The partial implementation of CAS in three metros is unlikely to have much impact on broadcasters and MSOs in the near future.
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On March 11, the Delhi High Court ordered that the conditional access system (CAS) be implemented. The implementation is to begin with some parts of three metros "� Delhi, Mumbai and Kolkata "� within four weeks.
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Although analysts feel that the implementation is not possible in such a short span, they are happy that it has set the ball rolling as there is a greater need for transparency in the system.
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However, the order is likely to be challenged by the government next week. "There are already two Delhi High Court orders favouring the implementation of the CAS and if the government, at all, challenges the order, the high court's decision would be guided by the earlier orders," says Ashok Mansukhani, executive director, corporate services, IndusInd Media & Communications, a 62.07 per cent subsidiary of Hinduja TMT. The CAS has already been implemented in Chennai, but it has not really worked out well.
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As and when the CAS is implemented, it will be a big structural positive, and benefit for broadcasters like Zee, Sony and NDTV as well as multi-system operators (MSOs) like Zee's Siticable, Hathway Bhawani and Hinduja TMT.
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The CAS serves a dual purpose "� stemming revenue leakage for channels that the cable operator siphons off and providing end-user flexibility, as the viewer can choose which channels to pay for.
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The major sources of revenue for a broadcaster are advertisement and subscription. One analyst points out that, generally, every one rupee added to the advertisement revenue adds only 30 paise to the operating profit of a broadcaster, while every one rupee added to the subscription revenue adds one rupee.
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Globally, advertisements and subscriptions contribute almost equally to the total revenue. But except for Zee Telefilms, this is not the case with other broadcasters in India. As for Zee, while advertisements accounted for 42 per cent of its revenue, subscriptions contributed 48 per cent to the same in FY05.
VALUATION | Companies |
P/E (FY06)* | Zee Telefilms | 82.54 | TV 18 | 55.95 | TV Today | 23.11 | NDTV | 6.03 | SAB TV | 3.69 | Hinduja TMT | 40.18 | * annualised 9 months EPS |
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But for most other broadcasters, contribution from advertisements far exceeds that from subscriptions. However, going forward, subscription revenue will be the growth driver for TV channels. According to an analyst, the gross subscription revenues for broadcasters are expected to grow at a CAGR of 36 per cent to Rs 8,200 crore in 2010.
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As per the current model, cable operators provide a bouquet of free and pay channels to their subscribers and collect a monthly fee. The operators then give a share of these subscription revenues to broadcasters, based on the number of reported subscribers.
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According to industry estimates, cable operators report only 12-15 per cent of the actual number of subscribers. This under-reporting brings down the subscription revenues due to broadcasters and MSOs.
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As per a Kotak Securities report on the broadcasting sector, the average monthly revenue per cable user in India for broadcasters is just around $6, while it is as high as $24 in Singapore and $31 in Hong Kong. In 2004, Indian broadcasters received around Rs 12,000-13,000 crore "� a meagre 17 per cent of the estimated Rs 75,000 crore of the gross subscription revenues collected by the cable industry. The CAS will bring complete control to TV channels and counter the under-reporting problem prevailing now.
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However, it cannot be said that the revenues for broadcasters will rise stupendously. At present, the CAS is to be implemented partially in the three metros; only in the notified areas "� south Mumbai, south Delhi and south Kolkata.
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Currently, there are 60 lakh cable and satellite (C&S) households in the three cities, of which only 8.5 lakh subscribers lie in the notified areas. Also, these are the areas which are largely declared by cable operators. Thus, the impact on the revenues for broadcasters cannot be gauged.
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The increase in revenues will also be limited by the number of subscribers opting for the broadcasters' offering. At present, there is no clarity on the issue of pricing of the channels. Analysts say the pricing would be done for a bouquet of channels rather than for each channel separately.
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So, the probability of a broadcaster being selected by a subscriber is directly proportional to the attractiveness of the channels offered under that company's bouquet. Mansukhani expects each channel to be priced in the range of Rs 5-20.
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For some channels, going for the pay model could restrict the viewer base and, hence, even the advertising revenue. However, Mansukhani disagrees: "The advertisement revenue would only be affected temporarily and would not depend on the subscriber base. Rather, it would be TRP-led. Analysts also say that pay channels will be in a position to command a premium over free-to-air (FTA) channels as advertisers will be able to target a particular segment. The assumption is that if a subscriber is ready to pay for a channel, he is genuinely interested in watching it. Thus, ad spend would have higher impact for the advertisers.
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The key impediments to the implementation of the CAS are the cost of set-top boxes (STBs), to be paid by the end-user, and the resistance from local cable operators as they would lose revenues.
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However, one positive factor this time is the support being shown by the cable operators who resisted when the CAS was to be implemented in 2003.
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"They have realised that they need to cooperate in order to withstand competition from direct-to-home (DTH). They have shed their earlier apprehension of being discarded from the value chain," says Mansukhani.
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The cost of an STB is likely to be in the range of Rs 2,000-10,000. But MSOs are going to devise schemes and share some of the burden with the subscribers. The subscribers will have to shell out Rs 999 initially (refundable) and then Re 1 per day as rent.
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Thus, every month, a subscriber would have to pay Rs 72 (plus taxes) for 65 FTA channels along with the charges of the selected pay channels and rental charges for the STB.
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An alternative to the CAS is DTH, which seems better for both broadcasters and viewers. For broadcasters, it will eliminate the cable operators from the value chain, meaning lesser revenue sharing. Also, in DTH, there will not be any government interference. For
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the viewer, DTH will provide better reception and interactivity, even though the cost will be more as he also has to purchase a dish antenna, along with the STB. However, analysts do not see DTH as a threat to the CAS and say both can easily co-exist.
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MSOs are expected to offer value-added services like movie-on-demand, pay-per-view, among other, to bring the CAS on par with DTH. Also, with DTH, only 100-150 channels can be viewed compared with 300 under the CAS.
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As far as broadcasters and MSOs are concerned, the impact of the CAS will be felt once it is known which channels will become pay, the price for each bouquet or channel, and which channels the viewer subscribes to. |
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