Case

Capital Budgeting: Maledia Asian Journal of Management Cases

17(2) 241–256, 2020
Broadcasting Ltd © 2020 Lahore University of
Management Sciences
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DOI: 10.1177/0972820120922641
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Keyoor Purani1 and Krishnan Jeesha2

Abstract
In 2011, Samjad, deputy CEO of Maledia Broadcasting Limited (MBL)—a new venture of the media
group Maledia, based in Cochin, India—prepared to make financial projections to justify the feasibility
of the new Malayalam news channel. He was faced with challenges of making estimates that made the
project attractive yet practical and credible for the group that was conservative in their advertising
sales approach.
Set in an interesting industry like broadcasting, the case simulates a real-life situation that also pro-
vides a internal corporate context. With the help of the rich market data such as advertising spends,
commercial time, competitive scenario in the region, students are expected to forecast revenue for
the project. Students are also challenged to use benchmark data of competitors to estimate hurdle
rate, capex and operating costs. Estimation of initial investments is also required to be made. Using the
processed financial data and projections, students are required to prepare discounted cash flows (DCF)
statements with net present value (NPV) and internal rate of return (IRR) for the broadcast channel
project. They learn to build alternate scenarios to deal with decisions under uncertainty.
The case provides several opportunities to discuss narratives and numbers, helping students of
finance realize the value of analysing the company policies and values, business situation, market envi-
ronment and competitive financial information in capital budgeting, and project finance beyond number
crunching.

Keywords
Accounting and finance, capital budgeting, discounted cash flow analysis, media and broadcasting industry,
project valuation

Discussion Questions
1. Based on the broadcast market data—particularly advertising spends, how would you estimate
projected revenues for MBL? How do you find Samjad’s estimate of `100mn as revenue in the
first year?

1
Indian Institute of Management Kozhikode, Kerala, India.
2
Amrita School of Business, Coimbatore, India.

Corresponding author:
Keyoor Purani, Indian Institute of Management Kozhikode, IIMK Campus P. O., Kozhikode, Kerala 673570 India.
E-mail: kpurani@iimk.ac.in
242 Asian Journal of Management Cases 17(2)

2. Following Samjad’s approach to estimating initial investments, revenue and costs, construct a
statement of 6 years’ financial projections for MBL.
3. Prepare the financial appraisal of the project based on the data available. Calculate the hurdle
rate, NPV, IRR and payback period, and comment on the feasibility of the project. What are the
assumptions made? Why?
4. What alternative scenarios can be constructed? Would the decision on project feasibility and
financing be changed after evaluating multiple scenarios? If you were to finance the project, what
would you do?

Taking Off with TV Channel Project

It was the morning of 15 January 2011. After the ‘seatbelt signs’ went off, the cabin crew leader in her
sweet but mechanical voice invited the passengers in AI933 to ‘sit back, relax and enjoy the flight’.
Samjad in seat 12A reclined his seat back, but his mind refused to relax. He had spent a tiring week in
New Delhi, which was largely spent in pushing papers in government offices to acquire a license for a
new satellite news channel. After almost 2 years of filing application, he was promised that the ministry
would be clearing the license of this regional current affairs-based channel after 26 January—Republic
Day.1 This was a long domestic flight from the Indian capital New Delhi in the north of India to a small
city Cochin, which is in the southernmost state of India. His mind began processing the next set of
actions to make this project take off quickly. At Maledia Broadcasting Ltd (MBL)—a new venture of
Maledia Group—the board was still searching for the chief executive officer (CEO) and as deputy CEO,
he was in charge of launching the new regional news channel in Malayalam and reported to the board
directly. Although so far, his efforts were directed to acquire the news channel license for a Cochin-
based, regional, Islamic media group, he realized that the coming months would be more demanding for
making the project a reality. His first task was to prepare a project report containing a feasibility analysis,
which would persuade the financiers to fund the project. His journalistic background and political con-
nections had helped him so far, but he had to put his business skills to prepare a strong business case for
the channel launch. There were many challenges: fast overcrowding television broadcast space in the
country, challenges in generating revenues from traditional sources such as advertising due to the com-
pany’s ethical code and limited success of most news channels existing so far. He opened his laptop and
started going through various Excel sheets he had collected in the last six months.

Maledia Broadcasting Ltd

In 2011, MBL was a new enterprise of Maledia Group, owned by the Model Publications Trust. MBL
was proposing to launch a current affairs-based regional television channel in Malayalam (tentatively
named Mega One) with complete value creation and delivery functions that a broadcasting company
generally engaged in. MBL was founded based on the vision articulated as: ‘An unbiased and innovative
endeavour to explore the fullest value of media as a servant of all species, driven by sustainable values
and inclusive policies.’
MBL’s business structure and strategies were still under development. However, it was clear that its
business model and policies needed to be aligned to the corporate values of the Maledia Group, which
provided unique lineage and legacy through its print media business. The group values were reflected in
the business approach taken by Maledia, the newspaper.
Purani and Jeesha 243

Maledia, with the aim of ‘providing non-profit, non-partisan and value-based journalistic service free
from market pressures’, was a daily newspaper published from Cochin, Kerala, since 1987. It had nine
editions across the state, and its Gulf region version called the Gulf Maledia had seven editions in the
Middle East countries. According to the Indian Readership Survey 2009, it was the fourth largest read
newspaper in Kerala. Some of the distinguishing features of the existing business of Maledia were likely
to be applied to MBL as well.

• The Malayalam daily newspaper focused on ethics and universal human values partially against
capitalism/imperialism and favour cultural & traditional way of life and thinking which were
more sustainable and inclusive
• News, views, features and analysis of issues of concern to the middle class
• Popular largely among Muslim, Malayali audiences and perceived as a niche newspaper in
Kerala largely targeted at Malayali Muslim middle class
• More than 60 per cent of the total readers were above 40 years and above
• Its influence was more perceived to be among Malayalis in the Gulf region rather than in Kerala
• Circulation of 313,000 copies from India—predominantly from Kerala and neighbouring
states. An almost similar number (261,000) of copies were sold outside India in the Middle
East—UAE, Qatar, Kingdom of Saudi Arabia (KSA), Bahrain, Kuwait and Oman even though it
was in the Indian language
• Interestingly, in terms of revenues, Maledia generated double the revenue (`1 billion advertising
sales) from Middle East markets than from Indian markets (`500 million).

The newspaper also had an online edition with visitors predominantly Keralites residing in over 108
countries worldwide. However, the online edition had non-significant revenues. One of the significant
aspects that drove the group was the advertising policies that appeared to be in direct conflict with gen-
eral business objectives and market opportunities. While the values of the group were universal, it was
felt by many within the group that the policies framed at the time of launching the newspaper 23 years
back were not relevant in the current time of globalization/liberalization/privatization, digital advance-
ments, cultural change of the society and changes in the target audience and so on. The business policy
struggled to balance the perceived orthodox principles and market opportunity. It was in this light, that
the Maledia Group needed to examine a business case for a new television channel.

Television Broadcasting in India

In 2011, the broadcasting and cable TV industry in India consisted of all terrestrial, cable and satellite
broadcasters of digital and analogue television programming. The market was valued as the revenues
generated by broadcasters through advertising, subscriptions or public funds (either through TV licenses,
general taxation, or donations).
TV was the largest segment of the Indian media and entertainment industry, with a size of close to
`350 billion in 2011. Between 2005 and 2009, the Indian broadcasting industry grew at 12 per cent com-
pound annual growth rate (CAGR) compared to 3 per cent and 4 per cent CAGR of global and Asia-
Pacific, respectively (see Table 1). Further, by 2014, it was expected to grow up to `521 billion at 15.2
per cent CAGR. The year-on-year growth trends between 2006 and 2014 indicated robust growth. Global
and Asia-Pacific markets also indicated steady growth over the next few years in the future (see Table 2).
244 Asian Journal of Management Cases 17(2)

Table 1. Indian M&E Industry: Projected Size, Growth and Trends by Segments

Media & Entertainment Industry Size (` in Billions)

Medium 2006 2007 2008 2009 CAGR(2006–09)
Films 78 93 104 89 5%
Television 183 211 241 257 12%
Print 139 160 172 175 8%
Radio 6 7 8 8 9%
Music 8 7 7 8 2%
Animation & VFX 12 14 17 20 18%
Gaming 3 4 7 8 38%
Internet 2 4 6 8 56%
Outdoor 12 14 16 14 5%
Total Size 443 516 579 587 10%
Source: FICCI-KPMG M&E Industry Report, 2010

Table 2. Broadcasting Industry: Size, Growth Rate and Projections

Broadcasting & Cable TV Industry

Global (Bn. $) Asia Pac (Bn. $) India (Bn. $) India (` in Billions)
2005 286.97 62.42 3.35 163
2006 300.39 65.31 3.76 183
2007 310.00 68.66 4.3 211
2008 325.34 70.96 4.93 241
2009 322.85 73.00 5.26 257
CAGR 2005-09 (%) 3 4 12 12.00%
2009 322.85 73.00 5.26 257
2010 331.55 76.45 5.91 289
2011 341.21 80.40 6.89 337
2012 355.51 85.15 7.82 382
2013 370.28 90.54 9.18 448
2014 388.82 96.47 10.66 521
CAGR 2009-14(%) 3.8 5.7 15.2 15.20%
Source: Datamonitor Reports, Sept.2010 and FICCI-KPMG Industry Report, 2010

Table 3. Average TV Viewing Time: Daily

Average Time Spent Watching TV, India

Average minutes per day
2006 119
2007 132
2008 151
2009 152
Source: FICCI-KPMG Report, 2010

In India, TV viewing, in general, was on the rise compared to the previous 4 years (see Table 3). On
average, Indians spent about 2.5 hours a day in front of the television, which amounted to roughly 18
hours a week. Target Group Index (TGI) India2 estimated it to be 17.1 hours a week.
Purani and Jeesha 245

Revenues in the TV broadcasting industry fell into three categories; subscriptions, advertising and con-
tent. Comparing the Indian broadcasting industry with global and Asia-Pacific, subscription revenue con-
tributed as much as 65 per cent and the remainder came from advertising. As per PricewaterhouseCoopers
(PwC) estimates in the Indian entertainment and media outlook 2009, roughly 4 per cent revenue in India
came from content/licenses and other sources such as public funds roughly indicating 61:34:4 subscription:

Figure 1. Industry Size by Sources of Revenue

Source: Datamonitor Reports, Sept.2010, PwC estimates, 2009 and FICCI-KPMG Industry Report, 2010.

Figure 2. Television Broadcasting Industry: Subscription and Advertising Revenues (in Billion Indian `)
Source: FICCI-KPMG Industry Report, 2010.
246 Asian Journal of Management Cases 17(2)

advertising: content. Globally, and even within Asia-Pacific, close to 50 per cent came from advertising
and close to 10 per cent came from the content/license (see Figure 1).
Thus, for the Indian broadcaster, the two main sources of revenue were subscription/distribution
and advertising. The trends in the proportion of revenues from the two main segments remained and
projected to remain similar (see Figure 2).

Subscription/Distribution
The Indian broadcasting industry transformed itself in the last few years with a reach of almost 500 mil-
lion TV viewers. The overall penetration of TV households had increased from approximately 50 per
cent 5 years back to nearly 60 per cent by 2009. The number of TV-owning households had increased
from 123 million to 129 million in 2009 with around 95 million cable and satellite (C&S) households.
Growth in the C&S households was more than the overall growth in households. The penetration of C&S
households had increased from 70 per cent of the total TV households in 2008 to 74 per cent in 2009.
The overall number of C&S households reached 95 million, registering a growth of 10 per cent. A large
part of this growth came from the digital homes that were added. The number of digital cable subscribers
reached an approximate size of 4 million in 2009. Apart from the government’s attempt to gradually shift
towards digital by making it mandatory to adopt conditional access system (CAS) in certain areas, vol-
untary CAS adoption also grew in 2009 as consumers realized the benefits of going digital. The number
of analogue cable subscribers declined as there was an increased penetration of digital distribution sys-
tems. Direct-to-Home (DTH) was one of the biggest contributors to the digitization story. DTH dis-
played rapid growth to reach 20 million gross subscribers by the end of 2009. The number of subscribers
excluding the churn stood at 16 million.
Subscription revenue was largely contributed by companies that specialized in distribution such as
cable operators and DTH companies. The share of broadcasters (pay channels) in the total subscription
pie was 18 per cent, which was expected to go up to 27 per cent in 2014. It was expected to be driven by
digitization, which brings about more transparency in the declaration process. The share of subscription
revenues in the top line of the broadcasters was expected to increase from 26 per cent to 33 per cent by
2014. Subscription revenues were growing at a CAGR of 24 per cent compared to the growth of advertis-
ing revenue, which was growing at 15.6 per cent. For free-to-air channels, subscription revenue was nil,
but the major source for free-to-air channels was the advertising revenue.

Advertising
Advertising contributed about 34 per cent to 35 per cent in the total broadcast market in India. According
to PwC estimates, by 2013, it was expected to contribute about 39 per cent. In 2009, the top 10 industry
sectors contributed as much as 59 per cent of total advertising spend. Coming out of recession, it showed
an increasing trend. Food and beverages contributed as much as 14 per cent of the total ad spend in India.
Together, fast-moving consumer goods (FMCG) dominated television advertising, though an auto,
financial services and telecom services contributed significantly too. In terms of volumes, TV advertis-
ing recorded a growth of 31 per cent in 2009 compared to the same period in 2008. The rates remained
flat or dropped in the first half of the year. Also, compared to print, where the ad volumes had increased
only marginally over the last 2 years, TV had shown a healthy growth rate. The last 3 years’ CAGR in
terms of advertising time remained 26 per cent.
Purani and Jeesha 247

The ad inventories had gone up due to new channels and due to an increase in commercial time per
hour of programming. Hourly free commercial time (FCT) varied from genre to genre and channel to
channel, and hence it could have been anywhere between 2.5 minutes to 18 minutes per hour. Hindi
general entertainment channels (GECs) in 2009 had 17 minutes of commercial time per hour during
prime time with 14 minutes of break time and 3 minutes of promotion (self-promo) time. In the future,
the commercial time was not expected to increase more than this, and the increased rate contributed to
the size of advertising revenues.

Competition
According to television audience measurement (TAM), in India, there were about 120 channels in 2003,
which went up to 389 active channels in 2008 and increased to 460 in 2009. In 2010 it was estimated to
be 515, and in March 2011, the total number of approved channels in India was 626. The number of
genres and niches was expanding as well with an increased presence in news, kids, infotainment and
lifestyle. An interesting trend in the industry was that it had seen significant growth in the number of
regional channels in the previous couple of years. GECs and movie channels commanded higher shares
among Indian viewers. Hindi GECs put together 26.2 per cent shares of viewership in 2009 (January to
August). Hindi and regional movies followed the entertainment channels and then Hindi and regional
news in that order. Hindi news channels put together had a 3.7 per cent share. Regional news channels
commanded 3.4 per cent and were on the rise. English news and business news channel genres had each
0.4 per cent share. More than 50 per cent of the viewership in the Hindi speaking market (HSM3) was
dominated by Hindi GECs and movies combined. However, in the south, regional GECs alone captured
close to 50 per cent. It was interesting that in the southern market, regional news and infotainment indi-
cated a positive change in viewership share compared to the first half of 2008 and 2009 data. Sports, kids
and regional GECs were down in the south (see Table 4). Some of the major national and local competi-
tors are listed below:

Table 4. Viewership Shares by Genre: All India, HSM and South Markets*

Viewership Share (%)

All India HSM South
Genre H1 08 H1 09 Change H1 08 H1 09 Change H1 08 H1 09 Change
Hindi GECs 22 25 3 34 36 2 4 4 0
Hindi Movies 12 12 0 17 17 0 4 4 0
Hindi News 4.6 3.8 –0.8 7 5.7 –1.3 0.5 0.4 –0.1
Infotainment 0.9 1.1 0.2 1.1 1.3 0.2 0.6 0.8 0.2
Kids 5.8 6.1 0.3 6 6.8 0.8 5.4 5 –0.4
Music 2.6 2.4 –0.2 3.6 3.2 –0.4 0.9 0.9 0
Regional GECs 26 24 –2 10 11 1 51 49 –2
Regional News 2.6 3.4 0.8 1.5 2.1 0.6 4.4 5.8 1.4
Sports 3.2 2.5 –0.7 3.6 2.8 –0.8 2.5 1.9 –0.6
Others 20.3 19.9 –0.4 16.2 14.1 –2.1 26.7 28.2 1.5
Source: TAM.
Note: *Target Group: Cable & Satellite Homes, 4year+.
248 Asian Journal of Management Cases 17(2)

1. NDTV: New Delhi Television was founded in 1988. It had two major news channels (NDTV
24x7 [English] and NDTV India [Hindi]). NDTV was a pioneer in the news segment in India that
had produced the first televised coverage of elections and was the first private producer of
national news. It had an overseas audience among the Indian diaspora in the USA, Canada, the
UK, the Middle East and South Africa.
2. CNN IBN: It was established in 2005. TV18 Broadcast Limited completely ran the channel. In
2016, CNN-IBN was rebranded as CNN-News18 and had more viewership than its international
sister network.
3. Manorama News: It was launched in 2006. It was a unit of Malayala Manorama Company
Limited, which was one of the largest media groups in India with a diverse portfolio of leading
brands in print and online. It was available in the GCC countries such as the UAE and Qatar
4. Asianet News: The channel came to existence in 2001 as Asianet Global and was renamed
to Asianet News in 2003. It was owned by the Asianet News Network (ANN) of Jupiter
Entertainment Ventures.
5. Amrita TV: Established in 2005 as an FTA GEC-cum-News channel, it had a global footprint
covering Australia, Singapore, Middle East, Europe, the UK, the USA, Canada and South Africa.
It had the backing of the organization, Mata Amritananthamayi Math.
6. Asianet: It started in 1993. It had a 12-hour operation in 1994, which was later increased to
round the clock. It was based out of Trivandrum, Kerala. The channel was part of Asianet
Communications Limited owned by STAR India. Asianet was the first privately owned television
channel in Malayalam and the second to broadcast in India. Asianet reached the homes of
Malayalis in over 60 countries worldwide, including the Indian sub-continent, China, South East
Asia, Middle East, Europe, the USA, and the lower half of the former Soviet Union.

Media and Entertainment in Kerala

Kerala was one of the most significant regions from the point of view of media consumption. Due to its
near 100 per cent literacy, social progressiveness and very high political awareness and interest, it
boasted of a very large number of and high-quality media consumption, particularly news and infotain-
ment. While Malayalam newspapers and print media had a large readership compared to many other
regional presses in the country, Kerala also had one of the most evolved and dedicated regional broadcast
viewers. At the beginning of 2011, close to 20 Malayalam channels were active. As many as 4 pureplay
news channels focused on current affairs and many other GECs such as Surya, Kairali and Jeevan had
primetime news bulletins. There was Victers, promoted by the state government, which focused on
education. Asianet communications led in terms of overall presence and impact in Malayalam TV broad-
casting with leading GEC, a news channel, a dedicated Middle East channel and a youth channel.
Malayalam TV broadcasting scene was likely to get cluttered and more competitive in the near future.
There were more than a dozen channels in Malayalam, which were rumoured to start soon, many await-
ing broadcasting license clearances. This was likely to fragment the audiences and also create a talent
crunch. However, like in many industries and markets, these might get consolidated in the long run.
Some of the channels that were reported and rumoured to show up on the Malayalam TV broadcasting
scene were from existing regional players entering in new genres and some national and southern market
players. Other news channels expected were Sahyadri 24*7 and The Reporter. It was important to note
that existing players in print media such as Mathrubhumi, Kaumudi apart from Maledia were entering in
Purani and Jeesha 249

Table 5. Reach (Distribution): Malayalam Channels

Channel Average (AA, 25+, ABC) Average (C&S 4+)

Amrita TV 55 58
Asianet 82 81
Asianet Middle East 1 1
Asianet News 45 45
Asianet Plus 60 62
Indiavision 48 47
Jaihind TV 32 36
Jeevan 32 38
Kairali 64 69
Kiran TV 60 63
Manorama News 50 51
People 38 39
Power Vision TV 5 5
Shalom 11 13
SS Entertainment 7 7
Surya TV 78 81
Victers 2 4
We 42 45
Yes Indiavision 2 2
Source: TAM.
Note: All Adults, 25 years+ age, Socio-Economic Class: A, B, C.

Figure 3. Channel Shares: Malayalam Channels

Source: TAM.
250 Asian Journal of Management Cases 17(2)

TV space. News genre leader Manorama was entering GEC space, and GEC channels such as Surya,
Jeevan and Amritha were planning to enter in pureplay news genre.

Television Distribution and Reach

Asianet reached as many as 82 per cent of the C&S homes with the highest reach, followed by Surya
(78%), Kairali (64%) and Amrita (55%). Asianet, with its sister concern Asianet Satellite Communications
in distribution, had a distinct advantage, which was reflected in its viewership share as well. Among the
news channels, however, Manorama News had the highest reach with 50 per cent households reached
followed by Indiavision (48%) and Asianet News (45%). People channel had 38 per cent reach (see
Table 5).
Based on the TAM television ratings in 2010, channel shares of channels in Kerala are presented as a
chart (see Figure 3). It is important to note that the data are for all channels (Malayalam and others)
viewed in Kerala.

Television Advertising and Advertiser Profile

As per TAM media analyser package (MAP)/AdEx estimates, in 2010, advertisers spent `12.5 billion.
However, these estimates were based on card rates and actual rates at which commercial time was bought
by media agencies at run on day part (RODP) was much discounted. Based on the sources in media agen-
cies, Samjad believed that the TAM AdEx might be accounted at about 20 per cent as actual spending
and revenues to the broadcasters. After adjustments for discounts, the trends in advertising spend on
Malayalam channels in 2010 is shown (see Figure 4).

Figure 4. Monthly Ad Spends on Malayalam Channels

Source: TAM.
Purani and Jeesha 251

Table 6. Monthly Ad Spends on Channels

Channel 2010 Ad Spends (` Millions) Share of Ad spends

Amrita TV 350.5 14.01%
Asianet 449.4 17.97%
Asianet News 136.7 5.46%
Asianet Plus 145.8 5.83%
Indiavision 60.1 2.40%
Jaihind TV 167.8 6.71%
Jeevan 71.8 2.87%
Kairali 512.5 20.49%
Kiran TV 72.4 2.89%
Manorama News 264.1 10.56%
People 8.5 0.34%
Ss Entertainment 4.1 0.16%
Surya TV 213.6 8.54%
We 44.1 1.76%
Grand Total 2501.4 100.00%
Source: TAM MAP, 2010 (Adjusted @ 20% for discounts for RODP buying).

The channel-wise annual ad spends on Malayalam channels gave an overall picture of advertising
revenues by Malayalam channels (see Table 6). Despite higher reach and viewership, in terms of advertis-
ing revenues, Kairali led with 20.5 per cent, followed by Asianet at 18 per cent. Amrita contributed about
14 per cent and Kairali 8.5 per cent in total ad revenue pie for Malayalam channels. As mentioned earlier,
a blanket 20 per cent of the TAM estimates was considered for all channels to account for the discounts.
Card rates for ten seconds commercial time (CT) for the prime-time news programmes on national
English language channels were known to be `3,000 for NewsNite and NewsHour and `3,800 for
CounterPoint. However, prevalent rates in Kerala were `1,900 for NewsNite, `3,000 for NewsHour and
CounterPoint. It was believed that the national media agencies bought commercial time at rates between
`800 and `2,500 for ten seconds.
Based on TAM AdEx data available, Samjad also learned some important information. Of the total
`2.5 billion spend on advertising on Malayalam channels, local Kerala-based companies spend about
`1 billion. Of this `1 billion, almost 50 per cent was contributed by the top twenty-five to thirty advertis-
ers. National brands spent about `1.5 billion on Malayalam channels. Gold jewellers and gold loan
companies dominated. There was significant advertising on Malayalam channels by sarees and garment
retailers too. A government organization like coconut board and Kerala tourism also figured in this list.
The big spenders from Kerala spend an average of `20 million on TV annually. Packaged goods brands
were a few barring the packaged spice companies in the list of top Kerala spenders on TV.

Characteristics of the Kerala Market

1. Youth migration: Due to high levels of literacy and poor job opportunities, Kerala witnessed a very
high level of youth migration outside Kerala—within India and over overseas. Advertisers believed
that the major consuming class is absent in the region. The age group of 25–50 years stayed outside
Kerala and people in the age group 0–25 years and 50 years plus stayed in Kerala. For advertisers,
this was quite a concern as the available population in the state did not drive the market.
252 Asian Journal of Management Cases 17(2)

2. Cash-based economy/tourism-driven: Kerala, however, had a high inflow of remittances in the

state. It was supported by the fact that the per capita expenditure in the region was higher than
the per capita income. This made Kerala a cash-based economy. Also, the consumption of
goods and services by locals was less compared to the expats. Further, tourism, particularly by
foreigners, contributed significantly to the economy.
3. Highly literate population: Kerala, with high literacy levels, was considered one of the most
socially, politically aware state. Consumption of media and information hence was quite high.
People, therefore, were extreme left and right-skewed and had an opinion and ideological
inclinations.
4. Asset-based consumption: Another peculiarity of the Kerala market that advertisers and
marketers found was that the most consumption and purchases were functional. Consumers
spent largely on high-value possessions such as home building material, furniture, jewellery,
automobiles and durables. Among low-value purchases, the focus was on functional goods.
Experiential goods and services were consumed at a minimum by the locals

Assessing Investment Opportunity

Samjad took a sip of the soft drink as he continued putting together the data and information in three
folders on his laptop labelled ‘initial investments’, ‘cost estimates’, and ‘revenue estimates’.

Initial Investment
Over the last few months, Samjad had several meetings with the broadcast and studio technology com-
panies to set up the initial infrastructure. A couple of shortlisted companies providing end-to-end broad-
cast solutions were briefed on the rough plans that Samjad had in mind. While the proposals with the
commercial offers received from the two solution providers looked similar in terms of proposed require-
ments to set up the news channel infrastructure, there were minor differences in terms of equipment
specifications and quantity of some loose items. The key items included: (a) setting up of head office
(HO) newsroom equipment, (b) setting up seven bureaus with studios, (c) approximately seventy cam-
eras plus accessories, (d) pre-operative cost and (e) license charges and other project-related costs. Based
on the offers from the two proposals, he estimated for each of the key items of the broadcast technology
solution (see Table 7). He knew fully well that the project was at the blueprint stage and the require-
ments might evolve while executing the project. There could be some variation in a studio set-up and

Table 7. Initial Investment

Final Budget (in `)

HO news Room equipments 142,492,415
7 bureaues with studios 132,961,402
71 cameras/accessories for ENG 12,488,884
license charges 10,000,000
company capital 30,000,000
TOTAL 327,942,701
Source: Company records.
Purani and Jeesha 253

equipment costs depending upon the specifications finalized. He decided to account for about 25 per cent
variation on the estimate of approximately `320 million.

Cost Estimates
To estimate costs, he had considered to benchmark against the costs of comparable news channels. He
had managed to get data from the Centre for Monitoring Indian Economy (CMIE) Industry outlook
about the company-wise break-up of financial data in the Indian broadcast industry. Using these data, he
planned to look at three broad cost categories: ‘capex and working capital’, ‘operating costs and salaries’
and ‘depreciation’.
For sustainable growth, it was necessary to invest in capacity creation annually for some time after
the initial investment. Based on comparable news broadcast companies’ data (Malayalam language),
capex for the second year was estimated to be `20 million, which was planned to grow to `80 million by
the fourth year by doubling the investment each year. Samjad forecasted capex to remain the same in the
fifth year, it could be reduced to half, `40 million at par with the industry average and then allowed to
grow at routine 6 per cent annually, up to perpetuity.
Samjad felt that being new to the industry, it would be difficult for Maledia Broadcasting to dictate
collection as well as payment terms. Based on the comparable companies’ data (Asianet, Indiavision and
Zee Akash), an average increase of `10 million in net working capital was forecasted for the first 3 years.
After that, it was estimated to grow by `15 million for the next 2 years. And finally, `20 million for the
sixth year and then increasing at 6 per cent till perpetuity.
Across the industry, the operational costs mostly comprised of manpower costs, travel, rent, recording
tapes, salary and so on but did not include equipment depreciation. He pulled out an Excel sheet which
had detailed estimates on operating costs (see Table 8). Samjad had taken help of financial professionals

Table 8. Operational Costs

OPERATIONAL COST (in ` Million)

COST OF TAPES
Total number of tapes required per day 40
Cost per tape 350
Total number of tapes required in 1 year 14600
Savings Due to Recycling 25%
Total (` Million per year) 1.3
RENT
16 Bureaus 2.4
Total (` Million per year) 2.4
TRAVELLING AND CONVEYANCE
Total Vehicles 6
Fuel Per Day 30
Yearly Local Transport (Cars)Cost 0.657
Yearly contract transport @ 20000 p.m (` Million) 2.6
Outstation Travels 1
Total (` Million per year) 4.3
GENERAL OVERHEADS
(Table 8 continued)
254 Asian Journal of Management Cases 17(2)

(Table 8 continued)

OPERATIONAL COST (in ` Million)

TELECOMMUNICATION COSTS 1
MAINTENANCE 1
SUBSCRIPTIONS (PTI/ANI) 2
TRAINING 0.7
Total (` Million per year) 4.7
Networking Expense
Cost per 2Mbps Lease Line Link per year (` Million) 0.1
Total Studios connected 16
Total (` Million per year) 1.6
Occasional feeds 1
Wage Bill 31.5
Experts 1.5
TOTAL 47.2
Source: TAM MAP, 2010 (Adjusted @ 20% for discounts for RODP buying).

Table 9. Beta’s of Comparable Companies

Company Name Beta Avg. D/E for last 4 years Average FC/VC for last 4 years
Ibn 18 Broadcast Ltd. 1.24 0.7625 2.130409969
New Delhi Television Ltd. 1.34 0.74 1.941898606
Sun T V Network Ltd. 0 81 0 22.19248826
T V Today Network Ltd. 1.13 0.0625 23.43800695
Television Eighteen India Ltd. 1.39 1.1575 71.5858685
Source: Computed by authors from CMIE Prowess industry data.

at the group newspaper company to help forecast the costs, who suggested it to be 55 per cent of the sales
revenue in the second year based on analysis of comparable companies in the broadcast industry
(Indiavision–61%, Asianet–24%, Malayalam Comm–20%, Sun– 15%). He was told that the costs there-
after may be considered to diminish at the rate of 5 per cent till the sixth year. From the seventh year, the
operating costs were assumed to be constant at 35 per cent of sales revenues till perpetuity.
Samjad decided to consider depreciation to be 35 per cent computed based on the written down value
method as per Indian tax norms.
Comparable broadcasting companies’ data were taken to calculate the hurdle rate (see Table 9). The
capital structure of MBL was decided to be 2:1 (with debt taking majority share). This was because they
had investors willing to pump money into the venture, and hence the debt component was double the
equity component. The operating leverage of MBL was 1.75. The long-term risk-free rate was 7 per cent
as per RBI records in 2011, and the market risk premium was 8.75 per cent (Varma & Baruah, 2006). The
interest rate on debt was assumed to be 11 per cent. The corporate tax rate that was prevalent in India was
33 per cent.

Revenue Estimates
Estimation of revenue was the trickiest part for Samjad. He had a free-to-air channel, there was no expec-
tation of earning much from subscription or royalties. The revenues would come from advertising only.
Purani and Jeesha 255

Advertising sales head at the Maledia newspaper had already shared his frustrations, indicating clearly
that due to the company’s policy and norms, they had to forgo business from some categories. Hence,
advertising revenues could be as much as 50 per cent less than another broadcast channel in the similar
situation. Samjad thought of estimating the revenues based on the two approaches, which can then be
synthesized to arrive at reasonable estimates.
First was the supply-side forecast approach. Commercial time for leading GECs reached up to 17
minutes in an hour of broadcast time.4 It was observed that Malayalam channels worked on 7 minutes for
30-minute broadcast time and usually broadcasted for 18 hours in a day. In other words, 14 minutes per
hour. Hence, for revenue projections, 12 minutes per hour of commercial time could be estimated to be
available on the proposed channel. An average 10-second spot was sold at a rate of `1,275. He calculated
annual commercial time inventory to estimate maximum revenues, which could then be adjusted for
expected monetized time and the average rate.
Samjad then decided to examine demand-side numbers. His estimates suggested an ad spend of `2.5
billion on Malayalam TV channels. While GECs such as Asianet and Kairali had shares ranging from 15
per cent to 20 per cent, the leading pureplay news channels had shares ranging from 2.5 per cent to 10
per cent. Manorama News, with its multimedia presence (in print as well), had a higher share (10.6%)
amongst pureplay news channels (see Table 6). Samjad knew very well that if he had to survive, this
could not be a pureplay news channel. Still, it would be an infotainment channel providing news, views,
documentaries, reality shows and serious entertainment programming. This meant it would not be a pure
news channel or a GEC but a very specialized positioning, thereby carving out a niche for themselves
through this novel approach. Thus, keeping in mind the proposed positioning of Maledia as general
entertainment news channel (GENC), he decided to forecast a 4 per cent share of total ad spends on
Malayalam channels for the first year. Thus, the forecast revenue in the first year was pegged at `100
million. For the subsequent 3 years, sales revenues could be assumed to grow at 20 per cent to 30 per
cent per annum (considering the growth stage of the company). After that, assuming 20 per cent sales
growth for the next 2 years and subsequently 6 per cent growth annually till perpetuity was reasonable
according to him.

Feasibility and Scenario Analysis

The seatbelt sign was back again and the aircraft was on the descent, but Samjad was still immersed in
the datasheets. He had to be ready with financial projections and feasibility of the project for his meeting
with the group chairman. As soon as the license was cleared by the end of the month, he had two months
to roll out the plans before the channel went on air in April 2011. He knew very well that the channel
would go on air anyway. Still, a lot would depend on the feasibility, the financial projections, and the
payback period in which the capital cost could be recovered. He knew that calculating the net present
value (NPV) and internal rate of return (IRR) was a standard procedure. Still, the real questions were
how he would make estimates of revenues, project costs, rates of interest and so on. There were several
internal and external issues to be kept in mind. The available data required adjustments to provide real-
istic projections yet justifying the project. He thought of developing various scenarios to estimate busi-
ness risk.
As Samjad saw a crew member who was doing final pre-landing checks coming towards his seat, he
quickly saved the files, put the laptop back in the overhead compartment and fastened his seat belt. The
plane reached closer to the ground but the airstrip was still hidden in the green, tropical forests below.
256 Asian Journal of Management Cases 17(2)

Acknowledgement
Authors would like to acknowledge the inputs received from Aravind Sampath of IIM Kozhikode in improving the
case.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of
this article.

Funding
The authors received no financial support for the research, authorship and/or publication of this article.

Supplementary Material
Supplemental material for this article is available online.

ORCID iDs
Krishnan Jeesha https://orcid.org/0000-0001-5517-4110
Keyoor Purani https://orchid.org/0000-0001-8345-1947

Notes
1. Day on which the constitution of India came into effect in 1950 and hence a national holiday.
2. Marketing and media survey conducted and reported by Indian Market Research Bureau (IMRB) group in India
similar to TGI in Britain by British Market Research Bureau (BMRB).
3. Indian audiences were broadly divided based on the language of communication preferred—Hindi (a large num-
ber of north Indian states) or regional (a large number of south Indian states).
4. according to FICCI-KPMG report (2010).

Reference
Varma, J. R., & Baruah, S. K. (2006). A first cut estimate of equity risk premium in India (Working Paper No.
2006–06-04). IIMA.