Star Television that owns channels like Star Plus and several channels in genres including news, movies and regional entertainment, is for the first time venturing into the telemarketing space through a 50:50 joint venture with South Korea?s CJ home shopping company. Industry sources claim that the project calls for more than Rs 300 crore of investment. The channel, which has been christened as Star CJ, currently has a 6-hour branded block on Star?s regional channel Star Utsav. The standalone channel is expected to go on-air towards the first half of 2010 and the company has earmarked Rs 50 crore as its advertising budget during the launch phase. It has already got on board advertising agency BBH and media buying agency Starcom. The channel is clearly differentiating itself from the existing home shopping channels by selling only upmarket and branded products like Canon, Nikon, Samsung, LG, Hitachi, L?oreal, Satya Paul, Portico and others. Paritosh Joshi, CEO, Star CJ talks to Pritha Mitra Dasgupta about changing the rules in the telemarketing business in India and Star CJ?s plans.
For a network like Star what was the need to get into the teleshopping business? Does Star have a similar business in any other market?
Star has never done home shopping. In fact, to the best of my knowledge, News Corp has never done home shopping. In India, Star has an entertainment business and it has fair diversity in activities. A large number of those activities are build around television.
However, there are some small businesses which are outside of television, like it has a mobile entertainment business, internet business, licensing and merchandising. All of these businesses are not television per se but are driven by television. So it is constantly looking for opportunities where the existing television business can be extended to more genres.
At one level, what Star CJ is doing in India is creating a new genre in television. Is this going to be a driver for Star any time soon? Definitely not. Not by a very long chalk.
It?s new and Star as an investor is obviously interested to invest in things which are economically sensible and is not doing it out of benevolence or charity. So there is a sensible revenue model to back it up.
But why did Star or News Corp choose to start this business in India?
It?s more a CJ shopping?s doing than Star?s. CJ could have approached Star to start this business in any other market. But I guess what CJ saw in India is it is a massive and rapidly growing consumer market and it is still substantially under serviced. So, when CJ and Star decided to invest in India, they believed and even I believe, that we are hitting a demographic sweet spot. And we will be a part of that demographic sweet spot, at least for the next couple of decades.
So business models like ours are working on the premise that this demographic sweet spot of bulging youth with bulging pockets is a great opportunity to tap into. more a CJ shopping?s doing than Star?s. CJ could have approached Star to start this business in any other market. But I guess what CJ saw in India is it is a massive and rapidly growing consumer market and it is still substantially under serviced. A lot of income growth happening in India today is happening in the discretionary rather than the non-discretionary part of the income group. There is a certain part of the income that gets earmarked for basic survival.
What kind of research did you conduct before launching Star CJ in India?
Well, we did a research on what categories of products are expected out of home shopping and what the apprehensions about home shopping business were. And this is an on going research as our product assortment and line-up will continue to evolve. We also realised that it was key to back the product with quality information.
For example, we sell a lot of hi-end sarees from Satya Paul. Now on Star CJ, we will give you detailed information about the craft, the embroideries, the material. If you walk into the store and expect to get that kind of information — the likelihood is that people may not have the patience or the time and they may not even have the knowledge.
Finally, the people who are conventionally talking to you at the store level may not personally have any experience of that product, because the product is meant to be bought by a much more elite consumer. So there needs to be a lot of training for them to explain the product. In our case we can have show hosts who are actually of the same social class to which the audience belongs. So if my show hosts say that we use this product, you can believe that. It?s credible.
But do you think that teleshopping has taken off well in India?
It?s primitive. I have a phrase for this – ?predatory marketing?. The Indian television based shopping market has been dominated by products and services that prey upon the insecurities of the consumer. Now, what are the typical fears and anxieties? People have fear about obesity, hair loss, astrological situation in life and the existing teleshopping channels promise you remedies for all of this. And all these products have no warranties, no brand protections and absolutely no consumer protection at all. Now, what can you do if the Hanuman kavach did not perform the way it was meant to perform. Whom will you sue? Because that person or the entity doesn?t exist.
We had to change that. We had to tell consumers that this predatory nonsense is not at all what we are about. And it is about brands and products that consumers know about. So we need to move the entire ?believe paradigm? around television shopping from ?sauna belt? and ?hanuman kavach? to hi-street brands, to hi-street services, hi-street warranties?everything that one associates with contemporary high quality shopping.
What is the size of the Indian home shopping segment?
The size of the opportunity is premature. Right now, there are all of two participants. And our channel is not yet up. So the size of the entire business is small. I read recently a statement attributed to Future Group that modern retail across all the participants is less than 4.5% of the total retail opportunity. And the total retail opportunity is about 40% of the GDP. So you are talking about something which is less than 2% of India?s GDP. So it?s absolutely nothing. So the opportunity for growth is mind-boggling. Even if we get a small proportion of this opportunity then the scales to which it can grow are dramatic. Even with that growth the penetration will still be very small.
The Indian Readership Survey 2 talks of talks of television homes in excess of 100 million. I don?t know what IRS 2 has about cable and satellite. But industry estimations show that there are some 80 million plus cable and satellite homes, which would give some 400 million people.
So conservatively, even if we say 50% of this could be potential customers, then it puts 200 million in front of the TV set who are at the potential consuming age. And you slice that further and you take the top 1/5 th of that as meaningful, hi-value shoppers, then you are still left with 40 million adult upper income attractive con- sumers who television based shopping could tap into. Now if you say that the discretionary spending of these 40 million people is Rs 1000 a month then it makes a Rs 400 crore of discretionary spending. Now even if I get 10% of this very conservative number of Rs 1000 a month then that?s a Rs 40 crore a month business. The actual numbers are far higher. Therefore I would not bother to put a size to the category. We will make the size happen. Right now we divide our business into three categories — digital life, beautiful life which is personal and wonderful life which is home improvement.
What is the demographic profile of people who typically buy from home shopping channels? And are these consumers restricted only to metros?
We are getting a whole lot of visibility from outside metros for the simple reason that Star Utsav is not so well distributed right now. In many ways the order pattern is mirroring the channel itself. And it is creating a bit of a problem for us because Star Utsav has fantastic footprints in many markets which we don?t service right now. But it also reassuring that the appetite and desire is there. Currently we service Delhi, Mumbai, Pune and Nasik. The rollout will happen eventually and we will keep adding markets.
What is your business model?
We are a wholesale cash and carry business. So our revenue model is based on the wholesale margins that we realise by trading products that we receive from the manufacturers.
Star CJ sells only premium products. So, how do you plan to include mass consumers?
We want to widen our price points. What we are doing is strategic and not accident. The perception about home shopping is so ugly that we want to change it. We want to tell consumers that home shopping is not equal to sauna belts. It?s really deconstruct and reconstruct. But it will take time and effort.
What are your advertising plans for Star CJ?
Since we service a limited market we will be buying a great deal of local than national media. But we will have to be careful about spillovers because that will create unpleasantness.
So we will do advertising that is appropriate for a new channel launch.
How much time will it take for Star CJ to reach break-even?
From an investment point of view you can construct a business plan on a 7-year pay back period. In reality, investors will look at a 3-year pay back period?we ourselves would like to work on a similar kind of a model.