The Hindu : New cable regulation

Online edition of India's National Newspaper
Sunday, Dec 15, 2002

Business

Business - News Analysis

New cable regulation — A clear picture

By C. R. L. Narasimhan

CHENNAI DEC. 14. With the passage of the Cable Television Networks (Regulation) Amendment Bill 2002 by the Rajya Sabha, the stage is set for the gradual introduction of regulation over the booming cable television business across the country. The conditional access system (CAS) that now becomes legal is unprecedented. There has been a difficulty in anticipating its impact on the business. The Government, through the new legislation, seeks to achieve a few non-controversial objectives: a) protect consumers' (viewers) interests. They need pay only for the channels of their choice. While this affects the pay channels, the Government has the power to fix the maximum that a cable operator can charge for viewing the free-to-air channels in what is called a basic tier. (b) There will be a more accurate system of data collection, the actual viewership and its distribution over the different channels. This obviously is of immense value to the advertisers, their clients as well as the telecasters.

To understand the implications of the new regulation, it is necessary to look at the way the cable TV business has evolved. At present there has been very little regulation over the pyramidal structure: the broadcasters — Zee, Star and others occupy the top. Below them are the multiple system providers (MSOs) who receive the signals beamed to them by the broadcasters and in turn distribute them to their numerous franchisees to the subscribers' homes. At the retail level are the franchisees, the neighbourhood cable operators — who have helped in the exponential growth of the business but on the flip side become a kind of monopolist, distributing a bouquet of free and pay channels for an all inclusive subscription. Their subscribers have practically no choice in selecting their channels or choosing their cable operators. But the bigger drawback is financial. The cable operators are accused of under-reporting, deliberately documenting a much lower number of subscribers than they actually have: there is a consequent revenue loss at the higher tiers of the MSOs and the broadcasters as well as the Government. Inadequate and most certainly false data have made the revenue sharing from this huge business inequitable. In fact an accurate estimate of the business seems difficult. Revenue of more than Rs. 5,000 crores has been mentioned. The number of cable operators has been put at over 26,000. The level of underreporting is believed to be very high. According to estimates the cable operators to the MSO report just a fifth of their subscribers list.

The Government will now step in. When the new legislation takes effect all telecasts of pay channels will be routed through a `set-top-box', (a decoder basically) that with matching equipment at the cable operator's end will ensure the recording of subscribers' base. Free channels will continue to be aired as before and will be subject to fewer regulations. Subscribers will have to pat two types of subscription - one for the free-to air channels and the (optional) one for the pay channels. Obviously the viewer ship pattern, the quality of pay channels, the advertisement tariff and a number of other existing parameters are going to change drastically with the onset of the new legislation.

For subscribers, the regulation seems to be a welcome development at a time when many free channels are moving into the `pay' category and when those in the latter category are hiking their subscription rates. Now they can make a choice out of the pay channels. The impact of the regulation on the retail subscription — what households will pay to the local cable operator — is however difficult to quantify. For receiving the free channels also there will be a fee to the cable operator, which though brought under government control will be crucial in determining the monthly outgo towards cable TV. The other major point here is the cost of the set-top-box, at present estimated at between Rs. 2,500 to Rs. 9,000.

Assuming all the cable-linked households opt for one pay channel or the other the cost of installing the device will have to reckon with.

For those who sell these it could be a bonanza. Over time, with large production the unit cost of the set-top-box will come down. There is also the possibility of the MSO or even the broadcasters wooing the subscribers with a partial/full subsidy towards the cost of the decoder.

With a clearer and accurate picture of the subscribers' list, advertisers do not have to do guesswork.

The advertisement tariff will naturally be adjusted in the light of the new data. There will be price competition among the TV channels and in all this the households are bound to gain.

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New cable regulation — A clear picture