Consumers will slowly adopt set tops post-CAS: Morgan Stanley

NEW DELHI: Considering that cable television is the cheapest form of entertainment in India, a Morgan Stanley (MS) research on conditional access system (CAS) estimates that consumers will "eventually adopt" the set-top boxes needed in a CAS regime. Because the market is price sensitive one, the rate of adoption is likely to be "slow".

"As most of the compelling content will be in the pay mode, we believe the consumer will eventually adopt the set-top box (STB). The rate of penetration will remain the key factor, in our view," the MS report states.

According to Morgan Stanley estimates the top income brackets are also the first targets for STBs with the highest level of penetration.

The impact on consumers once CAS is rolled out will be as follows, according to Morgan Stanley:

*The investment in a set top box (STB) is likely be one of the largest incremental spends for the low-income group households over the next few quarters.

*Income demographics in the metro cities suggest that 27 pr cent of the total TV households (HHs) will be able to afford the STB either through outright purchase or rent.

*The consumer will have to purchase or pay a refundable deposit to rent a STB, which will likely cost around Rs 2,000-Rs 3,500 for viewing pay channels.

*Beside the STB refundable deposit, the consumer is likely to have to pay a monthly rental on STB of around Rs20-30 per month, depending on deposit amount.

*The monthly cable bill of the consumer is also likely increase from the Rs150-Rs250 level to around Rs180-Rs330 depending on the pay channels they subscribe to.

*The consumer opting to receive only FTA channels will not have to buy a STB. The cost of the FTA bouquet will be around Rs 100, compared with the current cable monthly bill of Rs 150-Rs 250.


Television has the highest reach across all socio-economic classes in India. More importantly, the time spent watching television is increasing, as it is the cheapest form of entertainment for any household in the country, especially for low-income households.

Prior to 1991, Indian television households received reception from only one state-owned terrestrial broadcaster, Doordarshan. AT presently, cable TV households receive nearly 50-100+ channels depending on their service provider.

The growth of TV households has been 11% annually for the past decade. Morgan Stanley estimates the number of TV households to have grown to 85 million in FY2003 from about 25 million in FY1992. Cable TV was introduced in India in 1991.

Dwelling on the penetration levels, the report states that it has increased to 44 million households. This is equivalent to 90 per cent of new TV households for the past decade. Cable television households have grown at a 40 per cent compound annual rate over the past decade, while cable television penetration is nearly 52 per cent of TV households and 23 per cent of total households in India.

Compared to some other sectors, the penetration of television as well as cable television has been the fastest in the country if juxtaposed against growth in fixed telephone line users or two wheelers, indicating the desire and need for cheap entertainment.


Pointing out that the "biggest uncertainty" is the price elasticity of the consumer and the latter's propensity to spend on a gadget, which will not likely give the consumer any additional benefit, the report says, " The industry will need to try to change the consumer's mindset for adoption of CAS. We believe that the Indian consumer is extremely price-sensitive and will likely be slow in adopting the STB. "

Consumers are likely to be able to purchase or pay a refundable deposit of Rs2,000-Rs3500 for a digital STB as some MSOs have launched early-bird schemes with a Rs. 999 refundable deposit to accelerate penetration.

"Although the boxes will likely be available with attractive financing schemes, this would mean a high one-time expenditure. We believe that consumer resistance to the STB should be high initially, but expect the STB penetration to accelerate gradually as most of the compelling content is available on pay channels," the MS report goes on to add.

Though the pay channels have not yet come out with their pricing ---an earlier pricing now will have to be reworked --- Morgan Stanley feels that the average increase in monthly cable bill for the consumer to receive all channels is likely being around 20-120 per cent. "However, the consumer may not take all the pay channels and thereby reduce the monthly cable bill," the report explains.


Data compiled by Central Statistical Organization shows that the urban consumption-spending pattern has been changing over the past few years. The private capital consumption expenditure has recorded a 14.1 per cent compounded annual growth rate (CAGR) in nominal terms and 4.00 per cent per annum in real terms between 1994-2000.

The growth rate is in line with the growth in per capita income during the period. However, the areas that have grown ahead of the average spending growth are healthcare, education and entertainment.

"We believe this is especially true for middle-income groups. After growing ahead of the averages, the traditional non-durable goods have grown only in line with the averages," the MS research states. The decline in the proportion of spending on essentials has been compensated for by the increase in spending on healthcare, education, and recreation.

The latter is being mainly driven by an increase in aspirations and the availability of better-quality products and services. "While the consumer has been shown to be willing to spend on entertainment, the key issue is whether the consumer will spend a higher amount of money to get the same channels and content as before," MS poses a question that is haunting even the cable and broadcast industry in the short term.

The propensity by the consumer to spend on the STB and pay a likely higher monthly cable bill will mainly be driven by compelling content. In fact, the ability of the pay bouquets to charge for their content currently is an indication of the consumer pull for their bouquet.

Second, most of the top channels with high reach are part of one of the three key bouquets - Star, Sony, or Zee. Current viewership patterns suggest that the pay channels have significantly higher viewership compared with the free-to-air (FTA) channels. "Consequently, we believe that the consumer's desire to watch compelling content will drive the former to invest in a STB and pay a higher monthly bill," the report states.

The rate of conversion, of course, will remain debatable.


The four metro cities are likely to have 6 million cable TV households (HHs) out of a total of 9 million households, implying an average penetration of nearly 64 per cent.

While the cable TV penetration is estimated to be over 70 per cent in Mumbai, Delhi, and Chennai, it appears to be the lowest in Kolkata at 40 per cent, the report says.

There are 4.06 million households in the top two income groups (income above Rs105,000 per annum) and they comprise nearly 45 percent of the total metro households and 68 per cent of the total cable TV households in the metro. "This will be the likely target population for the STBs. We believe that a STB penetration rate of 25 pr cent or 1.5 million household is achievable in the first year," the reports points out.

There are 2.4 million households in the high-income group and they comprise 27 per cent of the total households in the four metro cities. These households are likely be the first ones to adopt the STB, according to MS estimates, while the price of the STBs will be around 2.5 per cent of their annual incomes.

The monthly cable bill (assuming Rs330/month for all pay channels) is likely to be around 3 per cent of their average monthly income. More importantly, the incremental spend of Rs30-Rs150 should be only 1.2 per cent of the monthly household income.

The income levels of the upper-middle-income group household ranges from Rs105,000 to Rs140,000 per annum. These households should adopt the STB over a period of time, but the price elasticity of these households is likely be "very high and the rate of adoption likely to be slow".

There are 1.68 million households in the upper middle-income group and they comprise 19 per cent of the total households in the four metro cities. The price of the STB will be around 3.3 per cent of annual income. The monthly cable bill (assuming Rs330/month for all pay channels) is likely to be around 3.7 per cent of their average monthly income.

More importantly, the incremental spend of Rs30-Rs150 is likely to be only 1.7 pr cent of the monthly household income.

There are 20.4 million households in the top two income groups (annual income above Rs105,000 per annum) and they comprise only 12 per cent of the total households in the country, but nearly 46 per cent of the total cable TV households.

"This will be the likely target population for the STB. We believe that a STB penetration rate of 32 per cent or 23 million household is achievable by FY2008," Morgan Stanley concludes.


Cost of Entertainment in India

Amount a user pays (Rs.)

DVD rental 125

VCD rental 30-80

Movie ticket in a metro area for three hours 25-150 

Music cassette 25-125 


24-hour TV w/>50-100 channels per month 150-250


Set Top Box Purchase / Deposit 2,000-3,500

24-hour TV w/>50-100 channels per month 180-330

(Source: Morgan Stanley Research)

Penetration Levels in India, F2003

Number (millions) 

Number of TV Households 85.1 

Number of C&S Households 44.1 

Number of PC's in India 6.8

Number of Internet Users 6.0 

Number of Cellular Users 14.4 

Number of Fixed-Line Users 40.4

Number of Fixed-Line Users 40.4 

Number of 2-Wheeler Owners 42.0 

(Source: FICCI, Industry Data, Morgan Stanley Research)

Pay Bouquet Subscription Rates

Calendar Year (Rs / Month)    2001    2002    2003    Post-CAS

Zee Turner    41    42    55    55

Star Network    30    41    30    30

ESPN-Star Sports    16    24    32    32

SET-Discovery    22    40    55    55

Modi Bouquet    9    13    13    13

Total    118    160    185    185

FTA Tier    -    -    -    72

Tax    36    38    45    51

Total    154    198    230    308

Average Cable Bill to Consumer    100-150    125-200    150-250    150-300

(Source: Morgan Stanley Research)

Channel Reach in the 4 Metros

Bouquet    Mumbai    Kolkata    Delhi    Chennai

Zee Bouquet

Zee TV    85.9    91.5    83.4    24.8

Zee Cinema    74.6    92.4    66.2    8.2

Cartoon Network    45.4    44.3    50.6    43.8

Zee News    48.6    37.9    70.6    0.0

One Alliance

MAX    87.4    97.3    79.0    49.2

SET    86.8    91.7    82.0    34.5

HBO    53.6    61.4    49.8    43.7

Discovery    53.9    58.1    45.7    30.6

Star Network

Star Plus    87.9    89.9    89.8    37.3

Star Movies    61.5    62.9    41.8    54.7

Star Gold    69.9    62.8    68.7    0.8

Natl Geographic    46.9    64.4    46.4    36.3

(Source: Satellite and Cable TV magazine)

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