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Watch out for Mukesh Ambani’s media play

The founder-promoter of a regional-language entertainment broadcasting company sits with his legs stretched out as he watches the epic contest between Rafael Nadal and Novak Djokovic in the final of the French Open. There is excitement in his tone and then, suddenly, the topic shifts to Mukesh Ambani. A note of worry creeps in.

“What do you think of Ambani’s entry into the media and entertainment business with the takeover of Network18 and TV18? Will there be space for many or it will be confined to the big boys only? It will be no more fun being a small player,” he says, looking out of the window of his living room into the dark, breezeless night.

Mukesh_AmbaniFor media entrepreneurs who are struggling to find cash and profit, there is reason enough to dread the future. The business landscape is changing fast, costs are multiplying, revenues are getting consolidated and the tentacles of the big networks are spreading wide.

Star, Zee, Multi Screen Media (MSM) and Viacom18 are already ruling the Hindi entertainment broadcast market. The only player outside this ring is Sahara One and it is languishing at the bottom of the ladder. Nobody knows why the channel exists, what purpose it serves and how long it can continue in this fashion.

So, the first reality has already bitten: Hindi general entertainment channels (GECs) are out of reach of those whose pockets are not deep. Lured by the revenue scale of these channels, a few old hands like former Star India CEO Peter Mukerjea (with private equity backing), NDTV and Turner (with former Star India CEO, content Sameer Nair at the helm) tried, but soon they burnt their hands and took leave of the Hindi GEC game.

RIL - Netork18 - ETV deal in 2012

RIL – Network18 – ETV deal in 2012

India’s regional-language entertainment channels are heading the same way. Star, Zee, TV18 Broadcast (through acquisition of ETV) and Sun TV Network in the South are queering the pitch for the smaller players. There is still space to exist, but in the main markets it will get increasingly difficult to become a local player of some comfortable size.

The revenue-rich markets are already under the power of these four big networks. In the Southern states of Tamil Nadu, Kerala and Karnataka, Sun and Star (through its acquisition of Asianet) together own a dominant market share. On top of that, Star is following a strategy of having two local-language GECs for each of these three Southern states where it operates. And Zee and ETV (under its new owner) can only grow from here on, further narrowing the space for the local players.

Telugu is the only entertainment broadcasting market where there is some space for the local players to harvest revenues. Star is yet to have a presence there and Zee’s Telugu GEC is progressing slowly. Keen to begin its regional foray, MSM was eyeing acquisition of Maa TV Network, but the deal is yet to sail through. For a new player, the possession of movie telecast rights by the existing broadcasters is an entry barrier in this market.

In the Bengali and Marathi markets, both Star and Zee are batting with local-language GECs and movie channels. ETV (acquired by TV18) also has a significant presence in these two markets. With the bigger networks strongly settled, the ABP group, the most popular news brand in West Bengal, had to retreat and bring the shutters down on its Bengali entertainment channel Sananda TV after 15 months of launch.

The bigger networks have also started invading the lesser developed revenue markets. Zee Media Corporation, which runs a clutch of Hindi and regional-language news channels, has introduced a strategy called ‘Terrestrial Entertainment Network’ (TEN) in markets like Rajasthan, Odisha, Bihar and Jharkhand. The model allows Zee’s local news channels in these markets to show entertainment content in prime time. ETV has launched an Odia GEC and has plans to widen its regional footprint.

So, we come to the second reality that is staring us in our face: The regional-language entertainment broadcast industry will be in the hands of the big networks. There will be islands of independent media houses spread across the country, but for them to sail across the neighbouring states and rule a region, the possibility looks bleak. In India’s television history, this has happened just once. Only Kalanithi Maran could take Sun TV Network across the four southern-language states and establish his supremacy as a regional czar. But he started in 1993 when private satellite television in India was at its infancy. There is nobody after him who could repeat his success as a formidable regional TV broadcaster.

There are four reasons why this feat of Maran’s will get impossible to replicate in today’s times. First and foremost, there he is, India’s richest billionaire entering the TV broadcasting space. The popular tale about Mukesh Ambani is that when he steps into anything, he comes with a hunt for scale and a rare appetite to dominate the landscape. With Reliance Industries Ltd (RIL) sitting on a huge pile of cash, the scare is spreading around that big monies will swallow small fish.

That is not always the case in the media business. The man who handed over to Ambani the keys to the diversified media empire he had built over two decades would know the best. Network18 and TV18 founder-promoter Raghav Bahl did not have loads of money to feed the businesses that he had started. He struggled financially, got in a lot of debt but succeeded because he was good at drafting talent, striking alliances with global companies and rewarding key employees with small stakes.

Zee founder Subhash Chandra is a classic case of how a media entrepreneur can grow with the right ideas, calculated bets, creative juices, passion and a hard eye on costs. He could partner with Rupert Murdoch, fight, divorce and build India’s biggest broadcasting empire without having the access to the kind of capital Star India had through its parent News Corp.

Ambani, however, is not starting from scratch. He is taking over a company that runs a wide spread of entertainment channels. The crown jewel is Colors, which is known for its non-fiction properties such as ‘Bigg Boss’, ‘Khataron Ke Khiladi’, ‘Jhalak Dikhhla Ja’, ‘India’s Got Talent’ and ‘Comedy Nights with Kapil’, as well as daily soaps like ‘Balika Vadhu’ and ‘Uttaran’. By virtue of the joint venture, he also gets the Viacom channels such as MTV, Nick, Vh1 and Comedy Central. In the regional space, the ETV channels come to Ambani through the acquisition.

A look at RIL the behemoth (as of 31 March 2014)

  • Consolidated revenue: Rs 4,46,339 crore (Rs 4,463.4 bn)
  • Net Profit: Rs 22,493 crore (Rs 224.93 bn)
  • Market cap: Rs 3,64,550 crore  (Rs 3,645.50 bn)
  • Net worth: Rs 1,97,074 crore (Rs 1,970.74 bn)
  • Cash & marketable securities: Rs 90,637 crore (Rs 906.37 bn)

Nothing is clear yet as to what twists and turns Viacom18, the equal joint venture between TV18 and Viacom, will take. Meanwhile, TV18 has gone ahead and launched regional news channels in markets where ETV GECs were operating. Only Gujarati and Odia news channels are yet to launch, but they are on the agenda. Since TV18 already has IBN Lokmat, a Marathi news channel under ETV is not necessary. The old ETV channels, which used to have a news band, have been converted into pure entertainment channels.

With cash no more an issue, TV18 Broadcast can launch channels that Bahl couldn’t because of capital constraints. Like the other big networks, it could come up with a Hindi movie channel and more GECs. The regional fleet will expand, niche channels will spring up and the bouquet will elongate to fill the gaps in the market.

With Ambani’s capital chasing content, costs might go up. Costs of TV telecast rights for movies could balloon and so could programming costs. Besides, TV18’s motion pictures business could see massive capital injection to scale up the production slate.

“This is bad news for small and regional players. More channel launches will mean more competition, leading to a rise in content costs, audience fragmentation and pressure on ad pricing. The effect of it all will, however, depend on how much success comes through these launches,” says the head of a regional channel on condition of anonymity.

For the smaller players, the second danger is that bigger networks are going to add channels across markets and genres. India’s historic march towards cable TV digitisation will only aid in this process as bandwidth gets freed for occupation of more channels. Coupled with the Telecom Regulatory Authority of India’s (TRAI) 12-minute cap on advertisements per clock hour, the climate becomes congenial for launching more channels and creating ad inventory space for advertisers to consume as the supply side comes under pressure.

The third influencing factor could be the entry of MSM into the regional space. Two earlier attempts through the acquisition of ETV and Maa TV have failed, but it is only a matter of time when it starts participating in the fast-growing regional markets. Once MSM’s might comes into play in the regional space, the weather can only get rougher for the local-language broadcasters.

The construct of the industry is possibly set for change. With Ambani in the fray, consolidation and acquisitions can drive scale. In the process, death for some players will be inevitable. Outside this, some genres like music will be under tremendous pressure and be occupied mainly by the bigger networks.

How Ambani can influence TV news landscape

The TV news landscape is vastly different from the entertainment empires that are springing up in India and Ambani’s entry can have no radical business impact. News channels are mushrooming in all parts of the country, and in most cases the profit-loss equation is not even considered by the promoters. They will continue to fragment audiences, ad prices will be undercut and subscription revenues hard to get in a commoditised market.

The supply of TV anchors who can swing the fate of news channels is also limited. Ambani will have to choose from that plate or he may decide to experiment with a newcomer. The alternative approach is to have a CNN-style news outlet, but that will guzzle a lot of capital and with the way the industry is structured, it will be economically unviable.

“It is highly unlikely that the TV news industry will see consolidation any time soon. Despite losses, the smaller players will continue to run the channels. The contribution of huge capital will not bring about any tectonic shift in the business landscape. There are also limited TV anchors who can make the difference,” said the former CEO of a news network.

The concern several journalists have expressed is about editorial freedom. India is entering a new phase of history where corporate ownership is beginning to infiltrate the TV news space. In the case of TV18, which owns and operates news channels CNN-IBN, IBN 7, CNBC TV18, CNBC Awaaz, IBN Lokmat and the ETV channels, RIL will control ownership. In TV Today, Aditya Birla has entered through stake acquisition in the parent company Living Media India, but his is not majority ownership yet.

In India, TV news media got started by a crop of promoters who were known journalist faces. Dr Prannoy Roy started NDTV, Aroon Purie launched TV Today, Bahl ran TV18 and Rajat Sharma came up with India TV. Leveraging their print brand, The Times Group launched Times Now and ET Now. The versatile Chandra, of course, had Zee News and a slew of regional-language news channels. Many of these promoters took the initial public offering (IPO) route to fund their ventures.

With the IPO market drying up, corporate entry can keep the funding tap open for TV news outlets which are struggling to stay profitable. Whether the soul of the newsroom will stay alive and the editorial freedom be maintained in these outlets only time will tell.

There is a parallel development taking place in the Indian political system. The overwhelming majority of the Narendra Modi-led BJP government means that India will bury its socialist structures and have a right-wing economy. Coinciding with Ambani’s arrival on the scene, chances are that a vast majority of the news outlets will turn right wing. The ideological shift in the newsrooms will lead to stresses, conflicts and new energies that will reshape the presentation of news.

The sports play

A media empire without sports broadcasting? The three major networks—Star, Zee and MSM—each run a sports business that is expensive, delivers mass audiences and is high on revenues. Will Ambani join the big battle?

Mukesh Ambani’s sports journey so far

  • 24 January 2008: RIL’s Indiawin Sports Pvt Ltd (ISPL) buys Indian Premier League (IPL) Mumbai franchise for $111.9 million.
  • 15 March 2010: Makes second big move in sports by entering into an equal joint venture (JV) with global sports management company IMG to form IMG Reliance.
  • 9 December 2010: IMG Reliance sets the ball rolling, acquires Indian football commercial rights from All India Football Federation for Rs 700 crore (Rs 7 billion) for 15 years.
  • 21 June 2010: IMG Reliance signs a 30-year deal with Basketball Federation of India (BFI) to develop basketball in India.
  • 21 October: IMG Reliance forms JV with Rupert Murdoch’s Star India to launch franchise-based football league Indian Super League

Sports is not new to Ambani and it will form a critical content piece in his 4G play. He owns the IPL franchise Mumbai Indians, runs a joint venture with IMG, and has sports properties in soccer, tennis and basketball. What is missing is the broadcasting piece.

If Mukesh Ambani decides to lock up the cricket rights like the ICC World Cup and the Indian Premier League (IPL), imagine at what costs it will come as he will have to outbid the existing players. My God, we surely have a game on with Mr Ambani at the batting crease.

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