The government diktat for phasewise digitization of television services in the country by 2014 has thrown up a huge debate. Is the massive process of digitizing all analog TV sets and cable networks going to be easy? Do the four metros even have the technological and logistic support to meet the March 2012 deadline set for them? Will the shift be effective enough to redefine broadcast technology? Keeping the issues and implications in mind, is the broadcaster finally going to gain or lose viewers? Rahul Dubey does a reality check.
The Rs 297 billion Indian broadcast industry is all set to confront the biggest technological turnaround of the decade, with the government passing an ordinance to completely digitise all television services by 2014. Results of the first litmus test for implementation of this ordinance will be visible after March 2012, when the four metros will undergo 100 per cent digitization. But is the industry prepared to meet the deadline set by the government?
According to the recommendations of the Telecom Regulatory Authority of India (TRAI) and the Ministry of Information & Broadcasting, there’s less than six months to meet the massive target of reaching 30 million analog homes in the four metros. However, the clock will start ticking only after the President inks the ordinance.
While experiments with digitization of cable networks in India - to implement Conditional Access System (CAS) – has once been done in 2007, the time seems to be right now. The industry is geared up for the change. The uproar over the earlier move had put the government on the back foot. The new system of Digital Access System (DAS) will answer the question of addressability, which CAS had failed to do. Not just the big players of the broadcast industry, but MSOs and DTH operators, who are likely to be at loggerheads post-digitization, have responded positively to this move.
There is a reason why an ordinance was required to push the much-awaited makeover over a planned bill in Parliament. India, the third largest TV market of the world, lags way behind in the Utopian race of technological advancement called digitization, and cannot perhaps wait too long for detailed discussions and consensus of parliamentarians. The big question before broadcasters and distributors now is whether the 2014 digitization deadline is feasible.
“The time has come for a complete revamp in the system. It is the right time for digitization and when something right is happening, then any time to do it is good,” says Yogesh Radhakrishnan, MD and CEO of Prime Connect, a distribution company from the Times Group. According to LV Krishnan, CEO of TAM Media Research, the four metros are streamlined and prepared to take on the process immediately. “It’s going to be easy for the markets in metros as operations in these cities are streamlined. Mumbai is more prepared than Delhi and Kolkata, but it is not going to be very difficult. Now that the ordinance has been passed, suburban and B-towns too will gear up for digitization.” But preparing metro cities for the digital wave will also require about 7 million set-top boxes along with the cooperation of local cable operators (LCOs) who will execute the ordinance in the real sense.
In the 2007 uproar over CAS, advertisers claimed to have made losses to the tune of Rs 100 crore, as connectivity of pay channels went down by 71 per cent. The government’s decision to make CAS compulsory in selected regions of Mumbai, Delhi and Kolkata, which affected at least 1.63 million homes directly, left broadcasters and advertisers worried about a possible permanent loss of viewership in key Indian markets. In the new ordinance too, there is a lack of clarity on whether the tariff rates for paid channels will be regulated
by the government. Industry experts are expecting more clarity on the ordinance and its implementation once the President signs the ordinance. “There will be many issues if the government interferes in the tariff plans,” says Radhakrishnan. This leads to the second big unanswered question: Will digitization of the cable system lead to loss of paid channel viewers?
The big challenge is to convert all viewers to digital in such a way that pay channels don’t lose viewership. According to Krishnan, the first task for every player would be to educate viewers about digitization, followed by awareness programmes for cable operators. “Viewers have to understand the advantage of digitization and it cannot happen if they are not aware about what’s happening around them.” Considering the 2007 chaos and anticipating the effect of digitization on the Rs 5,000 crore television ad spends, broadcasters are extra conscious about the importance of educating viewers. “In the earlier roll-out of CAS too, TV channels played an active role in communicating to viewers. Collectively, we have a greater responsibility and would be able to communicate this very effectively to our viewers. Who would not want their viewers to continue?” asserts Sunil Lulla, MD and CEO, TV Business, Times Global Broadcasting Co. Ltd.
THE IMPLICATIONS
It’s not just broadcasters, Multi Service Operators (MSOs) too are critical to the process. Compulsory digitization has come as a wake-up call for MSOs who will be key to converting all cable homes to digital. Over 7,000 MSOs will address the systemic challenges involved in reaching over 80 million analog homes all over India. “The industry may face immense challenges in this transformation. It majorly includes funding arrangements for technological upgradation and other needs; revenue share mechanism with business and channel partners; fiscal support in the nature of incentives, subsidies, policies and level playing fields with competing digital distribution mode,” says Sudhir Agarwal, CEO of Wire and Wireless India Ltd. Interestingly, over the years, eight DTH players have addressed the service needs of over 40 million households through a massive investment of over Rs 14000 crore. MSOs, relatively smaller players when it comes to investment and logistics, now seem to be open to competition from DTH operators. MSOs will not only have to organize over 70,000 LCOs, but will also face the challenge of supplying 7 million set-top boxes (STBs) in the first phase. “Anything done hurriedly will cost more, so raising capital will be a challenge for MSOs in this short period and will come at a cost,” cautions Jagi Mangat Panda, Managing Director, Ortel Communications. There is also a widespread concern among MSOs about immediate shift of analog systems to digital. Ashok Mansukhani, President, MSO Alliance; Director, Indusind Media, says, “The logistics of deployment of millions of STBs will be a challenge and some MSOs have suggested that even for Phase 1, the switch-off of analog signals should be done in two phases, i.e., first pay channel should be switched off on a prescribed date and approximately 90 days later, free-to-air channels should be switched off. But this has been rejected by broadcasters.” Apart from need for massive investment and availability of STBs, MSOs will also have to convince underprepared LCOs. A large number of LCOs had resisted CAS in 2007. In a collection business of over Rs 15,000 crore every year, LCOs in India pay only 15-20% of collection amount to broadcasters and a large share of this pie goes undeclared. A recent statement of Minister for Information &Broadcasting, Ambika Soni, that each operator will have to spend Rs 3 lakh to avail direct digital signals from head-ends has spelt more trouble for LCOs. Rohinton Dadyburjor, VPOperations, Hathway, says, “LCOs have already aligned to some MSO or an ICO (independent cable operator). If the MSO/ICO is not ready on the given sunset date, the LCO will be forced to align with some other MSO. The market is large for many MSOs to co-exist. Also going forward, volumes will play an important role in the pricing of services and being a part of a larger family will certainly help the LCO retain his subscriber. He will have to focus on service and by offering additional services, earn more revenue.”
It now appears that a system on the lines of the telecom operators would be needed to be adopted to protect interests of LCOs and align them with MSOs for uninterrupted services, as TRAI will constantly monitor the system. Industry experts believe it’s a win-win situation for cable operators too as it will organize the sector and bring more transparency in the system. Krishnan says, “Operators who have not been comfortable with the present unorganized system of cable network should now be happy if they want to deliver better service and improve transparency.”
DTH: CREATING NEW FRONTIERS
For DTH players in India, digitization will open new frontiers for opportunities along with fresh challenges. When there was widespread concern among viewers of metros in 2007 over the choice of paid channels, it offered a chance to DTH operators to attract fence-sitters. DTH operators have comfortably managed to attract 40 million consumers, close to 25% of the total market share. Unlike MSOs, DTH operators have invested huge monies to ensure a robust distribution system. However, so far, DTH operators were not competing with cable operators directly as there was a clear distinction between digital and analog TV sets. Along with quality viewing experience, LCOs will have an added advantage of penetration due to their widespread presence. Faster response to consumers’ complaints and post-sales service, DTH consumers may also consider switching to the set-top box option. However, DTH operators differ. They see an opportunity as the markets open up for a digital revolution. RC Venkeitesh, CEO, DISH TV says, “Digitization of distribution is a good opportunity for DTH operators in India. The market size is huge. DTH has already covered 40 million homes. I don’t think it will be MSOs versus DTH players. The Indian market is huge which will provide wide opportunities.”
Achieving the target within the given deadline will require massive investments; hence DTH players are expecting the government to give them tax relief for faster implementation. Harit Nagpal, CEO, Tata Sky, says, “We would like to see digitization within the said time-frame and feel that the acceptance of TRAI’s recommendations on short-term taxation relief for DTH operators would immensely boost this process. Digitization of Indian TV services will aid the organization of the industry and result in clearer subscription figures for broadcasters.”
BROADCASTERS- NOT MUCH TO GAIN?
Broadcasters have welcomed the decision of the government with a smile. While most believe that there will not be a major alteration in viewership pattern, the industry will certainly benefit from a transparent and organised system. Subhash Chandra, Chairman of the Zee Network, says, “With the Union Cabinet clearing the ordinance on digitization, the cable industry will get a much required boost which would help create a more sustainable business model. If implemented well, over the next 4-5 years, the industry can completely transform itself from a fragmented unorganised set-up to a more transparent, organised and service-oriented industry.” Like broadcasters, most industry experts have also turned down the hypothesis of alteration in viewership pattern. LV Krishnan says, “Viewing patterns are not dramatically different in the digital landscape today, because people are not consuming technology, they are consuming content. If you don’t change the content dramatically, there is not going to be much of a difference.”
Overall, the prospect of more bandwidth coupled with transparency has come as relief for many broadcasters. Reaching viewers will also become a game on an even field. Most importantly, underreporting of collection by cable operators will pay off heavily to the industry for which the subscription revenues in 2010 was to the tune of Rs 194 billion, of which only Rs 41 billion went back to broadcasters. “As a broadcast network, it is an opportunity to be able to provide more offerings to the consumer. With digitization, carriage fees should see a drop. Importantly, pay channels can participate more equitably with MSOs and DTH platforms,” feels Sunil Lulla.
However, chances are that free-to-air platforms will always have higher access. For instance, DDDTH service is prevalent in small towns. If there’s a dramatic shift of viewers to DD DTH from cable operators, the market dynamics may change substantially. The suspense will unfold only when the government and regulators clarify tariff charges to broadcasters.
GAME CHANGER FOR ADVERTISERS?
Digitization has brought good news for advertisers. In India, cable channel viewing has gone down from 9% to about 2-3% in the last 10 years. This share is not negligible as it amounts to 150 minutes of TV viewing. This amount of time will shift to regular channels after digitization, which is good news for advertisers. But fingers will remain crossed over the possibility of intervention from the regulator in tariff plans which can decide the fate of the Rs 5,000 crore ad spends on television. In 2007, media planners had reported a reduction of 3.5% in ad spends on television. Experts believe that next year will be crucial for the industry as results from the four metros start showing up. “I think we need more clarity from the government on whether there will be regulation in tariffs. I believe that the carriage fee is already too high. Broadcasters should be given a free hand to decide the tariff; else we may see a major spin in the industry next year,” reiterates Radhakrishnan.
IMMEDIATE FOCUS –PHASE I
Seven million set-top boxes, an investment of over Rs 900 crore, four critical markets and all to be achieved within five months. The much-awaited implementation of the ordinance for Phase I of digitization is crucial to all players. It may sound like a tall order, but the industry is confident of achieving it. But the later phases may pose big hurdles as the infrastructure in B and C-towns is not streamlined, nor are the people educated about the big change. To achieve the 2014 target, all cable and satellite homes will require 80 million set-top boxes. “Deadlines for the first two phases can be achieved easily, but the next two phases can be challenging. Consumers and cable operators in rural India must be educated about the importance of digitization,” says Krishnan. But as metros require an investment of over Rs 900 crore to make digitization a reality, the rest of India will need geometrically higher infusion. MSOs will be under stress to reach the nooks and corners of India, hence there is a growing demand to ease FDI norms for faster progress. “The TRAI digitization blueprint of August 5, provided for the complete package of monetary and non monetary incentives, see huge costs of digitization, estimated at over Rs 25,000 crore nationally. These included harmonized FDI at 74%, grant of infrastructure industry status to cable and a host of fiscal and tax incentives. At present, all these enabling measures are yet to see the light of day,” says Mansukhani.
REQUISITES
CONSUMER EDUCATION ON ADVANTAGES OF SET-TOP BOX
Experts believe that India has an advantage of set-top boxes, but will the government subsidise it is a matter of concern. Also, 25% of viewers in metros may not be able to afford it as they are from the lower socio-economic strata of society. “In the USA, the government subsidized set-top boxes and 40-dollar subsidy was given to every household which did not delay the process much. Cable networks are well established in every nook and corner of India. The need of the hour is good investment. If the government has a plan in place then procuring STBs from China and Korea will be very easy,” says Col. (Retd.) K K Sharma, a consultant to several cable companies in India. MSOs and LCOs do not see STBs as the major challenge. According to them, there is a need to reach out to viewers and convince them about the benefits of digitization.
CO-OPTING LOCAL CABLE OPERATORS
Incorporating LCOs into the exercise is crucial. LCOs will have to either group themselves or register themselves under existing MSOs for organized functioning. The next step immediately after digitization would be to create an organized chain in distribution. Systems have to be put in place on the lines of the telecom operations in India. MSOs and LCOs will have to be careful about providing services as TRAI will monitor services as well as quality of service. Therefore, interruption in services will attract action from the regulator.
REVENUE SHARING
A balanced revenue-sharing formula is yet to be devised by the government and regulator. While LCOs and MSOs are anticipating a good chunk of the pie, broadcasters expect a significant fall in the carriage fee due to reduction in under-stated collection from cable operators. “ARPUs from subscriptions will increase for most of the stakeholders. The revenue sharing will change,” says Rohinton Dadyburjor, VP- Operations, Hathway. “Many issues will be clarified once the whole process takes off. It remains to be seen whether there will be a basic tier package on the lines of DTH operations,” says Krishnan.
MONITORING
Putting a monitoring system in place is also a challenge. As digitization will be guided by the process of an ordinance, the monitoring exercise has to be accurately carried out. The CAS system was monitored by the Postmaster General, but after complete digitization, an authority will have to be entrusted with powers to take stringent action against defaulters.
AUDITING
As opposed to CAS, DAS will provide easy addressability which will ensure that every small piece of information is available for auditing. After all cable homes of the country go digital, it will be a challenge for authorities to maintain and monitor a record of names, addresses and viewership patters in different regions of the country. Auditing will involve a record of which home is buying which channel and the cost allocated to each channel.
( With inputs from Dipali Banka )
Feedback: rahul.dubey@exchange4media.com
