|
Impact on broadcasters:
The report claims that broadcasters will be the key beneficiaries
of CAS, if implemented in a realistic time frame. This is notwithstanding
the fact that markets have been concerned about the government's
compulsory addressability plan hurting broadcasters' pay revenues.
The report claims that CAS presents a sustainable and long term
upside for broadcasters enabling them to earn their due share of
the US$1billion cable pie via pay revenues.
The report adds that the current 'faith' based direct-to-operator
(DTO) pay system might look attractive/ easy to tap in the near
term, but it represents only a tactical upside for broadcasters,
given the current state of fluid relationships across the distribution
value chain and the problem of underdisclosure.
The report mentions that the implementation of phase I of CAS over
15 months (FY04) could increase broadcasters' revenues by 31 per
cent in a base case scenario even after factoring in:
(a) 30 per cent piracy/ subscribers loss
(b) 20 per cent discount to bouquet price and
(c) 11 per cent fall in ad revenues owing to reduced connectivity
to the cost conscious (lower affordability) class of viewers.
However, the report feels that the real risk lies in :
(a) the government setting an unrealistic (~6 months) CAS implementation
schedule,
(b) government fixing a high price (e.g.~Rs150/month) for the FTA
tier,
(c) unwillingness of last mile operators to offer CAS can hurt viewership,
(d) piracy
The analytical report also foresees richer business models for
MSOs resulting from the CAS, as they would acquire virtual control
over the last mile through control over STBs. ML analysts see Zee
(Siticable) and Hinduja TMT as the key beneficiaries. ML's bullish
stance on CAS is based on four assumptions:
1. The Big four NOT to go free-to-air (FTA): ML analysts believe
that given their respective compulsions to remain pay, the frontline
channels of the big four pay bouquets viz. STAR, ESPN-SS, Zee and
Sony will remain in pay mode post-CAS.
2. Majority of consumers will buy STBs - given that much of the
compelling content will be in the pay mode and the price of an analogue
STB will not be prohibitive (say, lower than for e.g. the price
of a consumer durable such as mixer-grinder). However, price of
the FTA tier and financing of the STB (especially if it is a digital
box) will be the key driving STB penetration.
3. ML analysts also believe the government will set a realistic
timeline for CAS implementation: Considering the size & complexity
of the CAS system, the report states that the government needs to
set a realistic (>12 months) implementation timeline. The report
adds that the discussions with the I&B ministry has given an impression
that the government will set a realistic implementation timeline
in consultation with multi systems operators (MSOs), broadcasters
and equipment suppliers. ML analysts feel that the government can
ill afford the risk of consumers' ire resulting from having to see
blank TV screens caused by lack of STB supply.
4. Box supplies/ financing to fall in line. ML analysts believe
that the sheer size of the business opportunity, estimated at Rs10
billion for phase I of CAS, will induce equipment manufacturers,
MSOs and financiers to offer an attractive package to consumers
to buy set-top boxes.
Key Risks To Broadcasters' Pay Revenues On CAS Adoption
The report states that the key risks to broadcasters' pay revenues
owing to adoption of CAS are:
(a) Specification of an unrealistic (6 months) implementation schedule
for CAS by the government owing to lobbying by vested interests.
The latter may wish to mandate a shorter deadline, within which
time frame CAS cannot possibly be implemented. This move may, as
a consequence, likely force pay channels to turn free-to-air in
order to safeguard their connectivity (ad revenues).
(b) Government fixing a high price (say Rs 150/ month /home) for
the base tier that can create two problems - to make the overall
package (incl. pay channel rent & EMI for STB) expensive and to
leave less incentive for the ACOs to market pay channels to earn
additional revenues.
(c) Unwillingness of last mile operators to upgrade network/ offer
CAS, which could hurt viewership.
(d) Predatory moves by any one of the top three broadcasters viz.
Star, Zee & Sony who might take their frontline Hindi general entertainment
channel into the FTA mode to capture a higher share of ad revenues.
(e) Piracy: Piracy is inherent to any CAS. The key point that the
report has raised is: what is the piracy/ under-disclosure of pay
subs in the current DTO system v/s in CAS. ML analysts expect the
level of piracy/ under-disclosure of pay subs to decline from 75-80
per cent to 25-30 per cent with implementation of CAS, led mainly
by improved control of MSOs over the last mile.
Further, ML analysts believe that the broadcasters who have a presence
in the cable business, such as Zee & Star, will have an upper hand
whilst tackling piracy problems.
Impact On MSOs
The ML report also foresees richer business models for MSOs
as a result of CAS, as they would acquire valuable direct control
over the last mile without much of capex. The ML analysts predict
that Zee's cable arm - Siticable, which is India's largest MSO,
Hinduja TMT and Hathway (Star holds 26 per cent equity) to be among
the key beneficiaries. The report also states that Zee (Siticable)
and HTMT could offer investors a play on the MSO business upside.
Key Uncertain Issues As Yet
* CAS implementation timeline
* Technology of CAS - the kind of STB & funding
See related story:
Merrill Lynch gives Zee
buy status post-CAS
|
