Two years is a good time to take stock. It's been just a little more than that since Michelle Guthrie, to the surprise of many a hack, was appointed Chief Executive Officer of the Star Group. More so since when her elevation happened, there were quite a few other names from the Star / News Corp system seen as possible contenders after James Murdoch's passage to BSkyB created the vacancy.
News Corp chairman and CEO Rupert Murdoch had then said "with her business acumen, sharp sense for new opportunities, her strong ability to run diverse operations and enthusiasm for the television business." he was confident Guthrie would take Star's business to the next level of growth and profitability.
Guthrie seems to be more than delivering on Murdoch's faith in her abilities. And her confidence levels have been rising with every new success. Star's revenues and businesses are expanding across Asia. The sole exception is China where the group is in pause mode after the government announced stringent media norms. She, however, is convinced that China will be a major contributor in the long term to the group's revenues.
Guthrie's Star journey commenced in 2000 but she has been a News Corp loyalist, having joined the company in 1994. A legal eagle by qualification and training, she has her way with words. In her first full-fledged interview to an Indian media outfit, Guthrie discusses various aspects of the business, including regulatory norms in India, with Indiantelevision.com executive editor Anjan Mitra.
Excerpts:
|
What is your overview of Star Group's business interests in Asia? |
||
|
Which are the Asian markets that are doing well and the reasons? In China, for example, where there is no developed pay television market, almost 100 per cent revenue is coming from advertising. Then in Singapore, which has a much more developed pay television market, 90 per cent of our revenue is coming from subscription. So, we have a very balanced and diverse mix of businesses and revenue streams from different countries. |
||
|
How would you describe the Indian market in terms of revenue, as it's considered a jewel in the News crown? However, we also feel there is an incredible opportunity to grow (in India) in terms of the number of people accessing cable and pay TV. You have about 100 million television households and cable TV households have been growing fast in the last couple of years. Presently it stands at around 61 million, so definitely there's an opportunity. |
||
|
Considering that development of Indonesia as a market has just started and China is a long term prospect, would it be correct to say that India is the biggest market available to you contributing almost 80 per cent to Star's kitty? We have businesses across South East Asia and the Middle East. Almost one-third of our revenue comes from Malaysia, Thailand, Indonesia and the Middle East. These are subscription revenues. Everyone concentrates on India and Greater China, but we are actually in 53 countries and generating revenues in all of those countries. |
||
|
For the last few financial years, Star India has been doing phenomenally well. What have been the key drivers here in spite of the fact that distribution revenues, as you say, are on the lower side? |
||
| But is the advertising pie big enough to support TV channels mushrooming all over and targeting India from within and outside the country? There is an issue there. If you look at the TV advertising market in India, it's still reasonably small by any global standard. The ad spend in India is 0.2 per cent to 0.3 per cent of the GDP, probably, but certainly less then 0.5 per cent. Look at the more developed markets like the US or Hong Kong where ad spend is 2 per cent of the GDP. So by any measure, ad spend in India is still very small. But we see incredible opportunity as we feel the ad spend would increase over time. It would, I think, increase exponentially over time. You look at China, for example, and the TV ad market is at least five times larger than India. |
||
|
But the China market is closed for you people with stringent government norms… |
||
| What is the way forward for Star India now that it has established its dominance in the Hindi market? How does the Network extend its dominance on a pan-India basis? What we try to do is focus on immediate opportunities. We certainly felt that the most immediate opportunity over the last 12 months was to further expand into urban areas with Star One and bring in innovative programming. We also saw an opportunity in the rural and free to air market, which is being serviced through Star Utsav. We have launched the two channels and given them a year or so to settle down. Now, we are examining the next level. Obviously, regional languages is something that we should look and continue to look at. We have a presence through Star Vijay. The key for us is to look at how we can add value and also whether there is a sustainable business model. Even though some of the Indian language channels have high viewing, the revenue numbers are relatively small. The ad spend on the Hindi market is relatively higher than the regional market, which is not necessarily a reflection of viewership. The key for us is to work out what is the best business model because our programming is of a very high quality that needs investments. |
||
|
So what exactly is the regional strategy? |
||
|
Is tying up with regional players an option in South India to neutralize competition and fragmentation of revenue? |
||
|
Is taking an equity position like in Star Ananda also an option? |
||
|
So, the regional strategy unfolds some time next year? |
||
|
||
|
Great content is an important part of Star's strategy. Could you talk about the relationship that Star has with production houses across Asia? Do you like to take equity position in production houses or work with them from the outside? In Indonesia, we are exploring the possibilities and trying to see whether we'd like to start our own production company or work with some existing companies. We have different models, but mostly we source out programming and normally it gives us the best creative returns. But our internal creative team works very closely with external production companies in terms of giving ideas and then developing them, rather than waiting for production companies to come to us with great ideas. This is something that we do, probably, differently from other TV companies. |
||
| What are you hoping to achieve through the investment in Balaji and are you looking to invest in other Indian production companies? Is Star looking at increasing its holding in Balaji considering there's no investment caps in software companies? Balaji as a production company is pretty unique in the sense of the leadership position it has in the market. My sense is that there are other production companies too across Asia that are interesting. It's just a question of how we can tie them up with our channel plans. We have only recently invested in Balaji, though we have worked successfully with it before. After the equity participation, that relationship has become stronger. At this point of time, we have no plans to increase our stake in Balaji as we are quite happy with the position. Balaji continues to work closely with us, while making programmes for others. We'd encourage that. It's a model that's popular in the US where, for example, the Fox production company has programmes on other channels, while Fox channels buy programming from other studios like Warner. |
||
| As far as content is concerned, is Star experimenting with formats across the region to give audiences something they have not seen before? Our content team is constantly on the lookout for good content and new ideas in TV festivals. The kind of programming that we have had on Star One has proven that newer formats and programming can be successful too. I love The Great Indian Laughter Challenge. That it's original and indigenous also proves a point. Such a format had never been seen on television, but it's a huge success. Our content team is extremely good at finding out indigenous stories or ideas and turning them into high quality programming. For example, Nach Baliye is another great indigenous idea that's clicking on television. |
||
| Is there a possibility of successful programmes like TGILC and Nach Baliye being exported to other countries? There is a possibility. One of the advantages that Star has is that we have a lot of learning across the region. For example, there are some kinds of programming that have worked in China (the formats are actually of Australian origin) and we have talked to our Indian team to see whether they can be adapted for the Indian market and vice versa. |
||
| Are there any plans to launch more channels in India like an English news channel under the Star brand name to continue expanding the market? Of course that is there, but we don't want to launch a channel just for the sake of launching one. We would like to launch a channel that would have an audience ready for it and also have a revenue model, which in the long term generates profitability. The key for us is to constantly look at opportunities, find out where the gaps are in programming and whether there is a profitable business model for new channels. It's something that we don't look at once a year; it's a constant evolution. |
||
| Where do the gaps exist in the Indian market, according to you? We are looking at the options, but one constraint in India is that a lot of households are single TV homes. So, it becomes very difficult to slice and dice the audience in a one-TV environment. We constantly look at what the viewers are doing and what access they have to multiple TV and multiple television opportunities. It's not just a question of where do we see the gaps, but who will be watching and when will they watch. There are a number of genres that are not yet available in India even though there is a large availability of channels in India. But they do tend to congregate around certain genres. News, for example, is one where we see there are so many channels in India. I'd say there isn't any women's channel. It's critical for us to get the timing right because we would not like to come out with a channel and programming line-up for which the audiences are not yet ready here with the right TV environment. The key is to make available programming once there's demand. |
||
| But such channels can thrive predominantly on subscription revenues in an addressable cable regime? And, in India such an environment is still not there. That's certainly an issue. With so many channels in India, I sometimes wonder what the business model for them is. I feel it must be pretty tough for them with cable operators demanding more carriage fees and advertising revenue more difficult to come by. But having said that, I must say I am genuinely optimistic that there's a huge market with a billion people for high quality channels. If you can have 400-500 high quality channels in the UK, why not in India? At the moment, the concentration is more on general entertainment, movies, music and news. |
||
| How's the DTH venture progressing? It has been held up for quite some time now. Is it due to the slow pace of the majority partner, the Tatas, or do the reasons lie elsewhere? We have to wait for the satellite to launch, which is hopefully happening next month. It's an incredible opportunity, but it's also a big logistical operation. We have to make sure that the set top boxes are distributed broadly on a national basis to as many people; apart from getting right the other backend operations. And, I think the Tatas are the best partner that we could have had, given their diversified experience in various fields. Their knowledge of the Indian market place in terms of distribution and collecting revenues is really incredible. |
||
|
||
| How important is the DTH service for Star? We have our plans in place and are really hopeful we can launch the service as soon as possible. But the key for us is to make sure we bring choice to viewers. At the moment, Indian viewers don't have any choice on the channels they want or don't want. There's no addressability, no high quality digital signals, no interactive sports or news. What we are trying to do is to change the game in terms of viewers' experience of TV. We think there's an incredible demand there and we hope to fulfil that very soon. But we are still awaiting some licences and clearances (from the telecom ministry for frequencies on an Insat satellite, for example) to come through, which is not in our hands. I hope these clearances are just formalities. |
||
| What is the investment being made in the DTH venture and would the capital expenditure be increased over time? Well, it certainly wouldn't be very small; rather the investment in DTH and the business itself would be a large part of our activities here. The project cost is still being worked out as a lot would depend on consumer take up. The initial project cost should be in the region of $ 400-500 million, but the numbers are still being worked on. It's an expensive business. And, our component should be in the region of $ 100 million. The capex is really in the set top boxes. In a way, the more successful you are, more the cost would be. |
||
| What does Star actually bring to the DTH table? As in any other business, the two partners bring to the table a range of expertise. Our experience is in launching pay TV platforms and we have launched successful ones in countries like the UK, US, Australia and Italy. Still, our knowledge of the Indian marketplace is very small in comparison to the Tatas, especially their knowledge of distribution --- getting across the millions of set top boxes to Indians across the country in villages and elsewhere, while making sure the money is collected. Their understanding of the Indian consumer and the way a mass market could be handled is incredible. |
||
| But the Tatas have not been able to do anything spectacular with the group's telecom business, which is again all about retail marketing and comprehending the way consumers think in smaller places. How confident are you of the partner? We are very confident. And, as far as the telecom business of the Tatas goes, I think these are still early days for them. Our thinking on this is to find out more and more ways to cooperate with the Tatas for the joint venture in all areas of business. |
||
| How much say does Star have in the JV considering Tatas are the majority partners? Does the group flex its muscles too often? The Tatas are clearly the majority partners and that's a fact of life and the DTH business. But it's very much a cooperative partnership. More importantly, we both have the common yearning to do something world class and doing something of that magnitude may take time. We have only one chance to launch the venture and we want to do it properly as we do not want to disappoint the consumers either. |
||
| Is there any outer time limit set for the launch of Tata-Sky service? The satellite is an issue, which, I hope, would get sorted out with the launch next month. Still, there's lots of work to be done. Realistically, I reckon it would get launched sometime next year. If you are asking me for a probable date, I don't know yet. It could be April or May or June. I don't know. It depends very much on the readiness of the team and their ability to launch a playout (of the DTH service). |
||
| How stiff are the DTH targets? It's difficult to put a precise figure on these things. It's like asking a telecom company, whether it would be able to achieve three million subscribers currently in India and the company would think it's way too optimistic. However, our feeling is that it (the DTH service) should be a mass market service. But it's a question for the team and various business heads to see how successful it is. At this point of time, I cannot make any predictions on how successful the service would be finally with the consumers. But I hope it is very successful. |
||
| Do you feel that an annual target of 1 million subscribers is achievable, especially when Dish TV has managed approximately 500,000 in two years? I certainly feel that number is achievable. My perspective is that in ten years time the Indian cable homes will hopefully increase to over 100 million from the present 61 million. If we manage 10 per cent of that in that time, it would be 10 million only. The target of 1 million should be achievable (within a year). |
||
|
What, according to you, would be the consumer acquisition cost for DTH in India where the market is said to be more price sensitive than quality conscious? Try looking at the mobile phone business in India. The average price of mobile phone is around $ 80 (Rs 3,600 calculated @ Rs 45 = $1), the monthly ARPU (average revenue per user) may be around $ 5 or more and look at the number of mobile subscribers there are in the country --- 50-60 million. There's no question that customer acquisition is a large component of the business going forward, but so is acquisition of programming, setting up backend customer services and many other things. There is a lot of cost involved in a DTH service, but admittedly the customer acquisition cost would be high. |
||
|
One pillar of Star's strategy is distribution. With Tata-Sky hopefully launching some time in the second half of 2006, how effective do you feel this will be in breaking the cable operators' monopoly? In terms of numbers, assuming in ten years, there are 100 million C&S homes and assuming we have 10 per cent of the market (with DTH), it's still not the main game. Cable is going to be very important for a long time. There's no question about it. My perspective is that ultimately the consumer would have to make and take decisions with the choices. He can switch to DTH, if he's not happy with the cable TV service or vice versa. Or, he can have both. But the most important thing is to have multiple choices. |
||
| Considering Star's disinclination towards digitalization or addressability in the Indian market in the past, how would distribution revenues get ramped up in the absence of transparency in the industry? A mandatory conditional access system makes very little sense and is not something that's achievable. The regulator (in India), I think, has been persuaded about this that the way it works in other countries is to let the market decide. A regulator must open up choices for consumers and let the market decide how that move to digitization happens as its very expensive. It is always good to have alternative distribution systems as competition always raises the quality of service. |
||
| Why does Star oscillate on related business, starting them and later abandoning them? FM radio and movie production business could be cited as examples. In FM radio we had no option because there was no ability to invest in terms of foreign direct investment. It's no accusation, but simply the law was saying that no (foreign) equity participation was possible at that stage. Now under the new regime, equity participation is possible and we hope to invest in the sector. |
||
| Would the re-entry into radio be done through the Radio City or would some other company be targeted for investment? Radio is a big opportunity because it's at an early stage of development (in India). It's an interesting business and we look at interesting businesses all the time. It's (Radio City) doing reasonably well and we hope that we are able to participate in the radio business in India. Many foreign companies, I presume, would be looking at the radio segment now. (According to information available with Indiantelevision.com, in its application for frequencies in the second round of bidding, Radio City seems to have stated that the company would have a foreign partner who would pick up to 20 per cent stake in the company. The name of the foreign partner has not been revealed by Radio City to the government yet.) |
||
| Considering parent company News Corp is getting ready for 'web world' and Internet-driven strategies, what are Star's plans in this regard? As a creative content company we make great and entertaining programming Asia-wide. Keeping in mind various other aspects like protection of intellectual property rights, we do look at distributing our content (on various platforms) in an effort to monetize them. If distribution happens on the Internet and we at Star can figure out a business model for it, then that's fine. In India, we still see that the Internet and PC penetration is reasonably low and it's not a mass market yet. But we'll see and continue to explore opportunities. |
||
| Are there plans to aggressively exploit other aspects of digital media encompassing mobile and wireless tech? We are technology agnostic. As are most consumers. Do you think a consumer really cares whether content is delivered via cable, or satellite or mobile? If the consumer doesn't care, why should we? We have great programming and our aim should be to make it available to as many people as possible. |
||
| I am told that FY 06 (ending June 2006) the ad sales target for India is a 50 per cent jump in revenue YoY. Do you feel that such a steep growth is possible at this juncture when the industry itself is growing between 10-14 per cent annually and the competition's also nibbling from the same pie? As the market leader we have to do better than the market. Without commenting on the specifics of our budgeted targets, I'd say that if you simply rely on market growth, then it would take a very long time for the TV ad market to grow to a significant size. There is an incredible demand for our advertising (slots). For example, in the month of September and October, the inventory of Star Plus and some other channels of Star was completely sold out. The demand has been incredible. The key is to make sure we give value to our advertisers and at the same time get recompensed for the programming investment we have made for the real unique audiences that we have. If Star India continues to drift along with the market, then I don't think one is maximizing the value of the platform and the advantage that we continue to enjoy in India. With Star One, the new channel, starting to do well and Star having the top 65 programmes, it becomes a very powerful marketing position. I certainly feel that Star India should grow more than the industry average. |
||
| Does Hong Kong set such targets for the Indian operation considered the jewel in the News Corp's crown, or is the Indian operation allowed to set for itself targets keeping some ground realities in mind? The way we approach the business in all our markets is to identify the growth opportunities, which may not necessarily be advertising revenue. It can be a variety of segments like mobile phones or international distribution. Our business development team does an incredible job of identifying these growth opportunities and ways to maximize those opportunities. |
||
| How are international sales of Indian programming doing? Why is that such sales, done out of Hong Kong, are way behind Zee Telefilms' international revenues that is to the tune of $ 60-65 million. I learn Star's international sales of Indian programming are in single digits. We think there is tremendous opportunity to expand our international revenue base. For the last few years, rightly or wrongly, we have concentrated on the Indian market making sure the Indian viewers get good programming. We did not concentrate so much on the international market. Obviously, some of our competitors have got a head start there. But for the last year or two, we are pushing forward with expanding the international sales to places like the UK and the US. It makes no sense for the Star India team trying to sell Hindi channels in the UK, for example, and the Star Chinese team attempting to do the same with Chinese channels. By doing that you don't get any scale of operation as it amounts to complete duplication of resources. It makes no sense. |
||
| Do you feel that regulatory issues have been creating problems for the company in India? How do you view the regulatory environment here? There are regulatory issues in every country that we operate in. So, there is nothing special in the presence of regulatory issues in the broadcasting industry (in India). Having said that, I must add that what most businesses look for is certainty and transparency. As long as you know what the rules are, that those rules are likely to change over a course of time and that they would be applied evenly on everybody else, its fine. |
||
| You seem to be suggesting that rules might not have been applied evenly in India on Star? It's a matter of principle. You should have a little bit of level playing field in an industry and across technologies as well. My perspective is that if the consumer doesn't care how content is delivered to him --- whether via mobile, or cable or something else --- why should regulators have different regimes for different types of technology? And, this I'm saying without any specific reference to India. I have this issue with all those regulators who set different regimes. So, you have (in India) 74 per cent FDI available in telecom, for example, 49 per cent in cable, 20 per cent in DTH and radio and 26 per cent in news. The level of inconsistency is glaring. |
||
| Am I right in saying that you are making a case for not only an increase in FDI limit in various segments of media, but also uniformity in those limits? My perspective is that technology is very much interchangeable. For example, digital cable TV is very much similar to satellite TV, which would be very similar to IPTV or broadband TV when it comes. So, it's very difficult in the medium to long term to have different regulatory regimes for each of those. As an example, theoretically, if I have to offer content on mobile phones, where do I go? To the mobile phone regulator or the broadcast regulator for a licence? More or less both the regulators are doing the same thing. The key is not to try to regulate separately for different technologies. That's pre-supposing that certain technology would do well and have an advantage, while others might not. Most regulators are grappling with such issues. I think for the first time we are witnessing this level of convergence between different technologies, which are doing very similar things. I think the Telecom Regulatory Authority of India recognizes the necessity to push for unified licensing because the mindset (of regulators) in other markets is to be technology neutral. |
||
|
Is the must-provide clause an irritant or a concern for Star? We expect some level of exclusivity being committed. Most of the channels are available in the cable homes (in India); at least in a sizable number of 40 million cable homes. So, DTH would start off with zero (advantage). So, the idea that we might take some of the popular channels exclusively to DTH is not going to help. It's unlikely that we would want a scenario that a channel of ours, which has mass distribution, is made exclusively available to only DTH as it's a very small subset. That doesn't make any business sense to us. And, it doesn't make sense for the consumers either. I think, even from a long term perspective, the channels that are already on cable are likely to remain there for a long time. It's hard to imagine that though mobile operators offering more or less the same type of services have exclusive access to celebrities and many other differentiating factors, a DTH operator cannot have an exclusive commercial deal. Your predecessor James Murdoch was more of a `macro' man, while you seem to be interested in even the minutest of details. Does it help being interested in local details and issues as a CEO of a pan-Asian venture? |
||
| As a successful man manager, do you feel that regional success stories like India should be allowed to manage their businesses with least interference from the local head office? I think the incredible advantage that we have is the scale of operation. It's incredibly unique to have more than 50 channels available in more than 50 countries. That scale of operations is a huge advantage for us. We can launch a channel more cost effectively and faster than anybody else. The idea to separate out businesses in a way and still retain the advantage doesn't make sense. At some point of time it may make sense. But at this moment, certainly there's tremendous advantage in having that level of scale of operations. The team in India, China and elsewhere have incredible day-to-day flexibility, but obviously we are part of a bigger group. |
||
| Lastly, where do you see the Indian market going in the next three years? I hope on and on. Even though it's a very dynamic and successful market, I think it has a long way to grow both in terms of advertising and subscription (revenues). |
