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Straddling the entire value chain - Views on News from Equitymaster
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  • Feb 18, 2000

    Straddling the entire value chain

    Entertainment - not autos, steel or financial services - is increasingly leading the New World economy. In the USA, which has the most developed entertainment market, entertainment spend ranks ahead of even clothing and healthcare and in many parts of the world, entertainment is the fastest growing sector. India is currently in the throes of an entertainment revolution spawned by economic liberalisation and the subsequent advent of cable television.

    By logical extension, intelligent players in the entertainment content field have enormous profit potential if they are able to identify and deliver high quality content to a hungry audience. These factors, along with the fact that television has the inherent advantages of high reach, low cost of advertising and a relatively lower cost of entertainment (as compared to films) is expected to provide even more momentum to the television revolution.

    Media reach (%)

    Source : NRS (urban) & IRS (rural)

    Television entertainment as a product also has some unique features. It is recession-proof. It requires no shelf space, provides instant access and has a limitless reach. It is based on creativity, ideas and intellect. It generates a strong consumer pull. The Indian content has a global demand from NRIs abroad. It has universal appeal and is literacy proof. It is also an imperishable and highly recyclable product.

    In fact, the value of a good entertainment product usually grows with time. It can be released on video, its satellite rights can be sold and a sound track album can be released. Also, it can play on local and overseas cables, it can be merchandised by selling T-shirts and related products, it can be marketed on the internet - and in the future it can be recycled yet again to a nostalgic audience. That is the unbeatable power and marketability of a good entertainment product.

    This is exactly how the international studios such as Time Warner, Disney, Viacom, Sony, News Corp. Bertelsmann and Seagram have tried to straddle the value chain. Almost each of them have strived to have a presence in television production, satellite production, film productions, broadcast TV, cable TV, Satellite TV, music, publishing, theme parks and the internet. In India the Zee group seems to be following exactly this model. The company already has a television production facility, a channel (Zee TV), a cable operation (Siticable), music rights of some movies (through Zee Music) and a theme park (Esselworid) in place. It has recently ventured into publishing and plans to venture into film production apart from introducing a sports channel, a children's channel and a music channel (the last two through a possible tie-up with Viacom which owns MTV and Nickelodeon). Sri Adhikari Brothers, which produced programmes for the state run broadcaster Doordarshan is now setting up its own channel. Sony TV (whose parent owns the movie production and distribution house Columbia Tristar) has also started a bouquet of channels. It is focusing on consumer pull for its quality content that will force a broadcaster to put its channels on its (the broadcaster's) platform.

    A way of looking at this business model is as a wheel. At its hub lies content creation and the spokes are the different ways of distribution/exploiting the content. One reason for this striving for straddling the entire value chain is that changes in technology can change the power relations between the different parts of the business. In the early stage it is the content providers who rule the roost. For example currently every satellite/cable TV operator is trying to buy up the rights of as many existing movies as he possibly can. The bid values for cricket rights for various sports channels has reached astronomical heights.

    The next stage of the value chain is operating the platforms - satellites or cable systems- that deliver programmes directly to people's homes. Rupert Murdoch's successful bidding for football rights in the UK has helped his satellite platform BSkyB dominate the pay television market. Similarly, his Star TV platform, in Asia, is trying to maximise his local language programming and buying up rights to local language movies. Besides, News Corp's sports channel Star Sports has tied up with ESPN (owned by Disney worldwide) to bid for the cricket rights.

    The next propellant in vertical integration of the Indian media industry would start with the lifting of the ban on Direct to Home (DTH) television. This will open up two revenue streams - subscriptions as well as advertisement for the broadcasters themselves. Finally, if uplinking permission is granted to Indian companies, content providers themselves would graduate into setting up a broadcast infrastructure and become full fledged broadcasters. That would mark the second coming for the media industry in India.



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