An investment in the entertainment industry in thought is very similar to the real estate industry in that both are based on the cash flow of a particular project. However, the entertainment industry has an added advantage with multiple cash flows accumulating over decades given the rapid rise of OTT and other ancillary platforms.
Additionally, these monetization streams establish the profitability of a particular project well in advance of its completion and minimize and mitigate the investment risk associated with a project.
The Indian entertainment industry has been around for 100 years and has grown steadily over the decades! On the contrary, in the last 20 years we have witnessed a substantial leap in this sector, especially after the Indian film industry obtained its “industry” status. After 2008, the growth of the industry took a leap in the form of new revenue monetization platforms like broadcasting and now the recent OTT phenomenon!
Although the formation of the industry opened the doors to organized capital, the sector faced its fair share of problems until the early 2000s, as the industry was still relatively unorganized. The digitization of film prints in the mid-2000s gave birth to the INR 100 crore club and this was the inflection point for the entertainment industry. There has been no turning back since! With the advent of film licenses for broadcast and OTT, we could say with confidence and certainty that the Indian entertainment industry has finally arrived and is here to stay and grow!
With nearly 1,500 movies released each year, combined with the rapid growth of multiple OTT platforms which have featured over 180 web series and over 80 direct OTT movie launches in Hindi language alone since last year. , the demand for content has increased exponentially. . Add to that, digital media and games are the other two sub-segments that continue to grow rapidly, with online games alone expected to grow at a CAGR of over 25%. With this huge demand for content, digital and games on the rise, this trend highlights the scope and huge investment opportunity in this industry.
Globally Investing Media Fund is popular
According to industry reports, media house programming investment in Indian OTT has more than doubled from ~ US $ 260 million in 2017 to ~ US $ 700 million in 2020. With Global OTT annual content budgets like ~ $ 17 billion + for Netflix, ~ $ 11 billion + for Amazon and the recent AT&T – Discovery deal that aims to pump out roughly $ 20 billion, the war for content making intensifies. Let’s face it, many of these OTT platforms are banned in China and India remains their only silver lining for increasing their subscriber base and valuation metrics! This in itself shows that the Indian entertainment industry has truly come of age!
In the United States, debt investments in filmed entertainment have been an established norm, starting with banks with early players like Dresdner (acquired by CommerzBank), JP Morgan, etc., and alternative financial institutions like Caryle, among other things, providing capital with lucrative interest rates ranging from higher Single digit to single digit shrinking teenagers, which is considered very attractive in Western markets as the returns in these markets of traditional debt products are well below 5%. To extrapolate the same opportunity to India, an investor investing in the entertainment asset class can expect substantial returns in the upper teenage years with primary security only coming from a debt instrument.
Opportunity in India
In India, the entertainment industry continues to be deprived of capital as many financial institutions do not understand how to extend capital to an intangible asset class. However, the silver lining is that while long-form content continues to push back capital, various subscription-based entertainment / OTT platforms continue to attract VC money pools.
Over the past decade, there has been a rapid rise in VC / PE as an alternative asset class that has mushroomed. On that same scale, we believe that with the stability and maturity of the entertainment industry, investing in content is an attractive opportunity and an emerging asset class. As the early bird is said to catch the worm, it is only a matter of time before someone wakes up and smells of coffee and begins to meet the financial needs of this new, alternative asset class in full swing. growth!
The authors, Vivek Menon and Nitin Menon, are co-founders and managing partners of NV Capital. The opinions expressed are personal.