| MUMBAI:
The Indian media and entertainment sector is ripe for mergers and acquisitions
as bigger players look to consolidate in the backdrop of an overhang of debt and
losses.
Around $1 billion is expected to pour into the sector over the
next two years as the appetite for foreign investors grows with India being identified
as one of the leading key growth markets.
Turner International, for instance,
has pumped up its investments in India, already its largest revenue market in
the Asia Pacific region, with the buy of Hindi general entertainment channel NDTV
Imagine in late 2009 for a total consideration of $126.5 million.
Says
Turner Broadcasting System International president Louise Sams, "India is
where we made our largest investment overseas in 2009."
Outside the
broadcasting space, foreign investors are eyeing a piece in the cable TV business
as the sector is in the process of digitising across the country. The direct-to-home
(DTH) operators, weighed down by heavy losses as they subsidise to ramp up subscribers
amid low ARPUs (average revenue per user), are also in search of investors to
fund their expansion plans.
Says KPMG India head of media and entertainment
Rajesh Jain, "The Indian M&E sector is expected to receive $600-$1 billion
by way of mergers and acquisitions over the next two years."
In
2009, the M&E industry saw 36 deals amounting to $471 million, 31 per cent
lower over the earlier year, amid the backdrop of a challenging business environment.
The industry witnessed 52 deals amounting to $879 million in 2008.
In
2009, the sector witnessed 10 private equity deals as compared to 18 in 2008 with
deal values amounting to $210 million. The segment also witnessed 26 mergers and
acquisition deals valued at $261 million as compared to 34 deals in 2008, according
to a KPMG study.
TV
broadcasting
Amid an advertising slowdown and tight market situation,
broadcasters rationalised their existing portfolios by focusing on core competencies
and exited from stressed segments.
In 2007-2008 Viacom entered into a
joint venture with Network18 to launch Colors, 9X raised capital from a consortium
of private equity investors, NBC acquired an equity interest in NDTV Networks
and Time Warner backed Miditech to mark their foray into the Hindi general entertainment
channel space, expanding the market from three players to six within a short period
of time.
Cut to 2009. NBC exited NDTV Networks by selling their stake
back to NDTV, reportedly at a discount to entry price. NDTV in turn exited the
GEC space by selling to Turner International.
In the near term, the Hindi
GEC segment is expected to remain competitive with the leadership position at
stake. With over seven players competing for market share, channels are expected
to invest substantially in placement fees and content to gain viewership share.
The Zee Group increased its equity interest in Ten Sports from 50 per cent
to 95 per cent. "As a result, consolidation between existing broadcasters
is expected to continue and only broadcasters with sound financial strength, strong
channel bouquets and innovative content are expected to survive," the KPMG
study says.
Distribution Biz
DEN Networks, the cable television
distributor, tapped the capital market to raise Rs 3.7 billion. Hathway Cable
and Datacom followed with a public issue soon after to raise over Rs 6.6 billion
from the capital market.
In a significant development in the DTH industry,
Apollo Management, a US - based private equity fund, acquired 11 per cent equity
stake in Dish TV for $100 million.
Going forward, KPMG predicts that the
sector is likely to witness disruptive change. "Deal activity in 2010 is
likely to be driven by acquisition of LCOs by MSOs in order to gain last mile
connectivity, consolidation amongst the MSOs and capital raises by MSOs and DTH
operators to fund infrastructure augmentation /roll out and customer acquisitions,"
KPMG says.
Print
The
print industry witnessed a low level of deal activity in 2009. The only major
deal was the IPO of DB Corp. The IPO paved way for the partial exit of Cliffrose
Investment, the Mauritius-registered affiliate of Warburg Pincus which in May
2006 had originally invested in Writers and Publishers Ltd (WPL), which gave Cliffrose
a 7.14 per cent stake.
The magazine sub-segment too witnessed some deal
activity with Raghav Bahl promoted Network18 Group entering into a joint venture
with Forbes, to launch business magazines in India. In another deal, Heinrich
Bauer Verlag KG, a German publishing company, exited their investment in Next
Gen Publishing, a niche publications company in India. Heinrich Bauer Verlag KG
had inherited this investment from Emap plc which had invested in Next Gen in
2007.
KPMG notes that in the near term, regional print companies are expected
to raise capital either through public capital markets or private equity to expand
their presence across news distribution media and also launch niche city centric
supplements in an effort to ward off the threat from larger print companies.
In addition, with over 398 daily newspapers published in India, consolidation
is imminent in the print industry with larger players seeking margin growth and
geographic expansion by acquiring smaller regional players. International newspaper
majors remain positively inclined towards the Indian print market but deal activity
from such players is likely to be limited until the FDI caps are rationalised.
Filmed Entertainment
The film exhibition segment witnessed
the first signs of consolidation with Inox Leisure buying out 43.3 per cent equity
interest in Fame India from its promoters for approximately $14 million. However,
this deal has its own complexities, with ADAG - owned Reliance MediaWorks making
a counter offer for Fame.
In another story of consolidation, PVR Cinemas
also expressed their interest in acquiring DT Cinemas, the theatre chain owned
by the DLF Group, which was later called off on account of a valuation mismatch.
The exhibition business also witnessed private equity interest, with IFCI
acquiring a minority equity interest in Satyam Cineplex, a movie theatre chain
based in North India.
With economies of scale being a prime value driver
in the film exhibition space, this segment is expected to witness further consolidation.
Radio
In the radio segment, Astro increased its equity interest
in South Asia FM from 6.98 per cent to 20 per cent. Regulatory changes such as
relaxation of FDI limits, granting permission to own multiple frequencies in a
city and the permission to air news and current affairs hold the key to the growth
of this segment.
In the near future, relaxation of regulatory norms is
likely to facilitate consolidation amongst domestic players as well as drive active
interest from large international private equity players and global radio majors.
Emerging segments
The emerging segments such as animation,
gaming and OOH witnessed limited deal activity in 2009. In the animation segment,
Aptech Ltd acquired Maya Entertainment, for $16.4 million. | 
