The Hindu Business Line : How broadcasters script the growth story

The spate of channel launches spells entertaining times for TV surfers. But can the sector accommodate another 100 channels, in addition to the 200-plus now? About 70 proposals for channel launches await Government approval for uplinking from India, the majority targeting the news genre. Industry players maintain there is room for many more channels and that a lot of formats remain unexplored by today's networks.

However, they also admit that advertisers continue to have tremendous bargaining power as channel launches mean greater fragmentation of viewership. That's a cause for concern, considering that advertisements are the main driver of revenues and will remain so for the next couple of years.

Here is a look at why broadcasters are bullish and what impact the channel rush could have on profitability.

Beaming prospects

The number of private channels has expanded over the years to more than 200. But broadcasters are still planning channel launches, even as new players — from corporate houses to old hands in the business — also join the fray.

The fancy for the sector, and broadcasting in particular, has ensured easy funding for those seeking to launch yet another "regional" channel or one with "differentiated" content.

Launching niche channels has become more attractive in a digital environment, where consumers can choose the channels they wish to watch and some may pay a premium for niche content. This is as against an analogue environment, where the cable operator determines whether the channel is worth carrying depending on its mass appeal. Better declarations of subscribers post-CAS (conditional access system) have also changed the equation for pay channels.

Then there is the most important factor — the growing advertisement pie. As more companies, apart from traditional advertisers such as FMCG firms, gravitate towards television for its expansive reach, TV advertising is expected to garner a larger share of the total ad pie.

More Channels,Viewership

The standard argument to substantiate that view is the growth in the news genre. Whereas a 24 -hour news channel was unheard of a few years ago, the news genre as a category now accounts for 12 per cent of the television business. The entry of several players has helped grow the category, but players have had to share the gains, with only a few really making money.

The trend of category growth could, however, manifest in other untapped genres too. Most broadcasters share the view that there are enough opportunities within each genre that could appeal to different audiences given India's diversity. For instance, TV18 believes it has created a new format in business news through its Hindi channel, CNBC Awaaz. It claims to have succeeded in reaching the Hindi-speaking audiences that have money to spend but lack a peer network that could help them make important decisions.

With advertisers wishing to reach every category of viewers, broadcasters believe they need to be present across several genres. So there is the TV18 network moving from business news to general news and beyond, to niche categories such as home shopping, while NDTV moves into general entertainment.

Building a Network

In the process, they hope to build a network of channels, like the Zee group and Sun TV. A network could bring about greater synergies as broadcasters can cross-sell their different genres to advertisers. They also hope to ensure that the advertiser's choice remains within their network.

However, players such as Zee and TV18 warn that each channel in a network has to stand on its individual strengths, as it is far easier to launch a channel than to sustain it. Weak channels in a network could be a huge drag on resources. The stock market, too, gives such broadcasters a deep discount.

Bargaining Power

But as broadcasters see it, if they manage to be in the top two or three slots in each category, they are operating from a position of strength and can command premium rates for their ad inventory. This is something the Sun Network has pulled off quite successfully in the South.

Advertisers have been tough customers for television media. For all the arguments in support of television advertising — greater reach, lower cost per thousand and rising penetration of cable homes — advertisers have dictated terms, so far.

Even as FMCG firms increase their ad budgets and industries such as insurance, financial services take to advertising on the medium, the growing number of channels has provided advertisers greater bargaining power. As the industry has frequently pointed out when arguing for better rates, while the number of cable and satellite homes has doubled over the past couple of years, advertising revenues have not kept pace, despite the increasing reach. A few players have managed to hike rates on the back of improving content and market share. But that has only led advertisers, operating on stretched budgets, to step up pressure on other channels that have not shown an increase in viewership.

Market-Share Battles

With more channels, the battle for market share is growing fiercer. Programming and distributions costs are set to increase significantly in the medium term. New entrants may resort to steep discounting of ad rates to garner a bigger share of the ad pie.

Interestingly, category leaders are not any less vulnerable to competitive pressures. New entrants tend to eat into their market share. With more alternatives, advertisers can drive a hard bargain. Hindustan Lever, among the larger ad-spenders, recently demanded that leading entertainment broadcaster Star Plus reduce its rates on loss of market share to players such as Zee.

AdS to Keep Pace?

While broadcasters admit that these issues are of concern, some believe the industry will eventually be able to bargain for higher rates. Given the increasing penetration of television and cable, advertising on TV would be cheaper on a cost per thousand basis.

Ad spends are projected to rise at 15 per cent over the next five years on the back of an 8 per cent GDP growth. However, if channel launches end up fragmenting viewership further, advertisers are not going to lose their bargaining power anytime soon.

For one, new alternatives are emerging in the form of radio, with its regional market appeal, and Internet, with its cost-effectiveness. So not all the growth in ad spends will be directed towards television alone.

Second, even if some players manage to hike ad rates on superior content, ad budgets may not be willing to accommodate a hike in rates by players across-the-board. This means channels with weaker content will have to continue to offer ad slots at deep discounts, even if there is a rising trend in advertising expenditure. A slowdown in advertising, as always, is a major risk to the revenue stream.

Any consolidation is likely to take place only gradually. Right now, players appear more keen to launch channels than take over existing ones. The smaller networks, which do not have the management bandwidth to take forward a channel with good content, might be targets in the near term.

Currently, listed players such as Sun TV, Zee TV, NDTV, and the TV18 Network represent the top players in their respective categories; holding on to these stocks may be appropriate considering their ability to program good content. But staying on the top cannot be taken for granted either, when competing for human attention.

The re-rating that broadcasters have had over the past year appears to have factored in the benefits of addressability and advertising and category growth. New channel launches and efforts to protect their turf could, however, put pressure on earnings in the medium term. On the other hand, focusing on television content providers may be an alternative opportunity for those who want to ride the bullish trend in broadcasting. While Balaji Telefilms and UTV appear good options, their diversification into new businesses, might have to be closely monitored.

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