FICCI-KPMG-Report-13-FRAMES

78 The power of a billion: Realizing the Indian dream
Indian media industry: Growth story unfolds
Mr. Karan Ahluwalia,
EVP, Media & Entertainment,
Yes Bank
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The Indian M&E industry has seen a metamorphosis
over the past two decades and is at an inflection point
towards an accelerated growth trajectory to reach
USD 30bn by 2020. What really makes the Indian
M&E industry a potential goldmine? Currently it is
the heightened consumption of media in Tier II and III
cities, sustained growth of regional media, impact of
positive regulatory changes, digitization and the rapidly
accelerating new media space.
The face of the entertainment industry has changed.
The industry has reinvented itself from a private
community dominated by a privileged few to an
organized and corporatized industry with lower entry
barriers. Growing exposure to various organized
providers of capital such as banks, film funds,
development capital, PE and capital market are driving
several industry players to restructure and transform
from a family run structure into corporate enterprises.
The avenues and challenges of film financing have
also evolved, with reliance on unorganized funding
sources (such as family and friends, moneylenders
and other non conventional sources) in the 1980’s
giving way to an increasing role of organized funding
sources in the 1990’s when capital markets developed
and firms began raising funds through equity markets.
Additionally, the ease of listing on London’s AIM and
raising funds through the FCCB route motivated various
firms to utilize international capital markets. The last few
years have witnessed the emergence of private equity
as a mode of financing for the M&E industry. The altered
economic backdrop created “opportunities in adversity”
for private equity and strategic buyers to acquire assets
at attractive valuations with several notable deals in the
M&E segment.
It has always been difficult for filmmakers and financiers
to predict the success of films. From a financial
institution’s perspective, the fragmented structure
of the production segment needs to be addressed
since a credible track record, sound balance sheet
and good corporate governance are prerequisites
for organized funding. However, in the recent past,
increased efficiencies, transparency, track record,
strong budgetary controls & timelines and reduced
distribution risk have enabled content creators to cover
their working capital requirements through Financial
Institutions, either in the form of Single/Slate financing
or discounting various deals involving the sale of IP
distribution rights. Other methods of raising capital such
as crowd financing, film funds, P&A financing further
reflect the rising maturity of the Indian film industry
when it comes to structured methods of financing. Yes
Bank has constantly demonstrated its commitment
to this sunrise sector by engaging in key structured
transactions for a range of M&E enterprises in this
segment.
Today, the need for diversification & linear integration
has led to the emergence of media conglomerates,
strategic joint ventures as well as alliances that call for
pooling of technology, capital and talent to jointly create
and exploit IP rights. Co-productions and the presale
of IP rights have become the new modus operandi
for funding film productions involving local and global
major studios. Various overseas studios have been
actively participating in the Indian industry with the aim
of opening newer avenues for expansion; given the
stagnation in their mature home markets. These studios
are using their strong international network to distribute
movies around the globe. Leading US studios are going
a step further and are now seeking to capture a share
of the commercially viable Indian regional film industry.
Remakes, a phenomenon commonly observed in
Bollywood, dates back to the inception of the Indian film
industry. Until recently, the South Indian film industry
has traditionally been the primary source of content for
Bollywood remakes. However, there have been several
recent instances where Hindi movies are being remade
to cater to regional audiences. Another trend is that
movies are being made based on bestselling novels.
The film distribution landscape is witnessing a shift
from movies being distributed not only the traditional
international markets such as the US, UK, Middle East
Australia and SAARC countries but also to many non
traditional markets such as Morocco, Turkey, Africa and
Vietnam, among others.
Indian production houses are gradually migrating and
adopting global best practices in order to gain traction
as well as build scale, this will enable them to access
innovative and structured financing products such
as securitization of IP receivables and gap funding
to name a few. However, government deregulation,
prudent structuring of the entire value chain and greater
participation by stakeholders will further accelerate
growth in the industry and help bridge the gap vis-à-vis
international markets.
Unless otherwise noted, all information included in this column/ article was provided by Karan Ahluwalia. The views and opinions
expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG in India.