Capitalising on the success of CNN-IBN
Global Broadcast News (GBN), part of the TV18 group, owns and operates one of India’s leading 24-hour English language news and current affairs channel CNN-IBN. Since its launch in December 2005, CNN-IBN has become one of India’s leading English language news channels. In the five weeks ended 2 December 2006, it led the English news genre with an average weekly market share of 37.55% (closest competitor’s share was 35.37%), according to TAM Viewership Data. The company holds 15% equity of Web 18 Holdings, which operates the portal business of the TV18 group.
GBN has an agreement with CNN for an exclusive, limited, non-transferable right to use and reproduce, inter alia, the CNN name and principal logo. The company will pay licensing fee equivalent to 3.5% of net revenue of the channel CNN-IBN or the minimum guarantee that is in the range of US$ 5,00,000 to US$ 850,000, whichever is less. Further in consideration of the archived content licensed to the company, GBN is required to pay US$ 2,500,000 at the end of the third year.
Recently, GBN entered into a share-subscription-cum-shareholder agreement with the Gupta family, BK Fincap Pvt Ltd and Jagran TV Pvt Ltd, and acquired 49% equity shareholding in BK Fincap, which holds 82.1% of Jagran TV, which owns IBN 7, a 24-hour Hindi language news and current affairs channel, for Rs 68 crore.
The net proceeds from the issue are be utilised to pay the balance Rs 34.35 crore to BK Fincap, and a Rs 11.50- loan from B K Fincap and Rs 25 crore from ICICI Bank.
Strengths
- According to the Indian Entertainment and Media Industry Report by FICCI PreicewaterhouseCoopers, dated March 2006, the overall revenue of television broadcasters is expected to register a compounded annual growth rate of approximately 24% from Rs 12870 crore in 2004 to Rs 42700 crore end 2010. The advertising revenue of the industry is to grow to Rs 10500 crore by 2010 and television subscription revenue projected to rise by 29% compounded annually to reach Rs 30600 crore in 2010.
- Since its launch in December 2005, CNN-IBN’s share in the English language news genre has increased from 18.75% to 37.55% in the five weeks ended 2 December 2006, according to TAM Viewership Data. Further, in this period, GBN had an average weekly reach of 11.17 million viewers and was available in 87.60% of the households with access to cable and satellite.
- Through ‘IBN 7’, GBN has entered the Hindi language news genre. IBN 7’s average weekly market share increased from 7.61% in the five-month period ended 3 June 2006 to 9.14% in the six-month period ended 2 December 2006, according to TAM Viewership Data.
- With the conditional access system (CAS) rolled out, GBN will derive subscription of Rs 2.25 per viewer, boosting its revenue going forward. It is also foraying the international markets by entering Nepal.
Weaknesses
- Part of the proceeds of the issue is to be invested in acquiring 49% shareholding in BK Fincap. As GBN will hold less than 51%, it may not be able to exercise control over the operations of the company.
- The Hindi news genre, where it has yet to makes its mark, has huge competition. Its channel IBN 7 holds only 9.14% market share, as per the last TAM Viewership data. The competitors are Aaj Tak, India TV, NDTV India, Star News, Tez and Zee News.
- The electronic news industry is highly competitive and faces tremendous employee cost pressures.
Valuation
GBN made a loss of Rs 46.5 crore on revenue of Rs 6 crore in FY 2006 and a loss of Rs 26 crore on revenue of Rs 24 crore in the six months ended September 2006. The company can make losses for a few more quarters.
Currently more than 90% of the revenue of GBN comes from sale of advertising slots. There is generally a time lag of six-eight months between the popularity to translate into demand for advertising slots. With its English news channel CNN-IBN gaining viewers and attaining the top position, the company can see significant increase in advertising revenue going forward. In the CAS regime, broadcasting companies will now get a share of subscription, further boosting revenue. All packages offered by cable operators contain CNN-IBN. However, in the short run, there can be disruptions in advertisement revenue during the transition to pay channel and becoming CAS-compliant.
The current issue cannot be subscribed by FII/NRI. However, post issue, as per company sources, FIIs/NRIs will be able to buy up to 18% of the equity capital of GBN.