Eros Plays Like a Bollywood Love Story Abheek Bhattacharya, The Wall Street Journal partial excerpt followed by ValueWalk exclusive
Eros International is like a Bollywood movie—low-budget but filled with romance for investors.
Eros, a New York-listed company with a market value of $1 billion, is in the business of producing and then distributing Indian-language movies in India and abroad, including through a nascent video-on-demand platform that is one of the first of its kind for locallanguage content. That makes it something like India’s Disney and Netflix rolled into one.
Start with the movies Eros makes. These command the largest share of India’s box-office revenue, about 40%, says Macquarie’s Tim Nollen, and include some of the country’s biggest recent hits. The studio business accounts for nearly half of Eros’ revenue.
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The company gets a lot of love from the Indian middle class’s growing interest in going to the cinema. The number of Indian movie screens tripled between 2007 and 2014, and has room to keep rising, given that India’s per capita screen count is still just a 10th of the U.S.’s, says Wells Fargo’s Eric Katz.
Knight Assets & Co.’s letter to Eros International
Dear Mr. Lulla,
As you aware, funds advised by Knight Assets & Co. LLP (“Knight”) have become sizeable shareholders of Eros International Plc (“Eros” or “the Company”). Knight’s investment philosophy involves forging constructive and collaborative dialogues with management teams to deliver substantial value creation for all shareholders over the long-term.
We are invested in Eros because we believe it has a strong franchise in an increasingly important and valuable part of the global media industry. We believe that with the correct strategy in place and the appropriate focus, Eros can build on its strong core product offering in India to become a key player in the global digital media market, with the concomitant potential for significant long-term shareholder value creation.
As you are aware, we have conducted extensive research on Eros and have had the opportunity to discuss the Company and its prospects with you and members of your senior management team. Based on our evaluation, we believe that now is a unique and ideal time for Eros to focus its strategy and future positioning in the context of the fundamental shifts taking place today within its core macro and business environments, in particular:
- linear TV is becoming increasingly displaced by Internet TV;
- significant structural growth driving digital content consumption in India; and
- the explosive growth of India’s increasingly young and tech savvy consumer base.
Currently, ErosNow is the only video-on-demand (“VOD”) platform of any significance both in India and for consumers of Indian media globally with:
- superior Indian original content development capabilities;
- a prodigious back catalogue of film and music content; and
- clear market leadership established with only a ‘soft’ launch to date.
Comparable company examples in international markets demonstrate the tremendous value of film and TV VOD platforms where they are able to establish market leadership. We believe that a unique opportunity exists today for Eros to establish first-leader advantage as the Indian VOD platform of choice and set itself on a path to accumulating a subscriber base of several hundred million viewers. The current low levels of broadband penetration in India mean that major global VOD operators are currently less focused on organic expansion in India, but this could rapidly change.
We firmly believe that a significant and sustainable long-term uplift in shareholder value will be achieved through concentrated strategic focus and allocation of substantial resources to the development and user adoption of the ErosNow platform as the core of the Company’s operations. As such we would advocate a reprioritisation of the Company’s financial planning to include:
- no further spend on the launch of de-novo TV channels given the ROI profile vs. attractiveness of content spend;
- increased investment for the expansion of the ErosNow platform and its customer acquisition; and
- a step-up in expenditure on original and short-form content creation, including genre expansion.
See full letter below.