Lunch with BS: Sudhanshu Vats

Billion dollar baby

Sudhanshu Vats, 46, is a genial sort of chap. He has spent more than 20 years (in two stints) at the consumer product giant Hindustan Unilever managing businesses as varied as food, detergents and personal care products. So, I wonder how he has fared in his 18 months as group CEO at the Rs 1,579-crore Viacom18 Media. This 50:50 joint venture between Mukesh Ambani-controlled Network18 Group and Sumner Redstone's Viacom Incorporated is into television broadcast (Colors, MTV, Nick et al), television distribution (IndiaCast) and films (Viacom18 Motion Pictures) among other things. And while media and entertainment (M&E) looks like a consumer business, it is in reality more wired to advertisers, a huge source of revenue. It is a difference that usually hits most consumer product and telecom managers entering the media business hard.

Most of my meetings with Vats have taken place at industry dos or coffee shops. This time we agree to have lunch at his office at the Viacom18 building in Mumbai.

What has the year been like, I ask, as we settle in. Vats thinks it has been a great year with revenues growing at a compounded annual growth rate of 24 per cent in the last three years. More importantly, Viacom18 has been bringing in a modest profit after tax for the last two quarters. "If more channels and businesses have to be launched then Viacom18 has to be sustainable and profitably so," he says, emphatically.

He is probably reacting to the criticism of the firm's tardiness in launching new channels. While competitors Zee, Star etc. average between 25 and 35, Viacom18 has just nine channels. And, besides Colors, there are no major heavy hitters on its portfolio. Both the Rs 6,100-crore Star Group and the Rs 6,350-crore Zee Group have a robust regional business, and movie and sports channels. Vats, however, is very keen to bring some order to the business before throwing much money at anything new.

We move towards the conference room where food from Gazalee, a popular seafood place in Mumbai, has been laid out. As I tuck into fish tikka and basa fry, Vats runs through the things he had decided to target in his bid to make Viacom18 a billion dollar group over three to five years.

One is sharper segmentation, which he believes will be the order of the day in a fast digitising world. To that end, the company has been working at adding more variety within channels and across genres. Last week, Viacom18 launched MTV Indies, a channel that showcases independent content from theatre, films, music and wherever else it is being made. Within channels, gaps such as comedy and crime have been filled with Comedy Nights with Kapil and 24 on Colors. Of the 15 films on the motion picture arm's slate for 2013-14, six are in languages other than Hindi.

Two is plugging all the strategic gaps such as regional television. In January 2012, just six months before Vats joined, Ambani had funded the merger between Raghav Bahl's Network18 and Ramoji Rao Ushodaya Enterprises, which owns the Eenadu family of channels. As a result, Eenadu's bouquet of five entertainment channels such as ETV Marathi and Gujarati have come into Viacom18's fold. The legal transfer of the channels is taking time, says Vats. Once it is through, the regional entertainment bit, which has a top line of Rs 260 crore, will get added to the Viacom18 kitty.

The third part is "building eco-systems" says Vats, taking a bite of bhindi and dosa. This means extending the characters and themes in Viacom18's content to on-ground events or consumer products to create additional revenue streams. So there is the kids theatre event based on Dora that Viacom18 did in Delhi last year or Vh1 Supersonic (Electronic Dance Music Festival) or Comedy Central's Chuckle Festival among others. Vats estimates that this business should eventually bring in 10 per cent of Viacom18's topline from the current two per cent or so.

It is the fourth bit that gets this former Unilever man going. It is "building synergies through processes" into this entertainment conglomerate. For example Big Boss and Jhalak Dikhla Jaa are big shows on Colors. Can these be used in Kannada, Bangla or other languages across the network? The set for the show is common and the ad sales could be too, says Vats, clearly coming into his element with the whole idea.

"We were a loose agglomeration of brands and businesses. Now, with 70 of the top managers we are trying to figure out how to build one Viacom18," says Vats. He's hit on a sore point for the Rs 83,000 crore M&E industry. It is a minefield of companies that get stuck because they are poor at putting in place processes and building organisations that can take slow growth years as well as they take the fast growth ones. That explains why every time there is an advertising slowdown, the moaning begins.

Process is all very fine, but isn't the heart of this business creative? Vats reckons that Viacom18 has really worked hard at scaling up the story-telling and production quality of Indian programming with shows such as 24. The film studio has taken some bets with films such as Gangs of Wasseypur (1 and 2), Madras Cafe and Bhaag Milkha Bhaag among others. But "the investment phase is over for film studios, we have to ask ourselves what returns am I getting in my portfolio," he says.

As we dig into our gulab jamuns, Vats reveals that to plug in better with what consumers may want, across Viacom18's businesses, he is doing what he did at Unilever, spending time with viewers to understand what they consume and how.

His big challenge as he shifts gears from soaps and detergents to TV shows and films? "Getting people to see the big picture," he says. He explains that M&E is a consumer business, much like soaps and detergents. However, "the predominant revenue stream is business-to-business (advertising). So it (M&E) is a consumer business run on business-to-business principles. For me, this industry has to be run on business-to-consumer principles, if it has to rise and shine," he says. This hasn't happened so far because while it is a free and competitive industry, "regulation is crippling its growth."

He has a point, I think as we move back to his office and order coffee. If, as discussed at several industry forums, M&E has to be a $100-billion industry in 10 years and bring in $30 billion in taxes, then several things have to fall in place - such as price regulation or a more liberal attitude towards content. Vats reckons, like most analysts, that the government should ensure good competition and then leave it to the market. The estimates of what it will take to build the pipelines (screens, TV distribution firms and so on) that could adequately feed India's insatiable demand for M&E run into billions of dollars. And this investment will not come from, "mom and pop stores," says Vats. The companies that bring them in will not come in, unless the regulatory structure is clear, unambiguous and stable.

Vats is a marathon runner who runs for charity, his favourite being education. He would know more than anyone else about long hauls. And building the Indian M&E industry into a $100-billion giant is the biggest of them all.