's interview with ICICI Securities Limited Vice President Ravi Sardana
'Indian promoters have build a scale where they can attract foreign media companies'
Posted on 5 August 2008

Foreign media companies like Walt Disney and Turner have entered into equity deals with Indian firms to grow their business in India.

The last two years has seen a spate of equity deals, changing the media landscape in India. Indian promoters have raised money to build scale and also brought in corporate structures.

In an interview with Sibabrata Das, ICICI Securities vice president Ravi Sardana talks about the immense potential that the media sector offers to investors and the consolidation that is waiting to happen.



Multinational media companies like Walt Disney and Turner had come to India on their own. Why are they now entering into JVs with local partners?
When the foreign players entered the market, there was no Indian media company of size to attract a buyout. Besides, the market has become too crowded today. It is better for them to build on whatever is available. Managing the government and distribution on cable networks is also difficult.

Why are the Indian media companies becoming attractive to financial and private equity investors as well?
Indian promoters have taken their companies to a scale where even Walt Disney and Time Warner have gone ahead to do equity deals with them. The business has become scalable with the opening of multiple platforms. There are also lots of markets in India which are still under penetrated. Media companies can expand their business by entering into new geographies.

Which are the segments in the media sector that are proving lucrative?
In the broadcasting space, every big player wants to build a full boutique. Even smaller TV production companies like Miditech and BAG Films are getting into broadcasting. All of this will require funding.

Distribution is also becoming a big value driver and a new segment that investors have started looking into as the revenue leakages are getting plugged with digitalisation. The regional space is another interesting segment and will see higher growth compared to Hindi and English media. Regional TV has not build scale like print has, but there is a serious interest. Growth is faster in tier-II and tier-III towns.

But aren't DTH companies saddled with losses?
In the short run, they may not be attractive for investors. But DTH service providers are mopping up subscribers. That will add value and open up the space for investors.

Aren't investors shying away from cable companies as digitalisation is slow?
Cas (conditional access system) has been introduced in pockets of Delhi, Mumbai and Kolkata. Consolidation is also happening at the multi-system operator (MSO) level in analogue cable. The process is underway to convert this to digital. We are already getting feelers from investors who are exploring options to put money behind cable networks.

'Since the size and scale of the movie business has shot up, there is a need for capital. While good financing sources for debt are being made available, there is a requirement of providing risk capital for this business'

Only one media company raised money through an initial public offering in 2007. Why are IPOs drying up in the media sector?
The first wave of IPOs happened when companies like Mukta Arts and Creative Eye tapped the market. It was a pre-matured phase. Now Indian media companies have set up corporate systems from being just promoter-led. But there are not many large media companies that are privately held.

The economy is slowing down and interest rates are hardening. Do you see media organisations being cash strapped to fund their growth?
Companies have chalked out aggressive growth plans. They believe the wider pull of channels they have, the easier it will be to sort out distribution issues. But to expand their presence in all genres of broadcasting, they need capital. Fund raising for some companies has definitely slowed down. But they can tap alternate sources of funding like debt, private equity and convertible instruments.

Is the broadcasting space heading for consolidation?
In every genre, the top 3-5 channels will make money. There will be a huge competition to reach those levels. We will see some consolidation and there will be pressure to differentiate content.

Are news channels getting bogged down by a steep rise in operational costs?
More than operational expense, it is distribution costs that are inflating and going to hurt.

Is the news channel space getting too cluttered with companies from all sectors wanting to rush into it?
Historically, the journalist-led channels have done well. Already there is a clutter and there are a large number of strongly entrenched players. New entrants will have a challenging task; they will have to create a new niche space.

Will there be room for so many regional news channels?
If they are able to get market share, then in 2-3 years they will break even. The big players can also amortise their costs with the main channels.

Do you see the other revenue streams growing for news broadcasters?
The other revenue streams in India are still very small. News channels should focus on kicking in subscription revenues.

How are the movie companies shaping up in India and what are the challenges they face?
In the movie business, there are already the four tigers - UTV, Adlabs, Eros and Studio18. Multiplex operator PVR is also into movie production. For a pure film exhibition company, profitability could be range bound. So there is need to enter into other streams like film production and distribution.
What are the new financing options available for companies?
For the film business, Indian companies have tapped the Alternative Investment Market (AIM) of the London Stock Exchange. Since the size and scale of the business has shot up, there is a need for capital. While good financing sources for debt are being made available, there is a requirement of providing risk capital for this business.
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