Why did the soap queen go off the boil so suddenly? Yes, I am referring to the K-wala soap queen Ekta Kapoor. The other day I saw the usual suspects – Aman Verma and Urvashi Dholakia – popping up in Balaji’s new daily soap, ‘Betaab Dil Ki Tamanna’, on Sony. I found Aman Verma giving a moral science lecture about the ‘amir-garib’ divide and quickly found myself reminded of Akshay Kumar’s line from the movie ‘Blue’, which I unfortunately saw over the weekend. Akshay tells ‘Sethji’ Sanjay Dutt – ‘Moral science ka lecture dena bandh karo’. And I told myself, here we go again. The soap factory, which had a conveyor belt of retro regressive, but extremely popular shows, hasn’t been able to come to terms with its identity since Star Plus kayoed three of its top-of-the-line shows.
So, what do you cook up? Slumdog-meets-upper crust. Well, at least it is a change from the bejewelled women and their 500-year old, no, virtually ageless Ba. The other serial from Balaji, which has also got a prime time slot on Sony, is ‘Pyar Ka Bandhan’, which is about friendship with a Hindu-Muslim angle as well. A rich spoilt girl has been raised by Khalla; and her son and the girl were friends as kids. Whoa. That is a long way from home. Yes, ‘Kahani…’ and ‘Kyun Ki…’ ruled the roost for years, but it has been downhill slalom since the bump appeared in the relationship with Star Plus. Ekta Kapoor always had first mover advantage as far as programming was concerned. By cooking up the saas-bahu broth and striking a robust relationship with Star Plus, she managed to ring fence her business model for many years. This helped her make money in spades. She emerged as the undisputed queen bee of content generation. Balaji House in Andheri West was the only address in telly town during that fantastic ride, which lasted nearly eight years.
At Business India, I struck a good rapport with Ekta, visiting her office several times and even previewing some of her shows, which she was always keen to show me those days. It was clear that a lot of thought had gone into planning for saas-bahu. But no winning streak lasts forever, and I guess two things changed the way she did business. A discordant note in her relationship with Star and the emergence of newbie channels helmed by former Star satraps – Peter Mukerjea and Sameer Nair. The litigation with Star and the bad debts accumulated from INX Media meant that the cash burn was taking place faster than she realised. Inane movies also didn’t help. Ekta is a canny woman, but equally egotistical. When she realised that the glory days with Star were over, she struck back by tying up with INX, unfortunately the punt went wrong completely because the channel went belly up before you could say Indrani. Now, she is attempting another turnaround by tagging on to Sony, which in any case needs an inhaler to resuscitate itself quickly.
Earlier this year, Balaji Telefilms had holes in its balance sheet. Angel Broking in its report then had stated, “Commissioned hours of programming have reduced by 51 per cent y-o-y during the quarter under review to 42.3 hours, owing to the decommissioning of three shows by Star Plus and one by Zee TV. Moreover, Other Expenditure increased by a whopping 200 per cent y-o-y to Rs 23 crore (Rs 7.7 crore) largely on account of significant jump in provision for doubtful debts (dues from INX Media) to Rs 15.7 crore, legal charges against Star and partly due to diminution in long term investments further adding to the woes.”
Film division: Balaji Motion Pictures Ltd, a wholly-owned subsidiary of the company, posted a net loss of Rs 23.3 crore on revenues of Rs 42.6 crore. “Profitability of this division was partially hit due to Rs 8.85 crore write-off which the company took on account of advances made for Movie Projects, which it doesn’t expect to pursue further (due to financial non-viability of the projects).”
Bottomline: “We believe BTL is going through extremely tough times owing to its ongoing tussle with Star, lack of demand for its content and falling realisations… Going ahead, we expect BTL’s financial performance to remain under pressure owing to low visibility of its programming slate (three out of five commissioned shows on-air were launched in Q4 FY09) and dipping realisations”, analyst Anand Shah wrote. “Given significantly poor Q4 FY09 results, limited show pipeline, sharp losses in movie business and lack of demand for its content, we downgrade the stock from Accumulate to Reduce with a Target Price of Rs 35 (Rs 52) based on cash on books of Rs 216 crore (likely to act as downside cushion). Moreover, exodus of top level management, ongoing tussle with Star and lack of clarity over dues from INX Media is likely to weigh heavily on the stock.”
Flash Back: Balaji seems to have been hit hard by the end of a long and beneficial relationship with Star India Pvt Ltd, India’s biggest private broadcaster. For years, Balaji soaps on Star, such as ‘Kyunki Saas Bhi Kabhi Bahu Thi’ and ‘Kahaani Ghar Ghar Ki’ topped ratings and defined what worked in terms of television content. Balaji produced shows for Star under an exclusivity agreement – Star would pay a premium for Balaji shows, but the content shop could not produce shows for rival channels that would run on the same time slot as Star. While the premium was never disclosed, the extent of the drop in average realisations post the decommissioning of Star shows gives some idea of the higher rates Balaji attracted. The relationship grew stronger when Star picked up a 25 per cent stake in Balaji and the two companies formed a joint venture to launch entertainment channels in regional languages. Curiously, there was a sudden deterioration of their relationship in early 2008 and in August that year, the two companies agreed to part ways, ending with it the exclusivity agreement and the premium Star paid. Balaji agreed to buy back the stake owned by Star and the regional language GEC was wound up. Star later dropped three Balaji shows from its programming line-up.
The breakdown in relationship coincided with the entry of a number of new, well-funded entertainment channels, such as 9X and NDTV Imagine, both headed by former Star India CEOs (Peter Mukerjea and Sameer Nair), who enjoyed good working relationship with Balaji and wanted its shows for their new channels. 9X has since seen tough times and Balaji has now had to make higher provisions for “doubtful debts” from that channel’s broadcaster INX Media.
And it has been pretty much downhill ever since. The latest numbers don’t make pleasant reading. A new report from another top brokerage has queered the pitch further. In fact, I am surprised at some of the notings.
Let me reproduce from the brokerage report:
Balaji Telefilms (BLJT) standalone results were below our expectations.
- Revenue declined by 61% YoY to Rs 407 mn (Estimate: Rs 480 mn). The
number of commissioned programming (Cprog) hours declined by 30.6% YoY to
209 hours as it aired 7 shows compared to 12 shows in 2QFY09.
- Average realizations per hour (AVR) for Cprog declined by ~50% YoY to
Rs 1.62 mn as Star Plus took off high realization shows off-air in 2HFY09.
- BLJT’s reported EBIT margin of 25.2% in Cprog (vs 32% in 1QFY10)
because of the launch expenses of ‘Bairi Piya’ (21 September 2009)
and investments in the new show ‘Pavithra Rishta’ (launched towards
the end of 1QFY10).
- Against our expectation of breakeven at the EBITDA level (EBITDA margin:
0.4%), BLJT reported EBITDA loss of Rs 19 mn as its average realizations in
Cprog fell higher than expected. EBITDA is a loss (against high Cprog EBIT
margin) as it does not allocate high corporate fixed costs (like corporate
employee and administration costs) to either form of programming.
- Other income of 53 mn helped it post a net profit of Rs 10 mn (B&K:
We expect 3QFY10E to be one of the worst quarters in terms of earnings as BLJT has launched two new shows in October (on top of one launched towards the end of 1QFY10 and one towards the end of 2QFY10). This will take the total number of Cprog shows to 7 (two shows have been discontinued namely ‘Kitni Mohabbat Hai’ and ‘Koi aane ko hai’). We expect earnings revival in 4QFY10E as the launch expenses are written off in 3QFY10E. Earning in FY11E should be healthy as all these newly launched shows will operate for the full year.
However, we are concerned with the reporting of operation numbers as done in 1QFY10. If the 2QFY10 numbers are to be believed then there is downside to our current estimates. Since we upgraded the stock to an Outperformer (from Sell) after the 1QFY10 results, the stock has appreciated by ~50%. We put our Outperformer rating Under Review till we seek clarifications and update our estimates accordingly.
Other risks like it burning cash in the film business, tax claim (worth Rs 0.6 bn) and its investment (to the tune of Rs 0.47 bn) in the disputed land, remain.
I have said repeatedly in recent weeks that original content aggregation is proving to be a problem for channelwallahs and content providers. Fortunately for channelwallahs, licensed reality shows are proving to be a life saver at the moment. It is imperative that this dependency on licensed reality content makes way for some original content in the near future. Original content from Indian content providers. Sony is spending big bucks to bankroll its twin shows – ‘Betaab…’ and ‘Pyar Ka Bandhan’, equally these programmes are important for Ekta Kapoor’s erstwhile serial factory. The big black gates of Balaji House used to be the place where everyone was spotted till recently. Fortunes have changed dramatically. Once Ekta crossed the Rubicon with Star, it proved to be her bugbear. This is her litmus test as an original content generator, and for a gasping Sony bringing up the rear in the GEC sweepstakes as well.
(Sandeep Bamzai is a well-known journalist, who started his career as a stringer with The Statesman in Kolkata in 1984. He has held senior editorial positions in some of the biggest media houses in three different cities - Kolkata, Mumbai and New Delhi. In late 2008, he joined three old friends to launch a start-up – Sportzpower Network – which combines his two passions of business and sport. Familiar with all four media – print, television, Internet and radio, Bamzai is the author of three different books on cricket and Kashmir.
The views expressed here are of the writer’s and not those of the editors and publisher of exchange4media.com.)