Network18 in a tough financial crisis-Mukesh Ambani likely to buy shares

Courtsey:-WSJ

MUMBAI—In India's cutthroat media sector, the power struggle between cable-TV operators and content providers is growing more fierce.

Indian media companies are churning out a range of popular television programming and boast one of the largest viewing audiences in the world. But making a healthy profit is proving difficult as cable operators who carry that content take a large cut of the revenue.

Bloomberg News

Mukesh Ambani at the World Economic Forum India Summit 2011 in Mumbai, Nov. 13.

It is one reason why Network18 Group, which operates some of the country's highest-rated channels including, through partnerships, India's version of CNBC, MTV, and CNN, is looking to raise a significant amount of cash. Network18 Media and Investments Ltd., the holding company for the TV and Internet conglomerate, has annual revenue of about $274 million but isn't profitable.

Among potential investors is India's richest person and chairman of Reliance Industries Ltd., Mukesh Ambani, according to people familiar with the matter. Mr. Ambani has been in talks with Network18 founder and controlling shareholder Raghav Bahl, these people say. 

The talks may not lead to a tie-up. It also isn't clear what the value of Mr. Ambani's investment would be and whether he is operating on behalf of Reliance Industries or whether he would put his own cash into a deal.

A spokesman for Reliance said neither the company nor Mr. Ambani has any interest in buying a stake in Network18.

In a statement, Network18 said: "Currently the company has not concluded any agreement in connection with any proposed investment."

India is the world's third-largest television market—after China and the U.S.—with about 140 million households, according to a report by KPMG and the Federation of Indian Chambers of Commerce and Industry. Of those viewers, 104 million households subscribe to cable or satellite, also making India the third-largest cable-TV market in the world.

More:

• Mukesh Ambani Seeks Network18 Stake

• RIL Denies Interest in Network18

But about 75% of that market is controlled by a host of local cable operators—50,000 and counting, said KPMG. Media companies collect revenue from cable operators on a per-subscriber basis. Network18 and others allege, however, that cable operators are underreporting the number of households they service, lowering media firms' subscription revenue.

Network18's individual entertainment channels generate operating profit, but the company is struggling to break even overall, and is dealing with mounting, high-cost debt that it raised to fuel its expansion in recent years.

Network18 said its operating profit gets wiped out because of the fees it must pay cable operators to have programming carried. Network18 collects about 12% of its total revenue from subscriptions, while the rest comes largely from advertising. In the U.S., cable channels generally collect about half their revenue from subscriptions and half from advertising.

Haresh Chawla, Network18's outgoing chief executive who spent a decade building the firm from a roughly $2.2 million company, said carriage fees keep increasing as more channels enter the fray and compete for scarce capacity on India's aging, analog-cable infrastructure.

"The cable guys have all the leverage—they have been in a sweet spot," said Mr. Chawla, who is leaving the company to pursue other opportunities. A lack of effective regulation, he said, has allowed small-time operators to function as powerful monopolies. "Almost our entire profitability gets wiped out by carriage fees."

In the television industry, "Profitability is more the exception than the rule" because of the amount the channels have to pay to cable operators to get access to households, said Jehil Thakkar, head of media and entertainment at KPMG in India.

"There are more than 700 channels on offer—high by global standards—and the guys who pay the most money get on," he said.

Mr. Chawla said he is hopeful that modernization and digitization of cable's infrastructure will ease pressure on content providers, provide greater transparency on the number of households cable operators actually serve and free up more programming capacity.

The Indian government has mandated that the four-largest metropolitan areas be digitized by next spring and the rest of the country by March 2015.

"Digitization will be a game changer for broadcasters as carriage fees will go down, and channels can invest in content and focus on more niche programming," said Ankit Kedia, media analyst at Centrum Broking Pvt. Ltd., a broking house in Mumbai.

If Mr. Ambani takes a stake in Network18, he would be buying into an operation with some highly rated content. CNBC-TV18 has 56% of viewership among business channels, while Colors, the company's entertainment channel, runs neck and neck with Star Plus in general entertainment. Star Plus is operated by Star India Pvt. Ltd., which is owned by News Corp., publisher of The Wall Street Journal.

KPMG's Mr. Thakkar predicts that consolidation among media companies will happen at some point, driven by companies building out portfolios so they can go national. Currently, much of the Indian media industry is fragmented by region and language.

Indeed, the way to survive India's fast-growing and fiercely competitive media sector, many analysts and deal-makers say, is to scale up. One of the plans Network18 is evaluating is a potential combination with regional broadcaster Eenadu TV, according to people familiar with the matter. Mr. Ambani already controls an investment in Eenadu, according to people familiar with the matter.

Even two of the biggest media companies—Zee Entertainment and Star—earlier this year set up a venture to distribute their channels to cable operators in a bid to have greater influence over the cable companies.

Write to Megha Bahree at megha.bahree@wsj.com 

6 Police injured in ambush

PTI | 08:12 PM,Dec 20,2011

Shillong, Dec 20 (PTI) Six policemen were today injured in an ambush by suspected GNLA militants in Meghalaya's East Garo Hills District this evening, police said. The incident took place late afternoon at Baijja, three km away from the district headquarter, Williamnagar, they said. Armed police personnel were escorting a team of bamboo cutters when 15 to 20 heavily armed GNLA (Garo National Liberation Army) cadre ambushed the escort team and fired at the cops, police said. Both sides exchanged fire for over 15 minutes in which six police personnel were injured. The injured policemen were taken to the Williamnagar Civil hospital for medical treatment. Two of the injured suffered shoulder and hip wounds while the injury to the rest was not serious. The GNLA is most active in Meghalaya's Garo Hills district at present and responsible for extortion and abduction in the coal belts in Garo hills. On December 18, two armed GNLA rebels were shot dead in an encounter with a police team at Damagre village, about 5 km from Williamnagar. Two grenades, a pistol and documents including identity cards of the cadre were recovered from their possession, police said. The outfit, led by a deserter Meghalaya Police Deputy Superintendent of Police, Champion Sangma had also carried out a number of kidnappings over the last few months and slapped extortion demands on traders and government officials, besides killing policemen and labourers.

The ship of democracy sails in greedy waters

 Prem Shankar Jha

 Date: December 14, 2011

 The slap on Sharad Pawar has deep roots in the association between
dirty politicians and the underworld. Future reactions could get angrier

WHEN UNION minister Sharad Pawar was slapped by an obviously unbalanced
youth, Anna Hazare passed an acerbic comment, "why just one slap?" As it
always happens, he was roundly condemned by the establishment for making
a remark in bad taste. But a more pertinent criticism would be that it
personalised, and therefore trivialised, a conflict whose outcome would
decide the future of India. Herein is a prolonged conflict between civil
society and a criminalised government that has progressively
disempowered the ordinary people of India. This form of government has
also emptied the democracy of much of its content.

If Anna's reaction could be branded irresponsible, then society's
Pawar-sympathy is downright hypocritical. Especially, when it is well
known within the circles in Mumbai and Maharashtra, that Pawar
symbolises the epitome of cronyism that the Indian democracy has
degenerated to. The two chargesheets filed by CBI in April against Raja
and others in the 2G scam have exposed this network, built entirely on
corruption, intimidation and patronage, where politicians like Pawar are
deeply involved. The rot is not just on the surface but it runs deep and
is spread from Dubai and Lichtenstein to Singapore, New Delhi to Mumbai
to Chennai, from metropolis to village and tehsils, as also from cabinet
ministers to criminal underdogs.

Thus, it doesn't come as surprise that the chargesheet filed by CBI
draws close to a well written masala movie script. It has all the
ingredients of a Bollywood gangster movie that stars not our regular
film stars but the power-elite of the Indian state. The movie has an
interesting beginning: the rise of two dynamic young CEOs aged 37 and
38, who head (in one case headed) the fastest growing real estate
companies in Mumbai and Chennai, and owed their meteoric rise to a
powerful political patronage. The CEOs represent DB Realty (based in
Mumbai); the second is Greenhouse Promoters (based in Chennai).

DB Realty has a humble beginning, which was created in 2006 by two
Mumbai families - small time hotelier Usman Ebrahim Balwa and a real
estate dealer Krishna Morari Goenka. In the next four years DB Realty
grew at a pace never before witnessed even in Mumbai's rambunctious real
estate sector. By early 2011, DB had added 21 million square feet (msqf)
of new residential and office space to the Mumbai market and had another
40 msqf under construction. Its managing director, Shahid Balwa, the
younger son of Usman Balwa, had assets worth $1.06 billion and was
listed by Forbes as the 66th richest man in India.

How did a newcomer in the real estate business become one of the largest
builders in Mumbai in as little as five years? Within the annals of the
state secretariat it was common knowledge that the young Balwa enjoyed a
close relationship with an influential politician and owed his company's
success to that liaison. According to the articles reported by Times of
India, the files concerning DB Realty were processed and permissions
granted within days.

Who was DB Realty's mysterious backer? Niira Radia, the lobbyist
employed by Tatas, Unitech and scores of other companies, revealed
during interrogation by the CBI: 'As per the general perceptions in
Mumbai and outside, DB Realty is controlled, directly or indirectly by
Sharad Pawar and his family. This created a sensation in the media, but
most people still did not know that DB Realty may also have been a
conduit for investments by the notorious gangland don, Dawood Ibrahim.

According to Zameeruddin Ansari, an associate of Dawood's brother Anees
Ibrahim, whom the Mumbai crime branch arrested in September 2004, Pramod
Goenka's real estate company was a conduit for the D-Company's
investments in Mumbai's real estate market. This disclosure had come
after a far more damning accusation made six months earlier, in October
2003, by a rival Mumbai builder Rajesh Patange who accused Krishna
Murari of having placed the 'contract on his life' in a dying
declaration after he had been shot by four hitmen in a typical Mumbai
contract killing. But neither in 2003 nor in 2004 did the Mumbai police
even interrogate, let alone charge him with either offence.

The Maharashtra police also had evidence, gleaned from arrested
gangsters, that Shahid Balwa's father Usman Ebrahim Balwa was closely
associated with another notorious underworld don, Chhota Shakeel. In all
it, and central security agencies, sent seven reports to the state
government between 2003 and 2008 against the Goenka and Balwa families,
but no one paid attention. "We invest so much resources (in the
collection of this information) because there are serious issues of
national security" a Delhi-based official, probably an R&AW employee,
lamented to the Times of India. "But governments just ignore them," he
went on to say.

It remains to be seen how much of the above information is included in
the CBI's chargesheets against Shahid Balwa and Vinod Goenka, Krishna
Murari's other son and Balwa's partner in DB Realty. But the media and
the public can join the dots that connect the Balwas and the Goenkas
with Sharad Pawar and Dawood Ibrahim; and Pawar to Dawood.

GREENHOUSE PROMOTERS had a similar meteoric rise in Chennai, for similar
reasons. Early in his career as a local lawyer in Perambalur, Tamil
Nadu, A Raja once defended a young man who had a small business in Karur
district, buying plots of land with margin payments and completing the
payment when he sold the land to someone else. His name was Sadiq
Batcha. Batcha had sought legal help when some of his deals went sour.
This became the foundation of an extraordinarily lucrative partnership.
When Raja later entered politics, he seems to have begun to feed Batcha
with information about where the government intended to buy land for new
projects in the area, for whenever the government announced a project in
the neighbourhood of Perambalur, Raja's constituency, the land had
already been bought by Batcha and had to be acquired from him at a much
higher price.

In 2004, when Raja first became a union minister in the NDA government,
Batcha set up a real estate firm, Greenhouse Promoters. His joint
managing director in the company was Raja's elder brother, Kalaiperumal.
In the next few years the company grew at a dizzying pace, always buying
land cheap and selling it to the government, or to major real estate
companies, at much higher prices. Within a few years Greenhouse
Promoters, which started with an equity capital of just Rs 1,00,000
reported a revenue of Rs 600 crore - sixty thousand times its equity
base, and had offices in Bengaluru and Singapore! Raja's wife, nephew
and various other relatives have also been employees and directors of
the company.

The 2G scam has conjoined the fates of these two companies with that of
one of India's largest and most iconic companies, Anil Ambani's Reliance
Telecommunications. After an intense interrogation in February, and
faced with a second summons from the CBI, Sadiq Batcha committed suicide
on March 16 this year. The CBI was trying to track down where the
presumed payments made to Raja that had been salted, and had come across
evidence that suggested that it had been put into accounts in six
countries. At the time of his death Greenhouse was describing itself as
a company engaged in exports. According to some newspaper reports, the
CBI had wanted to interrogate Batcha to learn the identities of four
persons from the D-Company whom it suspected of having set up the
Singapore account. Batcha's suicide could not therefore have come at a
more convenient time for all concerned.

Much of what has appeared in the media is still conjecture. Ambani may
not have known about DB Realty's murky origins, and the charges that the
CBI has hinted at are still to be proved in court. But in the court of
public opinion not only these companies and their owners and managers,
but the entire Indian state stands condemned. For, the 2G scam and its
attendant disclosures has exposed a web of shady transactions and a
systemic abuse of state power that stretches all the way from two of the
central government's most powerful ministers, to several of India's most
respected industrialists, managers, lobbyists and journalists, to a
political party in Tamil Nadu with an otherwise enviable record for good
governance, to hitmen in Mumbai's underworld, and to two of its most
detested gangster chiefs, one of whom is a self-proclaimed enemy of
India and has actively aided terrorist attacks on Mumbai.

The complete disappearance of moral values that this story reveals
should be of immense concern to all Indians, because it directly
threatens our future. But what is particularly troubling is the way
these disclosures have reinforced the long-held suspicion that Bal
Thackeray's off-the-cuff allegation that Maharashtra Congress, headed by
Sharad Pawar, had been the political patron and protector of Dawood
Ibrahim in the 1980s and early 1990s. For, if DB Realty was only formed
in 2006, who was the powerful patron, hinted at by the Mumbai police and
central intelligence agencies, who shielded Krishna Murari Goenka from a
charge of murder in 2003 and his son from interrogation for having
business dealings with Dawood Ibrahim in 2005?

If the allegations are true, Pawar, former chief minister of Maharashtra
for more than a decade and also a powerful minister in the current
Manmohan Singh cabinet, has felt no qualms in dealing with, and
protecting Dawood Ibrahim. Ibrahim was the kingpin of the 1993 serial
bomb blasts in Mumbai and carried out the bombings allegedly in
collusion with the Pakistan ISI. Is there anything sacred left in the
Indian state?

- Prem Shankar Jha is a senior journalist based in New Delhi.
premjha@airtelmail.in

Courtsey:Tehelka