M&E deal value falls to $1.26 bn in 2017 in the absence of mega deals: FICCI E&Y report

MUMBAI: The total deal value in the media & entertainment (M&E) sector has fallen to $1.26 billion in 2017 compared to $2.86 billion in 2016, according to FICCI E&Y M&E 2018 report.

The report noted that the key reason for the drop in deal value in 2017 is the absence of mega deals unlike 2016 when the industry saw high-profile deals.

The year 2016 has seen mega transactions like the Dish TV—Videocon d2h merger worth $1.2 billion and the sale of Ten Sports Network by Essel Group to Sony Pictures for $385 million.

Overall, the number of transactions in the M&E sector decreased to 40 deals in 2017 from 56 deals in 2016.

There were very few deal activities in the traditional media segments even as the emerging segments such as gaming and digital gained momentum. The slowdown can be partially attributed to challenges faced by the advertising segments of the industry due to demonetisation and GST.

Television

Television was the largest sub-segment in terms of deal size led by the transaction in the TV distribution segment. However, the activity in the TV broadcasting space remained muted. The deal activities witnessed a mix of initial public offerings, private equity, and strategic transactions.

TV distribution

The TV distribution segment saw three major deals. Private equity major Warburg Pincus acquired a 20% stake in Bharti Airtel’s DTH business Bharti Telemedia, which operates under the brand Airtel Digital TV, for Rs 2240 crore in December 2017.

In November 2017, Reliance Communications, part of Reliance ADA Group, entered into a binding agreement to sell its DTH business, Reliance Big TV, to Pantel Technologies, an information technology, and communication device company, and Veecon Media and Television.

In July 2017, GTPL Hathway underwent its public listing where it raised Rs 484.8 crore including a primary issue of Rs 240 crore, the majority of which was to be utilised to repay/pre-pay the borrowing availed by the company.

In addition, the report noted that there were a few smaller transactions where multiple system operators (MSOs) like GTPL and Den Networks consolidated their positions to the last mile by increasing their stake in their respective subsidiaries/JVs.

TV broadcasting

The TV broadcast segment saw only one major deal with ZEEL acquiring 9X Media and its subsidiaries for Rs 160 crore in October 2017. 9X Media operates a bouquet of six music channels, which have a leading market share in their respective segments.

The other notable transaction in the television broadcasting sector was the consolidation within the TV shopping industry with the merger of HomeShop18 and Shop CJ Network. The merged entity will benefit from a bigger scale and improve its position in the TV home-shopping segment to compete better with the e-commerce players. The merger will be effected by way of the share swap, where Shop CJ Network will get a 25% stake in HomeShop18.

Film

The film distribution industry witnessed transactions in the digital ticketing and digital cinema distribution sub-segments.

The key deals in the film distribution segment in 2017 were Warburg Pincus acquired a 14% stake in PVR for Rs 820 crore. Private equity firm Multiples Alternate Asset Management sold a 9% stake and the promoters sold a 5% stake in the transaction. After the transaction, Multiples Alternate Asset Management will continue to hold a 14% stake and the promoters will remain the largest shareholders with more than a 20% stake.

UFO Moviez India and Qube Cinema Technologies have decided to merge their business to strengthen their position in India’s digital cinema distribution and in-cinema advertising industry. The combined entity, for its in-cinema advertising platform, will have a presence across 7,300 digital screens spread across India with a seating capacity of 95.5 million per week.

The two companies have complementary geographical strengths with Qube having a deeper penetration in South India and UFO having a strong presence in the rest of India.

Chinese internet giant Alibaba Group’s flagship entertainment arm, Alibaba Pictures Group acquired a majority stake in India’s online ticketing platform TicketNew, run by Orbgen Technologies for Rs 120 crore.

FM radio

While the FM radio industry did not witness any significant deal activity, the year witnessed a successful public listing of Jagran Prakashan-promoted Music Broadcast, which operates a network of 39 FM stations in 39 cities under the brand of Radio City. The company raised approximately Rs 488.5 crore by way of primary issue of Rs 400 crore and an offer for sale of Rs 88.5 crore.

The traditional print industry did not witness any deal activity in 2017 as the digital consumption of news continued to remain an overhang on the industry. Despite the increase in readership witnessed in the regional print media industry, the overhang of digital kept investors risk-averse with limited deal activity potential in the near term.

Digital

The report noted that the digital segment is witnessing multiple investment themes with the increase in internet penetration. As a result, there is higher content consumption on digital platforms, with increasing focus on localized content, increasing ad spends in digital media and increasing consumption of ticketing services online.

Digital content

Balaji Telefilms raised Rs 413.3 crore from Reliance Industries Ltd. (RIL) for a 25% stake. The proceeds will be used to further speed up content development initiatives, especially for ALTBalaji, thereby providing it a strong ability to compete with other OTT service providers. The stake purchase will give RIL access to content generated by Balaji Telefilms for use by its telecom arm, Reliance Jio Infocomm Ltd.

Beijing Bytedance Technology, which operates mobile applications that make personalised content recommendations, acquired a stake in Ver Se’ Innovation, which operates online news and local language content application Dailyhunt, from Franklin Templeton Private Equity for INR1,300 million. Dailyhunt provides news in 14 languages licensed from over 650 publication partners every day.

Star India acquired a minority stake in Zapr Media Labs, a digital media company in March 2017. The investment entails a strategic partnership between Star India’s OTT platform Hotstar and Zapr.

ZEEL acquired the remaining 49% stake in its subsidiary India Webportal, which publishes content through 13 digital brands, for Rs 197.5 crore in June 2017. The company also acquired a 12.5% stake in Tagos Design Innovations, which operates an in-video discovery platform that allows users to put a visual benchmark within videos, TV, and movies. The acquisitions will help the company grow its revenues from its OTT business.

Digital advertising

Dentsu Aegis Network acquired 89% stake in SVG Media, which operates mobile, digital advertising and in-app video platforms, for Rs 790 crore in April 2017. SVG Media will become part of Dentsu’s Asia Pacific digital marketing agency Columbus.

Dentsu Aegis Network also acquired a 51% stake in Sokrati Technologies, a digital marketing and analytics provider, for Rs 100 crore in July 2017. As part of the agreement, Dentsu will launch its US-based performance marketing agency Merkle in India. Merkle’s backing and Dentsu’s reach will help Sokrati expand its offerings with its technology and expertise.

Kenscio Digital Marketing, which offers innovative marketing technology solutions to brands and enterprises, announced the acquisition of Innovo Design, a boutique marketing design studio that offers visual business solutions, in February 2017. The acquisition will enable Kenscio to bridge the creative gap by bringing in Innovo’s expertise in creatives, content, social media engagement and motion graphics.

Gaming

Gaming as a sector attracted all-round interest from private equity and strategic investors. The increase in internet penetration in India coupled with the reduced cost of access devices has resulted in increased traction in the gaming industry. Nazara has emerged as the most active company in the casual gaming sector and Smaaash as the most active company in the offline gaming space. Both companies have completed a series of investments/acquisitions and also some investment/secondary transactions.

In August 2017, Smaaash Entertainment acquired PVR bluO entertainment from PVR and Major Cineplex Group for Rs 86 crore. After the transaction, the area under Smaaash management will increase to 600,000 sq. ft. from 276,000 sq. ft.

In September 2017, Smaaash Entertainment acquired SVM Bowling & Gaming, a popular entertainment venue in Southern India. The acquisition added 13 centers to Smaaash’s portfolio, expanding its presence further to 700,000 sq. ft. and making it the largest offline gaming player in the country.

Smaaash Entertainment completed two rounds of fundraising in 2017. It raised Rs 25 crore from Sixth Sense Ventures, a consumer-centric venture capital firm, in November 2017 and Rs 90 crore from a group of HNI investors in December 2017.

Nazara technologies and Kae Capital invested in HalaPlay, a daily fantasy sports platform, in November 2017. The company also raised Rs 330 crore from IIFL Special Opportunities Fund, a private equity fund, and Rs 180 crore from Rare Enterprises, an asset management firm run by Rakesh Jhunjhunwala in December 2017.

The deal was a part of a pre-IPO fundraise, with the listing planned for the first half of 2018, thereby becoming the first Indian gaming company to tap the public market.

Head InfoTech India Pvt. Ltd., which operates online gaming firm Ace2Three, sold a majority stake for Rs 474 crore to Canadian private equity firm Clairvest Group along with a consortium of other investors in April 2017. Clairvest is an investor in multiple gaming ventures globally and will help the company expand across multiple geographies.

Animation and VFX

The Animation and VFX segment witnessed some strategic deal activity in 2017. Some of the key transactions were as follows:

Cosmos Entertainment, a producer of animated videos for kids, acquired a 12% stake in Maya Digital Studios, an operator of animation studios, from Mukta Arts in August 2017.

Framestore, a UK-based visual effects company, acquired an undisclosed stake in Anibrain, a VFX, and creative studio operator, for Rs 96.2 crore in September 2017. This transaction is a part of Framestore’s expansion plan and marks its entry in India.