Will diversification bail out NDTV?

BY AMAN MALIK| IN Media Business | 09/03/2016

Diversification is turning out to be NDTV’s best bet so far for a financial turnaround. There are indications from both the valuations and the financial results of the company that its new digital and e-commerce subsidiaries might save a parent business which has been losing money hand over fist for years.

While the television business remains a drag on the company’s overall performance after more than six years of losses, its digital business, NDTV Convergence, has grown four-fold in the last five years and has been profitable throughout this period.

Moreover, the value of deals done on the e-commerce vertical IndianRoots.com has multiplied eight-fold in a year, according to the annual report for 2014-15.

Two of the NDTV subsidiaries - its new e-commerce venture Gadgets 360° and Fifth Gear Auto, a new auto portal - have been valued at $50 million and $30 million respectively, totalling $80 million, (about Rs 550 crore at today's exchange rate). 

The parent company is valued today on the stock market at only Rs 780 crore (this includes the 550 crore value of the subsidiaries). So, the subsidiaries are now worth more than the parent company.

The Rs 780 crore valuation is after the parent company's stock price soared in the last couple of months from Rs 66 in mid-January to Rs 121 now. This would suggest that the market has understood the overall strategy and now thinks the business is worth more than before because of the subsidiaries.

TV business in “crisis”

So, why is NDTV looking at revenues beyond television? The story is in the numbers.  More than five years of continuous losses have affected the  company's flagship television business.

The broadcaster has been the victim of a sustained slowdown in the television news business over the last few years. In fact, during an interview with The Hoot last month, Vikram Chandra, CEO of the NDTV Group, conceded that for the last 6-7 years, NDTV's television business has been “going through a crisis,” which, he said, was because “the business model has been broken for a period of time substantially because in distribution, you don’t get subscription money, but you’re paying carriage fees.”

While between March 2011 and March 2015, NDTV's total annual consolidated income went up nearly 30 per cent from Rs 4,533 million to Rs 5,861 million, it remained in the red throughout this time except for a very marginal profit in FY 2013.

                           NDTV (Consolidated)

Source: annual reports

Blame television revenues. Taken on a standalone basis, trends show that revenues from the television business have remained largely flat, even dipping for two consecutive years in between. Between March 2012 and March 2013, on a standalone basis, the company saw a 2 per cent decline in its total revenue. The decline between March 2013 and March 2014 was 10 per cent. The following year however, it made a smart turnaround and saw its total revenue jump 19 per cent to Rs. 4339 million, while still remaining in the red.

                        NDTV (Standalone)

Source: annual reports

This may be because, after more than six years of losses, the broadcaster is increasingly turning toward corporate partnerships, which are very visible on the channel these days.

In December last year NDTV announced a partnership with pre-paid mobile recharge and e-commerce website Paytm. This announcement came just ahead of Paytm's formal foray into the payment banking space, after the Reserve Bank of India in August, allowed 11 companies to set up such financial institutions. Although no specific details of the deal were shared, it was one of several corporate partnerships that the broadcaster has entered into in the recent past.

NDTV appears to be going big on corporate sponsored “social awareness programmes and campaigns,” which must get the company some much needed income. The company's annual report for 2014-15 lists Reckitt Benckiser (Dettol), Coca Cola, Diageo and Fortis among the corporates that sponsored such events last year.

“Paytm is a simple advertising-branding deal,” Chandra said. When asked about the exact contours of the partnership, he replied: “We haven’t disclosed it. We don’t have to disclose the amounts for one particular branding and association deal that we do.”

He added: “There are increasingly a series of advertisers who are also beginning to recognise that they would rather be associated with quality channels or quality programming, and they are willing to pay a substantial premium on that, to look for that brand association or that partnership, as opposed to chasing what are the TRPs of this show.”

The December deal with Paytm was not a one-off corporate arrangement though. Earlier in August, Paytm's parent company, One97 Communications Ltd, reportedly invested an undisclosed amount in NDTV's new e-commerce venture Gadgets 360°.  

According to the VCCircle report, while NDTV did not shared further details on the funding amount, the company said that several well known investors including Pramod Bhasin (former CEO of Genpact), Vindi Banga (former chairman, Unilever India), and Hiro Mashita (founder and director of M&S Partners) had participated in the first round of funding for Gadgets 360° and Fifth Gear Auto, a new auto portal which would separately be valued at $30 million.

In December, another report by VCCircle said that NDTV had raised an undisclosed amount for a health portal marketplace - Smartcooky- from several investors including Rajan Anandan (Google India & South Asia MD), Bhasin, Banga and Siddharth Pai, son of former Infosys CFO and chairman of Manipal Group Education TV, Mohandas Pai.

Earlier, NDTV had also entered the wedding planning market with 'Special Occasions.' Before that, in 2013, it had launched IndianRoots, an e-commerce vertical.

While it is unclear how much money exactly these deals have made NDTV, since the company wouldn't reveal the numbers, it did nearly halve its losses on a consolidated basis from nearly Rs. 843 million during 2013-14 to a little over Rs. 462 million during 2014-15.

Moreover, going by the results of the last two consecutive quarters ended September and December 2015 respectively, NDTV’s numbers seem to have shown some further improvement. Overall though, the company continued to remain in the red during the first three quarters.

Among the company's current subsidiaries only four - NDTV Lifestyle Ltd, NDTV Convergence Ltd, NDTV Worldwide Ltd and NDTV Ethnic Retail Limited - had a turnover of Rs. 100 million or more during 2014-15. Out of these, while NDTV Lifestyle, which manages 'Good Times,' did business of the order of Rs. 458.97 million, NDTV Convergence, which runs the website ndtv.com and other digital platforms (except the e-commerce business IndianRoots.com) was the most significant and profitable subsidiary.

NDTV Convergence - a bright star? 

Over five years the turnover of NDTV Convergence, the subsidiary concerned with the company's digital business, has seen its turnover go up four-fold.  In March 2011, the annual turnover of the digital arm was Rs. 211.75 million; by March 2015, this figure had grown more than five times to just under Rs. 1070 million.

                   NDTV (Convergence)

Source: annual reports

If one compares these figures with the overall consolidated total income, while in March 2011, NDTV Convergence's turnover accounted for roughly 4.6 per cent of the income, five years later, it accounted for 18 per cent of the total consolidated income.

Not only has NDTV Convergence grown in turnover, it has been consistently profitable during this five year period, seeing  its annual profits rise more than tenfold from Rs. 11.59 million in March 2011 to Rs. 114.91 million in March 2015.

Last year's annual report too acknowledged the growing influence of the digital business in the total pie. “NDTV (before e-commerce) reported an EBIDTA (earnings before interest, taxes, depreciation and amortization) of Rs 64 crore (Rs. 640 million) in FY 15, as compared to an EBIDTA loss of Rs 6 crore (Rs. 60 million) last year (FY14),” the annual report for 2014-15 noted. “NDTV Convergence clocked Rs 107 crore (Rs 1070 million) of revenue at 47 per cent growth rate for FY15. NDTV’s e-commerce vertical, IndianRoots.com, multiplied its Gross Merchandize Value (GMV) eight times between FY 14 and FY 15,  the report went on to say.

                       NDTV Lifestyle

Source: annual reports 

So, does this mean that NDTV could, in the forseeable future, transform itself into a digital and e-commerce company? That is unlikely for two primary reasons. First, its websites and apps leverage the company's well known brand name, without which they may not gain any traction.  There could be a question mark on the future viability of entities that may not identify themselves directly with the brand NDTV.

Second, the apparent profitability of NDTV Convergence could possibly stem from the fact that it draws upon the resources owned and paid for by its parent and other group companies. However, the numbers by themselves do not make it clear if, and to what degree, this is true.

At this point, though the TV company is a financial liability, it remains a high visibility flagship brand whose brand value the newer companies will want to leverage in order to establish themselves.

Aman Malik is an independent journalist