Problematic Ownership Patterns: The Evolution of the Television Distribution Networks in India
EPW
Dated: March 29, 2019
TV distribution is riddled with political ownership and the emergence of near-monopolies in the languages, states, and metros’ markets. There are instances of cross-media ownership among the national cable companies. Such information is either deeply embedded, or available in a non-transparent manner.
Recently, the Competition Commission of India (CCI) allowed the Reliance Industries Group (RIG), owned by multibillionaire Mukesh Ambani, to acquire majority stakes in the two largest cable distribution MultiService Operators (MSOs), DEN Networks and Hathway Cable (Laghate 2019). This raised the same concerns about TV distribution, that the regulators and policymakers had discussed with regard to the media content business.
Telecom Regulatory Authority of India’s consultation papers and recommendations had cautioned against the growing trends of political ownership, market concentration, and cross-media ownership by large corporate groups in broadcasting and print media (TRAI 2008). The telecom regulator had felt that these trends curbed the diversity of information and, therefore, were not in public interest. With RIG’s proposed twin takeovers, these issues need to be reconsidered with regard to TV distribution too.
TRAI recognised the importance of understanding the cable distribution sector a decade ago. According to a senior manager in a business conglomerate with huge media interests, who wished to remain anonymous, TRAI has now begun to conduct a study to investigate ownership patterns, control structures and, market shares and concentration in cable distribution.
Our research has found that TV distribution is riddled with political ownership in the form of large market shares, especially in specific language markets and state markets. Moreover, we found instances where MSOs that were previously involved only in TV distribution, expanding into print media and broadcasting. This raised fears about growing cross-media ownership. Most of this information was either deeply embedded, or provided in a non-transparent fashion by the MSOs.
The TV distribution business is one of the least explored areas in the otherwise expanding study of broadcasting in India. Undoubtedly, scholarship on broadcasting in India has grown from studies of its genesis in "effects," to delve into inquiries about transnational flows, programming genres, audience behaviour, and facets of TV consumption. But even after 25 years of cable and satellite (C&S) TV, and over a decade since subscription revenues surpassed those from advertising, the business of TV distribution continued to be empirically ignored and analytically unappreciated, except for a few notable exceptions (Naregal 2000, Jayakar 2011, Parthasarathi et al 2016a, b or c).
The reasons why distribution matters rather centrally to the study of TV in contemporary India are interrelated. We found that distribution is a key driver of the television industry. It has also been instrumental in facilitating new commercial arrangements— especially ideas of property and protocols of pricing—between the various actors along the C&S broadcasting value chain. The significance of the distribution network can be gauged by the revenue it contributes to the entire television business, its role in shaping a regulatory regime throughout the distribution value chain and by extension, its impact on how information is disseminated.
The significance of distribution in C&S broadcasting was evident not only from its role in shaping what we saw on TV, but how our viewership came to be commercially constructed. For instance, there were several cases of how cable distributors in select geographies blocked certain TV channels for political and corporate reasons (Indiantelevision 2017a or b).
Unplanned Evolution
Aggressive Inorganic Growth
Political Ownership
Emergence of Large MSOs and Near-Monopolies
Cross-media Ownership
National cable distribution companies or national MSOs that exist today, primarily grew by capturing markets that were developed by regional and local entrepreneurs. A far smaller share of their growth and expansion can be attributed to the creation of new markets, as was commonly observed in some other national landscapes (Chan-Olmsted 1997; Chen 2002). In India, broadcasters created new markets, or attracted new sets of viewers, either by introducing content genres or launching TV channels in different languages. Firms that had demonstrated growth in the TV distribution sector were those that were able to consolidate a number of pre-existing, spatially bound cable enterprises across various regions of the country, and had thereafter used them as springboards to expand further in their respective geographies.
For several reasons, the evolution of the cable business was not a planned one. It grew out of the chaos of the early 1990s, especially after the First Gulf War was televised in India (Ambez Media & Market Research 1999). The local entrepreneurs in cities and towns slung cables across trees, lamp posts and residential rooftops to reach the subscribers. This was in the "analogue" days: each locality in a town or city had at least one local cable distributor; many localities had several, and they aggressively competed with each other to expand their territories. This was the era of the local cable operators (LCOs); MSOs were absent.
The “pioneers,” or the early entrepreneurs, who had set up the initial cable infrastructure to grab audiences and expand the market had a local mindset. Even those who later developed a pan-India presence, like SITI Cable (the third largest MSO today), initially thought in local terms, and at best, at the level of regional market shares. Hence, by the late 1990s, the country had tens of thousands of LCOs with sizeable local market shares. Only a handful, like SITI Cable, were capable of transforming into a national MSO. To emerge as a national player from that stage, there was only one option: buy out the existing LCOs and smaller MSOs, or ink joint ventures with local, but powerful, operators (DEN 2009).
Unlike SITI Cable, the two largest MSOs, DEN Networks and Hathway Cable, were relatively late entrants. Hathway Cable entered the business in 1999, several years after Indian audiences were hooked on to C&S TV (Hathway 2010). DEN Networks was among the last big cable distributors to enter the business, in 2007 (DEN 2009). By the time both came into existence, cable distribution was an established segment of the C&S TV business, and several large, medium and small companies had captured almost all the lucrative markets, that is, the metros and bigger cities (Ambez Media & Market Research 1999). Therefore, it was virtually impossible for the new entrants to expand organically by grabbing new audiences. They were, thus, forced to opt for inorganic growth by taking over the existing subscriber base by purchasing or merging with existing local and regional companies.
Aggressive inorganic growth proved to be a hugely successful strategy. As of 31 March 2018, DEN’s digital subscribers base rose to 11.3 million households in “13 key states across India” (DEN 2018). The figure would be higher if we included analogue subscribers. As per its annual report (2017–18), “The company has a significant presence in the strategic and economically important Hindi-Speaking Markets belt.” By March 2018, Hathway Cable had over 7 million digital subscribers (apart from analogue ones) in more than 350 cities and towns (Hathway 2018). By 2018, DEN emerged as India’s largest MSO, followed by Hathway Cable.
However, this aggressive expansion spree through mergers and acquisitions was not uniform. Only in some cases did the two MSOs buy 100% stakes in the targeted local and regional firms. In most cases, they purchased stakes that ranged from 26 to 99%. For example, as on 31 March 2018, DEN had 100% in 19 companies, and over 51% in another nine firms. In 91 companies, its holding was 50%–51%. As on 31 March 2018, Hathway Cable’s holding in 15 acquired companies was 50%–51% and in 23 firms, it was 100%. The stakes were between 51% and 96% in seven, and below 50% in five (Hathway 2018). Hathway Cable’s ownership structure looked slightly different from DEN’s because in April 2017, at least 49 firms of the former ceased to be its subsidiaries because of an internal merger process. DEN too reduced the number of companies in its ownership matrix through mergers of its subsidiaries (Hathway 2017).
As expected, these acquisitions led to the emergence of complex ownership structures. Most of the companies in the fold were obviously subsidiaries. But there were also step-down subsidiaries, that is, subsidiaries of subsidiaries, and associate companies (DEN 2018; Hathway 2018). But why did the two MSOs retain such complicated ownership models for such a long time?
The answer was obvious: first, there were a number of original promoters of the smaller MSOs and LCOs who did not wish to sell their stakes entirely, maybe because they wanted to sell their shares for a profit later, as many did. Alternatively, they might have had a specific purpose in retaining between 10% and 50% stakes, which is addressed in the next section.
The regional nature of cable distribution was apparent to the buyers. The viewership of most TV channels was regional rather than national. Similarly, the operations of cable companies were confined to distinct areas: laying the cables required local knowledge and expertise (DEN 2009). This was also useful to understand the distinctions between viewers in various cities and towns, and within the same cities and towns. Hence, DEN and Hathway Cable understood the need to retain the original, but local, promoters as minority shareholders. Finally, buying up 100% shares of local companies required huge capital, and even the most aggressive entrepreneurs wish to restrict their investments.
We found several instances of political ownership in the TV distribution business in the form of names of minority shareholders of various subsidiaries and step-downs companies. While the names of the shareholders were available in a few corporate documents, the details of their profession were missing. Many of them were local and regional politicians (Parthasarathi and Srinivas 2016). For example, based on information filed with the Ministry of Corporate Affairs, there was evidence that the politicians in Maharashtra and Punjab had business links with Hathway Cable. In Maharashtra, one of its 51% subsidiaries was Hathway Dattatray Cable Network. The other 49% was held by Anil Parab Dattatray, a Shiv Sena politician and former member of the Maharashtra Legislative Assembly and also the former president of Mumbai’s Cable Operators and Distributors Association (Government of Maharashtra 2018).
In a 2012 order, the CCI traced the rise of a monopoly cable distributor in Punjab, and how its promoter had political links (CCI 2012). Before 2008, there were two MSOs in the state—Hathway Sukhamrit Cable and Datacom, a partnership between Hathway Cable (50%) and Gurdeep Singh (50%), and Wire and Wireless (India) Ltd, which later became SITI Cable. After 2008, when Gurdeep Singh-owned Fastway Transmissions and other group firms entered the fray, the two national MSOs lost market shares (CCI 2012).
By 2012, Fastway Transmissions was owned by Singh, along with Creative Cable Network, whose majority owner was also Singh, and Hathway Sukhamrit, had a share of 4 million households out of total cable households of 4.5 million in the state (CCI 2012). The next largest cable operator in Punjab had a subscribers’ base of a mere 10,000. The CCI judgment mentioned that Singh “has political clout and has virtually eliminated all small cable operators by taking them over.” Media reports indicated that Singh had close business ties with the state’s former chief minister, Prakash Singh Badal, whose Akali Dal lost the assembly elections in 2017 (CCI 2012).
As on March 31, 2018, Hathway Sukhamrit, which was renamed Hathway Patiala Cable ceased to be a subsidiary of Hathway Cable (DEN 2018). As per the latter’s 2017–18 annual report, “During the financial year 2017–18, the investment in equity shares of Hathway Patiala Cable Private Limited was classified as an investment in Joint Venture. However, the management no longer intends to exercise its influence in operations of Hathway Patiala Cable Private Limited. Accordingly, such interest… has been reclassified… and hence ceases to be a subsidiary company.” By 2018, firms belonging to Gurdeep Singh, like Fastway Transmissions, had monopolised cable distribution in Punjab (Indiantelevision2017).
Similar political connections were found in the case of DEN. One of its 51% subsidiaries, DEN Malabar Cable Vision operated in Kerala. The other shareholders in the subsidiary included Ali Mubarak Nilam (12.24%), P.V. Muneer (12.24%), Valappil Kunhi Mohamed Kutty (24.49%), and Ramla Adi Maparambil (0.002%) (Ministry of Corporate Affairs). Interviews with Kerala-based journalists revealed that Ali Mubarak was the son of P.V. Abdul Wahab while P.V. Muneer was Wahab’s brother. In 2004, the Indian Union Muslim League, a regional state party, successfully supported Abdul Wahab’s election to the Rajya Sabha. With a sprawling empire spread across India, West Asia and Australia, he became the richest parliamentarian from Kerala (Rajeev 2008).
It is not surprising that politicians would be linked so closely with cable distribution since politicians have often used their power to set up businesses. In the early days, a successful cable operator required local muscle power. Expensive wires had to be strung from home to home, which required often illegal right of way and, hence, involvement with local bureaucracies, police and judiciaries. Local politicians had the power to influence these sections.
The industry was frequently rocked by an aggressive, and sometimes illegal, competition, and even violence. Physical attacks, even murders, were common among local competitors (Parthasarathi and Srinivas 2016). Cables were regularly cut or stolen by competitors; this too required the support of legal and illegal muscle power. Politicians, by way of being a part of the existing power structures, were capable of dealing with exigencies and crises on a daily basis. In addition, the control over local and regional cable network clearly implied control over news and information flows, apart from a handy medium to disseminate propaganda to win over local voters.
Running an empire with hundreds of subsidiaries in the same sector required a clear-cut and tight-knit ‘command and control’ structure. Mere ownership of majority shares by the parent company or parent subsidiary could not ensure adequate control. Since minority shareholders in several subsidiaries had up to 49%, they could upturn the ‘equity’ control structure (DEN 2009). For example, they could sell their shares to a competing MSO, which could derail the operations in specific localities. Hence, there was a need for inbuilt contractual controls of differing kinds, which were morally and legally implementable.
Both DEN and Hathway Cable pursued several strategies and tactics to exercise control, retain command over decision-making and include the minority shareholders in the day-to-day operations to maintain control and increase market shares. For example, in a bid to tighten its control over the empire, DEN inked several agreements with the part-sellers (DEN 2009). One, the assets of the original companies were transferred to the renamed entity, or a new one. Sellers had to further give assurances that the assets were free from any liens or encumbrances. In addition, DEN kept the right to appoint a majority of directors on the boards of the renamed or new entities. Finally, it retained the first right of refusal in case the minority shareholders wished to sell their stakes (DEN 2009).
The most efficient and time-tested tactic to effect control was through the majority, and multiple interlocking directorships across the group companies. Most of these DEN-appointed directors were loyalists and senior to mid-level employees of the parent company. In the case of Hathway Cable, Milind Dattatraya Karnik, who was president, company secretary and compliance officer of the parent, held 48 directorships in the various subsidiaries until a few years ago. Rohinton Dadyburjor, vice president (operations), Hathway Cable, was a director in 28 companies within the group. Amit Ashwinkumar Shah, a general manager, had 17 directorships. With the recent amendments in the Companies Act, the number of multiple directorships was recently capped (Documents filed with Ministry of Corporate Affairs).
Such models led to market concentration, especially in linguistic markets, states, and major cities. Already, DEN and Hathway Cable together control almost a quarter of the all-India market share in cable distribution. Now, this will move to RIG, which received the CCI clearance for the two acquisitions. When one considers specific languages and states, the two MSOs have emerged as near-monopolies. In its 2015–16 annual report, DEN stated that it was “Dominant Player in Key Phase 1 and 2 Markets with 25% market share (on basis of subscribers)”. This could turn into almost 50% share in cable distribution, if one removed the DTH subscribers. In the metros and major cities, the market shares were higher. In its 2016–17 annual report, Hathway Cable stated that it had a “dominant market share in the key geographies of Mumbai, Delhi, Pune, Ahmedabad, Kolkata, Hyderabad, and Bengaluru”.
In cases of powerful regional MSOs, the fear of monopolistic tendencies was higher. Take the example of GTPL Hathway, which was an associate company of Hathway Cable, and initially grew in Gujarat through its own set of dozens of subsidiaries. Hence, it could be seen as a regional MSO, which is part of a national one. GTPL Hathway claimed to control a majority of TV households in Gujarat (GTPL Hathway 2018). A few powerful regional MSOs have increased their local market share to almost 90%–100%, as was the case in Tamil Nadu (Arasu Cable) and Kerala (Asianet Satellite Communications). In its consultation paper and recommendations six years ago, TRAI had conceded that such tendencies existed, and there was a need to impose more laws and rules to prevent them (TRAI 2013).
Experts tend to look at both DEN and Hathway Cable as stand-alone cable distribution groups. The latter owns a magazine group, Outlook, but it does not denote a significant presence in the print media business because of its low circulation, when compared to the leading newspapers in several languages. Both the national MSOs expanded their broadband services, an extension of their TV distribution business, into the online segment. However, both have little known and largely hidden cross-media presence that was built on their existing commercial geographies (Annual Reports, various). Since TV distribution was a spatially located business operation, the two groups’ presence in broadcasting emerged from such locational restrictions and geographical presence and clout in terms of market shares.
Let us explore Hathway Cable’s presence in Gujarat. One of its associate companies, GTPL Hathway, which had a near-monopolistic cable presence in Gujarat, owned Gujarat Television that runs nine TV channels and claimed to have a viewership of 80% in the state. The bouquet included two regional news channels, Nirmana News and Gujarat (GTPL) News. All the nine channels catered to the audiences in the state. In other words, Hathway Cable seemed to be a regional broadcaster-in-hiding (Annual Reports, various).
Between 2007 and 2013, Hathway Cable was a majority owner of a cable subsidiary, Hathway Bhaskar Multinet, which operated in Madhya Pradesh, Chhattisgarh and Rajasthan. The minority shareholders in the subsidiary were the members of the Agarwal family, who owned the Dainik Bhaskar Group, one of the largest Hindi print media companies in India. In 2013, the Agarwals sold their stakes to Hathway Cable (Annual Reports, various; Ministry of Corporate Affairs).
Since its inception in 2007, DEN had links with regional and other broadcasters. The reason was that the group’s promoter, Sameer Manchanda, was involved in the launch of Network 18’s CNN-IBN English channel in 2005. He was the joint managing director of IBN Broadcast, which was promoted by Raghav Bahl, and included a Hindi news channel, IBN-7. When Manchanda launched DEN, Bahl was appointed as a non-executive director; the latter owned 10 million shares at the time of DEN’s IPO (initial public offering) in 2009. Both Manchanda and Bahl were partners in Setpro 18 Distribution, which managed the band placement for channels, and collected subscription fees for broadcasters in the analogue days. Bahl ultimately sold his bouquet of TV channels in different languages to RIG, which later bought majority shares in DEN and Hathway Cable (DEN 2009, Bahree 2014).
In 2017, Manchanda was a part of an alliance of cross-media players, who launched an English news channel, Republic. It involved cable distribution as one of its cogs in the ownership wheel of the channel, which was the brainchild of Arnab Goswami, the well-known anchor of Times Now. Tapesh Virendra Singhi was also a small investor in Republic. He was appointed as a director in several subsidiaries of DEN. He was also a partner in a venture capital firm, Palaash Ventures, which had strong links with DEN. Another partner in Palaash Ventures, Priya Mukherjee, earlier expanded the DEN’s cable business in South India, and the founder of Palaash Ventures, Piyush Goyal, was one of the original founder members of DEN (Ramanathan 2017).
Clearly, cable distribution in India is saddled with several malaises. There is a critical need for further research to unravel the extent of political ownership, monopolisation in linguistic and states’ markets, and cross-media ownership. In fact, this is more so because of the inherent regional nature of cable distribution, which keeps ownership patterns hidden.
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