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The changing screen of cable television - Views on News from Equitymaster
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  • May 5, 2000

    The changing screen of cable television

    The cable television industry has inadvertently turned out to be one of the most liberalised in recent times. A part of the reason is that businesses did not wait for government regulations to be put in place. Thus the cable lines have no right of way i.e. they are not legal unlike the telephone line or the electricity wires coming into our homes.

    For the final customer this has hardly mattered. Cable TV has taken of in a big way in the country with India emerging as the third largest market (after the USA and China) with almost 25 million households out of a total television owning population of almost 70 million households. The industry has been growing at almost 25% per annum and with almost six million television sets being sold annually (including three million black and white television sets) this growth rate is expected to sustain in the foreseeable future.

    Cable subscribers on an average pay Rs 100–125 per month and get to watch almost 70–80 channels including a host of pay channels such as ESPN, Star News and CNBC. This is one of the lowest rates the world over. The industry has been extremely fragmented and its only the last two year’s that have seen some sort of consolidation with Multi System Operators (MSOs) such as INCablenet and Siticable emerging. These have entered into franchisee agreements with the local cable operators.

    With total revenues in the range of over Rs 30 bn currently the industry seems to be sitting pretty. However, the situation is ripe for change.

    Globally, almost 70% of a broadcaster’s revenue accrues from subscriber fees and only 30% from advertisements. In India the cable operators understate their subscribers and thereby underpay the channel owners. If set top boxes take off in the country over the next year the cable operator would become only a distributor rather than a gatekeeper. This is because user addressability could allow broadcasters to determine how many customers are buying their product and how much revenues accrue from them. The broadcaster would do the deal directly; the cable operator would become a mere distributor who gets a commission out of that.

    Alternatively, the emerging convergence of television, the personal computer and the telephone have forced far more organised players in the cable business. Zee’s entry into the cable business is an indication of that. Again international trends are an eye opener. AT & T the long distance telecom operator in the USA took over TCI, the top player in the cable industry (Microsoft with its stake in AT & T is also an indirect beneficiary). Similarly, in the UK the take over of Cable & Wireless by NTL, the US based communications company has led to the consolidation between the telecom and the cable industry. While such consolidation could take some time to happen in India, the cable operators could themselves offer Internet service on cable.

    A 2 Mbps line from VSNL along with upgrading of the cables reaching the customers home would costs around Rs 5 m to Rs 6 m and give around 2000 connections. Add the other infrastructural costs and the total cost for providing the internet facility could work out to Rs 10 m. Even if a third of the connections are activated and the operator charges them around Rs 1,500 per month, he could theoretically break even.



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