After buying a Bangla channel last year, Multi Screen Media (Sony) is scouting around for a sports one. There are reports that Sun Network will be launching a Bhojpuri channel. Star India has launched channels in almost all major Indian languages in the last year or so. Zee Entertainment Enterprises, which has channels in Kannada, Marathi, Bangla, Tamil and others, is planning to launch more in each of these languages. Turner International India, which had a disastrous foray in Hindi broadcasting last year with Real, is raring for more. It just paid $126 million to buy out NDTV Imagine.
Ad revenue growth has been sluggish for over three years now. In 2009, advertising, which brings in over 80 per cent of the revenues for broadcasters, grew at an abysmal 6-odd per cent, less than half the rate at which newspaper ad revenues grew, according to Zenith Optimedia figures. The rate per 10 seconds of ad time on TV has fallen by anywhere between 20 and 50 per cent, hitting realisations.
| But at a slower pace for broadcasters (Rs crore) | |||||
| Pay revenues | Broadcaster’s revenues | ||||
| Cable | DTH | Total | Broadcaster share of pay revenue | Advertising revenue | Total |
| 12,960 | 720 | 13,680 | 1,944 | 7,400 | 9,344 |
| 14,940 | 1,440 | 16,380 | 2,241 | 8,500 | 10,741 |
| 18,540 | 1,800 | 20,340 | 2,781 | 9,000 | 11,781 |
| Note: Pay revenue at Rs 150 per month for cable and DTH homes 72 mn cable homes in 2007 rose to 103 mn in 2009 and DTH homes from 8 mn to 18 mn. Not all of these are paying homes. Broadcaster revenue is assumed at 15% of cable revenue — share from DTH subject to individual negotiation and is not yet very significant | |||||
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There is no doubt about it. The Rs 29,000 crore Indian broadcasting industry is in deep trouble.
The reasons go way beyond the slowdown that hit India in the last quarter of 2008. “The slowdown just exposed all of us to the fact that we are heavily dependent on advertising,” says KVL Narayan Rao, CEO, New Delhi Television (NDTV). Going forward, “The only way television revenues will grow is by unlocking subscription revenue,” says G Krishnan, executive director and CEO of TV Today Network.
What is the problem?
Of the Rs 18,500 crore that cable operators collect, only 15-20 per cent comes back to broadcasters. This is because the lack of addressability has made under-declaration of revenues a part of the business.
From around 200 in 2003, the total number of channels available for Indian audiences has gone up to 417 in 2009, according to TAM Media Research. This pressure on TV sets that are designed to receive only 106 channels put distributors in a fantastic position. They started demanding more and more in carriage and placement fees especially from broadcasters on the verge of a launch. Many channels, flush with private equity or IPO money, blew up hundreds of crores on distribution, pushing costs up for everyone. “A lot of new channels are a product of ‘spreadsheet capitalism’ where analysts present a rosy picture on paper, very little of which translates into reality on ground,” says Krishnan.
It has now reached a stage where what broadcasters earn from pay revenues is eaten up by distribution costs. For instance at NDTV, distribution costs were 24 per cent of top line in 2008-09. In the same year, pay revenues brought in only 5 per cent. “The whole carriage/placement fee thing has gone so out of hand that it will soon become a zero-sum game,” says Man Jit Singh, CEO, Multi Screen Media (Sony).
To add to this, in 2004, the Telecom Regulatory Authority of India or Trai, which is the broadcast regulator, froze the prices at which broadcasters could retail their channels.
DTH to the rescue
The way out clearly was digitising all TV homes. This would increase the capacity of TV sets since ten digital channels can be compressed into the space that one analog channel takes. It would also make monitoring and collecting money less painful. However, the cost of doing that across millions or homes was so huge and the benefits so clearly in favour of broadcasters that no one wanted to attempt it.
The government tried mandating the installation of set-top-boxes with the flawed conditional access system amendment to the Cable Act. It did not work. Seven years later, just over a million or about 1 per cent of total cable homes in India have a box.
Direct-to-home (DTH) model was in regulatory cold storage till a proper policy came in 2001. Finally in 2003, Zee launched the first service. By 2006, Tata-Sky joined in and the parrying between the two players ensured that the market took off. By the end of 2009, there were 18 million homes with DTH.
The first reports across dozens of broadcasters are positive. At Sony, DTH brought in 10 per cent of pay revenues three years ago. This went up to 30 per cent in 2008-09 even as cable remained stagnant, according to Singh. At Zee, the proportion of total revenues from DTH rose from 5 per cent in March 2008 to 10 per cent in March 2009. Turner, Star, and almost every other major broadcaster are seeing an uptick in pay revenues from DTH. So, DTH “has helped the cause of digitisation,” says Atul Das, executive vice president, corporate planning, strategy and business development, Zee Entertainment Enterprises.
Much of this seems too little, too late. The years of inaction on pay revenues have meant that the entire TV eco-system is skewed towards advertisers. So, even niche channels, say National Geographic or BBC Entertainment, have to play the ratings game. For instance, HBO is a premium pay channel everywhere else in the world — people pay anywhere from $12 to $50 a month to watch it. India is the only market where it is dependent on advertising revenues.
Just three changes would help — higher limits on foreign investment in different distribution technologies, licensing in cable and dismantling of pricing regulations. For instance, if cable areas were licensed, investment into digitisation would pick up. The biggest reason cable, one of the most robust distribution technologies, does not attract even a fraction of the investment that has come into DTH is because last-mile ownership is uncertain. Multiple operators are allowed to operate in an area. Licensing would limit this to one or two and make it worth their while to invest in digitisation.
The TV broadcasting industry, however, has a pathetic record on working together. There are at least half a dozen different organisations that lobby (rather ineffectually) on somewhat contradictory issues. Not everyone agrees. “On the contrary, broadcasters stand united and lobby the government and regulators through bodies such as the IBF (Indian Broadcasting Foundation),” says Siddharth Jain, vice president, South Asia, Turner International India.
The silver lining
Rao points to the happy bits. Only one- third of Indian homes have a TV set, and advertising forms just under half per cent of GDP. As the economy continues to grow, spends should go to 1 per cent or so. They will, but the advertiser will demand a lot more for his rupee. The fact is that Hindi and English channels now offer lower returns for advertisers while the cost of a launch in these genres is exorbitant. The most successful general entertainment channel (GEC) of the four that launched in 2008 and 2009, spent a reported Rs 500 crore to establish its leadership position.
That explains why everyone is rushing to the non-Hindi/English markets. The viewership in languages such as Tamil, Telugu, Marathi or Bhojpuri among other languages has held steady at one-third of the total TV viewership in India over the last few years. Plus these are underserved markets dominated by one or two channels — say Sun TV in Tamil or Zee Marathi. Bhojpuri, for instance, did not have a channel till 2008. Each language could become a Rs 500 crore market as all kinds of channels — from GEC to music and news — get launched. The margins are great because it costs a fraction of Hindi to launch a channel in any of these languages.
While there is no doubt about the ad potential of other markets, pushing into these without a plan on how to increase pay revenues will not help broadcasters in the long run — read three years from now. In the short run, they might see spurts of growth depending on which of the new channels work.