80 Canadian Financial Institutional Investor (CPDQ), 291 cassettes industry emergence of, 237–38 Gulshan Kumar and, 238–39 Cellular Mobile Telephone Service licence (CMTS), 158n61 Centre for Development of Telematics (C-DOT), 316 Chanda, A.K., 284 Chanda, Pradeep, 240–41 Chandni, 241 Channel V, 242 Chaurasia, Hari Prasad, 275 Chinai, Alisha, 241

Chitralekha, 63n39 Chitralekha, Gujarati magazine, 23 Chitre, Nanabhai Govind, 176 Chopra, Yash, 181 Chrome, 313 The Chronicles of Narnia: The Lion, the Witch and the Wardrobe, 169 cinema advertising, 171–72 Cinematographic Act, 1952, 211–12 Cinemax India, 174. See also PVR Cinemax circulation, 34, 61n10 civil defamation, 338–39 Civil Defence Act, 1968, 45 classified advertising, 321–22 Clear Channel, 353 Close up Antakshri, 394 clusters, in digital industry earned digital media, 322 owned digital media, 320–21 paid digital media, 321–22 Code Division Multiple Access (CDMA), 318, 346n30 Code of Criminal Procedure, 1973, 41 Colors channel, 61n11, 104 colour transmission, beginning in India, 81–82 Comcast, 103 Communications Commission of India (CCI), 118 community radio stations (CRS), 271–72, 290 compact discs (CDs), 31–32, 244 concert revenues, 232–33 conditional access system (CAS) system, 91, 94, 96, 130 Confederation of Indian Industry (CII), 224n34, 297n3 content creators, 320 content regulation, in films, 212–13 Convergence Bill, 117–18 Copyright Act, 1957, 41, 128 Copyright Amendment Act, 2012, 256–60 Copyright Enforcement Advisory Council (CEAC), 210

428  THE INDIAN MEDIA BUSINESS copyright(s) of films, 207–9 licences, 407 corporate events, 400–401 Cosmopolitan, 12 cost per gross rating points (CPGRPs), 115 cost per mille (CPM), 64n57, 327 cost per thousand, 36–37, 64n57 cost(s) incur in digital media, 323 for radio station operation, 280 cover price cuts, in India, 5 criminal defamation, 339–40 Customs Act, 1962, 44 Cybermedia, 32 Dabangg, xxvii Dainik Bhaskar, 24, 56–57 Dainik Jagran, 24, 27–28, 31, 56, 58, 62n21 Dalal Street Journal, 25 Darr, 241 Dataquest, 12 Dataquest, 25 Davar, Maneck, 23 DB Corporation, 4 DD Direct Plus, 93 DD Metro, 92 Debonair, 23 Deccan Chronicle, 63n46 Deccan Chronicle Holdings, 47 defamation availability of principle defence against claim of, 339 criminal (see criminal defamation) definition of, 338 principle constituents of, 338 Defense Advanced Research Projects Agency (DARPA), 312 360-degree solution, 385n20 Delhi Beat, 30 Delhi Times, 30 Delivery of Books and Newspapers (Public Library) Act, 1954, 45 delivery, of television signals, 144 DEN Networks, 67

Department of Telecom (DoT), 316–17, 330, 332–33 Des Mein Nikla Hoga Chand, 99. See also Irani, Aruna devices, growth of, 311 Dhariya, Amol, 47–48 ‘The Dhoni Effect’ report, by Ernst & Young, 63n47 digital addressable system, 97, 130 digital devastation in America, case study, 52–55 Digital Edge Report, 6 digital media industry, Indian cost of operation, 323 market of, 337 metrics of revenue metrics, 326–27 traffic metrics, 324–26 opportunities and trends in devices growth, 311 offline media, growth of, 309 pay revenues, 308–9 rise of aggregator, 307–8 social media, growth of, 310–11 video, growth of, 310 past of internet, 311–15 telecommunications, 315–19 regulations in, 327–34 revenue streams in, 322–23 shape of business, 303–6, 336 valuation norms, 334–35 working of business clusters in, 320–22 value chain, 319–20 Digital Millennium Copyright Act of 1998 (DMCA), US, 118, 258, 329 digital theatres, xxiv, 194–96 Digital Video Broadcasting– Handheld (DVB–H), 77–78 digitisation changing patterns in digital homes, implications of, 148–49 of films, 171 implications of, 146–47 law, 130 meaning of, 144

INDEX  429 methods for, 145 music, 230–31 viewing behaviour, 147–48 worry among customers and service providers regarding, 144–45 digitised cable system, 96–97 Dil Chahta Hai, 166 Dilwale Dulhania Le Jayenge (DDLJ), 188 Director General of Foreign Trade, 211 direct-to-home (DTH), xxiv, 70, 173 broadcasting from 2001, 120 operators of, 64, 73, 75 pay per view services by, 78–79, 174 revenues from, 68 DISH Network, 103 Dish TV, 97. See also Essel Group Disney UTV, xxiv, 159–60, 163 display advertising, 322 distribution cost, in newspapers and magazines publication, 30–31 distribution, in India platforms for, 104–5 revenue streams for by advertising, 106 carriage and placement revenues, 106–7 by subscription, 105–6 DNA, 58 domestic co-production, in Indian films, 197 Don, 166 Doordarshan Audience Research Television Ratings, 110 Doordarshan (DD), 23, 32, 34, 76, 102, 114, 116, 389 competition over broadcasting rights, 124 first satellite television experiments in 1975-76, 81 forex crisis in India, impact of, 88 government encouragement of satellite system, 81 Hum Log serial success, 81–82

non-renewal of HFCL-Nine’s contract in 2001, 92 rating system of, 110 revenues in 2011-12, 93 stronghold in rural areas, 93 telecast fees and commercial airtime rates, increasing rate of, 82 transmitters coverage of, 80 Doordarshan Kendra, 80 downlinking guidelines, from India, 122–23 dropping circulation of newspapers, reports of, 2 Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954, 45 Dutta, Sumantra, 349 earned digital media, 322 Ebela newspaper, 2 EBITDA, 48 economics, of print industry production costs of newspapers and magazines, 28–31 revenue generation, 31–32 The Economic Times, 9, 47 The Economist, 8, 308 Edison, Thomas, 174 Eenadu, 7, 22, 25 Eenadu TV, 89 Ei Samay newspaper, 2 ‘Ek do teen’ song, in Tezaab, 187 Election Commission of India, 8 Elphinstone Bioscope Company, 175 email advertising, 322 EMap, 388 Emblems and Names (Prevention of Improper Use) Act, 1950, 44 Emergency in India (1975–77), 16, 21, 39 end user piracy, definition of, 251 English and non-English publications, gap between, 4 English newspapers challenges in front of, 3 circulation of, 3 online media impact on, 3

430  THE INDIAN MEDIA BUSINESS Entertainment Network India Limited (ENIL), 384n6, 414n14 entertainment tax, 162, 214 EY, 387–88 ESPN–Star Sport, 91 Essel Group, 97, 133 ETC, 242 ETV Marathi, 103 Evening News, 22. See also Times of India (TOI) Event and Entertainment Management Association of India (EEMA), 387 events industry, Indian below-the-line (BTL) investments in, 388–89 case study, 412–13 cost and revenues of, 401–3 growth of, 387, 396–98 metrics of for clients, 404–5 for measuring business efficiency, 405 past of, 394–96 regulations in, 405–7 shape of business, 410–11 availability of technology, 392 bureaucracy and taxes, 392–93 business fragmentation, 390 crunch of new talent, 391 issues in business, 389–90 lack of infrastructure, 391–92 pressure cooker business, 390–91 types of events corporate events, 400–401 private events, 399 public events, 399 valuation norms of, 407–9 value chain, 403–4 way forward, 393–94 working of business, 398–99 Experiential Marketing Forum, 414n5 The Express Group, 34 external events, 401. See also corporate events

Facebook, 300, 303, 310 Fairfax Media, 14 Federal Communications Commission (FCC), US, 70, 72–73, 98, 118, 297n10 Federal Networking Council (FNC), 313, 345n21 Femina, 31 FICCI-Frames conference Chennai (2009), 162, 222–23n7 FICCI-KPMG report (2013), 11, 62n21, 162, 168, 170, 230, 233, 351 file transfer protocol (FTP), 311 Filmfare Awards, 47 film industry, Indian alternative revenue streams, birth of, 187–92 big guys in films retail business, 219 birth and evolution of, 176–77 break-up of studio system, 179–80 impact felt in 1970s and 1980s, 180–85 changing eco-system (2006–2009) changing trends in marketing of films, 198–99 production of films, 197–98 changing trends in retail consolidation, 174 rise in cinema advertising, 171–74 content regulation, 212–13 difference between other films industry and, 219–20 diversification of revenues, 220 emergence of new talent, 159–60 financing and taxation process entertainment tax, 214 fee to actors, 214–15 foreign investment, 213 right to use copyright in film, 213 VAT on film distribution, 214 foreign films, import of, 211–12 fun of 1940s, 178–79 new beginning in 1990s, 185–87

INDEX  431 new film industry (2002–2006), birth of cleaning up finances, 192–94 revolution in retail business, 193–97 other laws and regulations in, 215–16 products use in, history of, 221–22 regulations in copyrights in cinematographic film, 207–9 history of, 206–7 piracy problem, 210–11 rights and piracy, 207 revenue generation, increase in, 160 shape of, 218 shape of business issues in, 161–66 opportunities, 166–71 studio years, 177–78 valuation norms in variables used for, 216–18 working of business metrics in film business, 204–5 value chain, 200–204 film music, 246–47 FIPP, 12 First City, 30 FM broadcasts, 279 FM mode, 279 FM radio, 77, 229, 264, 285–86 origin of phase one policy, 285 phase three of privatisation, 288–90 phase two of privatisation, 285–88 Forbes India, 2, 12 foreign direct investment (FDI), 298n29 in film industry, 213 in print media, 2, 26–27 relaxation on DTH by MIB, 131 restrictions on foreign companies, 42–44 in radio industry, 289 in telecom industry, 333–34

Foreign Exchange Regulation Act (FERA), 260n11 foreign films, import of, 211–12 foreign institutional money (FII), 61n4 foreign publishers, entry into India, 12 forex crisis in 1991, India, 88–89 formula, emergence in Indian film industry, 182–83 Fortune India, 2, 12 Fox Star Studios, 170 free commercial time (FCT), 102 Freedom of the Press, 39–41 free publications, 13–14 Gada, Hiren, 319 Galactic Network, 312 Gandhi, Indira, 21, 284 Gandhi, Rajiv, 316 Gangs of Wasseypur, 170 general entertainment channels (GECs), 75 George P. Johnson, event company, 388 Ghai, Subhash, 186 Ghose, Bhaskar, 79 Global Mobile Personal Communications Services (GMPCS), 347n42 Global System for Mobile Communication (GSM), 110, 346n30 2G networks, 77 Google, 300, 303, 319 GQ magazine, 12 Gramco, 234–42, 244, 260n11 Gramophone Company of India (GCI), 240, 260n10 Guha, Pradeep, 4 Gujarat riots (2002), 159 Gupta, Sanjay, 13 Gutenberg Bible, 16 Haasan, Kamal, 78, 162, 173 Hansa Research, on Indian newspapers, 1

432  THE INDIAN MEDIA BUSINESS Hathway cable, 67, 90 Hawa Mahal, 281 HBO, 102 HD radio, 268–69 Headend in the sky (HITS), 129–30 Health & Nutrition magazine, 25 HFCL-Nine Broadcasting, 92 Hicky, James Augustus, 15 Hicky’s Gazette, 15–16 high-profile subscription schemes, 31 Himachal Futuristic Communications Ltd, 92 Hindi FICCI-KPMG 2013 report on, 11 newspapers as rising power, case study, 56–58 The Hindu, 35 Hindustan, 7, 56, 58 Hindustan Times (HT), 4, 25, 33 Hindustan Unilever Limited (HUL), 33 HMV, music company, 184 hoardings, in Kanpur to local edition, 15 Hollywood industry, 160–61 in India, 170–71 home-delivery model, 2 Homeindia.com, 314 Home TV, 89 home video, 196–97, 246 Household Premiumness Index (HPI), 35–36, 63n55 HT Media, 47 Hum, 187 Hum Aapke Hain Kaun, 188 Hum Log, 81–82, 156n19 Hungama company, 304, 319–20 hyperlocal approach, 13 IBN 7, 95 3 Idiots, 169, 194, 220, 231 IIFA awards, 414n12 InCable, 67, 90, 156n26 Indecent Representation of Women (Prohibition) Act, 1986, 41 The Independent, 14 India Gazette, 16

Indian Broadcasting Company (IBC), 273–74 Indian Broadcasting Foundation (IBF), 69–71, 111, 127, 345n12 Indian Copyright Act 1957, 40, 207, 237 Indian Express, 18, 22 Indian Listenership Track (ILT), 283 Indian Market Research Bureau (IMRB), 11–12, 33–34, 108 Indian Music Industries Association (IMI), 229, 240, 244 Indian National Satellite (INSAT) programmes, 81 Indian Newspaper Society (INS), 345n12 Indian Penal Code, 1860, 38 Indian Performing Rights Society (IPRS), 210, 229, 252–53, 414n20 Indian Phonographic Industries Association (IPIA), 239 Indian Post Office Act, 1898, 44 Indian Press Act, 1910, 39 Indian Press (Emergency Powers) Act, 1931, 39 Indian Radio Times magazine, 273–74 Indian Readership Survey (IRS), on Indian newspapers, 1, 3, 9, 63n48 Indian Society of Advertisers (ISA), 70, 111 Indian Space Research Organisation’s (ISRO), 73–74 Indian Telegraph Act of 1885, 116 Indiatimes, 304 India Today, 23, 36, 47 The India Today Group, 12 India Today Plus, 36 IndiaWorld.com, 313 Industrial Development Bank of India (IDBI), 193 iNext, 13 Infomedia, 47 Information Technology Act, 2000, 328–30 Information Technology (Intermediaries guidelines) Rules, 2011, 329

INDEX  433 Inox Leisure, 160, 174 Insat satellite system, of ISRO, 73 integrated reach among readers, 37 intellectual property rights (IPR), 393 internal events, 400–401. See also corporate events international co-production, of films, 197 International Experiential Marketing Association (IXMA), 414n5 International Federation of the Phonographic Industry (IFPI), 227, 230, 248, 260n1 internet, 311–15 broadcasting revenue from, 104 business, 297n17 definition of, 345–46n21 generation of revenue by newspapers and magazines through, 32 marketing of films through, 199 piracy, 251–52 radio, 245–46, 297n14 user in India, 10 vs TV, 10, 76 Internet and Mobile Association of India (IAMAI), 345n7 Internet Explorer, 313 Internet relay chat (IRC), 311 internet service providers (ISPs), 97, 129, 231, 312, 320 investment, in media and entertainment business, xxxiii IPTV, 74–76, 95, 128–29, 254 Irani, Aruna, 99 iRock Media, 223n14 IT Act Amendments (2008), 329–30 Jagran, 2, 4. See also Mid-Day Jagran Pakashan, 47, 62n21, 353 Jain, Rajesh, 313 Jain, Samir, 24–25 Jain, Siddharth, 165 Janata government, transformation of publishing industry during regime of, 21–22, 39 JCDecaux, 353, 384n7

Jeetendra, 99 Jeffrey, Robin, 22 Jhunjhunwala, Rakesh, 292 Joggers Park, 252 ‘John Doe’ orders, 210–11 Jolly LLB, 170 Joshi, Manohar Shyam, 99 Judwaa, 166 JWT, 387 Kagti, Reema, 257–58 Kahanii, 170 Kahanii Ghar Ghar Kii, 78 Kai Po Che, 159–60 Kaliya Mardan, 177 Kal Radio (Suryan), 279 Kangan, 99 Kapadia, Bharat, 23 Kapoor, Ekta, 99 Kapoor, Raj, 181, 183 Kapoor, Shekhar, 160 Kasturi & Sons (publisher of The Hindu), 4 Katha Sagar, 82 Katial, Tarun, 270 Kaun Banega Crorepati (KBC), 101 Kerry Packer’s Publishing, 92 Keskar, B.V., 276 Khalnayak, 186 Khandaan, 82 Khanna, Rajesh, 182, 186 Khan, Ustad Bismillah, 275 Khote, Durga, 275 Khuda Gawah, 186–87 Kinema (Bombay), film magazine, 177 Kinetograph, 174. See also Edison, Thomas Koffee with Karan, 132 Kohli, Jagjit, 83–84 Komli, 304 Kora Kaagaz, 99 Krishi Darshan, 80 Krishnan, G., 24 Ku-Band transponder, 73, 120 Kuch Kuch Hota Hai, 188, 191 Kumar, Ashok, 82, 178, 210–11

434  THE INDIAN MEDIA BUSINESS Kumar, Gulshan, 238–39 Kumar, Hemant, 236 Kumar, Kishore, 240 Kyunkii Saas Bhi Kabhi Bahu Thi, 78 Lagaan, 188, 255 Lakshya, 166 language cinema, rise, 198 language newspapers, 11 language press in India, history of, 22 Leaving the Factory film, 175 libel, 337–38 liberalisation, impact on telecommunication industry, 316 Licklider, J.C.R., 312 Linkedin, 310 little islands, of media, xxvi–xxvii live music, 232–33 Living Media, 25 localisation of radio, 269–70 local newspapers, 13 Lok Sabha, 7 Ludhianvi, Sahir, 236 Madras Presidency Radio Club, 273 Magazine Advertising Bureau, 5 magazine publishing industry, 23 vs news papers, 28 Mahanagar Telephone Nigam Limited (MTNL), 97, 316 Maharashtra Cable Sena, 91 Mail Today, 14 Maine Pyar Kiya, 241 The Malayala Manorama, 17–18, 28, 62n28 Malhotra, Shyam, 32 Manchester Evening News, 14 Mangeshkar, Lata, 236 Manto, Saadat Hasan, 224n25 Map method, birth and death of, 110 Maran, Kalanithi, 102, 279 market cost, in newspapers and magazines publication, 29–30 marketing of films co-branding of, 199 internet and mobile use for, 199 rising costs of, 198–99

Masoom, 160 Massachusetts Institute of Technology (MIT), 312 Mathew, Cyriac, 23 Mathew, Mammen, 17, 24, 62n28 media and entertainment (M&E) business, Indian, xxiii, xxiv, xxxiv Media and Entertainment Skill Council (MESC), 166 Media Forward Link Only (Media FLO), US, 78 media, Indian advertising spend on, xxxii and entertainment landscape, xxxi groups in India, leading, xxxiii– xxxiv growth in, xxx managers argument over newspapers, 8 planner’s, 114–15 regulations in, xxxv–xxxviii Media Research Users Council (MRUC), 6, 35–36, 59, 111 Mehta, Sanjay, 314 merchandising of films, 199 Merchant, Katy, 34 mergers and acquisitions (M&A), 2, 48 Metcalfe’s Act, 38 Metro, 13 Mid-Day, 2, 22, 61n6, 277 Mid-Day Multimedia, 23–24, 47 Mindworks Global Media Services, 10 Ministry of Information and Broadcasting (MIB), 38, 81, 122, 125, 131, 284, 290 Mint, 14 Mirut-Ul-Akhbar (Mirror of News), 17 mobile advertising, 322 mobiles broadcasting revenue from, 104 generation of revenue by newspapers and magazines through, 32 marketing of films through, 199 television, 130 TV, 74, 76–78

INDEX  435 Modi Ke Matwale Rahi, 281 Mohabbatein, 188 Momin, Shabiir, 307 Morani, Mohammed, 414n14 Mosaic, web-browser, 313 Motion Picture Association of America (MPAA), 223n18 movable type press in 1455, 16. See also Gutenberg Bible Movie Mirror (Madras), film magazine, 177 moving picture experts group (MPEG 2) technology, 73–74 Mozilla Firefox, 313 Mr aur Mrs Khanna, 173 MTV, 88, 242 Mudra Institute of Communications, Ahmedabad (MICA), 271 Mujshe Shaadi Karogi, 166 Mukta-Adlabs, 97 Mukta Arts, 191, 195, 216 multinational corporations (MNCs), 25 multiplexes, xxiv, 193–94 Multi Screen Media, 89. See also Sony Entertainment TV multi-system operators (MSOs), 97, 156n25 arguments for pay, 90–91 origin of, 89–90 Mumbai Mirror, 30, 282 Mumbai Samachar, 17–18 Mumbai Times, 30 Murali, N., 4 Murdoch, Rupert, 88–89 Music Broadcast Private Limited’s (MBPL’s), 292 Music Broadcast Rights, 257 music channels rise of, 242–43 music industry, Indian changes in decrease in royalities, 229–30 music digitisation, legalisation of, 230–31 transformation in copyright act, 230

growth of, 227 new revenue streams, rise of by home video, 246 by internet and mobile, 245 by radio and TV, 245 by satellite radio, streaming services, internet radio, 245–46 opportunities and trends in live music/concert revenues, 232–33 outsourcing of music operations, 232 past of backdrop of, 234–35 Gramco (HMV) years, 235–36 regulations in backdrop of, 248 copyright societies, 252–54 rights and piracy, 248–52 satellite TV (see satellite TV) shape of, 255 shape of business, 228–31 shifts in Indian markets cassettes emergence in international market, 236–38 smartphones impact on, 228 valuation norms backdrop, 254 variables in music business, 254–55 working of business catalogue use, 247–48 film music, 246–47 non-film music, 247 portfolio approach, 247 MW broadcasts, 279 My name is Khan, 170 Nadiadwala, Sajid, 166 Nai Dunia, 56 National Aeronautics and Space Administration (NASA), 81 National Cable and Telecommunications Association (NCTA), 70, 72 National Center for Supercomputer Applications (NCSA), US, 313

436  THE INDIAN MEDIA BUSINESS National Film Development Corporation (NFDC), 182 National Readership Survey (NRS), 224n29 in 1974, 34 in 1981, 35 National Security Act, 1980, 45 National Skill Development policy, 166 National Telecom Policy 2012, 330–34 Naushad, 236, 275 Navbharat Times, 47 NDTV, 268 filed lawsuit against Nielsen Holdings in 2012, 69 NDTV Good Times, 30 NDTV India, 95 Nehru, Pandit Jawaharlal, 21 net users, 61n17 Network18 TV, 67 new Indian film industry (2002– 2006), birth of, 192–97 News Broadcasters Association (NBA), 69, 71, 127 news broadcasting business, fixation of, 149–51 News Outdoor India (NOI), 349–50 Newspaper Advertising Bureau, 5 Newspaper Association of America (NAA), 6, 37 newspaper industry, in India, 1 during 1950s, 18–20 from 1960s and 1970s, 20 FDI in, 26–27 growth, change and languages, 21–23 growth of, 15–17 pre-independence years, 17–18 vs magazines, 28 Newspaper (Price and Page) Act of 1956, 40 Newspapers (Incitement to Offences) Act, 1908, 39 Newspapers (Price and Page) Act, 18 Newsprint Control Order of 1962, 20 Newstrack magazine, 85

New Telecom Policy (1999), 317–18 The New York Times, 8, 308 niche magazines, 11–13 Nielsen/Net Ratings, 37 Nigam, Sonu, 241 non-film music, 247 Norm on Journalistic Conduct in 2010, 46, 328. See also Press Council of India (PCI) NTL, 103 Nukkad, 82 Official Secrets Act, 1889 and 1923, 39, 44 offline media, growth of, 309 old media, 299 Om Namah Shivay, 99 Om Shanti Om, 199 One Segment Broadcasting (OSB), Japan, 78 online media, 1 online world, 151–54 OnMobile, 304, 319 open general licence (OGL) for newsprint and printing, postliberalisation, 24–25, 63n42 ORG–MARG report, 34 Outdoor Advertising Association of America (OAAA), 350 outdoor media market in India, 351 world reaction towards, 383–84 Outlook, 31, 47 The Outlook Group, 12 out-of-home (OOH) media industry, Indian, 349 case history, 376 global market scenario, 368–69 Indian market scenario, 369–70 market of, 351–53 metrics of, 368 past of growth of business, 359–60 Indian years, 357–59 international past, 356–57 possible metrics cost per thousand, 372

INDEX  437 display period, 371–72 people traffic, 370 time and distance for commuting, 371 time spent out of home, 371 vehicular traffic, 371 regulations in, 372–73 Delhi policy, 373–75 international lessons, 375–76 shape of business, 353–56, 380–82 valuation norms, 377–79 working of business influencing variables, 360–64 value chain, 364–68 outsourcing of ad production, to agencies, 10–11 Overseas Corporate Bodies (OCBs), 120 overseas market, of Indian films, 168–69 owned digital media, 320–21 paid digital media, 321–22 Pandora, internet radio service in US, 267 Pardes, 188 Parekh, Asha, 99 Pather Panchali, 183. See also Ray, Satyajit Pathfinder Publishing, 12 pay channels, 93 pay per view, 78–79 Peepli Live, xxvii, 159 peer-to-peer (P2P) distribution services, 76 PEM software, 33 people cost, in newspapers and magazines publication, 29–30 Performing Rights Society, London, 273 Peri, Maheshwar, 12 Phadnis, Atul, 70 Phalke, Dhundiraj Govind, 176–77 Phonographic Performance Limited (PPL), 210, 229, 253–54 Photoplay (Calcutta), film magazine, 177

piracy, 127–28 of films, 207, 210–11 of music, 251–52 Pitroda, Sam, 93, 316 platforms, meaning of, 345n11 podcasting, 269 Police (Incitement to Disaffection) Act, 1922, 45 Prabhat Khabar, 56 Prasar Bharati Bill (1979 and 1989), 116, 284 Prasar Bharati (Broadcasting Corporation of India) Act, 1990, 116 Prasar Bharati Corporation, 76, 93, 116, 124, 284. See also Doordarshan (DD) Premchand, Munshi, 179 pre-press production, of newspaper and magazines, 61n18 Press and Registration of Books Act, 1867 and 1876, 38, 44 Press Commission’s report (1953), First, 18–19 Press Council Act, 1978, 46 Press Council of India (PCI), 7, 21, 46, 328 Press Institute of India, New Delhi, 62n35 Press Laws Enquiry Committee, 39 Prevention of Insults to National Honour Act, 1971, 44 Price per Viewing Hour (PPVH), 72. See also National Cable and Telecommunications Association (NCTA) print industry, in India daily time spent on reading, declining of, 9 growth of, 1 lack of unit among, 5–6 present business scenario, 5–9 regulations in history of, 37–38 Indian Penal Code, 1860, 38 Press and Registration of Books Act, 1867 (see Press and

438  THE INDIAN MEDIA BUSINESS Registration of Books Act, 1867) Vernacular Press Act, 1878 (see Vernacular Press Act, 1878) restrictions imposed on debarred foreign companies from launching Indian print editions, 42–44 other types, 44–46 Right to Privacy, 41 scenario of, 51–52 trends, opportunities and growth areas, 10–15 Pritish Nandy Communications, 216 private equity, 2 private events, 399 private television broadcasting, xxiii Prize Chits and Money Circulations Schemes (Banning) Act, 1978, 45 Prize Competitions Act, 1955, 45 production glut, in 2010, 164–65 production/printing cost, of newspapers and magazines, 29 programme code, 123 protectionism, in Indian film industry, 162–63 Protection of Civil Rights Act, 1955, 46 publications, in economies, 2 public events, 399 Public Mobile Radio, Trunked Services (PMRTS), 347n42 public service broadcasters (PSBs), 80–81 Pundalik, religious film, 176 Punjab Kesari, 7 Purohit, Apurva, 32–33, 282 PVR Cinemax, xxiv, 76, 160, 164, 174, 216 Quickr, 304 Raddi, 13–14 Radhakrishnan, 83 Radio Advertising Bureau, US website, 297n4 radio advertising revenues, 297n20

Radio Audience Measurement (RAM), 283–84 Radio City, 270, 279, 292 Radio Club of Bombay, 273 radio industry, Indian advertising, increase in, 263 All India Radio (AIR) (see All India Radio [AIR]) economics of cost of operating radio station, 280–81 entry of radio in India, 273–74 FM beginning, 285–90 growth of, 263–64 metrics of buying and selling dynamics, 281–82, 281–84 changing patterns in radio advertising, 282–83 measures available, 283–84 regulations in beginning of FM, 285–90 community radio, 290 history of, 284 satellite radio, 290–91 second life to, 277–79 shape of business third phase of licensing, 265–66 training for radio professionals, 266–67 trends and opportunities in community radio, 271–72 content localisation, 270 distribution platforms, 267–69 encouragement to local advertisers, 270–71 localisation of radio, 269–70 visual radio, 272 valuation norms backdrop, 291–92 variables in, 292–94 working of business, 279–81 Radio Mirchi, 270, 279, 282, 291 radio programme listenership (RPL) ratings, 283 Radio Sangeet Sammelan, 276 radio signals, 297n9

INDEX  439 Rafi, Mohammad, 236 Rai, Gulshan, 181 Raja Harishchandra, 176. See also Phalke, Dhundiraj Govind Rajasthan Patrika, 56 Rajnikanth, 162 Rajshri TV, 76 Ram, Gita, 33 Ram Lakhan, 241 Rangarajan, Sinduja, 61n11 Ra.One, 199 Rao, Ramoji, 22 rating system, in television industry, 107–12 Ratnam, Mani, 188 Ray, Satyajit, 183 reach among readers, 36 reach, of media, xxviii–xxix Reader’s Digest, 31 readership, 34–36 survey in India, case study, 59–60 Readership Studies Council of India (RSCI), 36, 59 recent reading method, 35 Reddy, K. Sreenivas, 7 Red FM, 229 Rediff.com, 313 Reed Elsevier, 388 Reed, Peter, 16 Registrar of Newspapers for India (RNI), 20–21, 44 Reliance Big Entertainment, 193 Reliance Broadcast Network, 279 Reliance Communications, 318 Representation of Peoples Act, 1951, 7–8, 45 re-publication of content, 340–41 reseller piracy, 251 Reserve Bank of India (RBI), 21, 88 retail consolidation on, 174 revolution in film industry, 193–97 return on capital employed (ROCE), 48 revenue sources in digital industry, 322–23 in radio industry, 280–81

rights of films, 207 of music, 249 Right to Privacy, 41 Roberts, Julia, 182 Robot, 162 Rob Report, German publisher, 12 Roy-Kapur, Siddharth, 163–64, 223n10 Roy, Raja Rammohun, 16 RPG Cable, 90 RPG Netcom, 156n26 Saaransh, 160 Saat Phere, 131–32 Saawariya, 170 Saigal, K.L., 236, 240 Sakshi, 7 sales decline, in UK and US, 2 Sambad Kaumudi, 16–17, 62n27 Sampath, Ram, 256–58 Sandesh company, 47 Sarabhai v/s Sarabhai, 132 Saregama, music company, 184, 234, 247, 273. See also Gramco satellite radio, 245–46, 268, 290–91 TV, 25, 32, 86, 242–45 Satellite-Digital Multimedia Broadcasting (S-DMB), Korea, 78 Satellite Instructional Television Experiment (SITE), 81 The Saturday Times, 23 Saudagar, 241 Savvy, 23 Scarborough Research, 37 Screwvala, Ronnie, 83, 156n20 service tax, exemption for cineman broadcasters, 215 set-top boxes (STB), 93, 95 Shah, Niren, 304 Shah, Yogesh, 83 Shankar, Ravi, 275 Shemaroo, casette company, 76, 309 Sholay, 99, 160 Shoppers’ Stop, 199 Show Theme, 81, 156n19 Shree Ganesh, 99

440  THE INDIAN MEDIA BUSINESS Sidhwani, Ritesh, 166 Singham, 167 Singh, Malkiat, 241 Singh, Manju, 81 Sinha, Pramath Raj, 61n13 SiriusXM radio service, 268 S.K. Patil Committee Report (1951), 185 small films, 198 small radio stations, 293–94 smartphones, 1, 228 social media, 1, 310–11, 337–38, 340–44 social media advertising, 322 Society, 23 software industry, 98–99 revenue systems, 100–101 Sony Entertainment TV, 67, 89 Sony Music, 188 South Asia FM, 279, 292 South Indian Music Companies Association (SIMCA), 229 Spenta Multimedia, 23 Srivastava, Siddharth, 83 Stardust, 23 Star Gold, 102 Star Movies, 89 Star News, 95, 102 Star Plus, 30, 99, 102 stars in Indian films, dependence on, 164 star system, 182–83 Star TV, 25, 67, 87–88, 92, 120 State Trading Corporation, 20 streaming services, 245–46 Stroeer, 353 studio system, in India, 177–80 Subramanyan, Shobha, 24–25 Sunday, 23 The Sunday Review, 23 Sun Direct, 97 Sun TV, 67, 88, 102, 282 Super Cassettes, 241, 245 The Sydney Morning Herald, 14 syndication process, 41, 78 Taal, 188 tablet, 1, 10

tabloids, 14–15 Taj Television, 225n53 Talaash, 256 talent crunch, 165–66 Tamil Film Producers Council (TFPC), 163 Tata DoCoMo, 311 Tata Sky, 97, 174 Telecom Disputes and Settlement Tribunal (TDSAT), 72, 155n9, 288 telecommunications definition of, 315 emergence of, 315 in India, 315–16 liberalisation impact on, 316 Telecom Regulatory Authority of India Act, 1997, 347n39 Telecom Regulatory Authority of India (TRAI), 69–72, 330 broadcast regulator in 2004, 119 consultation paper on advertising, 114 on satellite radio services, 290 data on radio business, 297n19 on digitisation of cable system, 96 guidelines for telecom companies on VAS activation, 308 paper on mobile broadcasting, 77 recommendations on IPTV in 2008, 128–29 regulations on operations of telecom services providers, 333 telegraph network in India, establishment of, 315 television and online world in America, case study, 151–54 Television Audience Measurement (TAM), 68–70, 80 coverage of, 110 method of working, 109–10 number of TV at Indian homes, 137, 155n4 origin of, 108–9 television broadcasting industry, in India business, working of, 98 current status of content regulation, 125–27

INDEX  441 Headend in the sky (HITS) (see Headend in the sky [HITS]) method to regulate piracy problem, 127–28 new distribution platforms, 128–30 efficiency metrics, 114–15 cost per gross rating points (CPGRPs), 115 effective rate, 115 growth of, 67, 79–80, 89, 135–36 programming geners, 139–40 multi-system operators (MSOs) (see multi-system operators [MSOs]) operating margins for Indian broadcasters, 68 opportunities and trends, 74–78 programming opportunities, 79 regulations in Convergence Bill (see Convergence Bill) guidelines for uplinking and downlinking, 121–23 history of, 116 origin of, 116–17 Supreme Court judgment impact on, 117 revenue opportunities, 78–79 shape of business issues in, 69–74 software industry, 98–101 valuation norms, 131–34 vs world industry, 137–38 television, meaning of, 155n1 television rating targets (TVR), 103, 107, 414n18 Telugu film industry, 161–62, 218 Ten Sports, 225n53 Terrestrial-Digital Multimedia Broadcasting (T-DMB), Korea, 78 Thakurta, Paranjoy Guha, 7 The Hindu, 4 third generation (3G) mobile telecommunications networks, 76 Tibrewala, Haresh, 313

ticket(s) average prices of Indian films average, 205 sales in US, xxiv Timbre Media, 268 Time Out, 30, 62n21 The Times, 14 Times Group, 2 Times of India (TOI), 5, 9, 17, 20, 22, 28, 175, 277 time spent on media, xxviii–xxix on print vs reach, xxx on TV vs reach, xxxi Time Warner, 103 Tipnis, P.R., 176 Torney, Ram Chandra Gopal, 176 trademark/trade name infringement, 252 traditional mobile networks, 76–77 Transmission Control Protocol (TCP), 313 TRP, 107–8 T-Series, 76, 239. See also Kumar, Gulshan T-Series Public Performance License (TPPL), 253–54 TVS Saregama, 394 TV Today Network, 24 Twentieth Century Fox (News Corporation), 170 Twitter, 310 Udayam, 22 UFO Moviez, 384n8 United Access Service Licence (UASL), 332, 158n61 United Cable Network (UCN), 90 Unix User Network (USENET), 311 Unlawful Activities (Prevention) Act, 1967, 46 uplinking guidelines from India, 121–22 meaning of, 158n55 USA Today, 4 U.S. Department of Defense, 312

442  THE INDIAN MEDIA BUSINESS value-added-services (VAS) industry, in India, 304, 308 VAT, on film distribution, 214 Vernacular Press Act, 1878, 38–39 Viacom18 Media, 61n11, 170 Vicky Donor, 159 video cassette recorder (VCR), 83 video, growth of, 310 Videsh Sanchar Nigam Limited (VSNL), 12, 313, 316, 346n22 Vidyalankar Committee (1966), 284 Virgin Radio, 269, 297n13 Vishwaroopam, 78–79, 173, 223n22. See also Haasan, Kamal visual radio, 272 Vividh Bharti, 276, 281. See also All India Radio (AIR) Vodafone, 319 voluntary retirement scheme, in Gramco, 240. See also Chanda, Pradeep The Wall Street Journal, 8 Walt Disney, 222n1, 314 Warner Brothers, 164–65 Washington Post, 8 Welby, B. Messink, 16 Who Wants to be a Millionaire, 113, 414n22

Win Cable, 156n20 Wire and Wireless Limited (WWIL), 90, 133 The Wireless Telegraphy Act of 1933, 116 Wizcraft, 387, 393–94 Working Journalists and other Newspaper Employee (Conditions of Service and Miscellaneous Provisions) Act, 1955, 45 WorldSpace India, 268 Yaadein, 188, 192, 244 Yahoo, 305 Yash Raj Films, 192–93 Yesterday Listenership (YDL), 283 Young Persons (Harmful Publications) Act, 1956, 45 YouTube, 76, 319 Zee Cafe, 103 Zee Cinema, 103 Zee Marathi, 103 Zee Music, 242 Zee News, 103 Zee TV, 25, 30, 63n50, 67, 87–88, 92, 103 Zenga TV operator, 77, 307 Zenith Optimedia, 297n4

About the Author Vanita Kohli-Khandekar is a media specialist and writer. She has been tracking the Indian media and entertainment business for over a decade. Currently she is a columnist and writer for Business Standard and Mid-Day. Her earlier stints include the ones at Businessworld and EY. A Cambridge University fellow (2000), Vanita teaches at some of the top communication schools in India.