The key goal of digitisation was addressability, expected to plug leakages in the system. While cable subscribers have been increasing, rampant under-declaration meant multisystem operators (MSOs) that transmitted the signals to cable operators earned little from the large subscriber base.
Of the cable pie, a large chunk was undeclared by the local cable operators (LCOs) and hence pocketed by them. This affected the revenues going up the system, to the MSOs and the broadcasters. In the case of digitisation, the mandatory registration of set-top boxes (STBs) and customers’ premises (through customer application forms or CAF) these have been installed in is expected to lead to transparency in the subscriber payment mechanism. These forms have the information details of registered users and their channel preferences.
As phase-I rolled out in October 2012, the seeding of STBs proceeded much better than expected. However, the process hit a slight bump in the second phase, when the import duty on these was increased and the rupee fluctuated, earlier this year. Since most of the boxes were imported from China, the availability and cost of acquisition was affected. The industry stumbled in sorting its back-end systems. As a result, the collection of CAF and regulating the billing systems at the MSO and LCO levels was delayed.
With the three pillars of digitisation — registration of STBs, collection of CAFs and systematic billing processes — missing the deadline, the sector continued to face the problem of under-declaration. With channel packaging also being delayed, the overall process of digitsation hit a major block.
…have impacted ARPUs
This, in turn, led to a near-stagnation in ARPU coming in. According to data provided by Media Partners Asia, the ARPUs grew marginally in 2013, to Rs 204 from Rs 198 in 2012 (at current dollar rates). Jehil Thakkar, head of media and entertainment, KPMG, says: “Till ARPUs don’t increase, the carriage fees will not go down. It is a matter of changing the mindset of the consumers. Till now, they have been used to an ‘all you can eat’ format but now they have to pick and choose the channels, and pay accordingly. It might be slightly higher than they paid earlier.”
India currently figures among the countries with the cheapest cable subscription costs (to consumers). There has been practically little or no change in the cost of cable connections in the past 17 years according to Abneesh Roy, associate director (research), Edelweiss, and this needs to change, which is what digitisation can bring about.
The carriage fees did come down by 15-20 per cent last year but this year, due to non-increase in ARPUs, had stagnated. Carriage fee is the charge paid by broadcasters to distributors, be it on the cable or DTH platforms, to carry their signals to subscribers.
Gains still some time away
Considering the scale of phase-2 and consequent phases in 2014 and 2015, improvement in ARPUs might take another two to three years, at least. “Now that digitisation is a reality, the industry players have also become more pro-active. The way things are going, I would say the change has started happening,” says Rajesh Kaul, chief executive, The OneAlliance.
This is a content aggregator or an alliance of the Multi Screen Media network (with channels such as Sony Entertainment Television, SET Max, SAB TV, Sony Pix, Sony Six and AXN) and the Discovery Networks (including channels like Discovery Channel, TLC, etc). From closely monitoring the seeding process to keeping a firm grip in CAF collection and implementation of billing systems, the Telecom Regulatory Authority of India and the Union information and broadcasting ministry have also been pro-active.
Given the complexity of the exercise across the country and the rate at which television penetration is growing (MPA expects India to have 183 million pay-TV homes by 2020 as against 135 mn now), the scale of undertaking of digitisation will be a big challenge. Yet, analysts and sector professionals agree, with the learnings from phases one and two, the future looks more promising.
The next step in completing phase-I of digitisation is to have channel packaging and direct billing in place. According to leading MSOs in Delhi and Mumbai, work is already under way to implement billing systems. The main challenge will be to get the back-end of each MSO network in place, so that the billing process is smooth.
A representative from a leading MSO says, “One year into digitisation, the MSOs and LCOs are better coordinated. The LCOs have realised that digitisation will benefit them as well and the resistance has gone down considerably. On billings, if done diligently, the process should take no more than three to six months in Delhi and Mumbai.”
Large MSOs: Better prospects ahead
Hathway currently has 11 million TV subscribers and management expects to take it to 15 million over the next 3-4 years. It has already installed STBs at 7.6 million households till now. While the company's subscribers have gone up due to digitisation (up 25.3% over the September 2012 quarter), the benefits are not fully captured in its financials due to delayed billing (ARPUs unchanged at Rs 310, stagnant subscription revenues).
Analysts were earlier expecting the gains to reflect in current fiscal's numbers, but now believe they will only come by end FY15. "Hathway will be able to monetise its Phase 1 and 2 STB investments over FY15 reaching close to full monetisation by Q4'FY15. This could help the firm reach positive free cash flow by FY16," says Ankur Rudra, media analyst at Ambit Capital.
With monthly billing kicking off in December 2013, company expects to start witnessing higher subscription revenues from the June 2014 quarter onwards. The company also witnessed a sequential growth of 20% in carriage fees primarily due to expansion in new territories.
Den Networks has a total subscriber base of 13 million, out of which 5.3 million are digitised so far. Its total subscriber base has grown 18% over the past one year. The company will be a key beneficiary of phase III and IV of digitisation as 55% of its subscribers belong to these markets.
With monthly billing starting December onwards, the company should also witness uptick in subscription revenues from March 2014 quarter onwards. Den Networks too has witnessed improvement in its carriage fees in the September 2013 quarter (up 9% sequentially) driven by new subscriber adds and more number of channels. The company's ARPU has remained unchanged at Rs 180 over the past year.