Television viewing in the four metros is set to go fully digital by end-June 2012. This comes after the Cabinet approved the implementation of the new digital access system last year, which entails complete digitisation of cable television networks.
This means all viewers would have to purchase a set-top box to continue watching their favourite channels. The viewers have a choice of using DTH or digital cable. By March next year, as many as 38 cities are to be brought into the digital access fold.
A recent FICCI-KPMG report states that in 2011, 146 million households in India had television sets; 119 million of which used cable or satellite services.
Here we analyse the benefits that would accrue to all stakeholders in the value chain owing to the new policy order — broadcasters, multi-system operators (MSOs), local cable operators (LCOs) and the Union Government, besides, of course, the consumers.
Now, the value chain of broadcasting is as follows: Broadcasters, say the likes of Zee, Star or Sony, transmit content through satellite signals. Distributors or MSOs such as Den Networks, Hathway and Digicable downlink these signals. These MSOs, in turn, transmit them to local cable operators, who finally connect to end consumers through analog and digital modes.
After the implementation of the new law, transmission would be allowed only through digital mode.
Analog system and revenue loss
The problem with the analog system was one of under-reporting the number of end-users by local cable operators. This caused severe revenue loss for MSOs and broadcasters. Reports from research firms such as Media Partners Asia (MPA) and KPMG suggest that only 15-20 per cent of the subscription revenues in the Rs 20,000 crore cable industry gets reported. After set-top boxes are put in place, the declaration of subscribers would automatically become 100 per cent.
Broadcasters' share of revenues from every Rs 100 collected from consumers is likely to go up to Rs 30-35 over the next two-three years, as against just Rs 10-15 currently. Finally, the government is expected to benefit from increased inflows to the tune of $1.5 billion in tax revenues. The consumer, of course, would now have enhanced viewing experience.
An IDFC report indicates that 10 million subscribers would be the potential market for digitisation in the four metros. The cable distributors, including DTH and digital cable providers, are likely to see their average revenues per user go up from Rs 150-170 to Rs 253 by 2016, according to a FICCI-KPMG report on media.
The only entities that are likely to lose out are the LCOs and smaller MSOs, who would not have the financial wherewithal for digitisation. It is likely that most of them will be acquired by entrenched national or regionally strong MSOs.
DTH vs Digital Cable
Now, subscribers can choose a DTH player from six operators — Dish TV, Tata Sky, Airtel Digital TV, Videocon, Reliance Big TV and Sun Direct. Those with multi-state presence include Den Networks, Hathway Cable, Digicable. There are also regionally strong players such as Sumangali and Asianet.
Over the past couple of years, DTH players have seen strong growth, with subscribers more than doubling to nearly 45 million currently.
Though not sporting as spectacular a growth as their DTH competitors over the past few quarters, Den Networks and Hathway Cable too have been aggressive, acquiring LCOs and adding subscribers. Additions of Dish TV and Airtel Digital TV, which were in excess of one million a quarter a year ago, are down to 3-4.5 lakh over the past two quarters, indicating significant competition.
The number of DTH households in the country is set to go up from 37 million in 2011 to 86 million by 2016, while Digital cable, on the other hand, would see its subscriber base explode from 6 million to 75 million, according to the FICCI-KPMG report. Where DTH players are likely to score is in reaching smaller cities and towns, where cable penetration would be low(‘cable dark areas') or non-existent. The rural penetration for top DTH players is higher.
The biggest challenge to digitisation would be the consumer's willingness to pay for set-top boxes and for viewing a bouquet of channels.
Digital cable operators spend Rs 1200-1500 on a set-top box, of which they charge Rs 600-700 upfront and the rest as rentals and, thus, have a higher recovery on cost. But most DTH players, on the other hand, charge amounts ranging from Rs 1,500-1,750, even for basic packages which can be a rather high upfront fee for a customer to pay. On the other hand, DTH players offer a lot more number of channels and set the viewer free from the whimsical fancies of the local operator. For digital cable players, who have grown on acquisition alone, it remains to be seen if they can integrate operators and get their systems digitised quickly.
The test case for digitisation would, therefore, be the phase involving the 38 cities.