G Subramaniam, Chief Financial Officer, Hathway Cable and Datacom Limited is a Chartered Accountant by profession and has been in the industry for nearly three decades. He has been associated with BPL Mobile and has also been part of Media Star TV, Times Group and Infrastructure sectors. Having worked with companies both in their start-up stage and their mature phases he has had the experience of providing leadership to large teams of skilled professionals both within the finance function and also in IT, Customer Services and Commercial functions. He has had the opportunity of raising capital both in the domestic and international financial markets – currently as the CFO of Hathway Cable & Datacom Ltd, he is a key member of the leadership team guiding the organization through digitization of its’ network preparatory to mandatory digitization as contemplated by recent amendments to the Cable Television Act.
Hathway Cable and Datacom Ltd is one of the largest cable TV services company in India as also the largest cable broadband & digital cable service provider in the country. Hathway is a public limited company with pedigree shareholders such as R.Raheja group, Providence PE & scores of top mutual funds/FIIs as shareholders. It is a professionally managed company headed by K. Jayaraman as the MD & CEO. Hathway & its associate companies provide cable TV services across 140 cities in India and the broadband services in 22 cities. The company having about 9 million analog cable homes, 2 million digital cable homes and about 1.6 million broad band homes passed ,this making it a power house integrated player in this segment. It has been assigned A+ (check) credit rating by Fitch, the leading rating agency in India.
Replying to Anil Mascarenhas of IIFL, G Subramaniam says, “Television remains an important part of the social development of the country and cable therefore will have an opportunity to play a role in this growth.”
The cable and statellite television market is undergoing significant changes. What are the changing trends?
The cable and satellite television market in India really emerged in the early 1990s, spurred by major international events like the Gulf War and the growth of homegrown media companies. The industry has experienced rapid growth, with the number of subscribers increasing from just 410,000 in 1992 to more than 91 million by the end of 2009 – a growth rate of nearly 40% every year for the last 17 years. This expansion of subscriber base is mirrored by commensurate growth on the supply side. India today has a large broadcasting and distribution sector, comprising around 550 television channels, 6,000 Multi System Operators (MSOs), up to 60,000 Local Cable Operators (LCOs), 7 DTH/ satellite TV operators and several IPTV service providers.
Some of the recent changing trends noticed are the increasing content cost for General Entertainment Channels (GECs) on account of high competition. Advertisement revenues of GECs are expected to grow during the next two-three quarters on back of new programming content. Increasing digitization to improve carriage capacity is likely to have a positive impact on carriage costs over medium to long-term. The increase in fee cap is likely to benefit broadcasters in the longer term. Improving content delivery expected to result in better realizations in the long-term and developments in the viewership measurement system are among the changing trends being noticed.
What is the roadmap for digitization? Do you see ‘customized viewing’ gaining further?
The advantage of digital cable versus any other distribution platform is actually customized viewing. In the sense, if I have an audience which is local, it is then far more cost effective for us to distribute localized content on cable platforms than any other distribution platform including DTH.
Is it viable for us? Completely viable because, in a digital environment, we create far more capacity, we are talking by order of magnitude nearly 15 to 22 times existing analogue capacity, so you can theoretically go up to over 1500 equivalent analogue channels. A part of this expanded channel capacity could be for localized content, which will be a very powerful differentiator. Just as an example, if I am a parent living in a particular locality, say Bandra and there is a sport day celebration. If that is covered by a local channel, I am likely to be keen to see that, because my kids go there.
Do you expect a smooth switchover from traditional cable to digital to take place as per the government mandate of June 30, 2012?
Any change in the beginning is going to be painful - the problem is we are interacting with the market and regulatory environment and in our case the environment is not just our subscribers but our local cable operators as well. So obviously, there will be a bit of challenge initially. We are better positioned amongst all the MSOs in the country as we have been distributing to primary subscribers. Secondly, we have our broadband audience; therefore we have our B2C connect in place and have managed it with some degree of success.
Is there lack of awareness regarding digitization? What should the government do? What should the industry as a whole do?
There isn’t too much lack of awareness; the government is doing all it can to make the public aware. The broadcasters are themselves doing a lot and we must remember that this legislation is as old as three months now and the certainty of the legislation coming into full force is only since a few weeks back. Once the TRAI actually mandated certain guidelines for regulating the industry, a lot has been done in a short time frame. In cities such as Mumbai or Delhi, there are already a proportion of people who are watching television using a set top box. So it’s not as if we are talking to people who need to be educated from scratch. In that sense, the market is more evolved or willing to accept that change. When the transition happens, tariff plans and packaging will change. The subscriber will need to choose what he or she consumes and that involves some interaction. Hopefully, we will be able to go through the transition without any major issues.
What are the current opportunities and challenges in this industry?
The opportunities are almost endless for this industry. If you look at the evolution of the cable business all over the world, it is almost considered an annuity business. Most of the cable companies in spite of new platforms having coming to play, have continued to be very successful and that is mainly because the bandwidth that you create in your network is enormous. You can distribute the capacity across a lot of services and therefore take to the customer a bundled offering. In that sense, you can do broadband and television and all bundle this together for interactivity. The broadband platform is actually wireline broadband. In comparison wireless broadband is limited by the spectrum available to the operators. Whereas, in our case we do not have such constraints so the opportunity is huge.
We hope that fair ground rules are laid down by the regulator - rules which recognize the fact that the MSOs are making significant investments in this business. For the last decade or so, the MSOs have had very unfair relationship with the markets. The regulations should help change the unfair share of revenue that MSOs enjoy and if this is done, the industry will attract enormous investments, enormous capital and will be able to meet the challenge.
Briefly walk us through how your business model has evolved over the years? What are the addition streams of revenue you could look at in future?
Hathway like all other MSOs of the world has evolved from what is known as an analogue state of existence where we had very little ownership of end customer. We are now moving towards a digital model where we address the subscriber one-to-one. Therefore, in the earlier years, Hathway like any other large MSOs in the country grew by acquisitions; we went out to the market and acquired networks, acquired subscribers. While we have a nine million universe, the fact is Hathway is not getting paid for the entire universe of the subscribers to whom our services are reached. With digitization, Hathway will have opportunity to monetize the entire universe. Apart from this, Hathway is the largest cable broadband service provider in the country today and this service offering continues to progressively grow as a very important part of Hathway’s services portfolio. Cable broadband on Hybrid Fiber Co-Ax infrastructure has traditionally been the best alternative where Fiber-to-the-Home is not available. So Hathway being a very big player in cable broadband has an opportunity to monetize the broadband opportunity.
While customers are now spoilt for choice, isn’t it opening up enough revenue opportunities for service providers?
The strange thing is that as choices grow, there is also the opportunity for the MSOs to get a bigger share of the customer’s wallet. There is always a traditional notion that customers would pay only if ARPUs are low. On the contrary, he might actually start paying for premium services because that is an option that he is exercising. As an illustration, the finance professional should be willing to pay a premium to access financial news. Today all financial news is homogeneous; there is no differentiation between one financial news product and another financial news product. This is a great opportunity for Bloomberg or CNBC or ET Now to differentiate. If one is a finance professional, one will lean towards one or the other offering and actually would be willing to pay the price for the product, so that is the big opportunity. Unfortunately, India has existed in a very homogenous environment for years; even the market players are unable to see the opportunity. Therefore, the very fact the customer has the choice will drive the MSOs to a great share of customers’ wallet.
What would you say are some of the key benefits customers have got in the recent years?
The broadcast industry has grown despite the lack of a cohesive regulatory environment. The benefit to the customer in India has been more than any other country in other parts of the world. The advantage that India has is society is varied, there are several languages spoken and therefore you have the opportunity to customize. For instance, if you are in Indonesia, you can create content in Bahasa and English. In India, you could create content in 26 different languages and therefore the cultural context in which television has found its roots in the country itself is a big opportunity. By nature, Indians are a very creative society; Indian’s communicate prolifically. Television remains an important part of the social development of the country and cable therefore will have an opportunity to play a role in this growth.
What are your expansion plans?
From the beginning Hathway has seen itself as national player. It has been present in about 140 cities and towns in key geographies in India including the metros of Mumbai, Delhi and Kolkata (through its JVs). Hathway has had its footprint which traverses the north, the west and some southern states. Hathway also recognizes that being a national player adds lot of heft and you are in a better position to negotiate for content. In fact, but if you are a national player, you will be able to leverage the opportunity even better on the digital platform.
Brief us on the technological changes that have taken place in the industry and where does Hathway stand?
Cable technologies have been evolving in a steady fashion. Hathway has been fortunate in implementing more or less the latest technologies. Recently, we have set up the Ericsson head-end with compression standards which are far better than what was available to us in the recent past. It allows the opportunity to expand capacity considerably even more than the most of the competition. When you have that much of capacity created in the network, the big opportunity in front of us is that we can bundle cable television with the broadband and allocate a lot more capacity to the broadband, so that that we provide the customers fairly superior services as far as broadband is concerned. As mentioned before, cable is the most prolific wireline infrastructure reaching homes in India. Therefore, it’s a very big opportunity for Hathway to be able to reach, high speed quality bandwidth to our customers. Hathway already offers a 5 Mbps plan, hopefully in the near future, as and when digitization kicks in Hathway will be able to offer higher speeds at cost effective rates, as there is a demand for such high speed.
How many homes do you cover in your offerings?
Hathway, currently reaches 9 million homes, that is the universe part from the subscribers but the broadband services do not reach that many, Hathway passes about 1.4 million homes and we have nearly 400,000 customers who are connected to Hathway’s broadband services.
Do you see a growing market for niche channels in India?
India is a very fertile market for niche products. Earlier, this did not develop because it was not possible to monetize the content. Once digitization happens there will be a proliferation of niche content. It will not be restricted to premium content, it can also be non premium content like cookery channels - such channels will become powerful niche products. So niche programming will draw niche audiences and therefore will draw niche advertisers. Advertisers will get more bang for their buck because it’s going to audiences which are relevant to the product or service that is being advertised. For instance, BMW will not advertise in any channel in India today, if at all they have, they will only have a launch ad. But if there is a channel which is targeted for up market audiences, BMW might like to advertise. These are the opportunities that will happen but it will only happen in a digital environment.
Do you expect regulatory changes which will allow international service providers to come in and provide capacity to the market?
The only regulatory change that can allow international players entry in the country is FDI cap. The government has announced some intentions in that direction to take it up to 74%. It will be really good for the industry if it happens, as it will attract strategic investors and actually help the industry grow further. It will also help worldwide best practices to take root here. I don’t think that one needs to precede the other but very certainly the industry as a whole will benefit from access to foreign capital. In our view, foreign investment will take some time because of the chaotic nature of the distribution markets. The moment it sort of settles down, in the course of three years, a lot of interest would be there.
What are your comments on taxation in the industry.
One area of taxation, which is of concern to this industry is entertainment tax and its a state subject. It puts a big burden on the consumer and unfortunate problem is state’s have started seeing it as a cash cow, so there has to be some moderation. If not they will kill the golden goose that is laying the egg, so hopefully that will happen. There has been the notion that because of under declaration, the need is to squeeze the industry. Improvements in this area of taxation will hopefully happen with digitization, as when all the subscribers are transparently taxable by the authorities, better sense would prevail. They should tax it at the price which makes it easy for the consumer to consume the product and at the same time increase the kitty that is available to the state.
Do you see a major threat from Internet TV or Mobile TV?
I don’t really think so. If you’re consuming linear television content your propensity is to go towards regular television. But if you consume episodic stuff like on You Tube, you would go to alternative ways of consuming that content. Most of the consumers continue to follow linear content. Once digitization happens, broadcasters will also invest in high quality programming which is not the case today because the economics of the broadcast industry is not that great. So once they start investing in that content, you will find that there will be high quality programming available which will keep customers glued to their television sets. We will not see Mobile TV taking eye balls away. Mobile TV will only work when you want to be mobile, when you want to consume content on your mobile device. Internet television has its own limitations again it’s related to spectrum availability, it’s not so far been a great success in the country.
In terms of advertising what changes are you seeing? Do you see new business models emerging?
Digitization is an opportunity for the development of niche content. This gives broadcasters and content distributors the ability to segment their audience. This will in turn allow the advertisers to target their advertisements more efficiently. Therefore, as our markets mature, niche audiences will become more important. However, it may take another 5-6 years for niche content to develop. Another possibility is interactivity. Currently, television is consumed content but if it is able to interact with the users, than probably you can just use a button to get some sort of feedback from the audience.
In terms of revenue sharing, what is the emerging picture? Do you see Value Added Services changing the game?
The regulator has laid down the guidelines for this – we hope that as the commercial arrangements get finalized between the players in the industry, each part of the value chain gets a fair share to make investments in this industry viable for investors. There is a notion among a few broadcasters that one platform can do the job to the exclusion of all other platforms – here I am talking of the Cable versus DTH argument – this is completely wrong and indeed shortsighted. In developed markets cable networks have over time evolved into essential infrastructure for a thriving broadband services industry. In fact it could be an essential service akin to electricity. No one can argue that wireless broadband is a substitute for wire-line services – in that context, the regulator, the government, the participants in the market and the consumer will need to appreciate that we are building valuable infrastructure – to encourage this we need to enable the MSOs who will make the investments to earn a fair return on their investments – we are hoping that India will take this route and the recent guidelines and their interpretation in the future will facilitate this.
Value added services such as VOD and Broadband, will certainly change the game over a period of time. There would be never ending opportunities for VAS but initially the focus would be in rolling out the services.
How do you see the industry changing once the proposed recommendations have been implemented?
The economics for industry will change for better if the recommendations are successfully implemented. Secondly, there would be lot of investment made by industry in its infrastructure. Thirdly, there would be greater consumer focus; right now the focus is on the LCOs. Our transformation into being a B2C player, would be the single biggest change. We will have to brand ourselves better, set up better customer service call centers and maintain consistency in our signal quality – the QoS norms prescribed by the regulator partly seeks to ensure this. These will be the biggest changes.
How do you see the face of your industry changing once the government grants you the industry status?
There are certain tax advantages that go with being granted industry status. However, I don’t see that as a pre-requisite - we cannot wait for that to implement digitization.
What is your view on unified access license service?
Unified access license gives greater flexibility. In a theoretical sense, I can provide wire line telephony to my customers , whether we choose to do that or not is a separate issue because that will require a lot of back end investment, and will require us to refashion our service into becoming a telecom service provider. I am not sure if it would be a right thing to do, as it would be fairly a large task. The universal service license gives us flexibility beyond that I am not sure that it changes our lives.