MUMBAI: JP Morgan India's report on the Indian cable industry titled: "CAS: The Medicine for a chronic ailment" points out that the consumer opting for pay channels would have to pay more if they don't make an outright purchase of set-top boxes.
The report adds that there would be a mixed impact on broadcasters varying from case to case. The negative impact, if any, would likely be with very high pay connectivity channels, i.e. channels belonging to Star Plus. The report also claims that DTH would be put on the back-burner. The local cable operators would be relegated to the role of collectors of FTA revenues when CAS gets implemented whereas MSOs would be the biggest gainers.
Impact on the Consumers
The impact on consumer can be looked at from the angle of what payments would be made by consumers, pre- and post-CAS. See Table 5.
The report envisages several scenarios: Let's take a consumer in North India: currently, the customer is paying Rs 200 flat for 70 plus channels being received. Assuming that the customer would take up the set top box on finance, Morgan's analysts believe that the average cost to him would be computed as in Table 5:
The report has taken Rs100 as the monthly fee paid by the customers towards boxes. It adds that the industry sources claim that the box costs should come down to about US$70 or Rs3,400. Taking that there would be some downpayment, Rs100 per month seems like a reasonable figure.
The analysts also believe that the consumer opting for pay channels would have to pay more if he does not make an outright purchase of boxes.
Direct to Home (DTH) - on the backburner now
The Morgan report claims that the entry of CAS means that interest in DTH would reduce. When customers take a box for CAS, the value of DTH to consumers would naturally diminish. We also believe that there is not enough extra local language content available that is not accessible on cable TV. Therefore, DTH per se does not have a compelling proposition to offer to the consumers post CAS.
Impact on the Local Cable Operators (LCOs)
The local cable operators would be relegated to the role of collectors of FTA revenues when CAS gets implemented. His take home would be limited to the FTA bouquet price. The impact on him is as shown in Table 6.
MSO: Winner all the way
The biggest winners of the CAS implementation would be MSOs. The Morgan report believes that the most likely scenario would be MSOs taking control over the box in consumers' homes. This would solve the longstanding problem of scattered 'last mile' control. While there would be short-term gains on the profit and loss of MSOs, they would not be very significant. In the longer term, however, the analysts expect slow demise of the MSO-LCO model and emergence of a pure MSO model. This would improve both revenues and valuations for MSOs.
Will bundling continue post CAS?
Currently, the channels are sold in bundled form to the customer. The report believes that the advent of CAS would not mean that bundling would go away. The existing bundles would continue to offer bundled entertainment solutions to customers in order to maximize pay revenues for marginal channels.
Broadcasters: Pay revenues
The report envisages that the broadcasters have to bring down their channel rates with the advent of CAS; that is, if one goes by their promise of bringing down rates if declaration levels improve.
As is shown in Table 6, the net impact on channels should be marginally positive only. In the above calculations, the report has assumed a 60 per cent box adoption which might be slightly on the higher side. However, one must note that this assumption compares with a declaration rate of 30 per cent currently (which is higher than an all India rate of between 15-20 per cent).
The Morgan report has taken higher rates into account, as the analysts believe that the addressable market for broadcasters is lower than the total reported homes in the country. There are a huge number of cable homes in rural areas, which will be tapped only over a period of 5 years. Given that the first phase of rollout is in metro areas, the Morgan reports believe that the concerns there are overblown. Since metros are controlled by MSOs and since declarations are the lowest from metros, the impact on pay revenues should actually be positive. The negative impact, if any, would likely be with very high pay connectivity channels, i.e. channels belonging to Star Plus.
Broadcasters: Advertisement Revenues
The impact on advertising revenues is not very clear at this point in time. There are two extreme schools of thoughts. The first viewpoint is that the channels would have to become free-to-air to get ad revenues after CAS gets implemented. The second viewpoint is that there would be no impact on ad revenues, as the opportunity to the advertiser would continue to lie with the successful channels only.
Morgan's analysts believe that the actual truth would be somewhere in between. On an overall medium term basis, we believe that CAS would lead to a well regulated, better managed cable industry with few revenue leakages in the system. This can only be positive for all market participants in the medium term. The uncertainty is on how would the ad revenues behave till the time rollout of boxes takes place fully.
Again, since the first phase of rollout is in metros, which are relatively affluent, the box adoption should remain reasonably high. Thus the initial impact on ad revenues should remain minimal.
In the longer term, the report assumes that there could be hybrid strategies being adopted by various networks. This could include keeping some channels as pay and making some channels FTA.
Also see
MSOs biggest gainers - JP Morgan CAS report
Domestic pay revenues likely to drive broadcaster profits - JP Morgan CAS report
Encryption at MSOs/ICOs likely - JP Morgan CAS report
Zee bouquet has better breadth - JP Morgan CAS report