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The Third Indian Television Revolution CAS & its impact in Indian Market Place

By L V KRISHNAN

(23 April 2003)

Indian television takes a leap forward once every decade. While television entered into our country in the early seventies, the first major television revolution took place in 1982. The ninth Asian games in New Delhi was telecast by Doordarshan National Network using satellite up-link and low power transmitters to every corner of our country. This single giant step resulted in positioning Doordarshan as one medium to reach a vast segment of our population in Urban & Rural markets.

A decade later, in 1992, came the cable & satellite revolution. Star & then, Zee, became the pioneers in changing the face of viewer preferences in television programming. Now, in 2002, a decade down the road, introduction of Conditional Access System (CAS) is expected to further revolutionize the television media industry. How will this change impact our life as a Broadcaster, Cable Operator, Television Viewer, Content Provider, Advertiser and Market Researcher? Is there any international learning that can be used as a measure to forecast changes and peek into our tomorrow’s television world?

Before we understand the implication of CAS, it is important to realize the present operating scenario of the broadcasting industry. Most of the satellite TV broadcasters, beaming into India, over the last few years, have already gone digital. These digital signals, received by the cable operators are in standard compressed formats called MPEG.

MPEG, which stands for Moving Picture Experts Group, is nothing but a converted and compressed analog Video & Audio signal into a digital signal, so that, it occupies much less bandwidth. This allows broadcasters to telecast multiple channels through the same transponder, thereby saving huge amount of cost. At the same time, there is negligible loss of picture & sound quality as the cable operators download the channel. Unfortunately, most of the homes receiving these channels can never enjoy the quality of these telecasts. This is primarily due to the fact that majority of the cable operators use analog systems to transmit signals to their subscribers.

Today, India can receive over 200 satellite TV channel signals. While the viewer in the cable & satellite household may own a TV set with an ability to tune into more than 150 channels, the analog systems in the cable operator room prevent them from receiving signals beyond 100 channels. The last mile capacity to carry signals beyond 700 MHz is extremely limited to very few operators. Only by upgrading frequency capacities can the operator increase the offering of number of channels to the viewer. This will mean additional infrastructure development & maintenance cost to the operators, which in turn, will result in hiking of all the subscriber fees irrespective of their desire to pay for these additional channels.

On the other hand, as many more satellite TV channels go pay, there is already additional pressure on the cable operators to increase monthly fees of all the subscribers. The ‘bouquet’ formation and alignment of the independent channels with stronger general entertainment channels has led to subscribers also paying for channels with hardly any viewing preference. Thus, the industry is caught in a web where viewers are unwilling to pay higher subscription prices, Cable operators are unwilling to provide better services as well as pay broadcasters for downloading their content and Broadcasters keep hiking their subscription fees to recover the cost of developing good content.

In this scenario, introduction of CAS was inevitable. The first major implication of CAS in the market place will be in further fragmenting the TV viewing segments. Post the Satellite TV revolution, the universe of TV viewers was divided into two segments - Cable & Satellite TV homes (C&S) and Only Terrestrial TV homes. As we move into 2003, we will see the further breaking up of C&S homes into three new segments. They are:

FTACAS C&S- Able to watch only Free-to-Air Satellite TV channels POPCAS C&S- Able to watch Free-to-Air & ‘Popular’ Pay Satellite TV channels

PRECAS C&S - Able to watch Free-to-Air, ‘Popular’ & ‘Premium’ Pay Satellite TV channels

Segmentation of future audiences will result in active marketing efforts from broadcasters & cable operators. Broadcasters will have to identify the profile and geographical location of each of these clusters to target communication and promotional exercises. Cable operators will be used as Area Sales Units (ASU) and will be provided with incentives to promote and register subscriptions for channel bouquets. To gauge the future trends, we picked up some clue from USA (a developed CAS & Pay TV market) using resources & information from Nielsen Media Research, National Cable & Telecommunication Association in USA & Satellite broadcasting regulatory bodies. The basic tier of Free-to-Air channels will have the largest share of homes closely followed by Pay TV-I cluster dominated by bouquets formed by general entertainment channels at the core.

The two key variables that will segment the lower end of the triangle comprising of Free-to-Air satellite TV viewers and Pay-I satellite TV viewers will be ‘Content’ and ‘Affordability’. Today, an average monthly cost of subscription paid by a C&S home to the cable operator is close to Rs 250 in a metro market like Bombay. TAM data points out that, for this price, even if the viewer is receiving almost 37 channels, his viewing is centered on just 18 channels. Even in homes that receive almost 82 channels, the regular viewing is concentrated across 28 key channels. In this scenario, the viewer will want his key set of 30 channels within the price that he is already paying as monthly subscription fees. It will be a marketing challenge for broadcasters to identify the right kind of channel mixes/genres that different viewer segment will prefer to subscribe and the kind of price he will be willing to pay on a monthly basis.

While the viewer behavior pattern for regular set of channels viewed can be known via TAM data analysis, broadcasters may need to keep tracking the perceived value of the content aired to decide subscription cost either via weekly ratings or regular consumer research. Popularity and Perceived value of the content in a channel’s library of programs aired can be arranged in a 9-cell matrix. The larger the set of programs that lie in the blue cells (1,2), better is the price that the channel can earn in the market place. The red cells (4,7,8) are the danger cells. Large set of programs in this set of cells will yield low revenue as well as drag the channel’s perceived value closer to a discounted channel. Any set of programs in the brown cells (3&6) have short-term value. In channel’s long term interest, they need to be replaced with value driven contents. The skew of dispersion of the entire channel’s program to any of the four cell clusters (Blue, Green, Red, and Brown) will indicate the intrinsic value that the customer has for the channel.

Similarly, the programs can be replaced with the set of channels being offered in a bouquet to understand the real worth of offering to be proposed in the market place.

At this initial juncture of the CAS roll out, the first set of broadcasters who have created a bouquet with high value proposition and starts interacting with the viewer will enjoy the benefit of higher subscription numbers. The attempt by the first mover should be to offer the viewer his set of most preferred channels as a bouquet that will tempt him to pay the present full subscription cost with a 5 per cent increase. This will block out easy entry for competitive bouquet channels.

As per the trend in USA, independent satellite TV channels will have to become either Free-to-Air or be perceived as Premium Pay-TV channels offering very unique content. This will mean that they will either have to depend on only advertising revenue in the Free-to-Air model or on subscription revenue via Premium Pay-TV model.

Expectations are that not more than two broadcaster bouquets will exist in the Popular Pay-TV segment. The rest of the broadcasters will act as independents and move to follow a Free-to-Air model or a Premium Pay-TV model. While general entertainment channels are bound to be falling either in the Free-to-Air segment or Pay TV- 1 segment; it will be interesting to observe the strategy that special genre channels adopt in the coming months. We have listed below five genre channels and the options they will be faced in the CAS era.

2003 will see quite a few new News channels being launched. The English News channels will be expected to go with premium pricing while the Hindi News channels may be part of a bouquet of channel offerings to the viewer. The regional News channels have yet to attain a certain level of threshold viewership before it can demand subscription charges from viewers.

In Sports, the regular Test & One-day matches live telecast will be in the Pay TV-I slot. Special events live telecasts like the World Cup Cricket or Football will move over to Pay TV-II slot. Other big sports events that attract very niche audiences (Formula-I, Gland Slam Tennis, NBA Basket Ball) may either remain in the Pay TV-II slot or move over to Pay-per-View slot charging super premium subscription charges.

In Infotainment, the Specialists consist of channels telecasting super specialized, knowledge based content. With unique content, their base audience will be very low to attract huge advertising revenue. Hence, they will need to sustain themselves with subscription revenue model.

In Movies & Music, the channels telecasting latest tittles/labels will move over to Pay TV-II slot or Pay-per-View slot. This, for the first time, will provide the movie copyrights holder to choose an alternative system of airing his movie to a select audience and also earn revenue from it. This new route and the opportunity it provides will soon attract even the big budget movie producers to look at television as a distribution system for certain set of audiences.

In USA, the revenue share of Premium Pay TV channels and Pay-per- View channels is less than 20 per cent. Bulk of it is realized from subscription fees. In India, given the present viewership patterns, the share of Premium & Super Premium Pay TV channels is expected to be less than 10 per cent.

While broadcasters will be able to quickly work out their distribution strategies, are Cable Operators geared to adopt an open policy of working with broadcasters & subscribers in providing not only basic services, but also, Premium & Super Premium Pay TV services?

Cable Operators are divided into two segments. The MSO (Multi System Operator) acts as a feed provider to a large set of LMO (Last Mile Operator). Today, the LMO acts as a distributor of channel signals, sourced from the MSO, to various households in his locality. LMO interacts with the final subscriber, collects payments and pay a part of it to the MSO. Most of the LMOs are aligned to either one of the MSOs operating in the city. While many of the MSOs have invested better head-end infrastructure, the LMOs continue to operate with low end analog systems. In the CAS scenario, the LMO will have to invest resources in not only upgrading his control room systems, but also, setup and maintain a Subscriber Management System (SMS) to record number of Basic Free-to-Air subscribers & Pay TV subscribers. Besides this, he will need to pay out for purchase of set top boxes and later, recover it from subscribers, to provide them with access to Basic Free-to-Air & Pay TV channels. The LMOs are expected to resist this change, as it will mean a huge pay out for them.

This is where the government should step in and aid in creating a transparency in the entire system. As the government passes the law, it is also worth considering having a cooperative marketing of the set top boxes to the viewing household. The government’s regulatory body should ask for the coming together of the Broadcasters (as a bouquet), Cable operator (MSO & LMO), Set top box manufacturer and a Financial company as partners to aid in creating a clean & transparent system. The government’s regulatory body should also set up guidelines for third party auditing of SMS data submitted by LMO or MSO at regular intervals. The other area of concern will also be the revenue sharing ratio between LMO & MSO for Free-to-Air channels post the fixation of price by the government for the Basic tier.

On a proactive basis, the Indian government with the help of Bureau of Indian Standards (BIS), has already laid down the technical specifications & standards for the set top boxes. All equipment’s deployed by the cable operator must conform to BIS standards.

As CAS system slowly rolls into the four Metro markets having 6.7 million cable & satellite receiving homes in the coming months, along with the changes in the market place, we will also witness the overnight emergence of a more than Rs 10 billion set top box manufacturing industry!

In the next part, we will look at the impact of these changes on the present set of TV audiences, Choice in front of the content producers, Fine tuners required in an Advertiser’s media outlook as well as TV Audience measurement.

The Third Indian Television Revolution CAS & its impact in Indian Market Place-II

While the Indian government played a crucial role in supporting and developing a medium like television during the Eighties, the full exploitation of this medium happened with the now famous 'Blue' revolution (as the blue screen was replaced with images broadcast by satellite TV channels) in the Nineties. The broadcasters & local cable operators worked together to make this revolution happen for their viewers. Overnight, the same television viewers, who had a choice to watch one or two terrestrial TV channels on a daily basis, started to receive dozens of satellite TV channels. The power of television was unleashed on its viewers.

Today, almost one-fourth of the urban satellite TV receiving homes resides in the four top metro markets. Among them, Mumbai is the largest satellite TV market. It is also the first market to adopt satellite TV and is today, one of the highly penetrated satellite TV market (82% of TV homes subscribe to satellite TV channels).

The biggest impact of CAS is going to be witnessed in this market. Hence, Mumbai may well be treated as the test case for successful CAS introduction. In this scenario, it will be interesting to observe the behaviors of present satellite TV audiences under a microscope in the post CAS regime.

The broadcasters are expected to segment audiences based on key demographic ‘affordability’ variables like Monthly Household Expenditure, Product Category Ownership or Frequency of involvement in various Leisure activities to communicate their
product offerings. While this process is carried out, it will be even more important to understand the behavior patterns of these consumers, based on Communication Stimuli, Affordability and Time Period of Communication. We expect four large behavior
trends to emerge in the post CAS regime.

The Addict
Being already exposed to the present set of channels & programs, they have developed their own favorites. On implementation of CAS, this set of consumers will want their choice set to be part of the bouquet they purchase from the cable operator. They will be even willing to pay a small premium in ensuring that their daily diet of viewing does not get hampered. This segment may largely consist of Housewives & Youth. The channels that have ensured creating a strong equity for their programs among a large set of viewers will be able to maximize its gains.

The Information Seekers
Their dependence on television is also for content beyond entertainment. They need their daily dosage of News, Analysis and Viewpoints on happenings across the world. They also seek information related to fields unexplored by them, uncharted by many and look at television to provide and equip them with it. This segment may largely consist of Adult Males & Kids. They would be extremely choosy in selection of their choice of channels and will be ready to pay a hefty premium to receive the benefits. While today, this segment is small, with increasing awareness, its expected to continue growing.

The Flirt:
There can be two groups among the ‘Flirtatious’ segment.

(A) Receiving Pay TV-I bouquets and flirting with Pay TV-II channels In the pre-CAS era, having received almost 100 TV channels catering to almost every member of a large family, the household may still want to persist with all the Pay TV-I bouquet channels (along with all Free-to-Air channels). Then, based on the pricing for Pay TV-II Premium channels and family member requirements, the household may even decide to go for partial subscription (few months) to some of the Pay TV-II channels.

(B) Receiving only Free-to-Air channels and flirting with Pay TV-I bouquet of channels Telecast of big events or block buster Movies can tempt this set of group to go and seek subscription to Pay TV channels. They will be cherry picking the event, therefore the channel, based on their needs from time to time.

Both these are volume segment for Popular & Premium Pay TV channels to develop trials and create loyalty conversions. How successfully they do it will depend on its pricing and communication strategy.

The unsure:
The price of the CAS set top box (STB) to the end-user will define the number of Households exhibiting an ‘Unsure’ behavior. If the price to be paid for the set top boxes by the household is high, longer will be the gestation period for these homes to convert to receiving satellite TV channels again. Most of these Cable & Satellite TV receiving homes will then become only terrestrial TV receiving homes. On the other hand, this may also give raise to a new form of piracy, called ‘Community Piracy’. A single set top box may cater to three or four adjoining small homes (in Chawls or shanty colonies). This may happen when big events (like World Cup Cricket) are telecast on Satellite TV channels and all the homes may want to want the same channel/program.

The ‘Unsures’ are going to offer a new opportunity for content providers. Terrestrial channels like Doordarshan can bounce back if their content matches up to these audiences present & future taste.

While it is easier to identify segments based on expected behavioral trends, we will also need to quantify these segments on a continuos basis. TAM will be carrying out special establishment studies across all the four Metro markets to check for growth patterns in all the four segments. Besides this, TAM will also continue to project the universe size for Basic Free-to-Air channels & Pay TV channels. As universe penetration of CAS homes increases in the Metros, the Television Audience Measurement panel will also start representing this segment in respective markets.

Like in other TAM markets, where CAS exists (eg: USA), the PeopleMeter will be attached to the tuner of the set top box (instead of the TV tuner) to trace the frequency of the channel being viewed and to track the viewer profile on a daily basis. TAM will continue to be the only database to provide information on a Minute to Minute level about Who is watching, On what day & time is the viewing happening and What is the content being viewed by each of the individuals. For Pay TV channels to get reported for viewership, it will need to record threshold penetration levels (in each of the individual markets) in the regular establishment studies carried out by TAM.

All these changes will also have an implication on the way advertisers and media planners plan their brand’s media budgets. While the universe of TV viewers will split from the present two to three or even four (as indicated in the Part-I of this series), the bigger impact will be the viewer behavioral changes expected in CAS owning homes.

In the post CAS regime, the tuner will reside on the set top box to an ability to receive S-band or even Hyper band frequencies. This is bound to increase the choice set of channels for the CAS viewer (even if he does not subscribe to Pay TV channels).

(B) Access to Remote - Higher amount of channel Surfing Today, 27 per cent of the C&S homes do not own a Remote controlled TV set. With CAS rollout, access to the Remote unit will almost be 100 per cent.

in this segment. The implication of this is bound to have a bigger effect in rest of the towns as almost 40 per cent of the Urban C&S homes presently do not own a TV set with Remote control. Channel surfing will have a negative influence on advertising break viewing, thereby resulting in higher advertising spends by brands to reach and communicate to its ever increasing elusive target segment.

(C) New Vehicles to reach out to pinpointed target segments CAS is certainly not a friend of proponents who are strong advocates of mass consumerism. It will dissect audiences with clinical efficiency those who want and can afford vis-à-vis those who do not want a specific genre of content. This will enable the advertiser to increase the effectiveness of his communication by further tailoring his message to a core, unique group of audiences. For the first time on television, using Pay TV channel availability data from TAM establishment studies, the advertiser will be able to geographically isolate consumers and run special brand promotions in key markets.

Telemarketing info-commercials demonstrating product usage or creating communication that is closely related to a program’s content can be aired on channels that has clear-cut & authenticated subscriber/viewer profile and has responded to such stimuli in the past. Using a channel’s strong distribution network, the advertiser can even make that channel’s viewer experience the product too.

As television channels starts identifying itself with exclusive, narrow target segments via tailor-made unique content, the small advertiser’s reliance on the other two localized media- Press & Radio- will also start coming down.

The introduction of CAS into the Indian market offers endless new opportunities for the entire media industry. However, to tap all these opportunities, the industry players in each sector need to take the first step of implementing the CAS rollout. Only then will our journey begin.