Budget 2005-06: Media

India is currently in the throes of an entertainment revolution spawned by economic liberalisation and the subsequent advent of cable television. The players in the entertainment industry can be classified into three-link chain. First are the studios (including the animation studios), which comprise the hardware part of the industry, the second are the content providers and the third link comprises the distribution trolley's, which include the cable and satellite channels as well as the multiplex theatres. Read more

Budget Measures Service tax on: Broadcasting services to include charges recovered by broadcasting agencies from MSOs and provision of DTH signals to customers. Sound recording to include recording of sound on any media and includes post-production services such as sound mixing or re-mixing. Video-tape production to include recording of any programme, event of function on any media and includes post production services Budget Impact Post the inclusion of cable operators and Multi System operators (MSOs) under the service tax net in the previous budgets, this budget has included the broadcasting agencies also, who will now be bearing the 10% service tax, thus affecting their profitability, if the same is not passed onto the consumers. Inclusion of other services pertaining to sound and video industries into the service tax net would affect their profitability adversely. Sector Outlook While the current budget has been nothing positive for the media industry, as most of the services are now under the service tax net, we remain confident of the prospects of the sector going forward. The key triggers for the domestic media industry in terms of addressability issues (DTH and others) and ad revenues (dependant on the economic growth) continue to remain favourable. India has near 85 m television homes of which over 50% have cable and satellite (C&S) connection, both of which are expected to continue to grow significantly over the next few years. This would lead to an overall growth of the media industry and its players. Industry Wish List Reduction in customs duty of finished and intermediate products like picture tubes Reconsideration in terms of higher FDI/FII investment limits in the sector in order to aid the growth of the industry Budget over the years Budget 2002-03 Budget 2003-04 Budget 2004-05 Cable operators brought under service tax net. Budgetary support for the Ministry of Information and Broadcasting increased by 22% to Rs 4.2 bn. Customs duty on earth stations equipment and studio equipment reduced from 35% to 25%. 50% income-tax exemption for companies setting up and constructing multiplex theatres in non-metros. Recorded audio compact discs removed from the purview of excise duty. Peak customs duty reduced from 30% to 25%. Rate of service tax raised from 8% to 10%. Service tax imposed on TV or radio programme production. Service tax net to include Multi System Operators (MSO) apart from cable operators. Service tax exemption removed on broadcasting service provided by cable operators. [Read more on Budget 2002-03] [Read more on Budget 2003-04] [Read more on Budget 2003-04]
Key Positives Corporatisation moves: With the entertainment industry receiving industry status in 2001, one has seen an increasing number of players getting access to institutional finance. Further, with technology playing an important role in the upgradation of networks, both content providers and viewers are becoming sophisticated. Also, there is a significant transformation happening within the sector with content creators venturing into broadcasting and post-production, the broadcasters opting to grow via the subscription route. Government support: Support from the government has also aided the growth of the industry. The government has liberalized the uplinking policy and reduced the rate of basic customs duties on import of certain specified equipments for setting up an earth station to aid broadcasting from India. Further, abolishing of excise duties to fight music piracy is also another positive gesture from the government. Resolving addressability issues: With Direct-to-Home (DTH) already having tasted some success since its launch, going forward, with a wider acceptance of this platform, the menace of under-declaration of subscribers by cable operators can be kept under check. Increasing source of ad revenues: FMCG companies, which have been a key contributor to the total ad-spend of the industry, are increasingly concentrating towards rural markets. Broadcasters are launching regional channels to cater to a vast semi-urban/ rural population. In the long term, media companies can safely look to tap the FMCG industry to perk up revenues. Moreover, with new sectors having opened up like telecom, healthcare and insurance, advertisements by these segments would also aid the adspend growth.		Key Negatives FMCG dependence:FMCG continues to remain one of the key contributors to the overall adspend in the industry. In this regards, any slowdown (akin to 2002) in this industry would consequently lead to reduction in ad budgets, which in turn would pressurize the ad revenues of media companies. Increasing competition:With competition in the industry gathering steam, it could lead to burgeoning costs of production for media companies in the form of higher compensation in order to retain talent. Increasing number of channels could also cap the potential upside in ad realisations. Cable operators' menace:The revenue model for the cable and satellite companies is still skewed in favour of cable companies. Cable operators are in a commanding position. However, this industry is likely to face consolidation with Multi System Operators (MSO's) like Incablenet, Siticable, Asianet, Hathway cable and Datacom buying over the small local cable operators (LCO's) and setting up their integrated network. Opening up of print: Coming to the print media, one of the developments was the approval by the cabinet ministry to allow FDI (Foreign Direct Investment) in print media (currently 26%) and a further hike being contemplated. This has resulted in the entry of foreign players in partnership with local brands. Cases in point here are the stake sale in a leading daily, Hindustan Times and also that of Financial Times picking up a stake in Business Standard.
Budget Impact: Media Sector Analysis for 2004-05 | Media Sector Analysis for 2006-07 Latest: Performance Of Media Stocks | Media Sector Report

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