All the loss-making broadcasting businesses would now come under one roof and so would all the loss-making print and digital businesses

The Network18 Group announced a business-restructuring plan on Wednesday which involves the consolidation of its various activities under two entities - one, broadcasting and two, digital initiatives and publishing.

The group's main businesses have been haemorrhaging cash for over two years now, following ill-timed expansion and diversification on a massive scale between 2006-08. But will the restructuring help the bottom-line? Not quite. The stock market's reaction says it all. Network18 crashed by 14% today and TV18 collapsed by 12%.

In a filing to the Bombay Stock Exchange (BSE), Network18 said that all its TV businesses - including CNBC-TV18, CNN-IBN, IBN7, CNBC-Awaaz and the group's 50% stake in Colors, MTV, Nick, VH1 and IBN Lokmat - have been consolidated into IBN18 which will be the new TV18. Separately, the group's website (moneycontrol.com, in.com etc.), publishing (Infomedia, which mainly runs the magazines and yellow pages), sports and event management businesses will come under the new Network18.

The New Network18 will also hold all group investments in HomeShop18, Newswire18, DEN, Yatra and Capital18. Interestingly, the Yellow Pages and magazine-publishing businesses of Infomedia18 will be merged with Network18, while printing press operations will continue to remain with the company. This means that the loss-making and difficult-to-run printing business may be up for sale.

Under the rearrangement, shareholders with 100 TV18 shares will receive 68 shares of IBN18 (eventually TV18) and 13 shares of Network18, the company said. Besides this, those who have 100 shares of Infomedia18 will retain their existing shares and receive 14 additional ones of Network18 (taking the transfer of Yellow Pages and the publishing business into consideration).

According to Network18 Group CEO Haresh Chawla, "The New TV18 will be a compelling bouquet of the most vied-for channels in the Indian television space for all stakeholders - be it viewers or advertisers... New Network18 remains well-poised to exploit the gamut of opportunities offered by the television space."

Investors have heard similar stories before. By now, the astute among them may have also seen that when in doubt, the first thing promoters do (especially in media) is to restructure their businesses. It buys them time and allows them to again raise money by spinning a new story of growth. The truth is the group has been living on borrowed time and money. Some parts of its business came into the black thanks to massive slash-and-burn operations (see http://www.moneylife.in/article/8/6010.html) after years of high overheads and high salaries especially undermined by poor quality of output and low productivity. The group started getting rid of excess staff in early 2009 and the process is still continuing. In the March quarter, several businesses showed higher operating profits thanks to "other income" and lower costs but not higher revenues. How would shifting businesses from one legal entity to another solve this fundamental problem with its business model?

The problem starts with the fact that 40% of TV18's business is broadcasting that helps pull in revenues for other businesses. And there, revenues show not traction. Revenues were actually down in the March quarter even over the terrible quarter that was March 2009, despite the fact that this year's March quarter revenues should have been buoyed by the big event of the Union Budget. The silver lining is that one part of ibn18's business-entertainment channel Colors-is making money. But other broadcasting businesses of ibn18 (CNN IBN, IBN Lokmat and IBN7) are in deep losses again and have no real growth traction. Competition is intense because others can also play the same game as Network18 can. Their operational costs are high too, mainly because salaries are exorbitant, relative to quality and quantity of output. Most importantly, these news operations have no real edge; they are indistinguishable from the others. The 50% profit from Colors will be eaten up by losses from the news channels.

The second leg of the business - the sunrise business of digital content - is not going anywhere either. Web18 revenues were up by just 8.5% in the March quarter and profits fell. The fourth leg of the group - printing and publishing of Infomedia - is a combination of legacy business (printing, which belonged to Tata Press) and a bunch of money-losing new titles ambitiously launched against strong headwinds in advertising. Whether these businesses are under TV18 or Network18 is really cosmetic.

In short, the restructuring exercise of the group currently amounts to aimless shuffling of pieces on a chessboard.