How the Indian cable TV industry is structured

The immediate reaction of anyone taking a look at the penetration of cable TV in India would be that there is pots of money to be made. Cable operators charge a subscriber anywhere from Rs 50 for a 10-12 channel service to Rs 125-150 a month for a 30-60 channel plus service. Even if we consider that there are just 20 million cable TV homes in India (which is a conservative figure), and that a cable operator on an average gets about Rs 100 per subscriber, the national monthly revenues work out to Rs 2000 million from cable TV. On an annual basis, the potential revenues work out to Rs 24,000 million (US $600 million). That figure is just the tip of the iceberg, and hence it may look attractive enough to make any western cable operator or large Indian company to start licking its chops. However, they would be first forewarned to take a look at the structure of the Indian cable industry.

The country is estimated to have anywhere from 30,000-60,000 cable operators. A wide range as any but the general opinion is that the figure is closer to the lower number. The number of operators who registered themselves with the post office after the Cable TV Network Regulation Act, 1995 mandated so is about 16,000. The average size of each network is estimated at 2000 subscribers in the major metros, about 200-300 for smaller towns and 50-100 for rural areas.Until 1994, the average size was about one-fourth what it is now for urban India. Most of the networks had been set up by small-time entrepreneurs and were built without any regulations in place. With local municipal bodies not giving clearances to operators to lay cable underground or string it up on poles erected by utility companies, these individuals flung cable across buildings, treetops, expanding on their own initiative.

But things have changed since then with large companies entering the area of networking: The UK-based Hinduja family through a media company they set up with overseas Sindhi investors IndusInd Media, Rupert Murdoch and ZeeTV promoter Subhash Chandra through a 50:50 joint venture Siticable, and print media company Business India through BI TV Networks (which has now been taken over Hathway Cable & Datacom. Simultaneously, some of the more ambitious of the smaller operators took over others in the vicinity and enlarged their networks. When the large players entered the business, they first tried buying up operators. But the smaller operators asked for prohibitively high per sub fees for an outright sale. The rate that was charged depended on the quality of the subscriber base, whether it constituted high net worth individuals or lower income households. It varied from as low as Rs 300 to as high as Rs 2000 per subscriber.

Each company found their own solution to this problem. Siticable took the joint venture route: it selected one or two operators in a locality and made them partners in a new joint venture company. Both Siticable and the partners pumped in money into the company to upgrade the headend –if this was needed – to offer a superior and high quality service. Advertising revenue was shared between Siticable and the company. The joint venture’s role was to expand Siticable’s network, come what may. It offered the superior quality 35-40 channel service to other operators in the vicinity of the headend at a franchise fee of Rs 25 per subscriber. The operator, often had to give in because, subscriber pressure for a better service was pretty high. INCablenet (the cabling company of IndusInd Media) took a different route: it appointed distributors to increase the penetration of InCable. These distributors had no stake in the network apart from sharing revenues with INCableNet. The company then was known as Aasia Industrial Technologies but was later renamed as INCablenet. INcablenet charged operators who chose to become franchises Rs 15 per subscriber. This has since been raised to Rs 25. The company has also changed its policy of appointing distributors: it is taking the joint venture route increasingly.

Again the fact that the network was offering a superior cable service—with a cable channel offering local event coverage and an exclusive Hindi movie channel -- worked against the small cable operator who had to cave in when subscribers started demanding for it. He gave up his headend and functioned as a disseminator or a franchisee of the InCable service. He also went around collecting subscription fees from subscribers as usual, and maintaining his network too.

The Business India group got into the business to ensure carriage for its satellite channel TVi, and also because it saw some potential in cable TV. BI TV Cable Networks prefers to form co-operatives among cable operators. It invests in a headend and the cooperative firm --- which has six or seven cable operators as partners ---looks after and maintains it. The operators normally give up their headends and take a signal feed from this headend. Advertising revenue was shared in the cable company and went to maintain the network. BiTV used to keep a hands-off distance from the network, leaving its management to the cooperative and retaining a 50% or less equity in the venture. But because of problems that the promoter – the Business India group faced – on the financial front, it sold out its interest in BI Cable TV to the Rajan Raheja group which has now emerged as a major cable TV force. The Rajan Raheja cable TV networking firm Hathway Cable & Datacom now has a presence in about nine cities currently and is aggressively thinking expansion. It has a strong presence in Mumbai where it is allied with major cable operators such as UCN-Space Vision, and Shri Bhawani Cabletel.

There was another way that large companies moved into the business. India Information Technologies – a joint venture between The Hindustan Times publishing group and Falcon Cable of the US – spent about Rs 50 million acquiring cable operators in Delhi by buying the control rooms and their subscriber network outright. Prices paid were as high as Rs 2,000 per subscriber to cable operators. It did this in 1994. To date it has to still get control of the networks or the money back. The company has washed its hands off the venture.

.Asianet Satellite Communications took another route. It got clearances from the local state electricity board in Kerala and is using the public utilities’ poles and facilities to string cable. The company is not giving out its feed to existing operators, it is taking the route of getting new subscribers. Its management has since sold the cable TV networks to the Rajan Raheja group. RPG Netcom, owned by the Rs 70,000 million turnover RPG Group, is using one of the group companies’ (CESC Ltd) utilities in Calcutta for its network. CESC being an electricity supply company can assist the cable company in subscriber billing and management.

The current structure of the cable industry has not really concentrated power in the MSOs hands since it doesn’t really own the entire network. The route that has been taken in the majority of cases is that of franchising through a chain, which can be simple or extremely complicated. The MSO gives a cable TV feed to a small time operator who has dismantled (though not totally) his headend and calls him its franchisees. This operator then illegally sublicenses the feed to another cable TV operator who also may choose to do the same.

The first franchisee does not inform the MSO that he is indulging in piracy. He pays him only for the subscriber base that he has disclosed to the MSO. Should the MSO or anyone in the upper half of the chain object and ask the sub-sub-sub cable operator for a franchise fee or what is estimated to be the right franchise fee, the cable operator threatens to flee to the rival MSO or the rival MSO’s distributor or even take a feed from the franchisee’s franchisee.

The model that the large companies have used to build up their networks has not really given them control over the cable operators or their subscribers. Despite having a claimed subscriber base of a million in Mumbai, InCable has only 70,000 direct subscribers who are charged Rs 100-150 for a 35 channel service; the rest of them are serviced by franchisees who pay INCable Rs 25 per subscriber.

MSOs had to take the franchising route because by the time they decided to get into the business, there were several small entrepreneurs operating as cable operators in an area offering six to 12 channels. Several of these operators could not upgrade their networks as either they were not willing to put in the required funds or they weren’t serious about the business or they did not know any better. Hence they were open to MSOs.

Those who did not welcome the MSOs were coerced into becoming franchises through means fair and foul. The MSOs undercut a smaller cable operator whose headend they wanted to eliminate by approaching his subscribers and offering them a better service at a lower fee or at no cost. Cable operators who couldn’t measure up had to give in and become franchisees. If this didn’t work then, musclemen were brought in to force them to give up. Some of the troublesome small operators were also given a thrashing by the MSO if they did not cooperate.

Franchisees serve a dual purpose: they help MSOs shore up their numbers which are then tom-tommed to advertisers in order to attract advertising But franchisees also come with a downside risk: since they are not owned by the MSO, they can act tough with it by threatening to go to a rival cable network which is also seeking to expand in the same area if their demands are not met.

What complicates the industry structure further is the fact that cable operators who become franchisees themselves have franchisees and these franchisees in some locations have franchisees. This chain can be up to three-four links long in some areas. The large companies in many cases have no say in the matter and cannot even claim subscriber fees from them. Often, they have to be satisfied with whatever amounts franchisees gives them as the fee for receiving the signal feed. Fanchisees even use blackmail and threaten to switch over to rival networks, if they are pressured to ante up the franchisee fee. Often, some of them even retain a dish, receivers and modulators and a video cassette player to relay their own video channels or a channel that the MSO doesn’t. In some cases the sub-operator is involved with the mafia or affiliated with a political party so the MSO cannot even claim a fee from him.

The current system gives the MSOs limited control over their networks. The franchisees disclose what they want to and sometimes themselves don’t know enough about their own networks for disclosure. It is this very tendency that forced the MSOs not to take on the responsibility of centrally paying off the fees for pay TV channels. The MSOs, especially InCablenet, have told pay TV channels like ESPN to deal directly with franchisees when it comes to subscriber fee collection. But in recent times, it has taken on the responsibility for the entire network and centrally pays for its franchisees with ESPN.

As far as the viewer is concerned he has very little say in what gets carried on the network. He has little choice because it’s the cable operator who decides which channel to he switches on, when and on which band. Little attention is paid to the viewer who despite frantic calls is

Addressability is something that the cable TV industry has not paid attention to because there has been no push from consumers. A package of 30-60 channels costs about Rs 125-Rs 150 per (US$2.50-$3.50) month. While viewers watch just about 6-10 channels regularly, they like the variety that is being offered at the low price.

For their part, a majority of cable TV operators has not invested in upgrading their headend systems because of the high investments involved for decoding and encoding equipment. They have to upgrade their entire cable system to two-way capability. They fear that subscribers maybe averse to going in for an addressable set top box and paying additionally for tiered services. At the back of the mind, there is the worry that they may not have control over their networks tomorrow should the government decree franchising and licensing. Finally, pay TV programmers are also to blame for the lack of movement towards addressability. Managers at these companies have consistently given in to the cable TV trade’s demands, sometimes justifiably, sometimes not so. The focus of distribution managers is to get carriage for their channels, and some have even forked out money to cable TV operators, instead of it being the other way round.

However, it looks like times are changing. MSOs like Hathway, Siticable and IN Cable have started taking the route of upgrading their systems. Siti and INCable have started stringing fibre optics in some of the cities where they have a presence. And they are making their distribution system reverse-path-capable. What has incentivised them is the possibility of offering Internet services over cable. However, the last mile problems remain with the franchisees or sub-operators not sprucing up their part of the cable TV network. Until that is resolved, the cable TV industry will never be addressed right.

©Copyright; Ambez Media & Market Research, 1999.

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