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Bulk sales cannot offset the pain points in e-commerce: Manish Agarwal

Source : BUSINESS_STANDARD
Last Updated: Sun, Aug 26, 2012 20:01 hrs

When Manish Agarwal joined Reliance Entertainment Digital (part of the Reliance Anil Dhirubhai Ambani Group), in March 2011, he was responsible for the operations of Bigflix, Bigadda, Zapak Digital Entertainment Limited and Jump Games. The new CEO spent the next nine months consolidating the company’s various business units that had been in investment state for years, making no money for the parent company. Agarwal jokes that his colleagues saw him as a ‘terminator’ who swooped in and shut down flailing business like Bigflix retail outlets, gaming cafes and blogging business of Bigadda. Agarwal, who has a Bachelors degree from the National Institute of Technology, Warangal, and an MBA from the Indian Institute of Management, Ahmedabad, convinced everyone that Reliance Entertainment Digital was not going to be a ‘just another player with deep pockets’. He tells Priyanka Joshi why it was necessary to shake things up at Reliance Entertainment and how it has helped the business to ready itself for the future.

When you joined, how did you assess which business units needed to be packed up and which repackaged?
When I joined the company, I realised that there were 10-12 businesses within the company and many had nothing to do with digital platform. This included managing physical outlets for BigFlix and a huge library of CDs that needed to be replaced within five-seven uses. Or the gaming cafes, which never made any money for the company and instead required a lot of attention in terms of rentals, upkeep, and operational resources. Then there was also the merchandising business that I could not make head or tail of as to why it was even there. So, within three months of joining, I began the slow and steady task of convincing the shareholders and colleagues to help me cut the non-core flab of Reliance Entertainment Digital, if we wanted to make any money in the future.

It was decided that we exit from all physical businesses and focus simply on online models. How hard is it to learn from examples like SeventyMM or others in the same business? BigFlix’ DVD-run business was never going to take us on the path to profitability. With no knowledge or capacity to run Zapak gameplexes in 41 cities across India, they were shutdown too. We have stopped selling Zapak branded merchandise and toys at retail stores. Bigadda as a blogging site has no future, so it was rebranded as an e-commerce site. Most of the business streamlining was done in the October-December quarter of the last calendar year and today we are getting closer to making some money. Today we are a digital entertainment company that has interests in gaming, video-on-demand and e-commerce across all platforms, such as PCs, mobiles and tablets.

Within Reliance Entertainment Digital, how do you prioritise the new business units?
BigFlix, followed by Zapak Digital Entertainment, Jump Games, and Bigadda — that’s the order in which we want to invest and prioritise the business units. While the company will continue to invest in BigFlix, which is now an online movies, videos-on- demand sevice, e-commerce business, Bigadda, will not see any major expansion or investment in the near future.

BigFlix is now possibly the largest online movie-on-demand service in the country that gives users access to stream and download a catalogue of over 2,000 movies at a small subscription fee across devices. It is difficult to predict how many subscribers we will be able to get for our subscription-led streaming service as we are still calculating the cost of customer acquisition, marketing, operation costs and customer churn rates.

With 8 million registered users, Zapak Digital Entertainment Ltd is our digital gaming division that will create games for brands and casual games for gamers. Jump Games has evolved as an international developer and publisher of mobile games, apps and content across 40 countries. Jump’s expertise lies in the media and entertainment space. We have decided that the company will work on established IPs, like exclusive Hollywood and Bollywood titles, giving us an edge over other developers. Here, we get to leverage our brand name, Reliance Entertainment.

Do you realise making money in the digital world from markets like India is a difficult thing? Is that why you are heading to international markets with BigFlix?
We don’t make profits off any business unit, as of now. But we will by the end of this year as we head to offshore markets. To answer your question, it is difficult in India to get people to pay for original digital content and even difficult to make any money by digital advertising alone. The underlying issue in our country is connectivity. We all know how frustrating it is to even watch a video clip or streaming a song even on a 3G connection. Data penetration is still limited by pre-paid audience. We could not sit and wait while connectivity issues and data penetration gets resolved in India.

BigFlix took lessons from Netflix’s model, which relies on premium content subscriptions. The company has proven that premium content offered on a subscription basis can be monetised unlike user generated content on a platform like Youtube that has to rely on ads and user clicks to make any money. We are eyeing to be the NetFlix from India and are ready to put in $4-5 million in the next few years to grow the business.

That’s why we decided to tap the sizeable NRI Diaspora in the US, the UK and Canada. So a movie-on-demand service like BigFlix was readied for these markets, offering original movie content that isn’t easily accessible to the audience. We have taken time to build a library of 2,000 titles, which we should be able to double by the year end, but since movie makers still don’t consider the digital platform as a major revenue arm, it is hard to get the latest titles. So we decided to build a niche content catalogue and classic movies that the audience would want to pay for.

The good news is that there are no connectivity issues in these developed markets and we can be assured that when the user pays us a subscription fee of $4.99 (for unlimited movies), he will not suffer due to dropped connections or video buffering problems. So we are on stable ground. We have content in Bengali and are focusing on building a compelling streaming library for Tamil and Telugu content. The rest of the content will be Hindi and as we grow our penetration in other South East Asian countries, we would beef up Malayalam and Bhojpuri content as well. We will approach markets like Singapore, West Asia, Australia, Malaysia and Indonesia later this year or perhaps early next year, depending on how soon we can curate a relevant library.

At a time when e-commerce sites are mushrooming, how did you convince your parent company that withhol-ding investments on Bigadda is a smart thing? Have you decided what course of action the business will need in the future?
I agree that e-commerce seems to be India’s new gold rush but we are in no hurry to burn our fingers and money by offering deep discounts on products, or offer free deliveries across the country, manage a courier fleet and try to work around costs involved in offering cash-on-delivery service. All of these have become the bane of the e-commerce sites. Everyone, from Flipkart to the newer ones, work on the premise that bulk sales will offset all these pain points. But, it’s not easy to make money at the end of all this since the customer is still wary of big ticket purchases and the quality offered online.

As Bigadda.com shifted its focus from being a social networking site to becoming an e-commerce portal, we took a few decisions. Bigadda had 5.5 million users and celebrity blogs. But we could not see how this business could bring in money in the future. We decided to keep our e-commerce business small, with limited products to appeal a niche segment.

I don’t think e-commerce in India will become a lucrative business until the consumer changes. When consumers stop thinking that they can send back goods purchased online, stop expecting deep discounts because the product is selling itself online and when they get comfortable with the idea of pre-paid orders, the business would become profitable to us. I would give it another two to three years, before we think of investing and expanding Bigadda’s operations.

Digital gaming too is a crowded space now. Why is Reliance Entertainment convinced that it will be able to cut through the clutter?
Mobile gaming in India remains our focus area and this is primarily a free gaming market. So, we distribute games through telecom operators in India. While there are paid games in the portfolio, we are hopeful that smartphone and tablet penetration will speed up our business among Apple and Android platform users, both in India and outside. According to a FICCI KPMG report in 2011, mobile gaming is growing at a CAGR of 45 per cent and is to reach Rs 17.4 billion by 2015. So, there’s a lot of scope to grow.

We have acquired content IP from Turner, Cartoon Network, Playboy, Virgin Comics and Universal Studios in India and have about 40 per cent content share in India. We realise how developing games (with a Rs 5-10 lakh budget) for regional circles works. For example, a game on Shivaji, Tatya Tope will work extremely well in Maharashtra. We are going to stick to distributing mobile games via telecom partners and keep up the revenue share arrangement (typically 70 per cent or more is retained by operator and the rest is given to the content creator) until app stores become a dominant force in the country.

Zapak features among the top 10 WAP destinations in India with over 2.5 million unique users per month and we have over 8.5 million online registered users on Zapak.com. We run an online subscription service, Zapak Plus, that offers a bouquet of more than 120 full version games for an unlimited playtime. We hope to evolve this service on to the mobile platform as data penetration grows.




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