- RSCRYPTO completes CAS integration into MStar K1, K5, K7 series chips
- Ryan school murder: Bus conductor granted bail, but no clean chit till yet
- 'Padmavati' row: Let CBFC do its job, says Information and Broadcasting ministry
- Screen 'S Durga' at IFFI, says Kerala High Court
‘STB is our currency’
Jagdish Kumar, the MD and CEO of Hathway Cable and Datacom, is a satisfied man. And why not? Hathway has successfully seeded seven million set-top boxes (STBs) in Phase I and II of Digital Addressable System (DAS) to take the pole position in the cable TV distribution sector.
Kumar, who is a Chartered Accountant by qualification, took charge of Hathway on 21 December 2012 replacing long-serving MD and CEO K Jayaraman. In his 10 months at Hathway, Kumar successfully oversaw the implementation of STBs in Phase II. He also expanded Hathway’s footprint in Phase II cities and acquired Dainik Bhaskar Group’s 49 per cent stake in the JV, Hathway Bhaskar Multinet.
Hathway also fortified its position in Bengaluru by acquiring Citicorp’s cable TV network. Kumar asserts that the expansion to newer markets has helped the MSO to protect its carriage income. Scale will also help in reducing the impact of content costs.
Out of 26 years of his professional career, Kumar has spent 18 years in the media and entertainment industry, including a 16‐year stint with Star TV. Prior to joining Hathway, Kumar was President of Media and Entertainment at Reliance Industries Limited (RIL) working on their 4G broadband project.
In his first interview since taking charge at Hathway, Kumar holds forth on various issues in a tête-à-tête with TelevisionPost’s Sibabrata Das.
Q. Has digitisation helped MSOs emerge stronger?
We have clearly emerged as the No. 1 MSO in the country. We have already deployed seven million set-top boxes (STBs) and have a universe of 10.5 million. Given the expansion opportunities, we are looking at a substantial increase in our base. Significant size will give us economies of scale and we also have a good broadband business.
Another thing to note is that it is strategically important to have a strong pan India presence. Depending on the Hindi Speaking Market (HSM) with carriage income as the focus can be tricky in the digital era as this revenue stream is going to be a challenge with bandwidth for carriage of television channels on cable networks being no more a constraint.
Q. How important are acquisitions in this road to scale up?
We are not interested in paying cash and buying out cable TV networks. This is not the time for such kind of big-ticket acquisitions. We take stakes in cable companies by providing them with STBs and funding their digitisation. Our currency is STBs and our infrastructure to enhance monetisation by digitisation. We have an inventory of one million boxes. We are also in a better position to do their content and carriage contracts with broadcasters.
Scaling up helps in reducing the impact of content cost. While in HSM you only have Media Pro as a giant to deal with, in the south you also have Sun TV Network. So in that sense our market share of above 60% Bengaluru and Hyderabad helps
Q. Do you mean to say that acquisitions were relevant only in the analogue era?
Acquisitions made sense while expanding and gaining entry into new markets. Our equity investment in Gujarat Telelink Private Ltd (GTPL), for instance, has worked wonderfully well. But now valuation expectations for even regional MSOs are pretty high. Some people are talking of Rs 6000-7000 per subscriber. That would in effect mean a 10-year payback period. It doesn’t make sense for us. We are looking at payback period of around 24 months for all our expansion plans.
Q. Did Hathway make any new acquisitions?
We acquired Citicorp’s cable TV network in Bengaluru. This helped us in becoming the largest player in that city.
Scaling up helps in reducing the impact of content cost. While in HSM you only have Media Pro (distributes Star, Zee and Turner channels) as a giant to deal with, in the south you also have Sun TV Network. So in that sense our market share of above 60 per cent in Bengaluru and Hyderabad helps.
Q. Why did you buy out Dainik Bhaskar’s stake to take complete control of the joint venture company which was operating in the cities of Bhopal, Indore and Jaipur? Will we see more such buyouts of your JV partners?
That was a very different case. Dainik Bhaskar was not willing to fund for digitisation and wanted to exit from cable TV business. So the compulsion for Bhaskar to sell its 49 per cent stake in Hathway Bhaskar Multinet was more than our need to buy. As a strategy, we are not looking at buying back our JV partners.
Q. Some regional MSOs have expanded their footprint aggressively ahead of digitisation. Do you think they will come under financial stress and more acquisition opportunities will come for the national MSOs down the road?
Some smaller MSOs have expanded through vendor financing. They have used the activation fee that they collect by installing the boxes at the consumer homes to fund their growth. They were eyeing higher carriage revenues. This revenue pool, however, is going to become smaller. To make matters worse, the loan repayment cycle is maturing. It will also be difficult to finance working capital. For their survival, it will be crucial that they manage to collect money from their local cable operators.
Q. How deep is the fall in carriage revenues for Hathway?
We will not see a fall in our carriage revenue (last fiscal it was around Rs 5.20 bn) this fiscal. This is not to say that major broadcasters have not benefitted from digitisation. While they have seen a 20-25 per cent drop in carriage fees, their subscription income would have gone up by a similar margin. What has actually helped us in protecting our carriage income is expansion into newer territories. We have expanded into cities like Agra, Jabalpur and Kolkata. There are also local channels which we can tap into.
However, carriage will tend to drop once subscription revenue starts flowing in for the MSOs. Once a drug, MSOs have to realise that there will be a correction in the system as channel carrying capacity will no longer be a constraint.
Q. Content cost has jumped almost 39 per cent in the six months of digitisation from January 2013 over the preceding two quarters. How do you see this trend emerging?
There are two reasons for this. Firstly, we have expanded our footprint. Secondly, our earlier contracts with broadcasters were till 31 March 2013. In renewals, we are seeing a jump of 25-30 per cent in our content costs.
We have inked mostly fixed fee deals with broadcasters. But we will be getting into a cost-per-subscriber (CPS) deal with some major networks in the future. The current problem with CPS deals is that we are not able to collect subscription money from the ground. Once that gets sorted out and we have completed the full circle of digitisation, there will be no case of under-declared subscribers. The only point of negotiations with broadcasters will from then on be only on CPS rates. That is the time when we see content costs rising at not more than 10 per cent each year.
Q. With the current ARPUS and the revenue share across the value chain, will MSOs still be dependent on carriage for profitability?
On a net subscription revenue of say Rs 110 (after taxes and the LCO share) per consumer, the payout to broadcasters would be in the region of Rs 75-80. MSOs would have maintenance and other costs. So yes, there will be dependence on carriage for profitability.
Q. Where do you expect Arpus to settle down initially?
We see the initial period of ARPU (without taxes) being at Rs 180. But this should climb to Rs 250 in the next fiscal when consumers start getting used to packaging (choosing their channel packages). Cable ARPUs have been stagnating for so long that we will know the reality of the market when we come to retail billing. The bigger impact will happen in FY’16.
Q. Are ARPU differences emerging between Delhi and Mumbai consumers?
Initial trends are showing that Mumbai consumers are moving towards mid-to-premium channel packages while Delhi is opting for middle bundles.
Q. Have you been able to move towards gross billing in the first phase DAS markets?
We have started gross billing in Delhi and Mumbai. Kolkata should happen sometime in October. The impact of billing will become more effective in the quarter beginning October. We, though, expect a little bit of tussle going on with the LCOs till things eventually settle down.
We intend to commence gross billing in all Phase II cities by November –December 2013.
Q. How much are you collecting from the LCOs currently?
In Mumbai and Delhi, we are able to collect Rs 85 per subscriber. We hope to move towards a certain margin linked to the packages.
Q. How much funding would you require for digitising the next two phases?
We are well funded for our current investment plans. Our plan is have a healthy mix of debt and equity.
Q. Does Macquarie Bank hold stake in Hathway on behalf of Providence?
I can’t comment on those issues. After the first preferential allotment, Providence’s stake went up marginally.
Q. What is the capex towards STBs for this fiscal?
We will have a capex of Rs 3.30 billion for boxes. We have deployed 1.8 million STBs in the first quarter of this fiscal. But as mentioned earlier, we have an inventory of one million boxes.
Q. What are the investment plans for broadband?
We are moving towards Docsis 3 technology and will be offering 50 mbps in South Mumbai. The idea is to offer high broadband speed at very competitive prices.
Q. What are your views on TRAI’s recent tariff order on retail a la carte pricing?
TRAI’s intention is to make it more viable for consumers to go a la carte. We are reviewing all our a la carte packages and there may be corrections. But we don’t see this as having a major impact on us as more than 90 per cent of consumers won’t go for a la carte.