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Media:Fragmented ad revenues?

Dec 3, 2007

The Hindi general entertainment channel space (GEC) currently comprises of Star Plus, Zee TV, Sony, Sahara One, SAB TV and Star One. In 2QFY08, Star Plus had a market share of 33%, Zee TV- 30%, Sony- 14% (source: Zee Entertainment Q2FY08 earnings call transcript). The other players had lesser share of the pie. Entry of new players
The Hindi GEC space would now get intensely competitive with the entry of NDTV, INX Media, UTV, Viacom 18 and the launch of another channel by Zee Entertainment ('Zee Next'). INX Media has already launched its channel and NDTV plans to do so by January 2008. 'Zee Next' is expected to be launched by the end of this calendar year. The other broadcasters are also expected to make a foray within the next 6 months.

NDTV: NDTV's channel 'NDTV Imagine' is headed by Samir Nair, the former CEO of Star Entertainment India who is credited with the success of the programme 'KBC' and making Star Plus the leading GEC in India. Some other key personnel of Star India have also joined NDTV in key departments of this channel. 'NDTV Imagine' has partnered with Karan Johar's Dharma productions for this venture. Karan Johar has picked up an equity stake in this subsidiary and his company will produce shows for 'NDTV imagine'. It has tied up with various leading content providers such as Balaji Telefilms for this entertainment channel. NDTV is also well funded as it has raised US$ 120 m by diluting 24% stake in its subsidiary for its new businesses. Thus the chances of success of this channel are pretty high.

INX Media: INX Media is promoted by Peter Mukerjea, the former Star TV CEO who played a key role in the success of Star Plus. Achieving high levels of distribution is essential for the success of any channel. As per news reports, INX Media plans to achieve a cable and satellite household penetration of 30 m (about 42% of the total C&S homes) in the first three months of the launch of its channel. This would also help INX Media command higher advertising rates. The INX distribution team has made attractive financial offers to leading cable operators and MSOs for carrying the two channels in the prime band. In terms of content it has tied up with Balaji Telefilms and Smriti Irani's production house. INX is expected to make a major dent in the market share of the existing players.

Other new entrants: The other players UTV and Viacom - TV 18 have already proved themselves in broadcasting arena and even they could turn out to be forces to reckon with in the Hindi GEC space.

Viewership and ad revenue fragmentation: Currently the Hindi GEC advertising market is approximately Rs 2 bn and it is expected to witness a CAGR of 15% in the next 5 years. The entry of more channels may lead to an increase in the share of viewership of GEC genre among all the channel genres, but its share of revenues may decline. We derive this opinion based on the observation of a similar trend in news channels genre from 2003 to 2005 where their share of viewership increased due to the launch of new news channels but their share of revenues declined. The new players would start selling ad spots at lower rates, which would force the existing players also to cut their rates. Thus the entry of so many strong players could lead to a fragmentation in market shares and consequently a fragmentation in advertisement revenues

Source: FICCI PWC report on the Indian E&M sector

Not all is lost
The rollout of CAS and better off take of DTH services would significantly increase the existing subscription revenues of the broadcasters enabling the survival of more players in the Hindi GEC space. The share of the broadcasters in the total subscription revenues would increase from 15% to 45% and the ARPU's would also increase significantly as they are very low compared to developing and developed countries. In the media industry, the leader gets a disproportionate share of advertisement revenues. Thus channels with a lower viewership share may find it difficult to sustain their operations. Most of the content beamed on Hindi GEC is of the family soaps variety, which would increase the demand for such content leading to a demand supply mismatch. Thus the broadcasters' content cost would also increase. Besides, the existing channels garner significant domestic subscription revenues whereas the new channels would pay high carriage fees to the distributors for ensuring the distribution of their channel. The new players would also face significant challenges in attracting and retaining quality talent.

To conclude
We feel that that more players can exist in the Hindi GEC space only when CAS is rolled out successfully throughout the country. Pan India rollout of CAS would substantially increase the subscription revenues of the broadcasters reducing their dependence on advertisement revenues. Any delay in the rollout of CAS could spell trouble for the Hindi general entertainment channels as advertisement revenues could get fragmented in the future.

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