Long-term prospects remain strong - the report also stated that the industry would grow at a compound annual growth rate of 9.1% to reach $3.4bn (Rs168.6bn) by 2013 - due to factors such as the expansion of multiplex screens, enhanced penetration of home video and an increase in the number of TV channels fuelling demand for film content.
The filmindustry also grew in 2008 by 13.4% to reach total revenues of $2.2bn (Rs109.3bn).
However, the coming year will be challenging for the industry due to a smaller number of releases as producers struggle to raise fresh capital; lower occupancy rates at multiplexes, and the declining value of cable and satellite rights and other ancillary revenue streams.
'In terms of the number of hit films, 2008 was not as good as 2007 with many of the big releases failing at the box office and IPL [Indian Premier League cricket] matches affecting the occupancy levels at cinema halls,' the report stated.
'A marked improvement was witnessed in the last quarter of 2008 consequently, the domestic box office collections have been estimated to grow by 12% to reach $1.6bn (Rs80.2bn) in 2008.'
The last quarter saw the release of blockbusters featuringBollywood's major stars such as Ghajini,with Aamir Khan, and Rab Ne Bana Di Jodi,starring Shah Rukh Khan.
The report also stated that the wider media and entertainment industry faces challenges but is still projected to grow at a CAGR of 12.5% to reach $21bn (Rs1,052bn) by 2013. Last year it grew by 12.4% to reach 11.8bn (Rs584bn).
However this compares to a growth rate of 18%projected for 2008-2012by PricewaterhouseCoopers in a report released at the FICCI Frames convention last year. KPMG also stated that adrevenues, which have been growing at a CAGR of 17.1%for the past three years, are expected to slow to a growth rate of12.4% over the next five years.
Commenting on the report, KPMG India head of information, communication and entertainment, Rajesh Jain, said: 'Media companies are under pressure to change, innovate and re-examine their existing business models. In the immediate future, media corporates are likely to focus more on operating margins, and assess opportunities for consolidation, while building on core strengths.'