TV.NXT 2011: It is important for TV investors to invest at the right valuation

The first session of Day 1 had panellists discuss what investors need to do to make money in the TV business.

TV.NXT, the two-day event organised by afaqs!, kicked off at the JW Marriott, Mumbai, on September 29, 2011, with eminent speakers and guests lined up for the occasion. The first session of the day, titled "Do investors make money in the TV business?" was moderated by Vivek Couto, owner, Media Partners Asia, and the panellists included Darius Pandole, partner, New Silk Route Advisors, Jayant Mathew, director, Malayala Manorama, Man Jit Singh, CEO (chief executive officer), Multi Screen Media, M K Anand, CEO, UTV Broadcasting, and Bala Deshpande, senior managing director, NEA (New Enterprise Associates) India.

Couto started the session by throwing a question at Deshpande. "Within the Indian marketplace what is critical for you as an investor -- the structure, people, exit policy, or the entrepreneur's vision?"

Deshpande replied that all are equally important. "We believe that the media sector is a high-growth segment, and can be extremely profitable. We have studied lots of media companies overseas and seen that investors are spending significant amounts of money."

She further said that if she were to crystallise all the learnings noticed in the sector, the most important thing would be to estimate the valuation at the time of investing in a company. "In our country, we often tend to underestimate the risks involved in the media business," said Deshpande. "Though, most of the media companies in India have done a commendable job in terms of technology, revenues, and the challenges that keep popping up in distribution and other things," she added.

Responding to Couto's question on whether the coming times will see more public valuations of the media companies, Deshpande said, "Unfortunately, not many media companies have gone public except for UTV, and a few others. And, such few deals do not truly reflect the true potential of this sector."

Couto then asked Pandole of New Silk Route Advisors about his perspective on the public valuations, particularly about his company's investment in 9X Media, and the potential that lies in marrying creative talent with financial execution.

"The bottom line is that we look for return on investment, which can come in many forms, provided you follow the basic discipline of investing," said Pandole. He emphasised on the need to bank on a credible management that has core competence and integrity."

Pandole said that instead of backing the wrong management, it was better to give the money to a charity and feel good about it.

He further added that it is very important to look for businesses that are sustainable and scalable.

Pandole also talked about the importance of right valuation at the time of entering a deal. He said, "Getting the right terms and conditions to protect one's interest as the minority investor is as important as getting the right valuation," he said, adding, "Besides, one should have a clear exit plan, as it is easy to put in money, but tough to take it out and earn money."

Speaking about his learning, Pandole said, "It is not necessary that people with great creative instincts would also be the best commercial minds. So, before investing in a company, one needs to evaluate if the creative instincts of a company are married with its commercial understanding because at the end of the day, we are here to make money."

Couto's next question was for Singh of Multi Screen Media. He asked Singh, "What are the priorities for a strategic investor, and what do you tend to focus on as a parent company? What parameters do you measure your success from?"

Singh replied, "As a strategic investor, we have a longer time frame than the financial investors. It's true that the media business has not been able to produce returns as expected by the financial investors. However, that's not the indication of the future because the market is now bright for making good returns."

He added, "For us, it's about the deal we have in place, and we are very proud of what we have put in place. Strategic investment is another business of Sony, and we are looking for pretty much the same things -- key metrics, returns and profitability."

Couto further questioned Singh about the next level of growth for Sony as it already has a pretty good scaled-up business right now. He also asked, "What has driven this growth over the last few years?"

Singh replied that content is the key driver of the business, and one cannot scale up if he/she is not producing the right content. So, first is the connect with the audience, and then it's about how you segment the audience, and who you are targeting.

"Sony, being one of the earliest entrants, has established its brand name over the years, supported by the right content, which could build its viewership consistently. A show like Kaun Banega Crorepati naturally attracts the audience," he said.

About the M&A in Indian media, Singh pointed out that the biggest hurdle is the unrealistic expectations of valuations media promoters and owners have of their businesses.

The moderator then questioned Mathew of Malayala Manorama, and Anand of UTV Broadcasting, about some of the targeted properties they have created, and the parameters of investment in these properties, and whether they are looking for opportunities as they scale up their businesses?

Mathew replied, "Coming from a print company, and that too, a very conservative one, it took time to move from print to TV, but once we got into it, we realised that since our core competence is in News, let's start with that domain. And, it's been five years since we launched our News channel."

He added, "Last year, we said 'let's get into the GEC space and we will launch our first GEC in the next 30 days.' The money is moving into TV and we are in it for the long run and not for just three or four years, but of course, we have to look at costs, as well," he added.

Mathew, at the same time, said that the GEC of the company will be competing with Asianet, a brand owned by STAR India. "The longer you wait, the more difficult it will get to compete. That's why we decided to launch a GEC now, and will follow up with other niche channels such as business, comedy or health channels in Malayalam."

Mathew said that soon there will be niche channels not just in Hindi, but other regional channels, as well. "That is from where the next level of growth will come," he said.

Adding to that, Anand said, "We are on the verge of getting merged with an international partner. We want to ensure that the product that we launch, reaches its breakeven as quickly as possible. At least, in certain parts of the business, I don't think it is impossible to achieve shorter and aggressive targets and reach operating breakeven."

He also emphasised that to make a profitable brand is not impossible, and this is not specific to niche businesses only.

He cited the examples of Viacom18 and Sony. "Rajesh Kamat and his team have done a great job at Colors, and we also draw a huge inspiration from Sony at this point of time," said Anand.

He said that UTV has demonstrated that it can break even on a smaller channel (sub-Rs 100 crore) in approximately four-six quarters; keep it at a breakeven there for some time, and then start building on it.

For UTV Action, launched in January 2010, the channel broke even in the third quarter, and the group is also bullish about reaching an operational break even in the fourth quarter for its recently-launched UTV Stars. "The plan is to achieve it in six quarters, provided we are able to scale it up in the right direction," said Anand.

The same work has been done by MTV in the last five years, which has shown that one doesn't need to go into high-intense capital businesses.

Anand compared the media business to the real-estate business. "Just like real-estate in India, in the media business, too, whatever money you put in will get you good returns in the next five-to-ten years, unless your management is so bad that you have to compare it with charity. It is quite a safe and good business to be in," he said.

"It is a business where good brands and concepts are well-rewarded," added Anand.

Couto then asked him what the biggest cost component is, and how he plans to rationalise it, going forward? "The single most important thing is people. The same company can be turned around completely if you get the right people in place. And, as we go forward, the single largest component of cost will be content, unlike distribution, which is what most people think."

Singh and other panellists seconded Anand and said, "There is no doubt about it. Content is the biggest cost component and the biggest driver."

TV.NXT is being held at JW Marriot, Mumbai, on September 29-30, 2011.

(TV.NXT is organised by afaqs!, in association with STAR News (presenting sponsor). The other sponsors include Zee 24 Ghante Chhattisgarh, Amagi, HeadHonchos, ApnaCircle.com, Fox History & Traveller, and Lukup.)