Marketing: Channelling Revenues

MARKETING
Channelling Revenues

How will the 20 new TV channels sustain themselves? Is it advertising or is it subscription?

By Nita Jatar Kulkarni

There's been a quiet revolution brewing in your living-room even as you, and everyone around you, have been busy keeping tabs of the (un)imaginative prefixes, suffixes, and vowel- and consonant-substitutions dot.coms have come up with for the much sought-after India URL. Switch on your tv and scan the channels. How many did you think there were at last count? Fifty, may be 55. How many channels do you see on your telly now? Seventy? Seventy-five. That's what Kshama Ranade, who lives in New Jersey (US), discovered when she hopped down to Mumbai for a quick visit last month. ''That's more than I get at home,'' she told a surprised friend.

Since January, 2000, more than 20 new channels have made an appearance on the small-screen-an average launch-rate of four to five channels a month. These include international channels like Home Box Office (HBO) and Nickelodeon, as well as Indian channels like SABe, Sahara, and Zee English. But how many of these channels will survive the test of time? For, every channel launched fragments the market just that wee bit more. How exactly do these channels plan to recoup the costs associated with programming, transmission, and brand-building?

A Growing Market

The burst of activity in the TV channels market isn't unexpected. Entry strategies are based not on impulse-''I feel like launching a Punjabi TV channel today''-but on the cold logic of numbers. By end-2000, there will be 85 million TV households in India, which will translate into over 400 million viewers. And cable, which reached a mere 25 million viewers last year-a penetration of 19 per cent-will be available to a more respectable 50 million by the end of this year. Clearly, if one were to go by the numbers, launching a TV channel isn't a bad idea.

That could, in part, explain Zee's gambit of launching two all-English channels, Zee English and Zee Movies, in March, 2000. And Broadcast Worldwide's Rathikant Basu's desire to go vern by launching a slew of regional TV channels. The one thing that hasn't changed in the topography of the satellite TV channels market is the fact that the number of possible revenue-streams for a channel remains two: advertising and subscription.

The Subscription-led Model

There is a strong economic basis for a family of TV channels. At one level, it is easier to build sub-brands under an umbrella one. At another, a cluster of TV channels makes it possible for the company to go digital. This has several advantages: digital signals translate into better picture quality, up to seven digital TV channels can be broadcast from a single transponder while each analogue signal requires a separate one, and the compression of signals means a more efficient use of the spectrum. TV channels pay as much as Ł5 million for a transponder, and can make substantial savings on transponder costs if they turn digital as they can beam several channels on a single transponder.

Most importantly, a company with a digital bouquet (of TV channels) is better placed to negotiate with cable-operators than the one which has a single (digital) channel or a range of analogue ones. Cable-operators need a decoder (provided by the company) to decode digital signals, giving more control to the TV channels. Says Subhabrata Majumdar, 25, Media Analyst, First Global: ''A cable-operator cannot ignore a company's clout once it has a bouquet of four or five TV channels.'' This is what Zee, which will soon offer a bouquet of 11 channels, is striving to achieve.

The relevance of decoders? Pay-channels become economically-viable. For instance, star has a digital package of three channels-star Movies, star Plus, and star World-which it offers to the cable-operators for Rs 10.50 per cable household per month. star Sports would cost the operator an additional Rs 4.99. Moans R.T.H. Hingorani, 59, CEO, IndusInd Media & Communications, which owns one of Mumbai's largest cable networks, InCablenet: ''The number of pay-channels has increased, and an additional burden is suddenly being thrust on the cable-operators.''

Evidently, broadcasters have realised that subscription-linked revenue is not something they can afford to ignore. Agrees Zarina Mehta, 39, Director, United Television: ''Revenues from subscribers will dwarf revenues from advertising in the long run.'' The message for wannabe media moguls: get your channels to be part of a powerful pay-cluster. Or get ready to close shop.

The Advertising-led Model

The Indian television industry is caught between two models. Revenues from subscribers have not stabilised yet; and, despite advertising-spend on TV having increased by an average of 15 per cent over the last three years-with the figures for 1999 at 30 per cent-the advertising revenues of all but the top two or three channels have either been stagnant or steadily declined. Says Majumdar: ''In the broadcast business, only the leaders walk away with the big bucks.'' Thus, of the Rs 2,498 crore that companies spent on TV advertising, the top five channels-DD-1, DD-2, Zee TV, Sony, and star Plus accounted for 90 per cent. And the share of the Top Three, Doordarshan's DD-1 and DD-2, and Zee TV, was 75 per cent.

This is a worrying trend for the new entrants. Advertising revenues are the primary source of revenues at this point in time. Yet, increasing fragmentation is seeing the share of individual channels in the total TV ad-spend decrease. The reason? While the size of the overall pie has increased, it still isn't big enough to give each of the innumerable new entrants in the business a respectable slice of it. And these slices are slated to get slimmer.

Indeed, the average Television Rating Points (TRPs) of most channels are on a downhill ride. Two years ago, the highest ratings a programme could hope to achieve was in the range of 30-40 TRPs. Today, the corresponding figure is 6-7 points lower. Expectedly, most of the new players in the market do not expect to get much advertising. Concurs Bruce Tuchman, 36, General Manager, Nickelodeon International: ''Being in India isn't just about the advertising-dollar. India presents a number of opportunities by being the third-largest cable market in Asia.''

India makes an attractive destination for two reasons: after China, it is the largest untapped market; and China is rapidly falling out of favour with broadcasting companies, not the least because of the country's restrictions on 24-hour channels which do not beam local content. However, few companies possess the staying power to plug on through years of accumulated losses in quest of a huge and untapped market potential.

The Strong Shall Live

The next few years could see a not-insignificant number of channels down their shutters, or exit the country. Avers Anil Wanvari, 37, CEO, indiantelevision.com, a site which is a one-stop information shop for Indian television: ''Channels come and go, and several like ATN and Punjabi World have already fallen by the wayside.'' Worse, companies who pride themselves about being in for the long-term have to suddenly deal with a floating variable: a new definition of the long-term. Says K.T. Chandy, 26, a consultant in Arthur Andersen's Experience practice: ''Channels should start making money between three and five years. Anything beyond that is a no-no.''

One reason for this is the increasing cost of programming. A 30-minute daily soap produced indigenously could easily set the channel back by as much as Rs 15 crore a year. Even the TV rights of popular Bollywood flicks cost a fortune: Sony is reported to have paid Rs 2.8 crore for the rights of Kuch Kuch Hota Hai.

With returns from subscription yet to pick up, and those from advertising declining, most foreign TV channels are reluctant to invest in India-specific programming. Although Cartoon Network plans to invest $450 million over the next five years on original programming, the bulk of this investment will be made in international markets. Most channels prefer to get along in India by using content that has been developed for their global audience. Hallmark, for instance, spent $20 million on producing its television-movie version of Cleopatra, but amortised its cost across the 65 countries and 20 million households in which it has a presence.

That places Indian channels, especially Indian English channels like Zee English, at a disadvantage although Chairman Subhash Chandra believes that one day, the channel will be able to ''...export English programming to the global village.'' Some channels, though, believe that not investing in local content would tantamount to shooting themselves in the foot. Their logic: viewership levels are low because the content isn't local. These channels believe that investing in local content could solve at least some of their problems. Says Celia Chong, 39, Senior Vice-President, Turner Entertainment Networks: ''We plan to provide more India-specific programming in the near future.''

A content-focus isn't a bad idea. Agrees Venkatesh Srinivasan, 29, Manager, Arthur Andersen: ''In this business, revenues are totally dependant on content, but simply providing quality programming isn't sufficient; it needs to be focused.'' That's where most channels lose out. Between six channels that air English movies-TCM, AXN, HBO, Zee Movies, star Movies, and Hallmark-only two, TCM, which focuses on classics, and Hallmark, which makes movies specially for TV, are significantly different from the rest (although HBO's differentiator, no ads, could grow on the audience). There is even less to tell apart Hindi-language entertainment channels like Zee TV, Sony, star Plus, and Sahara. Creating a differentiator in the Indian context isn't tough. Avers Chandy of Andersen: ''The Indian market isn't homogeneous like the Western ones, and there is a need for customised channels catering to a specific target group.''

Those channels that do manage to differentiate-like [V] which decided to reposition itself as a youth channel instead of a music one-have a better chance of surviving than the rest. A few channels, like [V]'s rival, MTV, are seeking alternative sources of income to complement their advertising revenues. Explains Alex Kuruvilla, 40, CEO, MTV India: ''We are looking at significant revenue-streams like licensing and merchandising although ad-sales will still be critical to our business.''

Enjoy those channels while you can, then. The broadcast industry is set to boom. The FICCI-Arthur Andersen report on the entertainment industry estimates the size of this industry at Rs 7,800 crore in 1999-2000, and projects it to grow to Rs 9,200 crore in 2000-01, and Rs 13,500 crore in 2001-02. However, not all those channels you see on your screen now will be part of this growth. Which is in keeping with the bell curve of life: some rich; some poor; then the rest of us.

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