BW Businessworld and BW Disrupt held the Mumbai edition of the "Disrupt Dialogue Series" on Wednesday at the ISDI Ace campus in Lower Parel. The event had Rajesh Kamat, MD of Emerald Media, and Vivek Raicha, Executive Director and Investment Head at Emerald Media, speaking about hybrid models evolving in the digital space and the kind of start-ups that attract consumer attention, among other things. The session was moderated by Anurag Batra, Chairman & Editor in Chief at BW Businessworld.
The session started with Rajesh Kamat giving a brief backgrounder about his journey as an investor as well as some of the major trends being seen right now. As a respected investor in diverse start ups such as OML, Amagi, Endemol and YuppTV, Kamat also spoke about what he felt were the key things that successful start ups should incorporate.
Speaking about the early days in his career he recalled how his first brush as an entrepreneur came when he left Coca Cola to start a dotcom company in 2000. However a few months later the dotcom bubble burst. The learning he talked about from his experience was that it is not about getting a chance but taking a chance. He gave the example of his next stint at Star TV to highlight one of his guiding principles, which, he said, was to always try and get out of the comfort zone.
Speaking about his stint at Colors TV, Kamat reminisced about the launch of Fear Factor, which had a unique concept for its time and, which, he admitted, many members of the board felt would fail. On his current job as a private equity investor, Kamat compared it to the job of someone who has to sieve through all manner of things to uncover the rare valuable piece.
Kamat also highlighted some of the key things that investors always look for before investing. According to him, these include that the space be scalable and (being) a strong and credible promoter. "How competitive is the space? Are we buying a top player? Is he a trend setter in the space," he asked, speaking about the third key element.
Some of the factors, which he said is enabling growth of the digital medium in the country is the advent of high speed mobile internet and the decline in data tariffs, which we are currently seeing. He pointed out that though data consumption per user was currently quite low at 0.7 GB/user/month, this was expected to grow between 7-10 GB/user/month. He also called digital content as the biggest enabler of the internet industry's growth.
Speaking about the importance of content and social media he said, "Content has evolved from linear to real time. Today announcements happen on Facebook, campaigns are run on Facebook, so clearly, social is the way forward." He also pointed out the importance of personalised content and the increasing trend of content being consumed across multiple devices. "Targeting is the next buzzword in both the traditional and digital medium," he added.
However, Kamat also cautioned that some of the trends being seen could be a double-edged sword for investors. He gave the example of Virtual Reality (VR) and Augmented Reality (AR). "These concepts are definitely the future but what we have seen is that currently after 10 minutes of watching VR or AR content, motion sickness sets in," he said.
Another trend that he felt would become a serious game changer is cloud computing, which he said removes restrictions that were a part and parcel of traditional medium.
Calling for intelligence within apps, he gave the example of WeChat to highlight that the world is moving towards single apps that come with a number of different functionalities rather than having separate apps for everything.
Kamat then spoke about the importance of integration of tech, media and telecom, saying that all telecom providers now want to be content creators. Taking the example of Facebook, he said that Facebook should no longer be considered as a social media platform since it has now become a media platform. From an investor's perspective, he feels that sooner integrations happen, it is better as it gives a chance for the investor to exit the investment while leaving it in good hands.
Anurag Batra and Vivek Raicha then joined Kamat for a more in-depth discussion on what it takes to be a successful company. On being asked about deals that did not happen despite them wanting them to, Kamat said one of the reasons why deals sometimes do not happen is because during the review process, they determine that the actual growth of the company does not match what the company expects. Another important reason, he said was the promoter himself.
When asked for some interesting case scenarios he had seen, Raicha said, "It is true that a lot of times when we look at companies, from the time we start looking at them to the time we make the investment, there is a big change in what they promised us versus what we actually see. Every single time that we think about an investment we think about the risk. A lot of time is spent on how we do not lose money. Making money is great but this is also important."
He further added that a lot of times companies have ideas that are far ahead of their time even though the ideas were not bad. "Some of the digital content companies at that time made projections that were not meaningful and did not tank with the macro environment. Probably they would make sense now but at that time the market was not ready for them."
On being asked for his advice to start-ups that are still at a very small ticket size but have the potential to grow, Kamat said, "If I were to sit with any of these companies (start-ups) as a friend, I would tell them that till the last mile do not dilute yourself. Bootstrap. Try and hold on and keep it alive for as long as possible. If someone comes in at a very early stage then you will end up just becoming a glorified employee." The idea being that once a start-up crosses each milestone in its life journey, the owners have a much better chance of negotiating deals with investors.
Batra asked both the gentlemen what changes in their attitude when they are at the point of exiting a company as their role now goes from being a buyer to becoming a seller. Kamat agreed that it is not easy but it is something that needed to be done. Raicha said that these days exit conversations are held with promoters right at the start, which makes the process easier. Also, with the market more mature now, he felt that promoters are also willing to grow their company and then exit after a point.
On being asked why Emerald Media has never made an investment in an audio tech company, both Kamat and Raicha agreed that sometimes valuations run ahead of their time based purely on hope and that the investor needs to be cognizant of the fact. Speaking about the audio space, Raicha said that the tipping point for the industry has now arrived so all benchmarks need to be made keeping this in mind.
"As part of our mandate, if it is considered then definitely yes but as part of our ticket size I don’t think we are ready to pay for an existing GEC or network. But by virtue of our lineage or heritage in India, if there is any such asset that ever comes up then it is definitely up our alley," said Kamat, when asked about whether his firm would ever consider investing in a GEC.
Speaking about their investment in Amagi, Raicha informed that they had first got in touch with the company back in 2011 when it showed a lot of promise but was doing just 10 per cent revenue. Given the disruptive nature of the company, they decided to stay in touch and follow their progress, while Amagi also grew its revenues. "The time of technology has now come, there is no way around it. TV has to innovate. When it is threatened with digital, targeting has to happen. What is important is the right model, which is where the struggle is," said Raicha.
"The model was dependent on both the MSO and broadcaster. If you are sandwiched between the two there is no point which is why we backed out. Now the technology that Amagi has developed talks directly to the broadcaster so your relationship is with the broadcaster. This is the first thing that changed," informed Kamat. "The second thing was that they started growing at a good rate. Also, in any space, competition coming in is good news because it is an endorsement that the space is growing. Is the product needed? Yes. A lot of times disruptive technologies are great but the model and who does the sales becomes a question mark. The logistics of how the model plays out is what takes time. Whether the broadcaster sells it, does the company sell it- all this takes time.," he further added.
"If you think about it, companies like Microsoft are investing in the cloud in a big way. The maximum utilisation of the bandwidth of the cloud is going to be through content. Broadcast guys are still not on cloud in a big way. It is a matter of time before these media guys will move and the big guys will invest behind it, otherwise it is just a waste of bandwidth," added Raicha.
Talking about one of their investments that failed, Kamat told the audience how they had invested in a mixed martial arts league in Hong Kong for amateurs, which shut down.
Raicha also opined that for broadcasters who are getting into OTT (Over the Top) services, the important thing might not be to make money but to gain an understanding of the consumer, which is not something that they would want to do through a third party platform. From this perspective, he said, this makes complete sense for them. "I personally feel that live sports is the biggest opportunity in the OTT space," he said.
He further added that telecom operators are entities that can be most successful with a subscription model if they can bundle it up with data. He took the example of Amazon which has bundled its OTT service with its Prime delivery service and said this makes it very likely that it will succeed. "For OTT players customer acquisition cost is itself very high. On top of that to get audience to pay will be very difficult," he said.
On being asked by an audience member, whether he sees the entry of Facebook and Youtube into original content as a challenge to the likes of Hotstar and Netflix, Kamat opined that there is enough space in the market for the existence of multiple players. He pointed out the scenario in the US where there are a number of players co-existing in the OTT space. "When businesses assume a certain scale, they can always find a way around," he said.