The Hindu Business Line : For Reliance, entertainment means serious business — Post-Adlabs takeover plans DTH, radio foray

IT MAY be entertainment, but Reliance means serious business. "We are entering for the long-term. We want to be an integrated player in this industry," Mr Amit Khanna, Chairman, Reliance Entertainment Pvt Ltd, said about Reliance Capital's acquisition of a 51 per cent stake in Adlabs, last month-end.

For the Indian film industry, the move costing Rs 360 crore would be a milestone. "You can see positive shifts in industry dynamics across the value chain in the industry, for the first time in five years. This would have prompted the investment in Adlabs, which is the biggest so far in the industry," said Mr Sunir Kheterpal, Head (Media & Entertainment), Yes Bank.

According to Mr Khanna, acquisition is only one form of growth. "We are also looking at growing organically. We are getting into DTH and radio."

The beauty of Reliance Capital's move, as industry analysts put it, is that it bought into one of the very few entities around that provided a deep reach into the industry. Mr Manmohan Shetty, promoter of Adlabs, has longstanding repute in the industry and his company, doing a bulk of the film processing in this region, had become integral to the film industry. The diversification into multiplexes, IMAX theatre and digital film distribution were atop that basic strength.

It is the familiarity and goodwill that Adlabs enjoys in the traditionally conservative film industry, that Reliance gets to share, courtesy its investment. The latter's financial muscle makes the relationship work the other way round too. "This transaction provides a tremendous platform and growth capital to Adlabs to undertake scalable and meaningful expansion across the diverse businesses of film production, financing, distribution, exhibition and home entertainment," Mr Kheterpal said.

Reliance Capital's investment thus takes it into the heart of the film industry. Its intentions, however, may be more revenue oriented and eventually track the larger telecom infrastructure Reliance has built up. "Our aim is to provide content for everyone, everywhere. With Reliance Infocomm we are getting into the consumer end of entertainment," Mr Khanna said. Equity analysts tracking the sector agreed. "Reliance is positioned well to carve out a major stake in the entertainment industry, especially with the convergence of information and communication," one of them said.

The equity acquisition at Adlabs buoyed the stock prices of other media and entertainment companies. Reliance Capital's Media and Entertainment Fund has investments in Crest Animation Studios (11.24 per cent), Tata Elxsi (11.18 per cent), Deccan Chronicle Holdings (9.54 per cent), Television Eighteen (10.02 per cent), Balaji Telefilms (6.47 per cent), TV Today (2.76 per cent) and Navneet Publication (1.19 per cent). The Adlabs buy, though outside of this fund, could influence the way investment proposals from the film industry get to be treated.

Some industry observers caution, that may be too fast a conclusion. In their opinion, the deal's rub-off effect on other investment proposals would take time to materialise. First, industry reforms have been more in the exhibition space, primarily the multiplexes. This is also where the action had been centred with main players procuring funds for growth. Shringar Cinemas Ltd mopped up Rs 45 crore through an IPO; Adlabs had raised Rs 52 crore from private equity and PVR Cinema first raised Rs 37-38 crore from private equity, followed by a second tranche of Rs 70 crore.

Arguably, of leading players therein bereft of backing by a major conglomerate, Adlabs was the most evolved. That has now been picked up, which means a second party following in Reliance's footsteps may not get the same impact for investment. Also why the sectoral impact of Reliance's move appears limited at present.

For, though multiplexes have authored new film production possibilities of late by opening up efficient and sometimes niche screening potential, at day's end big money from Reliance is confined in flow to one player in the segment. For the full impact of a Reliance-scale of entry, you need more of the Adlabs type as investment options.

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