• JUNE 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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