Last week, Reliance Industries Ltd (RIL) said it was acquiring majority stakes in Hathway Cable and Datacom Ltd, and Den Networks for ₹ 5,230 crore. While it seeks to pick up a 51.3% stake in Hathway for ₹ 2,940 crore, in Den it will acquire 66% for ₹ 2,290 crore. The acquisitions mark RIL’s further penetration into cable broadband through Reliance Jio Infocomm Ltd. In July, Reliance Jio had first announced its single service provider Jio GigaFiber, the high-speed fixed line broadband targeting 50 million users across 1,100 towns and cities. The service promised ultra-high definition entertainment on TV, virtual reality, gaming, smart home solutions and e-commerce.
With the acquisitions of Hathway and Den Networks, Reliance seeks to hasten the pace of disruption in the media and entertainment industry. For starters, the move is a sure-fire winner for Reliance Jio, which will get access to 24 million cable-connected homes. Experts say, of these, approximately 2 million may have broadband. The total fixed broadband market in India is 18 million homes dominated by BSNL, MTNL and Bharti Airtel Ltd, among others. Reliance Jio could take advantage of the massive workforce of the two MSOs (multi-system operators) and their LCOs (local cable operators) to quicken the launch of Jio GigaFiber as these were homes which it was finding tough to enter.
The last-mile connectivity of these homes lay with the LCOs—nearly 27,000—whom it now has access to. This gives it an opportunity to offer triple-play services under the Jio brand, which includes voice, video and data—all provided under a single access subscription. And once it updates technology and improves service levels, it may up its ARPUs (average revenue per user) as well.
Agrees Mihir Shah, vice-president at research firm Media Partners Asia: “The recent cable acquisitions, combined with Reliance Jio’s own GigaFiber push will expedite fibre broadband adoption, reinvigorating growth in the country’s highly under-penetrated fixed broadband segment. Furthermore, Reliance will gain access to approximately 24 million Pay-TV homes to add to its mobile broadband reach of more than 250 million subscribers, making the company India’s largest distribution platform for linear and non-linear video content."
Given the high subscriber fragmentation in cable and an under-penetrated fixed broadband market, CCI (Competition Commission of India) intervention is also unlikely. “We expect Reliance Jio might continue this path of inorganic growth focusing now on acquiring strong regional MSOs...while other smaller operators too might be compelled to join forces," Shah adds.
In contrast to traditional Pay-TV and telecom businesses, the consumer’s willingness to pay for home broadband remains high, especially with demand for internet access surpassing data caps set on mobile plans, Shah says. “The consumer experience is poised to improve with faster speeds, higher Fair Usage Policy limits, and a suite of new value-added services. Reliance Jio’s hybrid set-top boxes will enrich the viewing experience for online content, while higher speeds will also allow consumers to explore new use-cases of broadband."
However, the impact on the broadcasting industry may not all be positive. With the scale it gets after acquiring Hathway and Den Networks, Reliance Jio will enjoy immense negotiating power over TV channels. For any distributor, 80% cost is content. And with numbers on its side, Reliance Jio will be in a position to negotiate this cost.
Says Shah: “With growing consolidation in the distribution value chain, the bargaining power is increasingly tilting in favour of large-scale platforms, making it difficult for broadcasters to drive growth for their subscription income. The new distribution behemoth will more likely seek to jointly negotiate in sourcing of linear and non-linear content feeds from broadcasters."
The direct-to-home (DTH) industry is also likely to be impacted. Some say that it may survive and that DTH operators may move to higher ARPU customers. Yet others say it may be hit by customer churn and face pricing pressure. However, experts say that customer acquisition for DTH will be cheaper than for Reliance Jio as the company has to still enhance its fibre footprint and laying the last mile—fibre-to-the-home—does not come cheap. And it is still not clear how much subscription fee Reliance Jio will charge.
The good news, however, is that Reliance is infusing upwards of ₹ 5,000 crore into the sector which can only benefit the cash-starved cable industry.
Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.