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“We are not going to create another monster by paying carriage fee to DTH”: Anuj Gandhi

IndiaCast UTV chief executive officer Anuj Gandhi is showing how hard he can fight. When Dish TV made the Disney and TV18 group of channels available only a la carte to their subscribers, he was quick to take up the challenge. “We will not pay carriage fee to the direct-to-home (DTH) operator. We will not buckle under any kind of pressure,” he says.

The New Year rivalry has made the soft-spoken CEO only tougher. “Just because there was an anomaly in the cable market, which too is now being corrected by digitisation, does not mean that DTH platforms need now to behave like analogue cable TV operators,” he says.

Shrugging off Dish TV’s moves, Gandhi says distribution platforms should fight on subscriber revenue growth and build their business models on selling content, not capacity.

In an interview with TelevisionPost’s Sibabrata Das, Gandhi hits hard on Dish TV and explains why broadcasters are hand-holding the multi-system operators (MSOs) in the short run. He also talks about the future nature of long-term content deals and how the industry should focus on lifting ARPUs.

Isn’t the fight between IndiaCast and Dish TV strategic in nature and, hence, more difficult to resolve than the other retransmission deal negotiations?

Yes, this is a more fundamental issue—not only for us, but the entire industry. Dish TV has taken a fundamental position that it needs to get carriage revenue to sustain its business. The position has been defined by the platform and we are doing what is necessary to protect our business interests. Dish TV clearly wanted to set an example with the first major deal that came for renewal. However, we are also very clear that we would not buckle under any kind of pressure.

But isn’t there a certain logic in India’s largest DTH operator asking for carriage fee from broadcasters?

If you look at Dish TV’s financial and business performance, what you see is a company plagued by two fundamental issues—stagnant subscriber base and low ARPU (average revenue per user). On the other hand, three other DTH players—Tata Sky, Videocon d2h and Airtel Digital TV—are growing in a healthy manner. They have, in fact, caught up with Dish TV in terms of active subscribers. Remember that Dish TV has a head start of one year over Tata Sky and 3–4 years over the others. Instead of competing with them on subscriber revenue growth, Dish TV has chosen an alternative path of driving revenue through carriage. This, we believe, is a regressive approach.

Moreover, all platforms in India are engaged only in content distribution. If the raw material (read content) becomes the bone of contention, obviously the consumer, growth of the platform and service quality would suffer.

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Instead of competing with its peers on subscriber revenue growth, Dish TV has chosen an alternative path of driving revenue through carriage. This, we believe, is a regressive approach — Anuj Gandhi

Why should the MSOs only get carriage fees in a digital regime?

The cable market is going through a metamorphosis with digitisation happening in the real sense. MSOs have local cable operators (LCOs) to deal with which is a huge factor. They need an extended support for a short term so that they can rectify the current systemic anomalies—be it direct billing to consumer or a fair share division between LCO/MSO and the broadcaster. We see carriage fee becoming reasonable to negligible over a period of time. In the past 12 months, carriage fee for most channels has reduced significantly. The MSOs’ challenge of managing the LCOs and realising the ground collections from them is real and that’s why broadcasters have supported them in the short run.

DTH has no such challenge—neither of collection nor of having another stakeholder, like the LCO. Yes, DTH does have its share of problems, such as churn and longer payback on investment, but the answer to those is certainly not carriage fee.

But isn’t there a fear of channel ratings getting impacted if distribution on cable networks isn’t properly addressed?

Carriage fee for channels in the analogue era was due to the shortage of capacity or shelf space. Carriage fee in the digital environment is a short-lived phenomenon—it’s what I call ‘short-term bridge financing’ given to MSOs till they manage direct billing and correct the MSO/LCO share. Even MSOs realise that in medium-to-long term, the commercial deals with broadcasters have to be based on a symbiotic understanding, i.e. a win-win situation, so that they get higher ARPUs and subscribers get better content.

Has IndiaCast taken a fixed position to not pay carriage fee to Dish TV because it will set off a chain reaction with regard to its future deals with other DTH operators?

As I said before, carriage fee on cable itself is a short-term phenomenon, at least for the major pay TV channels. We as content owners and aggregators have decided to hand-hold the MSOs for this short period.

Now, I am not willing to create another monster by paying carriage fees to DTH companies—whether to Dish or to any other operator for that matter. The platforms need to make it clear that they are in the business of selling content, not capacity.

By making the IndiaCast UTV channels a la carte, the DTH operator expects its content cost to come down substantially. Will you not budge considering a loss in revenue?

Two things are at stake here. First, we will not be blackmailed by anyone into paying carriage. Second, when it comes to payment for our channels that Dish TV claims that it will retail on a la carte basis, we are fairly confident of our product and brands. If Dish TV does a transparent selling and declaration, we don’t foresee a revenue loss. In fact, we foresee a significant loss to Dish TV’s retail revenues. It will be extremely tough for Dish TV to compete with other leading DTH and cable platforms who offer most of our channels in packages. Let’s see how Dish copes with the challenge.

Regardless of whether we make more money or less, we are not willing to budge from our position to do a fair and sensible deal, let alone being blackmailed for carriage.

What if there is a drop in the ratings of the channels distributed by IndiaCast UTV?

According to our estimate, Dish TV’s contribution to ratings is not more than 2.5–3% at the most at the national level and that, too, spread widely across the country. In fact, the first four days’ impact has been negligible across our distributed channels, as per TAM ratings. We don’t see it as a big issue at all. In any case, most channels most of the times are displaced or not carried on some of the networks. With such a small rating contribution, we don’t see any threat.

Do you think Dish TV handled the situation badly?

It wasn’t us who started the fight. But 45 days before our contract was to expire, Dish TV ran a scroll for ‘on-request’ channels, without a conversation or discussion with us. In fact, when we called a day before this was implemented based on some information we got from the media, they categorically denied any such plan. We don’t believe in doing business in this manner.

Dish TV’s argument is that the net content cost for DTH operators is higher than that of MSOs because of carriage. So, why shouldn’t they try to bring down their net content cost by charging carriage?

Throughout the world, platforms pay 30–35 per cent of their revenue as content cost. This goes up to even close to 40 per cent in highly competitive markets where multiple platforms operate. The percentage is regardless of ARPUs and that’s why it’s a percentage metric and not an absolute value metric. Just because there was an anomaly in the cable market, which too is now being corrected by digitisation, does not mean that DTH platforms need now to behave like analogue cable TV operators.

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Throughout the world, platforms pay 30–35% of their revenue as content cost. This goes up to even close to 40% in highly competitive markets where multiple platforms operate. Just because there was an anomaly in the cable market, which too is now being corrected by digitisation, does not mean that DTH platforms need now to behave like analogue cable TV operators

Don’t you find it strange that only Dish TV is doing this and not the other DTH operators?

We don’t know what the motivation for Dish is to implement this scheme—is it to genuinely reduce content cost or get carriage income or just give some spin to its investor community? Whatever their agenda, they will have to try it with someone else, not IndiaCast UTV.

Is it part of your strategy to isolate Dish TV by stitching long-term deals with the other DTH operators?

We haven’t isolated anybody—remember, we did not start this. We are only doing what is necessary to protect our business and are willing to do a reasonable and fair deal with Dish TV in future.

We are in the process of signing up long-term deals with Tata Sky and Airtel Digital TV. We already have an ongoing deal with Videocon d2h. We are open to longer-term deals with like-minded and progressive platforms.

Won’t Dish TV follow a similar route and isolate IndiaCast UTV?

If the answer to their problems is minor advantage of reduction in content cost that they may get, then good for them—in lieu of growth, market share and long-term value!

The reality is that Dish TV did this with us first to set an example, but the move has backfired. I don’t see any other large aggregator or broadcaster buckling either.

Coming to cable, do you see any drastic change in the nature of Phase I deals when they come up for renewal?

In the next round of Phase I deals, the market share among the MSOs will have settled, which means more mature, longer-term deals. The dialogue will now be for a fair CPS (cost per subscriber) and parity among the digital platforms.

Given that many Phase I deals have expired, are we seeing those trends?

Our deals will be on a structure similar to what we did in Phase I, except in cases of some players where we need to do some corrections on both carriage and revenue. Our conversation has always been for a fair share based on viewership and the strength of our channels.

In future, we will see more medium- or longer-term deals with volume discounts, kickers, two-way MFNs and other metrics that the developed markets have.
Personally, I would prefer doing longer-term deals with a few progressive players. If one cares for a more realistic view of where the ARPUs and the market share of the MSO are going to settle at, such partnership deals would help.

With MSOs finding it difficult to collect actual consumer subscription income from their link operators, are we seeing defaults to broadcasters?

If MSOs do not manage to start consumer billing in the next fiscal, we will face a serious problem. They will have to sort out these issues on an urgent basis.

How will TRAI’s regulation on content aggregation impact the industry?

Considering the hullabaloo over this consultation paper, let’s wait and watch.

How are you planning the distribution of Rishtey?

It is a free-to-air (FTA) channel and we have already signed up with Videocon d2h, Airtel Digital TV, DD Direct, DEN Networks, GTPL, Fastway and several other independent MSOs. By the end of January, we will have most other key platforms signed up.

Has the strategy of going FTA in the UK helped? How is the overall international business doing?

Our FTA strategy for Colors and Rishtey in the UK worked well. When one of our main competitors [Star] is in the base pack of BSkyB, we were clear that our channels had to be attracting as many eyeballs as possible. We now control two of the top three slots in terms of BARB ratings in the UK South Asian space.

At an overall level too, we will post a solid 60 per cent plus growth in international revenue this fiscal. Next year will see us become a clear No. 3 in terms of international revenue and close in on the No. 2 player.

How do you see new media catching up?

Though it is early days yet, the multi-screen viewing is going up rapidly. The industry needs to look at it more seriously. A proper windowing strategy across screens should be in place.

On subscription, there is still a low offtake, but ad-supported OTT [e.g. YouTube] is doing well. There are still the major challenges of bandwidths and rights. The real explosion in this space will happen with 4G rollout.