The focus of the company now is to bring together all its different verticals and combine the goals of each brand with the larger goals of the organization, says CEO B Saikumar
It seems Network18’s expansion phase is over, at least for now. And the operating focus for the company at the moment, and for some time to come, is consolidation with an enhanced focus on profitability. The move comes on the back of a simple thought process: Over the years, Network18 has entered different domains, built various relationships and invested significantly in the process. It is now time to monetize. Perhaps an apt description of the company at present would be Network18 3.0, not because it sounds sexy but because this is indeed the third wind for the media major.
‘Our priority has to be the shareholder’
Group Restructured To Focus On Growth
It seems Network18’s expansion phase is over, at least for now. And the operating focus for the company at the moment, and for some time to come, is consolidation with an enhanced focus on profitability. The move comes on the back of a simple thought process: Over the years, Network18 has entered different domains, built various relationships and invested significantly in the process. It is now time to monetize. Perhaps an apt description of the company at present would be Network18 3.0, not because it sounds sexy but because this is indeed the third wind for the media major.
Charting the road ahead is the newly appointed Group Chief Executive Officer, 38 year old B Saikumar.
In a manner of speaking, Network18 1.0 was the launch phase as a production house back in the nineties that included the company’s venture into broadcast with CNBC-TV18. Up to 2005, various efforts in the news and related domains kept Network18 a company to watch out for. The expansion drive of 2005, across media domains including the Hindi general entertainment genre, marked Network18 2.0. But the company paid a heavy price for the expansion and accrued substantial debts that had a direct, and negative, impact on the financial health of the company. Now Network18 has laid out a well thought through plan on not only ridding the company of this debt but also making investor-friendly moves again. The first development in the course of Network18 3.0 is Network18’s and sibling company TV18’s Rights Issue.
A Clear Defined Rights Issue
For Network18, the rights issues have a two-way purpose. First is completion of the transaction with the recently announced acquisition deal with Eenadu, which would ensure that sans sports, Network18 had its tentacles across key genres on television. Second is the paying off of debts of both Network18 and TV18, that would save the company a substantial amount that is being paid by way of interest.
The rights issues, essentially designed with the objective to reward investors who have backed the Network18 Group for all these years (much of which can be termed as a tough period), have been approved and announced. While the funds that would be generated by the TV18 rights offering would be used towards completing the ETV Group transaction, the funds raised from both Network18 and TV18 would also be used to clear off the debts.
While consolidation seems like a good objective, there is much that Network18 has done in the past that will come in play for the future as well, if the company has to ensure that it achieves the targets it sets out for itself from here on.
Making Sense of the Maze
Network18’s evolution history is such that the best route for it was to create multiple companies within the company. In the process, Network18 itself became a holding company for different companies including the joint ventures it is in. From a one channel, one portal in mid 2000, the company is today spread across multiple portals and across verticals in the media space. From broadcast to print to digital (and even businesses that sit on these businesses), the company has grown organically, inorganically and even innovatively. In this phase, the company changed its brief to focus on expansion, which at times came at the cost of profitability. The company went about this by strategically partnering with multiple media organizations, many of which compete with one another in their home country, each a global leader in its respective domain. With this, the company was able to use and leverage the partner’s global brand strength and appeal.
According to Saikumar, the route chosen by the company was the best possible way for it to grow in broadcast and then in the other spheres of the media space. Indeed, in the Indian broadcast space, it’s clear that the big three networks sealed their space almost 15 years back. The trek to make it to this club is long and arduous and many have tried and failed. However, Network 18 has made it here. And notably, it has made this journey by building leadership positions in business news, general news, entertainment, youth, kids and most recently, in factual entertainment.
Network18 has a strong presence in the digital and print space too. And the biggest challenge for the Network18 CEO will be to ensure a seamless integration between the various entities of the group.
Required Focus on Synergies & Consolidation
The guiding principle that Network18 has followed so far is to have operating control across ventures that it calls its core interest areas. Saikumar asserts that the focus of the company is now to bring together all the different verticals which have hitherto acted independently and combine the goals of a brand within the group with the larger goals of the organization. Saikumar says, “What the network does to stitch it all together is a challenge. You need to balance the brands’ goals and the network’s goals but that challenge is irrespective of equity ownership. I would be delighted to know that people come to work worrying and dreaming about the brands they work for, but after a certain level of seniority, they also need to start thinking ‘Network’ because strategically that’s the right thing to do.”
What needs to be seen is whether the company is able to combine the strength of its various brands and use it effectively to increase its revenue stream.
The role of Network18’s leadership team, that’s working along with Saikumar, will also be critical in building the ‘3.0’ phase of the company. Saikumar clarifies that though the network is vast, “there is one binding theme today which is consolidation and profitability”.
This dedicated focus on consolidation is required at the moment because one constant allegation against Network18 is that it has been a spends-heavy company, popularly quoted example in that being the group’s Hindi general entertainment channel (GEC) Colors. With the primary focus being garnering eyeballs, the strategy adopted meant having a line-up of non-fiction and reality shows with Bollywood stars, which while helping the channel get the initial burst in viewership, showed up negatively on the balance-sheet. While most ventures were a success operationally, what was not so good was the profit and loss story and its impact on the balance-sheet. Being a first generation entrepreneurdriven company, the expansion spree resulted in huge accumulated debt, and servicing interest cost meant a outgo of close to Rs 300 crore annually. Saikumar justifies the initial investment stating, “When you are launching, you need to be seen, you need to enter the mind space of your consumer. You need to move from share of mind space to creating brand loyalty in the quickest possible time. It is a business of initials because India gives you one window.”
Of Leaders and Growing Markets
Network18 operates in one of the most competitive industries, where the television ratings decide the leader of the pack. It is the ratings that also, to some extent, determine who gets what share of the advertiser’s pie. Saikumar believes that today four channels (Star Plus, Zee TV, Sony and Colors) in the Hindi GEC space have an equal shot at the No 1 spot and that it is time to move away from being No 1 to concentrating on being in the ‘leadership bracket’. He says, “As long as our profitability targets are met and as long as we are in the leadership consideration set, we are extremely satisfied.”
Saikumar also stresses on the importance of having brands in a bouquet that resonate with consumers. “True brand value means that your brand can withstand the test of time,” he says and cites the example of the youth channel MTV, which according to him, has stood the test of time in a space that has seen maximum activity in the last couple of years. On recent moves made by competition in the youth space, he says, “It is important not to be distracted by this activity and stay the course. Sometimes to not sway is equally important.”
Saikumar observes that terms such as leadership bracket, share of mind space and brand value will become the new surrogates that will drive the company’s investment and market expansion decisions in times to come.
Another area that Network18 will have to focus on in its ‘3.0’ avatar is growing some of the areas that it is operating in, specially the likes of news, factual entertainment and so on. Saikumar admits, “There is too much noise in news but that is the nature of the beast.” With advertising still being the main revenue stream, the news business is seen as a loss-making venture but Saikumar is optimistic about the future once digitization is in place. According to him, “Significant improvement in margins is possible in news post digitization. There are many wonderful businesses in the world that don’t have great top-line but are very steady with mouth-watering margins, and that’s where I believe news can go.” He adds that news broadcasters will see the benefits of digitization after the first phase itself.
Content Asset Monetization: Easier Said than Done
Digitization will impact various aspects of the broadcasting business and can better assist in content asset monetization, but not without challenges of its own. Network18 has taken steps to gets its act together on the distribution side of the business so that it can begin seeing subscription revenues closer to its competition such as STAR and Zee. Even though Sun18 was formed with that intention, things did not necessarily go as planned on that venture. In June this year, TV18 and Viacom18 took another step in the domain and formed a joint venture called IndiaCast that would operate on multi-platform and also in bringing in international revenues by way of content syndication for Network18 and its broadcast brands. The monetization potential increases across various platforms such as mobile and more people moving from 2G to 4G. Network18 looks at this venture as a means to drive domestic and international channel distribution, placement services and content syndication for TV18, Viacom18, A+E NetworksITV18 and the Eenadu group, post its acquisition by TV18.
Saikumar says that it was the need of the hour for the company to enter the distribution field. He elaborates, “We accepted the fact that distribution, whether domestic or international, is something we needed specialist focus in and that’s what got us back to the drawing board. That’s how the idea of IndiaCast came up. The rationale behind IndiaCast was to create a focused entity whose sole mandate would be to monetize our content assets in domestic and international markets across linear and non-linear platforms.” The company has been able to leverage this and for the first time in many years, its carriage investments are showing signs of trending down. While the partnership with Sun still continues, IndiaCast would help the company be in control of its own fortune.
Way Forward of the New and the Not-so-High Investments
The completion of the Eenadu buyout will see a comprehensive regional news and entertainment bouquet integrated with the Network18 Group. From the look of it, Network18 will keep its print ambition limited to only special interest publications that are niche, focussed on communities and cater to a particular target group. But Network18’s digital mindset is likely to come in play here as well. Hinting as to what can be expected, Saikumar agrees that migrating print readers to online, with manageable costs, would be a challenge that the Group can be faced with.
Overall on digital, Network18’s investments can be broadly divided into digital content that includes digital news and derivates and digital entertainment and digital commerce. In digital content, the group runs web portals such as Moneycontrol, Firstpost, Ibnlive, In.com while its digital commerce flagships include Homeshop18.com and Bookmyshow.com. Even though the company recently divested a part of its stake in Bookmyshow.com, it still remains the single largest shareholder of the company in that space. Industry sources inform IMPACT that Network18 is also open to forming strategic partnerships in the digital space. In its consolidation stage, if there is any area that could still see expansion, it would be related to digital in some form. The company has bet big on the digital and mobile space and has already seen some success in mobile monetization and re-packaging of content in mobile, which could become a legit revenue stream soon.
The one thing that looks to work for Network18 is that it has managed a strong foothold in broadcast and digital. It has a different set of competitors in both domains and as the ‘3.0’ avatar settles down and reshapes the company’s future, this spread will play a key role in making it a company to watch out for.
Feedback: noorw@exchange4media.com
