Television

TV ad spends - 39% of ad pie in 2001-2, says Crisil

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MUMBAI: Crisil risk evaluation for the Indian entertainment industry, a pioneering initiative undertaken by CII (Confederation of Indian Industry) would play a catalytic role in channelising institutional funding to the entertainment industry. Crisil evolved a framework for analysing film and television software producers.



The total advertisement spend (ad spend) in the country increased to Rs 96.5 billion in 2001-02 from Rs 39 billion in 1994-95, that is at a compounded annual growth rate (CAGR) of 14 per cent.

During the same period, ad spend on television registered a CAGR of 19 per cent. Ad spends on TV as a proportion of total ad spends increased to 39 per cent in 2001-02 compared with 29 per cent in 1994-95.



According to estimates, DD accounts for 60 per cent of the total TV ad spend while C&S networks account for the balance 40 per cent.



The following are excerpts from Crisil's report on the TV software industry.



Television Software Industry

Size

About 70 million households in India have television sets. Doordarshan (DD), with about 1300 transmitters, is one of the largest terrestrial broadcasting organisations in the world. It is estimated that DD channels reach about 259 million people and C&S channels reach about 166 million people.

TV software production

Programmes telecast on television can either be sponsored or commissioned and their frequency of telecast could be daily or weekly.



Sponsored programme: In the case of a sponsored programme, the producer (content provider) acquires a broadcasting slot or telecast time from the channel against a commitment to deliver the software. The producer pays a telecast fee to the channel for the allotted slot and is, in turn, offered airtime within the telecast slot for broadcasting commercials.

Airtime slots are categorised into prime time (7-10.30 pm), peak prime time (9 - 10 pm), mid-prime time (12 noon to 2 pm) and non-prime time (rest of the day). Typically, a 30-minute episode is broken into four minutes of free commercial time (FCT) and 26 minutes of actual programming content.



The FCT could, however, vary from channel to channel. For instance, while some channels offer four minutes of FCT, others offer five minutes. Channels also allow a producer to bank the FCT, that is, save a portion of the FCT for use at a later time. The producer sells the FCT to advertisers and sponsors, either directly or through marketing agents. In the case of a sponsored programme, the producer retains the copyright over the programme.



Commissioned programme: Under this model, the channel commissions the producer to conceive and produce a programme on its behalf. The channel hires independent producers, who undertake to complete the project as per the channel's requirements.



Besides, the channel employs in-house programme managers whose primary responsibility is to monitor the project's progress. The producer is paid a fixed price for producing the programme and the channel retains the right to sell the commercial airtime.



Diversifying production risk: Television software producers typically diversify their risks by undertaking both sponsored and commissioned programmes. While the former offers good revenue potential, the latter protects a producer from the downside risk of lower revenues.



Moreover, a mix of these two programmes would result in diversified revenue streams in terms of both sponsors and TV channels. Besides it would minimise the producer's overall funding requirement, as the onus of funding commissioned programmes would be on the channel.



Funding pattern Sponsored programme: In the case of a sponsored programme, the producer has to meet the initial funding requirement on his own or through private financiers. After the initial period, inflows from the sponsors would be utilised to repay private financiers.



Some of the leading TV software producers have availed of funding from banks and non-banking finance companies (NBFCs).



Commissioned programme: Channels typically fund such programmes. At times, however, a producer could need funding even for commissioned programmes. For instance, the channel could ask the producer to fund and develop the software. Under such circumstances, the producer would have to either resort to his own funds or borrow from private financiers during the initial phase of development.



Revenue model

The revenue model for television software includes:



s Inflows from sponsors on sale of FCT

s Sale of distribution rights for VHS, VCD and DVD formats

Sale of telecast rights to DD and/or C&S channels

Of the above, advertisement revenues from the sale of airtime is the primary source of revenue. Distribution and telecast rights are normally sold subsequently and that too only in the case of successful programmes.



Hence, such revenues, if they are generated at all, are an additional bonus for the producer and such inflows are not certain during the programme's production phase.



The total advertisement spend (ad spend) in the country increased to Rs 96.5 billion in 2001-02 from Rs 39 billion in 1994-95, that is at a compounded annual growth rate (CAGR) of 14 per cent.



During the same period, ad spend on television registered a CAGR of 19 per cent. Ad spends on TV as a proportion of total ad spends increased to 39 per cent in 2001-02 compared with 29 per cent in 1994-95.



According to estimates, DD accounts for 60 per cent of the total TV ad spend while C&S networks account for the balance 40 per cent.



Television rating points (TRPs): indicate the extent of a programme's audience viewership and appeal. TRPs are a critical input and companies depend on them to sponsor programmes. TRPs not only decide a programme's fate but they also influence ad tariffs.



Channels typically reserve the right to change tariffs depending on the programme's TRP. A programme's timing (prime or non-prime time) and the network's reach also influence ad tariffs. For instance, in some cases, even if two programmes have the same TRPs, their time slot - prime time or non-prime time - would influence ad rates.



Ad tariffs also depend on the sponsors' bargaining power. For instance, leading fast-moving consumer goods (FMCG) and consumer durable companies are able to command

better prices by guaranteeing assured sponsorship for a longer duration.



Unlike the film industry, the television software industry is relatively more transparent and faces minimal threat of piracy. Besides, the growing ad spend on television is a positive factor for the industry.



A television software producer's revenue streams are limited, however, and not diversified. TV software producers do not generate revenues from music rights, theatrical rights, overseas sale of rights and the like. Besides, most producers depend on one or few channels whereas only some large producers have the channel width to diversify their risk.

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