Will Videocon, Reliance Be Able To Raise TV Digitization Funds From PE Funds?
By : Kaushal Trivedi | 8 November 2011 Industry : MediaCategory : Private Equity
In the context of Digitization of TV, investment figures of Rs 20,000 to Rs40,000 Cr are being circulated.
According to Ambika Soni (I&B Minister): With government expecting a revenue mop up of Rs 30,000 Cr on account of fees, subscription, etc. Govt is keen on smoothing out the investments between Rs. 20,000 crore to Rs. 40,000 crore and the issue has been referred to the Committee of Secretaries for sorting out.
While these massive figures and talks of giving infrastructure status to digitization ramble on, the difficult industry goes on sinking money.
The number one player, Dish TV leads with investments is trading at a market cap of Rs 8000 Cr. (I hate selling Dish TV at 6 bucks post Lehman). Dish TV has been raising money to fund its expansion. Through series of transactions between 2007 till date, Dish TV has raised PE money, Public Money, GDR, Rights and talks of QIP and a figure of atleast $500 MM is sunk.
SunDirect has reportedly overtaken TataSky as second player somewhere in 2009-10, belongs to Maran Family and has a forte in South.
Tata Sky, a JV between Rupert Murdoch’s Sky & Tata is a third with about 7 million subscribers. According to Harit Nagpal, Tata Sky CEO, Tata has already invested close to $ 1 Billion.
Of this $56 MM came from Temasek Holdings in 2007. Star got in excess of $100 MM.
Post FIPB clearance, TS Investments is a 51:49 JV between Tata Sons & Murdoch’s Star- with four shareholders in Tata Sky namely Tata Sons (50%), TS Investments (20%), Baytree Investments Mauritius (10%) and Network Digital Distribution Services (NDDS) of Dubai (20%). NDDS is a Star group company.
With around 4 million subscribers comes the fourth player, Videocon’s Bharat Business Channel Limited, which is now planning to sell a 25% stake in its DTH business D2H for $75 million to $100 million (Rs 367.5 crore to Rs 490 crore). The report cites sources to add that potential investors include ICICI Venture, the PE firm of Indian bank, ICICI Bank and that Videocon has hired UBS to search for a potential investor.
The strategy Videocon seemed to rely on is it’s electronics hardware manufacturing facilities that would bring down the box costs and entice the end consumer. It also plans to bundle TV and other products manufactured by it, into the offering, converting this into a backward integration game.
This comes just months after reports that Anil Ambani’s Reliance ADAG was selling 49% stake in its Reliance BIG TV DTH venture to one or more investors to raise Rs 2,000 crore to Rs 2,500 crore, following the hike in FDI cap in DTH to 74%. The reports had indicated that the group was already in talks with US cable company Comcast.
Need for capital comes from:
With subscriber acquisition costs going up and unfavorable tax conditions in states, the industry has suffered losses. Also, running costs including satellite transponder rentals and maintaining uplinking stations are capital intensive.
Further, the industry is being taxed at 30% while being in the investment phase. In certain states, it is close to 40%. Despite DTH, occupying only 20-25% of the total pay TV market, we contribute by way of taxes and revenue share, equal to what cable TV does. There have been loud complaints on this which has prompted government making noises about looking upon this sector as Infrastructure. (How do you give a dry smile, gazing into a mirror..)
Big brother of threats:
Doordarshan is broadcasting to anywhere between 7-27 Million FREE.
On the other hand a small but potentially lethal competition from IPTV may hold back big capex commitments from players. Currently with less than 1Lakh IPTV connections mainly from AirTel, compared to 23 Million DTH connections, it’s all safe grounds for DTH. But countries like France has as high as 9 million IPTV subscribers (Total Population: 64 Million). Eventually when viewing tastes are completely fragmented and indivualized, that’s where we would be moving to.
Recent partnership of Sony with Google TV shows that there is this another opportunity for TV makers to get associated directly with Internet TV providers by-passing the whole Operator industry.
Google TV () is already creating a platform to beat the need for satellites.
Will Private Equity Firms step forward to make the investments in this sector?
I think this question is a function of which group has how much exposure to banks, which the banks simply can’t stand. Those with exposure dangerous enough, will see the PE arms probably carrying the risk to see through the whole capex intensive cycle.
On a tangent.. What happens to the cable guys and DTH operators post IPTV?
As it happens, between protests and ecking out revenue from fully depreciated returns, Cable Operators will be joined by DTH operators in distributing SetTop Boxes for Internet TV (This box will make Dumb TV internet enabled, just like Cable wallah’s Settop box makes dumb cable smart). This process itself should run till ALL people simply buy SMART TV. And with India’s large rural population etc, that’s some distance away.
The whole thing might be 5-10 years away and is closely tied with the Broadband roll out in the country. And I fear that exactly as all the money put into DTH starts recuperating, the smart TV may start becoming big. I think that’s why some players and PE money is sitting on the sidelines, waiting for the struggle to resolve one way.
Is India ready for Cloud TV?
Traditionally India has been very adaptive to change and technology. It’s as if India and technology are inseparable. There were multiple services which were launched sceptically in India, yet they took off.
Mobile phones and DTH are two such examples. Cloud TV is a natural progression to India’s technological embracement. If delivered properly, cloud TV could take off in a serious way.
I’m sure the question of Is India ready for a mobile phone was posed back in the year 2000.
Where’s the bandwidth?
India unfortunately defines 256 kbps as broadband. Though it plans to revise the minimum requirement for broadband to be 2 Mbps, it’s still years away.
Between 3G and Broadband there are little over 20 million subscribers in India. If launched today, Star India’s cloud TV will reach only 20 million subscribers. For the service to reach as many as possible, content producers have to take care of the distribution to ubiquitous small screens.