TV.NXT 2011: Consolidation in distribution - a force for good?

The panel discussed whether consolidation in distribution is good or bad for the industry, and how it is sweeping across the industry. What started with MSOs buying cable operators, has now metamorphosed into large distribution companies joining hands to combine their selling muscle.

The panel included Dinyar Contractor, editor and executive publisher, Satellite & Cable TV, Gaurav Gandhi, COO (chief operating officer) and head -- International Business, Sun18 Media Services North, and Viacom 18 Media, Salil Pitale, executive director, Enam Investment Banking, Jagjit Singh Kohli, managing director and chief executive officer, Digicable, and Jagi Mangat Panda, co-promoter and co-founder, Ortel Communication. The session was moderated by Neeraj Bhatia, principal, Exponentia Capital.

"Consolidation of distribution is not a new phenomenon. Some 10 years back, Zee and Turner came together to form Zee Turner, a distribution network. It all began at that time," said Bhatia.

Moving onto the panel, he asked Gandhi about his views on the consolidation of distribution, and how will ventures such as Sun18 or Media-Pro (Star/Zee) help the ecosystem, or will it will be just another fad?

Gandhi replied that the reliance on distribution revenue is very low among the broadcasters in the country because the money does not go back to the broadcaster. "The TV industry generates $2 billion ad revenue and consumers pay around $5 million to the distributors. Only 15-18 per cent comes back to the broadcaster, and half of it goes back as carriage fees. Therefore, broadcasters have come together to form aggregation companies," said Gandhi. This has helped, believes Gandhi, broadcasters in achieving a fairly better share of distribution revenue.

"The broadcasters who have come together don't house the assets but the rights. The business is not about creating value for their company, it's about extracting the best value from the chain and passing it back to the broadcasters," said Gandhi.

Contractor said that though consolidation is always welcome, monopoly is not. He blamed the Indian government for having a 'hands-off approach' in the regularisation and prevention of monopolisation. "It is not in the interest of viewers or anyone," he emphasised. He drew a parallel with the UK and the US, where there are stronger rules against monopolisation.

Kohli agreed with Contractor and said that without consolidation it will be very tough for the industry to move forward, but there needs to be a strong regulator.

Panda spoke about the dilemma she had regarding the newly-formed distribution networks -- Sun18 and MediaPro, "We have had a few broadcasters who ventured into distribution, but if they haven't been able to solve the problem in the last ten years, how will these new entities change the scenario? And, will having a clout change anything? How can a company with 40 channels not help in consolidation, but one with 70, definitely help? Historically, MSOs and broadcasters have been at loggerheads, and I don't see how a new entity will change things."

She further cautioned that if they (the new distribution entities) start arm-twisting the MSOs or competing broadcasters, then the industry should be ready for a "giant soap opera" with lot of litigations and channel switch-offs.

Pitale gave his point of view as an investment banker and said that the profitability of distribution disaggregated with the involvement of many parties, which in turn, leads to disinterest from the investors. He also highlighted that since most aggregations are broadcaster led, and does not involve MSOs or LCOs, (local cable operators) not much will change.

Bhatia said that distribution is profitable and therefore should be easily financed, but due to the lopsided distribution revenue, the aggregators are not able to raise money. "And probably, since consolidation is driven by clout and not synergy, what is it that has prompted the broadcasters and aggregators to come together?"

To which Gandhi replied, "Sun18 helped the Viacom18 channels to reach the South market, where Sun is dominant, and in turn, help Sun take advantage of the brand strength of Viacom18." He said that there are two ways of getting a better share of distribution revenue: One is to build a strong brand on your own, and the other way (the shortcut) is to join hands with another powerful player.

Pande pointed out that the broadcasters are forgetting that they are losing money at the LCO level, and not at the MSO level. But, it is the MSOs who are bleeding the most. Gandhi replied that it is happening because the MSOs have taken the shortcut of carriage fees and not invest in the last mile.

The panel was unanimous in their thought about the need for a stronger regulator.

(TV.NXT is organised by afaqs!, in association with STAR News (presenting sponsor). The other sponsors include Zee 24 Ghante Chhattisgarh, Amagi, HeadHonchos, ApnaCircle.com, Fox History & Traveller, and Lukup. TV.NXT was held at J W Marriot, Mumbai, on September 29-30, 2011.)