Digitization: Sun eyes large chunk of Chennai market share

Digitization will become mandatory in four metros (Delhi, Mumbai, Kolkata and Chennai) from July 1, 2012 onwards and Sun Group is looking to cash in on the untapped Chennai market. 

SL Narayanan, group chief financial officer told CNBC-TV18, Chennai offers a fairly significant upside because it is currently a free-to-air market. “It is reasonable to predict at least a million households might move over to the digitally addressable systems, which will be a fairly good upside for not just Sun TV but for almost all broadcasters,” he added. Meanwhile, he informed that ratings of Sun channels have significantly held up and they hold a fairly dominant share of viewership across three languages- Tamil, Telugu and Kannada "In Kerala we have been no 2 and we have been a fairly competent no 2 right through. I don’t think there has been anything, which is significant enough to comment or to be worried about," he added. Below is the edited transcript of Narayanan’s interview with CNBC-TV18. Also watch the accompanying video. Q: There have been lots of talks that you have been successful in your negotiations with Arasu and finally the fall in your subscription ratings can be arrested. Can you take us through what the reality is? A: I cannot talk much about this issue because it is still in the works. We will not be able to comment or give any kind of forward statement on the way it is likely to end. Q: Can you confirm for us where ratings dropped to and whether or not you expect to see any recovery in them and to what level going ahead? A: Ratings have consistently held up, there has nothing that has significantly moved the needle. If you look at the last 5-6 years, the Sun bouquet channels have generally kept up fairly dominant share of viewership across the three languages which are Tamil, Telugu and Kannada. In Kerala we have been no 2 and we have been a fairly competent no 2 right through. I don’t think there has been anything, which is significant enough to comment or to be worried about. We stay very closely committed to maintaining a very high market share and it is business as usual there. Q: What is your own assessment though in terms of preparedness for Chennai as a market for digitisation and what do you think it may do in terms of subscription incomes for you when it does come through? A: Chennai can be a fairly significant upside for us because currently it is free-to-air market. Our assessment is that a significant proportion of that market has already moved on to DTH because the higher income households have shifted on to DTH, which is a more sophisticated form of viewing television. But there still exists a fairly large market which is on the analog cable systems and that is where we see a fairly good upside. It is reasonable to predict at least a million households might move over to the digitally addressable systems, which will be a fairly good upside for not just Sun TV but for almost all broadcasters because currently that market is not being tapped at all. Q: Last quarter your advertising revenues fell and that is after a long time in Sun TV, did it have to do much with the kind of ratings dips you saw post the Arasu problems or was it because of the sluggish environment and do you see this fall being arrested soon? A: To give a bit of historical context, towards the end of financial year 2011, we had a very major sporting event which was the Cricket World Cup. Immediately on the success of that event the IPL ratings were also extremely strong. So, lot of advertising budgets got diverted into sports broadcasting. Thereafter we had food inflation, rising interest rates and general dip in business confidence, which led to a lot of cut backs on spending and promotions across FMCG stable. That was the reason why our ad revenues fell year on year. _PAGEBREAK_ Amongst the listed media players, our rate of fall was lower than most others. As we speak, it is still continues to be muted, but it is reasonable to surmise that management of margin by cutting back on spending and promotion and brand investments is not sustainable. I expect at some stage this trend to reverse and when that happens, Sun Group of channels are likely to get a fairly large proportion of the upsurge in spending. It has happened in the past and I see no reason why it shouldn’t happen in the foreseeable future. Q: Apparently there has been some talk airlines from Middel Eastern part of the world have shown some interest, can you confirm whether you have had any expression of interest from Emirates or Gulf Air for a stake in Spice Jet? A: It will be impossible to say anything on this because it is too premature and there is lot of speculative reporting that has happened. I do believe that Spice Jet is very attractively positioned because our debt levels are still very low. We have had steady increase in market share and with a recent rationalisation of capacities, load factors are up and yields are up. I wouldn’t be surprised if there is interest very soon coming up. But, at this time there is nothing on the table. Q: You have received clearance though for importing ATF, how soon do you think it will actually be feasible to start doing that and some eyebrows have been raised on the entire logistics end of it and whether or not aviation companies can go through with this importing and using, do you think it could happen within this calendar year? A: At this time it is still at a beta stage. We have just started off with the application. The Directorate General of Foreign Trade (DGFT) has given us the approval for import. The devil as usual lies in the detail because even assuming that we are able to import directly, getting it to the point of tanking the aircraft, which is basically hauling it from the port to the tarmac, there are lot of other costs that need to be managed. So, net-net what it will ultimately result in terms of tax arbitrage and therefore savings at a P&L level, we are still looking at the details for that. We will do import first and see whether at all it is feasible. At this time we are keeping our fingers crossed. But looking at the math on a excel spread sheet it seems to me that this might be a very useful thing to do.