TV.NXT: Profit margins from the television sector can continue to lag in India

Day One of the two day TV.NXT event was kick-started by Sreekant Khandekar, director, afaqs! and Vivek Couto, executive director, Media Partners Asia

Day One of TV.NXT, the biggest event that addresses all business issues in the TV arena under one roof, was held was at Taj Land's End, Mumbai, on September 28. Interestingly, the event coincided with the 11th anniversary of afaqs!.

The day was kick-started by Sreekant Khandekar, director, afaqs!, who took to the stage to deliver a talk that paved the way for the presentations and discussions. He shared the results of a survey, held in early 2010, which indicated that TV is the largest aspect of the media business in India. Moreover, with millions of new homes entering the C&S (cable and satellite) fold, this reach and penetration is bound to continue and grow.

"The question - of how the parallel growth of the online space will influence TV - prevails," said Khandekar, but added nonetheless, "TV is by far the most powerful medium to get the sales ticking."

Vivek Couto, executive director, Media Partners Asia, then gave those present a quick peek into the key findings of a special report that surveyed India's TV business and consequently, lent an insight into the key commercial dynamics of this industry. He shared some interesting trends from the television industry in emerging markets such as India, China, Brazil and Indonesia and drew parallels with the US market, too.

Couto began by sharing a general yet crucial finding that both viewership as well as advertising are growing at a rapid rate, before adding that overall, India is about two cycles behind China as far as the TV market is concerned.

Talking about concentration and fragmentation, he pointed out that in India, only three TV groups enjoy 40 per cent TV ad market share, while more than 15 groups have 30 per cent pay TV market share.

In comparison, in Brazil, six broadcasters and three operators own 80 per cent of the market share, while in Russia, four broadcasters control 80 per cent of the TV ad market. In Indonesia, the distribution is more concentrated, where three players take away 70 per cent of the TV ad market.

In Indonesia, one DTH operator owns more than 70 per cent pay TV market share, which makes sense with the pay TV penetration being rather low at 3 per cent.

In this regard, India, however, comes close to China, where three DTH operators own more than 50 per cent ad market share and six cable groups have 30 per cent of the pay TV market share.

Data also indicate that India and Indonesia still have room for more television penetration, with 60 per cent and 55 per cent television household penetration, respectively. In comparison, Brazil, Russia and China boast of 94 per cent, 96 per cent and 95 per cent television household penetration, respectively.

"Also, the commercial dynamics of pay TV are very favourable in India today," he shared. He added that in India, TV hasn't been hit by online as yet.

Pay TV penetration in India remains the highest at 78 per cent compared to the other emerging markets.

As far as digital TV penetration goes, it was found that India is ahead of the Indonesian market; China, however, is racing ahead and expects a 100 per cent conversion by 2016.

The research also showed that there is a significantly higher level of homogeneity in other markets (such as Brazil) as compared to the Indian market. This fact bears several implications for professionals in the TV space, as well as for advertisers. Couto declared that in India, despite the lag in advertising revenue in the past two years, there is plenty of room for growth now and in the years to come.

"The dominant trend in the emerging markets is that of concentration, capitalisation and consolidation. The trend towards consolidation is due to the fact that owners of content and those of distribution are jointly contributing to the growth of the sector," informed Couto.

However, he said that profit margins from the television sector will continue to lag in India compared to the other emerging markets.

Citing the research findings, TV sector EBITDA (earnings before interest, taxes, depreciation and amortisation) is projected to be about 18 per cent in 2014. The Indonesian market, in this regard, shows most promise at 40 per cent, followed by China and Brazil at 35 per cent and Russia at around 27 per cent.

He went on to speak about how investor exposure is yet another key trend in the TV industry in India, as the market and TV space is evolving into a rather capital-intensive one (price controls in India, however, impede investment - unlike in other countries).

"Growth of broadband in India is also providing a big boost to the digital industry," said Couto.

India also lags behind Brazil and China in terms of scale and intensity. At $5.3 billion in 2009, the per capita revenue from television is projected at $9.6 billion in 2014. In comparison, China and Brazil, which stood at $11.2 billion and $59.3 billion, are estimated to be $19.6 billion and $101.9 billion, respectively, in 2014.

Data also reveal that there is little growth seen in terms television advertising expenditure as a per cent of nominal gross domestic product in India. While in 2009, the figure stood at 0.38 per cent, it is expected to inch up to only 0.40 per cent by 2014.

Going forward - unlocking foreign direct investment in TV infrastructure would improve pricing power, Couto said.

Referring to data, besides non-news TV stations that allow 100 per cent FDI, there is enough room in other formats such as news channels, cable and DTH, wherein currently only 26 per cent, 49 per cent and 20 per cent is allowed.

One could compare the same to Brazil, where TV stations are allowed up to 30 per cent, cable 49 per cent and DTH 100 per cent FDI. A new bill further proposes 100 per cent FDI in cable.

The average revenue per user in India is just $4 - close to Russia, where it is $5; while in Brazil, it is as high as $50.

The event was organised by afaqs! in association with Big CBS (main sponsor) and STAR News (associate sponsor). The other sponsors include UTV Action, Bloomberg UTV, Sony PIX, Sahara Samay and Mastiii TV.