"Our focus clearly is to be a very strong Pan Asian content provider." - Views on News from Equitymaster

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  • May 18, 2000 - "Our focus clearly is to be a very strong Pan Asian content provider."

"Our focus clearly is to be a very strong Pan Asian content provider."

May 18, 2000

Ronnie Screwvala pioneered India's first cable television operation way back in 1981 when there was no multi-channel environment and the national broadcaster monopolised the air. Long before anyone in Asia thought it economically feasible or logistically probable he founded United Studios, South Asia's premier studio and animation complex. He also pioneered home-shopping in India with Tele-Shopping Network. At present, he is the Chairman of the UTV (United Television) group of companies. Founded in 1990, within a span of just ten years the company has grown into a Pan Asian media company.

In an interview to equitymaster, Ronnie Screwvala, Chairman, UTV, explained UTV's businesses, spoke of the trends in the cable television and elaborated his vision for UTV.

EQM: You are perceived as a content driven company. How correct is that assessment?

Mr. Screwvala:UTV is one of the six companies in the media group. But we operate under the brand name of UTV. UTV India is in the business of content. When I say content most people take it to mean television content, but television content is just one aspect of our business. We are one of the larger ad filmmakers of the country. We do airline in-flight programming with 24 international airlines. We dub for Disney, Discovery; we do live events; we do motion picture distribution. So that entire activity is what we call allied content. So that's a lot more than just TV content that goes into the content business. So that's UTV.

The second company that we have is a company called USL i.e. United Studios. They are in the post-production and the hardware business. We've made substantial investment in the postproduction and hardware studios, special effects, computer graphics facilities and the animation business where we've set up a large animation infrastructure. We have now around 300 animators in our facilities in Andheri doing work mostly for the export market, weekly. We have contracts and co-productions with people like Fox and other US and Canadian animation companies.

The third activity is UTV Singapore and UTV Malaysia. That is really in the content game again. Exactly what UTV India does in India, these companies do in Singapore and Malaysia but very local. We have a Chinese CEO there. We produce in Malaybahar, Mandarin, English and a little bit in Tamil but a bulk is in the first three languages.

Because we are so strong in the content play we decided that we need to get into a pipeline. So we've acquired a Tamil channel called Vijay TV, which is our pipeline play. Now essentially why Vijay TV? It's more like, why Tamil?

The question is that we wanted get into the pipeline business. We cannot be a significant content producer and only be on contract basis with most satellite channels. IPR (Intellectual Property Rights) is very critical for us. And I think (for a) Hindi (channel) requires deep pockets because there are three well-entrenched players there with huge budgets for brand building. Besides most of the mainline broadcasters in Hindi are actually our clients. So for us to take that course didn't make much sense. So we've taken the regional language and the niche channel route. And Tamil language being the second largest market outside of Hindi was really the motivation for us. The second is that we wanted to acquire because starting a channel would have taken us two more years. So what we've done by acquiring a channel which wasn't that popular, because it wasn't showing too much content, was that we've saved two years for getting into broadcasting.

So our focus primarily is on content and on the pipeline leading to that content. And to us Vijay TV is a pipeline, then whatever we do in niche channel/regional channel is a pipeline, even our channel in-flight programming that we do is a pipeline. But all pipelines connected with content. We don't see ourselves as being an ISP provider or investing in bandwidth cabling in any country. So that would be our overall focus.

EQM: When you invest in content your investment is (say) x, your investment in the pipeline would be...

Mr. Screwvala:It would be 300x.

EQM: And what would be the returns (the Return on Equity) that you get from a pipeline versus the returns you get on development of content?

Mr. Screwvala:When I said 300x that would be the cost, if I were (say) a Siticable and laying the cabling. When I'm a satellite broadcaster my pipeline costs are not that much, since they have their own revenue streams of a different nature. Broadcasting is a different revenue game altogether.

EQM: But it would still require money to invest in a pipeline than it would if you were to develop content only. So are the returns equivalent or are you laying down a pipeline to ensure that the content reaches people?

Mr. Screwvala:It has to be both. It can't be such a content driven game to support a pipeline based on that. Our broadcasting venture Vijay TV has to be profitable on its own merit. It can be so, after two years since it requires that much time to get the connectivity right.

EQM: Zee has estimated revenues of Rs 250 per home per month offering a bouquet of channels and Internet access. There are two other distribution trolleys possibly looking at similar realisations. Do you think that these estimates are workable?

Mr. Screwvala:I think that upto Rs 400 per home per month is workable overall in the Indian context but there will be a huge gap. Cable TV started in 1981 in India and we provided the first cable connection in India. We charged Rs 200 per home at that time and we were offering one channel optional for three hours a day and over the last 20 years cable rates today have come to an average of Rs 150-175 per month per home, multiple channels, multiple services. In the same period cable rates in the US per home have gone up from $2 per home per month to around $ 19.99 per month. This has happened because after it proliferated and it crossed municipal roads there was no legality to the situation. So cable operators consider whatever they are getting as revenue because they do not have a pay out. They don't have a license and they don't have exclusivity and so if they raise the rates the consumers or the society can throw them out of the building and somebody else can come in. So having no legitimacy is the cost thatcable operators have had to pay and now they will be under pressure as and when a pay model comes. And after twenty years, asking a consumer to pay Rs 400 per month is going to be tough.

It is not just going to work that easily also because people are not going to buy only one bouquet to the exclusion of others. So people have to attune themselves to atleast two bouquets. Not four, not three but atleast two. So then you're looking at a figure of 400-500 per home per month. Some consolidation will happen and it is possible that people could choose to have something like three channels per bouquet.

EQM: What is your vision for UTV five year's down the line?

Mr. Screwvala:Our focus clearly is to be a very very strong Pan Asian content provider. And by that very nature of being a Pan Asian content provider, to be a global company. We feel that the high growth areas are going to come there. Because definitely if I am a serious programmer or one of the largest providers in Hindi and Mandarin, that, without getting into cliches, reaches about half of humanity. And that's where the real growth would come in. So those core strengths are what people from overseas (the Western people) are going to look for and for us to be a strong provider here in a sense makes us a global company.

I don't think they (the westerners) are going to translate their learning lessons here. They are so used to making television serials for half a million or a million dollars, in these markets you have to make them within 25,000-30,000 dollars. By the time four people come here, camp here for four days and figure out how to go about that they would have finished their 25,000 dollars.

EQM: Star Asia has not yet being doing well, monetarily, ever since it was set up. It's been losing cash...

Mr. Screwvala:I think this year they will break even. They've had some expensive learning lessons all of which they have definitely captured and corrected now. They've invested a lot in China and China's been on a roller-coaster...

EQM: ...Is it possible for UTV to buyout Star Asia?

Mr. Screwvala:Given the fact that even Cable and Wireless could be acquired, anything is possible. But to answer your question, I would say no, it's not possible. Star has a strong business model, distribution and branding. And the entry fees that they have paid will be valued now.

EQM: What would be the most important problem that your company would face in achieving your vision?

Mr. Screwvala:I think breaking into the Mandarin market and actually trained personnel in this industry. So, while we are all pioneering at some stage we have to be able to bring in a lot of professionalism and a lot of trained talent into this industry. So the ramp up that we expect in these areas may not happen if there are no trained people. Because the old people who are in the media, it will take them two to three years to change their mindset. The new people who come into the media sector are going to bring their own baggage. They would have to do their own adaptation to the media industry. So, essentially, what Hollywood and the US tried to do over thirty years we are trying to do that within three or four years. Whatever is the result of that is going to the biggest challenge, not just as a company but as an industry.

The third for us is that I find myself trying to build on a global basis that I have to first market India and then to market UTV. There would be many industries where this would be prevalent but here it's more because it's so people driven across the board. Take animation for example, to convince the US companies to do animation in India when they've been doing it for ten years in Korea, Philippines and Taiwan is a huge challenge.

So, you have to sell India as a destination. If you don't do that, you're not going to become a global company. It is a key challenge for us.

EQM: A comment on the IPO madness in the industry, the present market correction and the impact on your own IPO plans...

Mr. Screwvala:We are filing our prospectus by May 30th or June 6th the latest and then we go with an IPO. It could be either in the third week of June or the second week of July. In my view the present correction is positive in two aspects.

First, it would slowdown some of the entrants coming in. I know that all the 50 media companies want to still come in to the market. Now, whether they will or whether they can will be a question mark. My concern is that with Rs 100 bn coming to the media industry over the next two years, most of the people won't know how to handle that. They won't have the corporate governance in place. Most of the companies would go for topline growth rather than bottomline growth because they'll be given two years of free lunch since they would be considered to be in an investment mode. For a mature company that puts incredible pressure since they'll pay insane prices, everything they are bidding for will go berserk whether its sports rights or radio/FM since they would want that as part of their market cap story.

Second, would be the problem for the management to match upto the shareholder expectations because what they are giving you as P/E today is based on two year future multiples and obviously no one would be able to live upto those multiples that are being accorded to them.

So these are the two positives of the recent market correction. The negative is that obviously we'll have our own challenge when we go out for our IPO.

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