Star India and Zee Entertainment today announced a 50:50 joint venture (JV) between their distribution arms, STAR DEN Media and Zee Turner.

The JV company — Media Pro Enterprise — will offer more than 75 channels such as STAR Plus, Zee, Cartoon Network and NDTV 24X7 to cable distributors. It will control close to 40 per cent TV viewing in India, according to TAM Media Research numbers.

The coming together of two of India's largest broadcasters is a bit like two elephants beginning a waltz. It is bound to shake things up. "This is cartelisation of broadcasters. It is negative for the viewer and negative for the industry," says Dinyar Contractor, editor, Satellite and Cable TV magazine.

Not everyone agrees. Salil Pitale, executive director, investment banking, Enam Securities, says this is good for the broadcasting industry and in the long term for the cable business as well. "It is a big wake-up call for the cable sector," says Vivek Couto, executive director of the Singapore-based media consultancy, Media Partners Asia (MPA). They are all right.

There are four things the deal could lead to — an increase in pay revenues and a fall in carriage costs, cable industry consolidation, improved access to non-Hindi markets and a push for media regulation. If these happen, the deal could end up being a positive. If it just creates a monopoly that arm-twists cable operators and competing channels, then gear up for a summer of litigation and signal switch-offs.

Punit Goenka, CEO, Zee Entertainment, believes everybody would benefit. "This JV has taken us 9-10 painful months to execute. The idea is to strengthen the eco-system, to ensure that the money that comes in as pay revenue is spread across the value chain and this includes MSOs (multi-system operators)," he says. To figure it all out, we have to rewind a bit.

The `30,000-crore Indian TV broadcasting industry is in deep trouble. Of the total revenue, `19,000 crore is the amount cable operators collect from you. However, only 15-20 per cent comes to broadcasters.

This is not only because cable operators 'under-declare' subscribers but also because broadcasters have ignored this anomaly over the years. They simply negotiated 'better declarations' every year, instead of pushing for digitisation. Besides, advertising, which accounts for 80 per cent revenue of most broadcasters, was growing at 15-17 per cent yearly. This cosy arrangement has been changed in the last five years. Even as advertising revenue growth slowed, the carriage fee, the amount cable operators charge to carry a channel, doubled due to bandwidth limitations. This meant that operating margins of Indian broadcasters halved to about 13 per cent, said MPA.

The only way out is to fix the structural mess on the distribution side. "Uday (Shankar, Star CEO) and I have been expressing our frustration about the way things are moving in the cable industry and our over-dependence on advertising. We were talking about ways to collaborate. We figured that the only way to make it happen was through distribution," says Goenka.

What exactly will happen? The most obvious and immediate impact will be on carriage costs and pay revenues. The quantum of impact is a "matter of negotiation," reckons Pitale. "We haven't done the math. But our expectation is that it will accelerate growth to over the 12-14 per cent that we have been seeing," says Goenka. Better negotiating muscle and pay revenues could also improve the viability of niche channels that STAR and Zee have been wanting to launch for a long time.

The second major impact could be consolidation in the cable industry, says Mihir Shah, an analyst with Alchemy Share and Stock Brokers. Already, last-mile operators who have been losing subscribers to DTH are more willing to sell. The pressure an entity like Media Pro can put to increase 'declarations' and therefore pay revenues will mean that many last-mile operators may sell businesses faster, probably at lower valuations. This means that India could finally see the emergence of six-odd large cable players. There are 60,000 operators at present.

Third, this JV comes at a time when both networks are pushing for expansion in the non-Hindi markets. Their combined negotiating power on the ground simply improves their chances of dislodging strong local competition in these markets.

Fourth, whether or not this JV flexes muscle, it will make regulators sit up. There is talk of litigation, of petitioning to the Competition Commission, and so forth. Irrespective of the litigation around this deal, the fact remains that regulators have been somnolent about most major business issues. Their focus so far has been content. If this forces regulators to look at overhauling media regulation, getting in an independent (of the government) media regulator, a la Ofcom or FCC, it will be a positive.

There are also several question marks. Who will be in control? What happens if the two companies have another falling out, like they did in 1999? One of the biggest reasons this venture came about was because Goenka and Shankar get along well, unlike their predecessors. So, this JV is also a test of camaraderie between rivals. Goenka reckons that as long as both the parties benefit, there is no danger of a fall-out.

Even if it lasts for a couple of years, it will force some big changes on the beleaguered Indian television business.