Crisis? Diversify and prosper

Ronnie Screwvala's move to invest in different segments of the media industry has helped UTV sail through tough times.

Ronnie Screwvala, the chairman and CEO of UTV Software Communications, opens the door of his plush Breach Candy apartment himself. Once seated in the comfortable surroundings, Screwvala makes no attempt to brush off the fact that the media and entertainment industry in which he operates has been hit by the slowdown.

However, he is confident that UTV will have a good 2009. Afterall, for the quarter ended December 31, 2008, UTV reported 29 per cent growth in net profit at Rs 29.9 crore (Rs 299 million) and 30 per cent growth in revenue at Rs 160.2 crore (Rs 1.6 billion) as compared to the year-ago quarter.

"We were nimble enough to diversify and park money in emerging verticals like gaming, websites and niche broadcast segments, channelising the profits from our film entertainment business when the time was right," Screwvala says.

Agrees Jehil Thakkar, a media and entertainment analyst at KPMG, "Although the general slowdown and the possibility of a cut in advertising spends by companies are a cause of concern, UTV investors may draw comfort from its well-diversified revenue stream, including TV content sale, movie syndication, box office sale and licensing gaming and music content to telecom companies."

In 2009-10, this is how his numbers will look like: TV content will contribute approximately 10 per cent of its revenue, broadcasting around 10 per cent, new media about 5 per cent, film entertainment up to 40 per cent and gaming around 35 per cent.

Strategy in tough times

In UTV's latest business -- console, mobile and online gaming -- Screwvala has invested Rs 300 crore (Rs 3 billion) in acquisition and subsequent games development. It acquired Ignition Games for the console segment, upped its stake in Indiagames for the mobile segment and bought True Games to enter the online space.

"While India remains our home market, our console and online games will be an international property and we don't really expect to make any money from India for now," says Screwvala.

He is aiming to release the first console game title in the second half of 2009 and will directly publish in markets like the US, Turkey and Japan, while other geographies will be covered through strategic partnerships.

No other player, including Reliance Entertainment, DQ Entertainment and Hungama, are developing console-gaming.

"The console-based gaming business is seasonal and majority of the revenues from this segment accrue during the third and fourth financial quarters due to US holidays," an Edelweiss research analyst points out.

Edelweiss also estimates that for UTV's console titles to break even, the company needs to sell around 7,00,000-8,00,000 units at an average price of $60 (about Rs 3,000) each - a tough task in these times.

But Screwvala is confident: "Our investments in gaming will bear fruits this year." According to Screwvala, Ignition Games will release at least one game title this year.

The Indian market has fuelled on UTV's Indiagames, which has grown around 20 per cent quarter-on-quarter. True Games, a start-up, will remain in investment mode for a couple of quarters more.

On the Internet, UTV is aiming for 10 portals targeted at specific need gaps such as in the digital music space and news. UTV paid around Rs 15 crore (Rs 150 million) to acquire 76 per cent of ITNation that owns digital news properties such as Techtree.com, CXOToday.com, Channeltimes.com and Enterpriser.in. Zarina Mehta, UTV's co-founder, says that even though new media contributed about 4 per cent to the group's revenues, advertising on these portals has been on the rise.

Film business on a roll

UTV released around 10 movies in 2008 and this year it has 15-18 movies in the pipeline with an outlay of Rs 800 crore (Rs 8 billion).

"The money will get rotated as films release and hence the investments will remain capped. Our Hollywood revenues and cash flows will also start from this quarter," says Screwvala.

UTV Motion Pictures is credited with pioneering Hollywood concepts such as co-financing, diversified revenue models and brand extensions in India.

The company has tied up with Disney, Fox Searchlight, Sony and Will Smith's Overbrook Entertainment production company as its business partners to expand UTV's global reach.

It co-produced Manoj Night Shyamalan's The Happening, which grossed $150 million (about Rs 800 crore) at the box office, with 20th Century Fox.

Closer home, Vikas Behl, the CEO of UTV Spot Boy, a division of UTV Motion Pictures which makes low-budget films, says there is increasing pressure to complete a film in time - so that the cash can rotate faster.

"We can't let money go waste by over-extending our shoots and paying extravagant sums to market the film," he reasons.

Behl, who is responsible for raking in profits from projects with budgets as low as Rs 5 crore (Rs 50 million), is leaving no stone unturned.

"We will explore all revenue opportunities, including new ones like pay-per-view on DTH," he says. It was he who convinced Screwvala to invest in low-budget ventures such as Dev D. The film, made on a paltry Rs 10-crore (Rs 100-million) budget, went on to pull Rs 20-22 crore (Rs 200-220 million) from the box office.

"Such small-budget gambles have paid off well for UTV," observes Thakkar of KPMG.

Problem child

UTV's broadcasting business is yet to deliver, having suffered a sizeable Rs 11-crore (Rs 110-million) loss in the quarter ended December 31, 2008.

The marketing and operating budgets for its channels - World Movies, UTV Movies, the youth-centric Bindass and Bindass Movies and UTVi - are undergoing changes. The execution risk and gestation losses could drag down the group's profitability, say financial analysts.

"The capital allocation for the broadcast segment has been scaled down from Rs 600 crore (Rs 6 billion) to about Rs 460 crore (Rs 4.6 billion), where over Rs 360 crore (Rs 3.6 billion) of capital has already been deployed," informs a Credit Suisse report.

"In business news, CNBC has 85 per cent of the market but we are trying to plug the gap between the leader and the number two with UTVi," says Screwvala. There could be infusion of more funds to strengthen the content focus and marketing.

Dismal TV ratings do not seem to dampen UTV's spirits. Mehta alludes to how Bindass managed to outdo MTV and Channel V on several weekdays at prime time. In December, Bindass generated a rating of 0.21, which was 10 times that of Channel V and MTV.

Its Bindaas Movies, which features several local-language-dubbed versions of popular Hollywood programes, has managed to usurp Star Movies and HBO in viewership ratings.World Movies, too, has emerged as a winner among the SEC A cable and satellite homes.

"While we don't foresee a whopping ad deal, advertisers are buying TV time with our youth channels," argues Mehta. Banking on such performance, UTV hopes Bindass and World Movies would break even in 2009.

Screwvala rules out the possibility of pulling the plug on any of his channels, but is betting that some shake-out can be expected in the broadcasting industry.

"I think some of the other broadcasters will have to merge their offerings and shrink the size of the channels bouquet. There has been unnecessary duplication that occurred because it was possible to do so."

Meanwhile, he is trying all means to keep his own broadcasting business in check. He plans to review its capital expenditure, carriage fees and other operational costs.

After a little prodding, he admits, "In broadcasting, a business that promises annuity and scalability, we were among the late entrants. And now, the times are tough. So, it will be a bit more difficult to break even."