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Tune in to the news
Shobhana Subramanian in Mumbai | January 15, 2007
It's quite a story. In just about a year, CNN-IBN, the English news channel has managed to creep up on its rival incumbent NDTV 24X7.
Between October and December 2006, CNN-IBN's TRPs (television rating points) have ranged between 27.3-30.8 while NDTV 24X7 has notched up TRPs of around 33.3-38.5.
A combination of good content, a well-thought out distribution strategy and the CNN brand has resulted in CNN-IBN being able to command a fairly large viewership in a relatively short span of time.
While the genre is competitive, the TV 18 group, which has promoted Global Broadcast News (GBN), that houses CNN-IBN and also has a stake in the Hindi news channel Channel 7, has demonstrated that it is capable of building a business and nurturing it.
There is, of course, one big difference: CNBC TV 18 is a business channel operating in a niche, which in a booming economy, tends to have a more loyal viewership. Nonetheless, that the channel has managed to remain the in the number one slot even after the arrival of NDTV Profit, is creditable.
GBN plans to raise Rs 105 crore (Rs 1.05 billion) with shares priced in a band of Rs 230-Rs 250. This would mean a dilution of between 16.8-15.7 per cent and post issue the company's market cap will be in the region of Rs 625-668 crore (Rs 6.25-6.68 billion).
The stock is not cheap given that the company is still in the red. However, in a growing genre it is emerging as a contender for the number one slot. Moreover, there are synergies between CNN-IBN and Channel 7 which can be exploited.
News: a growing genre
Indians are by and large not a news-hungry nation, it's soaps that they prefer to watch or perhaps cricket. But, with increasing literacy, the viewership for the news genre too is increasing.
Says Lakshmi Narasimhan, national director, Group M Media, "Part of the audience is definitely moving away from mass channels to news channels."
Adds Farokh Balsara, Partner, Media and Entertainment, at Ernst and Young, "To attract viewers, most news channels are throwing in some entertainment, cricket-based shows and some general trend stories."
It's showing in the numbers too. A couple of years ago, the audience share commanded by the news genre was a pitiful 3 per cent, in 2004 it moved up to 5.4 per cent and at the end of 2005 it was 6.5 -7 per cent. But, of the nearly 100 million television households in the country, barely 1-1.5 per cent view English (including business) channels and that's clearly an opportunity.
Advertising: a bigger slice for news
Marketers are not oblivious of the potential. Says Balsara, "English channels are attracting youngsters between the ages of 29-34 and marketers are aware that there is huge purchasing power with the younger lot today."
Industry watchers estimates that ad revenues for the genre should grow at around 18 per cent annually over the next few years.
With the economy expected to show strong growth in the next few years, television advertising overall is tipped to grow at an annual rate of 14 per cent to Rs 10,500 crore (Rs billion) by 2010 driven by increased reach: the number of C&S (cable and satellite) homes is expected to touch 90 million from around 68 million at present.
Of the total television advertising pie of Rs 5,500 crore (Rs 55 billion) today, news channels are estimated to have a share of Rs 700-750 crore (Rs 7-7.5 billion), up from Rs 645 crore (Rs 6.45 billion) at the end of 2005.
The lion's share belongs to Hindi news channels, with the English news channels having 25-30 per cent or somewhere in the region of Rs 200-225 crore (Rs 2-2.25 billion). What's key is that at 30 per cent a year, advertising revenues for the genre have grown the fastest among all genres.
With a presence in the growing Hindi news genre through Channel 7, GBN is well-positioned to improve its share. Today, it lags the market leaders Aaj Tak and also Star News and NDTV India, though it has been seeing an increase in absolute channel share in the past few months.
The number of advertisers on CNN-IBN has gone up from 65 in March last year to around 200 currently and while advertising slots are still going at a discount of around 35-40 per cent to market leader NDTV, the gap should narrow. Inventory utilisation at the end of September was around 70 per cent.
Typically, advertising revenues lag viewership ratings by about six months.
Distribution: Boxed in
At last, the set-top box is here to stay. Currently, just two per cent of India's estimated 68 million C&S homes have been mandated by the court to switch over to Conditional Access System (CAS).
However, while today the combined CAS and DTH viewership may be small at under 2 million, industry watchers say the number is likely to increase to around 6-7 million by 2010.
In fact, the numbers estimated are even higher. As Raghav Bahl, chairman and promoter, explains, "More than the shift from cable to either a Conditional Access System, the shift from analogue to digital is what consumers are looking at. The better transmission and hence picture quality is what is prompting customers to opt for a set-top box."
Moreover, as Bahl points out, unlike in the West, digital access is not so expensive in India.
Also, while today a home may have two or even three television sets but may be paying the subscription fee for just one connection, that will not be possible in the new CAS regime, where a set-top box will be required for each television set.
Thus, while not every home is likely to have more than one television set, an increasing number of homes does have two sets.
As the penetration of CAS rises, broadcasters will earn more through subscription revenues (45 per cent of the collections).
As is well known, while viewers have been paying cable charges, broadcasters have never managed to get their fair share because of the rampant under-reporting by cable operators. That is set to change. More important, broadcasters will not have to pay 'carriage charges' which average around Rs 10-12 crore (Rs 100-120 million) per annum per channel, which they have been doing merely to ensure that their channels are positioned among the top thirty or so channels.
CNN-IBN has just become a pay channel at a price of Rs 5 per month.
Says Sameer Manchanda, joint managing director, "While a couple of channels in the English language genre have chosen to remain free to air (FTA), we feel that if we can get some money for content, we should take it. Why should we give it free?" Manchanda is, however clear that CNN-IBN will not 'out-price itself.'
Adds Haresh Chawla, joint MD, "The idea is to maximise advertising revenues and for that we need the viewership to grow, so we will ensure that happens."
Online properties: networking
GBN will hold a 15 per cent stake in Web 18, a company that houses the Internet ventures of the TV 18 group, with the remaining 85 per cent being held by TV 18.
This, GBN has received in lieu of the www.ibnlive.com coming into Web 18, though the management has not clarified on what basis the transfer has been enacted.
Nonetheless, Web 18's properties include, among others, moneycontrol.com, poweryourtrade.com, jobstreet.com, commoditiescontrol.com, are believed to be doing well.
According to Chawla, revenues for Web 18 are around Rs 25 crore (Rs 250 million) annualised while the operating profit margin is around 45-50 per cent. Says he, "We are trying to leverage our base of 7 million viewers who watch our channel."
Financials: Profits, some time away
Revenues for CNN-IBN (primarily from advertising) should start picking up in FY08 as increased viewership translates into a higher number of advertisers as also better ad rates per slot.
As such, CNN-IBN should be in a position to record an operational profit in Q3 FY07. However, it will take a while for Channel 7 to become EBITDA positive and this is unlikely to happen before FY08. It should be mentioned that GBN has only a minority stake in BKFPL, which in turn has a majority stake in Jagran TV which operates Channel 7.
Subscription revenues for both channels will start trickling in only from FY08 and even then, they are likely to account for just 10 per cent of total revenues. Nonetheless, over time, these are bound to account for a significant chunk of revenues.