It was a sultry March morning at the majestic Renaissance Powai Hotel when James Murdoch, chairman and chief executive – international, News Corporation, made a bold and impassioned plea for digitisation. ?The analog infrastructure is proving to be a drag,? he said, ?When competition is stifled by infrastructure, the scarcity of bandwidth drives the operator to price channel placement instead of investing in greater capacity. This makes things more expensive for the channel operator who has to recoup that higher cost out of advertising, spread ever so thinly across a fragmenting audience.? Murdoch urged the Indian government to relax investment and ownership regulations in India. It is a transparent, de-regulated, market based and addressable digitisation that will unleash a content revolution in India, he stressed. His comments came as a part of a keynote address at FICCI Frames 2011, the media and entertainment industry conclave co-hosted by industry body Federation of Indian Chambers of Commerce & Industry (FICCI) and consulting firm KPMG.
A year later, it does seem that the ministry of information and broadcasting (I&B) in India has taken Murdoch?s plea very seriously and has promised News Corp and other broadcasters the golden sunrise that they have been waiting for. Foreign direct investment (FDI) norms have been relaxed in various distribution related sectors of the television business. FDI limit has gone up from 49% to 74% which will apply to broadcast carriage service providers, including direct to home (DTH), headend in the sky (HITS), multi service operators (MSOs) and cable operators in order to bring in uniformity. While 49% FDI will continue to be approved via the automatic route, any FDI beyond 49% and up to 74% will require a clearance from the Foreign Investment Promotion Board (FIPB). The move spells good news to cash starved television distribution businesses, who are trying to switch from an analog regime to a digital one. The four metropolitan cities?Mumbai, Delhi, Kolkata and Chennai?are set to go digital from October 31, 2012. The analog signal will completely be blacked out, and people will be able to view television only with a digital set top box (STB). In other words, for consumers the free lunch is over. The trouble is that the a la carte menu is still not ready, with most MSOs and broadcasters failing to reach an agreement on tariffs and pricing.
Faliure to close interconnect agreements
The Telecom Regulatory Authority Of India (TRAI) had directed all the MSOs and broadcasters to enter into interconnect agreements by August 21, 2012, but most stakeholders are still in the process of closing deals.
Ashok Mansukhani, president of MSO Alliance?an apex body for MSOs in India?says that while some MSOs have been able to manage interconnection agreements with the broadcasters, others are still struggling for equitable deals. ?One dreams of greater collaboration with broadcasters to create digital delight. But that is just a mirage. Many of the independent MSOs are left out in the cold,? he said.
One of the biggest broadcast distribution companies is Media Pro Enterprise India, a 50:50 distribution alliance between Star India and Zee Entertainment Enterprises? the two biggies of the broadcast world. Gurjeev Singh, chief operating officer of Media Pro Enterprise India, states that he has to yet close deals with Incablenet (the MSO arm of the Hinduja Group) and Digicable, as well as some of the smaller operators. ?But there?s no cause for worry because the bulk of our deals are in place. Interconnect agreements have been signed with others such as DEN, Manthan, WWIL, Ortel cable television and Gujarat Telelink Pvt Ltd (GTPL),? he said. ?With Incablenet, I felt that there was an agreement (verbal) on the commercial terms but we haven’t yet signed the contract. Our discussions are on with Hathway and we should close it in the next few days,? he said. Singh says that the biggest plus point of digitisation is the diversity of content,? Singh says that the biggest plus point of digitisation is the diversity of content. High Definition (HD) channels, 3D broadcasting, niche channels, regional channels, all of them will get a real push, with digitisation.
The One Alliance, the distribution alliance of broadcast company Multi Screen Media, says that it has inked interconnect agreements with most of the MSOs barring a few smaller, independent ones. ?I can safely say that we have covered 80-85% of the universe. The few that remain ? we will be inking deals with them in the next few days. By October 31, I am confident that most of our deals will be in place and I see no reason to extend the deadline,? said Rajesh Kaul, president, MSM Discovery, one of the leading distribution companies of television channels, also known as TheOneAlliance.
He said that the situation was very much like the direct-to-home scenario. ?Direct-to-home (DTH) platforms may not have every single broadcaster on board. There are some broadcasters that they would have on board, and others that they are negotiating with. Most broadcasters gradually ink deals and reach an agreement with a DTH operator. Similarly, for DAS (Digital Addressable Systems), it needn?t be that on day one (October 31) you have all the channels on board, on every single MSO platform.?
Digicable Network India says that it has inked agreements with other broadcasters such as IndiaCast which distributes Viacom18 and TV 18 group channels, MSM-Discovery and ESPN Software. ?We are still in the process of evaluating the commercial terms with MediaPro,? said Jagjit Singh Kohli, managing director of Digicable.
Times Global Broadcasting, which owns channels such as Times Now, ET Now, Movies Now and Zoom said that channels have commercial agreements in place with all MSOs (analog) but in a DAS regime, some aspects such as packaging of the channel, genre reference, need to be specifically addressed.
?Channels certainly expect transparency on the number of subscribers and with capacity built to accommodate 250 to 500 channels, they also expect carriage fees to be done away with. Commercial interconnect agreements will close in time. I am sure that in the interest of viewers, services will not be encumbered for lack of finite closure. At present, MSOs too have their hands full with implementation of DAS and are entering into new negotiations. This is important though and must close fast,? urged Sunil Lulla, chief executive and managing director of Times Global Broadcasting.
Disputed numbers
The industry is still not in agreement on just how many homes in the four metros have already been digitised. An I&B ministry report dated September 17 revealed some astonishing numbers. The report claims that 95% of Mumbai is well on its way to DAS with 17.82 lakh set top boxes having been seeded. Only 5% of the city requires more boxes ? to the tune of 0.95 lakh. In Kolkata, the report claims that 13.28 lakh set top boxes have been seeded in 67% of the city, while 6.47 lakh more boxes need to be seeded. In Delhi, 13.11 lakh boxes have already been installed covering 53% of the city, while 11.63 lakh boxes require to be seeded. In Chennai, 2.50 lakh set top boxes have been seeded in 49% of the city, while 2.64 boxes still need to be seeded. The report estimates that the total requirement of set top boxes in the four metros is 68.40 lakh.
The report further added that up to the week ending September 7, 46.71 lakh boxes have already been seeded. Another 21.69 lakh boxes still need to be seeded, which means a seeding rate of 40,000 per day. The current seeding rate is about 10,000 boxes per day.
While many argue that the numbers appear inflated, Uday Shankar, outgoing president of the Indian Broadcasting Foundation and chief executive of Star India, said that a group with vested interests is exaggerating the number of boxes to be seeded and the ministry and the authorities have begun to see the discrepancy in the numbers and are taking a note of this. ?I see no need or justification for the postponement of the deadline,? he said.
Kohli from Digicable said that he was not in a position to comment on the ministry’s numbers on digitisation. ?But our internal estimates show that at least 50-55% of homes in Mumbai are digitised already while in Delhi, nearly 35% of homes are digitised. In Kolkata, 40-45% homes are digitised while in Chennai, at least 50% of homes are already digitised because of Conditional Access System (CAS),? he said. In a recent briefing to broadcasters in Delhi on digitisation, the ministry had stated that this time around, not only will there be no extension of the deadline, selective switch offs will begin from early October. Channels are expected to air roadblock ads. These are the ?blackout spots? which all broadcasters will carry during specific time-frames in a coordinated manner.
Star?s Shankar said that recently, the Delhi state government had also held a meeting with all relevant stakeholders and had promised all help to operators who intend to digitise. ?The I&B ministry has come up with innovative roadblock ads that are being carried by all TV channels even at prime time for consumers to be aware of the impending deadline,? said Shankar. ?Star and the other channels have been running the ads as advised by the ministry. Even before this, broadcasters had let go of air precious air time to air the ads on the digitisation of cable. A recent roadblock (of DAS ads) was pulled off with perfect synchronisation among the broadcasting community?I don?t see why we should not be able to pull this off a second time.? he said.
Mansukhani of MSO Alliance said that ad campaigns by broadcasters are quite adequate but television audience measurement company Tam Media Research should estimate how many channels are actually carrying government ads on DAS. Endorsements by media personalities such as Arnab Goswami, Barkha Dutt and Rajdeep Sardesai are also awaited, he added.
Broadcasters versus LCOs
The battle lines between local cable operators (LCOs) and various broadcast groups have grown sharper with the current digitisation drive. Broadcasters allege that subscription revenues in India exceed R20,000 crore, out of which only 15-20% reaches them because of rampant under-declaration by the LCOs. Roop Sharma, president of Cable Operators Federation of India, said that the major brunt of digitisation was being borne by the LCOs.
?All costs are being passed on to the local cable operator. The MSO acts like a middleman and just sources the STBs. A lot of the boxes in the market are substandard and do not offer value added services like video on demand. LCOs will be held liable once consumers realise that they have been duped,? Sharma added that she is not opposed to digitisation, provided that it is done in a phased and rational manner. ?This isn?t a national emergency or a flood situation that we rush into it without adequate preparation,? she said. She also has reservations about the 74% FDI now allowed in cable services, which can lead to cartelisation by some of the foreign broadcast networks. ?I can only say that we have reached a phase when foreign networks such as that of Murdoch are free to buy whatever is in sight. Independent operators will now either be banished out of the business, or be forced to sell to bigger networks,? she said. Sharma also believes that any such move on FDI should have been made only after consultation and a consensus amongst industry stakeholders. ?Our opinion was not sought,? she said.
In sharp contrast, Anuj Gandhi, chief executive of IndiaCast group, said that the next phase of growth in broadcast and mobile will come from affordable access of such services and a favourable investment climate is pertinent to achieving this goal. The new FDI limits was a positive development for foreign investors.
?We welcome any move from the government that strengthens the supply side,? he said. Star India?s Shankar pointed out that while broadcasters are ready for the DAS deadline and MSOs are catching up, a lot more needs to be done by the LCOs.
?Without going into the details?the job is eminently doable, and we should stick to the deadline. It is important that no further extensions are granted and, so far, the message from the government has been very positive in this regard,? he said.
100% digitisation tough
Smita Jha, leader – entertainment and media of consulting firm PricewaterhouseCoopers, said that the raise in the FDI limits meant uniformity in slabs?parity not just within media, but also media with telecom in the era of convergence. ?This government has not arbitrarily raised FDI limits in media, these are especially done in distribution related areas keeping in mind the perspectives in technological advancements and also to fuel digitisation. Earlier, there was no clarity on the thought behind the various FDI caps across media businesses.?
Jha added that as far as digitisation goes, broadcasters had been preparing for the sunset date by signing interconnection agreements with the various MSOs.
However, in her opinion, 100% digitisation in all the four metros by October 31 may be tough to achieve given the political situations in certain states where these metros are located. ?If we manage to achieve 90-95% digitisation in Mumbai and Delhi, then I would say that it?s a substantial step in the right direction. For that the government must be firm on the blackout of the analog signal.?
She added that the real test for digitisation would come once digitisation moves to tier 2-3 towns, where the price paid by subscribers to access digital TV services plays a far greater role than in the metros.