'MSOs need to have an integrated revenue model': Hathway Cable & Datacom CEO K Jayaraman

Local Cable Operators
Jun 06, 2005 /

'MSOs need to have an integrated revenue model': Hathway Cable & Datacom CEO K Jayaraman

CEO K Jayaraman

Now more than ever, cable companies realise the need to upgrade service and content as they face the threat from direct-to-home (DTH) and telecom operators who are planning to offer triple play service in future. Hathway Cable & Datacom is focusing on extending its digital cable television services which are currently available in four cities. There is also an aggressive push to drive revenues from broadband business while growth from cable TV subscription is expected to remain under pressure until addressability (as in CAS) takes off.

Speaking to Indiantelevision.com's Sibabrata Das, Hathway Cable & Datacom chief executive officer K Jayaraman elaborates on the need for multi system operators (MSOs) to have an integrated revenue model from digital and analogue cable TV, broadband and cable channels.

Excerpts:

Will Siticable's recent acquisition of Kolkata-based MSO Indian Cable Net Company (formerly RPG Netcom) set the ball rolling for more such deals and consolidation in the cable TV industry?
For a pure cable company, there is no business case at this stage to play the acquisition game. Growing in size on the MSO model doesn't make sense. By acquiring another loss-making MSO, the new management can't change the business model overnight.

RPG Netcom has been looking for a buyer for the last few years. So why this new interest shown by two companies to buy out the ailing MSO?
They must be having their own strategies. But for cable companies with a pure subscription model, acquisition deals are not feasible. Expansion doesn't make strategic sense at all at this stage.

Were you evaluating a takeover of RPG which would have given you a footprint in the eastern region?
There is no point in taking over another MSO in the current business environment. As a model, MSOs can't make money. For our size, we are happy with the market share that we have.

Does this mean that Siticable and Sun Network had broadcasting interests to protect?
I can't comment on the business strategy of other companies.

Are broadcasters seriously eyeing cable companies even as distribution is getting tougher?
There is a bandwidth problem on cable networks. We can't carry all the channels on the analogue system because of space constraints. Positioning of channels is also becoming important with more channels getting launched. Broadcasters need a spread because of this bandwidth clogging; there is a case for establishing synergy with cable networks.
'For a pure cable company, there is no business case at this stage to play the acquisition game'

Will this ignite higher valuation for cable companies?
Valuation for securing that synergy is not high. Most MSOs are saddled with losses.
Including Hathway?
We are losing money.

Isn't carriage or positioning fees becoming a healthy source of revenue?
It is not something you can base your revenue plans on. The main source of revenue for cable companies will continue to be subscription earnings. Placement fees are like an artificial respirator put on the MSOs; pull it out and we will all die.

Does it make business sense to acquire and create size in a particular territory like Siticable has done in Kolkata? Could you then structure a revival plan around carriage fees based on the strength of your market share in that territory?
I can't comment on what Siticable plans to do. But more the size, more is the programming cost. The revenues are not commensurate, at least not in the current MSO model. Moreover, positioning fee is a temporary phenomena.

Can't you take cable networks on lease model?
Even in this model, there is an operating cash loss with expenses exceeding income. Old liabilities and current losses can't be washed away.

Was 2004 a less tough year for cable companies?
Alternative delivery platforms, a hot topic in the early part of the year, couldn't launch in 2004. We were expecting telecom operators like Reliance Infocomm to launch their triple play service. That didn't happen. Nor did other DTH operators come into existence. And the Telecom Regulatory Authority of India (Trai) came to our rescue, by regulating tariff and prescribing the Interconnect agreement. This means broadcasters can't ride roughshod over us. There are systems and procedures to follow; we can't be switched off arbitrarily.

Isn't the scenario different today with Space TV and Sun Direct TV obtaining clearance from the government?
Serious competition from DTH is definitely on the horizon. We will have two new players joining the race soon. There will be a market for it as it is a new technology and is being offered by reputed players. DTH has tremendous potential, if cable companies don't get their act together.
What do cable companies need to do?
Cable TV has to compete on the digital space. We will have to roll out digital cable faster, and race ahead. We need to match DTH in quality of service and content. We will have to get unique, extra and relevant content.
How are you planning to source unique content?
Frankly, we haven't explored on that front. The content owners are willing to tie up depending on how many boxes we are able to put. But unless you have content, you can't push the boxes. It is a chicken-and-egg problem.
How do you plan to match the offerings?
We have got time to do that. We will have to see what are the market forces then. If competition subsidies boxes, we will have to seriously examine what we can do. Perhaps, we can start rental schemes to push the digital boxes. As for now, we are able to offer digital cable without increasing the current subscription fee of our analogue service.
What advantage does DTH have over cable operators?
DTH will have the advantage of penetrating into non cable markets. Besides entering into new markets, DTH will also try to migrate cable TV subscribers to their service.
Shouldn't MSOs then be expanding subscribers by acquiring cable networks? If they don't do that, would they not be losing a business opportunity?
We do not plan to acquire new subscribers at this moment. Rather, we are trying to build a business model. We will have to focus on rolling out our digital and addressable services.
'We will have to roll out digital services fast to stay in competition with DTH'
Is that how cable companies can survive in future?
Cable companies need to have an integrated revenue model. There has to be a proper investment plan on setting up a strong digital cable TV network along with the analogue system, having a sizeable last mile base, creating good content cable channels, and an infrastructure for possessing broadband subscribers. Only when we have a wholesale, rounded up model will there be some steam in cable companies. Those companies can ignite valuation.
Have you seen a surge in subscription revenues even as the cable and satellite (C&S) households have grown?
Subscription revenues are flat as the rates are regulated. Though there has been a growth in C&S homes, we as MSOs have not enjoyed growth from this.
How big are the cable channels as a revenue source?
The channels are growing by 10-15 per cent and we earn a small profit after amortisation. We do not have ambitious expansion plans as there is a bandwidth constraint and distribution is expensive. Spreading it on new networks is an issue.
Hinduja-owned In Mumbai cable channel has closed down its news operations. Do you also feel the pressure as there is an overdose of satellite news channels?
Cable news has no unique proposition now as we have not only satellite news channels but also have to compete against metro-specific channels like Sahara Samay. But we have an outsourcing arrangement with a company to supply us news; we don't run the operations ourselves.
Do cable movie channels face a similar threat?
It is a very competitive arena but we have our own space. The revenues may be stagnating but the channels are under no death threat. If we are able to control costs, we can still be profitable. As we are not adding exotic content, we can survive.
Is there scope to aggressively push your Internet business?
This revenue stream is seeing an upside. We want to double our broadband Internet subscriber base to 100,000 by March 2006. We have just launched our services in Mysore. Jalandhar will be our next destination, making Hathway cable Internet available in 10 cities. We will, thus, be offering the service in all the cities where we run our cable operations except Vijaywada. We have a market-related pricing and already have a download-based scheme. Though we have corporate clients, our focus now is on retail. Telecom operators in future will have an advantage to service corporates because of the infrastructure they have created. But currently we are riding on the same last mile infrastructure.
Is the Voice over Internet Protocol (VoIP) business not growing at all for cable companies in India?
We are in it, but don't see this as a growth area for us because we are not able to match the prices. VoIP has become a commodity. There is strong competition and the price warfare is too severe.

 

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