New media business to grow 50-60% in current year: Shemaroo

Shemaroo Entertainment's new media business revenues grew 83 percent during the June quarter, helped by the spread of 3G and broadband, Hiren Gada, wholetime Director & Chief Financial Officer told CNBC-TV18.Shemaroo’s total income for the quarter grew 20 percent to Rs 70.89 crore and net profit after tax increased 22 percent to Rs 11.67 crore.The new media business includes content distribution via mobile and internet based mediums. Gada said the segment will start contributing 20 percent plus revenues to total topline growth by the year end. Gada told CNBC-TV18 that the company plans to expand its new media business and already has a large library with exclusive rights 3,000 plus products for the same. Gada expects a 50-60 percent growth in FY16. The company’s traditional business grew nearly 12 percent in the first quarter. Its recent tie-up with Red Chillies Entertainment for exclusive rights of 12 films is expected to boost earnings this year, Gada said. The company plans to reinvest its profits into the business, he said.Below is the transcript of Hiren Gada’s interview with Latha Venkatesh and Ekta Batra on CNBC-TV18.Ekta: I was just looking at your new media division, which seems to be up 83 and a half percent year-on-year (Y-o-Y). Just tell us what the new media division does. It is still a small base of around Rs 14 crore. How much do you expect it to increase by the end of FY16?A: It has been in fact a phenomenal quarter as far as new media business is concerned. Fundamentally, the new media business is all about distributing the content across mobile and internet -based platform, which are the new media through which entertainment content is being consumed and being distributed in this ecosystem. We were on a very good momentum in the last quarter of previous year. But this quarter has, in fact, positively surprised us with an 83 percent top-line growth on a Y-o-Y basis. What has really helped us is the strong growth of 3G and broadband penetration across the country which the mobile operators are actually going through. So, we are seeing a really significant growth in this segment. While it is still a smaller part of the overall business, I think where we were, say, two years back or last year also, it is now inching towards becoming more than 20 percent of our overall top-line contribution. We are hoping that the momentum overall continues.The industry is projected to grow between 30 and 35 percent. We have grown at 83.5 percent for the last quarter. I would still expect that for the full year, we probably should grow at anywhere upwards of 50 percent, maybe closer to 60 percent if all goes well.Latha: The word today is if you are a mobile app and if you attach the word start-up to you, you get USD one billion. Will you look at spinning off your new media and launching it as a start-up?A: At this point, there is no such thought. Our business model is around the content. Film content has a tremendously long shelf-life. And for us, actually, we are agnostic to the platform. Which is the new media today? 15 years back, television was the new media; 30 years back, video cassettes was the new media. For us, it is consumption of content and technology has always spurred this consumption and content has really pervaded through this. Latha: You are not looking at spinning off? A: Not at this point at least.

Latha: Your traditional media has also grown 20 percent. Can you tell us what did well there and how it will do further - guidance for the full year? A: Traditional media, for this quarter on year-on-year (Y-o-Y) basis, has grown at 12 percent. If we look at the industry projections, it is projected to grow at between 12-15 percent; probably 10- 15 percent range. We are kind of inline with the industry as far as that is concerned.

One of the interesting things, this year, we have done is the acquisition for the television business is we have tied up exclusively for the Red Chillies library with some marquee titles like Om Shanti Om and Main Hoon Na. So, hopefully that should help us push the business growth a little bit better.  Ekta: Just explain to us for this New Media division what is the kind of competition that you are seeing at this point and if you do have first mover advantage, how do you retain your exclusivity in such a market? Do you have some special exclusivity in terms of the content like you do for the Red Chillies’s 12 films that you just spoke about for TV? Do you have the same kind of conditions maybe in the New Media?  A: We have tremendously large library of upwards of 3000 titles including Hindi language, regional language and non-film content, all of which we own fundamentally exclusively for various rights. We also have the rights for the digital media which is for monetisation across mobile and internet platforms.

What is important right now for us is how we are creating the online ecosystem for catalysing the online ecosystem for the consumer to look at or consume this content across all the digital media.  So, what heartens us for example is we look at YouTube, our channel Shemaroo Entertainment which has crossed 1 million subscribers during this quarter; that itself is an indicator of how we have kept ahead or been in line with where the market is headed - where this is today’s online audience which is so well connected to our content.

Latha: So, you will also use these unexpectedly high revenues to reduce your debt or those other liabilities? How will the year-end balance sheet look like? Will your margins operating as well as net margins improve? A: We have seen a nominal improvement in the earnings before interest, taxes, depreciation and amortization (EBITDA) margin as well as the net margin. Given the large opportunity that we are staring at and the reason why we did the Initial public offer (IPO) also, at this stage, given the large opportunity we are staring at, at this stage, we continue to be in an investment mode and the Red Chillies library tie-up for example is one such example.  So, we would rather use any such unexpected surprises to actually fuel the business further because we are really looking at a phenomenally large opportunity size. Ekta: Just one quick question, which I needed to ask you is for YouTube, do you charge viewers or is it just advertising revenue that you generate from someone watching a YouTube movie by Shemaroo? And secondly, are you transferring or are you progressing towards the Netflix sort of format that we can see you possibly launch? A: YouTube, fundamentally is a free to consumer model and even the subscription that we talk of is actually in that sense notional, as in it is a euphemism as a channel it is a common community you created of people who have liked the content. For example, we have a driver channel called Filmi Gaane which has, as we reported in the last quarter crossed half a million subscribers of people who have opted in to say that we like this channel and keep us informed.  So, YouTube, the fundamental revenue model is around ad-supported revenue model. Now, coming to the question of whether we would launch a Netflix equivalent kind of a service.  So, this is a question that we deal with it every so often, probably once every quarter at least. The core model for us really as I earlier said also is around ownership of content and distribution across platforms. So, we are agnostic to platform or to service. So, in that sense, we do today also provide content to a Netfilx or to an Amazon or to iTunes or to various different platforms that are currently in service.