TV General Entertainment Channels (GEC) are a high stakes play, demanding deep pockets & large reserves. Cricket content is now, by far the most expensive content to purchase for television, in India. A combination of the two, has put immense financial strain on one of India's leading television broadcasters - Sony Entertainment Television India (SET India).
Years ago, Sony Entertainment had - in an innovative move - combined Prime Cricket, presented in an entertaining way. The formula was a huge success. In 2003, Sony bid & won the satellite rights for telecasting two World Cup tournaments with a $250 million (Rs 1,000 Crore) offer.
The SET India-World Sports Consortium Won The IPL Rights For $1.026 billion (Rs 4,000 Crore). |
This time around, when SET India went shopping for cricket rights, the price of cricket rights had sky-rocketed. In 2007, the SET India-World Sports consortium won the telecast rights of the Indian Premier League, the twenty20 cricket tournament for $1.026 billion (around Rs 4,000 crore), which includes $108 million (Rs 432 Crore) for compulsory promotional spends, for 10 years.
This offer requires SET India to pay $50 million (Rs 200 Crore) as dues for the Cricket World Cup, in Financial Year 2008. This amount is to be paid before revenues flow in, against advertisement space and utilisation of these rights. As a result, SET India is under severe financial strain. The broadcaster is expected to show a negative cash flow of $50 million (Rs 200 Crore) in FY08.
This ofcourse does not mean that SET India is not doing well - just that finances are getting to be a short-term strain.
In FY 2008, SET India Will Have
To Pay Rs 200 Crores For
The Cricket World Cup Rights |
SET INDIA'S VALUATIONS
SET India reportedly was valued at close to US $ 2 Billion, several years ago, when the 5 individual promoter-stakeholders wanted to float a public issue. Sony Corp refused.
A couple of years later, a second similar unsuccessful attempt was made. SET India was then believed to have been valued at US $ 1500 Million.
Currently, SET India is valued at US $ 800 Million, and Sony Corp has still stone-walled a issue.
MOUNTING DEBT
In the last three years, SET India's debt burden has been rising. Its debt has increased by 44.89% i.e. to $71 million (Rs 284 Crore) in 2007-08 from $49 million (Rs 196 Crore) in 2006-05. Its debt in 2005-06 was $37 million (Rs 148 Crore).
The debt-equity ratio has deteriorated to 16.64 in 2007-08 from 1.17 in 2006-07 and 0.79 in 2005-06. Kunal Dasgupta, CEO of SET India, said once additional capital was infused, the financial health would improve, he added.
SET India owns and operates Hindi general entertainment channels SET, SET MAX, SET PIX & Sab TV among others.
LARGE TAX LIABILITY ?
Besides the large borrowings, the Indian Income Tax department has filed a claims for Income Tax of around Rs 100 Crores ( US $ 25 million) for SET Singapore's activities. SET India has taken a stand ( as have STAR TV and others ) that ads were booked by SET Singapore - a foreign company, and therefore could not be taxed in India. The Tax department's counter claim is that the business was booked and ads delivered to Indian audiences, and therefore are subject to Indian taxes.
CAPITAL NEEDED
Borrowing money for its operations, against only a small paid up share capital, has eroded SET India's net to $4 million (Rs 16 Crore) as on March 31, 2007.
With loans mounting, the financial ratios on SET India's balance sheet look bad. the company badly needs additional capital to fund and grow its operations. Its board of directors met in November last and recommended an additional equity contribution of $40 million (Rs 160 Crore) by shareholders.
However, majority stake holder SONY Corp and the 5 individual private investors have been at loggerheads for more than 5 years.
REFUSAL BY INDIVIDUAL PROMOTERS
Readers will recall that the international electronics mega-corp. Sony (who holds a 68.33% stake) has refused to let the 5 individual private investors sell their stake or to take SET India public. As a result, the private investors have been locked in with no option to cash in their chips. Given their limited personal financial capacity, and the absence of an exit clause, these investors have, in the past refused to contribute additional capital, corresponding to their 31.67% stake, in SET India.
The individual promoters have - even in the past - refused to contribute fresh capital. They have termed the capital calls a breach of the agreements signed between Sony and them in March & December 2005.
In March 2005, the two parties signed an agreement that as a result of the acquisition of SAB TV, the 5 individual investors would not be required to make any capital contribution. Any shortfall would be funded by loans only.
A similar agreement was signed in December 2005 when PIX TV was launched.
RECENT SETTLEMENT
In February 2008, when Sony Corp. once again asked for capital infusion to improve SET India's debt/equity ratio, the private investors once again refused and the matter went to the Bombay High Court. The 5 investors filed the suit, appearing as 2 companies - - Atlas Equifin and Grandway Global Holdings - who hold a combined 31.67% stake.
In late March, the matter seems to have been settled amicably, out of court with the minority shareholders. Atlas Equifin and Grandway Global Holdings agreed to pay additional capital. Following this submission, the court disposed of the petition. However, what Sony Corp agreed in return, as settlement with the 2 companies is unknown. Could Sony have agreed to provide some exit clause to them ? n
