By Johnson Napier
With business as a whole still awaiting an uptrend in the economy, the talk in the media and entertainment sector has centred around how avenues and investment options for growth are drying up and the need for a fillip to resurrect the once-vibrant sector. Trade analysts have been long anticipating the bounce-back in the economy, with projected time-frames going from post-September 2012, to first-half 2013, and now to the second half of 2013.
Finance Minister P Chidambaram was expected to wield a magic wand, but while the Union Budget was announced yesterday, there was nothing really significant that could revive the hopes of thousands of employees in the media and entertainment space who waited with bated breath for SOPs and benefits to be doled out. This was after the media went gaga about how the budget would be a more pragmatic than populist in its approach if the UPA government fancied a third term into power at the Centre.
Of the few measures announced by the Union Finance Minister for the M&E sector, the most important one was directed towards the radio sector. The Minister announced that it would expand private FM services to 294 more cities and that about 839 new FM radio channels would be auctioned in 2013-14 and, after the auction, all cities having a population of more than 100,000 would be covered by private FM radio services. The other important announcement was not a good one where the Minister proposed increasing customs duty on set-top boxes from 5 to 10 per cent.
Hope for a few, dejection for others
- Rakesh Jariwala
Analyzing the overall scenario, including measures announced for the film industry as well, Rakesh Jariwala, Tax Partner, Ernst & Young said, “The budget has given partial relief for the film sector as the non-theatrical revenues of a movie are now brought back in the tax net. Producers and distributors will be able to recover a portion of their input credits with this change, thus mitigating a portion of the adverse impact created by the complete exemption granted last year. For non-film business, impact of removal of exemption to copyright transactions will have to be measured in terms of eligibility of the service receiver to take credits. However, the question of double taxation of transactions in intangible rights (between service tax and Value added tax) remains unanswered.”
Adding further he said, “The budget will increase the income tax cost on account increase in corporate income tax surcharge from 5 percent to 10 percent. Any outbound remittance towards IP royalties (except film exhibition royalties) and/ or fees for technical services will be subject to increased 25 percent tax rate, subject to a better tax treaty rate. Investment in specific plant and machinery towards manufacture of article or thing by media companies in excess of 100 crores will qualify for additional tax allowance at 15 percent. Also, Increase in import duty for set top boxes from 5 percent to 10 percent may increase the cost for DTH/ Cable operators. Applying service tax on exploitation of copyright in cinematograph film with the exception of exhibition rights should result in improved credit situation for the industry.”
- Smita Jha
So while the good news is mostly limited to the sector of radio, the repercussions of the hike in duty of STBs is not being taken well by the other factions of the industry. Smita Jha, Leader, E&M Practice India, PwC said, “In principle, this move is to encourage local manufacturing of STBs. In that sense, it is a step in the right direction for the prospect of local manufacturers. But having said that and keeping the DAS deadlines in mind, I am not sure if it will really benefit the industry. With customs duty being raised, the cost will be passed onto either the consumer or be borne by the STB importers. Given that the prices of STBs are also very competitive, it is not good news for MSOs and LCOs since they might have to bear the costs.”
- Roop Sharma
Jha’s assessment found resonance with Roop Sharma, President, Cable Operators Federation of India who said, “The increased customs duty on STBs will be passed onto the consumer. Though it is a very good step to promote indigenous STB manufacturers, if it will maintain BIS standards. The imported STBs are Chinese-quality and not very good. From LCO’s point of view, it will be beneficial for consumers for they will get good-quality indigenous STBs.”
- Uday Shankar
The most worrisome response perhaps came from FICCI M&E committee. Uday Shankar, Chairman, FICCI M&E committee said, “FICCI expresses its shock at the proposed doubling of customs duty on the import of set-top boxes to 10 per cent from the existing rate of 5 per cent, announced by the Finance Minister in the Union Budget 2013-14. We strongly believe that an increase in import duties on STBs will be detrimental to the government’s digitization programme that was flagged off last year. This move at this stage will hamper the progress of digitization since it will significantly increase the outlays of the cable and DTH community. It will also adversely impact the government’s tax collections from additional revenues linked to faster digitization.”
According to Mr Shankar, the availability of lower-priced set-top boxes is pivotal for smooth implementation of digitization. “The domestic industry lacks the scale and size required to meet the increased demand for set-top boxes and the industry is heavily dependent on import of these devices to implement the next phase of digitization. This sharp increase in import duty will escalate the costs for consumers and can potentially derail the digitization process,” he said.
Adding further he said, “FICCI has been consistently recommending the lowering of customs duty on set-top boxes. The government could have instead considered lowering excise duty on local manufacturing of set-top boxes, thereby ensuring timely supply of such devices at lower costs and urges the I&B Minister and the Finance Minister to review and reconsider this proposal and provide much-needed relief to the media and entertainment sector.”
- Ajay Chacko
Presenting a more diverse view on the budget, Ajay Chacko, President, A+E Networks|TV 18 said that apart from the rise in customs duty on STBs and a forward-looking incentive for radio players, there are other things that one should look at that can impact the way the industry functions. He said, “Media business is primarily driven by consumer products and consumer products means consumption. So if there is an increase in the disposable income it kind of motivates people to spend more. So there have been some attempts to increase consumption and disposable income if not growth of the industry as such.”
According to Chacko, the waiver that has been given to the housing sector and boosters being given to a couple of other industries as well will see the advertising environment picking up in terms of spends. “This will be a good thing to happen as the advertiser spending has been slow in the past two years. So there has been an attempt to revive consumer spending which will at least lead to halt in the downward spiral of advertising spends.”
- Tarun Katial
While a few hopes were indeed crushed, there were others who were satisfied with the outcome of the Budget. Like Tarun Katial, CEO, Reliance Broadcast Network Ltd, who said, “The Budget brings good news for the radio industry, with Phase 3 poised to create optimal reach for the medium. Other benefits like news, networking, current affairs and sports, multiple frequencies etc will add the necessary fillip to further fuel listenership growth through reach and content diversification and will also drive profitability and revenue through cost optimization.”
- Prashant Panday
Expressing his joy, Prashant Panday, Executive Director & CEO, ENIL said, “We are happy that the Finance Minister announced the imminent launch of Phase 3 of radio expansion. With this, we hope all hurdles to the launch of Phase 3 are now removed. We hope quick action now follows this announcement.”
- Apurva Purohi
Echoing a similar sentiment, Apurva Purohit, CEO of Radio City, said, “We welcome the announcement of Finance Minister on the government’s resolve to expedite Phase 3. This impetus would help FM radio expand and offer the choice of consuming private FM radio to millions living in smaller towns. We are looking forward to the same.â€
Not much effect on other domains
As for the impact on other mediums, there was a mixed bag of feelings that emerged. Pradeep Gupta, CMD, Cybermedia said, “As I see it there is not much that has come out from the budget for the M&E industry as such. But then the print industry had also made a request to the government to not increase the rates of any duty structure for the benefit of the industry. And the government hasn’t raised any rate on the duty as such. So I suppose it will be business as usual for the print industry.”
- Srinivasan K Swamy
IAA President Srinivasan Swamy said, “The budget unfortunately does not do anything to spur growth to the industry which will lead to handsome growth to Media and Advertising industry. This is reflected in the sentiments of the stock market. 2013-14 is only likely to see a single digit growth in the industry and this means the growth is likely to be in line with inflation. Not a happy state to be in.”
- Sunder Hemrajani
Sunder Hemrajani, Managing Director, Times OOH said, “As can be inferred, there is nothing as such for the Outdoor industry in the budget. However, there is a positive correlation between business confidence, investment, GDP growth and growth in advertising spends. Some of the budget proposals are expected to provide the impetus for growth in the economy. This should spur growth of the OOH industry which has had a difficult year. But high food inflation and fiscal deficit continue to be a challenge.”
The overall sentiment could probably be summed by what Amar Ambani, Head of Research, India Infoline Ltd (IIFL), had to say on the Union Budget 2013-14: “The FM presented a rather non-eventful budget given that fiscal deficit targets were vocally communicated earlier. The market was disappointed with the evident populism in the budget through higher social scheme allocations despite limited headroom. The math for achieving 4.8 percent fiscal deficit in FY14 looks vulnerable to slippage. Further, it was also not a budget which can revive the sagging economy. Absence of key reform measures such as GST implementation was also dejecting.”
For now, M&E will have to look to other key industries which have benefited from the Budget, and who advertise heavily, to pump up their growth story so that positive effects rub off onto the M&E sector as well.
Fundamental need of the hour is to boost the economy, which is essential for growth of M&E. The following steps are expected for sustained economic growth:
It is important for the government to create policies that stimulate taxes and widen the tax base, not necessarily by lowering the taxes. It is important that in current economic situation, to raise consumer sentiment. We have been hearing of uniform GST, which has not been undertaken yet. Also, it is important to lower interest rates.
On the direct tax front, we could look at the following key areas:
The burden on the growing service sector needs to be reduced, so it may accelerate India’s growth. In prior years, in recent times, we have not seen anything progressive as such via the budget. Investment norms in some parts of the sector have already changed, for encouraging investment. The industry has been asking for lower duties on STBs so that digitization can progress and benefit millions of consumers. This is vital. As for the last year, the economy has been slow, sluggish and behind expectations – 2012 has been a disaster!
By Ranjona Banerji