Despite a not-so-successful track record of investing in the sector so far, corporates are now veering towards the media. With the Aditya Birla Group picking up stakes in Living Media last week and the recent Mukesh Ambani-Network18 deal, betting on the media business is bigger than ever, thanks to its new potential, find Srabana Lahiri and Rahul Dubey
On May 18, 2012, the Aditya Birla Group put speculation to rest and announced that it had acquired a 27.5% stake in Aroon Purie’s Living Media India. Just a few months earlier, on January 3, 2012, tycoon Mukesh Ambani had announced an investment deal with Raghav Bahl’s Network18, an alliance touted to be a mega venture with the potential to create huge disruption in the industry. Together, these two deals have given rise to a big buzz around the Indian media business, which is now being seen as a sunrise sector.
Over the years, several corporate houses in India had invested in the media business, but without quantifiable success. Many media ventures in the Eighties and early Nineties had to shut shop, largely due to financial problems in the pre-television era. Only those in non-content related ventures survived; for example the Tata Group, Bharti Airtel and Anil Ambani’s ADAG, all in the broadcast distribution business. Others like Reliance Broadcast Network expanded their presence gradually from Radio in 2006 to Television and Out of Home Media.
Now, with digitization in the offing and emerging new media platforms, the picture is rosier than ever. Entry of big businesses and their robust finances are soon expected to build scale for the sector.
POTENTIAL OF A SUNRISE SECTOR
Admittedly, the scale of the media business is small, and there is no big money to be made right now. But several corporates see the potential. “Several media houses make profits, and many have the capacity to make profits if funded appropriately. The average size of media companies is very small, and their balance sheets weak. Therefore, many are easy acquisition targets. Turnaround strategies can be implemented to make them profitable, and the risk is not very large for an investor,” feels Ashish Pherwani, Associate Director, Ernst & Young.
Even Kumar Mangalam Birla, Chairman, ABG did not hesitate to term the Indian media sector as “a sunrise sector from investment point of view” while declaring that “the India Today Group offers one of the best opportunities of growth and value creation”. At the same time, Aroon Purie, chairman, India Today Group said he was “delighted to partner with the Aditya Birla Group to aggressively address the current and future potential of the Indian media business which is at a tipping point”. According to industry sources, the Birlas have forked out nearly Rs 350 crore to buy the stake, which is a small investment from their perspective, but a substantially high amount for the India Today Group.
The new investments have provided a critical financial boost to the media industry. Large corporations present in the telecom business are trying to enter the content space, as 3G and 4G spectrum take telecom services to a new level and access to content remains a big requirement. The Aditya Birla Group owns IDEA, a leading telecom company in India, whereas Infotel of RIL is setting up a pan-India 4G broadband network. Content could be a key driver of the telecom giants in the future of high-speed Internet. It is a win-win situation for both, telecom and media companies.
According to media veteran Pradeep Guha, more the number of players and their level of seriousness, better it is for the business. “Every player is in the business for profit. There will be hiccups in the media business too, as in any other businesses. But I don’t see little hiccups bringing catastrophic effects. In the long run, the media story is a good story and it is bound to grow,” says Guha.
Owning media is also seen as a way to build clout, and own content that can be delivered on newer platforms and devices with massive benefit. “Clout could be one reason. Some would have political reasons, in which case profit and losses don’t matter. It can be presumed that not everyone in news channels is there to make money,” surmises Timmy Kandhari, Leader, Entertainment & Media Practice, PricewaterhouseCoopers, on corporates flocking to the media.
One factor that draws corporates is the perception of power. “For a long time, corporate groups which are focused on the growth path have held the view that owning media, which apparently has power, is a good way to achieve their end objective or at least balance the power equation,” feels Sam Balsara, chairman and MD, Madison Media.
DIGITIZATION A CATALYST
Unusual and unnoticed entries of the corporate giants began in the last decade when Tata, Videocon and Airtel invested heavily in the distribution chain of the television industry. While these players have not forayed, directly or indirectly, into the content business, they have a strong presence in the Direct to Home part of the business which was not a key area of interest for broadcasters, as most of the distribution was through analogue channels. Gradually, a large number of subscribers switched to digital television viewing in the last five years, which, according to many, was only a dream in the early 2000s. Of the 104 million Cable & Satellite homes of India, the number of DTH subscribers is close to 30 million. By the end of 2008, this number was not more than four million. Within three to four years of Zee’s entry in the DTH space, Tata Sky, Videocon D2TH, Airtel Digital TV and Reliance Big TV too launched direct broadcast satellite services. Today, these four companies account for an over 20 million subscriber base. Tata Sky, one of the earliest entrants in this space, is a joint venture between the Tata Group that owns 60% and Star Group that owns a 30% stake.
Many in the industry believe that the real change is set to occur in 2012, post-digitization. Industry experts believe one reason why corporates are increasingly inclining towards the media business, especially television, is mandatory digitization of cable networks. Though the Telecom Regulatory Authority of India has restricted advertising to 12 minutes per hour, post-digitization, broadcasters foresee the subscription revenue going up in the long term, which will make the Rs 12,000 crore broadcast business more lucrative than ever. Chintamani Rao, Senior Advisor, RK Swamy Hansa Group explains, “With the impending digitization of cable, the equations and economics of the business are expected to change, in favour of broadcasters. That, perhaps, is the golden future big business is betting on.” Digitization could be a key game changer for the media industry. If the FICCI-KPMG Report, 2012 is to be believed, after complete digitization in 2016, broadcasters will get about one-third of what consumers pay, against 10-15% now. Moreover, the overall carriage fee of the industry is expected to increase dramatically, making the established broadcast business significantly profitable.
CONFLICT OF INTEREST
With the entry of corporates, there arises a concern about conflict of interest; with major players owning business channels or media that are supposed to monitor him/her. For example, the Anil Dhirubhai Ambani Group owns a stake in UTV Bloomberg and now Mukesh Ambani in a way controls Network18. Despite assurances that management and content teams function independent of each other, experts believe that there are reasons why conflict of interest will still exist and that there is a thin line between the two. Pherwani explains, “There would always be conflict of interest issues when business owns media, but editorial strength can manage such issues. Over time, the public realizes conflicts of interest, and brand reputation does get impacted.” So should there be a regulation of media ownership in terms of cross-holding and content? “No, as that would prevent investment in the media industry,” Pherwani adds. The Telecom Regulatory Authority of India (TRAI) has been talking about cross-media ownership for a long time, but there are no rules in place yet.
SIZE OF THE MEDIA BUSINESS
The size of the media business, seen as a part of India’s overall industry size, is very small, and this remains a concern. Pherwani pegs the total media industry size at around Rs 72,000 crore, around the size of one large telecom company. As per the KPMG-FICCI estimates of Indian Media & Entertainment Industry, 2012, the industry is expected to grow at a rate of 13% this year. Therefore, the media is set to see more corporate interest. In that scenario, will scale mean a windfall for advertisers? “With growing size, the media could provide returns for the investor, but more through valuation and exit rather than dividend. Advertisers are wary of advertising in media owned by another advertiser,” explains Balsara.
By 2016, the media industry is expected to touch Rs 1457 billion. It remains to be seen how many of those billions come from the pockets of businessmen.
Feedback: srabana@exchange4media.com
