CA Media’s Rajesh Kamat on investment in media & entertainment space, digitisation & cable market consolidation
CA Media, promoted by former News Corporation COO Peter Chernin’s Chernin Group and former Star TV Asia CEO Paul Aiello, has been aggressively looking to buy and build media & entertainment assets in India. The firm announced its two investments in the traditional media space last year and has recently closed two transactions in the digital media space. With Graphic India, CA Media is looking to create Marvel Comics of India by bringing in character entertainment across diverse digital platforms while its incubatee, FLUENCE, is looking to manage and leverage the social media presence of celebrities. Backed by Providence Equity Partners and Qatar Holding, CA Media’s Indian unit is headed by Rajesh Kamat, widely believed to be the driving force behind the success of the general entertainment channel Colors. In an exclusive interview with VCCircle, Kamat said that CA Media’s strategy is to create an ecosystem which provides multiplier effect to each of its portfolio companies. He also talked about CA Media chasing investments in cable TV, e-tailing and family entertainment centres, among others. Here are the edited excerpts from the interview.
How has CA Media’s strategy shaped up in India?
Back in 2009, Peter Chernin left NewsCorp and floated a company which is a hybrid of an investment firm and an operating company. One arm of that company is involved in television & film production – some key titles were Rise of the Planet of the Apes, Oblivion, New Girl and Terra Nova. Another arm invests in companies like Flipboard, Tumblr, Pandora and Fullscreen. Plus, Peter is on the Twitter board.
We have tried to replicate that model in India. However, our philosophy is to create an ecosystem where each of these assets should not only experience growth but also help other brands grow. So we have taken a three-pronged approach – traditional media is one; new & transformative media is second and consumer entertainment & retail will be the third focus area.
We have flirted with the first but there is much more to come. Endemol is in content & film production while Only Much Louder (OML) is into youth and music.
We now have two ventures in New Media. One is an incubated company called FLUENCE, where we manage the digital life of Amitabh Bachchan, Salman Khan and Karishma Kapoor. We manage their equity-linked investments, e-commerce initiatives and social media. While people believe this may be about monetising social media, it is really about generating a nine-million base and then trying to use that as a captive audience. We own 100 per cent in this entity and have set up a team.
The fourth venture is Graphic India, which is about character entertainment and every character is a franchise. In my mind, the most important aspect is who develops the characters and how they are developed. We have the Stan Lee and Grant Morrison helping us with local Indian talent. The second challenge is when an IP (intellectual property) or character is created, which screen it should hit first. You may see it on television or mobile, in published book format, on tablet or online. We are also putting together a platform where these graphic novels are available on a subscription basis.
Let us see how these things work out from an ecosystem point of view. I have FLUENCE through which I have the digital rights of Salman or Amitabh. Let’s say, I get Salman Khan and Grant Morrison to meet and create a character the way Salman wants it – it is a different game altogether. The same graphic character can be developed into films through Endemol and this audience is the same which goes to NH7.
All in all, we have created an ecosystem which gives a multiplier effect to each of the brands. And you will see cable, consumer retail and traditional media coming into this.
How are you looking at deal-making in media & entertainment space?
There is tremendous potential in the media space. What we defined as media, we have quickly expanded to media & entertainment because we believe the entire space has tremendous growth left. Media has pockets of growth outside broadcasting. We identify a space; then identify the growth and a promoter to partner and grow with. If we don’t get a promoter, we incubate. OML is a classic example. When we got into it, it was a one-city NH7. But now we have a three-city NH7, eight-city concert, seven television shows and it has been less than one year.
Going ahead, we will do a combination of building and buying assets. A typical buy will give you 3x returns but if you were to build it or get in at an early stage, the returns can be significantly higher. Digitisation as a pocket will definitely see some serious money coming in. We have our antennas up but a lot depends on how things pan out. FDI in retail opening up and action in the multiplex space look good. New family entertainment centres have come up and QSRs are working out well. Then there is a third dimension to media & entertainment that comes and goes – technology, to be precise. We have realised that a lot of technology pockets are there for developing a media interface or a user interface. A geospatial mapping company could become Yelp.
There are opportunities bordering on technology, but which clearly have an overlap with media, entertainment and sports. In broadcasting also, digitisation can change the whole game.
Plus, there are other segments like the internet, radio, music and movies. As for conventional radio, there is uncertainty in terms of licences, but it is booming on the internet. E-tailing and e-commerce happen to be a pocket we are looking at. It is a segment where you need to know what you are working on; otherwise it’s a bottomless pit.
There are enough promoters who need strategic capital as well. They may not be actively looking for money, but we know those businesses since we have worked with them. For example, Endemol has never sold its stake around the world but in India, we have carved out the company and demonstrated our ability to help it grow. You will see a lot of these deals which are not typical PE or VC transactions, but we manage to convert the deal.
Coming to cable and digitisation, what kind of consolidation do you see? Do you expect foreign players to enter the Indian market?
It has to happen at two levels. The equation between the MSO and the LCO has to stabilise or the numbers have to settle down. While the mandated numbers are 35 per cent and 65 per cent, respectively, at what point does it stabilise? Also, the cable act has to work out in a concerted manner. There is a battle between DTH and cable, but what’s the ratio where it settles? Will it be 50:50 or does it go towards the UK where it is 80:20 or the US where it is 70:30? Those dynamics are yet to play out.
Having said that, digitisation will help the consumer, the broadcaster and the MSO. But it will need capital. We have gone through the first phase and the second phase is when you start to feel the pressure. There will be PE capital coming into the sector and once that happens, global strategic players can also evaluate the space.
We are keeping our antennas up and watching every move. There is also a broadband angle. It’s a space where we would definitely want to be part of the action.
How are you looking at the e-tailing space, which also seems to be headed for major consolidation?
I don’t know if the model of vertical companies getting consolidated by a giant horizontal of e-commerce will happen. We would probably want to look at someone who has the business fundamentals in order as it can’t be only about customer acquisition. It also has to be about profitability and long-term play. E-tailing is a combination of 5-6 businesses – sourcing, BPO, logistics, warehousing, marketing – which are all different businesses. It is not necessary that you get into an entity present into all these businesses. But you may pick one of the niches which other players bank upon.
Do you see content companies making money?
Absolutely. Even with digitisation, a cable operator is launching his own seven channels. Eventually, from a national network, you will move to a regional network and from there, to a local network. The US has seen such local channels. From a television and film angle, Endemol is a strong player in the non-scripted space. For us, growth areas also exist in scripted and regional plays. You will see Big Brother going to regional markets. Endemol has also forayed into films by announcing the remake of Kahaani in Tamil and Telugu. The entire content space has tremendous opportunities. Be it the Chernin Group or CA Media, you will see us betting big on content.
But what are the current challenges for content companies?
The biggest challenge is that content owners are used to being underwritten by the broadcasters. In the TV segment, most of the IP belongs to the broadcasters since they take the risk. If you take the international format and license it, the IP will belong to the format owner. Is any content owner willing to take the chance and put in the money to create IP and then take it to the broadcaster? That is when the IP shifts and valuation moves up. But in Endemol and Graphic India, we will invest into the IP.
(Edited by Sanghamitra Mandal)