With the rights issue behind, TV18 Broadcast is now looking to benefit from a combination of favourable headwinds, says B Sai Kumar, Group CEO, Network18.
With the rights issue behind, TV18 Broadcast is now looking to benefit from a combination of favourable headwinds, says B Sai Kumar, Group CEO, Network18. While digitisation will help the company shore up its subscription revenues, advertising growth rate should also start looking up hereon, Sai Kumar said in an interview to CNBC-TV18.
"I believe that this is the bottom of the barrel on advertising growth rates. With the onset of digitisation and advertising rates going up from this bottom, I only see good news for the broadcast sector," he says.
In addition, Sai Kumar expects the network's carriage fee—paid by broadcast firms to cable TV operators—to decline going forward.
"Today with us representing about 49 channels, our negotiating power has changed dramatically," he said.
In addition, TV18's interest costs will reduce considerably this quarter onwards as a large chunk of debt has been repaid using the proceeds of the rights issue.
"They (interest costs) will go down materially; so suffice to say because the process has just begun and we have started work, you will see that in our results starting Q3," Sai Kumar said.
Below is an edited transcript of the interview.
Q: We will start talking about TV18 first in particular -- what is happening in the balance sheet, now that the rights issue is behind us? How much has it brought down the debt and consequently how much have interest expenses gone down or will go down?
A: As said in our regulatory filings, we wanted to use the proceeds of the rights issue to consummate the acquisition of ETV News and Entertainment and pare down debt. Now that the twin rights issues of both of TV18 and Network18 are behind us, we are doing exactly that.
So, glad to tell you that we are on the last stage of consummation of the EENADU acquisition, so that is point one of the objective. And two, we had said that about Rs 1150 crore at the Network 18 level and about Rs 400 crore at the TV18 level would progressively be pared down and that process is well underway. So you will start looking at debt and interest improvement starting in this quarter (Q3) itself.
Q: Any rough estimate by how much interest cost would go down?
A: They will go down materially; so suffice to say because the process has just begun and we have started work, you will see that in our results starting Q3.
Q: Talking a bit about the business can you give us an estimate of how ad revenues will pan out going forward, are you seeing any kind of improvement in ad expenditure by firms itself because if you compare it on year on a year basis the ad revenues have been flat?
A: You are right and I think it's ironical because this is an industry that is at a cusp of positive change with digitization. Perhaps the only bleak spot, and I would hasten to add, a temporarily bleak spot is advertising growth rates. Yes, it's connected a bit to larger economic headwinds but let us look at the positive side. I believe that this is the bottom of the barrel on advertising growth rates. So it can only go up from hereon. With the onset of digitization and advertising rates going up from this bottom, I only see good news for the broadcast sector.
Q: So what impact will this have on the margins per se, we have seen the company address issues on profitability by paring down their debt. What about operationally because margins have been in this band of about 8-9 percent?
A: Absolutely right but if you drill down a bit and if you see the reason for that, I think a large part of the reason is coming from the fact that our distribution expenses are much higher than our subscription revenues and that is precisely what I believe digitisation would help us correct.
In line with that, we have also structured ourself in the manner that mirrors the tectonic shift that is going to happen with digitization with this whole new venture called Indiacast where we bring together all the operations of distribution, be it carriage or be it the subscription side and that is why you would also note that we have made a change in our reporting.
The change in our reporting is in line with the stated focus on this group that we are going to be completely spending the next few quarters ensuring that we correct this anomaly in TV18's net distribution performance, which has unfortunately historically been negative. We are also coming in from a negative territory of Rs 100 crore last year. But I would think that we will see a very smart correction starting immediately.
Q: The group has a set of relatively new channels and because of that the carriage fees have been higher. Do you expect carriage fees to trend lower in the next couple of quarters and would that in turn help the margin picture?
A: Carriage fees are trending lower, but I must caveat that by saying there are two more issues at play there. One is that it depends on the negotiating power of your bouquet. Today with us representing about 49 channels, our negotiating power has changed dramatically and second is that it also depends on the quality of the channels. If you look at the last few launches that we have had whether its Comedy Central or History TV18, they have all gone to being in the top bracket of their genres. We have seen a very-very smart launch in – be it revenues on the advertising or the distribution side- but as a concept going forward I believe that carriage (fee)is trended downwards.
Disclaimer: Moneycontrol and TV18 are part of the Network18 Group.