Corporate: Can Sab Write a Happy Script?

CORPORATE: ENTERTAINMENT
Can Sab Write a Happy Script?

Given the clutter of TV channels, the Adhikari Brothers' new Hindi entertainment channel has to woo the viewer to gain acceptance.

By Nita Jatar Kulkarni

Sri Adhikari Brothers (SAB) Television Network's swank seven-storey glass building in Andheri, a Mumbai-suburb, towers over the other non-descript buildings in the neighbourhood. So does the company's performance, as the two Adhikari Brothers-Chairman Gautam, 48, and Joint Managing Director Markand, 42-aim to enter the big league. Avers Markand Adhikari: ''It was our dream to become an entertainment conglomerate.''

Till now, it has been quite a dream-run for the brothers. For instance, Markand Adhikari, who used to drive a yellow Standard a few years back, now zips around Mumbai in a black Mercedes E-220. And the company, which clocked a turnover of Rs 1 crore in 1994-95, earned revenues of Rs 31 crore in 1998-99. Even better, SAB's software library was valued at Rs 53 crore by KPMG India in 1999.

But as SAB uplinks its growth plans, there are a few disturbing signals. While doubts are being raised about the television software house's diversification into broadcasting, questions are being asked about its undue dependence on a single revenue-source, Doordarshan. Research firms like First Global also feel that the company's bottomline is boosted through creative accounting. So, can SAB increase its revenues, five times to Rs 150 crore in the next five years as it promises to?

Broadcasting new signals

The crux of the Adhikaris' growth strategy lies in their ability to make a success with the broadcasting venture. Last month, SABe TV-a Mauritius-based company promoted by the Adhikaris-launched its first TV channel. The company plans to start three more in the near future. Explains Markand Adhikari: ''It's a natural step for a production house to diversify into broadcasting.'' Besides, becoming a broadcaster will help SAB grow faster and reduce its dependence on Doordarshan.

At present, 85 per cent of the company's turnover comes from the 24-35 hours of programming it creates every week for Doordarshan channels. Predicts Devina Mehra, 35, Director (Research), First Global: ''SAB's revenues from Doordarshan are likely to plateau as the latter starts losing its grip on the Indian market.''

That does not trouble the Adhikaris as they feel that their entry into broadcasting will help reduce Doordarshan's contribution to SAB's revenues to 50 per cent in 2000-01. Moreover, as SAB markets time-slots for its programmes on Doordarshan, it claims to have a marketing edge that can translate into ad-revenues for its channel venture. Asserts Gautam Adhikari: ''We share an enviable relationship with ad agencies.'' True, eight advertisers including Colgate-Palmolive and Marico Industries have already signed deals with sabe's Hindi entertainment channel.

Demurs Mehra: ''What is important is to market the channel to the audience.'' Given the TV channel clutter in India, broadcasting is a high-risk business. Agrees Ronnie Screwala, 42, Chairman, UTV Group, which recently took over Vijay TV: ''I do not see room for so many broadcasters.'' One reason? Like today, the top five channels are bound to gobble up 90 per cent of advertising revenues, which will jump 175 per cent, to over Rs 16,000 crore in 2004-05.

If that is the case, then the only way other channels can survive is through the subscription-model, that is, to charge a fee from each viewer-household. But SABe does not want to become a pay-channel in the next few years. Therefore, it will either generate high viewership that will, in turn, attract advertisers, or pump in huge sums of money in marketing activities. Agrees K.T. Chandy, 26, Consultant, Arthur Andersen Consulting: ''One needs deep pockets to survive in this industry since it takes around four years for any channel to break-even.''

Boosting its bottomline

However, in the short-term, the company needs to desperately clean up its balance-sheet. For, unlike its competitors, First Global estimated that SAB only accounts for 50 per cent of the production costs incurred on programming in its books while the remaining amount is adjusted over the life-cycle of the serial (four years). If the serials are not aired for some reason, the entire costs are shown under the head Fixed Assets, and are not a part of the Profit & Loss (P&L) account.

In contrast, Zee Telefilms writes off 90 per cent of its production costs on programmes, and UTV writes off 100 per cent of costs for non-fiction programmes and 75 per cent in the case of fiction-based serials in the first year itself. The result: SAB's bottomline as well as margins are exaggerated. But Markand Adhikari insists that this practice is being given up and ''in this year's balance-sheet (1999-2000), the costs will be shown in the P&L account.'' (At the time of going to Press, SAB had still not finalised its accounts.)

That will not impact the bottomline. Explains Markand Adhikari, ''we have done quite well in 1999-2000.'' During the first nine months of the year, while sales exceeded the figure for the entire previous year, net profits rose from Rs 12.59 crore compared to Rs 7.02 crore in the 12-month period of 1998-99. And expenditure, as a percentage of sales, was 53.20 per cent in the first nine months of 1999-2000, compared to over 73 per cent in the full year of 1998-99. Could that still-high proportion be due to the fact that the company had still not written off its production costs?

Obviously, the Adhikari brothers have to remove such doubts from their shareholder's mind. Its share-price has dropped by 80 per cent: from a peak of Rs 1,915 on February 28, 2000, to Rs 400 on May 10, 2000. ''If the scrip-price is weak due to fundamentals, there are questions about whether the company can sustain high growths in the future.'' says Mehra. Adds Chandy, who is unsure whether the low scrip price of SAB is not due to lack of investor-confidence: ''The market usually catches on to practices that are not the norm for the industry.'' Bottomline? SAB has to broadcast sharp financial signals to the outside world.

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