'It will be very hard for new hotel management companies to compete in India in the long run'

Vasant Prabhu

Vasant Prabhu, vice-chairman and chief financial officer, Starwood Hotels & Resorts, in an earlier interaction delved upon the global hospitality major's business approach to the Indian market, competition from domestic and international players, introduction of new brands, investment thesis etc. Edited excerpts...

What are the challenges of developing and operating a hotel in India? Should people really invest in hotels or stay away from it?

Challenges in India are primarily in the form of cost of land and cost of capital. These are significant issues and partly linked to infrastructure. Owing to limited infrastructure land values go up significantly wherever there is related development. Once infrastructure gets more widespread I think land prices will become more reasonable.

In the hotel industry there are two ways to make money, one is through profits generated by the hotel and second is appreciation of the asset itself. In Asia, because of large and growing population land is scarce and very often asset appreciation has been enough to generate a good return on investment. So it's possible that in big cities where land is expensive, one may think the returns are insufficient purely on a RoI basis. However, what most owners have realised is that asset appreciation over the years can actually give good returns.

The mindset is not unique to India because people perceive this business similarly in many parts of the world. More so in places like Hong Kong, Singapore etc. a lot of hotel owners have made money not from profits but appreciation value. Hotels can create appreciation by creating infrastructure around thereby enhancing the asset value. From an operating performance stand point, I don't think RoI alone will determine whether people should invest in hotels or otherwise. But one has to be careful when playing the game, because if the site is completely commodity like and the hotel is not unique, one may not get the appreciation. In such a situation, RoI is the only deciding factor.

How does Starwood view the Indian hospitality, travel and tourism industries? Where do you think the sector is headed in the near and distant future?

We are very enthusiastic about the Indian market and we think the space will continue to remain very attractive for the next few decades and more. The primary reason, we think, is that India is still very under-served as far as supply of hotels is concerned. With the country's infrastructure viz. roads, airports, railways getting better we certainly foresee a lot of action in the inbound and domestic travel and tourism space going forward.

For Starwood, India is a very long term focus market which is evident from the fact that we have been operating in the country since 60s and 70s with the Sheraton brand. The year 2010 has proved to be a better year vis-a-vis 2009 and business scenario in 2011 is looking very good not just in the Indian market but globally. The sector has seen significant revenue growth in the western countries and Asia including India in the previous year and we see the momentum continuing in 2011.

But growth in India has largely come from the domestic market as compared to overseas business.

Travel patterns are changing everywhere and we see that happening in the Indian market as well. Twenty years ago, in a typical Chinese hotel, 80% of the guests would be non-domestic travellers and the scenario today is completely reverse. I think those patterns will change everywhere including in India. Domestic is a long-term story and I don't think hotels business in India can be built keeping only the foreign travellers in mind which used to be the case earlier. Indian business travel will largely dominate the hospitality sector in the country.

Hotel asset owners in India associate with foreign chains for their global network and value add-ons. Given the domestic focus you spoke of, will the scenario change in the coming years?

Not really. There are various benefits for a hotel asset owner when joining hands with a foreign chain and I think that will continue. In our case, Starwood Preffered Guest (SPG) is a very powerful loyalty programme that assures one out of every two rooms in a Starwood branded hotel globally, being occupied by a SPG members. So we certainly can fill hotel rooms with this unique offering.

Our reservation systems provide our partners with a much broader access than anything they could do on their own. Our sales offices call on corporations globally so a lot of business in India could be because we have a contract with IBM that was negotiated in the US on a global basis. The same would be true for a contract with a Korean company negotiated in Korea which has a big presence in India. So it may very well look like domestic business but it was really sourced through a global contract.

Has the influx of foreign hospitality brands posed any challenges for Starwood in terms of the development pipeline in India?

There is a lot of competition for sure and there is nothing wrong with it. In the end, I think, people who are going to do well are the ones who can make the most money for their owners and offer guests the best hotels. A good hotel is a combination of design and service from the brand's perspective. As for the asset owner, the deciding factor largely revolves around return on investment. Influx of foreign hotel companies in India is because there isn't much growth outside the developed world and many of them do not have a strong presence outside India. I think it will be very hard for them to compete in India in the long run.

While the new entrants might succeed in the short-term because asset owners may get tempted to go with people offering better deals, willing to do it for less, giving them money to put their brands on hotels. I think an owner should remember that they are handing over an asset that may be worth $50 mn or $100 mn to a company to run which is bit like giving your personal money to a wealth managers not because they gave you the lowest rate. It is always advisable to hire someone who can give you the best return which is true with our business as well. I think people have to be very careful when they make such decisions. What will happen over time is there will be a separation between companies that can actually deliver and vice versa.

Some of your brands are still to establish presence here. What are the possibilities of them showing up in the near future?

Brands like Sheraton and Meridien have been in the country the longest. In the recent past we have introduced Westin, The Luxury Collection, Aloft and Four Points brands. Going forward we would very much like to see our W and St Regis brands in India. They will take some time considering hotels take 2 to 3 years to come up but they will definitely come.

Will you be very selective expanding W and St Regis brands in India?

Yes. We would like to have more W hotels going forward in addition to establishing St Regis in two major Indian metros. St Regis is our highest rated brand and we are very selective with its development. Among various parameters include right location, right owner, very high quality product etc so that we don't make any mistakes because it will hurt the brand. The same approach applies to W Hotels as well which competes with the likes of Four Seasons globally.

With Four Points you got into the franchise model, something most leading foreign chains do not approve of in the Indian market. What was the rationale behind taking this route?

I agree. Franchising is certainly a tricky proposition and we prefer not to franchise outside of the US. We have chosen to franchise and will continue to do so in India only with players who have the management bandwidth / capability or a efficient partner to manage the hotels. We pursue franchising in the US because there are more companies that can manage hotels which is tougher when you look at markets outside (the US). Our plans going forward is to include Four Points and Aloft in the franchising bouquet (under the right circumstances) but we will not franchise brands like Sheraton, Meridien, Westin and if we do so, it will be very unique situations. There certainly will be no franchising for the St Regis and W Hotel brands.

But, you also have a marketing / franchising relation with ITC Hotels for The Luxury Collection brand.

The ITC relationship is a very different one and has been in existence for a very long time. The promoters (ITC) have very deep management capabilities and that's precisely what I mean when I said unique situations earlier.

ITC will be managing third-party luxury hotels going forward. Will you extend The Luxury Collection association for their management contracts as well?

We will have to wait and see.

You'd earlier expressed about managing over 100 hotels in India by 2015. Could you tell us which category of hotels will contribute significantly to this pipeline?

Our strongest brands are in the upper upscale and above segments. In fact, 90% of our existing hotels portfolio is in the upper upscale and luxury category. As a result, our India pipeline is also skewed that way wherein 80% of the developments will be upper upscale and luxury. We'd certainly like to do more Four Points and Aloft hotels in India and a lot of that will clearly depend on our ability to persuade owners to have faith in those brands. Asset owners will certainly watch how some of our new brands that have opened up are doing in terms of business and I am sure they will realise the potential of these new brands after speaking to our existing real estate partners and that will slowly build overtime.

Will Starwood ever look to invest in the Indian market?

We would consider investments if it made sense. To invest one has to make several things fall in to place, feel comfortable with the partner, return expectations should be roughly similar, and make sure that partnerships are set up in a way that issues and differences can be easily resolved. Joint ventures are never easy and if we can do a clean arrangement where we manage and they own, that's always best. If we own a piece and we manage then we are on both sides, that can get complicated at times. That doesn't really mean we won't do joint ventures but we will be very carefully doing it in India. We have done a lot of joint ventures globally and are part owners in 40 hotels around the world and they are all working fine for us.

We used to be big owner of 150 hotels and have so far sold about 90 of them and continue to own the balance. We have another 50 hotels in joint venture arrangement, so we are very comfortable investing and owning hotels while simultaneously pursuing management contracts. Over time we will sell the assets as our goal is not to be big owners of hotels but it certainly won't be zero. And if we need to own hotels or be joint venture partners in India we will do that. A lot of asset owners have not wanted our money because they have had a lot of faith in our brands. I think the hotel management company is asked to put money only when the owner is not exactly convinced about the brand and hence they want the management company to take some of the risks thereby bringing their skin in the game.

Is there a sum earmarked for investment in India?

No. We don't have numbers because for us it is strictly a function of what is the opportunity. If you say I am going to invest $100 mn in India, you'll invest that sum and end up loosing all of it. So one should have objectives, what is the return on investment, right partner etc. If we find the right partner we will be willing to invest $50 mn, $100 mn or for that matter even more.

Update from Starwood:

Starwood, Jaguar mark India debut of W Hotel

Over 350 room property will be part of iconic 55-storey Namaste Tower in Mumbai

Continuing with its global expansion plans, W Hotels Worldwide has set its foot in the Indian hospitality market. Part of Starwood Hotels & Resorts, the hotel company has signed a management contract with Indian firm Jaguar Buildcon Pvt Ltd to mark India debut of this iconic luxury brand in Mumbai. The asset owning company (Jaguar) has already identified a three acre land parcel for the W Mumbai hotel which is likely to start receiving guests sometime in 2015. This development was first reported by DNA on February 1, 2011.

Confirming the development Frits van Paasschen, president and chief executive officer, Starwood Hotels & Resorts Worldwide Inc, bringing the W lifestyle to Mumbai is another step in W's global expansion into the world's most exciting and vibrant destinations. “Introduction of W Mumbai will take the total number of Starwood's hotel brands to seven in India out of the nine brands globally. The hotel will offer a contemporary take on design, fashion and music in the heart of one of the city's most vibrant districts, bringing an innovative and distinctive experience to Mumbai,” Paasschen said.

Located in bustling south central Mumbai overlooking the Mahalaxmi racecourse, the W Mumbai hotel will form a part of the Namaste Tower, which will be an iconic 55-story mixed-use development designed by international design firm WS Atkins.

According to Gurinderjit Singh, managing director, Jaguar Buildcon, the hotel will feature over 350 guestrooms, including two signature suites christened WOW Suites and one Extreme WOW Suite (W's version of presidential suite. Among the food and beverage offerings will include two contemporary restaurants and one destination bar. “The hotel will also house stylish spaces for luxury designer retail stores and boast a full calendar of exclusive and exciting W Happenings events that showcase what's new and next in design, fashion and music for both guests and locals alike,” said Singh.

While India's first W hotel is still under construction, the hotel management company is optimistic about generating more owner interest in developing this brand in other key leisure and business destinations in the country. Dilip Puri, Managing Director, India and Regional Vice President South Asia, Starwood Asia Pacific Hotels and Resorts, said, "Locations such as the Delhi NCR region, Goa and Kerala are targets for developing W Hotels and Retreats."

Starwood is also enhancing its leadership position in India and will be opening seven new hotels in 2011 taking the total portfolio to 37 hotels by 2011 end. One of the leading hotel and leisure companies in the world with 1,025 properties in 100 countries, Starwood is on track to operate 50 hotels in India by the end of 2012, doubling its presence in the region in just two years. The hotel company expects to have 100 hotels (open or under development) in its India portfolio by 2015. Among Starwood's hotel brands in India include W Hotels, The Luxury Collection, Le Méridien, Westin, Sheraton, Four Points by Sheraton and Aloft.

Thailand expects 15% rise in Indian arrivals

This story first appeared in DNA Money edition on Monday April 4, 2011.

As more and more Indians take to international travel, especially to Far East destinations, the Tourism Authority of Thailand (TAT) is expecting a higher double-digit growth in arrivals for 2011. In 2010, Thailand received 791,185 visitors from India while the estimated figure for 2011 is upwards of 885,000 visitors — an increase of 15% from the previous year.

Suraphon Svetasreni, governor, TAT, said, last year Thailand registered an overall tourist arrival of 15.8 million, an increase of 12% from the previous year. “As far as India goes, we witnessed a healthy increase of 28% vis-a-vis 2009 arrivals. Thailand has seen continuous growth in Indian arrivals despite the global crisis, dollar depreciation, price hikes and internal disruptions. However, situations started improving in the last quarter of 2010 with an increase in arrival numbers. We expect the trend to continue in 2011 and are confident to cross the 1 million visitors’ mark by 2013,” he said.

Travel and tourism industry contributes anywhere between 8-10% to Thailand’s GDP. According to TAT officials, Indian market is very exceptional because Indians connect easily with Thailand and both nations understand each others’ cultures. Besides, what attracts Indian visitors to Thailand is the destination’s value-for-money attributes and diversity making it ideal for families, newly weds, business travel, meeting, incentive, conference and events (MICE) and free individual traveller (FIT).

Envisaging the business potential from the Indian market, TAT is aggressively working towards establishing a long-term presence in the country and has opened two full-fledged offices, in Mumbai and Delhi.

On TAT’s marketing plans in India, Svetasreni said, “We may not be among the high spenders in advertising and marketing but we are not low either. Given the strong emphasis on India we have earmarked approximately 50 million baht (about Rs7.35 crore) for the country.”

Indians visiting Thailand, according to TAT, are a good mix of leisure, MICE, top-end wealthy travellers with an average length of stay of six days and average spends in the region of 4,600 baht.

Given the close proximity (four hours flying time from Mumbai) Indians view Thailand as a good holiday destination which is why approximately 60% repeat their visit with family and friends, Svetasreni said.

“Thailand is very well connected by Indian carries like Jet Airways, Kingfisher and Air India. In all, there are 138 flights every week with most carries witnessing satisfactory occupancy levels. While October to March is the best time to visit Thailand Indian travellers visit the desination throughout the year,” the TAT governor said.

'Apple’s popularity wake-up call for Indian brands’

This interview first appeared in DNA Money edition on Saturday April 2, 2011.

Chitranjan Dar, chairman, Confederation of Indian Industry (CII) taskforce on FMCG and chief executive of ITC Foods, discusses strategies companies operating in the Indian market are adopting to connect and communicate with their target audience. He spoke on the sidelines of the Eleventh CII Marketing Summit concluded in Mumbai recently. Edited excerpts from the interview...

What are large firms doing in the current market scenario to reach out to their customers effectively?

Large corporations are currently grappling with what kind of insights they can gather about consumers for their offerings. These companies are also seeing how they can mine data from internet, social media and other networks and whether they can make some sense or derive some patterns from there. Irrespective of the size, companies today are looking at creating differentiation and the focus is much greater than earlier. It is for these reasons that the market will see a lot of new product launches and, a lot of niches getting created to address some special needs. Without that it will be very difficult to sell to the market profitably.

What is it that companies will have to do to sell profitably?

Firstly, getting a better understanding of the customer. Based on these understandings companies will have to innovate around the value proposition of their brands/products. If the companies change their product they also need to change the way they communicate it to the market/target audience.

Do all products need to undergo change? What should be the frequency like?
Not really, because there will be some products that will remain timeless. These are products that are authentic, offers great quality and most important the product / brand are operating in an industry where people do not stick to a particular offering for long.

For example, ‘Bukhara’ at ITC Maurya hotel in New Delhi has not changed its menu and decor for 25 years now. While there have been some cosmetic changes in terms of furniture etc, but the overall experience of the restaurant has remained intact over the years. Thus, companies should think carefully before incorporating a change and not change for the sake of it. If the product/brand remains relevant even today in terms of communication, offerings, value proposition etc, there is absolutely no reason to change. Change should only be made after having understood the key profitable segments, what is it that the market demands and whether that change will cater to it.

So are companies really pursuing this approach in the right manner?

It is too early a stage to even point out anything in that direction but there certainly will be churns. While there will be some companies doing it in the right manner, there would be others which may not. In fact, there would be some companies aggressively pursuing this approach and there would be others taking their own time with it. Fundamentally, companies which will do it fast and right will be the ones which will be selling profitably to their customers.

That’s precisely the reason why I don’t see the companies’ landscape remaining the same in a decade or so from now, not everybody can win all battles.

On the marketing / advertising medium side, is TV, print and radio still the focus area for companies or are we beginning to see some change in the overall composition?

It’s quite evident these days that television has taken over all the other mediums as far as advertising / marketing spends is concerned. However, internet seems to have picked up pace over the last few years and we are seeing a lot of stickiness with that medium especially with the younger Indian consumers which is a fairly huge market being addressed by one and all. Companies are taking a subtle approach to using this medium as they understand that an in the face approach may work otherwise. One must understand that internet users don’t want to be intruded all the time besides their attention span is very short and they get bored very quickly. The approach thus is to use that medium to build a fan-following, knowledge sharing, learning opportunities and activities revolving around building customer loyalty and so on.

You mentioned about a data mining by a market researcher through inputs from customers across age groups. Could you throw some more light on the same?

It was a recent example I came across about data being mined by research official who asked Indian consumers about things that excited them more in their daily life. The answers were really interesting because people were not really talking about products or for that matter brands. They spoke about activities like mountaineering, biking, meeting friends and relatives, etc. In their entire thing about excitement and other things that gave meaning to their lives, less than 2% of the respondents referred to brands like for instance Apple, Coco-Cola, Nike, Bingo, etc. Thus, despite all that companies are trying to do in terms of their marketing and advertising strategy its relevance with their target audience is very minuscule. That’s a shocking fact because all the efforts have not been able to create an emotional connect between the company’s brand / product and the customer. What was further shocking is the fact that over 50% of the respondents spoke about brand Apple which is not even a significant advertiser in India.

Does that mean Indian brands are becoming irrelevant?

It certainly is a wake-up call and there is still lot to be done to make brands / products more and more relevant to the Indian target audience. Why was Apple relevant because it was innovative, they communicated to their target audience in the right manner and adopted an integrated marketing approach that worked wonders in markets where they weren’t even advertising.

Preserve 4G for subscription-led growth, says Ronnie Screwvala

Ronnie Screwvala, CEO & Founding Chairman, UTV Group feels the Indian entertainment industry will fall woefully short of reaching a size of $100 billion by the end of this decade from $15 billion now, unless it moves from an advertising-led growth model to subscription-led growth, undertakes research into audience preferences, ensures enforcement of anti-piracy laws, and innovates to make the industry a truly creative business.

Stressing on the need to segregate gut feel from what the audience wanted, he urged the younger players in the media and entertainment business to regard research as a good guiding force, by which one could pre-empt what is going to be successful or otherwise.

He also lamented the fact that the consumers were still not paying for the content being consumed by them. "That explained the heavy dependence of the industry on advertising revenues - 80% - rather than on subscription," he said.

In this context, he said, introduction of 4G spectrum would be a game changer. A 4G system is expected to provide a comprehensive and secure all-IP based mobile broadband solution to laptop computer wireless modems, smart phones, and other mobile devices. Facilities such as ultra-broadband Internet access, IP telephony, gaming services, and streamed multimedia may be provided to users. “Let us therefore preserve 4G as a subscription-led growth tool,” he urged the industry players.

Referring to piracy, Screwvala said that the menace had to be controlled, for which, 'we will have to put up large sums of money upfront'. The proliferation of piracy, he said, was primarily due to lack of enforcement, not lack of regulation.

Optimism rises on Phase III rollout of FM radio services

This story first appeared in DNA Money edition on Tuesday March 29, 2011.

Eight hundred new frequencies across 300 towns. That’s what the rollout of Phase III of FM radio services in the country will mean. While the development has been eagerly awaited by stakeholders of the Rs1,000 crore sector for some time now, the refrain now is that a rollout should happen sooner than later this year.

Tarun Katial, CEO, Reliance Broadcast Network, said 2010 was a year of waiting for the industry at large. “While there has been some delay in the process, we feel 2011 will be a year of action and the exercise (Phase III) should happen sometime this year,” he said. Katial was speaking on the second day of the Ficci Frames 2011 conference in Mumbai recently.

Under the phase, private FM radio stations can come up in every town with a population of over 1 lakh, there will be multiple frequencies in bigger towns (which is expected to engender content plurality), the licensing will be for 15 years from 10 now, and news broadcasting will be allowed through feeds from Prasar Bharati.

“This will allow players to make considerable investments, afford a lot of networking which will make smaller radio stations viable,” said Prashant Panday, executive director & CEO, ENIL.

But beyond the optimism lurk concerns. For instance, strategic investors are yet to find the best exit routes. Salil Pitale, head of media and telecom at broking house Enam Securities said the policy today is still very restrictive in terms of exits for strategic investors. “Also, I don’t think there are too many cities that can absorb more than five or six radio stations which will eventually restrict the diversity of programming that is being spoken of,” Pitale said.

There are worries over the auction process to award new frequencies too. “There is talk of e-auctions similar to what the government did to award 3G licences. But this could lead to unusual rise in costs, which can test viability. We have already seen the outcome during Phase I. There could be new players wanting to foray which will skew the pitch for existing ones,” said Rahul Gupta, director, SPML, which runs Radio Mantra in Tier II and III markets.

While policy matters are being mulled over for long, its implementation is getting even longer thereby putting hurdles in the overall growth process. “I think it is very important for the government to identify ways and to make radio profitable. Speeding up of policy matters and implementing them can help the players grow and make their businesses profitable,” said Harrish Bhatia, CEO, 94.3 MY FM.

However, there are others in the radio media monitoring/ research sector who feel the industry is being too cautious. L V Krishnan, CEO, TAM India, said, “The sector is growing in the right direction. While there are issues, the fraternity seems more worried about them than working to overcome them,” he said.

DB Realty director quits, company ‘reconstituting’ board

This story first appeared in DNA Money edition on Tuesday March 29, 2011.

DB Realty, the troubled Mumbai-based real estate developer whose name figured in the 2G spectrum investigations, has lost its fourth director since February.

Sundaram V Rajagopal, a non-executive director, submitted his resignation on March 21, which was accepted by the company’s board on Monday, DB Realty informed the stock exchanges. DNA had reported on the possibility of this on February 18.

Rajagopal is currently the managing director of private equity firm Starwood Capital India Advisors Pvt Ltd for India and Southeast Asia. He joined the firm in July.

A DB Realty statement said Rajagopal was appointed as a nominee of Lehman Brothers pursuant to its investment prior to the initial public offering of the real estate company.

“The right to appoint nominee directors by all such investors ceased to exist on October 1, 2010. Post his joining Starwood Capital, his current schedule and commitments do not permit him to continue to be on company board and hence he has taken the decision to resign. DB Realty is in the process of consolidating and reconstituting the board to make it focused,” the company statement said.

Attempts to contact Rajagopal were not successful. However, private equity industry sources, said that Starwood Capital would have directed Rajagopal to resign.

On DB Realty’s future, industry experts feel being a highly owner driven company its promoters will now have to work very hard towards regaining credibility in the market.

“The promoters will probably have to disassociate with the management by bringing in a very professional board that will eventually help the realtor to weather out shadows surfacing time and again. This will not only help in overall business restructuring but also in streamlining the company operations, thereby avoiding a situation wherein the realtor’s development projects will get severely impacted,” said a senior official from an investment firm.

DB Realty was earlier in talks with real estate PE funds to raise money for its government Bandra colony project. While the company management was believed to be in talks with Starwood Capital for a possible placement, industry sources said the deal was not approved by Starwood’s investment committee.

Thereafter, the realtor was understood to be talking to domestic investors to raise Rs600-800 crore in the project. Industry sources, however, believe that Rajagopal’s resignation will only make it tough for the realtor to raise money.

“Going by the uncertainties faced, I don’t think fundraising from domestic or international investors will be possible anymore,” said a real estate analyst from a leading domestic brokerage firm.

Updates from DB Realty Management on March 29, 2011.

Two senior officials of DB Realty - Asif Balwa and Rajiv Agarwal - were arrested by the Central Bureau of Investigation (CBI)today in Delhi. They have been arrested in their capacity as Directors and shareholders of Kusegaon Realty Pvt Ltd. Both Asif Balwa and Rajiv Agarwal on various occasions have cooperated fully with the CBI and continue to do so.

The company maintains that neither official has done anything inappropriate or illegal. The company fully supports them and is offering the best legal expertise. The company has the highest respect and confidence in the Indian legal system and is confident that ultimately the truth will prevail.

DB Realty enjoys immense trust and support from all its stakeholders. The company would like to assure all its stakeholders that the company is managed by a core team of accomplished professionals and thus the day-to-day management is not affected by these developments, all work is carrying on smoothly without any delay.

Observation:

Interestingly, retail investors seem to have taken fancy to the D B Realty stock which surged 16% and 18.79% on March 29 and March 30, 2011 respectively. It would be interesting to see how the stock progresses in the coming days.

Innovative funding, transparency luring corporates back to film making

This story first appeared in DNA Money edition on Friday March 25, 2011.

Despite entertainment sector receiving industry status, organised funding still eludes film making. However, the situation is changing with innovative funding options, transparency in dealings and extensive use of technology to monitor costs luring back corporates/ investors, film makers said at FICCI Frames 2011.

Bobby Bedi, managing director, Kaleidoscope Entertainment, said, “There are times when the box-office numbers show that a particular movie has made so many crores in the opening week. And despite that the film financier continues to lose money. Actual reporting of business numbers is very crucial to attract investments without which funding will always remain a challenge.”

Industry experts said that film makers have to get realistic while budgeting their movies and going out to raise funds. There have been times when film makers adopt the bubble-up strategy, making financial institutions to pay up the entire cost of production, they said, adding that many with access to public money got greedy and misused the funds for their personal gains.

“A few lucky ones who got funding from corporates and investment funds have even gone to the extent of splurging it like water, thereby making their projects non-viable leading to losses for their investors,” said a top official from a leading production house.

However, a few significant industry developments in the recent past are changing the way finances are being handled by investors and production houses to make it a win-win situation for those involved.

“Technology and software are being extensively used by film makers these days to structure, streamline and monitor their production schedules and costs on a real-time basis. This approach is certainly helping to bring in transparency in the business thereby instilling confidence in the corporates, banks and investment firms/funds to look at this business afresh,” said Bedi.

Ashok Wadhwa, group CEO, Ambit Capital, said aspects like collaboration with international studios for a global appeal, increased transparency, focus on delivering results, return on investment, monetising the product across streams, etc by some of the leading producers and production houses are making a great difference.

“These are primarily the reasons why organised funding institutions are keen to explore relationships with players who not only focus on offer a great product, but also back it up with a bouquet of other resources that give assured returns as against looking at theatrical release as the key source of revenue. In fact, my personal view is that there are quite a few foreign investment firms currently looking to invest in international markets especially countries like China & India,” said Nirvaer Sidhu, VP-media and entertainment, Goldman Sachs India.

Karan Ahluwalia, executive vice-president, media and entertainment, Yes Bank, said a very lucrative yet untapped financing option is securitisation of intellectual property rights.

“Intangible assets like movie libraries and even music libraries can become a means to raise capital. This is a well established option in the West and it is only a matter of time before Indian companies realise the value of this resource,” he said.

Ranu Vohra, managing director and CEO, Avendus Capital, suggested tapping the high networth individuals and family business houses which have built their wealth from scratch. He said between Rs 500 crore and Rs 700 crore would available for investment from the family houses.

“These are people with growing family businesses, have already invested across various asset classes and are now looking at other alternative options to build their wealth. Any family house with over $100 million for investments in this high-risk high-return industry would make for a potential investor. Catalysing this set of investors is, however, still a key challenge,” said Vohra.

Intel, Hungama Digital to launch HD movies' download service

This story first appeared in DNA Money edition on Thursday March 24, 2011.

World leader in computing innovation Intel is all set to offer a high definition (HD) movie watching experience to its customers. With the launch of its second generation core processor — Intel Insider — the US chip maker will be offering a service that will allow users to download and stream HD movies on their desktop/laptop computer.

The new service, offered in association with Hungama Digital, will make available a selection of popular Bollywood and international movies, including blockbusters from Yash Raj Films, Paramount Pictures, T-Series and Reliance Home Video.

Speaking on the sidelines of FICCI Frames 2011, R Sivakumar, managing director, sales and marketing group, Intel South Asia, said film lovers can now watch the latest blockbusters and favourite films in high definition format right on their PC. “The technology also offers a ‘proactive queue’ capability that will help consumers pre-download films ahead of the release date, and give them the ability to purchase those films, securely, even if they are not connected to the internet. This will allow consumers to start watching their movies immediately on the release date without waiting to download during peak traffic times. The technology is available on all the second generation core processor-based PCs with built-in visuals,” he said.

Movie buffs will be able to avail the new service within a month from now. To start with 50 movies in HD format and 100 movies in standard definition (SD) format will be available on Hungama Digital’s website www.hungama.com. Price points for each of these downloads are currently being worked out though a broad range would be anything from `10 for a catalogue movie going up to Rs199 for a new release.

Neeraj Roy, managing director and CEO, Hungama Digital Media Entertainment Pvt Ltd, said, “Financials are currently being worked out. The ratios would depend on the nature of arrangement we will have with the intellectual property rights owners. The idea currently is to launch the facility for movie downloads expanding the bouquet of choices gradually,” said Roy.

Interestingly, the Intel Insider technology when combined with IntelWireless Display (WiDi), will also allow streaming of premium, high-definition movies from a PC/laptop to an HD television, without cables.

Other short stories from the summit

Mumbai Mantra brings Sundance Screenwriters Lab to India

Mumbai Mantra, the media and entertainment division of the $7.1 billion Mahindra Group , has partnered with Robert Redford founded Sundance Institute to launch a new initiative called Sundance Screenwriters Lab in India. According to Rohit Khattar, director, Mumbai Mantra Media Ltd, the lab will provide an opportunity to budding Indian screenwriters to develop their works under guidance from accomplished scriptwriters from across the globe. The lab has already kick-started application process for their first workshop to be held in March 2012. As part of the open submission process, any Indian screenwriter can apply through the company website www.mumbaimantra.com. Also, there is no language barrier for submission of works.

S Kumars Online’s new avatar

S Kumars Online (SKOL), the e-commerce venture of apparel and textile major S Kumars Group, is launching a new portal for professionals associated with the Indian advertising, media and entertainment industry. The web portal, according to company officials, has been designed as a one-stop-shop (online resource) for people working with the bollywood film industry and those wanting to find work in the film, TV and advertising industry. SKOL is also entering into other media and entertainment related businesses like hiring of film equipment under the banner moviegear, state-of-the-art studio and conferencing facility christened bta:studio, a business vertical called Hexacan that  is basically involved in storing and shipping of film negatives / prints globally and a hi-end e-commerce vertical christened www.vto.in that facilitates online sales of apparels, jewellry, accessories, art etc. The vto vertical, according to Chandra Mundhra, managing director, SKOL, is largely targeted at the non-resident Indian (NRI) audience who do not have direct access to such a range of products.

Shemaroo riding the digital wave

Four decade old entertainment company Shemaroo is all set to capitalize on the popularity of digital distribution of its entertainment content. With a repertoire of approximately 2000 movies across genre, the company has invested close to Rs 25 crore in setting up a technology back-end that takes care of digitizing all the content they have accumulated over the years. The company is also innovating film / movie products to monetize the advent of 3G services being rolled out by various telecom companies. Pioneering a new concept, the company has created a bank of new products wherein a three hour movie has been edited into a 15 minute movie which can be viewed on new media devices like mobile phone, tablets etc. It currently has a bank of 30 such movies and has already tied up with Tata Docomo and Reliance Communications to make it available to their subscribers.

India's creative force still a sleeping tiger, says James Murdoch

This story first appeared in DNA Money edition on Thursday March 24, 2011.

James Murdoch, chairman and chief executive officer, News Corporation for Europe and Asia, believes that India’s creative force is still a sleeping tiger waiting to be awakened.

Speaking at the inaugural function of FICCI-Frames 2011in Mumbai, he said that the impressive achievements of the country, in the last two decades, have not even begun to fulfil the potential and that one can only imagine what the way forward will be.

“When I say imagination, I’m not talking about pie in the sky.I’m thinking about the possibilities in a real and tangible way,” said Murdoch. “If India’s economy had a creative sector on the scale, relative to the overall GDP, of Britain for example, instead of a $15 billion industry we would be talking about a $120 billion industry. And if the industry was anywhere close to that number, imagine how many million jobs a creative sector that size would produce each year for Indian people,” he said.

Given the magnitude, the industry would have had a significantly wide reach, thereby revolutionising sectors like education and health care, while ensuring that the country has a voice matching its importance in global affairs. “We all know that even at rest tigers are impressive and other animals are careful to give them respect. Yet only when a tiger is awake and engaged can we appreciate its force and majesty.That is our challenge with India’s creative sector - to imagine what this slumbering tiger might do in the right environment,” he said.

So what would such an environment really look like?

“It would be one that puts a premium on creativity.An economy that encourages people to take risks to bring new and better products to market and rewards them when they are successful.It would also be infrastructure that takes advantage of the best that modern technology has to offer and ensures that Indians can compete with anyone, anywhere, any time,” he said.

Achieving this, he said, requires focus on to two broad areas - digitisation of infrastructure and bringing Indian creators and storytellers to the world’s conversations.

“Digitisation is the key to unlocking the potential of the creative sector.With digitisation, the Indian industry will finally have the incentives to invest and create.More importantly, Indian customers will have content and choice worthy of their nation’s rich diversity. As for taking creative talent to the world that can only be done by ensuring that India’s creative market is competitive at home,” he said.

The best way to accelerate the liberalisation of digital broadcasting, Murdoch said, would mean allowing greater investment and greater latitude for innovation, including vertical integration of content companies and satellite distributors.

“Transparent, deregulated, market-based and addressable digitisation will unleash a content revolution in India. Viewers deserve choice. In a vast and diverse country like India, no channel can try to be everything to everyone and yet the prevailing regulatory system forces channels to adopt a uniform ad-dependant business model,” he said.

Kamat Hotels may merge some promoter companies

This story first appeared in DNA Money edition on Wednesday March 23, 2011.

Mumbai-based Kamat Hotels (India) Ltd (KHIL) is looking to merge some of the promoter group hotel and restaurant companies with itself.

Kurian Chandy, chief financial officer, KHIL, confirmed the development saying a board meeting to this effect will be held on March 26, 2010, to decide which companies will be considered for this merger exercise.

Industry sources said KHIL management wants to bring in the profit-making businesses onto the books, thereby strengthening the KHIL balance sheet. “These are zero-debt, profit-making hotels wherein the asset is owned by the promoters and are outside of KHIL books. Similar is the case with the restaurant business which is already profitable. The hotels to be merged are under management wherein KHIL only gets a management fee. With the new arrangement, the P&L of these hotels and the restaurant business will come under KHIL books,” said a source.

Merging of the hotels and restaurant business will give the promoters additional stake in the listed entity. As a result of this move, hotels owned by the promoter group companies in markets like Goa and Murud are likely to merged with KHIL. A few other similar projects outside of KHIL will come under its fold over a period of time.

“For instance, hotels in Silvassa, Bhubaneshwar etc will eventually be brought onto KHIL books. These are properties where expansion is currently going on and may have debt on their books. Once the properties become debt-free, they will be merged with KHIL,” the source said.

The company currently operates around 34 restaurants in Maharashtra, Orissa and Rajasthan. The company management has plans to expand this business through franchise model in addition to owned and managed outlets. “It is poised to be a highly profitable business and hence makes good sense to bring it onto KHIL books,” said the source.

Update from Kamat Hotels' Management on March 26, 2010

Kamat Hotels informed that promoters have taken major decisive step towards consolidation of its business into Kamat Hotels India Ltd by merging the profitable hotel business and the highly profitable recession proof restaurant business owned by the promoters into KHIL. KHIL's Board has approved, in principle, the amalgamation of Kamat Restaurants, Lotus Resort Murud (48 rooms) and Lotus Resort Goa (52 rooms) into KHIL.

Upon merger, with over 53 units KHIL will be one of the largest hotel chains in the country. This will enhance the top line, bottom line, cash flows, and other financial parameters of KHIL.

Vithal Kamat, ECMD, KHIL, said, “Finally owing to the settlement and removal of cross holdings within the families, we have initiated this as it was long overdue. This is a major step to align all Kamat group properties by bringing in the most profitable hotels like Lotus Goa and Murud into KHIL. The few remaining promoter properties are in various stages of renovations and are in companies which have inherited debt components and not having immediate EPS accretion to KHIL. At an opportune time the remaining Promoter owned units will merge into KHIL, thus aligning all promoter interests into KHIL.”

Continuing on a positive note Kamat said, "The restaurants are poised for higher growth in the next 3 years and the business is set to scale up to 150 units with very low capex as most of the restaurants are developed under franchise and 'company owned company operated' (CoCo) route, the profitability and other financial parameters of KHIL will improve with this amalgamation as these are already debt free profit making companies.”