India pay-TV rollout good signal for broadcasters

The roll-out of a long-delayed pay television system in three of India’s main cities on Monday will offer some relief to broadcasters dependent on cable operators, but strict regulation will crimp near-term profits.

India’s fragmented $3.6 billion TV industry has more than 20,000 cable operators who, analysts and broadcasters say, under-declare subscriber numbers, charge random tariffs and sometimes blackout broadcasters.

From January 1, viewers in parts of Mumbai, New Delhi and Kolkata will be able to access cable channels they choose through a set-top box rather than being limited to channels the operator beams.

The three cities together account for nearly 14 percent of an estimated 65 million cable homes in India, the world’s third-biggest cable television market.
“If it all goes well — and it’s not a big if, but a medium-sized if — then it would boost subscription revenues for broadcasters in the long-term,” said Vivek Couto, executive director of research firm Media Partners Asia.

JM Morgan Stanley estimates cable operators under-report subscriber numbers by as much as 50 percent, so broadcasters could see a 33 percent rise in subscription revenue on increased reporting and a bigger share of the distribution break-up.

Subscriptions now make up about 45 percent of total revenue, compared to more than 50 percent in developed TV markets.

An attempt to introduce the conditional access system (CAS) in 2004 was stymied by politicians and cable operators everywhere except Chennai, where adoption was slow because the most popular channels were free-to-air — not requiring a set-top box — at a monthly cable subscription of up to 77 rupees ($1.74).

“There’s no timeframe on rollout in other areas, but increased reporting by operators would mean more subscription revenues overall, and demand for CAS in other areas would push for a wider roll-out soon,” said Chirag Negandhi at Enam Securities.

Dish Push
India is set to be Asia’s leading cable market by subscriber numbers by 2010 and the most lucrative pay-TV market by 2015, Media Partners has estimated. But average revenue per user (ARPU), at $3.50-4.50 a month, is among the lowest in Asia.

That will not change soon.
In August, India’s television regulator capped the tariff of each pay channel at 5 rupees ($0.11) a month under CAS to encourage more viewers to switch. Broadcasters must also initially subsidize set-top boxes.

“That means ARPUs are going to be low because of this perverse move to make it affordable to more people,” Couto said.

Still, the advent of CAS is expected to speed the growth of satellite TV, digital TV, Internet Protocol TV and other technologies which would boost advertising and subscription revenues, analysts say.

Broadcasters are pushing direct-to-home (DTH) networks as superior and more cost-effective than set-top boxes.

News Corp., which has a DTH joint venture with the Tata group, is asking viewers to choose DTH over CAS in its advertisements.

Dish TV, Zee Entertainment Enterprises Ltd.’s DTH operation, expects to have about 2 million subscribers by March.

State-owned Prasar Bharti has a DTH network, while Sun TV Ltd. and Reliance Communications Ltd. are also entering the market.

“Broadcasters are losing money in analog so, while they’ll get more declarations, they will push digital and DTH more because that’s where the money is,” said Couto, who estimates Zee could see 15 million subscribers on its books with the rising penetration of digital and CAS, up from 5.5 million now. Reuters