1) Fringe Benefit Tax abolished: This was a key demand from many players in contentSutra’s Wishlist For The New I&B Minister. Many key overheads for media houses, such as travel, come under Fringe Benefit Tax. The proposed introduction of a Goods and Services Taxes (GST) regime is seen as a positive for all media companies. 

2) Excise duty of 5% on Set Top Boxes (STBs) reintroduced: The government had exempted STBs from duty last year to encourage digitization. Most of the STBs used by the DTH and digital cable industry are imported from China and Korea.

3) Increased DAVP rates to stay: During the height of economic slowdown and ahead of general elections, the government had increased discounted ad rates paid by various government agencies by 10%, in addition to discontinuing a 15% agency commission. These waivers will stay for another six months.

Reactions:

Anjan Mitra, Executive Director-India, Cable and Satellite Broadcasting Association of Asia (CASBAA):

“Any additional tax imposed on (import of) set-top boxes (STBs) is like taking a step back. Imposition of an additional 5% duty on STBs will hit the spread and process of digitalization in India, which had been flagged by TRAI, MIB and the PMO as a priority area. With boxes becoming likely to become costlier, the consumer ultimately will have to shell out more.”

Salil Kumar, COO, Dish TV India Ltd:

“The additional burden of 5% tax on STB will hinder the growth and will discourage the DTH industry from expanding business; this tax hike will be passed on the customers. Although we do welcome the removal of FBT (NYSE: BT) and introduction of GST (Goods & services tax), which will provide some relief to DTH industry from multiple taxes from Centre & the states.”

Anand Shah, analyst, Angel Broking:

“THE Budget is overall positive for the Media industry, particularly Print Media and marginally negative for Distribution companies. The six month extension of stimuli package for Print Media (10% hike in DAVP rates and waiver of 15% agency commission) is positive for Print Media companies. However, a 5% hike in customs duty on Set Top Boxes comes as a marginal negative for Distribution companies (Dish TV, WWIL). Finally, a complete exemption from FBT, currently at 20%, and confirmation of implementation of GST by April 2010 will be of a great boost for both Print and Broadcasting sector, apart from the Film Industry.” 

Amit Kumar, analyst, Kotak Securities:

“Negative for TV distribution. The basic customs duty rate on digital STBs was set at 5%. We note that nearly the entire consumption of STBs in India is imported. This would be negative for companies such as DITV (LSE: ITV), WWIL, HVL given (1) pass through of higher STB cost to consumers will result in lower volumes and (2) absorption of incremental STB cost will impact already stretched financials.”

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According to this report the incremental cost for acquiring, creating content and subscribers is expected to be Rs 5 billion. Aksh has recently concluded a GDR / FCCB issue of USD $40 million in January 2008 to part finance the IPTV and VOIP services in Delhi and Mumbai. Asked in an interview about their strategy for IPTV, Mrs Namrata Sengupta, AGM Corporate Strategy replied “The strategy for IPTV is establishing two-way communication interactivity for the consumer which means you request for a program and you are delivered the same.” Well…somebody has been reading Wikipedia.

Aksh seems to be using a DRM’d digital video recorder cum set-top box considering a subscriber can re-view programs past 7 days. As per the interview, Sengupata adds Aksh is investing $37 million in its services business on IPTV and VoIP platforms and $7 million to expand the production capacity of optical fibre cable and FRP rods by around 20-50 per cent. She ends on a high note (sic) stating IPTV will do to India what the PC did to the US.

Shares of the company declined Rs 1.7, or 3.79%, to trade at Rs 43.2

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With the current telco posturing, it seems they are lobbying for a similar if not lower rate from broadcasters. Reason? Traditionally the TRAI has been supportive of digitized formats and as seen with DTH will want to solve content woes for a new platform by mandate. Currently, BSNL and MTNL, offering IPTV in a few cities,  are paying minimum guarantees to content providers. With channel rates currently being variable, a TRAI mandate could bolster penetration through low acquisition costs per customer. Content differentiation on IPTV is limited as well, considering the Ministry of Information and Broadcasting will be regulating content. Currently, to avail MTNL’s IPTV service in New Delhi, a broadband connection is pre-requisite and IPTV services cost an additional Rs 999 (refundable deposit). Additionally, a subscriber doesn’t have to pay for a set-top box with a 12 month free subscription thrown in.

Compare this to DTH, where a set-top box and installation costs, excluding a monthly fee, will make you poorer by Rs 5000. However, the problem with IPTV lies not in its cost or content but its reach, which both BSNL and MTNL have under-utilized in spite of having proprietary last mile access. Till the time TRAI manages to create an environment that facilitates entry of private players, IPTV will continue to stagnate and infact digress in comparison to an increasingly competitive DTH sector.

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But what is IPTV on Mobile? On the basis of my discussion with Time Broadband execs, it appeared to be similar to TV over Mobile networks, with added interactivity. What’s important to note is that IPTV on Mobile works over the 2.5G network - hence can be deployed in India as well, which they claim is due to Stanton’s proprietary compression technology. Mervin Nevis, CEO of Stanton Technologies said that the service requires a bit-rate of 55kbps, which is feasible in India, though I think consistency of GPRS connections is an issue.

The JV is targeting South East Asia and Ukraine; How much investment will be required? Tushar Shah, CFO of Time Broadband told Contentsutra they they would require around $5 million per contract…and to cover all the operators in India, they’ll need an investment of $20-25 million. Dubai Ventures had picked up 40 percent stake in Time Broadband last year.

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It’s still a rather piecemeal approach to building repertoire - but when was multiterritory TV content licensing ever not thus? At Mipcom in October, Joost hinted to paidContent:UK it would seek European sports rights to follow the arrangement it inked with America’s MLB baseball league. It last week started testing live streams and will tomorrow test live match streams from US basketball’s NCAA March Madness series.

The Star adds that Time Broadband has formed a 50:50 joint venture company with Stanton Technologies, called Stanton Time Broadband Pte Ltd in Singapore to offer technology and marketing of digital media solutions to telcos. Sujata Dev, MD of Time Broadband, told The Star that JV was in talks with Middle Eastern as well as local telcos to offer digital media delivery solutions…not surprising, since the Dubai Investment Group has 40 percent stake in Time Broadband, post restructuring. In India, they provide content to MTNL’s IPTV service.

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Currently, Universal Access Service License (UASL) holders and ISPs are allowed to provide the service, and MTNL doesn’t have a UASL. BS adds that MTNL will have to pay Rs. 401 crore for one. MTNLs IPTV service has gotten only 6000 customers since launch, and they’re targeting 50,000 customers this year…and pigs will fly. IPTV, despite the technology, has missed crucial deadlines for switchover from analog to digital services, and the delay in regulation has been its bane. Reliance and Bharti are expected to launch their IPTV services this year, but I sense that they’ll push more for DTH. See our IPTV channel for more.

Big news for cable TV operators: the I&B ministry, based on TRAI’s recommendations, has approved cable TV operators to provide IPTV services. Importantly, this authorizes broadcasters who are currently delivering signals via cable and DTH to distribute over IPTV as well. According to this ET report, cable operators must give a declaration to the I&B about the details of the service to facilitate monitoring.

The DoT hasn’t given an approval to ISP’s and Telcos as yet. Considering that there is an FDI handicap of 49% for cable operators compared to 74% for Telco’s and ISP’s, they have given the cable industry the headstart. The Bureau of Indian Standards is supposed to standardize set-top box specifications, would be interesting to see if they keep it open, effectively allowing any service provider to plug-n-play instead of a proprietary walled garden infrastructure.

In spite of the approval, it’s still going to be a while until broadcasters begin to make hay. Many of them have joined distribution alliances and exclusive arrangements, effectively signing off their IPTV rights until their agreements run dry on the term date.

I disagree with the second point: existing broadband connections are not critical for IPTV; that’s like saying that DTH will struggle because people don’t have the dish already in their homes. There is wireline telephone infrastructure already in place, and the carrier provides the wire for IPTV along with it. The real issue, as I’ve said before, is about marketing and policy. CAS deadlines are slipping away, and one doesn’t know yet how IPTV will be governed; so there’s barely any deployment, and almost no marketing. For consumers, there are only two choices - DTH or CAS. No one knows about IPTV.

According to Gartner, the franchise based model being adopted (involving private players like IOL Broadband and Time Broadband) will help speed up deployment. Gartner recommends that carriers offer DTH to secure customers, and later convert them to IPTV or offer a hybrid DTH-IP broadband Set Top Box for both services.

Updated: RapidTVNews: Reliance is also backing the Bluemagic DTH platform which was scheduled to launch by the end of 2007, but has slipped to first quarter 2008. But much less noise has been made about that service. It will use the Measat-3 satellite to beam MPEG4-compressed programming into the sub-Continent.

“Mobile and cable TV in India are thriving, but fixed line penetration is softening, and broadband penetration is low. Cable will remain the dominant last mile pipe in India. Cable operators are aggressively investing in content.”—Vivek Couto, ED, Media Partners Asia

“Broadband is a part of the whole digital exercise. Regulation has held everything back. With 300 odd channels, we think valuations in media companies and content are excessively high. There are times when its easy to invest and make good returns. and maybe not that scenario right now. I don’t think content is the key - frankly, there’s enough content in this market. What this market lacks is investment in digitization, and the regulatory environment that allows them to charge. For consolidation, you need at least one of three things, preferably all three - high level of competition, changes in regulation and investment.”—Brahmal Vasudevan, MD ChrysCapital

“Every broadcasting company is looking at India. The regulator needs to get involved, ‘cause who knows who is applying on behalf of whom. One needs to take stock of who’s putting in the money. The TRAI is doing a remarkable job, and 3-5 months to get an application through is not unthinkable in the larger scheme of things.”—Peter Mukerjea, CSO, INX Media

More in the extended text

“Different rules for different platforms. Everything is in a flux. On IPTV, as per TRAI recommendations, any channel can be broadcast without registration. Interactive services allowed on IPTV are not allowed on DTH. If you look overseas, most markets have diversified into at least instant messaging on DTH. In India, one needs a V-Sat licence to offer interactivity.”—Amitabh Kumar, Director, Essel (Zee) Group

“Before the unbundling of the local loop (in the UK), most service providers apart from British Telecom (BT) were struggling for survival and broadband was being rolled out slowly. BT (NYSE: BT) agreed to the creation of a seperate company for access - Openreach. With 80 percent of homes unbundled, the growth was dramatic. Broadband speeds doubled to just under 5 megs; in some cases broadband is now being offered free. Broadband is delivered to nearly half the households. There is considerable scope for new entrants - there are no barriers to FDI. We don’t worry about foreign control. We’re looking to ensure a plurality of voice and open competition. Around 30 percent of users in the UK use wiress Internet. The other thing is to have people pay for spectrum so they use it efficiently.”—David Currie, Chairman, Ofcom (UK)

IPTV had lots of technology issues to begin with, but a year and a half long trial has helped Airtel improve the product. Garg says that the copper cable infrastructure is enough to support IPTV - both in terms of compression and line. The real challenge is not technology, but content. However, there are still some issues with deployment - the laying of copper is expensive—commercially unviable—and mass deployment is a challenge; hence a need for local loop unbundling. Even with local loop unbundling, how will IPTV work where wireline penetration is low? The technology thus also needs to be tested on wireless, like in case of WiMax.

He has no doubts about the potential of IPTV (one wouldn’t expect otherwise, right?) - it’s interactive and the consumer gets a choice of whatever she wants to see, whenever she wants to see it. The biggest challenge, he says, is educating the customer - particularly the misconception that IPTV is dependent on Internet bandwidth.