A combination of rising subscription revenues and declining carriage costs (paid to cable operators, DTH providers) should result in a stable and profitable phase for TV18 Broadcast, says Network18 Group CEO B Sai Kumar. In an interview to CNBC-TV18, he said that advertising revenues would continue to remain soft for some more time because of the sluggish macro-environment. However, the pace of improvement in net distribution income (subscription revenues minus carriage costs), will continue this year too, Kumar said. (More details on TV18 results)
"I can see this healthy run rate continuing. If Digital Access System (DAS) II rolls out faster than we think it will, then it will only be an upside from here," Kumar said.
TV18 has plans for channels catering specifically to the Gujarati community, with the launch contingent on the roll out of DAS in Gujarat.
"We are looking at the Gujarati market extremely seriously," Kumar said.
"I think there is tremendous opportunity there, but it is also linked to the rollout of DAS II, because DAS II directly affects a lot of these Gujarat markets which makes our launch proposition much easier. So I think the timing of the launch is still to be decided, but yes we are very close to that decision now," he said.
Sarabvir Singh, Head of Investments, Network18 Media and Investments, sees further improvement in margins in the company's digital businesses.
"Our growth rates in digital businesses are over 100 percent on a Y-o-Y basis. In digital, once the fixed costs get covered then the incremental revenue and the incremental margins flow to the bottom-line," Singh said in an interview to CNBC-TV18.
Singh sees the exponential growth of broadband in the country as being the game changer for the content business.
Edited excerpts of the interview:
Q: Take us through both your revenue streams. Your note said that advertising revenues declined a bit quarter-on-quarter. How do you see advertising revenues in the current year, and more importantly, thanks to digitisation do you expect that subscription revenues will be substantially higher in FY14?
Kumar: As a headline, I will say that the broadcast industry is now entering a phase of maturity. If you look at what we have guided last quarter, I see that guidance playing out into much of the next fiscal. We said that we are seeing an increasingly soft advertising environment which is directly related to macroeconomic conditions and I guess it will have varying effects in various industries. It has a clear effect on the advertising line in our industry.
Having said that, the rollout of digitisation Phase-I and now we are well into Phase-II, has opened up a whole new stream which is much more resilient. It is not cyclical and non-seasonal, much more dependable and that is exactly what has held us in good stead this year and in the quarter that has gone by. I would like to be pleasantly surprised being wrong in this, but I think it is going to be fairly soft on the advertising side. I see distribution continuing in its healthy trajectory. I see subscription numbers going up. I see carriage costs coming down and therefore overall I am looking at a very stable and profitable phase for all TV18 Broadcast channels and networks.
Q: Net distribution income numbers for FY13 actually surprised investors positively. Give us an idea either at a gross or a net level, what kind of growth you are expecting? This time gross subscription revenues have increased by 4.6 percent Q-o-Q. Give us an idea of what is the Y-o-Y increase likely to be in subscription revenues? As you point out it is a secular trend. Likewise advertising when you say soft, do you mean flat? Do you mean a fall of say 5 percent? What can you guide?
Kumar: Let me take up distribution first. This year we have seen a swing and let me stick to net distribution numbers, because that is what we have reported, so I will stick to that metric for now. We have seen a swing of Rs 116 crore and you can see this trajectory, you can see us moving from minus 15-minus 12 percent to plus 17 and plus 24 percent. So the swing has played out over the last four quarters. If you can read from this run rate I can say that we will maintain this run rate of recovery into positive territory into the next fiscal, at least the first three quarters of this fiscal. I can see this healthy run rate continuing. If Digital Access System (DAS) II rolls out faster than we think it will, then it will only be an upside from here.
On the advertising side, it is a slightly more challenging issue. Here if you want me to get into some amount of detail and give you colour, I will not put a broad percentage point in this, because various genres get affected differently. For example, your own channel, the business news genre tends to get disproportionately affected when the economic conditions are not too good, but we find that the entertainment channels or at least the General Entertainment Channel (GEC) channels are much more resilient. If you look at our network we are an equal blend between general news, business news, entertainment, youth, music and so on and so forth. If I look at this blend I would still see early single digit. So I would say flat to early single digit growth.
Having said all of the above and this is something that has been a stated position for a while, that we will always endeavour to punch ahead of the industry growth rate. So if you look at it this year, I think according to various estimates advertising growth rates were anywhere between 5-6 percent or maybe even lower and we have grown at about 9 percent. So we hope to continue to grow ahead of the industry.
Q: There is a consolidated improvement in margins on a sequential basis for Network 18 this quarter to around 2.1 percent versus around just about a breakeven on a Q-o-Q basis. What lead to this breakeven or rather improvement in the margins? What is the trajectory in terms of improvement or in general what is the margin picture that we can expect in the coming quarters?
Singh: For Network 18, about two-thirds of our business is the television business. As the television business continues to improve you will see Network 18 results reflect that. Next one-third is the digital business. In digital business, in Q4, if you see for the first time we actually had a small improvement in our margins; as in, our losses reduced.
Our growth rates in that business are over 100 percent on a Y-o-Y basis. So we are growing very rapidly. For first three quarters the losses were roughly flat and in Q4, the losses have started to decline. If you extend this further we expect next year that we will still have very robust growth on the digital side, but the margin picture will improve quite dramatically. As you know, in the digital business once the fixed costs get covered then the incremental revenue and the incremental margins flow to the bottom-line. So that picture should start to become clearer as we go into this fiscal year.
Q: On Network 18, at a consolidated level, can you just take us through what the balance sheet position stands at right now? There was a completion of rights issue as well etc. What is the deleveraging process looking like? Is there any more to go?
Singh: If you look at our balance sheet from September onwards, we did the rights issue in October, it was completed in October and we raised Rs 2,700 crore at Network 18 of which about half went into Television 18. Of the remaining Rs 1,350 crore we have used almost all of that to reduce our leverage on the balance sheet. Our net debt number has gone to Rs 211 crore from Rs 2,246 crore. So effectively it is 10 percent of what it was in September, just six months ago. So I think the balance sheet now is in pretty good shape.
Last year we also raised over Rs 200 crore in cash by selling some of our non-core assets. That process will also continue into this fiscal year. So I think Network 18 balance sheet is already in pretty good shape and looks likely to improve even further as we go into next year.
Q: Just a word more on the inorganic efforts or initiatives you may undertake this year. Would HomeShop18 look for some capital raising? Would it be likely listed in the current year and if it is, is it an Indian listing? What are the plans in HomeShop 18 since the revenues have grown so substantially?
Singh: When we started this year, our goal was that in our e-commerce businesses, BookMyShow and HomeShop 18 should raise capital for the next round of growth. I am glad to report that in both cases we succeeded and now HomeShop 18 is well funded for its next stage of growth. As you said, revenues are growing very smartly and this year we expect the profit picture to start improving also.
The television business already makes money and we will see the overall business starting to look much better this year. So as things improve, as the business continues to do well opportunities will come up for listings or other such ideas. When we have something to report we will definitely be back on the channel for that.
Q: Just a quick word in terms of the other channels on the books such as History TV18. How exactly would that be doing in terms of operations and any new launches that we can expect?
Kumar: Our phase of expansion is well behind us and currently we are fully focused on ensuring that all the channels that we launched in the last two years, what we categorise as our new operations, get into profitable territory. If you take History TV18 it has more than halved its losses in the second year of operation. If things go right and things go well we should be able to report a breakeven this year. So I would say a very positive trajectory for our new operations as well.
Q: You should be able to breakeven in History TV18 this year?
Kumar: That is the attempt.
Q: What about general news and the other news operations? You have a Gujarati channel coming in as well there is IBN Lokmat. Will you see improvement in terms of breakeven in channels like IBN Lokmat as well? When do you expect Gujarati to breakeven?
Kumar: Your market information is right. We are looking at the Gujarati market extremely seriously. I think there is tremendous opportunity there, but it is also linked to the rollout of DAS II, because DAS II directly affects a lot of these Gujarat markets which makes our launch proposition much easier. So I think the timing of the launch is still to be decided, but yes we are very close to that decision now. As far as our general news operations go as you would have seen we have broken into positive territory this year as a general news network. Which means CNN-IBN and IBN-7 and as a natural by-product of that, even the regional cousin which is IBN Lokmat should be in that space one year from today.
Q: Justdial is now starting its road shows. Does that whet your appetite for you and the other owners of BookMyShow to take you to the market sometime this year?
Singh: I am sure it will be a big motivation for the founders of BookMyShow and for the management team now to see that what is possible in this space. We continue to be very positive on that business as well as other digital businesses. The bigger lesson from Justdial is that the Indian digital story is now starting to become much more real and more robust and I think you will see that there will be more assets and some of ours will also join that queue. So I am hugely encouraged by the response to that offering and I think it will be very good for us as well as the broader digital industry.
Q: Is it a yes or a no for any capital raising in the markets this year for BookMyShow? Will you look at listing as an option?
Singh: BookMyShow is extremely well-funded. The business has to grow and once it reaches a size which is sensible then listing is one of the opportunities that is available to any good business. We will evaluate it. I do not think we want to get caught up in the next 24 months. Let the business grow first.
Q: Any numbers you can give in terms of the profitability or revenues for the digital parts of the business? I am referring to more the web properties and maybe Firstpost?
Singh: We have given some numbers on the content business together. All our digital content businesses are approaching about Rs 100 crore in revenue now for full year. So that is a reasonable run rate and we are hoping that when broadband rolls out even further in India then these businesses will get a massive flip and just as e-commerce has gone through its exponential growth phase in the last two years, I think the time of content business's time will come too. We are extremely well-placed with Moneycontrol, Firstpost, IBNLive and In.com. So we have very good properties and when that market matures and starts to grow faster we will reap the benefit of that.
Disclaimer: Moneycontrol.com and TV18 Broadcast are part of the Network18 Group.