Thursday, February 19, 2009

The TV bubble is readying to burst

Is television media on the verge of a dotcom-type bust?

You bet, say the bigger media groups.

Optimists were hard to come by at Frames, the annual media industry conclave organised by the Federation of Indian Chambers of Commerce and Industry.

Most, on the other hand, seemed to anticipate that a large number of the nearly 350 TV channels in India, most of which were launched in the last three years, will vanish from the screen in the next twelve months.

"In 2007-08, exorbitant amounts of money was spent on setting up new channels," said Monica Tata, who heads the entertainment division of the Turner International India, part of the world's largest media conglomerate, Time Warner.

Tata, who recently oversaw the launch of a general entertainment and a movie channel in India, expects the market to consolidate as media companies either sell out or fold their channels. "Many of them are struggling.. They were invested on the basis of lofty and unrealistic expectations, with an eye on cashing out through IPOs.. It is very similar to the dotcom bubble," she says.

Tata's opinions reverberated widely at the annual extravaganza, which sees the top guns of the media and entertainment industry put their heads together.

"Money will dry up for new channels that are launched," predicted Aroon Purie, chairman of the India Today group, which set off a craze in 2001 by launching the first Hindi news channel, Aaj Tak.

Purie believes the blind copying of successful formats without looking at the sustainability factor is leading to the ruin of the industry.

"If anyone becomes a success, everyone follows suit.. Everyone 'hopes' to make money. We are seeing the results now," he said.

India, the second largest cable and satellite market in the world by numbers, has seen the launch of a large number of entertainment and news channels that aim to operationally break even over 3 to 5 years. The appetite was fed by increasing ad spends by companies riding a wave of liquidity originating in the US and Japan.

Purie pointed also pointed out that the entry of a large number of new players had affected the sustainability of the entire sector.

"In the last one year, my distribution costs have gone up by 50%," he said, alluding to the 'carriage fee' charged by cable operators from broadcasters for carrying their channels.

"New channels come into the space offering more and more money to the cable operators to carry their channels.. It takes Rs 25 to 30 crore to get a national distribution today," he complained.

He also pointed out that the broadcasters have been made more vulnerable due to an unusually large dependence on ad revenues, which. "The consumers pay Rs 15,000 crore as subscription fees every year. The cable operators pay Rs 2,500 crore to the broadcasters, but out of that, the broadcasters again pay Rs 1,500 crore back to them as carriage fee. So, the final share for the broadcaster is 6% of the subscription fees, against 35 to 40% in developed countries," he pointed out.

Even representatives of advertisers, media buying agencies, agreed with the grim outlook.

Sam Balsara, chairman and managing director of Madison World, said overinvestment into the media sector has made it difficult for them to sell advertisements to companies who advertisers.

"The multiplicity of channels is destroying the value chain," he said.

The fragmentation of viewership has made returns on advertisements more difficult to track, leading to more cynicism among clients. "If they had more substantial viewerships, it would have been easier for us to get the advertisers to spend more, since the returns would have been more," he explained.

Experts concur. Jehil Thakkar, executive director for media and entertainment with the audit firm KPMG sees an impending shake out. "350 channels are possible only in a digital future, not in the current circumstances where the number of channels are limited," he said.

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