January 2010

WHERE ARE THE BIG BROADCASTERS !!?

Last month the Economic Times released its version of the Indian ‘Fortune 500’ list of companies.

The ET500 listed the country’s top 500 companies in terms of turnover, profits and market capitalization.

Surprisingly most of the Indian broadcast houses don’t even figure in the list.

The top 5 companies are the same as last year’s list, with IOL, RIL, Tata Steel, BPCL & HPCL.

So we scanned the list of companies in the “Entertainment & Media” category, then eliminated all of those from the print media, and narrowed down to only the broadcast sector.

This industry sector seems to figure way down under…!

The first media company to figure is ZEE Entertainment, at rank no.214. An improvement and a move up from last years rank of 230.

Zee TV achieved a billing of Rs.2,337 crores , almost 20% higher than last year. On this amount the company made a profit of Rs.512 Crores, almost 33% higher than their profit for last year.

SUN TV Network lists at a rank of 393; an improvement over its rank of 424 last year. It reported a sales turnover of Rs.1,106 Crores for the year ended March 2009, 19.4 percent more than last year. Profit for the year is Rs.368 Crores, almost 13 % more than last year.

The third company listed at a rank of 463 is Network 18 Media & Investments, coming in for the first time this year. It was not listed in the top 500 last year. However, even in case of a turnover of Rs. 887 Crores for the year ending March 2009, the company still made a loss of Rs.182 crores;

Of course, Star TV India and Sony-MSM are not listed companies and so they don’t find mention in this list.

While rumors of Sony, now called MSM Discovery India Pvt Ltd, doing an IPO, have been reported in various media for the past several years, it does not seem imminent in the near future.

Star TV of course is pretty content with its existing complex shareholding structure, as well as indicating that it is firmly entrenched as a market leader and does not need outside funding for its activities.

The regional broadcasters such as Asianet, Raj TV, ETV besides others, have lower turnovers – not sufficient to reach the last rank of Rs.805 crores, or are not interested in listing (though there were talks that ETV was soon to offer shares and list with venture capital funds).

In addition, the DTH platforms are the other big guns as potential for figuring in future lists, though not expected to be profitable for many more years to come.

On the ground segment, by the time this issue is printed, DEN will have already listed itself after a public issue to raise funds.

The other MSO intending to go public is the Raheja-owned Hathways Cable & Datacom, which, we are informed, is in the process of carrying out internal studies and meetings to arrive at a valuation.

So what does this mean?

It would seem that the broadcast sector is still a minnow among the various industry sectors.
We seem to hog more airtime and square centimeters in the media crowing about themselves, than the big bucks in the stock markets!

FUTURE COURSE OF ACTION FOR THE INDUSTRY

At the top, there does seem to be more of a churn in the broadcasters organizations than at the ground level with the MSOs.

The heads of all three major broadcast platforms, Zee, Sony & Star have changed in the last 24 months…. Several smaller players have arisen to capture market share in selected segments / programming categories and / or selected territories. So where does this lead the big players?

The potential for income growth within the GEC segment from advertising is close to being maximized, unless the channels can come up with some innovative ideas for new revenue generation (this does not necessarily mean new program ideas alone). Maybe the next round is to provide the same content on the 3G platforms, or to push the government for digital terrestrial television; possibly even a thrust in overseas markets for syndication of the content – theres a huge crowd of South Asians in all parts of the world.

The market is also ripe for niche segments in channels; that is a possibility that the bigger guns can look at.

GROWTH STIMULATORS

With the new HITS policy being announced, it is widely expected that penetration of digital cable will grow in leaps & bounds. This should result in the cable networks being able to get better declarations of connectivity from their LMOs; resulting in (hopefully) larger connectivity declarations and therefore payments to the pay channel broadcasters.

The pay channels in the long term will certainly see their subscription revenues go up. So also the government should see their service tax and entertainment tax collections also increase.

This will also lead to the cable networks being capable of carrying a larger number of channels to their subscribers. May even see the beginning of the end of the ‘carriage fee’ regime…. Or at least a reduction in the trend.

This would then open up avenues to launch the niche channels which are in no position to pay the huge carriage fees demanded by prime cable networks & MSOs currently.

Of course, a lot is dependent on how much money is raised by the largest of the MSOs …. and some of the new & upcoming ones.

On the ground segment, currently scouting for funds is Hathways, Digicable, DEN and a few of the regional MSOs. Hopefully, the listing of these companies on the stock exchanges will bring in a greater degree of transparency in their dealing and their financials. For example, it is a well known fact that most MSOs accept the carriage fee not in their principal company’s name, but in some other ancillary company of financial vehicle. The carriage fee represents a substantial part of the income of any MSO. Thus the bottom line may / may not reflect the actual carriage fee collected annually. The cable networks will have to add to the bottomline to show substantial growth of their incomes.

This however is unlikely to happen since the cash cows are closely held and funds ‘adjusted’ over the several companies / organization owned by the promoters. This has got to change. The ground segment still has a long way to go to professionalise operations and carry out the exercise to provide accurate connectivity reports.

IN CONCLUSION

In all likelihood, there are several companies in the satellite & cable sector that are over the 800 crore turnover figures. However, being closely held, or family owned, these companies do not necessarily provide for full declarations of their incomes.

Or in some cases they do have the turnover, but are simply not bothered about listing or publicizing the same.

In case these companies decide to do so, this ET500 list would see a major change!! n