The financial crisis has not brought the curtain down on India’s entertainment sector. Recent reforms have stimulated foreign investment. Opportunities beckon … Gowree Gokhale, Khushboo Baxi and Ranjana Adhikari report from Mumbai
India’s media and entertainment industry has experienced robust growth over the last five years and is one of the fastest growing sectors of the economy today. Analysts believe that although its growth may be affected by the economic slowdown, the sector will continue to enjoy substantial investment from cash-rich enterprises overseas. The entertainment industry, a blend of creativity and commerce, provides diverse investment opportunities in such areas as theatre and multiplex infrastructure, television, film, animation, print media, sport, mobile entertainment and advertising.
By liberalizing foreign direct investment (FDI) in the sector, the government has enhanced these opportunities, stimulating a flow of cash that is needed to keep India entertained through the downturn. Between 2005 and 2008, it opened the doors to foreign investment in several new sectors of the industry, and relaxed foreign ownership restrictions in others.
In June 2005, for example, the government scrapped its 50-year-old policy prohibiting the publication of foreign newspapers in India. In addition, it made changes that now permit up to 20% FDI in FM radio broadcasting.
In addition to stimulating foreign investment, the liberalization of the media sector was undertaken with the aim of increasing the diversity of content available locally, and even more importantly, ensuring that domestic consumption remains high. In a similar vein, the Central Board of Excise and Customs (CBEC) recently clarified that the exhibition of films in cinemas and multiplexes will not be subject to service tax until and unless it amounts to a “business support service” under the service tax regime.
Although FDI receipts in the entertainment sector amounted to only 1.5% of the overall receipts of foreign investment in 2007, the rise over the previous year indicates the growth potential of the industry. According to recent reports by the Federation of Indian Chambers of Commerce and Industry and PricewaterhouseCoopers, the Indian media and entertainment industry is set to witness a cumulative growth of 18% over the period to 2011, at which date it is likely to be valued at Rs1,000 billion (US$19.3 billion). The industry is currently estimated to be worth around US$8.5 billion.
While mainstream sectors such as print, television and filmed entertainment continue to grow robustly, emerging fields such as animation, gaming and visual effects, radio, out-of-home advertising and online advertising are growing even faster.
Enter the regulator
The regulatory authority for the media industry is the Ministry of Information and Broadcasting (MIB). It is responsible for the formulation and administration of rules, regulations and laws that govern the sector, as well as facilitating information sharing within and around the industry. The MIB is also charged with fostering international cooperation with regards to mass media, films and broadcasting, interacting with its foreign counterparts on behalf of the Indian government. Its operations are divided into three main areas: information, broadcasting and films, each being further subdivided into different units.
Based on current trends in the television, film, radio, print, advertising and animation markets, analysts predict that the Indian entertainment industry will generate sharply increasing profits over the next couple of years. As one of the world’s largest television viewing markets along with China and the US, Indian audiences continue to generate a steady stream of revenue. Profits in the television sector rose significantly in 2007, recording a growth of 18% from the previous year. A substantial part of this growth was attributed to increased audiences for reality shows and specialized content such as the T-20 cricket matches. From 2004 to 2007, the sector grew by 21% overall, just behind online advertising and radio. The MIB has issued a series of guidelines for uplinking and downlinking of television channels and the government has recently allowed the launch of internet protocol television (IPTV) in India.
From Bollywood to Hollywood
As one of the largest film producers in the world, it is unsurprising that the Indian film industry has benefited both creatively and financially from advances in technology, content development, financing, exhibitions and marketing. Filmed entertainment recorded steady growth of 14% in 2007, and from 2004 to 2007 grew by 17% overall. The industry is becoming increasingly corporatized, prompting producers to look overseas for co-production partners. Anil Ambani’s Reliance ADAG recently signed a deal to invest US$550 million in Steven Spielberg’s Hollywood venture, DreamWorks, enabling the American director to launch a new studio and break away from Viacom’s Paramount Pictures. Between 2007 and 2008, India saw the entry of media and entertainment conglomerates Viacom, NBC Universal and Walt Disney through partnerships with Network 18 Group, NDTV and UTV Software Communications, respectively. Private equity players and venture capital investors continue to prove their willingness to take on the risk-reward balance associated with these deals.
Gowree Gokhale, Khushboo Baxi and Ranjana Adhikari are lawyers at Nishith Desai Associates, a Mumbai-based law firm with a significant media and entertainment practice.