| CAS on the anvil….a comparison with DTH
Cable TV viewing will undergo a change with the implementation of Conditional Access Scheme (CAS). The scheme which was proposed to be introduced in 2003 in the metro cities of Delhi, Kolkata, Mumbai and Chennai, but got rolled back in all cities except for Chennai, is back again. Come 2007, the three metros of Delhi, Kolkata, Mumbai will see the implementation of CAS in certain notified areas. In the following pages we try to demystify cable TV post CAS, and its potential competitors like Direct-to-Home (DTH) services.
Distribution network of the CableTV system
Telecom Regulatory Authority (TRAI) Broadcaster Multi Service Operator (MSO) Local Cable Operator (LCO) Viewer
The Broadcaster (e.g. Sony, Star, Zee, Doordarshan etc.) provides the content to be aired, Multi Service Operators (MSO) e.g. Siticable, Hathway, SCV set up ‘headends’ which receive the signals downlinked from the satellites, the Local Cable Operators (LCOs) provide the last mile link to the viewers by providing the cables networks running to the viewers home (in addition to acting as the collection agent for the MSOs) .The cable TV subscription fee that is collected from the viewers is shared between the broadcaster, MSO and LCO(the revenue sharing between them would be in the ratio 45:30:25 post CAS unless the parties involved reach a common agreement). All these three entities operate in the gambit of TRAI regulations which is the regulator in this space.
Drawbacks of the current Cable TV system
The channels that are broadcast can be classified into two categories: Free to Air (FTA) and Pay Channels. In the current CableTV system, the viewer does not have a choice of deciding which pay channel he wants to subscribe to. He pays for all the pay channels, irrespective of whether he watches them or not. Also many a times, single broadcaster with more than one channel does not specify charges for each of its pay channel separately; instead they are bunched together at a bouquet charge. This way, a weak channel gets a pillion ride with a strong channel. The broadcasters earn their revenue from two sources, viz. advertisement revenues and the subscription revenues. The MSOs and LCOs get their revenues only from the subscriber fees. Till now the LCOs used to heavily under declare the subscriber base (declare only 25% of the actual subscriber base), and thus the subscription revenue earning of the broadcasters and MSOs would go down. One of the reasons cited for this under declaration was that the broadcasters would initially launch their channels as FTA and once the channels started enjoying significant viewership, these would turn into pay channels. The subsequent hike in cable fee would be generally resisted by the viewers. Thus LCOs began under declaring the subscriber base so that they could provide the CableTV services at no increased price to the viewers. This started a vicious blame game, with the broadcasters blaming under declaration of subscriber base as the reason for the hike in pay channel charges while the LCOs blaming such hikes being the reason for their under declaration. Also as there was no mechanism to verify the subscriber base, there was no means to rein in the under declaration.
This imbroglio led to situations of channel black outs by LCOs and frequent pay channel fee hikes by broadcasters. The customers were left disgruntled, leading consumer protection groups to demand for the introduction of ‘addressable system’ CAS. CAS was introduced in Chennai in 2003 but did not meet with much success. 25% of the subscribers subscribed to pay channels while remaining being content with the FTA channels. The main reason was the high cost of the set top box. Keeping in mind this past experience, TRAI has stepped in by framing conducive rules to ensure the success of CAS.
How CableTV-CAS works
For CAS to be functional in CableTV system, the viewers need to buy a set top box which can be either digital or analog. The set top boxes can be bought from the MSO or taken on a rental basis. However, when the viewers shift home, if the new locality is not covered by the same MSO then the same set top box cannot be used. MSOs install devices known as Subscriber Management System (SMS) which store all details about the subscriber for e.g. Name, address, channels subscribed to, etc. Implementation of CAS also needs the MSOs to connect their ‘headheads’ in a ring structure via optic fibres and the LCOs need to change the last mile cable from the normal RG11 to hybrid fibre coaxial network.
Under CAS, the pay channels signals will be encrypted at the MSO ‘headend’ and transmitted along with the encryption code. At the subscriber end, set top box will decrypt the signal using the decryption code. Thus the viewers will be able to watch only those pay channels that they have subscribed to. The FTA channels will directly reach the television set bypassing the set top box. Therefore, FTA channels can be received even without a set top box while the box is essential for watching pay channels.
Impact of CableTV -CAS on Broadcasters, MSOs, LCOs, Viewers& Govt.
? The SMS installation will ensure that accurate number of subscribers is reported. Thus all the parties in the distribution network will get their due share of subscription revenue in addition to government getting its rightful share of service tax from the cable operators.
? Under CAS, the viewers will be able to choose the pay channels that they want to subscribe to and thus pay for only those channels.
? CAS will also make it possible for the subscribers to receive value added services like Video on Demand (VOD), internet facilities etc. However, these services can be provided only if the viewer has installed a high end digital set top box.
? Since CAS will provide viewers a chance to exercise their choice of the pay channels that they subscribe to, the true popularity of each of the channels can be known. This will allow the advertisers to decide upon the channels in which they want to air their commercials so as to effectively reach their target audience. The Broadcaster will in turn get advertisement revenue to further their content development.
? With more than 90 channels, some of the weaker pay channels may not remain viable; also some of these channels may see migration from pay to FTA category or reduction in the subscription fee for the channel.
While there are suggestions of not making CAS compulsory, and leaving the decision to the viewers, the flaw with this argument can be traced back to the very reason for which CAS is being introduced. CAS is being demanded not only to give viewers the flexibility to pay only for channels that they watch but also to address the issue of under declaration by the LCOs. If CableTV services are provided under both CAS and sans CAS, the problem of under subscription does not get resolved. Essentially CAS will make CableTV system a lot similar to Direct to Home (DTH), as DTH already uses CAS technology. So the question to ponder upon is “Is DTH an alternative to CableTV-CAS”. To answer this question, we first try to understand DTH.
DTH details
DTH technology eliminates the need of any intermediary between the service providers (just like MSO) e.g. DishTV, TataSky, DD Direct and the viewer. The technology used is wireless (with no cables running into the viewers home) making it easier to reach the remote areas of the country. The viewer has an antenna installed at his rooftop/window which catches the signals from the satellite and then directs it to the set top box installed in his home. The set top box is fitted with a viewing card VC (similar to Sim Card) which is uniquely numbered and contains information about the channels that have been subscribed to by the viewer. The subscribed channels are decrypted and then sent to the TV of the viewer. Essentially the ‘Set top box-viewing card’ combination facilitates CAS in DTH. Thus all the benefits of CAS automatically are made available in DTH services. Unlike in Cable TV where the set top box can be either digital or analog, the DTH set top box is necessarily digital. The audio-video clarity is much higher as the DTH transponder down linking is digital. Also digital compression of signal, increases by manifolds the number of channels that can be received. However, FTA channels which can be viewed without a set top box in Cable TV system cannot be viewed without one in DTH. At present, there are about eight million DTH subscribers serviced by three DTH service providers- Dish TV (promoted by Zee), Tata Sky (promoted by Star), DD Direct (promoted by Doordarshan). TRAI is the regulator for DTH service providers as well. Till some time back, Tata Sky provided only the Star channels and not ZEE channels. But now TRAI has directed that the DTH service providers will need to provide the rival channels too. However unlike CAS in CableTV system, for which TRAI has set up a cap for the pay channel charges, no such cap exists for the DTH tariffs. Therefore, viewers may get hit by subscription fee hikes. DTH service, after its launch a year and half back, is still to create a mass appeal. One of the main reasons for this has been consumer ignorance about DTH technology. Till recently DT H technology had not been marketed sufficiently in India but with the entry of more number of DTH service providers, there is now an increased focus on customer education. Also the DTH service prices have now declined significantly (Rs.200 per month for more than 100 channels). However, DTH service provider space cannot sustain too many players and will see shake outs if there are many players. This is because the prohibitive cost of transponders along with the limitations of transponder availability.
Following is the comparison between Cable TV-CAS& DTH
Cable TV-CAS DTH
Road Ahead
There are about 110million television homes in India; of this 68 million are cable& satellite homes. Thus the existing 42million non cable & satellite homes are a potential market for both cable TV and DTH service providers (besides the new TV homes that get added). Question is who will reach them first.
CARE believes that CableTV will not lose significant market share to DTH in the bigger cities, the main reason being the first mover advantage. CableTV entered the market long before the DTH and has achieved significant penetration. DTH though has taken away some viewership from CableTV, it still remains a niche segment (To cite a parallel, in USA, cable TV rules the roost while in Europe it is DTH, the only deciding factor being who entered the market first). However, in the areas where CableTV services have still not reached; DTH has an advantage. This is because unlike CableTV network, DTH does not require the setting up of ‘headends’ and laying of cables to the viewers home, thus infrastructure expenditure beyond that of antenna and set top is not required. This will allow DTH to reach these untapped areas faster than CableTV. With suitable marketing, DTH can capture viewer-ship in these areas.
Essentially for a subscriber (who can avail of either DTH or cable), there will be little differentiator between DTH and Cable TV post CAS. The audio-video quality which till now has been the much touted hall mark of DTH will not be very superior to one provided by digital set top box in Cable TV. So the fight will boil down to value added features provided by the respective service providers.
New Threat: IPTV
Multiplying the consumer option, Internet Protocol Television (IPTV) is also now in the horizon. MTNL has already launched this service and BSNL too is soon to launch in Jan2007. This service envisages providing TV, Telephone and Internet services over a single broadband connection, with a consolidated bill for all the three services. As broadband network permits two way connectivity, value added interactive services can be easily provided over the existing infrastructure itself (in Cable-CAS interactive services are possible only if the connectivity is modernized to optical fibres, HFC etc.). However, bandwidth availability will need to be increased to provide all three services over single connection.
In IPTV, the viewer’s television set is connected to IPTV set top box which decodes IP video into television signals. A modem allows the viewer to access interactive services like e-mailing, internet access, tele-shopping, trading stocks while watching television. All the services which are available through cable TV or DTH can be made available through IPTV (in addition to telephone services), so again the fight for consumers will be based on the value added content provided to the subscribers. At present, service providers like MTNL are targeting their existing broadband subscribers but with broadband penetration at only one million, the technology has a long way to go before it gains acceptance. The last mile connectivity to the subscribers’ house will remain an issue and it will take some time till broadband connectivity reaches all the potential users. Also regulatory and legal issues with respect to telecom and broadcasting need to be ironed out. Though it is believed that IPTV will cut down by 50% the monthly bill of the subscriber who avails of all the three services (TV, Telephone, Broadband), there might be subscribers who do not want the entire package. In such cases, IPTV will come out to be a costly option. Finally in case of services which are of mass interest, user friendliness of the final services will decide the penetration level
To conclude, not every grand ‘technology convergence’ dream becomes a reality. After all, an idea has to be marketable.
Contact: Ms. Revati Kasture revati.kasture@careratings.com Head-Industry Research (D): +91-22-6754 3465
Ms. Sudeshna Das sudeshna.das@careratings.com Analyst (D): +91-22-6754 3409
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