Digital Disruption Final - EYFile/EY... · Face of new digital India is expected ... India is undergoing disruption on an unprecedented scale. In this section, we discuss the key

Digital opportunity Indian media and entertainment2017

ContentsForeword 04

Disruption = Opportunity2 06

The story so far 08

Section 1: Disruption 10

Penetration of smart devices 12

Changing demographics 13

Increase in internet speed and penetration 14

Digital Ad spend 15

Mobile micro payments/wallets 16

Section 2: Opportunity2 18

Digital video 20

Snackable content format 22

OTT and MCN 24

E-celebrities 27

Regional content propositions 28

Mobile gaming 30

Section 3: Innovation for monetization 32

Partnerships 34

Niche content and communities 37

Leveraging transactions and micro payments 39

Differentiate between urban english and vernacular propositions 40

Leverage India for the globe 41

Building India as the digital engine 42

Challenges and mitigating strategies 43

Conclusion 44

Glossary 46

4 | Digital opportunity - Indian M&E

Fore

wor

d

The Indian digital segment is set for disruption with growth expected to cross INR 200 billion* (INR 20,000 crores) by 2020.

A growing Indian economy, poised to becoming the fourth largest economy, coupled with an increasing per capita income, growing middle class and working population, has seen a surge in the domestic demand for leisure and entertainment services. As India grows, the edia ntertainment industry has ourished. A sector which has seen a huge spike within the M&E industry has been digital with the demand for both traditional and digital content surging

With more than 800 television channels, 100 million pay-TV households, 70,000 newspapers and 1,000 lms produced annually, India’s vibrant M&E Industry provides attractive growth opportunities for global corporations. The Indian M&E sector is poised to grow from INR 1,157 billion in 2015 to reach INR 2,260 billion by 2019, at a CAGR of 14.3%, a growth rate that is more than thrice as compared to the global M&E industry which is expected to grow at 4.4%. The Indian Digital sector is on the cusp of a strong phase of growth. With mobile penetration in excess of 100% and traditional internet and TV subscription services below world average, the Indian digital media market provides a unique opportunity. The sector is poised to witness the entrance of newly acquired internet users with internet using population expected to reach approximately 746 million by 2020 and a large number of consumers expected to get introduced to using digital platforms.

Backed by over a decade of macro-economic performance, a strong growth in smart device penetration, broadband penetration and the uptake of 4G the Digital sector is expected to get a huge boost.

The following pages highlight the emerging opportunities which exist for digital and traditional M&E companies, as well as the challenges they face in a dynamic country like India.

*includes digital advertising, video subscription, music subscription and gaming revenues

Farokh T. Balsara Media & Entertainment Sector Leader - India

Ashish Pherwani Media & Entertainment Advisory Leader - India

Raghav Anand Digital Media Segment Champion - India

Digital opportunity - Indian M&E | 5

Disruptions

Opportunity2

High consumption of digital media

especially video (450 million by 2020)

Opportunity for international studios and content owners to showcase their content and garner additional revenues

‘Snackable’ content consumption driving the growth with user

engagement being driven through Apps

Opportunity for content producers by focusing on short form or exclusive content

OTT and MCN platforms capturing growth in video and

music streaming consumption

Opportunity for international studios and content owners to showcase their content and garner additional revenues

A signi cant shift is observed towards

mobile gaming from traditional formats like console and PC

gaming (87% CAGR during 2016 - 2020)6

With in-app advertising and purchases, the mobile gaming space has witnessed a lot of traction, especially on the freemium model

2nd largest smart phonemarket by 20171

54% over theage of 25 by 20182

Face of new digital India is expected to be far more diverse with strong

youth centric demographic

High speed Broadband penetration to breach

53% by 20203 High speed broadband and

increased internet penetration with development of infrastructure

Digital Ad Spend share of overall ad spend to cross 20% by 20204

Allocation to digital ad spends to increase dramatically within overall

advertising spend as it is close to the lowest globally

15x increase in mobile wallets in last years5

Increased usage of payment wallet and operator billing

model to drive micro payments

Disruption = Opportunity2

Growth of regional and vernacular

content

Aggregating and producing vernacular content may help capture larger share of users in India

Growth of e-celebs on the digital platforms

Partner to leverage their digital following through different content marketing approaches

1 Morgan Stanley, http://indianexpress.com/article/technology/tech-news-tecnology/india-second -largest-smartphone-market-2017/2 World Bank, Health Nutrition and Population Statistics: Population estimates and projections, December 20163 Ovum Telecom Forecast Service, December 20164 MAGNA Global Global Ad Forecast, December 20165 Hindu Business Line, http://www.thehindubusinessline.com/catalyst/the-future-of-mobile-wallets -in-india/article8332085.ece6 "Mobile Gaming on the Rise in India," Nasscom, https://www.nextbigwhat.com/indian-mobile-gaming-market-to-see -1-1-billion- revenue-by-2020-report-297/

Source: EY Analysis


Innovation for monetization

Use core strengths across partners to build a compelling customer offering and grow quicker

Build communitiesand cater to their

speci c anddiverse needs

Partnerships to drive and help the

OTT market evolve

Creating niche content across untapped genres in the market

Leverage micro payment

infrastructure toenable transactions

Build hybrid models of payments to enable easy transactions

Differentiate between Urban

English and Vernacular

Propositions

Cater to distinct category of users (Media Dark, Regional Vernacular, Urban English) through customized offerings

Leverage India for the globe

Cross synergies between bringing global content to India and taking Indian content to global Indian diaspora

Building India as the digital engine

Leverage India’s demographic,technology and cost dividends to operate digital innovation and shared services out of India

Population (2016)

1.33 Bn

Internet relatedcontribution to GDP

4.1%

GDP Growth7.5%

Source: Oxford Economics


Source: EY Estimates based on BCG and

IAMAI Analysis


The story so farAs media consumption over the world evolves inexorably towards digital, media & entertainment (M&E) companies are increasingly seeking markets that offer the potential for sizable digital earnings. India has a large scale and millennial population – young, tech-savvy consumers with rising earnings potential and disposable income. This demographic has historically been and will continue to be, an early adopter of new technology and new models of media consumption. India, therefore is a market which is ripe for digital media investments. The demographics are all stacked in India’s favour for digital consumption.

By end of 2016, India will have more than 300 million smartphones. Cheap smartphones and the rollout of 3G and 4G broadband infrastructure are rapidly coming together to leapfrog traditional distribution and democratize online access.

Together, these factors are the foundations for accelerated digital media adoption. Facebook’s rst four years in India netted it 50 million users, the same amount of time it took to hit that milestone in the rest of the world7.

The opportunity for M&E companies from this “new wave” of digital growth is large, as is the cost of missing out. Reacting to the pace at which opportunities in these markets present themselves requires agility. M&E companies need to both anticipate the rewards as well as appreciate the risks.

There are a few challenges that need to be overcome to fully gain the bene ts of the digital ecosystem in India. India faces inherent challenges around rampant piracy, low broadband spends, high costs of broadband connections vis-à-vis cable TV costs, and low level of monetization of digital content. Therefore, such issues need to be targeted to fully leverage the opportunity that the digital segment presents in India.

7. “Reaching 50 Million Users,” Visual.ly website, http://visual.ly/reaching-50-million-users, accessed 20 May 2014; “Facebook user base soars to 50 mn in India,” Press Trust of India, 25 July 2014, via Factiva, © 2012 The Press Trust.


4.1%Internet related

contribution to GDP

GDP

371mn

Mobile Internet users (2016)

Smartphone users (2016)

~300mn

160mn

Digital Video Viewers (2016)

Indian economy and the digital sector

1.33bn

Population (2016)

Internet subscribers (2016)

477mn

18mn

Wired broadbandsubscibers (2016)

174mn

Wireless broadbandsubscibers (2016)

192.3mn

Broadbandsubscibers (2016)

A young nation with a median age

of 27.6 years

The fastest growing major economy in the

world

$ 8676.4 bn


Source: CIA World Factbook

Source: EY Estimates based on BCG and

IAMAI Analysis

Source: IAMAI June 2016 Estimates

Source: EY Estimates



Source: TRAI Estimates



Source: EY Estimates,

TRAI


Disruption10 | Digital opportunity - Indian M&E

India is undergoing disruption on an unprecedented scale. In this section, we discuss the key forces reshaping media consumption in India.

Sect

ion

1



1Penetration of smart devices

The rapid up-take of connected devices, especially smartphones and tablets is instrumental in media consumption shifting beyond traditional media formats such as broadcast and cable TV towards digital mediums. Increased digital consumption in India is expected to help media conglomerates drive consumer aggregation. Along with increasing connected device ownership and time spent online, consumers’ media consumption habits are also shifting. India has already become the second largest market for social networking giants like Facebook (with over 155 mn users) & LinkedIn (with over 37 mn users) and is expected to surpass the USA to lead the global tally of the largest Facebook user base on mobile devices by 20178.

India has skipped the widespread PC internet usage phase and has directly come to the mobile phase. The number of smartphones in India grew at a staggering pace during 2016, crossing 300 million and has become the second largest smartphone market. The number of tablets also grew 1.8 times during 2016, reaching 45 million and is expected to continue to grow at a faster rate compared to smartphones. Tablet users are expected to reach over 128 million users by 20209.

Device penetration in India (mn)

Smartphone penetration in India

2014 24%

2015 31%

2016e 41%

2017e 46%

2018e 51%

2019e 55%

2020e 59%

Year Smartphone penetration

155

500

182 210

13

98

2014 2015 2016 (E) 2017 (E) 2018 (E)

Smartphones TabletsTV Sets

8 Economic Times, http://economictimes.indiatimes. com/tech/internet/india-growing-faster-than-us-for-us-facebook/ articleshow/54961630.cm

9 Ovum Telecom Forecast Service, December 2016

Source: Ovum Telecom Forecast

Source: Ovum Telecom Forecast and EY Estimates


2Changing demographics

With rapid digitalisation, the face of Digital India is expected to be far more diverse in the near future, moving away from the old, familiar gure of an urban, mid-aged, upper-middle class male. There is a predominant shift towards using the mobile phone as a

As the digital audience shifts from the familiar persona, there will emerge an opportunity to create target group speci c content for the new audience.

The changing face of the digital user

2003 2018Older 40% over the age of 25 54% over the age of 25Rural 29% rural audience 40% - 50% rural, semi-urban audienceGender balanced 2.6 men for every woman 1.9 men for every woman among

18-24 year oldsMobile 60% - 70% of the user base 70% - 80% of the user baseVernacular 45% of the users consume regional

language based content70% - 90% Indian do not speak English, less than 1% as a primary language

Per Capital Income (PPP)

USD 5418 USD 6700

Source: IAMAI

primary and often only access point to the internet. The preferred services will match day-to-day demands of a diverse income household, regional language based and more often outside a tier I city to include tier II & III cities.

Many content creators are already trying to cater to this changing demography & psychography of the audience and are producing content directed towards a speci c target group.


The next wave of growth in Indian internet is expected from non-metro and rural areas, where wireless mobile internet shall play a pivotal role.

Even though the major proportion of wireless internet subscribers are 2G users, the adoption of 4G is gradually increasing and now 3G/4G constitutes over 50% of the overall wireless internet user base.

As it rolls our further, 4G is expected to contribute around 58% of the mobile data traf c in India by 2020. Digital India Initiatives by the government are also expected to be instrumental in driving the demand for 4G. One of these is an indicated investment to the tune of INR 70 bn for the rollout of 4G across India over the next 3 years. In addition to the public sectors, Reliance Jio has also invested INR 700 bn for allocation of 4G spectrum where their network would encompass 600,000 villages in India.

3Increase in internet speed and penetration

4G growth and market share

4G market in India (in millions)% of total data traf c

India will see a signi cant spurt in 4G Wi-Fi hotspots driven by Government and private sector initiatives

4.2%

58.4%

2015 2020

4

346

2015 2018

Source: CISCO Mobile VNI Source: CISCO Mobile VNI


India’s low levels of ad spending drastically contrast with the population of the country. Even though the internet penetration is comparatively low, digital ad spending on a per-user basis is the lowest of anywhere in the world. Currently, digital media contributes to approximately

Source: EY analysis

10 Source: MAGNA Global Ad Forecast, December 2016

14% of the total ad spend in the country, which is higher compared to only Mexico and Indonesia. However, by 2020, when approximately 20% of the ad spending will be on digital, India would have crossed several other countries including Spain, Sweden and the Netherlands10.

4Digital Ad spend

Figures in INR billion 2016 2020

Total media spending 560 924

Digital Ad spending 81 185


Mobile micro payments/wallets

5Subscription revenue is constrained by low credit card penetration, payment gateway failures and other factors that hamper online payments. Currently, only 1-2% of the consumers pay for media content online. Most of the payments in India are still cash based with approximately 95% of the total debit card usage focused on ATM based transactions. However, this is expected to change with rapid developments in the mobile payment infrastructure. Mobile payments grew from US$ 480 mn in FY14 to US$3.12 bn in FY16 at a CAGR of 155%11. However, different entities in the mobile / online ecosystem are building mobile centric wallets to overcome payment issues and have seen an uptake in various digital services.

Overall, the major Indian payment wallet companies have raised capital for investments in technology / data analytics, brand building and growing the network of users and merchants. PayTM grew at 1.6x over the last year to reach 160 mn users, whereas MobiKwik has around 45 mn users12.

Daily packs and transaction based models are also gaining market traction.

The growth of e-commerce sales has been a catalyst for growth in mobile payment in India. Approximately 41% of sales from Indian e-commerce are expected to accrue from mobile payments in the future.

The pre-paid recharge payment market is expected to be the fastest area of growth (~40%) for mobile payments, followed by domestic remittances. A majority of the mobile recharge market is driven by mobile wallet companies.

Semi-Urban and rural regions are expected to fuel the growth of mobile wallet payment players, where more than 50% of PayTM users are from Tier II and Tier III towns and is expected to cross 70% in the near future13.

Mobile payments through Prepaid Payment Instruments (INR bn)

Mobile payments: By payment type 2014

Money transfers 38%

Recharge and utility bill 31%

Onlineshopping

and Ticketreservations

31%

81

488

2014 2016

11 Hindu Business Line, http://www.thehindubusinessline.com/catalyst/the-future-of-mobile-wallets-in-india/article8332085.ece

12 Indian Express, The Hindustan Times, http://indianexpress.com/article/technology/tech-news-technology/mobikwik-sees-400-rise-in- transactions-post-demonetisation/; http://www.hindustantimes.com/business-news/paytm-transactions-exceed-combined-usage-of-credit- debit-cards-in-india/story-4yiLcdQnpDM50dtM2dwiSN.html http://www.medianama.com/2015/08/223-paytm-hits-100-million-users/

13 The New Indian Express, http://www.newindianexpress.com/business/2016/nov/15/paytm-unveils-its-multilingual-interface-with-10-regional -languages-1538849.html

Source: RBI, Payment System Indicators; https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=16609; https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=15330


Opportunity2


The unprecedented disruption which India is currently undergoing, has posed many opportunities for companies. In this section, we discuss the opportunities which exist for digital and traditional M&E companies.Total Digital Media Market 2016

(In INR crores)

2020(In INR crores)

OTT and digital advertising 8,100 18,500 Video OTT subscription 170 1,230 Music OTT subscription 115 1,030 Gaming (In App/ Paid Subscription)

105 770

Total 8,490 21,530

2Sect

ion



1Digital video

The next stage of digital consumption after travel and ecommerce is expected to come from digital media, especially video. Trends in online searches in India suggest that entertainment is becoming the largest sought after category contributing to 31% of all searches. Videos and music currently represent the highest proportion of the consumer preferences within the entertainment category, collectively aggregating over 90%. The video viewing audience in India is expected to

grow signi cantly in the near future at a compounded annual growth rate (CAGR) of over 13%14. With the increasing growth in video audience and consumption, the Indian market provides an opportunity for international studios and content owners to showcase their content and garner additional revenues.

By 2020, India is expected to become the second largest video viewing audience globally15.

Brazil US India China

Online video audience in India (in mn)

Comparison of online video audience (in mn)

Source: EY Future of TV Report, Statista

Source: EY Future of TV Report, Statista

160

250310

380450

2016 (E) 2017 (E) 2018 (E) 2019 (E) 2020 (E)

87 101

215 236160

450530

663

2016 2020 (E)

14 Digital Video Viewers Worldwide, by Country," eMarketer, December 2016

15 “Digital Video Viewers Worldwide, by Country,” eMarketer, December 2016


Telecom Operators, Content Aggregators, Media Entities, DTH Players, etc. have ventured in the OTT space within the India Market. They are leveraging their strengths in order to establish a foothold in the market.

Live TV streaming, however, is still at a nascent stage in India and is primarily driven by sports and events.

Comparatively, Video-on-Demand (VoD) services have a higher penetration among the Indian audience. Young adult, entertainment & celebrity driven clips are popular formats in short form content.

Reach35%

Reach14%

Video on demand Live TV

Penetration of apps

Market preferences between video on demand and live TV digital platform

Time spent by smartphone user (min/ month)

3024 26

18-24 yrs 25-34 yrs 35+ yrs

21 2329

18-24 yrs 25-34 yrs 35+ yrs

Source: Nielsen informate mobile insights

With the increasing growth in video audience and consumption, the Indian market provides an opportunity for international studios and content owners to showcase their content and garner additional revenues.


2

Source: EY analysis

Consumer preferences

Short form content

Mobile driven

Low willingness to pay for content

The average length of video viewed in India is

YouTube is accessed by of smartphone users

of content consumed on YouTube is Short Form Content

digital views of the India vs Pak World Cup match 2015

minutes20

62%

35%

pay for content, out of ~100 million digital users

million0.5-1

million25

digital unique viewers for IPL 2016million100

Driven by youth

Live TV driven by sports

The 15-24 and 25-34 age categories constitute

80% of the users

Curated content/playlists

“Expert curated playlists are more popular than the albums with about 33% more clicks” -Airtel Wynk

Consumer preferences and content consumption patterns over the internet have evolved over a period of time. This evolution is expected to drive and determine the focus areas for the growth in the OTT market in India. Shortform and snackable content is primarily driving the growth in consumption of digital media, and is primarily driven by a younger audience.

Consumers have shown increased preference towards short-form content; with the average length of video viewed in India being around 20 minutes. In addition, 62% of the content consumed on YouTube is short-form content. This trend has led content producers like Eros International Viacom 18 and Star India to focus on exclusive and snackable content.

Snackable content formats


One of the reasons why digital video consumption in India is primarily in the form of short-form content, is mainly because of slow and uctuating internet speeds which hinder the video viewing experience. Low levels of 3G

penetration, elongated time to download movies, buffering time and bandwidth issues have caused Indians to prefer shorter and snackable content as compared to other countries.

Singapore52 Minutes

Japan49 Minutes

Indonesia42 Minutes

Taiwan29 Minutes

India20 Minutes

Source: Ooyala video index

Average length of video viewed in countries

Currently, most Indian OTT players have similar content libraries of GEC TV shows, movies or regional content, which means no differentiation in content. However, with increasing competition and new entrants in the market, the focus is shifting towards content differentiation by investing in original snackable content. Eros International has invested $25 mn in FY 16 into building original

content for its OTT platform Eros Now. Spuul, a Singapore based independent OTT platform targeted at Indian audience and diaspora is also planning to invest in original content for India. With the inclination of the Indian audience towards short format content, OTT players also need to focus on snackable content for OTT platforms.

This evolving trend has led content producers like Eros International Viacom18 and Star India to focus on exclusive and snackable content.


3OTT and MCN

Over 50 mainstream SVOD services have launched around the world since Net ix’s SVOD service began in 2010, and the Asia-Paci c region alone has about 140 major OTT platforms now. India has 8-10 mainline OTT platforms and over ve SVOD platforms eg. Eros Now, Hotstar, YuppTV, nexGTv, Ditto.

Driven by the exponential growth of video consumption over digital media, video OTT platforms have been a key focus areas for the leading media conglomerates and start-ups alike. The market is also observing entry of large global digital video players (Net ix entered India in early 2016 while Amazon Prime Video was launched in December 2016). Within this burgeoning market, each of these different players are trying to build a niche with the audience through their individual strengths across content, experience and eCommerce. Some examples of OTT services available in India are provided in the table.

OTT Platform & Player CategoriesDifferent types of Telecom operators, content aggregators, broadcasters, DTH Players, etc. have ventured in the OTT space within the India Market. They are attempting to leverage their strengths in order to establish a foothold in the market.

• Device based players have preloaded apps on handsets and are targeting existing users. However, they face very high content costs leading to small and limited content libraries

• Telcos provide built in payment options through network billing and incentives for data usage. However, they also face issues around differentiating content libraries

• Media Entities/ Broadcasters are leveraging their existing content libraries and providing an ad-based product. Driving traf c and engagement is a challenge for them along with monetization

• DTH Players are targeting their existing users with white-labelled solutions. However, they lack differentiated content and have found few takers

• Content Aggregators/Start Ups have opted for a freemium model providing long-form content and targeting NRI audiences. However, their reach is limited because of limited app discovery. Increasing content costs are also a challenge for these aggregators

Broadcasters Start-ups / content houses

International platforms

Hotstar YuppTV

Ditto Balaji Alt Amazon Prime Video

Ozee Hooq

Voot VuClip

Liv Eros Now

Content genres like entertainment, sports, and kids are emerging as the key focus areas to create a niche / create differentiators for the platforms. Most of these players are at early stages of their maturity and are focusing on rapid consumer aggregation and driving engagement.


OTT Market in India - Different categories of players

1Devices

Apple MusicApple iPod and Apple TV

Music streaming subscription service

Sony Playstation VideoMovies and videos

2Telecos

Airtel WynkMusic streaming

subscription service

HOOQMusic streaming

subscription service

3Content aggregators

Hungama Play The Hungama Digital’s video

streaming service

SpuulStreaming and download of

movies, short lms and TV shows

4Media entities

Sony LIVFreemium model based

VOD service

HotstarAd based VOD service for

Star

Video OTT ForecastIndia’s online video advertising market will contribute close to INR 80 bn out of total digital advertising market of INR 185 bn in revenue by 2020. Advertising video on demand (AVoD) services will see a compound annual growth rate (CAGR) of 38% between 2016 and 2021.

Subscription video on demand (SVoD) services, albeit starting from a much lower base will see a higher CAGR

at 64% for the same period. The market will continue to be heavily advertising driven (we expect subscription revenues to be sub 5-7% in the near future) with some models emerging around content transactions.

Live OTT – while still in early days – is garnering a sizeable audience base, led by news, events and sports. An average of just 30 minutes of live programming per day can add upto 20% to a platform’s viewership.

Multi-Channel Network (MCN) MCNs are entities that af liate with multiple YouTube channels to offer content creators assistance in areas such as programming, funding, cross-promotion, partner management, digital rights management, monetization/ sales and/or audience development.

Most MCNs are focused around a vertical or demographic with large, targeted audiences for programming, distribution, and sales. With the proliferation of platforms beyond YouTube (eg. Facebook, Instagram, Snapchat etc.), the MCNs are evolving towards a Multi-Platform distribution approach.

Among the large MCNs present in the market, there has been an active focus towards developing IPs for content genres like entertainment, humour, music, kids, lifestyle etc.; the idea being to build IP and then monetize it not just through YouTube, but across TV rights, lm rights, merchandising, and events.

Some leading Indian MCNs across different genres:


Music Entertainment & Lifestyle

Kids

T Series Qyuki Digital Media Chu Chu TV

Sony Whacked Out Media Appu Series

Zee Music Culture Machine

Saregama One Digital Toonz

Eros

Rajshri jshri

Critical Success Factor for MCNsWhile the MCNs have grown rapidly by aggregating viewers in the recent past, their capability to effectively monetize the same has been limited with constraints around content/ talent cost and monetization means. The long term success for MCNs in India would depend on:

• IP Creation - Investing and developing content IPs would be the key for MCNs to drive effective utilization of the content across platforms/ media and also enable these players to enhance engagement with the target audience.

• Enhancing monetization avenues – With platform advertising being the major source of revenue for MCNs, the average revenue realization per user will be limited. MCNs need to focus on enhancing monetization through sponsored content tie ups, content driven commerce, traditional media tie ups, merchandising and other ancillary means.

• Analytics and customer targeting/re-targeting capabilities – MCNs need to continue their investments in technology to improve their capability to target/re-target their core audience, analyse real time uptake of content, track consumption preference, drive content recommendation etc.


4E-celebrities

The proliferation of digital platforms have also given rise to the phenomena of ‘e-Celebs’. Number of these talents has gained mass popularity nationally and internationally on YouTube and other such digital platforms. Globally, E-Celebs such as Michelle Phan and Casey who have created their own niche content areas in the elds of Make-up and Fitness respectively. Marketers are actively tying up with these celebrities to leverage their growing popularity and promote product and service offerings and thereby increasing brand awareness and ‘viral’ presence. For instance Casey Ho has set up her YouTube channel

as Blogilates ( tness based channel) and has created an e-commerce business around the YouTube channel. India is also witnessing the growth of such e-celebrities. Nisha Madhulika, Bhuvan Bam, Sanam Puri have more than 1 mn subscribers each. It is expected that such talents would be partnered extensively by content and brand players to build offerings for consumers on different digital platforms.


5Regional content propositions

The next wave of growth in India’s internet population is expected from tier II and tier III cities, where wireless mobile internet shall play a pivotal role thus enabling the growth of vernacular and regional content. Currently 45% of the users consume regional language content and this percentage is expected to increase with the growth of internet users. Digital media players should thus consider aggregating / producing vernacular content to capture the next set of users.

The growth has been fuelled by availability of low-cost smart phones, low rates of data plans, increased adoption and awareness in rural India. A few key elements that can further help unlock the true potential would be:

• Providing affordable data packs and access through the network reach with data enabled devices

• Facilitating digital transactions and ease of payments, potentially through new instruments

• Developing a regulatory framework which would encourage content development, protect artists against piracy, etc.

• Enabling entrepreneurial ventures through ease of nancing and mentorship programs

• Creation of regional language content to tap the potential of non-urban areas

Internet user base

Urban Rural

Source: IAMAI, EY Estimates

Figures in millions

246

358

129

388

2015 2020


Digital content producers can thus look at aggregating / producing vernacular content to capture the next set of users.

Source: EY analysis

Content consumption (time spent)

English, 7%

Hindi, 63%

Other regionallanguages, 30%

Source: Google Report: Online opportunities in Telecom

Regional newsRegional news consumption is on the rise, with signi cant traf c coming from rural and semi-urban regions. This has given rise to several digital media companies focused on key regional and vernacular markets.

Digital players growing in the key regional markets

Vernacular video contentThe preference of the Indian consumers towards vernacular and regional language content is constantly on the upswing, with 93% of the time spent on videos in Hindi and other regional languages.

OneIndia

Dainik Bhaskar

Vikatan

Dailyhunt

Half of its users

base from Tier 2 and 3 cities like Pilani, Haridwar,

Mathura etc.

Largest regional digital news player in

India with 2 bn page views

1.5 lakh UVs everyday and 200 million page

views every month

3 bn page views every

month with 95% of traf c for regional

content


6Mobile gaming

The Indian gaming industry has been a dynamic and evolving industry and is expected to touch INR 77 bn by 2020 from the current INR 15 bn. Due to an increase in the number of mobile internet users, smartphones and tablets in India, it can be expected that mobiles would be one of the most important platforms in gaming. Mobile gaming would pave the way to growth and it is expected that mobile gaming would take over the console gaming market in India. This can be owed to various factors such as the easy access to budget smartphones, increased mobile internet usage, increase in number of tablets used, etc.

Owing to the large availability of free-to-play games through app stores and mobile carriers, there has been large interest by casual gamers in the market. There are a large number of games in the market catering to different segments of causal gamers such as arcade, adventure, strategy, racing, card, etc. Also, on an average, men spend 8.5 hrs per month on mobile games and women spend 6 hrs per month. This is expected to grow rapidly in the near future.

Emerging Opportunities: Mobile game publishers focused on regions like China and South East Asia have seen tremendous growth. India, SAARC and MENA focused game publishing is an opportunity waiting to be tapped given the growth in smart phones and mobile gaming consumption. Moreover it is expected that app stores launched in vernacular languages would further drive exponential growth of mobile games by through dedicated focus from game developers and publishers.


Innovation for

monetization 32 | Digital opportunity - Indian M&E

The disruptors and opportunities present monteization opportunities for M&E companies. In this section we discuss how M&E companies can innovate to monetize the opportunities

3Sect

ion



The Digital Market in the future will evolve to have more digital supply chain partnerships to bring in complementary propositions suiting their strengths in the market. With this evolution, international media companies have shown interest in the Indian market through investments and partnerships and are building portfolios to leverage the market strength.

OTT market partnershipsThe OTT segment in India currently has companies from across the media ecosystem including broadcasters, studios, DTH operators, telcos, and content aggregators. These companies can be broadly split in 3 types: Content owners (broadcasters & studios), Pipe / payment channel owners (DTH/ Telcos) and Start-ups (content aggregators).

The companies are currently focused on establishing a foothold in the market based on their individual strengths. Eg. content owners, speci cally, in recent times have shown increasing interest in this space - Viacom has launched its digital video service, VOOT, in March 2016. Star has launched their OTT service, Hotstar, early in 2015.

Content owners are leveraging their strength and are providing it exclusively on their platform (Star has removed all of its content from all other platforms including YouTube to maintain exclusivity of its content on Hotstar, Sony and Eros are offering exclusive premiers of movies on their OTT portals).

However, the OTT companies are facing monetization challenges as advertisement revenues do not provide enough to cover for content & customer acquisition costs. In the long term, these players will have to garner signi cant revenues from the subscription services. The low penetration of credit and debit cards in the country acts as a constraint for the adoption of subscription services, thus making it essential to provide operator billing/payment wallet options for internet services. Telecom companies currently charge 30%-45% of revenue earned through operator billing as transaction fees, which acts as a deterring factor for OTT providers to integrate operator billing.

Partnerships across the value chain of media services could result in mutually bene cial relationships in bringing down both the content & the transaction costs (i.e. broadcasters & studios partnering with Telecom companies & DTH providers):

1Partnerships


Partnerships with global playersMany global and Southeast Asian players have shown interest in partnering with India to capture the next phase

of digital growth in the country. These players are looking at regional partners to provide ‘Glocal’ offerings.

Case study: Lionsgate & Alibaba: global media player partnering with a local major

WarnerBrothers

Current presencePhilippines India Thailand

Expansion plansChina Korea Japan

Content deals

YashRaj Films Disney UTV Reliance Pictures

Shemaroo Rajshri Whacked Out Media

SonyPictures

HOOQ

Strategy implemented

SingtelGroup

Warner Bros. will bring forward its world class content library of movies and TV programmes

The Singtel Group provides market access with its customer base of over half a billion mobile customers and its billing capabilities

Sony Pictures Television will bring forward its extensive library of movies and TV programmes

Pan-Asian planned service to cater to the Asian audience to counter Net ix’s entry in the South-east Asian Market

Offer localized content with a selection of Indian, Chinese, Thai, Filipino, Indonesian, Korean and Japanese movies and TV series

Capitalizing on synergies attained through the tie-up to gain exclusive content deals on a subscription only model

Hooq would also offer exclusive content and other features such as of ine play, multiple device access

LionsGate Entertainment World

The collaboration would lead to LionsGate’s expansion into the Chinese market and would have content offerings such as “Twilight” lms, “The Hunger Games: Catching Fire,” “Divergent” and “Mad Men.”

The content would be distributed through Alibaba’s latest generation of set-top boxes which would facilitate reach

LionsGate Entertainment World plans to engage customers in China by offering premium content and subscriber bene ts such as invitations to screenings, behind-the-scenes exclusives, etc

To facilitate further synergies, Alibaba group is also been in talks to gain control of Lions Gate by acquiring a 37 percent stake in studio

Alibaba GroupAlibaba Group, present across the internet and ecommerce space would provide the distribution and market knowledge in this deal

LionsGate EntertainmentLions Gate Entertainment would provide its content which includes a large library of movies and TV programmes

Tie up


Current partnerships

UBER Lifehacker Gizmodo Business Insider Dorkly

Askmen Pursuitist Techradar The Huf ngton Post

College Humor

Times Global Partners (TGP) is an innovative initiative focused on Times Internet partnering with established and emerging global digital

companies for growing their presence and business in India through growth of their brand, audience, adoption, distribution and monetization.

With increasing competition and challenges around monetization, companies are increasingly looking at partnerships in order to mitigate market constraints. Many global players who are entering into the Asian/ Indian market are looking at local partnerships in order to provide ‘Glocal’ offerings. The market is expected to witness more vertical and horizontal partnerships, acquisitions to drive synergies.


YoBoHo’s Ecosystem around Kids Content

ChuChu TV’s Ecosystem around Kids Content

Appu Series Ecosystem around Kids Content

YOBOHO CHUCHU TV APPU SERIES

YoBoHo owns and operates 27 kids centric channels

The prominent one is: HooplaKidz

Appu Series owns and operates 17 kids centric channels

YouTube Channels YouTube Channels YouTube Channels

YoBoHo generates 3 billion views per year

One of the largest pre school & educational networks on YouTube

ChuCHu TV generates 2 billion views per year

~7 million subscribers on YouTube

Appu Series generates 550 million views per year

Online views Online views Online views

8000+ videos of Kids centric content

Content featuring original programming is produced in house

1100+ videos of Kids centric content

~7800+ videos of Kids centric content

Content featuring original programming is produced in house

Library of Content Library of Content Library of Content

Source: EY analysis

Chu Chu TV owns and operates 5 kids centric channels

The prominent one is: Super Simple Songs

Case study: popular kids centric players

Children & women centric content has gained interest in the recent past and many players are currently looking to create content in this genre

MissMalini.com produces Bollywood, fashion & lifestyle centric content speci cally for women. Ping Digital runs multiple women centric channels.

Multiple MCNs including YoBoHo, Culture Machine, Appu series & Chu Chu TV have emerged in this space. The segment has also seen investor interest: RTL Group owned Canadian media company BroadbandTV acquired YoBoHo.

2Niche content and communities

Case Study: Saregama

With the changing demography & psychography of the digital audience, there is an opportunity to build TG centric content

• Saregama has launched an app for Hindustani classical, Carnatic, fusion music etc. by leveraging its library of over 8000 recordings of about 400 stalwarts

• The app features works of over 70 Carnatic classical musicians including MS Subbulakshmi, Dr M Balamuralikrishna, Semmangudi to name just a few

• The app allows users access to over 50 specially curated radio stations and also allow them to download music of ine

• This community/app around this music segment could be further enhanced to conisder a 360 degree music proposition


3Leveraging transactions and micro payments

With low credit and debit card penetration in India, the market has evolved with players innovating on hybrid models where content library is split between premium and non-premium content access. The premium content is monetized through non-traditional payment models such as telco enabled payments, trial packs, one-day deals, per song payment, pre-loading content, etc. These offerings have specially been catered to for the Indian market considering that the consumers are less willing to pay large sums at a time for content. Going forward, telco or mobile wallet propositions will be key

to drive payments in the digital transactions space. Global players also have evolved their offerings to cater to this particular market need. For example, players like Spuul, offer one-day and three-day packs for as low as INR 6 to INR 30 to increase to monetize their premium content in the Indian market. Going forward, 3-4% of the total transactions are expected to be done through mobile wallets/ micro payments. Given the recent demonetisation by the Government, this rate could well be higher in the near future.



4Differentiate between urban English and vernacular propositions

India being a large and differentiated market with wide disparity and differing level of access, users could be primarily categorized into 3 segments – Media Dark, Regional Vernacular and Urban English. To leverage this varied set of user needs, differentiated and innovative product offerings could be launched for these consumer segments.

• Media Dark Consumer: The media dark consumer segment could be targeted through customized offerings that could be built along with telco or other such wider access means such as entertainment through phone calls (Effectively used by Hindustan Unilever’s ‘Kan Khajura Tesan’ platform)

• Regional Vernacular Consumer Segment: Targeting the local/ vernacular language speaking audience by creating speci c offerings for these segments on traditional and digital platforms. Dainik Bhaskar and Vikatan cater to these segments by catering to content in regional languages through both traditional and digital platforms

• Urban English Consumer Segments: Global and Indian content offerings could be targeted at this customer segment by enabling differentiated offerings such as snackable content, opinion driven content, video formats, etc.

Digital penetration among consumer segments

2015 Increment expected by 2020

Regional Vernacular

80%-85%

50%

8-10%

Urban English

Media Dark

50-55%

90-95%

75-80%

Approximate EY estimates

Digital penetration in vernacular and media dark segments will be the two main sources driving the digital consumer acquisition in future


5Leverage India for the globe

Users across the globe have an af nity towards Indian content. On one hand there are prospective users from the Indian sub-continent with similarity in languages, traditions, and shared history uptaking the content. On the other hand, there are users from the Indian diaspora around the world interested in the Indian content offerings. With the ability to pay, shortage of Indian content and good internet connectivity, these audiences are willing to pay for digital content services. Players like Spuul, Saavn, etc have been able to monetise their content targeting the right set of consumers across the globe.

Indian consumers have over the past several years increased consumption of international content. To make international content available to the audience entering into the right content deal and planning content window sizing and making content easily accessible to the audience on the digital platforms are the critical aspects. Nowadays, broadcaster centric OTT players in India enter into TV plus digital deals wherein initially the content is made available on TV and then in a couple of days on digital platforms.

Innovative strategies leveraging the advantages of the Indian media ecosystem for the globe has proven advantageous in the following segments:

• Kids: Increasingly India’s ability to produce content at optimal production costs combined with technical competence has led to multiple Indian digital propositions garnering a global audience. Leading India based kids MCNs have more than 90% global audience

• Advertising: Leading advertising agencies are leveraging Indian creative talent and off shore cost dynamics to set up shared service centers to serve global clientele.

• Mobile /digital gaming: Multiple game development houses in India are working along with global studios to develop leading game titles as an outsourced partner or a co-developer

Expanding NRI news consumption

The Times of India

NDTV

HT Media

40-42%

40-42%

The Economics Times

India Today Group

Unique visitors from outside India

Unique visitors from India

25-30%

35-40%

15-20%


6Building India as the digital engine

India has been at the cusp of drawing exponential demographic dividends from its young, urban centric workforce. The Indian market has a vibrant IT/technology backed ecosystem on which the now thriving start-ups have emerged. With global partnerships setting in and Asian markets being looked at as key growth segments by global players, India could provide an ideal base for market expansion for the Middle East and South East Asia. Several global conglomerates also have set up their dedicated product development centre out of India providing solution on emerging areas big data, analytics, IOT, etc. areas.

For example, global players like TechniColor have set up their animation studios in India to serve as the shared services centre catering to global operations.


Although digital media is on the cusp of growth in India, the ubiquity of media consumption still has inherent challenges.

Challenges and Mitigating Strategies

The average revenue per user (ARPU) in India is extremely low as compared with other developing countries. Added to this is the fact the consumers are not willing to spend for digital content. In fact, less than 1% of the total internet users are currently paying for legal content. For investors, this is a huge deterrent.

Mitigating strategy:

Subscription packages and average ticket size of transactions have been reduced to lure consumers to pay for sampling the content. Innovative pricing strategies, compelling alternatives have been introduced to convert non-paying users to paid users. In addition, deep discounts, cash back schemes and other incentivising offers are given to acquire new consumers.

Low monetization opportunities

India is plagued with very low internet speeds, which continue to inch up but are signi cantly lower than global benchmarks. Internet speeds witnessed a 29% y-o-y growth and reached an average of 2mbps, compared to 10+ mbps in developed countries like US, Canada & Japan.

Mitigating strategies:

All the components of the digital ecosystem would have to work in unison to iron out the challenges of low internet speeds. Newer compression technologies, innovations like adaptive streaming, etc. need to be developed to mitigate the challenges caused by slow internet speeds in India.

Slow internet speeds

One of the primary forces impeding the growth of subscription and pay-per-view revenue models is the hassles that the consumer faces while making payments on digital platforms, even when they are willing to pay. This is on account of low credit card penetration, fear of using net banking and credit cards online due to security threats and the lack of experience of transacting online.

Mitigating strategies:

Integration with payment gateways, mobile wallets and other payment mechanisms has reduced the friction faced while making online payments. Some digital platforms are using the billing systems of telecom operators for payment collections.

Online Payments

The digital media industry has not been able to fully monetize the content due to rampant piracy in India. Weak IP regulations and ineffective enforcement has discouraged players to produce original content and IP.

Mitigating strategy:

In recent years, the industry has started to adopt cost-effective technologies to curb piracy. In addition, the Indian government’s focus on the National IPR policy is expected to create signi cant new market opportunities for IPR holders.

Piracy


Digital media companies need to develop a comprehensive framework and an operational ecosystem that manages strategic growth challenges, transforms traditional operations for seamless digital integration, enables investments for scale and growth while handling taxation and security related challenges effectively.

The future of digital media will have implications for every component of a digital media company. We believe tomorrow’s media company will transform into an ‘omni-platform media company’. We expect the business to look like

Strategy and monetization

• Customer experience management

• Customer and channel segmentation

• Digital IP: products and services

• Pricing and bundling

• Sales, service and marketing transformation

• Social media strategy

• Technology enablement: lead to service, web, contact centers, customer resource management (CRM)

• Support operations optimization: Marketing, sales, service

• Enterprise cost reduction

• Operating model and governance

• Content monetization

• Digital/media asset management

• Technology enablement: non-core IT, next-gen sales, operations and engineering

• Supply chain and distribution

• Finance transformation

• Enterprise resource planning (ERP)

• Shared services optimization

• Intellectual property management: rights, royalties, participations

• IT Services Management: disaster recovery, business continuity, digital content security, cloud

Business intelligence and advanced analytics

Organizational design, change management and governance

Technology selection and program management

Privacy, security and risk management

Conclusions


With the broadband and smart phone penetration to cross 35% and 50% respectively by 2018-19, Indian digital economy is expected to reach an in ection point as also observed in other developed economies. India’s growing middle class, rising disposable incomes, high volume of content consumption and favourable regulatory environment are driving the Digital Media Industry and helping it ourish in India. While the opportunity for M&E companies from digital media consumption is signi cant, reaping the bene ts requires careful planning and execution. To help M&E companies navigate the complex challenges, EY has identi ed key imperatives from our conversations with clients and observations on ground:

Strategy• What is our long-term growth strategy and what is the

appropriate mix between organic growth and M&A?

• Are we effectively monetizing our content across media channels, leveraging effective rights management and content windowing?

• Can we leverage piracy data to gain insight into untapped demand for our content? Can we make adjustments to the timing, availability and format of our content or services to enhance revenue?

Customer• What digital experiences do our customers value?

Do we have the ability to understand consumer preferences and sentiment?

• Is our marketing strategy and approach tailored to match consumer preferences?

• How are we effectively developing our consumer communities and driving 360� propositions to these communities?

Operation• How can we optimize the balance between content

curation and content creation?

• Based on consumer segments across geographies, what are the most effective digital distribution means?

• What are the imperatives of digital transformation of your current traditional businesses?

Support• As we grow, how can our operational model be further

developed to help produce real tax savings?

• Do we have a long-term strategy in place to manage effective tax rates and address potential challenges from tax authorities?

• Have we proactively planned for how base erosion and pro t shifting or similar legislative proposals might impact the taxation of our digital media operations?

• Have we identi ed and developed appropriate policies and procedures?



GlossaryAIB All India Bakchod

CAGR Compound Annual Growth Rate

DTH Direct-To-Home

FICCI Federation of Indian Chambers of Commerce and Industry

GEC General Entertainment Channel

IAMAI Internet & Mobile Association of India

INR Indian Rupee

LTE Long-Term Evolution

M&A Mergers & Acquisitions

M&E Media & Entertainment

MCN Multi Channel Network

OTT Over-The-Top

p.a. Per Annum

PPP Per Capital Income

PVs Page Views

Southeast Asia Singapore, Vietnam, Malaysia, Thailand, Philippines and Indonesia

Telcos Telecom Operators

TRAI Telecom Regulatory Authority of India

TVF The Viral Fever

UVs Unique Visitors

VoD Video-on-Demand

Y-o-Y Year-on-Year


Team digital | EY

Jay Sampat [email protected] Director, Media Markets

Mini Gupta [email protected] Director, Media Technologies and Security

Anirban Paul [email protected] Digital Content Strategy

For further details please contact: Radhika Pradhan Email: [email protected]

Ashish Pherwani [email protected] Partner, Advisory Services

Raghav Anand [email protected] Digital Media Segment Champion

Shubh Mittal [email protected] Digital Platform Strategy


Ahmedabad2nd oor, Shivalik Ishaan Near C.N. VidhyalayaAmbawadiAhmedabad - 380 015Tel: + 91 79 6608 3800Fax: + 91 79 6608 3900

Bengaluru6th, 12th & 13th oor“UB City”, Canberra BlockNo.24 Vittal Mallya RoadBengaluru - 560 001Tel: + 91 80 4027 5000 + 91 80 6727 5000 + 91 80 2224 0696Fax: + 91 80 2210 6000

Ground Floor, ‘A’ wingDivyasree Chambers # 11, O’Shaughnessy RoadLangford Gardens Bengaluru - 560 025Tel: +91 80 6727 5000Fax: +91 80 2222 9914

Chandigarh1st Floor, SCO: 166-167Sector 9-C, Madhya MargChandigarh - 160 009 Tel: +91 172 331 7800Fax: +91 172 331 7888

ChennaiTidel Park, 6th & 7th Floor A Block (Module 601,701-702)No.4, Rajiv Gandhi Salai Taramani, Chennai - 600 113Tel: + 91 44 6654 8100 Fax: + 91 44 2254 0120

Delhi NCRGolf View Corporate Tower BSector 42, Sector RoadGurgaon - 122 002Tel: + 91 124 464 4000Fax: + 91 124 464 4050

3rd & 6th Floor, Worldmark-1IGI Airport Hospitality DistrictAerocity, New Delhi - 110 037Tel: + 91 11 6671 8000 Fax + 91 11 6671 9999

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Jamshedpur1st Floor, Shantiniketan Building Holding No. 1, SB Shop Area Bistupur, Jamshedpur – 831 001Tel: +91 657 663 1000BSNL: +91 657 223 0441

Kochi9th Floor, ABAD NucleusNH-49, Maradu POKochi - 682 304Tel: + 91 484 304 4000 Fax: + 91 484 270 5393

Kolkata22 Camac Street3rd Floor, Block ‘C’Kolkata - 700 016Tel: + 91 33 6615 3400Fax: + 91 33 2281 7750

Mumbai14th Floor, The Ruby29 Senapati Bapat MargDadar (W), Mumbai - 400 028Tel: + 91 22 6192 0000Fax: + 91 22 6192 1000

5th Floor, Block B-2Nirlon Knowledge ParkOff. Western Express HighwayGoregaon (E)Mumbai - 400 063Tel: + 91 22 6192 0000Fax: + 91 22 6192 3000

PuneC-401, 4th oor Panchshil Tech ParkYerwada (Near Don Bosco School)Pune - 411 006Tel: + 91 20 6603 6000Fax: + 91 20 6601 5900


Notes


Notes


Notes

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