For an industry that lives by colour, the television industry does seem rather stuck on red. It’s been awash in the colour for some years now and is looking at November 1 as a red-letter day when the first phase of the digital access system (DAS) will roll out to a red carpet welcome in metro cities.
The hope is that income statements will look rosier by 40-50% as a consequence and the woes of networks such as NDTV and TV18, which are currently making losses, will ease somewhat. But red is also the colour of danger and there’s plenty of that around as the industry transitions to the new set-up.
There are several hopes pinned on the introduction of DAS. Today, broadcasters shell out 15-50% of their revenue as carriage fees to cable operators for airing their channels, and then jostle for a place in the 100-odd frequencies of the analog system. The digital era, on the other hand, would give the broadcaster access to 500 frequencies, all of them with high quality reception.
The distribution system will become transparent; unfair practices, such as under-declaration by last-mile cable operators (LCOs), will become a thing of the past. This will improve the subscription revenues of broadcasters and the MSO (multi-service operators like Hathway and Den).
Until now, LCOs pocketed almost 70% of the distribution revenue while the rest was split equally between the broadcaster and the MSO. Post-digitisation, the broadcaster’s subscription revenue is expected to equal his advertising revenue, while MSOs are expected to see up to 60% of their income coming from subscriptions. Currently, MSOs earn anywhere between 40% and 70% of their revenue from carriage fees and the rest from subscriptions. “Subscription income would more than compensate the loss of carriage revenue of MSOs,” points out Anuj Gandhi, Group CEO, IndiaCast (the distribution arm of TV 18 &Viacom 18).
For the broadcasters though, there is a bigger worry — finding and keeping viewers. The Telecom Regulatory Authority of India’s (Trai’s) recent white paper has finally given the viewers the right to choose the content they want to watch — they can now subscribe only to specific channels, rather than the entire bouquet the LCO offers. The à la carte selection will cost more, naturally, but not by much. The white paper clearly states that “the sum of the à la carte channel rates cannot exceed 1.5 times the bouquet price”.
Still, current average monthly cable bills of Rs.140 (basic package of 100-odd free-to-air and 50-odd pay channels) are likely to shoot up by at least Rs.100-200 — the more channels the subscriber chooses, the higher will be the monthly pay-out. Consumers will also have to bear the one-time investment of Rs.800-1,200 on a set-top-box. It follows, then, that the consumer will not be willing to pay for mediocre content and the broadcasters that don’t get their content right could get thrown out of drawing rooms.
And why would an advertiser put his money on a channel the consumer isn’t watching? Ad revenues — which comprise more than 70% of the broadcaster’s revenues — will drop if subscriptions drop. “There won’t be any free lunches,” asserts Gurjeev Kapoor, COO of MediaPro, the distribution JV of Star India and Zee Entertainment. “If a broadcaster doesn’t have exciting content, it will be extremely difficult to survive.”
Broadcasters will also need to market their content more. Ashok Venkatramani, CEO of MCCS, which has channels like ABP News (formerly Star News), ABP Majha and ABP Ananda, agrees: “The long-term credibility of a news channel can be built only when content and its marketing both work in tandem.” Currently, most broadcasters market their show only at the time of launch and a few weeks afterward. “Advertising budgets of broadcasters will go up by at least 20-25% once digitisation happens,” expects Jehil Thakkar, head, media and entertainment practice, KPMG.
Ad bundling deals will also have to be reconsidered. Typically, Star India charges a premium for its flagship channel, Star Plus, and offers the inventory of its sister channels, LifeOK or Star Utsav, at huge discounts. But if the channel doesn’t get entry into a consumer’s home, the advertiser won’t be interested even if it is part of a bundle. In that case, the broadcaster may want to become an FTA channel, so that it is at least part of the basic pack. Bad idea, thinks Sunil Lulla, CEO, Times Global Broadcast. “Converting to FTA is short-term greed. Besides, you are telling consumers you don’t have a differentiator,” he says.
And FTA channels, too, will see a drastically altered landscape, thanks to DAS. Trai’s ‘must carry’ clause under DAS makes it mandatory for the operator to offer all 661 FTA channels. But, since FTA channels will get encrypted under the new system, the customer will have to pay for them, too.
Here’s how Trai wants it done: it has mandated a basic service tier package (BST) for the consumer at a fixed Rs.100 a month. “The BST must have at least 100 FTA channels,” states the Trai white paper. The regulator says the BST must contain at least five channels of each genre: news, infotainment, sports, kids, music, lifestyle, movies and general entertainment in Hindi, English and the local regional language. The catch, though, is that the consumer also has the power to create his own BST package, making the future just as testing for FTA channels. “It will be a challenge for those broadcasters who don’t make it to the BST package,” observes G Subramaniam, CFO, Hathway. “Buying channels à la carte is a new concept for a market like India. It’s likely that consumers will settle for a readymade package.”
Preparing for the war
Broadcasters get defensive when asked about the challenges ahead. Most of them stick to the standard response — content was and will remain the priority — but some do admit to the looming problems in luring and keeping consumers. “It’s a little early in the day, but there will definitely be a change in our marketing models,” admits NP Singh, COO of Multi Screen Media, which broadcasts channels such as Sony, Max and Sab TV.
Much hinges on the monies that will get released from the lowered carriage fee. MCCS’ Venkatramani says this will give channels the elbow room to invest in content, apart from brand building.
Meanwhile, broadcasters’ distribution arms are already working on a war footing to make sure they get into consumer homes. “Every broadcaster is negotiating with MSOs to ink deals in their basic pay-channel package,” says IndiaCast’s Gandhi. (Every MSO has to offer a basic pay-channel package of Rs.150 to its consumers, which will include some pay channels in addition to the BST.)
Then comes a prominent position in the electronic programming guide (EPG) of the cable networks. “We need to ensure our channels are placed higher up on the EPG, so we don’t escape the attention of consumers,” says MediaPro’s Kapoor. “Also, the channels placed above and below us on the EPG will matter immensely — if the channel next to ours is a non-performing one, the consumer may not want to tune into our channel at all.” He adds that MediaPro is already in the process of striking several deals with other MSOs to run its promos in the ‘barker channels’, which is the first channel on the EPG. The ‘barker channel’ normally gives info about the services of the operator, and carries paid show promos of various broadcasters.
What about the msos?
The MSOs aren’t going to find the going a breeze, either. The fall in carriage fee revenue will be a bad hit, especially because of the huge investments MSOs have made in setting up digital infrastructure — they’ll also be spending heavily on supplying subsidised set-top boxes to consumers. But Hathway’s Subramaniam claims revenues will hold out. “All 500 broadcasters will pay carriage fee for using our network. We will also get subscription revenue for all these channels. Therefore, while the payout for each channel will reduce significantly, there won’t be a major impact on the revenue of MSOs.”
Trai, meanwhile, has allowed MSOs to decide their own carriage fee structure, but on condition that the regulator will interfere if the charges are unreasonable. It has also mandated a 60:40 subscription revenue share between MSOs and LCOs. While the MSO will split its share with broadcaster as before this will still be a significant jump in income.
It’s marketing to the customers that MSOs will have to master. “Most MSOs have B2B business models,” says Thakkar. It’s the LCO who interacts with consumers. “The challenge for MSOs will be to reach out to consumers and tell them why they should opt for cable and not DTH [direct-to-home].” So what’s next? A price war between DTH and MSOs? Keep watching — the show is about to begin.