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News Channels Part I: Why are investors going gung-ho?

14-June-2002
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News Channels Part I: Why are investors going gung-ho?

If you''ve been keeping yourself up-to-date, you''d know what''s been happening in the news genre, and why Videocon and Sahara have been in the news. And, if you''ve been in touch with the industry grapevines, you''d also know what many investors are seeing as potential investment areas.

With Aaj Tak having done phenomenally well in a short span of time and Sahara India close to launching 38 news channels, everyone is following the bandwagon. Videocon was the talk of the town lately for pumping in 20 crores to launch a news channel. And if that''s not all, the market is rumored to have more than half a dozen players investing in news.

But why is the genre growing at such an enormous pace? And what is the driving force behind all the investments? In this first part of the series on news channels, we go backstage to have a closer view of what drives the monies from the investors'' pockets into the genre. In the second part, we''ll deal with what top industry sources have to say about the future. So here goes...

A businessman''s perspective first, straight from the horses mouth- Venugopal Dhoot, MD, Videocon, who believes that his investment in the genre will definitely pay off. "I foresee a great future property in the news channel business. The genre has an enormous future potential, which makes it viable for investments", says Dhoot.

"Absolutely!" Exclaims Sanjay Salil, Joint CEO, Falak TV. Salil, an industry insider having an extensive experience in the Aaj Tak core team, is in the midst of launching his own Hindi news channel. "One can totally trust an investor''s foresight! Rewind to the time of the WTC attack. News channels had captured extremely good volumes of viewers. Similarly, every incident in the recent past has seen the audience share of news channels increase, proving that there is immense potential in the genre. And this future potential is what draws the fancy of every investor. The only problem however, is how to sustain viewers interest always", he says.

Right said Mr. Salil! 2001, well remembered for its bitter-sweet events and memories, saw the audience share of news channels soaring beyond expectations- Star News, Aaj Tak, Zee News, CNN, CNBC, BBC and Doordarshan rose by 235%! And if we contrast this with the other genres, sports channels lost a significant 27% in audience share and even the Hindi entertainment channels gained only a minor 6.5% audience share. And if a worldwide research study is to be believed, post WTC, porn sites on the Internet were watched much less than the news channels. Now that is one good proof!

Adds Salil, "I personally hold that after CAS being conceded and causing channels to be dependant on viewers for driving their revenues through subscription, it has become imperative that every bouquet comprises an array of genres, news being an important element in it. So if a bouquet comprises an entertainment channel, a music channel but not a news channel, it''ll see a definite drop in its revenue. Also, this is the final phase when a new player can enter the medium easily, as post CAS the entry barriers in the medium are bound to become higher. The investors, probably after foreseeing this have put in money. "

And if the entry barriers being low at this point in time may be a cause of any relief at all for the investors, the economics of a news channel comes as a greater relief. According to I. Venkat, Director, Eenadu Group, "Cost is one of the driving factors for greater investment in the news genre. Although the operating costs of a news channel and an entertainment channel is more or less the same, entertainment channels demand a greater initial investment."

Quite similar are the views of J.K. Jain, Chairperson, Punjab Today. "The software costs for an entertainment channel is extremely high. News channels however, do not require the software that is needed by entertainment channels, and hence the overall investment requirements for a news channel go down", says Jain.

That certainly makes one speculate the investment requirements for a news channel like an ''Aaj Tak'' vis-à-vis an entertainment channel like a ''Star Plus''.

Salil comes to the rescue once again. "While an extremely high quality news channel would require an initial investment of around Rs.100 crore, an entertainment channel''s daily budget itself would amount to almost Rs.50-60 lakh," he exclaims. "And, in a news channel, it is possible to narrow down the editorial team with the use of better technology and hence save on your time as well as cost. Aaj Tak for example, saves almost 5 minutes per story because of the technology it uses. As a result, it saves money and time, again a nuance an investor would benefit from. And technology in the near future is bound to push the costs further down," he adds.

Although the fact that investment requirement for a news channels is relatively lower, which is a driving factor for an investor, there are others who believe otherwise. G. Krishnan, CEO, Aaj Tak opines, "I''m not the right person to comment on the reason behind increasing investments in news channels. Yet, I believe that even though the cost factor may be lucrative, if the channel is not credible, it risks losing out totally. This I believe a the biggest factor which should actually make the investment unacceptable to many."

All this time, while investors are looking at national news channels as green pastures for their investments, the trend for regional news channels is also catching up. Sahara for one is launching 38 regional news channels (Actually 6 news channels are being launched in the states of U.P, M.P, Rajasthan, Bihar, Mumbai and Delhi, but each city/district in the state would have time slots allocated to it. Hence Sahara states that it is launching 38 regional news channels. Some hype!).

Sahara aside, the industry sees a need as well as a good potential in regional news. To understand the need for regional news channels, look at the print medium- an HT City or a Delhi Times is very city specific and extremely popular; perhaps more popular than the main newspaper. Does that indicate a gap in the market that both HT and TOI filled? Once again, take a cue from Dainik Bhaskar or Dainik Jagran, which, in their cities, are much ahead of other national players (which have little local news) in terms of circulation.

Responds J.K. Jain, Chairperson, Punjab Today, "Need for regional news channels is definitely felt as people are increasingly interested in ''their'' news and a channel that can tell them what''s happening at the place they are living in. National channels are not in a position to cover such regional news, which can be covered only by a regional channel. Punjab Today is an extremely popular channel, because its core competency is based on the premise that it fulfills the need of belonging of a consumer."

All said and done, there are a very few players and the quality of regional news usually tacky. Most top executives believe that the category has immense potential and there is little time before competition would set in. And since competition always makes a category grow, the industry will soon see a lot of regional channels.

On the whole, considering the entire news channels genre including national and regional channels, there is a reason to understand why more and more money is being poured into it. The genre has done extremely well in terms of both viewership and advertising. Though the advertising pie has not grown, yet news channels have seen an increase in ad spends. According to industry estimates, advertising on news as a genre, grew by more than 50%, from Rs.200 crore to Rs310 crore in 2001, over the previous year. In 1999, news earned only Rs.80 crore as advertising revenue.

Aaj Tak, launched in December 2000, reaches 26 million households and has garnered over Rs.40 crore in advertising revenue. In a short span of 7 months, it broke even. It did not have the first mover advantage, yet it is the number one channel. This brings out one truth, well articulated by Jain; "Good news is not national or regional. Good news is just good news and is dependant upon its relevance to the reader. And as long as the news is different, well researched and well presented, the consumer would assimilate it. Bad news has no market."

Very true Mr. Jain! Are the investors listening?

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