Eros

Eros International has reported digital and ancillary revenues of $12.9 million for the quarter ended December 21st 2013, down from $13.6 million reported for the same period last year. However, this is the films business, and is significantly dependent on number of film releases, so it’s perhaps not right to do a quarter on quarter comparison for the company. Year to date – for the nine month period ended December 31st 2013, revenues for the digital and ancillary segment were $29.3 million, down from $31.3 million for the same nine-month period ended 31st December 2012. The company hasn’t shared revenues separately for the two segments, both of which include components of what might be defined as digital businesses.

EROS released 15 films in the quarter, “three of which were high budget and two medium budget films, compared to 24 films in the third quarter last year, three of which were high budget and two medium budget films.” Year to date, the company has released 41 new films compared to 66 in the year-ago period. It also has released two major films in the current quarter: “1,” a Telugu film starting Telugu superstar Mahesh Babu, as well as “Jai Ho,” a major Hindi film starring Hindi superstar Salman Khan. The FY15 slate includes the release of Rajinikanth’s “Kochadaiyaan” on April 11th, and other releases such as “Happy Ending,” starring Saif Ali Khan, and “Action Jackson,” starring Ajay Devgn. Jai Ho, apparently, wasn’t a blockbuster. On the conference call, EROS CEO & MD Jyoti Deshpande said “Did we double our money? No, so it was not a runaway success. It was not a blockbuster that smashed all records. But are we good? We are definitely good and it’s a profitable venture for us, so I think – I think the markets get carried away with the expectation that they expect each star to bust its – the record set by the previous film and so on and so forth. But that’s the nature of the business, so we don’t get overly worried about it.”

EROS’s digital businesses include EROS Now, which its online movie streaming service, which has recently shifted to a freemium model, its YouTube channel, and more significantly, it’s distribution via cable based VoD services called “Bollywood Hits On Demand” with Cox, Rogers, Cablevision and Time Warner,” apart from services in the UK and Middle East. It’s ancillary businesses include its music revenues (digital, from iTunes, Spotify, Napster, Rdio), and physical CD’s, rights to Radio and TV channels and royalties from public performances. They also include revenues from In flight entertainment.

EROS Financials

This is EROS’s first earnings announcement since its $55 million IPO on the New York Stock Exchange.

Revenues increased by 22.3 percent to $87.2 million in the quarter, compared to $71.3 million in the year-ago period. Year to date, revenues $increased 5.5 percent to $172.2 million. The aggregate revenues from theatrical, television syndication and digital & ancillary were $41.3 million, $33 million and $12.9 million, respectively, and total $77.9 million, $65 million and $29.3 million, respective, year-to-date. Net income decreased by 9.9% to $19.1 million, compared to $21.2 million in the prior year period

Note that Eros also owns 7.21% in Valuable Technologies, a group whose UFO Moviez venture provides digital distribution of films.

Regional segmentation of revenues:

– North America: Revenue from North America increased 3.2% to $3.2 million, compared to $3.1 million in Q3-FY13. For the nine months, revenue from North America increased 40.0% to $9.1 million, compared to $6.5 million in the previous corresponding period, due to increased digital and syndication revenues. As per EROS’ annual report for the financial year ended 31st March 2013, “Revenue from North America was $12.7 million in the year ended March 31 2013, compared to $8.4 million in the year ended March 31, 2012, an increase of $4.3 million, or 51.2%, principally reflecting increased digital and syndication revenues.”
– India: Revenues increased 1.2% to $43.2 million, up from $42.7 million in Q3-FY13, due to overall increases in revenue from comparable new releases, offset by a $1.8 million reduction in revenue due exchange rate changes. Revenue by customer location in India decreased 20.2% to $86.6 million, compared to $108.5 million in the nine months ended December 31, 2012, primarily attributable to a $8.8 million reduction in revenue due to exchange rate changes.
– Europe: Revenues increased 16.9% to $8.3 million, compared to $7.1 million in Q3-FY13, primarily due to overall increases in revenue from comparable new releases and catalogue sales. For the nine month period, revenue from Europe decreased 15.2% to $17.9 million, compared to $21.1 million for the corresponding period last year, due to a decline in production services revenue in the nine months ended December 31, 2013, partially offset by increased contributions from television sales.
– Rest Of The World: Revenue from the rest of the world increased 76.6% to $32.5 million, up from $18.4 million for Q3-FY13, due to increased television syndication and digital revenues. For the nine month period, revenues increased 116.2% to $58.6 million, up from $27.1 million in Q3-FY13, due to an increase in catalogue sales with respect to television as well as digital and ancillary rights, along with the wider theatrical release of some of the Company’s films.

On November 13, 2013, Eros completed an IPO on the NYSE, with 5,000,000 shares of common stock, at a price to the public of $11.00 per share, raising $55 million in new capital. Eros is the first Indian media company to be listed on the NYSE.

EROS’s approach to films

EROS typically releases 60 films a year, of which 12-15 films are global releases in Hindi, and are “the main revenue contributors to our film slate. This is followed by Tamil language global releases and then other regional language or international-only releases.” The company invests, typcially, $180 to $200 million each year in content CapEx for its current and future year’s slate. “An average high-budget film only costs us about $10 to $12 million. Our biggest film costs no more than $18 to $20 million and only three to four films in the year across the industry cost this much,” Deshpande said on the concall, adding that “While Hollywood can go on to spend upwards of 100 percent of the film budget to market and distribute a film, it only costs us about $3 million to distribute our biggest and most prominent film.”

“Rather than be dependent on one or two films becoming (great out) blockbusters to deliver profitability, our strategy is to de-risk our investment to presales where we aim to recover a majority of our investment through contractual commitments, even before the theatrical release of the film.” The other important differentiator is that all our arrangements with multiplex operators are on revenue-sharing terms rather than rentals. Due to the market being underserved, the opening weekend box office skews very high, which provides us with a natural de-risking, along with the presales strategy being employed. All these factors combined make the Bollywood industry risk profile very different from that of Hollywood.”