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Tag: CAS report

  • Mixed impact on industry constituents – JP Morgan CAS report

    MUMBAI: JP Morgan India’s report on the Indian cable industry titled: “CAS: The Medicine for a chronic ailment” points out that the consumer opting for pay channels would have to pay more if they don’t make an outright purchase of set-top boxes.
    The report adds that there would be a mixed impact on broadcasters varying from case to case. The negative impact, if any, would likely be with very high pay connectivity channels, i.e. channels belonging to Star Plus. The report also claims that DTH would be put on the back-burner. The local cable operators would be relegated to the role of collectors of FTA revenues when CAS gets implemented whereas MSOs would be the biggest gainers.
    Impact on the Consumers
    The impact on consumer can be looked at from the angle of what payments would be made by consumers, pre- and post-CAS. See Table 5.
    The report envisages several scenarios: Let’s take a consumer in North India: currently, the customer is paying Rs 200 flat for 70 plus channels being received. Assuming that the customer would take up the set top box on finance, Morgan’s analysts believe that the average cost to him would be computed as in Table 5:
    The report has taken Rs100 as the monthly fee paid by the customers towards boxes. It adds that the industry sources claim that the box costs should come down to about US$70 or Rs3,400. Taking that there would be some downpayment, Rs100 per month seems like a reasonable figure.
    The analysts also believe that the consumer opting for pay channels would have to pay more if he does not make an outright purchase of boxes.
    Direct to Home (DTH) – on the backburner now
    The Morgan report claims that the entry of CAS means that interest in DTH would reduce. When customers take a box for CAS, the value of DTH to consumers would naturally diminish. We also believe that there is not enough extra local language content available that is not accessible on cable TV. Therefore, DTH per se does not have a compelling proposition to offer to the consumers post CAS.
    Impact on the Local Cable Operators (LCOs)
    The local cable operators would be relegated to the role of collectors of FTA revenues when CAS gets implemented. His take home would be limited to the FTA bouquet price. The impact on him is as shown in Table 6.
    MSO: Winner all the way
    The biggest winners of the CAS implementation would be MSOs. The Morgan report believes that the most likely scenario would be MSOs taking control over the box in consumers’ homes. This would solve the longstanding problem of scattered ‘last mile’ control. While there would be short-term gains on the profit and loss of MSOs, they would not be very significant. In the longer term, however, the analysts expect slow demise of the MSO-LCO model and emergence of a pure MSO model. This would improve both revenues and valuations for MSOs.
    Will bundling continue post CAS?
    Currently, the channels are sold in bundled form to the customer. The report believes that the advent of CAS would not mean that bundling would go away. The existing bundles would continue to offer bundled entertainment solutions to customers in order to maximize pay revenues for marginal channels.
    Broadcasters: Pay revenues
    The report envisages that the broadcasters have to bring down their channel rates with the advent of CAS; that is, if one goes by their promise of bringing down rates if declaration levels improve.
    As is shown in Table 6, the net impact on channels should be marginally positive only. In the above calculations, the report has assumed a 60 per cent box adoption which might be slightly on the higher side. However, one must note that this assumption compares with a declaration rate of 30 per cent currently (which is higher than an all India rate of between 15-20 per cent).
    The Morgan report has taken higher rates into account, as the analysts believe that the addressable market for broadcasters is lower than the total reported homes in the country. There are a huge number of cable homes in rural areas, which will be tapped only over a period of 5 years. Given that the first phase of rollout is in metro areas, the Morgan reports believe that the concerns there are overblown. Since metros are controlled by MSOs and since declarations are the lowest from metros, the impact on pay revenues should actually be positive. The negative impact, if any, would likely be with very high pay connectivity channels, i.e. channels belonging to Star Plus.
    Broadcasters: Advertisement Revenues
    The impact on advertising revenues is not very clear at this point in time. There are two extreme schools of thoughts. The first viewpoint is that the channels would have to become free-to-air to get ad revenues after CAS gets implemented. The second viewpoint is that there would be no impact on ad revenues, as the opportunity to the advertiser would continue to lie with the successful channels only.
    Morgan’s analysts believe that the actual truth would be somewhere in between. On an overall medium term basis, we believe that CAS would lead to a well regulated, better managed cable industry with few revenue leakages in the system. This can only be positive for all market participants in the medium term. The uncertainty is on how would the ad revenues behave till the time rollout of boxes takes place fully.
    Again, since the first phase of rollout is in metros, which are relatively affluent, the box adoption should remain reasonably high. Thus the initial impact on ad revenues should remain minimal.
    In the longer term, the report assumes that there could be hybrid strategies being adopted by various networks. This could include keeping some channels as pay and making some channels FTA.
    Also see
    MSOs biggest gainers – JP Morgan CAS report
    Domestic pay revenues likely to drive broadcaster profits – JP Morgan CAS report
    Encryption at MSOs/ICOs likely – JP Morgan CAS report
    Zee bouquet has better breadth – JP Morgan CAS report

  • Encryption at MSOs/ICOs likely – JP Morgan CAS report

    MUMBAI: JP Morgan India’s report on the Indian cable industry titled: “CAS: The Medicine for a chronic ailment” states that the location where the signal would be encrypted would gain significance. The report envisages two possible alternatives that could emerge.
    ‘Encryption at MSOs/ICOs head end’ and the ‘Encryption By the Broadcasters’ model. The report believes that the latter is inherently appealing for the broadcasters as they can control the revenues through one entity. However, the simplistic model is likely to fail, as control of the company doing the encoding could become a big issue.
    The report throws some light on how CAS will work
    The report interprets CAS will ensure that the following scenario could be likely:
    o There will be a Free to Air (FTA) bouquet. The government will specify the minimum number of channels (segments) to be in the FTA bouquet and the ceiling of the price that can be charged to the consumer.
    o There will be a pay tier comprising of encrypted channels. There is however nothing that stops the broadcasters and the distributors to make bouquets in a way to bundle channels.
    The report states that currently the bouquets were decrypted by the MSO/ICOs and distributed to the consumer. However, in the CAS method the decryption of the signals (of the pay channels) will take place at the individual consumer home.
    Under CAS, the report says that the customers taking a FTA bouquet would not necessarily require a set top box while the customers opting for pay channels would need it. The government would set the cost of the FTA bouquet. The money paid towards FTA channels would essentially be the money that a LCO would make. The broadcasters would set pay channel rates and these revenues should be pass through.
    The report mentions that it is not clear as of now whether bundling would be allowed in pay bouquets, as is the case currently.
    The report points out that the intention of the government is 
    (1) to reduce the cost to consumers by letting them choose what they want to see. Currently, the cable operators have to take the full bundle from broadcasters. Therefore, while subscribers in a particular locality might not want a South Indian channel, the cable operators still supplies it as the subscribers in some other locality where he/she serves require that channel. The government hopes that by resting the choice at consumers end, this practice would stop. 
    (2) The other intention is that by putting up set top boxes at each home, level of under declaration would reduce significantly.
    However, the report mentions that the key question is where the signal gets encrypted. There are two possible options:
    Encryption at MSOs/ICOs head end
    Here the encrypted channels would be downloaded by MSOs/ICOs and would be decoded. They would then be further encoded through encoders (costing about 50,000 per channel) and sent for onward transmission. The box at the user’s end would be programmed to receive the channels that have been paid for.
    Encryption By the Broadcasters
    This model, suggested by Zee, envisages setting up a joint company by broadcasters and MSOs. In this model, the separate channels would be downlinked in one headend and then encoded together. The encoded signal would be up linked again to a satellite, which would then beam the signal to the whole country.
    The box at the user’s end would be programmed to receive channels that have been paid for. In this method, termed as headend in the Sky (HITS) model, the need for duplicating encoding equipment for final transmission to consumers would be obviated. 
    Implementation Schedule and problems thereafter
    The initial suggestion from the government is to start the implementation of CAS from starting with four metros over the next year and then replicate the model through the country. See Chart 2.
    The report claims that the regulation has never been strict enough to allow a well-developed cable system to come up in India.
    The Cable Act, 1994, currently governs the cable industry. The key provisos of this act are:
    o No person shall operate a cable television network unless he is registered as a cable operator under this Act: The amount of fee (Rs500) shall be deposited in the Head Post Office where the application for registration or renewal of registration or issue of duplicate certificate of registration is being made.
    o No person shall transmit or re-transmit through a cable service any programme unless such programme is in conformity with the prescribed programme code; no person shall transmit or re-transmit through a cable service any advertisement unless such advertisement is in conformity with the prescribed advertisement code-“likely to promote, on grounds of religion, race, language, caste or community or any other ground whatsoever, disharmony or feelings of enmity, hatred or ill-will between different religious, racial, linguistic or regional groups or castes or communities or which is likely to disturb the public tranquility.
    o No cable operator shall carry or include in his cable service any programme in respect of which copyright subsists under the Copyright Act, 1972 (14 of 1972) unless he has been granted a license by owners of copyright under the Act in rest of such programme.
    o Compulsory transmission of two Doordarshan channels.

  • Zee bouquet has better breadth – JP Morgan CAS report

    MUMBAI: JP Morgan India’s report on Indian cable industry titled: “CAS: The Medicine for a chronic ailment” claims that Zee would be a beneficiary of the passing of the CAS Bill for two reasons (1) due to its ownership of Siticable, its MSO, and (2) the long-term increase in the transparency of the distribution system, which would boost pay revenues.
    JP Morgan analysts give the Zee Telefilms scrip an ‘overweight’ rating at the price level of Rs 103. See chart 10 showing the fluctuations since FY 1999. The report also claims that the Zee-Turner bouquet’s strength is its breadth and the bouquet’s overall offerings are as popular if not more than the Star and One Alliance bouquets.
    The report claims that a study of the bouquets of various networks revealed three features:
    o The other channels in the Zee bouquet provide a much more sustainable set of drivers for the bouquet compared to the Star and Sony packages, which are one channel or event driven.
    o Cable operators and MSOs believe that Zee ratings have bottomed out and they are seeing improvement in the visibility of the channel after the movie strategy.
    o The demand for the Zee bouquet is in no way lower than the others and, as such, the implementation of CAS would not be detrimental to the bouquet.
    Zee-Turner bouquet’s strength is its breadth
    The fact that Star Plus is the most popular channel is clear. Additionally, SET MAX with the cricketing rights is likely to draw large viewership during World Cup in February and March 2003 and the flagship Sony channel has usurped the No. 2 position from Zee TV.
    However, the report claims that the Zee-Turner bouquet provides the strongest value for the customer. Despite the current drop in popularity of the flagship channel Zee TV, the analysts believe that the drivers for the Zee-Turner bouquet are much more sustainable than the Star bouquet or One Alliance (Sony).
    The report reasons that broadcasters have gained through increasing pay revenues in the last 3-4 years. As the revenues come without much attendant costs, the “pay revenues” have helped profitability of channels significantly.
    A case referred to in the report was Zee. The report estimates that the company would have close to Rs1.6 billion from the domestic pay market in FY03. These revenues would be the key driver of profits in years that advertising revenues of the network are weak. The report also adds that for Star TV, pay revenues form about one third of total revenues.
    And people on the ground corroborate findings
    The report claims that it has checked its hypothesis with several cable operators. Nearly all of them felt that, ratings notwithstanding, the popularity of the Zee bouquet is certainly comparable to the Star and Sony bouquets. The operators opine that Zee TV has bottomed out and that they have definitely noticed an increase in Zee TV’s visibility. Additionally, these operators feel that there is a demand for other channels in the bouquet like Zee Cinema, Zee News, Alpha.
    Assessing the strength of each bouquet
    Over the last two years, Star Plus has firmly established itself as the numero uno Hindi general entertainment channel. The ratings of programs on the channel are far better than its nearest competitors. However, the other channels in the Star bouquet are not among the audience favorites in their respective segments. Thus, its flagship channel is the only driver in the Star bouquet. However, the channels are not available a la carte, thus ensuring a good reach of all the channels.
    The Sony bouquet was the last one of the three mainline channels to go pay. In the last few months the flagship Sony channel has overtaken Zee TV as the No. 2 Hindi entertainment channel. Set MAX which initially started as a Hindi movie channel has now diversified into cricket and has the telecast rights of the World Cup cricket in India. The bouquet has recently signed in HBO to be a part of the bouquet from January 2003.
    Zee TV was the undisputed leader of general entertainment in the end 90s. However, over the last two years the flagship channel of the Zee-Turner bouquet has seen a steady decline in its popularity. Though Zee TV has taken several initiatives to retrieve the top position, it hasn’t so far been able to.
    The silver lining for the Zee bouquet has been the performance of the other channels in the bouquet. The Alpha channels have been regional favorites. The addition of the Turner channels and ETC (the music segment leader) has added more stability to the bouquet.
    Apart from these three main bouquets, there is the sports bouquet of ESPN-Star Sports, the regional Sun Network bouquet and the MEN bouquet. ESPN Star Sports has the highest connectivity among the bouquets. Sun TV draws mostly a regional audience. The MEN network has lacked a consistent following from the audience and is still some way from being a mainline bouquet.
    The Morgan report adds that all the companies could be investment opportunities as shown in chart 9.

  • Domestic pay revenues to drive broadcaster profits – JP Morgan CAS report

    MUMBAI: JP Morgan India’s report on the Indian cable industry titled: “CAS: The Medicine for a chronic ailment” believes that the full implementation of the CAS (conditional access systems) would lead to an rapid growth in broadcaster revenues and ensure that domestic pay revenues will become the key driver of profits.
    The Morgan report adds that pay revenues have continued to grow strongly in the recent past led by increasing declarations and continuous fee hikes in the industry. It specifies that the impact of CAS could be to redefine the broadcasters’ revenues.
    The Morgan report reasons that broadcasters have gained through increasing pay revenues in the last 3-4 years. As the revenues come without much attendant costs, the “pay revenues” have helped profitability of channels significantly. As per Table 1, the pace of pay revenues has been increasing since the past years.
    A case referred to in the report was Zee. The report estimates that the company would have close to Rs1.6 billion from the domestic pay market in FY03. These revenues would be the key driver of profits in years that advertising revenues of the network are weak. The report also adds that for Star TV, pay revenues form about one third of total revenues.
    Broadcasters: pay revenues increase likely to propel fall in channel rates 
    The report envisages that the broadcasters have to bring down their channel rates with the advent of CAS; that is, if one goes by their promise of bringing down rates if declaration levels improve.
    As is shown in Table 6, the net impact on channels should be marginally positive only. In the above calculations, the report has assumed a 60 per cent box adoption which might be slightly on the higher side. However, one must note that this assumption compares with a declaration rate of 30 per cent currently (which is higher than an all India rate of between 15-20 per cent).
    The Morgan report has taken higher rates into account, as the analysts believe that the addressable market for broadcasters is lower than the total reported homes in the country. There are a huge number of cable homes in rural areas, which will be tapped only over a period of 5 years.
    Given that the first phase of rollout is in metro areas, the Morgan reports believe that the concerns there are overblown. Since metros are controlled by MSOs and since declarations are the lowest from metros, the impact on pay revenues should actually be positive. The negative impact, if any, would likely be with very high pay connectivity channels, i.e. channels belonging to Star Plus.
    Broadcasters: impact on advertisement revenues unclear
    The impact on advertising revenues is not very clear at this point in time. There are two extreme schools of thoughts. The first viewpoint is that the channels would have to become free-to-air to get ad revenues after CAS gets implemented. The second viewpoint is that there would be no impact on ad revenues, as the opportunity to the advertiser would continue to lie with the successful channels only.
    Morgan’s analysts believe that the actual truth would be somewhere in between. On an overall medium term basis, they believe that CAS would lead to a well regulated, better managed cable industry with few revenue leakages in the system. This can only be positive for all market participants in the medium term. The uncertainty is on how would the ad revenues behave till the time rollout of boxes takes place fully.
    Again, since the first phase of rollout is in metros, which are relatively affluent, the box adoption should remain reasonably high. Thus the initial impact on ad revenues should remain minimal.
    In the longer term, the report assumes that there could be hybrid strategies being adopted by various networks. This could include keeping some channels as pay and making some channels FTA.
    Will Bundling Continue Post CAS?
    Currently, the channels are sold in bundled form to the customer. The report believes that the advent of CAS would not mean that bundling would go away. The existing bundles would continue to offer bundled entertainment solutions to customers in order to maximize pay revenues for marginal channels.
    Broadcasters/Distributors – three main bouquets have arisen
    The report points out that Star, Zee-Turner and Sony (One Alliance) form the three main broadcasters in the market.
    Structure of the pay bouquets – six main clusters
    As far as the structure of the pay bouquets is concerned, the report says that there are six primary pay bouquets existing in the cable TV market-Zee-Turner, Star package, Sony (One Alliance), ESPN-Star Sports, Modi Entertainment Network (MEN) and Sun TV Network (regional). Additionally, there are certain standalone pay and Free-To-Air (FTA) channels. Overall, the total number of channels that a consumer gets in the city is in the range of 75-85. Table 2 below shows the mapping of the channels by segment.
    Subscription rates have been rising steadily
    The report claims that the problem of low disclosure for the broadcasters has led them to a strategy where they try to offset under-declaration losses with greater rates.
    Subscription rate hikes have been a regular feature once a year and at times twice a year for the bouquet. From the initial Rs2/month pay rates for Star Movies in October 1994, the pay TV rates have seen substantial rise. 
    Table 3 shows how the rates of the five bouquets have changed over the past one year. Table 4 shows how the rates will increase in 2003.
    Zee-Turner Bouquet’s strength is its breadth
    The report feels that the Zee-Turner bouquet has a lot of breadth despite the fact that Star Plus is clearly the most popular channel. Additionally, Sony’s MAX, with the cricketing rights, is likely to draw large viewership during World Cup in February and March 2003 and the flagship Sony channel has usurped the No. 2 position from Zee TV. However, the report claims that the Zee-Turner bouquet provides the strongest value for the customer. Despite the current drop in popularity of the flagship channel Zee TV, the analysts believe that the drivers for the Zee-Turner bouquet are much more sustainable than the Star bouquet or One Alliance (Sony).
    The report claims that it has checked its hypothesis with several cable operators. Nearly all of them felt that, ratings notwithstanding, the popularity of the Zee bouquet is certainly comparable to the Star and Sony bouquets. The operators opine that Zee TV has bottomed out and that they have definitely noticed an increase in Zee TV’s visibility. Additionally, these operators feel that there is a demand for other channels in the bouquet like Zee Cinema, Zee News and Alpha.

  • MSOs biggest gainers – JP Morgan CAS report

     

    MUMBAI: JP Morgan India’s report on the Indian cable industry titled: “CAS: The Medicine for a chronic ailment” believes that the full implementation of the CAS (conditional access systems) would happen over a period of six to seven years. However, the report anticipates a minimal impact of the Bill on the industry within the first six months of the implementation process. 
    The report states CAS would be a disruptive force for the cable industry. However, it adds that the television industry, suffering from chronic under-declarations, poor infrastructure and fragmentation, would benefit from the post-CAS scenario. It sees MSOs as the biggest gainers in the post-CAS era followed by the broadcasters and consumers. It is the local cable operators LCOs that have the most to lose from the CAS dispensation, the report states.
    It adds that CAS would enable the cable industry to become more organized, healthy and much less fragmented. The change would come about as increasing numbers of subscribers would be connected directly through set-top boxes, thus increasing transparency in the system.
    CAS would be a paradigm shift: MSO still to be the biggest gainer
    CAS would be a disruptive force for the cable industry despite the fact that CAS and its implementation details are not currently specified. The report estimates that CAS would come into force one year after the passage of the Bill (which was last month).
    The report estimates that the cable industry would be rid of its major ailments such as under-declarations, poor infrastructure, cash dealings, and the presence of unsavoury elements would get sorted out if CAS is implemented well.
    In the long term, CAS would benefit broadcasters and MSOs the most as transparency in the system improves. The impact of CAS in the near term remains uncertain for broadcasters and has to be thrashed out on a case-by-case basis.
    It anticipates that the MSOs would bag the last mile access, something that they have been lacking so far. The report expects MSO valuations to rise significantly. A prime case would be Zee (through Siticable) which stands to gain considerably.
    MSOs (not LCOs) more to blame for lower declarations 
    Elaborating on the ground realities as they exist currently, the report makes a valid point about the general perception that the local cable operators (LCO or last mile operator or franchisee operator) are the biggest culprits of low disclosure in the country and do not report actual numbers. The report states that the truth is different as the LCOs affiliated to MSOs are the only ones who can get away with lower declarations. The report quotes industry sources and states that the standalone LCOs are paying at higher than industry levels of declarations.
    In all fora, the larger broadcasters and MSOs complain about low declaration from the local cable operators who have last mile access. Contrary to popular belief, the report claims that the MSOs are the biggest under-declarers.
    The report states that studies reveal that the LCOs are usually very small players who are aligned to an MSO, either directly or through a franchisee. Though the LCOs have last mile access, their bargaining power is limited. The report claims that a MSO can (and actually does) muscle their way to get high declarations from the LCOs. While earlier a franchisee could migrate to a rival MSO in case of pressure on higher declarations, an informal non poaching arrangement between MSOs has put an end to this practice. In case the declaration is inadequate, they can shut out a LCO from the signals and he would then have to face pressure from subscribers.
    The report mentions that MSOs are uniquely positioned in the cable industry. Since MSOs are situated in big towns, their bargaining power with the broadcasters is high as large cities are also from where data for programme ratings is collected (known as TRP cities). The report claims that the channels thereby settle at much lower level of declarations from MSOs in return for uninterrupted telecast, which drive ad revenues.
    However, it is not all hunky dory for the MSOs. In the bid to build bigger subscriber numbers, MSOs have historically competed to get franchisees. This has led to lower level of declarations from franchisees to MSOs.
    Local Cable Operators (LCOs): unregulated proliferation
    The report mentions that the unregulated nature of the cable industry has led to a proliferation of LCOs. It adds that the total number of estimated LCOs varies widely. The official number is around 17,000, which is the number of operators listed in the post offices. However, some estimates point to numbers ahead of 40,000. Morgan’s analysts estimate this number to be around 28,000, as of 2001 year-end.
    MSO: different business models in place
    The report mentions that some of the big players decided to take control over customers after the initial proliferation of the cable operators. The desire to achieve this control was driven by the need to ensure carriage in 1994, a time when most TV sets had only 8 channels in the country.
    This resulted in the springing up of lots of multi-system operators (MSO) though business models differ from player to player. The report gives the following examples: Siticable forms JVs with local cable operators and shares the investment in the headend as well the revenues. INCable directly appoints distributors who carry the INCable signal to the consumer and have a revenue sharing agreement. Hathway forms co-operatives between cable operators and invests in the headend and the co-operative firms. Some other MSOs like RPG Netcom and Asianet use public utilities to string cable.
    The report estimates that the top six MSOs in the country control around 50 per cent of the country’s subscriber base, directly or indirectly, depending on the business model.
    Independent Cable Operators (ICO)
    In some of the cities and bigger towns, the Morgan analysts have noted the appearance of ICOs. These players would be different from the MSO, as they would be having only one head end and would own the last mile. Some examples of these would be 7 Star Network in Mumbai. The total number of subscribers with these ICOs as a percentage of the country’s total subscribers would be around 10-15 per cent.
    Anatomy of the pay market
    The report estimates that the total size of the pay revenue market stands at Rs 76.8 billion ($1.6 billion) currently with the payment by cable subscribers at about Rs160/home/month for the country.
    The total number of cable households in India is estimated to be between 38-45 million. JP Morgan analysts believe that the correct number is likely to be somewhere in between, around 42 million. Of this, about 14 per cent or Rs10.6 billion accrues to the broadcasters on an overall basis. ESPN-Star Sports, which has the largest penetration, claims a reach of around 6.5-7 million homes.
    And growing fairly rapidly
    The growth in cable homes has been exceeding total TV home growth. This has been primarily driven by the fact that cable programming is much superior in content to what is available on terrestrial channels (which is what a consumer gets if not connected through cable).
    Lack of regulation has led to a complex structure
    The report envisages that the consumer might get the feed from the MSO, the independent cable operator or the local cable operator. What complicates things further is the fact that there may be multi-level franchising taking place between MSOs and LCOs. Overall, the number of tiers that exists between the broadcaster and the consumer can range anywhere within one to five and at times even more.
    The flowchart below shows the structure of the Indian cable and satellite television.
    Chart 1: Structure of Indian C& S Television
    Source: JPMorgan.
    And poor infrastructure
    The report laments the fact that the lack of regulation has led to a complex structure but the biggest victim has been infrastructure. There is hardly any underground wiring in the country and a large part of cable system (especially in smaller towns) is of low quality. The cable industry is known for its cash dealings and attendant undesirable elements that such cash dealings usually attract. 
    Fragmentation in the industry has also resulted in multiplicity of infrastructure (number of headends etc), which makes it difficult to get optimum returns from the business without making it expensive to the consumer. Additionally, poor infrastructure also means that it gets difficult to introduce value-added services over cable systems. Given the rampant underdeclarations, the cable business has found it difficult to attract capital from organized sources.
    MSO: Winner All the Way
    The biggest winners of the CAS implementation would be MSOs. The Morgan report believes that the most likely scenario would be MSOs taking control over the box in consumers’ homes. This would solve the longstanding problem of scattered ‘last mile’ control. While there would be short-term gains on the profit and loss of MSOs, they would not be very significant. In the longer term, however, the analysts expect slow demise of the MSO-LCO model and emergence of a pure MSO model. This would improve both revenues and valuations for MSOs

  • Motilal Oswal CAS report: Cable ops likely to be hit

    Motilal Oswal CAS report: Cable ops likely to be hit

    MUMBAI: A Motilal Oswal Inquire Indian Equity Research (MOSt Inquire) report on impact of CAS has forecast that local cable operators (LCOs) could eventually lose their bargaining powers and profitability due to the impact of taxation.

    The report has predicted that financing options which will crop up in the next few months would lead to a 30-40 percent box penetration in the four metros within 12 months of the cut-off date. The report also foresees that MSOs, broadcasters and consumers would be the ones most benefited from implementation of CAS. 

    The report has given the following reasons for its deductions:

    Ø Pricing of the basic tier, comprising free-to-air (FTA) channels would be Rs 60-90 per month per subscriber. The local cable operator (LCO) would have to pay for entertainment tax (Rs 30 in Mumbai) and service tax (5 percent on revenues) out of this collection.

    Such a pricing would mean that LCOs would have to market the premium tier (comprising pay channels) to subscribers, in order to make decent profits. 

    This would also ensure higher consumer surplus (at least Rs 110-140 considering current outgo of Rs 200 per month as cable rent today) to spend on pay channels after paying for the basic tier.

    Ø The pricing of the STB would be a key issue, which could determine the penetration of boxes in cable homes. It is believed that digital boxes would ensure fairly high protection against hacking and would be a future proof standard to adopt. Current government import imposts are 56 percent for boxes. The landed cost of the entry-level digital box would be Rs 7,000 in the current scenario.

    However, the price could fall to Rs 4,000 if the manufacturing/assembly could be taken up in India and volumes build up. Motilal Oswal analysts believe that consumer finance options for boxes would make them affordable for consumers. Some MSOs, notably InCable, are open to subsidizing boxes if subscribers promise to be on the network for a specified period of time.

    Ø The report points out that inspite of the reservations in some circles that advertising revenues would get hit due to poor box penetration, the box availability would not be a big issue.

    MSO s would come forward to encourage box take-up by subscribers and financing options would emerge. That would lead to a 30-40 percent box penetration in the four metros with in 12 months of the cut-off date.