Interview with S. Sivakumar, Principal Secretary and CEO Designate (PT Co.) of Times Private Treaties

Duration: 34:17
Date: 24/06/2008
Time: 4:35 PM
Place: Times of India, Bahadurshah Zafar Marg, Delhi
Interviewed by: Nikhil Pahwa, Editor,

How many companies are part of Times’ Private Treaties Portfolio? We’ve heard numbers of between 175-200 companies…
Yes, that’s right. We have between 175-200 clients. It could be an equity deal, real estate exchange, royalty linked payments – various modes of…the whole idea of Treaties fundamentally is that the client wants to popularise their site or the group of services. The Treaties proposition is to accept an asset, whose value gets influenced by the utilization of the advertising. Suppose we take an equity stake, and the client advertises more, the hope is that his product or service, and ultimately his valuation goes up. Suppose if real estate is advertising more – the whole consumption changes. There’s a whole bunch of advertisers who cannot afford advertising in the conventional sense today. But going forward we want to make this a level playing field – give an opportunity to everybody who has something to tell the world, the opportunity to leverage a powerful platform. BCCL reaches out to 54 percent of the English media market in India – if you see our ad market-share. So there are lots of entrepreneurs, who might not be able to afford. So here we are – we’re willing to accept that piece of paper, and the value of that paper – it’s a derivative instrument – its value will be derived based on how it is able to market the product. If he is able to connect with the consumer and if there is an acceptance for the product in the market-place and it gets established, the piece of paper will have some value. We’ve actually brought the future forward for the entrepreneur.
So as such there is no sector that you are focusing on?
There is b2c – which is consumer connect, and b2b – which is constituent connect. 10-15 years back, there was no operational efficiency. Today, operational efficiency is a hygiene factor. Beyond this there are two new factors – how much of mind-space you occupy. And the third is how relevant are you to a select community which is the financial community, which gets you growth capital. Your ability to constantly keep a connect with the consumer always gives you the mindspace. Operational efficiency is the key. A play of all three makes the business not-only successful but sustained.
So are you essentially offering ToI and ET? Or it is across the BCCL properties.
Any of our media is available to our clients.
How are these deals valued then? Is there a certain value put on the media properties?
As far as the rate card is concerned, a rate card available to our conventional clients is available to treaty clients.
It’s not heavily discounted?
It can’t be. A cash client pays in the space of 60 days. In case of a treaty client, I hope to get the payment when the company gets listed. It’s an event that has at least a 3 year time-span. It’s a long gestation period. Rates are absolutely the same. But treaty is a good incubation, it’s a good support. India is undernourished in terms of advertising reach. There are so many entrepreneurs who want to reach out and connect, but because of whatever constraint. To quote CK Prahalad – India is a resource constraint society, and in a resource constraint society, entrepreneurs find creative means of reaching garnering resources to build their enterprise. This actually helps an entrepreneur leverage the strength of BCCL without straining his balance sheet from a cash-flow point of view. Take no single rupee.
So, going back to an earlier question, how do you value the deals?
We don’t have to value the deal, because…There’s a rate card for each of our media vehicles, and he makes a plan – over the next 3-5 years – because brand building is a long term initiative – he says I will need X amount of media from each of (inaudible). Obviously we have media planners and advertising and branding promotions as value-add – who support by defining target group, SEC, make an assessment and make out a plan, saying that X amount of rupees you’ll need over the 3 years. That determines the deal size. It’s purely a function of his business.
How would you define a successful Private Treaties investment?
Treaties’ focus has never been investment. It’s about…it’s almost like adding an ecosystem. Businesses are largely dependent on a set of customers. The more the advertisers, everybody benefits, and you benefit because your dependency gets reduced. Treaties’ proposition is about creating the advertiser ecosystem, about a proposition which says that the advertisement works, a demonstration that advertisement in BCCL works better and to continue demonstrating that. In a Private Equity scenario, because of third party funds, there is a pressure on them to sell it. There’s a pressure on the entrepreneur to offer a liquidity event to PE guy so these guys can sell the investment and return the investment on day one. For us it’s the complete reverse. We create a liquidity event on Day One. For us, selling is not of paramount importance. The second key proposition is that as long as advertisers continue to advertise with you, he’s doing so because they’re giving a return on investment.
So are you giving a competitive advantage to the company that you’re investing in?
Far more. Because he’s not using todays cash-flow to invest. He’s using the future balance sheet to fund todays advertising need.
Let me take the example of Travel space, where you have invested in TravelMasti, TravelChacha, Ezeego1, TravelGuru and HolidayIQ. So among these companies, where is the competitive advantage established by you since they’re competing with each other?
Very good point. Actually it’s very simple: the whole purpose of advertising is to bring out differentiation. For each of them there is a clear differentiation. For TravelGuru, his whole USP is the strength in the hotel space. For Ezeego1, the differentiation is the packaged tours. TravelChacha dominates another niche. So each one has a differentiation. To a layman, everything appears the same. That USP is brought out through the use of a powerful medium as ours.
So you’re giving them space, and how they use the space is their problem?
No, I didn’t say that. There’s a set of people with us who will also tell them how to utilize the space. It’s not vanilla space selling. They have established their business because they have certain differentiation. In a niche space, you don’t need advertising. So you have to first work with the client, understand his strategy, understand his USP and add value. That value-adding factor we strategize with them, help bringing out in terms of an advertisement.
Sucheta Dalal had written an article in which she quotes a letter by The Economic Times editor, Rahul Joshi (dated 29 November 2007) where it says that there will be a senior edit person for interface with Treaty clients (for edit delivery), and there will be “PT Champions” for each regions to ensure that there will be no negative coverage. Aren’t you compromising editorial…
(Interrupts) Lets me explain….fundamental point I told you before about dependency on a single advertiser. One of the leading media (inaudible)…not ours…said that “a” advertiser, with a large contribution of advertisement will certainly influence. The whole purpose of Treaties is to reduce dependency of revenues from a single advertiser source. When a large advertiser can not influence editorial, how can this tiny specter of 200 clients, each not contributing more than Rs. 5-10 crores over 3 years. When large advertisers do not influence editorial, the small guys cannot influence editorial. Point two is that the purpose of treaties to reduce the dependency factor. Third thing is – there are champions for…there’s a banking editor, SME editor, a tiny-sector editor. The mail that you are talking about is talking about a sector focus. It is completely normal. When a senior editor goes on a leave, he’s going on a marriage leave, so obviously he has to interrupt…and the mail only talks about a sector focus. But there’s a mail addressed to each of the sector heads, and only mail addressed SME and Tiny sector has been picked up and quoted completely out of context. Because you have an agenda. You know Sucheta was working with us…I don’t know whether you know it or not, but she was working with us and I didn’t want to talk about the Harshad Mehta scam, since you are recording, I didn’t want to go on about that. There’s a lot of background, and under what circumstances she left the organization.
So would you be able to share the mail, without any names mentioned so we can show the context?
I’m saying that there were several mails on that day from the editor to his team. It doesn’t talk about negative coverage and is completely quoted out of context. The point is that each sector is important and it is about sourcing news. Suppose Ranbaxy deal is happening, and the editor for Pharma misses the Ranbaxy deal, obviously the editor has to be concerned. The point he is trying to make (in the mail) is that organize yourself so we don’t miss out on any news from that segment.
But take a little known company like World Phone. I’ve got two articles here from your publications, via your own website, focused just on WorldPhone, VoIP tariff plans. Does that really mandate editorial coverage?
(Asks CVL Srinivasan if World Phone is a client and gets a confirmation) See we have a Treaties website, and there is an editorial coverage page. If you see the kind of coverage that the competitive media carries, and what we carry, see the ratio for yourself. Is it there for you to see, I don’t have to say anything. It’s not about…uhh…if you see the kind of breaking news television shows…
Let us not go to television and other forms of media because they have their own issues. These stories lack something which is a norm among credible publications – of having a disclosure of the investment. In case of these articles on Travelguru, Ezeego1, World Phone – there’s no disclosure mentioned.
If there’s an action possible for the reader to make an investment decision – suppose there’s an IPO is going to happen in the next 21 days, or a certain period. During that period any article in publication has a disclosure.
You mean in case of Future Group you had given disclosures?
In Future Group, the investment was post the IPO. Coming to TravelGuru and all these companies you’ve mentioned – our coverage is 10-20 percent of any other media company, whether you take Business Line or Mint. It has almost become like a crime to carry any news of a Treaties client just because you are invested, which is not fair on our reader.
When there’s a disclosure it’s fair…there’s no disclosure…
(Interrupts)There is a disclosure when there’s an action possible. (In case of) TravelGuru, you can’t invest.
But Private Equity and Venture Capitalists are also reading the news. I’ve got articles on SatNav without disclosures mentioned, and there was an action taken recently in case of SatNav’s funding.
You’re doubting the wisdom of Sequoia, of Private Equity guys.
I’m not doubting the wisdom of Sequoia, but I’m doubting the integrity of editorial content.
It’s not about editorial content – SatNav got noticed because of the advertisements we placed, which is what he leveraged. The purpose of Treaties is to give a platform to the advertiser for him to talk about his product. An advertisement is only the company’s version – it’s constituent-connect and consumer-connect. When a mobile phone is advertised, we may decide to buy or not buy. Similarly if SatNav advertised his GPS system, it’s up to Sequoia to buy the product, or buy into the company.
Have you exited SatNav?
No we haven’t.
How many of your private treaty companies have actually gone on to a second round of funding?
Most of them would have. Any company which grows through the advertisement will need growth capital for funding. Our success is based on how many get funded – whether through the promoters themselves or through Private Equity or public listing.
I’ll explain where I’m coming from: speaking to Venture Capitalists, one gets the sense that you acquire small stakes at high valuations and effectively that makes it different for a second round of funding. It delays the second round of funding until the company actually lowers the valuations. So that’s one criticism from the Private Equity and VC players that Times tends to bloat the valuation.
I want you to respond to this.
How do you want me to respond? I can’t answer that – as an entrepreneur, I would not sell equity for advertising inventory in the first place.
That’s the answer to the question
I would not do a Private Treaties…
Exactly, the point. It is the same thing. The answer to your question is exactly the same. See there are lots of entrepreneurs we meet…so many deals we do. There are a set of entrepreneurs we meet who are saying that I am doing 100 crores business, I am very happy the way I am. I can send my children to schools, I don’t want to pay Income Tax, I don’t want to pay excise duty, I want to remain confined, I want to remain in this space. So they don’t want to advertise. You understand what I mean? They’re happy the way they are, and don’t want to advertise. Because when you advertise, there is growth. So those people never do a deal with us.
But what about those companies who do a deal with you and then are not able to get a second round because they are strapped for cash. Isn’t there an onus on you to help them with a second round because their success means your success?
Private Equity – I can’t speak for Private Equity – but if you look at how they fund, it’s a function of market conditions. If it was not – all the term sheets which were entered in January wouldn’t have been dishonoured when the market corrected on Jan 21st. Private Equity – what is the whole model of PE? It’s about entering at a very very low valuation, and within 1-3 years, trying to make 10-20 times return and exit. Treaties doesn’t actually benchmark value. It is largely by saying that first of all, the entrepreneur has to have a vision, and there are two types of capital required for growth – brand capital and the financial capital. We are clearly saying that we’re a source for brand capital. Brand Capital can take you from Point A to Point B. When your business needs financial capital, there are Private Equity guys. At that point in time, he gets evaluated. Sequoia was happy with SatNav, they took a stake. And they are free to enter. What is the issue? We’re not stopping anybody.
So essentially it is the company that expects the next round to come at a similar view on valuation. What you’re saying is that the onus is clearly on the entrepreneur.
Have you made any exits so far?
No we’ve not made any…we’ve not made any significant exits.
I was wondering how the stock market crash impacted your portfolio.
The key question for this is – if the market was at 25000 today, would we have been a seller?
Would you?
So you’re not buying to sell?
Exactly. The answer remains the same at 14000 and 25000. The point I am making is that we want to remain invested till he reaches that stage of growth. We’re in no hurry to exit. The fundamental principle of private treaties comes from the belief in ourselves. We are confident that our product works and advertisements works, and the advertisement in Bennett & Coleman works far better. The confidence comes from trust in our business. When he is advertising with you he is trusting you. We’re only reciprocating the trust. We’re letting the money which should have come to us at the end of 60 days remain with him for a longer period of time. Find alternate uses for those funds. Utilize for other – paying salares, acquiring companies.
Have you done any cash deals?
We haven’t done any cash deals. We are not competing with Private Equity. The only business we understand is the branding business. Brand Equity. Some of the businesses, without advertising, would not even start off. For a lot of businesses, startup capital is advertising.
So you don’t have an exit strategy, and you’re not even looking to exit?
That’s right.
How has the entry of other players impacted your business? Hindustan Times 6-7 deals, and there are Dainik Bhaskar, NDTV and others. Is there more competition for Treaties deals?
What is treaties? It is the more effective, efficient and economical method for customer acquisition. Only if an entrepreneur sees that he can acquire his customers much faster with Treaties, he will do it. Each of the media you’ve mentioned has their own strength. All of them have to support their new generation of advertisers because a whole growth of the medium depends on it. The newsprint cost which was $360 a few years back has become $1000. The televison space might see over 500 channels. Our bread and butter is advertisers. We need to continue to demonstrate that a medium works, and what better method than the Treaties model – where a client comes to you only if advertising works for him. The point that you first made, it only demonstrates that Treaties as a concept has arrived. It’s a powerful concept. It is certainly an innovative method for a certain segment of entrepreneurs to acquire their customers without straining their balance sheet since capital has conflicting priorities. The category has gotten established.
That’s fair enough – but now you’re no longer a monopoly. Entrepreneurs have more that one option…
It is the same thing. Advertiser can advertise with us or any other media. There are two currencies for advertising – cash and Treaties.
What would be the total value of your portfolio?
The market value – I don’t know since we’re not in the business of exiting. At cost, I can only give an indication – at an average deal size of Rs. 15-20 crores and 175-200 clients.
To finish, I go back to a question I’d asked earlier – what would be a successful investment for you?
A successful investment is one where at the end of 3-4 years, a sustained brand has been established in the country.
For Private Treaties or you’re taking about the company?
For the country, a brand has arrived. We’d have done our job.
Where would be your exit?
It would be intrinsic. Once the brand has been established, the company has been successful.
I’m not sure if I’ve asked this, but how many of your portfolio companies have been able to raise a second round of funding?
I won’t be able to ascribe a number, but as I said earlier, once it reaches some stage, once there is certain visibility for the brand, they certainly will need…everyone has to get growth capital.
I hope this will clear up a lot of issues that people have been raising. Thanks.

Note: There may be a marginal variation from the audio – some parts were illegible/inaudible