Uday Shankar is a tough man when it comes to dealing with joint venture partners: he is not averse to exiting from old relationships if he sees the growth engines being exhausted.

In his eight-year tenure as CEO, Star India has parted ways with three of them: Balaji Telefilms, Hathway Cable & Datacom and MCCS, the JV company with ABP Group for the TV news business. At a much broader level, parent News Corp also ended the Asian sports broadcasting joint venture with Walt Disney and took full control of ESPN Star Sports.

Still, Shankar is fair, ethical and a trusted friend. Star has made none of the promoters of the JV partners uncomfortable by selling the shares to anybody hostile. The only joint venture left is Tata Sky, the DTH company in which Tata Sons has 60 per cent stake and Temasek holds 10 per cent. And, of course, Shankar’s grand alliance with Zee Group to handle the distribution business through an entity named MediaPro Enterprises.

In Asianet Communications Ltd, which was acquired by Star, Shankar has former telecom czar Rajeev Chandrasekhar as a minority partner. Star has agreed with its partner to list Asianet and give Chandrasekhar an exit option.

In the second part of the interview with Indiantelevision.com’s Sibabrata Das, Shankar talks about the joint venture exits, Star’s bet on DTH, cross-media restrictions and the scope of Indian media businesses to attract foreign capital if the policies are further liberalised. He is candid in his replies even on issues which normally would have evoked guarded responses: be it the restrictions on broadcasters owning direct-to-home (DTH) companies or cable TV operations or about the possibility of Rupert Murdoch’s first ever initial public offering (IPO) in India through Asianet.

Excerpts:

Q. The government has recently lifted the cap on foreign direct investment (FDI) to 74 per cent in broadcast-carriage services sector like DTH and cable. So will we see News Corp taking majority control of Tata Sky?
In the shareholder agreement with Tata Sons, we have an option to become an equal joint venture partner in Tata Sky. But there is a cross-media regulation in India (broadcasting company can't own more than 20 per cent stake in a DTH or cable venture). So we are handicapped by that.

Q. Is this cross-media regulation unfair?
There is no logic to hold on to the cross-media restrictions. Let me explain why. There are four strong safeguards that would protect the market from evolving into a monopolistic structure. In India, distribution platforms are not allowed to own content. Besides, exclusivity is not allowed and content has to be supplied to the other distribution service providers on a non-discriminatory basis. The third safety measure is the regulation of the wholesale price. And lastly, there is enough competition in the distribution end of the business at the retail level.

In any case, the cross-media regulation has been violated by at least three players having broadcast interests. If anything, it has only discouraged clean, legitimate players. When there is a massive fund requirement to digitise cable networks across the country and the government has taken the positive step of allowing more FDI into the sector, global strategic investors would have been encouraged if the cross-media restrictions weren't there.

Q. How is this a stumbling block to private equity and other investors?
India is an emerging market and both DTH and cable are emerging sectors. They would require huge funding support to address such a large cable and satellite (C&S) universe. And capital of that size will not be available locally.

For global strategic investors to come in, it is necessary to do away with cross-media restrictions. And if they don't come in, financial investors will not look into the sector more aggressively.

Q. Won't low DTH ARPUs (average revenue per user) be a deterrent for investors?
I don't take that as a serious handicap. There have been a few reckless players who have spoilt the DTH market. But sanity is returning. Besides, there have been a few serious drives in recent quarters to lift ARPUs up. HD services is also another route to improve ARPUs. The industry's most serious problem is very high taxation. Investors will look at policy corrections that would help the sector turn healthy.

Q. Now with digitisation being mandated, will you re-enter cable TV distribution business as it offers a huge value proposition?
We exited cable when we sold our entire stake in Hathway Cable & Datacom (the final 17.3% it sold to private equity firm Providence and Macquarie Bank for Rs 3.58 billion). It is a great cable company but in the distribution side of the business, we decided to place our bets on DTH. We will not re-enter cable; nobody has the management bandwidth to participate directly in every piece of the business. The market is big and there is a huge opportunity for DTH.

Q. Will the cable companies be able to attract FDI in the current environment?
They will surely need a lot of capital for digitising their networks. The local cable operators (LCOs) who pocketed the bulk of the subscription revenue have not made the investments; it is the MSOs who have. Perhaps, they will not need to raise capital in the first phase. But in the second phase, there will be a huge fund requirement. Global companies will be interested but will wait for the first phase of digitisation to be over to evaluate the performance of these companies.

Q. Is Star looking at buying a stake in NDTV, after exiting from the TV news joint venture company MCCS?
We decided to exit the TV news business in India because of the 26 per cent FDI cap in the sector. MCCS (which ran three news channels including Star News in Hindi, Star Ananda in Bengali and Star Majha in Marathi) had become operationally profitable. So our problem was at a more strategic level. We have decided not to invest in any news venture including NDTV till this ceiling is lifted.

We feel that the whole economics of the TV news business in India is not working. In any case, News Corp is not a financial investor. If you are not in the driver's seat or have no significant say in the business, it doesn't make strategic sense at all.

Q. But won't the former MCCS CEO and a newsman himself miss the news business?
We have created a tremendous entertainment footprint and will now build the sports business. News is definitely a gap in our portfolio. But unless there is a change in the FDI limit, it doesn't make sense at all.

Q. Sources say Star is selling its 26 per cent stake in MCCS to JV partner Ananda Bazar Group (ABP) at a value that is not high. Why so?
We do not talk about our financials. All that I can say is that we have offered our shares to ABP Group at a mutually agreed value. We are in the last legs of completing the transaction and are awaiting regulatory approvals. We have split amicably.

Q. Did the differences with ABP start when Star decided to launch its Bengali general entertainment channel (GEC) independently?
When we decided to launch Star Jalsha, ABP had no interests in entertainment content at that stage.

Q. But when Star Jalsha was launched, ABP did not cover the event in its print publications. So what could be the reason?
The joint venture arrangement with ABP was specifically for the TV news business. They were a strong news media company and our JV wasn't for any specific language (Bengali). In fact, We launched news channels across languages.

For the entertainment business, we were not looking for any JV partner. Being an entertainment company ourselves, there was nothing a partner could bring to the table.

ABP at that stage was, perhaps, concerned about advertising revenues getting reallocated and shifting away from print to television if a strong entertainment player emerged in Bengali language. But it so happened that our channel launch actually expanded the advertising market. This possibly encouraged them to later launch their own Bengali GEC.

Q. Why is Star unable to sell its shares in Balaji Telfilms even after completely disassociating with its operational management entirely?
We continue to own equity in Balaji Telefilms. We have assured the promoters that at any stage they want to buy us out, they can. We have the right to sell it outside. But we do not want to do anything that will make the promoters uncomfortable. We took care of the promoters' interest even when we sold our Hathway stake.

The problem with the promoters of Balaji Telefilms could be in the fact that they will not only have to buy back our shares (25.9 per cent) but also make an open offer since it is a listed entity.

Q. Star's other partner is former telecom czar Rajeev Chandrasekhar. Sources say when he sold his stake in Asianet Communications, he had an exit clause in the deal either through a put option or an IPO. Will we see News Corp's first public float in India through Asianet, in which Star holds around 86 per cent stake?
We have mutually agreed to do an initial public offering (IPO) in Asianet. We will wait for the market conditions to improve to tap the market.

Chandrasekhar always wanted a public currency. We share a good relationship with him and have agreed for an IPO.

Q. Is Vijay TV and Kannada GEC Suvarna also a part of Asianet Communications?
Yes, the entity has these south Indian-language channels.

Q. You share a strong relationship with Zee Group's Puneet Goenka, the son of founder-promoter Subhash Chandra. The outcome of that was a landmark distribution joint venture company, MediaPro Enterprises. Will that survive in a digital environment?
There is no reason why it should collapse. The fact is that all the partners are seeing growth in subscription revenues.

Q. Zee is currently distributing its sports channels independently and so is ESPN Star Sports. Since News Corp is going to completely own ESS, will we see a consolidation in the sports bouquet under MediaPro?
It's difficult to say anything right now. We are still waiting for the approval and the acquisition of the company (ESS) to go through. There is MediaPro as far as we are concerned. It is up to both the partners to see if we want to increase the scope of our relationship and partnership or do we want to limit it to what we already have.

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