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b) In Phase 1 CAS is to be implemented in the metros. Lack of take-up of STBs in the metros could affect the volume discounts required to implement CAS in Phase II across the country. Longer term the likelihood of take-up of STBs is more in the metros rather in the semi-urban and rural towns - for now without STBs the status quo reigns as regards declarations and industry structure for 80 percent of the industry.
Impact on the broadcasters
The impact on broadcasters would likely be mixed. In the short
term, the transition period could impact both the advertising and
subscription revenues of pay-TV channels. It is likely that for
a short period, channels would convert to free-to-air if the alternative
scenario meant losing their viewer reach (and hence advertiser support).
In the payoff matrix between advertising and subscription revenues,
we think channels would choose the former. Strategies such as launching
two variants - eg, a free to air Zee TV and a pay Zee TV Premium
(with premium content transferred to the same) - could also come
into play with the transition.
This would also be a cost-effective strategy as the cost of an
additional transponder (US$800,000-1million) to beam the FTA variant
would effectively reduce the negative impact of reduced connectivity
on overall advertising revenues.
Short-term dislocations aside, longer-term subscriber addressability
is a positive for Tier-1 broadcasters. Besides giving them the opportunity
to tier premium content (and consequent additional revenue streams),
it would also result in an increase in subscriber declaration levels.
Long Term - Flagship performance needed to drive subscription revenue growth In our view, longer-term subscription revenues are inextricably linked to viewer ratings. Consumers will only pay for the channels that they watch. The broad population of users who get STBs and subscribe to pay channels will prefer to watch the No. 1 or No. 2 channel in each genre rather than subscribing to everything available.
Content quality hence will be key to retaining and growing both adverting and subscription revenues. In the longer term, subscription revenues will be inextricably married to content quality. A secular growth trend in the absence of good content is unlikely. Just as the television remote controls advertising revenues, the television remote and the STB together will control the subscription revenue streams.
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