Leading global film and digital studio, Eros International's digital arm is targeting 25-50 million subscribers by 2020, said Kishor Lulla, chairman of the company.
In 2020, Eros is also looking at a revenue at the group level of about $450-500 million, said Lulla.
Eros' digital arm is gradually emerging as the driving factor for the company’s growth. The company now stands with 10.1 million subscribers and it has already tied up with telecom players like Jio and Airtel.
In an interview to CNBC-TV18 Lulla spoke the challenges and the company's future plan.
10.1 million so far, what is the target by 2020 in terms of subscribers?
A: In 2020, we are targeting anywhere between 25 and 50 million.
What is the plan with respect to the tie-ups which you have with? You already have tie-ups with telecom players like Jio and Airtel what is the revenue model there.
There are basically three revenue models. One is business to consumer (B2C) which is directly a consumer proposition. So, you have a price point in India of Rs 50 for basic services and Rs 100 per month for a premium service.
The difference between the premium service and basic service is that you can have as many devices and also the high definition and download to own. So, you can download the content and travel anywhere and watch it on your own. So, that is the difference.
The second is business to business to consumer (B2B2C) which we are working with the telecom companies in India and outside. What we do, we have out service bundled with their service.
When they are selling their data to the customer they are including the content offering and they are charging X price from the customer. From that X price, we are getting paid per subscriber X amount from them in lieu of providing that service to them.
The third model is business-to-business (B2B) whereby like say for example even Amazon Prime in the US has taken our service they are charging customers $7 and they are paying us $4 per month.
The fact is the over the top (OTT) model is still new in India. What to your mind are the immediate challenges and speaking about challenges the Telcom Regulatory Authority of India (TRAI) is talking about regulating the OTT sector. How will that work? Will, it restricts the kind of growth that OTT players could see in India?
So, let us talk about the challenges. At the moment the challenges were first of all the broadband penetration. We should thank Jio for that, so Jio brought about that transformation by getting into the 4G and now the same thing is done by Airtel, Vodafone and Idea. Then you will see 5G in the next two to three years. So, that will take the speed whereby you can download a movie in maybe 2 seconds.
The near-term challenges would be there but at least in the next say two years’ time, those issues will go?
Two to three years, the second challenge as we have talked, we have to abide by the law of the land.
But is the regulation necessary for OTT?
I don’t think so, but I will leave it to the experts and the government to decide what is the nature, what are the threats, why they want to get it regulated. There will be a purpose for that. So, we would abide by that law and that will may delay somethings, but it is not going to be a challenge.
Won’t it deter growth?
It will not deter growth.
You have ambitious plans, what is the market share target for you? What is the target you have in mind for 2020?
So, in 2020 we are looking at a revenue at the group level of about $450-500 million.
What about profitability?
We are looking at $120-150 million EBITDA.
Does it make sense to refinance debt in that case at this point in time?
No, the next debt due is 50 million pounds in 2022. So, there is nothing actually, any debt is not due four years, nothing.
What is the plan for shareholders, any plan for dividend in the near term that you are looking at?
No, not all. We are a growth company and the next five years are going to be in the growth pattern. So, any growth company should not give dividend because at the end of the day we want the investor to make money and once we deliver the more subscribers and premium content their investment will go up.
So if you were to look at a dividend for shareholders?
After 4-5 years down the line.
That is the reason who haven’t looked at it till date?
Not at all.
Tell me what is the plan with respect to capital expenditure? In the near term, say either two years or five years’ time what is the guidance that you have in mind?
A: If you look at in the last 10 years, Eros spent about $1.1 billion dollars in capital expenditure and we generated about $830 million in cash flow and the balance was financed through the equity and some debt we have.
So, our company's EBITDA today is around $80 million and we are leveraged only 1.7 times. So, we are leveraged very low. The EBITDA we are looking at in the next five years to go to anywhere between 200-250 million. We will be spending about $250 million every year into capital expenditure. So, between the two verticals of the business one is the studio model and one is the OTT model.
Reliance invested in the company about 5 percent stake, would it make sense to bring in investors on board. Is there any plan of Reliance also increasing that stake or increasing that investment in the company?
We took 5 percent stake from Reliance so after that, we are at 1.7 leverage. We have got a good capital structure, a good balance sheet today. If you look at vis-à-vis others studios and other OTT platforms across the globe they would love to be leveraged like that.
There is no requirement for an investor at this point?
Not so much as such, but yes to build a war chest. If I want to build a war chest to go for an acquisition and consolidation that is a different story altogether. But looking at subscribers so 10.1 million subscribers in the next five years how to go to 50 million more you need 250 million capital expenditure and which is self-sufficient because we will generate that cash flow.
So, that is organic?
That is organic.
And over and above that if it is required then you will bring in an investor?
Of course or even we can raise more debt.
What is the plan there with respect to fund raising for debt?
At the moment zero. At the moment we are keeping our head low and we are concentrating on the execution of the originals shows.
Since you spoke about leveraging could you help me understand what is the debt right now? If I am correct your finance cost is at about Rs 80 crore, borrowing has gone up since 2014, so what is the plan to pare down debt and pare down borrowings, if there is a target in mind that you have?
At the group level as we said 80 million EBITDA and our gross debt that cash, we are holding. Net debt is Rs 140 million.
So by how much would you want to bring that down?
We don’t even need to bring it down because of I quite comfortably maintaining that kind of debt levels. I want the cash flow which the company is generating to get deployed into the content and premium content. And that is where the focus is going to be.
Disclosure: RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.