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3 Nov 2010
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The past few months have seen a spate of mergers and acquisitions in our industry. The biggest surprise was the declaration of Star and Zee combining their distribution companies to form a mega distributor - Media Pro Enterprise India Pvt. Ltd.

There is also talk of The One Alliance (itself a joint venture between Sony & Discovery) exploring a merger with another distribution platform - probably SUN18.

Clearly, players are seriously considering consolidation, in this huge but fragmented industry. There are undeniable benefits if economies of scale are invoked in any business.


Now there is talk that 4 of India's largest MSOs are in talks of a merger. The 4 MSOs - IndusInd Media and Communications Ltd (InCableNet), Hathway Cable and Data Com Pvt. Ltd, DEN Networks Ltd & DigiCable Networks (India) Pvt. Ltd. are in talks to merge their businesses and create a single cable network. The new Mega MSO - if formed would control over 20 million Cable TV homes in India, either directly (primary points) or through their subscribers.
The story was initially met with even more incredulous surprise than the announcement of Media Pro. However, preliminary investigations have confirmed that talks in this direction have indeed been initiated.


Infact the matter is reported to have progressed beyond that of preliminary talks. Some press reports state that these 4 MSOs have appointed Ernst and Young and Deutsche Bank AG to prepare a feasibility report on the proposal, and maybe suggest a structure of the new mega MSO.


The head of a cable firm, who is a part of the exercise, is reported to have told the press that since a consensus on a formal structure may take time, as a precursor to the merger "We plan to enter into a business alliance. One of the names being considered for the alliance is MegaMedia." Apparently, the 4 companies' lawyers are looking at the regulatory issues concerning the alliance.


The report continues that effort is on to get a major regional MSOs on board as well.

Clearly, the merger is an open ended proposal where all large MSOs are welcome to join. It is an unusual show of solidarity and unity in the ground distribution segment.


The immediate reaction to news of discussions for a mega merger led to reports that it was in response to the Media pro polarisation, because MSOs now needed an equally potent entity of their own, to counter the huge leverage that Media Pro has from distributing 70 Star & Zee channels.

Media Pro now has un-paralleled power from Star & Zee to leverage & negotiate subscription rates and placement fees with cable operators and DTH platforms.

The MegaMedia alliance has been expected as MSOs "would try and keep up with consolidation on the broadcaster's side" to be able to negotiate subscription and placement rates better, said Nikhil Vora, Managing Director of IDFC Securities Ltd.

Top executives of some of these 4 MSOs that SCaT spoke to, emphasised that their partnership talks were not a reaction to the formation of Media Pro.


MegaMedia, the mega-MSO, if formed, would bring several advantages to its members, most of which would be based on economies of scale.

The TRAI's rules dictate that every Digital headend must have a 24x7 telephone call centre where consumers can call and register their complaints. Such a call centre is difficult and expensive to set up and maintain for small MSOs or fragmented operations. MegaMedia could easily provide a national level call centre, to international quality standards.

Purchase of bulk equipment such as Digital Set-Top-Boxes (STBs) would greatly benefit. These 4 initial members for MegaMedia could confirm an order for 20 million STBs to be purchased over 2 years. Vendors would dramatically drop prices to win part of the US $ 400 Million (Rs 2,000 Crores) contract.

Ofcourse there is no denying that, like in the USA, the control would shift from the broadcasters to the ground distribution segment. In the US, large MSOs like Comcast and Time Warner often dictate terms to pay channels, for carriage and subscription retail margins.


Today, Cable TV ground distribution is highly fragmented with more than 60,000 Cable TV networks distributing signals to approximately 90 million CATV homes. These networks have over 650 TV channels to choose from. However, this diversity itself has created a divided house with members speaking in many voices.

A consolidated MSO company could clearly and concisely table its requests for legislations and structural changes that will make Indian CATV attractive to foreign investors.

It is a well known fact that international investors find valuations in the Indian CATV sector attractive. However the financial size of each MSO is tiny, in an international perspective. Further, the Indian government has a 49% cap on FDI (Foreign Direct investments). As a result, there is not enough consolidated value that FIIs can invest in, compared to their portfolio size. MegaMedia could provide an answer and provide a large, attractive capital base to invest in, where foreign investors are assured of good corporate governance, transparency and accountability.

The TRAI and the I&B ministry have been pushing for an increase in FDI from the current 49% in CATV to 74% for digital CATV networks. This could provide the necessary fillip for infusion of FDI to grow in the Indian CATV sector, with much needed funds for digitalisation.


The backbone of the Indian CATV industry is the more than 100,000 Last Mile cable Operators (LCOs/LMOs). Each LCO has maintained a personal contact with each of his consumers. They are the face of the industry for the consumer.

Each LCO often has a unique agreement / association with his MSO.

Clearly a mega merger of the 4 largest Indian MSOs will require a huge effort to harmonise the LCO agreements. Many observers doubt if this will be possible, prior to complete digitisation.


The concept of a Mega-MSO is attractive in principle, and could provide the consolidation that the industry badly needs. It could also attract FDI on the scale required for countrywide digitisation. However, for more than 2 decades, the Cable TV industry has been largely entrepreneurial, reacting to local pulls and pressures. It will be a mammoth task to bring together not only the networks, but also the very independent minds that have established and sustained the CATV sector.n
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