afaqs!

Is the cable industry ready for the digital revolution?

By Tarana Khan , afaqs!, New Delhi | In Media Publishing | March 31, 2009
The cable TV industry is effectively holding on to customers, with interactive services competing with those of DTH

For years, viewers in India have been hassled by the poor services provided by local cable television operators. In contrast, today, the LCO (local cable operator) can not only tell you the functionalities of your set-top box (STB) but also actually let you pick the channels you want to watch, in digital quality.

This change has not happened overnight, though. There are two key factors which have propelled this transformation. One, the government aims to digitise all cable connections by 2012. Two, DTH operators have also changed the market and are growing at a fast pace due to the superior quality offered by them and their customer service.

& #BANNER1 & #The pressure has mounted on multi-service operators (MSOs) to either join the change or face a receding market share and they have taken up that challenge. MSOs have the financial strength and infrastructure to invest in digitisation - which basically means updating the cable network with the ability to carry the broadcast signals in digital quality, which requires a higher bandwidth. MSOs stand to gain from this process as it brings more addressability into the system, so they know exactly how many subscribers are using their services.

"Digitisation has allowed the operators to offer higher quality TV in terms of audio and visual and has opened the door to new revenue generating and subscriber retention tools such as interactivity," says Alan Dishington, director, sales, NDS India, a company which provides technology solutions to DTH and cable companies.

Sunder Raju, president, ACT TV, a MSO based in Bengaluru, says, "Digitisation has mainly come about because DTH players have created awareness about quality of service, especially in the past six-eight months." ACT TV has interactive services on its digital cable and IPTV platforms, for which it has allocated a sum of Rs 450 crore.

However, Vikas Bali, president, digital, DEN (Digital Entertainment Network), says that it is not the DTH operator but the customer that is driving digitisation.

"The customers have become very demanding and if our business has to catch up with them, we have to keep innovating," he says. DEN provides a digital cable service called Digitelly, where it has an interactive music library among other applications.

Along with the MSOs, LCOs have no option but to acquire a new set of skills - from programming the STB to providing better customer service. "They've had to re-skill themselves," adds Bali.

However, Ashok Mansukhani, director, IndusInd Media & Communications Ltd and president, MSO Alliance, claims that MSOs have been unduly regulated. "DTH has greatly benefited from the deliberate government slowdown in regulatory and legislative amendments, which will allow MSOs to effectively compete with DTH, IPTV and mobile TV."

As for the value-added services, Mansukhani remarks, "At present, barring some testing of pay per view and video on-demand, there is no workable business model for interactive services for either cable or DTH. Though there is no regulatory bar, MSOs are still to develop a significant digital ARPU (average revenue per user) for provision of digital services and also an interactive ARPU."

Many MSOs have launched interactive channels that are similar to those on DTH. Through the set-top box, viewers can access a variety of content such as music, games, electronic programme guide (EPG) and video on demand (VOD).

"As there is no content exclusivity in India, operators have to offer other services to entice and retain subscribers. DTH operators have been the vanguards in this and now cable MSOs are beginning to offer similar services," observes Dishington.

While this is just the beginning, there are a host of services that MSOs plan to deliver when the digital subscription base reaches a critical mass. Hathway recently became the first MSO to offer DVR (digital video recorder) as part of its services. Apart from this, only Tata Sky has DVR in India. DVR allows customers to record live television, enabling them to watch shows at their convenience.

Raju of ACT TV says that his company is focusing on education through interactive TV. "This will complement formal education and test the knowledge absorption of students at different levels." He feels that since the home PC penetration in India is less than 5 per cent, interactivity on TV, which is also simpler, has a lot of potential.

DEN is focusing on local information. "We aim to provide information such as local restaurants and events to customers," says Bali. The company will also provide localised interactive services in regional languages to its customers.

Bali also sees a lot of potential in VOD and PPV (pay per view). "Set-top boxes could be digital theatres where the movies can be released on the same day as the big screen release," he says.

As the market develops, industry experts also see the potential in TV commerce, but that can happen only when STBs are upgraded to allow for more interactivity.

Raju of ACT TV is of the opinion that it will take about one or two years of hard work to reach the inflection point, especially in IPTV, where he sees great potential.

Most stakeholders agree that as the market evolves, there will be lesser space for small operators and consolidation will be the trend.

"I think there will be further consolidation in the market and in the future, I see cable operators and MSOs offering more advanced services through a return path. This will facilitate more advanced two-way interactive service and on-demand TV," says Dishington.

Rajesh Kaul, president, MSM Discovery (the distribution arm of MSM), says, "Due to the push for digitisation, there was a lot of capital investments required by MSOs. This led to corporates taking over them. Right now, about 80 per cent of the TAM towns are controlled by corporate MSOs. Thanks to optic fibre, today one MSO is covering all the neighbouring towns and villages (50-100 kms) from a central head end in a metro. This trend will continue."

Sharing his thoughts on the future of the MSO industry, Mansukhani says, "I sense a plateau in the growth of DTH, with a reverse churn of DTH subscribers coming back to cable. MSOs have to grab the opportunity provided by the deepening recession to provide high quality content at attractive value for money pricing - otherwise it could die out like the paging industry."

An industry expert says, "Only MSOs can offer triple play - in the form of telephone, broadband and digital cable. This is what will ultimately help them compete with DTH and other competitors."

There is no doubt that MSOs have to pull up their socks if they want to catch the digitisation train. Going by the developments in the industry, consolidation and corporate management have brought about a strong competitive instinct in the MSOs. Not only are they offering new services, very often they are at the forefront of the digital revolution.

Phases in MSO industry

1995-2003: Growth and consolidation accompanied by incessant disputes with broadcasters on so called under declaration and effects of bundling of bouquets (of channels) by broadcasters on take it or leave it basis. This led to blackouts and disconnections and intensified the tension between broadcasters and MSOs.

2003-2006: The onset of Conditional Access System with use of digital addressability for both CAS and non-CAS areas. The appointment of TRAI as the broadcast regulator led to a slew of interconnect regulations and tariff orders enabling MSOs to stabilise their contractual relationships. Investments were made for digitisation by MSOs by the policy was strongly opposed by broadcasters. Delhi HC stepped in and restored CAS but only in parts of Mumbai, New Delhi, Kolkata and whole of Chennai.

2007 onwards: The veritable explosion of broadcast channels from 100 to 400 in the period 2004-2009 led to jam in the analogue spectrum -- against total availability of 80 channel capacity, there are currently 150 pay channels fighting for placement. This improved the MSO business model to change by charging carriage fees from broadcasters. Now TRAI is trying to regulated the carriage and placement fees in the system by bringing the arrangements between broadcasters and distributors in public domain.

With inputs from Ashok Mansukhani