News Corp can raise Tata Sky stake to 50%; cross-media a bottleneck

MUMBAI: Rupert Murdoch-controlled News Corp has the option of increasing its shareholding in direct-to-home (DTH) services provider Tata Sky to 50 per cent from the current effective stake of 29.8 per cent. Tata group holding firm Tata Sons holds a majority stake in Tata Sky.

News Corp has a shareholder agreement which gives it the option to become an equal partner. Tata Sons owns 60 per cent stake in the company while the remaining 10 per cent is with Singapore-based private equity firm Temasek.

News Corp, however, will not be able to benefit from the recent hike in the FDI cap to 74 per cent in the broadcast-carriage services sector. The company, which runs a broadcasting business in India through its subsidiary Star, is handicapped by a cross-media regulation.

According to Indian government regulations, any entity having more than 20 per cent equity participation in a broadcasting company cannot have more than 20 per cent equity in a distributor (MSO/Cable, DTH, HITS, Mobile TV) and vice- versa.

"We have the option to become an equal joint venture partner in Tata Sky. But there is a cross-media regulation in India," Shankar tells

Is this regulation unfair? "Yes, it is. The government has mandated digitisation in the country (by 31 December 2014) and there will be a huge funding requirement that will not be available locally. The recent decision to up the ceiling on foreign direct investment to 74 per cent is a positive step. But for global strategic investors to come in, it is necessary to do away with cross-media restrictions. And if strategic investors don‘t come in, then financial investors will not find it that attractive. In any case, the cross-media restriction has been violated by at least three players having broadcast interests. It has only discouraged clean, legitimate players," says Shankar.

In 2010, Star India had applied for FIPB (foreign investment promotion board) clearance to buy a 49 per cent stake in Tata Group‘s investment firm TS Investments, which would hold a 20 per cent stake in Tata Sky for Rs 3.24 billion.

Effectively, this gives Star an additional 9.8 per cent stake in Tata Sky, increasing News Corp‘s total holding in the DTH company to 29.8 per cent.

Star‘s FIPB application followed the government‘s amendment in 2009 to the FDI policy that stated that investment through companies owned and controlled by Indians would not count as foreign investments.

Tata Sky, which commenced operations in 2006, is one of the leading DTH companies in India and is ahead of the others in terms of ARPUs (average revenue per user). The profitability of the sector is affected by low ARPUs. Dish TV, India‘s largest DTH company by subscribers, ended fiscal-first quarter with an average ARPU of Rs 156 while Airtel digital TV‘s was at Rs 166.

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