Sunil Kukreja, Senior Manager Distribution, Shop CJ
Digitization of cable television is a necessary step for regulating cable television sector in India.
In the analog system, it was difficult to ascertain how many households were subscribing to cable services. The actual number was known only to the local cable operators who also worked as bill collection agents. TRAI mandated that revenues gathered by cable operators should be split among broadcasters, multi service operators, and local cable operators. But cable operators undervalued the amount collected, which was a great loss for the broadcasters.
With the digitization of cable television, every household accessing signal is counted and cable operators are forced to share their collections with MSOs and broadcasters. Consumers are also able to select and pay only for the channels they wish to see.
Digitization of cable television in India has opened up new revenue streams. The Indian television distribution industry is at the point of an important phase, where customer needs and demands will guide the overall growth. Customer needs will play an important role in deciding not just the quality of content but also the platform on which they want to consume the content. Most broadcasters have started developing their content for non-linear viewing. Considering the shift, MSOs have started leveraging their existing cable infrastructure to provide broadband services. Indian cable operators are seeking billing systems, control mechanisms, and creating an Internet-based backbone for their delivery networks, as consumers seek more on-demand content.
The industry content deals between MSOs and broadcasters continue to be fixed in nature or based on cost-per-subscriber (CPS), with many deals lasting only a year. Also, many of the large broadcasters have net content deals with carriage fees and subscription revenues share being part of the same deal. While some of the large broadcasters have managed to monetize increasing HD channels, some of the smallest broadcasters receive similar amounts for SD and HD channels. Going forward, increasing HD penetration can be a subscription revenue growth driver for broadcasters.
After rollout of STBs in Phase I, II and III markets, there was a decline of 25 to 30 percent in carriage fees, but there has not been any significant decline after 2015. There was an increase in the overall carriage fees paid to distributors in 2016 due to the launch of new channels and channels continuing to increase distribution in smaller towns and cities (LC1 areas – less than class 1; towns with under 0.1 million population). Carriage fees remained broadly stable for existing deals but new deals saw a hike of 5 to 10 percent in carriage fees. Looking into 2017, carriage fees for existing deals are expected to remain stable but MSOs are expected to see 10 to 15 percent increase in carriage fees due to the increasing number of channels being carried by each MSO. Higher subscription revenues for MSOs will have to start flowing through before the industry witnesses any further reasonable decline in carriage fees per channel.
Contrary to expectations of carriage fees coming down with the implementation of DAS Phase I, II and III, there has actually been an increase in carriage fees during the last year. The two main drivers for this are – first, most small and new channels in any genre want to be in the neighbourhood of the top channels in that genre and second, channels continue to be dependent on ad revenues given that subscription revenues are not growing as expected and carriage fees help improve ratings which ultimately help increase ad revenues.
For DAS Phase-IV to be implemented successfully, the government needs to bring in faster and perhaps more decentralized licensing processes, make it easier to receive financing for new digital platform operators, provide tax benefits, and improve indigenous availability of set-top boxes at competitive prices.
Broadcaster, LCO, and MSO value chain will be disrupted not just because of 4G coming but also on the basis of change in the behavior of the consumers toward consuming media. The media consumption pattern of the consumer is changing and everyone in the value chain has to think through their model to survive the change.