Shuchi Bansal: The battle for the Hindi heartland

Star Plus' poor performance may have triggered off a management churn there, but most Hindi general entertainment channels are feeling the pinch.

Peter Mukherjea and Sameer Nair, the top executives of Star India, are leaving India's biggest television broadcaster as part of the churn triggered off by the company's poor performance in India. The relative share of Star's flagship channel, Star Plus, in the Hindi speaking cable and satellite homes (age four-plus) has fallen from 49 per cent in 2005 to 44 per cent in 2006. And Star One is a long way off from making profits. While the drama at Star has hogged all the limelight, what's gone unnoticed is the fact that Rupert Murdoch's company is not alone in feeling the pinch. Hindi general entertainment channels are increasingly finding themselves under pressure. "Profitability of mass entertainment channels is eroding," says a senior Sony Entertainment Television executive. Agrees Shailendra Singh, managing director, Percept Picture Company: "Margins are surely under pressure due to increased competition." Till last year, Singh was managing Sahara One, the Hindi entertainment channel of Sahara.

By and large, the mess at Star TV reflects the state of affairs of Hindi general entertainment channels. Importantly, it underscores the need for alteration in the business model that the broadcasters of this genre have been following. For starters, the programming costs that are shooting up, must be capped. Serials are going over-the-top with lavish sets and costumes, while game and reality shows are celebrity driven. A half an hour episode of a prime time serial now costs Rs 10-12 lakh against Rs 7-8 lakh three years ago. The cost of game and talent shows could touch Rs 60-80 lakh an episode.

Artists, directors, technicians and vendors of equipment have hiked their rates. Paritosh Joshi, Star India's president for advertising and sales, says the increased cost is a result of competition and the gap between demand and supply of content. "Order books of all major content suppliers are full. As a result, every body down the content chain is charging more." Adds the CEO of a Hindi entertainment channel: "In the last three years, programming cost has gone up by about 50 per cent. How can advertising growth keep pace?" To be sure, advertising spends on Hindi entertainment channels grew at 15 per cent last year, lower than the industry average of 22 per cent.

Star has now realised that to control cost, it must reduce its dependence on its largest content supplier Balaji Telefilms. So it has brought News Corp's TV production company, Fox Productions to India to make Hindi serials. International TV software biggie Endemol NV, too, is here and competing with the local content companies for business. As the number of suppliers increases, channels can access content at competitive rates. Endemol's managing director Rajesh Kamat believes that many more foreign companies are eyeing the Indian market. "They will raise the benchmark for Indian production houses. Companies here shoot 16 episodes of a fiction serial in 22 days. The international standard is 2 episodes a day. Better production schedules will save costs."

Once efficiencies in programming costs are built in, channels need to improve their yields from advertising as well. Fundamentally, all TV channels in India, pay or free-to-air, rely on advertising revenue for survival. What's made things difficult is that the ad rates on Hindi entertainment channels have been stable for the last three years, thanks to audience fragmentation. "Advertising is spread over so many more channels today that it's much harder to earn money," says the head of a Hindi channel. Agrees media agency Starcom India's chief Ravi Kiran: "There has been no real rate increase. Some channels may have sold some programmes aggressively. That's all. Media planners complain of inflation as you now get less for the money you spend."

Audience fragmentation also means that the era of double digit TRPs, for which channels demanded a premium, is over. Needless to say, channels are keen to get away from the TRP-driven business model. "We are not getting the benefit of the increase in the number of cable and satellite households. We're asking advertisers to pay us for reach "" the cost per thousand formula that the print media use," says Star's Joshi. Adds Sony Entertainment Television's executive vice president Rohit Gupta: "The gap between all TV home and cable homes is narrowing. Television is adding eyeballs. We are not getting paid for that."

Other than improving their yields from advertising, channels need to shore up their subscription revenues as well. The advertising to subscription revenue ratio for TV channels in India is 70:30 as the cable industry still under-reports subscriber numbers. In mature markets, the advertising to subscription ratio varies between 50:50 and 30:70. "With DTH and Conditional Access System through cable coming in, things may be looking up for broadcasters," says a media industry analyst. Today, all pay TV broadcasters put together earn a paltry Rs 1,000 crore from the Rs 10,000 crore cable industry. "To survive, we must move to a subscription revenue-dominated business model," says a channel head.

Experts suggest other means to augment channel revenues: non-fiction programming, exploiting overseas air time sales and subscription revenue and development of event properties. Says Meenakshi Madhvani, managing director of the media audit company, Spatial Access: "General entertainment channels will have to break away from their staple diet of regular soaps and exploit new programme formats. In addition, they must focus on AFP (advertiser-funded programming) to generate revenues at significant premiums." In the AFP model, the programming cost is borne by the advertiser rather than the channel.

Another way to make money is to exploit new technology platforms. Channels are already offering mobile content in the form of ring tones and "mobisodes" to telecom operators. Zee, meanwhile, adopted a different route to generate revenues. It leveraged its regional language channels well. "The Hindi entertainment channels are facing a profit squeeze but Zee Network has done well. It has a bouquet of regional channels which are doing very well in their respective markets, and when added to Zee TV and Zee Cinema in a media plan, they deliver more than competition," says Joy Chakraborthy, executive vice president, network sales at Zee.

However, with fresh competition coming into this genre this year, the Rs 1,600 crore Hindi entertainment channels' advertising pie will get further sliced. Two formidable players "" NDTV Ltd in a JV with filmmaker Karan Johar and Peter Mukherjea backed by an industrial house "" will enter this market soon. HT Media, meanwhile, is conducting feasibility studies for its channel. "Others will come in and make life even tougher," says a Mumbai based channel head.

A media expert says that if the profit margins for the leading Hindi entertainment channels varied between 20-35 per cent two years ago, they are likely to settle between 10-16 per cent soon, in line with entertainment channels in most developed markets. "Profit squeeze is a sign of a maturing market. The age of supernormal profits is over," concludes Star's Joshi.