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21st Century Fox in talks with Tata group to up stake in Tata Sky

MUMBAI: Rupert Murdoch-led 21st Century Fox is in talks with the Tata group to up its stake in Tata Sky, a joint venture direct-to-home (DTH) company where it owns nearly 30% stake.

21st Century Fox had always wanted to increase its stake in Tata Sky. The new development comes in the wake of the Tata group and Bharti Airtel reportedly holding exploratory talks to evaluate a broader alliance involving their telecom, overseas cable and enterprise services, and DTH businesses.

As reported earlier by TelevisionPost.com, a possible deal could see the Tata group reducing its stake while 21st Century Fox maintains its existing shareholding in case Tata Sky and Airtel Digital TV decide to merge.

Though 100% foreign direct investment (FDI) is allowed in DTH, 21st Century Fox is bogged down by a regulation that allows broadcast companies to own only 20% stake in a DTH company. The stake went up after the Murdoch company acquired 49% stake in Tatas’ investment arm TS Investments which in turn acquired a 20% stake in Tata Sky. Currently, 21st Century Fox effectively owns 29.8% stake in Tata Sky while the Tata Group holds 60.2% and the remaining 10% is with Temasek Holdings.

Tata group has begun discussions to sell an additional stake in Tata Sky to JV partner 21st Century Fox, Mint has reported. The two sides will approach the government for approval if the ongoing discussions are successful. 21st Century Fox holds the stake in Tata Sky through its investment arm Network Digital Distribution Services FZ Llc (NDDS).

The six Indian DTH companies have a net subscriber base of 63.61 million, as of 31 March 2017. Dish TV has a 25% share of net subscribers compared to Tata Sky’s 23%. Airtel Digital TV’s share is at 21%, Videocon d2h at 20%, Sun Direct at 9% and Reliance Digital TV at 2%.

As reported earlier by TelevisionPost.com, there is a case for the Tata Group and Bharti Enterprises to work out a broader deal. But this is not because telecom and DTH companies need to combine. The need springs from the fact that the two sectors need to bring down the number of players operating in these businesses. Like telecom, DTH needs a consolidation wave. The common thread is that the Tatas and Bharti have presence in both telecom and DTH.

The deal needs to be worked out separately. In case of telecom, working out a deal is possibly simpler. The Tatas are very keen to cut down their losses from the telecom business. Besides, Idea and Vodafone have combined, and so are Reliance Communications and Aircel.

The DTH deal would be a more complex exercise as Tata Sky is a JV between the Tata Group and 21st Century Fox. Murdoch wants to increase stake in Tata Sky.

Star India, 21st Century Fox’s wholly owned India subsidiary, will not want to be part of the telecom venture. Therefore, the DTH deal has to be dealt with separately. It has to be an entity having the DTH businesses only. The possibility could be that Star’s holding remains the same in the merged entity while Tata Group gets to dilute its stake.

Turning around in FY16, Tata Sky posted a net profit of Rs 80.08 crore on a revenue of Rs 4,490.96 crore. A year ago, net loss was Rs 267.27 crore on a revenue of Rs 3,739.04 crore.

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