A Riot of Colors

When the high pro- file CEO of television channel Colors, Rajesh Kamat, resigned in April this year, many thought his departure would slow down the channel’s unbridled growth till then. Kamat had built Colors from scratch, catapulting it to a close Number Two– behind STAR Plus – in the Hindi general entertainment channel, or GEC, category; on occasional weeks even overtaking STAR. It first reached top position within nine months of its launch in 2008.

But Haresh Chawla, 43, CEO of the parent group, moved fast. Within a fortnight he had roped in Raj Nayak, a former CEO of NDTV Media, to fill the void.

Despite Kamat’s recent departure, the mood at Viacom18’s headquarters in Parel, central Mumbai, is distinctly celebratory. Chawla points out that Viacom18 has met both its growth and financial performance targets. In three years, it has recorded 11-fold growth in revenues, with each of its businesses at Number One or a close second in their markets. “We are now a leading multiplatform entertainment player,” says Chawla. Viacom18’s interests now span four leading TV channels: MTV, VH1, Nick and Colors; a pan-India distribution set-up called Sun18 Media; the MTV youth portal; a merchandise business that has more than 50 categories of products; and a film company, Viacom18 Motion Pictures, that delivered Tanu Weds Manu, one of the biggest hits of 2011 yet.

Viacom18’s success is a critical part of the nearly two-decade growth story of Raghav Bahl’s Network18 Group. Viacom18, started in 2007 as a 50:50 venture with global media giant Viacom Inc., has already crossed `1,000 crore in revenues. Network18’s share equals more than a third of its total revenues otherwise. And Colors, begun in 2008, has changed the dynamics of the television game, says Rajesh Jain, National Industry Director at audit and consulting firm KPMG. In 2006/2007 Viacom18’s turnover was `110 crore; in 2010/11, it recorded a profit after tax of ` 85 crore on a total income of `1,104 crore–of which 79 per cent came from the Colors channel.

Yet challenges remain. Viacom18’s costs are steep. At`985 crore for 2010/11, its costs were 89 per cent of its revenues. At Zee Entertainment Enterprise, costs in the same year were 59.3 per cent of `1,279 crore revenues. Analysts say this is a concern even if Viacom18 is profitable. “Colors has been doing some sensible things to gain market share. But for how long can you keep burning cash,” asks Kalpesh Makwana, an equity research analyst at Quant Capital.

Some of this overhang comes from the cost of content and carriage fees. “There has been good execution on the ground – a good scale of ad sales, but costs are high and the business is marginally breaking even,”says Vivek Couto, Executive Director, Media Partners Asia, a Hong Kongbased media tracking firm. “As of now, subscription revenues are very small. Zee and STAR have better operating leverage and a long-term reservoir of funding.”

It does not help that, hit hard by the economic downturn of 2008/09, Viacom18’s parent, Network18, is also deep in debt. Details of borrowings of the entire group are not readily available but the debt at its three listed companies currently stands at around `1,988 crore. When juxtaposed against group revenues of some`1,484 crore, that makes for a squeeze. The group’s promoters, led by Raghav Bahl, have pledged big chunks in three group companies –Network18 Media & Investments, TV18 and IBN18 – against loans. While there are gems such as Colors and CNBC TV18 in its portfolio, many of the group’s non-broadcasting ventures are still incurring losses.

But with India’s television market on a roll, growing at 16 per cent and expected to touch `63,000 crore by 2015, some industry watchers are less pessimistic. “The scale up of Viacom18 has been ahead of expectations,” says Nikhil Vora, Managing Director, IDFC Securities.

Are competitors STAR and Zee feeling the Colors heat? For now, no.“Television ratings are a weekly game. We are not threatened by competition as we are a profitable company and our costs are low,”says Punit Goenka, CEO and Managing Director of Zee Entertainment.

Still, there is no denying that it was the intense competition from Colors that prompted STAR Plus to re-launch with a fresh look and new programming last year. “The re-launch we undertook has put us back in the saddle. We are 35 to 40 per cent ahead of any other channel in the Hindi GEC space,” says Uday Shankar, CEO of STAR India. Zee has rebranded itself too.

And Viacom18, meanwhile, is readying for a fresh assault. Colors will soon increase its original programming hours from the current 23 hours a week to approximately 26 or 28 hours, to compete better with STAR and Zee, which have 38 and 32 hours respectively.

In the next three years, Viacom18 will also add to each of its verticals of mass entertainment, specialised channels, consumer products, films business, digital offerings, and the distribution network. A Hindi movie channel is planned by the end of the year, as well as expansion into the regional space. But Colors will remain the bread and butter of Viacom18.

Former CEO Kamat has joined ex-News Corp executive Peter Chernin’s CA Media as its India CEO and will invest in media ventures here. All eyes are now on new Colors CEO Raj Nayak, who the channel said was not available for interviews yet.

Network18 wants to ride the momentum Colors has given it. “We entered late,” says Chawla, pointing out that rival channels took up to 10 years to get to the size Colors is at today. Colors achieved it in two. “We will continue to find the way ahead as quickly as possible,” he adds. That traction will be as important for Network18 as for Viacom18.