The Cabinet announced some good news for the Indian broadcasting industry on September 14, 2012, when it said it was going to increase the FDI (Foreign Direct Investment) cap in broadcast services, specifically those that are associated with the distribution aspect of the business, to 74 per cent.
The decision has standardised FDI limit across broadcast distribution services, including DTH (Direct To Home), MSOs (Multi Service Operators), cable TV and HITs (head-end in the sky). At the moment, only 49 per cent FDI was allowed in cable TV and DTH even though it was 74 per cent in HITS. There were no norms for mobile TV. The FDI cap is now 74 per cent across all of these services. The move has given further strength to roll out DAS (Digital Accessible System) in India.
Bringing in the needed funds
Industry estimates indicate that of the 135 million C&S (cable and satellite) households in the country, 35 million have DTH connections, another eight million have digital cable TV and a significant 90 million have analogue cable services.
To meet the sunset date of January 1, 2015, set by the Ministry of Information and Broadcasting (MIB) for complete digitisation across households in India, an approximate overall investment of Rs 24,000 crore is required. Resources from India alone could not have managed to raise this amount in the stipulated time. The relaxing of the FDI cap will allow foreign investments that would eventually fill in any gap in the required funds.
“This decision is sure to encourage foreign investment in digitisation and hopefully will bring in enough money to digitise cable 100 per cent, sooner than what would have been. It is very positive on the whole,” said Sam Balsara, Chairman and Managing Director, Madison World.
Punit Goenka, MD and CEO, ZEE, called the move a fillip for the reform process initiated by the government. He added, “Sound economic policies create a favourable environment for industrial growth and social upliftment. FDI in broadcasting that will help fund the cash intensive digital process and treating the broadcast sector on par with telecom and retail is the right way forward.”
The move also seems to be an optimistic one for international companies that are at present looking to invest in India.
“This is positive for foreign investors. We welcome any step from the government that strengthens the supply side, that is, increases capacity in the broadcast industry and facilitates the effort towards digitisation. India is already one of the largest broadcast and mobile markets globally, so basic consumer demand for such services is not in question. This is why India is already on the radar for investors, both domestic and foreign,” shared Network18’s Group CEO B Saikumar.
Four-metro deadline cannot be postponed again
MIB officials have reasserted on various occasions that the November 1 deadline for the four metros will not be postponed again. However, even from an FDI viewpoint, the deadline will be crucial for companies who would be eyeing India to invest in the broadcast services. A senior news broadcasting CEO explained, “The last deadline was pushed by four months. For international investors, a delay like that may be a bit of a concern since if they are going to put in significant monies, they would want to be sure that the market ecosystem is a growth enabling one.”
“Undoubtedly, November 1 is a key milestone. The investing rationale for India, however, is not contingent on it per se. The long-term demand drivers for digitisation are already in place. What this move does is to potentially expedite India’s transformation from an analogue to a digital ecosystem. With DAS policy in place, the objective should be to ensure that this transition occurs seamlessly and economically for consumers. Investment policies, such as the one announced, can facilitate this objective,” added Anuj Gandhi, CEO, IndiaCast, the content monetisation company of the Network18 Group.
Cross-holding and concerns
One point that has been a concern is the cross-holding restrictions in India that do not permit a broadcast company to pick up more than 20 per cent stake in a broadcast service provider in India. While more details are still awaited, this is seen as one area that could deter some investors. However, the move to up FDI cap to 74 across services may keep interests high as future looking models such as mobile TV too are added to the mix.
“Investors seek stability and visibility in policy so that they can create value on a sustained basis. Also, investment limits which allow them to drive the strategic agenda of a business will encourage them naturally. The next phase of growth in broadcast and mobile will come from the expansion in width, quality and affordable access of such services and a favourable investment climate is critical to achieving this goal,” said Saikumar.
While upping FDI cap on the whole is positive, one concern that Balsara voices is that it would encourage “non-serious” players to start channels in order to sell off 74 percent to global networks. He said, “We already have that in channels, especially in the news genre, where we have a few channels too many.”
The other area that industry leaders hope to watch out for is that the procedural requirements to avail such investments are transparent and stable.
But at the end of it all, upping the FDI cap is another move from the government to indicate its seriousness in pushing the digitisation agenda in the broadcasting sector.