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Why Indian news broadcasters will have to wait before foreign capital pours in

MUMBAI: Indian news broadcasters who are hunting for cash injection from overseas players need not get too excited by the hike in the limit on foreign direct investment (FDI) from 26 per cent to 49 per cent. When actual courting starts, they may feel disappointed by their failure to impress the foreign investors.

While there is reason to cheer that the FDI ceiling has been substantially lifted up, the bitter truth is that the Indian government has still not allowed the TV news business to be controlled by foreigners. Regulation requires that the largest Indian shareholder of a news channel should have at least 51 per cent of the total equity.

What then can an Indian TV news owner propose? That you take 49 per cent and I will still have editorial control? That you bring in loads of cash and I will dress up the news programming my way? That the valuation of my business has gone up even though I am still struggling to fix revenue scalability, profitability and hefty carriage payouts to multi-system operators (MSOs)?

The matchmaking seems distant, as the gains are too lopsided. For deals to take place, either of the two poles needs to exist. Foreign news companies will not get attracted to acquire TV news assets in India if editorial control is absent. Alternatively, Indian news channels need to grow into financial adulthood.

“With the new FDI at a higher limit, Indian news broadcasters are better off than where they were. But at 49 per cent, it cannot be a game changer,” says Times Network MD and CEO MK Anand.

For the top listed companies, there could be no game at all. If a foreign strategic investor wants 49 per cent, these companies will have to delist and may not be in a position to buy back shares.

Also restricting ownership movement is the regulatory need of a single Indian owner having at least 51 per cent shareholding in a TV news broadcasting company. This means that Indian promoters will continue to have majority control. The government’s thought process is that a foreigner should not have editorial control or be the majority owner of Indian news channels.

Paritosh Joshi“Global news organisations are not going to just walk in because the FDI limit is hiked. They realise that 49 per cent FDI still doesn’t give editorial control. Even Rupert Murdoch may not be fully enthused. In the news business, the meat lies in editorial control,” says India TV CEO Paritosh Joshi, who has earlier been a part of Star India’s senior team.

Still, curious opportunities may open up for business news channels. Editorial control, after all, is not such a die-hard issue in this genre of news. Bloomberg, for instance, can go to a 49 per cent ownership in Bloomberg TV, a business news channel in India.

CNBC CNBC, which has a contract with TV18 Broadcast, can break away and get into an equity relationship with a local partner in India. It is a strong business news brand in India, grown in stature with the TV18 brand licensing agreement since 2003, and can get ambitious to reap higher revenues from a country that has become one of the fastest-growing economies in the world. As per available data, for the financial year ended 31 March 2014, TV18 paid Rs 20.31 crore (Rs 203.1 million) in royalty for using brands like CNN and CNBC.

CNBC, though, will have to wait longer if it wants to go on a different outing. As per the programme and trademark licence agreement, TV18 can use CNBC’s name and logo for the production and broadcast of CNBC-TV18 until 31 March 2018.

TV Today Network can evince new interest in launching a business news channel. Earlier, TV Today had floated a wholly owned subsidiary and was in talks with investors to launch a business news channel. The plan, however, was dropped and the focus was on growing Aaj Tak (Hindi news channel) and Headlines Today (English news channel now named India Today).

NDTV can also possibly think of hiving off its business news channel, NDTV Profit, to pursue a suitor.

vikram_chandra“Given the current challenges, there is an interesting opening up of the sector. Long-term quality capital can come in. But other restrictions like 51 per cent single Indian shareholding needs to be looked at. As for getting in an investor for the business news channel, we are not exploring any of those opportunities right now,” says NDTV group CEO Vikram Chandra.

Deals can also take place in the other less-obvious places. Regional-language channels, for instance, have a potential to rope in foreign players. For foreign media companies taking this route, the entry cost will be low and they can expand from there.

“News channels in Tamil, Marathi or any other language can be a beneficiary. Several outfits like Maharaja Television Network in Sri Lanka run Tamil channels. There could be some kind of interesting play in off-centre places. Lightning can strike anywhere,” says Joshi.

Saam TVAl Jazeera, languishing in the Sakaal stable, will benefit if it is able to stitch a deal with a partner that has already built a global capability. In 2008, Rupert Murdoch had met Sakaal Group promoter Abhijit Pawar, the nephew of ace politician Sharad Pawar. With the television channel not faring well, a deal with any global player looks difficult now but at least gives a faint hope.

So, will global media companies be interested? “Who knows? Media companies who are yet to have a footprint in India may be interested. Even Al Jazeera may explore options,” avers Joshi.

The most obvious name that crops up is CNN, which is parting ways with TV18 Broadcast. CNN and TV18 Broadcast have decided not to renew their 10-year brand licensing and news service agreement beyond January 2016. Essel Group chairman Subhash Chandra, who is launching a global news channel, sees this as an opportunity and is in talks with CNN to collaborate as a partner.

cnn“Discussions are on with CNN for having an all-encompassing partnership. I am not averse to an equity relationship. Even if it is without equity, we are looking at a wider partnership than just using CNN brand for the Indian market,” Chandra had said in an earlier interaction.

Outside the English-language ambit, ABP News Network (earlier known as MCCS) is a strong news brand. After splitting from joint venture partner Star India, the Ananda Bazar Patrika Group may look at getting an investor to fund its expansion plans. Being unlisted may add to its advantage.

ABP News Network already runs three news channels, one each in Hindi, Bengali and Marathi. The company has been toying with the idea of launching a Punjabi and a Gujarati news channel.

Print majors like Jagran and Dainik Bhaskar Group may nurse ambitions of getting into the TV news business with foreign capital. Expanding from the print and radio to the TV news brand has been a natural course of action for several players. Jagran had already launched Channel 7, a Hindi news channel, and sold it to TV18 Group. Now it runs as IBN7.

“We could see greenfield projects. That is an exciting space to watch,” says Joshi.

The poor health of the TV news business, however, is a serious obstacle to deals. The reality is that there are no big companies of size. While TV18 Broadcast’s revenue stood at Rs 605 crore (Rs 6.05 billion) in FY15 (also runs ETV news channels), TV Today, NDTV and Zee Media Corporation each have operating income below Rs 500 crore (Rs 5 billion).

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“Where is the money? Even the biggest businesses in this space are dwarfed by the leading Hindi general entertainment channels,” admits Joshi.

MKVN MurthyAssociated Broadcasting Company (ABCL) chief financial officer MKVN Murthy believes that deals will take place once cable TV digitisation is in proper shape. The company runs a clutch of regional news channels under the TV9 brand.

“The news television business is not profitable enough to be attractive to foreign investors. Carriage fees are high, staff expenses are rising and revenue is hard to scale up. The bottom line of news networks has to improve. The real benefit may come after full digitisation,” he says.

Business models need to get corrected. “Fix carriage, subscription revenue and the ratings system. Then only the sector can greatly benefit,” says Chandra.

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