Animation. Broadcasting. Gaming.

On the Cusp of Growth

www.deloitte.com/in
 Contents

Message 3

About ASSOCHAM 5

Animation and Gaming 6

Introduction 6
Global Animation and Gaming Industry 6
Indian Animation and Gaming Industry 8

Animation 9
Introduction 9
Animation Entertainment 9
Entertainment VFX 16
Custom Content Development 17

Gaming 20
Global Gaming Industry 20
Indian Gaming Industry 20

Indian Animation & Gaming Industry: Future Outlook 23

Television 24
Introduction 24
Television – Revenue Streams 24
Television Channels in India 27
Television Genres in India – From Generic to Niche 27
Policy Framework 30
Future Outlook 31

Radio 32
Introduction 32
Key Growth Drivers & Constraints 33
Future Outlook 34

2
Message
The three focus segments of this paper: Animation,
Gaming and Broadcasting all have the potential to see
near future as inflection points in their growth.
Animation and Gaming reminds me of the
transformation the IT-ITES Industry brought to the Indian
economy and populace some years back. The Indian
animation industry is well-geared to start grabbing a
larger share of the increasing outsourcing pie. As the
economy moves out of tough times, there is hope that
animation houses in India would take the initiative to
develop the in-pipeline high budget high quality movies
and animation content and showcase their capabilities.
Players are also expected to leverage the incoming 3G
technology and develop end-to-end mobile games (IPs).
Promoting gaming / animation as a career in India and
working with the Government for higher dissemination
of related professional education hold the key.
As of now, Television, as evident from Indian and
global experiences, does not have a real substitute for
either the audience or the advertiser. However, with
the unprecedented growth of channels in India, only
the players who invest in understanding the consumer
and target pre-determined segments with innovative
content and programming are slated to emerge winners,
leaving the others behind. Digitization will be the most
rapidly growing trend in this industry – Players need to
understand the implications and adapt themselves to
this growing phenomenon. It will be really interesting
to see if the industry witnesses any consolidation in
the coming 12-18 months. Another key thing that I am
really awaiting is the reaction of the content providers in
the industry to the oncoming 3G Wave.
The future of radio in this country is primarily dependent
upon change in the regulations and the mode of the
much-awaited Phase 3 Licensing. The real potential of
the medium which lies in its local reach and interactivity
can never be realized unless radio broadcasting players P N Sudarshan
find it commercially feasible to operate in small towns Senior Director,
and cities, with the freedom to broadcast multiple Deloitte in India
genres.
Our media spends are abysmally low (USD 4 per capita)
compared to our neighbours, China (USD 27 per capita).
There is enough demand in the Indian economy and
populace to propel the media industry to show a > 15%
growth per annum and slowly bridge this yawning gap.
I acknowledge the contribution of Sandip Biswas,
Director, Deloitte Touche Tohmatsu India Private Limited
to this report.
P N Sudarshan
Senior Director, Deloitte in India
Animation. Broadcasting. Gaming. On the Cusp of Growth | 3
Message

The Indian Media and Entertainment (M&E) industry This White Paper, jointly prepared by ASSOCHAM and
stood at USD 12.9 billion in 2009 registering a 1.4 per Deloitte Touche Tohmatsu India Private Limited, mainly
cent growth over last year. Over the next five years, the deals with Animation, Broadcasting and Gaming and
industry is projected to grow at a compound annual also the future roadmap for the Industry.
growth rate (CAGR) of 13 per cent to reach the size of
USD 24.04 billion by 2014. Additionally, the gaming I sincerely hope that FOCUS 2010 will be beneficial to
segment is expected to be the fastest growing sector the stakeholders in further promoting this Industry.
in the M&E industry. The sector showed a 22 per cent
growth in 2009 and is expected to grow at a CAGR of
32 per cent to reach USD 705.2 million by 2014, while
the animation segment is expected to record a CAGR of (D S Rawat)
D S Rawat
18.7 per cent in the next five years. Secretary General, ASSOCHAM
Secretary General,
ASSOCHAM
We are pleased to organise the fourth edition of Global
Summit on Entertainment& Media: FOCUS 2010 with
the Official Support from the Ministry of Information
& Broadcasting, the major Film Trade Associations and
active participation from the Industry.

4
About ASSOCHAM
The Associated Chambers of Commerce and Industry
of India (ASSOCHAM), India's premier apex chamber
covers a membership of over 300,000 companies and
professionals across the country. It was established
in 1920 by promoter chambers (Bombay Chamber of
Commerce & Industry, Cochin Chamber of commerce
& Industry, India Merchants Chamber, Mumbai, The
Madras Chamber of Commerce & Industry, PHD
Chamber of Commerce & Industry) representing all
regions of India.
As an apex industry body, ASSOCHAM represents
the interests of industry and trade, interfaces with
Government on policy issues and interacts with
counterpart international organizations to promote
bilateral economic issues. ASSOCHAM is represented
on all national and local bodies and is, thus, able
to pro-actively convey industry viewpoints, as also
communicate and debate issues relating to public-
private partnerships for economic development.
ASSOCHAM members represent the following sectors:
• Trade (National and International)
• Industry (Domestic and International)
• Professionals (e.g. CAs, lawyers, consultants)
• Trade and Industry Associations and other Chambers
of Commerce
ASSOCHAM operates through 90 Expert Committees
that provide an interactive platform to Members for
interaction and aid formulating Policy recommendations
so as to facilitate Economic, Industrial and Social
Growth.
These encompass areas such as: Domestic &
International Trade, Commerce, Industry, Services,
Agriculture, Education, Food Processing, IT & BPO,
Economic Affairs, TQM, Energy, Environment,
Capital Market, Banking & Finance, Direct & Indirect
Taxation, WTO & IPR, Infrastructure, Pharma, Health,
Biotechnology & Nanotechnology , Tourism and
Telecom.
Leading Corporates like Aditya Birla Management
Corporation Ltd., Boeing, DLF, IBM, Reliance
Communications, Reliance Industries, TATA, Northrop
Grumman, Cable & Wireless, Warburg Pincus, SREI
Infocom, Ernst & Young, Huawei Telecommunications,
ZTE Telecom, Qualcomm, Centurion Bank of Punjab
Limited, Diageo India Pvt. Ltd., DSP Merrill Lynch,
Geojit Financial Services Ltd., GMR Infrastructure Ltd,
ITC Limited, Jet Airways (India) Private Limited, Kotak
Mahindra Asset Management Co. Ltd, Microsoft, Spice
Communications Pvt. Ltd., Videocon Ltd., Vodafone are
some of the Esteemed Members of ASSOCHAM.
About ASSOCHAM please log on www.assocham.org
Animation. Broadcasting. Gaming. On the Cusp of Growth | 5
Animation and Gaming

Introduction Global Animation and Gaming Industry

Animation, briefly described, is a rapid display of time The Global Animation and Gaming industry, growing at
sequenced frames to create an illusion of continuous 12% p.a. (2005-2009) is a USD 115 Billion industry
movement. The sub-segments within Animation and (CY 2009). The industry is estimated to continue its
Gaming may be defined as follows: growth rate at 10% p.a. to reach USD 170 Billion by
CY2013.
Animation Figure 2: Global Animation and Gaming Market
• Animation Entertainment: Custom animation devel- Revenues (USD Bn)
opment for television, movies, or DVD
170
• Visual Effects (VFX): Special effects development
%
used mainly in movies and ad productions 10
• Custom Content Development: Development of 140
custom content catering to multiple segments,
including Corporate, Higher Education etc. 115
%

Gaming
12

• PC Games: Games played on the personal computer;

can be single-player or multi-player 74

• Mobile Games: Games played exclusively on the

mobile handset. Currently consists of mostly single-
player short games
• Console Games: Games played on dedicated gaming
consoles. These boast of better graphics, and
controllers than other types of games
• Online Games: Games played over the internet. The
2005 2009E* 2011P** 2013P
platform can be PC, Mobile, Console * Estimated
Source: Nasscom Industry Report 2006, 2009 ** Projected

Figure 1: Animation & Gaming Industry Segments

Animation and
Gaming Industry

Animation Gaming

Cust om
Animation Visual Effe cts
Content PC Mobile Console Online
Entertainment (VFX)
Development

6
Worldwide, US is the largest market for animation. US
has the largest number of animation movie releases
(29 in 2008) and houses the 2 largest animation
movie studios in the world, namely Disney Pixar and
Dreamworks. Major markets for gaming are US, Europe
and Japan, US being the leader. US is the highest
contributor to the revenues of leading game publishers/
developers in the world viz. Nintendo, Electronic Arts
(Refer Figure 3). However, China is the fastest growing
market for gaming. Most of the animation and gaming
intellectual properties originate from these countries.

Figure 3: Region-wise revenue contribution for leading game publishers

North America
Nintendo 45%
EA 55%
Activision Blizzard 61%

Europe Asia
Nintendo 34% Nintendo 17%
EA 39% EA 6%
Activision Blizzard 36% Activision Blizzard 3%
Source : Analyst Reports
Note : Activision Blizzard figures are for 2008; Rest for 2010

Animation. Broadcasting. Gaming. On the Cusp of Growth | 7

 The Indian animation and gaming industry derives
its revenues majorly from outsourcing. International

Indian outsourcing share of the production houses outsource work to Indian studios
while international game publishers outsource work to

global market for animation

Indian game development companies. For animation,
India caters primarily to US and UK. The domestic share
of the Indian animation revenues was only 30% as of

and gaming industry is very 2009.

low as compared to the Macro indicators suggest an exponential scope for

growth, both on the domestic and the outsourcing

corresponding share in the IT

front:

Domestic: Indian domestic animation and gaming is a

and BPO Industry miniscule 0.6% of the worldwide animation and gaming
market, thus indicating a huge scope for growth.

Outsourcing: India has the inherent advantages of

Indian Animation and Gaming Industry: High
Potential for Growth
The Indian Animation and Gaming industry, in spite of
a robust growth rate of 32% p.a. (2005-2009) is only a
USD 739 million industry.
outsourcing, which is evident from its success in the IT/
ITES outsourcing sector. However, Indian outsourcing
share of the global market for animation and gaming
industry is very low as compared to the corresponding
share in the IT and BPO Industry. (Refer Figure 5)

Figure 5: India’s share of global outsourcing market

Figure 4: Indian Animation and Gaming Industry Revenues (USD Mn)

IT Outsourcing and BPO 51%

35% 1316

Animation & Gaming <10%

533
32%
239 1161 Source: Secondary Research
735
64 500
177
2005 2009E 2011P 2013P This shows the immense potential that the Indian
animation and gaming industry holds, especially from
Animation Gaming
overseas outsourcing.
Source: Nasscom Industry Report, Secondary Research

8
Animation

Introduction
Animation, as mentioned in the previous section, includes Animation Entertainment, Entertainment VFX and Custom
Content Development.

Figure 6: Animation Segments by Share

India: Animation

Animation Custom Content

Visual Effects (VFX)
Entertainment Development

Revenues (2009E) 122 (24%) 83 (17%) 295 (59%)

(USD Mn)

Animation Entertainment
Indian animation entertainment industry is highly fragmented, with top 10 players contributing less than 15% of
the overall revenues. Indian players are primarily involved in the labour-intensive production and post-production
activities, as a ‘Service Provider’ (Refer Figure 8), working on the revenue model of ‘Work-For-Hire’.

Figure 7: Animation Entertainment Value Chain

Marketing
IPR and Content Pre Post Distribution
Production
Development Production Production and Exhibition

• Identification of • Preparation • Development • Final sound • Promotion,

an existing IP or of the script, of specifica- recording, color distribution video
generation of a character design, tions regarding editing, testing DVD release and
new idea storyboard layout the character, and special sound cinema and TV
Activities
• Involves asset development background effects screening
procurement, paint, inking and
fund scheduling, painting and
and integration visual effects
of resources

Percentage
5% 10% 45% 30% –
Effort

Outsourcing Emerging Emerging High Medium –

Domestic Emerging Medium High High –

Source: Nasscom Industry Report 2009, Deloitte Understanding

Animation. Broadcasting. Gaming. On the Cusp of Growth | 9

Content Development and pre-production activities are nascent in India, both for the domestic and the outsourcing
market.

Figure 8 : Animation Entertainment Service Models

Marketing
IPR and Content Post
Pre Production Production Distribution and
Development Production
Exhibition

Content Creation Service Provider

Integrated Studio – Offshore Facility

Co-Production
Integrated Studio Owned Content

Source: Animation & Gaming Report, Secondary Research

10
Size, Growth & Segments
Animation Entertainment segment consists of custom animation development for television, DVD, or theatrical
movies.
Figure 9: Animation Entertainment Size (USD Mn), Growth & Segmental Split

253

20% 20%

170

55%
14% 122
25%

72

2005 2009E 2011P 2013P Television Direct to DVD Movies for theater

Source: Nasscom Industry Report 2009 Source: Nasscom Industry Report 2009

Figure 10: Domestic Animation Entertainment Split This segment is estimated at USD 122 Million (CY 2009)
and is expected to show a CAGR of 20% (2009-2013)
to reach USD 253 million by 2013. TV contributes to
14% majority (~55%) of the overall Animation Entertainment
market, followed by approximately equal share for
Movies and Direct-to-DVD.

32%
54% Recent Trends and Growth Indicators
The Animation Entertainment Industry in India is
expected to be shaped by both domestic (Current
Contribution: 25%) and Outsourcing (Current
Contribution : 75%) trends and growth drivers.

Television Movies for theater DVD Domestic Market

TV contributes the largest (~55%) of the domestic
animation entertainment market in India, followed by
movies.

Animation. Broadcasting. Gaming. On the Cusp of Growth | 11

 Both demand and supply drivers are expected to shape Moreover, the share of kids’ genre in overall TV
up the domestic animation entertainment market in Viewership has been rising significantly, which indicates
India: the growing demand for animation content in India.

Indian Viewership Maturity Demand For Original Indian Content

In India there has been a cultural mindset that animation
is meant for kids only. This has restricted the viewership
of animation content till now. However, this mindset is
gradually changing, leading to increased viewership of
animation content among adults. % viewership of kids
channels in 2009 indicates substantial viewership of
kids channels among the 14+ age group category (Refer
Figure 11). Moreover, almost 30-35% viewership across
Cartoon Network and Pogo have been found to be in
the 15+ age group.
Figure 11: Percentage viewership across age groups
of kids channels
15.7%
The demand for original Indian content has been
increasing over the years. For example, Pogo, a leading
channel for kids has increased its original Indian content
from 50 hours in 2004 to more than 200 hours in 2009.
Similar is the case with Nickelodeon who, inspired by
the success of Little Krishna, is looking to expand its
local content. Other channels are expected to follow the
same trend.
Comics’ Players : Monetization Of Existing Content
Comics’ players are looking to monetize their
content libraries through both TVs and Theatres.
Indian publishers like Diamond, Raj, Vimanika and
Chandamama have announced plans to enter the movie
space with their famous comic characters:

Table 2: Increasing influence of comics’ players in

the animation industry
3.5% 3.9%
3.0% 2.7%
Diamond comics has announced plans to launch a TV
channel targeted at the 4 to14 year age group with
4 to 14 15 to 24 25+ Male 25+ Female 45+ both animation and live action content
Source: FICCI-KPMG Indian Media & Entertainment Large production houses are also buying rights from
Industry Report 2010 these publishers to produce animated TV series - Big
Animation Pvt. Ltd has bought rights from publishers
Growing Demand for Kids’ Genre of Chandamama to produce an animated TV series.
The number of TV channels dedicated to animation and Toonz Animation India Pvt. Ltd is producing a full-
kids has been steadily increasing in India (Refer Table 1). length animated feature film based on a prime
In 2009 itself, 3 channels for kids were launched. This property from the library of Chandamama for an
trend is expected to continue, which bodes well for the estimated amount of USD 4.5 million,
animation entertainment industry in India.
Filmmaker Anurag Kashyap has bought the rights of
Raj Comics’ popular character – Doga.

Table 1: TV channels dedicated to animation and kids

Year No. of TV Channels Launched Name of channels

1995 1 Cartoon Network
1999 1 Nick
2004 5 Hungama, Pogo, Toon Disney (Jetix), Disney Channel, Animax
2007 1 Chutti TV
2009 3 Spacetoon, Khushi TV, Chintu TV

12
Animation in TV Advertising
The Indian TV advertisement industry size is expected to increase from USD 1.9 billion in 2009 to USD 3.3 billion in
2013, growing at a rate of 13% p.a. This, coupled with growing popularity of animated characters is expected to
boost the industry. Animation commercials cost far lower compared to advertisements with celebrities and establish
a connect with the target group of children and young adults. They relate to audiences irrespective of language and
cultural barriers. All this points to increased usage of animation in TV Advertising.

Figure 12: Examples of animation used in Indian TV advertising

Animation Movies For Theatres

India lags the global market significantly in terms of number of animation movies produced in India. The box-office
failure of Roadside Romeo, coupled with the effects of recession, made Indian filmmakers shelve their projects on
Indian animation movies. However, Hollywood films such as Ice Age 3 and Monsters vs. Aliens enjoyed success
on Indian screens. The release of ‘Avatar’, a movie that is a hybrid of live action and computer generated animated
characters became the largest grosser in India indicating that Indian audience is interested in animated content. The
Hindi, Tamil and Telugu dubbed versions of the film did equally well, highlighting the extremely responsive regional
market for animated content in India. As the country moves out of recession and Indian audience matures, animation
movies in the pipeline are expected to see execution.(Refer Table 3 )

Table 3: Animation movies in the pipeline for 2010

Movie Name Produced by

Sultan Soundarya Rajnikant
Toonpur Ka Superhero Kumar Mangat, krishika Lulla
Kuchi Kuchi Hota Hai Karan Johar
Delhi Safari Krayon Pictures
Arjun UTV
Alpha and Omega Crest Animation
EKEH 2.0 Motion Pixel Corporation and PNC motion entertainment

Animation. Broadcasting. Gaming. On the Cusp of Growth | 13

Outsourcing Market Figure 13: Split of outsourcing revenues across its
Similar to the domestic market, TV contributes the sub-segments
largest (~55%) of the outsourcing animation entertain-
ment market in India, followed by Direct-to-DVD.

Outsourcing work to India is dependent on the

• Animation Content Worldwide 28%
• % of Content Outsourced Globally and
• % Outsourced to India
55%

17%
Trends and growth drivers for each of these param-
eters need to be understood / analysed to estimate the
direction of the ‘Animation Entertainment’ Outsourcing
pie.

Animation Content Television Movies for theater DVD

Animation movies in the largest animation market i.e.
US have been growing (US produced 29 animation
movies in 2009). This is primarily propelled by the high % Outsourced
box-office earnings of these movies The recent recession has forced the production houses
worldwide to step up their focus on cost savings
Table 4: Box Office Earnings of certain animation measures. Comparison of production costs coupled
films worldwide with their increased focus on cost savings is expected
to translate into higher % of work outsourced globally.
Table 5 provides an indication of India’s advantage over
Animation Year of Worldwide Box Office
other countries.
Film Release Earnings (USD Mn)
Shrek 3 2007 799
Table 5: Estimated costs for 30 minutes of animated content
Wall E 2008 533
UP 2009 711
India Korea, Philippines North America

Plans of the two largest animation houses in the world 2D Hand drawn USD 45,000 USD 60,750 USD 180,000
Disney Pixar and DreamWorks point to a similar growth - 50,000 - 67,500 - 200,000
for future. Disney Pixar released 8 movies in the last two 3D USD 90,000 USD 121,500 USD 360,000
years. It plans to increase the number to 13 movies from Backend USD 200,000 USD 270,000 USD 800,000
2009-2012. Similarly, DreamWorks plans to produce production
5 movies every two years from 2009 compared to 2 Flash Animation USD 20,000 USD 27,000 USD 80,000
movies a year previously. However, in wake of the recent
economic recession, the budgets for these movies are Source: Analyst Report
expected to stagnate.

14
% Outsourced to India
Animation Services outsourced to India is not only a
function of the cost but also depends on the capability
of the Indian players and its recognition world-wide.
Indian animation players are surely moving up the value
chain with their experience and are gradually getting
recognized as well. This is evident from the large no. of
recent co-production deals:
Table 6: Co-production deals in India
DQ Entertainment: 30+ global Co-productions deals
with many leading companies like BBC UK, American
Greetings Properties, M6 etc.
Sanraa Media: Deal with UK based Endemol for the
co-production of animated series – The 99
Toonz Animation: Co-production deal with Spectra
Animation of Canada to co-produce 52 episodes of a
Malayalam animated TV serial ‘Paddy’s Pages’
Improved capability and perception of the Indian players
is encouraging for the outsourcing pie of the animation
services in India.
Animation. Broadcasting. Gaming. On the Cusp of Growth | 15
Indian Animation Entertainment Industry:
Overall Outlook
Indian Animation Entertainment Industry is expected
to witness a significant growth, both in terms of
revenue and participation in the value chain. The Indian
animation industry started by doing work for foreign
companies. Increasingly, it is developing characters,
lines and voices of its own. Studios are looking at new
business models, including partnerships, to produce
films and shows. Sometimes, the partnership may just
be an investment. In return, they get to own a big
chunk of merchandising rights. Some are even nego-
tiating distribution rights. This ensures flow of money
even if there is no cash flow in the short term. Today,
global companies are looking at India for co-production.
As the industry gains expertise and tries to move up the
value chain, it faces a few daunting challenges, which
it needs to overcome to come close to realizing its
potential:
Skilled Manpower
Similar to IT Services, skilled manpower is the basic
requirement for producing quality animated content. As
per Nasscom Industry Report 2009, manpower require-
ment for animation in India is expected to grow from
17,500 in 2009 to 29,500 by 2012. However, lack of
employable resources poses a large constraint, which is
primarily due to the following reasons: Low awareness
of animation as a career and non-existence of a stand-
ardized and quality curriculum across the handful of
institutes in India.
 Lack of Government Support
Indian Government has been providing support to the
IT and IT Enabled Services industry in India, thus leading
to its growth. Indian animation players lack any such
Government support either through tax rebates or
grants. Moreover, competing outsourcing destinations
e.g.Canada, UK have signed tax treaties with the US.
Tight Budgets
Indian animation movie is a low budget INR 10-12
crore movie, primarily meant to hedge the involved
financial risks. In doing so, the quality takes a beating
and the movie fails to compete with a USD 100-200
Mn Hollywood Production. As production houses
grow bigger and financially stronger, the budgets are
expected to improve.
IP Protection
Piracy of DVD-based videos is rampant in India, which
eats into the revenues for the producers and distribu-
tors. Weak IP Regulation and ineffective enforcement
discourage animation players in India to produce their
own IP. Moreover, it also discourages International
Players, who are generally very protective of their IPs, to
outsource to India.
Entertainment VFX
Similar to Indian animation entertainment industry,
Indian animation VFX industry is a highly fragmented
industry with the top 5 players contributing to ~20%
of the overall market. The revenue model used in
animation VFX is ‘Work for Hire’, where revenues accrue
on a per hour basis.
Figure 14 : Animation Entertainment VFX Market
Revenues (USD Mn)
222
28%
135
83
%
53
15
2005 2009E 2011P 2013P
Source: Nasscom Industry Report 2006, 2009
16
The Entertainment VFX Industry has shown a very high
growth rate of 53% over 2005-2009 and is estimated at
USD 83 million in 2009. 60% of the market is for work
done for overseas clients.
Recent Trends and Growth Indicators
Domestic and overseas markets are expected to shape
the Entertainment VFX Industry in India
Domestic Market
VFX in Movies
The use of VFX in live action films has seen a steady and
significant growth over the years. Many live action films
today include a VFX sequence and the sheer duration of
these screen shots has also risen substantially.
Usage in Broadcast and Advertising
Usage of VFX in broadcast helps in significant reduction
of costs. Its usage brings down the set creation costs for
a broadcast by almost 60-65%, particularly for mytho-
logical shows. It also helps in costs savings of 30-40%
for commercials.
Pre-Visualization Trend
Pre-Visualization trend is a technique where-in the shots
can be visualized on computers before they are actually
shot. This increases the efficiency of production and
reduces cost of production. Growth of this trend would
contribute to increased overall usage of visual effects.
Overseas Market
VFX in Movies
The whopping success of VFX extensive movies at the
box office overseas is expected to drive the VFX usage
in other movies as well. This, coupled with the cost
savings through outsourcing is expected to lead to
greater outsourcing.
In addition to the demand drivers, players have taken
supply side initiatives, which will certainly boost the
market in India
Initiatives of Players
The Indian players are also increasing their presence
overseas to tap the international market and build an
outsourcing pipeline for their Indian studios:
• Pixion has acquired two London-based studios,
Men-From-Mars and Molinare
• P ixion also plans to acquire a studio in Los Angeles
• Tata Elxsi has launched a new facility of Visual
Computing Labs (VCL) in Los Angeles
Indian Entertainment
VFX industry faces
Indian Entertainment VFX Industry: Overall Outlook
Indian Entertainment VFX Industry, similar to the
Indian Animation Entertainment industry is on the
cusp of significant growth, both on the domestic and
outsourcing front. However, as the Indian industry
players take initiatives to boost their presence on the
numerous challenges :
global map, they face similar challenges : Lack of Skilled
Manpower, low budgets for VFX in a movie and no
Lack of skilled manpower,
Government support / incentives.

Custom Content Development

Low budgets, Little
Custom content development, estimated at ~ USD 295
Million (2009) has grown at 35% p.a. (2005-09) and
is expected to continue its growth at a healthy rate of
Government support
24% p.a. (2009-13) to reach USD 685 Million by 2013. Corporate (for their training requirements), K-12, Higher
Educational Institutes and industries such as Defence,
As per leading players in the industry, >90% of custom Aviation for their training requirements are customers
content development in India is outsourcing work. of this segment. Similar to the animation entertain-
ment industry, it is the production and post-production
activities which are primarily outsourced to countries like
Figure 15: Indian Custom Content Development
India.
Market Revenues (USD Mn)
685 Recent Trends and Growth Indicators
24% Domestic and overseas markets are expected to shape
the Custom Content Development in India
429
Domestic Market
% 295 E-Learning Demand from Corporate Sector
35
As the corporate sector expands its distribution and
adopts IT increasingly, demand for custom content
90 development is expected to increase. Most of the
increased demand is expected to come from the small
2005 2009E 2011E 2013E and medium enterprises (SMEs) who are currently low
Source: Nasscom Industry Report 2006, 2009
users of e-Learning, but are willing to adopt the cost-
effective high-quality channel.

Figure 16: Custom Content Development Value Chain

Content Owner/ Sourcing Animation Content Developer Platform Owner

Content can be for educational This can be done in-house or by an Can publish onto:
institutions, corporate or talent integrated studio or outsourced in part of • CD/ DVD
development companies full to an animation developer • Website
• Learning Management System

Source: Secondary Research

Animation. Broadcasting. Gaming. On the Cusp of Growth | 17

 Demand From Higher Education
Compared to the US where > 90% of the institutes
leverage e-Learning, current adoption of e-Learning by
higher education institutes in India is very poor. This has The Indian mindset
large scope for growth and can only go up, given the
current status. emphasises significantly
Overseas Market on human interactions
Major markets for e-Learning globally are the US and
select European nations across both educational institu- and face-to-face
tions and Corporate Sector for training purposes.
sessions, which has
Increased requirement for content
Content requirement for corporate e-Learning is to impeded the growth of
grow at 11% p.a. (2009-13).
e-Learning in India
Figure 17: Worldwide Corporate e-Learning Content Revenue (USD Bn)

Indian Custom Content Development Industry:

16.0
Overall Outlook
11% 14.0
13.5 Indian Custom Content Development Industry is slated
12.5 to show robust growth, both on the domestic and
10.5 outsourcing front. However, ‘Change in the Indian
9.0
Mindset’ and ‘Government Thrust’ can go a long way in
developing the industry:

Cultural Constraint
The Indian mindset emphasises significantly on human
interactions and face-to-face sessions. This has impeded
the growth of e-Learning in India.
2008 2009 E 2010 P 2011 P 2012 P 2013 P

Source: Skillsoft report

Increased outsourcing
Increased pressure on bottomline for the corporate
and higher education institutes is expected to increase
the focus on cost savings, thus leading to higher
outsourcing.
Government Thrust
Government Aided Institutes do not enjoy any incentive
for adoption of e-Learning in the institute. The fee for
these institutes is capped, thus restricting the authorities
to pass on the extra cost of an e-Learning initiative to
the students. This impedes adoption of e-Learning even
among willing insititues to adopt e-Learning.

18
Animation. Broadcasting. Gaming. On the Cusp of Growth | 19
Gaming

Global Gaming Industry • Console Gaming: Sale of hardware e.g. gaming

The global gaming industry has been growing at ~21%
p.a. (2005-2009) to reach ~ USD 40 billion (CY2009).
This growth is expected to reduce to 10% p.a. and is
expected to reach USD 59 billion by 2013.
Figure 18: Global Gaming Market (USD Bn)
10%
consoles
• Online Gaming: Advertising and subscription of
online games
Gaming services market in India comprises:
• Outsourcing development services
• Ancillary services such as voice and email BPO
59 support, porting, testing, etc.

49
Gaming industry in India is a fragmented industry,
% 40
21 with players present across the value chain. It is the
development and post development activities (Refer
19 Figure 21) which are outsourced. Concept creation,
feasibility testing and pre-production are still limited to
only the online and mobile platforms in India, that too
2005 2009E 2011P 2013P done only by a handful of players.
Source: Nasscom Industry Report 2006, 2009
Figure 20: Gaming Value Chain
Key segments for gaming are Console Gaming, PC
Concept Post Final
Gaming, Mobile Gaming and Online Gaming. North creation & Pre Gold
Development production Testing / Consumer
America, Western Europe and Japan lead the gaming feasibility Production release
& testing Porting
testing
market. However, China is the fastest growing market
• Involves • Creation of • Programming • Involves • The final • Game made
especially for online gaming. concept story board 3-D • 3-D Art asset final sound build is compatible
creation Pre-production, building: recording, delivered with various
character color to the graphic
Indian Gaming Industry Overview • Publisher
drawing
This includes
testing publisher cards/ mobile
validates the character
The Indian gaming market is estimated at ~ USD 239 concept and • Game engine modeling, and special handsets
sound (for mobile
million (CY 2009) and expected to grow rapidly to reach identifies decision (for se design &
effects games)
the market console, PC modeling
~ USD 1.3 billion by 2013, showing a CAGR of ~53%. opportunity and online) texturing
Consumer market in India comprises revenues from:

Figure 19: Indian Gaming Consumer and Services Figure 21: Presence of Indian Gaming Players Across the Value Chain
Market (USD Mn)
Concept Creation Pre Post &
Development Final Testing
& Feasibility Production Testing
328 / Porting
Testing Production

% Console
53
Mobile

PC
988
150
Online
21%
80 380 Note: For Mobile, PC, and Online Games, concept creation and feasibility testing Limited Presence
29
158 and pre-production are done only for domestic clients while the other steps
35 Moderate Presence
are done for both domestic and overseas clients. For Console Games, all stages
2005 2009E 2011P 2013P except content creation are done only for overseas clients No Presence

Source: Nasscom Industry Report Secondary Research

Source: Nasscom Industry Report 2009
Consumer Services

• PC Gaming: Sale of CD-based gaming software

• Mobile Gaming: Sale of software through mobile
downloads

20
• Integrated companies that have presence in the Mobile Gaming
complete gaming value-chain – from conceiving a • Growing mobile subscribers & Introduction of
gaming idea, publishing it, developing the complete 3G-enabled handsets
game and distributing it across geographies are Mobile phone is the most widely owned screen in
again limited to a few companies, that too only for India today and is expected to continue its growth,
mobile gaming. given the large scope for further penetration of
mobile phones in India. As the Indian populace’
Among the various segments exposure to mobiles increases, higher downloads on
• Mobile and Online Gaming are the largest the mobile phones are expected. Moreover, it is the
contributor to gaming service revenues introduction of 3G in the country, which will enable
• Consoles are the largest contributor to Gaming the user experience a high quality game and demand
Consumer Revenues. However, one needs to note more. Such a demand will foster innovation in games
that a large % of the consumer revenues is shared on the mobile and encourage an ecosystem for
with international players viz. Sony, Nintendo, greater development of mobile games.
Microsoft, Electronic Arts, etc.
• Telecom operators : Declining ARPU and Need for
Figure 22: Consumer and Services revenues across
Differentiation
type of games (USD Mn) (2009)
Telecom sector in India has been experiencing an
7 increase in competitiveness between operators as
well as handset manufacturers, which has resulted
in a greater need to differentiate themselves from
their competitors through Mobile Value Added
23 Applications and Services. Moreover, the ARPUs of
90 telecom operators have been declining: Telcos are
looking forward to Mobile Value Added Services
34 as an alternate revenue source. Mobile gaming is
43 16
expected to significantly grow on account of this
12 14 supply driver: Mobile Entertainment being considered
Console Mobile PC Online as a means to differentiate and a channel for
increased revenues per user.
Consumer Services
Source: Nasscom Industry Report 2006, 2009

Figure 23: Non-voice Revenues per country

• Moreover, the margins involved in this distribution
business are very low. This high revenue share model
China 27
applies to PC and Online Gaming as well, where
Indian presence in creating games is limited. Japan 27

Distribution business (Low revenue share, Low margins) Korea 26

is not a significant contributor to growth of gaming
industry in India. Hence, in this report, trends related to UK 21
consumer business of consoles or distribution of games
of foreign players have not been considered. Both Germany 21

domestic and outsourcing trends and growth drivers

Italy 17
have been analysed to understand the future of gaming
market in India:
India 8

Domestic Market
Source : IAMAI Paper, Deloitte Analysis
Domestic market is expected to witness high growth, Notes : Data is approximate and is based on the data % of large
both from the demand and supply side: telcos in respective countries

Animation. Broadcasting. Gaming. On the Cusp of Growth | 21

Online Gaming
Increasing internet penetration in India, introduction of
Broadband Wireless Access (BWA) and growing trend
of Massive Multi-player Online Role Playing Games
(MMORGs ) are expected to grow the online gaming
market in India significantly.
• Increased internet penetration and Broadband
Wireless Access Introduction
Internet penetration in India has increased from a
mere 0.7% in 2003-04 to a 1.2% in 2008-09. This
growing penetration, along with introduction of
BWA, which would lead to increased broadband
penetration would facilitate playing of high end
online games in India.
Figure 24: Internet Penetration in India
23%
1.10% 1.16%
1.00%
0.60%
2005-06 2006-07 2007-08 2008-09
Source: TRAI
• Growing trend of MMORGs
All types of games in India can be broadly classified
into: Single Player Single Session Games, Multi Player
Single Session Games and Multi-Player Online Role
Playing Games. Currently in India, Single Player
Games dominate the market with 80% of the active
Internet using gamers playing such games. Only
27% of Indian online gaming populace is playing
MMORGs. However, it is the fastest growing among
the three, not only in India but worldwide as well.
Growing MMORGs is expected to boost the online
gaming in India.
Outsourcing Market
Today, majority of gaming services revenues in India
comes from outsourcing, especially for Console, PC and
Online Gaming. Outsourcing work to India is dependent
on the development of games worldwide and the %
outsourced to India.
22
Trends and growth drivers for each of these parameters
need to be understood / analysed to estimate the
direction of the outsourcing for gaming services in India
• Increase in production of console games overseas
and MMORGs
Currently, revenues from console game development
services are completely derived by providing
services to international companies. Global console
software market is expected to grow at 11% p.a.
This indicates a greater need for console game
development services. Similarly, the trend of growing
MMORGs worldwide is expected to continue.
Both these are expected to lead to higher need for
development of games on the respective platforms.
• Cost Savings
There is a significant cost differential between the
production costs in India and that in US. As per
Nasscom, game development in India saves > 50%,
compared to the US.
Figure 25: Production Cost Indices (India Vs US)
100 100
41 40
Console Mobile
US India
Source: Nasscom Industry Report 2009
• Growing expertise and recognition from Indian
Players
As the Indian Players gain expertise across the
multiple gaming platforms, they are also earning
recognition from global publishers. This is
evident from the recent co-publishing (Revenue
Sharing) deals between Indian players e.g.
Trine Entertainment and foreign publishers for
development of games.
 Indian Gaming Industry: Overall Outlook
Indian Gaming industry is expected to witness large
changes, primarily in the domestic market. Introduction
of 3G and telco’s focus on Value Added Services are
expected to lead to exponential growth for mobile
gaming in India. This will also lead to the Indian gaming
players moving up the value chain and getting involved
in end-to-end game development and publishing. As
the Indian market matures and gains expertise, Indian
players will gain confidence of their foreign counterparts
and attract greater % share of the outsourcing pie and
co-publishing deals.
However, realizing the potential of the Indian gaming
industry is constrained by factors very similar to the
animation industry in India:
• Lack of Skilled Manpower: Lack of employable
manpower, primarily arising out of high quality
institutes, lack of perception of gaming as a potential
career is a key challenge for the industry.
• Mindset of Indian Populace: Gaming is considered
to be just a means of entertainment and even a
worthless activity by a large section of the Indian
population. This is the largest factor impeding the
growth of the domestic market in India.
• High Standards of Foreign Games: Indian gamer is
already exposed to the best quality games globally
and would expect similar quality games from Indian
games as well. Indian gaming players, constrained
Increasing number of co-production deals,
development of own IPs, recent investments from
Private Equity – All these developments are
evident of the demonstrated capability and
growing confidence of the Indian Animation and
Gaming Industry
Animation. Broadcasting. Gaming. On the Cusp of Growth | 23
by lack of budgets and quality manpower have not
been successful with development of PC / Console
Games.
• Revenues Sharing with Telecom Operators: Telecom
operator keeps a large % of the revenue (60% -
70%) that accrues from mobile game downloads.
This revenue-sharing agreement does not foster
the right ecosystem for mobile game developers to
develop their own IPs and distribute them.
Indian Animation & Gaming Industry : Future
Outlook
The Indian Animation and Gaming industry is today at a
nascent stage, but holds significant potential for growth,
both in terms of its size and moving up along the value
chain. While the abysmally low current share (0.6%) of
the worldwide animation and gaming market points
to Indian industry’s potential for domestic growth, the
<10% share of the outsourced market indicates the
large scope for growth from the outsourcing market.
Increasing number of co-production deals, increasing
focus on development of original content and own IPs,
setting up overseas offices, recent investments from
Private Equity / Other Funds – All these developments
are evident of its demonstrated capability and growing
confidence. However, regular availability of employ-
able talent needs to be ensured for the potential to
be realized. Certain Government incentives could also
encourage the industry and help it go a long way.
Television
Introduction
Television plays a significant role in dissemination of
information and is equipped with an innate power to
influence people, their beliefs and their opinions. A
global Deloitte study on ‘Media democracy’ in 2009
across over 2000 respondents offers some interesting
insights about the popularity of television in current
times. TV remains a favorite media source for most
consumers – 72% of the respondents rank ‘watching
TV’ as their top media source. 84% respondents
consider ‘advertising on TV’ as the most influential
media source to impact their buying decisions. Online
TV matters to a minority of viewers, though the share
of such viewers has gradually increased as compared to
2008.
Indian entertainment today has a far more global
audience across South Asia, the Middle East, and
Africa. The large base of expatriates ensures that
Indian TV channels and films are a premier medium of
entertainment. Indian films and TV channels have been
able to attract audience beyond expatriates in the US
and the UK – an audience that enjoys and identifies
more with the contemporary Indian culture.
Figure 26: Size of TV Industry in India (USD Bn)
17%
10.7
14%
7.8
5.7
3.4
2005 2009E 2011P 2013P
Source: IBEF, Secondary Research
24
The television sector in India has grown at a CAGR of
~14% (2005-2009) and is estimated to continue to
grow. By the end of 2011, the industry is estimated to
reach USD 7.8 billion. While the media & entertainment
market in India is relatively small when compared
with other Asian countries, India has the third largest
television market in the world after China and the US.
TV continues to dominate the sector followed by print
and filmed entertainment.
Figure 27: TV Revenue Streams
Television
content
4%
Television
advertising Television
34% distribution
62%
Source: IBEF, Industry estimates
Television – Revenue Streams
In 2009, subscription revenues contributed around
62% to the total television revenues and stood at
USD 3.5 billion; while advertising constituted 34%
at USD 1.9 billion. The television content constitutes
approximately 4% to the total television market at
USD 250 million.
Figure 28: TV Value Chain

Content Creators/
Broadcasters Distributors End Users
Content Aggregators

• Content providers • Further, content is • The distribution • End users get access
operating directly or distributed through companies, using to the content after
Role in the TV through aggrega- audio and video signals various technologies, paying a subscription
Value Chain tors who re-package to transmit programs make the content fee
content to an audience available to audience

Key players

• In the next 2-3 years • Competition among • Lack of transparency in • Consumers are experi-
the companies can broadcasters leading sharing of revenues by menting and open
Challenges/
expect to look beyond to drop in Gross Rating distributors has been a to new technologies,
Consideration
and target local Points (GRPs) especially challenge. Local Cable content and offers
viewers with custom- for channels in Hindi Operators still garner
ized content in markets GEC space 75% of the subscrip-
like North America, tion revenues
Europe, Middle East,
and Africa

Source: Deloitte analysis

i. Television Distribution the DTH platform. DTH is an upcoming segment even in

India’s television distribution industry is the world’s
second largest with over 105 million cable and satellite
(C&S) homes in 20091. New digital mediums are
emerging – DTH, Digital Cable and IPTV. DTH is being
instrumental in the growth of television industry in India.
There are multiple organized players that are providing
satellite signals directly to the homes. There are 22
million digital homes – 18 million out of these are on
rural India, increasing its share among all DTH homes to
64% in 2010 as compared to 34% in 2008. Digitization
is expected to speed up, not only in Direct-to-home but
also in the hitherto-analog cable segment. An industry
report by IDFC suggests that total digital homes are
expected to increase four times to 86 million by 2015 –
which would potentially address the ‘under-reporting’
of revenues earned by local cable operators. DTH would

1 Television distribution report

2009, IDFC

Animation. Broadcasting. Gaming. On the Cusp of Growth | 25

 constitute 48 million homes (18 million in 2009) and cable would be 38 million homes (as against 4 million in 2009).
This indicates digitization is underway and the television distribution is moving towards being more organized.

Figure 29: Digital TV Homes in India

Total potential
(in millions of homes)

Undeclared
homes
Undeclared Declared 105 51 mn
140
homes homes
82 mn 23 mn Declared
homes
89 mn

30
20

2009 2015E
Non C&S Home C&S Home

Digital homes 22 million 86 million

Source: IDFC, Deloitte analysis

India is an extremely cluttered cable and DTH market: The cable distribution industry in India is extremely fragmented,
with the presence of over 7000 MSOs and more than 50,000 LCOs.

Figure 30 : Cable & DTH Market in India

Broadcasters: 400+ channels

7,000+ Multi System Operators (MSOs) & Independent satellite operators (ISOs) 6 DTH operators

MSOs MSOs MSOs MSOs ISOs

50,000 + LCOs

LCO LCO
LCO
LCO LCO
LCO LCO LCO LCO
LCO
LCO

87m subscribers 18m subscribers

Source: IDFC

ii. Television Advertising

Television advertising in India stood at USD 1.90 billion in 2009 – seeing a marginal growth of 2% over 20082. In
2010, the overall advertising industry is expected to see a y-o-y growth of 13% over 2009.

2 IBEF, Industry estimates,

Until recently, the growth in TV advertising was largely driven by significant advertising spends by fast growing
Pitch-Madison, Edelweiss
Research sectors such as banking and financial services, telecom etc. As a result of the economic slowdown, players in these

26
sectors trimmed their advertising spends especially in the volumes. Players such as HUL, Reckitt Benckiser and
first half of 2009. P&G intensely compete with each other on television
advertising. Many other leading FMCG players have
Figure 31 : Leading Advertising Categories on TV also joined the TV advertising battle; given that
TV broadcasting has historically been an effective
Top 10 TV advertising sectors in 2009 advertising vehicle for consumer products. Apart from
FMCG, sectors such as telecom, automobile, banking
Top Categories % share
& financial services and consumer durables have also
Food & beverages 14
joined the TV advertising bandwagon.
Personal care/ personal hygiene 11
Services 6 iii. Television Content
Telecom/internet service providers 5 Most channels produce their own television content.
Hair Care 5 Given the increasing demand for differentiated content,
a handful of content creators have emerged who sell
Auto 4
television content to channels. This contributed about
Banking/finance/investment 4 4% of the overall television industry in 2009 at USD 250
Personal accessories 4 million. Since the number of channels is growing by the
Personal healthcare 3 day and there is a need for differentiation, television
Household products 3 content segment is expected to surge further.

Source: TAM Media Television Channels in India – the Problem of

Food and Beverages leads the charts in advertising
on television in 2009 with ~ 14% share, followed by
Personal care / Personal Hygiene at 11%. FMCG firms
such as P&G, HUL, Coca Cola, Pepsi, ITC were the
leading television advertisers in 2009.
A win-win for TV Advertising
Let’s have a look at some interesting advertising spend
insights. 9 of the Top 10 advertisers on TV are from
FMCG. FMCG accounts for over 45% of TV advertising
Plenty
The last few years witnessed a near explosion of the
number of television channels in India. From the black
and white television broadcasting on a single national
television channel (Doordarshan) in 1980s to over 500
channels spanning various genres – Indian television
industry has truly come a long way.
Television Genres in India – From Generic to Niche
The Indian television broadcasting segment currently
has more than six genres. High number of genres is

Figure 32 : Evolution of TV Channels in India

2010: Over
500 channels
2015: Annual growth
Doordarshan was 1992: 5 new 2003: Entry of already in India
rate for the television
the single national channels authentic news and another
industry is projected
broadcaster introduced by channels such 100 waiting to
2006: 2 to be15% over the
Hong Kong as AajTak and go live
million next 5 years
based Star TV Star News
digital TV
households

2002-03: More
Ramayan and 1996: More than 2009: 394 TV channels in
international channels such
Mahabharat were the 50 channels 2009. Non-news & current
as Nickelodeon, Cartoon
popular shows with available to affairs TV channels grew
Network, VH1, Disney
record viewership Indian viewers from 0 to 183; news &
were launched in India.
current affairs TV channels
The number of channels
grew to 211
increased to ~ 100

Animation. Broadcasting. Gaming. On the Cusp of Growth | 27

primarily driven by the growing need for more and more
differentiated and niche content. Since the viewers
today have far greater choice in terms of content, varied
national and regional channels have emerged across Regional GECs are
almost matching the
genres.

I. GEC (General Entertainment Channels)

Figure 33: Viewership across TV Genres in India strength of their national

100
4.2
2.5
4.3
2.1
counterparts, and have
90 9.3

5.1
7.9

5.5
Others
emerged as a key focus
area for most players
80 Terrestrial
2.8
3.2 2.4
2.1 1.7 Cable
1.9 3.7
70 3.2
3.4 Kids
4.6
4
4.7 Sports
60 Here are some key highlights of emerging changes in
11.7 Music: Regional the Hindi GEC space in the last calendar year:
11.5
• Increasing popularity of reality shows and fiction
50 Music (general)
addressing social and realistic issues
News: Regional • Advertisement rates nose-diving in the IPL month
40 • Channels such as Colors, Imagine going global as
24.2 News: Hindi
25 they also strongly race for the top slot in the highly
30 Movies: Regional competitive TV broadcasting battlefield
Movies: Hindi • Leading GECs acquiring broadcasting rights for new
20 movies for sprucing up the ratings and adding to
GEC: Regional
their viewer base, by reducing the gap between
26.2 GEC: Hindi theatre release and time-to-market through television
22.5
10

b. Regional GECs: Gaining rigor

0 Regional GECs are almost matching their strength with
2008 2009
Source: TAM Media
a. National GEC: Cutthroat and competitive
2009 was a roller-coaster ride when it comes to the
top hindi GEC slot. While Star TV was at the top till the
first half of the year, Colors occupied the top position
and got the highest gross ratings points (GRPs) of 325
in September 2009. This was also the highest among
all Hindi GECs in a span of over a year – 50 GRPs ahead
of its closest competitor Star TV and 70 GRPs over Zee
TV. Differentiated content such as its flagship drama
‘Balika Vadhu’ and ‘Utaran’, second season of stunt-
based reality show Fear Factor-Khataron Ke Khiladi and
BigBoss; coupled with meticulous distribution strategy
worked wonders for Colors.
the national GECs and have emerged as a key focus
area for most players. The number of regional channels
has increased from 114 in 2008 to 135 in 20093. While
the share of advertising on genres such as Hindi News,
Hindi GECs and Hindi Movies almost remained constant,
it increased for regional GEC from 22% in 2008 to 24%
in 20094. High demand for regional content by viewers
settled outside India, low cost of production (relatively
low talent cost, no carriage and placement fee, low
acquisition cost), affordable local advertisement reaching
the right audience are some factors contributing to the
success of regional channels.
3 ‘Going native’, article
Regionalization has caught the eyes of most established
published in Financial Times
broadcasters, catering to specific interests of the in Oct 2010
viewers: 4 TAM Media

28
 • Tamil, Malayalam, Telugu, Kannada, Bengali and
Marathi are the key languages in the regional GEC
space
• Sun TV Networks has been a leading TV broadcaster
in the South Indian television market
• Zee Networks that established a strong presence
in northern and eastern India with channels in
Bengali, Gujarati, Marathi and Punjabi by 2004; also
commands a significant present in South India with
their first South Indian channel launch - Zee Telugu in
2005, Zee Kannada in 2006, Zee Tamil in 2008
Other broadcasters such as Sony, NDTV, UTV are eyeing
the growing regional channel space, intensifying the
need for more and more specialized content targeted at
the regional viewers.
II. News channels: Losing steam
India currently has about 250 news channels as
against 215 in 20085– highest as compared to any
other country. 42 new news channels were permitted
in 2009 and 2010. Except for a handful of leading
news channels such as AajTak, most national as well
as regional news channels are losing steam to the
GECs. While the GECs are fast catching up with their
differentiated content, the news channels struggle
to strike the right balance between traditional
news content such as politics, current affairs; and
entertainment content. The news channels also grapple
with holding the viewer’s attention. Some channels have
tried to address this by creating dedicated channels for
5 Ministry of Information and
Broadcasting. March 2010
Animation. Broadcasting. Gaming. On the Cusp of Growth | 29
specific type of content. TV Today launched an English
Channel, Headlines Today; and then another Hindi
channel, Tez (meaning fast). Both these channels were
aimed at the busy viewer who does not have time for
long and detailed news bulletins.
III. Music: Journey away from music
Music channels in Indian television are facing winds
of change. Four years ago, there were 12 pure music
channels. Today, there are only four - 9XM, ETC, Music
India and VH1. Audience viewership for music channels
is dipping across all age groups. Most traditional music
channels are also embracing non-music content since
these channels are finding it increasingly difficult to
retain and attract interest of audience due to growing
competition from GEC and other genres.
IV. Sports: Creating its own niche
Sports channels in India have increased manifold over
the last few years. The Indian cricket fans constitute the
primary viewers of the Indian sports channels. Events
such as Twenty20 World Cup and IPL have offered
exactly what the Indian cricket fans look for. Games
such as hockey and football are also gaining more
importance – increased demand and viewership for live
telecasts, along with attracting sponsorships from bigger
brands. For example, initiatives such as ESPN Star Sports
association with the Indian Hockey Federation to create
the Premier Hockey league can offer further growth of
this genre.
 V. Kids: It will be more quality now
Tiny-tots are migrating from other genres of channels
to the specific genre of cartoon channels for them. The
channels are responding well enough by incorporating
increasingly vivid and superior content. While Cartoon
Network continues to hold the fort in the all-India
kids segment, the channel has seen a 3% dip over the
previous year to end 2009 with a 24% market share4.
Channel Pogo too has managed to retain the number
2 slot in this space. The channel has seen a rise in its
market share from 20% in 2008 to 22% in 20094. This
genre has tremendous potential to grow given that the
target audience for the ‘kids’ channels is not only kids,
but also some viewers from the adult segments.
A host of new channels were launched across the
GEC as well as non-GEC genres over the last 2 years.
In the GEC genre, Colors, NDTV Imagine, 9X and few
others were launched, while channels such as Discovery
Science, UTV Movies were introduced in the non-GEC
genre. Since the Ministry of Broadcasting decided to
temporarily suspend the issuance of new licenses to
new channels due to the lack of spectrum in 2009; the
increase in number of new channels in 2010 and 2011
is expected to be driven only by players already holding
the licenses and are yet to launch the channels.
Policy Framework
TRAI was designated as the regulator for broadcasting
and cable services in 2004. While much is still uncertain
about the broadcasting guidelines for the newly

Figure 34: Colors – Breaking the Monopoly and Monotony of Family Drama

• Colors spiraled to the No. 2 spot in the competitive general entertainment channel (GEC) space within 10
weeks of its launch and became a well-entrenched channel available in 66.8 million homes, with a 24%
What did Colors do?
market share.
• Colors was taking on the challenge of competing with giants like Star Plus, Zee and Sony, who controlled
the entertainment space and seemed to have set into a comfortable equilibrium in rankings and revenue.

Target Audience • Hindi speaking audience in 90 Indian cities

The success strategy was three pronged:

Explosive Marketing Differentiated Content Debut with Two Big-Ticket

Used all Played ‘Bring the Colors’ disruptive

Promotion Routes
• 1300 hoardings & road shows across
country
• 3000 taxis and 2000 auto rickshaws
painted with Colors brand
• 65000 ad spots booked on TV &15
million SMSs
• Big Bazaar stores & McDonald’s helpers
and counter-guys flaunted Colors
T-shirts
Difference’ Game
• New hue to the existing Hindi GEC
Category
• Variety of FRESH content across genres
covering the entire spectrum of
emotions
• Content customized to fit evolving
viewers with a desire to escape to their
fantasy world, while still remaining
within the realm of reality
programming strategy
• Launched with two blockbuster
properties Khatron Ke Khiladi and
Bigg Boss 2, winning the eyeballs
immediately
• Soaps addressing social issues and
stayed away from the family drama.

30
emerging distribution segments, one thing can be stated
with certainty: we have moved into a new era of digital
transmission of television content. The Government of
India mandated digital conditional access systems (CAS)
and rollout of DTH TV licenses highlights the regulator’s
focus on speeding up the digitization process. The
Headend-in-the-Sky (HITS) policy and a concessional
customs duty of 5% on importing digital headend
equipment is expected to give drive the digitization
process even faster.
FDI policy across various distribution segments:
• Cable Network: Foreign investment and portfolio
investments are permitted up to 49%
• Direct-to-Home: Foreign investment and portfolio
investments are permitted up to 49%. Within the
limit of 49%, FDI will not exceed 20%
• Head end in the sky (HITS): Foreign investment and
portfolio investments are permitted up to 74%
Since more and more telecom companies are entering
the broadcasting space, FDI ceilings would need to be
rationalized to facilitate the anticipated convergence.
Future Outlook
The television industry is truly transforming. Increasing
pay TV penetration, multiple channels in each genre
racing against each other for TRPs, expanding yet
fragmented local as well overseas viewership of Indian
channels, demand for more specific content – clearly
sets the stage for the next level of growth and transition
for players across the television value chain. Content
creators and broadcasters need to be cognizant of the
ever increasing demand for differentiated content. While
on one hand, new digital content distribution platforms
are emerging; on the other hand, new formats of
entertainment - computers, mobiles and other handheld
devices are gaining importance. Monetization of content
through these new media platforms is going to be a key
focus area for the content owners. Some key trends and
challenges that lie ahead are:
• Digital. Digital. Digital: ‘Digital’ is already the
buzzword today – digital content, digital production,
digital distribution, digital platforms… It is imperative
for players across the value chain to be digitally
adept to fully garner these opportunities
• Spiraling production costs: Managing production
costs is one of the key challenges for content
producers. With the almost waning economic
slowdown, the talent costs are rising again to the
levels they were prior to the pre-recession times
• Falling ARPUs: The highly competitive DTH market
is experiencing lower ARPUs, while also moving
neck to neck with local cable operators (LCOs) and
multi system operators (MSOs). Most players are
experiencing and are likely to witness for few more
years, a squeezing bottom-line growth. High cost of
customer acquisition further intensifies the pressure
• Evolving viewer interests: The viewer today is not
only looking for new-fangled content but is also
very quality conscious. From new movie broadcasts
to the IPL craze, from series such as ‘Balika Vadhu’
addressing social issues to reality shows with more
and more celebrity appearances – the need for
differentiated and fresh content is on an all time
high. Regional viewers, both in India and overseas,
are also gaining importance
• Fragmented viewership: Increasing number of
channels has fragmented the TV audience. The only
way to garner a significant market share within
the viewership is through differentiated content.
This would require a deep understanding of the
consumer segments and their media consumption
habits
Players across the television value chain need a sound
action plan to address some of these challenges and
harness the opportunities in a growing and high
potential sector. While there isn’t any one-size-fits-all
approach to realize the true potential of this sector,
there are some areas that the players may need to
focus more on and prioritize. It would be important, for
instance, to address the demand for regional content;
to work closely with the regulator in developing
transparent and more accurate techniques to measure
viewership; to influence the regulator for an increased
impetus on digitization; to influence stakeholders across
the value chain for controlling production costs; and to
enhance value delivered to the end-customer both in
terms of varied content experience (by content creators
/ broadcasters) and effective customer-service (by
distributors).
Animation. Broadcasting. Gaming. On the Cusp of Growth | 31
Radio

Introduction
Radio broadcasting in India has evolved from an All India Radio monopoly (1936) to a Government of India
controlled All India Radio (AIR) and 37 private FM radio companies that operate close to 280 FM radio stations. FM
radio stations are contributing to its rapid growth.

Figure 35 : Evolution of Radio in India

2005: Second
1993: Private Phase with 338
AIR started its slots up for
participation on a
services auction
experimental basis
on FM channels in
Delhi & Mumbai
1936

Awaiting
1999: Government pulled 2001: First phase of India’s Third Phase
1977: First
out the plug on private radio development began and
FM service
participation Government conducted open
auctions issuing 108 licenses

Radio industry in India is ~USD 200 million, having grown at a CAGR of 22% (2005-2009). Most of the revenues for
Radio are driven by advertisements (~85%-90%), while 10-15% are driven by events and activations on the radio
(Refer Fig. 37).

Figure 36 : Radio Industry in India (USD Mn) Figure 37: Radio Broadcasting Players
(Revenue Split %)

10%
25%

500
54% 36%

22% 350

200
90

2005 2009E 2011P 2013P

Events & Activation Local Ads National Ads
Source: IBEF, Secondary Research Source: Industry Estimates

Advertising revenues from radio in India are only ~3% of Figure 38: Radio Ad Revenue
the overall advertising industry in India. This is less than (% of Overall Ad Revenue)
50% of the global average (~8%) (Refer Fig. 38). This
India 3%
clearly indicates the immense potential and scope for
growth for radio in India. World 8%

Selected Developed 15%

Countries

Source: Secondary Research

32
Key Growth Drivers & Constraints enabled mobile phones, the radio audience is bound to
Uniqueness of radio, its utility on the move and the 3rd increase.
Phase of Licensing are expected to drive its growth in
Figure 40: FM Enabled Mobile Phone Growth
India:
392.0

Unique value proposition

Radio is a unique medium compared to other 261.0
advertising media. It is a local medium and can deliver 65%
locally relevant content. It is a highly interactive medium 165.0 59%

and can be used most effectively for promotional 37%

campaigns. This value proposition of the radio is
expected to be increasingly realized and leveraged by
advertisers.
2007 2008 2009
Mobile Subscribers (Mn) % of FM Enabled Handsets
High utility on the move
Source: TRAI, Business Press, IDC India 2010
Radio finds high utility by people on the move, whether
it be inside the car or inside a public transport (via
mobile phones). India is a rapidly growing car market 3rd phase of licensing
(Refer Fig. 39), which will increase both the number of A significant number of licenses are expected in the 3rd
radio listeners and the time spent listening to radio. phase of licensing: 3 in Top 8 Metros, 22 in other top 30
cities and > 600 licenses in smaller cities are expected to
Figure 39: Passenger Vehicle Sales India (2009)
be made available.
(‘000 Units)
1950
While radio, based on both international comparison
13% 1549 1552
and the prevailing drivers in India, carries the potential
1380 to grow at a significant rate, current financial viability
1143 and regulatory restrictions pose large constraints for the
1061 industry.

• Type of content: FM radio stations are permitted to

play music only. This has kept the private industry
deprived of leveraging other potential genres such
as news, emerging sports genre in India and other
niche content genres. Globally, radio stations have
2005 2006 2007 2008 2009 2010
the freedom to broadcast channels across genres like
Source: SIAM
news, sports, fashion, talk shows, religion, weather,
Moreover, the growth of mobiles (Refer Fig. 40) bodes cookery e.g. Walt Disney has more than 3000 radio
well for the radio industry. According to Radio Audience channels, each dedicated to everything from weather
Measurement data, 49 % listeners access radio from to cookery. In the US, radio listeners spend almost 50%
their mobile phones. With the availability of low cost FM of their radio listening time on news or talk channels.

Animation. Broadcasting. Gaming. On the Cusp of Growth | 33

 • Number of frequencies per city & networking of
cities: Indian stations are limited to one frequency
per city. Multiple frequencies per city can help radio
companies earn higher revenues for the same tower
infrastructure and enable them to propose bundled
offerings to advertisers. Networking of cities is
currently not allowed. Setting up of radio stations
is equally expensive across metros and small cities.
While revenue prospects are far higher in metros
and large cities; allowing networking across cities
and content syndication will make it feasible for the
radio players to reach out to the non-metro small city
audience
• Initial license fee: The initial license fee for radio
licenses has proved to be very high and cumbersome
for the players. Most of the players paid huge sums
as license fee to get into the sector: Big FM spent
USD 23 million to get licenses for 45 Stations, HT
Music paid USD 15 million for 4 licenses. Revenues
earned by radio broadcast players, thus far, do not
justify the license fee.
• Music royalties: Radio operators pay a high
per needle hour rate ( >USD 12.7) to the India
Performing Rights Society (IPRS) and Phonographic
Performance Limited (PPL) , as they are mandated
to do so. This arrangement, which is independent
of the earned revenues, becomes very challenging
for the operators, especially for the small cities and
towns where the earned revenues are much lower.
Internationally, in many markets, it is a revenue
sharing model, ranging from 1% - 5% of revenues.
Huge initial license fee, combined with a regular revenue
sharing of 4%, high royalty share and inability to use
The fate of the radio
broadcasting industry in
India is primarily dependent
on the regulatory support
34
content or infrastructure across cities makes it unviable
for radio broadcasting players, especially in non-metros
and smaller cities.
Table 7: Cost Structure of Radio Broadcasters in
India
Cost % of Revenues
License Fee 4
Music Royalty 20**
Tower 12
Staff 30
** Some smaller stations pay upto 70%
Source: Business Outlook
Lack of adequate audience measurement data
Radio Audience Measurement (RAM), launched by
TAM Media Research is a recent initiative and has a
limited coverage. Lack of such data has restricted radio
broadcasting players to analyse the consumer habits,
the market potential and plan accordingly, especially for
smaller cities and towns. Data would be of importance
to media planning agencies and radio broadcasters.
Future Outlook
The fate of the radio broadcasting industry in India is
primarily dependent on the regulatory support. The 3rd
phase of licensing could prove to be an inflection point
for the industry, if it happens with certain reforms and
relaxes one or more of the regulations: allows multiple
licensing, permits networking across cities, changes the
royalty sharing arrangement, permits various type of
content on the radio. Unless any of these happen, the
industry is not expected to even come closer to realizing
its immense potential, especially in smaller towns and
multiple cities. For the players, the way forward, in
addition to influencing the regulators is to use the
radio audience measurement data to understand the
consumer segments and decide the type of association
they would like for their particular station, radio jockey
etc. Radio broadcasting players also need to explore
other avenues for earning revenues eg. Activation and
events. They have already realized this and are working
towards it. However, this does not offer a long-term
solution.
Animation, Gaming and
Broadcasting all have the
potential to see near future
as inflection points in their
growth story

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