Mumbai: Just as a magician cannot reveal his tricks, an investment banker cannot reveal his deals, according to Jagat Dave, an investment banker who has some of the most- talked-about media and entertainment deals to his credit, such as the Viacom–Network18 joint venture, the recent Aditya Birla Group’s stake buy into Living Media, representing Balaji Telefilms Ltd in the equity disengagement with Star Group, and representing the Alva brothers, promoters of Miditech, in their joint venture with Turner Broadcasting. In an interview, he provided an investor’s perspective on the Indian media and entertainment sector. Edited excerpts:

Screen space: Dave says multiplexes have led to a revival of Bollywood by significantly boosting revenue.

Each transaction should be viewed on its own merits rather than as part of a trend. In the instance of investment in Living Media, here was an opportunity to back a strong, independent and credible sponsor and management team, which had built many genre-leading brands over a period of time. As the group embarked on the journey to extend the existing and new brands across new distribution platforms, it required significant growth capital.

Considering the current state of the Indian capital markets and the FDI (foreign direct investment) sectoral caps, especially in print and news, the proposition of fund-raising was most appealing from Indian corporates.

Is there investor interest in the direct-to-home sector and the multi-system operator companies owing to digitization?

The pay TV industry, from a distribution perspective, is undergoing a paradigm shift due to addressability arising from the mandatory phased analogue sunset proposed by the government of India. The addressable system will lead to plugging the under-reporting of pay-TV revenues, benefiting both the broadcasting and the distribution platforms.

This, coupled with the potential of higher Arpu (Average revenue per user), value-added services like video-on-demand and broadband, have rekindled the interest of both financial and global strategic investors to this sector. Considering the large funding needs of the distribution platforms, one is likely to witness a number of transactions being announced immediately after the phase-I deadline in the metros is implemented (from July) and the dust settles regarding the revenue share among the various constituents in the value chain.

How do private equity investors view the country’s theatre chains?

Multiplexes have led to a revival of Bollywood by significantly boosting revenues due to their superior viewing experience. In fact, it has led to the emergence of an entire new niche of cinema—small budget, urban-oriented, Hinglish dialogues, new actors, popularly known as the multiplex film.

However, considering the mushrooming of multiplexes within the country, investors are questioning the business model from the perspective of managing the two largest elements of costs—content and real estate costs—especially in a scenario where revenue is weighted largely towards weekend viewing.

One needs to re-consider the merits of the current revenue-share formula between multiplexes and the producers, which is in the nature of one-size-fits-all, irrespective of the scale of the movie budget, the star cast, etc., all of which have significant influence on the ultimate box-office collections. This problem gets further accentuated due to the large proportion of fixed costs incurred by the multiplex industry. The industry did try to revisit this revenue-share formula in the past, but it led to the infamous multiplex strike.

Consolidation will help, but only if it leads to a dominant position within various promising geographies, thus enabling the multiplex operators to demand better terms of trade from the producers. Investors are waiting for this to play out.

Do Indian television production houses figure on the map of private investors or are there challenges?

Despite a fairly large domestic TV broadcasting industry, there are few local production houses that have achieved significant scale. This is due to the presence of large, scattered production houses promoted by leading creative talent. Considering the predominantly family-oriented TV viewing, these production houses have largely concentrated on a couple of fiction-based TV serials, which by their daily nature are difficult to scale up.

More importantly, in India, though the concept is created and executed by the production houses, the intellectual property is eventually owned by the broadcasters, who can subsequently monetize it across various languages, platforms or geographies, due to the competitive bargaining position of the broadcasters vis-a-vis these production houses.

Globally, large production houses like Endemol or Fremantle have created leading fiction and non-fiction formats, which they continue to own and licence to various global broadcasters assuring them of steady and higher revenues over a long period of time.

The challenge for investors when it comes to Indian television production houses is that the intellectual property rights are not owned by the production company but by the broadcaster, thereby limiting the business opportunity (for production companies) to create multiple formats of a show or to syndicate its content.

Why has the Indian music industry failed to attract investor interest?

The two main issues with the Indian music industry are piracy and business practices.

Globally, the music industry has been a victim of piracy and the situation in India is no different. Increasingly, music is consumed through online and radio as compared with physical sales, leading to disruption in the conventional business model of music companies.

The current practice of largely upfront minimum guarantee deals for music labels even before the film is released has also led to the music labels not being able to surface value.