Over the years, UTV has added businesses to become an integrated media house. UTV's Ronnie Screwvala shares his vision in this interview describing UTV's itinerary to success. The stock trades at about 37 times its trailing twelve months earnings.
What would be the key growth engines for UTV in the coming years?
We have emerged into a diversified media model, from being a content provider for television broadcasters to an integrated model, with four verticals.
The four verticals are: television content production, film production and distribution, broadcasting and new media -- animation and games. We see three of these four verticals leading our growth in the next five years, namely, movies, new media and broadcasting.
Television content is always going to be our main business. It is safe and mature and we would nurture it as we have grown up with it. The other three are at the top end of the value chain with direct contact with our audience.
How does each of the four verticals contribute to the revenues at present?
We have entered the new media and broadcasting segments recently. Today, a large part of our revenues come only from the movie production and distribution as well as television content production business -- revenues from big screen versus small screen.
The contribution is 45 per cent from the small screen and 55 per cent from the big screen. Two to three years down the line, as all four verticals mature, we expect all four verticals to have an equitable contribution -- in the range of 20 to 35 per cent each.
What is the time frame required for broadcasting and new media to mature?
We expect the broadcasting and new media verticals to mature in the next two to three quarters, from which we can reap benefits for the following 16 to 24 quarters.
In broadcasting, once we cross the minimum threshold, the margins explode exponentially. In new media and gaming, once we have covered our set-up and fixed costs, the realisations are enormous. We've been in the film production and distribution business in only the last four years, while the film industry has been there for the last 110 years.
In that context, we have taken time to establish ourselves as a brand. But what we have taken four years to do, others have taken 40 years. This pace has come at some cost to our margins. But we have matured that industry vertical, found our niche and established a brand entity. We have a select group of directors we work with and invested heavily in a worldwide distribution model: all of this has already been expensed.
We, therefore, see our margins from the film business growing substantially in the coming years. Now it is the time for us to monetise that, with the right kind of content and the right kind of a revenue model.
Could you put a number to the margins from different verticals?
From movies, our base margin starts from 20 per cent without any ceiling to the earnings, as a film can earn even 100 per cent margins and more. Television content production on the other hand is a stable margin business, ranging between 12 and 15 per cent.
In new media, because of our composition of our property and studios, the margins tend to be exponential. The broadcasting business has yet to go through its own gestation period, but when it arrives, it is again a high margin business. This gestation period is about 8 to 10
quarters.
UTV follows a studio model of film production. Could you throw some light on this model?
There are three different models of producing movies being followed in India -- family-managed businesses; a corporatised studio model; which is represented by UTV; and a model based on film financiers, who do not involve themselves with the execution of film production.
We believe that none of the other film production companies in India follows the model adopted by UTV, for the following reasons: we work with directors on a long slate basis on multiple movies and we incubate scripts ourselves.
Our entire focus is on the script of a film, and finally, casting the film. However, the execution of the creative process and below the line activities is not a core competence.
In the next and another crucial stage, we involve ourselves completely with the marketing and the distribution of the film until the release date. We pre-empt that the audiences' tastes are changing with times, when we work with our directors and research the scripts, which is our core competence.
Is the television content business scalable to overseas markets?
We have been producing content for foreign channels like BBC, CNN, National Geographic, Discovery and many others for the last five-six years. It is easier to take non-fiction content abroad, since fiction programmes are highly sensitive to different cultures.
In that context, Indian content is substantially localised. However, two things can be considered in India-to execute creative concepts in India which are imported from other countries and to create such formats locally, which could be replicated worldwide.
The former is already happening in cases like Kaun Banega Crorepati and Bigg Boss. The latter is still in a nascent stage. For example, in Hungama TV, content created for Indian audience is being replicated for two channels in Indonesia and Malaysia.
What are the other avenues of growth that are being explored?
We have set benchmarks in the media industry, in terms of inorganic growth since the early years when the first broadcasting acquisition ever in India was conducted by UTV with Vijay TV, which was then sold out to Star India, to an exit basis from Hungama TV, which was sold to Disney.
In the animation and gaming industry, we have taken a leap from a conventional animation outfit to a large new media player by acquiring two strategic animation initiatives, Ignition and Indiagames.
We are now looking to enlarge our revenue base to Rs 1000 crore (Rs 10 billion) in the next three financial years. Our growth engines and the roadmap are quite clear. The TV business has content and airtime sales of about Rs 100 crore (Rs 1 billion) and we expect it to grow to Rs 400 crore (Rs 4 billion).
In movies, we are at about Rs 100-150 crore business (Rs 1 to Rs 1.5 billion), targeting about Rs 350 crore (Rs 3.5 billion). Earlier, we did five movies a year, now we're doing eight and we'll increase the number to twelve.
In broadcasting, we are starting from scratch, but the spaces that we're getting into are very scalable. And in new media, outside of our animation business of about Rs 15-20 crore (Rs 150 to Rs 200 million), we have already acquired two companies which scale Rs 95-100 crore (Rs 950 million to Rs 1 billion) in revenues, and we are aiming to take it to Rs 250 crore (Rs 2.5 billion) each in the next two to three quarters.
This is achievable easily because only our PlayStation 3 game, which is coming out in the next year should have revenues in excess of Rs 100 crore (Rs 1 billion) a year. We have other large clients like Microsoft, Nintendo and Atari in our kitty.
