TV18 Broadcast Ltd Management Discussions.
Statements in the Management Discussion and Analysis, which describe the Companys objectives, projections, estimates, expectations, may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could difier materially from those expressed or implied. Important factors that could infiuence the Companys operations include economic developments within the country, demand and supply conditions in the industry, input prices, changes in government regulations, tax laws and other factors such as litigation.
TV18 Broadcast Limited, a subsidiary of Network18, is one of the largest broadcasting companies in India. It runs the largest news network in India which spans across business news (4 channels with market leadership), general news (1 each in English and Hindi) and regional news (14 channels across India, including joint venture News18-Lokmat). Marquee brands CNBC-TV18 and CNN-News18 are part of this bouquet.
TV18s entertainment subsidiary Viacom18 (a joint venture with Viacom Inc.) operates an array of entertainment channels. The entertainment portfolio comprises Hindi general entertainment channels, English entertainment, movies, youth and musical entertainment, kids genre and regional entertainment channels. This includes leading brands such as Colors, MTV and Nickelodeon. The Group has a presence in the movies business too, through Viacom18 Motion Pictures. TV18s Infotainment subsidiary AETN18 (a joint venture with A+E Networks) operates factual entertainment and lifestyle channels History TV18 and FYI TV18, respectively. TV18 and Viacom18 have formed IndiaCast, a multi-platform content asset monetisation JV.
India continued to be the worlds fastest-growing major economy. After touching a high of 8% in the first quarter of FY 2018-19, GDP growth fell steadily in the second and third quarter to 7% and 6.6%, respectively1. The declining rates were triggered by a slowdown in both private and public expenditure, manufacturing and agriculture. Although household spending, government consumption and inventories fell, there was a marginal pick-up in capital formation and some improvement on the external trade front.
In its World Economic Outlook (April 2019 update)2, the IMF suggested that Indias growth is expected to pick up to 7.3% in 2019 and 7.5% in 2020 on the back of a sustained recovery in investment and strong consumption, triggered by a more expansionary monetary policy stance and some impetus expected in the fiscal space as well.
NDIAN MEDIA & ENTERTAINMENT Industry overview
Despite falling quarterly economic growth, the Media & Entertainment (M&E) industry grew by a strong 13.4% in 2018, more than the nominal GDP, to reach Rs 1.67 trillion (US$ 23.9 billion), according to the FICCI-EY - 2019 report, A Billion Screens of Opportunity. With its current trajectory, the sector is expected to cross Rs 2.35 trillion (US$ 33.6 billion) by 2021, at a CAGR of 11.6%.
Akin to 2017, all segments of the M&E industry posted growth, with digital media in the lead (only surpassed by the nascent, niche sub-segment of online gaming). While television retained its position as the largest segment, digital media grew sharply by 41.9%, while print, once again, grew the slowest at a negligible 0.7%. In terms of size, however, television and print continued to top the list, followed by filmed entertainment and digital media.
Segment-wise Growth in the M&E Industry
|Animation and VFX||67||79||93||128||17.4%|
|Out of Home media||34||37||41||49||9.2%|
Source: EY Analysis
All figures are gross of taxes (Rs billion) for calendar years; E-Estimated
Within this milieu, advertising outpaced subscription in terms of growth rate and volume, demonstrating that it was finally over the transitory efiects of demonetisation and the implementation of the Goods & Services Tax (GST). Digital advertising led growth with a 34% increase over 2017, while television advertising stayed steady with 14% growth, driven by sporting events, state elections, and growth in regional advertising. Growth in subscription was largely on account of international film exhibition revenues, the digitisation of DAS-III and IV television markets and digital streaming on Over-the-top (OTT) video platforms. Among some of the interesting trends that emerged during the year, media buyers began shifting budgets to segments with more Direct to Consumer (D2C) capabilities. On the other hand, Small and Medium Enterprises (SMEs) diverted advertising spends towards digital platforms from the traditional channels of yellow pages, local print, Out-of-home (OOH) and radio. Further, there was a spike in digital subscription and in the demand for original digital content over 2017. And most interestingly, Indian content was much appreciated on global platforms.
Expansion of the Digital Content Universe According to a report by KPMG, since around 95% of Indian homes have a single
TV, consumers are driven towards mobile consumption. This trend will drive the OTT market to potentially reach 100 million monthly OTT users by 20203. The increasing demand for content by OTT platforms is already apparent, as is the trend towards localisation strategies to engage audiences further. Consequently, in 2018, the demand for original digital content increased by around 1,200 hours, leading to a rise in cost of content creation4. Explosion of regional digital content A study by KPMG in India and Google (April 2017) Indian Languages Defining Indias Internet suggests that languages are expected to take centre stage in digital consumption in the years to come with 521 million Hindi language speakers currently and approximately 500 million other Indian language speakers compared to English speakers at 124 million. Indic language internet users are expected to be 75% of Indias internet user base by 2021.
Re-emergence of Advertising spends The recovery in advertising expenditure was driven by two primary factors. On the one hand, advertisers have recovered from the transient impacts of demonetisation and the shift to GST, which caused a temporary slack in their momentum. At another level, there is a fresh realisation that personalised and targeted communications are possible due to the gaining popularity in online video and paid searches. As a result, advertisers have begun to consider using online video and television to make a greater impact; while television ofiers a wider reach, online video enables better targeting and scope to optimise frequency. Interestingly, there was also a clear shift towards performance-led advertising spends, as opposed to just brand building. Advertisers are also showing growing interest in audiences that visit platforms for content and can get drawn away to e-commerce platforms when interested in purchasing. This emerging trend is expected to attract innovative advertising strategies, and therefore, fiexible budgets.
Subscription gains acceptance amongst consumers A World Administrative Radio Conference (WARC) report, Trend Snapshot, Media in the subscription economy, observed that there is a growing willingness in consumers
3#IndiaTrends2018: Trends Shaping Digital India KPMG, May 2018 4EY-ASSOCHAM report
FINANCIAL PERFORMANCE Financial Overview
TV18 continued on its growth trajectory, and invested in key areas to fill whitespaces or ring-fence its position. While the first three quarter of FY 2018-19 were buoyed by the revival in ad-spends and rising traction with viewers across the board, the last quarter dragged due to the new tariff regime for TV channels, and impact of absence of movie Padmaavat, Union budget and some Cricket/Live events this year.
Standalone financials (as reported)
|Particulars (Rs Cr)||FY18-19||FY17-18||YoY|
|Depreciation & Amortisation||42||42||1%|
|Profit Before Tax||12||-6||-296%|
|Profit After Tax||85||-59||-245%|
Operating revenue rose 14% YoY, led by a recovery in advertising spends.
Operating Expenses grew 8%, led by focus on controls and synergisation between national and regional news channel portfolios.
Tax includes impact from merger of subsidiaries.
There have been realignments in corporate structure for group simplification, which have provided operational synergies.
The scheme of arrangement for the merger by absorption of wholly-owned direct and indirect subsidiaries of TV18 with the parent was approved by the National Company Law Tribunal (Mumbai bench). The scheme became efiective from 1st November 2018, the appointed date being 1st April 2016.
Viacom18 and IndiaCast became subsidiaries of TV18 from 1st March 2018.
A comparable, operating view of the business (adjusted for these restructurings) is as below:
Comparable Consolidated Operating Financials
|Restated (Rs Cr)||FY18-19||FY17-18||YoY|
|Revenue Ex-film production||4,727||4,364||8%|
Comparable FY 2018-19 ex-film revenue rose 8% y-o-y on regional growth and a reviving ad-environment.
Comparable FY 2018-19 operating EBITDA was up 30% y-o-y despite Rs 114 crores additional investments into regional channels and digital expansions (VOOT International & Kids and CricketNext). This was led by regional news gestation losses compressing 41% y-o-y, and Business as-usual Entertainment EBITDA margins rising to 9% (vs 5% in FY 2017-18).
Consolidated financials (as reported)
|Particulars (Rs Cr)||FY18-19||FY17-18||YoY|
|PBT before Profit of JVs / associate||116||-8||-1,512%|
|Profit of JVs / associate||36||69||-48%|
|PAT (after Minority)||167||10||1,621%|
HUMAN RESOURCE DEVELOPMENT
There has been a continual focus on attracting and developing quality talent, and aligning them to the companys vision and mission while deploying progressive Human Resource policies, systems and processes.
During the course of the fiscal year, given the growth agenda and the intensely competitive landscape, Talent Acquisition was a focus area. Organisational manpower was strengthened across levels and business verticals. Even with the annual number of recruits being the highest ever, the Talent Acquisition processes were sharpened and improved - resulting in a reduction in the average Turn-around-times for recruitments as well as a reduction in the average Cost per hire. Through an improved selection process, a significant saving was obtained on the replacement costs for new hires.
Integral to your Companys approach to human resource management is its focus on employee development. Your Companys Learning and Development initiatives were further strengthened with the launch of the Learning Management System (LMS), "Opigno", across the Network. This LMS was integrated with the existing online content platform
Lynda, from LinkedIn. The LMS also provides curated technical programmes segregated by various academies - IT academy, HR academy and Finance academy. All of these were made available to our employees for developing their technical and behavioural capabilities for their current role and future requirements. A revamped Centralised Induction plan was created and deployed for our news trainees from top Journalism campuses. The programme, called "Aarambh", is a 5 days induction programme which provides support to the new joiners in their transition from campus to corporate life and is followed by function specific learning sessions. A structured monthly/ annual learning calendar was developed and training initiatives were undertaken for our employees through the year. Employee engagement initiatives were further reinforced. A Health and Wellness portal was implemented to enable employees to access articles and videos related to health and wellness and live telecasts of talks by health experts anywhere / anytime. An annual health check-up policy was also introduced. Multiple Employee Health and Wellness based events like Health camps by specific ailments were conducted. Various events and festivals were conducted across locations to promote employee engagement at the workplace.
Your Company seeks to promote a just and safe workplace for its employees. To create organisation-wide awareness on Prevention of Sexual Harassment, multiple sessions were conducted, which were facilitated by external experts. A mandatory e-learning and certification on Prevention of Sexual Harassment, called "Creating a Respectful Workplace", was introduced.
Your Company has been bolstering its HR Technology framework to drive eficiency and productivity. For new joiners, videos were created to aid the inductions of employees joining us in remote locations. The travel process was simplified by the integration of the SAP travel module with a travel vendor and self-booking introduced for cost eficiencies and reduced turnaround times. Payroll operations were also centralised for all our employees.
While externally, your Company consolidated its brands under the News18 brand, internally it focussed on creating a One Network culture. Talent movement across the various brands and properties of the company was encouraged, and processes were introduced to make it seamless.
As of March 31, 2019, there were 4,964 employees on the rolls of your Company.
|On-roll employee count TV18||31-||31-|
|TV18 Broadcast Limited||1,873||4,964|
Includes Panorama employee count of 3,024 in FY 2019
The upcoming year will see further focus on talent development, succession planning and leadership development, while exploring further ways to improve the technology support for various HR systems and processes. Your Company and its employees remain committed to driving the ambitious growth agenda, attaining a leadership position in each of the genres/markets that we operate in and building a credible reputation as one of Indias foremost media houses.
TV18 maintains a robust system of internal controls, commensurate with the size and complexity of its business operations. The system provides, inter alia, a reasonable assurance of protection against any probable loss of the Companys assets as a result of misuse of powers by those who are in a position to infiuence the working of the business verticals of the organisation. It ensures that the transactions of its business operation are recorded in all respects in a fair and transparent manner. The Company has an external and independent firm of Internal Auditors to scrutinise its financials and other operations. The Internal Auditors report their findings directly to the Audit Committee, which forwards them to the concerned departments / business verticals for taking corrective measures. Internal audit also ensures that applicable laws are being complied with in true spirit.
RISKS AND MITIGATION STRATEGY Content Risk
The content business (news, entertainment and film) depends upon the subject matter and its treatment resonating with viewers, which is dificult to predict accurately. A programmes (or films) ratings and revenue are directly linked to viewership. Hence, there is a risk of revenue loss in case a programme is not liked by the majority of viewers in the target group.
Advertising being a major source of revenue generation, any decline in advertising revenues (or disinfiation of the advertising currency) could adversely impact TV18s revenue and operating results. TV18s primary revenue generation is linked with the sale of advertisements through television channels, which is dependent on the overall macroeconomic and industry conditions, market trends, public policy and government regulation, viewership, budgets of advertisers, among other factors. TV advertisement sales are also threatened by the abrupt termination of contracts by advertisers, limits on advertising time, and advertising shift to new media formats such as digital, etc.
The Indian broadcast industry is heavily regulated across a multitude of areas including distribution, taxation, etc. Any policy changes can have a material impact on the economic and strategic direction of the industry and may restrict TV18s ability to do business. In this context, the recent TRAI tarifi order may create fiux in the industry as the complete value-chain including consumers have to adjust to the new regime where bouquets are unbundled in part and a-la-carte channel selection is allowed. In this scenario, channels with weak content could stand to lose out on account of poor consumer demand.
The emergence of digital media, along with the growth of mobile and radio, is causing a shift in part of the advertising revenue away from the television. With their greater local connect and more measurable reach index, such media are drawing in considerable advertising from sectors such as FMCG and BFSI. Also, the advent of these mediums has created a need for substantial investments into both content and platforms, so as to capture / ring-fence audiences which can be monetised later.
TV18 has relationships and JVs with external partners whose long-term continuation it cannot assure; though it has taken every efiort to create long-term relationships through licensing and JV agreements. Sudden termination or deterioration of these relationships may materially and adversely afiect TV18s operations and financial condition. The success of any future JVs and strategic relationships with third parties is also not assured, as every relationship comes with its own set of risks, including failure to recover the investment made in such initiatives.
Brand Recognition and Popularity
TV18s brand strength is one of its biggest assets and its success depends upon the popularity and recognition of its brands, as well as its ability to deliver original and compelling content and services that attract and retain viewers. Failure to sustain the brands, or excessive expenditure incurred in doing so, could seriously impact TV18s business and financial operations.
Majority of the companys debt is in the form of short-term debt from capital markets. This exposes the company to availability of external capital, at regular intervals, because of factors such as liquidity, volatility in interest rates, and general economic environment.
The Company may be exposed to the risk of litigation and legal action brought by various government authorities and private parties because of its actions, inactions, products, services or other events. From time to time, the Company may be involved in various disputes and proceedings which may have an adverse impact on its operational and financial performance as well as result in financial liabilities.
The Companys ability to operate its business and implement its strategies depends, in part, on the continued contributions of the Companys executive oficers and other key employees. The loss of any of the Companys key senior executives could have an adverse efiect on the Companys business unless and until a replacement is found. A limited number of persons exist with the requisite experience and skills to serve in the Companys senior management positions. The Company may not be able to locate or employ qualified executives on acceptable terms. In addition, the Company believes that its future success will depend on its continued ability to attract and retain highly skilled personnel with experience in the key business areas of the Company. The competition for these persons is intense, and the Company may not be able to successfully recruit, train or retain qualified managerial personnel.
INTERNAL CONTROL SYSTEMS
TV18 has exhaustive internal control systems that are aligned to its business requirements. TV18 regularly monitors the risks and has in place focussed risk mitigation strategies. Internal and external audit teams continuously monitor the adequacy and efiectiveness of the internal control environment across TV18 and the status of compliance with operating systems, internal policies and regulatory requirements. The Audit Committee meets periodically to review the adequacy and eficacy of the internal control systems.