When Anil Ambani's Adlabs signed a licencing deal with Rave Entertainment, this week, to take control over 23 new screens in north India, it might have bitten into a chunk of cinema exhibitor PVR's 80-screen business, but it was hardly big news.
Nor should its negotiations to buy Bangalore-based animation company Anright Infomedia have entertainment industry analysts watch it with anything more than passing interest.
But these small, seemingly unconnected acquisitions are links in Ambani's clearly ambitious plans to control India's Rs 43,700 crore (Rs 437 billion) entertainment business, something the country's third-largest telecom company and power behemoth has clearly set its sights on.
This week, Ambani announced the simultaneous rollout of his direct-to-home and IPTV services to take the big boys of broadcasting, Tata-Sky and Zee, head on. Just a fortnight ago, he had made his interest in broadcasting companies clear when he upped his stake to 15 per cent in Aroon Purie's TV Today (which runs Aaj Tak and Headlines Today) and announced an open offer to buy another 20 per cent in the company.
Reliance executives say this is an investment, nothing more, and potential competitors have given up on second-guessing Ambani Jr's next moves.
Says a perplexed Haresh Chawla, CEO of TV-18, which has a similar profile (it has its own channels, is getting into movies and has a vibrant Internet business): "Frankly, it is not clear whether ADAG is just buying stakes in companies or doing business. It bought over Adlabs a while ago but is still not the number one multiplex owner in the country. It went into radio with a bang, spent a lot of money, but I don't know whether it is number one or two there."
The competition ought to have cottoned on to Ambani's aggressive strategy by now as it becomes apparent he's set his sights on becoming the country's new entertainment czar, straddling the entire arena of content (movies, Internet portals, television, radio, music) and its distribution across various platforms.
Unlike global telecom majors, he's hoping to converge entertainment with telecommunications by leveraging the 88,000 km of fibre-optic cables that's he's laid across the length and breadth of the country.
If industry estimates are to be believed, Ambani has a war chest of $2-3 billion to spend on his growing interest. That he means serious business is evident in the company's willingness to invest $100 million on just one gaming, Zapak.com.
Says Rajesh Sawhney, president of Reliance Entertainment, who is spearheading the entire entertainment and telecom convergence drive, "We want to be in the entire distribution chain of delivering content. And we want to be the number one player in each segment."
The company will launch IPTV and DTH services across the country by the end of this year, offering customers both options. In the first year, the target is to get into 2-3 million homes, numbers similar to those of the existing players, Zee and Tata-Sky.
It is also rolling out FM radio channels in 45 cities (it already has 18 stations), making it as big as Sun TV (44 stations) and overshadow the popular Radio Mirchi (32 stations).
Buoyed by the success of Zapak.com (1 million registered users in a few months after its launch), the company is extending the gaming experience by setting Zapak Cafes across 30 cities to offer high-end gaming at a price.
And it is pushing its social networking site BigAdda.com to wean away all those who swear by Orkut and MySpace.com.
Part of that strategy includes the use of technology for low-cost solutions for movie distribution. Reliance Entertainment is approaching exhibitors to use its fibre-optic backbone and digitise screens, thereby saving on the cost of prints. Ambani's plan is to increase the number of Adlabs screens seven-fold, from 75 just now to 500 within the next two-and-a-half years.
Linked to these are other nascent businesses, mostly in the unorganised sector, that have attracted Ambani. He's hoping to roll out 500 video rental stores similar to the US-based Blockbuster to rent out DVDs on a monthly rental of Rs 300, using the Net, an SMS or just phoning in for a delivery. Competition in this segment too (Harish Thawani's Nimbus which is planning 150 outlets, and Bangalore-based Seventymm) doesn't match his scale.
Do existing entertainment majors have reason to fear him? After all, Ambani is already fighting a bitter battle to protect his marketshare in the telecom sector, where tariffs are falling and big boys like Vodafone with deep pockets are entering the capital-intensive business. And there are his forays into power and financial services, where investments to the tune of Rs 1,00,000 crore (Rs 1,000 billion) have been committed.
Says a senior executive of a leading broadcasting company: "He has his hands in too many things, and I think the media foray is a half-hearted attempt where he is merely an investor looking for an upside."
Half-hearted? Ambani would tell you otherwise. At the core of his entertainment strategy is a hard-nosed decision to leverage the fibre-optic backbone that can transport voice, data and video grabs. Using it for just voice calls is not sufficient since the average revenue per user on mobile or fixed phones is extremely low at Rs 300 and may fall lower with tumbling tariffs.
Explains a media analyst, "Anil Ambani's need to create premium content, which is bandwidth heavy, and use it to ramp up revenues, emanates from this compulsion."
This is reflected in the manner of Reliance's last-mile connectivity to homes, to offer IPTV services (your regular channels, video on demand and interactive TV) on its fibre-optic lines already laid till the kerbside.
Reliance Entertainment estimates that by 2010 the market for DTH and IPTV services would be 15-20 million homes, of which it hopes to grab a 25-30 per cent share. Mobile TV services too will use the same network and towers. The group expects that 10 per cent of all 166 million mobile customers will get hooked to this service since it is limited to high-cost handsets (over Rs 10,000).
And in a masterstroke, Ambani is leveraging the same fibre-optics by offering cinema owners a cost-effective opportunity to upgrade to digital screens.
Reliance Entertainment executives say the new system will transport movies through fibre-optics from a centralised location in Mumbai to these screens, eliminating the need for expensive prints as well as providing protection from piracy. And, of course, producers can reach a larger number of halls than ever before.
Says Sawhney, "There are 13,000 cinema screens and 500 multiplex screens in India. The number of movie prints varies from 300-1,000, so there is no way you can penetrate even 50 per cent of the multiplex market." And where each print costs Rs 30,000-40,000, a CD is only Rs 300. "Digital movies offer a cheaper solution," he says.
The need for large bandwidth has propelled Ambani to get into specific verticals in the portal business. Points out Sawhney, "Gaming needs a fat pipe and a lot of bandwidth, which only we can provide." That is why it has launched movie portal Bigflicks.com to offer non resident Indians movies they can download on to their TV sets from their PCs.
With all that, the lack of experience for the telecom company is still the big downer. For this latecomer in the business, it won't be a cakewalk taking on established players like the Zee group and Star TV which not only run channels but also control both cable distribution and DTH operations.
Reliance will also have to take on Bharti, which is a bigger telecom player and has the ability to back it with cash, in both the DTH as well as the IPTV space. In content, of course, there is no dearth of big boys who dominate the market, such as UTV (which straddles the entire content space from television to movies and gaming) or Yash Raj Films (movies) and Balaji (television content).
Most critics say it will be a tough call. Argues Narendra Tripathi, vice president, NDTV Media, "There are enough examples of non-media companies getting into media that have not worked. They don't have concrete plans. Since money comes from other sources, there is no pressure on bottomlines."
Adds a media analyst, "You can't be an entertainment giant without having your own channels. Look at global giants like Disney, Time Warner or Viacom. That is the missing link. It has made financial investments in channels like TV Today and NDTV, and has had talks with BBC, but nothing has fructified."
Nor have its initial forays in the entertainment space been trailblazers. Adlabs, which had begun producing films too, is now shifting its model from being a co-financier of movies to creating its own production house for making films in-house. Sawhney hopes that in the next two-three years it would be able to produce 15-20 films.
But its record of generating major hits has been abysmally low in comparison to Yash Raj Films, for instance. Asks Chawla, "Is it the biggest producer of commercial films? It is said to have signed up big stars but there is nothing visible... Nor is it yet the number one multiplex company in India.
There's scepticism about the new businesses too. Points out Jawahar Goel, director in Dish TV, the largest DTH operator, "In a country were you can get pirated copies at Rs 40, who will go for rentals? I think IPTV will not have more than a single-figure market share.
Ambani first talked about IPTV but it has a long way to go to be proven, that is why they are going in for DTH. The market is huge - got that!" Goel says that there is very little scope for differentiation and theirs is a well-established brand. And IPTV, with its high cost of set top boxes (Rs 7,500), is a major dampener.
Others see Reliance as less of a challenge. Says Moser-Baer's CEO Harish Dayani, who is marketing DVDs at rock-bottom prices and will compete with ADAG in the DVD rental space, "Money alone does not buy titles. Acquiring titles is a time-consuming activity. Also, their pricing strategy will determine the industry's future dynamics."
That does not mean the rivals aren't on their guard. Says a senior executive of multiplex company Inox, "Even we are digitising screens in tier II cities. Anil Ambani's entry with new technology will certainly put other players on guard and we might revise our strategies."
Reliance executives are aware of these challenges and are using technology to create differentiation from existing DTH players, for instance, through MPEG 4 to deliver high definition picture quality and sound.
They point out that with 50 new channels soon to be launched, they should be able to cash in on the surge in demand for good content. As for DVD rentals, Reliance executives say that with DVD releases in the market 3-6 weeks after the launch of a film, "the video rental business is much more viable and exciting".
With entertainment and media companies scanning his every move, one thing is for sure - whether Anil Ambani's journey into tinsel town turns into a blockbuster or comes a dud at the box office, there will be a cast of millions following his fortunes.
The challengers
Anil Ambani's Reliance Entertainment has strong contenders against which it will have to pitch itself...
...in the DTH and IPTV space
Dish TV: Zee group's DTH was the first off the block and has 2.1 million subscribers, with an ambitious target of 3.5 million homes by the end of this year. And it has the clout of a large broadcasting and cable operation to take on anyone.
Tata-Sky: Its superior technology edge has already helped it grab 0.5 million customers. It has the backing of Star's amazing repertoire of content and the Tatas's deep pockets.
Sun TV: The undisputed lords of the southern market, to dislodge them is a tough challenge.
Bharti-Airtel: Like Reliance, it will launch both IPTV and DTH by the end of this year. It has more mobile subscribers and an equally large fibre-optic backbone, plus a brand name to reckon with.
MTNL: Buoyed by the success of its trial runs, it has commercially launched IPTV and has 4 million fixed line customers in Delhi and Mumbai whom it can tap.
Film & Production Houses
Yash Raj Films: His Midas touch with movies and access to financial institutions has led Yash Chopra to browbeat multiplex owners to pay him a larger revenue share. His clout is difficult to match, and the company has already diversified into music, DVDs and content for TV.
Dharma Productions: He might not make many movies but Karan Johar is a name to reckon with in the movie business, and now he is moving towards TV content in collaboration with NDTV.
UTV Software Communications: The public limited company with a strategic stake from Walt Disney straddles four verticals including motion pictures, broadcasting, TV content and new media (animation and gaming). Its strategy for content is no different from that of Reliance.
Balaji Telefilms: Ekta Kapoor's soaps dominate the TRPs with many serials in the top ten. Balaji has now tied up with Star TV to launch regional TV channels.
Additional reporting by Aminah Sheikh
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