The Indian television landscape will change come November 1, 2012. The four large metros - Delhi, Mumbai, Chennai and Kolkata - will have transited to digital TV completely only a day earlier on October 31. The rest of the country has to have the infrastructure in place to do so by December 31, 2014.Untitled Document
Given this backdrop and the fact that the digitisation process is capital intensive, the recent announcement by the government approving a hike in foreign direct investment (FDI) across all TV distribution platforms is a welcome move. The FDI limit has been increased from the current 49 per cent to 74 per cent. Initially, only the Head-end In The Sky (HITS) distribution platform was permitted 74 per cent FDI.
"Sound economic policies always create a favourable environment for industrial growth and social uplift. FDI in broadcasting will help fund the cash intensive digital process and treating the broadcasting sector on par with telecom and retail is the right way forward," says Punit Goenka, MD and CEO, Zee Entertainment Enterprise Ltd (ZEEL).
Media Partner Asia (MPA), a Hong Kong based research firm that tracks the Asian Pay TV market including India, estimates that the digital penetration of TV homes in India (which pay for the service) will grow from less than 20 per cent in 2011 to 50 per cent by 2016, and 61 per cent by 2020. The key demand drivers will come from cable operators, the six commercial DTH pay-TV platforms, and DD Direct, the government-owned free DTH platform. A gradual consolidation of last-mile local cable operators will become inevitable, leading to a shift in industry profits and value to centralized distribution platforms and broadcasters.
India currently has 127 million cable and satellite (C&S) television homes, of which around 32 million are DTH, 7 million digital cable and the balance 88 million analogue cable homes. Edelweiss Capital Research's media analyst Abhneesh Roy's latest report FDI hike a fillip to digitisation, estimates that, given the fact that approximately Rs 25,000-Rs 30,000 crore will be required for the entire digitization process, the relaxation of FDI limits will be critical for multi-system operators (MSOs) and DTH players like Hathway, DEN, WWIL and Dish TV to fund their capex requirements. "Several elements require investment for digitization. Backend (billing solutions, customer service, etc), mid-end (fibre quality) and front-end (set top boxes) all require varying degrees of investments. Though, the companies are likely to invest first in STBs and thereafter in other areas over a period of time," says Sourabh Dhoot, director, Videocon Industries who oversees Videocon D2H, the DTH business of the group. "Phase 1 of digitization, that is the metros, is likely to require Rs 2500 crore and the entire country will perhaps require around $5B of investment," adds Anil Khera, CEO, Videocon D2H.
Ravi Mansukhani, MD and CEO, Incable Net adds: "This is a welcome move. At this point in time with digitization becoming mandatory, the entire onus of digitization has come on the MSOs. In the first phase which is to end by October 31, 2012, the cost of digitization is an average Rs 250 crore for each MSO. The MSOs have in the first phase deployed their own funds but for the next round of digitization everyone will require funds. Hence the entry of foreign capital is welcome."
S.N. Sharma, CEO, DEN Networks' says, "This will help consolidation in the sector and allow companies to invest in developing cutting edge products and services for the consumer. It will also allow cable companies to start investing aggressively in broadband infrastructure services and help evolve a healthier ecosystem for all the stakeholders."
"Lot of action is expected in the coming few months with the coming of foreign players who have been waiting on the sidelines for the policy regime to come," says Devendra Parulekar, Partner, Ernst & Young. Industry sources say some DTH operators are looking to sell part of their stake. Reliance Digital TV had plans to dilute its stake to raise between Rs 2,000 and 2,500 crore.
Videocon, though the last entrant in the DTH sector, has been the fastest in adding subscribers. It crossed 4 million subscribers in October 2011 and had added another 1.1 million until June this year. It adds 0.17 million subscriber per month, only trailing behind Airtel's 0.19 million additions, data released in February 2012 by Media Partners Asia (MPA) shows. Asked if he would look to dilute stake to a foreign partner Videocon's Venugopal Dhoot says: "Videocon is well funded by the promoters to take care of digitization. It has been the fastest growing DTH company in the last six consecutive quarters and would look to maintain the same going forward. Additionally we are always looking at different partnership models (equity based or non equity based) for strengthening our position in the market."
TV is not enough
Foreign cable and DTH operators are also keen to enter India, but so far the government's restriction of foreign ownership to 26 per cent in domestic companies had held them back. DTH players such as DirectTV, Dish Network, Liberty Global and ComCast, all in the US, Bell TV of Canada, BSAT of Japan, Tricolour TV of Russia and Foxtel of Australia, have all been looking to gain a foothold in the Indian DTH and cable sector and riding on the hope of an increase in the FDI limit, which offers them controlling ownership. The Rupert Murdoch owned News Corp can look at upping its stake in Tata Sky, the joint venture company where Tata Sons is the majority partner. News Corp currently has a 20 per cent stake in Tata Sky.
As per the latest review of digitisation by the Ministry of Information & Broadcasting, approximately 68 per cent digitisation has been achieved in the four metros. Mumbai has the highest digital penetration at 95 per cent, followed by Kolkata, Delhi and Chennai with 67, 53 and 49 per cent respectively.
"The numbers look surprisingly high partly because of a dip in the potential subscriber base in Phase 1, now at approximately 6.8 million vis-à-vis around 12.5 million envisaged by the ministry of information and broadcasting earlier. The data shows a healthy addition of around 1.7 million boxes during the past three months in metros. The ministry has upped the ante in terms of government-run publicity campaigns in electronic and print media. Also, in our view, joint ads issued by major MSOs and individual ads by DTH players, apart from the firmness of the ministry in meeting the deadline, auger well for the progress of digitization," says a recent report by Edelweiss capital Research.
|The six DTH providers' market share|
|Operator ||Gross Subs (Million)|| Mkt share (%) ||Actual Sub(mn) ||Market share%|
|Airtel Digital ||8|| 16 ||5.8 ||19|
|Big TV ||4.4 ||9 ||2.3 ||8|
|Dish TV ||13.4 || 28 || 6.9 || 23|
|Sun Direct || 7.6 || 16 || 4.9 || 16|
|Tata Sky || 9.2 ||19||5.7 || 19|
|Videocon D2H || 6.1 || 13 || 4.2||14|
|Total ||48.8 || ||29.8|| |
|Source: MPA Analysis|
What's does this mean for the consumers? Internationally the cable companies are one of the leading providers of not only cable TV but also broadband services, video on demand and other value added services. Unfortunately in India, cable TV is associated with poor quality TV and even if the quality of TV is good with digital cable, consumers are not getting any additional offerings. There is no broadband service or value added services and no video on demand (VOD) offerings. "The real VOD service will start when you have a library of movies and consumers can pick and choose from it and watch what they want to when they want to. But, this requires tremendous downstream capacity which does not exist today. Once international cable companies start entering the country, consumers will get these offerings apart from just TV and that will be the only way for companies to grow their valuations. It would just be pointless to offer just TV," says Parulekar of E&Y. International players will look to offer value added services, broadband, triple play, VOD and so on and so forth.
Currently, content exclusivity is also not allowed in the country so that has never been the differentiator for the DTH players unlike the western countries where DTH growth is also dependent on content exclusivity.
Foreign capital will not help cover the losses of the industry but it will help bring better quality and better content and more services. "In a non-addressable system, it was one size fits all, but with digitization, consumers will get better quality television, better content, and the ability to pick and choose channels," says R. Venkateish, CEO, Dish TV.The price you pay
The digital TV market in India began with the launch of Dish TV in 2005, quickly followed by five other platforms. Their success showed that there is plenty of consumer demand and commercial potential for well packaged, well marketed digital quality pay television. It also proved that return on investment (ROI) and payback takes time as subscriber acquisition, content investment and technological innovation require plenty of capital. "In the first wave, albeit at least over the next two years, consumers should move to digital to realize the benefits of tiering in cable for the first time; the explosion of channel capacity, from 60 to 90 in analog to up to 500 in digital; the launch of new channels catering to niche segments; the growth of premium content and value added services; and true consumer choice. I choose what I pay for in a tiered or packaged universe," says Vivek Couta, executive director, MPA, a media research firm in Hong Kong. Consumers will be able to choose between cable and DTH depending on who has a better product offering.
Industry players say that pricing will see some change. There is a whole segment of consumers currently paying Rs 50-70 per month as cable TV subscriptions. With digitization the increase in monthly subscriptions will be to around a minimum of Rs 100. "Consumers will have to pay Rs 100 minimum because that is what is being laid down by law. People were paying Rs 50 because the number of subscriptions was under-declared. The under-declaration was subsidising the subscription rate. If the subsidy is removed, the price is bound to go up," says Mansukhani. The average rate per subscriber (ARPU) will also increase as packaging evolves and premium channels proliferate. Currently, all India ARPUs are in the range of Rs 150-200. MSOs may put their channels in four broad categories: (a) Basic service tier (BST, a mandated package of 100 Free To Air and Doordarshan channels); (b) Basic pay channel packages at Rs150 per month; (c) Expanded pay channel packages at Rs 250 (competing against current packs offered by DTH); and (d) Rs 350- plus premium channel packs bundled with broadband services. Hathway is currently offering consumers up to 20 HD channels bundled with broadband.
MSOs will also look to exploit their location strengths to fill gaps in different pockets for each of the four metros. For instance in Mumbai, South Mumbai, which is a commercial hub, has a high demand for news channels, while areas like Ghatkopar, a north eastern suburb which has a very large Gujarati population would not want South India channels. Most MSOs say they expect less than five per cent of their total universe in Phase 1 to opt for BST. In the initial phases, a large discount is also expected to be give to consumers and the box will be largely subsidised. Whether they are going to be free depends more on what DTH players are offering, because this is a great opportunity for them. MSOs and cable operators have already been subsidising boxes, and that will continue in the initial phases.