'Cable TV sector sees rapid consolidation and new competition in 2008'
(17 Jun '09 ; 4.40 . pm)

Cable TV companies have attracted private equity funding and used it for consolidation and digitalisation. But tight liquidity credit markets, intense competition to woo local cable operators, and rise in cost structures present a challenging 2009, says Hathway Cable & Datacom MD & CEO K Jayaraman.

2008 marked the emergence of new multi-system operators (MSOs) with pan India ambitions. This resulted in intense competition to woo the local cable operators. The year also marked subtantial private equity/mezannine funding to some of the existing and new MSOs. Some estimates say that the combined inflows during the year could have reached about Rs 7 billion.

The substantial equity inflows resulted in furthering rapid consolidation of the industry with the independent cable operators (ICOs) partnering or entering into joint ventures with the larger MSOs. In fact some estimates put that almost 40 per cent of the total C&S (cable & satellite) homes could be the cumulative universe under the umbrella of the larger MSOs.

A welcome fall out of the rapid consolidation and equity flow was the intensive pace of digital cable tv roll out. Incremental voluntary digital cable during the year could have touched one million, based on rough estimates.

But this was again restricted to selective MSOs. Customers who opted for digital cable enjoyed 150 plus channels at the same price as of analogue. The digital boxes were also subsidised deeply by the MSOs. Digital cable was able to effectively combat the competition from satellite despite the latter companies having huge funding and high decibal advertisements. While the fob prices of cable digital boxes fell, the gain was lost due to 20 per cent rupee depreciation during the year.

The year also saw spiraling salary costs in the cable TV companies, with each one outdoing the other, even as subscription income lagged. The raged optimism arising out of projected placement fees and new capital infusion fuelled the salary costs and other overheads too.

Sadly towards the last quarter of the calendar year due to a combination of global meltdown and zero liquidity in the Indian banking system, the companies were sent scurrying for cover and control over these costs. While it may not be easy to cut these fixed costs, the situation can result in further profitability pressure for unorthodox business models in the year 2009.

The intense competition to woo the local cable operators (LCOs) sucked a lot of funding and, therefore, the roll out of value added services like broadband through cable etc suffered, barring a few whose inherent business model comprise these services too.

While the year saw rapid consolidation and new competition, sadly the core subscription business was forgotten. Subscription income from LCOs have dipped for the industry as a whole, except for business model where last mile also co-existed, as the chase for territory and placement fees gained predominance. Business models and enterprise valuations were being built around these non-conventional parameters. Cost structures increased rapidly including pay channel costs even as the LCOs dodged the MSOs.

The last quarter meltdown and liquidity crisis, coupled with slowing down of advertisement income for the channels, did send ominous signals to the MSOs with non conventional parameters. Pressure had started building rather quickly, but the difficult signs are being ignored.

Overall, the year ended on a sombre mood with a more challenging year 2009 in the offing.

 

 

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