If you want a feel of what's happening in India's broadcasting sector, meet 38-year-old Delhi-based media consultant Sanjay Salil. The news channel specialist is handling a number of projects for wannabe broadcasters in Delhi, Punjab, Andhra Pradesh, Bihar and the North-east.

Clients' names may be a strict no-no, but he admits: "Among others, I'm setting up channels in the news and lifestyle space for newspaper owners, politicians, filmmakers, builders and rich NRIs." On average, he fields 20 queries a month from people keen to own a television channel.

His thriving business -- the company, Mediaguru, moved to a swank new office in Noida recently from a small basement operation in Shivalik -- reflects two things.  One, that Salil is clearly riding on the success of his first two projects -- Channel 7 (now IBN 7) for Dainik Jagran and Manorama News for Kerala's premier print company, Malayala Manorama.

Two, and more important, that India's media and entertainment segment is flourishing. Nearly 30 new television channels -- national or regional -- in the entertainment and news genre are in the pipeline. Already, over 250 channels beam over the Indian skies and reach nearly 70 million cable and satellite TV homes.

In view of the growing craze of companies and individuals wanting to be part of the action in the broadcasting space, it's imperative to ask some basic questions. First, why is everyone so keen on owning a channel? Is the television business minting money? Again, do we have the wherewithal to distribute them, and why should a viewer watch them?

One of the largest channel bouquets perhaps will come from INX Media and INX News set up by former Star Group CEO Peter Mukerjea's wife

Indrani. Mukerjea is bound by a non-compete agreement with Star and cannot engage in the broadcasting business for the next four months. But that hasn't deterred him from taking the plunge through his wife's company along with former Hindustan Times editor Vir Sanghvi who will be CEO of the news business.

On the anvil is an extensive 12-channel television network. Quiz Mukerjea, who seems to spend more time in the Taj Mahal Hotel's tea lounge in Delhi than in Mumbai, about his new business and he grins: "INX Global is a recruitment firm. So many new channels are coming and I am hiring for those."

Another 18 channels, mostly in the news genre, are being promised by Madhur Mittal, managing director, Triveni Infrastructure Development Company. A real-estate developer who likes to monitor his office through close-circuit cameras, Mittal has already acquired "Sadhna", a religious channel, for Rs 15 crore (Rs 150 million).

Television software company BAG Films' channel plans are also an open secret. Four channels and an investment of Rs 400 crore (Rs 4 billion) is on the drawing board, say company insiders. Plans are afoot to set up an earth station in the company's sprawling Noida complex. Add to this another three channels from the NDTV stable that will hit the small screen in the next six months. Former STAR CEO Sameer Nair will be in Delhi in the coming week to announce his plans for NDTV's entertainment channel.

A host of reasons, other than power and influence, are driving people into the television business. For many the "churn" theory is credible. "The broadcast industry is cyclical in nature and goes through a churn every 5-6 years. Star Plus has been number one for seven years. Now the game is changing. It's the right time to get in," says the managing director of a company eyeing the TV business.

Adds Sanjay Salil: "Look at English news. There are no clear market leaders today. Shares of Hindi news channels also change constantly." He believes there's a market for local and region-specific news channels rather than at a national level.

The bullish industry reports also offer an excuse to take the leap. ADEX India, a division of TAM Media, reports that television advertising grew at a healthy 22 per cent in 2006.

The latest PricewaterhouseCoopers report on the media and entertainment industry predicts that the medium will continue to grow at 22 per cent Compounded Annual Growth Rate (CAGR) for the next four years taking the television industry from its current size of Rs 19,100 crore (Rs 191 billion) to Rs 51,900 crore (Rs 519 billion) by 2011.

Do reports exaggerate numbers? No way, says Timmy Kandhari, executive director of the media and entertainment practice at PwC. "The industry is easy to understand. The Indian economy is growing, and in a growing economy companies allocate more funds to advertising."

Agrees Narendra Tripathi, vice president, NDTV Media: "India can take many more channels. Advertising is not dipping in a hurry." Many new product categories such as healthcare and auto ancillaries will start using television for commercials. "Five years ago who would have thought hosiery brands such as Lux, Amul and Cozy would be big on news channels?" he asks.

Channel owners are training their eyes on subscription revenue as well. After all, at Rs 12,000 a year, it is almost twice the size of television advertising estimated to be between Rs 6,000 crore and Rs 7,000 crore (Rs 60-70 billion).  "This will grow to 25,000 crore (Rs 250 billion) in four years," says KPMG's media practice head Rajesh Jain.

In the absence of addressability and transparency in the cable business, hardly 12-14 per cent subscription revenue accrues to the broadcasters. "With increased number of CAS (conditional access system) and DTH homes, broadcasters must claim a 30-40 per cent share of this revenue," says Jain.

Increased TV penetration also has potential. TV homes could grow from 112 million to 200 million. And cable penetration (read pay TV market) could grow from the current 70 million to all TV homes. Entry of CAS and new DTH players like Reliance ADAG and Sun TV will expand the pay TV market.

"Organised distribution will boost revenues. So will the greater demand for TV software in the export market and across media platforms. View this in the backdrop of 15-20 per cent increase in ad spends plus further penetration of the medium. The short term story looks positive," says C V L Srinivas, media consultant and former head of the media agency Maxus.

Is positive business outlook the primary reason for the explosion in the sector? Very few industry experts admit it, but the single most compelling reason driving people into the electronic media segment is the high valuations that the TV companies get.

Remarks Reliance Entertainment president Rajesh Sawhney: "When companies with ad revenues of Rs 200 crore (Rs 2 billion) get valued at Rs 2,000 crore (Rs 20 billion), people sit up and take notice." Besides, if you invest Rs 50 crore (Rs 500 million) in a channel and sell it for Rs 150 crore (Rs 1.50 billion), it looks like an attractive business to be in, he says referring to a channel sale some months ago.

It's easy to be starry-eyed about valuations. Set up a TV company and take some known faces on board. Get the company valued and sell small stakes to private equity investors. "You are not putting in your own money and since the markets are buoyant, the game seems to be working," says a media industry source. Sawhney, whose company is also exploring business opportunities in the segment, warns: "Short term to medium term there will be cash flow challenges. There is no pot of gold waiting for you."

That is the crucial point. How many television channel companies are profitable? Of the 10 Hindi news channels hardly three are making money. The CEO of a news channel admits that it is making losses of nearly Rs 5 crore (Rs 50 million) a month.

"How many companies are ready to lose that kind of money?" he asks. "This is not to say that there is no scope in this business, but for the first four years balance sheets will be red all over," he adds.

The state of the Hindi mass entertainment market is no different. You need a minimum Rs 500 crore (Rs 5 billion) to set up one channel on the lines of, say, Star Plus. Media industry sources say that of the top three channels in this category, one is already bleeding, though financial details are hard to access.

Privately, top entertainment channel executives admit that their profit margins have been squeezed by 20-30 per cent due to huge cost escalation and stagnant revenues. Advertising is getting fragmented and at 15 per cent a year, growth rates in this genre are slower than those in TV overall.

More channels mean more business for Rajesh Kamat, head of the TV production house Endemol's India operation, but he's incredulous about its sustainable growth. "One wonders about the kind of money being pumped in and whether the returns will be as high. If you ask me, the ad pie is growing but not as much to accommodate such expansion."

Besides, the distribution pipes are also choked and the growing subscription revenue theory does not hold. "The distribution matrix will not change overnight. It will take at least three years," says Sawhney. CAS isn't helping broadcasters either. In fact, pay channels like NDTV have gone free to air in CAS notified areas to prop up their declining viewership. "So what subscription revenues are we talking about here?" asks a cable industry expert. The PE investors may have bought the addressability story but it's not cutting ice with the consumer.

In the short term, the DTH growth story is also flawed. While the penetration of boxes may improve, even DTH platform owners are constrained for capacity. There are simply not enough transponders to take on so many more channels.

Besides, those waiting for broadcasters share of subscription revenue to improve may find Sunil Khanna's remark impertinent: "Who says broadcasters will get more from the Rs 25,000 crore that distributors will collect. There will be a fight for that money, too," says the head of Reliance's DTH business.

There are other challenges as well. The supply chain is choked. There is a shortage of script writers and creative directors. "And where are the studios to create all this programming? There is a tremendous shortage of floor space," says a senior Star India executive. Clearly, the new broadcasters on the block will have to invest in their own infrastructure.

Programming issues lead us to another question. Why should a consumer buy and watch these channels unless there's startling content differentiation? Says Sunil Khanna: "Advertising and subscription revenue will follow only if you have content which people are willing to see and pay for." Agrees Timmy Kandhari: "The adage that 'content is king' will be truer than ever before."

However, he does not believe people are being attracted to the segment for the sake of valuations. "It is not a valuation game. The market is quite intelligent. The fact is, it's expanding and of the total media market, television will be 50 per cent by 2011."

Also, you get a valuation when you have a footprint in the broadcasting market. "TV18 and NDTV have established themselves. New people coming in will have to first sell their bouquets," says Kandhari. Adds TV 18 CEO Haresh Chawla: "If people are looking at our valuation and starting a business, they must remember that we own all the must-watch channel brands built over eight years."

However, Chawla says many serious long-terms players are entering the market too. "The market may be fragmenting but it can absorb these changes. How many channels have shut down in India in the last 10 years?" he asks.

While media industry experts are sceptical about over-expansion, they do not feel the business will burst like the dotcom bubble of 1999. The economy will support the growth though only the top four channels in each category will make money.

"The rest will either merge or be acquired," predicts Salil. His contention is that corporate India will enter the broadcasting sector through acquisitions. "That will be the turning point in the business," says Salil, as he takes a call from a shipping tycoon in Bangladesh who hired Mediaguru to launch the country's first 24-hour private news channel. Maybe Salil will need a still bigger office soon.

Haresh Chawla,
CEO, Television Eighteen

Indrani Mukerjea,
Chairperson, INX Media

Sameer Nair,
Director and CEO, NDTV Imagine

C V L Srinivas, Media Consultant