Update: do read our interview with Ajit Balakrishnan on the Vubites acquisition.

While Rediff.com is pitching to its investors the massive opportunity that mobile broadband in India portends, at the same time, it is considering “risk diversification” by looking at a new growth platform which it says is “a little less dependent on the growth of broadband users in India…” The acquisition of Vubites, a fledgling company which serves local ads to digital cable networks (a segment called Spot TV) has been approved by Rediff.com’s board.

The approval shouldn’t come as a surprise since Vubites has been founded and, in his own words, “personally financed”, by Rediff.com board Chairman and CEO Ajit Balakrishnan. Rediff.com Investor Relations informs us that an EGM is being held on the 26th of November, for shareholders to approve the buy.

When we’d raised the issue of lack of transparency at Rediff.com, we had contacted the company for a confirmation of the ownership of Vubites (whether it’s owned by Rediff.com or Balakrishnan), and never received a response. Now we know.

A few months ago, venture capitalist sources had informed MediaNama that Balakrishnan was seeking funding for the venture. They “found” a buyer instead, by the looks of it.

The cost of acquisition hasn’t been mentioned, so we don’t know how much Balakrishnan is likely to make from the sale. But this one way for Rediff to spend some of its cash balance of $42.8 million.

Our Take: Risk Tranfer, Not Diversification

As large as the opportunity to create a business focused on delivering local advertising on national TV channels may seem, these are very very early days, and there is no clarity on how this space will eventually pan out. India is a National TV market (with very limited city specific local channels to attract local advertising), and channels are supported with advertising largely from national advertisers; regional advertisers do spend on regional language channels, but unlike print media, TV does not get significant local advertising. A Vubites competitor – Surewaves – had explained to us how ad insertion works at an MSO level, replacing house ads.

We think this move transfers the risk faced by Vubites (and as a founder, Balakrishnan) to Rediff:

It increases Rediff’s risk exposure by bringing on board a virtually unknown (albeit largely untapped) business segment which could take several years to mature.
It will require funding: the company will need to put feet on the street to sell local city based advertising to small businesses. Rediff will also have to ink deals with Multi System Operators (MSO’s) to enable advertising on TV channels; MSO’s aren’t particularly easy to deal with, and channels are already selling remnant inventory through Denstu owned LastMinuteInventory.com, without MSO participation.
– Competition: Two competitors, Amagi and Surewaves, already have services live. Surewaves has deals with AsiaNet in Kerala, while Amagi is live in Ahmedabad, Indore, Nagpur, Mumbai, Pune, Patna, Hyderabad and Bangalore, covering Star News, and Aaj Tak and Headlines Today. Vubites, from what we’ve heard from sources, is still in trial mode.
– Not independent of the Internet: Note that in Rediff’s case, Vubites is not entirely independent of the Internet, since it uses an online format to create broadcast quality commercials.

Rediff.com Conference call transcript Q2-11
Rediff.com India Advertising Revenues Up 46% For Q2-11; Says Market Has Stabilized
Updated: Rediff.com: Still Drinking Its Own Kool Aid
Surewaves Launches Spot TV With Asianet In Kerala
Updated: On VuBites, Rediff CMD Ajit Balakrishnan’s New Cross-Media Ad Venture