As digital behaviour is evolving across all mediums of the media and entertainment (M&E) industry, the online segment is expected to be a dominant force by FY22. The 11th edition of KPMG M&E report, titled ‘India’s Digital Future: Mass of Niches’, forecasts digital market to attract the maximum advertising spend by FY 2022 and to become the second-largest segment in India after TV.
By FY 24, digital advertising is expected to be the largest medium with 39.5 % share of total advertising, surpassing TV. In FY 2019, the digital segment witnessed 43.4 % growth, taking the overall segment (including digital advertising and subscription revenues from OTT video and audio) to Rs 173 billion.
The report that examined the evolution of India’s digital demography to 2030 stated that as India’s digital demography moves towards a transaction-based economy, digital subscriptions are likely to gain increasing prominence, though India will remain a predominantly advertising-led market.
Girish Menon, Partner & Head Media & Entertainment, KPMG in India said, “The theme of the report this year is India’s digital future – and although the term ‘digital revolution’ has become somewhat of a cliché, there can be no other way to explain the extent of digital integration in our lives today. With no major constraining factors, digital is expected to be a dominant force going forward and in FY23, it is likely to be the second-largest segment after TV and attract the highest marketing spend among all media formats. In 2019, as digital behaviour evolves, there seems to be a growing consensus that in the future, subscription models will have a greater role in the monetisation of digital platforms. Further, evolving technologies are also presenting opportunities for companies in the media and entertainment industry to achieve greater operational efficiencies.”
The KPMG report states that with the digital migration of English-speaking audiences almost complete, new users are coming online. The number of these online users is expected to be 500 million by 2030 and will access the internet in a local language. It forecasts that the 500 million new users by 2030 will present digital businesses with an unparalleled market opportunity but not without some complexity. Segmentation will become important as the market evolves into a ‘mass of niches’.
As per the report's hypothesis, the digital consumers in 2030 will be non-English speaking audience, mobile phone users, and consumers from a developed rural area/non-metro urban setting increasingly willing to pay for content online.
The report stated that the majority of new users will be connected by 2025 – an addition of nearly 300 million – with only the long tail remaining to be added by 2030. The additions to the digital enthusiasts between 2018 and 2030 will be mainly on account of a significant upward progression of users from the digital mainstream. The entry of millennial and generation Z into the workforce will be represented by the growth in the number of digital enthusiasts, which will emerge as the largest category of users by 2030. The maximum incremental additions – entirely new digital users – will primarily be into the digital mainstream and a small number into the fringe category.
Menon said, “With a rapid uptake of digital media consumption, it is imperative for organisations to segment and understand the current and prospective digital India. Going ahead, with digital media distribution and consumption taking centre stage, traditional businesses will need to innovate around their business models to stay relevant. However, given the vast demographic of the country, the growth of digital media in the short to medium term does not spell doom for traditional media. Rather, there is scope for a harmonious co-existence. We have attempted to study what the projected Indian digital billion by 2030, means to businesses and how their strategies must adapt to serve this large user base optimally.”
The report also forecasted some of the implications for digital businesses.
• Technology will underpin business models - Technology and associated tools such as artificial intelligence will provide the much-needed direction around decisions relating to content creation, distribution and monetisation for digital businesses.
• The race for reach – Distribution ecosystems are set to become stronger. Role of value chain partners like OEMs, DTH, ISPs, and telcos are likely to grow as creators look at multiple avenues to reach the end consumer.
• Monetisation – Micro-segmentation of target markets in an increasingly upwardly mobile economy would be essential for effective monetisation.
• Collaboration across the value chain – In a crowded marketplace, collaboration across players in the value chain would be essential to growing optimally.
According to the KPMG report, the M&E industry in India posted solid growth of 13% during FY19 to reach a size of Rs 1631 billion with a CAGR of 11.5% over FY15-FY19. The M&E industry in India is likely to continue soaring, with an expected CAGR of 13.5 % over FY19-FY24, to reach a size of Rs 3.07 trillion.
Television revenues grew at a rate of approximately 9.5 % in FY19, a similar rate as in FY18, reaching a size of Rs 714 billion. The lower-than-expected growth was due to the long-drawn process of NTO implementation, which disrupted the subscription and advertisement revenues in the last quarter. Also, uncertainty around channel viewership and reach in the new regime led to marketers pulling back from TV advertising from January 2019. This has led to blackouts and lack of clarity, resulting in temporary loss of subscribers for many MSOs. Advertising spends were also hit by a consumption slowdown due to the slow growth witnessed by the overall economy in the last quarter of FY19.
Going forward, television continues to be a critical mass entertainment medium and is expected to grow at a CAGR of 11.2 % on the back of strong TV viewership from rural and urban markets as well as continued investment in new regional channels and sports properties by broadcasters. Advertisement revenues are likely to be driven by a recovery in the economy and upcoming events like the 20-over cricket world cup in 2020. Meanwhile, subscription revenues are expected to see benefits, particularly over the next couple of years due to the new tariff order, especially in phase 3 and 4 markets.
The print sector also witnessed a subdued growth of 4.5 % in FY19 to reach a size of Rs 333.2 billion. While advertising remained the growth driver for the print segment in FY19 as well, muted circulation growth of 3.5 % in FY19 was observed on account of a decline in English circulation growth on the back of faster digital adoption. While advertisement revenues grew in Hindi by 7.5 %, industry discussions indicated that the election spends were lower than expected, especially in the regional markets; leading to a lower than expected growth of the industry in FY19.
Print continues to be relevant through changing consumer behaviour and the resultant advertiser response is likely to continue to result in muted growth at a CAGR of 4.2% from FY19- FY24. Revenue growth for English is expected to remain sluggish as digital adoption in metro cities continue to dent revenues, whereas Hindi and regional advertising are expected to continue to drive revenues driven by the increased focus on the northern Hindi speaking belt and hyper-local advertising. English circulation is expected to continue declining at about 1-1.5 per cent while circulation in Hindi and regional languages are expected to remain stable.
The radio industry also witnessed a muted growth of 6.2% in FY19 to reach a size of Rs 28 billion; as newer stations auctioned in the second batch of phase III continued to operate at a lower capacity of 45-50%. Also, an auction for phase III was yet again delayed during the year, which also resulted in lower growth than envisaged.
The radio segment is likely to grow at a CAGR of 10.1% over the next five years on the back of content differentiation and combined offerings to listeners including music, live hyperlocal news and games/talk shows. The challenges around high gestation period, measurement and the long-overdue phase III auctions continue to hamper the growth of this segment.
The music industry saw a robust growth rate of 15.3 % in FY19, reaching a size of Rs17 billion with digital continuing to lead the way. Exponential growth in user engagement applications such as TikTok has created a new monetisation avenue for the music industry. Share of regional music in overall music consumption in the country has been rising and stands at around 32 % in FY19 due to increased accessibility of audio streaming platforms in markets beyond Tier I and Tier-II cities.
The Indian music industry is expected to grow at a CAGR of 15.8% over FY19-FY24. The key catalyst for this growth is likely to be audio streaming, which is expected to grow at around 5% higher than the growth of the overall music industry. Advertising revenue will be a key growth driver for audio-streaming platforms as the ad-supported user base scales up. Partnerships with social media platforms, video-sharing platforms and gaming consoles are likely to continue providing incremental revenue growth for the music industry. Category-building marketing initiatives by audio-streaming platforms and increased government initiatives towards curbing piracy and stream-ripping are expected to drive consumption of licensed music into markets beyond Tier-II cities.
KPMG report also stated key themes of 2019 that impacted M&E industry:
NTO – A paradigm shift: After the new regulatory framework for broadcasting and cable services introduced by the Telecom Regulatory Authority of India (TRAI), viewership is likely to be concentrated across fewer channels aiding large broadcasters and channels with appealing content. They stand to benefit from higher subscription revenue as well as gain greater pricing power. Further, some of the large broadcasters have also taken a strategic call to move the free-to-air (FTA) variants of their popular general entertainment channels to the pay regime, with a view to ensuring that subscribers pay for the content they wish to watch.
Regional markets – Moving into the limelight: In FY19, the growth in advertising revenue for regional channels has been around 16-17%. The large audience size combined with their preference to consume content in their preferred language has led to media platforms expanding their portfolios to offer dedicated regional language content. Consumers are also spending 35-43% of the time on regional videos on digital platforms.
Skill development – The learning imperative: Owing to the digital disruption, the world of media and entertainment is changing with a new composition in the workforce. India Inc’s capability to ideate, innovate and execute eventually leads to disproportionate value creation for the enterprise. This shift requires constant upscaling and upskilling of the workforce. The traditional job roles have either completely changed or have totally ceased to exist with a decrease of 8% in online media, 9% in print and 5% in broadcast media.
Digital privacy and content – Bridging the monetisation gap: In today’s marketplace, customised environment and recommendations are the norms and it provides organisations an edge over their competition. They are using Content Delivery Networks (CDN) to speed up content delivery on websites with high traffic based on location. In order to provide such services, media companies are now monetising by collecting huge amounts of data to create customer profiles in a new and unique way.
5G – Technology trends in M&E sector: 5G will increase media usage immensely. The revenue forecast over the next decade (2019-2028) is pegged at approximately $3 trillion, which the M&E companies will be vying for and the revenue opportunity enabled by 5G networks will be approximately $1.3 trillion. The year 2025 is expected to be the year when the industry will reach critical mass wherein 57 per cent of global wireless media revenues will be generated on the back of superfast 5G networks and devices. One of the key metrics of 5G performance is latency and since the technology promises latency of <1Ms live streaming and large downloads will happen at supersonic speeds.