TV.NXT 2012: Time to invest in the Indian broadcasting space?

Unfortunately, the scenario from a private equity perspective, certainly for the media sector over the last few years, has been relatively muted. So, what is holding back the money?

While the last couple of years may have witnessed the closing of a few good deals within the Indian broadcast business (read the Walt Disney-UTV and Reliance-Network18 deal), there is still a dearth of investor interest in the sector, despite the strong ongoing and positive buzz on the soon-to-happen digitisation. So, why is there still unwillingness amongst investors to invest in the Indian broadcasting space and as digitisation happens, will the investor interest rise?

These were some of the questions that Vanita Kohli-Khandekar, contributing editor at Business Standard, chose to ask the top industry experts, who comprised the panel discussion, 'Indian television - Time to invest?' The discussion was part of the event titled TV.NXT, an annual conference organised by afaqs!. While the session was moderated by Kohli-Khandekar, the panellists comprised Sunil Lulla, MD and CEO, Times Television Network; Harit Nagpal, MD and CEO, Tata Sky; Anil Arjun, CEO, Reliance MediaWorks; Darius Pandole, partner, New Silk Route Advisors; Farokh Balsara, leader, M&E Practice (EMEIA), Ernst &Young India; Shubham Majumder, executive director, Kotak Investment Banking; and Salil Pitale, executive director, Enam Securities.

From the perspective of private equity investors, when they access an investment opportunity, there are a couple of things that are addressed before an investment in any particular company is made. Firstly, investors want to back promoters and companies that have quality, credibility, integrity and competence; the business model has to be sustainable and scalable over time; there has to be investor protection rights and finally, there has to be a visibility toward exit. Now, unfortunately, the scenario from a private equity perspective over the last few years has been relatively muted, certainly for the media sector.

According to Pandole, the quantum of investments for this sector was expected at a much higher scale about four-five years ago. However, that has not met expectations. There are quite a few reasons for this. One is that the sector has been in a state of flux - both logically and also in terms of regulations.

"There is a perception in the market that creative people, while they may be excelling creatively, may not effectively translate into business decisions. Sometimes, this may stagnate the aggressive growth push required for the business. However, the moment profitability is showcased at places where the investors have put in money, the floodgates just open up," he said.

In many ways, the Indian media industry is standing at a turning point, both in terms of private equity investors and strategic investors and this is primarily because of the changes that are taking place at the macro level.

Moving forward, Kohli-Khandekar noted that the broadcasters seem to be under tremendous pressure to generate revenues. In fact, there is a seesaw at play where a few genres like the GECs (especially the few in the top ranks) are actually increasing their ad rates, while there are many whose revenues are getting stagnated.

Commenting on the trend, Lulla averred that one of the dilemmas of this industry is that there are good practices that are going to get better, and there are the other practices where there is an excess of supply.

"Maybe at some point of time some players came into the space expecting a flush of cash and enough profits in time. But that is not going to happen until the fundamentals of the business are put to co-exist, that is good content, good brands to associate with in terms of relevance and demonstration of the relevance day in and day out," he said.

He noted that the whole industry is overtly depending on digitisation. "But while digitisation is absolutely important and critical to the industry, to believe that this is going to solve all problems of the industry is absolutely incorrect," he averred.

Lulla stated that it takes less that 50 paise to watch television in this country today and unless the prices go up, it would be very tough for the industry to move forward.

There are approximately 10 million subscribers on an average on some relatively successful DTH operators in India today and yet, there the sector is still far from a trickle point, Kohli-Khadekar noted. So, is this a good sign for the investors or bad?

Answering the question, Nagpal said that the DTH players are part of the ecosystem that is flawed, wherein neither DTH nor broadcast or cable can be looked into in isolation but rather together. "It's the consumers who are watching television and if any one of the stakeholders is making money, it is impacted by the other operators in the value chain, because while the cost structures are absolutely different for each, say cable and DTH, the ability to charge is completely dependent on what the other player is charging." Therefore, DTH cannot make money until the entire ecosystem starts making money, he added.

However, when Kohli-Khandekar quizzed the panel if pace in digitisation could perk up investors' interests in the cable, DTH and broadcast sectors, Majumder said that the entire 360 degree of the value chain has to come together for the investors to rush in. Also, there has been a fragmentation psychology in the broadcasting space. In 2010, there was a spate of new launches and while that rush has slowed down over the last two years, new investors are very wary of putting in money into broadcasting, especially into areas where big bucks are required.

"We really need to see differentiation in content and positioning. You cannot have a sixth or a seventh player coming into a specified genre only for the sake of it. The player should rather position itself as a No.1 or No. 2 in a nascent vertical, with very focused and segmented viewership," Majumder added.

In fact, the panel was at a consensus that there are a few sweet spots within broadcasting where competition is welcome, such as regional in Marathi, Bengali and Tamil GECs, along with other niche verticals such as sports.

Does this somewhere hint to a subtle deliberation that India is looked upon as a riskier market, questioned Kohli-Khandekar. Why are investors not looking into investing when the industry is standing at the cusp of digitisation?

Pitale answered, "Investors had rushed in extensively into the Indian media in the past but the returns have not necessarily been efficient enough. Therefore, whatever investment decisions will be made now will be in reference to the past and will be more careful."

"Also, as an economy, we are coming out of a very tough phase; the mindsets have been negative and therefore, the investments planning have been difficult for the last year and a half. However, while things have started to look a little positive, the investors are looking more toward the leaders rather than new players and ventures," he added.

Balsara, meanwhile, said that India is one of the fastest growing and one of the most profitable businesses that companies have across their global networks - be it STAR, Sony or Viacom. "However, it's also true that global companies investing more in India may not happen in a rush, particularly when companies such as Turner and NGC have burnt their fingers here," he said.

Arjun, on the other hand, noted that lack of transparency brings in a huge disability into the understanding about the kind of content that needs to be made and will find acceptance in the market. "And once that transparency is set in as to what the consumers want to see rather than what the ratings are showing (more of a post mortem phenomenon), fresh and differentiated content will start working in the space; and that's when the investors will find a fresh vigour to pump in money into the market," he said.

This was the third edition of TV.NXT, an afaqs! event presented by ABP News.