Price controls are limiting the revenue growth for broadcasters in India as they earn net income of $700 million from subscription after paying out carriage fees of $400 million. Investments in programming are muted and, as a result, India is not able to export television formats and finished content while software, music and animation is travelling overseas.

In an interview with Indiantelevision.com‘s Ashwin Pinto, Fox International channels president, CEO Hernan Lopex says price controls have to go if the industry is to see strong ROI. He also talks about the company‘s growth plans worldwide.

Excerpts:

Q. Do you see India‘s television broadcasting industry growing at the right pace?
Broadcasters in India earn net income of $700 million from subscription after paying out carriage fees of $400 million. This is holding back investments in programming. India, as a result, is not able to export television formats and finished content while software, music and animation is travelling overseas. If the industry is to see strong ROI which would encourage greater investments in programming, then price controls must go.

Q. What you are suggesting is that pay-revenues should scale up. What is the ideal revenue mix between subscription and advertising revenues?
It should be in equal ratio, which is what it is in the US. But in India it is heavily skewed towards advertising. Broadcasters generate $2.6 billion a year in advertising. Subscription income is dismally low in comparison.

Relative to the size of the Indian economy as measured by GDP, this is only 0.04 per cent, and this ratio keeps declining. By contrast, in Colombia, a country with 1/25th of the population, broadcasters get over $200 million in subscriber fees. That is equivalent to 0.07 per cent of the GDP in Colombia, and that ratio keeps rising – partially due to the efforts that Colombia is doing to fight content theft and subscriber under-declaration.

Q. So India should learn from Colombia and allow its content industry to flourish?
Price controls lead to creative shackles. At Fox we buy formats and content from different markets, but India is not there. This is surely not due to lack of talent, ambition and vision.

In Colombia a TV episode costs $150,000 compared to India where an episode costs around $20,000. The turnaround there was the emphasis on creating a dual revenue stream. New channels were launched for underserved audiences. Consumers also wanted content in Spanish and Portugese.

That is because Colombia has a strong system of TV production, has great writers, animators, actors and the country also fights strongly against piracy. In India under declaration, along with controls, means that the broadcasters are getting squeezed.

Q. But ARPUs (average revenue per subscriber) are low in India. How do you make consumers pay more for quality content?
When consumers see that spending more money results in better content, then they will be happy to pay more. In some markets, initially consumers thought that cable and satellite services were not worth paying for. But as more options were added, they realised that they were getting value. I am looking forward to a time when my children, when searching for content, find choices that come out of India. I am keen on buying Indian formats that can be shown elsewhere.

Q. So you are not happy with FIC‘s growth in India?
We have seen double-digit growth year-on-year. We run a profitable business that is based on strong fundamentals with dual revenue streams of affiliate and advertising, which are both showing a steady upward trend. Currently, we have six of our channels in the Documentary and Lifestyle space in India.

Q. As a market how is India different from the rest of Asia in terms of challenges and opportunities?
We run our channels in over 100 countries around the globe. While there are big similarities across markets, each has some of its own peculiarities and challenges. I think that the challenge of scarce bandwidth for channels coupled with price control and carriage fees put a limit on the revenue potential. However, India is a land of huge opportunity and with mandatory digitisation in the Metros slated to kick off in 2012, we believe that a very bright future is ahead.

Q. With digitisation set to take off in India, do you see the carriage fee structure being rationalised based on the experience in other markets or will disputes happen with big operators like what happened in the US with Comcast?
We believe that digitisation will help all the stakeholders in the business to realise the true value – Last Mile Operators, MSOs and broadcasters.

There will be teething issues like in any new technology, but market forces will aid the stakeholders in arriving at an understanding.

Q. News Corp restructured the Fox Networks Group last year. What was the aim and how did this impact Fox International Channels?
The goal was to foster stronger cooperation between various units. As a result, Fox International Channels has strengthened its ties with the US networks in entertainment, factual and sports.

Q. Aren‘t you looking at doubling operating profit and reaching $1 billion by 2015? 
The gameplan is very simple: to continue to deliver to platforms, advertisers and viewers a portfolio of must-have brands.

This is what we call "brands with fans" - and get a fair share of wallet for it. In order to do that, we are investing more in content (both global and local), marketing and our teams.

Q. How much revenue does Fox International Channels contribute to News Corp’s TV business and what growth has been experienced year on year?
In FY‘11, we made a little over $1.5 billion in revenues and we‘re growing at double-digit rates.

Q. How do you split up the global market into regions and which are your three biggest markets globally?
We run Latin America and US Hispanic; Italy and Germany; the rest of Europe and Africa; and the Asia/Pacific/Middle East. We don‘t disclose the ranking at the country level.

Q. Globally what is the split between subscription and ad sales and which area do you see growing faster?
About two-third of our revenues come from subscription, with the balance coming from advertising, syndication, and other fees. We strive to make all revenue sources grow at the same rate.

Q. Pay TV you have said is turning from a "nice to have" to "must have" service. How is this changing the dynamics of your business?
Whereas in the past we programmed primarily shows produced in the US, we are now broadening the scope of our lineup. The aim is to include more local shows, as well as different genres.

Q. What challenges is the current economic slowdown posing?
In a handful of cycles we‘ve seen ad revenues decline, but overall our profits continue to increase.

Q. Has Fox International Channels done recent research to find out what consumers globally want and how they view your brands?
We are indeed finalising a brand audit in 10 countries as we speak.

Q. Digitisation globally is allowing FIC to have more specialised offerings in genres like Crime. How has their offtake been?
Very positive! Fox Crime, for instance, is the number one channel in Italy, surpassing even Fox.

Q. Are there any genres that are currently underserved globally? If so, how do you plan to service them?
Our portfolio globally includes entertainment, sports, factual and lifestyle - we‘re quite content with it.

Q. What role does sports play in your portfolio as it is a challenge to control costs given the intense competition for rights?
Sports is the ultimate must-have content. But because of it, there is intense competition for rights.

We simply must be disciplined in our approach, but we have the benefit of a wide portfolio of channels - includingentertainment channels - that can both contribute to and benefit from having sports in the portfolio.

Q. Globally, how has FIC expanded?
These are exciting times! We now have 1.1 billion cumulative subscribers, and have a presence in 57 offices. I have been to 40 of them.

We have added Fox Sports to our portfolio in Latin America, and continue to increase ratings at the National Geographic Channels. And yet there is still so much more to be done.

Q. How difficult is China due to government regulation?
We have a small but profitable business in China.

Q. New media is growing globally. Are you launching channels for the mobile and Internet?
We are launching mobile extensions of our TV brands, like the Fox Movies Premium Player in Asia.

Q. How is Fox International Channels leveraging high definition?
My goal is to launch nearly every TV channel from now on simultaneously on HD and SD.