Convergence: Will it remain a pipe dream? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Convergence: Will it remain a pipe dream?

Jan 6, 2001

The melting of the ICE age led to relatively realistic valuations for the media sector towards the end of the year 2000. One primary reason for the high valuations was the view that Internet would change the way music, films, television programmes and books would be distributed in the future. Prime time would become a thing of the past as a subscriber would be able to download and access his/her favourite programmes whenever he/she wanted. Telephone companies, media companies and Internet companies eyed each other as mergers became a way out in the convergence era. AT&T, the American long distance company, bought out the cable giant TCI (now AT&T Broadband), gained control of Liberty Media (TV programming) and an interest in cable companies At Home (now Excite@Home) and Media One. These buyouts were apart from the 25 percent stake in Time Warner Entertainment and a 30 percent stake in Cablevision Systems. It however had to pay a heavy price for these acquisitions. The company, which was a zero debt company in 1998 ended up with a debt of US$ 62 billion with its stock crashing to an all time low. The management now proposes to split its operations into four entities, separating its media and telecom business, under surveillance of its creditors obviously.

However, it may possibly be too early to write off the death of the convergence concept. The biggest test case for convergence viz. the AOLĖTime Warner is on course, with the Federal Trade Commission finally approving the merger. While AOL acquired valuable brands including Time, Fortune, HBO and Cartoon Network the primary reason for Time Warner to agree to the merger was the perception that advertising on the new media (the Internet) would grow (if at all) at the expense of the old media (print and television).

The emerging distribution trolleys
Doordarshan
Network
Zee
Network
Star
Network
Sony
Network
Sun
Network
DD1 Zee TV Star Plus Sony Sun
DDMetro Zee News Star Movies AXN Soorya
DDNews Zee Cinema Star World SetMax Udaya
DDSports Zee English Star Sports   Gemini
15 regional
channels
4 regional
channels-Alpha
Star News
Asianet Star English

In India, so far it is the dominant players in the press such as the Times of India, Midday and India Today which are looking at the Internet as a medium to distribute their products. The television media players have also seen an integration of sorts with the broadcasters venturing into cable television. While Zee owns Siticable, Star took a stake in the Rajan Raheja owned Hathway Cable. Similarly, Sun TVís promoters own Sumangali Cable, down South.

These companies have already spent huge amounts in setting up cable headends and are spending more money for offering value-added services over their cable networks. Also, these are the very companies, which are offering a bouquet of channels comprising sports, general entertainment and regional language channels. So controlling the last mile access is critical for each of the players to provide access to their trolley of channels. The provision of value added services such as Internet over cable opens up another source of revenues for these players.

Years
(Rs. In bn)
Total ad
spend
TV Ad
spend
Share of
TV (%)
FY95 22.2 5.3 24.0%
FY96 35.0 8.8 25.0%
FY97 42.3 10.8 25.5%
FY98 39.6 11.1 28.0%
FY00 63.5 19.1 30.0%
Source: Nimbus Communictions Draft Prospectus

What however remains critical is the continuing support of the advertisers to the media players. An apprehension of a slowdown in the USA has already prompted fears of a slowdown in advertising revenues. Infact valuations of media majors Disney, Time Warner and Viacom have come off over the last few months primarily because of slowdown in advertising expenses of the old economy majors. In India television has been the preferred medium of advertising. While the overall ad spend has increased by around 23 percent over the last five years the television medium has outstripped other mediums by growing at over 29 percent. It basically implies slower growth for the other mediums such as the press, radio and cinema.

In the last quarter ended December 2000, HLL has reportedly cut advertisement spending by almost Rs 1.4 billion (US$ 30 million). One wonders what will happen next year given the fact that five of the biggest states In India are facing a drought situation. A rural slowdown could propel further cuts in advertisement spend next year as well. Finally, the distinction between the old and the new economy seems to be getting blurred. Thatís the real convergence to watch out for.


Equitymaster requests your view! Post a comment on "Convergence: Will it remain a pipe dream? ". Click here!

  

More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE TECK


Sep 25, 2020 (Close)

COMPARE COMPANY

MARKET STATS