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Murdoch and Turner Battle for Indian TV

September 23, 2008

Despite years of effort, Rupert Murdoch has made little headway in China. Beijing tightly controls its media industry and has restricted severely the ability of News Corp. (NWS) to operate in the country. No wonder Murdoch is such a big fan of Asia’s other giant media market, India. Since 1993, News Corp. has invested $2 billion in India. The company has 13 India-specific channels up and running, offering news, music, movies, and other programming. The media giant’s Hindi-language flagship, Star Plus, has been India’s leading entertainment channel for years. And Star India accounts for 70% of Star Asia’s revenues and 60% of profits.

Now Murdoch is making his India business even bigger. Last month he made a hectic five-day visit to the country. In between meeting old friends, he took time to lobby New Delhi to increase investment limits in the media sector; presently foreign companies can own only own a 26% stake in newspapers, magazines, or TV news channels. Murdoch also announced another $100 million in investments to enlarge News Corp.’s footprint in the Indian TV business. The company will launch five new regional-language channels, including programming in Marathi and Gujarati. On Sept. 18, News Corp. set up a distribution company — Fox Star Studios — in India to release Hollywood films and produce Bollywood and Indian language films.

Other Western broadcasters are doubling down on their Indian investments, too. As their home markets slow, global broadcasters like Turner, NBC Universal, and Viacom are vying for a larger chunk of India’s $1.8 billion TV business. In response, more established players like Sony (SNE) and News Corp. that have operated Hindi channels are launching channels in regional Indian languages, such as Marathi, Gujarati, Tamil, Telugu, and Bengali, where there are fewer competitors.

Brisk Ad Growth There’s good reason for all the activity. The TV ad revenue business is growing 22% annually, according to a recent PricewaterhouseCoopers entertainment report. On the broadcasters’ program platter: general entertainment channels and local extensions, which will serve a concoction of the current hot genres such as family soaps, reality shows, and Bollywood fare. “India is a market of scale which is accessible with a vibrant entertainment culture. It aligns well with our business,” says Stephen J. Marcopoto, Asia Pacific president of Turner International.

Indeed, the big appeal for global broadcasters is India’s demographics. Almost half of India’s population of 1.1 billion is under 25 years of age. Although disposable income of Indian middle-class families continues to increase, the number of TV-owning households is just 110 million. That’s only a 50% penetration rate, compared to more than 90% in China, 98% in Indonesia, and more than 68% in Pakistan. So there’s plenty of room to grow. “India’s audience size, growth rate, and growing consumerism are all a heady blend for any media company,” claims Haresh Chawla, chief executive officer of Viacom18, a joint venture with Indian media conglomerate Network18 Media, a New Delhi-based media company which operates business channel CNBC in English and Hindi and English news channel CNN-IBN with Turner Broadcasting.

In keeping with the new relationship, Viacom has aggregated all its India channels under the Viacom18 umbrella. Viacom, which operates MTV, Nickelodeon, VH1, and Studio18 in India, launched Colors, a general entertainment Hindi channel in July with plans to launch regional language stations soon. Its music channel MTV will have niche extensions, too. Even old hand Sony Television, which has been residing in India since the mid-90s and has Hindi and English channels for general entertainment and movies, is following News Corp.’s strategy of tapping the regional language market. It plans to double its six-channel tally over the next three years.

Getting Around the Restrictions Companies are finding creative ways around Indian restrictions on foreign ownership. In January, NBC bet $150 million for a 26% stake in NDTV’s British subsidiary, since NDTV in India already had private equity and other foreign institutional investors. Since then, NDTV has rolled out two new entertainment channels.

Turner, too, is spreading out to enhance its already strong presence in children’s programs and news. One of the first broadcasters to enter India, Turner’s Cartoon Network has been a kiddie staple since 1994. In 2003 it launched Pogo for preschool children, a first for Turner globally. Its other offerings include HBO, CNN, an Indian news channel CNN-IBN with Network18, and a distribution tie up with local broadcaster Zee Entertainment.

In the last eight months Turner has struck a deal with Indian production house Miditech to set up an entertainment channel by yearend and a host of entertainment channels in regional languages. It’s also joining sister concern Warner Bros. to set up a movie station, and will also make animated films in India — the first time outside the U.S., says Turner’s Marcopoto. Turner’s love of India is not hard to decipher. India provides 30% of Turner’s Asia Pacific revenues and will overtake Japan this year as the largest revenue grosser in the region, according to Marcopoto.

Shakeout Ahead The local language play also is a way to reach out to a fragmented audience. According to Spatial Access, a Mumbai-based media audit and consulting firm, there are 35 general entertainment channels in India, up from just three in 1993. Moreover, the genre has the highest viewership — over 35% — in the country; general entertainment broadcasters have an easier time raising money, making them favorites of both advertisers and financiers. But the genre is dominated by Hindi entertainment, which has 60% penetration, leaving enough room for other regional language channels. “There are just two to three strong players in every regional market, making it attractive for new entrants to develop brands,” says Peter Mukerjea, the former CEO of Star India, who was a casualty of the organization’s restructuring in 2007. He now heads his own TV business — INX Media with three live channels.

But with opportunities growing and money coming in, the challenges are plentiful. “Today, anybody and his dog can start a channel, but there’s not enough ad revenue to sustain it,” says Meenakshi Madhvani, managing partner of Spatial Access. Ad spending is growing but all the new channels will be vying for that pie, putting pressure on the sustainability of channels. Besides, a subscription for basic-access cable TV is still a measly $5 per household. So with too many players vying for the same piece of the market, broadcasters say there definitely will be a shakeout. “But it will be a long drawn battle,” warns Kunal Dasgupta, CEO of Sony Entertainment.

Channel players are ready to slug it out, as new revenue streams surface beyond advertising and cable TV. Now, the markets for direct-to-home, Internet protocol TV, and 3G are gradually opening up new avenues. That’s quite a bit for the foreign broadcasters to tune into.