Star TV's content firm beams out a fuzzy picture (30 June 2003)
In just a few days from now, if the government has its way, it will clear Star TV’s curious concoction called the Media Content and Communication Services Limited. This will, for the first time give the Australian media tycoon Rupert Murdoch complete editorial control over an Indian news channel while holding just 26 per cent equity in the key content providing company.
Star TV has ensured that its structure technically satisfies the government condition that foreign equity should be restricted to 26 per cent and a majority of the board of directors, the CEO, Channel Chief and News Editor must be resident Indians. But its licence is still hanging by a thread; and the entire Indian media is closely monitoring the government’s decision. If the content creating company of Star News is cleared, there is no reason why media houses cannot put together similar structures to bring FDI and control into the print media, while officially limiting the equity holding to 26 per cent.
Let’s look at Star TV’s formula. It has applied for a licence to produce and broadcast news through a company called Media Content and Communication Services Limited (MCCS). Star TV will own 26 per cent of MCCS equity, another 25 per cent each will be held by businessmen Kumar Mangalam Birla and Hamendra Kothari and the rest is being distributed among well-known lawyers, editors, advertising men and its own staff. Responding to our questions through a written communication, Star TV said that on obtaining clearance from the FIPB, it will subscribe to its portion of the MCCS equity taking the capital of the company up to Rs 4 crore. It indicates that MCCS’s arrangement will be similar to Star’s former deal with NDTV. It will have the use of Star TV sales and marketing infrastructure and the Star brand name against ‘payment of consideration’. How would this arrangement work?
It can only work if Star TV carefully chooses a set of such individuals to hold three-quarters of its equity, who will not upset its apple cart by ever threatening a takeover. They will be pure investors or business associates. Coca Cola, for instance, has found such safe investors among its bottlers to fulfil the condition of equity dilution. But why would savvy investors put their money in an unlisted company without immediate prospects of profits, business deals or appreciation of share price through listing? Star TV answer is, ‘‘The channel has a strong established brand and is gaining in market share,’’ and that it expects ‘to be profitable quite soon’.
Is that good enough for astute investors? Almost never. Most investors would insist on some form of exit route for its investment and an assurance about returns; especially since the company is unlisted. Sources close to the deal say that investors have a ‘put’ option on their shares and have been assured that it will be listed within three years. This means that Star TV could buy back their equity at a pre-determined price, unless the price on listing is higher. Star puts it differently. It says: ‘‘The investors have invested from a long-term perspective and may not like to exit if the company is making good profit. They may look at an upside if and when the company lists. If it is absolutely necessary then we may provide assistance in finding other investors that comply with the Guidelines’’. Our sources however, say that there is indeed a fairly clear, if unwritten commitment about the exit price in case it has to ‘find other investors’ and they will earn at least 14 per cent on their investment. Assuring a good return to investors is one side of the picture, but the other is worry over loss of management control. No management can ignore such a threat, especially when 75 per cent of the ownership is dispersed. In theory, a Birla and a Kothari could join up with just one or two other investors and throw out the Star TV management. How has Star TV neutralised this threat? Star TV says there is no threat.
Do its investors have voting rights? According to some sources they don’t. But Star TV insists that its ‘‘investors enjoy full voting rights on their shares’’. ‘‘We also believe that we have quality investors who are unlikely to get together against STAR’’, it asserts.
Is this neat set of answers enough to give Star TV a licence to produce and broadcast news? If so, the obvious question is, why would a BJP-led government, which cried itself hoarse about misleading television coverage (mainly by NDTV under the Star TV banner) during the Gujarat riots, not worry about a foreign company controlling a powerful news channel in India? A comment by an important investor in Star’s carefully chosen galaxy probably provides the answer. He said that an important condition to his investment in MCCS was that Star TV would not broadcast anything controversial. ‘‘No investigative journalism of the sort that you do’’, he joked. Now, which government would have problems with a television channel that promises no-controversy, no Tehelka and no attacks against it? In fact, it may even undertake to please the government with favourable broadcasts in the run up to the general election.
Fortunately, not everybody approves of Star TV’s structure and arrangement. In response to my query, S. Gurumurthy, BJP’s powerful ideologue and a strong proponent of swadeshi’ said, ‘‘I think that those who have agreed to partake in the meagre equity and mega debt financing structure of Star are merely proxies for a profit, in the process enabling Rupert Murdoch to gain control of the Indian TV media. I think this unusual arrangement, which is also patently illegal, is less than honourable’’.
Strong words indeed. And Gurumurthy’s words have often carried a lot of weight with this government. The government now has two choices. It can either insist that its laws are meant to be obeyed in letter and spirit and reject the MCCS application or it can clear it. A clearance would open the doors to every other media house (print or television) that wants to bring in FDI through a similar structure. The only difference is that government’s hypocritical policy will remain in place and decision about allowing FDI in media will be cleared on a (suit)case-by-(suit)case basis. The next few days will set the course for the future.
-- Sucheta Dalal