<font color="#ff0000">Special: </font> UTV: Shooting for Scale

Ronnie Screwvala's journey from theatre personality cum cable operator in the '80s to the CEO of UTV Software Communication may not be as interesting as, say, Subhash Chandra's from rice trader to media magnate, but it is worth telling.

Unlike Chandra's joint venture - and dramatic split - with Rupert Murdoch's News Corporation, Screwvala's life as a media owner has been rather predictable. Like Harish Thawani's Nimbus, Dheeraj Kumar's Creative Eye or Ekta Kapoor's Balaji Telefilms, UTV started (in the '80s/early '90s) as a content producer for Doordarshan and branched out into animation, airtime sales and post-production, among other things.

The five-year itch

From films such as Kaminey (2009), Race (2008), Jodha Akbar (2008), Rang De Basanti (2006) to TV shows like Dadagiri or Beg, Borrow, Steal on Bindass to the launch of a World Movies channel, to taking over three gaming companies across the globe, UTV has worked feverishly in the last three years to become a 'content' company - across genres, media platforms and markets. In a fragmented, buyer's market, awash with 'content' companies, this seems audacious. But it is working.

In 2006, Walt Disney, that cussedly American company, first bought the UTV kids' channel Hungama with a minority stake in the company. By the end of 2008, Disney had increased its stake to a majority 59.9 per cent - and its investment was a staggering Rs 925 crore. Yashraj Films, which has had a particularly bad couple of years, is looking even more terrible compared to its younger, fresher rival. UTV is now, going by estimates, the largest film studio in the country both in terms of numbers of films made and in revenues.

Note that Screwvala's earlier contemporaries are still in the Rs 25-50 crore range (with the exception of Balaji and Nimbus) and most are still, TV content producers.

One-man show?

But there are holes in the strategy. One is the total lack of interest in owning distribution assets, though Screwvala doesn't think it is important. "We are in distribution, in broadcasting, movies, new media and gaming. For many people distribution has a conventional definition, like cable operators or multiplexes. We are in distribution but not the last mile," he says.

The other is its huge dependence on film revenues. They bring in half its revenues and profits. That is largely because UTV has had a great three-year run. But a few bad years could pose problems. The third, it would seem, is UTV's dependence on Screwvala. He denies it, pointing out that if he went on a three-year sabbatical, UTV would run by itself. Each of the businesses has a CEO who has been in charge for some time now. The scale has come only by putting a professional team in place. But we are jumping the gun here. Let us start from the beginning.

How it unfolded

So far, UTV had been, largely, a supplier to other media companies. Now it wanted to get into the business of owning content (and its IP) and therefore the source of current and future revenues. The idea was to move from being in business-to-business segments, to business-to-consumer segments that had scale. UTV's thinking was not new - it is the economic rationale on which the entire media business functions - the ability to create and control original content improves the chances of making money because media content has tremendous resale value.

There is one big difference between what UTV did and any other content company does - it creates or acquires content across genres, across media platforms. So, unlike Balaji which is largely about TV content or Yashraj Films which is about film content, UTV is about game content for the mobile, console or internet, it is about TV content for itself and anyone else who may choose to hire it, it is about film content and so on (last fortnight, Yashraj got into television content).

Out-of-the-box office

Of all the businesses that UTV focussed on after deciding on its new strategy, films have delivered the best and most visible returns. Films bring in just under half of UTV revenues (Rs 306 crore) and more than half of its profits.

UTV got into films in 1995-96 but it was a sort of tentative beginning. By 2000, the push into films became serious. Soon there were sniggers all around. How could anyone beat the Karan Johars and Yashraj Films? From a couple of films to begin with, the company will produce, and/or distribute 14 films in 2009. In distribution deals (which are rare) UTV just distributes the film across all platforms by paying a minimum guarantee and splitting revenues, like it will for Wake Up Sid. The other option is that it could acquire a film and become the rights-holder for it completely.

Fourteen films is huge by the standards of the Indian film business. Remember this is one of the most fragmented film industries in the world. It has taken almost nine years of corporatisation to clean up the industry's act on retail where multiplex companies such as PVR Cinemas or Inox Leisure that own hundreds of screens have brought in scale.

At nine films, in 2008-09, about 70 per cent of the topline of Rs 306 crore comes from the box office. There are ancilliary revenues (home video, library et al). Siddharth Roy Kapur, CEO, UTV Motion Pictures, says that assuming that the 14-15 films (in 2009-10) are of the right type - 4-5 big-budget, 4-5 medium-budget and rest, small - they should bring in a topline of Rs 400 crore. As long as UTV keeps increasing the number of movies it makes or acquires and keeps the portfolio mix right, it will keep its position as the largest film studio in India.

The clicking of UTV

There are three things that have worked for UTV in the film business. One, it has a slate that is not limited to the Shah Rukhs and the Aamirs of the industry or even to Hindi films. It has a line-up of new and old directors who are chosen with care and yet the company takes a lot of risk.

There was the risk of allowing a self-indulgent Ashutosh Gowariker to make a magnum opus kind of film after Swades' (2004) tepid performance. But UTV went ahead with Jodha Akbar (2008), largely because of its overseas possibilities. Jodha Akbar worked. Anurag Basu hadn't had a hit when UTV signed him on, he delivered with Life...in a Metro (2007). Vishal Bhardwaj's Blue Umbrella (2007), Omkara (2006), both hadn't worked commercially, though they got a lot of critical acclaim. Yet UTV invested in Kaminey. The film turned out to be a hit.

Two, having its own distribution set up helped. For years, there was no transparency and under-declaration was rampant. So UTV decided to distribute its own films. Kapur reckons that this helps "plan our strategy for each film separately." For instance, The Namesake (2007), which did well in the US, was released with a few prints in limited cities in India. Race, a 'massy entertainer,' was released in 1,600 screens globally, 1,300 of them in India.

Three, the focus of the film business is the global market not just India. Almost all its films that can find a market overseas are released there. Kaminey had a great opening in the US and in the UK, just as it did in India. Ditto for Jodha Akbar. Now, "we would like to have a crossover," says Kapur.

Small screen, big business

The TV business has two parts - broadcasting and content production - each with separate heads. In broadcasting, UTV has five channels - Bindass (youth), Bindass Movies (Hollywood films dubbed in smartass Hindi), UTV Movies (Hindi films), World Movies (English art films) and Bloomberg-UTV (English business news).

The channel was launched based on research among 2,500 young people across six cities. UTV also uses continuous research among 1,200 people in Mumbai, Delhi, and Lucknow surveyed every two months. Bindass now competes with MTV and Channel V among others and has done well for itself with shows like Dadagiri. Analysts love to point out that there is no general entertainment channel (GEC) in the UTV bag.

GECs get a bulk of the estimated Rs 12,000 crore in TV advertising. Last year alone saw about four launches in the Hindi GEC space - NDTV Imagine, Colors, Real and 9X. "We don't have a GEC because the space is overcrowded and ROI is low," says Mehta. True, but it is also the surest way of telling investors that you have arrived - in broadcasting parlance.

"If I was only in broadcasting, I'd have got into general entertainment, but I am diversified, so I need to rationalise my costs and investments," says Screwvala. Quips one media investor, "By the time they create their niche channels they will be in the red."

On revenues of Rs 89 crore, the broadcasting business incurred a loss of 28 crore in 2008-09 (UTV annual report). It is, however, too early to pronounce a verdict.

Content production, is driven by non-fiction, UTV's strength from the Saanp-Seedi days in the '90s. UTV makes, among other shows, Dance India Dance (Zee) and Ek Khiladi Ek Haseena (Colors). It is one of the largest makers of non-fiction programming after Endemol, claims Santosh Nair, executive vice president, UTV TV.

Nearly 75 per cent of the programmes (the division made a profit of Rs 5.5 crore on revenues of Rs 132 crore in 2008-09) created is commissioned - the company does not own the IP.

Playing the game

Gaming and new media seem to be Screwvala's favourites. Gaming especially is the business he seems to be betting on to bring the kind of scale that films have. Already games bring in over Rs 120 crore or 18 per cent of topline (there are no separate estimates on what gaming contributed in 2007-08).

UTV owns three companies that specialise in different aspects of the gaming business - Ignition, a UK-based firm that it acquired in 2007, specialises in console gaming while Indiagames, does so in mobile gaming and the US-based True Games in online gaming. All three were acquired in the last few years.

Unlike films where getting the right crossover film is critical for a resounding global success, there is no such cultural limitation in gaming. Get a game right and the world is your market. In UTV's case, it has to be so because India is as yet an insignificant gaming market. By the end of March 2010, UTV expects gaming to bring in 30 per cent of its topline against the current 18 per cent. "Games is a universal market. A three-year-old upstart gaming company could have a market cap that is five times that of a big media company," points out Screwvala.

In new media too, the thinking is that aggregating is not going to help build scale. Creating IP-based content on a large scale is where the money lies, believes Manish Agarwal, chief executive officer, UTV New Media. One of the more interesting products launched by new media is 'audio cinema'. This is essentially film dialogues on the phone. If you want to listen to the dialogue of, say, Sholay (it is among the 65 films that UTV has on its list), you just call in a number and listen to it for a charge that could be per minute or a monthly one, depending on the airtime operator.

Coming back to scale, Screwvala thinks gaming - the way UTV is approaching it, as a pan-Asian games company targeting the global market - should bring in a chunk of revenues and profits soon.

"When the inflexion point comes we will catapult," says Screwvala. Considering what UTV has achieved in the past, that leap should be worth watching.

Vanita Kohli-Khandekar is a media consultant and author of The Indian Media Business.

At the timing of filing this story, MK Anand, CEO, UTV Global Broadcasting Entertainment Channels had not joined the company.