Chawla's Two-Tier Strategy For Network18

India’s media sector has experienced change at an unprecedented pace and scale, compressing 50 years of media development into just 15, leaving little time for sustainable business models to find their footing in a fiercely competitive marketplace.

There are encouraging signs the market is about to turn the corner however, enabling media companies to operate in a healthier environment in the future.

“It’s a market that’s been growing on all fronts at the same time,” said Haresh Chawla, group CEO of TV and internet conglomerate Network18, speaking at Asia Media Summit 2011, an annual gathering staged by Media Partners Asia, publisher of Asia Media Journal.

“That has created a lot of competitive pressure on the players but that compression will now give way to expansion,” Chawla adds.

Indications of consumer willingness to accept higher prices as both the box office and mobile services emerge from an initial wave of price-driven competition should stand the media business in good stead too.

Low consumer-based media revenues say more about India’s current regulatory regime and intense market competition than any reluctance to pay, Chawla argued.

“As we’ve seen in other sectors, things eventually iron themselves out and you end up with a more sensible regime,” he added. “We’ve seen that in banking, in insurance, in telecoms.

"It will take a bit more time in media, because it is a little more sensitive and the government wants to play a larger role, but over the next four to five years you will see these things correcting themselves and the market truly becoming what it should become.”

Two timelines for growth
A recent restructure is also positioning Network18 for future growth. Its TV distribution business has been moved into its majority-owned TV18 Broadcast division, where the group expects more immediate growth, while the holding company now serves as a stable for assets with longer-term revenue potential such as digital content, e-commerce and home shopping.

“Network18 is the company we are building out for let’s say five years hence, where you get the value of the internet market in India plus you get a hedge from the television growth,” Chawla explained.

The group still carries some debt incurred from major forays into TV entertainment and online media during the 2008 global downturn, but Chawla expects planned disposals of non-core assets, such as a minority stake in travel portal Yatra, to reduce that leverage to a more comfortable level.

“There are such stakes available which we plan to monetize, and keep our focus on the core internet, e-commerce and TV businesses,” he said.

Funds for long-term growth
Recent consolidation in Hindi entertainment, coupled with decreasing investor appetites to fund expensive new TV startups, allows existing players to focus more of their resources on longer-term growth, while long-awaited dividends from internet investments should become more visible in the next one to two years, Chawla added.

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Digital and e-commerce revenues are on course to become the second-biggest contributor to Network18’s top line this year, from being the smallest of the group’s four revenue sectors in 2010.

Nonetheless, Chawla expects media battles for market share rather than profits to continue for the foreseeable future.

True market transformation remains some way off, anchored around two major tipping points: the mass digitization of TV, which will allow broadcasters to build out their channel portfolios into new languages and new genres; and mass adoption of online media, most likely through mobile phones, as bandwidth and infrastructure improves.

Fresh focus for advertisers
The internet makes up about 3% of ad spend in India, versus around 85% for TV and print, but online still accounts for 85% of the conversations advertisers have with their agencies, pointed out Punitha Arumugam, CEO of media agency group Madison Media, also speaking at the Summit.

This reflects the potential of mobile, even though most of India’s 550 million mobile subscribers only use their phones today for voice and SMS.

“But, we are expecting mobile to drive the internet revolution in India,” Arumugam added.

“About 50% of search volumes on Google are coming from mobile handsets in India. As 3G, 4G get launched we are hoping there will be an explosion of the internet on mobile. The internet will become the medium of the future through the mobile handset.”