Crunch time for cable wallahs after India TV shake-up
Sunday, 19 August 2007
Joe Leahy
The cable television industry in India began as a simple affair for N Bakkiva Nathan but is quickly turning into a mess of set-top boxes as the sector transforms.
In 1987, when he opened an electronics shop in Mumbai's Dharavi slum, his "cable TV operation" consisted of two video recorders connected to households in the area through a makeshift network of wires.
Mr Nathan was a sort of demigod of the local entertainment world - broadcaster, distributor and last-mile cable operator all in one. He later introduced satellite channels and other new technology.
But the latest developments in the industry have left him feeling aggrieved.
The government this year introduced a mandatory cable set-top box system - known as the conditional access system - in an effort to wrest back some control over the industry from small operators or "cable wallahs" such as Mr Nathan.
The phased roll-out of CAS and other new digital pay-TV systems in India's big cities is the vanguard of sweeping reforms to the country's cable industry, one of the world's largest, connecting an estimated 70m households.
The changes have led to a boom in the number of planned new channels.
By some estimates, broadcasters are applying for licences for 130 new channels on top of the country's existing 200. It is a trend that some are warning may be unsustainable.
"There is going to be blood on the streets going forward. Advertising revenue is limited and is likely to be shared, so unless subscriptions can catch up, I don't know what the business model is going to be," says Timmy Kandhari, executive director, financial advisory services, with PwC in Mumbai.
India's cable TV industry was pioneered by local operators. Numbering 40,000 or more, these people, often neighbourhood tough guys aligned with local politicians, built the last-mile networks into people's homes.
In the process, they cornered the market for subscription fees by under-reporting their user numbers.
This has meant they receive about 80 per cent of subscription fees while broadcasters and the multi-system operators - the middlemen that distribute the cable signal to the local operators in different areas - together receive only 20 per cent.
The idea of CAS is to redress this imbalance. The digital set-top box allows all parties to gauge exactly how many users are subscribing to what channels.
Under a complex government-mandated revenue-sharing formula for CAS, the cable wallahs' share of pay channel fees will fall to about 50 per cent while that of broadcasters and middlemen rises to 25 per cent each, according to estimates from SSKI India, a Mumbai-based brokerage.
The changes are leading to investment by Indian groups such as Tata, Bharti, Reliance ADAG and Zee of $4bn on CAS and other digital TV distribution systems.
SSKI India estimates that, by 2010, India will have 90m cable and satellite TV households, of which 37m will be digital fee-paying subscribers.
The broadcast industry is expected to be the biggest beneficiary of these changes, led by channel aggregators such as Rupert Murdoch's Star TV, Japan's Sony and Zee. Broadcasters' share of pay TV revenue should rise from $400m to $1.8bn by 2010.
"You should see 20 to 25 channels launching that are serious players in the next two years, and I think easily and absolutely the environment can accept them," says Ronnie Screwvala, chief executive of Indian production house UTV Software Communications.
As part of this, UTV is launching a channel aimed at 15 to 34-year-olds called Bindass.
The aim is to tap into India's growing youth demographic, with 70 per cent of the population below 35.
"India's becoming a younger country every time we blink," says Zarina Mehta, the channel's head.
One person not feeling younger or happier, however, is Mr Nathan in Dharavi. Many analysts believe that if the pay-TV industry is to realise its dreams of rapid expansion, it will have to do more to recruit grass-roots operators like him as partners in the new digital systems or risk alienating them.
His shop is stacked full of set-top boxes that he says few subscribers want.
"Before the new system was introduced, everyone was paying up. Now only about 60 per cent are paying the full rate," he complains.
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FT syndication service
The cable television industry in India began as a simple affair for N Bakkiva Nathan but is quickly turning into a mess of set-top boxes as the sector transforms.
In 1987, when he opened an electronics shop in Mumbai's Dharavi slum, his "cable TV operation" consisted of two video recorders connected to households in the area through a makeshift network of wires.
Mr Nathan was a sort of demigod of the local entertainment world - broadcaster, distributor and last-mile cable operator all in one. He later introduced satellite channels and other new technology.
But the latest developments in the industry have left him feeling aggrieved.
The government this year introduced a mandatory cable set-top box system - known as the conditional access system - in an effort to wrest back some control over the industry from small operators or "cable wallahs" such as Mr Nathan.
The phased roll-out of CAS and other new digital pay-TV systems in India's big cities is the vanguard of sweeping reforms to the country's cable industry, one of the world's largest, connecting an estimated 70m households.
The changes have led to a boom in the number of planned new channels.
By some estimates, broadcasters are applying for licences for 130 new channels on top of the country's existing 200. It is a trend that some are warning may be unsustainable.
"There is going to be blood on the streets going forward. Advertising revenue is limited and is likely to be shared, so unless subscriptions can catch up, I don't know what the business model is going to be," says Timmy Kandhari, executive director, financial advisory services, with PwC in Mumbai.
India's cable TV industry was pioneered by local operators. Numbering 40,000 or more, these people, often neighbourhood tough guys aligned with local politicians, built the last-mile networks into people's homes.
In the process, they cornered the market for subscription fees by under-reporting their user numbers.
This has meant they receive about 80 per cent of subscription fees while broadcasters and the multi-system operators - the middlemen that distribute the cable signal to the local operators in different areas - together receive only 20 per cent.
The idea of CAS is to redress this imbalance. The digital set-top box allows all parties to gauge exactly how many users are subscribing to what channels.
Under a complex government-mandated revenue-sharing formula for CAS, the cable wallahs' share of pay channel fees will fall to about 50 per cent while that of broadcasters and middlemen rises to 25 per cent each, according to estimates from SSKI India, a Mumbai-based brokerage.
The changes are leading to investment by Indian groups such as Tata, Bharti, Reliance ADAG and Zee of $4bn on CAS and other digital TV distribution systems.
SSKI India estimates that, by 2010, India will have 90m cable and satellite TV households, of which 37m will be digital fee-paying subscribers.
The broadcast industry is expected to be the biggest beneficiary of these changes, led by channel aggregators such as Rupert Murdoch's Star TV, Japan's Sony and Zee. Broadcasters' share of pay TV revenue should rise from $400m to $1.8bn by 2010.
"You should see 20 to 25 channels launching that are serious players in the next two years, and I think easily and absolutely the environment can accept them," says Ronnie Screwvala, chief executive of Indian production house UTV Software Communications.
As part of this, UTV is launching a channel aimed at 15 to 34-year-olds called Bindass.
The aim is to tap into India's growing youth demographic, with 70 per cent of the population below 35.
"India's becoming a younger country every time we blink," says Zarina Mehta, the channel's head.
One person not feeling younger or happier, however, is Mr Nathan in Dharavi. Many analysts believe that if the pay-TV industry is to realise its dreams of rapid expansion, it will have to do more to recruit grass-roots operators like him as partners in the new digital systems or risk alienating them.
His shop is stacked full of set-top boxes that he says few subscribers want.
"Before the new system was introduced, everyone was paying up. Now only about 60 per cent are paying the full rate," he complains.
.......................................
FT syndication service