Mobile VAS: The Music of Money

Which is India’s largest music company? Clue : It’s not Saregama India or T-Series. Answer :- It is Music Bharti , the mobile value-added-services wing of Bharti Airtel. Rediff  reports:

” Music Bharti has become the largest music company in India, overtaking Saregama India Ltd  in terms of revenue,” Bharti Airtel’s Deputy CEO Sanjay Kapoor said.

While Kapoor did not disclose the exact revenue earned by Music Bharti, which provides music services like hello tunes, call-back tunes and music on demand, Saregama had a annual revenue of about Rs 150 crore (Rs 1.5 billion) in the fiscal ended March 31, 2008.

A closer look into the advertising messages of major mobile services companies indicate the focus on value-added services. Aircel TVC has MS Dhoni advocating the use of Mobile phone for locating a hotel, making air bookings, cricket information and downloading music. Vodafone through its new TVCs which are being aired frequently during IPL matches is using the newly created characters Zoozoos using the various VAS provided by Vodafone. The latest Airtel TVC also has Madhavan and Vidya Balan on vacation in a tent, subscribing to the astro service, again a VAS.

With India having reached a mobile penetration of over 30% and urban centres reaching saturation level penetrations, all mobile companies, new and old are looking at VAS to differentiate as well as to enhance their ARPUs from the existing customers.

In a related news item in Deccan Chronicle, the size and growth rate of mobile VAS market in India are reported as :

“Mobile VAS industry is expected to generate sales of Rs 11,000 crore. It will achieve a compound annual growth rate (CAGR) of 44 per cent in the next few years. As of today, 60 per cent of the content of mobile VAS comes from the audio downloads.

In his blog, Rajesh Jain, an Internet entrepreneur , who has business interests in providing content and services to cell phone service providers, while giving a detailed breakdown of the market size for various services, makes a key point

” What is touted as a $1+ billion industry (what subscribers pay) is in reality only a $200 million industry from the VAS providers point of view, thanks to the skewed revenue shares between the operators and the VAS players.”

When 3G services are rolled out al over India the market for Mobile VAS would expand and  go beyond the frivolous to more useful services, for which customers would be willing to pay.

- G. Mohan

How 9xM is Winning the War of Music Channels

 

Music channels in India vie for viewership in a segment characterized by very low level of product differentiation. In such a crowded and mature category, 9xM, a late entrant from INX Media, has seized the market leadership in no time. This is no mean feat! How did they do it? 

 

Well, my take on this matter is short and simple. 9xM has demonstrated boldness by completely doing away with VJs who tend get boring and jaded faster than you can utter ’shelf  life’. Besides, 9xM’s clever content strategy has gone the whole hog in using humorous, animated characters who will remain the channel’s permanent brand properties unlike the VJs on whom the channels spend millions to build their brand equity only to see them walk out of the doors at the end of their contracts to resurface peddling sundry wares indiscrimanately on TV  including the rival channels.  

 

Mind you, the basic fare is no different at 9xM. It is the same staple diet of Bollywood hits and remixes. Just like any other music channel! But what makes 9xM’s content different is the way they use witty animated characters in their fillers. 

 

In a very popular series called Bakwas Bandh Kar, two animation characters, Chhote and Bade crack PJs targeted at kids and teenagers. Another interesting character is a cat called Bheeghi Billi who usually narrates his life as a loser musically. They have a few more of such endearing characters e,g. Tapori and Betelnuts in their stable.

 

9xM offers prizes for viewers who send jokes which keep the user-generated content pipeline well oiled and together with the exhaustive use of animation characters keep the production cost low. 

 

It will be interesting though to watch how 9xM sustains this competitive edge as their content strategy is easy to emulate. 

 

- G. Mohan

IPL – Winners and Losers

While we have to wait till June 1 to know who will win the inaugural Indian Premier League Final, we have put together a set of winners and losers on the business side of IPL.

 

Winners

 

The biggest winner in the IPL business is undoubtedly the UK based World Sports Group (WSG). By bagging the 10 year television rights for US $ 918 Million, this company will profit the most from the success of IPL. WSG has sold the television rights in India to Sony Entertianment Television (Sony) for an undisclosed sum for a period of 5 years. WSG has sold TV rights to various channels in the US, UK.,Asia and Middle East for $ 100 million. As per WSG , 8 million viewers are watching IPL outside India.

 

Sony after suffering huge losses in the World Cup 2007, took a big risk by putting its bets on IPL. Fortune favours the brave. IPL has turned out to be a huge television success. In the first two weeks of IPL, Mindshare, a media buying agency has reported that 131 million viewers had watched IPL. After the high initial TRPs of  8, the matches are still getting average TRPs of 4. This has automatically resulted in the increase of spot rates. From an initial rates of Rs 2,00,000- Rs 250,000 per 10 second spot, Sony is reportedly selling 10 second spots for Rs. 1 million for the finals and semi-finals.

 

All the IPL franchisees are winners. ( Please look at our other story on the profitability of an franchise.)   Some more so than the other. Rajasthan Royals, whether they win the IPL Cup or not on June 1 are certainly a big winner. Emerging Media, owners of IPL, bought the franchise at the lowest price in the IPL auctions, spent intelligently on players, tied up a slew of sponsors and now have a successful team whose valuations all other franchisees would be envious of. Kolkata Knight Riders ( KKR) is also expected to be a big winner on the business front, largely attributable to the sponsorships.

 

Reebok, the offical apparel for four IPL teams will be a winner. Reebok has already reported over Rs 50 million sales of KKR merchandise.

TV companies who normally have a sluggish April and May have reported 10 % higher sales, courtesy IPL. LG and Onida have launched new LCD models coinciding with IPL.

 

IPL and T20 are ideal for betting. The cricket betting market has once again come alive.  Ahmedabad and Jaipur are the big centres for betting. Daily bets of Rs 1.5-Rs 2.0 billion have been reported in the media.The overall IPL betting transactions are slated to be over Rs 1000 billion.

 

Losers

 

Indian Cricket League (ICL) and Zee Sports, both part of the Essel Group, will be the biggest loser in the success of IPL. It will be interesting to see, how ICL reinvents itself to counter IPL next year.

Nimbus too may lose out as bet its bottom dollar on BCCI’s test and one day matches which may see much lower eyeballs hence drop in advertising revenue. Big ad spenders have already allocated a large part of their  ad budget on IPL.

 

The companies who lost their bids for IPL franchises like the Future Group, Reliance ADAG and ICICI Ventures must be brooding over their loss. ITC, Britannia, MRF and other companies who sponsor sports must be ruing over their lost opportunity. Expect some of these companies to buy off some franchisees , at a higher valuation in the future.

 

The success of IPL as mass entertainment has taken away viewers from other TV  channels. Kya Aap Paanchvi Paas Se Tez Hain – a TV game show with Shah Rukh Khan as the host, has been declared a  miserable flop, thanks to IPL.

Movies released during IPL viz. Tashan, Krazzy 4, Bhootnath have come croppers at the box office.

Multiplexes too are suffering due to IPL. 

 

Shopping malls have reported 20 % drop in footfalls, in this holiday season, the reason cited is once again IPL. 

 

One thing has become clear. Just like the marketers  plan and prepare for  major festivals like  Diwali, Durga Puja or Christmas, they will have include to IPL in their annual calender.

There is no telling though whether  the runaway  train called IPL  will stay on course the next year or the year after. 

 

 

- G. Mohan.  

 

  

How Profitable is an IPL Franchise

While coming out of the IPL franchise auction held on January 24, 2008, the winner of the Chennai franchise, the MD of  India Cements  N.Srinivasan spoke to the Hindu. “This will be a good investment. We expect to build this into a viable and vibrant franchise”, he said.

 

After agreeing to pay US $ 91 million (Rs 3.60 billion) for a ten year contract, it was hard to figure out how he would make profit. M.S.Dhoni alone is costing him for $ 1.5 million per year, in fact just for 45 days of service.

 

Now, that IPL is well under way and it has become hugely popular, it will be interesting to see the business model of an IPL franchise. Using Chennai Super Kings (CSK) as an example, we look at their revenue streams and expenditure heads.

 

The single biggest revenue stream for a franchisee in the initial years is the share of the television revenue. Not for nothing, is IPL being bandied as “Made for TV”. CSK will receive $ 10 million in the first year and this will go down to $ 6 million every year from the sixth year onwards, when the number of teams increase and the share of the IPL (read BCCI) increases from 20% initially to 40 % from the sixth year onwards. Mr. Srinivasan in an interview to the Economic Times has said “If we had bid $90 million over a ten-year period, we’ll get back $80-90 million as TV income itself.”

 

The title sponsorship is another major revenue stream. AirCel and Coromandel Super King are the title sponsors of CSK. Although no information is available, it may be around $ 5 million every year and this should go up significantly if the team performs well in the IPL. Add to that a slew of local co-sponsors and this revenue stream gets shored up even further.

 

CSK also gets a share of the $50 million each year paid by DLF as the IPL sponsor. This is estimated to be $ 3.75 million every year during the first five years. After the first five years, the title sponsorship contract comes up for renewal. If IPL turns out to be a big success, expect this to double.

 

Gate collection from the home matches in Chennai is another source of income. CSK will be hosting seven matches this season. The M A Chidambaram stadium has a capacity of 50,000 spectators. CSK has priced the tickets ranging from Rs 200 to Rs 5000 for the AC pavilion. Assuming an average occupancy of 80% and price of Rs 400, the gate collections for CSK, after paying IPL its 20% share, is likely to be around $ 2 million. CSK will also be earning from in-stadium advertising. This may generate another $ 2 million in the first year.

 

CSK sells its merchandise like T-shirts and caps through its web-site and other channels. This revenue stream can be a big money spinner if the franchisee is able to build a huge fan following and city loyalty. From a small income of $1 million in the first year, it is estimated that this can go up to $ 15 million in the tenth year.

 

 The prize money for the winner of IPL is also not an amount to sneeze at. The winner of IPL will get US $ 2 Million. The teams placed lower also get significant cash awards. Let’s assume that CSK will receive $ 1 million per year as prize money.

 

There is also a possibility of CSK making good amount of money  by judiciously trading players’ contracts in the Year Two and Three. For example, Mumbai Indians or Rajasthan Royals may be interested in buying the contract of  Parthiv Patel as they are playing local wicket keepers whereas Mr. Dhoni will always be the first choice as wicket keeper for CSK.

 

Now we look at the expenditure side.

 

Apart from the USD 91 Million paid upfront as the franchisee fee for ten years, the major item of expenditure is definitely the players’ contracts. In addition to Mr. Dhoni, CSK bought foreign players such as Mathew Hayden, Mike Hussey,Makhaya Ntini, Jacob Oram, Stephen Fleming, Muralidharan, Albie Morkel,  Kapugedera and Indian T20 stars like Suresh Raina, Joginder Sharma. These star players cost a total of $5.575 million per year. The rest of the 24 member team is made up of local Tamil Nadu players and under –19 players, these have all been signed up for US $ 30,000 each. CSK also has a team of four supporting the team with Kepler Wessels as the coach. The annual expenditure on account of players is estimated to be

$ 10.6 million. These contract fees are fixed for the first three years, after which there will be fresh round of auctions.

 

If IPL is the biggest festival this summer, certainly the hype created by the IPL organizers, media and the franchisees is responsible for it. This does not come free. The IPL franchisees would have a significant marketing and advertising spend. CSK has the Tamil actor Vijay as their ambassador and former captain  K.Srikkanth as the brand ambassador. CSK has created a video featuring all the players with music by A. R. Rahman. Sivamani, the ace drummer, is seen wearing the CSK yellows wherever CSK plays. CSK maintains a web-site for creating a community of fans and selling tickets and merchandise. Like all the IPL teams, CSK has its band of foreign cheergirls. The marketing and promotion spend could be of the order of $ 4 million per year.

 

The other expenditure would be related to paying the rentals to the local cricket association for the stadium. Running an office and organization which will work round the year, not just the 45 days of IPL season is also expensive. Add to that travel and hotel expenses. Perhaps airline and hospitality sponsors lessen the burden.

 

So will CSK make money?

 

If the initial franchising contract is treated as an investment, as per the estimates above, CSK is making an operating profit of over $ 8 million $ in the first year itself. If the $ 91 million is amortized equally in the ten years, then CSK would report a negligible loss of $ 0.7 million in the first year. Even, this could turn into a profit if CSK wins the IPL championship!

 

If not in the first year, CSK is most likely to break even in the second year. From the third year onwards, when the sponsorship, merchandising and gate collection revenues go up, CSK may start generating net profits of $ 2.5 million (Rs. 100 million) on a revenue of  $ 30 million  (Rs 1200 million) from the third year. If the IPL gains in even more popularity the revenues and profits will go up further.

 

Lalit Modi, the IPL Commissioner said “Each IPL franchise could be worth $ 5 billion.” It is expected that many IPL franchisees will go public after the third year. I’ll not be surprised if CSK has a market capitalization of $ 500 million (Rs 20 billion), five years from now.

 

When Mr. Srinivasan, who incidentally is also the treasurer of BCCI, said IPL franchise is a ‘good investment’, he certainly knew what he was talking about

 

 - G. Mohan  

Brand SRK : Milking It to the Max

 

 

I am no fan of Shah Rukh Khan (SRK).  Though I happen to have seen most of his movies, I don’t really like him as an actor. He hams much too much . Chak De India and  Swades are the only exceptions.

 

Ironically, it is the IPL tamasha which has helped me to develop a grudging respect for SRK, the businessman. If you have been watching the matches and the media jamboree around them, you just can’t miss SRK and his high jinks.

 

 

First thing first, SRK didn’t cringe to spend top dollars to hire the best in the business for Kolkata Knight Riders (KKR). Be it the coach, the CEO, the physio, the trainer and , of course, the cricketers.

 

 

He then threw himself completely into the job. SRK’s inexhuastible energy and hunger for success are there for all to see.

 

SRK also knows how to use his charisma, tact and PR skills. He is exploiting them to the fullest in his attempt to take  Brand SRK beyond the silver screen  by five powerful forces  -  the small screen, the journalists, cricket, moolah and politics. The interesting thing is how  Brand SRK and the five forces are feeding into each other.

 

 

Now, let’s look  at  a few of  SRK’s clever moves.

 

 

SRK bought the franchisee for Kolkata though he has stonger ties with Delhi ( his birthplace) and  Mumbai (his workplace).He knew it well that if he could fill up Eden Gardens, he would hit the jackpot. The Eden Garden is the largest cricket stadium in the world, not just in India.

 

 

Mukesh Ambani had to pay huge sums for Hrithik Roshan’s star power. Vijay Mallya has to bring in cheerleaders from the US. G M  Rao too had to shell out a lot  for Akshay Kumar. SRK, on the other hand,  just had to pay himself!

 

 

He also brings along his groupies like Karan Johar, Arjun Rampal,  Manish Malhotra  et al to KKR matches,  adding to the glamour quotient. Last Sunday, SRK displayed his political clout by  getting his friends from the first family of India to make an appearance at the Eden Garden.

 

 

SRK gives away 1000 tickets free to Shah Rukh Khan Fan Club for every KKR match.

 

In the endorsement race too, KKR seems to be ahead of the rest. SRK has got  quite a few companies whose brands he endorses, to sponsor KKR.

 

 

Is there no stopping the SRK juggernaut?

 

 

I’m not sure. Brand SRK is running  a serious risk of wearing itself out.  Super celebrities are known to have killed their brand mystique  by stretching the brand  way too thin. 

 

 

As for me, I’m rooting for Kolkata Knight Riders, not because  of SRK.  In spite of him.

 

- G. Mohan.

David vs Goliath – A Bollywood Story

Jab We Met (JWM) was a relatively low-budget film produced by Shree Ashtavinayak Productions. Besides the curiosity value of checking out the chemistry beween its lead pair and  erstwhile lovers - Shahid Kapoor and Kareena Kapoor ( their relationship had  turned sour just before the release of the movie), nothing much was expected of it. The film’s director Imtiaz Ali had shown some promise in his first movie Socha Na Tha, but as a director he was hardly hot property.

 

JWM was released in October 2007 in the midst of  high voltage promotion of two really big movies, Om Shanti Om and Saawariya. All the news channels and entertainment channels were so full of them that JWM hardly got any mention. The newspapers gave it a decent review and whoever saw it said, it was a nice candyfloss love story.

 

The movie was pulled out of many theatres to make way for the two big movies, reducing the exhibition of the movie to an odd show in the multiplexes.The trade magazines announced it as a hit, although it just made Rs. 13 crores as against Rs. 11 crore by Saawariya, which was declared a flop.(Source : www.indiafm.com)

 

The post-release promotion of JWM is really a  case worth studying, particularly for its exploitation of several channels of distribution innovatively.

 JWM video rights were given to Moser Baer and they launched the JWM videos within four months of the release of the movie. They did killer pricing at Rs 34 for the VCD and Rs 48 ( approx) for the DVD. JWM VCD and DVDs  flooded the market. JWM was the top selling video for weeks together in most stores. People who had watched the movie in the theatres bought it to see it again and those who missed the movie in the theatres also bought the videos.

 

Parallely, the producers kept the interest in the movie alive by playing the music videos in all TV music channels and FM stations. The music of JWM is a huge hit in itself. JWM is now being screened by many Hindi movie channels as the blockbuster movie of the week.

 

Through intelligent use of the various channels and revenue streams the producers of JWM laughed all the way to the bank. Shree AshtaVinayak can surely teach a lesson or two to the Sony Pictures of the world. 

 

The moral of the story is that if you have a  superior product, don’t lose heart at being outspent by your bigger rivals.  Focus on outwitting them.  Persistence and innovation usually make for happy ending.

- G. Mohan