Cut through the noise that the deal between Reliance Industries Ltd (RIL) and the Network18 Group have made and it is clear the announcements made withhold more than they divulge. It is na?ve to expect otherwise from shrewd businessmen, especially if they happen to be Mukesh Ambani and Raghav Bahl.
The deal has been variously described and analysed by outsiders. The insiders are silent. It is a private deal, so they are not obliged to share more than what is convenient for them. They will have the world believe that RIL is extending a loan, which amounts to a minimum of R1,700 crore and a maximum of R4,000 crore, to Bahl and his promoter group to help them retire the massive debt sitting on the books of their holding company Network18 Media and Investments Ltd (NMIL) and TV18 Broadcast Ltd and also to fund the buyout of RIL?s majority stake in the Hyderabad-based Eenadu Group. After Network18 buys out RIL?s share in various Eenadu channels, it will become the country?s largest broadcast network in terms of the channels owned and will also have one of the most robust balance-sheets among the Indian broadcast media companies. To this end, Bahl has yet again managed to seal a cracker of a deal.
But what does RIL get in return? A statement issued by the company argues that one, the deal helps RIL make an investment in the fast-growing media and entertainment sector and two, its broadband arm Infotel Broad Band Services Ltd gets ?preferential access? to the content generated by around 25 channels owned by the Network18 Group. It also said RIL is making a profit in selling its stake in Eenadu to Network18.
Now, it is na?ve by the deal makers to expect us to swallow this.
It has been argued by some analysts that at R2,600 crore, RIL?s Eenadu interests (Zee News? regional bouquet was acquired by Zee TV for around R1,300 crore) are being sold to Network18 at a steep price, but this argument is pointless because at the end of it, the seller is funding the buy-out. On the books, indeed, it will go as a profit entry but in effect, RIL is pulling out money from one pocket and putting it in the other. Some are reading it as a move by RIL to consolidate its media and entertainment interests under one roof.
Second, the argument of Infotel getting ?preferential access? to Network18 and Eenadu channels seems farcical because regulations demand broadcast content be shared with all carriers on a no-exclusivity basis. So preference in getting access to content that is available to everybody is an odd proposition. Even if one assumes that the so-called preferential access will have some benefits to it, what is the kind of content RIL is getting access to?
The Network18 bouquet and the Eenadu channels that the group is getting complete control over largely comprise news channels. The entertainment channels in the Network18 bouquet (Hindi general entertainment channel Colors, MTV and children?s channel Nickelodeon) are housed under Viacom18, a JV with a foreign partner Viacom Inc, so their content is not likely to come unhindered. Likewise, its acquisition of Eenadu channels entails only a 50% stake in regional general entertainment channels in Marathi, Kannada, Bangla, Gujarati and Oriya and a mere 24.5% stake in Telugu news and entertainment channel.
It is the content generated by news channels such as CNBC-TV18, CNBC Awaaz, CNN-IBN, IBN7, ETV UP, MP, Rajasthan, Bihar and Urdu that the Network18 group will have complete control over. It is common wisdom that news content is the most inexpensive of all the broadcast content and news cannot be the driver to gain customers. Entertainment, especially film-based entertainment content, on the other hand, is the most expensive and is key for pushing penetration by any carrier. Interestingly, Viacom18, which had been buying latest films in the hope of launching a films channel, sold off its entire library to rival Star India for around R400-500 crore around the same time this deal was being finalised.
So, in effect, RIL will get ?preferential? access to the news content owned by the extended Network18 Group after its Eenadu buyout besides a presumably conditional access to entertainment content owned by other partners. Now, does it make sense for even the most ambitious of broadband operators, or any other carrier, to invest R1,700 crore (which may go up in case Network18 promoters have to subscribe to the entire rights issue) in getting access to this kind of content?
With this kind of investment, RIL could have set up its own broadcast network with channels across languages and genres. And probably, this is what the company has done. It has acquired a significant stake in an already established venture. It may be noted that RIL?s loan to Network18 is in the form of optionally convertible debentures (OCB), thus keeping the option open for RIL to convert its interest into equity. Should NMIL and TV18?s financial condition worsen in future, the OCB?s will yield an even higher equity stake.
If reaping handsome returns was RIL?s idea behind this investment, then, it is needless to say that there are better options available in the market. Why pick up a flailing business? If it was merely lending funds to Network18 to help it stabilise its business and also expand into growing regional markets, then what was the need to set up a special vehicle?Independent Media Trust?and announce that it will be run by eminent personalities? Bahl has enough eminent personalities?journalists as well as managers?on his ship. Add to it the emphasis on how Bahl will be allowed complete management control. If it was merely a loan to Bahl, which he, in ordinary circumstances, would be expected to pay back, then where does the question of him not having management control come from and why this clarification? In the past, several well known broadcasters have raised big loans from large corporate entities, nobody ever issued a clarification that they were not ceding the control of their business to the lender.
The guarded disclosures notwithstanding, it is issues such as these that are giving strength to the views that there is more to this deal than meets the eye and that RIL has made a cloaked entry into the media and entertainment business with a sharp focus on broadcast news. And it serves the company well to have well-regarded professionals such as Bahl and his team of editors to run the business for it.
archna.shukla@expressindia.com