What do you do when you are finding it hard to push your digital set-top boxes (STBs) and broadband Internet service? Bundle them. That is what Hinduja TMT is offering in the plate to lure its cable TV subscribers.
The price for this bundled package, called the `Double Dhamaka‘ offer, is Rs 5,999. Separately, the STBs cost Rs 4,064 (including installation and other charges) while the cable modems are available at Rs 3,500 (including installation charges). “We introduced this scheme a month back to drive growth,” says IndusInd Media & Communications managing director Major General (retd.) CL Anand.
Credit IndusInd Media & Communications Ltd, a subsidiary of HTMT, for being the first MSO to operationalise a digital cable TV delivery service in the voluntary conditional access system (CAS) markets of Mumbai and Delhi. A few months back, the Hinduja-promoted company started distributing the STBs free in selected pockets. Now that scheme has been stopped and the STBs are being sold in the two metros. A lease rental scheme is also available with an upfront payment of Rs 999 but is not being promoted and is given on a very selective basis. “We offered free boxes on a trial scheme for two months. We have stopped that as a strategy a month back. Our focus is on selling the boxes,” says Anand.
But it is a hard market to crack and there has been little growth. The company claims to have deployed 8,000 STBs, well short of around 200,000 boxes it claims it has piled up.
For HTMT, the war is on another front as well – to grow its broadband Internet business through subsidiary company In2cable (India) Ltd. Here, Hathway Cable & Datacom has taken a clear lead. Besides, several local cable operators are offering broadband Internet service through different sources. A price of Rs 6,000 for cable modems did not make In2cable‘s task any easier.
Early this year, the company decided to set right the pricing issue. Cable modem rates were slashed to around Rs 3,500 (including installation charge), depending on the usage of Internet hours. Access tariff also dropped and subscribers could pay as low as Rs 250 a month on shared modems, says In2cable chief executive officer Brigadier (retd.) TM Sridharan.
Is the company planning a territorial expansion. Already available in 11 cities, the aim is to soon spread out to Nashik and Nagpur.
Not that the company expects to overhaul its revenues this year. Admits Sridharan: “It is a cut throat competition out there. Though volumes have gone up, margins have been squeezed on the back of a steep fall in prices.”
In 2003-04, the company‘s income from its core broadband Internet services grew 31 per cent to Rs 78.83 million, from Rs 59.99 million a year ago. But the annual average subscription earning per cable modem decreased 1.35 per cent and the total bandwidth cost increased from 37.94 per cent of income from Internet operations in FY 2003 to 44.72 per cent in FY 2004. In2cable, in fact, posted a net loss of Rs 21.08 million in 2003-04, after providing Rs 14.93 million towards depreciation and Rs 3.25 million towards financial charges.
HTMT plans to merge In2cable with IndusInd Media. The aim of consolidationing operations is to help reduce overhead costs and drive topline and bottomline growth Already, the teams of In2cable and IndusInd Media are integrated with Anand in charge of operations.
As with Hathway, a major drive during the nine-month-old price freeze on subscription rates has been to improve recoveries on current billings. Says Anand, “Our collections have improved from 80 per cent in our direct points to 95 per cent, and in case of franchise operators from 60 per cent to 80-85 per cent.”
Historical outstandings have always been a problem with MSOs, particularly IndusInd Media. The company, in fact, has set off bad debts of Rs 347.77 million against its share premium account as on 31 March, 2004.
IndusInd Media, in fact, has a lower outgo to pay TV broadcasters than Hathway Cable & Datacom, despite being a larger network. In 2003-04, IndusInd‘s pay channel costs rose 20 per cent to Rs 682.2 million. Compare this with Hathway‘s payout which stood at Rs 1.07 billion in 2003-04.
Still, the pay channel costs are stiff and hurts the company. Operating expenses increased 21 per cent to Rs 962.09 million in 2003-04, mainly due to a rise in payout to broadcasters. The company‘s operating loss increased 71 per cent to Rs 197.1 million, almost entirely on account of the increase in pay channel costs. “MSOs are bleeding through the backside,” says Anand.
A regime towards CAS provided hope that MSOs would have a more organised business model. The price of pay channels would not matter as consumers would have to pay for only the pay channels they want to watch. MSOs would charge a margin for distributing the channels.
The company claims it has invested Rs 1 billion towards CAS. And with the promise of a mandated CAS regime in the four metros, the company could enter into an agreement with Kudelski SA, Switzerland for issuing around 3 per cent of its equity for $12 million.
IndusInd badly needs a timetable for CAS. But has the price freeze helped? “It is a double-edged weapon. We welcomed it so far as payout to broadcasters remained frozen. But we hated it so far as it did not allow us to hike up our rates. And there was a basic flaw in that model as new channels did not fall under the ambit,” says Anand.
So what is the road ahead? “The price freeze does not bridge the gap between our payout and revenue inflows. The answer to all this is CAS. In the absence of that, MSOs will continue to bleed,” says Anand.
