MUMBAI: The Indian media and entertainment sector is ripe for mergers and acquisitions as bigger players look to consolidate in the backdrop of an overhang of debt and losses.
Around $1 billion is expected to pour into the sector over the next two years as the appetite for foreign investors grows with India being identified as one of the leading key growth markets.
Turner International, for instance, has pumped up its investments in India, already its largest revenue market in the Asia Pacific region, with the buy of Hindi general entertainment channel NDTV Imagine in late 2009 for a total consideration of $126.5 million.
Says Turner Broadcasting System International president Louise Sams, "India is where we made our largest investment overseas in 2009."
Outside the broadcasting space, foreign investors are eyeing a piece in the cable TV business as the sector is in the process of digitising across the country. The direct-to-home (DTH) operators, weighed down by heavy losses as they subsidise to ramp up subscribers amid low ARPUs (average revenue per user), are also in search of investors to fund their expansion plans.
Says KPMG India head of media and entertainment Rajesh Jain, "The Indian M&E sector is expected to receive $600-$1 billion by way of mergers and acquisitions over the next two years."
In 2009, the M&E industry saw 36 deals amounting to $471 million, 31 per cent lower over the earlier year, amid the backdrop of a challenging business environment. The industry witnessed 52 deals amounting to $879 million in 2008.
In 2009, the sector witnessed 10 private equity deals as compared to 18 in 2008 with deal values amounting to $210 million. The segment also witnessed 26 mergers and acquisition deals valued at $261 million as compared to 34 deals in 2008, according to a KPMG study.
TV broadcasting
Amid an advertising slowdown and tight market situation, broadcasters rationalised their existing portfolios by focusing on core competencies and exited from stressed segments.
In 2007-2008 Viacom entered into a joint venture with Network18 to launch Colors, 9X raised capital from a consortium of private equity investors, NBC acquired an equity interest in NDTV Networks and Time Warner backed Miditech to mark their foray into the Hindi general entertainment channel space, expanding the market from three players to six within a short period of time.
Cut to 2009. NBC exited NDTV Networks by selling their stake back to NDTV, reportedly at a discount to entry price. NDTV in turn exited the GEC space by selling to Turner International.
In the near term, the Hindi GEC segment is expected to remain competitive with the leadership position at stake. With over seven players competing for market share, channels are expected to invest substantially in placement fees and content to gain viewership share.
The Zee Group increased its equity interest in Ten Sports from 50 per cent to 95 per cent. "As a result, consolidation between existing broadcasters is expected to continue and only broadcasters with sound financial strength, strong channel bouquets and innovative content are expected to survive," the KPMG study says.
Distribution Biz
DEN Networks, the cable television distributor, tapped the capital market to raise Rs 3.7 billion. Hathway Cable and Datacom followed with a public issue soon after to raise over Rs 6.6 billion from the capital market.
In a significant development in the DTH industry, Apollo Management, a US - based private equity fund, acquired 11 per cent equity stake in Dish TV for $100 million.
Going forward, KPMG predicts that the sector is likely to witness disruptive change. "Deal activity in 2010 is likely to be driven by acquisition of LCOs by MSOs in order to gain last mile connectivity, consolidation amongst the MSOs and capital raises by MSOs and DTH operators to fund infrastructure augmentation /roll out and customer acquisitions," KPMG says.
The print industry witnessed a low level of deal activity in 2009. The only major deal was the IPO of DB Corp. The IPO paved way for the partial exit of Cliffrose Investment, the Mauritius-registered affiliate of Warburg Pincus which in May 2006 had originally invested in Writers and Publishers Ltd (WPL), which gave Cliffrose a 7.14 per cent stake.
The magazine sub-segment too witnessed some deal activity with Raghav Bahl promoted Network18 Group entering into a joint venture with Forbes, to launch business magazines in India. In another deal, Heinrich Bauer Verlag KG, a German publishing company, exited their investment in Next Gen Publishing, a niche publications company in India. Heinrich Bauer Verlag KG had inherited this investment from Emap plc which had invested in Next Gen in 2007.
KPMG notes that in the near term, regional print companies are expected to raise capital either through public capital markets or private equity to expand their presence across news distribution media and also launch niche city centric supplements in an effort to ward off the threat from larger print companies.
In addition, with over 398 daily newspapers published in India, consolidation is imminent in the print industry with larger players seeking margin growth and geographic expansion by acquiring smaller regional players. International newspaper majors remain positively inclined towards the Indian print market but deal activity from such players is likely to be limited until the FDI caps are rationalised.
Filmed Entertainment
The film exhibition segment witnessed the first signs of consolidation with Inox Leisure buying out 43.3 per cent equity interest in Fame India from its promoters for approximately $14 million. However, this deal has its own complexities, with ADAG - owned Reliance MediaWorks making a counter offer for Fame.
In another story of consolidation, PVR Cinemas also expressed their interest in acquiring DT Cinemas, the theatre chain owned by the DLF Group, which was later called off on account of a valuation mismatch.
The exhibition business also witnessed private equity interest, with IFCI acquiring a minority equity interest in Satyam Cineplex, a movie theatre chain based in North India.
With economies of scale being a prime value driver in the film exhibition space, this segment is expected to witness further consolidation.
Radio
In the radio segment, Astro increased its equity interest in South Asia FM from 6.98 per cent to 20 per cent. Regulatory changes such as relaxation of FDI limits, granting permission to own multiple frequencies in a city and the permission to air news and current affairs hold the key to the growth of this segment.
In the near future, relaxation of regulatory norms is likely to facilitate consolidation amongst domestic players as well as drive active interest from large international private equity players and global radio majors.
Emerging segments
The emerging segments such as animation, gaming and OOH witnessed limited deal activity in 2009. In the animation segment, Aptech Ltd acquired Maya Entertainment, for $16.4 million.
