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Digital growing pains

By Gün Akyuz 17-12-2012

BBC Worldwide’s exit from Indian pay-TV could be a symptom of a wider malaise affecting a market whose potential remains elusive.

Was BBC Worldwide’s (BBCWW) announcement in November that it was pulling CBeebies and BBC Entertainment out of the Indian pay-TV sector an isolated decision, or the sign of failing industry confidence in that market’s ability to enter the digital era?

Though he regards India as a “dynamic and fast-growing media market,” BBCWW Channels Asia senior VP and general manager Mark Whitehead said conditions for pay-TV channels remained “uniquely challenging” when he announced the move in November.

Yet the news arrived in the same week that European media giant RTL Group launched its first non-European channel, male-skewing RTL Big Thrill, choosing local partner Reliance Broadcast Networks and describing India as “the most viable starting point for RTL Group to establish a broadcasting presence in Asia.”

BBCWW is not the first international broadcaster to pull the plug on India this year. In April, Turner Broadcasting System closed its Hindi channels Imagine and Imagine Dil Se. “Imagine has not performed and grown as per expectations,” explained Siddharth Jain, Turner International’s MD for South Asia, at the time. “While some programmes delivered satisfactory ratings, overall the channel was unable to achieve the ratings consistency needed to sustain the business and support continued investment.”

Nor is RTL shy of pulling out of a local channel business when conditions dictate. Remember the UK’s Channel 5? Against slowing growth in saturated Western TV markets, groups like RTL are “always looking for growth opportunities,” says Andreas Rudas, RTL’s exec VP of regional operations and business development for CEE and Asia. India has a “large, rapidly growing market with a young population that loves TV,” offering substantial growth potential beyond the country’s 146 million TV homes – just over 60% of the total population, says Rudas.

India certainly boasts big numbers on paper, but has it failed to live up to bullish forecasts? Guy Bisson, IHS’s research director for TV, thinks so. Its pay-TV market, which like elsewhere relies on a mix of subscription and advertising revenues, has been ‘emerging’ for a very long time, he says. “It’s the old problem of vastly overestimating near-term growth and vastly underestimating long-term growth.”

The potential is large in TV home terms, and digital satellite, while still small, is growing fast. But subscriber ARPU is very low, says Bisson. Cable accounts for up to 85% of all Indian TV homes. Moreover, India’s TV ad-driven market is also far smaller than China’s and less than half the value of the UK, Germany and Italy’s – in other words, not enough to support India’s multi-channel market ecology and pay back the original channel investment.

In this context, the challenging Indian pay-TV market conditions BBCWW refers to, namely the costly practice of channels paying cable platforms carriage fees and the delays in digitising the cable networks, have all taken their toll. Local cable operators also engage in under-reporting subscriber numbers, pocketing up to 80% of the revenue. Hence the resistance to addressable digital set-top boxes.

India has plenty of other big-name localised channels with international backing, such as News Corp-backed Star, Sony-backed SET and Viacom-backed Colors, all embedded and playing the long game. The word is nobody’s making vast amounts of money in the country while such entrenched practices and delays to its cable digitisation programme remain.

A new Frost & Sullivan report on India’s TV digitisation prospects says a tightening of the government’s cable digitisation programme and foreign direct investment could generate as much as 30% growth for Indian pay-TV by 2015. The process will “unlock new revenue streams for the TV industry and bring about a revolution in digitisation of services in India,” it says.

But so far, the first four largest urban areas – Mumbai, Delhi, Kolkata and Chennai – all missed both their June and October digital conversion deadlines, while another 38 cities are due to complete in March 2013. The controversial channel carriage fees also remain in place to help meet the considerable costs of digitisation.

Assuming India’s nationwide cable digitisation deadline at the end of 2014 is met, it should result in a more level playing field for everyone, regardless.

In fact, BBCWW hasn’t pulled the plug altogether. It still runs BBC World News in India and says it could reverse the BBC Entertainment/CBeebies decision should structural market conditions change. “Digitisation has been slow and the long-term impact on the economics of running a channel is unclear at this stage. If those economics improve with digitisation, we will reconsider launching the channels,” says a spokeswoman.

Nevertheless, others international broadcasters must also now be re-evaluating the risk/reward ratio of India’s forever emerging pay-TV sector.

today's correspondent

Gün Akyuz Research editor C21Media

Gün Akyuz is a highly experienced journalist and media consultant who has researched and written about viewer and programme trends, and evolving business models in the international audiovisual and television industries for two decades.