Stripped version of media IPO norms likely - Views on News from Equitymaster

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Stripped version of media IPO norms likely

Apr 7, 2000

The Securities and Exchange Board of India (SEBI) is likely to exempt media companies from the compulsion of diluting 25% of their equity for a stock exchange listing. The fact is that most media companies are producers, producing content for the various television channels and want to ride on the media boom. They donít require more than Rs 500 m from the capital market for their business and the SEBI rule would in all probability lower their returns since at present, they do not have outlets for deploying their funds.

Media companies can be divided into two main segments: content providers and broadcasters. As far as content companies are concerned the single biggest asset is the creative element. The next is to be able to market the product either through the air time route or through the syndication and distribution or licensing route where brand equity and a successful track record plays an important role. In these areas the entry barriers are tremendously high because acceptance of a product from a new producer is very low. However the most important factor is the cost management side. Costs depend how much on time can the content company can deliver its product and how effective is its 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 for content companies.

On the other hand are well established broadcasters such as Sony and Star TV who are capable of attracting funds at a high premium and would not like to dilute more equity than they need to. 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 make a lot of money but the big money is always made by a broadcaster who aggregates content from various services both his 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.

This is a much tougher business but yields higher returns too. In India, however, the subscription based business model (as against an advertising based business model) would take some time since here the cable operators (who on an average collect Rs 20 bn from 20 m cable homes annually) understate the actual number of subscribers and do not pay the channel owners the full proceeds.

Hence, it would be important for investors to judge each issue on its merits since it is unlikely that the 40 odd media companies that are to approach the capital market, would emerge as key players in this industry. For a detailed exposition on the media industry read Mr. Thawani's interview

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