MUMBAI: More on the worry lines for the pay broadcasters over conditional access and its implications. A new report by international ratings agency Fitch estimates that the next two years after rollout will see a substantial decline in advertising and subscription revenues of broadcasters due to slow penetration of CAS.
wGross rating points (GRPs) for most leading pay channels like Star, Zee and Sony are likely to fall, which may translate into a drop in advertising revenues, the report titled "Cable TV - A New Beginning", says. There is a silver lining to this gloomy picture though. And that is that if the broadcasters manage to price their channels competitively, such that the payout for consumers is maintained at current levels, they will be able to ramp up the penetration in the next two-three years, resulting in considerable gains. Now isn't that just what information and broadcasting minister Ravi Shankar Prasad has been trying to get the pay broadcasters to do.
Taking a bigger picture perspective, Fitch sees MSOs and broadcasters as the biggest beneficiaries in the medium to long term from the implementation of conditional access. Thus, while there is short-term uncertainty about CAS, in the long run, Fitch expects that the broadcasters and MSOs would derive considerable gains from the implementation of CAS.
Initial estimates suggest that CAS would be able to penetrate up to 30 per cent of the metro households in the first year and up to 50 per cent of the metro households in the second year of implementation. At 50 per cent penetration, MSOs and broadcasters would earn additional revenues of Rs2-2.5 billion each. However, since customer additions will occur over the full year, the benefit of these additional revenues would be spread over the period of next two years. Over a period of time, increase in penetration and negotiations with LCOs for higher share of revenues would lead to a further increase in revenues. Fitch believes that the cable TV industry would restructure itself along three levels:
Increased Reach: The immediate impact of CAS would be increased reach for broadcasters and MSOs. This would arise from two areas - higher household declaration and higher revenues from households with multiple TVs. Earlier the cable industry suffered from gross under-declaration of households - but with CAS, MSOs and broadcasters will know the exact number of households subscribing to their channels and, thus, get paid for them.
Further, most households, with multiple TVs, currently pay only for a single cable connection. With CAS technology requiring one set-top box per television, the revenues from households with multiple TVs will also increase. Thus, if broadcasters are able to price their channels competitively and CAS gains acceptance with the consumers, it will lead to increased revenues for MSOs and broadcasters over the medium to long run. In this scenario, CAS will largely diminish the control of the LCOs and ICOs in the service chain.
Value Added Service: At increased penetration, CAS would throw up new opportunities for the MSOs. At the next level, MSOs would be encouraged to provide value-added services to the customers, like pay-per-view, video-on-demand, cable Internet, interactive television services, etc., which are expected to pick up over the next decade. This would lead to additional sources of revenue for the MSOs and would strengthen their hold on the industry.
Consolidation: Finally, CAS will result in consolidation of the industry. Over a period of time, Fitch expects MSOs to expand and acquire primary subscribers. This would give them substantial bargaining power in the industry and would also help them in implementation of value added services. Over a period of time, LCOs would be relegated to the role of collection and customer support agencies. As CAS would require substantial investments at the head-ends, which ICOs would not be able to meet, Fitch expects ICOs to sell their businesses to the MSOs.
The cable industry will reorganise itself, with broadcasters giving the signals, MSOs acting as wholesalers of these signals and LCOs acting as final retailers and collection agents. According to Fitch estimates, at 50% penetration MSOs and broadcasters would garner close to 50% of the total metro revenue of the industry over the next two years, from the 25% that they earn currently. As the penetration levels increase and CAS gets implemented in the other cities, the revenue equation is expected to tilt in favour of the broadcasters and MSOs.
Impact on the Television Industry: The four metros account for 15-20 per cent of the total television sales. A major part of the television sales from the metros comes from replacement demand and demand for a second set. With CAS making it necessary for every television set to pay for the pay channels, the purchase rate of second television sets is expected to decline. Thus, there would a marginal impact of CAS on television sales in the metros. This is based on the assumption that the average cost to consumer per cable connection would remain at reasonable levels. However, in the other places, television sales would be largely determined by other factors like income levels, major sporting events and other high viewer interest events.
