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MediaPro: The fallout and the way forward
By Atul Pande
The recently announced break-up of MediaPro and the pronouncements by the CEOs made for an interesting read, and one couldn’t but surmise that the split was long overdue and claims more than it has achieved, in both strategic and operational terms.
When it was set up three years ago, the stated objectives were to drive monetisation of the broadcasting business, usher in digitisation and to streamline the cash cycle of the cable business which favoured the multi-system and local operator significantly. Given the regulatory stance on the network business and consumer protection, the two partners then felt that much value was sucked out of business and that working together as a conglomerate would help address these issues.
It was a surprise to most at that time that the Competition Commission of India approved this arrangement, as close to 40 per cent of GRPs were being controlled by this new network and it had a near-dominant position in the primetime slot in the Hindi belt. Bollywood, the other driver of network placement, was a virtual monopoly across this entity. This new entity possessed incredible pricing power and indeed had the potential to be a game changer for the cable model in India.
One of the questions that industry-watchers mulled over was the network management strategy of the new company. After all, this was a merger of two companies with discernibly different, though very successful, strategies of dealing with the market. To marry differing approaches to content, profitability, market share and the placement of channels in a common operation appeared difficult and unsustainable.
It was an uneasy relationship at best, a marriage designed to eventually fall apart. Star India CEO Uday Shankar and Zee Entertainment Enterprises Ltd (ZEEL) MD and CEO Punit Goenka did a great job of keeping this together while my friend MediaPro Enterprises India CEO Arun Kapoor did a stellar job of keeping the pot boiling at all times. The pricing and business standards were set very ably by the operating team and a good platform was set up for future development of these concepts.
I think both of the partners would be relieved that they are walking away from this JV with their business model intact, and probably stronger, because of the events of the past few years. There may be a nagging doubt, here and there, that whether three years of transformation were lost which could have driven individual agendas of networks during that period.
Interestingly, while the JV did improve the cash cycle of the business, it was unable to drive the subscription growth to the extent it was thought it would. Ten Sports, Zee’s other distribution business which was independent at that time, grew at a significantly higher clip than the parent over these years. So the question of focusing on niche products through smaller networks came up all the time from a strategic perspective. The jury still continues to be out on that, by the way.
Moreover, with much of the revenue and GRP growth expected to be driven by the MediaPro part of the business of the networks, content strategy which was divergent among two principles could have become an impediment to the two pillars—distribution and placement—of the business. That slowed things down on the execution side and slowed down some of the far-reaching moves the JV could have made, thus leaving both participants mildly dissatisfied with the result.
Of course, with the acquisition of ESPN, Star acquired a major chunk of sticky sports revenue, and interestingly, the spectacular growth of Ten Sports over the last four years also generated a similar scenario with Zee where the sports channel became a key player with the high-value platforms. And the original premise of the arrangement started looking distinctly weak, at the very least. The Telecom Regulatory Authority of India (TRAI) guidelines were a welcome catalyst in accelerating the inevitable.
With the events unfolding as they were, all the participants are happy to go their own way, and in a way, relieved to address the digitisation opportunity on their own, and work on their individual content drivers. In fact, almost certainly, the fall-outs on the distribution investments in cable and direct-to-home (DTH) will be significant, and also the consumer interface and packaging side will see significant moves.
The subliminal power of networks to drive channels into consumer choice sets has always remained underrated, and this fact would be more transparent if GRPs and market share were reported platformwise. For any industry-watcher, it would be clear if one looked at the recent moves by at least one DTH platform to support sister channels through sampling, predatory pricing and placement, and blockage of the rival network’s products. In a stringent consumer protection environment, these kinds of actions could also border as Restrictive Trade Practices. Right now, this strategy is part of the DTH ethos as it has an evolved packaging and pricing structure driven by its direct consumer interface, but will soon be a part of the multi-system operators (MSOs) as they uncouple themselves from the current cacophony in the market with the local cable operators (LCOs) and broadcasters.
The trend that will emerge from this will be that the two networks which are owned and supported by the two large broadcasters will certainly get bigger. The content and distribution strategy will have to mirror each other closely for value maximisation. The current number of households which are in the region of 10 million for the big three cable networks will then start looking inadequate, and the race to acquire households will get a feverish dimension.
The current cable operators looked underpriced from a market-cap perspective and may see large capital infusions. The race to grab real estate will start in earnest now. This will almost certainly drive higher subscription revenue for the two big broadcasters than envisaged, so it’s good news in the short term for them.
This might also trigger structural chain reactions within the other large networks to build dedicated networks in India. In a scramble for space and struggling due to the overhang of MediaPro’s actions over the last three years, their content actions haven’t delivered as much as they should have and the need to build dedicated outlets will be very high. This itself should add much to the acquisition froth in the market.
As I have been saying for the past few months, the real action for the cable system in India will then move to the strategic level, and while we have been focusing on the MSO/LCO level because of the sheer noise, boardrooms have been abuzz with their own strategic confabulations to address this. There continues to be a lack of clarity regarding the juxtaposition of cable and DTH where there are crossholdings or multiple investments, and some of them look likely to converge in the long term.
Much of the consumer and technical solution on the cable side also continues to be affected by the emergence of telecom into data and audio visual. The bull in the china shop continues to be 3G/4G, and the second and third screens. That may change the game completely, and telecom companies and platforms with associations with wireless are the dark horses in the battle. I would be very surprised if we don’t see significant content-driven distribution moves in that space.
The unique position we find ourselves in the industry today also gets tempered by the regulatory view on the aggregators, and the consumer protection caveats which will get built into the law going forward. Clearly, the space continues to be an interesting one, and will attract people with big money and bigger visions.
So, thank you MediaPro, for these three good years, and teaching us much about the cable revolution in India, and accelerating the inevitable, for now.
(Atul Pande is the erstwhile Global Head of Ten Sports. His email is firstname.lastname@example.org and his twitter handle is @atulspeaks)