Ready For Round-II

In mid-2005, two weeks after the two Ambani brothers announced their formal separation, Anil Ambani shook the media world when he took over Manmohan Shetty-owned Adlabs in a Rs 360-crore deal. Now, Mukesh Ambani's entry into the Raghav Bahl-promoted Network18 Group has created ripples, but not quite a splash. For two reasons: first, despite the Reliance Group's steady denial, it was known that the deal was in the making; second, Network18 is not Mukesh's first entry into media.

Reliance Industries's (RIL) funding of Network18 is convoluted. RIL will sell its stake in a clutch of ETV channels for Rs 2,100 crore to the Network18 Group. To finance this acquisition and to retire his debt of close to Rs 1,500 crore, Bahl will do a rights issue of Rs 2,700 crore for each of his two group companies — TV18 and Network18 Media & Investments. These will finance the retiring of Network18's group debt (Rs 1,500 crore) and the purchase of ETV channels (Rs 2,100 crore) with the balance going for expansion and development of the company. Bahl's share in the rights issue (Rs 1,700 crore) will be bank-rolled by RIL's Independent Media Trust.

The official raison d'être for Mukesh's funding the Network18 Group is to give Infotel Broadband Services, an RIL arm, "preferential access to all Network18 content for distribution through the broadband wireless network being set up". The RIL release also says that its investments in Network18 will not take away from "preserving the management, operational and editorial independence of these media companies".

But competitors don't agree that RIL just wants to gain access to media content. Over time, RIL's investments could be converted into equity; and, with future tranches of funding not being ruled out, this could lead to a controlling stake in the Bahl company.

Take the UTV Software example. The Walt Disney Co. kept increasing its stake in UTV Software to a 60 per cent majority holding assuring all the time it will not disturb the management of original promoter Ronnie Screwvala. Finally, Screwvala exited ownership six months ago.

Network18's rivals have reason to worry. The Ramoji Rao-promoted ETV network owns the best-performing regional channels and has an iron grip over the Andhra Pradesh market.

As a merged entity, the Network18-ETV Group could become a Rs 2,000-crore media  power house. The deal also signals a period of consolidation; small firms are finding it difficult to survive as Nimbus Communications' recent cancellation of BCCI's telecast rights has shown.

Bahl's firms are not a great buy in pure business terms. Network18's accumulated debt at end-FY2011 was Rs 1,778 crore, while TV18's was Rs 550 crore. For the first half of FY2012, Network18 had notched up an operating loss of Rs 62 crore, while TV18 showed a marginal consolidated profit of just Rs 31 crore. On the other hand, it is a good, mid-size platform for those like Mukesh Ambani interested in a long-term play in media. For Mukesh, this is neither an entry point, nor is it an isolated buy. He has been making commitments in several media companies over the years. In 2008, he put in Rs 2,600 crore for a substantial stake in the ETV network's holding company Ushodaya Enterprises. These may not yield business profit; but they help in media influence.

Reliance's first entry into media was when it acquired Sunday Observer over two decades ago. It also launched the Business & Political Observer in 1991. Both ended in fiasco and had to be shut down. With the ADAG group now having taken over Bloomberg UTV, it will be interesting to see if the two Ambani brothers can succeed in the second round.

(This story was published in Businessworld Issue Dated 16-01-2012)