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November 29, 2009

Why is NDTV exiting its entertainment channels?

Businessworld has an article on NDTV which recently sold a majority stake in NDTV GoodTimes to Scripps Networks and sold a 76% stake in NDTV Imagine to Turner Broadcasting.
Two years ago, NDTV decided to go beyond news and launch a slew of entertainment and luxury channels. The aim was to bring in higher revenues, and help the company turn the corner. But now, NDTV is set to exit entertainment to save what it knows best — news operations.

...While the split with Star helped NDTV ramp up to a multi-channel broadcaster, its financial performance dived. Except for FY2005, when NDTV made a profit after tax of Rs 29.2 crore on a turnover of Rs 152.9 crore, it has been steady downhill since. For FY2006, the company’s net loss was Rs 6.25 crore, Rs 14.5 crore in FY2007 and Rs 189 crore in FY2008 (see ‘Burning Cash’). In FY2009, it booked a net profit of almost Rs 120 crore on the basis of the Rs 643-crore stake sale to NBC Universal. In fact, the operating loss was a humongous Rs 520 crore on total income of just Rs 492 crore. In the current financial year, NDTV, in spite of all its cost-cutting measures, has notched up a loss of a little over Rs 170 crore by 30 September.

...NDTV’s group CEO Rao, who spoke at length to BW, is conscious of the financial challenge, but pins the blame on external factors. He says advertising revenue was poor with news operations bringing in lower-than-expected Rs 350-375 crore a year. Coupled with this was the high carriage fees charged by cable and DTH operators, which was costing them Rs 70 crore a year. This has serious financial implications, as programming costs for Hindi entertainment channels are astronomical. Senior NDTV sources estimate the cash burn on running NDTV Imagine at Rs 85 crore a quarter, while ad sales are returning only Rs 35 crore a quarter. This means the channel is seeing gestation losses of Rs 180-200 crore a year.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in