UTV Software Communications Ltd Share Price Management Discussions
UTV SOFTWARE COMMUNICATIONS LIMITED
ANNUAL REPORT 2010-2011
MANAGEMENT DISCUSSION AND ANALYSIS
+ Introduction
We are a diversified media and entertainment company headquartered in
India, with growing operations around the world. We began as a television
content production company in 1990 and have since developed into an
integrated media and entertainment company. Our business is divided into
three business segments: (1) Television; (2) Movies; (3) Games and
Interactive:
Television segment involves four main functions (1) production of
television content (2) airtime sales, which includes managing slots and
selling commercial air time on other broadcasting networks, (3) dubbing;
and (4) broadcasting of four speciality genre channels, UTV Action, UTV
World Movies, UTV Movies and UTV Bindass distributed through out India and
selected international markets.
Movies segment focuses on the production and co-production of Indian films
and the distribution of such films across various platforms. UTV has more
than a decade of experience in movie production having produced/co-produced
movie blockbusters such as, Swades, Rang De Basanti, Jodhaa Akbar and
Raajneeti. UTV has also co-produced Hollywood movies including The Namesake
and The Happening.
Games and Interactive includes video game content development, publishing
and global distribution across mobile, online and console platforms as well
as other Interactive entertainment content development for mobile and
internet platforms worldwide. UTV has a majority stake in Games Content
companies across three platforms, high-end console Game Content, games for
mobile phones and publishing of Massively Multi Player Online (MMOG) games
for the online PC platform.
+ Industry Overview:
The Indian M&E industry grew from INR 587 billion in 2009 to INR 652
billion in 2010, achieving an overall growth of 11 percent. This fiscal
year has seen increased sentiment in the industry and increased consumer
consumption resulting in estimated growth of 13 percent in 2011 to touch
INR 738 billion with projected growth at CAGR of 14 percent to reach INR
1,275 billion by 2015. This growth was primarily driven by the resurgence
of media spends by advertisers across media platforms.
While television and print continue to dominate the Indian M&E industry,
sectors such as gaming, digital advertising, and animation VFX also show
tremendous potential in the coming years. By 2015, television is expected
to account for almost half of the Indian M&E industry revenues, and more
than twice the size of print, the second largest media sector.
Advertising revenue continues to be the main source of revenue for the
Television industry and is expected to increase from 38 percent in 2007 to
42 percent in 2012 of the total revenues generated.
Key growth drivers in future:
* Creating Scalability-Increased competition has encouraged cost reductions
across the industry to increase profits across segments
* Viewership Expansion-Increasing reach into lower penetrated markets, SEC
B, C, D, increase advertising spending leading to high revenues and
increased competition
* Digitization-Digital distribution platforms have improved the reach and
content quality for end user
* Specialty Content-Increased trend of focused content and delivery to a
targeted audience
* Consumer Understanding-Greater understanding of cultural and social
preferences via study groups allows content and advertising to be more
targeted to consumers
* New Media-Convergence of media, m-commerce and emergence of an app
economy are the trends likely to emerge
* Government Intervention-Government reforms will enhance the development
of Indian media companies
* Social media-Expanding global reach of social media, allow companies to
explore new online marketing strategies
+ Indian Film Industry:
The Indian film industry was estimated to be INR 83.3 billion in 2010,
indicating a decline of 6.7 percent in overall industry revenues as
compared to 2009. The industry believes that lack of quality content led to
an overall drop in occupancy levels and box office collections. While
overseas theatrical revenues experienced some decline; it was the home
video segment that witnessed a steep fall in revenues. Cable and Satellite
rights experienced a healthy growth of 33 percent owing to growing demand
from broadcasters. Ancillary revenue streams also witnessed a growth of 15
percent over 2009.
Fox Star demonstrated tapping of untapped markets with the distribution of
My Name is Khan being theatrically released across 64 countries.
Rajnikants Robot, emerged as the highest grosser for an Indian film,
breaking the previous records set by 3 Idiots.
Some of the other highlights of 2010 were declining sales of home video,
proposed copyright reforms in favor of music composers and lyricists,
increased budgets for marketing and publicity, growing potential of cinema
advertising and investments in better infrastructure. Focus by filmmakers
should be on profitability along with building stronger connect with target
audience, with low success rate and rising costs. The industry expect to
gain momentum by utilizing new marketing and distribution platforms and
varying content to changing consumer preferences.
+ Indian TV Industry
There has been a tremendous growth in the television and broadcasting
industry over the last two decades, with an average growth rate in double
digits. A total of 600 million viewers were reached by the industry with an
addition of almost 100 million viewers in 2010 and the channel mark from
460 in 2009 was crossed to 550. Easy access to viewers on DTH platform even
in smaller markets with the entrance of new players niche offerings like
food channels and more channels in English Entertainment space.
India is the only country in the world with 88 million non TV HHs
indicating the potential for growth in the market. There are still more
than 250 channels awaiting approval as there is growing optimism in the
industry. There will be great demand for satellite bandwidth with the
introduction of HD channels, the HITS platform, existing DTH channel
expansion plans, new channel launches, and VSAT services. The consumers in
India should be more amenable to paying for content in comparison to other
countries. Only 10 percent of advertisers on print advertise on television
currently, leaving the balance 90 percent untapped.
+ Games Content Industry:
The interactive entertainment industry, or game industry, consists of
several participants: the manufacturers of dedicated video game consoles
and portable devices; the publishers of packaged software products that can
be played on consoles, handheld devices and PCs; the developers of packaged
software; and the producers of games that can be accessed digitally,
whether through a mobile device, the Internet, or direct download.
The Indian gaming industry is valued at INR 10.0 billion and is expected to
grow at a CAGR of 31 percent to INR 38.3 billion by 2015.
The gaming industry can be divided into three broad gaming segments-mobile
gaming, console gaming and PC and online gaming:
i) Mobile Gaming:
Mobile gaming is an INR 2.8 billion market and is expected to grow at a
CAGR of 45 percent to reach INR 17.4 billion by 2015. The rising number of
wireless subscribers coupled with increasing penetration and affordability
of data enabled handsets provides a large addressable market for the gaming
industry.
A huge effort by telecom operators is to improve 3G consumer awareness
which will ideally ease congestion of networks and improve overall gaming
experience. With the decline in ARPUs, telecom carriers are focusing on
increasing revenues from data services which will eventually increase the
growth in mobile gaming industry. Global gaming companies are monetizing
the potential of Indian gaming industry by establishing a presence in
India. For example : Zynga, the creators of Farmville, set up their first
and largest base outside US in Bangalore in 2010.
ii) Console Gaming
Console gaming is the largest contributor of Indian gaming industry
revenues which has generated INR 5.8 billion in 2010 and is expected to
grow at a CAGR of 20 percent to INR 14.2 billion by 2015.
Console gaming is hugely targeted at teenage or young urban single male.
However, Sony, Microsoft and Nintendo are focusing on casual games, thus
reaching a wider demographic due to their more intuitive nature and lower
learning skill requirement.
iii) Online and PC Gaming:
Rising penetration of internet is driving the online gaming industry in
India. At INR 1.5 billion the Online and PC gaming market accounts for 15
percent of the overall gaming market. This segment is expected to grow at a
CAGR of 35 percent to reach INR 6.7 billion by 2015. Increased usage of
social networks in India and awareness created by online gaming companies
through the distribution of large number of games of different genres has
generated increased user interest.
New Media:
The profound effect of the internet on consumers viewing habits and the
proliferation of devices is altering their M&E consumption behavior. While
the traditional media offered passive consumption, new media facilitates
interactivity. A key aspect of new media is the shift in focus from
functional innovation to humanisation of technology, bringing meaningful
consumer connect.
Earlier, content is king was believed to be the key to success. With the
aggressive entry of telecom operators and cable companies in the digital
value chain, the debate shifted to whether controlling distribution
channels mattered more than owning content.
In the second digital decade, the production of devices created new
channels of communication for personalized and localized content. The
realization has sunk in that while content and distribution are important
aspects of the digital business model, companies can provide value in many
ways-by providing context, coverage or convenience to the target audience.
The cost of network access and handsets is falling, penetration of wireless
networks is increasing and Indias young population is demonstrating a huge
appetite for digital content. With a rapidly expanding new media universe,
companies are recognizing that new media technologies offer better
engagement with consumers, and are increasing their investment in this
space.
The key themes for new media in India are:
* Focus on Mobile phones:
Globally, smartphones such as the iPhone have revolutionized the market.
Constant innovation by handset manufacturers, carriers and content
developers in order to stay : competitive. The launch of 3G services is
expected to further increase the number of mobile internet users.
* Social Networking:
75% of the global internet population visits social networking/blogging
sites, spending an average of almost 6 hours monthly. With the expanding
global reach of social media platforms, companies are increasingly
experimenting with various online marketing strategies.
+ Business Strategy
The key elements of our business strategy are as follows:
Integrated Platform of Media Businesses to Drive Growth and Innovation:
We have diversified across various entertainment platforms to become a
respected integrated media company in India and we seek to have a presence
in most major media platforms. To this effect, we have created highly
scalable business models for each of our existing business verticals. We
believe in creating quality content across multiple platforms which caters
to local and regional tastes and sensitivities as well as global audiences.
Maintain Intellectual Property Rights Over Content:
Producing content ourselves enables us to retain the intellectual property
rights of our movies in perpetuity, which can then generate revenue through
multiple cycles. Our strategy is to continue to focus on the production, or
co-production, and distribution (or, as appropriate, publishing) of our own
movies, games and television content. We believe this approach entails
fewer risks than having a distribution-only or publishing-only model due to
the wide array of distribution platforms that are available to us when we
produce our own content.
Create Properties with a 360o Approach:
As a diversified Media Company with global reach we attempt to create
properties that can be exploited from multiple platforms. Our strategy is
to create touch points across multiple mediums such as movie screens, TV,
mobile phones, and web. This allows for effective and cost efficient
marketing for all products.
1. Television:
Produce a Wide Array of Television Content:
Thrust has been to lay strong roadmaps to strengthen fiction space keeping
in a longer horizon of the show and also to a wider audience as compared to
a non-fiction which is seasonal or an activity run. However, we will look
to continue entertaining the audiences with all the genres of programming-
looking at doing a balancing act between fiction and nonfiction.
Focus on Quality in Airtime Sales:
In the airtime sales business, we concentrate on quality more than quantity
by having better performing shows providing higher returns on investment.
Mass Specialty Channels Focused on Higher Yielding Audience:
Our broadcasting business aims to provide programming tailored to Youth and
Male audiences resulting in higher returns with targeted advertising.
Further, prioritized distribution allows for a low cost model with
maximized viewership. We research our audiences viewing habits and
preferences in order to develop specialised content that attracts and
retains viewers.
2. Movies:
Enhance Production Capabilities:
We believe one of our keys to success has been to develop and nurture in-
house functions for creative, marketing and distribution; hence reducing
our reliance on outside talent and agencies. In order to maximize our
revenue streams, the distribution team focuses on expanding the reach of
our movies across the globe to capture the large 30 million strong Indian
diaspora. This strategy enhances the value of our creative products over
time by enabling us to exploit favourable marketing and distribution
arrangements and maintain control over the creation and capitalisation of
intellectual property rights in relation to the movies that we produce.
a. Building Strong Team of Creative Professionals:
In order to develop a rich and varied slate of films, we will continue to
build and grow an internal creative team to develop content for the Movies
business. Further, the team focuses on identifying changes in audience
needs from entertainment products and identifying new talent to launch and
build through the UTV brand.
b. Expand Distribution Capabilities:
In an effort to maximize revenues the internal marketing and distribution
teams are continually exploring new and innovative opportunities to market
and monetize our films across the globe. In addition to new revenue
streams, we continue to build our theatrical reach as we currently
distribute our movies in more than 40 countries outside of India.
Development of Franchises:
In order to maximize revenues across verticals within UTV, we look to
identify films which have Franchise capabilities. The Franchise model would
allow for the Group to maximize revenues beyond the Movies division such as
merchandising and licensing, television series, gaming and other platforms.
3. Games and Interactive:
Powering forward with games content product development:
We continue to focus on creating high quality original IPs in our studios
across the world, across console, mobile and online games.
Supported by a true multiplatform strategy:
Use our presence across multiple forms of Gaming, we work to ensure that
IPs developed on one platform can be exploited across our other platforms.
In addition, we endeavor to acquire/create IPs that have a truly
multiplatform creation, distribution and monetization strategy to engage
the gamer across multiple touchpoints.
Growth through Content Creation and Technology Partnerships:
The Interactive segment strives to achieve scale by advancing up the value
chain from a pure play content creation and aggregation house to an
integrated model through preferred partnerships with technology delivery
companies.
+ Opportunities and Threats:
The Company has a diversified business model in media and entertainment
sector with its revenues coming from various segments across various levels
of the media and entertainment value chain. With operations all over the
world, the Company is well placed to cash in on opportunities in the
growing media and entertainment space.
In the television space, growth in addressability in the Indian market is
expected to provide various opportunities for growth. Growth of addressable
systems would lead to an increase in the demand for specialised content.
Increase in multiple television households will also result in
fragmentation of audiences. Growth in subscription revenue coming from an
increase in addressability could also spell good news for content providers
as some part of this increased share could get ploughed back into the
business in the form of higher --m H programming spend.
In the movies segment, the growth of multiplexes and the digitization of
cinemas in the country are changing the dynamics of film distribution and
marketing in India. Opportunities of exploiting content delivered on newer
form factors like mobiles and handhelds are continuously increasing. Newer
technologies like 3D are not just available but also tried and tested in
global markets.
The rapid penetration of mobiles and other personal devices are giving a
boost to interactive entertainment. Newer forms of entertainment like
online and social gaming are throwing up newer opportunities to capture
larger gudiences.
The Company operates in a very competitive environment. Apart from the
organized entities in the television and film production space there are a
lot of small unorganized production houses in both the films and the TV
content production segments. Also, the emergence of other large production
setups in the films business, have increased the premium on key talent and
hence production costs. Changes in Government regulations or any change in
the legislative intent to bring about addressability could adversely impact
growth plans in the television segment. The rapid changes in technology,
particularly in the Interactive segment, can also pose a threat.
+ The Year In Review:
Business Overview:
* Television:
This segment has contributed around 38% to the operating revenues of the
Company. The Broadcasting segment has achieved scale and the TV Content
business continues to expand with the growth of the Television industry and
number of channels in the Indian market.
TV Content: Our TV Content segment represents the shows produced by us on a
commissioned basis. During the year, we continued the success story of both
reality shows and fiction programs. In fiction we started with Rakth
Sambandh on Imagine & Dor-Mayke Se Bandhi over Star Plus. Emotional
Atyachar, continued its success with the launch of the second season this
year on UTV Bindass. After tremendous success of Dance India Dance we were
commissioned to produce Boogie Woogie, a dance show & Maa Exchange a
reality show for Sony. In addition, we produced several in programs in the
regional space i.e. Prajaktaa in Marathi language for Mi Marathi, Raktha
Sambandh in Telugu language for Gemini TV, Veera Marthanda Varma in
Malayalam language for Surya TV, Game show Deal or No Deal in Tamil,
Telugu, Kannada & Malayalam languages for Sun Network, Maaylek for ETV
Marathi and Ratha Saptami for Udaya TV.
Air Time Sales:
This business has shown steady growth during the fiscal. During the year,
we managed a monthly average of approximately 120 hours of content across
all leading South Indian Channels such as Sun TV, Gemini TV, Udaya TV and
Surya TV. In this fiscal, UTV had shows among the Top 5 programs its
respective genre and channel including the top rated slot on the Sun
Network with a show called Thirumati Selvam. Also Deal or No Deal continues
at the top position among weekend shows on Sun TV and Surya.
Dubbing:
The Dubbing business was started in 1992 and has evolved into a stable
business for UTV. We currently have a talent bank of over 500 voices across
genres and languages. During the year, we provided our dubbing services for
television content to large international players like Disney, National
Geographic Channel, The History Channel, NDTV Good Times and various other
channels including UTV Bindass and UTV Action.
+ Broadcasting:
UTV Bindass caters to 15-24 yrs SEC A&B audience in towns with population
of over 1 million. Keeping to its promise of unique programming, innovative
show concepts and brand led activations were done during the year. Some key
success stories of the brand:
* UTV Bindass maintained strong GRPs throughout the year
* Dadagiri 4 - Battle of the Sexes, Big Switch 2, Love Lockup,
* Emotional Atyachaar 2 and Date Trap were some of the unique shows
launched in the last year
* Emotional Atyachaar 2 continued its success from the previous fiscal to
open with a TVR of 1.5. The show has become a franchise now and has also
launched an EA music album with T-Series
* Campus continues to remain a key focus with Campus Attack now having
covered and put on air 20 of the biggest Campus fests in India
* Big Switch 2 launched its second season wherein the show focused on
communication gaps between Kids and their parents and switched families to
enable a better understanding of life in another family; the show is
consistently in the Top 10 week on week.
* Yamaha Dream Ride-Bindasss foray into the ad funded programs this year
began with Yamaha Dream Ride.
UTV Movies caters to one of the biggest entertainment genres on Indian
Television-Hindi movies. While we have access to an enviable slate of
movies from the UTV library which includes the biggest blockbusters of the
last few years we have also acquired software from multiple companies
across India.
UTV Action completed its one year anniversary during this fiscal and has
been a success from the day it launched. The Brand has developed into the
premier alternative to cricket when planning for the elusive male audience.
The channel encompasses all facets of Action-Movies, Series, Sports,
Gaming, etc. UTV Action showcases some of the best Hollywood action flicks
in Hindi. The channel has an extensive library of titles that include: Men
in Black, Black Hawk Down, End of Days, Bad Boys-II, Grudge, Vertical
Limit, Crouching Tiger Hidden Dragon, Desperado, Godzilla, Blade and
Pirates of the Caribbean-Curse of the Black Pearl.
UTV World Movies is the first channel of its kind which brings
International cinema to Indian television for the first time. UTV World
Movies has acquired International blockbusters in varied languages like
Italian, French, German, Spanish, Polish, Japanese, Korean, Chinese and
many more. Today the channel is a brand that covers four major verticals-
Television, Theatrical, DVD and Print with a magazine that goes out to
audiences interested in World Cinema.
+ Movies:
This fiscal year has been quite successful for the Movies business with our
movies performing well at the box office and winning numerous accolades and
awards. We have worked hard to develop a scalable and profitable studio
model and this year the model reached its maturity.
During the fiscal year we released the following films:
* Raajneeti
* We are Family
* Peepli Live
* Guzaarish
* Tees Maar Khan
* I Hate Luv Stories
* 7 Khoon Maaf
* DhobiGhat
* No One Killed Jessica
* Udaan
The following were some of the key highlights of the movies business this
fiscal:
* Raajneeti released to amazing results achieving the 3rd largest box
office collections of all time in India at the time of its release
* Peepli Live, our first co-production with Aamir Khan, was Indias nominee
to the Academy Awards; the fourth such honour for a UTV release in the last
5 years
* Udaan was the only Indian film invited to be selected at the Prestigious
Cannes Film Festival and the first since 2003 in the Un Certain Regard
category
* No One Killed Jessica became the highest grossing film ever with a female
led cast
* UTV swept a whopping 10 awards at the prestigious Filmfare Awards
including the Best Film (Critics Choice)
Games and Interactive:
This business segment comprises Games Content Business across Console,
Online, and Mobile platforms as well as our Interactive division which
comprises our web and mobile activities.
This year, the Games vertical has seen major developments in the three
companies:
Console:
This has been a very exciting year for UTV Ignition in which the Company
was preparing for its first AAA launch, EI Shaddai: Ascension of The
Metatron. The game was officially announced to consumers during the Tokyo
Game Show to rave reviews including the Best Future Game award. The game
released in Japan on April 28th and has been extremely well received in the
market with 200,000 confirmed orders received prior to the launch date. In
addition, ahead of the release of El Shaddai, UTV Ignition finalized
merchandising deals with a Jeans company -EDWIN and a Toy Company in
Japan-Bandai Toys.
Blacklight Tango Down, UTV Ignitions first digital download title, was
also nominated for several E3 2010 awards, including IGNs Best of E3 and
Machinimas Best online Multiplayer Game. Tango Down was released in XBLA
on July 7, 2010 and in the first 24 hours it sold more than 20,000 digital
downloads and ranked in the Top 10 in downloaded games.
UTV Ignition also signed and released in March another digital download
title, Swarm, which is a very unique and award-winning game concept planned
for release during this financial year. The game currently holds a score of
72% at XBLA/PSN rankings.
In this fiscal, UTV Ignition relocated and consolidated its Florida studio
development and its Los Angeles Publishing business into one single
location at Austin, the city which is rapidly growing as the game developer
capital in North America. This relocation will bring the best talent to its
game development and synergies between development and publishing teams.
UTV Ignition continues to aggregate and empower some of the best global
talent to create cutting-edge high end Console Game Content for all the
Leading Platforms-Sony PS3, Microsoft XBox 360 and Nintendo Wii.
Mobile:
The Company continues its growth trajectory with the addition of new titles
and exclusive distribution rights for many international publishers.
UTV Indiagames products are developed and published across all major
technology platforms and are distributed through partnerships with mobile
operators in over 75 countries.
In this fiscal, UTV Indiagames partnered with Electronic Arts to offer full
digital game downloads of popular EA games for the PC platform as part of
the Games on Demand platform. The Games on Demand business has shown steady
growth throughout the year reaching a subscriber base of more than 85,000
users.
Other key highlights from UTV Indiagames in this fiscal include:
* Reached 1mm download milestone on Ovi
* UTV Indiagames and Mindtwister launched the award winning board game
Pentago for mobile feature phones and smart phones alike
* UTV Indiagames added two managed services contracts for WAP Deck and
Games Deck Management bringing the total to four managed contracts for the
Group
* UTV Indiagames launched Cricket World Cup in Q4 to grow in the cricket
game space after the success of the IPL game.
* Launched its Direct-to-Home service offering on Airtel Digital
* IPL T20 Fever was the top ranked application in India on the iPhone and
iPad App Store during the IPL Season and continues to be in the top 20
applications. The Android version of the game enjoyed similar success on
the Android Marketplace and still holds Top 30 ranks in the Global
Marketplace rankings amongst Sports Games worldwide
Online:
The online gaming company mainly focuses on creation of our own content out
of the US and Beijing studios. The revenue model is mainly based on micro-
transactions and syndication.
The Company, during the year, realized significant cost savings and
efficiencies since consolidating the studios to Austin, Texas and Beijing.
During this fiscal, the Online business struck its first syndication deal
for the upcoming game
Mytheon for a European territory, which has recently completed its closed
beta testing. In addition, Faxion completed its closed beta testing and
will be released in 2011-2012.
+ Interactive:
This part of the business comprises the Web and Mobile operations of UTV.
Products and services under this business include services such as
distribution of movies and music based products on mobile such as ring-back
tones and caller ring-back tones, wallpapers, various products for
Celebrities like Voice Blogs and live Voice Chats and Audio Cinema.
* UTV launched a celebrity division within the Interactive segment
providing digital celebrity content across tier 1 operators.
* During the fiscal, we consolidate our Audio Cinema product, which has
become UTV Interactives flagship product, and has grown to an active base
of 1.9 million users
* UTV interactive launched its Audio Devotional product, which is currently
at an active base of approximately one million users in its first few
months of launch. The service is currently available in 6 languages.
Financial Overview Revenues:
The Company reported a growth in consolidated operating revenues of
Rs.2,654 million to Rs 9,295 million from Rs 6,641 million reported in the
previous year, led by increase in revenues in the Movies and Television
divisions.
Revenues in the Television segment increased from Rs 2,490 million in the
previous year to Rs 3,558 million in the current year, an increase of 43%.
This was primarily due to the growth of our four broadcast channels and
growth in the Television Content business.
The Movies segment reported an increase in revenues from Rs 3,154 million
in the previous year to Rs 4,544 million this year an increase in 44%,
primarily due to box office success of several movies as well as growing
revenues from C&S rights. Our Movies business is continuing to realize the
benefits of our IP focus and studio model approach.
During the year, the Games and Interactive segment reported an increase in
revenues of 12% from Rs 1,070 million in the previous year to Rs 1,201
million. This increase was a result of continue growth in the Interactive
segment with new product offerings and increased sales from the games
business.
Other Income:
Other income decreased moderately from Rs 204 million for the year ended
March 31, 2010 to Rs 191 million for the year ended March 31, 2011. This
decrease is partly attributed to the decline in Profit on Sale of
Investments.
Direct Costs:
Direct costs incurred during the current fiscal are Rs 5,927 million as
against Rs 4,473 million in the previous year, an increase of 33%. Direct
cost as a percentage of operating revenues was at 64% compared to 67% in
the previous year.
Staff Costs:
The staff cost of the Company has increased by 26% from Rs 618 million in
the previous fiscal to Rs 780 million during the current fiscal. This is a
decrease in staff costs as a percentage of operating revenues from the
previous fiscal year.
Other Expenses:
Other Expenses comprises administrative overheads, provisions for doubtful
debts/advances, advertisement and business promotion expenses, general
expenses and others. During the year, other expenses were at Rs 983 million
compared to Rs 1,076 million in the previous year showing a decrease of 9%.
This decline is due to an absence of any Loss on Foreign Exchange
Fluctuation which is offset partially by an increase in Marketing Expense
in this fiscal.
Interest Cost:
During the year, the Companys borrowings decreased by Rs 636 million
compared to previous year. The net interest expense for the year was Rs 343
million against Rs 384 million in the previous year.
Depreciation:
The depreciation charge for the current year was Rs 74 million as compared
to Rs 62 million in the previous year.
Profit before Tax:
The Profit before Tax for the year increased from Rs 231 million in the
previous year to Rs 1,380 million in the current year. The Company has now
started reaping the benefits of being in investment mode during the last
two years. An expansion in gross margins and a less than proportionate
increase in the fixed costs have resulted in this increase.
Provision for Taxation:
During the year, the total Provision for tax was Rs 4.3 million as against
Rs (270.25) million during the previous year.
Profit after Tax and Minority Interest:
The Profit after Tax and Minority Interest for the year was higher at
Rs.1,355 million against Rs 533 million in the previous year, an increase
of 154%.
Consolidated Financial Position:
Sources of Funds:
Share Capital, Revenues and Surplus:
The Equity Share Capital of the company remained constant at Rs 406 million
as there were only a small number of shares allotted due to exercise of
ESOPs during this fiscal. The consolidated Reserves and Surplus increased
from Rs 7,317 million to Rs 8,810 million, an increase of Rs 1,493 million.
This is primarily due to a Profit in the current fiscal and increase in the
Foreign Currency Translation Reserve.
Loan Funds:
The Companys borrowings decreased by Rs 636 million, down from Rs 9,627
million in the previous year to 8,991 million in the current year.
Utilisation of Funds:
Fixed Assets:
Gross Fixed Assets as on 31 March 2011 were at Rs 1,030 (excluding Goodwill
on consolidation) million as against Rs 924 million on 31 March, 2010.
Goodwill on Consolidation:
Goodwill arising on Consolidation from Rs 3,952 million in the previous
year to Rs 3,916 million in the current year is primarily on account of 15%
additional stake acquired by the Company in True Games Interactive Inc.
during the year.
Investments:
The company had investments of Rs 201 million at the start of the year.
Investments as on 31 March, 2011 were Rs 1 million showing a decrease of
Rs.200 million.
Current Assets, Loans and Advances:
Total current assets, loans and advances increased by Rs 3,889 million
during the year, up from Rs 13,992 mllion in the previous year to Rs 17,881
million. Debtors (net of provisions) as on March 31, 2011 were at Rs 2,208
million representing 87 days of sale as against Rs 1,403 million as on
March 31, 2010 representing 77 days of sale. During the year, inventories
increased to Rs 11,786 million from Rs 8,538 million in the previous year.
This is largely due to an increase in inventory in the Games segment and
Movie Copyrights. Loans and advances decreased to 3,083 million during the
year from Rs 3,336 in the previous fiscal. Cash and Bank balances have
increased from 711 million as on 31 March, 2010 to Rs 800 million as on 31
March, 2011. Other Current Assets increased from Rs 3 million in the
previous fiscal to Rs 5 million as on 31 March, 2011.
Current Liabilities and Provisions:
Current Liabilities have shown an increase of Rs 2,951 million from 2,005
million in the previous fiscal to 4,956 million.
Net Deferred Tax Asset/Liability:
Net deferred tax assets at the year end were 1,023 million compared to
Rs.1,016 million in the previous year. This was mainly on account to
Foreign Exchange variations.
Segmental Performance:
The business of the Company, during the year, was broadly categorized into
the following three segments:
Television:
Revenues from the television segment increased by 43% from Rs 2,490 million
in the previous year to Rs 3,558 million during the year primarily to the
growth and maturation of our Broadcasting channels and an increase in our
revenues from the Television Content Production business. The segment
reported a profit of Rs 309 million as compared to a loss of Rs 2 million
in the previous year.
Movies:
The Movies segment reported an increase in revenues of 44% from Rs 3,154
million in the previous year to Rs 4,544 million this year, due to an
increase in the scale of our movies. The increased number of movies and the
success at the box office and other streams of revenue have driven the
results. The Movies business reported a profit of Rs 1,523 million [margins
of 34%] during the year against a profit of Rs 951 million [margins of 30%]
during the previous year.
Games and Interactive:
During the year, the results of the Games and Interactive segment included
consolidated financials of Ignition, True Games and Indiagames as well as
the web and mobile properties for the full year. During the year, the Games
Content segment reported an increase in revenues of 12% from Rs 1,070
million in the previous year to Rs 1,201 million. The Games and Interactive
segment had a profit of Rs 141 million up from a loss of Rs 148 million in
the previous year.
+ Risk Factors:
1. UTV operates in a highly competitive industry and UTV expects that
competition will continue to increase with the entry of new players into
the sectors in which it operates.
2. UTV competes with other entertainment media companies to develop
arrangements with popular producers, actors, writers and other artistic
talent for the production of high quality television content and movies.
UTVs inability to obtain such talent to produce high quality programming
on reasonable terms, or at all, could have a material adverse effect on its
business, financial condition and results of operations.
3. UTV may be unsuccessful in protecting its intellectual property rights.
Unauthorised use of UTVs intellectual property may result in development
of technology, products or services which compete with UTVs products. UTV
may also be subject to third-party claims of intellectual property
infringement.
4. The motion pictures sector in India is largely fragmented and UTVs
movies business faces significant competition from various national and
regional competitors offering similar services.
5. UTV is facing increased competition in its television business, driven
by factors such as an increase in the number of TV channels and continuous
fragmentation of TV viewership.
6. UTV division in the Games Content space is highly fragmented space faces
significant competition in all three platforms from various multinationals.
7. The seasonality of advertising and the schedule of UTVs movie releases
could cause its results of operations to vary between financial periods.
8. UTV has substantial indebtedness and the conditions and restrictions
imposed by UTVs financing and other agreements could adversely affect
UTVs ability to conduct its business, its financial condition and its
operations.
9. UTV requires certain approvals or licenses to conduct its business, and
the failure to obtain such approvals or licenses in a timely manner or at
all may adversely affect UTVs business and operations.
10. UTV operates in a creative environment and its products are subject to
acceptance by consumers. Consumer tastes and preferences are subjective and
can change anytime thereby affecting the business.
11. UTV, as a group, has operations across multiple geographies thereby
exposing it to foreign exchange fluctuations. However, every year we make
an estimation of any downside related to foreign exchange and make
appropriate provisions for the same thereby insulating us to a great extent
from any drastic fluctuations.
12. Our businesses are mainly driven by creativity hence our long-term
profitability is dependent on our ability to attract and retain creative
and technical talent.
+ Human Resources:
As a Company, we appreciate the breadth and depth of our team. We believe
in constantly nurturing the creative processes followed in their respective
businesses and take full advantage of the emerging opportunities in their
sphere. We are in full cognizance of the fact that it is due to the
passion, commitment, talent and experience of our people that we are able
to rise to the challenge of exceeding the ever increasing demands of our
consumers.
We have been able to attract and retain the best talent from around the
industry for our existing and new business initiatives and for taking us to
the next level of growth.
As at March 31, 2011, we, along with our subsidiaries, had 887 full time
employees, long-term professional associates and animation talent, the
business wise classification of which is as under:
Motion Pictures 71
Television 326
Gaming 421
Corporate 69
TOTAL 887