Are metros ready for the digitization deadline?

Are all industry stakeholders ready for the Nov 1 digitization deadline in Mumbai, Delhi, Kolkata and Chennai? We analyse the ecosytem November 1, 2012 is slated to be a landmark date for the Indian broadcast industry as analogue signals are switched off in the four metro cities of Delhi, Mumbai, Kolkata and Chennai, and they move to the Digital Addressable System (DAS). This means that a viewer without a Set-Top Box (STB) or a Direct-To-Home (DTH) connection would be faced with a blank screen in these cities. We set out to estimate to what extent that will happen, and its effect on other stakeholders in the chain, i.e., advertisers, broadcasters and distributors. What emerges is that though digitization is seen as a gamechanger with every constituent of the eco-system - from broadcaster to end-consumer- set to reap benefits, it wont arrive without the initial hiccups. The industry is likely to go through a short period of flux before all the concerned parties are able to overcome the hiccups. TALE OF FOUR CITIES THE DIGITIZATION ECOSYSTEM

NUMBERS STILL A MYSTERY With the first phase of digitization already having been deferred once - from June 30, 2012 to October 31, 2012 - as not enough STBs had been seeded by the cutoff date, the government is now keen to ensure that the switchover takes place on November 1. As per Ministry of Information & Broadcasting (MIB) estimates, 77% of cable TV digitization has been achieved in the four metros, with Mumbai seeing the maximum penetration and Chennai the least, as of October 10. The Indian Broadcasting Foundation (IBF) is as keen as the government to push for digitization. IBF and its members are strong supporters of digitization and believe it is a win win for all participants in the business, from consumers to MSOs/LCOs to broadcasters and also the government. We have been working closely with the I&B Ministry and MSOs to ensure a smooth transition to the digital era, says Man Jit Singh, IBF president & CEO, Multi Screen Media. Local Cable Operators (LCOs), however, totally dispute the figures put out by the government, saying that the on-ground situation is very different. According to Roop Sharma, President, Cable Operators Federation of India, demand remains low, especially among the low income groups. She cautions that the prospect of a large percentage of blank screens in metro households is high. The situation is particularly dire in Chennai, where the state-government-owned Arasu Cable TV has still not finalized the tenders for the purchase of STBs. As to how the situation could pan out post digitization, Ashok Mansukhani, president, MSO Alliance, says, Post November 1, a month will go in stabilizing DAS in Phase 1 by incorporating consumer choices and meeting any pent-up demand. Mumbai is best poised for DAS followed by Delhi and Kolkata. Chennai is a challenge until Arasu Cable deploys STBs. Another reason for the low seeding of STBs is the ongoing tussle between LCOs and Multi-System Operators (MSOs). Sharma claims, Many LCOs have still not signed interconnect agreements with MSOs as the terms are biased and favour the MSOs. The other bone of contention between MSOs and LCOs is revenuesharing. According to AK Rastogi, president, Avishkar Dish Antenna Sangh, We still have no clarity on the revenuesharing arrangement. If 65% of the pay channel revenue goes to the MSOs and broadcaster, we are left with only 35% and this does not even cover our basic costs.

One of the biggest selling points for digitization has been that the consumer will have the freedom to choose and pay what he wants to see. This in turn could lead to the channels, especially niche, focusing and targeting consumers directly resulting in better content for the viewer. According to Ashok Venkatramani, CEO, MCCS, Post digitization, the consumer will finally have a choice and given the fact that a typical household surfs between 15-20 channels at the most, consumers may not pick all the channels. LCOs, on the other hand, say that STBs are an additional expense for consumers belonging to the lower strata of the society and the government should subsidize STBs.

BATTLE FOR THE VIEWER While the entire focus at the moment is on installation of STBs, the real concern area is whether the MSOs are geared to meet the challenge of servicing customers post digitization. The MSO working business model will change from a B2B (Business to Business) to B2C (Business to Consumer) and this is where the DTH players have a head-start over the MSOs. The DTH players already have customer-centric systems and processes in place while the MSOs will have to learn the processes of being a B2C company quickly. According to Devendra Parulekar, Partner & Segment Champion, TV Distribution, Ernst & Young, The real problem which most of the MSOs are really grappling with is readiness to meet the requirements either from a regulatory standpoint that TRAI has laid down in the DAS order or digital requirements to serve customers. The biggest boost for MSOs will be the subscription revenues, expected to rise substantially with proper subscriber reporting. According to K Jayaraman, MD & CEO, Hathway Cable & Datacom, Hathway will have the opportunity to monetize its reach and we expect nearly a four-fold jump in our revenues post digitization. For MSOs, the race

to acquire subscribers could mean that the Average Revenue Per User (ARPU) may be low in the short to medium term before gradually picking up. WHAT BROADCASTERS EXPECT Broadcasters too will see a healthy addition to their bottomline on the back of a verified subscriber base and reduced carriage fees. But, with digitization unlikely to be 100% by the sunset date, the broadcaster may lose eye-balls in the initial stages. And, with the festive season just around the corner, any potential drop in reach and subsequent fall in televised ratings could be a cause for concern for advertisers. In fact broadcasters have even called for ratings to be suspended for the metros for a short time during this teething period. According to Sunil Lulla, MD & CEO, Times Global Broadcasting Company, Such a large scale event cannot be synchronized with perfection, given widespread stakeholders. Broadcasters have asked TAM to suspend measurement and release of any data for a short period, to avoid knee jerk reactions. WILL ADVERTISERS BE AFFECTED? This uncertainty around the actual penetration figures and likely drop in viewership could see advertisers renegotiating with channels and shifting their advertising spend from TV to Print, Radio, Digital, OOH and even cinema. However, many believe that the impact on the advertiser will be minimal and the change in ratings will not be as severe as anticipated. According to Sam Balsara, Chairman & MD, Madison World, Back of the envelope calculations I did indicate that impact on ratings wont be more than 5%. This view is also echoed by Parulekar, who says, For most advertisers in the run-up to Diwali, the target is not the metro markets but the non-metro urban India. So perhaps the advertisers may not be impacted significantly even if TAM data is not available. The impact will thus be minimal. To quell all speculation about television ratings, LV Krishnan, CEO, TAM Media Research, says, From a measurement perspective, just be reassured of the fact that everything we are doing is to keep pace with the changes that are happening. From TAMs perspective, we are all set for digitization and we are looking forward to a new phase of measurement itself beginning November 1.