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Cable TV to cost more, post-CAS
Salil Panchal/Morpheus Inc. in Mumbai |
May 19, 2003
Eight weeks from now, even hardcore couch potatoes -- who would not miss the 'Saas-Bahu' dramas or an engrossing Agassi-Hewitt battle or an Academy-award winning classic on television for anything -- might slide off that couch and trek the outdoors for a great night out.
Watching cable television may just not be worth it anymore.
On July 14, when the government introduces the Conditional Access System across the metros of Mumbai, Kolkata, New Delhi and Chennai, all cable television viewers, who wish to watch their favourite serials and movies on premier channels -- will have to actually pay more for less.
The days of watching nearly 100 channels for Rs 150-250 per month will soon be history. Customers will have to look at the scenario of paying a minimum of Rs 250 (for pay channels) and Rs 100 (for free-to-air channels), besides investing in costly CAS-linked equipment.
What is this CAS system? How will it change things?
For the first time there will be clearer segregation of the pay channels and the non-pay (free-to-air or FTA) channels. Subscribers will be sure of paying for only what they choose to see.
In the new system, Indian broadcasting companies will decide which channels would be FTA and which would be pay. Each broadcasting channel will determine the rates for buying the channel viewership.
It will push local cable operators and multi-system operators (MSOs) to provide better customer service and will make pay-TV broadcasters more accountable and aware of customer preferences.
At an industry level there would be more advantages:
- The local cable operators would lose their bargaining power and MSOs, like Hathway, In Cablenet and SitiCable, will benefit.
- The use of the set-top box would reduce subscriber 'under reporting' and create a clear picture of the Indian cable household.
- The government's tax system for cable operators would be streamlined as the subscriber base and charges would be clearly determined.
FTA channels, a costly affair
Post-CAS, to access cable television, consumers will have to accept the FTA channels. While the government has fixed the basic price for FTA channels, the local cable operator is likely to get the freedom to decide which FTA channels will be aired.
Thus, there is a possibility that local cable operators may supply irrelevant FTA channels and charge independently for extra FTA channels.
However, in a competitive environment, it does not mean that free-to-air channels are totally free. Of the 114 channels available, around 70 channels are non-pay channels.
Set-top box compulsory
Consumers who wish to see pay channels will have to compulsorily install a set-top box. This device decodes signals from the cable operator and allows consumers to view a pay channel. It will also monitor the number and duration of channels viewed by the subscriber.
In the metros many households have more than one television set. Such customers will have to install a new set-top box for each television they own.
The burden of the set-top box
In the post-CAS regime, customers will have to decide on which set-top box to purchase and make an upfront payment to the MSO (one can also pay in monthly instalments).
There are two types of set-top boxes:
Analogue: This is the inferior quality and limited range set-top box. Thus, if the MSO provides for this system, the customer will have to settle for limited channel viewership and poor quality reception.
The key problem with the analogue set-top box is that it lends itself to hacking and thus piracy. Industry figures place low-end analogue set-top boxes at Rs 2,595, mid-range at Rs 3,500 and high range at Rs 4,200.
Digital: These are high-cost, high-quality products, though even in the metros MSOs may not be able to provide for the top-of-the-line set-top boxes. These have several add-on features. MSOs can have Internet, pay per view and other interactive systems through the digital system.
Digital set-top boxes costs range around Rs 3,400 (low end), Rs 5,300 (mid-range) or Rs 7,500 (high end).
Set-top boxes are assembled in India, but most of the technology comes from overseas.
The main players in this arena in India are Motorola, Salora, Videocon, Thomson and CatVision (which accounts for 30 per cent of the analogue market).
Two of the leading MSOs in the country -- IncableNet and SitiCable -- have already revealed their set-top box ordering plans to the government at a high-level meeting held on May 9 and May 12, 2003. They said they will provide superior quality digital set-top boxes to their customers.
Will set-top boxes become cheaper soon?
Not likely. While low-end set-top boxes are manufactured/assembled in India, the top quality digital set-top boxes use European and Japanese-based technology and thus are expensive.
Unless the Union government reduces the 51 per cent import duties on set-top boxes and the state government reduces the sales tax and octroi of 15 per cent, set-top boxes will continue to cost high.
Industry experts say that as the offtake increases, volume discounts will be available from set-top boxes suppliers, which may be passed on to the customers.
A senior general manager with Salora India, who heads the set-top boxes division in Noida, said: "The board has finalised its plans to increase its production capacity by 100 per cent (from 0.5 million set-top boxes to 1 million set-top boxes annually) by incorporating one more automatic line.
The production would be stepped up over the next six months, the Salora official said.
Salora is one of the leading manufacturers of set-top boxes in the country. The official said that considering the British and Japanese-based technology which most set-top boxes incorporate, prices of the digital set-top boxes would be in the Rs 5,500-8,000 range, while analogue set-top boxes would be available at Rs 2,500 per piece.
Consumer electronics major Videocon is also planning to expand its set-top box production to 2 million annually.
MSOs clearly say that subsidising set-top box prices (as is done overseas), while providing for the best technology would not be possible. Most MSOs expect approximately a 15-20 per cent response from the consumers in Mumbai and Delhi who will opt for the pay TV service.
This is expected go up to approximately 40-50 per cent within 8-12 months from the time CAS comes into effect.
Arun Mansukhani, executive vice president, Hinduja TMT (which owns IncableNet as part of the group company IndusInd Media & Communications), says: "As far as provision of free set-top boxes is concerned, it must be understood that the entire cost of provision of the CAS service, which is estimated at Rs150 crore (Rs 1.5 billion) per city is being borne entirely by the MSO (IncableNet) and not the broadcaster or the customers."
Why is CAS being introduced?
CAS is being introduced by the government with the intention of providing cable television to consumers at affordable rates so that they pay for only what they actually see.
But current dynamics will prevent this from happening and consumers will in fact end up paying between Rs 240-Rs 300 per month (plus Rs 100-200 to install the set-top box) to view their favourite channels.
The current nationwide average expense for cable households is Rs 157 per month.
Revenue leakage due to under declaration: One of the key issues faced by the industry was 'under-declaration' of viewership.
MSOs and broadcasting companies over the past 5-7 years complained about lower subscription rates and revenue leakage due to 'under declaration' by local cable operators.
India's subscription declaration levels remain way below international standards: Media analysts -- in a latest study on the impact of CAS issued by Hong Kong-based Media Partners Asia -- say that 83 per cent of 'under declaration' of subscribers exists (at the local operator/MSO end), thus affecting the broadcasting channels.
The cable television picture: India's National Readership Survey shows that the four main metros (Phase-I of CAS) command 6.7 million cable subscriber homes, accounting for 15 per cent of the total cable television household universe of 44 million.
The cable TV universe has grown steadily in India from 31 million in year 2000 to 44 million today, accounting for 51 per cent of the total 87 million television households.
While the total cable TV subscribers have grown 41 per cent and the cable TV subscription fees have risen 19 per cent between the years 2000 and 2003, the cable TV subscription revenues have risen only 28 per cent and advertising revenues just 10 per cent in the same period.
Entertainment too cheap, so pay for it
As discussed earlier, the average monthly outgo towards cable TV viewing is Rs 157 per month. This is the lowest worldwide (barring that in China).
The voice being echoed across the satellite industry by broadcasting channels is that over the years, entertainment in India has come cheap. And it is time the consumer paid for it.
The total cost of five existing pay bouquets (41 channels) works out to Rs 199 per month, which is on the higher side. Broadcasting channels say this is because they receive payment from only 18-20 per cent of the total cable TV households (due to 'under declaration').
"If declaration was pushed up to 100 per cent, leading broadcasters maintain that they will seek to reduce the pay channel prices," the Media Partners Asia report says.
IncableNet officials voiced similar opinion, stating that if broadcasters are serious about popular acceptance of CAS, they will reduce the present price, from Rs 230 to Rs 150.
Till then, the consumer will be at the mercy of the broadcasting channels and the MSOs.
How hard will the consumer be hit?
Detailed analysis reveals that in the initial phase of CAS, consumers in the metros will actually have to pay more at the end of the month to the cable operator. Viewers will have to pay (on a per month basis) Rs 100 (the base price of Rs 72 plus local taxes) for 70 FTA channels, another Rs 150-300 to view pay channel bouquets, and between Rs 100-Rs 200 to install the set-top box.
Consumers will get a clearer picture when broadcasting companies like Sony, STAR, ESPN and others finalise the individual a la carte prices for each channel.
(Thus customers would have the option to either pick the full bouquet or pick specific channels from the bouquet).
"Broadcasters may either maintain existing rates (as with Zee Telefilms) or potentially co-operate (One Alliance) to combine existing bouquets and create new price tiers," the Media Partners Asia research report says.
Post-CAS consumer price billing could be of this nature:
|Categories||FTA (Rs/mth)||Pay TV(Rs/mth)||Set-Top Box||Total (without cost of STB)|
Basic Plus Package (The Big 3)
Rs 2,595 (Analogue)
Rs 3,377 (low level Digital)*
Premium Plus Package
Rs 6,540 (high level Digital)*
- The switch from Analogue to Digital set-top box becomes mandatory to view more channels. If one were viewing only FTA channels, the set-top box would not be necessary.
- Pay TV prices are only estimates, as broadcasting companies may revise monthly charges and are still to finalise a la carte channel charges.
Broadcasters will gain
Two of the leading global investment banks -- J P Morgan Chase and DSP Merrill Lynch -- say that major broadcasters like Zee Telefilms (which fully owns MSO SitiCable), Sony, STAR (with a 26 per cent stake in Hathway), stand to gain with the coming of CAS.
A recent J P Morgan Chase research report says: "MSOs will be the biggest beneficiaries in the post-CAS regime. They will have the 'last mile control' as they take over control of the set-top boxes in consumer homes. In the long term, this move will likely lead to the emergence of a pure MSO model, as different from the current MSO-local cable operator model. Overall, we believe that CAS will improve the revenues and valuations of MSOs significantly."
"We believe that Zee is the biggest beneficiary of CAS due to its 100 per cent ownership of SitiCable, which is amongst the largest MSOs in the country," the report says.
DSP Merrill Lynch Investment Bankers, in its report, says, "We see richer business models for MSOs resulting from the CAS. We see Zee (SitiCable) and Hinduja TMT (IncableNet) as the key beneficiaries.
Further streamlining required
Most cable operators have welcomed the CAS Bill. "The arm-twisting from satellite channels will stop and there will be greater transparency for the consumer, considering the details of pricing and various channel packages will be disclosed publicly," says Vikki Choudhary, Homecable Network, a New Delhi-based multi-system operator.
Considering the complexity of the CAS system, the government will have to set a realistic implementation time schedule of 12-15 months.
There are some concerns which need to be ironed so that consumers will accept CAS completely.
- The supply, availability and cost of set-top boxes need to be streamlined.
- Some clarity will have to come in on how many channels will be pay or will switch to free-to-air after July 14, 2003.
- What will be the a la carte price of each pay channel so that viewers can choose between the complete bouquet and independent channels?
- What will be the commercial arrangements between broadcasters, MSOs and local cable operators after introduction of CAS on July 14?
- Creation of a regulatory body that can look into the functioning of MSOs.