Content Provider: Balaji Telefilms

Business Model

Programming mix

In the business of entertainment content, the Company created programmes for its customer channels

under two broad agreements - sponsored and commissioned. From a risk management perspective, it

would be relevant to understand the dynamics behind each:

Sponsored: The Company creates content but must recover the proceeds from advertisers, not the

channel on which the programmes are telecast. As a result, the Company prudently assumes the risk of

content creation and marketing. The Company buys telecast slots and in exchange receives free

commercial time, which is then marketed to the advertiser. This is a variable revenue model: if the

programme becomes popular, there is an attractive prospect for an upward rate revision.

Details of Balaji Telefilms Sponsored Program Revenue and Expense

Sponsored 2005-06 2004-05 2003-04 2002-03 2001-02

Hours 1045 789 666.5 613.5 632

Revenues (Lakh) 3456.15 3192.81 3299.57 2587.22 2407.2

Revenues per Hour

(lakh/hr)

3.31 4.05 4.95 4.22 3.81

Operational Expenditure

(lakh)

2762.21 2415.07 1968.48 1519.1 1401.48

Operational Expenditure

per hour(lakh/hr)

2.64 3.06 2.95 2.48 2.22

Operational Profit (Lakh) 693.94 777.74 1331.09 1068.12 1005.72

The Balaji Business Model

Programming Mix

Multi-Lingual Programming

Channel width GenresOwn

equipment

Sponsored 2005-06 2004-05 2003-04 2002-03 2001-02

Operational profit per Hour

(Lakh/ hr)

0.66 0.99 2.00 1.74 1.59

Operational Expenditure

per revenue earned

0.80 0.76 0.60 0.59 0.58

Balaji’s Revenue per hour in sponsored category has been falling for the last few years because of the

strategy of de risking itself and concentrating on commission based programming. The maximum

operating profit for the company (per hour) was in FY04 of 2 lakh per hour. However the capability to

earn primarily depends on the slots the content provider gets and the ability of the company to get the

sponsors for the slots. The sponsored programs are telecasted on regional channels like Sun TV, Surya

TV, Udaya TV etc. Also Doordarshan is telecasting programs based on sponsored model.

Assets used in the production of Sponsored programs have remained constant as a percentage of

revenue. The investment required in the assets for sponsored program is much lesser than those in

commissioned programs. The amount invested in assets for sponsored programs per hour of telecast

was maximum in FY05 at Rs 1.99 lakh per hour. However in FY04 when the revenue per hour was

maximum for Balaji the capital employed in sponsored program was almost 16% less at Rs 1.68 lakhs per

hour. Low investment in assets and hence high return on capital employed is a feature of sponsored

business model.

Assets 2005-06 2004-05 2003-04 2002-03 2001-02

Sponsored Segment Assets 1290.34 1571.37 1122.78 923.02 870.17

Sponsored Segment Assets

per revenue earned

0.37 0.49 0.34 0.36 0.36

Sponsored Segment Assets

per hour

1.23 1.99 1.68 1.50 1.38

Operating Profit to Segment

Assets

0.54 0.49 1.19 1.16 1.16

Commissioned: The Company creates content at the behest of channel owners, assuming no risk in

either its creation or its marketing. As a result, the content is created against a fee with the probability

of rate revisions in the event of the programmes becoming successful (as measured by TRPs). These

programmes represent an interesting balance between risk-neutrality and income-enhancement.

Details of Balaji Telefilms Commissioned Program: Revenue and Expense

Commissioned 2005-06 2004-05 2003-04 2002-03 2001-02

Hours (lakh/hr) 1070 931 819 1067.5 875

Revenues (Lakh) 23499.23 16481.98 14530.03 16009.37 8622.31

Revenues per Hour

(lakh/hr)

21.96 17.70 17.74 15.00 9.85

Operating Expenditure

(Lakh)

12398.79 9062.83 6155.66 6768.43 4291.01

Operating Expenditure per

Hour(lakh/hr)

11.59 9.73 7.52 6.34 4.90

Operational Profit 11100.44 7419.15 8374.37 9240.94 4331.30

Operating profit per Hour

(Lakh/hr)

10.37 7.97 10.23 8.66 4.95

Operational Expenditure

per revenue earned

0.53 0.55 0.42 0.42 0.50

Balaji started off with a model of Sponsored program production. In 1999-2000 commissioned programs

formed just 9% of the total program hours. However, as a part of its de-risking initiative, the company

increased commissioned programmes from 57.5 hours in 1999-2000 to 1070 hours in 2005-06. The

revenues from commissioned programs contributed more than 87% of the total revenues. The

commissioned programs had a higher operating profit per hour for the duration under consideration.

However the operating expense for the commissioned model is much higher than that of the sponsored

model.

Commissioned models required high investment in assets as compared to the Sponsored Model. The

investment in assets for commissioned programs during FY06 was almost 8 times that of sponsored

programs. However considering Operating profit to Segment Assets ratio we find that the

commissioned model performs better than the sponsored model in all the financial years under

consideration.

Assets 2005-06 2004-05 2003-04 2002-03 2001-02

Commissioned Segment

Assets

10316.56 7657.34 4937.37 4286.48 2321.23

Commissioned Segment

Assets per revenue earned

0.44 0.46 0.34 0.27 0.27

Commissioned Segment

Assets per hour

9.64 8.22 6.03 4.02 2.65

Operating Profit to

Segment Assets

1.08 0.97 1.70 2.16 1.87

Comparison of the Two Models

Criteria Channels Marketing risk Capital Risk IPR Benefits

Commissioned Zee, Sony,

Star, Alpha

Borne by channel

Revenues are fixed

by the channels

with incentives

Content

provider

assured of a

minimum fixed

return

Owned by the

channel

De-risked

business

model

Sponsored Doordarshan,

Sun, Gemini,

Udaya,

Eenadu

Borne by content

providers

Revenue is variable,

based on

programme success

Content

provider may

not recover

cost of

production

completely

Retained by

the Content

Provider

High risk,

high return

business

model

Multi Lingual programming

Regional content comprises of 48.7% of total programming hours. The company has an active presence

on four regional channels. The company expects to enter more regional segments over the foreseeable

future. The table below shows the channel wise revenue details.

Balaji started providing content to Sun TV during FY04. The revenue per hour on Sun TV have grown at

81% YoY. (On Sun TV, Balaji has “Kanavarukaaha“ telecasted at 10:30 pm to 11:00 pm slot for 5 days a

week.) However the revenue per hour for Gemini TV has been falling for last three FYs at the rate of 10%

YoY.

Channel Width

The company’s presence across a number of channels provides it with a stable and diversified source of

income. In 2005-06, Balaji’s programmes were aired on Doordarshan, Star Plus, Sony TV, Zee TV, Sun

TV, Zoom, Star One, Gemini TV, Udaya TV and Surya TV.

RevenuesProgrammi

ng Hours

Revenues

per HourRevenues

Programmi

ng Hours

Revenues per

HourRevenues

Programmi

ng Hours

Revenues per

Hour

Major Satellite Channels 23499.24 1067.5 22.01 16481.97 931 17.70 14530.03 819 17.74

Doordarshan 129.27 57.5 2.25 284.25 45 6.32 90 15 6.00

Gemini TV 1171.58 215.5 5.44 1580.02 277.5 5.69 2047.04 305.5 6.70

Udaya TV 1162.27 384 3.03 830.43 298 2.79 1120.73 346 3.24

Surya TV 587.47 258.5 2.27 298.83 112 2.67 NA NA NA

Sun TV 376.4 130 2.90 89.84 56 1.60 NA NA NA

Total 26926.22 2113 12.74 19565.34 1719.5 11.38 17787.8 1485.5 11.97

2004-052005-06 2004-05

Channel

Genres

Balaji produces sitcoms, general soaps, family soaps, thrillers and children fantasy programmes - in Hindi

and regional programming. The company’s ability covers a vast programming repertoire.

Commissioned programmes, 2005-06

Kyunki Saas Bhi Kabhi Bahu Thi

Star Plus

Kahaani Ghar Ghar Kii Star Plus

Kasautii Zindagii Kay Star Plus

K. Street Pali Hill Star Plus

Kaahiin To Hoga Star Plus

Kavyanjali Star Plus

Kesar Star Plus

Kkusum Sony TV

Kaisa Ye Pyaar Hai Sony TV

Kosmiic Chat Zoom

Kandy Floss Sony TV

Hum Paanch Zee TV

Kasamh Se Zee TV

Kyaa Hoga Nimmo Kaa Star One

Own Equipment

Balaji invests in its own equipment and studios as opposed to the practice of renting the same. This

increases operational flexibility, saves time, increases productivity and improves quality.

Over the years, the Company invested in the following:

Captive sets: This enabled the Company to enrich its domain expertise, produce a variety of sets and

ensure their availability within strict deadlines.

Captive equipment: This enabled the Company to de-risk itself from a dependence on vendor equipment

with a captive investment in some of the most sophisticated equivalents (lights, sound recording and other

technical equipment).

Captive post-production facilities: The Company invested in state of the art post-production suites, which

accelerated the conversion of recorded material into episodes and facilitated an ongoing review and

improvement of shooting standards.

Sponsored programmes in 2005-06

Kalyanee Gemini TV

Kanyadaana Udaya TV

Kumkuma Bhagya Udaya TV

Kadambarii Udaya TV

Kanavarukaaha Sun TV

Pavithra Bandham Surya TV

Kavyanjali Surya TV

Kankkana DD-Chandana

Balaji Value Chain

Balaji: Growth in Content Telecasted

2005-06 2004-05 2003-04 2002-03

Television Serials 22 21 14 14

Episodes a week 85 81 53 62

Programming Hours 2113 1719.5 1486 1681

Content Telecasted

in primetime

83% 85.71% NA 72%