Corporate: TV 18 channelises its synergies

CORPORATE
TV 18 Channelises Its Synergies

With forays into broadcasting, radio, the Net, and multimedia, and a successful public issue, only performance will turn the signals in its favour.

By Sahad P.V..

On February 16, 2000, as punters rooted non-stop for the newly-listed Television Eighteen India (TV 18) scrip on the Bombay Stock Exchange (BSE), it touched an intra-day high of Rs 1,950, and instantly made Raghav Bahl--the company's Managing Director--a billionaire. At that price, Bahl's 26 per cent holding was worth Rs 416 crore. That was a whopping achievement for the Rs 17.50-crore company that had issued its Rs 10 shares at a premium of just Rs 170. Ostentation isn't a hallmark of TV 18, and that's a fall-out of the bad times that Bahl went through in 1997 when 100-odd employees had to leave.

Since then, Bahl has been in a fast-forward mode. He wants to catapult his outfit from being a television software-provider into one with interests in broadcasting, ownership of entertainment software, multimedia packages, fm radio, and a business portal. Agrees Siddharth Ray, the 45-year-old Chairman of Stracon, a media marketing company: "In the past, TV 18 was driven by opportunities only. Now, it has opted for the strategic route."

Leveraging its agreement with CNBC Asia, the Singapore-based subsidiary of CNBC, to provide exclusive content for the CNBC India business channel, TV 18 has got a stake in the broadcasting venture. While Television Eighteen Mauritius, its fully-owned subsidiary, owns 49 per cent, the remaining stake is held by CNBC Asia. Since TV 18 would own the business content, it will syndicate that through its new portal. And its ties with broadcasters, such as Sony Entertainment Television, would help it become the owner of entertainment programmes too.

Such synergies are coupled with Bahl's plans to beam into radio and multimedia as well as TV 18's agreement to get a share of CNBC India's surplus revenues from advertising and subscription. That, says India Equity Research, would help TV 18's turnover to jump from Rs 17.50 crore in 1999 to over Rs 74 crore in 2002, and net profits from Rs 4 crore to Rs 38 crore. An Earnings Per Share of over Rs 35 in 2002 would mean a scrip price of Rs 3,850 at the current p-e of 110.

Viability Problems

Bahl feels that the scrip is undervalued: "Crest Communications is quoted at a multiple of 360, and Zee Telefilms at 760." Adds Ray: "The euphoria is based on expectations rather than on the current financial performance." But TV 18's future will depend on its news division, slated to contribute two-thirds of the turnover in 2002.

The first problem area is the viability of a niche channel like CNBC India. Of the 60-odd channels in the country, only 3 networks--Doordarshan, Zee, and Sun--earn profits. That is why BITV and Home TV closed down operations, and New Delhi Television decided to be a mere content-provider.

In fact, with its 7-hour live, daily programming focused on the capital markets, CNBC India is estimated to lose Rs 13 crore in the first 2 years of operations. TV 18 will have to foot half the bill through interest-free loans because of its 49 per cent stake in CNBC India. The problem will be compounded if it is unable to break even thereafter. It could force TV 18 to continue to foot the losses, and pressurise cnbc to opt out of the venture since TV 18's content-related agreement is valid for 4 years.

Earning profits could also prove difficult given the division of the Rs 2,000-crore ad pie among the various channels. At present, Zee (share: 35 per cent), Doordarshan (26 per cent), Sony (18 per cent), and star (11 per cent) account for 90 per cent. Of the remaining pie, nearly half goes to the Sun platform. That leaves only Rs 100 crore for TV 18. Says Markand Adhikari, 40, Managing Director, Sri Adhikari Brothers: "TV 18's advertisers will be limited to the financial companies."

Beaming up Revenues

However, Bahl feels that the company's adspend is expected to double by 2003 even as the number of cable homes jump from 32 million at present to 55 million by 2002. But what will offer stable earnings to TV 18 include: the cost-plus-33 per cent margins deal for the content it provides for CNBC India and the huge margins in entertainment programmes, as well as the expected 7,000-hour contract spread over 2-3 years that the company has signed with Dishnet to convert textbooks into multimedia format.

An added advantage comes in the form of TV 18's decision to shift the business channel from the star platform to Sony. Realising that it has no expertise in raising advertising or subscription (from cable operators) revenues, it has signed a contract with Sony precisely for this. That will help raise subscription revenues since, in the past, only 10 per cent of the 5 million homes CNBC India was beamed into were paid subscribers.

If the business channel does take off, it can drive traffic to TV 18's vortal, rupeemaker.com. Aimed at investors, this vortal will provide investment information and also allow on-line trading. But there is nothing innovative about this portal since there are over two dozens sites--including sharekhan.com, myiris. com, and walletwatch.com. Explains Anirudha Dutta, 36, Director, Indiainfoline.com: "In the business and financial space, the competition is hotting up."

Clearly, Bahl is looking at the potential of the convergence of technology. But the road ahead is going to be more difficult for him since his model is pegged on revenue streams from the channel. And, if the history of Indian broadcasting is anything to go by, such revenues are certainly going to be much more difficult to come by.

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