Cable TV

Media valuations up, distribution pulls down industry

MUMBAI: Market valuations of the media industry in India has potential to go up but chaos at the distribution end is pulling it down, investment bankers and research experts said at the India Television Summit 2005 on Thursday in Mumbai.

The current market capitalisation of the media companies in India is $3.5 billion but is estimated to size up to $20-25 billion by 2010, according to DSP Merrill Lynch investment banking and merger and acquisition senior vice president Saurabh Agarwal. The profitability of the TV media is $350 million and the industry is growing at 17 per cent, he added.

 

 

The fundamental block is in the distribution side with leakages at the value chain ending at the last mile operator. Ironically, it is the subscription revenue which has a lot of potential to grow and broadcasters can increase their share of the cake from 20 per cent to 40 per cent by 2010, said Agarwal.

The way to attract investments is to have consolidation in the cable TV industry even at the last mile operator level. The industry is fragmented. Besides, issues on corporate governance of the cable companies have to be addressed to make the industry investable, said CLSA head of media investment banking Simon Dewhurst. "There is no way that the cable TV structure can change fundamentally. The last mile operators will continue to perform the functions of rent collection from the subscribers and it is a crucial function in the industry," he added.

For cable companies, including last mile operators, there needs to be restructuring. "In cable companies, debt has a significant part to play. But that will require considerable consolidation in the last mile," says Dewhurst.

 

 

The economics for consolidation is very compelling and the interest of all the parties is to address this, once addressability takes place. "There are 2,000 frachisees in Mumbai. There is interest in the cable companies but not in the current form where there are too many leakages," said Agarwal.

Agreed Sahara Entertainment chief financial officer Srinivas Palakodeti: "Once there is pressure either from competition or mandatory, this will be the driving force for consolidation."

But Kotak Securities senior analyst Sanjeev Prasad believes there is a gap between the valuation the buyer is willing to pay and the price that the seller wants. The industry, according to him, is growing at 17-18 per cent.

What about the direct-to-home (DTH) market? Prasad believes it would touch four million subscribers and $300 million revenues by 2010, restricted by the lack of exclusive content that it can provide from what is available on cable TV. "The growth of Dish TV is fast after it dropped the prices but it is probably adding in the cable dark areas. Once it comes into competition with the cable TV areas, growth will slow down," he said.

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