Sun TV is likely to emerge as the most preferred play in the entertainment business space, at least till the Star group decides to list its Indian operations. The former's strength in the language business has few parallels in the media industry.
Dominance in Tamil
A bouquet of four channels — Sun TV, K-TV, Sun Music and Sun News — has enabled the company to comprehensively wire up the Tamil space. Competition is hard to spot despite Star group's efforts to rejuvenate Star Vijay. Efforts at cloning successful programmes on Star Plus have led to a higher visibility. Yet, in terms of audience share, Star Vijay has some catching up to do..
Rich on prime time
Several of the serials on Sun TV may strain credulity with the twists and turns; a few may also exasperate the discerning viewer, divorced as they are from reality. But there is no doubt that Sun has hit upon what the audience wants and has been dishing out serials that have viewers hooked on to its flagship channel in prime time bands in the afternoon and evening. Over the past five years, even as popular serials have concluded, newer ones have grabbed and retained eye-balls. The channel's hold on prime time is unchallenged on weekdays and weekends — a grip that even Star Plus does not enjoy.
Lock on content
Between Sun TV and K-TV, viewers are fed a staple of movies that ensure that film-oriented audience remains hooked on to the network. A library of over 2,600 films, an ability to sew up rights to movies that click at the box office and a growing presence in dubbed English movies will ensure that competitors trail the Sun Network for several years.
Winner in waiting
In Sun Music, the company has another value proposition. A channel that was essentially perceived as a filler has been revamped over the past year. Spin-offs in terms of viewership and ad revenues are already evident. The new interactive format, a change from the songs-only experience, has proved a good draw. We expect this channel to increase its market share and also make a bigger contribution to revenues over the next two to three years.
Advertiser clout
With its bouquet of offerings straddling the four southern markets , the Sun network has a distinct edge over competition when it comes to cutting deals with advertisers. It is the first port of call for advertisers across categories and sectors.
In God's own country
An aggressive strategy akin to what was in Tamil Nadu has enabled Sun network become the leader in Kerala too. Within a couple of years of its launch, Surya TV managed to dislodge the veteran Asianet, and also shake up the face of small screen programming in Malayalam. Kiran TV — Sun's second offering in Malayalam — is creating a niche similar to Sun Music's in Tamil.
This was not an easy market to crack and the manner in which Sun TV has broken ground gives us confidence that it will maintain and enhance its edge over Asianet. It has now moved to a position where ad rates discounting on Surya TV have begun to diminish.
Markets with promise
Sun TV, with its sister concerns, has a presence in the four southern States that offer superior growth prospects. Be it services or manufacturing, this region has the edge and this is likely to be reflected in healthy growth rates in ad spends. As the premier play, Sun TV is well-placed to reap the maximum benefits from this macro trend.
No to distribution
The Sun network has a strong presence in distribution through Sumangali Cable Vision. This business has, however, landed the group in controversies. In an extreme policy initiative, the Tamil Nadu Government recently legislated the takeover of the cable distribution business. It is yet to take effect, but is a classic example of the risks. In this backdrop, the divestment of the cable distribution business to a privately-owned company is a positive factor.
Opportunity in FM radio
A substantial part of the offer proceeds is to be invested in the FM radio business through two subsidiaries. In the several territories it has bagged in the south, we expect Sun TV to make a mark, though they may make a contribution to revenues and earnings only over a three/five-year period. Sun TV has also bagged rights to 23 properties in the north, west and north-east. We are not confident about the prospects in these geographies, as the likes of Entertainment Network, Star City and Adlabs may have an edge. There is the distinct possibility that these operations will turn out to be a millstone. Investments in the FM radio business bear a close watch.
Robust growth of the television channels is likely to compensate for the lack of commensurate revenue flows from the FM radio business in the initial years. The marginal expansion in equity will also ensure that dilution in per-share earnings remains modest. This should provide adequate support to the stock valuation.
Revenue in pipeline
Sun TV has operated as a free-to-air channel. There is the possibility that it will become pay. If it does, even at a moderate price, the upside to earnings will be significant. As a bouquet, it will remain a preferred pick in Tamil Nadu and Kerala; this should provide leeway to take free-to-air channels the pay way and also gradually increase the rates. Improved declaration from cable operators and the imminent expansion in DTH services could also provide a boost to the subscription revenues.