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Network18 Media and Investments: Presence in TV and Internet segment
Company background
Network18 Media and Investments (Network18) is a media conglomerate with a
presence in several media segments; namely, television, print (magazines),
Internet, films, and mobile content. In July 2010, Network18 announced a group
restructuring to simplify its group structure and reduce cross holdings. The
television business (through IBN18 post-restructuring) and digital businesses
contributed 76% and 21%, respectively, to Network18’s FY10 managed revenue.
Industry trends
According to the 2010 edition of FICCI-KPMG’s annual Indian media and
entertainment industry report, industry revenue grew 1.4% to Rs587bn in 2009 and
is expected to grow at a five-year CAGR of 13%. According to the report, TV is
the largest media segment in India (44% of industry revenue in 2009). The
Ministry of Information and Broadcasting (MIB) recently passed its proposal on
the mandatory digitisation of analogue cable to the Telecom Regulatory Authority
of India (TRAI). The MIB has proposed the following digitisation timetable:
1) metros to switch by March 2012 (the TRAI earlier recommended March 2011);
2) cities with population over 1m by March 2013 (TRAI recommended December
2011); 3) all other cities by November 2014 (TRAI recommended December
2012); and 4) rest of India by March 2015 (TRAI recommended December 2013).
The timetable is subject to government approvals.
Company background
Established in 1996 as SGA Finance and Management Services, Network18 was
listed on the BSE in 2007. Network18 is a media conglomerate with a presence
in several media segments; namely, television, print (magazines), Internet, films,
and mobile content. The television business contributed 78% to Network18’s Q3
FY11 consolidated revenue. Network18 will own a 58.26% stake in New TV18
(IBN18 will be referred to as New TV18 post restructuring), which will operate
nine news and entertainment channels.
Business segments
Television: Network18 will have exposure to the television business through
its 58.26% stake in IBN18 (restructured). IBN18 operates several channels in
multiple genres (refer to Chart 1 for list of channels).
Films: Network18 will have exposure to the films business through its stake
in IBN18 (restructured). Viacom18 (IBN18’s 50:50 JV with Viacom) will
own a 100% stake in The Indian Film Company (TIFC), which invests in
films targeted at Indian audiences globally.
Digital and print media business: Network18 owns Web18, one of the
largest Internet companies in India, and Newswire18, which provides real
time online financial information and news terminals. Network18 has
exposure to the print media through Infomedia18 which runs Yellow Pages
and various business magazines. The company also operates the websites
www.bookmyshow.com, www.homeshop18.com, www.moneycontrol.com,
www.in.com and www.askme.com.
Home shopping: Homeshop18 has built a virtual retail business and a home
shopping network that enables customers to make purchases via telephone or
Internet.
Capital18: Capital18 Media Advisors provides investment advisory and
consultancy services in the media and other sectors.
Growth strategy
IBN18 (restructured)
— Strengthen market position. IBN18 aims to maintain or improve its
market position and viewership share in all genres. For the Viacom18
channels (especially Colors), the company expects to produce
programmes that attract high viewership (GRPs).
— Revenue growth focus. IBN18 is focused on increasing its subscription
revenue. It has formed a distribution company (Sun18 Media Services) in
partnership with Sun Network to distribute all its channels. Previously, its
news channels were distributed by Star-DEN and the Viacom18 portfolio
by The One Alliance. Management believes the formation of Sun18
Media Services is likely to contribute significantly to subscription
revenue growth.
IBN18 aims to maximise advertising revenue from its existing channel
portfolio by focusing on viewership share (GRPs). IBN18 will also focus
on additional revenue streams, such as international revenue. In January
2010, it launched Colors in the UK and the US, and management thinks
this is likely to contribute to revenue going forward.
— Launch new channels. According to management Viacom18 plans to
launch a new Hindi movie channel in FY12, which management believes
will complement the company’s existing channel portfolio. The movie
channel will capitalise on Viacom18’s movie library of around 250
movies, which includes some recent large budget movies such as
Dabangg. IBN18 management is considering launching regional
entertainment channels in the medium term.
Invest to create more digital assets. The company aims to invest in digital
assets as it believes its digital assets are likely to be a key growth driver.
Network18 management expects revenue contribution from digital assets to
increase from 21% of FY10 managed revenue to around one third of revenue
in the next three to four years. Network18 has invested in three categories of
digital assets:
1) Transaction based: Includes ticketing portal www.bookmyshow.com and
home shopping site www.homeshop18.com. Revenue from HomeShop18
has exhibited good growth trajectory in the past and management expects it
to continue to contribute significantly to revenue growth in future.
2) Content driven: Includes www.moneycontrol.com and www.in.com
3) Local search: Includes online search website www.askme.com
Network18 management plans to invest in its existing assets so as to be able
to manage the scalability challenge, as various industry reports suggest the
number of Internet users is likely to grow significantly in the medium term.
Recent news
Network18 reported Q3 FY11 results on 27 January 2011. Consolidated
revenue grew 10% YoY to Rs4,060m in Q3 FY11, while its EBITDA
increased from Rs20m in Q3 FY10 to Rs330m. EBITDA margin expanded
from 0.5 in Q3 FY10 to 8.1%. The television segment (IBN18 post
restructuring) contributed 77% to consolidated revenue. Television revenue
grew 21% YoY to Rs3,150m and EBITDA came in at Rs550m.
Network18 has sold its 80.4% stake in The Indian Film Company (TIFC) to
Viacom18 at a book value of 115.56 pence per share. As part of the
acquisition deal, if Viacom18 is unable to realise the book value of the movie
library in the next four years, Network18 will compensate Viacom18 for the
difference. Network18 reported a one-time gain of Rs951m related to this
transaction in Q3 FY11.
Network18 Group announced a restructuring in July 2010 to simplify the
group structure and reduce cross holdings. Please refer to our note
Network18 Media and Investments: A media conglomerate in India, dated 13
December 2010, for further details.
Industry issues
According to Back in the Spotlight: FICCI-KPMG Indian Media &
Entertainment Industry Report, 2010, the India media and entertainment
industry’s revenue CAGR for 2009-14 is likely to be 13%, from Rs587bn
(US$13bn) in 2009 to Rs1,092bn (US$24bn) in 2014. The television segment
contributed 43.8% to total revenue in 2009. This is expected to grow to 47.7%
of revenue by 2014. Media spend, as a percentage of GDP, is low in India at
0.41%, compared with 0.75% in China and a 0.80% global average.
Television
There are 515 TV channels in India, of which 150 are pay channels. Based on
the viewership data provided by TAM Media, Hindi general entertainment
channels (GECs) and Hindi movie channels constitute more than 50% of total
TV viewership in Hindi-speaking markets. Therefore, the ad rates are generally
skewed in favour of Hindi GECs. As per the FICCI-KPMG report, the average
CPRP (cost per rating point) of news channels is similar to that of Hindi GECs,
primarily due to advertisers’ preference for news channel audiences.
Television
The TV industry reported Rs57bn revenue, up 6.6% YoY, and is expected to
grow 12.5% in 2010, according to FICCI-KPMG. The key growth driver of
subscription revenue is increasing digitisation (a switch from analogue cable to
the digital platform: DTH or digital cable). There were 129m TV households in
India at end-2009, of which 95m were cable and satellite (C&S) homes; there
are 69m analogue cable homes in India. There are significant revenue leakages
in analogue cable, as LCOs generally under-report their subscriber base to retain
a higher share of revenue. This is not possible on a digital platform as usage can
be tracked on digital set top boxes.
In August 2010, TRAI recommended the complete digitisation of analogue
cable in four phases: 1) all metros by March 2011; 2) cities with more than a 1m
population by December 2011; 3) remaining urban areas by December 2012;
and 4) rest of India by December 2013. As per TRAI estimates, the analogue
cable subscription revenue for the entire industry is Rs135bn (68m analogue
cable homes * Rs165 ARPU), of which broadcasters get only 20%.
The Economic Times and The Times of India report that the MIB has given its
proposal on mandatory digitisation recommendations to TRAI. MIB has
suggested the following timetable, which is subject to government approvals:
Phase 1 - Metros to switch to digital platform by March 2012 (TRAI earlier
recommended March 2011)
Phase 2 - Cities with populations above 1m by March 2013 (TRAI earlier
recommended December 2011)
Phase 3 - All other urban cities by November 2014 (TRAI earlier
recommended December 2012)
Phase 4 - Rest of India by March 2015 (TRAI earlier recommended
December 2013)
Internet
India is a significant digital market and is poised to become the second largest
market in the world by 2015, with an estimated 237m Internet users, according
to a September 2010 Boston Consulting Group report.
Disclaimer
THIS DOCUMENT IS PRODUCED STRICTLY FOR YOUR INFORMATION
ONLY. UBS INVESTMENT RESEARCH (“UBS”) DOES NOT COVER THE
COMPANIES AND INVESTORS SHOULD NOT EXPECT CONTINUING OR
ADDITIONAL INFORMATION FROM UBS RELATING TO THE
COMPANIES AND/OR SECURITIES DISCUSSED IN THIS NOTE. THIS
DOCUMENT DOES NOT CONSTITUTE INVESTMENT ADVICE OR AN
OPEN OFFER, OR AN INVITATION TO MAKE AN OFFER, TO BUY OR
SELL ANY SECURITIES OR ANY OPTIONS, FUTURES OR OTHER
DERIVATIVES RELATED TO SUCH SECURITIES.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Network18 Media and Investments: Presence in TV and Internet segment
Company background
Network18 Media and Investments (Network18) is a media conglomerate with a
presence in several media segments; namely, television, print (magazines),
Internet, films, and mobile content. In July 2010, Network18 announced a group
restructuring to simplify its group structure and reduce cross holdings. The
television business (through IBN18 post-restructuring) and digital businesses
contributed 76% and 21%, respectively, to Network18’s FY10 managed revenue.
Industry trends
According to the 2010 edition of FICCI-KPMG’s annual Indian media and
entertainment industry report, industry revenue grew 1.4% to Rs587bn in 2009 and
is expected to grow at a five-year CAGR of 13%. According to the report, TV is
the largest media segment in India (44% of industry revenue in 2009). The
Ministry of Information and Broadcasting (MIB) recently passed its proposal on
the mandatory digitisation of analogue cable to the Telecom Regulatory Authority
of India (TRAI). The MIB has proposed the following digitisation timetable:
1) metros to switch by March 2012 (the TRAI earlier recommended March 2011);
2) cities with population over 1m by March 2013 (TRAI recommended December
2011); 3) all other cities by November 2014 (TRAI recommended December
2012); and 4) rest of India by March 2015 (TRAI recommended December 2013).
The timetable is subject to government approvals.
Company background
Established in 1996 as SGA Finance and Management Services, Network18 was
listed on the BSE in 2007. Network18 is a media conglomerate with a presence
in several media segments; namely, television, print (magazines), Internet, films,
and mobile content. The television business contributed 78% to Network18’s Q3
FY11 consolidated revenue. Network18 will own a 58.26% stake in New TV18
(IBN18 will be referred to as New TV18 post restructuring), which will operate
nine news and entertainment channels.
Business segments
Television: Network18 will have exposure to the television business through
its 58.26% stake in IBN18 (restructured). IBN18 operates several channels in
multiple genres (refer to Chart 1 for list of channels).
Films: Network18 will have exposure to the films business through its stake
in IBN18 (restructured). Viacom18 (IBN18’s 50:50 JV with Viacom) will
own a 100% stake in The Indian Film Company (TIFC), which invests in
films targeted at Indian audiences globally.
Digital and print media business: Network18 owns Web18, one of the
largest Internet companies in India, and Newswire18, which provides real
time online financial information and news terminals. Network18 has
exposure to the print media through Infomedia18 which runs Yellow Pages
and various business magazines. The company also operates the websites
www.bookmyshow.com, www.homeshop18.com, www.moneycontrol.com,
www.in.com and www.askme.com.
Home shopping: Homeshop18 has built a virtual retail business and a home
shopping network that enables customers to make purchases via telephone or
Internet.
Capital18: Capital18 Media Advisors provides investment advisory and
consultancy services in the media and other sectors.
Growth strategy
IBN18 (restructured)
— Strengthen market position. IBN18 aims to maintain or improve its
market position and viewership share in all genres. For the Viacom18
channels (especially Colors), the company expects to produce
programmes that attract high viewership (GRPs).
— Revenue growth focus. IBN18 is focused on increasing its subscription
revenue. It has formed a distribution company (Sun18 Media Services) in
partnership with Sun Network to distribute all its channels. Previously, its
news channels were distributed by Star-DEN and the Viacom18 portfolio
by The One Alliance. Management believes the formation of Sun18
Media Services is likely to contribute significantly to subscription
revenue growth.
IBN18 aims to maximise advertising revenue from its existing channel
portfolio by focusing on viewership share (GRPs). IBN18 will also focus
on additional revenue streams, such as international revenue. In January
2010, it launched Colors in the UK and the US, and management thinks
this is likely to contribute to revenue going forward.
— Launch new channels. According to management Viacom18 plans to
launch a new Hindi movie channel in FY12, which management believes
will complement the company’s existing channel portfolio. The movie
channel will capitalise on Viacom18’s movie library of around 250
movies, which includes some recent large budget movies such as
Dabangg. IBN18 management is considering launching regional
entertainment channels in the medium term.
Invest to create more digital assets. The company aims to invest in digital
assets as it believes its digital assets are likely to be a key growth driver.
Network18 management expects revenue contribution from digital assets to
increase from 21% of FY10 managed revenue to around one third of revenue
in the next three to four years. Network18 has invested in three categories of
digital assets:
1) Transaction based: Includes ticketing portal www.bookmyshow.com and
home shopping site www.homeshop18.com. Revenue from HomeShop18
has exhibited good growth trajectory in the past and management expects it
to continue to contribute significantly to revenue growth in future.
2) Content driven: Includes www.moneycontrol.com and www.in.com
3) Local search: Includes online search website www.askme.com
Network18 management plans to invest in its existing assets so as to be able
to manage the scalability challenge, as various industry reports suggest the
number of Internet users is likely to grow significantly in the medium term.
Recent news
Network18 reported Q3 FY11 results on 27 January 2011. Consolidated
revenue grew 10% YoY to Rs4,060m in Q3 FY11, while its EBITDA
increased from Rs20m in Q3 FY10 to Rs330m. EBITDA margin expanded
from 0.5 in Q3 FY10 to 8.1%. The television segment (IBN18 post
restructuring) contributed 77% to consolidated revenue. Television revenue
grew 21% YoY to Rs3,150m and EBITDA came in at Rs550m.
Network18 has sold its 80.4% stake in The Indian Film Company (TIFC) to
Viacom18 at a book value of 115.56 pence per share. As part of the
acquisition deal, if Viacom18 is unable to realise the book value of the movie
library in the next four years, Network18 will compensate Viacom18 for the
difference. Network18 reported a one-time gain of Rs951m related to this
transaction in Q3 FY11.
Network18 Group announced a restructuring in July 2010 to simplify the
group structure and reduce cross holdings. Please refer to our note
Network18 Media and Investments: A media conglomerate in India, dated 13
December 2010, for further details.
Industry issues
According to Back in the Spotlight: FICCI-KPMG Indian Media &
Entertainment Industry Report, 2010, the India media and entertainment
industry’s revenue CAGR for 2009-14 is likely to be 13%, from Rs587bn
(US$13bn) in 2009 to Rs1,092bn (US$24bn) in 2014. The television segment
contributed 43.8% to total revenue in 2009. This is expected to grow to 47.7%
of revenue by 2014. Media spend, as a percentage of GDP, is low in India at
0.41%, compared with 0.75% in China and a 0.80% global average.
Television
There are 515 TV channels in India, of which 150 are pay channels. Based on
the viewership data provided by TAM Media, Hindi general entertainment
channels (GECs) and Hindi movie channels constitute more than 50% of total
TV viewership in Hindi-speaking markets. Therefore, the ad rates are generally
skewed in favour of Hindi GECs. As per the FICCI-KPMG report, the average
CPRP (cost per rating point) of news channels is similar to that of Hindi GECs,
primarily due to advertisers’ preference for news channel audiences.
Television
The TV industry reported Rs57bn revenue, up 6.6% YoY, and is expected to
grow 12.5% in 2010, according to FICCI-KPMG. The key growth driver of
subscription revenue is increasing digitisation (a switch from analogue cable to
the digital platform: DTH or digital cable). There were 129m TV households in
India at end-2009, of which 95m were cable and satellite (C&S) homes; there
are 69m analogue cable homes in India. There are significant revenue leakages
in analogue cable, as LCOs generally under-report their subscriber base to retain
a higher share of revenue. This is not possible on a digital platform as usage can
be tracked on digital set top boxes.
In August 2010, TRAI recommended the complete digitisation of analogue
cable in four phases: 1) all metros by March 2011; 2) cities with more than a 1m
population by December 2011; 3) remaining urban areas by December 2012;
and 4) rest of India by December 2013. As per TRAI estimates, the analogue
cable subscription revenue for the entire industry is Rs135bn (68m analogue
cable homes * Rs165 ARPU), of which broadcasters get only 20%.
The Economic Times and The Times of India report that the MIB has given its
proposal on mandatory digitisation recommendations to TRAI. MIB has
suggested the following timetable, which is subject to government approvals:
Phase 1 - Metros to switch to digital platform by March 2012 (TRAI earlier
recommended March 2011)
Phase 2 - Cities with populations above 1m by March 2013 (TRAI earlier
recommended December 2011)
Phase 3 - All other urban cities by November 2014 (TRAI earlier
recommended December 2012)
Phase 4 - Rest of India by March 2015 (TRAI earlier recommended
December 2013)
Internet
India is a significant digital market and is poised to become the second largest
market in the world by 2015, with an estimated 237m Internet users, according
to a September 2010 Boston Consulting Group report.
Disclaimer
THIS DOCUMENT IS PRODUCED STRICTLY FOR YOUR INFORMATION
ONLY. UBS INVESTMENT RESEARCH (“UBS”) DOES NOT COVER THE
COMPANIES AND INVESTORS SHOULD NOT EXPECT CONTINUING OR
ADDITIONAL INFORMATION FROM UBS RELATING TO THE
COMPANIES AND/OR SECURITIES DISCUSSED IN THIS NOTE. THIS
DOCUMENT DOES NOT CONSTITUTE INVESTMENT ADVICE OR AN
OPEN OFFER, OR AN INVITATION TO MAKE AN OFFER, TO BUY OR
SELL ANY SECURITIES OR ANY OPTIONS, FUTURES OR OTHER
DERIVATIVES RELATED TO SUCH SECURITIES.
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