Budget fails to cheer media cos

Budget 2005-06: Media
India is currently in the throes of an entertainment revolution spawned by economic liberalisation and the subsequent advent of cable television. The players in the entertainment industry can be classified into three-link chain. First are the studios (including the animation studios), which comprise the hardware part of the industry, the second are the content providers and the third link comprises the distribution trolley's, which include the cable and satellite channels as well as the multiplex theatres.

Budget Measures

	Service tax on:
	Broadcasting services to include charges recovered by broadcasting agencies from MSOs and provision of DTH signals to customers.
	Sound recording to include recording of sound on any media and includes post-production services such as sound mixing or re-mixing.
	Video-tape production to include recording of any programme, event of function on any media and includes post production services

Budget Impact

	Post the inclusion of cable operators and Multi System operators under the service tax net in the previous budgets, this budget has included the broadcasting agencies also, who will now be bearing the 10 per cent service tax, thus affecting their profitability, if the same is not passed onto the consumers.
	Inclusion of other services pertaining to sound and video industries into the service tax net would affect their profitability adversely.

Sector Outlook

While the current budget has been nothing positive for the media industry, as most of the services are now under the service tax net, we remain confident of the prospects of the sector going forward. The key triggers for the domestic media industry in terms of addressability issues (DTH and others) and ad revenues (dependant on the economic growth) continue to remain favourable. India has near 85 million television homes of which over 50 per cent have cable and satellite connection, both

of which are expected to continue to grow significantly over the next few years. This would lead to an overall growth of the media industry and its players.

Industry Wish List

	Reduction in customs duty of finished and intermediate products like picture tubes
	Reconsideration in terms of higher FDI/FII investment limits in the sector in order to aid the growth of the industry

Budget over the years

Budget 2002-03

Budget 2003-04

Budget 2004-05

Cable operators brought under service tax net.

Budgetary support for the Ministry of Information and Broadcasting increased by 22 per cent to Rs 420 crore (Rs 4.2 billion).

Customs duty on earth stations equipment and studio equipment reduced from 35 per cent to 25 per cent.

50 per cent income-tax exemption for companies setting up and constructing multiplex theatres in non-metros.

Recorded audio compact discs removed from the purview of excise duty.

Peak customs duty reduced from 30 per cent to 25 per cent.

Rate of service tax raised from 8 per cent to 10 per cent.

Service tax imposed on TV or radio programme production.

Service tax net to include Multi System Operators (MSO) apart from cable operators.

Service tax exemption removed on broadcasting service provided by cable operators.

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