Impact of mandatory digitisation yet to be seen

Author: | Published: 1 Aug 2012
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The Cable Television Networks (Regulation) Amendment Bill 2011 was passed by the Lok Sabha on December 13 2011. The Bill stated that, by the end of June 2012, cable TV homes in Mumbai, Kolkata, Chennai and Delhi would be digital. It also stated that, by December 31 2014, the mandatory digitisation of the cable sector would be complete.

In addition to mandatory digitisation, the Bill also brings in a few other significant changes. These include systemising the registration of cable operators, the inspection of cable network services, the use of standard equipment in the cable television network, and the empowerment of the Telecom Regulatory Authority of India (TRAI) to specify the basic service tier and its tariff.

Mandatory digitisation will mean changes for India's cable operators, multi-system operators (MSOs), broadcasters and direct-to-home (DTH) operators. For example, only two million of India's 80 million cable homes are digital, and the cost of a set-up box is heavily subsidised by MSOs. This will mean that MSOs will have to bear most of the technological costs involved in digitisation.

However, business analysts estimate that mandatory digitisation will increase profits for MSOs and DTH operators on a medium to long-term basis, as the digital subscriber base doubles. Furthermore, MSO's flexibility in offering additional services, such as internet broadband services, utilising a common infrastructure will help maximise operational leverage.

DTHs, in particular, have been very welcoming towards the Amendment Bill. They have acquired more than 30% of India's TV homes, and are well positioned to fully enjoy the benefits of an expanding subscriber base. But some MSOs have lobbied against the decision as they have traditionally generated huge sums of money from carriage fees and mandatory digitisation will mean a loss of this revenue source in the short term. The digitisation process will also require them to inject a huge amount of capital (approximately Rs 250 billion to Rs 300 billion (US$5.42 billion)).

In October 2011, the Department of Industrial Policy and Promotion (DIPP) proposed to increase the limit on foreign direct investment (FDI) in distribution platforms from 49% to 74%. In addition, 49% of the proposed 74% will be placed on automatic route. However, this proposal remains pending and is yet to be implemented.

New Delhi Television (NDTV) president of corporate planning and operations Ajay Mankotia says: "There is certainly more space for FDI in the Indian broadcasting industry. They could help to support the huge amount of capital needed for technological costs."

Consolidation hopes

It is also hoped that mandatory digitisation will introduce greater consolidation in the cable industry. Local cable operators currently dominate the sector. For example, it is estimated that nearly 5,000 active cable operators in the country serve a population of 225 million subscribers. With the amount of capital needed to implement digitisation, it is expected that many of the smaller operators will merge with the larger players.

The cable industry is generally positive towards consolidation as it will encourage more transparency and improve management standards.

Cable operators generate huge amounts of undeclared income in India, with only 15% to 20% of the revenue they collect finding its way back to broadcasters. This is compared to 70% globally. It is hoped that the merging of entities in this sector will bring greater transparency, which will improve the situation of income tax leakage and provide greater comfort to potential investors.

Mankotia's colleague, NDTV legal director Ajay Jayaraman, says: "This is certainly a positive development for the industry. Many of the smaller cable operators are poorly operated and their accounts are poorly kept. The Bill requires them to register their subscriber base, which prevents income leakage for both the government and the broadcasters. Also, if the industry is run by larger players instead of small-sized, local companies, it will improve the management standards of the companies. This certainly sets favourable conditions for investors to provide capital to the sector."

However, not everyone agrees that consolidation will necessarily follow full implementation of the Amendment Bill. J Sagar Associates' partner Akshay Chudasama says that despite the huge number of participants in the industry, new players consistently want to enter the market every year. "There are too many players in the industry which makes it more complicated for consolidation. New players are coming in every now and then and it is wrong to expect that digitisation will necessarily bring in consolidation," he says.

Bharucha & Partners' Justin Bharucha shares this view. He says: "It is too early to say whether there will be consolidation in the industry. People are making too much money and they simply do not have the intention to leave."

Television industry’s major players

The major players in the Indian TV industry can be classified as:

Broadcasters

These are the television channels, either standalone or groups, both Indian and international. Some of the major players are:

  • Star: channels in entertainment, movies, lifestyle, regional and sports (a JV with Disney/ ESPN)
  • Zee: entertainment, movies, regional and news
  • Sony: entertainment, movies and music
  • NDTV: news, business and lifestyle
  • Viacom 18/ Network 18: entertainment, movies, lifestyle, music, news and business
  • TV Today: news
  • Sun: regional
  • Disney: kids and sports (through ESPN-Star, a JV with Star)
  • Turner: kids and movies
  • Times Television: news, lifestyle and movies
  • Discovery International: factual and lifestyle channels
  • National Geographic: direct competitors to Discovery
  • There are also a large number of independent broadcasters who operate standalone channels in the news, lifestyle and regional spaces

The broadcasters are again classified into:

- Pay broadcasters: who have a mix of advertising and subscription revenues
- Free-to-air (FTA) broadcasters: who rely solely on advertising revenues

Platforms

These are the players to whom subscribers pay a fee in turn to be able to watch television channels of their choice. There are a total of 120 million subscribers in India. They are divided into:

  1. Cable: these are wire line cable service providers. They provide television signals either through digital (with unlimited capacity) or analog services. Today, cable platforms control about 65% to 70% of the total market, of which analog cable constitutes 80%. The sector is mostly unorganised, particularly in the analog segment. There are a few big national and regional players, none of whom controls more than 5% of the overall market individually. Some of these players are Hathway Cable, DEN Networks, Indus Ind Media, DigiCable Networks, Wire and Wireless (India) Ltd (WWIL), Sumangali Cable Vision (SCV) Gujarat Telelinks, Ortel Networks and You Telecom.
  2. DTH: these are direct to home satellite operators. Consumers need to install a dish and a set top box to receive television signals. There are six private and one government player, who have captured nearly 35% of the market in a short space of time. The private players are:
    1. Tata Sky: a JV between Tata Group and Sky UK
    2. Airtel: from India's leading telecom player
    3. Dish TV: from the Zee group
    4. Videocon: diversified Indian conglomerate
    5. Reliance: part of Reliance ADAG, another company with diverse interests
    6. Sun Direct: from the Sun group, India's largest regional player

Content aggregators

These are players who represent a bouquet of television channels and sell them to platforms. The top three among them are:

  1. Mediapro: India's largest bouquet, a JV between Star, Zee, Turner and DEN Networks
  2. One Alliance: a JV between Sony and the Discovery group
  3. Sun18: a JV between Sun group and Viacom/ Network 18

On the technology side, all the major global technology providers are present in India. For networking and set top boxes, the key players – such as Cisco, Technicolor, Conax and Irdeto – all have a sizeable presence in India. For satellites, Indian channels are uplinked on all major satellites like Measat, Asiasat and Intelsat. Key technology partners like British Telecom and Globecast also have tie-ups with leading Indian broadcasters.

Content production

This segment of the industry is largely unorganised. While there are a few large players such as Balaji Productions and Reliance Big Synergy, broadcasters work with a wide variety of production houses, particularly for fictional and lifestyle content. Recently, there have been international producers such as Endemol, Fremantle Media and ITV who have entered the market with their global formats for reality and game shows. News channels by and large produce all their content in-house.


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