COMMENTARY

Corporatisation of the Media

Implications of the RIL-Network18Eenadu Deal
Paranjoy Guha Thakurta, Subi Chaturvedi

The entry of Reliance Industries, Indias largest corporate entity in the private sector, into the countrys media industry in a major way with strategic associations with the Network18 group and the Eenadu group, has been perceived as an instance of consolidation in a sector in which big players have been steeped in debt and strapped for cash over the past few years. What the formation of the new media conglomerate (arguably one of the largest, if not the largest, in India) in the shake-out also signifies is growing concentration of ownership in an oligopolistic market that could lead to loss of media heterogeneity and plurality.

Paranjoy Guha Thakurta (paranjoy@gmail.com) is an independent educator and journalist whose work cuts across different media print, radio, television, internet and documentary cinema. Subi Chaturvedi (subichaturvedi@ gmail.com) teaches journalism at the Lady Shri Ram College for Women, University of Delhi and is a media and technology research scholar at the Indian Institute of Technology Delhi.

n 3 January, the Mukesh Ambaniled Reliance Industries (RIL) Indias biggest privately-owned corporate entity with a turnover of Rs 2,58,651 crore in the financial year that ended on 31 March 2011 announced that it was entering into a complex, multilayered financial arrangement that involved selling its interests in the Hyderabad, Andhra Pradesh-based Eenadu group founded by Ramoji Rao to the Network18 group headed by Raghav Bahl and also funding the latter through a rights issue of shares. The deal will make the combined conglomerate Indias biggest media group, according to Bahl bigger than media groups like STAR controlled by Rupert Murdoch and the Bennett, Coleman Company/Times of India group (publishers of the Times of India and the Economic Times, among other newspapers and owners of the Times NOW television channel) controlled by the Jain family. Television18 a company in the Network18 group stated that its board of directors had approved an outlay of up to Rs 2,100 crore for the proposed acquisition of Eenadu TVs (ETV) assets. RIL, through an entity called the Independent Media Trust (IMT), would fund the acquisition of shares in Network18 and TV18 through rights issues. The two entities would raise approximately Rs 4,000 crore, including Rs 1,700 crore from its promoters. Significantly, the deal also provides for RIL, which is currently setting up an all-India broadband telecommunications network, to get preferential access to the content as well as the distribution assets of both the media groups. RIL said that its group companies, by investing Rs 2,600 crore, will hold the
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following stakes in various ETV channels: 100% in regional news channels operating in Uttar Pradesh, Madhya Pradesh and Bihar, in ETV Urdu, in entertainment channels in the Marathi, Kannada, Bengali, Gujarati and Oriya languages and 49% in two Telugu channels, ETV Telugu and ETV Telugu News. TV18 Broadcast said it is acquiring 100% stake in ETVs regional news channels, 50% in non-Telugu entertainment channels and 24.5% interest in two Telugu channels. The Network18/TV18 group would get control over the board of directors and the management of all the ETV news channels as well as ETVs nonTelugu entertainment channels. As if to assuage apprehensions that RILs association would exert an influence on editorial policies, statements issued by both groups stated that funding from RIL would not alter promoter, management or editorial control of Network18 entities. In its media release, RIL stated:
...Bahl and his team will continue to have full operational and management control of both the companiesBahl and the current promoter entities of Network18 and TV18 will continue to retain control over Network18 and TV18...

RILs Broadband Interests The entire complex financial arrangement is predicated on RILs broadband subsidiary, Infotel Broadband Services, entering into a memorandum of understanding with TV18 and Network18 Media and Investments for preferential access on a first-come-first-served basis as a most preferred customer to all content (including programming and digital content on television, internet and print) produced by the Network18 group and its associates for distribution through the broadband network being set up by Infotel. RIL stated:
Infotel is setting up a pan-India world class fourth generation broadband network using state of the art technologies. Infotel expects to take leadership position in content distribution through broadband technology through a host of devices.

RIL said its subsidiary would access digital content on entertainment, news, sports, music, weather, education and
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other genres and added that this was one of many partnerships being undertaken by Infotel. The Network18 group of television channels includes news channels like CNBC-TV18, CNBC Awaaz, CNN-IBN, IBN7 and IBN Lokmat, and non-news channels such as Colors, MTV, VH1 and Nick (in a joint venture between TV18 and the USbased Viacom). The promoter companies of Network18 and TV18 and the (Independent Media) Trust have entered into a term sheet under which the Trust would be subscribing to the optionally convertible debentures to be issued by the promoter companies, the RIL statement pointed out. Network18 had negative cash flow over the last two fiscal years. During the half-year ending 30 September 2011, the company disclosed an operating loss and an interest burden of Rs 128 crore. TV18, however, posted a profit for the half year ending September 2011 but this company also had an interest burden of Rs 55 crore. Clearly, this deal will help improve the groups financial position dramatically. RIL had acknowledged in the High Court of Andhra Pradesh that its investments in Ushodaya Enterprises, the holding company of the Eenadu/ETV group promoted by Ramoji Rao who is credited
Table 1: Top Media Deals in 2010-11
Month Investee Investor

with playing an important role in the rise of the late N T Rama Rao as chief minister of Andhra Pradesh and thereafter, his sonin-law N Chandrababu Naidu. A petition had been filed in the court by the late chief minister Y S Rajasekhara Reddys wife Y S Vijayalakshmi, a member of the state legislative assembly, alleging that RIL had bailed out Ramoji Rao when his family-owned chit fund, Margadarsi, was in trouble and facing various inquiries (from, among others, the Reserve Bank of India). This, it was further alleged, was a quid pro quo for Chandrababu Naidus assistance in enabling RIL to sign a production sharing contract with the Union Ministry of Petroleum and Natural Gas to extract natural gas from the Krishna-Godavari basin off the coast of Andhra Pradesh. The Outlook (16 January) suggested: RIL bailed out ETV after a deal between Ushodaya and private equity investor Blackstone was scuppered by the then Andhra CM YSR. Investment banker Nimesh Kampani of JM Financial then pumped in Rs 2,600 crore (he was hounded by YSR for his efforts). In 2008, ETV was transferred to RIL. While RIL has denied these allegations in court, its association with the Eenadu group has raised quite a few questions. Financial analysts quoted by various
Stake % Deal Value ($ mn) Sector

Mergers and acquisitions September Sun Direct TV July Digicable March

Astro All Asia Networks Reliance Communications

15 Share swap 26 49 100 80 50 100 7 32 100 13 9 50 26 14

88

TV Distribution TV Distribution

publications have wondered whether this deal entails RIL buying back parts of its own assets, thereby raising issues of corporate governance. It has been reported that the regulator of the countrys capital markets, the Securities and Exchange Board of India, was looking at the deal to ascertain if adequate disclosures had been made by RIL about its holdings in Ushodaya. Questions that have been raised include the following. Why were RILs investments in the Eenadu group to the tune of Rs 2,600 crore made through JM Financial not disclosed to its own shareholders until recently? Why has TV18 valued its stake in ETV at Rs 2,100 crore with revenues of Rs 525 crore? Will RIL eventually become a copromoter of corporate entities in the Network18 group? The last few years have been difficult for the media in India (and the world). In the wake of the global recession, many advertisers have curtailed expenditures, thus squeezing media companies that are heavily dependent on advertising as their primary source of revenue. Consultancy firm KPMGs 2011 report on deal activity in the media and entertainment (M&E) industry has written that whereas other sectors witnessed a rebound in mergers and acquisitions activity and private equity funding during 2010, the M&E sector did not reflect this trend. Both the volume and value of transactions remained flat with 27 transactions valued at $693 million. Mergers and Acquisitions One deal, Malaysias Astro All Asia Networks acquiring stakes in NDTV Lifestyle, GETIT Infoservices, Turmeric Vision and Sun Direct TV contributed $175 million (or a quarter) of the total deal value in this sector in 2010. Other transactions that year included Blackstone PEs investment in Jagran Media ($49 million), Jagrans subsequent acquisition of Midday Multimedia ($40 million) and the Rajeev Chandrashekhar-backed Jupiter Media & Entertainment Ventures investments in Express Publications for $53 million (Table 1). The KPMG report also mentions D E Shaw picking up a stake in Amar Ujala (2006) and SAIF Partners picking up a 14% stake in TV9 (Chart 1, p 12).
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Express Publications (Madurai) Jupiter Media and Entertainment ventures Astro All Asia Networks Jagran Prakashan Astro All Asia Networks Astro All Asia Networks Aptech Inox Leisure Reliance Mediaworks Reliance Broadcast Network Blackstone SIDOFI New Silk Route DAR Capital SAIF Mid-Day Multimedia Turmeric Vision GETIT Infoservices Maya Entertainment Fame India Fame India

53 40 40 26 22 16 17 NA NA 49 36 20 21 12

Print TV Broadcast Print TV Broadcast Online/Print Animation Film exhibition Film exhibition TV Print Cable TV TV Film TV

September NDTV Lifestyle May July August June January January

January Imagine Showbiz Private equity deals April Jagran Media Network September Asianet May February April INX Media Valuable Media Associated Broadcasting Company

Source: GT Deal tracker, Merger market; 2011 KPMG.

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Chart 1: Type of Deal Activity (Rs million)
1,600

1,200 913 87 400 574 0 335 299 2009 IPO

M&A PE

800

2008 Source: GT Deal Tracker, Merger market.

The Times of India (10 November) reported that the Srini Raju promoted iLabs Capital and private equity firm SAIF Partners had struck a deal to offload their 80% stake in Hyderabad-based Associated Broadcasting Company (ABCL), which runs the TV9 chain of regional news channels, to a national media house and a US fund in a deal estimated at over Rs 500 crore. The Business Standard (17 January 2012) has stated that the BCCL/Times group had shown preliminary interest in buying out ABCL and had also joined the race to pick up a majority stake in two sports channels controlled by the Mumbai-based Nimbus Communications group, Neo Cricket and Neo Sports. On 21 December, Oswal Green Tech, formerly Oswal Chemicals & Fertilisers, acquired a 14.17% shareholding in New Delhi Television in two separate block deals from the investment arms of Merill Lynch and Nomura Capital. The total deal was worth Rs 24.34 crore. Earlier, in April 2011, Goldman Sachs Investments Mauritius and GS Mace Holdings had sold their stakes in NDTV in a deal worth Rs 70 crore; these shares were then picked up by Merrill Lynch Capital Markets Espana and Nomura Mauritius. In October, NDTV along with Kasturi & Sons (which publishes The Hindu) decided to sell their combined stake in their joint venture Metronation Chennai Television to the Educational Trustee Company, promoters of the Tamil daily Dina Thanthi for Rs 15 crore. At the end of September, NDTVs promoters, Prannoy Roy, Radhika Roy and RRPR Holding were holding 61.45% stake in the company, foreign institutional investors 18.08% and retail investors 14.7%. NDTV had reported a net loss of Rs 22 crore in the
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quarter ended September, lower than a net loss of Rs 67.63 crore in the corresponding quarter of the previous fiscal year. NDTV is a broadcaster, 146 with three news channels, 169 NDTV 24 7 (English), NDTV India (Hindi) and 378 NDTV Profit (business). In 2010 2007, the company launched its lifestyle offering, NDTV Good Times, a lifestyle channel. Oswal, which had started as importers of synthetic and wool wastes, went into the manufacture of fertilisers and agroproducts. In 2005, Kribhco picked up Oswals urea unit for Rs 1,900 crore. The company has been promoted by Abhey Kumar Oswal whose daughter, incidentally, is married to industrialist and Congress Member of Parliament (MP) Naveen Jindal. In comparison to the deals mentioned, the RIL-Network 18-Eenadu deal is far bigger. The newly formed media conglomerate will not only have a major presence in urban areas but a large footprint in rural areas and small (Tier II and Tier III) cities where media penetration levels are relatively low and the potential for growth in advertising high. What is also unique about this particular deal is the combination of readers/ viewers that it offers which makes advertising in group media more attractive for national advertisers. Key Concerns The RIL-Network18-Eenadu deal raises several key concerns relating to consolidation within the media industry. With larger television broadcast networks, including Zee, Turner/CNN, Viacom/MTV and Sony, expected to acquire/partner regional networks, the commoditisation of news seems almost inevitable but not necessarily desirable. In India as in the world over, large media corporations are today clearly playing a bigger role in the political economy that they report on. Though a free media is fundamental to the existence of a liberal democracy, concerns about the accountability and transparency of media companies remain. In India, these concerns have acquired
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greater relevance after the disclosure of the role played by some prominent journalists in the nexus between politics and big business in the Niira Radia conversations. The Union Ministry of Information and Broadcasting (I&B) and the Telecom Regulatory Authority of India (TRAI) have made concerted efforts to promote digital addressable systems, such as direct-to-home (DTH), head-end in the sky (HITS), internet protocol television (IPTV) and digital addressable cable television (DACT) systems to improve the quality of television services provided to subscribers. What this has done is to bring the largely analog and nonaddressable cable and satellite television sector under the purview of the law of the land and made cable operators there are an estimated 60,000 of them in India at present accountable by facilitating enumeration and by plugging leakages of revenue. This has been done through the Telecommunication (Broadcasting and Cable) Services (Fourth) (Addressable Systems) Tariff Order, 2010 and the Cable Television Networks (Regulation) Amendment Act 2011, the latter seeking to make full digitisation of cable television mandatory in three years. This new wave of consolidation threatens, as Arvind Rajagopal points out in his article in The Hindu (24 January 2012), to effectively disenfranchise a number of Indian citizens as television broadcasters and cable distributors integrate their operations vertically, combining both hardware and software within the ambit of corporate conglomerates with the same controlling interests. Thus, the STAR group controls cable distributor Hathway, Zee controls Dish and the Sun group Sumangali Cable. He points out that with greater economies of scale for business promoters, and far more viewing options for those who can afford them the issue of affordability for the wider public...remains a big question. TRAI 2009 Report According to the TRAI report of 25 February 2009 on Recommendations on Media Ownership, vertical integration in the media market has already resulted in
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numerous disputes being brought before the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) between broadcasters and cable operators alleging denial of content by other service providers. New cases are being added regularly, which the TRAI regarded as a clear indication that the current market situation requires corrective measures. The TRAI report further drew attention to the fact that all restrictions on vertical integration are currently placed on companies. However, large conglomerates of the Indian media are usually groups that own many different companies. This allows them to have controlling stakes both in broadcasting and distribution by acquiring licences under their different subsidiary/ associate companies, totally bypassing current restrictions and defeating the purpose of their existence. The TRAI report, therefore, suggested that the restrictions no longer be placed on companies but on groups and conglomerates. If international best practices are to be followed, cross-media restrictions should be put in place to prevent large groups from owning stakes across several media, such as print, newspapers, television, radio and the internet. In the US, restrictions place a limit on the market-share available to one entity and that prevents newspaper/broadcast cross-ownership in the same market. In France and Canada, a two out of three law prevails, whereby companies can only own two of three of the following: terrestrial television services, radio services and daily newspapers. In the UK, the ownership of both newspapers and radio stations, and of both television channels and newspapers in the same area, is prohibited. The Indian media market differs from those of developed countries in several ways. For one, India is a developing country and all segments of the media industry (including print and radio) are still growing unlike in many developed countries. The media market in India remains highly fragmented, due to the large number of languages and the sheer size of the country. The television broadcasting industry has, over the last two decades, become particularly fragmented, with low entry barriers and high carriage fees and the top two or three channels
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obtaining a disproportionately high share of total advertising expenditure. The uniqueness of Indias mediascape suggests that while restrictions may be desirable, the safeguards deemed appropriate may not precisely be those that apply in other countries. The TRAI has suggested that a detailed market analysis be conducted by the I&B Ministry in order to ascertain which safeguards would be most appropriate in the Indian context. What Restrictions? Restrictions on cross-media ownership and control will certainly be resisted staunchly by the big conglomerates in India which own properties across media types and segments. These groups would be vociferous in their criticism of any step to move towards regulation of corporate groups or conglomerates as opposed to specific entities they would resist such moves tooth and nail. Any attempt to impose cross-media restrictions on ownership and control would be dubbed as heavy-handed government censorship, attempts to stifle freedom of expression, a return to the bad days of the Emergency and a reversion to the infamous licence control raj. The government will invariably be accused of trying to constrain the media because the media is critical of those in positions of power and authority. The argument that since cross-media restrictions exist in advanced capitalist countries with developed media markets, such restrictions should also exist in India, will be countered by claims that since India is a developing country, any restrictions on ownership and control would stifle the medias growth potential. The emergence of cartels and oligarchies could be symptomatic of an increasingly globalised but homogenised communication landscape, despite the growth of internet technology bringing about a semblance of democratisation by allowing for more user-generated content by prosumers (producer-consumers). While the growth of the internet has led to a collapse of geospatial boundaries and lower levels of gate-keeping in checking information flows, the perceived increase in diversity of opinion has been simultaneously accompanied
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paradoxically by a shrinking in the number of traditional media operations in television and print. In the last few years there has been growing consolidation of media organisations across the globe. In the political economy of the media the world over there is clearly an alarming absence of not-for-profit media organisations. Neither subscription nor advertising revenuebased models of the media have been able to limit this tendency of large sections of the corporate media to align with elite interest groups. In not just economic terms, the media is perceived as an active political collaborator as well, seeking to influence voters on the basis of allegiances of owners and editors. This can, and often does, constrain free and fair exchanges of views to facilitate democratic decision-making processes. Media Plurality? The RIL deal has enabled Network18, Eenadu and the merged group to expand its offerings to benefit both its stakeholders and its advertising target audiences. What remains to be seen is whether clear boundaries can be etched between the boardroom and the newsroom. The deal, therefore, raises significant questions about the diminishing levels of media plurality in a multilingual and multicultural country. Most of the reportage on the deal has focused on its business aspects. Questions about the future nature of editorial control remain unanswered. The complicated holding structures and investments made through layers of subsidiary companies make it difficult to discern the real bosses and the powers they wield. The real challenges that lie ahead for the media in India are to ensure that growing concentration of ownership in an oligopolistic market does not lead to loss of heterogeneity and plurality. In the absence of cross-media restrictions and with government policies contributing to further corporatisation, especially with respect to the television medium, diversity of news flows could be adversely affected contributing to the continuing privatisation and commodification of information instead of making it more of a public good.
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february 18, 2012