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Monday, October 08, 2012

The digital cable revolution
From November 1, cable televisions in India's 4 metros will be hooked up with digital set-top boxes
~~Surajeet Das Gupta
If all goes according to plan, all cable televisions in India’s four metros will soon be hooked up with digital set-top boxes, changing the economics of the industry forever.
Broadcasters have every reason to rejoice now. From November 1, the 10.5 million cable households in the country’s four metros will not be able to watch TV without a digital set-top box.
This has huge ramifications for broadcasters beaming out their services in Delhi, Mumbai, Chennai and Kolkata. Today, they get less than one-third part in the Rs 1,450-crore pie that represents their share of subscription money that customers pay, largely because of rampant under-reporting of the number of subscribers. But, that will all soon be history.
“Digitisation will fundamentally change the broadcasting business, it will plug the leakage in subscription revenues due to under-reporting and change the economics of the business by making more money available for content and content creators,” says Uday Shankar, CEO of Star India and a former president of the Indian Broadcasting Federation.
Customers will also benefit. They may have to pay a bit more to buy the set-top box upfront (Rs 799), but they will be compensated by more choice in channels and better quality reception. And, their monthly average bills won’t go up in the process (in Rs 230 a month, you can see as many as 220 channels based on the new packages).
The multi-system operators (MSOs) who distribute the channels to the local cable wallah will also reap benefits. For the first time, they will get control over their subscribers rather than being totally dependent on their local partner, even if it means subsidising set-top boxes to Rs 750 per customer.
This sweeping digital revolution is not without its detractors. The 10,000 local cable operators (LCOs) in the four cities will see their revenues fall and many fear going out of business. West Bengal Chief Minister Mamata Banerjee recently opposed the move, saying it will destroy poor cable operators and consumers, and said that set-top boxes should not be made mandatory. And Tamil Nadu supremo J Jayalalithaa is believed to have written to the Central government for an extension of the deadline again. But, the government is hell-bent on pushing through the new regime, saying that 73 per cent of all homes in the four cities have already been hooked up this month. Cable operators, however, say that the numbers are exaggerated, as till June it was below 30 per cent.
Huge relief for broadcasters:
Of course, the government has made the four cities a test case for the digitisation drive and hopes that in two years, the whole country will toe the line. But, the importance of the four cities far outweighs their cable subscriber base. For the broadcasters, they constitute (without Chennai) 30 per cent of the Hindi channels viewership, even though they represent only 14 per cent of the country’s total cable homes of 75 million. So, from the viewpoint of advertisers who are keenly monitoring subscribers and their viewing habits, the four cities are key to their strategies.
Because of the fact that subscribers in these cities come from varied regions, broadcasters have to offer more channels in many languages and genres to cater to their demand. So, broadcasters are always under pressure to be on prime slots. And that is why, they fork out over Rs 800 crore as carriage fees — a charge which ensures that the channel is shown in the prime slots — in these four cities, which constitute 40 per cent of their total payout for the same, across the country.
The problem is, channel distribution companies say that broadcasters lose money in the subscription game at the moment, because they pay more carriage fees than they earn from subscriptions. Considering that half of the Rs 230 a month average revenue per user in the four cities should be pocketed by them as per international norms, their annual income from subscription revenue is very low.
Gurjeev Singh Kapoor, chief operating officer of MediaPro, the joint venture distribution company between Zee Turner and Star-DEN, says, “Currently, subscription revenues are as low as 28 per cent, due to gross under-declaration and also, there are humongous carriage charges which are coughed up by broadcasters. In the four cities, broadcasters pay Rs 800 crore as carriage charges and get Rs 350 crore to Rs 400 crore as subscription revenues”.
The good news is, this gap will be bridged with digitisation, when their subscription revenues should virtually triple.
Kapoor adds that direct-attached storage would help consumers get better quality and more choices of channels at the same monthly pay out, and offer cable networks an opportunity to implement triple play (which you cannot without a digital box) which includes data, voice and content. He also sees rationalisation in the carriage revenues.
The logic is simple: Under the analogue system, MSOs could show only 80-90 channels. So, getting a channel into the prime slot was key to getting viewers. However, with digital connections, it is mandatory to show 500 channels by December-end.
MSOs get a shot in the arm; LCOs cry foul
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Even MSOs could be big beneficiaries of digitisation. Due to the collapse of the revenue share understanding with their LCOs, they have been getting only a miniscule portion (industry estimates about Rs 200 crore) of the close to Rs 2,900-crore subscription revenue collected by LCOs annually.
Just like the broadcasters, they, too, don’t know the real subscriber numbers, and digitisation could similarly reduce their over-dependence on carriage fees.
Predictably, LCOs are crying foul. They say that MSOs and broadcasters have ganged up to kill their business.
Says Roop Sharma, president of the Cable Operators Federation of India, which represents the LCOs, “Why should we share subscription revenue with them when they do not give us the right to share the huge carriage revenues they make, or the value added services they give?” MSOs, of course, do share carriage revenues, but only with select, big local operators.
LCOs complain that MSOs are trying to squeeze them and pay very little of their rightful share by taking advantage of the fact that their clout has been eroded by digitisation. Says Sharma, “They want us to be their slaves and only become collectors. For instance, they want to pay us Rs 45 a month for free-to-air channels. That is half of what we were getting earlier. And there is no word on negotiating the revenue share for pay channels”.

Courtesy: The Business Standard