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The chorus against content
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Across the media and entertainment (M&E) industry, the chorus against rising content costs has been growing louder. Radio operators are lobbying against royalty costs which could vary from 7 per cent to 40 per cent of revenues per station. Direct-to-home (DTH) operators have been talking for long about how content costs take away 40-60 per cent of revenues. Earlier this year, multiplex owners and film production companies had a two-month-long stand-off over revenue share. Cable operators routinely under-declare their way out of paying full content costs.

If content, the stuff that gets audiences in, is the heart of the M&E business, then why this chorus?

There are dozens of companies that create and distribute content and treat the costs just like any other. Typically, news companies, say The Times Group or NDTV, produce their own content and distribute it too. Entertainment companies such as Star or Zee, outsource a bulk of their content and then distribute it via their channels. Either way it forms a large chunk of their costs. Mihir Shah, a research analyst with Prabhudas Lilladher, estimates that the figure could vary between 20 per cent and 50 per cent of revenues depending on industry, scale, how diversified the company is, among other variables.

Yet many of these companies are not part of this chorus. They just deal with rising content costs in the course of running their business. Last year, when ad revenues were threatened and rising distribution and content costs were causing havoc, Star simply got rid of its most expensive programme producer — Balaji Telefilms. That alone gave its margins a prop. Other newspaper publishers in similar situations froze salaries, let go of people, cut pages and editions. There was no lobbying or fights about rising content costs.

The essential difference between the media firms that treat content costs as just another cost head and the ones that harp on its rise or fall, is that the former started as content creators. Their decision to get into distribution was not the reason to get into the business. A newspaper is not launched because a firm wants to get into distributing newspapers. The raison d’être for a TV channel is not its distribution, and ditto for film production companies. They get into it because they want to get audiences and then charge either the audience (films) or advertisers (newspapers, TV).

On the other hand, DTH and multiplex firms started life as pure distribution companies. They specialise in getting a screen across to the audience. They do not make or outsource what is needed for the screen. (Some of them may have content arms.) Even radio does not produce original content except for the jockey jabber. The overwhelming proportion of radio programming in India, just like elsewhere in the world, is music and that is bought from content creators — music companies.

You could argue that telecom operators too provide media infrastructure, yet they get 70 per cent of the revenues they make from selling ringtones and other entertainment products.

For now, the argument doesn’t hold. That is because telecom companies are primarily in the business of selling voice traffic, a commodity service. Value added services such as ringtones et al, form just under 10 per cent of their revenues. Besides, half a dozen operators control a bulk of India’s 400-odd million subscribers. The negotiating power of one operator with over a 100 million subscribers is better than that of a DTH operator with, say, six or 10 million.

Either way the bottom line is that a telecom operator derives his value from voice, unlike a media company that gets it from content. When telecom companies start getting 30-40 per cent of their revenues from value added services, their whole attitude to content will change, irrespective of the scale at which they operate.

The answer then to rising content costs is not lobbying or fighting with associates. It is accepting the central role that content plays in generating revenues and using it to build scale.

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