The Viacom Network 18 Alliance

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Contents
1. Introduction .............................................................................................................................................. 3 2. Network 18s Portfolio Companies ........................................................................................................... 3 3.1 Industry Overview ................................................................................................................................... 4 3.2 Drivers for M&A in media and entertainment ........................................................................................ 5 4. Viacom ...................................................................................................................................................... 6 5. Initial objectives of the partners ............................................................................................................... 7 5.1 Network 18s objectives .......................................................................................................................... 7 5.2 Viacoms objectives................................................................................................................................. 7 6. Value Creation........................................................................................................................................... 8 6.1 Complementary Assets ........................................................................................................................... 8 6.2 New Revenue Streams from new segments ........................................................................................... 9 6.3 New Content ......................................................................................................................................... 10 6.4 New Films distribution .......................................................................................................................... 11 6.5 Other opportunities .............................................................................................................................. 11 7. Implementation Issues in Alliance .......................................................................................................... 12 7.1 Compatibility of partners values: ......................................................................................................... 12 7.2 Alliance Ownership Structure ............................................................................................................... 12 7.3 Alliance Autonomy ................................................................................................................................ 13 7.4 Key Management Personnel ................................................................................................................. 13 7.5 Potential Issues ..................................................................................................................................... 13 8. Alliance Analysis ...................................................................................................................................... 14 8.1 Assessment of the success/failure of the alliance ................................................................................ 14 8.2 Alliance Results ..................................................................................................................................... 15 8.3 Predictions on future prospects of the alliance. ................................................................................... 16 9. Recommendations for effectively managing this acquisition/alliance ................................................... 17 9.1 Our recommendations .......................................................................................................................... 17 Exhibits ........................................................................................................................................................ 19 References links ....................................................................................................................................... 27

1. Introduction In May of 2007, the Network 18 Group and Viacom Inc, a New York-based global entertainment content company announced the creation of a 50:50 joint venture operation in India called Viacom 18. The strategic alliance will include television, film and digital media content across numerous brands to build Indias leading multi-platform entertainment company.

Network 18 has businesses straddling filmed entertainment, news-television, music television, news portals, mobile content, on air/online shopping, show ticketing, jobs and travel portals, real time data terminals, TV channel distribution, event management and more. With acquisitions as well as tie-ups in the television, print and Internet markets over the past two years, Network 18s (formerly known as TV18) media assets now address over 80% of the US$4.9bn ad revenue pie; the company is also adequately positioned to access US$4.5bn of subscription opportunities. In this paper we have analysed the alliance from Network 18s point of view using widely available sources as well as through interviews with employees and mid management at the both firms. 2. Network 18s Portfolio Companies TV 18 Owns and operates CNBC TV 18 and CNBC Awaaz. It also owns and operates Home shop 18, a televised home shopping service selling credible brands through interactive electronic media, primarily through cable television and the internet. TV 18 has also invested in the internet business through its subsidiary Web 18 holding Ltd and E 18 Ltd. It owns Newswire 18 which was formed by acquiring the staff and business of CRISIL Marketwire Ltd, Indias first real time financial agency. TV 18 has a leading stake in Infomedia 18 Ltd, which has strong presence in diverse business areas spanning Business directories, Magazine publishing, direct marketing, Printing services and publishing outsourcing. (Exhibit 2 for holding of TV18) IBN 18 broadcast Ltd: This was formerly known as Global broadcast news (GBN). It owns and operates one of Indias leading 24 hour English language news and current affairs channels, CNN IBN. It has 50% stake and manages the operations of IBN7, a Hindi language news and current affairs channel which is a joint venture with the Jagran group. It currently launched its first regional channel, IBN Lokmat in Maharashtra. This is a joint venture with the Lokmat group. IBN 18 also operates a joint venture with Viacom, called Viacom 18 which houses the MTV, VH1 and Nickelodeon channels in India, Studio 18 which is the groups filmed entertainment operation and 3

has recently launched Colors which is a new Hindi general entertainment channel. (Exhibit 3 for holdings of IBN 18)

The group started as a single channel broadcaster in 1999 and today continues to demonstrate its ambition and youthful energy by venturing into all aspects of the media business in India. The groups relatively older news businesses continue to do extremely well. It has a growing web portfolio and new revenue streams are expected to kick in from print media and general entertainment.

3.1 Industry Overview The volatile tastes of Indias TV audience leads to ratings volatility and viewership fragmentation which can put pressure on ad rates, as ad volumes and rates are unlikely to move up simultaneously. Rising ad volumes will dent ad rates; hence, incumbents could see slower top-line growth. In addition we have analyzed the following factors -

Lack of entry barriers bringing new competition There are currently over 300 channels in India, and over 100 new channels are being funded. The pace at which channels are being launched is alarming and indicates the lack of significant entry barriers in television, compared to the stickiness of other media, such as print, where persuading readers to switch to another paper is not as easy as flipping channels. General entertainment channels command a 40% share of the total advertisement pie and have an estimated ad market size of US$1bn and have seen an increase in serious competition over the past few quarters, driven by new launches from entities funded by private equity investors and international media conglomerates.

Building scale is critical, but could dent earnings momentum The entire broadcast sector wants to expand, as only companies with well-diversified exposure, a broad range of channels and control of strategic assets are well-positioned to fend off competition. This also ensures that advertisers are offered a spectrum of media choices, leading to growth through higher addressable ad volumes and reduced sensitivity to ad rates. This comes at a cost; however, as earnings performance deteriorates during the transition phase, when expansion TV18 is diversifying into unrelated assets, which could lead to significant losses in the initial phase due to lack of immediate synergies and the learning curve, required for reaching breakeven point. 4

Expect deceleration in ad revenues Research suggests a slowdown in revenue growth for ad spenders this year. This, along with slowing GDP growth, could trigger a deceleration in medium-term ad revenue growth. In longer-term, growth will continue due to our expectation of a resumption of positive macro trends. While a worsening competitive environment, lower liquidity in financial markets and high interest rates could lead to a tough operating environment for broadcasters, we believe that strong market growth and pay revenue streams will ensure their survival of these channels in the near term.

Expect acceleration in organized pay revenues Expert estimate Indias organized subscriber base to expand at a 36% CAGR over the next three years, while the unorganized subscription pie is expected to witness a sharp contraction (-7% CAGR) due to ongoing efforts to switch customers onto the organized network. Subscription revenues directly add to profitability and should help broadcasters balance out margins pressure from competition and rising costs.

3.2 Drivers for M&A in media and entertainment The media and entertainment companies in India are undergoing rapid transformation. The expanding market places have enabled major media companies to diversify in terms of cross-media ownership. Alliances have taken place among national and global organizations. The organizations now are concentrating more on expanding their footprint and becoming full-fledged M&E companies. Relaxation of the policies and regulations by the Indian government is encouraging the companies to go in for consolidation within India and is welcoming Private Equity (PE) and major global M&A players who want to capitalize on the growth of the Indian entertainment industry. Consolidation is on the cards for most of the companies. The major drivers for these consolidations are: Globalization increasing the geographic reach Attaining economies of scale Better leverage in rates for advertising Content enhancement, the distribution of power and reduction of costs Acquisition of new technology, services and products 5

The need for larger addressability is understandable given that Indias media industry has become extremely competitive, with an entire spectrum of companies wanting to fill gaps in their asset positioning by addressing various segments of the value chain. This, compounded by low entry barriers and Indias cultural diversity, has resulted in a highly fragmented market with multiple competitors in each segment. We believe that the only way to achieve long-term business model sustainability in such an environment is to adopt conglomerate status by acquiring synergistic assets. Standalone media assets will witness margin deterioration leading to the non-viability of their business models, in our view.

4. Viacom Viacom, established by CBS Broadcasting as an independent company in 1970 has now become worlds second largest media conglomerate. Bought by visionary Sumner M. Redstone in 1986, Viacom gradually emerged as an entertainment colossus and expanded its empire through a number of mergers and acquisitions, timely strategic alliances and product diversification. Most notable among them were the merger with Blockbuster in January, 1994 and the acquisition of Paramount in July, 1994. However, this transformation into a media giant did not come without its toll. The company incurred huge debt, structure and management challenges loomed and the fast-changing entertainment and media industry posed new threats to the company.

Today, Viacom, Inc. is an entertainment content company that provides programming for cable and satellite television, motion pictures and digital products. Among its properties are the MTV Networks, including MTV Music Television, Nickelodeon, Comedy Central, and Spike TV, and BET, which included BET Hip Hop, BET Mobile and BET.com. Its motion picture production and distribution division includes Paramount Pictures, Dream Works, MTV Films and Nickelodeon Movies. The current company is the result of a split of the former, much larger company at the end of 2005, into Viacom and what is called CBS Corporation, which includes television and radio broadcast networks, book publishing, outdoor advertising and music recording operations.

5. Initial objectives of the partners 5.1 Network 18s objectives Fast Growth The macroeconomic viewpoint and growth rates indicate that traditional media in India such as television, filmed entertainment, print and so on are far from reaching saturation levels. Network18s strategy in this space has been to continue sustaining its growth momentum both organically and inorganically. With competitors also growing inorganically Network 18 was looking for speed in growth. Building on strengths in new media through complementary assets In the new media space the company has been diversifying in India. This media space has shown signs of being a major growth opportunity. Therefore, Network 18 intends to strengthen its existing presence constantly through acquisition or alliance with players with complementary assets. Production expansion and developing diversified content offering & leader brands The group is concentrating on providing the highest quality content that fulfills the wide ranging and ever evolving consuming preferences & user needs in the most convenient and affordable manner. It is keen on growth initiatives which will exploit untapped market gaps in Indian consumer and business media spectrum, strengthen the value proposition to existing consumers of the group, agglomerate audiences in a more meaningful manner for advertisers and partners and encourage users to move up the value chain through the various services being offered by the group.

5.2 Viacoms objectives Viacom, the New York-based company that owns MTV and Paramount Pictures, wanted a strong local partner to help with an ambitious agenda of launching a Hindi-language channel in India within the next year. The objective was to embark on the joint venture at a time when Indias cable television broadcasting industry is preparing for unprecedented competition that many believe will lead to a period of blood-letting and consolidation in the months to come. Viacoms two major objectives are as follows New market entry

The push by Viacom comes amid increasing excitement over Indias $1.7-billion broadcasting industry, which is estimated by Media Partners Asia, a research firm, to be growing 21% a year. The market is dominated by foreign-owned operators, including Rupert Murdochs Star TV and Japans Sony, and several large domestic broadcasters, such as Zee, Sun TV and Sahara. Increased market presence Viacom views India as a more promising market in a region where its main channel, MTV, has been losing money. We are really choosing to focus our activities in those markets where we believe our investments will pay off in a big way for a long time, says Philippe Dauman, Viacom chief executive. Learning Technology/skills/capabilities from partner Through this alliance with Network 18, Viacom hopes to learn more about the Indian media industry especially about the distribution side of the industry.

Our Insight - Analysts we have spoken to in the TV industry say the partnership with TV 18 buys Viacom the cooperation of Bahl, a shrewd entrepreneur who has rapidly turned TV 18 into the countrys primary news channel operator by using rights to the CNBC and CNN brand names. TV insiders say the partnership creates what is known in the industry as a full bouquet. Although his news channels are not part of the venture, Bahl will be able to cross-sell the entire offering to advertisers, including news, general entertainment and childrens TV in the form of Nickelodeon. We can boast of one thing that no American media company can boast of, he said. Where can you see CNBC, CNN, MTV, VH1, Nickelodeon, Paramount Pictures, DreamWorks, where can you see a collection of these brands [in one stable]?

6. Value Creation 6.1 Complementary Assets Viacom will contribute channels which they have developed over a number of years. The Network 18 Group will contribute its film activities from the Studio18 Group. Together they will launch a general entertainment channel, and will also contemplate launching a number of additional niche channels from the Viacom family of channels worldwide. There is a considerable scope for expansion on the revenue and profitability side as well as on the audience share side. We do believe that they are extremely strong brands and therefore can be scaled up even more than what has been achieved so far. 8

6.2 New Revenue Streams from new segments Hindi entertainment In-spite of the tough competition and neither partner having any experience in operating a Hindilanguage entertainment channel, Studio18, a new-age motion picture brand that produces, acquires and distributes Hindi films launched the Hindi General Entertainment channel COLORS. Colors is the first ever global launch of an entertainment channel on IPTV. With colors, Viacom 18 has made its foray into the IPTV sector which will certainly be one of the biggest distribution mediums, with worldwide reach, in the near future. The launch has been made possible by a partnership between Viacom 18 and The New Media Group which owns World-On-demand IPTV platform. According to Sanjev Hiremath, Sr. Vice President, Network Development, and Viacom 18 Media Pvt. Ltd.: COLORS has received tremendous response since launch in India and we are confident that its shows will now become household names amongst the Indian Diaspora in these markets, soon. Kid Segment Nickelodeon, the fastest growing kids channel has had tremendous momentum over the last year and has been gaining market share. Since January 2009, Viacom 18s kids channel Nick (Nickelodeon) has increased its market share from 9% to 18% and has become the fastest growing channel in the kids category. According to Nina Elavia Jaipuria VP and GM Nick some of the success factors of Nick are: The first among them is the fabulous programming we offer kids on our channel, which has a good mix of library as well as acquired shows that have made Nick the comedy destination for kids. Second is our 360-degree multi-platform marketing strategy. The third factor contributing to Nick's success is our robust distribution that has ensured that Nick is the second largest distributed kids channel in India today. She further adds, The Viacom and TV18 joint venture will help us leverage the assets of both Viacom and TV18. Viacom 18 will deliver content related to television, films and digital media. So in that sense, the canvas just got larger, thus enabling us to explore opportunities across platforms. Nick remains one

of the focus areas for Viacom-18 in India, and Nick's growth and performance over the last 12 months are a testimony of the same. Youth Segment MTV, Indias leading multimedia youth platform, caters to the interests and passions of 15-34 year olds, offering them an exciting mix of music and non-music programming (Bollywood, adventure, humor, fashion & style and fiction), presented in its inimitable style by Indian VJs. Since its launch in 1996, the channel has won numerous awards at Indian as well as International level for its unique humor and unmatched creativity. Known for its unique properties (MTV Immies, MTV Music Summit for AIDS, Style Awards, MTV Youth Marketing Forum, MTV VJ Hunt, MTV Youth Icon and MTV Roadies among others), the channel has today become a preferred destination for advertisers to reach out to Indian youth.

Vh1 is Indias only 24-hour international music and lifestyle channel, providing music buffs with their daily dose of international music, pop culture, reality TV and celebrity lifestyle. Launched in January 2005, the channel today reaches almost 20 million homes across India and is growing rapidly to reach many more. Vh1 has brought the best international music to India, coupled with the biggest stars, the juiciest stories and the latest in your favourite artistes life. With an exhaustive music library spanning over 30 years and genres like flower power, punk, rock, reggae, hip hop, pop and many more, Vh1 customizes its music and programme mix to appeal to Indian tastes. Globally, Vh1 is available across 142.8 million households in over 141 territories.

These channels are in their early stages of growth and we clearly see a lot of potential for all these channels. These represent a dramatic expansion of the scope of activities of both Network 18 and Viacom in India. We believe that with the force multiplier, which this JV will provide to all the three channels, there is a substantial scope for Network 18 to be able to scale these existing properties up.

6.3 New Content Viacom has a large number of differentiated channels both in the US and in various countries around the world. For instance, they have been rolling out Comedy Central which has worked well in several countries. Other successful channels include a male-oriented channel called Spike TV in the US. Viacom 18 will be exploring which new channels would be appropriate to launch in India. The important thing 10

for the alliance is to look at it from a consumer perspective to see what will appeal to the consumers here in India and create very compelling programming that will work on air, and digital and mobile platforms where people can follow their products wherever they are. 6.4 New Films distribution This joint venture is very broadly based and both firms will be exploring a lot of specific opportunities for them to cooperate. This could include distribution operations in India for films that are produced by Paramount and DreamWorks

6.5 Other opportunities Viacom18 also runs Viacom's consumer products business in India. Viacom18 brings together the unique strengths of two formidable partners, thus forming an entertainment conglomerate that will have a competitive advantage in serving the needs of both viewers and advertisers. India is one of Viacoms priority markets for expansion internationally. We are really choosing to focus our activities in those markets where we believe our investments will pay off in a big way for a long time. Philippe Dauman, Chief Executive, Viacom, on its joint venture with TV 18

(Source: Financial Times London, May 25, 2007) Analysts we have spoken to in the TV industry say the partnership with TV 18 buys Viacom the cooperation of Bahl, a shrewd entrepreneur who has rapidly turned TV 18 into the countrys primary news channel operator by using rights to the CNBC and CNN brand names. TV insiders say the partnership creates what is known in the industry as a full bouquet. Although his news channels are not part of the venture, Bahl will be able to cross-sell the entire offering to advertisers, including news, general entertainment and childrens TV in the form of Nickelodeon. We can boast of one thing that no American media company can boast of, he said. Where can you see CNBC, CNN, MTV , VH1, Nickelodeon, Paramount Pictures, DreamWorks, where can you see a collection of these brands [in one stable]? The underlying reason, we believe, behind the success factors is the strong understanding of the Indian markets which Network 18 brings and the strong production and technical capabilities of Viacom.

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Together the JV is in a process of realizing synergies between the partners and has built one of Indias leading multimedia entertainment power-house. 7. Implementation Issues in Alliance 7.1 Compatibility of partners values: NW18 found as favorable the below characteristics of Viacom Strong holdings in the general entertainment sector It was as diverse in its portfolio as NW18. It was a vibrant group in terms of ventures, mergers and acquisitions in new sectors. A fast growing company similar to NW18, with immense future growth prospects.

Interesting fact - We analyzed the alliance from the three dimensional fit and besides the operational and strategic fit and synergies that most alliances in this space do achieve, the most important factor of success in this alliance has been the cultural fit. Insider sources at TV-18 have mentioned that the alliance deal was signed in the wee hours of a morning party in Goa. The vibrant and fun loving culture inept in both firms has led to a much smoother functioning of the joint venture unlike other alliances in this space such as Times NOW with Reuters which have had enumerable frictional differences. 7.2 Alliance Ownership Structure The Indian operations of Viacom 18 would be launched with an investment of $13 million; funds for the venture would be routed through Cyprus and Cayman Islands. HSN-Cyprus which is the main company involved in fund routing is a JV between Cayman Islands based Network 18 and Mauritius based SAIF II Mauritius Company Ltd. The original alliance started with Viacom bringing 3 channels (MTV, Nickelodeon and the only international music and lifestyle channel in India - VH1) while TV18 brings its motion pictures division to the JV. MTV, Nickelodeon and VH1, operated by MTV Networks India Private Ltd in India, now come under the newly formed company. MTV Networks is a 100 per cent subsidiary of Viacom in India. In addition, all the forthcoming Hindi film productions, acquisitions and distribution ventures of Studio 18 (TV18 Group) will also form a part of the joint venture.

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7.3 Alliance Autonomy Post Alliance It was decided that the three channels which are operating in the JV immediately (MTV, VH1 and Nickelodeon) would continue to operate exactly the way they are, with their content and with the same management teams in place in order to avoid disruption of creativity and implementation issues. This would facilitate speedy integration and faster results for the joint venture.

7.4 Key Management Personnel The key person behind the successful growth of network 18 was Raghav Bahl. A shrewd entrepreneur and strategist, Raghav has taken the group to new heights. While most other media companies have preferred to guard their monopolistic turf without venturing into alien territory. Network18, however, has been like an octopus, using its tentacles to seize every part of the media pie. For instance, around the time of CNN-IBNs successful launch, the group was also working on a business plan for a Hindi news channel to complement its new English one. When the floundering Hindi news channel Jagran TV came up for sale, Bahl quickly grabbed a 46 per cent controlling stake from Jagran Groups M.M. Gupta family and was able to hit the market at the time of CNN-IBNs initial high with a Hindi sister channel, IBN 7.

From Viacom, Amit Jain, who joined MTVNI in 2005, was instrumental in leading MTV Networks Asia & India on a profitable growth trajectory. He also played a principal role in expanding Viacoms business interests through the formation of Viacom 18 Viacom and TV18 Groups joint venture in India. As Executive Vice President and Managing Director, MTVNI for Greater China, South East Asia and India, Jain spearheaded the companys expansion and led many key market developments including the successful launch of Viacom 18s general entertainment service, COLORS, which ranks among the top two general entertainment channels since launching in July 2008.

7.5 Potential Issues This alliance may look good on paper, but the new partnership faces many challenges. Neither partner has experience operating a Hindi-language entertainment channel in todays market. Competition is fierce. There are more than 200 channels in India with more being created every day. But fewer than half will generally be carried on a given cable network and the advertising market is not growing quickly

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enough to cater to all of them. The market share of general entertainment channels is also falling. Still, analysts believe the $100 million the partners are rumored to be investing in the venture will give it a head start and enable it to create itself barriers to entry in this competitive space.

The Studio 18 management wanted to leverage on the additive benefits of two partners and the expertise of Viacoms management while learning the best practices from them. Since the formation of the alliance, several new revenue streams and products have been included.

8. Alliance Analysis 8.1 Assessment of the success/failure of the alliance The alliance has been extremely profitable and the company has grown to new heights in the media industry firmly establishing itself as a media powerhouse. The alliance has been successful in not only meeting its initial objectives, but as expanded upon the scope of businesses that it was originally intended for and has made valuable strategic decisions in the recent past in their quest for convergence.

The group, from revenues of Rs 135 Crore in 2004, is expected to touch Rs 1,000 crore in FY2008. It has emerged as the fourth largest media group along with HT Media after the Times Group with estimated revenues of Rs 4,000 Crore, Star India Rs 2,500 Crore and the Zee companies together clocking Rs 1,500 Crore. Network18s two listed flagships, TV18 and GBN, have galloped along at a 50 per cent and a 70 per cent clip, respectively. TV18s profits ballooned almost four-fold to Rs 22 crore for the nine-month period ending 31 December 2007, while GBNs losses were pared down to Rs 8 crore for the same ninemonth period, from Rs 35 crore in the previous period

Due to its lack of presence in the news wire space, leap-frogging into the news-wire space seemed like a logical move. In late 2006, Network18 acquired Crisil MarketWire, a real-time financial news wire service from Crisil. Calling it NewsWire18, the company broadened the service into an integrated information terminal and now has 600 terminals in the country. Network18s convergence strategy has not gone unnoticed. The group is building an effective synergy between Moneycontrol.com and NewsWire18 to compete with Bloomberg, says Ashok Jainani, an analyst with Khandwal Securities.

In a country that is obsessed with its movie industry, a media company without a film division is like a 14

Queen without a crown, and Bahls group didnt have one. For Bahl, sitting on the sidelines of a booming multiplex market was not an option. His solution? Poach and build. Bahl lured away Sandeep Bhargava from Sahara One Motion Pictures, who defected with his entire team to set up shop in the backlanes of Mahalaxmi Race Course, a stones throw away from Famous Studios. This would have not been possible without Viacoms support through Paramount and Dreamworks, a fact that has been well leveraged.

8.2 Alliance Results COLORS - 'COLORS' launched in July 2008, is Viacom 18's flagship brand in the entertainment space in India. COLORS has emerged as the number two player ahead of Zee TV. It had the strongest opening week performance and within 3 months of launch, COLORS clocked GRPs of 250, while Zee is at 220 and Star is at 278. (For post-launch COLORS performance, refer to Exhibit 6). The combination of their stronghold in the youth audiences and access to the audience franchise of Network18 will lend enormous leverage and strategic advantage to their entry into the mass general entertainment space. Viacoms distribution strategy is 99 % responsible for the success of COLORS. Viacom 18 made smart use of Network 18s news channels to cross promote the entertainment channel. COLORS on IPTV - Viacom 18 has joined hands with The New Media Group KK (TNMG), to enable the channel to be seen via the IPTV service World On-Demand. HomeShop 18 - Leveraging the strength of Network 18s television channels, HomeShop 18 decided to create programmes to reach out to a wider audience through COLORS. Since the home shopping channel is currently not available on the DTH platform, reaching out to extended audiences through the rest of the networks channels is a way of leveraging synergies. Studio 18 - The Indian Film Company (IFC) will produce six films on a budget of about 24 million dollars. TV 18 established Studio 18 about a year ago to engage in all aspects of the film business, but following the formation of IFC early this year, Studio 18 will primarily focus on creative and distribution services while its forays into production via the 14 projects have been transferred to IFC, which will hold all (intellectual property rights). It had two huge successes in 2007 Jab we met and Welcome with welcome achieving the third largest opening and final grosser ever. (Please Refer to Exhibit 5) MTV MTVs performance has been improving with respect to other players such as zoom, Bindass who have been vying for increased presence. (Please Refer to Exhibit 3)

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Nickelodeon The channel targeted towards the kids segment is emerging as the leader in the kids segment. It has achieved the fastest relative share growth of 81% and has rapidly grown in to the third position as is on its way to become the market leader. (Please Refer to Exhibit 4)

8.3 Predictions on future prospects of the alliance. The Network 18 group recently listed The Indian Film Company (TIFC) in Guernsey, on Londons AIMs exchange and raised $100 million (Rs 400 crore) about 18 months ago. This move has given Studio18, the groups front for its film business, a lever for raising an equal amount of debt, too, arming it with a war chest of Rs 1,000 crore. Flushed with cash, due its recent box office successes, Bhargava has moved forward with a three-pronged strategy: financing in-house films, co-productions and acquisitions. Studio18s first slew of in-house films, including Fruit and Nut with Boman Irani and Cyrus Broacha, are mid-budget, in the Rs 8 crore-10 crore range. The companys acquisition strategy has also engineered some savvy deals. However, the future prospects of this alliance have the following risks as well: User fatigue, with lack of differentiation leading to a reduction in viewership The broadcast space appears cluttered, with content having a similar look and feel across channels. User fatigue due to the lack of content differentiation could soon lead to a search for alternative entertainment modes, such as theatre, movies or gaming, in our view. Increase in television rating points volatility, with viewership fragmentation essentially leading to a reduction in ad rates The volatile tastes of Indias TV audience leads to ratings volatility and viewership fragmentation which can put pressure on ad rates, as ad volumes and rates are unlikely to move up simultaneously. Rising ad volumes will dent ad rates; hence, incumbents could see slower topline growth. Cost-push inflation as the scuttle for talent impacts margins The impact of intense competition on employee retention costs is visible in the rising option expensing trends at TV18. With the expected launch of more channels this year, we expect this trend to continue and impact their bottom line.

Network 18s corporate structure is a labyrinth of companies with criss-crossed equity holdings and complicated joint ventures that can confuse investors. At the top of the heap is the listed holding company of the group, Network18 Media & Investments, in which Bahl holds a controlling 51 per cent 16

stake. Network18 in turn controls 51 per cent in two other listed subsidiaries GBN and TV18. Besides these, the group has a host of unlisted corporate entities including Web18, HomeShop18, Capital18 and the cable distribution arm, Setpro18. And finally, there are the JVs that include Viacom18 and the partnership with the Hindi print giant, Jagran Group. Media watchers also point out that the group has a maze of brands that have little recall value. Perhaps in recognition of this criticism, the group has launched an aggressive branding campaign to give the groups properties a brand identity through the number 18. For a company passionate about convergence and growth, it could be heading for the sky.

9. Recommendations for effectively managing this acquisition/alliance

The alliance between Network 18 and Viacom has been successful in enlarging and appropriating the maximum value of the pie. Since both parties brought to the table complementary assets and were clear about each others strengths they have split the gains possible.

Both partners have built and maintained internal alignment around the choice of partner (through a great cultural fit), the purpose and goals of the alliance, and how the alliance will operate. They seem to have effectively implemented a process for identifying key decisions and issues related to the alliance. This is a prime example of a case in which the success of the alliance is due to the smooth working relationships between both parties. Both partners seem to have established common ground rules for working together. Effective management of any relationship issues that may arise is essential for the productivity and long-term success of the alliance.

9.1 Our recommendations The alliance would benefit from having a dedicated alliance manager function one that does not exist today. This dedicated person (often referred to as an alliance manager or relationship manager) should oversee not only the business objectives and milestones of an alliance, but also focus on the day to day relationship issues.

Also the alliance would benefit from improving and training employees involved in the alliance on collaboration building. Specifically, these employees should be trained to become skilled at joint 17

problem-solving, conflict resolution, open and direct communication, and explicit exchange of feedback. Companies that have this capability recognize the criticality of collaborative skills for all alliance-involved employees, and routinely invest in maintaining, updating, and instilling these skills as a corporate necessity. These companies also emphasize the need to maintain collaborative mindset when dealing with un-collaborative partners and do so by instituting routine validation of collaborative thinking a good best practice to be followed to develop a collaborative corporate mindset.

We also believe the alliance would benefit from relationship audits which implies jointly monitoring the health of the working relationship between alliance partners (i.e., how they are working together to further their substantive goals). When companies can audit the relationship side of an alliance with a formal mechanism, process, or standard procedure, the alliance is most often preserved, if not also enhanced. Such methods as surveys, off-sites, executive reviews, or other similar processes are examples of relationship audit mechanisms.

In order for Viacom 18 to leverage its access to complementary assets Viacom's inherent creativity content and Network18's operational excellence, they should try and follow some of the principles we discussed. The alliances would be more effective, more valuable to stakeholders, and easier to manage.

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Exhibits
Exhibit 1

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Exhibit 2

Exhibit 3

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Exhibit 4

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Exhibit 5

Exhibit 6

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Exhibit 7

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COLORS: A strong No. 2 in General Entertainment Category

COLORS: Revenue curve to follow viewer ship gains

Viacom18s other properties MTV, Nickelodeon & Vh1

Exhibit 8 Indian television broadcast revenue pie INR 480 million by 2015E

Source: Indian Entertainment & Media IDFC SSKI, November 2008

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Exhibit 9 GRP CHART

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References links http://www.indiantelevision.com/headlines/y2k9/jan/jan249.php http://www.zeenews.com/Entertainment/Movies-Theatre/2007-07-23/384473news.html http://www.viacom18.com http://www.rediff.com/money/2007/may/23viacom.htm http://www.network18online.com/reports/Network18%20Group%20-%20Dec08(QA).pdf

ABI Inform <http://library/E_Resources/Redirect/ABI_Inform_Global.html> ET Intelligence Group <http://library/E_Resources/Redirect/ETIG.html> ISI Emerging Market <http://library/E_Resources/Redirect/ISI_Emerging_Markets.html> LexisNexis Academic <http://library/E_Resources/Redirect/lexis.html> Datamonitor <http://www.marketlineinfo.com/library/Default.aspx> http://www.vantagepartners.com/myprofile/login.cfm?type=request_pub&id=105 http://www.strategic-alliances.org/chapter/netherland/2008programoctober30 http://albany.bizjournals.com/albany/stories/2006/09/04/smallb2.html?page=2 http://www.rediff.com/money/2007/may/23viacom.htm http://www.thehindubusinessline.com/catalyst/2008/05/22/stories/2008052250010100.htm http://www.sebi.gov.in/dp/network18.pdf

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