When hefty cable and satellite penetration numbers were reported about the Indian cable and satellite market as little as five years ago, there was a mad scramble to enter what was then considered a potential goldmine. But wannabe broadcasters discovered that they were actually digging for fools' gold. There was lots of hype, little substance.

Five years, on the hype has once again starting gathering pace. The cable and satellite television industry has been consolidating. International television channels are once again making a beeline for it, existing channels are digitising and encrypting, while analysts have turned euphoric about its potential. Existing numbers however still don't offer substantial support.

In terms of critical mass, India's cable industry is second only to China in the Asia-Pacific. Indiantelevision.com estimates that India has around 28 million cable homes. And the numbers are rising by the day as more homes buy new TVs or a second one.

However, encryption is only up to the cable TV headend. Cable ops descramble the digitised signals and pass them on in a wholesale manner to all their subscribers. This is thanks to the last mile problem and the absence of a return path in more than 70 per cent of Indian cable TV networks. Additionally, addressable boxes have yet to make their way into subscriber homes.

Some stray efforts have been made to bring cable TV networks up to scratch. Some systems have gone up to 750 MHz bandwidth. But mostly cable TV MSOs have shouted from the rooftops that they are upgrading their networks to a fibre optic backbone. The shouting has been just that: shouting with little action.

In 1999, subscription revenue from encrypted channels was estimated between Rs 1,500 million- Rs 2,000 million ($23 million-$46 million), shared by a host of channels including Star Movies, Star Plus, ESPN, Star Sports, Star World, Discovery, Cartoon Network, HBO, Hallmark, Kermit, National Geographic, Animal Planet, and Zee Cinema.

As against this, the average per home cable TV subscription charge is on the upper side at Rs 100, giving a total of about Rs 2,000 million (for 20 million paying homes) a month, totting up to about Rs 2,400 million per annum for the entire industry. "Three years ago pay TV was a bad and untouchable word," says ESPN-Star Sports managing director Manu Sawhney, "Then there was a grudging acceptance, today it is a reality ...everyone accepts it as a concept."

He, however, says there is a major problem plaguing the industry in that all the players have done little to expand the subscription channel pie. "We have all tried to retain our shares rather than increase the size of the pie. We have not spoken in one voice." In recent times however Star TV has started an ad campaign exhorting cable operators and consumers on the need for subscription television. "We are building the background for pay TV. In the next stage we will start advertising a maximum retail price like most other consumer industries do," says Star TV executive vice-president Arun Mohan.

The Star TV exercise will help, but it seems more like a rearguard action to help protect the hike in basic subscription levies that the network levied on cable operators when it priced its channel packages at between Rs 17.50 and Rs 22 recently. Star TV is likely to
have a bouquet of some 16 channels and has recently inked agreements with production house UTV to provide content for its health and education channel.

Ranged against it is the leader in the Indian market Zee Telefilms which has just started its digital package rollout and has priced its bouquet at a cut throat price of Rs 11. It is undercutting Star TV on the sticker price of the digital set top box too by pricing it at Rs 2,000 as against the Rs 5,000 or so levied by Star TV.

The strategy has led to a major duel in the market with some cable operators hurt by Star TV's aggressiveness in the past even dropping some Star channels. "It's a very strong play by Zee TV," says an observer. "And in the short term it is going to hurt Star." Zee is keen on cobbling together an 18 channel bouquet in the medium term.

The third player in the digital pay TV sweepstakes is Sony Entertainment Television which is cobbling together its channel package. AXN, Set Max, CNBC India (it has just got TV 18 board clearance to take a 20 per cent stake in the channel) , and of course SET. It is believed to be in the running to get in Disney into India (as is Star). Talks are on with a gaggle of other channels including Discovery, Animal Planet, The History Channel.

The fourth player which is showing signs of aggression is B4U which is cobbling together a bouquet of channels consisting of B4U, MCM, Fashion TV, and B4U Movies. Distribution will be outsourced to the Satellite Management Group, which is a distribution company set up specifically for that purpose.

DD's channels which the government is likely to mandate carriage goes to make up the fifth bouquet. The final bouquet is likely to be the channels which chose to be not associated with any of the other bouquets and could include channels such as BBC World, CNN, Cartoon Network, HBO (these three channels are being distributed by Turner International India), Deutschewelle TV, TV5, Arirang TV, Hallmark, Kermit, Prabhat, Sahara TV, among several others. The fact that there are independent channels has led to the increasing importance of distribution companies such as Modi Entertainment Network (the pioneers), CAT Vision, the Satellite Management Group. Each of these firms will have a group of independent channels which it will bundle together for a package. "There's place for just three -four digital bouquets in the Indian market" says Sony Entertainment COO Rajesh Pant. "We intend to be at the forefront."

Sawhney says the move towards pay TV will not be easy because of the disparity in the infrastructure nationally from region to region. "You have to have a different way of managing pay TV in the rural market, which consists of around 8.4 million homes," he points out. "The market is too price sensitive there. So while you can totally encrypt and charge a high price for urban areas how will you cope with disgruntlement for the remainder of the populace in semi-urban and rural areas."

IndusInd Entertainment COO Ashok Mansukhani says the government should find a way to regulate pay channels through the consumer set top box regime. "It's a crisis situation for the MSOs," he says. "We are today giving away more than Rs 60 of the Rs 100 we collect from subscribers for various pay TV services."

Pant believes mandating or regulation will prove detrimental to the cable TV industry. "Cable TV has grown in the absence of regulation. Let India follow the Taiwan model and leave it to market forces," he says. He sees a scenario where pay TV revenues will end up being equal to advertising revenues. "This has to happen as the ad market is not growing rapidly enough," he says. "However," says Sawhney "there are no easy solutions to get us there. The pay TV industry like water in a glass will take shape as it has to."