In effect, nothing. There will be no deluge of investment into the Rs 115,700-crore Indian media and entertainment industry, for two reasons.
One, these changes are incremental. Hundred per cent FDI into cable, DTH and Headend-in-the-Sky was already announced around Diwali in 2015. What's changed is the proportion of investment allowed through the automatic route. When 100 per cent FDI was allowed, investors did not rush to India. The world's biggest cable firms, Comcast and Liberty Global, have stayed away. Except for Hathway and a few others, most haven't gone beyond one round of capital or exhausted the 74 per cent limit.
Why has the TV distribution segment, which has been digitising for over four years now, not managed to raise more money for what is a hugely capital-intensive exercise?
That's reason number two. "Unless structural issues are sorted out we cannot attract FDI," states Jagdish Kumar, CEO, Hathway Cable & Datacom. Of the more than 160 million homes in India with TV, just about half are digital, most of them thanks to DTH. The others are not tracked. A bulk of the money they pay leaks out of the system. All attempts at organising this industry have worked only patchily because of extreme fragmentation, no addressable technology (like a set-top box) and the political tinge it carries. Without knowing the real numbers of subscribers and how much they bring in, most global investors would be chary of investing. "Cable cannot be investment-worthy till digitisation is complete and that means addressable digitisation, not just dabba lagana (putting boxes in homes)," says Harit Nagpal, CEO, Tata Sky.
There are other issues - price regulation, entertainment tax and its varying complexities across states, among others. The real price of cable TV in India has fallen over the last 10 years. It is a market with complicated tariff controls and cross-industry litigation with conflicting results. The regulator, Telecom Regulatory Authority of India (Trai), which has otherwise done a fair bit to bring order, insists on applying principles that worked in voice telephony to TV content pricing. Little wonder then the world's second-largest TV market by volume does pathetically on both average revenues per user (Arpu) and margins, the metrics most investors would look at.
What can help to egg investors on? "Take away the cross-holding clause and push prepaid," says Nagpal. The DTH policy has caps for broadcasters with a holding in TV distribution and vice versa. While many Indian groups such as Zee and Sun own both broadcast and distribution assets (through different entities), operators such as Tata Sky have stuck to the rule, albeit with oft-expressed frustration. TV distribution is a long gestation industry: it takes at least seven years for a DTH operator to start turning cash profits and more than a decade to break even. And that needs a strategic investor, which will come in only if it is allowed control. The Trai had suggested relaxing the caps in a paper sometime back.
Kumar points to an eight per cent tax on gross revenues for cable companies seeking a broadband licence - which means a tax on total revenues, not just on broadband revenues, in addition to existing taxes. If the idea is to push internet penetration (and therefore, broadband) in the country, this is hardly an incentive. Note that offering broadband helps increase Arpus and profits by as much as five to seven times, making cable a more interesting investment area. Also note that globally some of the biggest broadband players are cable companies.
If the idea is grab newspaper headlines, the current changes are good. If the idea is to get real investors to put in billions into building cable and broadband infrastructure, create jobs, programming options and shareholder wealth, some well thought out, solid policy overhaul is needed.
Twitter: @vanitakohlik