Following on from Indian regulator TRAI’s mandate last year, leading pay channel group Discovery has moved on the inevitable and parted ways with Multi Screen Media (MSM) in India, effectively ending a 12-year channel distribution joint venture.

The JV united Discovery’s channels with MSM’s broad portfolio of Sony India channels, including Hindi entertainment and sports, for distribution across what has been for the better part of the last 12 years, a predominantly fragmented and analog pay-TV marketplace.

The opportunity now for Discovery is all about investing to capture a stronger share of wallet from the digital pay-TV marketplace, in the company's highest growth market across Asia.

“We’re building our own distribution team with some key executives and area managers. We will be ready to go all out to capture value in digital pay-TV distribution by selling our own channels after December,” says Rahul Johri, EVP & GM, South Asia and head of revenue, Southeast Asia, in an interview with Media Business Asia.

CAPTURING ROI

There has been speculation that Discovery would find it challenging as it looks to secure ROI on the ground after its split with MSM, but new platform renewals with Dish TV and Videocon d2h suggest otherwise.

In addition, demand across Discovery’s 11-channel portfolio is growing amongst digital cable platforms.

“With the core Discovery Channel, TLC and Animal Planet, we already have three strong ‘must have’ brands,” says Johri.

“The future intent is to raise the bar to make it six instead of three 'must have' channels. We’re seeing significant demand for new channels such as Discovery ID.”

Discovery ID is positioned as an Hindi entertainment channel, capitalizing on investment in local production.

Three months after launch, the channel is already in close to 40 million homes, growing rapidly through distribution deals inked with the top four DTH platforms and most of the major cable MSOs.

Johri wants to grow Discovery Kids, anchored to investment in new local productions such as Kisna (made with noted filmmaker Ketan Mehta), which is gaining good traction since its debut in October.

In the future, the company also plans to leverage sports as a strong offering with local resonance.

“We are keen to grow organically over the next few years. After 2016, when we reach the next level of scale, all kinds of bets are a possibility,” he says.

“For now, with half of India’s population younger than 30, we believe that our 11 differentiated channels cater well to the national TV audience. That’s something we want to build on.”

MAXIMIZING POTENTIAL

Discovery is keen to optimize its revenue potential to match its growing national and regional audience reach, a feat that’s been achieved through a smart languaging strategy.

Discovery Tamil in particular offers plenty of upside with the new distribution team looking to ensure that this channel gets its fair share of revenue in South India, a goal that’s proved elusive previously.

According to industry analysts Media Partners Asia (MPA), Discovery’s India business is profitable on a turnover of US$80 million (MPA estimates for end-Dec. 2014). After a tough first half 2014, advertising demand has started to bounce back and the network should benefit in 2015.

The key going forward is subscription fees, which have relied historically on the Sony JV.

Sony’s portfolio has weakened over the past 12-18 months, especially across Hindi entertainment and more recently, sports (outflanked and outbid by Star India). Its renewal of the popular IPL after 2016 could also be tricky, with Star India, Reliance and even possibly, Discovery, waiting in the wings.

At the same time, Discovery’s portfolio has strengthened with leadership across several genres.

India’s digitalization drive, which has somewhat stalled this year, is likely to resume with momentum after 2015. All of India's 160 million TV households are expected to convert to digital TV over the next three to five years, versus 40% today.

“The growth of digital pay-TV is really key for us as we expect distribution to consolidate in the future, which makes it essential for us to have a direct relationship with operators and consumers,” says Johri.

“It’s also key we invest in the people and teams that can really leverage our brands in Phase 3 and 4 of digitalization. That’s where the battle will be won or lost.”