2014 many would say has been a year of more downs than ups, especially for the cable TV industry. But, if one peels off the superficial layers and looks deep, it would be fair to say that it was indeed a year of opportunity for all the stakeholders in the cable TV ecosystem, despite all the trappings that it had of a Bollywood film with all the drama and twists and turns.
The year began with industry regulator the Telecom Regulatory Authority of India (TRAI) cracking the whip on errant multisystem operators (MSOs) and last mile owners (LMOs) who had not implemented simple hygiene requirements such as subscriber information and billing in Digital Addressable System (DAS) phase I and II areas. 2014 probably was the most litigious one in recent memory for those in the cable TV ecosystem with the various constituents spending more time in courts or in the portals of the Telecom Disputes Settlement Appellate Tribunal (TDSAT) than in upgrading their systems or moving ahead on business models. LMOs and MSOs snapped at broadcasters and aggregators, even as the latter took swipes at them with their heavy hands. No resolution seemed in sight and hence the anti-climactic postponing of phase III and phase IV DAS to 2016 by the Information and Broadcasting (I&B) Ministry almost came as a lifeline to the industry. Some carped about the postponement, some decided to take it upon themselves to voluntarily digitise, while other LMOs just got back to squabbling once again.
Even as international strategic and financial investors got repelled by the chaos in Indian cable TV land, domestic lay investors and equity investors too gave the sector a thumbs down. One of the leading stocks, the Sameer Manchanda-run Den Networks, which was the investors' darling in 2013, registered a 19 per cent erosion in its share price from Rs 161.65 in early January 2014 to Rs 131.30 on 24 December. Hathway Cable & Datacom rose 25 per cent from Rs 278.75 to Rs 347.50. Both underperformed the Bombay stock Exchange Sensex which rose 28.5 per cent from 21,000 on 2 January 2014 to 27,206 on 24 December 2014. However, an exception was the stellar performer Essel group owned Siti Cable which appreciated 80 per cent from Rs 18.15 to Rs 32.75 on the same dates.
November 2014 saw Star India take a big punt and play pioneer by deciding to enter into only Reference Interconnect Offer (RIO) deals with MSOs in DAS areas. The hope was that it would push cable operators to come up with better subscriber packages and hopefully improve realisations for themselves and Star too. With ARPUs sneaking up marginally, the big MSOs and cable TV cooperatives aggressively moved ahead with the more lucrative broadband offerings to subscribers.
The year began with the MSOs meeting in different parts of the DAS areas to ensure gross billing could be started. While Delhi and Kolkata could, at least in a few parts start gross billing, Mumbai and other phase I and II cities, even as the year comes to an end, haven’t seen bills being rolled out. The reasons for this being no consensus: on the biller’s name (whether it should be of the LCO or MSO), revenue share between the two and the pending entertainment tax case in the Bombay High Court.
The next big development in the year was when Hathway Cable and Datacom announced a cricket pack, wherein the MSO created a separate offering consisting of all the sports channels. When the announcement was made, little did people know that the issue would be dragged to the court and would keep the TDSAT occupied for almost the rest of the year. Hathway has been one player that has been in the news throughout, mostly for its progressive moves- from launching new local cable channels, to launching DOCSIS 3 broadband technology. It also wrestled with the major broadcasters such as Star and Zee through the year on terms and conditions.
2014 was the year of opportunities, as it opened doors for the $100 million Hinduja’s Headend In The Sky (HITS) project and the Cable Virtual Network Operator (CVNO) model. As part of this LMOs can come together and join hands with the MSO to take its infrastructure, thus giving the former the power to own their consumers. The former Indusind Media CEO and promoter of Bhima Riddhi Digital Services Nagesh Chhabria too showed his intent of getting into the cable TV market with a national MSO. A much hyped $200 million announcement - in July about his agreement with Atlas Consolidated LLC (a joint venture between Greenwich Equity Partners and Jagran Infra-Projects led by Sanjiv Mohan Gupta) - to create a national MSO it has been followed by a strange silence since.
It was a year of opportunity, as after a gap of long seven years, the TRAI decided to defreeze prices and allowed a price hike. The regulator in March, released a notification, offering a 27.5 per cent inflation-linked hike to stakeholders in the tariff ceiling. The hike was to be implemented in two phases: 15 per cent from April 2014 and the remaining 12.5 per cent from January 2015. The move gave some hope to stakeholders to increase their Average Revenue Per User (ARPU) which was at around Rs 180 – a 20-25 per cent increase. But the industry is clearly aiming at much higher ARPUs of Rs 300-350 in the short to medium term.
The most important month for the cable TV industry was August. Ask why? Well, this was the month, which shocked the whole value chain. While the LCOs were relieved, the worried ones were the broadcasters and the MSOs. The newly appointed Information and Broadcasting Minister (now former) Prakash Javadekar, looking at the condition of phase I and II cities, which had undergone seeding of set top boxes (STBs) decided to further push the digitisation dates for phase III to December 2015 and phase IV to December 2016, from the earlier deadline of December 2014. The reason given by the Minister was that he wanted to promote indigenous STB manufacturers, who had not benefitted much from the earlier two phases.
The news brought in some cheer for the indigenous STB manufacturers who said that this would help the indigenous manufacturing industry give employment to about 50,000 people and would attract an investment of about Rs 500 crore. The move, according to many would also generate local support facility for repair of STBs and help in smooth implementation of digitisation in the country.
While, everyone has their own take on the decision, one should take this as an opportunity to be able to complete phase III and IV cities, which includes the small towns and villages, in a much more organised manner. Currently in phase I and II, while boxes have been seeded, no proper rollout of package and billing has happened. The stakeholders have time to ensure that along with seeding of boxes in phase III and IV cities, they can ensure that Consumer Application Forms (CAFs) are filled, the information is added in the Subscriber Management System (SMS), packages are created, offering consumers the option to choose and proper bills are rolled out, bringing in complete addressability and transparency.
According to many, with delayed digitisation, carriage fees are once again on the rise. According to a Media Partners Asia (MPA) report, carriage fee has gone up by 14 per cent, while broadcasters and MSOs peg this at around 20-25 per cent for niche and news channels. In fact, Colors CEO Raj Nayak at this year’s India panel in MIPCOM said that carriage fees which had come down by 20 per cent are again climbing and have gone back to pre-digitisation rates. Yes, all these can be counted as the drawback of delayed digitisation, but tackling the same is broadcaster Star India’s take on the deals with MSOs.
The case which kept TDSAT busy this year was the Hathway vs Zee and Star case. It was during this, that Star India, in order to fight discrepancy in deals with MSOs, took a firm decision of entering into only RIO deals with MSOs. While this did hit the MSOs, since their cost of content went up, it did two things. One, it nipped carriage fees and two, opened the doors for the MSOs to increase their ARPUs. In fact broadcasters, who feel that the carriage fees are headed northwards, should consider entering into RIO deals, as was also said by MPA in one of its reports.
With the extension of digitisation dates, a number of MSOs also decided to opt for voluntary digitisation, which was a welcome move, since it showed the intent of MSOs to see the country fully digitised.
Keeping digitisation and broadband plans in mind, the year saw a few MSOs raising funds for themselves. Considering the money spent by the MSOs in acquiring content and taking digitisation forward did not match with the on-ground collections, MSOs were left with no choice but raise more funds to complete the task in hand. So while Hathway got board approval to raise Rs 300.80 crore through preferential allotment of shares, Essel Group’s subsidiary Siti Cable Network raised Rs 600 crore through the issuance of securities. Last mile owner Ortel Communications too made its move towards getting listed. The LMO, this year, filed its draft red herring prospectus (DRHP) for its proposed initial public offering (IPO) with the securities and exchange board of India (SEBI). The IPO may raise as much as Rs 360 crore.
The year also saw the I&B cracking its whip on a few MSOs like Digicable and Kal Cable as their licences were cancelled following refusal of security clearance by the Home Ministry. But the duo got relief from their respective state High Courts and are still up and running. Even as Tamil Nadu former Chief Minister J Jayalalithaa owned Arasu Cable struggles to get its DAS licence, Karnataka state government Minister for Information, Public Relations and Infrastructure R Roshan Baig too showed some interest in entering the cable TV business, this year.
The cable TV industry, like every year was brought together through one forum organised by indiantelevision.com and MPA, IDOS 2014, held in Goa. The three day event threw light on some important statistics:
· Of the 262 million households in the country only 162 million houses have a TV. Of this, 27 million is taken up by the free to air service providers such as Freedish via satellite and 7 million by terrestrial DD, while the rest comes under cable and satellite.
· Rs 32,000 crore has been invested in digitisation since 2005 with a bulk of the investment coming from the DTH operators followed by the MSOs and LCOs since 2011. Out of this, over Rs 11000 crore in the last 24 to 30 months has been invested by MSOs and LCOs.
· While the cost of all the pay channels on a wholesale basis is Rs 922 to digital platforms, the highest pack price is Rs 550 which is an anomaly and needs correction. Retail pricing is the answer to correct this. And it is competition amongst six DTH, two HITS, five national MSOs and several regional ones and the local cable ops will keep retail rates in check.
We at indiantelevision.com hope that broadcasters, LMOs, MSOs will take a progressive view towards digitisation of their operations and also becoming transparent with their partners in 2015. The fact is there is a lot of work to be done: more than $3-4 billion are needed to digitise India’s cable TV infrastructure; a large part of these will most likely come from international players. Many of these who were pacing the sidelines watching the developments clearly got a stomach upset and decided to park their funds elsewhere. Now it is up to the industry to restore investor confidence; that cable TV is a sector where one can see adequate returns. Failing which newer distribution technologies like OTT, video streaming and 4G might end up being good options which video lovers could end up considering.
