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Arindam Chaudhuri, Editor-in-Chief, 4Ps B&M Chief Consulting Editor's Desk
Rajita Chaudhuri
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How Convergence is Changing the Media Landscape
The coming together of media, technology and telecom is driving new areas of business growth and redefining each of these sectors.
The worlds of media, telecom and retail are beginning to converge in more ways than anticipated and the recent Rs.1,500-crore landmark deal between Mukesh Ambani-led Reliance Industries and Raghav Bahl’s Network18 is a major shot across the bows. Not only is it the biggest deal to date in the $17-billion Indian media and entertainment industry, it also promises to bring about a profound and paradigm change in the way the media, telecom and retail industries operate and interact with each other. Media commentators and analysts have proffered various interpretations and spins on the multi-layered media deal between RIL and Network18 Group, which in a fell swoop makes Infotel Broadband Services (Infotel) – the fourth-generation (4G) Internet broadband subsidiary of RIL – the preferred customer and distributor of 25 television channels and other web content produced by Network18 Group. In return, RIL will help fund the Rs.2,700-crore acquisition and expansion plans of Network18 Group via the proposed rights issue of both Network18 Media & Investments (Network18) and TV18 Broadcast (TV18).

More than Mukesh Ambani wanting to don the mantle of a media czar, which many believe he is loathe to, his recent investment in Network18 Group is believed to be driven by strategic business interests. After all, telcos looking for substantial sources of revenue growth are now targeting the two “next big things”: the media industry and the mobile broadband market. Mukesh already owns a pan-India broadband telecom firm in Infotel and he will need a lot of content and media to feed the fat pipes of his broadband network. In this context, his latest media move will give him the leverage to develop a unique and sustainable competitive advantage in the broadband market. According to analysts and industry observers, Mukesh has a physical retail chain, he has the broadband license and he has inked the Network 18 deal because he needs branded content as a glue to drive audiences and then induce them to make purchases in his retail and telecom ventures.

“The TV18 deal provides Mukesh a huge converged platform for media, retailing and e-commerce and if he can bring a part of his retail network onto his broadband platform, it would throw up a significant opportunity for e-commerce,” says Shobhit Agarwal, Managing Director of Protiviti India, a consultancy firm. With increasing Internet penetration and flexible payment modes such as cash-on-delivery being used widely nowadays, big retail chains like Reliance Retail, Aditya Birla Retail and Tata’s Croma are looking to make the most of the Rs.2,050 crore e-retailing market, which is growing at over 30% annually. As far back as four years ago, when celebrating his 50th birthday, Mukesh Ambani had announced ambitious e-commerce plans for his Reliance Retail. And we all know when Mukesh says something he is damn serious about it.

According to the Internet and Mobile Association of India, Internet users in the country have crossed the 100-million mark, of which 17 million are online shoppers. It estimates that the number of Internet users in India will triple by 2015, as will the number of online shoppers. Recently, investment bank Avendus Capital released a report that said e-commerce in India is poised for rapid growth. It estimates that by 2015, online retail in India will be 1.4% of offline retail, compared with 0.2% today. According to the research firm Forrester, e-commerce is now approaching $200 billion in revenue in the United States alone and accounts for 9% of total retail sales, up from 5% five years ago. The corresponding figure is about 10% in the United Kingdom, 3% in Asia-Pacific, and 2% in Latin America.

A key driver of this online shopping growth will be broadband, as there is a high degree of correlation between e-tailing growth and broadband penetration. In mature markets like the US, where there is a high degree of broadband penetration, about 50% of store sales are influenced by digital information and that number is growing rapidly. Globally, digital retailing is probably headed toward 15% to 20% of total sales and much of it is now highly profitable. For instance, Amazon’s five-year average return on investment is 17%, whereas traditional discount and department stores average 6.5%. To tap into this growing opportunity for digital retailing, retailers everywhere, including in India, are looking to interact with customers through countless channels – websites, physical stores, kiosks, direct mail and catalogues, call centres, social media, mobile devices, gaming consoles, televisions, networked appliances, home services, and more.

Obviously, new trends and technologies are upending conventional notions of doing business in sectors like media, telecom and retail. As a result there is a convergence happening in the worlds of retailing, media (content) and telecom and the three sectors are coming together like never before. “In India today, a lot of product categories are searched and viewed online but bought offline. Even in the US, a lot of people buy online but they visit stores to collect the goods. Eventually, there’s going to be a thin line between what’s going to be media and what’s going to be telecom and even retail,” says media entrepreneur and commentator Anurag Batra. He points to another trend that would likely pick up in the days ahead. “Going forward there’s also a very strong possibility of e-commerce companies launching TV channels for the simple reason that even though e-commerce is set to boom, a lot of people in smaller Tier II towns and cities don’t understand e-commerce but are very comfortable teleshopping on sites like Homeshop18.” In this context, the question to ask is whether tele-shopping is a network with an e-commerce element or is e-commerce a channel which has tele-shopping as an element?

Actually, the digital revolution is dissolving traditional media silos and has blurred the lines between media, retail and telecom. For many years different media were clearly separated: broadcast TV, broadcast radio, newspapers, books, video and film, recorded music etc. But digital technology has changed things upside down. A digital medium can carry any type of content. Video can be distributed on a mobile phone network or music over the Internet. This not only means that different types of media are converging, but also that media and telecom are converging at an accelerated pace. In fact, the trend towards convergence is getting even more pronounced in the case of media and telecom. With broadband set to roll out in India in a big way in the months ahead, telecom network operators are looking to broadcast or stream multimedia signals to their subscribers. This means that operators can become a new broadcast medium for content – including games, video, news, sports, weather, and music.“Today, already about 20% of all revenue for the telecom industry is coming from VAS and it is easily the most profitable 20% with a deep bearing on the industry’s bottomline,” says Atul Sharma, Vice President, Tangerine Digital Entertainment.

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