Can telecom companies become media players? Going by the arguments over sharing of value-added-services or VAS revenues — the first line of media revenues for telecom — it would seem difficult.
According to an IMRB paper for the Internet and Mobile Association of India, VAS, or the sale of ringtones, caller tunes, wallpapers, SMSes (for contests and communication), among other non-voice services, generated Rs 7,500 crore in revenues in 2008. Of this, just about 5-15 per cent went to companies that own the copyright over the material, say a song, that you may have downloaded from your mobile provider or a portal. Anywhere between 15-20 per cent went to companies such as Hungama, Indiatimes or OnMobile, which act as the aggregators and/or technology enablers. The rest, between 60-80 per cent is retained by telcos.
This is the exact opposite of the revenue split in most mature mobile markets. In Europe and Japan, for instance, the content companies get a bulk of the revenues. This, therefore, has caused a lot of bad blood between telecom and media companies.
Much of this stems from one simple fact: Telecom companies are large consolidated behemoths that have control over the consumer, the billing and therefore the revenues. India’s 345 million mobile subscribers are carved out between half a dozen major telecom firms. On the other hand, media is an extremely fragmented business. There are hundreds of firms in each segment — newspapers, TV, films and so on.
A look at the sizes of firms shows how disproportionately matched the two industries are. Bharti Airtel, India’s largest telecom firm, clocked revenues of Rs 25,703 crore in March 2008; Bennett, Coleman & Co Ltd (BCCL), India’s largest media company, did less than one-fifth at Rs 4,282 crore in its financial year ending July 2008. And remember, BCCL is a huge exception. The next biggest firm, Zee Entertainment, is Rs 1,949 crore and the average size falls drastically after that.
So, the battle is as much about negotiating power as it is about revenue share. However, going forward, telcos’ dependence on media revenues is bound to increase. Currently, VAS brings in 9 per cent of telecom industry revenues. As average revenues per user (or Arpu) fall, the pressure on making more money from VAS will keep going up. The margins on selling a ringtone at Rs 10 or more are better than selling voice at Rs 1 per minute.
It is not just VAS which could become a 20-30 per cent contributor to telecom toplines. There are a number of other media businesses where almost all major telcos are investing huge amounts of money. There is IPTV, a system where a digital television service is delivered using Internet Protocol over a network infrastructure; there is DTH, which three major telcos, Bharti, Reliance and Tata, have already got into and there is broadband access.
Globally, only entertainment content drives the revenues on these businesses, so telcos need to work with broadcasters, production houses, cable companies and music companies. Thanks to the VAS experience, the latter, however, already mistrust them. Most telcos shrug off the conflict and believe that content is a minor issue while carriage is the big deal.
The fact remains that owning a platform does not necessarily translate into success in the media business. Many of the top film companies (Yash Raj or UTV) and almost all the music companies do not own any retail presence. A user is willing to pay to watch on Neo Sports the same cricket match that he gets on Doordarshan for free. So, while carriage is key, all the carriage dominance in the world cannot be monetised without relevant content streaming through those pipelines.
In China, where media infrastructure is way ahead of India, there is an acute programming shortage. There is only one hour for every ten hours needed, according to one estimate (largely due to various restrictions on making content). This means that monetising all the fancy multiplexes, cable systems or digital cinemas is very difficult.
Ultimately, in a fragmented, over-supplied content market like India, it should be easy to get good stuff if you have a sense of what will work and what won’t. Media companies have a feel for it, mobile companies don’t. If telcos can’t learn that along with a dose of generosity, all the promise of media revenues from ‘triple’ and ‘double’ play could well fizzle out.
The writer is a media consultant and author of The Indian Media Business email@example.com