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After spate of deals, M&A in TV sector enters lull phase

The deal street in the media sector, noisy for the last several months, has entered a lull phase. Companies have taken time out on the realisation that there is scope for organic expansion and there aren’t any valuable assets for purchase at this stage.

Star India, which has led the acquisition battlefield in the television-broadcasting sector, will perhaps take a long pause. The purchase of Maa Television Network, which is currently awaiting regulatory approvals, completes Star’s geographical footprint in the main TV markets of India. It allows Star to enter the Rs 2,000 crore (Rs 20 billion) Telugu TV market and fills a vital gap in the network’s portfolio. The Indian arm of 21st Century Fox gets four Telugu channels—Maa TV (GEC), Maa Movies, Maa Music and Maa Gold—to grow in India’s second-biggest cable & satellite (C&S) market.

After taking charge as Star India CEO in 2007, Uday Shankar made it his mission to expand to the southern-language markets where the company was absent, while maintaining leadership in the Hindi entertainment space. He took the acquisition route and targeted Kerala-based Asianet Communications, for which the total price paid was $557 million. The complete buyout evolved in stages starting from August 2008 and gave Star the Malayalam and Kannada markets, while in Tamil the network had presence through Vijay Television. The only missing piece in the southern land of India was Andhra Pradesh.

 

Murdochs-acquisition

In the other two big regional-language markets, Shankar decided to launch general entertainment channels (GECs) in 2008. Star Jalsha was launched in September 2008 to tap the Bengali market, and Star Pravah, the Marathi GEC, was born two months later. In both these languages, Star ran news channels as a minority equity partner, with ABP Group holding 74 per cent stake. Star finally exited the TV news business in 2012. It also offloaded its entire 50 per cent stake in Star CJ Network India to Providence Equity Partners for $63 million in 2014.

Star’s regional-language strategy, thus, took shape in 2008. There are a few, albeit small, language markets like Gujarati and Punjabi where Star still does not have a presence. For entry into these markets, Star can launch on its own and does not need to be on the acquisition path.

Shankar identified sports as the other big growth area for Star and needed ESPN out so that it could pump in capital more aggressively and control market share independently. ESPN Star Sports (ESS), the equal joint venture company between ESPN and News Corp (now 21st Century Fox) for the Asian market, was losing money. While News Corp was keen on betting big, ESPN was reluctant to invest aggressively and was shifting focus to the US market where Rupert Murdoch was about to launch the all-sports network Fox Sports 1. What followed was the buyout of ESPN’s 50 per cent stake in ESS in 2012 for $335 million. Though it was an Asia acquisition, India was planned to be the main beneficiary.

Since then, Shankar has built the sports business into an eight-channel network (Star Sports 1, 2, 3 and 4, with HD in each of them). Star has a very large market share and has committed Rs 20,000 crore (RS 200 billion) to grow the sports business.

Star’s last purchase was Screen, a weekly broadsheet on the film and entertainment industry, from the Indian Express Group. Bought last month, Screen today exists in digital form to strengthen Hotstar, Star’s digital content platform. That same day, Rupert Murdoch’s other company News Corp acquired VCCircle Network, a media company focused on start-ups.

For Shankar, it looks like the time has arrived for Star to digest these deals and focus on organic expansion. News Corp, on the other hand, will continue to explore opportunities for acquiring digital companies.

Punit Goenka, a contemporary of Shankar in the sense that he became CEO of Zee Entertainment Enterprises Ltd (ZEEL) in 2008, is not an ardent follower of the merger and acquisition (M&A) game. The only purchase made during his time as MD and CEO was the ailing 9X, a Hindi GEC started by former Star India CEO Peter Mukerjea and wife Indrani, but that was for tax purposes. In fact, the last major acquisition by Zee happened in November 2006 when it snapped up 50 per cent stake in Taj Television (which ran Ten Sports) for $57 million. This was upped to 95 per cent stake in 2010.

ZEE acquisitions

Goenka is a firm believer in the native Zee culture and prefers to grow organically through new channel launches. Even in the southern-language markets, Zee has launched new channels despite the progress being slow. In the TV news space, Zee acquired Maurya TV in October 2013, but that was for just Rs 7.79 crore (Rs 77.92 million).

Down south, Sun TV Network founder-promoter Kalanithi Maran also likes to build his own farmhouse. Years ago, he acquired Tamil daily ‘Dinakaran’ and Red FM to give the radio business a pan-India presence, but those were rare exceptions. When he acquired low-cost airline SpiceJet in 2010 to enter the aviation sector, it turned out to be a disaster.

Multi Screen Media (MSM) has been on the prowl but has not been able to consummate deals. A definite interest shown was in acquiring Maa Television Network and an agreement was inked to pick up 30 per cent stake in April 2012. But certain issues cropped up and there was a pause. Talks were revived, but no conclusive agreement could be reached.

MSM has plans to expand in the regional-language markets, but the problem is that there are no regional media companies of strategic worth available for buying.

Under Mukesh Ambani-controlled Reliance Industries’ (RIL) ownership, TV18 Broadcast has a rich purse to shop but it is unlikely that it will chase anything now. The network spans across Hindi entertainment channels, regional channels (through ETV acquisition), English channels, and news channels. Still, the product portfolio has a gap in two main genres—Hindi movies and sports. Both will take a long time to build, but there are no strong assets in this space to buy.

TV18 - ETVPending, of course, is the regulatory clearance for Viacom to acquire 50 per cent stake in five regional GECs of ETV from TV18. Part of TV18 now, these channels will move to Viacom18 Media, the 50:50 joint venture between TV18 and Viacom.

In sports broadcasting, the fight is for rights rather than M&A deals. Neo Sports Broadcast, which owns and operates Neo Prime and Neo Sports channels, is going through a tough time. The sports rights are concentrated in the hands of the top three broadcasters—Star India, Ten Sports, and MSM. We could also see Discovery Communications bring Eurosport to India at some stage.

In the TV music genre, deals are difficult as there are too many players, the business is commoditised, and revenue scalability is a huge issue. Private equity firm New Silk Route (NSR) is looking to unload its stake in 9X Media (erstwhile INX Media), a company that runs a clutch of music channels, but has made little progress. While the bigger networks have a presence in the genre, Star has exited the space and converted Channel V from a music channel into a youth GEC.

DTH evinces interest of investors

Moving away from television, the direct-to-home (DTH) sector is evincing investor interest. Videocon d2h has raised $325 million and become the first DTH company to list in the US. Backed by Silver Eagle Acquisition Corp (SEAC), which is co-founded by former chairman and CEO of MGM Harry Sloan and former Sony Pictures co-president Jeffrey Sagansky, the company listed on Nasdaq to enjoy a market valuation of $1.2 billion. The only other Indian DTH company to have gone public is Dish TV—and that was in 2007.

Dish TV’s upsurge in stock price for over a year helped Apollo Global Management LLC to sell 3 per cent stake for Rs 262.53 crore (Rs 2.625 billion). While the US private equity firm had acquired 11 per cent stake for $100 million in 2009 at Rs 39.8 per share, it was sold five and a half years later at an average price of Rs 84.04 per share. Apollo’s remaining 8 per cent stake is worth Rs 721 crore (Rs 7.21 billion) as shares of Dish TV closed on 10 April 2015 at Rs 84.90 apiece on the BSE.

The climate has become conducive for Tata Sky and Airtel Digital TV to raise capital. So, why are DTH companies suddenly favoured among the investors?

Dish TV, the market leader with 12.5 million net subscribers as of 31 December 2014, is closer home to achieving net profit. DTH ARPU is steadily rising, high-definition (HD) population is growing, and churn is falling. Moreover, digitisation in Phase III and IV towns offers DTH a strong opportunity to mop up subscribers.

Consolidation in the DTH sector, though, remains a bleak possibility. Reliance Digital TV, the fully owned subsidiary of Reliance Communications, and Maran-promoted Sun Direct engaged in talks for a merger but it did not come to fruition. A deal among the other players is unlikely as the satellite used by them for KU-band transponders is not co-located.

Digitisation drives deals in cable TV sector

A big driver of deals in the cable TV sector has been digitisation, as multi-system operators (MSOs) have sought capital to help position themselves for the new landscape. National MSOs like Hathway Cable & Datacom and Den Networks have got Providence and Goldman Sachs to invest in their companies. In fact, Hathway had indulged in a couple of fund-raising activities last year at Rs 320 per share (Rs 64 per share adjusted for stock split). Lately, Siti Cable Network raised Rs 221 crore (Rs 2.21 billion) via qualified institutional placement (QIP).

With 70 million households to be digitised in Phases III and IV, MSOs will continue to raise capital to expand their operations. The problem is that the share price of the listed MSOs has fallen drastically, discouraging them to part with equity.

While fund-raising had so far been confined to the national MSOs, the initial public offering (IPO) of Odisha-based Ortel Communications this year signified that regional MSOs could also tap the market. Punjab-based Fastway Transmissions, a JV between Gurdeep Singh and Digicable Network India, is planning to go for a public float to fund its digital cable and broadband business. The MSO intends to file draft with market regulator SEBI next year, Fastway’s founder and managing director Singh earlier told TelevisionPost.com.

Incidentally, both these MSOs have a dominant market share in their respective states. Hitting the IPO market will be difficult for regional MSOs that do not have a dominant market share.

Slew of deals in multiplex sector

The multiplex sector saw a flurry of deal activity in 2014. Cinepolis bought out E-City Venture’s Fun Cinemas, while Inox Leisure acquired Delhi-based Satyam Cineplexes. Kochi-based Carnival Films was on the rampage too, buying out Anil Ambani-controlled Big Cinemas for Rs 700 crore (Rs 7 billion) and HDIL’s Broadway Cinemas in 2014. The buying fever continued this year when it snapped up Network18’s entire stake in Stargaze Entertainment, the operator of Glitz Cinemas.

Going ahead, there will be further consolidation in the sector. South Indian multiplex operator SPI Cinemas, which runs Sathyam, Escape, S2 Cinemas, the Cinema and Luxe, is waiting for a suitor after PVR Cinemas called off talks over valuation. SPI Cinemas seeks a valuation of Rs 1,000 crore (Rs 10 billion), the largest of its kind in the cinema exhibition space.

M&A in FM radio sector heats up

After several years of freeze, the M&A market in the FM radio sector has heated up ahead of the Phase III auctions. In December 2014, print major Jagran Prakashan Ltd (JPL) acquired Music Broadcast Pvt Ltd (MBPL), the company that operates FM radio stations across 20 cities under the Radio City brand.

Soon after this big-ticket deal, Entertainment Network India Ltd (ENIL), which owns Radio Mirchi, entered into an agreement to buy out TV Today Network’s FM radio station Oye 104.8.

Deal making in the radio sector will continue to show signs of life after the Phase III auctions and before signing of grant of permission agreement (Gopa). It will be interesting to watch what HT Media’s Fever FM and Next Radio’s Radio One do in this window.