Media Partners Asia Limited

Engaging India is a weekly online column analysing the issues, trends and forces behind the business and politics shaping India and its impact on the world, which appears on FT.com India, a dedicated online section on India. Engaging India appears every Thursday morning exclusively on FT.com India and is written by Jo Johnson, the Financial Times' South Asia bureau chief; Amy Yee, New Delhi correspondent; and Joe Leahy, Mumbai correspondent.

Just as enthusiasm over India's media sector could hardly reach new heights, local newspapers this week reported a mega deal they said could be the biggest in Bollywood history.

The $100m deal is for a remake of Sholay, a 1975 blockbuster about a policeman who seeks revenge on the bandit who slaughtered his family by hiring two convicts (one of them played by a very young "Big B", Amitabh Bachchan, today Bollywood's biggest star) to do the job, the Times of India reported.

The deal, between the Sholay franchise holder, Sholay Entertainment and Media, and another company, Pritish Nandy Communications, will include live-action and animated versions of the original film as well as a prequel and a sequel.

Deals such as this are based on the improving prospects for Indian cinema, driven by efforts to formalize the country's giant but disorganized cable television sector and the growth of new multiplex cinemas.

But despite the positive signals the Sholay deal sends for the Indian media sector, there are signs some of the froth that has buoyed stock market valuations in the industry may be subsiding.

Media Partners Asia, a research firm, found that during the recent 15 per cent fall in the Indian stock market from its previous high, media-related shares were among the hardest hit. The group on average fell about 26 per cent but some stocks lost 50 per cent.

Even so, valuations remain generous, at 24 times estimated earnings before interest, depreciation and amortization for the year ending March 2008, with some still in the 30-40 times range.

"Another round of corrections is needed to make valuations more palatable," Media Partner Asia says.

It says challenges for the sector include the prospect of 100 new channels hitting the cable TV market in the next six to 12 months on top of an existing 200.

As an example, the firm says it costs $50m-$75m a year to run a viable mass market general entertainment channel, a significant bill given that the general entertainment segment as a whole generates only $500m in advertising a year.

At least four large media groups are considering launching new general entertainment offerings in addition to the two existing large channels. Yet the segment's share of TV advertising spend is declining, from 60 per cent five years ago to 40 per cent now, as audiences get bored and migrate to news and other genres.

Another challenge is that efforts to formalize the cable TV sector by introducing set top boxes into viewers' homes, considered essential to boosting the share of fees broadcasters are able to earn from subscribers, is proceeding slowly.

Currently only about 4m of the country's estimated 73m cable TV households have digital connections, Media Partners Asia says.

The longer-term prospects of the industry look good - advertising is growing 20-30 per cent a year and India's young demographics favour media companies.

However, the promised growth may not come soon enough to prevent a shake-out in what is emerging as one of India's most competitive industries.

By Joe Leahy

The retail revolution hits home

Last week my family in Mumbai decided to buy a new car. With some options in mind we turned to the internet to help narrow the choices. It did exactly the opposite. Every few minutes a new model made its way onto the list. As the possibility of a quick decision faded, it struck me that India's retail revolution had reached my doorstep.

When I left the country to study abroad in 1998, such a wide choice of cars from all over the world was inconceivable. At that time, exorbitant import duties limited options to just two or three. Today, Auto Junction, a popular online resource for the Indian car industry, counts as many as 24 different manufacturers - from BMW and Ford to Rolls Royce and Porsche - in India. The cachet of 'imported' has all but evaporated in India's modern, affordable market.

There are parallels in India's other consumer markets. Gone are the days when relatives returned from the US or Europe laden with western food and clothes. Much of my time on my first trip back home was about making sure all my friends had received the boxes of Ferrero Rocher chocolates I had carried halfway around the world. Not any more. Today, my wardrobe contains clothes from American brands like Nautica and Gant, purchased in India.

With top-end retailers piling into the country's brand new malls, Indian consumerism is only set to increase. According to the AT Kearney Global Retail Development Index, modern stores account for just two to three per cent of overall retailing in India but are growing 25 per cent a year. Overall, the $350bn retail sector is expected to swell to $635bn by 2015.

The main driver is the growing affluence of urban India. Over the past decade, I have on my annual trips home seen snapshots of the country as it develops. Each visit, people seem increasingly able to afford the five-star lifestyle previously reserved for the urban elite. A recent study by Merrill Lynch and Capgemini found that the number of millionaires in India had risen 19.1 per cent to 83,000 in 2006, a rate second only to South Korea's 21.3 per cent. India also has more billionaires than any other Asian country with 36, overtaking Japan's 24 in the past twelve months.

But while India's consumer market is drawing closer to those of the west, it has not lost it unique cultural ethos. The dealer at the local Hyundai showroom promised to deliver our new car on the day of an important Indian festival to symbolize an auspicious start. It arrived two days late and without number plates. Rome wasn't built in a day.


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