Beaming times seen for entertainment channels

This story first appeared in DNA Money edition on Fridday, June 10, 2011.

The broadcasting industry in the country is expected to witness considerable growth in advertising revenue this fiscal. More significantly, given that the recently concluded Indian Premier League (IPL4) saw less-than-expected viewership, general entertainment channels (GECs) are expected to surpass the industry growth.

A recent report by Kotak Institutional Equities Research said the flagship cricket property’s grip on viewers weakened in the fourth season with an average all-India rating of around 3.4 TRP compared with more than 4.0 TRP in the previous three seasons. The Indian team’s victory in the Cricket World Cup, which preceded the IPL season, impacted viewership somewhat, Amit Kumar, analyst with Kotak Institutional Equities Research, said in the report.

Over the last four years, the IPL has become a Rs800 crore advertising property, with the exception of the calendar 2009 season, which was hit by the economic downturn.

As far as IPL’s impact on advertising for cable and satellite (C&S) broadcasters in the first half of this fiscal is concerned, analysts estimate it to be modest, at around 5% as against 10% previously, mainly due to the advertising overdose by many categories during the Cricket World Cup.

“We believe the structural impact of IPL on cable and satellite advertising and overhang on general entertainment channels is past, even though a marginal recovery in IPL ratings is possible next season,” said Kotak’s Kumar.

Rahul Kundnani, analyst, SBICAP Securities Ltd, said advertising revenues for GECs is likely to increase 10-15%, also because most players have released new programming content.

“Channels typically wait for big sporting events like the IPL and Cricket World Cup, which is why fourth quarter (Q4) tends to show a marginal decline compared with the other quarters,” said Kundnani.

“Thus, sequentially, advertising revenues will go up for GECs because of a considerable line-up of new programming content in Q1FY12. Generally, second and third quarters are the best quarters for GECs owing to festival season. While the overall Indian broadcasting industry is expected to see 15% growth in advertising revenues, market leaders are likely to surpass the industry growth rate,” he said.

Colors and Sony TV have already gone on air with new content in the form of reality shows like Khatron Ke Khiladi (season 4), X Factor (music reality show) and a few other fiction shows.

Big-time rivals Star TV and Zee have announced their new non-fiction and fiction shows, but are yet to go on air with them —- Zee’s music reality show Saregamapa Little Champs is the only exception and it has just got on air.
Officials of both Star TV and Zee were not available for a comment.

A questionnaire emailed to the spokespersons of the companies remained unanswered at the time of going to print.

Leading Indian advertising agencies Mindshare and Madison have projected a 20-26% growth in advertising for the C&S players this fiscal.

Analysts tracking the sector, however, attribute the marginal slowdown in advertising growth to the fact that the estimates have taken into account the rising interest rate and moderating economic growth scenario.
Going forward, analysts see the base of C&S households/ viewers growing as direct to home (DTH) spreads in rural India. This, in turn, is expected to show improved traction in advertising rates of broadcasters.

“The 10-12% traction in advertising rates of broadcasters and our assumed 15% advertising growth (Zee) compares weakly to over 10% CAGR in C&S households in last few years, notably given the market expansion in the Hindi belt,” noted Kumar.

Despite a modest advertising slowdown estimated in FY12, analysts feel the structural growth in advertising and subscription revenues of Indian C&S broadcasters remains intact. However, competition and fragmentation continue to be key risks, especially with existing players such as Sony TV targeting resurgence.

The recent FICCI-KPMG report on the Indian media and entertainment industry estimates the Indian television advertising space to be around Rs11,800 crore. The Hindi GEC space, however, is very cluttered, with a size of over Rs2,700 crore, attracting nearly 30% viewership. It is envisaged the sector will continue to attract robust revenues and also see consolidation going forward.

25% visa rejection rate hampering travel industry growth, says C&K

This story first appeared in DNA Money edition on Saturday, June 4, 2011.

Travel company Cox and Kings Ltd has registered a decline in net profit after tax (PAT) margins in FY'11 vis-a-vis last fiscal. While its earnings before interest, tax depreciation and mortisation (ebitda) margin for FY'10 and FY'11 has remained constant at 47%, there PAT margin has come down from 26% in FY'10 to 24% in FY'11.

The Cox and Kings management however maintains that growth has not be impacted and the marginal decline is mainly because of an exceptional item on the balance sheet.

Reasoning the same, Anil Khandelwal, CFO, Cox and Kings Ltd, said a slight decline in PAT margings is because of interest and finance charges which is at Rs 54.3 crore in FY'11 as against 26.9 crore last year. “An acquisition in the European market is currently being worked out and interest carry cost has been accounted for in the said period,” he said. The company continues to maintain status quo on the time frame for concluding the European acquistion.

Also, there is a foreign exchange gain of Rs10.29 crore on account of foreign currency loan revaluation in FY2011 as against Rs28.38 crore in FY2010. As a result, the PAT is marginally lower for the year ended 2011 as compared to the previous year, said the company in its analyst presentation.

The company registered consolidated net profit after tax (PAT) - after excluding effect of exceptional gain – at Rs 46.67 crore for the quarter ended March 31, 2011. The PAT figure was 10% higher as compared to Rs 42.60 crore in the corresponding period last fiscal (Q4FY10). On a full year basis, consolidated PAT - after excluding effect of exceptional gain- for grew by 13% to Rs 120.30 crore as compared to Rs 106.43 crore in the corresponding period of last fiscal year (FY10).

“Growth however is slower,” said an analyst from a domestic brokerage firm requesting no to be quoted. “While domestic business has grown considerably, there's pressure on internatonal operations,” the analyst added.

Addressing the concerns, Peter Kerkar, director, Cox and Kings Ltd, said, slight pressure on business was witnessed owing to a few unexpected international events. “Events like the unrest in Egypt and earthquake in Japan did impact overall travel industry. While the Middle East region contributes to the extent of 25% to UK operations we didn't see a very significant impact on overall business.

“We didn't have cancellations as far as Egypt is concerned but the travellers had to be booked into alternate destinations while maintaining the costs. The incident in Japan didn't have any impact because the business season had already ended by the time earthquake hit the destination,” Kerkar said at an analyst call.

Analysts however are of the opinion that the impact of Japan earthquake on the company's international operations will get reflected in the current fiscal. "I think the actual business impact of earthquake in Japan will be seen in the first quarter numbers for FY'12 when it gets announced in the coming months," said another analyst requesting anonymity.

Outlining some of the key challenges faced by travel companies in India, Kerkar said that while demand generation was not a problem at all, it was meeting this demand in the best possible manner that is the key challenge for the industry.

“Just to elucidate, of the 300,000 student visas in UK being requested for last year only 150,000 were issued. There is enough demand for outboud travel in India, but embassies are unable to meet up the demand as a significant proportion of these visa applications either get rejected or take so much time that they do not sync with the travellers' schedule. On an average, the Indian travel industry witnesses over 25% visa rejection rate as a result the sector is unable to optimise business,” said Kerkar.

Regional films will make 50% of Eros International portfolio

This story first appeared in DNA Money edition on Thursday, June 2, 2011.

Eros International Media Ltd, a film entertainment company focused on Hindi film genre with blockbusters such as Housefull and Dabangg under its belt, is now looking to make it big in the regional language movie space.

Kishore Lulla, group executive chairman, Eros International, said, “We are expanding our new film catalogue and will be looking at films in Tamil, Telugu, Bengali and Bhojpuri languages to name a few. We are currently in various stages of discussion and should be in a position to make details public in 4-6 months,” he said on an analyst call.

In all, the company is currently looking at 24 projects in the regional films space, which it may acquire or co-produce.
A small percentage of its regional pipeline will be big budget films like

Rajnikant’s Rana, which is being made in Telugu, Tamil and Hindi.

Kamal Jain, chief financial officer, Eros International, said, “It will be a mixed bag as not all regional films require huge budget. And returns are quite significant even for a sub-Rs5 crore film. The idea is to establish leadership position across all high business potential language films.”

Of its overall catalogue of 1,100 plus movies at present, about 50% are regional films, primarily Punjabi and Marathi movies. Majority of these, Jain said, are acquisitions with a very small percentage of owned and co-production films.

Jain said funding would be finalised once the pipeline is set.
Rahul Kundnani, analyst, SBICAP Securities Ltd, said, “With equal emphasis on regional films, which is a high-margin business, the company will be able to enhance profitability taking its operating profit margins to around 40% in fiscal 2012 from 22% in the last fiscal.”

Eros doubled its investment in content to Rs536.5 crore last fiscal as compared to Rs262 crore in fiscal 2010.

The company closed fiscal 2011 with 77 releases across languages and 50% of the dozen-odd blockbuster Hindi films were from its stable, it said. Among its biggest grossers were Housefull, Golmaal 3, Endhiran and Dabangg.

In fiscals 2012 and 2013, the entertainment company has a pipeline of about 50 releases, of which the mix between Hindi and regional films is 50:50. Its line-up for this fiscal includes a number of big releases like Ready, Murder 2, Zindagi Na Milegi Dobara, Mausam, Rockstar, Desi Boyz, Agent Vinod and Ra.One.

Thunderbird's India project to launch in late 2011

Thunderbird Resorts Inc, an international provider of branded casino and hospitality services, said that its India affiliate Daman Hospitality Private Ltd (DHPL) has received the equity component of the completion funding from Delta Corp Ltd.

As part of the India transaction, Delta Corp Ltd had the option to execute a subscription agreement to purchase 840,000 shares of Thunderbird common stock. However, Delta did not execute the final share subscription agreement by the required deadline and the option has now automatically expired.

Now that project completion fund has been received by DHPL, the management expects the hotel construction work to resume within two weeks. The completion of work is expected to happen in phases and the property is likely to see a full-fledged opening sometime in late 2011.

Also Read: Delta Corp takes control of distressed Daman Hospitality

IFC and partners to invest Rs 85.75 crore in agri-warehousing co National Collateral

International Finance Corporation (IFC) - a member of the World Bank Group - and partners are investing in National Collateral Management Services Ltd (NCMSL), which is an Indian local agri-warehousing company. IFC, Rabobank-sponsored India Agri Business Fund, and public sector company Indian Farmers’ Fertilizer Cooperative Ltd will each invest approximately $6 million, $7.5 million and $5 million respectively(i.e. Rs 27.5 crore, Rs 34.5 crore and Rs 23.75 crore respectively).

The investment will help NCMSL build modern warehouses for efficient storage of agricultural commodities that will eventually help reduce waste of food grains and promote food security. It will also look to expand state-of-the-art storage facilities across India and help manage volatility of food prices in the country.

Sanjay Kaul, managing director and CEO, National Collateral, said, the company offers modern, scientific, and IT-enabled storage and preservation services for agricultural commodities. "The funds raised will be deployed over the next two years to create our own network of warehouses in over 40 locations across India,” Kaul said.

The company’s existing investors, India’s National Commodity and Derivative Exchange Ltd, Karur Vysya Bank, and the Haryana State Co-operative Supply and Marketing Federation Ltd, will collectively commit an additional $3.5 million (Rs 16 crore) to support the expansion.

Anita George, IFC Director for Infrastructure in Asia, said that the this investment sends a strong signal to the market on the viability of private solutions to expand critical agriculture-related infrastructure. "By reducing food waste and minimising price volatility, the project will benefit Indian farmers and help stabilise their income levels,” said George.

In India, huge quantities of food items are wasted annually due to inadequate agricultural infrastructure, including storage and transportation facilities. Storage and warehouses are owned predominantly by government enterprises in India. Industry experts believe that the private sector can play an active role in developing additional storage capacity for food and grains and that projects like National Collateral are a testimony to that.

Arch-rivals Zee & Star join hands, set to change TV distribution

This story first appeared in DNA Money edition on Friday May 27, 2011.

Zee Entertainment and arch-rival Star India have joined hands to jointly aggregate and distribute television channels through an equal-stake joint venture called Media Pro Enterprises India. This was through their content aggregation and distribution entities Zee Turner and Star Den Media Services. Zee Turner is a 74:26 venture between Zee and US giant Turner International, while Star Den is a 50:50 venture between Star India and Den Networks.

Punit Goenka, managing director and CEO of Zee Entertainment Enterprises Ltd said the deal was first initiated two years back and took a serious turn about 10-12 months ago. The JV will distribute 68 channels some of which will be free to air. “The partnership will change the face of television distribution in this country,” said Goenka.

“It will help bring transparency and further accelerate the pace of digitisation which is a key mandate put out by the government. The joint venture will work towards creating efficiencies in the distribution sector, incentivise digitisation, address the piracy issue and enable content revolution in India,” he added.

With the objective of bringing as many people together from across industry segments, Uday Shankar, CEO, Star India Pvt Ltd, said putting together this joint venture required a great vision and huge amount of sagacity wherein larger interests were put ahead of individual interests. “That is what all four entities are committed to demonstrate,” he said.

It is public knowledge that for most part of the cable and satellite history in the country, Zee and Star have fought and competed as rivals and at times in a very bitter and fierce manner. Under such a scenario, coming together of two media conglomerates is being viewed as a significant development in the Indian television industry.

“Our rivalry has potentially cost the industry $10 billion. And with this alliance, we intend to grow the industry much faster,” Goenka said.

Shankar said the time had come to take the cable and satellite (C&S) television industry to the next level. “This we intend to achieve by delivering better content, choice, quality of experience and making sure that we make a fundamental intervention in the lacklustre financial and business health of the media industry,” he said.

Both Zee and Star refrained from sharing any financial details related to the joint venture.

Industry experts are of the opinion that JV will prove advantageous for the broadcasters. “The monolithic structure will bring (the JV) distribution muscle and pricing power,” said a head of research - media and entertainment affiliated to a leading MNC consultancy firm.

Rahul Kundnani, research analyst, SBICAP Securities Ltd, said, “The deal will boost the subscription revenues of both the broadcasters. Also the deal comes at the right time ahead of digitisation plans announced by the government. They are already commanding almost 70% of the cable subscription revenue. A deal like this gives them more bargaining power to negotiate with the distributors.”

Issue of TV content piracy brought Zee-Star together: Star CEO Uday Shankar

Uday Shankar

This interview first appeared in DNA Money edition on Friday May 27, 2011.

Broadcasters are not getting their fair share of revenues even though there is enough money being generated at the cable operators’ end, says Uday Shankar, CEO, Star India Pvt Ltd. The Zee-Star joint venture will help tackle this issue and get the money flowing in the system. Excerpts...

Your association with Zee for a distribution alliance is a major industry development. Did you face any challenge in partnering with arch rival for this joint venture?

Not many actually. There were obviously concerns initially as this is not the kind of partnership you rush into. These are big calls and the implications, positive or negative, can be very critical. So neither party was willing to rush into it, there was a lot of internal alignment that had to be done. It’s not just about taking approvals from your seniors but also aligning the entire organisation with a new set of goals and objectives, which will eventually gauge the success of such an association.

We were conscious of that and went slow. That is why it has taken us a long time. The conversation started almost two years ago, and then we built the rationale and the need for doing something like this and so on. Given the nature of what we were talking about and the history of the two groups, there was hesitation initially, that had to be tackled effectively. And we did manage to do it efficiently and that is the reason we are now going public with it. So, we have to go ahead and make sure that we deliver on the expectations. Now, the biggest challenge is to integrate the two entities.

What are the key objectives of this joint venture?
The primary objective is that we are able to tackle this issue of piracy, which is a very significant objective. It is piracy that is completely distorting the business model of broadcasting, because money isn’t flowing through the system. This has also completely broken down the business model of multi system operators (MSOs). As a result, they have to now survive only on carriage fees and hence there is an abnormal inflation of the carriage fee.

The broadcasters are not getting a fair share of this subscription revenue, especially the smaller and newer broadcasters. Hence, their ability to invest in differentiating content, high quality talent is very limited. Our primary focus with this initiative is to be able to change most of it, make sure that the flow-through of the subscription revenue becomes smoother and more reasonable.

This will eventually have a huge impact on the entire industry and not just broadcasters. Secondly, the capacity of cable system is very limited in terms of number of channels that it can carry —- with or without carriage fees —- that can be addressed only through digitalisation. That’s creating a lot of challenges and we would like to collectively work in that direction.

But is the Indian legal system effective enough to deal with the piracy situation when defaulters can easily walk out on bail within a day of arrest as you had outlined in one of our earlier interactions?

Yes, we did discuss on that instance. As far as the system is concerned, I’d say it is still work in progress and we will have to devise a model to effectively deal with it. All I can say at this moment is that with two key broadcasters, with many leading channels together, we should be able to bring additional weight to the whole initiative and see how it works out and that’s precisely the objective.

On the capacity part, isn’t the squeeze because of the cable and the technology being used by the cable operators that restrict the total number of channels to around 105?

That is why they need to digitise, because digital cable has a significantly higher capacity and can go up to 900 channels.

But there are concerns being expressed on the investments related to digitisation of the cable industry…
One needs to understand here that the money is very much there on the ground. Every year, the households are paying Rs 18,000 crore and that money should be invested. Every sector has to do what is necessary to reinvent its business and bring it in line with the social, legal and ethical norms. And it’s not that there is no money. The broadcaster and MSOs don’t get enough, but right at the cable operator end, there is enough money. And because almost 90% of that ground money is not accounted for, there isn’t enough money flowing through the value chain. Thus, that unaccounted wealth has to start flowing back into the system and when that happens, there will be enough money for digitisation.

How do you intend to get this unaccounted money into the system?
The government has a plan and we obviously will have to work together. That is precisely why our coming together will make an impact in this direction.

The jurisdiction for this joint venture operation will be restricted to India only?

No, it will be India and a couple of neighbouring areas like Nepal, Bhutan and a few others.

‘Zee-Star JV will accelerate cable digitisation, which is good for everyone’

Punit Goenka

This interview first appeared in DNA Money edition on Friday May 27, 2011.

Punit Goenka, managing director and chief executive officer, Zee Entertainment Enterprises Ltd (ZEEL) speaks about Media Pro, his new joint venture with rival Star India, and the way forward. Excerpts...

Media Pro is a huge development for the country’s television industry. How did it all really happen?

Around a year back, Uday Shankar (CEO, Star India Pvt Ltd) and me came up with this idea of collaborating in the distribution space which was really the need of the hour. We discussed the possibilities and after a series of brainstorming sessions it was decided that we should do a joint venture through our distribution companies. The entire process of putting together a joint venture has taken close to 10 months and I am really happy at the final outcome.

Could you take us through the key highlights of the venture?

It certainly was a very complex deal given the fact that we are rivals competing for our share of the market. A deal of this nature required a lot of thought, deliberation, internal approvals and so on. While it has taken us long to get the new entity in place I can say now that it was worth spending all that time on this initiative.

What does this mean for the partners in terms of meeting business objectives, distribution and reach?

I don’t think there will be any significant impact on reach because individually both entities are distributed extensively. Just to give some number on the reach part, content from both broadcasters reaches over 80% of the target market. So we don’t see much gain in those aspects. Having said that, what the JV really brings to the table is the formidable power to bring the change required in the distribution business i.e. to curb piracy and influence digitisation. We will be coming up with various incentive schemes for cable operators who are actually willing to digitise and make addressability
a viable option.

It is said that a lot of talk is happening around digitisation in the cable space, but no one is really investing…

See it’s not a question of not wanting to address / invest in digitisation. If you look at the direct-to-home (DTH) segment, it has really revolutionised the distribution business in the last five-odd years. With over 35 million DTH homes today, it doesn’t mean that people are not willing to invest. You have six DTH operators already investing heavily in this business. It’s because of the fragmented nature of the Indian cable TV business with a significantly high percentage of leakages built into the system that there isn’t much incentivisation happening in this space. Thus, the coming together of two large bouquets can very well influence that change and that is precisely what we hope to do.

You believe cable operators will be open to actively pursuing digitisation and invest?

Absolutely. Yes. We will have to make them do so by giving them necessary incentives and putting the right procedures and systems in place.

What could be the incentives to cable operators?

It’s too early to talk about and is it is something the management will work out after taking into consideration things that need to be taken forward. Just to give you an example, we give discounts to DTH operators to shore up penetration. Similar schemes will be worked out for the cable operators as well.

How many channels are you looking to offer in the newly formed JV?

There are 68 channels in all and some of them are free-to-air. These are channels in the Zee-Turner and Star-DEN distribution network and includes channels that do not belong to either broadcasters like on the Star side they have NDTV and we have Turner.

What are the possibilities of bringing WWIL and Dish TV into this collaborative entity?

No, this collaboration is not a vertical but horizontal integration. So entities like WWIL, Dish TV in addition to DEN, Tata Sky and a few others are our customers and we will deal with them on an arm’s length basis just like we work with any other partner in the industry.

Do you see other similar alliances like Sun 18 and One Alliance becoming part of this JV in future?
We are open to working with anybody who wants to work with our shared mission and shared goal. If they are willing to support that, we will welcome anybody. But in terms of the equity structure of this joint venture, it will be only between Star-DEN and Zee-Turner.

You mentioned earlier about 12 to 24 months timeline to assess the success of this initiative. What would be the milestones?

Right now we have a vision about the set objectives to be achieved under this joint venture. Now we will have to work out a roadmap on how these objectives will have to be achieved. From there will emerge the milestones etc. It’s still very early to talk about roadmaps as we have just started and we will see a lot more action happening as we proceed from here.

Will this alliance also impact advertising and distribution revenues?

Advertising is not impacted as this is a pure distribution entity. As far as deals on distribution revenues for multi-system operator (MSOs) or cable operators are concerned, our objective is not to milk them but to make the industry healthy. Today what is happening is that the MSO’s business is restricted to only the carriage fee and is not able to collect any money from the ground. We will have to effect that change. So the money which the consumer pays has to find its way in the value chain including the government — for that matter by way of service tax and things like that which the government doesn’t getting paid for at the moment. The impact of those changes will actually result in each individual in the value chain getting his fair share of the money and that’s that we want to achieve.

On the piracy part, can you throw some light on how will it get addressed and curtailed effectively?

Piracy is a national subject and the moment you try and switch off one cable operator, piracy starts. With this initiative in place, it will be a far more aggressive fight against piracy. We will have a collective, dedicated management teams reporting to the board, and will focus on enforcing anti-piracy. Those caught indulging in piracy will be dealt with very strictly. And with the coming together of two large networks, the chances of curbing piracy will be far better than before.

Dish TV focus on Arpu, HD paying off

This story first appeared in DNA Money edition on Thursday May 26, 2011.

Dish TV India, the country’s leading direct-to-home company, has halved its net loss in the fiscal ended March 31 to Rs30.7 crore as compared to Rs60.6 crore in the same period of the previous fiscal.

Standalone revenues for the quarter under review grew 41.4% to Rs451.7 crore year on year. Operating profit rose 93% to Rs108.9 crore during the March quarter.

Subhash Chandra, chairman, Dish TV, said despite a highly competitive six-player market, the company’s initiative to drive average revenue per user (Arpu) has delivered good results. “The enhanced high-definition (HD) bouquet coupled with cricketing season enabled significant addition of HD subscribers who, in turn, contributed their bit in driving the Arpu,” said Chandra.

The launch of 35-channel bouquet improved HD’s contribution to the company’s monthly additions to 7% as against less than 1%
earlier.

The management’s decision to hike prices in the third quarter coupled with movement in packages had a positive impact on the blended Arpu that increased from Rs142 in the third quarter to Rs150 in the fourth quarter of the fiscal.

“While we are still much lower than the optimal, an increase in Arpu, while maintaining leadership, demonstrates the underlying strength of the company’s business model,” Chandra said.

Standalone revenues for the full fiscal 2011 stood at Rs1,524.6 crore, while operating profit for the year was Rs326.8 crore with a margin of 21.4%.

Standalone net loss for the year reduced to Rs189.7 crore as compared to Rs262.1 crore in fiscal 2010.

Dish TV added one million new subscribers in the fourth quarter taking the total subscriber base to gross 10.4 million and net 8.5 million at the end of the quarter. The gross additions almost doubled at 3.5 million vis-a-vis 1.8 million in the previous year.
Subscriber acquisition costs increased marginally to Rs2,224 in the fourth quarter from Rs2,142 in the third quarter due to higher but budgeted spends around Cricket World Cup 2011, officials said.

Jawahar Goel, managing director, Dish TV, said the overall numbers have been achieved despite an addition of 3.5 million new subscribers in the fiscal.

“At the same time, all our key operating metrics registered a marked improvement over the previous year. With over 10 million subscribers now, we have started fiscal 2012 on a strong note and are committed to deliver better on all operating parameters,” he said.

Surendra Goyal and Aditya Mathur, analysts with Citi Investment Research & Analysis, in their latest report on Dish TV, said, “Encouragingly, increase in subscription Arpu by 6% on a quarter-on-quarter basis and 9% on year-on-year basis was ahead of expectations,” the analysts said in their report.

“Dish TV is well placed to benefit from the strong industry growth. Attractive content agreements, scale and management focus on Arpu will ensure a good turnaround,” the analysts said.

Banks find film financing a touch too hot

This story first appeared in DNA Money edition on Thursday May 26, 2011.

Banks seem no longer interested in financing films, an area they had ventured into almost a decade ago. Indeed, the lenders appear to be in the process of reducing their exposure to the business in view of the uncertainty involved in repayment of loans. For one, IDBI Bank, one of the more active players, has decided to go slow. The bank did not fund any movie last fiscal. At the end of March 2010, movie financing formed a very small part of its portfolio at around Rs200-250 crore, down from Rs250-300 crore at the end of March 2009.

“Earlier, we used to finance many movies. But now we are in a consolidation phase. We are reviewing the financials and will want to see how things move,” said Viney Kumar, executive director, IDBI Bank.

“IDBI Bank might have decided to slow down in film financing because they just do not want to focus on only volumes, they want profitability as well,” said Chaitra Bhat, banking analyst, LKP Securities.

The Export-Import Bank of India, or Exim Bank, which had financed blockbusters like Veer Zaara, Dhoom and Dhoom-2, has also curtailed its exposure to this business. The bank, which finances films with the objective of boosting export earnings — films which promote India as a country and its trade — currently has a film financing portfolio of less than Rs200 crore.

“Exim Bank has been given a mandate by the government for financing various export-oriented businesses. We look at opportunities in the film business and lend to filmmakers as per our set parameters,” said TCA Ranganathan, chairman and managing director, Exim Bank.

Bank loans for making films are typically for 1-2 years. The interest rate charged is about 15% per annum — around 2% higher than on other loans — and the repayment period is up to 18 months.

But why are the banks shying away from films?

IDBI Bank’s Kumar cites a paradigm shift in distribution of movies. “Earlier, there was a system of minimum guarantee under which the producer used to start discharging the liability to the lender (bank) as the distributor used to give a minimum guarantee payment to the producer. In such a scenario, the loan given by the lender would have got repaid irrespective of the movie’s performance at the box office. Now the system of minimum guarantee is not there.”

Bobby Bedi, managing director, Kaleidoscope Entertainment Pvt Ltd, also agrees that the way films are made and distributed has changed, impacting the involvement of banks. “I’d say it’s a mixed bag when it comes to film funding from banks. IDBI Bank certainly has reduced its exposure to film financing. I believe they have had some bad experience and hence the management’s decision to relook at funding filmmakers. Exim has been very selective in its approach and continues with the philosophy of funding film projects with global appeal and potential to be exported out of India. Having said that, there are a few others, like Union Bank, which are keen on getting into this space,” said Bedi.

The film fraternity feels IDBI Bank lost money because it did not stick to set structures. “They did not follow the structures and hence lost money. As a result, the management has lost confidence in the business and hence wants to stay away,” said a film producer, requesting not to be identified.

Bankers bring up yet other issues.

“Both filmmakers and bankers have difficulty in predicting the success of movies,” said Karan Ahluwalia, executive vice-president and country head (media, entertainment, luxury and sports banking group), Yes Bank. “From a banking perspective, the fragmented nature of production houses needs to be addressed since a credible track record, sound balance sheet and good corporate governance are key enablers of organised funding as well as other innovative financing products.”

Yes Bank had financed Break Ke Baad and a few other movies last fiscal.

Industry experts, though, rule out any long-term impact of banks curtailing their exposure to films.

“The quantum of bank loan in movie financing was never very high. It was just one source of finance. There are many corporate, which are into film financing, and they will continue to fund films,” said Rajesh Jain, executive director and head of media and entertainment, KPMG (India).

Kaleidoscope’s Bedi pegs the proportion of bank funding of films at 15-20%. “The balance is still sourced from the private/ individual investors. Of late, we have seen participation from the corporate sector as well as film-focused funds, besides other avenues like studios including Fox-Star and the like,” he said.

On steps being taken by the film fraternity to encourage bank participation, Bedi said banks need some extent of handholding when it comes to film financing. “There are certain aspects about film financing that need be understood clearly and the industry body (Ficci Frames) is looking at taking some initiatives in that direction. We want to rebuild their confidence and bring them back into funding film projects,” he said.

Bedi, former chairman and member of the entertainment committee at Ficci Frames, said the industry body is looking to hold a meeting with top officials of leading banks sometime soon to discuss the subject and work out a solution.

My colleague Neelasri Barman is the lead writer of this story.