Three to four year's back the media sector was in the doldrums. Those companies, which were supposed to be bankrupt, are now the high flyers. What do you think has changed over this period, the business or the valuations?
I am not sure that I agree the bankrupt companies are the same companies that are now the high flyers. There were four major collapses in the electronic media sector Home TV, BITV, Plus Channel and ABCL. They are the four most high profile collapses. I don't think these are the high flyers today. That part of the question I don't agree.
Where I do agree with you is that there are lots of companies that are emerging and there are various figures being touted of around 30 to 50 issues from media companies going to the market. The point is, are there 30 to 50 key players. The answer is No there aren't. But if you go back to the old adage that while the company managements may become irresponsible and reckless in their efforts to raise capital, at the end of the day if the investor is willing to give his/her money who's to blame?
There are pitfalls in this industry as there are in any other industry but because the media controls the media not too much perception about the pitfalls get highlighted.
The FICCI study has estimated the size of the entertainment industry at Rs 650,000 m. Three years ago also we were in a multi-channel era with the industry poised for a big growth. The market doesn't seem to have changed…
No, the market has changed. There are several significant changes that have taken place. In the last one year the regulatory framework has become a very encouraging one. The monopoly of the state on uplinking from India was dismantled. The monopoly of the state on radio broadcasting has been dismantled. The monopoly of the state on Internet access has been dismantled.
The monopoly of the state on Internet gateways has been dismantled. Now that's four monopolies freed in the four subsectors of the industry. Private sector investments are happening here. Along with that the motion picture and television content industry was given industry status. That has become more organised than it was a year ago. Bank finance is available, insurance is available. Last but not least the big one is expected, the Broadcasting Bill. That is going to be such an enormous catalyst of change for the broadcasting business that it is difficult to forecast what might happen. But three years back the most significant thing that was not there was the possibility of converging your product across platforms. And convergence, while in India is still a valuation game, in the US we can see it becoming a reality from a consumer's point of view.
As soon as products roll out which truly bring the benefits of convergence whether its streaming video over broadband on the Internet, or interactive moving content or moving content-cum data-cum e-comm applications I think things are going to be very different and I think smart companies are building in that direction. The dumb ones continue to say we are producers and I can't understand why producers need Rs 500-600 m.
How would you describe your own core business?
Our core business has hitherto been content. We produce programming in eleven or twelve genres across twelve different networks. Currently we have 70 hours of original programming per month, which is being aired on various networks for most of which we continue to hold library rights ourselves. I don't think there is any content company that comes close to us in the number of genres we offer the volume of programming we generate and the number of customers we have. We also operate in seven different languages. We are ramping up our content at the rate of 10 additional hours per month. It may sound very small but to give you an example, at 100 hours per month, which we will hit by June, we would be the world's largest television company by content in volumes. In terms of value there is no comparison between the European, American and Indian markets since those values are hundred times bigger than ours. By sheer volumes currently, the largest company in the world in the production/distribution is King World, which has 75 hours of original programming per month.
Obviously, the next focus is to improve the realisations. As a content company we have extended our skills now to the Internet. We've launched Nirvanazone.com, which will serve as a hub for our satellite portals, all of which will go up by June this year. Besides, we've also started producing motion pictures.
Really the big move for us is that we are moving from content to delivery. Showbiz TV is our first launch, which will be in the second quarter of this fiscal. And will be followed two quarters later by women's focus channel the branding for which is not yet finalised. Showbiz TV is the brand and the trademark channel for our first offering. We've also secured letters of intent for the three biggest markets for the FM radio stations, Mumbai, Delhi, Chennai and we've got an option to pick up a stake in Bangalore, Hyderabad, and Pune in somebody else's stations. So we will control a group of stations which will work very closely with the Nirvanazone culture. So our content convergence largely is in the television, radio, Internet sectors. Our content on other platforms will however, not be in the convergence model. Showbiz TV will infact be beaten in its launch by our own portal with a focus on showbiz.
Your company has graduated from being an air time seller to a content provider to a broadcaster. What is the key driver in each of these three businesses?
The key driver in the air time sales business is management, management and management. To articulate that in a more detailed manner, it's an analysis driven business. The ability to choose the right programmes, the channels, the time slots, and the deal structure determine the success in the air time sales business.
In content the single biggest asset is the creative element. Then there comes the ability to access the talent. Brand equity is very important for these two. The third is to be able to market the product either through the air time route or through the syndication and distribution or licensing route where again brand equity and a successful track record plays an important role. (Syndication is the American business model where a content provider runs his content across different networks either by dubbing it and reselling it or by altering the format. It is the ability to create multiple windows for the same product.) In these three areas the entry barriers are tremendously high because acceptance of a product from a new producer is very low. The fourth factor is the cost management side. Costs depend how much on time can you deliver your product and how effective is your budgeting and reporting system. Most companies that have collapsed in this sector have done so either been due to underachieving on the revenue side like Plus Channel and ABCL and at the same time going overboard on the cost side. Both are the dangers. It sounds easy when you have one programme but when you do 100 hours of programming a month across four different production centres it requires an automated system. It took us two and a half years for building those systems.
Broadcasting is really a combination of content aggregation, distribution and airtime skills. In the value chain of the television industry, there is a content company at the bottom; above content is the broadcaster. The content companies makes lot of money but the big money is always made by a broadcaster who aggregates content from various services both your own and from outside, brands it, creates a niche for himself and then ensures successful distribution on the ground and successful advertising and subscription sales. The next stage is to aggregate broadcast services and becoming a platform owner which is what News Corp (Star TV network) is and what Zee aims to be.
We don't have a desire to be a platform owner. We are moving up the value chain from being a content provider to being a broadcaster. We will hitch our bandwagon to one of these platform owners. Our channels don't compete with any of these channels. Our Showbiz channel will be showing the news, features, personalities, and celebrities in the space of movies, television, fashion, cricket etc. We are to the television world what Stardust or Cine Blitz plus Cricket Week are to the print medium.
Abroad almost 70% of the channel's revenue accrues from subscriber fees and only 30% from advertisements. In India the problem is that cable operators don't seem to pay the channel operators their dues despite collecting almost Rs 1200 from each subscriber annually. (This works out to Rs 20 bn for 20 m cable homes around the country.) How will you tackle this problem?
Two things are beginning to change, one is the under reporting of number of subscribers by cable operators has diminished. We have deep admiration for Modi Entertainment Television (the distributors for ESPN). They really founded the subscription TV model. They have now a declaration of 8 million homes from cable operators, the truth may be 14-15 million homes but to get it to 8 million is pretty good.
The two things that are beginning to change from here onwards is that there is definitely DTH (Direct to Home) on the horizon. How close is that horizon we don't know. But we want to be the first of the blocks to try and grab the DTH opportunities.
Second, the Broadcast bill is definitely very close on the horizon. Once the broadcast bill is in, then the regulatory framework will allow the installation the set top boxes, which means that your cable operator stops being a gatekeeper. Then the user addressability allows you to determine how many customers are buying your product. How much are they paying you. The broadcaster is doing the deal directly; the cable operator is a mere distributor who gets a commission out of that.
I spoke about this at the FICCI conference that an industry that requires by the end of this year around Rs 40 bn to sustain itself, the revenue model currently yields Rs 23.60 bn, with Rs 20 bn coming from advertisement, the balance from subscription TV. The cable industry has got Rs 25 bn to Rs 30 bn but only Rs 3.60 bn comes into the hands of the channel owners. That share is beginning to change.
Definitely, in a year's time we will find set top boxes in. Now theoretically, prices will move up. Practically, we don't know how much. But we've seen this time and time again that once set top boxes are in the broadcaster ramps up prices. And he deserves it. This is the only country in the world where a customer gets 80-90 channels and pays around Rs 150 as charges i.e. Rs 1.50 per channel. Zee in the UK retails at £ 11.99 per month i.e. Rs 900 per month. Obviously, the Rs 1.50 per channel per month will become Rs 10. What will the consumer do? Today he gets all 80-90 channels whether he wants them or not. Tomorrow he may opt for only 20 channels. So suddenly the pie becomes Rs 10 per channel.
We are aiming at Rs 4, which is underwritten by Modi in their distribution contract with us. At three million homes. That's when we start making profits. We are forecasting a 50:50 split between advertising and subscription.