Year Ender 2007: CAS is the new Game

Wednesday - Dec 26, 2007

Vipin Bajaj - Televisionpoint.com | New Delhi

The top-selling point for implementing a version of conditional access system (CAS) for Indian
cable television was consumer choice. Subscribers could choose a bouquet of channels, and pay
for only those they actually wanted.

The installation of a set-top box (STB) was supposed to signal an end to disputes with local cable
operators (LCO's) that sometimes left viewers bereft of all but terrestrial television. But it's been a
bumpy ride thus far for the new system, introduced on January 1 this year, in the zone 1 areas of
Mumbai, Delhi and Kolkata.

Recently, telecom regulator TRAI has asked the Information and Broadcasting (I&B) ministry to
specify the dates on which the CAS will become mandatory in 55 of the country's top cities, which
include all state capitals.

Earlier this year, an expert group, set up by TRAI, and consisting of members from the authority,
I&B ministry, Prasar Bharti, consumer organisations, broadcasters, MSO's, DTH operators, cable
operators, distributor associations and technical experts, in its report had proposed that CAS be
extended to 55 cities in the country, which had a population in excess of one million. This group
had submitted its report to TRAI on June, 07, and the regulator in turn finalised the report and
submitted it to the I&B ministry.

With 7.5 lakh consumers owning STB's, penetration has touched about 31% in these areas,
according to TAM-Nielsen penetration studies. That's not quite good enough, says Vivek Couto,
Executive director, Media Partners Asia, a Hong Kong based media research firm. His
benchmark for CAS being considered a success is STB ownership of about 12 lakh, and
penetration in Mumbai and Delhi of about 70%-80%.

Right now, Mumbai has the best adoption rate (44%), followed by Delhi (29%) and Kolkata (18%).
That makes Mumbai the biggest contributor, as 45% of the total CAS homes reside in Mumbai.
However, a spokesperson from I&B, who does not wish to be identified, says the success of CAS
cannot be judged from penetration numbers alone as many consumers have probably
consciously decided to view only free-to-air (FTA) channels.

Industry sources point out that one reason for the low adoption is that most MSO's have not
invested adequately in STB's or marketed it to their advantage. Many LCO's have also been
reluctant to change to the new system fearing that this would empower consumers, who can
directly file their complaints against operators to TRAI if they don't get signals.
But even with these low rates of adoption, CAS has had an impact on viewership. The
percentage fall in total channel connectivity for pay channels from July to November 2007
compared to that of June 2007 has hovered between 16% and 17% for Mumbai, 11%-15% for
Kolkata and 21%-26% for Delhi, according to Connect figures.

Viewership of the biggies in the Hindi GEC category like Star Plus, Sony Entertainment Television
and Zee TV have been supposedly hit the most. Viewership of FTA channels, on the other hand,
has gone up. Delhi and Kolkata have shown an average increase of 30% in Star Utsav
connectivity post-CAS, while Zoom connectivity has surged in all three metros — Kolkata (11%),
Delhi (7%) and Mumbai (5%). If CAS were to be extended to the other parts of the metros and the
adoption rate still stays below 45% as seen in the zone 1 areas, one could see a big erosion in
viewership of pay channels, says Couto.

It is also learnt that channels like Star Utsav, Sahara One, Sab TV, MTV and Channel V are,
losing their viewership to 9X and Bindass, the recently launched channels. While 9X, within a
month of its launch, has managed to penetrate nearly 30 per cent of the C&S homes, Bindass,
the youth channel from UTV, is generating higher ratings than MTV and Channel V, the two
established youth-centric television channels.

Advertisers, especially the metro centric brands, have had to alter their plans slightly. According
to Anish Rajgopal, media manager, ITC Foods, some have turned their attention more to FTA or
are using other media, depending on what is beneficial to their brands. However, he feels national
advertisers have not been drastically affected, as CAS-notified areas form only about 5% of
national C&S homes. MSO's, meanwhile, have found an additional source of income.

"With many popular channels not occupying key placement slots, the MSO's are leveraging
opportunities to charge placement fees from FTA channels, thereby enabling reach and helping
grow FTA channels," says Sunil Lulla, CEO, Times Now.

Pay channels have come under some pressure from advertisers to reduce their rates following a
drop in viewership. While Rajgopal feels that the rates will eventually stabilise, Rahul Welde of
HUL thinks that the leadership order of channels will change after CAS spreads out to major
cities, which will erode the value of some channels and necessitate rate dilution.

Punitha Arumugam, CEO, Madison Media, feels that CAS/DTH will enable clients to narrow cast
rather than broadcast messages, and "advertisers will pay more to broadcasters if they are able
to target their brand message to a 'prospective consumer' rather than a 'demographic audience'
as consumers 'react' to the brand message while audiences only 'receive' the brand message."

Many in the industry are still betting on the rationale that as CAS brings in more transparency,
MSO's can no longer suppress the number of subscribers, and pay channels will get more money
in the long run.

"Reliance on advertising and sample size will come down. Subscription revenues will go up
because of CAS, reducing dependence on advertising revenues," says Ashish Kaul, Executive
Vice-president, Essel Group. A C&S household spends an average Rs 162.9 per month as
average revenue per user (ARPU), according to a SSKI report.

Assuming 100% declaration among the 75 million C&S households, the total size of television
subscription revenues should be Rs 150.73 billion, whereas the actual size is Rs 93.7 billion.
Assuming a constant consumer spend (ARPU), improved declarations could potentially add Rs
122 billion to the industry.

The report adds that as a pay revenue stream starts accruing, niche broadcast channels like
sports and movies are expected to benefit as the business model of niche genres thrives largely
on pay revenues (the businesses generally make losses on the advertising revenue level). Niche
genre broadcasting becomes a viable model only when pay revenues start contributing.
According to Rajgopal, companies currently advertise on special interest channels based on
qualitative factors.

For instance, if the brand is youthful the advertiser might promote the brand during an adventure
sports programme, without having numbers to back his decision. CAS will bring in more
accountability for these niche channels as the numbers will help advertisers to better evaluate the
exact reach of the channel, Kaul says.

On the other hand, DTH players like Dish TV and Tata Sky, have been the indisputable gainers.
The two have piggybacked on the CAS implementation to promote the DTH medium aggressively
in CAS-notified areas. According to TAM, DTH penetration across the three CAS zone areas
together is 8%. Individually, the highest penetration is in South Delhi (9%), followed by South
Mumbai (6%) and South Kolkata (4%).

"DTH, once a favourite of rural areas not so well connected by cable, has now found acceptability
in urban areas," says Manish Porwal, CEO, Percept Talent Management.

Anjali Malhotra , Vice President, Marketing, Dish TV, says the demand for Dish TV went up five to
ten times this year. She feels about 35%-40% homes have shifted to digital in the notified areas.
"CAS heightened digital awareness, increasing the adoption rate. Some of the dealers who were
earlier wary of its success now know that the business is here to stay," she says, adding that the
CAS effect has rubbed off in the non-notified areas as well.
Tata Sky says its call centres were flooded with an average of 30,000 calls a day requesting free
home delivery and installation during the initial months of CAS rollout, and claims to have 40%-
45% market share in the overall CAS market.

A recent joint report by Ernst & Young and Assocham, said about 28% of the 100-million C&S
households in the country will migrate to digital pay television platforms by 2010 and the Indian
media and entertainment industry will grow at twice the rate of the country's GDP over the next
few years.

With new players like Sun Networks, Reliance Communications and Bharti lining up to make a
foray in this segment, Couto reckons the total digital subscriber base will expand to 87 million by
2015, with CAS (voluntary and mandatory CAS) accounting for 24 million.

Competition is also forcing local MSO's to look at providing value-added services to lure
customers. Zee's WWIL, for instance, has introduced video on demand and now plans internet on
TV by the first fiscal of the next year.

Uday Shankar, CEO, Star India, feels that as more DTH players enter the market, competition will
increase, driving down STB prices and leading to significant growth in CAS penetration. "This will
give the consumer/viewer the necessary incentive to voluntarily opt for digital cable. This effect is
similar to what we are seeing in the telecom industry over the last few years. Thus, increased
competition and not a defined time frame will lead to rapid deployment of CAS."

But first, some basic issues need to be addressed. For example, problems like MSO's stealing
signals of channels or not passing subscription information to broadcasters will need to be
tackled. Broadcasters and MSO's have also not been happy with problems associated with the
ceiling of STB's, policies and bouquets. While the I&B spokesperson admits to these lapses, he
reiterates that these are just the teething problems.

The way CAS is implemented depends to a large extent on the ministries of the government,
which often don't know how to go about doing things, says Porwal.

Shankar feels lack of education and want of adequate promotion put off consumers from
switching to CAS, "Pay channels and MSO's must come together to jointly promote CAS."

Lulla sums it up succinctly when he says that though CAS has created a regulatory mechanism, it
hasn't succeeded in changing the LCO's from being suppliers of cable channels to service
providers.