What does STAR's rate cut mean for the cable operator?

By , agencyfaqs! | In | December 12, 2002
Here's a quick analysis of the riders that came with STAR's rate cut

Three days ago, that is, on December 9, 2002, STAR India announced a 25 per cent cut in subscription rates, implying a reduction from the current Rs 40.50 to Rs 30. It seemed to be a radical decision at a time when most other broadcasters were increasing their subscription rates, ostensibly to tackle the problem of under declaration. Some notable and recent examples of this trend include the network ESPN-STAR Sports, which hiked their price from Rs 24 to Rs 32 and the One Alliance, which will add Rs 15 to its bouquet price of Rs 40, effective January 1, 2003.

However, STAR's announcement came with a whole bunch of riders. The primary being the price decrease of Rs 30 will be applicable, if there is 100 per cent declaration of subscriber homes by the cable operators. In other words, as a spokesperson for STAR India reiterates, a slab system has been put into place to "encourage complete transparency".

What this system entails is as follows. A minimum of 50 per cent hike in declaration would mean that the current subscription rate of Rs 40.50 per home would continue. Sixty per cent hike in declaration would mean an available price of Rs 39. Eighty-five per cent would imply a further reduction to Rs 33 and 100 per cent or a complete declaration would mean Rs 30 per subscriber home.

The STAR spokesperson justifies this move by claiming that the easier way out would have been to "increase rates to deal with the problem of under declaration". "But we are providing an incentive for the cable operator to declare more," he asserts.

A closer analysis of the cost-benefit equation presents a different picture altogether. Suppose a cable operator is currently declaring 2,000 homes as his subscriber base. This would mean a revenue outflow of Rs 81,000, going by the current rate of Rs 40.50 per subscriber. A 50 per cent hike would mean a declaration of 3,000 homes. This would translate into a revenue of Rs 1.21 lakh for STAR (with the rate remaining same at Rs 40.50). From here, the rate per subscriber home starts coming down. But does the revenue outgo come down in an equal proportion? Let's check it out.

A 60 per cent declaration means a declaration of 3,200 subscriber homes. But now the rate has come down to Rs 39 and the revenue to STAR goes up to Rs 1.24 lakh. In the same way, an 85 per cent declaration would mean a figure of 3,700. This multiplied by Rs 33 (the rate valid for 85 per cent declaration) is Rs 1.22 lakh. Finally, a 100 per cent declaration implies 4,000 homes. With the asking rate of Rs 30, the revenue to STAR is Rs 1.20 lakh.

Clearly, on a pro-rata basis, the percent hike in declaration does not match up to a consequent reduction in outflow. In fact, as analysts put it, "you are paying more for declaring more", which is a trend the cable operators/MSOs would definitely watch out for.

When contacted by agencyfaqs! though, Manoj Motwani, senior vice-president, operations, IncableNet simply said, "We will be meeting up with the STAR guys to get a clear perspective on the issue." The STAR spokesperson, on the other hand, maintains that talks with MSOs have been "positive" so far, but analysts point out that much depends on the cable operators and whether they are willing to fall in line. As Motwani himself puts it, "The moot point is the timeframe within which STAR is looking for a growth in connectivity."

Apart from this argument, some media analysts say that STAR's "price reduction" is a clever strategy for nipping competition in the bud in the run-up to the World Cup. "STAR is doing this to manage connectivity during the World Cup and see to it that it is the preferred network all along. For all you know, they may hike their subscription rate after the World Cup to take advantage of the increase in declared subscriber homes," avers a top media executive.

Meanwhile, STAR's spokesperson maintains "measures" would be considered against errant operators, which could include switching off the signal to that particular operator. However, in the wake of the entry of CAS or conditional access system won't there be a paradigm shift in the C&S business altogether? Yes, say analysts. "CAS brings in accountability by default," reiterates a senior media planner in a Top 10 agency. "The signals, codes so on and so forth would have to be revealed to the broadcaster. Besides, set-top boxes would have to be purchased, which entails declaration of the subscriber base, implying that STAR's slab system becomes notional."

IncableNet's Motwani shares a similar opinion. "CAS will bring in greater transparency. The roll-out we hear will take a minimum of four to six weeks and a maximum of six months and we are prepared for it," he states. © 2002 agencyfaqs!

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