MUMBAI: DEN Networks will steer through 2015 under a new CEO and, of course, Sameer Manchanda at the top, signalling a new era without its old warhorse SN Sharma.
Born in July 2007—long after Hathway Cable & Datacom, Siti Cable and IndusInd Media & Communications Ltd (IMCL) had established their stature as national multi-system operators (MSOs)—the Manchanda-promoted company was shaped strategically by its first CEO Anuj Gandhi and Sharma. While Gandhi came from the television distribution side of the business, Sharma had a long association with cable TV business. The duo quickly established DEN as a national MSO and a strong North Indian player with dominance in the Uttar Pradesh market.
Those were the days of footprint expansion, scale, size and, more importantly, carriage revenues. Sharma knew how to bat well in that kind of turf where he had spent years building relationships with cable TV operators and distributors. Manchanda rewarded him well: Sharma took home Rs 3.99 crore (Rs 39.88 million) in FY2009. He also got a share in the carriage revenue, according to the IPO document filed by DEN.
Sameer Manchanda
In 2015, however, Manchanda believes that his company needs a non-traditional CEO who can give a B2C shape to the organisation. Post digitisation, a consumer-driven culture has to flow through the veins of the organisation. In the world of billing, packaging, value-added services and broadband, a new mindset has to emerge.
Manchanda has, thus, tapped senior executive from McKinsey Pradeep Parameswaran to steer his company at a crucial juncture when a large part of his cable network is due for digitisation. Under Phase III of digital addressable system (DAS) that has to end by 31 December 2015 due to a deadline set by the government, DEN Networks is looking to digitise four million cable TV homes. This will take its digital set-top box (STB) population close to 11 million, leaving room for a target of another two million in the end phase.
For much of this period of hyperactivity, DEN has decided to pursue a new strategy. The MSO will largely say no to the joint venture (JV) route, implying that it wants to own more economic interest and have greater control over its operations. In its preferred form, the partnership will be through the distributorship model.
“In Phases I and II, a lot of STB deployment happened through our digital JV structures. In Phases III and IV, we will have more of DEN directly doing it. The distributorship model is also a good one to follow,” said a company official on condition of anonymity.
For the new CEO, this could pose fresh challenges and the path could turn out to be rocky. Coming from years of experience as leader of the telecom, media and technology (TMT) practice at McKinsey India, Parameswaran is sure to bring in a new approach to the business. He also has first-hand experience of digitisation when leading MSOs had mandated McKinsey to help them set up a robust billing and collection mechanism in Delhi. However, for running the country’s second-largest cable TV outfit, he will need to tackle many ground-level challenges.
TelevisionPost.com outlines a few of these challenges that Parameswaran will face as DEN embarks upon digitising an important portion of its cable TV universe and rolls out broadband in many more cities outside Delhi.
Managing JV partners
DEN’s new mantra is to consolidate its economic interests. As a step in this direction, the MSO has decided not to take the joint venture route on most occasions in Phases III and IV of digitisation.
It has also started upping its stake in some JV companies. The MSO, for instance, bought out 49 per cent stake to take complete ownership of Amogh. In Karnataka, the plan is to get into digitisation directly.
DEN has also hiked stakes in its JVs in Meerut and Kanpur where it already held 51 per cent. According to a DEN official, the company acquired a further 15 per cent stake in Galaxy DEN Media & Entertainment (Meerut) and 10 per cent in DEN Ambey Cable Networks (Kanpur).
DEN Ambey Cable Networks’ JV partner Sanjeev Dixit is not sure whether he would do Phase III digitisation with DEN. “Inside the JV, there is a part that falls in Phase III, but we also have around 300,000 STBs independently. With DEN, we have certain commercial and other issues that are yet to be sorted out. So we may decide to digitise this either on our own or through another MSO,” he said.
Mumbai-based DEN Satellite Network has seeded 600,000 STBs in Phases I and II and has an estimated 300,000 boxes to be deployed in Phase III. Ravi Singh, the JV partner, wants DEN to buy out a part of his stake.
“We are willing to dilute but DEN has shown no interest so far. We do not want to expand further because as JV partner we will have to invest but the returns are still wobbly. Though subscription revenue has gone up, carriage is softening. Revenue collection from the local cable operators (LCOs) is not coming to the extent as desired. DEN can show top-line and get investors but we are not seeing any dilution route,” he said.
Parameswaran will be required to deal with such sentiments. Manchanda has already started introducing him to the JV partners. “He[Parameswaran] was in our office with Manchanda but did not speak much. We will have to wait and see what policy he comes out with,” Singh said.
Breaking the comfort zone of the JV partners is perhaps necessary. It is also essential to move towards billing, packaging, and higher ARPU. Managing the last-mile operators, who like to call themselves last mile owners (LMOs), is also a tough task.
“The cable TV industry runs on very complex economics and business ethics. Much of that needs to change so that a healthy business model emerges. Parameswaran and his other peers will have to trigger that change,” said a media analyst.
Broadband push
In broadband, DEN has to quickly move to new cities and deepen its presence in Delhi. As per company data till 30 September 2014, DEN Boomband, which offers download speeds of up to 100 Mbps on Docsis 3.0 technology, was offered across 20 locations in Delhi NCR. ARPU is in excess of Rs 700 per month and the service achieved a home pass in excess of 200,000 subscribers.
Kanpur, Lucknow and Mumbai are the few other cities where this high-speed broadband service plans to be offered. DEN has got the capital to invest in broadband as in 2013, Goldman Sachs pumped in $110 million to take a 17.8 per cent stake in the company. Playing catch-up with Hathway, the company will have to demonstrate that it can roll out broadband services swiftly.
“A well-rounded revenue stream including subscription revenue, carriage and broadband is what all MSOs need. At McKinsey, Parameswaran was involved in the project management of DEN’s broadband business. Broadband will be a key thrust area,” a company official said.
Building future assets
DEN has launched a home shopping TV channel with Snapdeal.com’s parent company Jasper Infotech as an equal JV company, which many analysts feel would create value in the long run. Macro Commerce Pvt Ltd (MCPL), the JV company, plans to launch DEN Snapdeal TV Shop as a satellite channel as well.
DEN has also invested in the soccer team Delhi Dynamos FC. A wholly-owned subsidiary, DEN Soccer Pvt Ltd runs the soccer business.
“The home shopping TV channel will require fringe investments but can add value in future,” said a media analyst.