Content Provider Balaji Analysis

Content Provider: Balaji Telefilms Business Model

The Balaji Business Model

Programming Mix

Multi-Lingual Programming

Channel width

Genres

Own equipment

Programming mix In the business of entertainment content, the Company created programmes for its customer channels under two broad agreements - sponsored and commissioned. From a risk management perspective, it would be relevant to understand the dynamics behind each: Sponsored: The Company creates content but must recover the proceeds from advertisers, not the channel on which the programmes are telecast. As a result, the Company prudently assumes the risk of content creation and marketing. The Company buys telecast slots and in exchange receives free commercial time, which is then marketed to the advertiser. This is a variable revenue model: if the programme becomes popular, there is an attractive prospect for an upward rate revision. Details of Balaji Telefilms Sponsored Program Revenue and Expense Sponsored

2005-06

2004-05

2003-04

2002-03

2001-02

Hours

1045

789

666.5

613.5

632

Revenues (Lakh)

3456.15

3192.81

3299.57

2587.22

2407.2

4.05

4.95

4.22

3.81

Revenues

per

Hour 3.31

(lakh/hr) Operational

Expenditure 2762.21

2415.07

1968.48

1519.1

1401.48

(lakh) Operational

Expenditure 2.64

3.06

2.95

2.48

2.22

777.74

1331.09

1068.12

1005.72

per hour(lakh/hr) Operational Profit (Lakh)

693.94

Sponsored

2005-06

2004-05

2003-04

2002-03

2001-02

Operational profit per Hour 0.66

0.99

2.00

1.74

1.59

(Lakh/ hr) Operational

0.76

0.60

0.59

0.58

Expenditure 0.80

per revenue earned Balaji’s Revenue per hour in sponsored category has been falling for the last few years because of the strategy of de risking itself and concentrating on commission based programming. The maximum operating profit for the company (per hour) was in FY04 of 2 lakh per hour. However the capability to earn primarily depends on the slots the content provider gets and the ability of the company to get the sponsors for the slots. The sponsored programs are telecasted on regional channels like Sun TV, Surya TV, Udaya TV etc. Also Doordarshan is telecasting programs based on sponsored model. Assets used in the production of Sponsored programs have remained constant as a percentage of revenue. The investment required in the assets for sponsored program is much lesser than those in commissioned programs. The amount invested in assets for sponsored programs per hour of telecast was maximum in FY05 at Rs 1.99 lakh per hour. However in FY04 when the revenue per hour was maximum for Balaji the capital employed in sponsored program was almost 16% less at Rs 1.68 lakhs per hour. Low investment in assets and hence high return on capital employed is a feature of sponsored business model.

Assets

2005-06

2004-05

2003-04

2002-03

2001-02

Sponsored Segment Assets

1290.34

1571.37

1122.78

923.02

870.17

0.49

0.34

0.36

0.36

1.99

1.68

1.50

1.38

0.49

1.19

1.16

1.16

Sponsored Segment Assets 0.37 per revenue earned Sponsored Segment Assets 1.23 per hour Operating Profit to Segment 0.54 Assets

Commissioned: The Company creates content at the behest of channel owners, assuming no risk in either its creation or its marketing. As a result, the content is created against a fee with the probability of rate revisions in the event of the programmes becoming successful (as measured by TRPs). These programmes represent an interesting balance between risk-neutrality and income-enhancement. Details of Balaji Telefilms Commissioned Program: Revenue and Expense Commissioned

2005-06

2004-05

2003-04

2002-03

2001-02

Hours (lakh/hr)

1070

931

819

1067.5

875

Revenues (Lakh)

23499.23

16481.98

14530.03

16009.37

8622.31

17.70

17.74

15.00

9.85

9062.83

6155.66

6768.43

4291.01

9.73

7.52

6.34

4.90

7419.15

8374.37

9240.94

4331.30

7.97

10.23

8.66

4.95

0.55

0.42

0.42

0.50

Revenues

per

Hour 21.96

(lakh/hr) Operating

Expenditure 12398.79

(Lakh) Operating Expenditure per 11.59 Hour(lakh/hr) Operational Profit

11100.44

Operating profit per Hour 10.37 (Lakh/hr) Operational

Expenditure 0.53

per revenue earned

Balaji started off with a model of Sponsored program production. In 1999-2000 commissioned programs formed just 9% of the total program hours. However, as a part of its de-risking initiative, the company increased commissioned programmes from 57.5 hours in 1999-2000 to 1070 hours in 2005-06. The revenues from commissioned programs contributed more than 87% of the total revenues. The commissioned programs had a higher operating profit per hour for the duration under consideration. However the operating expense for the commissioned model is much higher than that of the sponsored model.

Commissioned models required high investment in assets as compared to the Sponsored Model. The investment in assets for commissioned programs during FY06 was almost 8 times that of sponsored programs.

However considering Operating profit to Segment Assets ratio we find that the

commissioned model performs better than the sponsored model in all the financial years under consideration. Assets

2005-06

Commissioned

2004-05

2003-04

2002-03

2001-02

Segment 10316.56

7657.34

4937.37

4286.48

2321.23

Segment 0.44

0.46

0.34

0.27

0.27

8.22

6.03

4.02

2.65

0.97

1.70

2.16

1.87

Assets Commissioned

Assets per revenue earned Commissioned

Segment 9.64

Assets per hour Operating

Profit

to 1.08

Segment Assets

Comparison of the Two Models Criteria

Channels

Commissioned

Zee,

Marketing risk Sony, Borne by channel

Star, Alpha

Revenues are fixed by

the

channels

Capital Risk

IPR

Benefits

Content

Owned by the De-risked

provider

channel

assured of a

business model

minimum fixed

with incentives

return Sponsored

Doordarshan, Sun,

Borne by content Content

Gemini, providers

Udaya, Eenadu

provider

Revenue is variable, based

Retained

on

programme success

not

may the

production completely

of

risk,

Content high return

recover Provider

cost

by High

business model

Multi Lingual programming Regional content comprises of 48.7% of total programming hours. The company has an active presence on four regional channels. The company expects to enter more regional segments over the foreseeable future. The table below shows the channel wise revenue details.

2005-06 Channel

Revenues

Major Satellite Channels 23499.24 Doordarshan 129.27 Gemini TV 1171.58 Udaya TV 1162.27 Surya TV 587.47 Sun TV 376.4 Total 26926.22

2004-05

2004-05

Programmi Revenues Programmi Revenues per Revenues ng Hours per Hour ng Hours Hour 1067.5 57.5 215.5 384 258.5 130 2113

22.01 16481.97 2.25 284.25 5.44 1580.02 3.03 830.43 2.27 298.83 2.90 89.84 12.74 19565.34

931 45 277.5 298 112 56 1719.5

Revenues

Programmi Revenues per ng Hours Hour

17.70 14530.03 819 6.32 90 15 5.69 2047.04 305.5 2.79 1120.73 346 2.67 NA NA NA 1.60 NA NA NA 11.38 17787.8 1485.5

Balaji started providing content to Sun TV during FY04. The revenue per hour on Sun TV have grown at 81% YoY. (On Sun TV, Balaji has “Kanavarukaaha“ telecasted at 10:30 pm to 11:00 pm slot for 5 days a week.) However the revenue per hour for Gemini TV has been falling for last three FYs at the rate of 10% YoY.

Channel Width The company’s presence across a number of channels provides it with a stable and diversified source of income. In 2005-06, Balaji’s programmes were aired on Doordarshan, Star Plus, Sony TV, Zee TV, Sun TV, Zoom, Star One, Gemini TV, Udaya TV and Surya TV.

17.74 6.00 6.70 3.24

11.97

Genres Balaji produces sitcoms, general soaps, family soaps, thrillers and children fantasy programmes - in Hindi and regional programming. The company’s ability covers a vast programming repertoire.

Commissioned programmes, 200506

Sponsored programmes in 2005-06

Kyunki Saas Bhi Kabhi Bahu Thi

Star Plus

Kalyanee

Gemini TV

Kahaani Ghar Ghar Kii Kasautii Zindagii Kay K. Street Pali Hill Kaahiin To Hoga Kavyanjali Kesar Kkusum Kaisa Ye Pyaar Hai Kosmiic Chat Kandy Floss Hum Paanch Kasamh Se Kyaa Hoga Nimmo Kaa

Star Plus Star Plus Star Plus Star Plus Star Plus Star Plus Sony TV Sony TV Zoom Sony TV Zee TV Zee TV Star One

Kanyadaana

Udaya TV

Kumkuma Bhagya

Udaya TV

Kadambarii

Udaya TV

Kanavarukaaha

Sun TV

Pavithra Bandham

Surya TV

Kavyanjali

Surya TV

Kankkana

DD-Chandana

Own Equipment Balaji invests in its own equipment and studios as opposed to the practice of renting the same. This increases operational flexibility, saves time, increases productivity and improves quality. Over the years, the Company invested in the following: Captive sets: This enabled the Company to enrich its domain expertise, produce a variety of sets and ensure their availability within strict deadlines. Captive equipment: This enabled the Company to de-risk itself from a dependence on vendor equipment with a captive investment in some of the most sophisticated equivalents (lights, sound recording and other technical equipment). Captive post-production facilities: The Company invested in state of the art post-production suites, which accelerated the conversion of recorded material into episodes and facilitated an ongoing review and improvement of shooting standards.

Balaji Value Chain

Balaji: Growth in Content Telecasted

2005-06

2004-05

2003-04

2002-03

Television Serials

22

21

14

14

Episodes a week

85

81

53

62

Programming Hours

2113

1719.5

1486

1681

Content Telecasted

83%

85.71%

NA

72%

in primetime