We can't afford to lose a day on digitisation: Uday Shankar

The latest FICCI-KPMG Media and Entertainment (M&E) industry report says the industry grew 11.7 per cent (to Rs 82,000 crore). A year earlier, it had posted 12.8 per cent growth. Jehil Thakkar, Head, Media and Entertainment practice of KPMG, says 2012 was a very difficult year for the industry, even more challenging than 2008, when the slowdown hit.

Advertising revenue grew a dismal nine per cent compared to 13.1 per cent in 2011. Television advertising grew just eight per cent (vis-a-vis 12.6 per cent in 2011), while print advertising grew only 7.3 per cent (vis-a-vis 10.6 per cent in 2011). The only sector that posted stellar growth in 2012 was the film industry, which grew a whopping 21 per cent from a mere 11 per cent increase the previous year.

On Thursday, March 8, Uday Shankar, CEO of Star India, who is also the Chairman of the FICCI Media and Entertainment Committee, and Karan Johar, the Co-Chairman, spoke to Business Today's Ajita Shashidhar in an exclusive interview. They held forth on the current state of the media and entertainment industry. Edited Excerpts:

It has been a challenging year for the Indian media industry. Is there an urgent need to milk distribution revenues? Also, how crucial is digitisation?

Uday Shankar: We can't afford to lose another day on digitisation. If there is a pause, we will relapse into the old world, which would be disastrous. The kind of dependence we have on advertising is not healthy (almost 70 per cent of the broadcast industry's revenues come from advertising). If a distribution breakthrough doesn't happen, it will reflect on the quality of content. In fact, it is already happening. An advertiser only pays for the number of eyeballs a channel generates. As a result, one focuses on content that can be consumed by the largest number of people. It is anti-segmentation and anti-focus.

Segmentation of Hindi speaking markets hasn't happened because of limitations in distribution. In thematic terms, all entertainment channels are focused on women. There is no reason to believe that only women watch TV. Once the frequency shortage vanishes, we will be in a position to come up with specific content that targets various demographics.

The deadline for the second phase of digitisation (where more than 38 cities will be digitised) is March 31. There has been a lot of talk about hesitation among operators, especially in smaller cities about to go digital. How prepared are we?

Uday Shankar: When you are talking of change of such a big magnitude, some stakeholders will be prepared and some will not be prepared. It is important to give unequivocal signals. The dates shouldn't be extended. If the commitment is not derailed, it will automatically happen.

It will take some time before broadcasters reap the fruits of digitisation. With ad revenues dipping, what is the impact the on industry?

Uday Shankar: It is a matter of concern. If the economy doesn't turn around, there will be an impact and the victim would be content. Economic hardship is used as a tool to bring down yields. One is often forced to cut ad rates as advertisers are not prepared to pay such high rates. When your rates come down, you are forced to increase your inventory to make up for the loss in revenue. As a result, content suffers.

The government has opened the digital TV distribution business to foreign investment. Do you think the sector will attract FDI?

Uday Shankar: Firstly, it is a little too early. It will come when the MSOs (multiple system operators) are able to create a business discipline and pump money back into the business. The first phase of digitisation is a pilot for the investment community, content community and the entire eco-system.

Films have made a huge comeback this year. The industry has grown 21 per cent in 2012, vis-a-vis 11 per cent last year. What has contributed to this stellar growth?

Karan Johar, co-chairman of FICCI Media and Entertainment Committee: We need to come up with content that can touch every demographic.

Karan Johar: The Indian audience base has expanded thanks to our films reaching more and more people. We have also started making appealing content. On the one hand, there were films like Rowdy Rathore or Dabangg 2 which were absolutely mass content. We also had films such as English Vinglish and Barfi, which appealed to a distinct set of demographics. The good news is that both our content and distribution is spread out and varied. But we still have a long way to go.

Still, the KPMG report projects a compound annual growth rate of just 10 per cent for the film industry, which is much lower than the 21 per cent growth the industry registered last year. Last year, the domestic market was the cash cow and the bulk of revenues didn't come from the overseas markets. Do you see a similar trend?

Karan Johar: The film industry has finally understood the viability of making films. They have got their act together in terms of economics and ROI (return on investment). Everyone has started understanding the need to create new content that would appeal to all demographics. With this happening, I don't agree that the stellar growth in 2012 is an exception. I see the revenues from the domestic market tripling in the next few years as the diaspora also continues to open to a wider audience. The fact that the bulk of the revenues come from the overseas market is a misnomer. Domestic has always contributed much more and will only get bigger in the years to come.

What made you choose 'A Tryst with Destiny: Engaging a billion customers' as the theme of this year's FICCI Frames?

Uday Shankar: The Indian M&E industry has done a remarkable job of connecting with consumers. The film industry is growing by the day and similarly the television industry has reached out to 120 million consumers in 20 years. However, a large number of consumers is still waiting to be connected. To make the next big leap, we need to connect with more consumers. The theme of engaging with a billion customers, to me, is a bold and ambitious beginning towards this goal.

Karan Johar: I think there is an unnecessary focus on the Rs 100 crore club (referring to films crossing Rs 100 crore revenue). Our growth potential is much more and we, as an industry, need to realise that. Engaging with one billion consumers is a poetic aspiration, but we are actually nowhere near that. Also, there is limited understanding among media professionals about the various opportunities one can harness across verticals through content or the synergies that can be created to engage these one billion customers.

The idea is to get professionals to understand that there is a Rs 1,000 crore revenue potential and not just Rs 100 crore. We can do it through innovative content, wider exhibition and, of course, through synergies with other content platforms. The challenge is how we formulate multi-platform distribution strategies to reach new audience segments.

How do you see the industry engaging with a billion customers in the years ahead?

Karan Johar: As an industry, we have expanded enough (referring to the digitisation of the exhibition industry. About 77 per cent of the 11,600 or so film screens across the country has been digitised). But we are not expanding the way we should. Exhibition has to become wider and content writing also needs to change. We need to come up with content that can touch every demographic.

Where do you see the film and entertainment industry five years from now?
Karan Johar: I see consistent growth from now on. The studio structure will be solidified further and I see the film industry heading towards golden years of business.