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The dazzle of entertainment IPOs

Jun 26, 2000

With the primary market boom well and truly on, media IPOs, which had earlier been deferred are back with a bang. Almost Rs 60 bn is to be wrapped up by various media companies planning their IPOs.

CompanyBusinessIPO Plans (Rs bn)Reputation of the
Sun TVBroadcaster8.0Visionary MgtGoodVery High
Udaya TVBroadcaster5.0Taken over by the Sun TV groupGoodHigh
Gemini TVBroadcaster5.0Taken over by the Sun TV groupGoodHigh
Broadcast WorldwideBroadcaster1.0Dynamic, Rathikant Basu headed DD and Star earlier New ventureFair
NDTVContent provider4.0Decent managementGoodVery High
Creative EyeContent provider0.8Decent managementGoodHigh
MagnasoundMusicNAUnknown managementUnknownFair
Sagar EntertainmentContent provider0.5Unknown managementGoodFair
Nimbus EntertainmentChannel2.0Consolidated group cos accounts last year OKFair
UTVChannel+Content2.0Visionary Mgt; diversified revenue streamGoodVery High
SonyBroadcaster25.0Dynamic ManagementVery goodVery High
Modi EntertainmentDistributor1.0Reputation coloured by group's past performanceUnknownLow
Indus Ind MediaCable operator3.5Reputation coloured by group's past performanceUnknownLow
Tips IndustriesMusic0.2Reputation coloured by group's past performanceUnknownLow
Mukta Arts Content provider1.0Good, but lumpy revenue streamGoodFair
Eenadu TVBroadcasterNARamoji Rao is a well known media baron in the SouthGoodHigh
Pritish Nandy Comm.Content providerNAUnknown managementUnknownLow
Tabassum InternationalContent provider0.1Unknown managementUnknownLow
Star TVBroadcasterNARupert Murdoch's Indian AffliateWiped out lossesVery High
Total IPO size59.0   
NOTE: This is not based on meetings with companies

Most of them are mere content companies who are having a good time as a result of a surfeit of channels looking out for content. However, it must be kept in mind that over the longer run it is the broadcaster and pay channels, which make the most money, not the content provider.

This is because the entry barriers for a new content provider to enter the field are quite low and hence over a period of time the margins get eroded. For the broadcaster, the initial entry barriers themselves are quite high.

First, off course is the cost of the leasing the transponder (which carries one or at best two channels) which works out to Rs 10 m pa. And mind you, this is a recurring expenditure. Second, is the cost of the setting up the uplinking facility, which allows the broadcaster connect to the satellite. Third, is the cost of setting up pre-production (scripting, casting, planning etc) and post-production facilities (dubbing, editing titling, effects).

Thus overall start up investments of anywhere around US $ 55-60 m (Rs 25 bn) are required over three years for setting up a broadcasting facility. And if one intends to become a platform owner the size of the investments could easily double. Hence it makes sense to stick to IPOs of the broadcasters such as Sun TV, Sony and Star TV who have already put their broadcast networks in place. Even internationally, there are six studios Disney, Time Warner, News Corp, Bertelsmann, Universal and Viacom which dominate the media sector.

In case of content providers one should watch out for accounting policies especially those pertaining to the write off of production costs and telecast fees apart from the fact whether the content provider continues to hold the copy rights of his content even after the first telecast.

Even in the past we've seen ICE stocks melt quickly. The current IPO boom promises to be no different.

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