The last couple of years have seen UTV Software Communications (UTV) emerge as one of the most successful production house in the country. Disney’s entry has provided UTV with the wherewithal to invest in the gaming and broadcasting space for the next leg of growth. Even as the media and entertainment companies face increasing competition coupled with a slowdown in advertising revenue, Ronnie Screwvala, CEO, is confident of bucking the trend thanks to the company’s diversified business model. “Advertising revenue contributes less than a fifth of our total revenues,” points out Screwvala. In an interview with Dhiren Shah, Screwvala touches upon a number of issues relating to the new ownership structure, impact of slowdown and initiatives in the gaming vertical. Excerpts:
What was the rationale for Disney to virtually buyout UTV?
Unlike common perception, Disney hasn’t bought out UTV. They have only invested 32 per cent which has triggered an open offer of 20 per cent. Disney has acquired these 20 per cent shares on a non-voting basis and I have an option to buy them back from Disney in the next four years. Furthermore I have 4.5 million warrants on which 10 per cent is already paid to the company that are due by November ‘09, which will take my holding to 32 per cent. In the event, and over time when I buy back 20 per cent shares lying with Disney, accumulated from the open offer, that would take the promoter stake to 52 per cent.
How has the company benefited so far from the stake sale to Disney?
It is a strategic investment which is merely six months old. You don’t keep evaluating the benefit, six months from such investment. Disney has a long term view on all the verticals of UTV – and that is the key benefit to the company – to have a one third shareholder who believes in the growth and scalability of the business. This deal opens up possibilities of co-producing movies with Disney, our worldwide movie distribution, international distribution of our channels, access to their franchise chain and other synergies in gaming. Just to give you an example, all of Disney’s movies will be distributed by UTV in India.
In the broadcasting vertical, why were your Delhi operations discontinued?
Two of our channels were operating from the Mumbai office and two from the Delhi office. The only corrective measure we have taken is to operate all the four channels from the Mumbai office. It was the most obvious and eminent thing to do in the current scenario. Secondly, distribution and carriage fee has been high and we have been hard-balled as much as everyone else in the industry. We are through with what we were suppose to do, which will result in a saving of close to Rs 200 crore over the next two years and cap our investments in this business to Rs 100 crore going forward. We expect this vertical to breakeven in the next 18 months.
What differentiates you in the increasing crowded broadcasting space?
Broadcasting was always meant to create value in the long term. We have strategically chosen to stay away from the crowded GEC space and position ourselves as a specialty channel (barring the business channel, UTVi). Specialty channels worldwide are subscription driven, rather than advertising driven. We have invested about Rs 35-40 crore to acquire close to 1,000 titles for World Movies and Bindas Movies put together. And while we have many new specialty channels up our sleeves, this to us is not an opportune time to launch them.
Have you been renegotiating deals with movie stars in order to beat the downturn?
We haven’t done any movie where there is a need to renegotiate. Wednesday was made for Rs 3.5 crore. I challenge anybody to produce a movie like Jodha Akbar at Rs 42 crore. If you look at our movie slate going forward, there are no deals which force us to sit and re-negotiate. It is the new players, that have bought movies at a high price in order to enter the markets who are renegotiating. That is what is causing a perception that everyone’s renegotiating.
How much has the slowdown impacted the movie business?
Absolutely zero. It all depends to the script of the movie. Economies won’t slow down the movie business, content will. People consume two movies a month on an average. On that level, you are not going to see a slowdown.
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How much do games contribute currently and what are the projects you are working on?
This year we will be generating 20 per cent of our revenues from distribution and publishing of games. Next year, we hope to increase it to nearly 40 per cent, as we will release three original titles for PS3, Nintendo and Xbox 360. We’ve been working for the last 18 months on three very high-value intellectual properties, developed at our facilities in London, Japan and Florida.
Won’t the slowdown affect the gaming business?
Gaming is bigger than Hollywood today. The gaming business is largely insulated from downturns as our target audience is hardcore gamers, who eat drink and sleep games. And, for them it is a re-run. It is not like I’m buying a $10 ticket and after three hour, it is over. The $59.99 that the gamers invest in purchasing these games can be utilised over a period of time.
| FULLY LOADED | |
| Upcoming releases | Stars |
| Jan-March '09 quarter | |
| Dev D | Abhay Deol |
| Delhi 6 | Abhishek Bachchan |
| Main aur Mrs. Khanna | Salman Khan |
| Dhoonte Reh Jaaoge | Kunal Khemu |
| Apr-Jun '09 quarter | |
| Kaminey | Shahid Kapoor |
| Kissan | Sohail Khan |
| Yahoo | Shahid Kapoor |
| Ali Baba & the 41 thieves | (Animation) |
How much have you invested in this vertical and what are your projections with regard to the three original titles you are working on?
In the gaming vertical, we have invested Rs 250 crore (total outlay being close to Rs 400 crore), which includes the mergers and acquisitions and, investment into Ignition, India Games and True Games. Furthermore, all the three big console titles that will be released in FY10 and our net realisation from these games would be on an average, $30 per unit. One year down the line, the total penetration in console gaming is pegged at about 20-25 million units. We expect to sell 1.5-2 million units of each of the three titles.
Considering that you expect significant revenues generated from the gaming business in FY10, don’t you think the stakes are too high?
That’s a fair question. We have made a serious and long term investment in this segment, with required preparation. While making games, we are working in close quarters with the console manufacturers like Sony, Nintendo and Microsoft. These companies are very careful about releasing any particular game on their platform. And although we’ve entered this field only two years back, the three gaming companies in which we have a strategic stake have been around for a long time. Monetisation, commercialisation and marketing a product are far more important than just developing it, and we have proved our capabilities in the movie segment.