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Salil Panchal/Morpheus Inc in Mumbai

With the Parliament passing the Conditional Access System Bill, a lot about how you watch television programmes is about to change.

All cable television households in India - 35 million to be precise - will finally have the freedom to pay for only those satellite channels that they wish to view.

With subscribers being sure of paying for only what they choose to see, a new form of transparency would be ushered in.

Cable and multi-system operators will seek to provide better services and will not be at the mercy of the broadcasting channels. Thus, the unconditional hiking of subscription rates and blacking out channels could very well be a thing of the past.

Yet, things may not be all that simple.

Several things become clearer as one digs deeper into the issue. The CAS Bill heralds the advent of a new regime. There will be clearer segregation of the pay channels and the non-pay (free-to-air) channels. The broadcasting channels will thus keep a closer watch on what the viewer sees and wants.

And this gives rise to the theory that the subscriber could now be subjected a fresh round of hikes from major broadcasting channels. Prices have already been raised by the Zee-Turner network, Sony Entertainment Television, and the ESPN/Star Sports bouquet.

Further, subscribers will also have to incur additional costs -- to instal a set top box -- to be able to view these pay channels.

Let's see what the bigger picture is like.

The CAS Bill and what it means

In the new system, Indian broadcasting companies will decide which channels would be 'non-pay' (free-to-air) and which would be 'pay'. The viewer will now be able to select the pay channels he wishes to watch and pay for only these. Each broadcasting channel will determine the rates for buying the channel.

According to Cable Quest -- a leading satellite broadcasting and cable television trade magazine -- at the subscriber's end, the choice of watching and paying only for what he wants will reign.

Currently there is no segregation and subscribers pay a blanket rate for the entire service. There will soon be two levels of segregation.

The first will be a broad differential according to lower, middle and upper classes of society across cable households.

The second differential will be amongst pay channels, like premium channels (which will include focused news, entertainment, sports/music channels) and niche channels (nature, health, fashion).

The 30-day deadline

On December 13, 2002, officials of the information & broadcasting ministry met with key broadcasting channels, multi-system operators and cable operators to discuss the modalities of the service.

Sources who attended the meeting said the government has now granted one month's time for a broad implementation of its plan. Once the broadcasting channels work out the revised charges/new packages and multi-system operators /cable operators decide on the distribution/sales of set top boxes, the CAS will become operative.

What is a set top box?

The set top box is the device that will enable a subscriber to view pay channels. This instrument decodes signals from the cable operator for the viewing of a pay channel. It will also monitor the number and duration of channels viewed by the subscriber.

The gadget could costs between Rs 2,500 (for an analog type) and Rs 4,500 rupees (for the digital type), says the Consumer Electronics and Television Maunufacturers' Association.

CETMA is also likely to soon hold dialogues with leading multi-system operators (like Incable and Hathway) and cable operators to determine how would the set top boxes be provided to customers at the cheapest possible rate.

The government will, however, have to step in and determine if duties linked to the manufacture of set top boxes will be lowered. Overseas the burden of installation costs of the set top box is borne by the cable operator. Hence, multi-system operators and cable operators will have to play a developing role here.

The other concern which industry experts have is that subscribers may have to install independent set top boxes for each television.

While the concept of a bedroom television would not apply to the lower middle class, the urban class will have to deal with this issue, they say. If the pay channel regime has to succeed, the provision of a set top box will become crucial.

Obviously, the lower/middle income group and even sections of the upper middle class might think twice before investing in a set top box.

How 'free' are free-to-air channels?

The free-to-air channels will be viewed without a set top box. But in a competitive environment, it does not mean that free-to-air channels are totally free. In the new regime, there are some issues which the government, broadcasters and cable operators have to streamline regarding free channels.

Of the 114 channels available, around 70 channels are non-pay channels. Broadcasting channels have suggested a basic tier charge to be around Rs 25-45 a month, stating that any level higher than this will defeat the purpose of having free-to-air channels and keeping prices for cable households affordable.

Media analysts say that it is in the interest of the pay-channel broadcasters to suggest a low basic tier rate since this would provide enough room for viewers to subscribe to more pay channels.

The problem is that multi-system operators have suggested for a higher charge for free-to-air channels. They have forwarded a proposal that the pricing to beam free-to-air channels would work out to Rs 150 per month (Rs 30 as entertainment tax, Rs 10 as service tax, and Rs 110 as maintenance and infrastructure charges).

At this stage the government has said it will reserve the right to decide on the free-to-air charge issue.

While cable operators will determine which pay channels to provide to their subscribers, the government is considering a 'must carry' clause for the free-to-air package. This smaller basket of must carry channels may not be charged at all.

How much will you need to pay?

The consumer will have to bear the basic service charges (this will incorporate free-to-air channel services), the pay channels the subscriber wishes to view and also the fixed multi-system operator service charges.

In the current structure, subscribers pay a fixed amount for the entire basket of channels (which includes free-to-air and pay channels).

Subscribers are charged between Rs 100 to Rs 350 per month for cable services comprising all 114 channels.

Besides the pay channels, the government will ensure that households which cannot afford this system get access to basic free-to-air channels.

This basic system price would be fixed and contain a choice of family entertainment, sports, music and news channels.

So what will be the burden on subscribers?

Broadcasting channels are reviewing the current structure and will work out fresh rates which would then be discussed with the government.

However, it must be understood that the government has given freedom to the broadcasters to decide on this issue.

The Zee-Turner network has already raised subscription rates by 20 per cent, the Sony bouquet is up by over 35 per cent (prior to the 2003 Cricket World Cup) and so is the ESPN/Star Sports channel subscription rate.

The Star TV bouquet rates are also expected to move up, reports say.

This will happen over the medium to long term when the CAS regime is more stable and broadcasting channels understand exact customer preferences.

An analyst with DSP Merrill Lynch Investment Bankers, says, on the condition of anonymity: "In the pay channels regime, there are positives for broadcasting companies. Revenues will grow and companies will gain the advantage of focussed viewership. This would help them strategize for growth."

Before we look at various scenarios, we must understand the basic parameter that a complete channel bouquet costs cheaper, while individual channel picking works out much costlier.

Scenario 1:

If we were to take the middle-class viewer as the base, the basic package to view the premium and popular pay channels may be as follows:

Star TV basic package: Star News, Star Plus and Star Movies aimed at Rs 35. But when you add the popular niche channel National Geographic to this, the package could be at Rs 40.

Zee-Turner basic package: This comprises Zee TV, Zee News and two more channels, and is aimed at Rs 24 per month.

Sony basic package: (any two channels) works out to Rs 36. If one were to add the financial channel of CNBC it would work out to Rs 38 per month.

ESPN/Star Sports package: A must for sports lovers, this subscription is estimated at Rs 30 per month.

Thus, for a middle class subscriber, the rates would range between Rs 125-130 per month. Thus, adding the free-to-air, maintenance and service charges, the overall monthly payment would be in the Rs 275- Rs 280 range.

Scenario 2:

The urban and upper class viewer may typically add niche channels like National Geographic and Discovery channel, additional movie channels like HBO, AXN and Hallmark, music channels like Channel V/MTV to this and the pay channel subscription could be in the Rs 150 - Rs 155 range.

Thus, the total subscription (including free-to-air and service charges) would be in the Rs 300-Rs 305 per month range.

It would, therefore, be similar to what the urban cable household is currently paying. Consider further that the subscriber will also have to buy a set top box.

Scenario 3:

If a viewer is an extremely fastidious one with specific viewing preferences, he may go channel-picking. And the price he would have to pay for news channels (3), sports channels (2), niche channels (3), music channels (2) and entertainment channels (5) would be in the range of Rs 350- Rs 400 per month.

Broadcasters have little to worry about

The cost of the pay channels bouquets have shot up by 150 per cent in the year and another 100 per cent rise is expected in the next 12 months. Cable subscription rates, meanwhile, have risen 475 per cent in four years.

As suggested, even in the post CAS regime, the total bouquet prices may come down from existing levels though independent channels will cost more. In the long-term, however, subscription rates will continue to rise.

From a broader perspective, broadcasting companies will over a period of time get a clearer perspective of viewer preferences.

This will help them strategize policies and organise content better. Most importantly, the broadcaster will need to revamp his pricing strategy and work out maximum retail prices per subscriber for individual channels as against rates per package.

So what does this mean for cable operators?

Most cable operators have welcomed the passing of the CAS Bill in Parliament.

"The arm twisting from satellite channels will stop and there will be greater transparency for the consumer, considering the details of pricing and various channel packages will be disclosed publicly," says Vikki Choudhary, Homecable Network, a New Delhi-based multi-system operator.

Commenting on the possibility of higher subscription rates from broadcasters, Anirban Chowdhary of Hathway Cable & Datacom Pvt Ltd, a leading multi-system operator in Mumbai, said, "The CAS will provide flexibility to the subscriber. If viewers are concerned about pricing, they could opt for a bouquet from another channel."

According to Cable Quest, the minimum cost per subscriber comes to around Rs 100 (Rs 53,500 /500).

Add to this the minimum profit of the cable operator at Rs 15 per subscriber, entertainment and service tax and the total cost comes to Rs 140 per subscriber.

Post-CAS, these basic charges may go up to accommodate the additional upgradation/technology costs.

The market perspective: Media stocks look up

Following the passing of the CAS Bill, media stocks and cable broadcasting companies recorded sharp gains at the stock markets.

On the day the Bill was cleared in the Rajya Sabha, stocks like Zee Telefilms, TV Eighteen and Balaji Telefilms shot up.

Two leading global investment banks -- DSP Merrill Lynch and UBS Warburg -- have raised their investment rating for Zee Telefilms. The Zee Telefilms scrip is trading in the Rs 102-Rs 105 range.

Both investment banks are of the view that Zee could emerge as a market outperformer over the medium term. DSP Merrill Lynch has placed a target price of Rs 137 and UBS Warburg a target price of Rs 140 for Zee Telefilms.

Another scrip which could witness action in the coming six months is Salora International, a consumer electronics company.

Salora, alongside Videocon, is a key manufacturer of set top boxes in the country. As the CAS regime comes through in the next six months, Salora will stand to gain in terms of higher sales and revenues.

Within the media scrips basket, two unlisted scrips -- Star TV and Sony Entertainment -- are been evaluated constantly.

Analysts say these two companies will have to review some of their programming strategies in coming months.

Conclusion

In review, subscribers might not be actually feel elated as there do not seem to be any perceived advantages for them in the CAS regime. Judging from the proposed subscription rates, the disappointment would be justified.

The subscription rates structure is such that broadcasting companies will make bouquet prices most suitable for the lower and middle class cable households. So, it could be that the upper class subscriber might get the rough end of the stick.

Further, one can safely assume that the government will hold dialogues with cable operators, multi-system operators and set top box manufacturing companies to see how to provide the devices at economical rates to subscribers.

Here the subscriber's burden might reduce. Alongside, transparency will also be ensured. And at the broadcasting end, companies will get a clear picture of consumers' viewing habits.

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