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Concentrating on consolidation

Concentrating on consolidation
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First Published: Sun, Aug 10 2008. 10 15 PM IST

Ronnie Screwvala ( Photo: Abhijit Bhatlekar / Mint)
Ronnie Screwvala ( Photo: Abhijit Bhatlekar / Mint)
Updated: Sun, Aug 10 2008. 10 15 PM IST
Starting with a small cable TV network running a 3-hour video channel for the residents of Maker Towers in the plush Cuffe Parade area of Mumbai in the early 1980s, Ronnie Screwvala has come a long way. Today, the chairman of UTV Software Communications Ltd—his flagship company—leads a media and entertainment (M&E) business that clocked 148% growth in revenues to Rs434 crore and a 65% jump in profits, at Rs77 crore in 2007-08, over the previous year. UTV Software Communications is now trying to strengthen its position across five fast-growing verticals in the M&E space—films, broadcasting, gaming, Internet and television content. But Screwvala has stayed away from the frenzy that engulfed most of his rivals in the past two years. Even as they try to get a finger in every M&E pie, Screwvala goes about building his empire quite cautiously. He talks about his strategy of focusing only on the underserved or unserved gaps in the M&E business, the impact of the current slowdown on the industry and his own business and overall growth plans. Edited excerpts:
Most media companies have been very aggressive in expanding their businesses in the past two years. Most entered the market with a slew of channels with a flagship Hindi mass entertainment channel. Some have begun backward and forward linkages by getting into cable distribution and the cinema exhibition business. You, however, have chosen to operate in niche spaces with not much competition. What’s the strategy behind this cautious approach?
Ronnie Screwvala ( Photo: Abhijit Bhatlekar / Mint)
We have not been less aggressive than any of our rivals. We have rather been more strategic in the way we have moved. At the end of the day, any business is about creating more value and looking at exponential growth. Would we have achieved these goals if we had launched a dozen channels and a Hindi general entertainment channel instead of specific broadcast verticals? I don’t think so. I don’t see any winners emerging in that space. There are enough examples in the general entertainment space where no one has moved up on the value creation front in the past five years. One clear example is Sony (now known as Multi Screen Media Pvt. Ltd). In the heydays of 2000, the company got valued at $2.5 billion (about Rs10,575 crore now). Today, their value has come down to around $100 million. I can give you a whole list of examples where the falling off the cliff has been much more acute than the potential to make it big.
We decided to focus on five specific verticals with a clear growth strategy in mind. The overall investment in these five channels would be equal to that of one general entertainment channel but the cumulative GRPs (gross rating points or the total share in viewership over a given period of time) would be more than any general entertainment channel. Also, these channels are more likely to maintain a consistency in their performance against any general entertainment channel because the spaces they are in are not that crowded. Also, I feel that the total advertising and pay revenues from these five channels will also be more than one general entertainment channel. So, at the end of the day, it’s not about looking big by having a finger in every pie. It’s about growing exponentially than incrementally. That’s what we believe in.
Our shareholders have appreciated this approach, which is why they have stayed with us and invested more. We have grown 100% in the last two years and we expect to maintain this rate of growth over the next two years. And we guess this is mainly the reason why Disney has upped its stake in our company. Let’s face it, spending $15-16 million for the first 14% and then $200 million for the next 18%, that too in just 15 months, is in itself a single strong benchmark in support of our strategy and business model.
Then, broadcasting is not the only business we are present in. Unlike most so-called integrated media and entertainment companies that are hooked on only one vertical, which is broadcasting, we have identified five verticals—motion pictures, television, interactive, broadcasting and new media. We are the only player in India with an integrated gaming model and we think this is one vertical which is going to be big. Between console, online and mobile platforms, we are ready to capture the leadership position. In the new media segment, we will consolidate all our content and extend it on to the Internet and other digital media. We hope to create a good value from this business as well.
We were a strong player in the TV content space and we have decided on a strategy to regain our position in this space as well. In motion pictures, we are on our way to becoming a global film production and distribution company. Our slate of movies for the next two years is pretty strong.
In fact, films continue to contribute a lion’s share to your revenues (see graphic). So in that sense, it’s an important vertical. But many analysts have said that the first-mover advantage UTV had in this business is now gone. Most established M&E companies, including Network18 and Reliance Entertainment, have entered the business with full force. Won’t this hurt the movies, and thus, the overall business?
Increased competition underscores the fact that we had a prize-winning business model that everyone around has tried to emulate. Having said that, we are still very strong in the space. Our revenues from movies grew 236% to Rs242 crore in 2007-08. Right now, we have got around 45 movies under various stages of production. This year we hope to grow 100% over the last year and next year, we will see a 100% growth over this year. So I don’t see us slowing down or getting hammered down by competition. Besides, we grow substantially in partnership mode. We do projects selectively.
Then, the market is also expanding. There are new directors in the market. More films are being produced and more and more people are watching films now. Then, various new revenue streams, such as music rights, home video rights, television syndication are also opening up. Also, going forward, our dependence on films for revenues is going to come down (see graphic).
The media and entertainment boom that we saw in the past two years was thanks to a buoyant economy, the positive sentiment around it, the rising consumption and spending on leisure and entertainment and also, growing advertising. With all this slowing down, do you foresee a blip in the growth in the sector?
Wait and watch: For now, Screwvala has no intention of getting into the regional space.
I think there will be a slowdown. And I don’t think it’s a blip. It’s more than a blip. And there are deep-rooted reasons for that. We are an oil-dependent country and couple that with rising inflation and interest rates and I don’t think we have the resilience to face the twister that is starting to hit the Indian economy. The other reason relates to sentiment, which is created by people who don’t know why things go up and go down but they contribute a lot in building positive or negative sentiments. And sentiment, we know, is a big phenomenon that impacts businesses.
Having said that, I would also say media and entertainment companies will not be too badly hit by this situation. Simply because the force behind the recent boom in the sector, the younger generation with more money in their pockets and certain aspirations, will still spend on entertainment. They are less likely to compromise on their lifestyle. They will keep fuelling the growth. We may not see exponential growth, but we will still see incremental growth. While the industry grew almost in triple digits in the past two years, it will now grow in double digits, which is not bad.
What about investors, both strategic as well as financial? Will they continue to pour in money ignoring the negative sentiment?
These investments are definitely going to dry up. In the bull market, nobody looks at the bottom line, everyone looks at the top line. In the bear market, everyone looks at the bottom line. To be sure, a lot of growth in the media and entertainment space was driven by the fresh equity coming in from different investors, who only looked at booming top lines. That fresh money will dry up. Many companies had lined up huge expansion plans. They demerged their different businesses and went to the markets in the hope of raising money to fund these plans. Such companies are going to get hit. Both strategic and public investment is going to slow or dry up during this phase of economic downturn.
What about UTV? How is the downturn likely to impact your business given that you also have many new ventures taking off?
We will also be impacted to a certain level. But in our case, the grief won’t be profound because we are a cash-rich company. At this point in time, we have a Rs1,300 crore kitty and it’s substantial, considering the fact that we are done with our gaming mergers and the films and broadcasting business is also pretty much in place. Now, these businesses need a certain push, which will keep coming. As for the other new media ventures, they are not really capital intensive. Besides, in the content business one can set one’s pace as per one’s convenience.
What are the other immediate future plans? Is the proposed entry in the regional television space happening anytime soon?
No. We have our plate full at this point in time. Now we will focus on consolidating our position in businesses we have entered. We got into three clear-cut verticals in the broadcasting business—the youth space, movies and English business news. We see a lot of untapped potential in each of these spaces. While youth is the core audience, our movie offerings are extremely distinct from what was available in the market—Bindass Movies is the best of Hollywood movies dubbed in local language in a fun way and World Movies is everything but Hollywood. UTV Movies is in the Hindi movies space, where it has to compete with other channels, but we have our own slate of movies and it’s taken care of very well over the next two years.
We got into English business news because this is the only vertical in the news genre where the market leader had an 80% market share. Nobody deserves that kind of market share in today’s competitive market conditions. As for the regional space, it’s getting too crowded again. Everybody has announced plans to launch a dozen channels in the regional markets. At this point in time, we would rather wait and watch.
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First Published: Sun, Aug 10 2008. 10 15 PM IST