The Hindu : Cable TV: Consumers lose out in tussle

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Monday, Jun 17, 2002

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Business

Cable TV: Consumers lose out in tussle

Subscribers think by subscribing to specific channels they can bring down their monthly fee.

WHO ARE the real gainers in the monopolistic business of cable TV distribution, who are losers and why are the subscribers (consumers) helpless pawns?

This article seeks to explain why cable TV subscription costs cannot come down front the current rates and rather why it could well double following the legislative changes now under way to regulate cable TV. It will also explain why alternative service providers are not possible in any area.

At present, most Chennai cable TV viewers pay anywhere between Rs. 180 and Rs. 210 every month per TV connection. There are 20 lakh subscribers in Chennai and there are an estimated 60 lakh subscribers in Tamil Nadu and 470 lakhs in all of India. The accompanying flow chart illustrates how the cable TV signals are distributed. The example is of Chennai, but this is broadly the same picture all over India.

The four major TV networks (TVNs) which have cable channels are Star, Sun, Zee and Doordarshan. Each of the TVNs have many channels. There is at least one premium channel in each network; that channel is usually more in demand among the viewers. For example, Star TV Network has Star Sports as a premium channel; most viewers would like to subscribe to this premium channel. All channels are not priced equally; premium channels are charged exorbitantly high rates — Rs. 38 a month and only Rs. 7 for all the other Star channels put together. So Star TVN gives only two choices to its viewers: either take this premium channel or to take all the channels in its "bouquet''. That means each subscriber has to pay either Rs. 38 or Rs. 45 a month.

The viewer does not pay this amount directly to Star TVN. However, this is the money the local TV operators (LCTOs) pay each TVN from the fees they collect from subscribers. (DD can be excluded from our discussion.) So LCTOs get all the three bouquets from all the three TVNs and pays Rs. 45 per bouquet per subscriber.

At present all subscribers are getting all the channels in each of the three "bouquets'' Hence LCTOs need to pay to the TVNs a total of Rs. 45 x 3, say Rs. 150. That means the LCTOs collect money from us and pass on the entire amount to the TVNs.

If this is true, what do the LCTOs earn Rs.150 - Rs 150 = 0. That is, nothing? In which case, how do they make their money?

As there is no way to check how many subscribers there are with each LCTO, each LCTO declares only about 10 per cent of its actual subscribers strength to the TVNs. Hence an LCTO pays only an amount proportionate to that of 10 per cent of its subscribers. The balance collected from 90 per cent of the subscribers goes to the pocket of the LCTOs. Some LCTOs say they declare 30 per cent of their strength. Actually it may vary between 10 per cent (to Star Network) and 30 per cent (to SUN Network). So a simple calculation will show how much money is retained by the LCTOs, If we assume the declaration is 30 per cent, that leaves 70 per cent of the 20 lakh subscribers in Chennai, or 14 lakh subscribers. So the amount retained by the LCTOs every month is Rs. 21 crores (Rs. 150 from 14 lakh subscribers) in Chennai alone.

Why cable TV subscription is soon going to double.

Don't the broadcasters know about this under-declaration. Yes they do, but they cannot prove that the LCTOs are doing so. That is why they have lobbied the Government to make Set Top Boxes (STB) compulsory for every subscriber.

The signal from the cable to the TV directly will be routed through the STV. With the STB, subscribers will be able to choose the channels that they would like to watch and accordingly subscribe.

Once STBs become mandatory:

1. At the LCTO offices, anybody can count the exact number of subscribers to each channel.

2. Each subscriber will have the benefit of opting for only those channels, which he or she wants. Subscribers think by subscribing to specific channels they can bring down their monthly fee. But the TVNs are not going to allow that even with STBS. Anticipating legislation to introduce STB, Star TV has changed its pricing strategy so that it will not lose out any revenue. The subscriber has two choices: either Rs. 38 for one premium channel or Rs. 45 for all of them. Star is not going to unbind its bouquet and offer individual channels for subscription. This is true for other TVNs as well. So introduction of STBs is not going to bring down costs to subscribers.

3. The subscription cost may well increase for two reasons. One, because of the STBs, LCTOs can no longer under-report the number of subscribers to the TVNs. That means the LCTOs cannot retain the Rs. 21 crores mentioned in the example above, they will have to pay up to the TVNs. So if they were to retain their original profit of Rs. 21, crores they have to charge another Rs. 150 or at least Rs. 105 from every subscriber, adding up to over Rs. 255 per month per subscriber.

All this assuming (hoping and praying) that the TVNs will not increase their fee any more. Two, each STB is going to cost around Rs. 5,000, without an STB you cannot watch a cable TV channel. Who is going to pay this Rs. 5,000? Naturally, the subscriber.

The Lok Sabha passed a bill in the last session that there should be a STB with each subscriber. The intention is that (i) with an STB, subscribers can exercise choice, (ii) verifying the number of subscribers and assessing the gross income of the LCTOs and other players' (OC, TVNs) gross incomes will be possible. So even before Parliament could do something for the subscriber, the monopolists have taken away the intended benefits for the common man.

Why only bouquets?

Broadcasters want to retain their subscribers. By bundling, they compel even those subscribers who want only the premium channel to subscribe to all the channels in their Network. The second reason is that the number of subscribers determines the advertising charges for each channel. In the absence of an STB — a TVN tells all its advertisers that all the Chennai subscribers have subscribed to their bouquet.

Hence, it collects advertisement charges in proportion to the total cable TV viewers in Chennai (that is 20 lakhs) and not the number of subscriptions which the LCTOs actually pay to the TVN. Advertisers are therefore the second losers in the old game. With the introduction of STBs one can clearly determine the number of subscribers. So STBs really benefit advertisers.

On one side TV networks gain with knowledge of the actual number of subscribers and lose on the other side to the advertisers. Hence the STBs will shift the money from LCTOs to TVNs and advertisers.

Why an alternative service in any locality is not possible.

All LCTOs (see diagram) have to buy the signals from only one company in Chennai. An LCTO which can show to TVNs that it has 1,000 subscribers can get a `key,' from each TVN broadcaster, use the key and receive the TV signal. After receiving the signal, the LCTOs boost the signal and pass it on to individual subscribers. To receive these signals from TVNs an additional investment of about a few crores is required, which is beyond the capacity of new entrants. Here is a Catch 22 situation: If anybody wants to provide an alternative cable service, he/she needs to show a minimum of 1,000 subscribers even to get the `key' from Star or SUN or Zee. How can any one have 1,000 subscribers before even providing a channel? This explains why an alternative to the existing LCTO is not possible. Therefore only one company gets the `key' and downloads all the (three) signals for Chennai viewers. This one company (OC) gives the downloaded signal to all LCTOs, who pass it on.

LCTOs feel that they are marginalised:

1. They feel they should have increased the subscription rate periodically so that the subscriber would not feel the burden all of a sudden.

2. They have not depreciated their investments in equipment and constantly have to upgrade to the latest type.

3. They have all the arguments to justify a price of Rs. 10 a day for a single connection, that is, Rs. 300 a month. Their argument is today people buy a general newspaper for Rs. 3 and a business newspaper for Rs. 2. Cable TV provides news plus entertainment, so why not Rs. 10 a day?

Thus LCTOs have their own arguments for higher fees. The TVNs have their own mechanism to increase revenue both from the subscriber and the advertisers. Who is there for the subscribers?

S. Prithviraj

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