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Viacom: The Network Game

With nearly all the building blocks in place, Viacom18 is set to grow at a CAGR of 20 per cent over the next few years

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This is one millennial kid, barely 10 years old, in which many have a seemingly voyeuristic, but legitimate interest. Viacom18 is the youngest in the blink-and-you-are-dead media and entertainment industry.

Since its launch in 2007, Viacom18 (with its first indigenous play being Colors, while channels such as MTV, VH1 and Nick came later, thanks to Viacom International), the network has grown to 34 channels, having taken firm strides into live events, films and digital. And as it evolves, the only beats missing in its quiver compared to its competitors are sports and print, where media houses such as Bennett Coleman & Co, Star India, Sony and Zee are ahead of the game.

This November, Viacom18 Media — a 50:50 joint venture between Mukesh Ambani-controlled Network 18 and Viacom Inc. — enters its 10th year. Interestingly, the Indian media and entertainment (M&E) company is at a point of inflection, poised to be the next big thing to come out of India, if the cards are played right, believes Viacom18’s group CEO Sudhanshu Vats. Both the M&E industry and the television sector are expected to double their growth by 2020, and keeping in line with this, Viacom chief has laid out his Vision 2020 for the network. “Our focus is now on Vision 2020, which is to reach a topline of Rs 10,000-crore at 20 per cent EBITDA. Since its inception, Viacom18 has seen a 30x growth in revenues. The vision may look difficult to reach in four years, but I know there is a way,” says Vats. The network posted a topline of approximately Rs 2,800-3,000 crore this year.

The Game Plan

The strategy is to focus on regional broadcast, films and digital play as well as leverage synergies within the network. As Viacom18 hits the pedal, the question is: can it change the pecking order in the media industry? Can it go higher up and beat the giants just as it did when it replaced Star from its numero uno position within nine months of launching its Hindi general entertainment channel (GEC) Colors?

The chase is not easy. Competition is tough, plus, M&E is an industry that is hugely impacted by the rapidly changing technology. Getting heard and noticed above the din of a content overdose, in a country with a young demographic, is certainly no walk in the park.

Currently, Viacom18 is largely known for its flagship Hindi GEC Colors, which contributes around 50-52 per cent to the network’s topline. From about 60 per cent in 2012, the network’s dependency on Colors has, however, reduced with expansion in other channels. As Colors CEO Raj Nayak himself says, this is the right strategy for the network to grow. As the other verticals grow, media analysts expect Colors’ contribution to be close to 30-35 per cent by 2020, taking Viacom18 beyond the tag of being just as a Hindi GEC broadcaster.

With consumers’ changing preference towards regional content, growth in this bouquet is expected to be faster. According to the latest FICCI-KPMG 2016 report, in the TV universe, regional GEC viewership has outdone Hindi viewership, and Viacom18 has benefitted from the trend. For instance, Viacom18’s Kannada channel, from its ETV acquisition in 2012, moved up from fourth position to the top in the last three years. Today, the channel has 36 per cent market share of the Rs 600-crore Kannada market, growing at over 12-13 per cent annually. Looking at the rising popularity, Viacom18 recently launched a second Kannada GEC in HD. This shows the shifting focus of the network on growing its regional bouquet.

In fact, regional GECs, music and films accounted for 38.99 per cent of total viewership; the regional TV channels with 29.6 per cent viewership beat Hindi GECs by 1.2 per cent, according to the FICCI KPMG 2016 report. The ad rates for Hindi GECs, however, still command a premium of at least 50 per cent over the regional channels.

That said, looking at the overall growth in regional, and Viacom18’s growth in the space, media analysts are confident that the current 18 per cent share in the topline that comes from the regional bouquet revenues, can easily be doubled by 2020. “Everyone considers the regional markets as country cousins or step children. The regional market is nothing but sharper segmentation. It’s a logical evolution of going deeper into a market. You have a defined geography, with a defined language, nuances, cultural strength, and affinity for the language and love for food, culture, colour, religion, traditions: a lot of richness. In reality, viewers are no different. If a show works, it works across. If you look at South America, Mexico, they have similar family structures and joint families,” explains, Ravish Kumar, business head of Bangla, Kannada, and Oriya channels at Viacom18.

With the merger of Prism TV, the holding company of the erstwhile ETV channels, into Viacom18, Vats can now create a single brand, leveraging content and business synergies across the network.

Sharper Segmentation
Sharper segmentation is the catch phrase at Viacom18. Every strategy within the network is led by it and follows it to the T. It is among the many changes that Vats — who comes from a very different background — introduced into the media house to bring in a more corporate style of working. But not many believed in Vats when he joined the company; they saw him as an outsider who came with two decades of experience in selling FMCG at Unilever and petro lubricants at Castrol before that. Today, however, be it the catchphrases strategy, accountability or deep research, Vats has brought method to the madness to a world which lives in the moment.

Of the Rs 54,220 crore-Indian television industry, Viacom18 commands a growing share. If Vats’ Vision 2020 of scaling the network by 4x takes shape, Viacom18’s current share of the TV pie will more than double. While its biggest play comes from its Hindi GEC Colors, which has been regularly beating top player Star in ratings through last year and so far this year as well, its regional bouquet too has been coming up a winner. Colors Kannada and Nick India, a children’s television network, have led the winning story backed by original programming and creating IP for the network as well to be leveraged into other business verticals like merchandising.

In fact, the kids franchisee, led by Nick, is a classic example of how sharper segmentation has worked for the network. Starting with one channel languishing at the bottom of the category in 2013, Viacom18 today owns four channels that together own one-third of the category viewership pie. Vats’ bet on homegrown content has paid off too and this has encouraged him to let the network’s movie studio to produce its first Motu Patlu animation movie, scheduled for a Dusshera release.

Alongside these winners, there are verticals that have not worked as well, such as MTV Indies, launched under Vats’ watch for which he has revamp plans. A part of Vision 2020 is rebuilding the MTV brand. Vats believes the MTV brand potential is untapped and can be built to be a Rs 1,000-crore brand from its current Rs 250-crore size. He believes with merchandise, music, live events, the channel can contribute as much as Rs 450-500 crore.

Building up on the ethos of sharper segmentation, MTV recently announced a pure play Hindi music channel called MTV Beats, which will replace MTV Indies on air, while MTV will continue airing youth-focused long-format content. Vats is, however, keeping the MTV Indies brand alive, on digital, thereby sowing the seeds of another franchisee.

Digital Design
After regional, the network’s biggest bet is digital. This strategy is in line with almost all media and entertainment companies. As content grows platform-agnostic, and the fastest growing screen is the smallest — the mobile — media moguls are expanding the reach of their content via over the top (OTT) and other digital platforms, with as much as 25-30 per cent of budgets allotted to growing the same. Competition is tough already, with some having the first mover advantage. For instance, OTT platform Hotstar from Star India and ErosNow from Eros International are among the scores of others.

Viacom18 has recently launched its first OTT offering VOOT, a digital brand aimed at building a strong analytics-driven business that will help Viacom18 refine its understanding of the Indian consumer which it can leverage across digital, films and TV. The company’s digital OTT video business, however, requires substantial investments. As far as broadcasters go, VOOT is a late entrant in this market, with Star’s Hotstar and Zee’s Ditto and now Ozee, Sony’s OTT are all ahead. Other aggregator OTT players too have had the advantage of time.

What supports Viacom18’s digital strategy in VOOT is the rise in video consumption to about an average of 800 MB per user on 3G. And with 4G coming up, the usage is expected to rise exponentially. The digital video-ad pie is currently at Rs 1,200-1,300 crore and is likely to grow to Rs 6,500 crore by 2020. It is expected to become the second largest ad segment after GEC. Based on the growth of payment ecosystems, fibre optics to homes, increased data pipes to carry content, Vats estimates a Rs 1,000-package with unlimited data is a possibility and affordable for the Indian consumer.

According to market sources, the initial investment in VOOT has been more than a few hundred crore, although Gaurav Gandhi, chief operating officer of Viacom18 Digital, refuses to put a number. “Since having a successful and robust digital play for media companies is critical, serious investments into this business are coming in from all players. We all have to gear up for a world where every screen will be connected and the digital business will not be just about mobile phones but cross-screen,” says Gandhi. The business, he adds, is expensive and requires heavy investments in technology, user acquisition, content, marketing, streaming costs and dedicated manpower.

With an even longer gestation period than in broadcasting business, no fixed time frame can be set as to when the vertical can start contributing to Vision 2020. The models in digital are still evolving. The most prominent one at the moment is AVOD (ad supported). Going forward, there will be opportunities to build pay businesses on this (be it Freemium, TVOD or SVOD). While Gandhi sees the digital video advertising market at close to $1 billion by 2020, the pay market will take more time to develop. It has some challenges currently including a rigid consumer mindset about paying for content, limited payment gateways and high data costs. Viacom aims to gain at least 8-10 per cent of the total market share by 2020.

Focus On Research

Not all media houses have tested the waters in the film business, where risks have traditionally been higher than rewards. In 2008, Viacom18 set up its Viacom Motion Pictures (VMP) as one of the first studio-model based businesses and listed some big banner films to its roster. But, as Vats says, as a business, the model is broken. The value chain is hugely lopsided in favour of talent — acting talent and particularly male acting talent. “I was surprised when I came into this industry. In India, payment to talent can be as high as 80 per cent (of total costs). In Hollywood, it’s about 25 per cent. Thus, as a business model it becomes highly unlikely to be scaled up. In our case, as a company, we were doing reasonably well from the box office perspective — getting about 50 per cent of our films’ rights, which is pretty good for this industry. However, what I observed was that we were winning small, but losing big,” says Vats, who, among his leadership changes, brought in Ajit Andhare in 2013 to lead the VMP remodeling to make the business more business oriented.

The focus was clear. If Viacom18 was to invest hundreds of millions of dollars into the Indian film industry, it had to embrace analytics and research. “In my assessment, Bollywood has a global potential, but we have to open up for that. Data analytics gives the confidence to invest millions of dollars into creating billion dollar movies. Sharper segmentation applies to movies as well. I feel the regional movies allow more room for experimentation. Marathi and Bengali cinema are beginning to push the envelope while Malayalam cinema is known for it,” says Vats. In fact, the current 12 per cent that VMP contributes to the network, can rise considerably over the next four years, believes Vats who says, perhaps the network is ready for a partner as well.

Vats, a marathoner, who weaves in critical leadership nuances from his running, is the man at the helm to take Viacom18 into its next decade. According to media analysts, even if Vats can take the current topline from the present Rs 3,000 crore to upwards of Rs 6,000 crore by 2020, it would be a laudable task and put the network among the top media houses. For some, the absence of a strong second GEC is also an Achilles heel, especially compared to competition which could hamper growth.

The question is, can Viacom18 breakthrough into the top rungs? Well, the winds of change are blowing. As viewers’ preference of screens change rapidly, digital will soon rule while regional is beginning to rule the roost of content. “Being in the top league is very important as that tells us how relevant we are. We are here to create tomorrow, we have to stay curious and stay fearless, listen deeply, learn with humility and execute with excellence as this is a journey from good to great,” concludes Vats.

A GREAT LEADER

Colleagues from the industry respect Sudhanshu Vats for his leadership qualities that have helped Viacom18 grow quickly

UDAY SHANKAR Chairman & CEO, Star India

Sudhanshu is diligent and transparent. For an outsider with no background in media or no one to guide him, it is commendable how he has learnt how the media world works. Sudhanshu is also very collegial. He is community-oriented in an industry where people are too focused on themselves and business rivalry among senior people can become personal. He makes working together (on industry issues) easy. He is also an honourable guy. He sure has a mind of his own and though he argues a lot, a fact I often tease him about, once he takes a position, he sticks to it. He is grounded and rooted which is the endearing part. If I am no longer in media, he would be among the few people I would want to be in touch with.

ANAND KRIPALU CEO & MD, United Spirits
Sudhanshu is a good human being, is well respected, a great leader who works with good, clean aggression and, unlike others, has no hidden agenda. He is intelligent, dependable and a valuedriven person besides being a passionate runner as well.

Naveen Kshatriya Managing director, Castrol
Sudhanshu is one of the most people-oriented persons I have known. He creates energy in people around himself. He is very authentic, determined and operationally excellent. I was proud to have him on my team. As vice-president Marketing, Vats successfully relaunched the Castrol Master Brand within a record three-month turnaround time.

FAROKH BALSARA Partner & head, Media and Entertainment, Ernst & Young
Sudhanshu has brought in a breath of fresh air into the M&E sector with his professionalism (implementation of ERP systems, emphasis on corporate governance, ethics and compliance, among others) and his focus on “profitable” growth. He has spearheaded the growth of Viacom 18 into regional media, thereby reducing the dependence of the group on GEC Colors Hindi. He has introduced a detailed “greenlighting” process for production of movies as well as a rigorous production audit, both of which are unique to Bollywood. Under Sudhanshu’s leadership, Viacom 18 has the right building blocks and looks set to continue to grow at a CAGR of 20 per cent per annum in the years to come.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Nandini Raghavendra

Nandini Raghavendra has been tracking the media and entertainment space for The Economic Times for over 15 years. She is currently a consultant with Ernst & Young

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