Will the next lot of media giants come from the telecom sector? If estimates are correct, then a listing of the top-20 media and entertainment (M&E) companies in India has three major telcos in the reckoning. There is Bharti Airtel at Rs 2,900 crore, making it, arguably, the fourth-largest media company in India. (See Bharti Airtel — The making of a media conglomerate, Business Standard, September 7, 2010).
Then there is Reliance Anil Dhirubhai Ambani Group’s Rs 1,400 crore from M&E and Tata Sky at Rs 1,000 crore plus.
Expect many more on this list as mobile entertainment becomes a bigger game. Mobile value-added-services or MVAS, as most entertainment-related non-voice services are called, brought in a massive Rs 5,500 crore for the telecom industry last year. (This does not include plain vanilla SMSs). On average, these contribute 5-10 per cent to most telco top lines. According to estimates by the Internet and Mobile Association of India, by December 2010, mobile operators would have earned Rs 8,700 crore from entertainment-related MVAS revenues.
The focus on mobile entertainment is only expected to increase as the pressure on voice revenues keeps growing. A ringtone selling for Rs 5 or Rs 10 simply offers better margins than a voice call that is at times almost free. So far telcos couldn’t ramp up MVAS because spectrum was scarce. The recently concluded 3G auctions mean more clippings, videos, songs, news and other services will now be available on the mobile phone.
In addition to this, many telcos have got into DTH (Airtel, Tata, Reliance), TV, radio broadcasting (Reliance) and allied media services such as post-production or archiving (Reliance, Airtel). Reliance is also into films (production, distribution and retail) and out-of-home, among several other media segments.
What does the growing clout of telcos in M&E mean?
It means that the M&E business is acquiring critical mass. But the impact on two things is most important. One, on regulation and two, on power equations in the $17-billion M&E business.
Notice that most telcos are getting into media infrastructure areas; DTH, IPTV, multiplexes, digital theatres or broadband pipes to carry M&E products. This is where their strengths — the ability to build large networks across a disparate, heterogeneous, voluminous market and offer value for money — work very well.
The lack of enough media infrastructure is one of the biggest reasons why the M&E industry lacks scale. For instance, India may be the largest producer of films in the world, but it is one of the smallest one in value. That is because it is one of the lowest on screens per million of population. The growth of multiplexes over the last decade shows that the more screens there are, the better the chances of a film to make money. So, telcos are more than welcome in this area, like they are in DTH, where they are building networks to sell TV signals instead of voice.
As they do this, they will encounter the usual problems — ad hoc regulation, state taxes that vary wildly, a cable regime from the dark ages and under-declaration of revenues. The telecom industry’s ability to deal with this mess is far better than the fragmented media industry’s. These guys are simply larger and more used to lobbying. The biggest telecom company, Bharti Airtel, is nine times the size of the biggest media group, The Times. So, there is hope that in their bid to grow their media businesses, they will push through changes that will help clean up the mess in media. That is the good part.
The bad part is the usual bullying that goes with size. You can see the impact of that on mobile entertainment where content-owners are left with a measly 10 per cent of the revenues telcos collect by selling their songs or videos. This is the complete opposite of markets such as Japan where content-owners keep a bulk of the revenues. So, the entry of these large distribution giants in other areas — films, TV and so on — will realign the whole power equation in favour of the telcos.
Eventually, old style M&E firms will learn to harness it. But till then the scales are clearly tipped in favour of the telcos.
