BackBig picture | Burning a new, affordable track
Big picture | Burning a new, affordable track
PremiumContent trail: Moser Baer’s executive director Ratul Puri. With 8,000 film title in its kitty, the company has already cornered 30% of the market share.
Even a few months ago, a film digital versatile disc (DVD) for Rs34 was unthinkable. Not any more.
Moser Baer India Ltd, which makes compact discs, DVDs and Blu-Ray and high
How Moser Baer managed to do that is an interesting story. Moser Baer was able to slash prices of its products because it manufactures its own CDs. In fact, Moser Baer is essentially an optical storage media firm, and its mainstay is the recordable CD business,which accounted for 98% of the $500 million (about Rs2,000 crore) revenue the company posted in the quarter ended March 2007.
The growth path of Moser Baer shows an amazing trajectory of backward and forward synergy integration. In the optical disc business, it was a late starter. In 1983, the company started out as a time-recorder unit in collaboration with Maruzen Corp., Japan, and Moser-Baer A.G. in Sumiswald, Switzerland, and went on to manufacture magnetic power products, such as computer tape, magnetic tape and floppy discs. It got into CD production only in 2000—almost a decade after other players in the segment, such as Mitsubishi Chemical Media Co. Ltd, Maxcell Ltd, and CMC Ltd had whetted the appetite of consumers.
Moser Baer now works across four verticals—the blank optical or the storage business, the photovoltaic (PV) or solar-cells business (making solar cells and modules that capture solar energy to generate electricity), the content or home entertainment business, and the more recent media and entertainment business, which involves acquiring, creating, marketing and distributing movies. “We see our PV business growing rapidly to over $1 billion and our entertainment business to $500 million in the next three years," says Moser Baer’s executive director Ratul Puri.
In mid-2004, Moser Baer started to look at the PV business and, in December, it announced its foray into the entertainment business.
But why the shift from a segment where it has had a dominant presence? Moser Baer’s move to the niche area of content production was facilitated by the strategic advantage its four manufacturing units in Noida, near New Delhi, gave it in producing optical discs at low costs. Also critical to the business shift was addressing the bigger market in the content landscape that was largely overpriced and underserviced. “We felt that the only way we could take our technology, which significantly lowers the cost of recorded optical discs, out to the market was to distribute content on our own," Puri adds.
Cash positive venture
Moser Baer has big plans for the blank optical segment, too. Puri expects the blank CD business to grow at a compound rate of 20% annually over the next three years, as Blu-Ray technology, the next-generation optical disc format, and high-definition television takes off in India. “These will start to contribute significant revenues for us by the fourth quarter of this fiscal," he says.
In the past five years, Moser Baer has been investing aggressively in the optical business, pumping about $250 million every year in the venture. “From being free cash negative for a long time, the optical business was turning out to be free cash positive," Puri says. “We expect the optical business to throw up $300-500 million in cash over the next three years," Puri says.
The first step in this forward linkage was to acquire content. Here again, Puri was ready to go the extra mile, with a mega budget of $100 million. Moser Baer set about buying copyrights of films from a disparate set comprising firms, content producers and individuals, who had to be convinced to part with content they were “emotionally attached to".
And Puri has set a scorching pace. About 100 content purchase agreements have been signed in the last two quarters alone—these range from perpetual copyright to acquiring copyright for a limited duration, and from exclusive marketing and distribution rights to revenue sharing deals.
Moser Baer has already made quite a dent. The 8,000 titles in its kitty, acquired over the past six months, comprise 30% of the market share. These include 700-800 titles in English, 2,000 in Hindi and the remaining in regional languages such as Marathi, Gujarati, Bengali and Malayalam. The company also owns copyrights to a series on education, cookery and yoga. By 2009, Moser Baer plans to increase its market share to 60%, and acquire up to 12,000 film titles.
The costs of acquisitions vary widely. “We pay between Rs5,000 and Rs1.5 crore to acquire rights of Indian movies," Puri says. “The price depends on the quality of the movie, the stars in it, when it was released, and how it has done," says Harish Dayani, Moser Baer’s entertainment business head. “The prices for English titles are much less because their market in India is not that huge. They vary between Rs2,000 and Rs15 lakh."
Costs are, of course, higher for new releases, but this has given Moser Baer no pause. It has ventured into film production by acquiring 50% rights of director Anubhav Sinha’s new film Sankat City, which will be released by December. Its foray into film distribution with the Deol production, Apne, starring Dharmendra and his sons, heightened its visibility.
But these two ventures are just the tip of the iceberg for Moser Baer, as it plans to restructure the DVD distribution chain in India. “In the US, almost two-thirds of all movies are made not for a theatrical release but for a direct-to-DVD strategy," Puri says. “In India, this mode is non-existent. There is a huge opportunity to produce movies that will only get distributed on DVD." The company is forging partnerships with production houses to distribute their content in the DVD segment. For this year, Puri has set a tall target of cornering the rights to one-fourth of all pipeline projects.
Pricing strategy
Moser Baer’s aggressive expansion drive is matched by the hawkish product pricing. Its Rs34-DVD model has undercut competitors such as Ultra Movie Channel Pvt. Ltd, Shemaroo Entertainment Pvt. Ltd, T-Series Ltd and Excel Home Videos, the home entertainment distribution and marketing arm of Excel Productions Audio Visuals Pvt. Ltd. The prices offered by these companies ranged from Rs99-Rs350.
This has, of course, meant a sharp cut in margins for the company. “We don’t make money," says Puri. Moser Baer, in fact, suffered losses in the entertainment business in the last quarter. But, as Puri says, the company is in no hurry to make money. It is busy building up a market, and a consumer habit.
The inexpensive Moser Baer CD has had mixed success in combating pirated discs. “Our goal is to use our price points to drive the habit of consuming legitimate VCDs and DVDs with consumers," Puri says.
The company’s rivals are sceptical. “If Moser Baer had been successful in changing the market dynamics, no one would have bought out products for Rs99 and above," says Sushil Agarwal, managing director, Ultra Movie Channel. “We have not seen that change." Ultra Movie Channel, which owns more than 2,000 movie titles after 20 years in the business, is adopting a wait-and-watch policy.
While it has reduced the price of some of its VCDs to Rs45, and DVDs to Rs90, it is charging Rs350 per DVD for its new release, Vivaah.
The low prices, Agarwal emphasizes, are not a response to the Moser Baer move. “We cut prices nine months ago, even before Moser Baer entered the market," he says.
Another player in the DVD segment is Excel Home Videos, which owns about 1,400 titles. It focuses mostly on English films licensed from well-known Hollywood studios.
Excel’s managing director Muslim Kapasi says it is the quality of Moser Baer discs, not the low prices, that will have a positive impact. “The content business is the clear differentiator and Moser Baer has made a great start in that direction," he says.
Moser Baer’s market research shows that about 10% of customers don’t care about the price, but want to see the movie the moment it hits the theatres, and would even buy a pirated version of the film. But a whopping 60-70% of the respondents were disinclined to buying low-quality, pirated discs if they could access original products at a reasonable price within three weeks of a film’s release.
Expanding footprint
To build a mass distribution network, Moser Baer is working on a multi-tiered model. Unlike its competitors, its retailers will not just include audio-video stores but a whole range of outlets—from organized players such as Reliance Retail to local retailers including paan shops, small mom-and-pop stores, home-video rental stores, and stationery stores in smaller towns. It also plans to set up exclusive Moser Baer outlets across major cities—it already has five exclusive outlets and plans to have 300 by 2009. Its products are available in Andhra Pradesh, Uttarakhand, Punjab, and the four metros. Currently, the company has 450 distributors servicing around 150,000 retail outlets across the country.
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