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Reliance deal impact: Network18 to now ‘step up profitability’

04-January-2012
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Reliance deal impact: Network18 to now ‘step up profitability’

In line with the predictions of mergers and consolidation within the Indian media and entertainment industry, the Mukesh Ambani-owned Reliance Industries Limited and Raghav Bahl’s Network18 deal is the biggest so far. The deal reiterated that it is the survival of the fittest, in terms of books, in the Indian media industry.

One of the biggest benefits that Network18 and TV18 have with the deal is the ability to clear the group’s growing debt that had become a cause of concern in the last few months. The net debt of TV18 alone, without Viacom18, up to last quarter of 2011 was Rs 500 crore. The Group now has the chance to work towards profitability.

Raghav Bahl, Founder, Editor & Managing Director, Network18 Group, during an investor conference call, stated, “We don’t need to be in the investment mode now. We may need to balance a few items like variants of existing channels but we are clearly out of the investment mode as far as broadcast is concerned. Our focus entirely now is to step up the profitability of our broadcasting operations. If we put the combined GECs and the news channels of Eenadu without bouquet, our advertising revenue is virtually equal to Zee’s advertising revenue. So in footprint terms, we are already there; just that our distribution revenues are still one third of these and that is what we need to step up on.”

In terms of the next likely steps that the group may take, an analyst, who did not wish to be named said, “We may see another restructuring happening within the Network18 group, where they may want to keep all the news channels in one entity and the Entertainment channels in the other.” He also added that the presence of Reliance Industries may not have a direct impact on other players or dynamics of the industry and the company is not taking control of the operations of Network18 and TV18.

Regional Expansion allows National Footprint
It is a known fact that today larger growth in advertising and viewership is coming from regional areas and most media companies that are eyeing national presence would want to be part of this. With this deal, Network18 gets access to these regional markets that it had been eyeing for long but was financially constrained due to the major diversification it has taken upon itself.

This deal will give TV18 Board and Management control of ETV News Channels (with 100 per cent interest in five new channels) and ETV non Telugu GEC Channels (with 50 per cent interest in five GEC channels). They will also have a 24.50 % interest in ETV Telugu and ETV Telugu News.

B Saikumar, CEO, Network18 Group, said during the investor conference call, “It is a critical phase for us to complete a bouquet, especially from a growth perspective because very clearly local advertising and local viewership is on a far better growth trajectory than national advertising and national viewership. Also if you look at synergies within the group -- be it news or entertainment or factual entertainment -- they can be exploited better with a regional foothold.”

He added, “Potential Eenadu acquisition offers us clutch of pay TV channels, again very importantly already having carriage in DTH, digital cable and analogue cable space and most of them are EBIDTA positive individually and that is a full clutch. This catapults us to the bigger league and makes us better poised to make the best use of digitisation, which all of us are waiting for.”

Adding Distribution Muscle
The deal will also add muscle to the group’s distribution strength. Haresh Chawla, outgoing CEO, Network18 Group and Viacom18, said, “All our peer and competitors enjoy a large premium because of the size and scale of their networks on the distribution front. We having been the youngest network and this allows us to actually add bulk to our network and in a sense cover that legacy gap in a much faster way. We earlier mentioned that it would take about three to four years to cover the legacy gap but that time will probably shrink considerably, once we have these assets and can negotiate as one large bouquet in the new digitised environment.”

Raghav Bahl will now have only 51 per cent control over Network18 and 51 per cent control over TV18 through Network18 and the company maintains that it will continue to have operational and management control of both the companies.
 

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