 "Prannoy Roy")
Can a demerger break NDTV’s profit jinx? Ever since it began news broadcast operations in 2003, NDTV has made a net profit in only four years. It ended the 2015-16 fiscal year with Rs 75 crore in losses on revenues of Rs 577 crore. Analysts stopped covering the stock long back.
“If NDTV continues this way, its net worth could be wiped out in a couple of years,” says one. For a company whose founders — Prannoy and Radhika Roy — are known as the progenitors of private news in India ever since they made The World This Week for Doordarshan in 1988, that must be galling.
A reticent Prannoy declined to talk. While group CEO and Executive Director Vikram Chandra met us, he chose to comment largely on digital. Business Standard pieced this story with the help of analysts, partner firms, competitors and senior managers from within NDTV.
The story, funnily enough, is one of hope. NDTV is, along with the Times Group, one of the biggest online news brands in India. NDTV Convergence, the group’s digital arm launched in 2006, clocked an audience of 70 million unique users and a revenue of over Rs 116 crore in 2015-16. It has been profitable for over five years now. So, about one-fifth of NDTV’s group revenues come from businesses that have nothing to do with the mature (and troubled) news broadcasting.
“Investors may not be getting full value because of the present structure at NDTV. NDTV’s market valuation is Rs 560 crore (on October 3), while two levels below it sits a firm with 70 million unique users across its apps, websites and other digital properties. Money has been raised for Gadgets360° at $50 million, CarandBike at $30 million, Bandbaajaa at $20 million, and Smartcooky at $12 million,” says Chandra. At current revenue levels, NDTV Convergence’s valuation is estimated at Rs 700 to 800 crore, way over the group’s.
Trouble spots
It is, however, not as simple as that, say analysts. There are two sets of questions, the first around the digital strategy itself. “The digital content pieces do well, but the e-commerce piece could drag profitability down. It is very difficult for a niche player to compete with Flipkart and Amazon,” says Amit Kumar, analyst (media, retail and consumer), Investec Capital Services.
NDTV, however, says it is not looking to rival these players. “On Gadgets360°, we get a million unique visitors a day, we send 150,000 of them to Amazon. Anyone looking for gadgets in India comes to us and makes a decision. How valuable is that? If you are an advertiser, sponsor, affiliate (for example, Flipkart), where would you be? We are not going head to head with Flipkart (or other e-commerce sites),” says Chandra.
Wouldn’t a demerger mean not getting content from the mother brand and therefore higher costs? “Only 10 per cent of NDTV Convergence’s content comes from NDTV. Ninety per cent is self-generated. Broadcast also takes content from Convergence. Neither is dependent on each other,” he says.
Then, there is the competition from a line-up of well-funded news apps and websites: Dailyhunt, Inshorts and so on. Chandra dismisses the threat, saying “the issue with these is discoverability, how will someone come to you?”
He has a point. More than three-fourths of the traffic to news media sites comes from Google and Facebook, which also control the largest share of ad revenues globally. NDTV or Times, however, are destination sites. This improves NDTV’s ability to monetise its brands.
It is an ability it has displayed rather well with its English news channel. For an audience size that is roughly one-third that of Times Now, NDTV 24X7 gets ad rates that are 30-50 per cent higher per rating point, say media planners. Rival broadcasters are unequivocal in their praise for the channel as it refuses to tabloidise, gets a premium for it and is profitable. NDTV India (Hindi) and NDTV Profit (business) do not get that premium and continue to make losses.
Getting out of a funk
That brings us to the second set of questions —about profitability. NDTV’s employee (read content) costs are among the highest in the business and its distribution costs are not neutralised by pay revenues. “NDTV needs to align its costs to its revenues. It doesn’t take a harsh line on ROI (return on investment). So it will continue to see the news business under pressure,” says Rohit Dokania, senior vice- president (research), IDFC.
In many ways, the trouble NDTV faces in news broadcasting are generic to the industry. Only two firms — TV Today and MCCS (ABP News) — make money. Every other firm runs at a loss. “The (TV) rating structure (and the small sample size for news) does not capture value. It is unfortunate for NDTV that pay revenues have not developed the way it was anticipated,” says Dokania.
Over 400 news channels, many from dodgy investors, a tiny Rs 3,000 to 4,000 crore ad market and a complete dependence on ad for revenues mean a race for eyeballs and, therefore, tabloidisation.
“The advertisers, agencies, marketing heads do not watch Hindi news. So all their decisions on ad rates and expenditure are based only on the number of eyeballs, not the quality of the channel. Unlike the UK where a serious newspaper gets a higher rate than a tabloid, no such stratification exists in India,” says Prannoy in his essay in More News is Good News. He adds, “Virtually every single Hindi news channel in India today is grotesquely tabloid. It is widely accepted that the only one that is not tabloid is NDTV India and it is making a loss.” The estimate is that it will start making money from 2017.
The slew of notices from the Securities and Exchange Board of India, Enforcement Directorate and the Income Tax Department has not helped the company either. Going by its annual reports, most of these have been answered and dealt with. Some are pending because cases have been adjourned for too long. “We will win them all,” says one senior manager.
Then, there is the personal loan of Rs 400 crore that Prannoy took in 2009 from Mukesh Ambani. It was to repay debts taken because of an open buyback that got triggered while, reportedly, trying to block a bid to pick up a large chunk of NDTV shares, say insiders. If the Roys do not pay back the loan in 10 years, Ambani has the option to take 29 per cent in NDTV. So far, though, there has been no sign of interference or even a phone call from him, say insiders.
Even if all the cases are cleared, they have created a negative impact. Could that influence investors in the digital business? The answer to that question will decide whether digital can help broadcasting break the profit jinx.
