Do Indian Multi-Channel Networks Present An Investment Opportunity For Global Media Companies?

After a spate of MCN acquisitions by global media houses in the west, is it now a good time for them to shift their focus to India?
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With the largest market for digital video in Asia and a rich and diverse supply of original content, India has emerged as the undisputed leader within Asia for multi-channel networks (MCNs). After a spate of MCN acquisitions by global media houses in the west, is it now a good time for them to shift their focus to India?

On March 24th of this year, in what was a landmark deal within the MNC, Disney acquired Maker Studios, the world’s largest MCN for US$500M. This capped off a great deal of interest in the space by large media companies, with as many as 4 other investments in MCNs taking place in the run-up to the deal. The acquisition cemented what many had suspected for some time, global media companies see great synergies with MCNs and they do so for two key reasons: 1) new content and 2) new audiences.

Interest in MCNs by traditional media

Firstly, MCNs today produce a new genre of niche un-formulaic almost kitsch content (e.g. Pewdiepie), which studios are not equipped to create. By acquiring an MCN, a studio gains access to this supply chain of content which it can then distribute across main-stream channels like TV, Movies and Gaming. Secondly, this spontaneous kitsch content from MCNs attracts the 14-25 younger ‘millennial’ generation, which has so far remained elusive to studios. Therefore, for studios, MCNs in many ways serve as the last bastion of hope in reaching out to this young audience.

The studios gain access to fresh content and a new target audience, while MCNs gain access to large distribution networks, a clear win-win for both parties. This is central to what has been driving valuations for MCNs, although none of them have succeeded in turning a profit so far.

Shift of focus to India

While this has been the situation in the west, Asia has also seen a fair deal of MCN activity, primarily being led by India. However, while a number of Indian MCNs have emerged with expertise in production and aggregation, the Indian MCN market is still nascent and undeveloped in the marketing and monetisation of content. The lack of experience and expertise in the space has been one reason for this, and the lack of funding in the space another.

Given the gaps in the Indian market, is it now an opportune time to explore opportunities for partnering / acquisition of digital video networks in India?

We believe this is a good time to enter the Indian digital video market and build scale for the following three reasons:

  1. Large digital video market with strong growth in viewership and advertising;
  2. Opportunity to build new content and audiences;
  3. Ripe for M&A activity.

Large digital video market with strong growth in viewership and advertising

Firstly, the macro reasons, at 3.7B1 videos viewed per month (March, 2013) and 54M internet users (March, 2013) who watch video every month, India represents one of the largest markets for digital video in Asia. Secondly, the digital video market in the country has been growing rapidly, with digital video views almost doubling from 1.9B views to 3.7B between 2011 and 2013. Indian video networks have cashed in on this great demand and today there are as many as 10 video networks (Exhibit 1) that

Exhibit 1: Top 10 Indian Video Networks

Name of Video Network Genre of Content
1 YoBoHo Kids, Entertainment, Food
2 One Digital Entertainment Entertainment, Sport, Music
3 Whackedout Media Entertainment
4 Nirvana Digital Entertainment, Kids, Music
5 Appu Series Kids
6 Pocket Films Short Films, Documentaries
7 Businessofcinema Entertainment
8 Homeveda Health, Wellness
9 Undercover Productions Comedy, Entertainment
10 The Viralfever Videos Comedy

Source: Venture Consulting Analysis

have attained significant scale. Of these 10 video networks, YoBoHo, One Digital Entertainment, Whackedout Media, Nirvana Digital and Pocket Films are all MCNs; this means that apart from producing their own content, they also partner with independent video networks and aggregate content from them. While YoBoHo, a kids focussed MCN is the market leader, One Digital Entertainment has emerged as its strongest competitor in spite of launching its service only 18 months ago. This shows the significant opportunity the Indian market presents, if a video network gets its content and distribution strategy right.

Another driver for MCNs is the growth the country has witnessed in the digital advertising industry. The US$590M2 (2013) Indian digital advertising grew by 30% in the year 2013 and is projected to grow by a CAGR of 25% over the next 5 years. The share of spend that digital currently gets within the Indian advertising industry is also expected to more than double – from 10% presently to 23% over the next 5 years.

These positive viewership and advertising developments have prompted a number of new players to enter the digital video market. Sameer Nair, the former CEO of Star Entertainment India has launched an MCN network and recently digital media platform Qyuki, which was started by celebrity artists Shekhar Kapur and A.R. Rahman made a pivot to become a full-fledged MCN. Other innovative plays like Culture Machine has emerged which takes a unique data-oriented approach to building an MCN. With adequate supply and demand in place, it’s clear that the Indian video ecosystem has a positive outlook.

Opportunity to build new content and audiences

The second key reason we believe it is an opportune time for a global media business to enter the Indian digital video market, is the value Indian video networks present to global media companies in building new genres of content and audiences. Global media conglomerates like Freemantle and Viacom have a vast collection of global content which can be targeted at the growing English speaking audiences in urban India.

This would result in a more direct distribution medium to Indian audiences and hence a new fan following. Secondly, in the event of a merger, Indian MCN content, which is growing rapidly in quality and variety, can also be moved up-stream to global television or cinema audiences. This means that Indian MCN content can potentially be distributed to the ~25M strong Indian diaspora audience, which global media companies have access to.

Finally, given how undeveloped Indian MCNs are when it comes to the monetisation and marketing of their content, we believe a merger with a large media company would help MCNs realize their true potential. This is firstly owing to the Ad sales support an MCN can get from the existing sales team of a media company, and secondly the technical expertise a large media company can lend to an MCN on marketing its content.

Ripe for M&A activity

Finally, the third reason we believe it’s an opportune time for a global media company to enter the Indian digital video market is owing to how ripe it is from a M&A standpoint. There are several factors in favour of this: firstly there has been very little investment interest in the digital video network space in India, which means that, as opposed to their global peers, there hasn’t been a high valuation benchmark created for digital video networks in the country.

Secondly, owing to this lack of funding in the market, most video networks have been running lean operations with them struggling to achieve profitability. This has resulted in their greater willingness to raise funds. Finally, there are as many as 10 video networks which can be acquired, this means that a global media player has the unique opportunity to consolidate the Indian market and build scale very quickly.

While Indian MCNs are independently still small (Exhibit 2 and Exhibit 3) compared to their global counterparts (each gaining 40M to 80M views per month as opposed to between 4B and 6B videos viewed per month by global MCNs), there is an opportunity in India to acquire over 10 video networks within a short period of time thus becoming the dominant player in Asia.

Exhibit 2: Average views per month (In M) [Source: Interviews]

MCNs - Avg Views

Exhibit 3: Indian MCNs – Total subscribers (In ‘000s) [Source: Interviews]

 

MCNs – Total subscribers Source: Interviews

With digital video continuing to be the biggest driver of traffic on both online and via mobile, multi-channel networks which control the audiences will gain in importance. In the leading markets, this has already started to play out; we may soon find out, however, that the recent activities in the west were just the tiny tip of the more global MCN iceberg.

Sources:

1. Comscore 2013, Southeast Asia, Digital Future in Focus

2. e-Marketer Worldwide Ad Spending Report, 2014
sudhirsyal
 [About the author : This article is by Sudhir Syal, a strategy consultant with Venture Consulting, an international strategy consulting firm focussing on media, telecoms and digital. Prior to this, Sudhir was the editor and anchor of the ‘Starting Up’ TV show on ET NOW.]

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