Star may be close to home shopping channel exit3 min read . Updated: 13 Dec 2012, 10:32 AM IST
Providence Equity Partners may buy 50% stake in JV with South Korean firm as Star shifts focus
Mumbai: Rupert Murdoch-run News Corp. may be exiting its home shopping joint venture in India, as the company’s television business in the country seeks to intensify its focus on entertainment and sports.
Star Asia could sell its stake in the equal joint venture with South Korean home shopping company CJ O Shopping Co. Ltd, according to at least four people with knowledge of the matter, all of whom spoke on condition of anonymity as the deal hasn’t been finalized.
The 50% stake in Star CJ Network India Pvt. Ltd may be sold to Providence Equity Partners, according to those cited above.
Providence Equity Advisors’ India managing director Bis Subramanian said, “As a policy, we do not comment on market reports about investments, whether or not we are considering them."
Star India Pvt. Ltd executives declined comment.
According to two of the people cited above, the acquirer may pay a total of ₹ 300 crore, which will also include additional investments to be made in the venture. This couldn’t be independently verified.
The move is in line with Star’s plan to exit from non-core businesses, said three of the people cited above.
“We are exiting from our partnership with CJ. We want to focus on our primary business of television broadcast in entertainment and sports," said one, who works with Star. “We are in the market and are in talks with interested investors."
A second person said: “Negotiations with Providence are at an advanced stage. The due diligence is under way."
Star CJ Alive was launched in September 2009 as a six-hour slot on Star Utsav, the so-called flanking Hindi entertainment channel set up to protect its flagship Star Plus channel. It was spun off as a 24-hour home shopping channel the following year. The channel is seen in markets across India and is supplemented by an online shopping site.
The partners had earmarked almost $100 million to invest in the initial four years of the business, by which time it had been expected to break even. However, business has been tough for Star CJ, industry experts said. Losses incurred by the channel may be about $50 million in the first three years, according to analysts.
“While consumer demand was growing, the delivery systems were not supporting consumer expectations. The network could not strengthen its logistics," said a former Star executive, who didn’t want to be identified.
The Network18 group’s HomeShop18, an early entrant in the category, led the segment with a 61.5% channel share between 1 January and 14 April, followed by Star CJ Alive with 37.4%, according to TAM Media Research. The little-known Shopping Zone 24x7 has a share of around 1%, according to TAM.
“What didn’t work in favour of Star CJ was their delivery system," said the former Star executive. “The company retained the free delivery mode even beyond its initial days of operation. This led to the company being in the red right from the time a product left the warehouse." The experience partly mirrors the difficulties facing India’s online retailers, many of which have had to shut as they’ve been unable to sustain their businesses.
“While it is the right time for non-store retail in the country, unless some key innovative measures such as charging delivery fees based on urgency and so on are not adopted, business of such a nature will not be profitable," said the person cited above.
Logistics is a key challenge in the home shopping business, industry experts said.
“Home shopping or virtual retail are new concepts for Indians, it will take some time before the masses adopt them as a regular way to shop. The industry is currently at a recruitment stage and I guess will stay in this phase for at least the next couple of years. Building logistics footprints, managing product supply chains and recruiting talent, according to me are some of the biggest challenges faced by the industry," said Sundeep Malhotra, founder and chief executive of HomeShop18.
HomeShop18 has created two separate entities—one for selling through TV broadcast and another for e-commerce. According to Malhotra, the two platforms will together earn around ₹ 1,000 crore in revenue by the end of the current financial year.
HomeShop18 is also looking at raising funds for expansion.
“Capital is an intrinsic part of any growing business and we are currently evaluating various options at hand. Expanding our TV and warehousing infrastructure, building stronger sourcing supply chains and investing behind the consumer and the brand are some of the critical areas of investment," added Malhotra.
The company is seeking to raise around $100-150 million, according to people close to the development.