By N.S. Ramnath| Oct 11, 2010
Kalanithi Maran has outgrown the political halo that surrounded him in the early days
Kalanithi Maran faced the biggest ever threat to his business empire in 2007. The most powerful political family in Tamil Nadu — that of Chief Minister Karunanidhi — fumed at a newspaper report hinting at competing political ambitions of the Marans. Karunanidhi unleashed the entire might of the government in a hot pursuit of Kalanithi Maran. He even got his government to start a cable TV corporation to weaken Sun TV group. The same political influence that had backed Maran in the past turned against him. And some critics quickly concluded that his career was finished.
Kalanithi Maran kept a stoic silence throughout that difficult phase. His politically ambitious brother, Dayanidhi Maran, made some noise but Kalanithi turned his attention totally towards protecting his entrepreneurial turf. Sun TV’s revenue and profits continued to grow. He launched radio channels and direct-to-home television service. He learnt to do business outside his stronghold of southern India. And he bided his time waiting for a patch-up.
The truce came eventually. Karunanidhi, great-uncle to the Marans, took them back in his wings and eased all constrictions around Sun. All the business relationships that had deserted him during the turmoil returned. And Maran was truly back in the game.
The episode revealed facets of Kalanithi Maran’s personality not seen before. Everyone had thought of him as the young warrior who took Tamil Nadu’s satellite TV market by storm in the 1990s, helped in no small measure by Karunanidhi’s political patronage. But here was a seasoned, mature businessman who needed no outside influence. He also showed the patience to win over rivals and the shrewdness to wriggle out of a tight corner.
Three years later, in June 2010, he made another move that showed him in an entirely new light. His two decades of experience in business had all been in media, but Maran made a bold move to enter aviation, by buying out low-cost airline SpiceJet. The decision baffled his admirers and detractors alike.
Now, the airline business is no easy territory. Even Warren Buffett had called it a ‘terrible business’ because of its uncertain economics and hunger for cash. By entering such a sector, Maran sent out a clear message that his ambitions were not restricted to media and he felt capable of building a diversified business group.
Aviation experts say the timing of his SpiceJet buyout was impeccable. Airlines are just recovering from a slowdown and passenger load factors are inching up. The low-cost model has become established. Maran got into the business before valuations flared up fully and cut down risks in a space unknown to him.
The Early Bird
Kalanithi Maran has a reputation for identifying the next big thing and latching on to it. In 1990, even as CNN’s coverage of the first Gulf War captured Indians’ imagination, he launched a monthly video-cassette magazine called Poomalai (garland). Three years later, as cable TV entered homes, he founded Sun TV as a general entertainment channel.
Today, Sun has grown into a giant network spanning 20 television channels, 44 FM radio stations, magazines, newspapers, cable distribution and DTH. The company made a net profit of Rs. 171 crore and revenue of Rs. 440 crore in the quarter ended June 2010. Its channels dominate the South Indian television market — Sun TV has a 68 percent market share in Tamil Nadu, Gemini 36 percent in Andhra Pradesh, Udaya 40 percent in Karnataka and Surya 33 percent in Kerala.
“In many ways, he was a pioneer in regional language TV market,” says Atul Phadnis, founder of What’s-On-India, a TV guidance company. “What Sun TV has done well is to manage the entire value chain of production, broadcasting, distribution and access,” he says.
Sun’s dominant position has given Maran significant bargaining power over content providers. And he has used it to put in place a business model with high operating margins. Typically, Sun TV sells 30-minute time slots to producers, against which it provides four minutes of ad time that they are free to sell. The result: The producers not only take on production costs, but also end up marketing for Sun. Thus Sun has operating margins of 75 percent and return on equity of 28 percent. It has cash reserves of $100 million.
The focus on returns applied to movie rights as well. Sun TV rushed to procure the television rights of movies that had popular actors. And it chose to wait and watch before going for movies that didn’t boast of big names. This cautious approach and a reasonable control over the distribution channels through Sumangali Cable Vision meant it was far ahead of its competitors. With more than 8,500 titles, Sun group has the largest library of films in south. It also buys the TV rights for 90 percent of all releases in South India.
People who work with Maran say he can get to the crux of an issue very quickly. “It’s a joy to see him in the process of decision-making. He is very sharp. He is very fast,” says Ajay Vidhyasagar who quit Star TV to take over as chief operating officer of Sun TV. He cites the example of Sun 18 (a joint venture between Sun TV and Network 18), which took just four months from concept to execution. Other firms would have taken much longer for a similar project, he says.
Along the way, Maran has made some unconventional decisions. In the radio business, for instance, there was intense competition in metros despite higher licence fees and a scramble for ads. But Maran decided to focus on smaller centres like Tirunelveli. The licence fees were lower in such towns and he had the data to show that there was scope for ad revenues.
In movie production business, where the hit rate is one in a ten, Sun Pictures has been more successful than others. Initially, Maran’s style was to pick small and medium budget movies whose original producers typically didn’t have the money for marketing. He would put all the might of his network behind such movies and create a buzz. Later, when he got into full-fledged production, he followed the same strategy: Choose the content carefully, keep the budget small and market heavily. The production of Endhiran, a Rs. 100-crore-plus budget movie starring Rajinikanth-Aishwarya Rai, was an exception to this low-cost rule.
In the DTH business, which is yet to make profit, it’s again the same mix that prevailed. There were big players, but Maran got into it anyway. Sun Direct’s strategy was to price it low at the risk of having low average revenue per user; but reduce the cost of content by negotiating hard with the channel providers and rely largely on free channels. Sun also pushes for a la carte pricing of channels to enable the customer pick and choose. In a short time, the DTH business has gained a dominant position in the South with six million subscribers.
Yet all these past successes may not be able to help him as he steps into aviation. He brings a low-cost culture and a genius for marketing disruption from Sun. But he will need to manage the operational challenges at SpiceJet such as fluctuations in passenger loads, airport delays, heavy taxes and volatility in fuel prices. Indications are that he isn’t rushing in to make changes. “The only change is we distribute Dinakaran newspaper in Chennai flights,” an in-flight staffer says. (Dinakaran is a Tamil newspaper run by the Marans).
Kalanithi Maran’s arrival at SpiceJet has been received well in the market. The airline’s stock is up about 30 percent. But the high-cash burn nature of the business hasn’t changed yet. Under Maran, who has a 38 percent stake that may rise to 58 percent after an open offer, SpiceJet has speeded up aircraft induction. It is also making plans to connect more foreign destinations. It remains to be seen what substantive changes Maran will make in its business model.
As Maran expands his empire, indications are that he is also becoming more comfortable being under the limelight than before. During the launch of Endhiran, Sun TV cameras were on him most of the time, every speaker on the stage showered praises, and the movie posters didn’t fail to feature him.
Simultaneously, he is also taking steps to bring in more professionals to run his businesses. For long, he only placed close friends at key positions. For instance, his lieutenant Hansraj Saxena was a college mate at Loyola in Chennai (“We had fun. But he was good in studies too,” says Saxena.) But recently, he brought in Ajay Vidhyasagar from Star and Tony D’Silva from Zee. D’Silva, who doesn’t know Tamil and still pronounces the name Maran the way North Indians do it (Maraan!), is a novelty in the staunchly Tamil environs of Sun.
For some, Maran is that down-to-earth guy who is polite to a fault. For others, he is an autocrat. Employees refer to him not by his name but only as ‘MD’, that too in a whisper.
Keeping others guessing is Kalanithi Maran’s specialty.