How telecom players worldwide look to buy media companies to control both the pipe and content for future revenues
By Dipali Banka
The unexpected victory of Donald Trump in the US Presidential election could spell big trouble for telecom giant AT&T Inc.’s proposed $85.4-billion buyout of media company Time Warner Inc.
Trump had declared during his campaign that the mega merger deal would not be approved by his administration “because it’s too much concentration of power in the hands of too few”. Now it’s wait-and-watch time to see what happens to the deal.
Indeed, the world over, telecom majors acquiring media companies has become a trend due to the changing telecom landscape. In India, the arrival of Reliance Jio has not only shaken up the telecommunications sector, but also affected the entire media and entertainment scene. Since voice is getting marginalized, telecom players are transitioning to a bigger focus on mobile Internet, even as they look to control both the pipe and content for future revenues. Getting access to high quality content is high on the agenda for all telecom players, as it will make their offering stronger. And in this light, what makes sense to them is the acquisition of media companies.
The mere scale and size of the AT&T and Time Warner Inc. deal has led the media and entertainment industry to believe that vertical consolidation is probably the way forward. Post this deal, the telecom giant becomes a content owner by gaining Time Warner’s premium cable channels HBO and CNN and the Warner Bros. studio in perhaps one of the biggest mergers in the media and entertainment industry so far. Is this likely to have any repercussions in India? How do such deals benefit both the parties involved?
India has seen quite a few corporate companies investing in the media, seen as a sunrise sector, despite the fact that not all of them have been successful (see box). But the investment that is now being made specifically by telecom companies is with a clear intent of synergising capabilities and enhancing scale through vertical integration.
RACE FOR A STRONG CONTENT PIPELINE
Reliance Industries acquiring Network 18 is one example where the company which had plans to enter the 4G network ensured that it had a strong content pipeline to offer. There is also speculation doing the rounds that Airtel is looking at acquiring a stake in Living Media, promoter of the India Today Group. The Aditya Birla Group owns 27.5% stake in Living Media and around 2% is owned by independent investor Radhakishan Damani. Airtel’s Sunil Bharti Mittal apparently wants to buy out both these stakes.
“Globally, we are witnessing a shift from traditional television to new age digital content and video on demand, which can be viewed on laptops, tablets, mobile phones and other devices. According to a Neilsen report, there has been a 35% decline from 2010 to 2015 in traditional television viewership of consumers between the ages of 18-24. In light of such a transition, convergence of media companies and telecom companies seems to be extremely viable. Telecom companies will ultimately acquire content by acquiring media companies. The owned content can then be leveraged to fuel data consumption, increase subscriber base and can also be monetized effectively. Such potential increase in subscriber base, rise in revenue earned per user and access to a bigger chunk of the digital advertising pie has led to the recent interest among telecom players to invest in media companies. Examples of such transactions include acquisition of Quickplay, DirectTV and Time Warner by AT&T, acquisition of Network 18 by Reliance, etc.,” says Ajay Shah, Partner – Transaction Advisory Services, Media & Entertainment, EY.
“Also, given that mobile Value Added Services (VAS) revenue in India has declined, telecom players have been targeting new markets for growth. Leading telecom players like Vodafone and Airtel are increasing focus on digital content and this will continue to remain a key area for them. For example, Airtel customers were credited back half of the data used by them at night, enabling them to download unlimited songs and five movies per month on Wynk mobile application for free,” Shah adds.
CORPORATES TYING UP WITH MEDIA IN INDIA
2014: RIL completes Network18 Group take-over
In Jan 2012, there was a large investment by Mukesh Ambani's Reliance Industries Limited in a complex deal that offered a possibility that Ambani-held Independent Media Trust (IMT) might eventually gain a controlling interest. In July 2014, the ownership was transferred to Independent Media Trust.
On 29 May 2014, Reliance Industries Ltd (RIL) announced it would be acquiring control in Network 18 Media & Investments Ltd, including its subsidiary TV18 Broadcast Ltd.
The board of RIL approved funding of up to Rs 40 billion to Independent Media Trust (IMT), of which RIL is the sole beneficiary, for acquisition of control in Network18 and its subsidiaries. On 8 July 2014, RIL stated that it has completed the Network18 take-over.
2012: Aditya Birla Group buys into Living Media
Aditya Birla Group which owns 45.96% stake in Idea Cellular Ltd acquired 27.5% stake in Living Media India Ltd. Living Media acts as a holding company and owns 57.2% in TV Today Network.
2010: Reliance Capital buys stake in Bloomberg UTV
Reliance Capital announced acquisition of 18% stake in Bloomberg UTV in June 2010. Bloomberg was to own 15% of the company and the balance 67% is controlled by UTV partners.
2009: RPG Group launches ‘Open’
RPG Publications, the print media venture of the RP Goenka Group, launched its feature and current affairs weekly magazine, ‘Open’.
2006: ADAG starts Reliance Broadcast
Anil Dhirubhai Ambani Group was the first corporate giant to enter the Rs 1,200 crore commercial radio space in India. In 2010 the company launched television channels through a joint venture with US based CBS Corporation.
In Jan 2014, CBS Studios and Reliance Broadcast Network Ltd terminated their 50:50 joint venture in India, three years after the two media companies had partnered to launch TV channels in the country. In Feb 2014, Anil Ambani’s Reliance ADA group delisted Reliance Broadcast Network business from the stock exchanges and made it private [In March 2016, speculations were rife about Reliance Broadcast Networks looking to divest around 40% stake in broadcast (TV and radio) business]
1995: Rajan Raheja launches Outlook
Hathway Investments Private Ltd, the investment arm of the Rahejas, launched Outlook Publishing India in 1995. In October 2003, Hathway Investments hived off five magazines into a separate company called Outlook Publishing India Ltd.
1990: Thapar Group buys The Pioneer
North India’s leading newspaper The Pioneer, a Lucknow-based paper until 1990, was bought by the Thapar Group under LM Thapar. He made it a national newspaper, published from eight cities. However, the newspaper did not make money for the group and Thapar had to cut his losses, selling the paper to its editor BJP MP Chandan Mitra in 1998.
1990: Ambanis buy The Sunday Observer
Ambanis entered the media through their acquisition of a Bombay business weekly, Commerce. They turned the weekly into the daily Observer of Business & Politics (OBP). Interestingly, OBP was the first to float the idea of a pink business paper on the lines of Financial Times of London. However, both the publications went through distressed phases and had to be shut down in December 2000. By then, the Ambanis had reportedly invested close to Rs 100 crore in the publications, including a video newsmagazine division which was run under the brand name of Observer News Channel.
1987: Vijaypat Singhania launches The Indian Post
Vijaypat Singhania of the JK Group has been the publisher of the short-lived Mumbai newspaper, The Indian Post, launched in 1987.
A DIFFERENT TAKE IN INDIA
However, in India, it is not necessary for a telecom company to buy out media companies because content can be syndicated through various broadcasters, explains Rohit Dokania, Senior Vice President - Research, IDFC. “Increasingly, telecom companies want to not only own the pipe but also the content that flows through it to maintain competitiveness even as users embrace cheaper digital alternatives in the West. In India, buying out media companies is not necessary because content can be syndicated through various broadcasters and TV ARPUs are not high enough for users to look for cheaper bundled alternatives.”
“In India, content cannot be given exclusively on the traditional MSO/DTH/HITS platform and moreover, regulations do not allow a distributor to own more than 20% in a broadcaster and vice versa. However, there is no regulation which hinders a content owner from entering into an exclusive agreement with a digital distributor (online video OTT application) but such agreements are rare because online video OTT platforms do not have the ability to pay high monies and get into exclusive contracts. But in the future we will not be surprised if some large telecom companies with deep pockets enter into exclusive contracts with broadcasters for live telecast of their content through the their online video OTT application,” adds Dokania.
HOW DOES IT WORK ON THE BOTTOMLINES?
After acquiring a large content line-up, one would imagine that it will directly benefit the Average Revenue Per User (ARPU) of the telecom company. However, the jury is still out as to how such deals actually benefit the bottomline, says Arpita Pal Agrawal, Partner and Leader- Telecom Industry Practice, PwC India.
“Today’s consumer is not tied down to the content or the network. They want to choose the best network which gives them the best access speed, the best customer experience, the best handset at the price point that they want. And then they access the content that they want through their mobile. So it’s no longer just going through the application which the mobile operator provides. In case of AT&T customers, the customer could access Time Warner content even earlier. And whatever they were paying for it, they would still be paying the same. In case it is bundled with access then the customer might be benefited, but it is not revenue accretive for the telecom company. So after the merger, the benefits for the merged entity are not apparent. Opportunities for incremental revenue are limited. Some bundling can happen, or some premium content can be accessible for AT&T subscribers a few days earlier than others,” explains Agrawal.
“The other thing is that telecom companies are also looking for their space in the sun with regard to opportunities for growth. Since voice is getting marginalized, both internationally and in India (with the Jio launch), they are looking at adjacent opportunities and content is obviously one of the very strong ones because people are using their mobile to access content, whether it’s news, football, cricket, Bollywood, adult content, etc.. But the jury is still out as to the value it can add,” she adds.
What the telecom majors could benefit from is a good suite of content applications that can help reduce churn and use exclusive content to actually entice higher subscriber addition and a better brand perception. It may also help them in reducing Call Admission Control (CAC) on the back of targeted advertising via content acquisition. On the flip side, content creation costs will add on in future.
From the perspective of a media company, any incremental monetization opportunity helps the content owner because the cost has already been expensed out.
CONSOLIDATION & MONOPOLY CONCERNS
Consolidation in any industry brings with it the risk of monopolization and this industry would be no different. The AT&T deal with Time Warner has actually raised a few concerns of monopolization in the US market. However, Indian laws disallow exclusivity of TV content on traditional platforms offering enough safeguards for the general consumer. “Once Internet becomes all-pervasive and if TV channels begin to be offered on an exclusive basis through one of the online video apps, then the regulator might want to intervene to provide a level playing field,” observes Dokania of IDFC.
Merger of content and distribution companies is a natural evolution of the industry. Such transactions will help curate and format content differently to cater to the growing mobile environment. Ultimately, like in all other industries, a few scaled-up players will survive and dominate the market. As AT&T put it in its announcement, "The future of mobile is video, and the future of video is mobile."
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dipali.banka@exchange4media.com
