ETC Network has lately evoked some speculative interest in the stock market. The stock is available at just Rs12.80/- after having reached a 52-week high of Rs.252/-. Volumes have also shot up in the last two days.

ETC is one of the leading Indian music channels whose primary focus is on providing Indian music as distinct from channels like MTV and Channel V who have focused on Indian and Western music.

Where does the money come from?

The company has two distinct streams of revenues:

1. Revenue from two of its channels viz. ETC Music and ETC Punjabi.
2. It has entered into alliances with SUN group of channels for marketing of airtime. The company earns advertisement revenues from the same.

What does ETC have?

Nearly 70% of ETC’s content is music driven but the company has introduced different aspects to break the monotony by telecasting movies, news and religious programs.

Low costs

Unlike a general entertainment channel the cost of content for a music channel is very low. This is because songs of new Hindi movies come free of cost, as producers promote their movies through music. It has a library of about 2000 old songs, which have been procured from producers at a price ranging from Rs1000-50000/song.

The company’s capital expenditure plan includes movie acquisitions, setting up studios and investment in the development of ETC Punjabi.

High advertisement spot rates

Unlike an entertainment channel there is no such a thing as prime time for a music channel. The company has effective advertisement spot rates, which are in the region of Rs1200/10 second spot. These are relatively high for this genre.

The company plans to introduce a slew of programs on the channel and increase its movie coverage.

ETC Punjabi

The company has positioned this channel very differently from the present crop of Punjabi channels. Within a short span of time, it has overtaken the other Punjabi channels to reach the number 1 position. It has bought exclusive rights for 6 years on Gurbani recitial from the Golden Temple authorities which is likely to attract the Sikh and the Punjabi population all over the world.

Going International

The company plans to take its channels into the international markets in pockets having high density of Indian population and will start with the UK and US markets. The company plans to enter distribution alliances with one of the mainstream Indian channels in UK. This will serve two folds viz. it will give a ready-made subscriber base and also save distribution costs.

Risk factors

As we all know, a fataka stock is a high-risk high return stock. This stock is no exception. The channel business is a high risk/return business. With the proliferation of channels, the advertisement pie is bound to break between competing channels. Moreover, the content, which is the main raw material for a channel, is getting more and more expensive. Hence, channels will have to become pay channels in the near future. Very soon, most of the standalone channels will align themselves with one of these companies and become part of their bouquet.

But the company is positioning itself as a niche channel having a different audience base. The channel has garnered good Gross Rating Points (GRP's) which will be difficult for competition to emulate.

The stock is trading at a P-E of 3.2x FY01 earnings and is available at Rs12.80. Recently, there s been significant increase in the trade volumes of the stock owing to some speculative interest.

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