May 15, 2013, 10.19 AM | Source: CNBC-TV18

See a stable, profitable phase for TV18 hereon: Sai Kumar

TV18 has plans for channels catering specifically to the Gujarati community, with the launch contingent on the roll out of DAS in Gujarat.

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.

Also Read: Network18 FY13 revenues up 23%; e-commerce biz up threefold

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.

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