This is my long(ish) post on valuepickr. So, please bear with me.
I have recently been reading the Shemaroo annual reports from 2011-12, I focused particularly on the management discussion and analysis section.
1) From 2012-13 AR, "broadcast syndication is one of the major revenue activities contributing more than 50% in each of the last 5 years. Distributed more than 1000 films for broadcasting on TV".
Do we know how the distribution is done? Let's pick up a random movie called X. Shemaroo allows Zee Cinema to broadcast X on a particular day. And if Zee Cinema wishes to broadcast the same movie next week, will they pay Shemaroo again? Meaning, in what manner/way Shemaroo monetizes on a particular film over a period of time, across multiple channels?
2) I checked the projected size of TV industry for 2013, 2014 and 2015 from the AR of 2012-13. The size of TV industry in later years consistently outperformed by a small margin the projected size by a small margin. I take this as a sign that the size of the TV industry (where Shemaroo operates) and Media and Entertainment industry will largely remain in line with projections.
3) Now TV industry is supposed to grow at CAGR 15%, reaching INR 1098 billion in 2020. Increase in subscription revenue and strong advertising revenues will be the driver.
Could there be any reason of TV industry not growing? Assuming advertising revenue grows, what happens if subscription revenue doesn't grow? Then the ARPU of MSOs will be low, which in turn can affect the broadcasters, cascading to Shemaroo? May not happen, but wondering.
4) The latest AR notices few trends: price of acquisition rights of movies has decreased, big banners now insist on pre-prelease deal. At times broadcasters may buy, at times they may not. Also not all pre-release deals become hit on TV and therefore broadcasters become cautious regarding acquisition of subsequent movies.
Shemaroo is a unique player in the above mentioned scenario. It enters after 5 years of release of a movie. Apparently they do not want to enter in the first cycle and that is why they are increasing their library. Broadcasters have to show movies, but if they don't know/couldn't decide/hesitate in airing recent blockbusters, then they may have to go to firms like Shemaroo who owns movies. Therefore which movies are bought by Shemaroo and whether they become successful in monetizing those movies, are key.
i) Broadcasters do not buy recent blockbusters or buy in less quantity.
ii) Production houses jack up price of new big movies, causing broadcasters to step away.
Another scenario may be that Shemaroo picks up content management role on behalf of broadcasters. I don't know whether this is something the company is willing to do.
5) New TV movie channels mean possible advantage for Shemaroo.
6) Do we know how much revenue is earned by English movie channels compared to Hindi movie channels? A case can be argued that if people watch more English movies, then Shemaroo will not be the beneficiary. However, MSOs don't provide English movie channels at base subscription. Hindi movie channels always come with base subscription.
7) Other than cable TV, DTH penetration is something to be watched for as well. How is Shemaroo's relationship with DTH operators like Airtel/Videocon/Dish etc?
8) Shemaroo earns money by giving broadcasting rights of movies to TV channels. It buys a movie from production house after 5 years. Correspondingly the revenue of Shemaroo is dependent on:
i) Revenue of the movie channel - consists of ad revenue and subscription revenue
ii) Revenue of the parent broadcaster - consists of ad revenue and subscription revenue
iii) Broadcaster's relative revenue from movie channel - if a general soap opera channel gives more profit, it might happen that ads will flock there and not in movie channels.
9) No of broadcasters in India is 350 and no of channels is 780.
10) A very good explanation of TV industry value chain is given in page 33 of 2012013 AR.
11) BARC rating of channels is something to watch for. The new rating system can influence ad revenue.
12) There used to be a section in management discussion, called 'Significant factors affecting our results of operations. It is available in page 24 of 2011-12 AR, page 35 of 2012-13 AR and page 21 of 2013-14 AR. Not a single word was changed for this section in all three years, i.e. the same words were repeated, punctuation by punctuation. Could risk factors stay same in 3 years and could it stay same in exactly identical manner?
The section got dropped from 2014-14 and 2015-16 AR. No explanation is given in AR.
I haven't went through the numbers yet.
Disclosure: Small holding in Shemaroo.