Digitisation is win-win across television biz: Experts

Welcome to the Axis Capital - India 2020 Stars conference on CNBC-TV18 on the on the unfolding cable-television distribution landscape and the impact on various stakeholders including the public which watches television for almost two-and-a-half hours a day and spends Rs 150-200 a month to watch over 500 channels across all genres and languages. This is probably the cheapest mass entertainment medium ever probably and it is still profitable.

  Below is an edited transcript of the discussions at the meet on CNBC-TV18
  Q: In the digital access scenario (DAS), what will be the scenario of the broadcasting and distribution business in India over the next three-to-four years?
  Chirag Negandhi, deputy head-research, Axis Capital: As we speak analog feeds across Mumbai, Delhi and parts of Calcutta are actually being switched off. The digitisation as imagined for the last maybe ten years is being implemented and is a multi-fold jump in the number of opportunities size for all participants involved.
 
To give you a sense of the revenue opportunities, let us consider the statistics at hand. In India, there about 12 crore cable and satellite homes with an average monthly ARPU (average revenue per user) of Rs 160 and an average annual ARPU of approximately Rs 2,000.  So the subscription base is worth about Rs 24,000 crore.
 
The gross domestic subscription revenues of listed and unlisted broadcasters is close to about Rs 3,500 crore. In addition, they pay out close to Rs 1,800 crore as carriage and placement fees. So the net revenue is about Rs 1,800 crore.
 
This revenue under the TRAI formula under the DAS regime with broadcasters getting 35-40 percent of the share of a subscriber base worth Rs 24,000 crore results in revenues as high as Rs 9,500 crore as compared to the net revenue of Rs 1,800 crore. So this by itself is a five-fold jump without building in the ARPU or growth in subscribers.
 
We clearly believe that APRUs in the next three-five years with digitization could be up in the range of about 70 percent or even double which means that this net revenue of Rs 9,000 could hump to as big as Rs 20,000 crore.
 
This cause profits for companies across the value chain to explode as incremental revenues flow in at no incremental cost and helping the generation of  more cash and revenues that are more sustainable and predictable of.
  Q: Is this analysis that indicates a jump in revenues and profits realistic?   Puneet Goenka, MD & CEO, Zee Entertainment: I think Chirag's expectation is quite realistic. In my estimate the revenue will be even higher as the market evolves. And as he rightly said, this is just on the back of no subscriber or ARPU growth. ARPU has been constant for the last 20 years and has to go up because no market can sustain this quality of content at Rs 160-200. The difference I like to highlight is that the  Rs 4,000 crore that the broadcasters are collecting today, their carriage fee is Rs 600 crore. So the people who are complaining about carriage fee are those who are not collecting any subscription.   Q: What is the current status of analogue signals across broadcasters?

Puneet Goenka, MD & CEO, Zee Entertainment: As of now, all analogue feeds have been blacked out in cities like Mumbai, Delhi and Kolkata, but in reality still some piracy is taking place. It will take few days for things to settle down and our team will start taking action against piracy with the help from local administration like police, law and order people and make the full implementation of digitization.

 

Q: What is your sense on the ground as an MSO?

G Subramanian, CFO, Hathaway Cable: I agree with Goenka. It has been successful as from midnight, almost all analogue signals have gone off the air. In the transition process there will be attempts of piracy, we should accept that and not be disappointed. We will find our feet as far as execution of the regulations are concerned. If analogue feeds continue then MSOs stand to lose its licence. It is a very serious transgression of law. One cannot expect miracles over night but things should be well executed in next couple of months.   As an MSO, we are very encouraged because we kept our fingers crossed if this policy will go through the system or not. Most of the MSOs are present in these three large towns. Hopefully, Chennai will follow suit very soon, but that does not greatly impact a larger MSO community because the market dynamics are different in Chennai. But most of MSOs will gain from Mumbai, Delhi and Kolkata.

Q: How many numbers have people have achieved in terms of digitization across the four metros, within absolute terms or in percentage terms?

Anil Mehta, Siti Cable: MIB conducted a good scientific exercise where they had taken census report and the seeding of STBs by all the service providers including DTH.

 

According to that estimate, a fairly large number of boxes have been installed and even if 4-5 percent are not covered then it will be done in these 2-3 days. The response has been overwhelming and we have been working overnight to provide boxes to our LCOs and subscribers. I think that will not be an issue. If piracy does not stop then there will be billing issues. Action against piracy should be taken in next 15-20 days to stop the issue permanently.

 

Q: What has been your experience in last two weeks in terms of box penetration due to phased blackouts?

 

G Subramanian, CFO, Hathaway Cable: Actually very good. As far as Hathaway is concerned, our penetration in Bombay was already very good, but we saw a bigger upside in Delhi. There was a significant acceleration in the number of set top boxes that were rolled out. Part of it can be attributed to the phased blackouts which raised awareness levels. Also the advertising on the digitization front was more prolific in the last couple of weeks.   People are getting more aware of this impending issue. Secondly the cable operators themselves started realizing that this is a reality and the delay that was anticipated was not likely and the government stood its ground as far as this policy is concerned, that is a very encouraging fact. These are very significant markets. If digitization in Bombay and Delhi become successful then many other cities will follow suit rapidly. This is like an exemplar. The moment this happens I am sure that people in cities like Bangalore, Hyderabad and Pune will rapidly switch over to a digital service.

 

It is a great start. Let us keep our fingers crossed because in this country sometime the most unexpected thing can swipe you from somewhere. If November goes well without any major mishap and we should see good days to come.
  Q: It is known that lot of strength and comfort derived with the way phase I has been implemented and the support it has received from the ministry. As per your view what would happen in Phase II, III and IV in terms of timings and preparedness of various stakeholders and consumer acceptance?
  Goenka: Around 40 million odd boxes would be required in phase II for 38 cities. I think the industry is not yet ready for that. If digitization in Bombay, Delhi and Kolkata is made successful then acceptance of digitization in Phase II markets will be much faster, but definitely it is not ready for April 1, 2013. I expect however there will be some slippage. Collectively as an industry we have to work together and see how to push that and make digitization possible.     
  Q: What happens to content and carriage in terms of deals? Are broadcasters as a whole preferring fixed value deals with the intention of maximizing reach and being on the base pack or do they want to extract maximum value which a subscription business can offer to them at an early stage by going in for per subscriber deals?
  Goenka: Again history will repeat itself. The trend that we saw in the DTH industry will be followed by the cable industry. Just as we went ahead and did fixed fee deals with DTH operators but today even if we do a fixed fee deal it is calculated on a per sub basis. So a CPS is definitely calculated before we do a fixed fee deal anymore. Even in cable that will happen because of the uncertainty right now, broadcasters are willing to support in doing fixed fee deals, not growing the revenue as aggressively as one would expect or in line with DTH, but eventually once it settles down, we all will be calculating everything backwards. So this will happen on the revenue side from a broadcaster perspective.
 
Carriage fee will become rationalized. We were placing a Zee Network 11 channels for an X cost, today for the same cost I am placing 24 channels. That is the differentiation. Of course it will get rationalized also over a period of time. The Multiple System Operator (MSO) has to find its business model. At Rs 160 today there is no way an MSO can make money after paying the broadcaster. As ARPUs go up, carriage gets rationalized but it will still exist in my view and carriage fee as a phenomena exists globally, it is not something unique to our country.
  Q: What is your view on the nature of the broadcaster MSO deals that are likely to pan out?
  G Subramaniam: I agree with Goenka's view. It will be complex do per se CPS deals at the start. So, we will find a happy medium in doing fixed price deals but the fact is that those fixed price deals are the outcome of a CPS calculation and in the long run one should expect the industry to settle down to the rhythm of a CPS structure. I believe it will be a fair outcome, because at the end of the day for broadcasters to fund their investments in programming.
 
In the western markets, the quantum of investment in programming is enormous because the revenues are constrained in the last decade, broadcasters have been constrained in making serious investments in programming. So, in order to do that successfully they will have to move to a relationship between number of eyeballs that are viewing programming and the investment that you make in the programming that relationship will eventually materialize but it will go through a evolution.
 

Q: DTH players have done fixed fee deals also with broadcasters in this changing scenario do you see changed content deal structures between broadcasters and DTH players?

Saurabh Dhoot, Videocon D2H: As Puneet pointed out, the major content channels have to play also a proactive role in helping transition in such a phase. With DTH it is very different because it is a completely transparent mechanism. So once you are able to have a very high certainty of how the operator is functioning you could start making fixed fee deals on the basis of the subscribers.
 
In cable it depends on uncertainty, if the uncertainty is less then similarly it can be done in DTH but it does not change. DTH remains a transparent structure. Even with digitisation coming forward one can transparently understand what the framework would be. For DTH the pressure from channels on subscription revenues, the aggression could probably be more displaced in the right proportion because currently it is disproportionate to DTH or to digital transparent mechanisms.
 
But in the long run it would not be the case as the subscription revenue would be more proportionate from cable as well as DTH and not just disproportionate from DTH alone. Everybody pointed out carriage is something which will take time to rationalize. It cannot happen overnight and they should not do it overnight because they need to have a proper transition process and they are the biggest players to help the transition process.
 
So, again if you see what would be the net subscription revenue post content that is also a big area so as that also gets rationalized automatically the DTH revenues or payment per subscriber will get rationalized in a better proportion than what is today.
  Q: Will there be uniform price points on carriage fee per channel or will there be case specific negotiations on this?
  Subramanian: It will be case specific because the demand for the attractiveness of a bouquet or a product depends on the demand in the marketplace and therefore it will be specific to the brand that is being carried by us and I don't expect a uniform rate.
  Q: If it is case specific does this mean that a many of these niche channels viability of business models suddenly starts looking very different?
  Goenka: I don't think so. From the broadcasting perspective our view is that if you create niche channels at the right price point and share revenue with the distribution value chain it will make sense for both parties to do it. It is not necessary that if I launch a news channel I will have to pay carriage for it. The business models will evolve around the niche content in different manners.
  Q: Do you see a possibility of pure premium content channels purely based on subscription revenues and no advertising?
  Goenka: Absolutely, 100 percent. We have already initiated that. The entire HD bouquet strategy is a premium content strategy, niche sports will come up and so there will be various channels that will emerge which will be based solely on subscription. They will have some advertising but very limited.