The Morgan report reasons that broadcasters have gained through
increasing pay revenues in the last 3-4 years. As the revenues come
without much attendant costs, the "pay revenues" have
helped profitability of channels significantly. As per Table
1, the pace of pay revenues has been increasing since the past
A case referred to in the report was Zee. The report estimates
that the company would have close to Rs1.6 billion from the domestic
pay market in FY03. These revenues would be the key driver of profits
in years that advertising revenues of the network are weak. The
report also adds that for Star TV, pay revenues form about one third
of total revenues.
Broadcasters: pay revenues increase likely to propel fall in
The report envisages that the broadcasters have to bring down their
channel rates with the advent of CAS; that is, if one goes by their
promise of bringing down rates if declaration levels improve.
As is shown in Table 6, the net
impact on channels should be marginally positive only. In the above
calculations, the report has assumed a 60 per cent box adoption
which might be slightly on the higher side. However, one must note
that this assumption compares with a declaration rate of 30 per
cent currently (which is higher than an all India rate of between
15-20 per cent).
The Morgan report has taken higher rates into account, as the analysts
believe that the addressable market for broadcasters is lower than
the total reported homes in the country. There are a huge number
of cable homes in rural areas, which will be tapped only over a
period of 5 years.
Given that the first phase of rollout is in metro areas, the Morgan
reports believe that the concerns there are overblown. Since metros
are controlled by MSOs and since declarations are the lowest from
metros, the impact on pay revenues should actually be positive.
The negative impact, if any, would likely be with very high pay
connectivity channels, i.e. channels belonging to Star Plus.
Broadcasters: impact on advertisement revenues unclear
The impact on advertising revenues is not very clear at this point
in time. There are two extreme schools of thoughts. The first viewpoint
is that the channels would have to become free-to-air to get ad
revenues after CAS gets implemented. The second viewpoint is that
there would be no impact on ad revenues, as the opportunity to the
advertiser would continue to lie with the successful channels only.
Morgan's analysts believe that the actual truth would be somewhere
in between. On an overall medium term basis, they believe that CAS
would lead to a well regulated, better managed cable industry with
few revenue leakages in the system. This can only be positive for
all market participants in the medium term. The uncertainty is on
how would the ad revenues behave till the time rollout of boxes
takes place fully.
Again, since the first phase of rollout is in metros, which are
relatively affluent, the box adoption should remain reasonably high.
Thus the initial impact on ad revenues should remain minimal.
In the longer term, the report assumes that there could be hybrid
strategies being adopted by various networks. This could include
keeping some channels as pay and making some channels FTA.
Will Bundling Continue Post CAS?
Currently, the channels are sold in bundled form to the customer.
The report believes that the advent of CAS would not mean that bundling
would go away. The existing bundles would continue to offer bundled
entertainment solutions to customers in order to maximize pay revenues
for marginal channels.
Broadcasters/Distributors - three main bouquets have arisen
The report points out that Star, Zee-Turner and Sony (One Alliance)
form the three main broadcasters in the market.
Structure of the pay bouquets - six main clusters
As far as the structure of the pay bouquets is concerned, the
report says that there are six primary pay bouquets existing in
the cable TV market-Zee-Turner, Star package, Sony (One Alliance),
ESPN-Star Sports, Modi Entertainment Network (MEN) and Sun TV Network
(regional). Additionally, there are certain standalone pay and Free-To-Air
(FTA) channels. Overall, the total number of channels that a consumer
gets in the city is in the range of 75-85. Table
2 below shows the mapping of the channels by segment.
Subscription rates have been rising steadily
The report claims that the problem of low disclosure for the
broadcasters has led them to a strategy where they try to offset
under-declaration losses with greater rates.
Subscription rate hikes have been a regular feature once a year
and at times twice a year for the bouquet. From the initial Rs2/month
pay rates for Star Movies in October 1994, the pay TV rates have
seen substantial rise.
Table 3 shows how the rates of the
five bouquets have changed over the past one year. Table
4 shows how the rates will increase in 2003.
Zee-Turner Bouquet's strength is its breadth
The report feels that the Zee-Turner bouquet has a lot of breadth
despite the fact that Star Plus is clearly the most popular channel.
Additionally, Sony's MAX, with the cricketing rights, is likely
to draw large viewership during World Cup in February and March
2003 and the flagship Sony channel has usurped the No. 2 position
from Zee TV. However, the report claims that the Zee-Turner bouquet
provides the strongest value for the customer. Despite the current
drop in popularity of the flagship channel Zee TV, the analysts
believe that the drivers for the Zee-Turner bouquet are much more
sustainable than the Star bouquet or One Alliance (Sony).
The report claims that it has checked its hypothesis with several
cable operators. Nearly all of them felt that, ratings notwithstanding,
the popularity of the Zee bouquet is certainly comparable to the
Star and Sony bouquets. The operators opine that Zee TV has bottomed
out and that they have definitely noticed an increase in Zee TV's
visibility. Additionally, these operators feel that there is a demand
for other channels in the bouquet like Zee Cinema, Zee News and
MSOs biggest gainers - JP
Morgan CAS report
Encryption at MSOs/ICOs
likely - JP Morgan CAS report
Mixed impact on industry
constituents - JP Morgan CAS report
Zee bouquet has better
breadth - JP Morgan CAS report