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Broadcasters in minimum guarantee deals with cable ops to drive growth

MUMBAI: Broadcasters are using the might of the big cable networks to drive revenue growth from subscription business in a price regulated and highly fragmented cable TV market.

Exclusive deals are being struck with individual operators for distribution of their channels in different territories on a minimum guaranteed amount. The trend has particularly caught on after the price freeze on subscription rates imposed by the Telecom Regulatory Authority of India (Trai) since 26 December, 2003.

Star India has entered into a series of agreements with the big operators over the last few months. "We have done such deals in Bhopal, Indore, Jalandhar and some other towns in north India. This is helping us grow and clean up the mess in those markets where the territory of the different cable operators is not defined," says Star India executive vice-president of distribution Tony D'Silva.

Sony-Discovery's One Alliance has already worked out an exclusive arrangement with InCablenet in Bangalore. And both Star and Sony have signed with Hathway Cable & Datacom to distribute their bouquet of channels in Hyderabad. The Kolkata-based RPG also has a similar deal in place for both networks.

According to the arrangement, the operator pays a minimum guaranteed amount to the broadcaster while being given exclusive authority to distribute the bouquet of channels in a particular territory. This allows the broadcaster to increase subscriber declarations and squeeze more revenues in difficult markets.

Star, in fact, claims to have seen a 10-12 per cent growth in subscription revenue last year. This is despite not being able to increase rates, as stipulated by Trai. "We have managed to grow in non-metro markets. Our subscription revenue rose 10-12 per cent last year," says D'Silva.

Star is the most aggressive broadcaster to carry out such deals. "They are using this strategy heavily in the northern region of the country. They are in a position to do so because of their strong content lineup," says a cable operator.

The practice of "minimum guarantee" deals is seen by small cable operators as a drive to create monopolies. While pay TV broadcasters are able to boost subscription revenues in a difficult environment, cable networks have the potential of improving collections from the ground and consolidating operations. "The privileged operator can switch off the feed of rival networks, if necessary. The broadcaster is able to divide the operators and create monopolies in certain markets that suit his business interests," says a local cable operator.

There were cases earlier also where broadcasters used to have operators as the distributors of their channels. But what is new is the minimum guarantee amount and the scale in which these operations are being carried out. "It is like having the highest bidder as your exclusive distributor. The operator who is chosen is a dominant player in that market," says a senior official in a leading broadcasting company.

Not everybody thinks it is a bad practice. "Broadcasters can offer security to the operators by assuring them of the feed. The operators, in turn, can use this to drive in more subscriber declarations and realise better recoveries from the system," says the head of a multi system operator.

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