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Item: Early last month, the Kanpur-based Guptas who promoted Jagran TV’s Hindi news channel, Channel 7, held several meetings with top executives of Television Eighteen, the company that operates CNBC, Awaaz and CNN-IBN. The topic of discussion: selling a part of their stake in Jagran TV to the Delhi-based company. But the talks made no headway as Jagran TV, part of the Kanpur-based Dainik Jagran group, did not wish to relinquish editorial control to Television Eighteen.
Item: For months, knowledgeable media industry observers have been speculating that television news broadcaster NDTV Ltd is scouting for a partner. The company, valued at roughly Rs 1,450 crore, currently operates an English and a Hindi news channel, apart from a business channel.
Both instances illustrate a coming phenomenon ? the television news business will see an unprecedented wave of mergers and alliances in the next year or two. This hasn’t happened as yet, but media industry experts insist, several news channels ? profitable or otherwise ? are looking for a partner of some kind, that faced with soaring costs in an overcrowded market they have no option but to do so.
“My own guess is that we are entering a phase of maturity where people will explore complementary strengths and utilise them in partnerships to grow their businesses,” says CNBC-TV Eighteen chief executive Haresh Chawla. Adds Partho Das Gupta, vice-president and business head, Times Global Broadcast: “As in any other industry, consolidation and mergers with large players is expected. These will be based on the strategic needs of an organisation.” A Times Group joint venture with Reuters, Times Global Broadcast will formally launch its “urban” English news channel, Times NOW shortly.
Jagran TV and NDTV executives, of course, deny that they are contemplating selling their channels or inducting partners. Jagran Prakashan CEO Sanjay Gupta refused to comment on the matter. CNBC-TV Eighteen’s Chawla said: “I can’t comment on rumours about competing networks or our own.” And a senior NDTV executive added: “There is no question of selling our channels. We’ve built the enterprise over 20 years.”
Even so, the market is chock-a-block with news channels. India has at least 19 national, general and business news channels and more are in the pipeline. Notes Chawla: “In the short term, it’s clearly a case of oversupply in the news business ? there are too many players, most of whom are positioned squarely against one another as mainstream national channels. More are likely to follow. Clearly the market dynamics will not support this trend.” Equally clearly, not all channels can make money and survive.
Among other things, the cost of running a news channel is exorbitant. “Channels that do not have the capacity to spend at least Rs 5 crore a month can either close shop or merge,” Laxmi Goel, director, news group, at Zee, declares flatly. A big contributor to rising costs is employee salaries. Before any new news channel makes a debut on television screens, it poaches staff from other news channels. Salaries then soar by 30 per cent. Gripes Star News CEO Uday Shankar: “For some channels the manpower cost itself is a ridiculous 35 to 40 per cent of the total cost of operations today.”
For example, employee costs at Prannoy Roy’s NDTV Ltd were 44.1 per cent of its net sales in the quarter ending September 30, 2005; in contrast, the cost of producing programmes was just 18 per cent of net sales. In that quarter, NDTV’s expenses surged as a result of salary increases and cost adjustments for employee stock options. The result: NDTV Ltd slipped into the red by Rs 6.5 crore in the quarter.
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Rising channel distribution costs too have put the business plans of news broadcasters out of kilter. From Rs 5 crore to Rs 6 crore a year two years ago, each news channel today spends between Rs 15 crore and Rs 24 crore a year to ensure that its channel reaches cable and satellite homes. The money, called carriage fee in trade parlance, goes to multi-system operators and large cable operators who put the channel in the ‘visible’ prime band. “You end up spending on distribution the growth that you may achieve in your ad revenue,” says Zee’s Goel.
All this has to be seen against the backdrop of an upswing in revenues at news channels. In the second quarter of 2005, TV Today Network’s Aaj Tak channel saw a revenue growth of 17 per cent (Rs 3.15 crore). Though NDTV posted a net loss, its ad revenue, too, grew by 18 per cent. Indeed, total advertising revenue for the national news channels jumped from Rs 467 crore in 2004 to Rs 605 crore in 2005 (see table). Though news channels account for a mere 5 to 6 per cent of the total viewership, they rake in 10 to 12 per cent of the total television industry’s revenues. “This return on investment ratio is the highest across any genre in television,” says TV Today Network executive director G. Krishnan.
Still, of the over eight Hindi news channels, only two ? Aaj Tak and Zee News ? are profitable. “The fact is that advertising growth is accompanied by growth in the number of channels as well,” says Goel. For instance, six news channels were launched in 2005, leading to further fragmentation in viewership and advertising. In fact some of the leading channels may see a further erosion in their revenues once the government’s uplinking norms are implemented. The government has introduced new guidelines for television channels that beam their programmes to a satellite from India (some channels send signals from Hong Kong and Singapore). “Channels that show nine minutes of advertising for every half-an-hour of programming will have to follow the international norm and restrict commercial time to six minutes. This will cause a revenue loss,” points out a media expert.
Television news industry men think that the coming churn in the news channel business will take several shapes:
#According to TV Today’s Krishnan, the new partnerships could either be pure marketing tie-ups or relate to content and equity. “As the (news) genre expands and starts competing with the entertainment channels, such partnerships will be forged,” he predicts.
#News channel may share infrastructure. Remarks Chawla: “Every company need not deploy an outdoor broadcasting (OB) van each at a press conference. They can share feeds.” In fact, news channels are thinking of building a corpus to create a TV news agency to cover 70 locations in the country.
#News channels will create alternate revenue streams. “The TV news market is saturated. Under a separate company we are now foraying into FM radio as part of the consortium that bought out Red FM,” says an NDTV executive. The company is also planning to foray into entertainment TV and hopes to launch a channel soon. Others like Zee, Aaj Tak and TV Eighteen are looking at expanding the number of their channels to raise more revenue. Some months back, TV Today launched Tez, its second Hindi channel for the busy viewer.
NDTV has already announced that it will be launching a new channel ?“we’re still considering whether it will deal with regional or city news,” says the NDTV executive. “Such spin-offs, at marginal additional cost, can help a broadcaster generate more revenue ? the two channels can be sold as a package for a slightly higher advertising rate,” says the marketing head of a news channel in Mumbai.
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| NEWSMAKERS: Haresh Chawla, chief executive, Television Eighteen (top); Laxmi Goel, director, news group, Zee |
#Curbing high distribution costs. A draft memorandum of understanding (MoU) doing the rounds of news channel companies suggests the creation of a separate bouquet of news channels for cable operators. “The cable operator will then be offered all the news channels together as a bouquet ? he either takes it as a whole or leaves it. Besides, he will then also pay for it and the subscription will be divided among the channels on the basis of their television audience share,” confides a media industry source. Whether rival channel companies sign the MoU has to be seen.
#Shift attention to regional or city news channels, where the competition is not as fierce and where advertising is on the upswing. In 2003, regional news channels got 1.5 per cent of the total advertising on news channels. In 2005, this figure leaped to 6.1 percent. So Zee is launching a Bangla news channel in February. Kerala’s newspaper group Malayalam Manorama is readying to launch three news channels that will be confined to the state. Assam’s Sentinel newspaper group is planning on launching a news channel for Assam.
For all this, no one expects deals in the news channel business to be struck in a hurry. For starters, potential investors complain that the media valuations in the broadcasting sector are inflated. “They demand such high prices for their shares that it’s much cheaper to launch your own channel,” says a Delhi-based expert.
The government’s guidelines on news channels too don’t help. It has fixed the ceiling for foreign equity in a news channel at 26 per cent. The guidelines also state that a controlling 51 per cent of the shares must be held by a single Indian owner. “We don’t see too much action in the sector with these norms in place,” says an NDTV source.
But Indian and foreign TV news broadcasters are quietly lobbying with the government to alter the guidelines. “The companies need money and they are also getting rid of their fetish for keeping a controlling stake,” says media consultant Sanjay Salil, whose company Mediaguru helps set up TV channels and FM radio stations. But action on the mergers and alliances front is inevitable. Chawla sums up the position when he says: “We’ll see a major consolidation in the business in the next two-three years.”
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