Entertainment industry set for assured growth

By Ramnath Subbu

MUMBAI, JUNE 16. The entertainment industry has seen hectic activity in the recent past and this has been driven by the initiatives of the Government to give a fillip to this sector.

There is a growing demand for software from TV channels and the recent Reserve Bank of India guidelines to banks for financing film production has been welcomed. The guidelines allow banks to finance up to 50 per cent of production cost where the cost does not exceed Rs. 10 crores.

Also, with the entertainment industry having been conferred industry status and increasing corporatisation, many companies had sought the capital market as an alternative source of financing.

According to a study by Arthur Andersen, the Rs. 9,000 crore Indian entertainment industry is expected to grow to Rs. 28,600 crores by 2005 and the film industry's share would be Rs. 6,550 crores as compared to Rs. 2,150 crores at present. Essentially, the industry can be broadly classified into broadcasters and content providers.

Content providers

Content providers supply the software/content to broadcasters or producers. This can be a full-fledged TV serial, film-based programme, news, documentary or part of a large film. While players like Cinevista and Nimbus provide content for soap operas and entertainment programmes, NDTV and TV18 are focussed on news and general programming.

Content providers' revenues are restricted to outright sale of the product as they do not retain the rights for their programmes. But Doordarshan allows this and companies selling to them can retain rights by purchasing airtime for retelecast of their programmes.

According to Mr. Satish Shenoy, president and CEO, IL&FS Merchant Banking Services, which has been involved in initial public offerings (IPOs) by some media companies, ``On the content side, there are no barriers for people to enter this segment.

Shakeout likely

In fact, there has been a proliferation of companies offering content to various channels. And when there is so much, there is bound to be a shakeout. ``I think the boutique shops will not survive. As long as you have a good content producer who knows what goes in the market, they will do well. But the so-called medium-sized companies will not survive because they end up having overheads and they will not be able to sustain good quality. The negotiating power of medium-sized and boutique firms is very limited.'' said Mr. Shenoy.

It is also important for these content providers to find the right niche or the right formula. ``But whether you find scalable models of the larger companies like Balaji is debatable. Over the medium term, three or four will survive and they will learn how to mitigate relating to production and how to make a model scalable,'' said Mr. Shenoy, adding, ``it is a different ballgame vis-a-vis a channel. Whether these firms integrate into a channel play is debatable. There are too many channels operating. But the producer will have capability to negotiate with regional and national channels depending on the quality of content he provides.''

Among the players, Cinevista Communication and Yash Management provide content to Doordarshan; GV Films is into feature film production and distribution and Pritish Nandy Communication is focused on providing TV content.

Adlabs Films generates content on its own and is in the business of film production in the processing stage. Listed early this year, it has handled the processing work for quite a few big films. It also gets subsequent revenue streams from the same films by way of reprints. A part of the IPO proceeds will finance the setting up of an IMAX theatre in collaboration with IMAX Corp., Canada. The company reported a net profit of Rs. 11.54 crores (Rs. 5.18 crores) on revenues of Rs. 49.20 crores (Rs. 36.83 crores) in 2000-01.

Balaji Telefilms is into production of television software including serials and other entertainment content. The company makes programmes on a commissioned and sponsored basis on a 35:65 ratio. In commissioned programmes, the company retains the intellectual property rights (IPRs). Till recently, it outsourced most of its studio, equipment and post-production facilities. To tide over this, the company is setting up its own facilities. The IPO made last year was largely to finance this infrastructure to meet the demand for quality television software.

Mukta Arts generates and distributes content boasting of a library of more than a dozen movie titles. The Rs. 100 crore IPO last year is to be used over three years and will involve setting up of an integrated studio complex including a theatre and training centre. The company has allocated Rs. 25 crores for acquisition of rights for movies and music albums. It is also setting up distribution centres and overseas offices for which it needs Rs. 13 crores.

Broadcasters

However, for broadcasting companies' times have not been so good. The investment required in setting up the infrastructure and working capital costs act as a drag on profitability.

Broadcasting companies operate channels and derive revenues from advertisements and/or subscriptions. ``At the national level there are three and these are very big. Any channel that comes in now has to be specialised and niche, for example, NDTV which is using Star as a platform but one does not know whether that would continue. But they will not offer a bouquet of channels.'' said Mr. Shenoy.

Among broadcasters, Zee is categorised along with Doordarshan, Star TV and Sony TV. This business requires huge investment with a break-even time of 4-5 years. Most broadcasters have in-house production although this too is at times outsourced. Doordarshan sells airtime while others pay content providers the production costs plus a fixed amount and also for retaining rights. This allows the broadcaster to earn revenues from re-runs.

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