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Media: What's in store for distributors?

Sep 3, 2007

In the previous article we had dealt with the prospects of the content producers. In this article, we will discuss the prospects of the distributors, namely the broadcasters, MSO's and the Local Cable Operators (LCO's).

Impact of CAS on revenue share
Broadcasters MSOs Local
Cable Operator
Pre CAS 15% 5% 80%
Post CAS 45% 30% 25%
Source: Zee Entertainment Enterprises August 2007 presentation

The LCOs are currently the bane of contention for the broadcasters as they are resorting to unhealthy practice of under-reporting their subscriber base. Due to this, the broadcasters share of subscription revenues is only 15% in India whereas it is 40% in the U S. However, the implementation of CAS would change the distribution structure.

The share of the broadcasters would increase significantly with the implementation of CAS as their dependence of the broadcasters on subscription revenues will reduce. They will be able to spend more on content and thus improve their programming quality.

The MSOs will also benefit with the increase in their share of revenues. Digitisation means that cable penetration will increase from 70 m homes in 2006 to around 113 m homes by 2011. It will lead to more consolidation in the industry as the LCOs who cannot make investments in set top boxes would sell out to the MSO's.

WWIL is the largest MSO in India. It is present in the 43 cities of India. It operates through a set of more than 4,000 local franchisee operators. Besides WWIL, Hathway, Incable, Sumangali, Ortel are the existing large MSO's. Hathway has a presence in Mumbai, New Delhi, Chennai, Bangalore, Hyderabad and some other cities. Incable has presence in Mumbai, Delhi, Nagpur, Bangalore. It has around 3 m subscribers. Sumangali is a regional player in Chennai and other parts of Tamil Nadu having estimated subscriber base of 1.5 m.

While there may be a loss in revenues in the short term for the LCOs, over the long term, due to the two way interactivity available on Digital Cable, average revenue per user (ARPU) is likely to increase significantly, thereby increasing the payout to LCOs. There is also the pull factor from consumers actually wanting to shift due to the greater quality offered by digital cable. With the consumers wanting to shift and services like DTH becoming readily available, the LCO will have the option of either moving to digital cable or loosing his entire business to alternative technologies. Even in the current analog scenario, there is increasing pressure on LCOs from MSOs and broadcasters to increase subscriber declarations, thereby adversely impacting LCO margins.

Thus, the broadcasters and the MSOs would benefit with the implementation of CAS. Although, the LCOs will initially loose out, they will benefit in the long run. The viewers would benefit as the picture quality will improve and they will be able to choose the channels they wish to view. Besides this, value added services such as video on demand, electronic programme guide, commercials-free films channel, gaming, child lock will also be available.

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