Residents in some pockets of Chennai were surprised to see the SCV (Sumangali Cable Vision) logo on their cable channel instead of C-Chennai recently. For the satellite and cable television industry watchers, this was an interesting development. The one question that raked their minds was: has SCV acquired C-Chennai?

For the uninitiated, SCV is a division of Sumangali Publications Ltd, which owns a major chunk of the Sun TV network. C-Chennai, on the other hand, is the cable channel of Rajan Raheja group's Hathaway Cable & Datacom Private Ltd, Mumbai.

Clarifying the matter, Mr. Kalanithi Maran, chairman and managing director, Sumangali Publications, explains, "It is not a takeover. We have entered into a strategic business agreement with Hathway Cable."

"This agreement is the first of its kind in India and many such deals can be expected in the next two years," says Mr. E.V.S. Chakravarthy, vice president, Hathway Cable.

The reason? Major satellite channels are themselves getting into cable distribution, giving the multi services operators (MSOs) like Hathway Cable, a hard run for their money. The strategic business deal between SCV and Hathway Cable can also be termed as a peace pact after fighting intensely to gain supremacy in the Chennai cable distribution market (see Peace after war).

"Under the agreement, the areas of operations for both of us have been demarcated and Hathway Cable will receive distribution signals from SCV," discloses Chakravarthy. The division of areas also holds good for Hathaway's proposed net-over-cable operations (see Broadband services by Hathway and SCV). Hathway Cable's six control towers are now linked with that of SCV's and will act as a backup.

That aside, Hathway Cable, as per the agreement, will take its own local cable channel, C-Chennai, off the air, while SCV's channel would continue to be aired. C-Chennai, the round-the-clock cable channel, had a mix of movies and other programmes, including a thirty-minute news capsule. The six-month-old cable channel was earning around Rs 7 lakh per month with ad rates pegged at Rs 225 per 10-second slot.

Given this loss of revenue and identity, what is the consideration that Hathway Cable received from SCV? "Nothing," replies Chakravarthy. Adding further, "It is not that C-Chennai is entirely booted out. SCV has a good library of movie programmes, while we can produce our own content. Under SCV channel, we will still air our programmes and the ad revenues from that will accrue to us." According to him, Hathway Cable will not pay SCV anything for the airtime used.

The peace pact permits Hathway Cable to initially air programmes for four hours daily, and later up it to six hours and ultimately to eight hours per day, gradually. With SCV's reach now going up, the ad tariff too has been revised upwards to Rs 350 per 10 seconds. Chakravarthy hopes to earn around Rs 10 lakh per month now.

But why did Hathway Cable give up so soon? "It is not throwing the towel into the ring," counters Chakravarthy. According to him, the entire satellite entertainment industry is undergoing a paradigm shift. With Zee and Sun channels enjoying majority viewership and market shares, they have decided to integrate vertically by starting cable distribution. The basic plan is to hook the viewers to their channels via their own networks.

Given this situation, competition for standalone MSOs like Hathway Cable became severe. This threatened their other business plans like offering broadband services over cable. Hathway Cable, is in the process of investing, nationwide, around Rs 100 crore to offer multiple broadband services over cable like Internet, voice chat, voice over Internet protocol, community radio, education programmes, et al.

Hence, the deal with SCV is mainly to protect its other business lines, the success of which mainly depends on staying connected with individual homes via cable.

For Kalanithi Maran, the deal is a coup of sorts, coming at a most opportune time. According to him, Sumangali Publications is soon to come out with an IPO and with this deal and the proposed net-over-cable venture, valuations are bound to vault upwards.

Even after the non-competitive deal, Chakravarthy doesn't agree that a monopoly has been created. "In a monopoly, the first step is non-justifiable price hike. But here, it will not be so," he argues. On the contrary, he predicts that costs for the subscriber is likely to come down as both the operators are planning to install addressibility boxes in homes. This gadget will enable a cable subscriber to choose only those pay channels he wants to subscribe for.

Today the average monthly subscription per household is around Rs 150. With an addressibility box in place, the operators will charge a fixed fee of Rs 60 per month (Rs 40 to be paid to MSO and Rs 20 towards maintenance and profit) and collect for the pay channels as per the subscriber's choice.

"This will call the bluff of many pay channels regarding their viewership statistics," says Chakravarthy. According to an industry official, the rates charged by pay channels here are very high when compared to their rates in the US and other western countries.

Interestingly, SCV is planning to incorporate the addressibility issue in a set top box, the equipment that enables net browsing on television.

Meanwhile Chakravarthy calls for establishment of an independent rating agency to rate MSOs and other cable operators. The rating should be based on the networks' architecture, channels offered, transmission and quality of service, quality of people employed by MSOs and such other relevant parameters.

The rating agency could be funded by the industry but should be manned by experts who should not be connected to any of the networks/channels. This will ultimately result in competition, as subscribers will have a choice of selecting an operator based on a quality rating.