The Government (GOI) has enacted a bill on Conditional Access Systems (CAS) that will become an Act on 14 July 2003. Thereafter, any pay channel can only be received through set top boxes against a subscription. The Free To Air (FTA) channels will continue to be transmitted by the Multi System Operator (MSO) like Siticable, Hathway etc / cable operators for a monthly subscription that covers servicing the cable operation.

The motives of the different stakeholders in this game differ:

For the GOI, this is a move to regulate the highly disorganised industry and provide low cost entertainment to the consumer. Once regulated, there is a huge increase in tax to be gained given the current under-disclosure of subscriptions. CAS will bring a transparency on connectivity which has been a point of discontent between MSOs and broadcasters.

The benefits of this are manifold:
Ø It will help channels to improve their business models.
Ø The viewer can now choose what he watches depending on his interests and the subscription cost.
Ø All this will help the advertiser to identify his consumer and his likes and dislikes better.

The MSO today is caught in a vice between the media owner who is demanding more disclosure of cable subscriptions and the last mile cable operator (LMO) who will not declare all subscribers. This is because current structure of (on average) 500 subs / last mile operator do not allow decent absolute profits if all subs are declared. The stated reason, of course, is that all consumers are not interested in paying for all channels. The biggest beneficiary of CAS is the MSO. The LMO will, however, get hurt and will lead to a shakeout with some consolidation.

As per the I&B rules, now the consumer will pay Rs 72 + tax which will total to Rs 100 for 30 FTA channels. For access to pay channels he will now have to buy a set top box costing Rs 2,800 - Rs 5,500 (analog - digital) to gain access to pay channels. Over and above that, he will also have to pay a monthly subscription for pay channels based on the bouquets and pricing.

The big unknown here is the price elasticity of consumers. Chances are that if basic channels genres (entertainment, music, news, movies) are available in FTA, most consumers will not pay more for subscription channels. A qualitative feedback from media owners, MSO's and some international experience shows that the likely CAS adoption in initial period will be 10-20 per cent (availability of boxes).

Zee and Sun have an upper hand on competitors as they own MSOs. Star Network is comfortable to that extent to the extent of the Hathway connection.

The supply and pricing of set top boxes:

CAS is starting with four metros which have a seven million C&S base. Between the MSO, the broadcaster, and the ministry - someone has to take a position on the number of set top boxes to order and sell. Most long term players support the digital boxes but the price is a constraint. With no major player having put in a big order on boxes (three months before deadline) the supply is likely to be an issue.

Implementation of CAS is going to be chaotic:

Ø As of now there are not enough set top boxes available.

Ø Consumer is not clear on the cost of the set top boxes or the monthly subscription he will have to shell out.

The broadcasters are in a dilemma. On one hand, this is a golden opportunity to recover the subscription income that is currently not being declared. However, for the subscription to be declared the consumers.....
a) Need to have a set top box; and
b) Subscribe to their channel.

In all this is the 'Damoclean Sword' of a channel losing audiences among the non CAS homes and over time, its relevance. It is likely that in the interim phase, post CAS, consumers haven't got their set top boxes and FTA channels like Sahara / SAB catch the fancy of consumers. Then, by opting to go pay a leader like Star Plus will lose out on channel subscription and eventually on advertising revenue. Networks are trying to force their bouquets on viewers through package pricing.

Which channels are likely to go pay?

If Sony and Zee go FTA, a Star Plus will not have the ability to go pay and risk losing audiences. Currently, all three channels are pledging to go pay, but in their own words "the night of 13 July will be interesting". The four billion subscription market is too large and painfully built to give up overnight.

Few facts before we get into CAS implications:

1. Current TAM panel represents only 38 per cent of C&S homes.
2. Four metros represent 35 per cent of total reporting.
3. 62 per cent of Hindi sat GRP contribution is from Mumbai. Kolkata, Delhi. Exaggerated impact will appear in media reports (eg Kyunki TRPs fall by 40 per cent) if these channels remain pay.
4. By the time CAS gets launched, contribution of three metros to Hindi Sat GRPs will reduce from 62 to 40 per cent due to TAM expansion.
5. Connectivity of pay channels in Kolkata will be lower than Mumbai/Delhi.
6. It will not affect Chennai due to Sun TV being FTA.

Viewership patterns of the consumer Pre CAS

Post CAS, four segments will most likely emerge, which can be targeted through different types of channel mix.

Implications of CAS

1. Adoption of STB's will be slow, not more than 10-15 per cent to start with.

2. Connectivity will fall steeply in metros.

3. Reach of Star Plus, Zee and SET will drop, unless they go FTA.

4. Downside of going FTA much bigger for Zee and SET.

• Revenue model based on time sales + subscriber fee
• Ratings much lower than Star, therefore lower revenue through FCT
• Ratings will drop about 22-25 per cent from current base
• Loss in existing subscriber revenue from R/O India bigger than likely loss in ad revenue due to drop in metro audience

5. Zee will remain encrypted to protect subscription revenue

• Zee will be distributed as FTA via Siticable in Mumbai/Delhi thus protecting connectivity in four metros
• Hope for Star Plus to remain pay, to get chance to grab ratings in the short term

6. Stakes for Star equally loaded

• Ratings will drop by at least 10-15 per cent
• Going FTA will make equally big dent in subscription revenue
• Would most likely remain pay unless one or both competitors go FTA
• Star has some protection due to Hathway, but cannot protect ratings in the short term without striking a deal with Siticable/Hinduja
• Top programme ratings have eroded 5-10 per cent since Q42002
• Cricket in Q42003 will keep the pressure on Star Plus revenues

7. Sony does not own distribution, so is trying to strike deals with consortium of independent cable operators

8. All may go FTA for three to four weeks in July to allow viewers to get boxes

However, if one of the big three goes FTA, all will convert to FTA

9. Low share Hindi general entertainment channels will remain FTA - Sahara, SAB TV

10. Low share, medium sub. revenue channels may also go FTA in the interim Zee Cinema, Star Gold, MAX, B4U

11. Hindi/Regional news channels will remain FTA until Aaj Tak remains FTA

12. English news, sports, infotainment, English movies, international music will remain pay to protect their subscription revenue

But, it also remains to be seen if 14 July is implemented across 4 metros when one notes that the infrastructure for this is not yet in place.

Contributed by the MindShare team - part of WPP Media, the largest media independent in the country.

(The views expressed here are those of the MindShare team and www.indiantelevision.com need not necessarily subscribe to them.)