Wednesday, 10 July 2013

Digitisation Fails to Woo Foreign Broadcasters

India is going through a rough patch in its economy these days. Rupee has miserably come down to a low level of Rs 60 a Dollar, Industrial output has come down, foreign investments are coming down as no one seems to be interested in investing in India.  Numerous large scale scams in the country have lowered the credibility of the UPA government, although it is still trying to show a brave face. Any way keeping in mind the Lok Sabha elections in 2014, government is doing its best to keep the confidence up. Government is looking at increasing the FDI caps in some sectors including broadcasting to cover-up the current account deficit which is piling up to a dangerous level. A committee headed by Secy Economic Affairs, Arvind Mayaram has given its recommendations and now ministries are to give their views. The Arvind Mayaram panel had suggested raising the foreign investment limit from 26 percent to 49 percent in print media, FM Radio, uplinking news and current affairs channels and 100 percent in broadcasting carriage services and printing of specialized magazines and facsimile editions of foreign newspapers. Consequently the Ministry of Information and Broadcasting (MIB) held a meeting on June 29, 2013 in New Delhi with industry stakeholders. The meeting attended by MIB officials and many stakeholders from print, radios and TV debated on the proposal of the Ministry of Finance regarding revision of FDI caps in various segments in broadcasting and print sector. It was not a surprise that the Industry was divided on the issue. While some people were strongly in favour of raising the cap, certain other sections were equally strongly opposed to the idea. Whereas DTH players, News broadcasters and foreign broadcasters wanted more of FDI regional channels and even some DTH operators opposed the move. Now stakeholders will be sending their views on this issue in writing to the ministry so that it could finalise its proposal suggested by the stakeholders on raising the FDI caps in various sectors of broadcasting.
The only companies attracting foreign investments are the ones who belong to large international broadcasting groups having their own investment arms. And the only companies doing well in the digitization drive are the ones belonging to large media groups having their own TV channels, DTH platform, MSO networks and channel aggregation companies.
Only last September the FDI was raised in many broadcasting sectors which was hailed by Indian media companies as it was considered as a key step in boosting the industry. The lack of foreign investment highlights the challenges India’s fragmented broadcast and cable industry face in attracting overseas capital, even as the country of 1.3 billion people offers strong growth potential with just 720 million television viewers. Why aren’t the investments pouring in the industry even after 18 months of digitization? In fact Digitisation was considered as the biggest attraction for investors to invest in the sector but nothing has happened so far. Is it our lopsided policies or a disjointed industry that is responsible for this state of affairs? I feel it is both.  A Fragmented Industry

Many foreign investors aren’t eager to invest in small companies that don’t have a nationwide reach, and India’s broadcast sector is dominated by unprofitable companies that serve specific geographical regions.  “If you’re looking at investing $200 million to $500 million, the businesses haven’t reached that scale,” said Ronnie Screwvala, managing director of Walt Disney Co.’s India unit, UTV Software Communications Ltd. In September, India allowed foreigners to own up to 74% of companies that uplink communication to satellites, or provide cable television or direct-to-home television broadcast services, up from 49% previously. It has long allowed foreign investors to fully own content providers and companies that operate entertainment channels, although foreign ownership of news channels and radio stations remains capped at 26%. Despite this relaxation on foreign investment, there hasn’t been a rush of foreign capital. From January to May 2013, Indian media companies received $168 million in investments, a fraction of the $478 million a year earlier, according to Dealogic data. The largest deal in India’s broadcast sector this year was in early May, when Goldman Sachs invested $110 million in Den Networks Ltd., a nationwide cable distribution company with headquarters in New Delhi. Screwvala said many media companies in India aren’t attractive investment targets because their owners are focused on growing revenue rather than being profitable. India’s large cable service providers, which rely on local cable-TV operators to distribute their channels into homes, have been struggling to expand a business because their focus is not to make the last mile operators their business partners and share holders. Since 1994, these MSO companies have given a raw deal to the LCOs and tried only to take over their business. LCOs own the 100 million cable TV subscribers and all MSOs and ‘Pay’ broadcasters need them to get their revenue from the subscribers.  No one has tried to make a permanent business with LCOs improving their infrastructure. Poor infrastructure and lack of consolidation mars the progress of the industry. Since there was no addressability and all pay channels were forced upon the LCOs in bouquets and provided to the consumers without their consent, appropriate revenue stream could not be built. LCOs always landed up paying heavily for these pay channels and their ARPUs kept decreasing over the years as subscriptions from consumers did not increase. They had neither money nor any incentive to improve their infrastructure and continued with poor quality service.
When Industry was handed over to TRAI for regulations in 2004, it froze the consumer subscriptions without checking the pay channel rates or bouquet prices. This resulted in further down fall of the industry as even after 10 years, TRAI is struggling to regulate the industry. The present digital cable regulations have reduced LCO’s share further giving them a raw deal. Small cable operators have been blamed for under-declaration by the pay broadcasters when there is no addressability and all statistics are only estimates, mostly based on TAM figures which as it is have been found to be highly inaccurate. The real truth is that Indian subscribers are mostly poor and cannot pay for the pay channels. So far LCOs have been subsidizing their subscriptions to retain them in their networks. Whereas pay broadcasters have increased from a dozen to 180 over the last 15 years, average subscription has increased from Rs 150 to Rs 160 only. Many operators still carry only FTA channels in their networks. There are more than 600 FTA channels in the country. Since consumers don’t have any choice till now, pay channels have expanded their business many folds forcing bouquets on cable operators and demanding payment for all channels whether they are viewed in their areas or not. Late 2011 India mandated implementation of digital signals for all types of channels in cable service to bring transparency in the business. However it is becoming difficult to force a technology on the 100 million cable homes. 70 % of India is poor and cannot afford Digital services nor do these homes have TV sets that can provide good reception even from digital signals. Still government is adamant in pressurizing the consumers to switchover to digital cable or stop availing cable services.
These uncertain conditions and a highly unstable market has made the investors keep away from the broadcasting industry in the country. Direct-to-home television providers, whose customers receive their television service via satellite dishes, aren’t any more attractive as an investment target too. They have to subsidize the cost of set-top boxes to attract customers, and the cost of acquiring new users usually exceeds revenue in the first several years because they need to pay broadcasters to carry their channels.
The only companies attracting foreign investments are the ones who belong to large international broadcasting groups having their own investment arms. And the only companies doing well in the digitization drive are the ones belonging to large media groups having their own TV channels, DTH platform, MSO networks and channel aggregation companies. It is these monopolies who are thriving in the digital zone. Now the government has decided to curb them too but will the existing ones be diluted?.
Experts say that foreign funding could rise after digital signals become the dominant medium of television transmission in India but that may happen after a long time when the market becomes more stable with acceptance of digital technology by the consumers and LCOs getting enough to sustain their operations. Some experts have opined that once consumers have the right to choose their channels, many broadcasters will lose their viewership. Only the ones with good content may survive.
Under such conditions we are still far away to become an attractive investment destination for foreign investors.


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