MANAGEMENT DISCUSSION AND ANALYSIS REPORT

INTRODUCTION

The Indian Media and Entertainment (M&E) industry is a sunrise sector for the economy and is making high growth strides. Proving its resilience to the world, the Indian M&E sector is on the cusp of a strong phase of growth, backed by rising consumer payments and advertising revenues across all sector. The industry has been largely driven by increasing digitization and higher internet usage over the last decade. Internet has almost become a mainstream media for entertainment for most of the people. Recent statistics and developments pertaining to the sector are discussed hereafter.

The Indian media industry has tremendous scope for growth in all the segments due to rising incomes and evolving lifestyles. Media is consumed by audience across demographics and various avenues such as television, films, out of home (OOH), radio, animation and visual effect (VFX), music, gaming, digital advertising, and print.

In India, the Media & Entertainment industry was worth US$ 17.0 billion in 2014. The market size of the industry is anticipated to grow at a Compound Annual Growth Rate (CAGR) of 13.98 per cent during 2014-18 to reach US$ 32.7 billion.

With 168 million television households in 2014, India is the third largest television market in the world with US$ 7.9 billion in revenue. The country has one of the largest broadcasting industries in the world with approximately 800 satellite television channels, 242 FM channels and more than 100 operational community radio networks. The Indian film industry is the largest producer of films globally with 400 production and corporate houses involved in film production.

MEDIA AND ENTERTAINMENT INDUSTRY

The Indian Media and Entertainment Industry witnessed a moderate growth in 2014. The industry grew from ' 918 billion in 2013 to ' 1,026 billion in 2014, registering a growth rate of 12%. Television sector grew from ' 417 billion in 2013 to ' 475 billion in 2014, registering a growth of 14%. (Source: FICCI-KPMG Indian Media and Entertainment Industry Report 2015) Total advertising spend across media was ' 414 billion in 2014 contributing to 40% of Media & Entertainment industry revenues. In light of the continued economic growth, advertising revenues saw a growth of 14% in 2014. On account of improving monetization due to digitization, in 2014, subscription revenues grew at annualized growth rate 16%. (Source: FICCI-KPMG Indian Media and Entertainment Industry Report 2015) It was another landmark year for the television industry in many ways. FY15 saw the formation of the viewership measurement system by Broadcast Audience Research Council (BARC). BARC is expected to deliver superior viewership data on account of more relevant classification parameters (NCCS instead of SEC), tracking of substantially higher viewership universe (-150 Mn Households) including rural households, as well as higher quality of data monitoring through audio watermarking of channel feeds

MARKET DYNAMICS

India's entertainment and media sector is expected to grow steadily over the next five years as per CII-PwC's report, titled 'India Entertainment & Media Outlook 2014". The industry is expected to exceed Rs 227,000 crore (US$ 36.49 billion) by 2018, growing at compound annual growth rate (CAGR) of 15 per cent between 2013 and 2018.

In 2013, the overall entertainment and media industry was estimated at Rs 112,044 crore (US$ 18.01 billion) and I grew by 19 per cent over the brvious year. The largest segment, India's television industry, continued its strong growth momentum led by subscription revenues, rebrsenting a year-on-year growth of about 15 per cent. Internet access and internet advertising have been the fastest growing segments with annual growth rates of 47 per cent and 26 per cent, respectively.

Significantly, with the increased penetration of smart phones and expansion of 3G network in India, the country is likely to see around nine billion mobile application (apps) downloads during 2015, which is five times more than 1.56 billion in 2012, as per Deloitte's India Technology, Media & Entertainment and Telecom (TMT) Predictions. This uptick in app-downloads is also expected to increase the revenue from paid apps to an estimated over Rs 15 billion (US$ 241.16 million) as against Rs 9 billion (US$ 144.7 million) in 2014, Deloitte said.

Additionally, industry estimates reveal that video games industry grew at a record 16 per cent in 2013 over 2012; wherein its net worth rose to US$ 277 million. Another report by Research and Markets stated that the Indian animation industry was valued at US$ 247 million in 2013 and is forecasted to grow at 15-20 per cent per annum.

The foreign direct investment (FDI) inflows in the information and broadcasting (l&B) sector (including print media) in the period April 2000 - January 2015 stood at US$ 3,890.94 million, as per data released by Department of Industrial Policy and Promotion (DIPP).

RISK FACTORS

COMPETITION FROM OTHER PLAYERS

The Company operates in highly competitive environment that is subject to innovations, changes and varying levels of resources available to each player in each segment of business. It may not be possible to consistently brdict changing audience tastes. People's tastes vary quite rapidly along with the trends and environment they live in. This makes it virtually impossible to brdict whether a particular show or serial would do well or not. With the kind of investments made in ventures, repeated failures would have an adverse impact on the bottom line of the Company

SLOWDOWN IN DTH/DIGITAL ROLLOUT

The uptake of pay digital services by subscribers has been a very encouraging sign for all broadcasters. Internationally most broadcasters derive a greater share of their revenues from the subscription revenues whereas in India the under-declaration in the analogue cable system has led to broadcasters being more dependent on advertising revenues, which tend to be cyclical in nature and more affected by the macro economic factors. The rollout of Phase I and Phase II cities took longer than expected. Similarly, it may take longer to realize revenues from Phase III and Phase IV cities as their rollouts may not be completed on time.

THREATS/RISKS AND MITIGATION MEASURES

PIRACY

The issue of piracy remains a critical issue for the Indian film industry. However, there are some changes that have helped the industry battle this issue aggressively. With the advent of digitization, penetration of movies into newer geographies, initiatives taken by industry bodies and the amendment of the Cinematograph Act of 1952 to form a new improved Act in 2013, the Indian film industry is addressing.

the issue of piracy by integrating all available resources. With digitization, the theatre-to-television window has further been reduced to less than 2-3 months. This has discouraged the business of pirated DVDs to some extent. In this context, it is important that industries collaborate and create efficient mechanisms for content protection. With cooperation from the government and internet service providers, site-blocking measures can combat online piracy. The initiatives of Telugu film industry are a significant step in that direction. A major deterrent to piracy will come only from a change in mindset on the part of consumers,

HIGHER TAX REGIME

High entertainment tax acts as a major impediment to the growth of exhibition industry, as the overall tax implication is as high as 40-50 percent in states like Maharashtra, Uttar Pradesh, Bihar and Karnataka. Hence, it is imperative that the entertainment tax structure across the country be rationalized by bringing down rates of entertainment taxes. Also, it will be useful to provide tax holiday benefits for infrastructural development on setting up cineplexes in tier II and tier III cities to incentivize the sector and boost growth and development of such cities.

GOVERNMENT INITIATIVES

The Government of India has supported this sector's growth by taking various initiatives such as digitizing the cable distribution sector to attract greater institutional funding, increasing FDI limit from 74 per cent to 100 per cent in cable and DTH satellite platforms, and granting industry status to the film industry for easy access to institutional finance.

Recently, the Indian and Canadian governments have signed an audio-visual co-production deal that would help producers from both countries to explore their technical, creative, artistic, financial and marketing resources for co-productions and, subsequently, lead to exchange of culture and art amongst them.

Furthermore, the Centre has given the go-ahead for licenses to 45 new news and entertainment channels in India. Among those who have secured the licenses include established names such as Star, Sony, Viacom and Zee. Presently, there are 350 broadcasters which cater to 780 channels. "We want more competition and we wanted to open it up for the public. So far, we have approved the licenses of 45 new channels. It's a mix of both news and non-news channels," said Mr. BimalJulka, Secretary, Ministry of l&B, Government of India.

ROAD AHEAD

The Indian M&E industry is on an imbrssive growth path. According to the CII-PwC study, the revenue from advertising is expected to grow at a CAGR of 13 per cent and will exceed Rs 60,000 crore (US$ 9.64 billion) in 2018 from Rs 35,000 crore (US$ 5.62 billion) in 2013. Internet access has surpassed the print segment as the second-largest segment contributing to the overall pie of M&E sector revenues.

Television and print are expected to remain the largest contributors to the advertising pie in 2018 as well. Internet advertising will emerge as the third-largest segment, with a share of about 16 per cent in the total M&E advertising pie. The film segment estimated at Rs 12,600 crore (US$ 2.02 billion) in 2013 is projected to grow steadily at a CAGR of 12 per cent on the back of higher domestic and overseas box-office collections as well as cable and satellite rights

Digital advertising is expected to lead the CAGR with 27.7 per cent, followed by radio with 18.1 per cent. Gaming and television are expected to register a CAGR of 16.2 per cent each, followed by growth rates of animation and VFX (15.9 per cent), music (13.2 per cent), films (11.9 per cent) and OOH with 9.2 per cent expected CAGR. Within TV, subscription revenues are expected to be three times more than advertising revenues, by 2018. Growth in the regional reach of print and radio shall provide opportunities to further improve the advertisement revenue.

HUMAN RESOURCES

The Company has maintained peaceful and cordial relationship with the employees.

CAUTIONARY STATEMENT

Statements in this report on Management Discussion and Analysis describing the Company's objectives, estimates and expectations are "forward looking" statements. These statements are based on certain assumptions and expectations of future events. The actual results may differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include economic conditions affecting the Entertainment Industry.