Satellite & Cable

Denial of pay-TV content will boost sales of STBs

Convergence Plus

CP: What changes do you think set-top boxes will bring to the way we watch television?

Lt. Col. Khare: Realization of the cost of watching pay TV content, which at present appears to be no different from watching FTV (free-to-view) content. On the day of introduction of the system, FTV content would be available on TV screens as at present. However, the pay channels carried on the cable will not be accessible. Hence, the need to acquire the STB (set-top box) will be generated to watch such content. The cable operator would make its cost, features and other information available. The list of channels desired would be intimated, and the STB will be authorized to view those channels and the amounts collected in advance for a definite period. On expiry of that period, the accessibility to pay TV content will be denied until payment is restored. FTV content will continue to be available. Over a period of time, other services such as video-on-demand, teleshopping, etc. will be accessible on payment.

CP: How will the set-top boxes help consumers?

Lt. Col. Khare: The government will fix the rates for FTV content. Hence, the bills will show the basis of billing. Consumers will stop pressurizing the cable TV operator to enhance the channel menu. Subscription rates for FTV content will be less than what it is now. Pay TV content will be paid for on a 'pay-for-what-you-watch' basis. The rate hikes will be limited to worth of the content. When that value is exceeded, viewers will discard the subscription. Thus, equilibrium would be established between content appeal and demand. This nuisance of rate hikes every two or three months will then cease.

CP: How will it help the cable operators and the broadcasters?

Lt. Col. Khare: The cable operator is accused of under-declaration of his connectivity, a ground for frequent increase in rates for pay-TV content. Pay channel content providers contend that against a connectivity of 37 million cable homes, they are receiving subscriptions only for a base of 7 million to 8 million subscribers. This contention does not seem to be well founded.

It may be appreciated that all 37 million cable-homes are not subscribing to pay channels. There are 30 percent homes located in remote/rural areas, where only five to six channels are served to a subscriber network of 25 to 75 connections. If we reduce this figure of 37 million homes by 30 percent, connectivity of only 27 million homes can constitute the potential for pay channel subscription. There are 10 percent non-paying subscribers in this base. This reduces the figure to 24.3 million. Against an established practice of declaration of only 30 percent connections to pay channel content providers, taxation authorities, video rights merchants, the chargeable figure works out to 7.2 million homes. This is the figure accepted by pay channel broadcasters. However, pay channel broadcasters want to receive payments for the entire 37 million homes. That would involve a 500 percent hike in the current rate.

In the last 12-16 months, pay channel subscriptions have registered an increase from Rs 63 per subscriber per month to Rs 182 per subscriber per month, i.e. a hike of 300 percent. If the target of 7 million viewers to pay for 37 subscribers has to be achieved, the proportionate figure would work out to be Rs 570 per month. However, this may be tapered to Rs 450 per month since the intended monthly subscription for DTH is Rs 500. Hence, cable TV based pay subscription will have to be clamped before DTH, if that market is to be established.

The cable TV viewer is not willing to increase the rates as envisaged by pay-TV broadcasters. Hence, with FTV rates fixed by the government, which may be say, Rs 5 per FTV channel for say 40 channels, the present rates will come down to Rs 120 per month for the FTV tier. Thereafter, pay-TV content will be accessible only with STB. The subscriber will pay for what he/she watches. Financial suffocation of cable TV operators will be largely relieved.

Broadcasters allegation of under-declaration will be repudiated. Pay TV content will be accessible only through the STB, which will have a unique identity. Hence, the exact viewership would be known. The allegation of cable operators of unethical and monopolistic practices by the cable operators will cease because the burden of payment will shift directly on the subscribers.

CP: What are the reasons for opposition to it by some cable operators as well as broadcasters?

Lt. Col. Khare: There are two types of operators. First are the types who have a good quality, multichannel headend, and feed the cable TV content to franchisees, ensuring 70 percent desired picture quality. The second are the franchisees who do not operate a headend, but distribute the content received from the first type to their subscribers, paying only a fraction of the connectivity in their area. The signal quality at the viewer end does not, largely, conform to prescribed standards. To introduce CAS, the first category shall have to invest in the encryption equipment and SMS (subscription management system) at the headend and in the distribution network right up to the viewer for CAS to function properly. Most operators neither have the necessary management acumen nor the financial muscle to do that. Hence, resistance to change and implied transparency in connectivity are preventing them from accepting the system.

Broadcasters have so far twisted the arms of cable operators by introducing CAS at cable operators level (IRDs are like STBs for viewers' premises) where content access is conditional to payments at arbitrary rates and control vested in the broadcasters to cause annoyance to end users. The end users in turn pressurize the cable operator to restore delivery of pay TV content to remain in business. Further, each pay channel misleads advertisers, giving an impression that their advertisements will reach 37 million eyes. CAS will reveal the exact viewership with direct incidence of content appeal and may force many bundled channels to revert to FTV to carry the advertisements to some eyeballs. This will cause an immediate dip in the revenue of pay channel content. Hence, the resistance of extending CAS, existing at headend level to the end viewers.

CP: Who will supply the set-top boxes?

Lt. Col. Khare: The STB would have to be compatible to the encryption methodology adopted at the level of headend. Hence, the choice of STB will depend upon its features and compatibility with the SMS and encryption method. Depending on these factors, the STB may be analog or digital. Once the choice, good, bad or indifferent is made, viewers in the network shall be wedded to that type of STB. The STB will have to be resourced by the headend operator on an outright sale, hire purchase or leasing. Depending on initial volumes, the STB may also be imported, ready to use, and then progressively manufactured in phases as SKD kits, CKD kits and progressive indigenization.

CP: What will be the payment mode for the set-top box?

Lt. Col. Khare: These could purchased outright (facility of price bargaining) with a void in redundancy, hire purchase with a probable discount on installation charges and better fault attendance at least in the payback period, or leasing with built-in redundancy, features upgradation and serviceability restoration for entire period of usage. Bank financing could also ease payment schemes.

CP: What do you think would prompt the consumers to pay more and take up set-top boxes? They seem happy with the present scenario, despite some complaints about rising subscription fees.

Lt. Col. Khare: Denial of pay-channel content, without the use of STB, popularity (addiction) to the content and status ego will drive the urge to acquire the STB. Later, it will be reinforced by addition of other value-added services (telephony, VoIP, etc). The happiness lies in not bearing the incidence of the impact of monopolistic rate hikes in direct proportion. This has to end in the interest of social justice.

CP: What kind of losses would cable operators and broadcasters face?

Lt. Col. Khare: Cable operators will have to incur expenses on upgradation of headend and distribution networks. Provisions of amendment bill seek increase in connectivity figures meaning increase in burden of entertainment and service tax This will a cause a dip in their savings/profits.

Broadcasters will encounter an immediate sharp dip in their existing revenues with gradual relief from such immediate dent to levels, over a period of time, which can be better. However, there will be loss in advertisement revenue, as many unpopular, but bundled, channels will fall off. There is also an issue of loss of face by the broadcasters.

CP: Do you think set-top boxes will prompt the broadcasters to lower their subscription fee and even make some of them free-to-air so as to get more viewers?

Lt. Col. Khare: In my view 'No'. If broadcasters had that intention they should have demonstrated the compromise by freezing the rates at least while the issue of CAS is being legislated. Now if the legislation is scuttled, rates will register an unprecedented rise, selling off of many networks (possibly to be bought out by pay channel broadcasters to gain stronger position in relation to the viewer) and total anarchy. STBs will cause many bundled and unpopular channels to alight from the pay channel wagon to board the FTV compartment.

CP: Should the consumers go for analog or digital set-top boxes and what are the reasons for it?

Lt. Col. Khare: The consumer has no choice regarding the analog or digital set-top box. The vanilla versions of both will cost nearly the same.

The cable service provider chain will decide on the analog or digital question as the encryption hardware at headend has to be installed. The STB shall have to conform to decryption of encryption philosophy. At present, everyone is talking on a very narrow front pertaining to the extension of entertainment TV channels delivery. The convergence environment, when realized will deliver many more services over interactive networks. Those shall essentially be digital. Hence, wisdom lies in selecting the digital option straightaway. The viewer should opt for leasing of boxes to cater for redundancy because the upgradation would then be the problem of the service provider.

CP: Will the STBs be adaptable to new technologies or does it mean that each time a new technology like DTH comes in, we have to go for some changes?

Lt. Col. Khare: STBs for cabled services will be different from wireless (DTH) services in costs and circuitry. DTH will be a niche service with a separate market. I do not visualize any STB that will deliver all services. But it is possible to have upgradable models in wired services.

CP: What are your views on DTH? James Murdoch was recently in India to lobby with the government to implement DTH. What will be the cable operator's future, if DTH is implemented?

Lt. Col. Khare: DTH is a separate, but costlier technology at the user end. Provisions have been made in the regulations to introduce DTH. It is not understood as to why these DTH service providers have not gone ahead with it. Perhaps, they are not happy with the ceilings. DTH will essentially lack the online interactivity feature, since the return path, where provisioned will be through telcos, involving higher costs and slower responses. DTH will face stiff resistance in areas where TV networks conform to Indian standards. DTH will succeed where cable TV services are not performing to the required levels.

The cable operator has a choice today of either remaining an entertainment television extension service provider as at present, or crush under the ever-increasing pay TV rate hikes to the point of closure, or upgrade their networks to incorporate other value-added services. Cable has the technological gift of immense bandwidth handling capability and a distinct advantage in terms of accessibility, availability and affordability.