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The dazzle of entertainment IPOs - Views on News from Equitymaster
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  • Jun 26, 2000

    The dazzle of entertainment IPOs

    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.

    Company Business IPO Plans (Rs bn) Reputation of the
    Sun TV Broadcaster 8.0 Visionary Mgt Good Very High
    Udaya TV Broadcaster 5.0 Taken over by the Sun TV group Good High
    Gemini TV Broadcaster 5.0 Taken over by the Sun TV group Good High
    Broadcast Worldwide Broadcaster 1.0 Dynamic, Rathikant Basu headed DD and Star earlier New venture Fair
    NDTV Content provider 4.0 Decent management Good Very High
    Creative Eye Content provider 0.8 Decent management Good High
    Magnasound Music NA Unknown management Unknown Fair
    Sagar Entertainment Content provider 0.5 Unknown management Good Fair
    Nimbus Entertainment Channel 2.0 Consolidated group cos accounts last year OK Fair
    UTV Channel+Content 2.0 Visionary Mgt; diversified revenue stream Good Very High
    Sony Broadcaster 25.0 Dynamic Management Very good Very High
    Modi Entertainment Distributor 1.0 Reputation coloured by group's past performance Unknown Low
    Indus Ind Media Cable operator 3.5 Reputation coloured by group's past performance Unknown Low
    Tips Industries Music 0.2 Reputation coloured by group's past performance Unknown Low
    Mukta Arts Content provider 1.0 Good, but lumpy revenue stream Good Fair
    Eenadu TV Broadcaster NA Ramoji Rao is a well known media baron in the South Good High
    Pritish Nandy Comm. Content provider NA Unknown management Unknown Low
    Tabassum International Content provider 0.1 Unknown management Unknown Low
    Star TV Broadcaster NA Rupert Murdoch's Indian Affliate Wiped out losses Very High
    Total IPO size 59.0      
    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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