Media and entertainment fund: An alternative investment opportunity

An investment in the entertainment industry in thought is very similar to the real estate industry as both are predicated on the cash flows of a particular project. However, the Entertainment industry has an added advantage with multiple cash flow streams which accrue over decades given the rapid ascendancy of OTT and other ancillary platforms.

Further, these monetization streams establish the profitability of a particular project well before its completion and minimizes and mitigates the investment risk associated with a project.

The Indian entertainment industry has been in existence for the last 100 years and has risen from strength to strength with every passing decade! Rather, over the last 20 years, we have witnessed a substantial jump in this sector, especially after the Indian film Industry got it’s “Industry” status. Post-2008 is when the growth of the industry turned meteoric in the form of new revenue monetization platforms like Broadcasting and now, the recent OTT phenomenon!

Though the formation of the industry opened the doors to organized capital, the sector faced its fair share of issues till the early 2000s, given that the industry was still fairly unorganized. The digitization of movie prints in the mid-2000s gave rise to the INR 100 crore club and that was the inflection point for the Entertainment industry. There has been no looking back since then! With the advent of movie licensing for broadcasting & OTT we could say with confidence and an air of certainty that the Indian entertainment industry has finally arrived is here to stay and grow!

With close to 1500 movies being released every year, combined with the rapid rise of multiple OTT platforms which showcased 180+ web series and 80+ direct to OTT film launches in the Hindi language alone since last year, the demand of content has been growing exponentially. Add to this, Digital Media & Gaming are the other two subsegments that continue to grow expeditiously, with online Gaming alone expected to grow at a CAGR in excess of 25 percent. With this humungous demand for Content, Digital & Gaming rising manifold, this trend highlights the scope and enormous opportunity for investments in this sector.

As per industry reports, the investment in programming by media houses in Indian OTT has more than doubled from ~USD 260 Mn in 2017 to ~USD 700 Mn in 2020. With Global OTT annual content budgets like ~$17bn+ for Netflix, ~$11bn+ for Amazon and the recent AT&T – Discovery deal which intends to pump ~$20bn, the war for content manufacturing is getting bigger. Let’s face it, many of these OTT platforms are banned in China and India remains their only ray of hope to boost their subscriber base & valuation metrics! This itself depicts that the Indian Entertainment industry has truly come of age!

In the US, debt investments in filmed entertainment have been an established norm starting with banks with early movers like Dresdner (acquired by CommerzBank), JP Morgan etc, and Alternative financial institutions like Caryle amongst others providing capital with lucrative rates of interest ranging from higher Single digits to lower teens which is considered very attractive in western Markets as the yields in those markets from traditional debt products are way under 5 percent. To extrapolate the same opportunity in India, an investor investing in the asset class of Entertainment can expect substantial returns in the higher teens with principal safety purely from a debt instrument

In India, the entertainment industry continues to be deprived of capital since many financial institutions don’t understand how to extend capital to an intangible asset class. However, the silver lining is that although long-form content continues to repel capital, various Entertainment / OTT Platforms that are subscription-driven continue to attract pools of VC money.

Over the last decade, there has been a rapid increase in VC/PE as an Alternative asset class which has grown manifold. In that same breadth, we believe that with the stability and the maturity of the Entertainment industry, investment in Content is an attractive opportunity and an emerging asset class. As they say the early bird gets the worm, it is just a question of time before someone wakes up and smells the coffee and starts catering to the financial needs of this new and rising Alternative Asset Class!