India's TV sector represents enormous revenue potential but also faces pressure on its profit margins, according to a new report from Media Partners Asia (MPA) launched to coincide with this week's TV.NXT conference in Mumbai. MPA predicts the commercial TV market in India will outperform most key global emerging markets in revenue growth over the next five years. Profit margins, however, are a cause for concern - having fallen from 25% to 13% in the past four years thanks to increased competition and the forceful generation of the pay-TV subscriber base.

To put this in perspective, MPA points to operating margins reaching about 30% in other fast growing TV markets such as Brazil, China, Indonesia and Russia. The report predicts that margins on earnings before interest, taxes, depreciation and amortisation (EBITDA) will be below 20% by 2014, compared with 35-40% in Brazil and China.

India's media regulators come in for some criticism by MPA.  According to the report, they "appear to be unaware of the enormous capital costs required to build the foundations of the country's future TV industry ecosystem." MPA recommends India adopts a policy to digitise the existing analogue cable infrastructure – at a cost of US$3 billion – in order to better reach 80 million homes.

"Full digital TV conversion would realistically require a decade to complete, combined with credible incentive structures, improved revenue sharing mechanisms, and coherent planning as opposed to the unrealistic time frames and shaky structures currently set out by policy makers," says MPA. Some deregulation would also help the Indian TV market, according to the report. In particular, MPA recommends the removal of price controls on the distribution of TV content; limiting the micro-regulation of retail and wholesale fees; the increase of foreign direct investment caps; and the implementation of more beneficial tax structures for TV content and distribution. All of these, the report says, would help "build larger pools of profit, enabling domestic TV brands to expand aggressively at home and abroad."

Meanwhile, under capitalisation and fragmentation - particularly in pay-TV - as well as the low rate of advertising intensity (at just under 0.4% of nominal GDP) are all current challenges facing the market. MPA does report, however, that advertising revenues in India are on the up, due to both a competitive market and increased number of viewers in the regions and small towns.

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