See 3-fold rise in subscription rev in 3 yrs: Network18

Network 18 Media & Investments has reported a Rs 79 crore profit in the third quarter ended December 2010 versus a loss of Rs 36 crore in the previous quarter. The company's consolidated income from operations came in at Rs 406 crore compared to Rs 355 crore quarter-on-quarter.

In an interview with CNBC-TV18, Haresh Chawla, Group CEO, Network18 said he expects a three-fold jump in subscription revenues over the next three years. Chawla said the composition of revenues will shift to being 75% advertising and 25% subscription-based. He also expects the company to return to historic levels of margin in the business news space.

Colors, a Hindi general entertainment channel and a part of the Network18 Group, he said had turned in another strong quarter in advertising. He also anticipates the New TV18 entity to have a healthy net debt position going forward.

Below is a verbatim transcript of the interview. Also watch the accompanying video.

Q: You have reported positive EBITDA and PAT numbers for all the three listed companies. Would you call this a turnaround quarter in a sense?

A: Yes, absolutely. I think we have gone through a very deep and heavy investment phase that somehow coincided with the downturn as well. So we have come through a pretty rough patch as a network.

But all our investment and assets have actually given us fruit now that we are seeing a turnaround in all our businesses. All the TV businesses are now making cash, all the brands are now absolutely in remarkable position compared to their peers. So we are a very strong network now and those investments, which we made when we were only a single business news channel to now a large and one of the top three players in the TV broadcasting business, I think that phase is now over and we are hopefully looking to a very profitable and strong future for our network.

Q: While your advertising revenues for many of the properties are comparable with industry leading benchmarks, where you lag as a network is clearly on the distribution side. When does that money start to kick-in, in reference to the joint venture that you struck with Sun?

A: What has happened is that while we are a pretty sizeable network now, the real issue is that our network was not aggregated together as one bouquet. In that sense we are a younger network compared to some of our older and larger peers.

So if you look at our peers, subscription revenue forms about 30% of their total revenue whereas in our case our current situation gives us only about 10%. We have just done that alliance with Sun and we are in the midst of rolling that out and we expect a 3X jump in the next three years in our subscription revenue, all of which should go into the bottomline because clearly all of this is a result of the legacy effect moving away and the consolidation of our channels into one bouquet.

Q: What would that mean in terms of a quarterly runrate you can get through distribution for Viacom18?

A: I think it is not competitively sensitive to give out all the details right now. But what we are saying is that the composition of revenues will substantially change. Currently they are 90% advertising, 10% subscription and that should shift to around 75-25 over the course of the next three years.

Q: Just focusing on the news properties themselves, operating profit margins for the business side are very high at 29% I think. What do you think the blended margins can come upto by the time you get into FY12?

A: I think on the business news front, if you recall, before this whole slowdown and this whole financial meltdown happened couple of weeks ago, we were trending in the 35-45% margin range depending on which quarter of the year it was. My sense is that seeing the whole buoyancy in the economy and the fact that a lot of premium products, real estate all that is spending on advertising, we should head back to that kind of margins again in the business news space.

In the general news space, I think it has been a challenging time there as well. We have come through a very seasonally good quarter and that has gone into positive territory. We hope to be in positive territory for the general news business throughout the coming years. And again at buoyancy plus the fact that more subscription revenue will kick-in, it should keep all these businesses in positive territory with margin expansion over the next few years.

Q: The biggest delta for your group earnings and revenues ofcourse comes from the Colors property now. How is that doing in terms of advertising revenues, if you can take us through those numbers?

A: Colors has had an extremely strong quarter on advertising. It has been on the back of Bigg Boss and the kind of ratings it enjoyed all of last quarter. Colors is now in a phase where it is a very strong number two right now and we hope to bring it back to its numero uno position with its new programming that will get released over the next 90-120 days.

Q: What is going on with the process of consolidation or the arrangement in terms of creating the New TV18? When will that be in place you think?

A: You are aware of what we have done. We have essentially put all our TV businesses into one company and that is going to be called the New TV18. Network18 will continue to own the TV and all the non-TV businesses. We have got shareholder approvals a couple of weeks back for this consolidation. It is a court administered process.

So I guess we don