Who's been spoiling the DTH party?

Why has the government been sitting so long on the Tata-Star TV direct-to-home venture application and on Sun TV's application to launch a DTH venture?

Prasar Bharati CEO K S Sarma's eyes light up when he talks about Doordarshan's direct-to-home (DTH) venture. In less than a year, three million set top boxes for DD Direct, Doordarshan's DTH platform, have been sold.

The phenomenal popularity of the service has helped him tide over the disappointment of not being able to make it a commercial venture.

"The government believes we must stick to our public broadcasting mandate and offer it as a free service to the consumer," he says.

However, that does not stop him from devising other ways of making money. "There are 14 private channels on board today with many others waiting to get on to the platform. We cannot offer them free space forever," Sarma says.

Prasar Bharati intends to charge each channel Rs 1 crore a year soon. "So, say, from 30 private channels we could make Rs 30 crore a year in carriage fee," he adds.

If that's the kind of revenue a non-commercial DTH venture expects to make, the stakes for a commercial venture are bound to be high.

A Star source puts the total DTH market size in India at Rs 200 crore in the first year for everyone put together. This is the revenue that is expected to be generated from approximately four million households.

In seven years, the DTH market is expected to explode to cover 12 million homes.

Little surprise, then, that media and media-related companies have lined up to apply for a DTH licence. Among them are Essel Shyam Communications Ltd, Sun Direct TV Private Limited and Space TV Private Limited, a joint venture between Tata Sons and Network Digital Distribution Services Ltd (NDDSL).

The potential of the business also explains why DTH has become a political hot potato.

For starters, two years and many changes later, the Space TV application is yet to see the light of day. The fate of the Tata-Star (80:20) joint venture plans is contained in the government files that are shuttling between the information and broadcasting ministry and the department of company affairs.

The fate of the Sun Direct TV application filed in February 2005 is similar. The only commercial DTH venture operating in the country today is the Zee group's Dish TV, launched in October 2003.

For the last two years, Zee has been squarely, though privately, blamed for lobbying against Star. Says Prasar Bharati's Sarma.

"You can't say whether Zee is responsible for Star's DTH application debacle, but if Star comes in Zee DTH will be wiped out."

A former information and broadcasting ministry official is more forthcoming: "It is in Zee's interest that Star does not get the licence. The group is known to have tried many things, including getting someone to file public interest litigation (PIL) in the Gwalior High Court against Star's DTH plans on grounds of security."

That was before the Star group roped in the Tatas as its partner. Zee group vice chairman Jawahar Goel does not lose his cool about the allegation.

"I wish we were so powerful as to be able to stall projects. We are being blamed for Star's own follies," he smiles.

Goel says that Star's past record in circumventing media policy guidelines in the case of Star News and FM channel Radio City has not helped the company's case.

Yet the fact remains that the Tata-Star application was meticulously scanned by the government between January 2004 and May 2004. The former information and broadcasting ministry official says that the application was gone through with a fine tooth-comb.

"We met the Tatas brass twice and asked them to make changes, which they did. We were careful as we had the Star News episode behind us."

Last May, information and broadcasting ministry officials recommended that a letter of intent should be given to Star "which is the first step towards getting a licence," says the former ministry official.

Then the government changed "and we hear that the application is still hanging fire," he adds. Information and broadcasting ministry secretary Naveen Chawla did not respond to a questionnaire sent to him on the subject and additional secretary S K Arora said that he could not comment on individual company cases.

However, copies of documents Ice World has suggest that the government's objection to Star's application relates to the shareholders' agreement.

A government note states: "As per the clause of the agreement, right of first refusal is with the partners to the joint venture. Here partners Ms Tata Sons Limited hold 80 per cent interest in equity and Ms Network Digital Distribution Services (NDDSL), a Star Group company, owns 20 per cent of the equity in the joint venture. In case NDDSL will have the first right to acquire the shares of TSL by this process the foreign holding in the company which is providing the DTH services in India will automatically cross more than 49 per cent in total and more than 20 per cent by any individual shareholder which seems to be contrary to the limits announced in FDI as applicable to DTH services."

The twists and turns in a DTH saga

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• The government meticulously scanned the Tata-Star application between January 2004 and May 2004. The information and broadcasting ministry met the Tatas brass twice and asked them to make changes, which they did
• Last May, information and broadcasting ministry officials recommended that a letter of intent should be given to Star. Then the government changed
• The government's objections to the Tata-Star application relate to the shareholders' agreement. Tata Sons Limited holds an 80 per cent interest and a Star group company owns 20 per cent of the equity in the joint venture.

If the Star group company has the first right to acquire the shares of TSL, the foreign holding in the company will automatically cross more than 49 per cent "� which seems to be contrary to the FDI limits for DTH services

In the Star-Tata agreement the board of directors will have the right to determine the compensation of the CEO and CFO. This requires an affirmative vote by the director of the Star group company.

That means the 20 per cent holding company will control the compensation package of the Indian employees of the joint venture. By controlling compensation, the company indirectly controls the CEO and CFO

Objection number two. In the Star-Tata agreement, "the board of directors will have the right to determine the compensation of the CEO and CFO.

This requires, as per Schedule II of the agreement, an affirmative vote by the director of the NDDSL. That means the 20 per cent holding company will control the compensation package of the Indian employees working in the Indian JV.

By controlling compensation, the company indirectly controls the performance of the CEO and CFO which does not give a free hand to the Indian CEO and CFO in discharging their duties..."

Star and the Tatas, it is understood, are planning to change the agreement for the sake of the licence. It is believed that the companies have already consulted their lawyers on the issue and have been advised to incorporate the changes.

Star India says that it is unable to understand why the DTH application is not being cleared. But Star may have an ally now "� Sun TV.

Sun TV is politically connected and has been lobbying to get its DTH project cleared by the ministry. Phone calls and email sent to Maran elicited no response.

In March this year, the information and broadcasting ministry had sought a clarification on the Sun Direct TV application "� on whether "shares held by Kalanithi Maran in Sun TV Private Limited and in applicant, that is, Sun Direct TV Private Ltd, would be in conformity with DTH guidelines."

Incidentally, Sun Direct TV was incorporated on February 16, 2005 with an authorised share capital of Rs 200 crore and a paid up share capital of Rs 150 crore.

The ministry sought the opinion of the department of company affairs on whether Maran's 96.67 per cent shareholding in the DTH venture violated the policy guidelines where a broadcaster cannot own more than a 20 per cent stake in a cable distribution or DTH venture.

And Maran also holds 60 per cent of the equity of Sun TV Private Ltd. The department of company affairs apparently found that Sun Direct was not flouting any DTH norms as Maran and his wife are investing in the venture as individuals.

The application has now been sent back to the information and broadcasting ministry. A Star group source says that it would have been difficult to object to Sun's cross-holdings in DTH, cable and TV channels.

"This is because even the two existing DTH players "� Zee and Doordarshan "� are broadcasters as well and hold more than a 20 per cent stake in television channels," he says.

"The matter could have ended up in court if the cross-holding restriction issue on the Sun application had been raised," he says.

So is Zee's Dish TV having a field day as a monopoly commercial player? "No," says Prasar Bharati's Sarma. "Zee hasn't made much headway in its DTH venture. While we are talking of selling millions of set top boxes, Zee hasn't crossed the two lakh box mark."

Zee's Goel is not hiding his figures. Dish TV has installed 185,000 set top boxes. To drive penetration it also launched new schemes last month: for the cost of the set-top box, a one year's subscription to Dish TV is being given free.

"There's been a surge in demand for our set top boxes after the scheme. We are now selling nearly 2,500 every day," claims Goel. Though he puts up a brave front, Goel does admit that content is the key to driving DTH.

"We are not growing because of the attitude of the foreign broadcasters." Translation: Star and Sony have refused to put their channels on the Zee DTH platform.

In fact, MTV is the latest broadcaster that has refused to put its channel VH1 on the Dish TV platform. "This despite the fact that we (Zee-Turner) are responsible for its cable distribution in India," exclaims Goel.

To aid DTH platforms, a few months back the Telecom Regulatory Authority of India (Trai) did notify that there should be non-discriminatory carriage of content.

Content companies and DTH platforms cannot deny each other mutual access. Star CEO Peter Mukherjea had earlier told Ice World that one stumbling block was the government's insistence that broadcasters share content with other DTH operators.

But the law cannot be implemented in the absence of competition. Clearly, it is a Catch 22 for Dish TV: it may get more content if more companies launch DTH ventures. But then it loses its status as a monopoly player.

Despite the setbacks, Zee has been creating and adding more channels to its bouquet. It also claims that it is developing a personal video recorder (a la Tivo) in Korea for the Indian market.

Doordarshan, meanwhile, has commissioned TV viewership monitoring agency TAM to figure out which channels are driving its DTH platform.

The answer to the question is important for Sarma as he has to deal with a waiting list of 60 new channels that want to join DD Direct.

To accommodate the new private channels, he has also sought the government's permission to allow him to expand the capacity of DD Direct "� from 30 channels now to 50 channels.

But doesn't he fear being wiped out by Sun and Star once they enter the fray? "Not DD Direct. We cater to the middle and lower classes," he notes.

Finally, how long can business rivalry hold back permission to launch new DTH platforms? Media industry sources say that there may be good news.

Both Sun and Star are likely to get their licences in the very near future. For the Tatas and the Star group at least, that will end their long and frustrating wait to go on air.

(Additional reporting by Surajeet Das Gupta)