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What are the products NDS is offering in the Indian market?
Our cornerstone product is the NDS open Videoguard CAS (includes the smartcards), which is available in cable, terrestrial, satellite and IP. We are a clear world leader there.
CAS on its own isn’t enough, so we offer consultancy/ integration services to help customers choose from the wide variety of implementations and help match up their launch plans with the partners they have chosen.
Then there is the set-top box (STB) middleware and the EPG (electronic programming guide). EPG is an application that runs on the STB that I regard as the most complicated application, because it is the store front for new services to come up.
Whether it is TV services, PPV services or interactive services, the EPG is a shop window. We are again one of the world’s leading EPG producers on multiple platforms with different languages.
Another area is games. Even a low-end STB like the Hathway box is capable of running games, if they choose to do so in future.
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Considering the poor penetration of CAS due to the myriad problems here, there are talks that the way forward could be to offer it as a premium product. Do you see CAS pushing ahead as a cream offering?
If we take the mobile phone analogy, when it was first launched, it was a cream product. India is large enough and has enough people who can afford to pay, to make that kind of business model work. However, for true return on investment, you need to have mass market penetration.
So while CAS can be offered as a premium product, the only way to truly get the revenue back and build your business is to address not just cream, but the whole way down – cream to vanilla – and offer a scalable service that can match the ability to pay of all the potential subscribers.
Around the world, successful pay TV operators essentially give away the STBs. It (the box) is something you need to get into the consumers’ homes in order to sell them the services.
In India, we’re not seeing that yet and I think the first operator that makes that kind of move is the one who’s going to put it (CAS) in hand.
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That’s not an idea that will go down too well with the multi-system operators (MSO).
Of course you’re not going to give things away unless there are some returns. And the whole prospect of subscription television is really that you have to spend some money to acquire the customer – either marketing, or physical hardware or installation.
Once you’ve got them, you want to keep them happy. And you want to then see if it’s possible to extract more annual revenues per user. And that’s just an average across the whole group (of subscribers). So introduction of CAS will mean that people who don’t want to pay Rs 150 today could pay Rs 75 plus tax. Whereas those who can afford to pay more are offered more choice.
For instance a subscriber might take the basic package of just the FTA services and still enjoy a better quality of transmission, EPG, email and other services. You might be a cricket fan, but might still say you don’t want to pay for the full cricket package because it’s too expensive, and you might just buy the final.
CAS gives you the opportunity – if the agreements are in place with the operators – to just package an event and sell it to you.
From the operators’ perspective, they get a little bit of extra revenue. The subscriber is happy too, so it is a win-win situation.
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Speaking as a consumer, I’m getting these 100 channels at this price. Why should I stress myself with CAS and its fallout?
That’s where the political element is coming in. If it is taken away they (the subscribers) will complain. We’ve seen this in other markets in Asia.
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Is there a parallel that you can draw from other markets in the region?
I’m looking at Taiwan, for instance.
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But Taiwan has almost 80 per cent cable penetration so where’s the parallel?
It’s 80-85 per cent cable, but television is regarded as a utility, like water or electricity. So local governments have set a limit on the maximum amounts that people can pay.
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So you can’t charge more?
You can’t charge above a certain amount.
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Which is exactly what people here are saying. That there should be a ceiling on rates.
In Taiwan, what the MSOs that have invested in digital are saying to the government is that, they want to charge more to capitalise on that investment.
People who are willing to pay more, may pay more and get more. There’s freedom of choice. So there are some parallels to be drawn.
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And what is the situation in other Asian markets?
Other markets have different challenges. China for instance, has less freedom of programming. So they’re looking at interactivity as a way of moving forward – they are providing things like stock information services, where consumers can see value in buying the box. Here it becomes more than just a gateway for television services but provides additional useful services for education, information – a sort of home hub.
It doesn’t have to be just television. In Korea, for instance, the government has a plan for government services provided through digital television. Users or subscribers get access to civic information, health groups, etc. So it is more of an informative service.
There are other countries in the world where utility bills are sent on the screen through CAS. It saves on administrative costs.
Basically, CAS provides a reliable gateway for a number of services that can be customised to local requirements. Therefore, CAS is more than just a device that makes television more entertaining and informative. It’s a kind of snowball that gathers pace as it goes along.
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So it still boils down to getting the box moving, right?
Without this device in their homes, people don’t know what it is. It just seems like I have to pay more for what I get now. In reality they’re getting more choice, more quality, more services, and more opportunities. This is not like a PC where you’re expected to change it every two years. It has the same life-cycle as a television.
And because it’s all based on open standards, in five years time you can buy another STB at the same price point. It will give you more menu, will have a hard disc in it, which means more power.
The first STB then could well go into the children’s room, which could be used as a study tool for example. The advanced box could go into the living room, with all the upgraded features.
Because it’s all standards based, they can interoperate. We have that operating around the world, where they have six-year-old boxes that don’t do much more than a basic EPG and television. And we have others that are doing these information services, return path. Then there is another generation box, which has a hard disc in it that enables people to pause live television and set up their own schedules.
With all this, people watch more television than they did before, not less – because it’s more convenient for them. And I think this is what all this is about. It doesn’t mean you necessarily have less. It means you have more by way of choice.
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You don’t have an issue with open standards? There’s been this hue and cry, especially around DTH, with opponents saying, “How can you maintain open standards, it will lead to hacking…” and what have you.
We are an open standards company. The main thing about open standards is that operators have choice of vendors. If they’re locked into one vendor, then that’s not good for their business.
We’ve been working closely with the BIS (Bureau of Indian Standards), and in the past with open standards bodies like DDB and Open Cable in the US. To make sure that not only are we adopting standards, we are also leading partners in the adoption of standards. So we have things like the common interface box, the removable CAS.
We have customers that opt for removable CAS if they want to use it. But from the consumer perspective, removable CAS costs money. For the consumer as well as the operator, actually.
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So you’re still bullish on CAS? I’ll qualify that to cable driven CAS. One would have thought that with all the problems surrounding its rollout, the focus would shift to DTH, at least as far as serious business opportunity is concerned.
I think the future of cable has to use CAS. Historically (in India), if you look at the margins, the cash flow in the cable business has been eroded – with more channels coming in and more channels going pay. The free cash flow which cable ops enjoyed has been tailing off, so if they want their business to continue they have to make a change.
I think it is an interesting phase in the industry. But in order to keep the business going, you’ve got to have a circle, which enables the money to flow to the right people. At the moment, it’s like a leaking water main. A precious resource is being lost so we need to look at investing in a new pipe to go inside, which is going to get that water to the right people, to make that resource work.
You pointed out earlier that people see CAS as “it’s going to cost me a lot of money. I’m going to get less, I’ll have to pay more…” It doesn’t necessarily have to be the case. But I think it needs to be able to scale, to meet the desires of individuals and match their expectations.
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What’s your formula for reducing barriers, perception-wise and cost-wise?
You’ve got to make the process easy. For a subscriber, the major decision is to spend the money. It doesn’t make sense for a subscriber who has decided to spend the money if it takes him half an hour to fill in the application.
So you want to make it easy, reduce the financial barriers. Once they’ve got the service they can choose what they want out of it.
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Do you have any estimate of the per-subscriber price point at which this might kickstart?
About $ 50 for the basic parts, and then there are the royalties and surcharges which all add up to about $ 75 for a vanilla box.
That is coming down but it is not going to halve or anything anytime soon.
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That’s at your level as far as the box is concerned. I’m talking about the consumer. For him it’s a box-plus-subscription package. There must be some ideation going around as to what is the possible way to get out of the present gridlock situation. One is price…
Price, differentiation in programming, legislation. Consumer demand is the key. It’s push and pull, stick and carrot.
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In India, outside of Hathway for cable driven CAS and Star’s Space TV for DTH, do you have any other possible avenues to push your products?
There are other parties we are talking to who are in Phase 2 of CAS (outside the four metros). But I think it’s probably quite early at the moment to talk of anything definite.
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But since the first cities that were supposed to usher in CAS are all sitting on their hands as it were, you don’t really have much to talk about.
We feel that this blockage will move.
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What according to you will breach that block?
In December, there is the India-Australia cricket series. The assembly elections will have been done with by then. The pay channels normally raise their rates in January. The planets should be in alignment then. So that’s a test case.
We’ll be focussing on helping our customers generate pull from their subscribers and give them services that they are willing to pay upfront for.
The best thing for NDS would be for a systems operator (SO) to decide that they’re going to remove the fence and give the STBs away. That would be an ideal situation for us as well as the STB vendor. Everyone wants to make a product that someone buys from you and gives away.
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One issue of concern in India is hacking. Even abroad hacking is reported on an average of once a year, thereby requiring a systems upgrade. In India, that would be an even bigger problem…
You need to understand that hacking/piracy is a business. So pirates still work on returns on investment. Typically, pirates are organised. They work globally. So they may have to spend 100s of thousands, if not millions of dollars to crack something, commercialise it and get it out.
NDS, as the number one provider in this business, is working proactively. We have a group called the Operational Security Group of more than 20 people that work worldwide to monitor these activities. That’s part of the R&D activity.
We’re constantly working on our designs. We’re the only CAS company that designs chips. NDS uses unique technology in the cards where we have our own chips.
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So hacking is not a major worry for you as far as India is concerned?
It’s an ongoing concern and a risk issue. We look at every market and we look at the risks. We advise our customers about the card replacement policy. If an operation in India takes our services, we will obviously give them an unconditional guarantee for a period of time.
Now if you’re successful, and you have millions of subscribers, the pirates will come. So what NDS focuses on is having the best technology and also giving advice to our customers and taking legal action against pirates.
We work on putting the pirate out of business. I think we used to be behind them in the early days. Now we’re ahead of them and the gap’s growing. Hathway for instance, has a unique version of Videoguard. Every customer of NDS gets a unique version.
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Speaking of Hathway, how are you working with the MSO to get the boxes moving?
What we are doing is helping Hathway educate consumers about the benefits of this new digital service. I think that people can get stuck on the word CAS because of all the negative connotations that have built up around it.
I still think that the average consumer, the guy who can’t afford to pay, will be better off. Even if they take some scheme where they’re paying a rupee per day, they still should up end up paying less than Rs 150. And they’ll have the advantages of DVD picture quality, sound quality, EPG, and the ability to gain access to programmes at a price they can afford. I don’t think that message is getting through.
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That’s a fact. It’s been a badly marketed service.
The message is not getting through also because some of the smaller operators haven’t made the big investment. They are very fearful of this because CAS steals their subscriber from them. So I think that there are some other motivations there.
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