Regulators

Will foreigners buy into easing of FDI in cable TV, DTH?

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MUMBAI: The government has earlier this week announced the lifting of Foreign Direct Investment (FDI) barriers for 15 sectors as a Diwali bonus to industry.

Hereon, the limit for uplinking of news and current affairs for television channels has been increased from 26 per cent to 49 per cent. Foreign majors wanting to look at a long term play in the broadcast distribution space can now pump in 100 per cent in cable TV networks (multi-system operators and local cable operators), DTH, teleport, headend-in-the-sky (HITS) and mobile TV ventures as against the 74 per cent earlier Distribution platforms can raise as much as 49 per cent FDI through the automatic route. If companies want to go beyond that, they will need government approval. The radio sector has got some welcome breathing space in that investment limits have been hoicked to 49 per cent from 26 per cent earlier.



 

What does this all mean for the television ecosystem? Will there be a flood of money flowing into cable TV, DTH, teleport, HITS and mobile TV ventures from overseas? Will news channels attract foreign investment by the sackful?



 

We, at indiantelevision.com, believe that none of this likely to happen in a hurry in all the segments that have been prised open.



 

Distribution is a tough play in India as history has shown. It is relatively unorganized, with low ARPUs, it lacks transparency, is small in scale, and is short on capital, which makes it an unappealing asset to invest in. Digitisation of cable TV has led to some improvement, but it is still a halfway house. The lack of last mile customer ownership, paucity of subscriber information, lack of two way addressability, and business norms and ethics make it a relatively high risk investment.



 

Things may change if Reliance Jio makes inroads into cable TV and brings some order into it. However, its management may well discover that distribution is like a slippery soap in a shower, that  it is more complicated than distributing electricity or exploring and drilling for oil.

 

It is the MSOs’ broadband businesses that are a lot more transparent,  that have in any case been spun off into separate companies keeping in mind government regulations and restrictions.  And this is what may catch the interest of investors.



 

In the nineties, Rupert Murdoch partnered with Subhash Chandra in Siticable – only to exit a little later with his knuckles bruised. A few years later he once again took a shot at it when Star India invested in the Rajan Raheja promoted Hathway Cable & Datacom. Once again, he had to exit yelping in pain. Since then, Star has been extremely averse to investing in cable TV.



 Most of the major distribution ventures are listed: Siticable, Hathway Cable & Datacom, Ortel, Hinduja, Den Cable, SunTV, DishTV, Airtel, Reliance Big (the management is currently getting it delisted),  and some even have attracted private equity investments. But the stock market has not really bought into pure play distribution initiatives and the shares have been depressed as compared to the prices they could command. The PEs which have parked funds in them are still waiting for a nice fat return on their investments.



 Where FDI has worked is in the DTH space and the sole exception is DTH operator Tata Sky in which Twenty First Century Corp holds a 30 per cent stake.  Then there is Videocon d2h, which is listed on Nasdaq, following to the support of its lead investment partner Harry Sloan of Silver Eagle. The Essel group owned Dish TV has got the thumbs up from the market and has got a buy recommendation from many research firms.



 

 

DTH operators, unlike their cousins on the ground, are more organized, professional, have transparency of operations and have recently started getting some payback from their upfront and cumulative investments over the past decade or so building scale in their customer base.



 

Hence, it is quite possible that Dish TV, Airtel, Videocon, and Tata Sky might see some activity following the loosening of FDI.  But even prior to the announcement, not many investor suitors had lined up looking to partner with them.



At the time of writing this report, the stock markets had reacted positively to the news about the easing of FDI in media, and had pushed up the share prices of Dish, Siticable, DEN Networks by 10 per cent plus before Diwali.



 Sun TV, has so far been happy being a lone player with a stranglehold on its markets, and has desisted from partnerships with local players. One does not know if promoters Kalanithi and Kaveri Maran will change their thinking now.



 As far as news is concerned, major news organisations worldwide have enough on their hands. They are grappling with the changing paradigm of news gathering and dissemination, courtesy the explosion in social media and their live streaming apps which threaten to make individuals  - whether journalists or online stars - with huge followings, a rival to large news networks. For the new millennials, online is the preferred source of news, which they consume on their twitter or facebook timelines.



 India has a surfeit of news channels or ‘views channels’; many of them are run for purposes of influence, and not as commercial initiatives. For the relatively more professional ones, the key question is whether foreign investors – especially those in the news business would be happy with a less- than majority equity position in a news television channel. For that to appear attractive they will look for dividends or a northward movement in the stock price.

 



 

News organizations normally are obsessive about keeping control over the content on a news channel. But you there have had been licensing deals – like in the case of CNN-IBN.  Others have come in on their own, after getting downlinking and uplinking clearances.

It’s not as if news television in India is a very scalable business opportunity.  At least, so far. The largest news network does revenues of around Rs 500 crore.  This could go up to Rs 1000 crore with the expansion in regional news and distribution internationally. The limited scalability despite, amongst the news players some of whom look alluring figure: NDTV, Times Now, Zee Media, TV9, TV Today, ITV group, and  India TV. Of course some smaller players like BAG Films E24 group might attract FDI.

 What should come as a relief is the allowing of 100 per cent FDI through the automatic route in non-news and current affairs channels. Many new channels and broadcast networks which are looking  to expand their global footprint to include the Indian audience may now do so, either through mass and/or niche channels. Full ownership means they can control their destinies in India.

 

Now that the government has opened its house on FDI in media, it would do well by making the procedures simpler and faster. TV broadcast players managements have to perforce get ministry of home affairs, ministry of information and broadcasting’s  and RBI’s clearances. The  bureaucrats,  directors and officers in these bodies need to be trained to reflect the Modi government’s approach in being industry enabling, rather than being obstructionist. Maybe a single window clearance approach could help. Otherwise, even this FDI liberalization may end up being another well-intended-but-misplaced initiative.

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