India's largest media company, Bennett, Coleman & Co. Ltd (BCCL) begun about four years ago, an innovative innovation, called Times Private Treaties (TPT), which has been gathering ever greater pastures and momentum.
TPT tries to identify and tempt promising advertising-shy companies to take media and editorial space in BCCL publications like The Times of India and The Economic Times; and media platforms like Zoom, Times Now, ET Now, Radio Mirchi, Times OOH, Indiatimes, among others in return for equity in those firms. BCCL believes that the Indian market is commodity based rather than brand driven, which explains why only around 15,000 brands are actively advertised here in India as compared to about ten lakh in the US, for instance.
In an exclusive interview to Televisionpoint.com, S Sivakumar, principal secretary, BCCL and chief executive officer, TPT, says the core objective of Times Private Treaties is to increase the advertising pie by drawing in companies, which have chosen to stay away from mass media for any reason. Some of these companies would possibly have turned to advertising in a few years, after they reached a certain size. The Treaties initiative accelerates the process by convincing the entrepreneurs that advertising would improve their growth.
Sivakumar says evaluation of any company's valuation is based on three factors - First, what is the current nature of the business; Second, what are the entrepreneurial plans and where to take the company in near term; and Thirdly, is the target company ready to move from the orbit and take its business or products or services to a newer level - bigger and newer markets.
Once the above mentioned factors are taken into consideration, the phase two questions whether the business plan needs a media support? Does it require the right levels of scalability, the distribution strength. If all these factors are true, the 'client' is ideal for TPT.
Sivakumar says the value of its investments depends on the capital markets value and he says it is presently estimated at between Rs 2,500 crore and Rs 3,000 crore. The ambiguity of the figure notwithstanding, it is a huge sum of money that is under consideration, by the standards of the fragmented Indian media business, in which only a few companies have true financial scale. The list of invested companies includes big, mid-sized and small entities. At one end, one would find companies such as Kabirdas Motor Co. and Raja Rani Travels, while on the other, one would see a handful of giants such as Pantaloon Retail and General Motors Corp.
Sivakumar also shared what the new model sets out to achieve and how it works. He explained that the model creates opportunities for local, indigenous and little-known brands to come on board in mainstream media as advertisers. He gave an example of a fictional character, Mr Memani, to drive home his point. Memani is a small time entrepreneur in readymade garments and has grown to be the largest seller in his hometown. Now, with little capital and in the absence of a brand name, what's the direction ahead for him? This is where TPT steps in to partner in the growth of his brand.
Sivakumar explains that the approach for investment has been opportunistic and not a strategic decision. He says there are no lessons from abroad because, India is the only market in the world, where media-equity swaps are being practised. TPT thinks that's because in the West, there is a plethora of opportunities to fund brand building. However, the Indian market is relatively nascent.
One of the perils of playing long term is evident in TPT's own portfolio of companies. The bulk of the investments were made in 2007 and 2008, when the market was bullish and when BSE Index climbed steadily from 11,000 points to 23,000 points – only to settle later at around 14,000 points. Sivakumar explains that Treaties business is a high Beta business, which means that it heavily depends on external factors like primary markets, consumer acceptance, marketing and decision making strategies. He says either a company fairs and succeeds in the business or it fails out of the business.
As of today, TPT has invested in about 250 companies - 35-40 per cent in listed companies, 35-40 per cent in unlisted companies, 10 per cent in real estate companies, remaining in gold hedging and automobile companies. While there is an unstated notion that media inventory is free, when committed on a sustained basis, it costs money. Listed media companies tend to have an operational profit of about 20 per cent. This relatively low margin, coupled with cash-flow requirements, means that a media company can't put aside a lot of inventory for equity swap deals.
Sivakumar adds that BCCL has set aside about 5 per cent of its ad revenue towards equity. As BCCL is not publicly listed, it has the freedom to invest in smaller, less known ventures and it can also take a greater degree of risk. He says business model of TPT involves 'entrepreneurial risk', which translates into financial performance and ultimately leads to economic risk.
Without sharing revenue figures or losses suffered by BCCL on account of TPT, Sivakumar added that it would be sufficient to say that if the question is about success in creating and supporting brands, then the answer is a resounding yes. However, if the question is about whether the model has always brought in money, then the answer would be no. There is also an issue of how target companies might perceive an offer such as this from a media company. Sivakumar says that while banks and financial institutions are happy to fund physical and tangible assets, the funding of intangibles has always been a challenge.
TPT is a truly original concept and while publishers are intrigued because it gives them a relatively risk-free way of exploring the media-for-equity business, they also have concerns. In any the media-for-equity business, where TPT has made investments, the company has an gestation period of 3-5 years. Could this new initiative persuade cash paying advertisers to try equity instead? Sivakumar opines that the options between them aid the overall expansion of the advertising pie rather than cannibalising it. The choice made from among the two avenues depends on the business compulsions and growth drivers.
