Summary:
Better to cut off a bleeding arm that to lose all the blood and die. That is in short the story of Balaji Telefilms.
Why am I even talking about this business?
Look at the PnL statement and you will have the answer.
What happened here, something interesting is going on. Why is it becoming profitable when it has been at a loss for last 8 yrs.
And the chart was showing the change accompanied by reasonable volume
Digging Deeper to understand why it is happening?
Is the change temporary or permanent? Permanent rerating can only happen if the change is permanent.
The Business:
TV Shows: They make shows for other TV channels like Star, Zee, Life Ok etc. They get paid per hour of content around 35-45 lakh. They don’t own the right to the show, that is owned by the TV channel. They did a 1000 hr production last year in FY23.
Films: The revenue depends on collection, even though around 80-85% of the cost gets recovered before movie release by way of selling rights etc. There is a variable component based on performance. This is a lumpy business, which will not result in loss as they hedge by selling right and covering the production cost before making the move. However, the profit from this business depends on movie to movie. They make 3-4 movies in a yr, none of them is a big budget movie with not a big start. However, they focus on differentiated content using their vast experience.
Business was loss making due to piracy till 2018, but with OTT and all this has helped them become profitable. With too much content and legal ways to watch for free piracy is negligible now.
ALT Balaji: The content is created each year and they own the right. They earn money primarily using subscription revenue and by selling the rights of a show to other OTT platforms via deals. These become long term assets and are depreciated over a period of 3 yrs with 65% depreciation in first year, 25% second year and 10% third year.
Valuation play, sucks most of the money. Catering to masses and not really to urban audiences like Amazon and Netflix. Price sensitive, tier2 and tier3 market.
Story In Numbers:
There movie and TV show business was always profitable, however they were losing a lot of money in the OTT business trying to compete with Netflix and Amazon. In Feb 2023, the management change for OTT subsidiary happened where Ekta Kapoor and Shobha Kapoor stepped down and professional management (Vivek Koka, ex Zee and Shemaroo) from stepped in. Since then OTT business losses have come done 75% and therefore at consol level profits are being seen. In last 2 years they went from zero debt to 105 cr debt.
Timeline:
2016:
2017:
Expected 15MM subscriber in 2022. CNBC-TV18’s Varinder Bansal in conversation with Ekta Kapoor & Sameer Nair of Balaji Telefilms – YouTube
Reliance injected 413 cr in the company to get a 24.92% of the company. They wanted to use the money to compete with Amazon and Netflix in the ALT business.
2018:
ALT balaji: 2MM subscriber in August 2018. :Sunil Lulla Of Balaji Telefilms On Q1 Loss – YouTube
Wanted to make the OTT business profitable in 3-4 yrs and were doing huge investments into it.
2020: 3.2 MM subscribers, Rs 130/subscriber
June 2021: Nachiket Pantvaidya appointed as group CEO(Star, Sony, Disney and BBC)
March 2022: 3.88 MM susbcribers
2022: new CEO Abhishek Kumar appointed for Balaji Telefilm as Nachiket Pantvaidhya resigned.
2023 During the year, a total of 1.11 million subscriptions were sold including 0.6 million renewals :
Movie business started 10 yrs ago in 2013. Has been doing ok.
June 2023: Abhishek Kumar also resigned after 1 yr.
Feb 2023:
April 2023:
Mint Article
Shareholding: Reliance has 24.92% stake.
Concall Snippets:
Q4 FY22:
Q1 FY23:
Q3 FY23:
April 2023: The CEO quit as the focus shifted to adult content. Company hired executives from ULLU.
Key Trigger:
- The profit of 54 cr in 2019 was primarily because of Dream girl in 2019. Dream Girl with a budget of 25 cr was able to collect 200 cr at the box office in 2019. Dream Girl 2 Release Date, Star Cast, Trailer, Plot, Budget & Updates – JanBharat Times
- Company turning profitable
Risk:
- Legal Risk on OTT as soft porn is a gray area
- Competition
- Management change
Conclusion:
The change is permanent due to a shift in business model and hopefully even the OTT should become profitable given the low cost of production.
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