'Everyone keeps saying we're a $1 billion industry, but everyone's missing the point'

Ronnie S. Screwvala

UTV Software Communications has fingers in many pies, including television and movie production and distribution. Managing Director and CEO Rohington ("Ronnie") S. Screwvala believes that multiple revenue streams are his Rs 180.5 crore company's strength.

Screwvala, a first generation entrepreneur "� he didn't come from a business family (his father was managing director of JL Morrison) "� launched India's first cable TV venture in 1981.

When he exited the business five years later by selling it to a syndicate of people, the venture had about half a million households in Mumbai and had cabled up all the Taj, Oberoi and ITC hotels all over India.

And then he and two partners, Zarina Mehta and Deven Khote, launched UTV. In an interview to Palakunnathu G Mathai last week, Screwvala talked about UTV's plans, the movie industry and expressed his scepticism about the National Association of Software and Service Companies' (Nasscom) animation industry growth projections. Excerpts:

UTV has three main revenue streams as well as 'allied content' "� corporate ad film production and post production studios. What is the income break up among these areas?

The third is broadcasting, not allied content. For us television is all of television content plus animation plus the large volume of airtime sales business, which is why we buy blocks of time on Sun TV and Doordarshan.

Our three core activities are television, movies and broadcasting. For the last year, the break up was: television 55-60 per cent and movies 40 per cent. Broadcasting is zero because we're just starting out.

UTV's red herring prospectus says that it won't be investing much more in animation.

We're not going to make any more capital investments right now in animation. That's because we have already made large capital investments in our post production facilities and we've been in animation for the last five years.

Are we investing time, energy and a lot of resources in marketing? A huge amount. Is animation a focus area for us? Big time.

You are not very optimistic about the animation industry.

That's in the context of the Nasscom projections that animation will be a $0.5 billion industry by 2006-2007. No way.

The growth potential that people envisage is not like that of the IT software industry because of countries like Korea, China and Philippines which are highly competitive.

We have a rich talent base here. But so do they. So even if I can do things at half the price of Korea and China, which is not that competitive, I need to do things at one-fifth the price. They do it at five times the speed.

Secondly, the big item in animation is original content which is not something that can be easily done here. Thirdly, the big ticket items are movies for which I don't think the quality is ready in this country.

Those are the negatives. On the positive side, I think it is an interesting outsourcing business. Is it scaleable to become a $ 0.5 billion industry? I don't believe so.

We can leverage our content and our creative skills to make content cheaper than the way Hollywood makes it. But that is a different ballgame because you need the guts, the script that appeals to an international audience, a lot of marketing savvy and a distribution deal from a western company.

You can't go out there, produce an animation film, go to a Cannes Film festival and expect to sell it. It won't happen, it will remain in your cupboard.

And there are enough cases of companies that have done a fair amount of animation work and have treated inventory as sales and have taken serious write offs.

What percentage of your revenues come from your international business?

Malaysia would account for not more than one per cent, but it's a very interesting market. The US, UK and other countries are high growth areas.

Last year, they accounted for two or three per cent but we believe that in the next three years 40 per cent of our revenue will come from overseas. It's now 10 per cent. The domestic business will also grow.

Balaji has a market capitalisation of Rs 731 crore (based on a share price last week of Rs 112.15), UTV is valued at Rs 267 crore and Mukta Arts is valued at Rs 102 crore. Is this is a fair rating?

Firstly, we're just off the starting gate. Investors need four quarters with any company to understand the calibre of management and corporate governance, the stability of results, the scaleability of the business model, the company's ability to project and meet its projections and whether it overdelivers, underdelivers "� all of that.

Nobody knows us. So for the next 365 days we won't look at the ticker. Secondly, we believe that the model that we stand for, the multiple revenue model, is the model of the future.

Are you considering mergers and acquisitions (M&As)?

Yes. Even in TV content where people feel it's a much more people driven business, in the next two to three years people will start coming together and working together.

In animation there are a lot of opportunities, both here and overseas, in movies and distribution there are a lot of opportunities for people to come together on specific long term tie-ups or output deals or whatever.

Would you acquire other channels?

We're very focused on the 4-14 years of age (children's) general entertainment band. We do not see ourselves as a single channel entity, but I don't know if we will grow organically or inorganically.

Doesn't UTV's Hungama TV channel cover this effectively?

No. The age groups, 4-9, 10-12, 12-16, are different populations and each of them can support its own channel. Any country, worldwide, doesn't have fewer than 20 kids channels.

And that's because they have segmentation. The biggest segmentation outside of these is girls and boys. You won't find boys watching Barbie and girls watching Ninja Turtles.

A household that has a girl and a boy "� and pay television is the biggest source of revenue outside India "� will probably subscribe to both those channels.

It's a virgin segment that's been completely ignored. It's where we understand the content pretty well. Secondly, we're catching them pretty young.

In a five year framework, we can catch them as they go forward. Thirdly, the revenue opportunities in broadcasting are not plain vanilla advertising and pay only "� there's also your ability to merchandise the brands you create.

Take "Shakalaka-boom-boom," a show we did. That was the first time that Star could actually merchandise products "� like that single magic pencil.

Disney, for all its brand power today, is still looking at a Rs 20 crore-Rs 30 crore market. But it's a start.

What is the integrated film studio model which you've been talking about?

It is really the entire process of starting with the creativity but having large output deals with directors. We have a separate script writing team that incubates that. Marketing is as important as getting the script right.

Marketing is number two and number three is the cast. Nine out of 10 movies have failed in this country because people didn't get the marketing right. A lot of them didn't get the content right.

Is that changing now?

It will change only when you have an integrated model. If I'm the director or producer and go to the distributor, I'm petrified that the guy will not buy the movie.

So I only want to show it to him two weeks before its release lest he should change his mind. In two weeks you can't make a marketing and a distribution plan. So the scriptwriter/director/producer continues his single minded vision without any outside viewpoint or market research help.

Aren't a lot of people getting into the integrated model?

There's Yashraj, there's ourselves. There aren't any others. Rakesh Roshan is doing a sequel to the film "Koi Mil Gaya." He's given the film to seven distributors but have they seen the film? No.

He's clear that he'll be able to deliver the goods but it will be his vision right through. His Rs 20 crore movie will make Rs 30 crore at the box office and he'll make a Rs 10 crore profit and everyone else will make a profit.

The point is, could that film have made Rs 60 crore if we had done it differently? Everyone keeps saying we're a $1 billion industry, but everyone's missing the point. Since 1995 we've been a $1 billion movie industry and we're still at that and that should be a shame.

How has corporatisation impacted the film world?

For most people corporatisation means, is the bank giving me a loan? My biggest problem with corporatisation today is that it is still a debt- driven industry.

This industry will not grow unless it has equity. With equity comes a whole new ability to take risks, a whole new set of demands from equity investors.

That's when the industry will change. Because equity psychologically is much more risk taking than debt. Debt is last in, first out, you're dead.