Sumantha Rathore

Working Together

After a slowdown in 2009 and 2010, the pace of mergers and acquisitions in the media and entertainment sector had picked up in early 2012. Does this mean media owners are finally ready for consolidation?

Working Together
A Few months ago, Sony Pictures Television entered into a strategic alliance with Hyderabad-based Maa TV Network (MTN) to acquire a 30 per cent stake in the latter and try its luck in the Southern market. MTN operates four Telugu channels, the flagship Maa TV (a GEC), Maa Movies, Maa Music and Maa Gold (a second GEC that focuses on urban youth). There have also been media reports that the Aditya Birla Group is in the fray to acquire a 26 per cent stake in Living Media India.

Strategic alliances, mergers, acquisitions and private equity deals. It is all happening in the media and entertainment sector. From fiercely protective, family-run businesses, media owners are opening up to work with partners. Five years ago (according to VCCEdge data, the financial research platform of VCCircle), deals worth $373.2 million were struck. Though it jumped to $803.2 million in 2008, the next two years were tame. In 2010, the value of deals fell to $393.6 million. There was a turnaround in 2011, when that figure doubled. The standout deal that year was Walt Disney upping its stake in UTV Motion Pictures by 41 per cent to own 90 per cent of the latter.

However, 2012 has unfolded a different picture. In the first three months itself, there have already been deals worth $609.2 million (Rs. 3,050 crore). This includes deals in advertising, movies and entertainment, print, cable and satellite (C&S), digital and broadcasting. The big one this year came when TV 18 acquired the Eenadu Group (barring its Telugu properties) for $395 million (Rs. 1,975 crore). Just over a year ago, not many companies were trying to invest in another. Some were getting out instead - NDTV exited the GEC space by selling its stake in NDTV Imagine to Turner International. What has changed now?

Back story

Working Together

When Zee entered into a partnership with STAR TV, the Rupert Murdoch-owned News Corp subsidiary, way back in 1994, it paved the way for the other eager-to-grow media houses. According to the pact, STAR had agreed not to broadcast more than half of its shows in Hindi. In 1999, STAR sold its stake back to founder Subhash Chandra for $300 million.

Those were the nascent days of the Indian media industry, which was driven by the need to kickstart itself. But, today, that has changed, both in terms of the size and the number of companies operating in media. Atul Das, corporate strategy officer, Zee Entertainment Enterprises says that people now have realised that they cannot continue with the business the way it is. Therefore, it is better to go for consolidation or sell out.

History repeated itself in May 2011 when Zee and STAR India got together, this time to focus on the C&S business and accelerate the pace of digitisation. The two fused their distribution businesses to form Media Pro Enterprise, a 50:50 JV between Zee Turner and STARDEN Media Services to aggregate and distribute channels.

Digitisation has accelerated the spate of investments. Smaller players (LCOs and small MSOs) will need to raise capital and many will have go through the route of consolidation. "With the need for capital going up, consolidation will happen in the distribution space. Nowhere in the world will you see over 60,000 players in the TV distribution business," adds Das.

Regional charm

Working Together
Working Together
Working Together
Look carefully at some of the recent media deals. There is a regional touch that is hard to miss. Apart from Eenadu TV"s buyout, there was Sun18, a JV between Network 18 and Sun TV (for distribution), Jagran Prakashan�'s buyout of Naidunia Media last month, Marathi daily Lokmat�'s tie-up with Yahoo! for Marathi content, Educational Trustee�'s (from the promoters of Dina Thanthi) acquisition of Metronation Chennai Television (an English news channel JV between The Hindu and NDTV) or Multiscreen Media buying Channel 8 in Bengal (renamed Sony Aath).

After the economic slowdown passed, regional media became the hot spot and national players are turning their attention to it. "They (big players) needed strong regional properties to smoothen out any volatility in cash flow and profitability," reasons Jehil Thakkar, head, media and entertainment, KPMG. But the regional ad market - despite the increasing reach and consumption in tier II and tier III towns - is still under-capitalised.

Regional players which have high viewership but less ad money are likely to witness investment from financial investors and large players. "Recognition in terms of proper valuation is finally happening. Earlier, the national players used to look at regional media as small-time players," expains I Venkat, director, Eenadu.

Flexing their muscles?

Though any acquisition or merger is driven by strategic considerations like exposure to a particular market or getting assets at a certain price and so on, buyouts within one media have gained momentum in the recent times. For example, Delhi Press, a print player, took over two print titles in 2008 (Manohar Kahaniyan and Sathyakatha, both Hindi) from Diamond Comics. More recently, it acquired two independent Kannada publications - Nimmellara Manasa and Butti. Similarly, NDTV Lifestyle Holding was acquired by Astro All Asia Networks for $40 million last year and OLX Inc was bought by Naspers for the same amount.

Same-media deals have become popular because "media owners know the domain well and a buyout serves as an extension of their core businesses," says Thakkar. The foremost agenda of those opting for M&As is building a national presence. Though media firms have presence across mediums, the scale is smaller in new businesses because the focal point is strengthening their area of core competence.

Fine print

With the print industry expected to grow at a compounded annual growth rate of 9 per cent, large players are entering new markets through acquisitions. There were a number of significant deals in print. G+J International, a global magazine publisher, acquired a majority stake in Maxposure Media Group, BCCL bought out the remaining 50 per cent stake held by BBC in its JV, Worldwide Media (WWM), Jagran bought Mid-Day in May 2010 and recently acquired Hindi daily, Nai Dunia Media while Asianet acquired a 51 per cent stake in Kannada Prabha Publications (a Bengaluru-based daily).

Working Together

With pricing becoming more realistic now, there are people who are moving towards the national stage. Girish Agarwal, director, Dainik Bhaskar Group is of the opinion that a merger or acquisition has to be at a right price, at the right time and should have the potential to bring synergy to the business as well as inherent brand strength to sustain the change and improve on the same. "None of our acquisitions were done out of "ego", but were purely professional and business synergy oriented decisions. We allowed them (the acquired companies) to maintain their original identity, primarily editorial philosophy," he says.

Working Together
Dainik Bhaskar was one of the first movers in print to have initiated the M&A philosophy in 1992, when it acquired a majority stake in Choutha Sansar, a newspaper based in Indore. Subsequently, it also acquired Saurashtra Samachar in 2004 (in Gujarat) and Divya Prabhat (Indore) in 2005 and later on set up DNA in a JV with Zee Network.

The challenge

The biggest problem troubling the industry is profitability. "The industry will have to opt for consolidation, because the companies can"t afford to make losses for so long," asserts Timmy S Kandhari, national leader, E&M and executive director, PricewaterhouseCoopers.

It is not always easy to find a buyer " or a seller. According to Vikash Mantri, a senior media analyst - who tried searching for an investor for a Hindi daily for five years, only to give up later on - investors are still wary of media deals. He points out that valuations become a problem if the company up for sale is a loss-making entity. The acquirer has to put in lot of effort and money in reviving that entity, which is not worthwhile always. One example is that of Mid-Day shutting its Delhi and Bengaluru editions, a year-and-a-half after being acquired by Jagran Prakashan.

Working Together
Working Together
"In India, we do not see the kind of M&As that happen in the West. Even in our case, we still hold Telugu and some other properties," adds Venkat. It is not just losses that force firms to look for investment. "Many have opened up by inviting strategic investors or going public. These are growth-driven decisions since businesses need to raise money for expansion plans," explains Anant Nath managing editor and director, Delhi Press.

Way forward

With the Indian M&E industry expected to grow at 14-15 per cent year on year, there is a lot of room for growth of the sector. Experts feel that more transactions will happen in TV.

With most of the channels continuing to lose money and with the new digitisation policy coming in, the broadcast distribution space will be buzzing with action. "Some of the 800-odd channels will have to opt for consolidation. So if digitisation goes well, we will witness private equity funding happening. If digitisation doesn"t happen there will be more red ink in the balance sheets. This will lead to consolidation," explains Kandhari.

The digital space has been quiet but online gaming emerged as a strong segment for M&A activity in 2011 as both financial and strategic investors tried to get a share of the estimated $280 million pie (FICCI-KPMG). Some major deals did take place though. PE players invested in Games2Win, while UTV Software acquired the additional 30 per cent stake in Indiagames in a deal worth $20 million and G+J International, through Maxposure Media, acquired Network2play.

The industry is at an exciting juncture. Ronnie Srewvala, managing director, The Walt Disney Co India, at the time of UTV-Disney deal, had said, "With the middle-class expected to grow from 50 million to 500 million-plus by 2025, this market offers huge potential for us to deliver quality branded entertainment to consumers." Going by the action, everyone in the sector seems to agree.

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