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Is being digital profitable?

This question is probably the uppermost in the minds of the digital entertainment entrepreneurs both on the content as well as the platform side. It is also important to the legacy content and legacy platforms that are looking to change to digital. The fact which has stood out is the change in consumer choice as well as preferences, which are rapidly shifting towards digital platforms. The change has been quite sudden and swift, as was witnessed in Print as well as Music. The legacy business models, the brands, revenue streams like advertisement as well as subscriptions – are all under threat, though to varying degree based on the technological progress as well infrastructure of the country. Consumer preferences dictate the businesses to be ‘Digital’ but the businesses need ‘Profit’ to be sustainable as well as attractive to the investment community. While this paradigm shift takes place, how does the entertainment business change and also remain relevant?

As you peel down the layers, the core of the Entertainment business remains ‘CONTENT’ Engaging content is what draws in the customers and the revenue. This remains true today as it has been in the past and probably is not likely to change in the future. Therefore, engaging content is the first key to any profitable entertainment business, either digital or otherwise. Content is engaging if it caters to the right genre, has the right production values and in today’s time is capable of being appreciated cross border as well as presented across multiple screens. The writers today visualise cross border audiences as well as their sensibilities and the production technology is advanced enough to fit it across screens.

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While Good ‘CONTENT’ remains as the heart of every potential profitable Entertainment business, it’s ‘Distribution’ and ‘Monetization’ is equally key for the business to be profitable. ‘Distribution’ is the area which has seen and is likely to see the maximum change. The change has largely been due to technology which has functionally changed the way the content is distributed and consumed. Some examples:-

  • Physical print media to online media.
  • Physical video tapes / films to online transfer as data.
  • Content transfer through internet.
  • Access to content through mobile devices.
  • Change from fixed time viewing of content to ‘mytime’ viewing.
  • Change from fixed place viewing to anytime/anywhere viewing of content.

With the abovementioned changes in consumer preferences largely enabled by technology, ‘Distribution’ has become complex. It has also changed the profile of the distribution players from being businesses having access to exhibition and linear platforms to being technology driven enterprises having large investments in technology enablers. The revenue lines for each of the constituent’s i.e. the content owner, the distributor, the exhibition platform have also blurred due to rapid change in technology, consumer choice and possibility of different forms of delivery. Therefore understanding ‘Distribution’ in its current as well as changing state is the key to getting the maximum value for your ‘Content’.

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‘Monetization’ in the legacy business has rested on three pillars. The first one is ‘Advertisement’ which has been a key contributor to the revenue for Entertainment businesses. Advertisement follows engaging content and the good news is that on an overall basis, it is expected to grow 11 – 12% on a year on year basis for the foreseeable future in India. Digital advertising in recent times has seen a phenomenal growth even though legacy platforms continue to be major beneficiaries of the advertisement stream. Therefore the question remains as to what will be time frame of the switch of the advertisement revenue stream from legacy content and platform to digital. Though the advent of change is apparent, the velocity differs from market to market and is dependent on information, technology, rate of adoption, availability of digital content as well as the consumption devices. It is also apparent that in countries like India or even in some developed markets, advertisement revenue and growth is likely to be available for both legacy as well as the new digital platforms for the next few years.

The second pillar of ‘Monetization’ is ‘Subscription fee’ which also includes entry ticket fee for the films. This revenue stream remains pretty strong for legacy platform whether it is cable subscription for linear TV or ticket cost for film exhibition. The subscription model for E digital content is still not a settled system and will have to come of age if the entire entertainment business were to go digital. Presently while the consumer preference to consume content digitally is growing exponentially, the propensity to pay for the content is not there. Most people want this content for free. Digital ‘AD’ based models are still to convince the investment community of being able to give a good return over a reasonable period of time. Therefore a co-play between the legacy model and the emerging reach through digital could be an interim solution for a profitable Entertainment venture.

Third area of ‘Monetization’ for Entertainment contact is the ‘IPR’ (Intellectual Property Rights’). It is these rights which have provided a recurrent cash flow for the legacy Entertainment business. This model is under dire threat with the advent of technology. With all content being now available electronically, its ownership, its use, as well as collection of royalty are a huge issue to be tackled for the new businesses. Strengthening of the ‘IPR’ regime in India is the key as in some of the mediums like films, half of the revenue comes through exploitation of these rights.

Therefore while it is true that there is a rapid shift of consumer preference to the digital, the revenue line is far from settled. The content for the digital screens is still being repurposed, the measurement systems are still being evolved and most importantly much of the content is still available free. The systems and the attitudes will evolve but till the same happens, today’s digital entertainment business is likely to fail to generate profit in a sustained manner.

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As we experience more it becomes more apparent that in the interim one does need to maximize legacy revenues, as we build digital businesses. With legacy demand as well as revenues still being robust and growing, there needs to be equal attention to be paid to legacy platforms. In the interim, there is merit in having both, the business as well as the brands (digital and legacy) as a focus. There will be a time when the digital revenue of businesses will settle and maybe that will be a time we can forego legacy platforms. However in the foreseeable future, ‘Digital’ is good but only with equal attention to legacy platforms for a predictable profitable future.

 

DIGITAL – are we there…

There has been a significant buzz in the media recently about the ‘Digital India’ launch by Prime Minister Modi. It was launched at a very impressive ceremony reminiscent of the ‘Vibrant Gujarat’ summit amongst a galaxy of India Inc stalwarts promising a significant investment to make this dream come true. Yes this is a ‘dream’ which all of us in India have dreamed will come true someday. Even if 50% of amounts of investment committed actually happens we would be very close to achieving the same.

I have always followed the process of digitization from the blinkered view of an Entertainment and Media analyst watching with interest how increasing broadband connectivity has changed and continues to change the very basic paradigm of content delivery and now content production. It has disrupted the settled business models and the new business models are still being developed. Change has been rapid in some markets but relatively slow in India. Pace in India has lagged the world not because of the consumer mindset, but the lack of infrastructure or investment in infrastructure at par with the world. The advent of ‘Mobile’ and ’Wireless broadband’ is finally helping us leapfrog some of our legacy infrastructure issues.

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However a digitally empowered service capability has a far larger import for a country like India than just looking at Entertainment Sector. It can help make a substantive difference on how India provides information and services to its vast multitudes of population and turn this into a true demographic dividend. The potential in following sectors has been discussed extensively and come to the mind immediately i.e,

  • Healthcare – both information and services
  • Education – with ability to reach large distances in language of choice & without physical infrastructure
  • Entertainment / Media – content production, distribution and consumption
  • E Governance – key government information & services provided without human interface
  • Agriculture Services – Information & Services
  • Financial Services – payment platform
  • E commerce – ability to transact without physical infrastructure

Clearly, the benefits are many and a digitally empowered India is a necessity rather than good to have. Therefore then the ‘Digital India’ dream needs to be fulfilled and the government’s might behind this dream is welcome.

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In recognizing this need to be digital, one must also recognize the difficulties one may encounter to get to a reasonable level of service delivery capability. In our euphoria of announcements, we must not get ahead of our ability to deliver. India as a country is far behind other countries in fixed line broadband & PC penetration.  Therefore our big thrust for connectivity is most likely through wireless and primarily on mobile devices. Some key areas which will need address before we can contemplate a hassle free digital connectivity are the following:

  • Spectrum – Availability of Spectrum and management of its use is critical in providing wireless connectivity. The current availability of spectrum is woefully less, providing for speeds which are substantially lower than in digitally advanced countries. As data usage increases spectrum availability, cost and its management will play a crucial role in how digitally empowered we are. Without spectrum, large investments in services are not likely to fructify inspite of promises made.
  • Devices – Provision of digital services & information is likely to be received through mobile and mobile handheld devices. Therefore, cost of such smart devices is the key to accessing digital services. Indian consumers are cost conscious and it is crucial at what prices these devices are available to them. The telecommunication revolution in this country was made possible through cheap devices. Therefore the ability to keep these costs down will determine the success of our digital drive.
  • Infrastructure – If mobile is the device of choice, then the attendant infrastructure in terms of mobile towers needs to be in place. Provision of environmentally beneficial power for telecom towers as well as equipment is a critical component in our quest for being a digital power.
  • Net Neutrality – To achieve the breakthrough and creative impact of digital connectivity, the government needs to ensure net neutrality or open internet with free & equal access to all consumers. Restricted access would hamper full digital creativity.
  • Privacy Laws – As we get digital, privacy of personal information assumes significant importance. We need policy and implementation of policy at the highest level to protect against unauthorized use of such information. In a country like India, it is all the more important as sometimes you can buy almost anything including private information for a price. This would be a recipe for chaos and needs to be addressed as a critical piece in our journey on the digital ladder.

No journey is without its pitfalls, but that does not mean we do not embark on the same. A start has been made. We look with interest as to how the journey unfolds and how it integrates into the very fibre of our lives. Its time for the government not to let down its constituents who have already accepted this disruptive change in their lives.

2015 – Is ‘Digital‘ the new ‘Normal’

25 million video views on a digital platform for the Indo Pak match, 4 million downloads of the digital entertainment app ‘Hotstar’ from STAR within a fortnight, the burgeoning valuation of e-tailing online platforms, the growing acceptance of public service delivery though online intervention as well as digital being seen as viable tool to curb corruption are the news which have hogged our headlines since the start of 2015. Individually, these are no doubt significant events which demand attention but looking at them collectively it is a huge ‘Tsunami’ which is about to engulf us in many ways we imagined but never experienced. Our lives are about to change mostly for the better, but also in many ways  where we still do not have full understanding. Probably it is the tipping point or very near the tipping point that we all have been discussing about. All this change or ‘Tsunami’ as I call it has happened due to a revolutionary device called the ‘MOBILE PHONE’.

No change in Indian subcontinent has been as disruptive as ‘Mobile Telephony’. Ever since it was introduced in 1995, it has virtually changed the way we communicate, exchange information and do business. It has been an inalienable part of you for the past 20 years encouraged by its ability to bridge distances through low rates and devices. With its smart phone possibilities, internet service highways and large connected population it now promises to change your life again if the present news is any indication. In this new world order of which India is a part what can we expect?

As a consumer of content and services the following:

  • Ability to consume past and present content whether it is informative, entertainment oriented or specialist content at the place, time as well as on the device of your choice.
  • Ability to consume services whether public or otherwise with least intervention, least cost and at the time of your liking.
  • Ability to consume goods with widest choice, best bargains and delivered to the place of your choice with payment option to your liking.

As a businessman, provider of services and goods it opens the whole world as a market without any boundaries and without the present infrastructure costs with key supply partnerships in different parts of the world.

However ‘Utopia’ is still not at hand and many adjustments – legal , technology related as well as market related need to be made before we reach the full potential of the change which is at hand and that we will encounter to its full extent going forward. Some of those adjustments are technology as well as infrastructure related, which will require time to build and the roll up can be different in different markets. Other adjustments  – like a sudden overhaul of your business model, for example the change from fixed screen to multiple screens for entertainment content, change in subscription and adfunded models for content can be painful. Consumer preference usually predates the change in business models and that change will be painful and maybe a little drawn out. New avenues of revenue will need to fulfil this loss of revenue in present models either through enhanced coverage or better charging services. Another area which will evolve would be the IPR regime and the IPR protection of brands in an increasingly accessible world.

Welcome to the world of uncertainty!

Welcome to the Digital World!

2014 -will it bring us closer to the Digital tipping point?

As 2013 comes to a close, last few weeks as usual have seen a frenzy of images, reminding us of the important milestones we witnessed in the past 12 months. Besides the lukewarm fortunes on the economy, which were consistent alongwith a rather poor record of good governance , there were also images of the political churning against corruption as well as surprising voice of the ‘AamAadmi’ finally starting to come to the fore. One startling fact that everybody  recognised and noted was the advent of Social Media as the preferred choice as the carrier of the message. While the world may not have shifted away from other forms of  media, the digital interconnected highway of information is increasingly making its way as a very important medium of communication. In a country like India, where internet infrastructure and intelligent devices are not at par with the world , it was always considered that digital revolution was, a while away. The importance of the ‘Social Media’ has surprisingly also coincided with the increased use of the digital information highway for access to information and online purchases. The current valuation of some of the online properties bear out this fact. This therefore begs the questions – ‘Are we close to the digital tipping point? ‘  ‘What caused this change?’ and finally what are the likely implications for the E&M industry?

 

It is also customary at every start of the year to do a little crystal ball gazing as to what the future holds for us.  Before we do look at the crystal ball and imagine what is likely to happen in 2014 ,its important to understand what is causing us to reflect that we are at the cusp  of a major change . As per TRAI latest estimates, the internet users are likely to touch 200 million plus, making India the second largest  internet user after China. The user base has grown by 40 -60% in the urban/rural markets respectively over the last year. It is pertinent to note however that while the wireline access grew , the major growth as well as connectivity came through mobile. 60-70% usage is through mobile and growing at a faster clip than wirelineaccess . Facts now corroborate what one had predicted earlier that India’s digital growth will largely happen through a mobile platform.

 

Therefore, if the above is a fact then its good to crystal gaze and visualise how the business of Entertainment & Media will change. Also it may be the right time to estimate the pace of change and how far are we from the tipping point. People have an insatiable desire for  entertainment and one does not want to be caught on the wrong foot, if the medium of satisfaction of that desire changes  and changes rapidly.

 

Lets look at some of the pointers. The first is the growth in internet usage. The second is the demand for Smart Phones and Tablets which have outstripped the supply of fixed PC / laptops and are increasingly cannibalizing the TV screen. Prices of the   said smart devices are constantly  coming down making them affordable. Further with faster  4G speeds becoming a reality, we would be fooling ourselves if we do not fore see that the tipping point is closer than we think. Centre of this change is clearly the ‘Mobile’ device.

 

Therefore we need to reevaluate ourbusiness plans keeping distribution through wireless devices primarily the Smartphone in consideration. Content companies whether they are in news , current affairs, movies, documentaries, short films or TV serials need to resize their offerings based  on a new distribution medium. There is a need to rethink the economics and the value exchange.What could  be a loss of value can be made up by much faster growth. Its time to think of what ‘ Netflix’ ‘Redbox’ or ‘HuLu’ have on offer or for that matter what domestic companies like EROS, HUNGAMA and SHEMAROO have already started doing.Image

 

Market is in a transition mode. Its not that the traditional business of entertainment is going to finish. The companies need to defend these traditional offerings while trying to extend the new modes of delivery of content. There are still hurdles to delivery through Mobiles though.The payment gateway is still far from refined, the battery lives still not long enough, screen size is still small for total enjoyment of video and the prices of the devices remain high. Therefore, it’s a key question whether Mobile will be able to overcome all these issues to be relevant as we think it should be.  2014 could be a game changer should there be solutions to these hurdles. From all available facts the ‘Digital’ way of life does not seem very far away.

 

eye on media blog


Entertainment & Media industry with revenue of USD 17 billion has always been in the news, whether it is for the glamour quotient, myriad controversies, its growth in the past or the future potential of the same. Although, there are enough forums and tabloids that cover the glamour as well as the controversy part of this huge industry, not much has been written about the growth and the future aspects of the same.

Through this blog, my endeavour is to provide a two-way platform to discuss the future growth potential as well as the business model of an industry that is in the throes of a big change worldwide. The other reason for this blog is more personal as I want to remain connected with an industry sector where I have worked very closely with the constituents in the past seven years as head of the PwC Entertainment & Media…

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Hi, Welcome to my blog!


Entertainment & Media industry with revenue of USD 17 billion has always been in the news, whether it is for the glamour quotient, myriad controversies, its growth in the past or the future potential of the same. Although, there are enough forums and tabloids that cover the glamour as well as the controversy part of this huge industry, not much has been written about the growth and the future aspects of the same.

Through this blog, my endeavour is to provide a two-way platform to discuss the future growth potential as well as the business model of an industry that is in the throes of a big change worldwide. The other reason for this blog is more personal as I want to remain connected with an industry sector where I have worked very closely with the constituents in the past seven years as head of the PwC Entertainment & Media team in India. After an early retirement from PwC earlier this year, I have started my firm Sapphire Professional Services. This blog will hopefully keep me connected and become a platform for discussion on the future of the Industry.

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Fortunately, with the kind of change taking place throughout the world with digital becoming the new normal, myriad of different businesses under the E&M umbrella growing differently, we probably will have no dearth of discussion topics in the short-term. However, to kick-start the conversation let us look at the future growth potential of the E&M Industry in India in general. This was also the subject of discussion at a recent industry event held in the capital with most of the industry captains and the Government in attendance.

We in India, for the past few years have got accustomed to seeing double-digit growth in most of the sectors and anything less is not exciting enough or lets say not news-worthy. Maybe this reaction is because it feels good to be on top of the table of the parameter that is most searched for at that moment even if you perform very poorly in most of the other parameters.  Therefore, despite having a growth of almost 17-18 % (we are the highest in the world), there is a thought process that India is not growing at its full potential in the E&M sector. USD 100 billion in 2020 is what many believe and estimate that the industry should grow to. Can this be achieved? Where is the growth going to come from? Do we know all the variables? Probably not. Can we add to the confusion? Yes, we can.
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To start the discussion, I would like to put forth my thought process on a macro level and share it with you. The India E&M Industry as per recently released PwC report is a USD 17 billion revenue industry.  In India this industry is largely driven by non-digital elements unlike elsewhere in the world where digital streams are showing the highest growth rate. Again, quoting from the PwC report, this sector is likely to grow at a CAGR of 17-18 % over the next five years making the industry more than double its present size at USD 38 billion in the year 2016. If one was to take the linear progression and assume that the industry will continue to grow at the same rate up to 2020, the industry size will be approx. USD 70 billion. Therefore, it seems that India will have to do a few things very differently to achieve an additional USD 30 billion. Few facts need to be kept in mind as we look to suggest solution for the extra growth: –

  • The current revenue of the industry is largely from non-digital platforms as TV, Print and Film account for almost 85% of the industry.

  • Shift from non-digital to digital could decrease the value in the short-term.

  • Advertising spend and Consumer spend are the two key contributors to the revenue with advertising contributing at over 35% of the total revenue pie.

Before I put forth my views on finding a way to the extra growth, I would like to welcome thoughts from you. Whether any other thoughts need to be kept in mind and what we should be doing differently?  Please log your comments below, as then hopefully a discussion can develop.

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