1.

Introduction In May of 2007, the Network 18 Group and Viacom Inc, a New York-based globalentertainment content company announced the creation of a 50:50 joint ventureoperation in India called Viacom 18.The strategic alliance will include television,film and digital media content across numerous brands to build Indias leadingmulti-platform entertainment company. Network 18 has businesses straddling filmed entertainment, news-television, musictelevision, news portals, mobile content, on air/online shopping, show ticketing, jobsand travel portals, real time data terminals, TV channel distribution, eventmanagement and more. With acquisitions as well as tie-ups in the television, printand Internet markets over the past two years, Network 18s (formerly known asTV18) media assets now address over 80% of the US$4.9bn ad revenue pie; thecompany is also adequately positioned to access US$4.5bn of subscriptionopportunities. In this paper we have analysed the alliance from Network 18s pointof view using widely available sources as well as through interviews with employeesand 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 crediblebrands through interactive electronic media, primarily through cable televisionand the internet. TV 18 has also invested in the internet business through itssubsidiary Web 18 holding Ltd and E 18 Ltd. It owns Newswire 18 which wasformed by acquiring the staff and business of CRISIL Marketwire Ltd, Indias firstreal time financial agency. TV 18 has a leading stake in Infomedia 18 Ltd, whichhas strong presence in diverse business areas spanning Business directories,Magazine publishing, direct marketing, Printing services and publishingoutsourcing. (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 ofIBN7, a Hindi language news and current affairs channel which is ajoint venture with the Jagran group. It currently launched its first regionalchannel, IBN Lokmat in Maharashtra. This is a joint venture with the Lokmatgroup. IBN 18 also operates a joint venture with Viacom, called Viacom 18 whichhouses the MTV, VH1 and Nickelodeon channels in India, Studio 18 which is thegroups filmed entertainment operation and has recently launched Colors whichis 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 todemonstrate its ambition and youthful energy by venturing into all aspects of themedia business in India. The groups relatively older news businesses continue to doextremely well. It has a growing web portfolio and new revenue streams areexpected 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 viewershipfragmentation which can put pressure on ad rates, as ad volumes and rates areunlikely to move up simultaneously. Rising ad volumes will dent ad rates; hence,incumbents could see slower top-line growth. In addition we have analyzed thefollowing factors Lack of entry barriers bringing new competition There are currently over 300 channels in India, and over 100 new channels arebeing funded. The pace at which channels are being launched is alarming andindicates the lack of significant entry barriers in television, compared to thestickiness of other media, such as print, where persuading readers to switch to stickiness of other media, such as print, where persuading readers to switch toanother paper is not as easy as flipping channels. General entertainment channelscommand a 40% share of the total advertisement pie and have an estimated admarket size of US$1bn and have seen an increase in serious

competition over thepast few quarters, driven by new launches from entities funded by private equityinvestors and international media conglomerates. Building scale is critical, but could dent earnings momentum

The entire broadcast sector wants to expand, as only companies with welldiversified exposure, a broad range of channels and control of strategic assets arewell-positioned to fend off competition. This also ensures that advertisers areoffered a spectrum of media choices, leading to growth through higher addressablead volumes and reduced sensitivity to ad rates. This comes at a cost; however, asearnings performance deteriorates during the transition phase, when expansionTV18 is diversifying into unrelated assets, which could lead to significant losses inthe initial phase due to lack of immediate synergies and the learning curve, requiredfor reaching breakeven point. 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 adrevenue growth. In longer-term, growth will continue due to our expectation of aresumption of positive macro trends. While a worsening competitive environment,lower liquidity in financial markets and high interest rates could lead to a toughoperating environment for broadcasters, we believe that strong market growth andpay 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 overthe next three years, while the unorganized subscription pie is expected to witnessa sharp contraction (-7% CAGR) due to ongoing efforts to switch customers onto theorganized network. Subscription revenues directly add to profitability and shouldhelp 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 rapidtransformation. The expanding market places have enabled major media companiesto diversify in terms of cross-media ownership. Alliances have taken place amongnational and global organizations. The organizations now are concentrating more onexpanding their footprint and becoming full-fledged M&E companies. Relaxation ofthe 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 theIndian 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 The need for larger addressability is understandable given that Indias mediaindustry has become extremely competitive, with an entire spectrum of companieswanting to fill gaps in their asset positioning by addressing various segments of thevalue chain. This, compounded by low entry barriers and Indias cultural diversity,has resulted in a highly fragmented market with multiple competitors in eachsegment. We believe that the only way to achieve long-term business modelsustainability in such an environment is to adopt conglomerate status by acquiringsynergistic assets. Standalone media assets will witness margin deteriorationleading to the non-viability of their business models, in our view. 4. Viacom Viacom, established by CBS Broadcasting as an independent company in 1970 hasnow become worlds second largest media conglomerate. Bought by

visionarySumner M. Redstone in 1986, Viacom gradually emerged as an entertainmentcolossus and expanded its empire through a number of mergers and acquisitions,timely strategic alliances and product diversification. Most notable among themwere the merger with Blockbuster in January, 1994 and the acquisition of Paramountin July, 1994. However, this transformation into a media giant did not come withoutits toll. The company incurred huge debt, structure and management challengesloomed and the fast-changing entertainment and media industry posed new threatsto the company. consumers of the group, agglomerate audiences in a more meaningfulmanner for advertisers and partners and encourage users to move up thevalue 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 aHindi-language channel in India within the next year. The objective was to embarkon the joint venture at a time when Indias cable television broadcasting industry ispreparing for unprecedented competition that many believe will lead to a period ofblood-letting and consolidation in the months to come.Viacoms two majorobjectives are as follows New market entry The push by Viacom comes amid increasing excitement over Indias $1.7billionbroadcasting industry, which is estimated by Media Partners Asia, a researchfirm, to be growing 21% a year. The market is dominated by foreignownedoperators, including Rupert Murdochs Star TV and Japans Sony, and severallarge 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 mainchannel, MTV, has been losing money. We are really choosing to focus ouractivities in those markets where we believe our investments will pay off in abig 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 hasrapidly turned TV 18 into the countrys primary news channel operator by usingrights to the CNBC and CNN brand names. TV insiders say the partnership createswhat is known in the industry as a full bouquet. Although his news channels arenot 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 ofNickelodeon. We can boast of one thing that no American media company canboast 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 alsocontemplate launching a number of additional niche channels from the Viacomfamily of channels worldwide. There is a considerable scope for expansion on therevenue and profitability side as well as on the audience share side. We do believethat they are extremely strong brands and therefore can be scaled up even morethan what has been achieved so far. 6.2 New Revenue Streams from new segments Hindi entertainment In-spite of the tough competition and neither partner having any experience inoperating a Hindi-language entertainment channel, Studio18, a new-age

motionpicture brand that produces, acquires and distributes Hindi films launched the HindiGeneral Entertainment channel COLORS. Colors is the first ever global launch of

an entertainment channel on IPTV. With colors, Viacom 18 has made its foray intothe IPTV sector which will certainly be one of the biggest distribution mediums, withworldwide reach, in the near future. The launch has been made possible by apartnership between Viacom 18 and The New Media Group which owns World-On-demand IPTV platform. According to Sanjev Hiremath, Sr. Vice President, NetworkDevelopment, and Viacom 18 Media Pvt. Ltd.: COLORS has received tremendous response since launch in India and we areconfident that its shows will now become household names amongst the IndianDiaspora in these markets, soon. Kid Segment Nickelodeon, the fastest growing kids channel has had tremendous momentum overthe last year and has been gaining market share. Since January 2009, Viacom 18skids channel Nick (Nickelodeon) has increased its market share from 9% to 18% andhas become the fastest growing channel in the kids category. According to NinaElavia 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 thecomedy destination for kids. Second is our 360-degree multi-platform marketingstrategy. The third factor contributing to Nick's success is our robust distributionthat 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 totelevision, films and digital media. So in that sense, the canvas just got larger, thusenabling us to explore opportunities across platforms. Nick remains one

of the focusareas for Viacom-18 in India, and Nick's growth and performance over the last 12months are a testimony of the same. Youth Segment MTV, Indias leading multimedia youth platform, caters to the interests and passionsof 15-34 year olds, offering them an exciting mix of music and nonmusicprogramming (Bollywood, adventure, humor, fashion & style and fiction), presentedin its inimitable style by Indian VJs. Since its launch in 1996, the channel has wonnumerous awards at Indian as well as International level for its unique humor andunmatched creativity. Known for its unique properties (MTV Immies, MTV MusicSummit for AIDS, Style Awards, MTV Youth Marketing Forum, MTV VJ Hunt, MTV outh 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, providingmusic buffs with their daily dose of international music, pop culture, reality TV andcelebrity lifestyle. Launched in January 2005, the channel today reaches almost 20million homes across India and is growing rapidly to reach many more. Vh1 hasbrought the best international music to India, coupled with the biggest stars, thejuiciest stories and the latest in your favourite artistes life. With an exhaustivemusic 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 mixto appeal to Indian tastes. Globally, Vh1 is available across 142.8 million householdsin over 141 territories. These channels are in their early stages of growth and we clearly see a lot ofpotential for all these channels. These represent a dramatic expansion of the scopeof activities of both Network 18 and Viacom in India. We believe that with the forcemultiplier, which this JV will provide to all the three channels, there is a substantialscope 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 variouscountries around the world. For instance, they have been rolling out Comedy Centralwhich has worked well in several countries. Other successful channels include a