Rediff.com is holding a EGM, for shareholders to validate the board approved acquisition of Vubites, a digital cable ad insertion company founded by Rediff.com Chairman and CEO Ajit Balakrishnan. According to SEC filings (see this and this), which Mint reported from today, Rediff.com will pay an aggregate consideration of Rs. 1,31,20,399 for acquiring shares of Vubites, an additional Rs. 12,40,29,601 is paid towards loans given by Balakrishnan, and Rs. 1,28,50,000 is paid in lieu of the stock options granted to participants in the Vubites ESOP. That’s a total outlay of Rs. 15 crore, or $3.37 million (at 1 USD = Rs. 44.43). The $13.1 million figure that Mint appears to be incorrect. Two days ago, we’d raised the flag of conflict of interest in the acquisition of Vubites by Rediff. Balakrishnan, who is currently in Central America. , and Balakrishnan addressed some of our queries. Excerpts from our conversation:
MediaNama: How would you respond to the issue raised about conflict of interest in the purchase of Vubites by Rediff?
Balakrishnan: (there is conflict of interest) If I continue doing the business (Vubites) as the CEO of Rediff, while we’re operating in similar markets. The reason to buy is to reduce the conflict of interest since it (Vubites) will be a subsidiary. An EGM is not legally needed, but we’re still going ahead with it, and we’ve followed all processes.
MediaNama: Why wasn’t the company started by Rediff.com itself in 2007? Why launch a separate company, only for it to be acquired by Rediff?
Balakrishnan: In the early days, it was unclear to me about where this business would fit – whether it would fit into Rediffusion (an advertising agency Balakrishnan co-founded), or Rediff.com. It is now very clear that the media industry is a continuum, and there is convergence between online video and TV, and otherwise Vubites and Rediff would be addressing the same advertisers. You’ve seen the experiments that are being done for integrating web and TV, by Google in the US with Google TV.
MediaNama: What real value proposition does Vubites bring, with remnant inventory? How is it differentiated?
Balakrishnan: The current TV market in India is large. We plan to offer TV inventory in a planned manner. Our value proposition is not remnant inventory. We’d like to offer advertising for a 10-15% premium to existing advertisers – it’s just that the local advertiser doesn’t have to pay national rates. We have three differentiators: first is that we will insert MPEG2 ads in the stream, which is something that we’ve built over the last two years.
The second is that we have a media planning module, which allows advertising to be inserted for targeting SEC A & B consumers, and we’ve spent Rs. 2-3 crores on that tool. The difference it that while for most people it’s a high end hardware that is bought off the shelf, we’ve done it in a significantly software way, using commodity PC hardware. We’re very proud of this tool.
The third leg is that most small advertisers do not have a TV ad, and it takes them 10 lakhs to get the ad done. We’ve built a tool (Vucreator) which allows them to use product shots, add stock audio, and create ads. The value proposition to the MSO (Multi System Operator) is an in 12-18 months, we’ll add 10-15%. There are 50-60 MSO’s in India, and over 60,000 local cable operators. We’ll have the product running on prime time. It’s not an easy business, but no business is simple.
MediaNama: What about your competition in this space – Amagi and Surewaves? Won’t you need to invest in feet on the street?
Balakrishnan: There are two small startups, their focus has been on the ad insertion piece. Our business (at Rediff) is selling display advertising, and we know how to sell ads. We’ve got 30 people doing sales, and there will always be some element of feet on the street. We’re targeting small agencies with 1-2 clients, and all are local agencies.
MediaNama: We’ve heard that Vubites is testing with NDTV in South Mumbai?
Balakrishnan: We’re testing with NDTV Good Times in South Mumbai, and with five clients, across 2 MSO’s.
Nikhil adds: just like to point out that we were not sure about whether Vubites is a Rediff company, or one set up separately by Rediff Chairman and CEO Ajit Balakrishnan, because we’d first heard of the venture (or a venture that sounds remarkably similar to it; details here), by virtue of a LinkedIn job post put up by Rediff’s VP for HR and Corporate Development Ashish Mehrotra, back in 2007. Not by a Vubites executive.
Our complete coverage of Vubites and digital cable advertising:
– Rediff Board Approves Risky Buy Of Ajit Balakrishnan Founded VuBites; Our Take
– Surewaves Launches Spot TV With Asianet In Kerala
– How Ad Insertion Works At The MSO Level For Local Advertising On Digital Cable
– Updated: On VuBites, Rediff CMD Ajit Balakrishnan’s New Cross-Media Ad Venture