Finally, tipping point for cable TV

A paradigm shift is nigh for India’s television distribution industry, where for years unscrupulous local cable operators have under-declared subscriptions, causing huge revenue losses to broadcasters and platforms.

Over the last five years, while direct-to-home (DTH) has flourished in an environment of voluntary digitisation with around 35 million subscribers, digital cable has stayed laggard.

“The pain in digital cable has only further intensified in the last 9-12 months, when multi-system operators (MSOs) such as DEN and Hathway have added less than 0.5 million subscribers in spite of being adequately capitalised. The ‘hope’ of the regulatory support was a critical reason for this delay,” said Nikhil Vohra, managing director, IDFC Securities Ltd.

Interestingly, of the 225 million-or-so households in the country, an estimated 20 million are in the metros covered in Phase-I of the digitisation ordinance issued on Thursday.

The rural skew also shows in the DTH pie, with only 9 million out of a total 35 million subscribers from urban areas.

Among other players, Dish TV is expected to extract a sizeable pie from the metros in a mandatory digital environment. Nationalised MSOs such as Wire and Wireless (WWIL), DEN and Hathway are also likely to see sharp increases in their delta gains.

Dish and WWIL are Zee Group companies, which also co-owns Diligent Media Corporation, which publishes the DNA.

“Against a backdrop of extremely poor execution and muted subscriber addition of less than 0.5 million subscribers annually, we now foresee a near three-times jump in digital subscriber addition in the next 12-18 months. This will ensure a sticky base for MSOs ready to monetise,” said Vohra.

“It’s not that companies were not investing into the business earlier,” said, Smita Jha, consulting head - entertainment and media, PwC. “They never had a say as the end-user was free to choose between analog and digital cable, which will not be the case now thanks to mandatory digitisation with defined timelines,” she said.

Locals forced to digitise; better Arpus
Local cable operators (LCOs), which had limited incentive to digitise or partner with MSOs earlier, will now be compelled to undertake digitisation.

“With limited access to capital as also ability to digitise their own network, LCOs are now bound to partner with MSOs. This, coupled with digitisation with addressability, will lead to addressal of the biggest bane in the cable distribution industry — under-declaration (of subscribers),” said Vohra.

Both DTH and digital cable operators will benefit as DTH companies were earlier competing with analog cable operators owing to lower average revenue per user (Arpu) on cable networks. “The Arpu was in the Rs 100-200 range. As a result, DTH companies could not increase their prices. Digitisation would lead to an increase in cable operator and DTH Arpus. It’s a win-win for everyone. While set-top box prices at Rs 1,000-1,200 may look on the higher side in case of digital cable, these prices are declining and will come down further in the coming years. This will be a key factor for digital cable operators looking to grab market share in non-metros, the deadline for which has been set for 2013 and 2014,” said Jha.

Consolidation ahead
Once the key metros get digitised, there will be some amount of transparency in the market in terms of revenue declaration, which will instill confidence in the investor community to participate in the fundraising plans of various players in the industry.

Keeping in mind the funding requirement, a proposal to increase foreign direct investment (FDI) limit in the C&S industry has been mooted already. Once the Cabinet approves a hike in FDI limit to 74% from the current 49%, experts feel it will lead to realignment of the cable and satellite business, spurring mergers & acquisitions.

From a consumer perspective, digitisation will make cable more competitive vis-a-vis DTH.

Now order a pizza on cable
For one, cable would have an interactive two-way communication system and hence a lot of value added services (VAS) which are not possible on DTH.

How about ordering a pizza over cable and receiving a confirmation from the pizza guy, for instance?

There would also be other VAS offerings like digital video recorder, pay per view, broadband internet and IPTV, bringing cable on par with DTH.

The monthly outgo, in addition to purchasing set top box, is likely to remain the same for a bulk of consumers, though it could be higher for those opting for expensive pay channels.
To a large degree, therefore, it will come down to quality of picture and programming, availability of channels, value-added services and of course pricing of the services which is key driver in a country like India.

More capital needed
On the flipside, for the cable operators, the mandatory digitisation will increase the capital requirements.

According to Jehil Thakkar, head media and entertainment practice, KPMG, all the cable companies will now have to think about where the funds are going to come from —- internal accruals, fund raising or take on debt, etc.

“We have estimated overall capex (entire infrastructure cost including set top box and optical fibre cable) for the industry to be around Rs 20,000 crore in the next 3-4 years. Given the state of the market, companies will have to raise money either through private equity or debt while some of the public ones can explore market-based options,” said Thakkar.

Interestingly, while DTH players like Dish TV and Reliance TV already have separate entities —- Wire and Wireless and Digicable, respectively —- to address the cable TV market, there is a possibility of other players also adding cable operations to their business. “This approach will broaden their offerings for the different geographies/ markets in addition to building on the competitive advantage. This could happen through both organic and inorganic routes,” said Thakkar.

Players cheer
Dish TV has hailed the move as a positive one. “This ordinance will certainly help the DTH industry much more than other forms of distribution,” said Salil Kapoor, COO, Dish TV India, adding that DTH has emerged as the platform of choice across all population and socio-economic strata.

According to Sudhir Agarwal, CEO, WWIL, the entire cable TV universe will be converted to digital homes, thus reducing under reporting, bringing in transparency and resulting into boost in subscription revenue.

“Digitisation of existing cable infrastructure will augment the channel carrying capacity, offer better quality and will provide further scope for delivering various value added services. A multi-fold increase in subscriber number is expected. Such exponential growth in subscriber numbers requires huge infrastructure to serve them as well, for which WWIL is well positioned.

M G Azhar, president - strategy and business development, DEN Networks Ltd, feels the initiative will create a paradigm shift in the pay distribution industry and alter the fundamentals of the media sector. “The transition will see the entry of more channels, the spread of broadband and triple play offerings and ultimately a transformation in how households consume content and entertainment in this country,” he said.

Harit Nagpal, CEO, Tata Sky, said it will help transform the sector into an organised industry. “It will aid the organisation of the Industry and result in clearer subscription figures for broadcasters,” he said.