MANAGEMENT DISCUSSION AND ANALYSIS A. Indian Media & Entertainment Industry In 2014-15, a stable government, policy initiatives, reforms, coupled with high economic growth numbers and forecasts, renewed the interest of both domestic as well as foreign investors in the country. The sentiments have touched across the sectors, with Media & Entertainment being no exception. As per FICCI-KPMG Indian Media and Entertainment Industry Report 2015, Media and Entertainment industry grew by 11.7% from Rs. 918 billion in 2013 to Rs. 1,026 billion in 2014. Television industry rode on massive spending by political parties and e-commerce companies to register a growth of 13.8% to Rs. 475 billion in 2014 from Rs. 417 billion in 2013. Broadcast advertisement revenues grew by 14% to Rs. 155 billion in 2014 from Rs. 136 billion in 2013. Broadcast subscription revenues have seen a growth of 10% to Rs. 75 billion in 2014. The completion of Phases I & II of digitization was expected to bring in efficiencies and additional revenues to the broadcasters, which was missing in 2014. The introduction of alternative rating system by BARC, which includes rural population and larger sample size, is expected to bring in significant changes in ad spend trends India's entertainment and media sector is expected to grow steadily over the next five years. B. Broadcasting operations We have launched our maiden venture, Insync, a satellite broadcasting channel, India's first 24X7 music channel based on Indian Classical Music reaching households through various MSOs and completed second year of operation. The broadcasting industry in India is undergoing the transformation and is on the way to become a content driven market. Presently the market is completely based on quantity of channels rather than quality of channels. India, due to its unique position as diverse cultural market segment, possesses huge potential in broadcast operations of a right content segment. Hence, the company has acquired broadcasting rights of the largest ever repertoire of classical based Indian Music genres. Company deals brdominantly with satellite rights of various content in the targeted genres. Company is also pondering over the options of optimum content mix of classical and classic retro film songs to achieve the breakeven levels in the current financial year. C. Business Prospects Company intent to be available on all major DTH players like Tata Sky, DISH, Airtel, Videocon shortly. Company plans to acquire satellite rights of nearly 1000 hrs of content every year and ensure to carry Indian Classical Music to the youth of India and international in a newer and better way by using latest technological platforms in broadcast industry. Company also proposes to acquire rights of retro film songs for airing on its channel. We strongly believe that the retro film songs have not been creatively exploited in the broadcast industry and therefore offer huge business potential in this segment. Company has already entered into long-term contracts negotiations with vendors for acquiring songs and programs. In India, the ratio of advertising expenditure to GDP is less than 1%. This is substantially lower in comparison to the developed economies as well as other developing economies. Interestingly, Print and TV media contribute over 75% of the advertisement spend in a year. As the Indian economy continues to develop and the media reach increases, the advertising expenditure to GDP ratio is expected to increase over the next 5 years which has direct impact on revenue of the Company through broadcasting. However, the delay in pickup in economic activity continued to impact advertisement spends. D. Performance Review The Company has built up satellite rights of content library of Indian Classical Music based Genres. The said library of audio/video content stands approximately at approx 1000 hours, which is arguably the largest repertoire of high quality video content in the various forms of classical based music genre in the targeted segment. Over a period of two years company has realized that the Indian classical music segment caters to very niche audiences whereas retro film songs genre caters across all age group. Therefore the broadcast platform of the company needs to showcase a right mix of Indian classical and retro film songs. Hence, the management may relaunch and repackage Insync to achieve early breakeven. Presently, due to fierce competition among distribution platforms, no one intends to take risk of charging more to a consumer compare to the competitor. Over a period of next two years, the Indian broadcast market is likely to become a content driven market and themindsets of distribution platforms will also undergo changes and they will start charging the consumers for providing the quality content. This situation will be ideal for converting Insync into a robust pay channel from Free To Air channel. Once Insync is converted into a pay channel, we expect the subscription revenue will override the advertisement revenue. E. 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. Ever changing trends in Media sector 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. Niche segment Ours is the super niche segment and no market size is readily available. We need to create market for the viewership of this channel. Moreover, there is no readymade content available; the entire content for the channel needs to be created from the scratch. Funds Investment: The advent of digital platforms will require industry participants to invest in constant innovation in products and services. Thus, going forward, innovation will be the key to attract more consumers and deliver relevant content and services that are profitable too. F. Strengths, Opportunities and Threats Strengths: The Company's consumer-led focus is manifest in its operational philosophy, which is centered on delivering maximum value to its stakeholders through its nucleus of strengths. Opportunities: India's media and entertainment industry is on the cusp of entering a new era of growth, riding the digitization of television distribution, steady growth of regional media and fast emerging new media businesses. In this emerging media landscape coupled with ideal mix of classical and retro music genres, Perfect-Octave is geared to tap into new business opportunities to be unlocked by leveraging technology innovation and harnessing emerging trends. Threats: Despite the large opportunity canvas, the industry's growth could be scuttled due to the various threats and challenges it faces. These include piracy, violation of intellectual property rights, lack of quality content, inability of companies to ensure good quality production and distribution infrastructure. Your Company is continuously tracking these threats and upgrading its operational, legal and financial strengths to successfully counter the same. Your Company operates in a very competitive environment. Changes in the Government regulations or any change in the legislative intent to bring about addressability could adversely impact growth plans. G. Outlook Indian Media and Entertainment Industry (M&E) seems soaring higher and higher every year. It is one of the fastest growing sectors in Indian economy triggered by economic growth and increasing income levels. A significant amount of growth is expected in the Indian media and entertainment industry over the next few years. International firms are looking to enter diversify into India. The new companies Act has led to greater transparency and corporate accountability, which may result in higher investor confidence. Regulatory changes will be the catalyst to growth in television and radio space. Digitalization, Phase iii licensing for radio and 4G rollout will provide the required impetus to the industry. Higher penetration of internet will especially in the digital media space. This will have impact on advertising as well as print and publishing sector in the coming years. It is expected the trend of market consolidation will continue across the M&E sector as large firms merge with smaller ones in order to increase their foothold over the market. I. Internal Control System and their Adequacy Your Company has adequate internal control system commensurate with the size and nature of its business. Your Company's internal audit process is being handled by your well experienced and learned management which helps in monitoring the adequacy and effectiveness of the internal control system and the status of compliance of operating systems and policies. Your Company's Internal Control system is designed to: • Safeguard the company's assets and to identify liabilities and managed it accordingly. • Ensure that transactions are properly recorded and authorized. • Ensure maintenance of proper records and processes that facilitates relevant and reliable information. • Ensure compliance with applicable Laws and Regulations. J. Discussion and Financial performance with respect to operational performance The details of the financial performance of the Company are appearing in the Balance Sheet, Profit & Loss Account and other financial statements appearing separately. Please refer the Directors' Report for highlights. K. Material Developments in Human Resources/ Industrial Relations Front The Company firmly believes in and has consistently practiced progressive HR values. The Company inculcates the values of transparency, professionalism and accountability in its operations to generate long term benefits for its shareholders, customers, employees. There is consistent emphasis on each individual's sense of responsibility, while simultaneously as part of a team. This results in our people's ability to work in perfect harmony despite coming from different disciplines. The Company has appointed various personnel during the year under review for its content production activity, research and programming of content on channel. Cautionary Statement Statements in the Management Discussion and Analysis and the annual report describing the Company's objectives, projections, estimates, expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations in India and other countries. Actual results could defer materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include economic conditions affecting the domestic market, in which the Company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors and unforeseen circumstances. On behalf of Board of Directors Sd/- Ratish Tagde Founder & Managing Director Place: Mumbai Date: August 14, 2015 |