Digitisation Fails to Woo Foreign Investments

Increase in FDI limits in broadcasting announced last September was hailed by Indian media companies and analysts as a key step in boosting the industry. But only one major deal has happened in the sector since: Goldman Sachs Group Inc.'s acquisition of a stake in a cable-TV distribution company. 

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.

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, 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. No one has tried to make a permanent business with them 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 but not on the consumers, LCOs always landed up paying heavily for these pay channels and their ARPUs kept decreasing over the years. They had neither money nor any incentive to improve their infrastructure.

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 500 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. 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 but government has decided to curb them too.

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.

Source: http://cablequest.org/news/national-news/item/2576-digitisation-fails-to-woo-foreign-investments.html
Source: http://cablequest.org/news/national-news/item/2576-digitisation-fails-to-woo-foreign-investments.html