Posted in Operations & IT Articles, Total Reads: 2898
, Published on 14 July 2011
Zee and Star announced creation of Media Pro enterprise, a 50:50 joint venture between Zee Turner and Star Den, distribution arms of both the media houses. The new company can distribute a combine bouquet of their channels in India. There are total 70 channels in between them and the joint venture will provide them with better bargaining power with multi-service providers.
How is cable service industry structured?
There are the broadcasters like Zee, star who pay carriage fees to Multi service operators (MSO). MSOs are nothing but wholesale buyer of the content. Broadcasters pay carriage fees to the MSOs for carrying their channels. Local cable operators are retailer of television content who is suppose to declare the accurate number of subscribers and share the subscription revenue with the broadcasters.
Due to intense competition in the industry with so many channels, MSOs command hefty carriage fees for premium placement in the band. Government has mandated complete digitization of all television channels by 2013. But this is a very slow process and the broadcasters have to rely on analog cable operators which have limited bandwidth capability of carrying only 106 channels of which ultimately 60-65 channels make it to the viewer’s home due poor signal quality and inadequate infrastructure. Hence to get a slot in the prime band becomes a costly affair for broadcasters as there are limited slots but more channels, close to 400. Most broadcasters, including Star and Zee, are believed to spend about 30% of their income on carriage fees. Broadcasters earn very less as subscription revenue due to underreporting from LCOs. Despite being pay channels, there is hardly any flow of revenue through subscription and they have to depend primarily on advertising revenue.
The main objective of these two powerhouses coming together is more bargaining power at the hands of broadcaster. They can negotiate with the cable operators for channel placement, carriage fees and share of subscription revenue. This joint venture may lead to better distribution efficiency, faster digitization, minimizing under declaration of subscribers by LCOs and lower carriage fees. The joint venture with about 70 popular channels will have bargaining power to negotiate terms with MSOs to reduce carriage fees, which in turn will force MSOs to ensure higher subscription numbers from LCOs to keep up their revenues. As the broadcasters are able to improve their revenues, more money can be channelized into niche and HD channels which cannot be carried on the analog cable platform. As these channels become popular among consumers, it may force LCOs to digitize their distribution networks. Digitization will bring more transparency to the distribution. Broadcasters can launch more niche channels, MSOs can charge premium for such channels and consumers can select channels which they want to view. All this can be possible through digitization. All in all, this joint venture can be win- win situation for both media houses.
But for the success of this joint venture, both Star and Zee will have to keep aside their differences. They have long been competing with each other fiercely and it will be huge challenge for them to put their differences aside and work like an integrated unit. Both the groups have equally popular channels. Managing channel priority will be difficult task. For example, which should be number 1 channel in Delhi, Start plus or Zee TV. It will be big challenge for them to prioritize channels in various markets. If these differences are resolved, this strategic alliance will benefit both the media houses and will facilitate in making the cable industry more transparent.
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