Media and Entertainment Sector: Today’s Talk on Editorials
Significance: According to a report by FICCI and Ernst and Young, the media and entertainment sector grew 11% to $20 billion in total revenue in financial year 2016. It is expected to touch $35 billion by financial year 2021. Despite Indian M&E growing almost three times the global rate, some of its key policy and tax issues are yet to become Government of India priorities.
Major Issues in the sector:
- Non grant of infrastructure status to whole sector: Infrastructure status for media and entertainment can provide a big boost to attracting private investment in this sector as the cost of funding will be at a concessional rate and the investors could have multiple instruments to raise the money through. However, broadcasters and content carriers in this sector do not qualify on all evaluated economic parameters like monopoly of competition , non-rivalness in consumption, presence of externalities etc.
- The telecom sector struggled for over five years in 1995-2000 during its initial stages of privatisation but it was able to grow at a tremendous pace only because Government of India provided various incentives like infrastructure status with benefits under Section 80-IA like tax holiday and Section 72A which includes carry-forward of losses of the Income-Tax Act. It is not provided on a similar line to other media and entertainment divisions in India.
- Carry-forward of losses in case of merger in the broadcasting sector: Service sectors like software and telecom services were allowed carry-forward of losses under Section 72(A). However this does not apply to the broadcasting and content distribution services sector. Carry forward losses can be used to set off capital gains. It is a disadvantage for this sector. Like telecommunication, television broadcasting organisations including direct-to-home (DTH), cable services etc. requires huge investments in setting up technology and distribution networks and with no provisions of carry forward losses, the entire investment are in danger of loosing the intended profit.
- Taxability issues: Section 47 of the Income-Tax Act allows for tax exemption when there is amalgamation of a foreign company to another foreign company. However, a similar provision is absent when it comes to the merger of two foreign companies. This is an anomaly that needs to be corrected policy wise. Amalgamation is the combination of one or more companies into a new entity and is distinct from merger process.
- Denial of Tax Credit: The Finance Act 2012 amended Section 9(1)(vi) of the Income-Tax Act to retrospectively include payment for transponder hire and other charges as royalty from June 1, 1976. However, these are not regarded as royalty under the Double Taxation Avoidance Agreement. This results in denial of tax credit of the tax paid in India to the satellite service providers.
- Low media penetration in lower socio-economic classes: Media penetration varies across socio-economic classes. Even though the absolute numbers are higher for these classes, media penetration as a percentage of the total population is poor in lower socio-economic classes. Hence, efforts to increase the penetration even slightly in these lower socio-economic classes can deliver much higher results.
- Low advertisement expenditure: Indian advertising spends as a percentage of gross domestic product (GDP) at 0.45 percent is comparatively very low as compared to other developed and developing countries. Advertising revenues are vital for the growth of this industry.
- Piracy issues: The problem of piracy assumes a significant proportion in a country such as India with an area of 3.3 million sq. km. and a population of over 1 billion speaking 22 different languages. It impacts all segments of the industry especially films, music and television. Most of the credible efforts today to combat piracy have been initiated by industry bodies themselves. On part of the government, lack of empowered officers for enforcement of anti-piracy laws remains the key issue that is encouraging the menace of piracy.
Prospects of the sector:
- Steady Growth in demand: The fortunes of the media industry are linked to the growth of the economy. India is set to grow at a rate of at least 6-7% over the long term. Rising incomes in the hands of people encourage them to spend more on discretionary items like media and entertainment. The recently seen trend is shifting more towards the online medium increasingly contribute a higher share to the GDP in the coming years and is projected to double to Rs 994 billion by 2020 growing at an annual growth rate of 16% during 2015-2020.
- Improved Technology: New distribution technologies like DTH, Conditional Access System etc hold the future of the media industry as increasing digitization will radically alter the ways in which consumers receive channels. The mandatory digitization all over India will bring in more subscription revenues for the broadcasters as opposed to under reporting of numbers by cable operators at present.
- Growth of regional industry: The advent of digital platforms will require industry participants to invest in constant innovation in products and services. The over saturated metropolitan cities of India could make way for the smaller towns in India to be the hotbed for media and entertainment. Thus, the regional markets provide ample scope for growth in the media sector. In print media, more newspapers will be published in vernacular language. In television more channels will be introduced in local languages. Tier II and Tier III cities and towns will drive the Indian consumption story in the next few years.
- Employment Opportunities: The Indian media and entertainment (M&E) industry is one of the fastest growing industries in the country. Its various segments, film, television, advertising, print and digital have witnessed a tremendous growth in the last few years. It is a very vivid and versatile industry and the scope of a career in this field is immense. Thus, there is no shortage of media & entertainment industry jobs. These unique jobs not only offer promising future but also provide immense job satisfaction. This industry will thus continue to grow in double digits which translate into more options and better pay packages and also help realize the demographic dividend of India.
- Digitization of the industry: The Media & Entertainment industry landscape is undergoing a significant shift. Cable digitization, the emergence of wireless broadband, increasing DTH penetration, digitization of film distribution, growing Internet use etc. could prompt strategic shifts in the way companies work. Innovation will be the key to attract more consumers and deliver relevant content and services that are profitable too.