New rules for the game

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India needs to have a broadcasting policy that encourages sports channels to operate as broadcasters and full-fledged businesses.http://www.business-standard.com/today/story.asp?Menu=26&story=36862

Until the Supreme Court judgment on the issue of Doordarshan (DD) being given the rights to telecast the India-Pakistan cricket series last week, Indian television viewers were probably as tense as the two teams across the border. Would they get to see the series live on DD?

The current series has generated so much interest that the broadcast regulator, ministers and supposedly even the prime minister, tried finding a solution to the DD-Ten Sports imbroglio.Eventually, the matter ended up in the Supreme Court, which directed Ten Sports to share its feed with DD after the latter deposited a sum of Rs 50 crore in court. Since DD cannot show its own advertisements, the compensation to Ten Sports would be a straight loss to the public broadcaster.

One might wonder: why have things come to such an impasse? Why don’t we have a clear and transparent broadcasting policy that allows foreign broadcasters to operate in an unhindered manner? Does the Supreme Court have to spend its precious time delivering judgements on telecast of cricket matches? Think of the man-hours spent by the government and courts to find a solution.

The reality is that the country lacks a comprehensive broadcasting policy for entertainment and sports channels. It was only last year that government policy made it mandatory for an Indian company to own at least a 74 per cent stake in a company engaged in the business of running a news channel. However, there was no policy change for other channels.

Broadly speaking, there are two types of broadcasting companies — foreign and local. A foreign company is one that receives advertising revenues in dollars directly from the advertiser or through its Indian agent company.
Ten Sports, SET, BBC, HBO, ESPN/Star Sports are some of the channels that fall under this category. The agent company is owned by the foreign corporation; it may collect subscription on the parent’s behalf and/or is an exporter of programming software.

Unlike Hindi entertainment channels that produce content locally, Ten Sports mostly covers international events, which means its Indian agent company books advertising revenue on behalf of the parent and remits these monies to it thereafter.

Conversely, a local company is one that receives advertising revenues in rupees and whose financial results reflect the performance of a full-fledged business operation in India. Sun TV, NDTV, Sahara and SAB TV are some examples.

Until recently, only exporters with realisations of Rs 10 lakh in each of the previous two years could advertise on foreign channels. With foreign exchange reserves in excess of $ 100 billion, the Reserve Bank of India has rightly done away with this restriction, meaning that even companies that do not export can advertise on foreign channels.
Simply put, the existing policy allows foreign broadcasters to operate through agent companies in India. Unlike news channels, neither does it insist that these companies operate as broadcasters nor does it lay down shareholding limits for the Indian entity.

While this system has worked well for entertainment channels, the India-Pakistan cricket series has thrown up a conflict between Ten Sports and DD.

DD sees the Indian subcontinent as its backyard and would like simultaneous, if not exclusive, telecast rights for every major sports event held here. More importantly, revenue considerations are key.

According to industry estimates, the total broadcast spend for the India-Pakistan series is expected to be approximately Rs 145 crore. This includes DD’s Rs 10 crore from the first one-day international and Ten Sports’ revenues.

Media reports indicate that the latter has got Samsung and Bajaj Auto as main sponsors for Rs 15 crore each. Seven associate sponsors will be paying Rs 8 crore each. Additional revenue comes from spot rates, sale of billboards and so on.

Ten Sports has a five-year agreement with the Pakistan Cricket Board for $ 42 million with a minimum guarantee of $ 9 million. The Pakistan Cricket Board is expected to make a profit of at least Rs 100 crore from the Indian tour. Clearly, the stakes are high.

I believe that the current arrangement could be made more advantageous to India. Before we look at a solution to this problem, it might be useful to know a bit about Ten Sports.

The channel operates out of Dubai and is owned by Abdul Rehman Bukatir, supposedly through a company incorporated in Mauritius. It was his entrepreneurial spirit that made cricket matches in Sharjah possible.
Not only did these matches make cricket popular in west Asia but made the game glamorous by attracting Bollywood stars in large numbers. Sharjah matches worked well until the Indians felt they were being discriminated against.

So, the Indian cricket board stopped sending teams to Sharjah. With this the matches also stopped soon, because without India there was not enough money to be made. With the increasing popularity of sports channels in India, Bukatir probably realised that starting a sports channel that beams over Indian skies made eminent business sense.
The point I am trying to make is that at Sharjah earlier, and in the current series, it is the Indian cricket team, its supporters and Indian corporate advertisers who have contributed substantially to the financial success of these matches. It is the Indian consumer who is going pay for it, whether by buying Samsung or Bajaj Auto products or through subscriptions.

In such a scenario, what are the economic gains for India? By virtue of the way the broadcasting business is structured, all advertising plus subscription revenues would be remitted out of India, which means the multiplier effect of profits would take place outside India. Further, since the channel does not uplink from India, there is no economic value added and no employment generated locally.

Can India not have a broadcasting policy that encourages sports channels to operate as broadcasters, full-fledged businesses? This would enhance government revenues, employment and economic growth. It would also enable India to leverage its intellectual capital in software, technology and animation.

If India fails to have a transparent broadcasting policy it would be repeating a mistake of the pre-liberalisation era. By placing artificial restrictions on gold imports, India, the biggest consumer of gold in the world, made Dubai a leading re-export centre and hindered its own jewellry exports.

It is believed that this Indian decision has contributed substantially to Dubai’s long-term economic prosperity. If only India had allowed gold imports legally, it would have enriched its own economy instead.
Government policies must seek to encourage broadcasters to shift their economic activities to India, especially when Indians are the biggest consumers of their products. Since in an earlier article “Uplinking for transparency” (September 1, 2003), I suggested a blue-print broadcasting policy, I will limit my suggestions to sports channels.

A foreign sports channel has two options. It can either operate as a broadcaster or continue to operate as an agent, as is being done currently.

In case it chooses option one, that is, become a broadcaster, the policy framework could be:
The channel must operate as a broadcaster, meaning that it must account for all income and expenditure worldwide like any other company that does business in India.

Uplinking from India to be encouraged, but not made mandatory. Unlike DTH (direct-to-home), where only Indian Space Research Organisation satellites can be used, there are no similar restrictions for other channels — that is, broadcasters can use a satellite of their choice.

Foreign equity shareholding in the Indian company to be limited to 50 per cent. Balance to be held by a combination of foreign institutional investors, Indians banks/financial institutions and the public. The Indian company must get listed on the Bombay Stock Exchange or National Stock Exchange within three years of its incorporation to make operations transparent. It need not share its feed or provide links to the national broadcaster, that is, DD. However, there is nothing to preclude DD from independently bidding for telecast rights.
Broadcasters running sports channels must work in tandem with Board of Control for Cricket in India/other sports federations to get the best deal for telecast rights. India must use its market size, advertisement spends and economic activity generated by its national sports teams to collectively negotiate telecast rights — meaning lower cost for the consumer.

In case a foreign sports channel chooses option two — that is, operate as an agent — the framework could be:
The Indian company would operate as an agent for sale and receipt of advertising revenues. It would not be allowed to collect subscriptions within India.

Foreign shareholding in the Indian company would be limited to 74 per cent, with 26 per cent being held by resident Indians.

It would be mandatory for the foreign company to, for a fee, provide feed to the national broadcaster. In case of any dispute between the two, the matter is to be resolved by the broadcast regulator.

With India becoming outward-looking once again and Indians migrating worldwide it is imperative for the incoming government to frame a broadcasting policy that results in substantial gains for India and the best deal for the Indian consumer.