Digitisation will give cable TV industry a big boost
Moneylife Digital Team 14 October 2011

The Union Cabinet has approved an ordinance for mandatory digitisation of TV cable networks across the country. This move has the potential to brighten the prospects for the industry

The Union Cabinet has come out with an ordinance for mandatory digitisation of TV cable networks across the country. The industry, which was entangled in thorny issues among various stakeholders like cost-sharing and implementation, can now hope for better days ahead. Earlier in February, the Ministry of Information and Broadcasting (I&B), while accepting the recommendations made by TRAI (the Telecom Regulatory Authority of India), deferred the timeline to March 2015 from December 2013 for digitisation. In August 2010, TRAI had recommended implementing the complete digitisation of the cable TV network, or complete switchover from analogue to digital telecast by December 2013—in four phases.

“We believe that the regulatory trigger will change the TV distribution industry dynamics from here on. Our sense is that while both multi-service operators (MSOs) as well as direct-to-home (DTH) players will capitalise on the mandatory digitised environment, the delta gains will be far sharper for nationalised MSOs such as DEN and Hathway. Against a backdrop of extremely poor execution and muted subscriber addition of less than 0.5 million subscribers annually, we now foresee a near 3x jump in digital subscriber addition for these MSOs in the next 12-18 months,” said IDFC Securities Ltd in a research report.

Currently, the television distribution network in India caters to around 140 million television homes, over 60% of these in the analogue category, while digital cable service is fed to a measly number of 4.5 million television homes. There are around 50,000 local cable operators (LCOs) and 1,000 MSOs, about 10 of these are major MSOs.

While TRAI wanted digitisation to be implemented in four phases, broadcasters and distributors, including MSOs and LCOs expected the government to issue an order for the immediate implementation of digitisation of cable TV.

According to the ordinance passed by the Cabinet, the schedule sets 31 March 2012 as the sunset date for analogue cable TV for services in the four metros and 31 December 2014 as the sunset date for the entire country. On these dates, analogue cable services will be completely switched off from the respective areas, ensuring compliance by all industry participants.

With the ordinance now approved, the I&B Ministry would be able to insert a clause in the Cable Act, which would make a digital addressable system mandatory in the cable sector. The Ordinance will be sent to the President through the Law Ministry for final signature and then within six months, it will be ratified by Parliament.

Over the past few years, while the regulator and all players from the cable TV industry wanted to go the digital way, broadcasters, MSOs and LCOs were at loggerheads, as each one wanted the other party to bear the cost for digitisation.

Earlier in March, while speaking at FICCI-FRAMES 2011, Aroon Purie, chairman and editor-in-chief, India Today group, said, “Broadcasters are spending huge money on carriage fees, content generation and talent, why then don’t we get our right share in the subscription amount collected by cable TV operators? Going forward, I think, digitisation will help increasing bandwidth, remove carriage fees and bring accountability and transparency in this business.”  

In the absence of an addressable system, the subscription revenue transaction between the broadcasters, MSOs and LCOs is undertaken either on a fixed-fee basis or on the basis of a negotiated subscriber base. Considering the strong bargaining power enjoyed by LCOs who own the last mile connectivity, the distribution of subscription revenue in effect remains heavily skewed in their favour. According to estimates, LCOs declare only around 15% of their paid connectivity to MSOs and broadcasters.

This not only deprives the MSOs and broadcasters of their fair share of value, but also results in service tax leakage for the government. The lack of trust and transparency in the business models of the industry has also led to frequent disputes between stakeholders and increased litigation incidences.

“Digitisation brings in fair reporting of subscriber base, leading to standard pricing and will help do away with local monopoly. Digitisation will also increase the subscription revenues for operators and reduce the carriage fee for broadcasters in a phased manner and should help margins in the long term,” said Tarun Katial, chief executive, Reliance Broadcast Network Ltd.

The reason for the ‘lack of action’ among MSOs such as DEN and Hathway was apparent— players had limited access to capital, so even if they went ahead and aggressively digitised (at say, 100% subsidy) they were unlikely to get any returns on that capital (as digitisation without addressability would not lead to imminent monetisation). Thus, players had limited ‘incentive’ to ramp up aggressively and they pulled back on their aggressive expansion plans. The regulatory mandate had become imperative to transform the industry.

“With digitisation now mandated by the government, there is strong visibility on digital subscriber growth coupled with monetisation. LCOs, which had limited incentive to digitise their subscriber base, will now be compelled to spur digitisation. With limited access to capital as also ability to digitise their own network, LCOs are now bound to collaborate with MSOs. This, coupled with digitisation with addressability, will resolve the biggest bane in the cable distribution industry, under-declaration,” said IDFC Securities.

According to a report by FICCI and KPMG, the number of TV households in India would reach about 156 million by 2015. The cable and satellite television market in India emerged in the 1990s and has since then seen strong growth, in terms of the growth of the number of subscribers from a mere 4 lakh in 1992 to around 9 crore today; a compounded annual growth rate (CAGR) of 35% over the last 18 years. With a share of roughly 40%, the television industry accounts for the largest share in the roughly Rs70,000 crore Indian entertainment and media industry, followed by print, film, radio and other media.

There are about 550 TV channels in the country, out of which about 400 are active. There are 106 channels, which still use the analogue system to broadcast signals to 90 million homes. In addition, there are 300 TV channels ready to start broadcasting as and when they receive the licence. Due to a dearth of digital infrastructure, broadcasters are compelled to continue to use the analogue system and pay more money as carriage fees.

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