In a conversation with exchange4media, Gaurav Gandhi, COO & Head - International Business, Sun18 Media Services North and Viacom18 Media, puts in perspective, Sun18’s performance so far in the North markets. He speaks about the strengths of the alliance between the two media majors – Sun and Network18 - and the advantages of cross-leveraging each other in their respective territories. Excerpts:
What are the highlights of what you have been doing here in the last 15 months?
Before we to go the highlights, it’s important to look back at the time we set up the alliance. Sun18 was formed over a year and a half back and at that point in time, the industry had three large distribution bouquets. There was One Alliance, STAR Den and Zee Turner, with each geographically focused on the Hindi market. STAR Den distributed Star channels, with a couple of other associations, including our news network channels. One Alliance that time had the Viacom18 channels. Zee Turner was the oldest distribution company in the country. And not much had changed in that space for a very long time.
When Sun18 was formed, the idea was how to leverage the strengths of the two alliance partners (Sun and Network18/ Viacom18) in their respective dominant markets and ensure that the other partners’ brands benefited as well. So because of the alliance, for the first time, you got geographical majors in the Hindi belt (North-East-West) and the South markets, come together with 33 channel brands, which then were cross-leveraging each other in their respective territories.
There were two challenges when we started this alliance – one, for the first time, the Network18 and Viacom18 networks were taking distribution in their own hands, which was till then handled by third parties. Second, the carriage costs had jumped dramatically over the last few years, while realisation on subscription remained a big challenge for everybody in the broadcasting space. People were, therefore, looking at what this fourth distribution company would do in the market in the given environment.
We structured the alliance between North & South companies, wherein we would run the North company, where we had our strengths, while Sun would run the South company as it had its strengths there.
Given the above background and challenges, the real highlights are that we have clearly established Sun18 amongst the top distribution companies in the country within this short span and the revenues for all our partner brands have grown significantly in this period.
And how has that worked out?
The last one year for us has actually turned out well if not better than what we had expected.
Over this period, we have been fairly successful on three fronts. First of all, taking distribution in-house got us closer to the fair subscription value for our brands – we still have a gap vis-à-vis the competition that we need to bridge, but we got significant incremental on our revenues as compared to our old arrangements. Second, on the DTH front, not only did we significantly improve our deals monetarily, but we also improved the tiering and availability for all our brands – which is critical due to growing importance of DTH and from a ratings point of view. Third, it gave us the benefit of being able to talk carriage and subscription together, which was required by operators in order to control carriage costs.
These three things worked out very well for us. Having said that, while we have done a phenomenal job on the digital and DTH side, on the analogue side there is a lot more ground to cover, because that market changes slowly. But with digitisation round the corner, we are optimistic on covering a lot more ground in that area too. We now have our own teams across the country and we are looking to add several new channels too.
Can you give us a sense of this fair value that you are now able to achieve?
I cannot disclose numbers, but as a bouquet, I can say that now we are in the comparable zone to some of the more mature/ older players in the market.
The real challenge is this – when you compare the advertising revenues for brands like Colors and Star Plus today, our numbers are comparable, because the rating is comparable. However, in the distribution space, there is a significant gap in revenues because of the current distribution environment and the legacy advantage that the older brands enjoy. However, our catching up has been dramatic in the last one and a half years; of course, we have not reached the level of Star Plus or Zee in a year’s time, but we are confident of catching up in the next few years, particularly given now with the digitisation. If you look at the numbers of the last two quarters, you will get a sense of the numbers we have achieved.
What has been your on ground experience with your tie-up with Sun18?
What Sun brings to us, besides their strength in the southern market, are some very powerful brands such as Sun TV, Gemini, Surya, which have a huge demand across the country. You cannot do without Sun channels in metro India or even in the Hindi speaking belt, which is why most of the analogue operators provide Sun channels. There is a strong southern audience spread across the country and they dominate audience share.
And when you add the Disney channels to our bouquet of brands, we have a lethal combination. We definitely have the strongest kids’ channels in our bouquet.
Similarly, there is a big demand for brands like CNBC TV18, CNN-IBN and Nick in South India.
Sun18 divided operations in north and south, leveraging individual strengths of the players in the market. And the fact that we have minimalistic areas of conflict makes our alliance stronger and simpler.
What is the agenda for 2012 now?
We started with a 33-channel portfolio last year and by the end of 2011, we will have 37 SD channels and three HD channels in the Sun 18 bouquet. We will be launching Sonic shortly, followed by Comedy Central. With all the recent additions, Sun 18 bouquet has covered the gaps it had in its portfolio – in terms of infotainment, English entertainment and a HD bouquet. With Sonic, we will further strengthen our already dominant kids’ portfolio. 2012 should see this bouquet grow with more channels being added by alliance partners – both in terms of SD as well as HD services.
We are also in discussions with several independent broadcasters who want to be distributed by Sun 18. The objective will to expand the bouquet to close to 50 channels in the next 12-15 months.
Second objective will be to build on the good job the team has done in the last 12 months – we now want to take the business to the next level for all our partner brands. The digitisation scenario is very encouraging, and I believe it will really assist in our attempt to achieve substantial subscription growth for the broadcasters. Right now, at a very broad level, the industry is making around Rs 22,000 crore from on-ground distribution and around Rs 10,000 crore in advertising revenues. However, only Rs 4,000 crore of the Rs 22,000 crore comes to the broadcasters (of which close to Rs 1,800 crore gets passed back as carriage). The subscription revenues at an industry level are just about 40 per cent of ad sales revenues. The digitisation and changed structure of the distribution business should get the subscription contribution closer to the advertising contribution. And our objective as an organisation would be to be able to get significant gains for our partner channels.
Is that a realistic expectation?
Why not? The money is there and collected on the ground. The math is very simple. Of the Rs 22,000 crore collected, we are getting Rs 4,000 crore. The leakage is huge. When the LCO-MSO sharing ratio changes (post digitisation), and the MSO controls the billing, subscriber management system, etc., the share to the broadcaster will also change. Mathematically, even if 10 per cent additional declaration comes to the broadcaster (that is 10 per cent of Rs 22,000 crore, that is, about Rs 2,200 crore), this is 50 per cent more than what we currently get (Rs 4,000 crore going up to Rs 6,200 crore). Over time the percentage share of broadcasters will increase and absolute revenues inch closer to what we get from advertising. We are very confident, because if you look at our portfolios – be it Nick, MTV, CNBC TV18 or Colors, we have leader brands both in viewership and share of mind. We are amongst the best placed to realise this value gain. Digitisation will open up the market in a big way, and once that happens, broadcasters will have enough incentive to launch more services, including sharply targeted channels at relevant niches.
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