Zee News Ltd plans English news channel launch by Q4

MUMBAI: Subhash Chandra-promoted Zee News Ltd (ZNL) is planning to launch an English-language general news channel towards the exit quarter of the fiscal as digitisation settles in the four metros.

The launch will end Chandra’s long wait to expand his television news empire in the two main language segments of the business. He has a flagship Hindi news channel, backed by a business news channel in the same language, and a clutch of regional news channels that have allowed ZNL to post growth in slump periods of the economic cycle.

ZNL, however, was in no position to take the load of a new channel that would consume large capital in the gestation period, after slimming its balance sheet by demerging the regional-language entertainment channels from the bouquet in 2010. The pure TV news company’s focus was to stay profitable and slowly build up scale while launching regional news channels that could be incubated with less burden.

That strategy seemed to work as growth engines of flagship news channels are aging across the sector due to various reasons including commodisation, too much clutter and choked bandwidth on analogue cable TV networks. ZNL’s turnover during these years has climbed to top Rs 3 billion for fiscal ended March 2012.

The time has finally arrived for Chandra to get into the big play in the upscale language space. English news channels invest anywhere between Rs 2.5-3 billion over the first three years. The bleeding period is generally five years for a relatively successful channel. Digitisation, however, will spur several news channel launches that are weighed down by high distribution costs in an analogue cable environment.

"Our balance sheet has grown in strength and we are now in a position to seek for growth from heavy investments. We have been planning to launch an English general news channel but have not been able to formalise the approval process. Any launch plan will, however, be linked to digitisation as distribution cost will ease to a large extent with there being no capacity constraint on digital cable networks," says Barun Das, who has been shepherding the company’s growth since he joined as CEO in October, 2007.

English news channels spend 70 per cent of their distribution budget on the metros, according to market estimates. ZNL spends close to Rs 650 million a year to cable networks for carrying its seven channels.

“The focus of the English channels is the metros. Distribution expenses are bound to fall for these channels,” says Das.

The government has mandated the first phase of digitisation in the four metros of Delhi, Mumbai, Kolkata and Chennai by 1 November.

The entry into the English space will allow ZNL to tap into the Rs 5.5 billion-6 billion advertising market, currently divided among four players. Times Now, NDTV 24X7 and CNN IBN take away the bulk of the advertising monies while Headlines Today is slowly gaining ground. NewsX, launched by former Star India CEO Peter Mukerjea and wife Indrani, has been struggling ever since its high-profile launch on 27 March 2008 and the duo exited from it in less than a year‘s time with NaiDunia promoter Vinay Chhajlani and former Businessworld editor Jehangir Pocha taking over as new owners in January 2009.

ZNL weighed the option of consolidating the English TV news market and even looked at swallowing NewsX. But during the due diligence, it dropped the idea. “The buyout would have given us a lead time of at least six months as it is a running channel. But we did not find it a viable proposition,” says Das, without revealing further details.

NewsX was eventually sold this month to ITV Media, the company that runs seven regional news channels including India News (Hindi).

"People may think it is a crowded space to be in but we see an opportunity. With the kind of content that is being currently broadcast, we feel there is a lacuna and void for us to fill the gap and exist profitably. The thumb rule in media, and also in TV news, is that the top three channels can be profitable. Even the fourth player can make money if run and managed efficiently,” says Das.

So will the English channel follow the Zee News model of serious news? “I can’t talk about the positioning now. That we will communicate when we have finalised the launch plan. But as a personal view, I think there is space for a less opinionated and more research-driven kind of reportage,” avers Das.

ZNL cut the commercial time of its flagship Hindi news channel, Zee News, by 30 per cent from April while upping the ad rates by 40 per cent. The move followed the change in positioning of Zee News as it shed trivial news content to differentiate itself.

Will the English channel not erode the margins and make ZNL operate in the red for at least some years? “We want to maintain the 18-20 per cent Ebitda margins. While growing in size, we have a guiding time target to return to those margins,” says Das.

ZNL ended FY‘12 with Ebitda of Rs 533.5 million. For existing news broadcasters, the new launch of an English news channel generally would require a capex of Rs 200 million and an operational cost of Rs 800 million.

“The break even period of an English news channel is normally 4-5 years. But there is cash flow coming in before that. So it is not like we have to wait for that long to correct the Ebitda erosion. It is too early, though, for me to give a target date when we have not even launched. But there will be a significant drop in distribution payouts for all TV news broadcasters in a digitised environment. The other channels in the bouquet will also post growth. So it’s not red ink all over,” explains Das.

A media analyst agrees that the situation will ease for news broadcasters if digitisation rolls out across the country by end of 2014 as mandated by the government. “The Ebitda of ZNL can stay positive in two years‘ time if the English news channel has a decent launch. The company can save on carriage expense that can fall drastically and the other channels have the potential to see some growth. The new channel can also draw in some revenues," the analyst says on condition of anonymity.

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