Could you talk about Chernin groups operations globally and CA Medias role
Peter Chernin quit News Corp in 2009 and started a company called The Chernin Group (TCG). The production and movies arm is called Chernin Entertainment which has produced Oblivion, Rise of Planet of the Apes, Terra Nova and Parental Control. The second part is the investment side of the business from where he invests in Flipboard, Pandora, Full Screen, Tumbler. The third entity is Chernin Asia which is us. CA Media is the Asian investment arm. We are a hybrid between a private equity and an operating company. At a global level, The Chernin Group has built value by virtue of its intellectual property rights. Providence Equity Partners and Qatar Holding have bought equity into the company.
I have not raised money as a fund. We have diluted permanent equity to raise permanent capital. That permanent capital is structured as a fund in Asia. Our focus is on media and entertainment. We dont enter pockets that we are not comfortable in. I dont have a fund closing date. I dont have a five-year horizon and neither am I under pressure to deploy the cash. We have done four deals in the last 12 months. Private equity firms normally pull off one-a-year. The interesting part of this job is that I get applauded within my system for rejecting deals.
So is this a very different gig from television
Its totally different from managing a P&L (profit and loss statement) of a television channel. This is about looking at the companies that we want to invest in. Taking that brand and estimating its valuation. How much do you put in for this to scale up At what stage, do you get in Earlier, whenever a proposal would come our way, we would be very excited. But 95% of our time is actually wasted. Only 5% of our time translates into deals. We evaluate about 300 deals, but just land up doing three. You dont just reject a deal because its a bad asset. It could simply be a bad time for entry. It could be an asset without a great exit. It might be a promoter whose mindset is not aligned with you.
This transition for me is a big one. A certain kind of calmness has come in. Its a big shift personally.
Could you talk about some of the strategic investments that have already been made
We are trying to build an eco-system in media and entertainment and are looking to build in various pockets. On the content side, we have Endemol India. Endemol globally has never sold any of their assets. It has always acquired other companies. It is only in India where theyve carved out an Indian entity and sold a 49% stake to us. Because they clearly believe that partnering with us will help them scale up to the next level. They (Endemol) were known to be non-fiction experts. From there on, they went into scripted programming, then regional programming and now movies. Television is an underwritten business. When the business ramps up, you clearly know that profitability is ramping up. Like Big Brother translating into regional franchises. Regional broadcasters have started buying these formats and thats a big change. Previously, they would
just rip it off.
The only tricky part of a production led business is that India does not have the concept of long-term contracts. You can never have a five-year deal. Its always year-on-year. There is always the risk that the following year a broadcaster may change his mind. Then again, if we have four versions of a format show such as Big Brother and one falls through, weve still got the others. Also, we are building our base with films. I helped set up Endemol in 2006, and the company achieved both scale and profit before I moved on to Colors.
Weve also acquired stake in Only Much Louder (OLM), a youth music and marketing company. It owns and operates music festivals and events such as NH7. International or alternate music was supposed to be niche. Vijay Nair, the 29-year-old promoter is a college dropout. He became a talent manager and scaled the company up to a certain level. But he had hit a ceiling. Not because of inability but because of a need for financial muscle, and the buffer of a network. The minute we got in, we got him connected. Multiple festivals opened up like A Summers Day Norah Jones. NH7 will cover four cities.
The third pocket for us is animation where weve invested in Graphic India. The US company is called Liquid Comics and is our partner in the company. The Mahabharat version that YouTube has launched with Graphic India is called 18 days. We are also evaluating options in animation where we can bring in celebrities, whose digital rights we manage, through a practice called Fluence.
What is Fluence Could you elaborate
Fluence is our incubated digital rights company. We have the digital rights to Amitabh Bacchan, Karishma Kapoor, Salman Khan among others and we manage their social media. Everybody talks about social media monetisation, but thats only one part of the piece. For us, its the voice, mobile, value added services. Thats the bigger chunk. For instance, the voice blogs that they do or the contests that they are part of. We also do equity linked deals. When an artiste endorses a brand, it may not be all cash. He can also get equity against the endorsement. The promoter is happy because the capital becomes differentiated. It helps him scale up the business as the star will promote the company. Artistes have started understanding that there is merit beyond the cheque.
What are some of the areas you want to invest in Are you interested in being a part of the digitisation growth story
Cable and direct to home (DTH) is a key pocket and we are evaluating that space very seriously. A lot of MSOs (multi system operators) and DTH companies are looking for funds and will continue to scout for some time. But the question is at what stage do we want to enter The area is still seeing a lot of flux. The MSO does not own the local cable operator (LCO) fully. Theres a loop within a loop. When you are at a valuation stage, this is where the complication comes in. One and half year out, what is the MSO going to do with the LCO Is he going to buy him out The direct points that the MSO controls is very limited in comparison to the LCO points. Those dynamics can change the whole valuation. Also digitisation is a big piece. People talk about consumer points the collections part of it we are also examining those areas. Another area is consumer retail entertainment which includes multiplexes, entertainment and gaming zones, etc. We are flirting with it but its a heavy capital expenditure business. We are looking for the right opportunity. On the content side, we anticipate many possibilities and therefore Endemol will have huge play. A cable operator called Seven Star in Bandra is launching so many specialty channels. The DTH operators will also at some point have to offer differentiated content.
Are you planning to acquire standalone channels or pick up stake in newspapers
We dont believe standalone channels have long-term value, as they have to align with somebody on the distribution side of it. As long as the monster of carriage fees exists, its not easy for any standalone channel to get place. Till you have the clout of a bigger network, you are handicapped. You may get these channels dirt cheap, but they are all bleeding. Print is also a dangerous place to be invested in. We are not looking at prospects in either.