SSB's report entitled CAS is a reality but let's await implementation, raises the issue of a future scenario wherein the genres of channels might have to follow their respective leaders, especially if the leaders belong to influential and dominant groups.

For example, if Star Plus were to decide to convert to free to air and be a part of the basic tier, the demand for other Hindi general entertainment channels (Zee and Sony) would suffer. There could also be alternative strategies such as launching two variants - for instance, a free to air Zee TV and a pay Zee TV Premium (with premium content transferred to the same) - could also come into play to manage the transition.

The report claims that the regime of individual pricing for channels, instead of a bouquet pricing strategy, will be based on the pricing for the basic tier of services. However, in all likelihood, the pay-TV channels would need to revise their channel rates downward. Pricing power on the subscription rates would also rest with the numero uno channel in each genre.

Additionally, the report states that a high basic tier price (in excess of Rs 60 per month) could negatively impact the pay-TV broadcasters.

The report also claims that the propensity of the consumer to invest in Set Top Boxes (STBs) would be a key issue. It also states that the entire post-CAS improvement in disclosures through subscriber addressability rests on the take-up of STBs; if the viewers do not aggressively take up STBs, the status quo prevails. Therefore, it is imperative for the banking and finance companies to tie-up with the MSOs or cable operators for attractive funding schemes for the consumers.

The channel reach could decline and advertising revenues could be affected if the transition period for STBs to be installed in metros is less than the estimated six to eight month period. Audit and compliance procedures will have to be implemented to ensure that the law achieves its goal of increased declarations and reduced piracy.

Piracy is a reality of conditional access in every country - developed or underdeveloped. Piracy problems are common to most pay-TV operators across the globe and the estimates of piracy for the Indian markets, while important for earnings estimation, will be a major issue, the report says.

It states that the 40 million Cable and Satellite households (C&S), paying an average of Rs150 per subscriber, could generate annual revenues of around Rs 72 billion. Currently, broadcasters such as Star and Zee have priced their channels on the basis of bouquets. Their subscription revenues are hence a function of the declaration from cable operators and their bouquet price.

For the future financial modeling, the subscriber base will need to be divided into three tiers:
a) metro subscribers (approximately 7 million) who are covered in the first phase of CAS and install STBs - approx 20 per cent or 1.5 million - Payouts from them will be based on the basic tier pricing and their choice of FTA (free-to-air) channels.
b) FTA subscribers in the metros which do not install STBs/get pirated signals - payouts from them will be only the basic tier pricing - cable operators will continue to charge the same rates and pocket the difference.
c) Rest of the country - status quo - Bouquet based pricing regimes will continue and subscription revenues will be a function of negotiation between broadcasters and cable operators until Phase II of implementation of CAS across the country is notified.

For more extracts from the SSB report, read -
Impact of CAS on MSOs, broadcasters - an SSB analysis