Switching on to equity

Quick, why are broadcasting companies acquiring equity in production houses? Last month, Star India acquired a 26 per cent strategic stake in Balaji Telefilms for Rs 150 crore.

Early this year, Sahara India Mass Communication took a substantial stake in K Sera Sera Productions. And in March 2002, Zee Telefilms acquired a controlling 64 per cent stake in the Hyderabad-based Padmalaya Telefilms. Star itself has had equity in UTV for years, which it sold only recently.

So are television broadcasters, like manufacturing companies, integrating backwards to ensure their raw material supplies (television programmes in this case)?

"It can never be like that in the content business. That tends to limit your options "� there will always be new ideas outside," exclaims Star India Pvt Ltd chief operating officer Sameer Nair. "We'd been living together, so we thought why not get married," he adds.

Star is Balaji's biggest client. Star India sources programmes worth an estimated Rs 140 crore from Balaji every year, according to some industry estimates. So it made perfect sense for Star to buy a stake for Rs 150 crore, a media analyst argues.

But Star India CEO Peter Mukerjea says: "It gives us the leverage of being able to know what kind of niche programmes they are planning and make our decisions based on those."  According to industry sources, Star's agreement with Balaji includes a clause to the effect that Star will have the first right of refusal on a programme, which is a major advantage to Star. But Balaji is not precluded from hawking programmes to other broadcasters.  Star's Nair underlines the point that production houses are not monogamous. For example, Star had invested in UTV nearly a decade ago. "But that never stopped UTV from doing productions for others." He also cites the case of Fox TV, a Murdoch company, which has Fox Productions and this does programmes for other television broadcasters.  Still, will other broadcasters like SET now stop buying programmes from Balaji? SET officials are noncommittal on this but a media consultant says: "No channel likes to share its programme strategy with rivals."  At a very basic level, Star is assured of programming for its channels, especially for Star Plus. For the last one year, Star has been buying movies from Balaji. "We get our best shows from Balaji and wanted to ensure that we keep doing so," says Nair.  However, Star could, by virtue of being Balaji's biggest client, have had several advantages even before it acquired a stake in it. A highly placed media industry source claims that Star was protecting its flanks "� it wanted to ensure that no one else bought equity in the company. "If Star's competitors had managed to acquire a stake in Balaji, India's number one entertainment network would have been badly hit," argues the source. Says a Mumbai based media analyst: "The integration is more of a defence mechanism to increase the cost of entry for players like Times TV."  The advantages of getting control of a key supplier cannot be questioned. The company gets to share the supplier's profits and can drive a better deal for itself too. In the case of the Murdoch-owned Star, however, Balaji could also be used to acquire more companies. "This way Star beats the regulatory constraints," says a media expert.  That may not be true and it certainly doesn't apply to the other broadcasters. So was backward integration the buzzword here?  Several broadcast industry men pooh-pooh the idea. Says Ashish Kaul, vice president (corporate brand development), at Zee Telefilms: "If programmes are not popular, the fortunes of that production house will go down, thus defeating the purpose of a commercially viable backward integration." Senior executives at Sony Entertainment Television (SET) India echo the sentiment "� the fortunes of TV software companies are governed by viewership. "Ensuring the success of programmes is beyond their reach," says a top SET executive.  So broadcasters are clearly acquiring equity in production houses for a variety of reasons, ensuring that good quality software programmes continue to come to them being one of them. Nair sums up the position by saying: "People do it for different reasons." l  (Additional reporting by Palakunnathu G Mathai in Mumbai, Shuchi Bansal & Surajeet Das Gupta in New Delhi)