New Delhi/Mumbai: Four major television cable distribution companies— Digicable Networks (India) Pvt. Ltd, Hathway Cable and Data Com Pvt. Ltd, IndusInd Media and Communications Ltd (InCable), and DEN Networks Ltd—are in talks to merge their businesses and create a single cable network, prompted by consolidation moves in other parts of the industry.
The four companies, or multi-system operators (MSOs) as they are called, appointed Ernst and Young and Deutsche Bank AG to come up with a feasibility report on the proposal. Together these MSOs control an estimated 40 million cable TV subscribers out of a universe of 116 million cable homes, according to December data from TAM Media Research.
At least four people closely involved in the process confirmed that the mandate for a merger of these companies had been given to these firms. Deutsche Bank declined to comment. However, an executive involved with the deal said the structure of the proposed company was still not final. The executive requested anonymity as the matter was confidential.
However, the head of a cable firm, who is a part of the exercise, said that since a consensus on a formal structure may take time, as a precursor to the merger “we plan to enter into a business alliance. One of the names being considered for the alliance is Megamedia”, he said, adding that the effort is to get regional MSOs on board as well. Another person close to the development said the companies’ lawyers are looking at the regulatory issues concerning the alliance.
The move to consolidate their businesses comes at a time when two leading broadcasters—Star India Pvt. Ltd and Zee Entertainment Enterprises Ltd (ZEEL)—have merged their distribution arms to form a joint venture called Media Pro Enterprise India Pvt. Ltd. The new company will jointly distribute more than 70 channels.
Top executives at two cable companies in the mega alliance claim that their partnership is not a reaction to Media Pro, which gives broadcasters the power to negotiate subscription rates and placement fees with cable operators and direct-to-home (DTH) companies.
The alliance has been expected as MSOs “would try and keep up with consolidation on the broadcaster’s side” to be able to negotiate subscription and placement rates better, said Nikhil Vora, managing director of IDFC Securities Ltd.
The fragmented cable industry—with nearly 500 MSOs and 60,000 cable operators—needs to get its act together in view of the intense competition from DTH as well as Internet Protocol television, said a cable industry veteran who is close to the development.
The companies could get better rates on bulk deals for set-top boxes and combine their marketing budgets if they were united, he added.
“For instance, we could have a common call centre to assist customers,” the cable expert said, and added that the immediate task of the combined entity would be to push for amendment of the Cable Act that allows only 49% foreign direct investment (FDI) in the business.
“The Telecom Regulatory Authority of India has cleared the decks for 74% FDI for MSOs,” he added.
The consolidation, IDFC Securities’ Vora said, will lead to profitability and to a more equitable model. “Many MSOs don’t operate on balance sheets and a lot of local cable operator (LCO) revenues are under-declared,” he said.
Rajesh Jain, head of media and entertainment at KPMG India Pvt. Ltd, agreed that 90% of the subscription revenue goes to the LCOs alone. “And a lot of it is undeclared,” he said. Television subscription revenue is expected to grow at 17% a year and reach Rs 41,600 crore by 2015 from Rs 19,400 crore in 2010, according to KPMG.
Jain expects the development to hasten the process of digitization.
The union of MSOs will benefit all stakeholders in the business, said Gurjeev Singh, chief operating officer of Media Pro. “I hope that digitization will be one of their key priorities,” he said.
Commenting on the new alliances, Yogesh Radhakrishnan, former chief executive and managing director of Real Media, the West Asia-based flagship company of ZEEL, said: “It’s getting extremely confrontational. Post the Star-Zee distribution alliance, people started panicking. This is unnecessary because digitization is round the corner and the bouquet will lose its relevance. No one can have a monopoly in a digital environment.”
Radhakrishnan formed his own channel distribution company earlier this year.
LCOs, which have last-mile access to the cable customer and are affiliated to different MSOs, are concerned about the proposed alliance.
LCOs will be squeezed between large broadcasters and the MSO combines, said Roop Sharma, president of the Cable Operators Federation of India. “The only ones caught in the middle of this power struggle are last-mile operators and, as a result, the consumer,” she said.
Such MSO alliances could be detrimental to the interests of cable operators considering there are frequent clashes between cable operators and MSOs over revenue, Sharma said.