THE DTO CHALLENGE FOR ZEE TV

Within the next couple of months, Zee Telefilms is scheduled to announce and launch its much-talked about direct to operator (DTO) project. The official announced date is 14 November but it is not clear if this will be kept. Already, Zee TV has introduced Nickelodeon and three of its own niche channels under the Alpha brand, Marathi, Bengali, and Punjabi. The flagoff of Alpha Gujarati is to take place next month to be followed by two English services. And two additional services branded Organic Channel and Khajurao are to be launched by mid-next year. But before then, Zee TV will have added other channels to its bouquet; the network is in talks with almost every channel in the US and Europe to make them part of its Indian DTO platform. The target is a bouquet of 28 channels in the near future.

Zee TV will naturally position other services that it had launched earlier such as Zee News, Zee Cinema, Music Asia, as part of the DTO package. "The cable operator is making money out of our programming; we want some of it," says Zee TV chairman Subhash Chandra. One expectation is that Zee TV's associate firm Siticable will try and charge cable operators anywhere from Rs 20 to Rs 50 for the bouquet, when it is fully and finally ready.

Star TV was the first to launch a digital package with a bouquet of six seven channels, but because none of the channels was a mass viewing option, it failed in moving Indian cable TV operators to make their networks addressible. Today, there is a high incidence of under-declaration of subscribers by cable TV operators and programmers have to be content with whatever payments are dished out to them. If managers at these channels push a little bit for extra payment, they either find their services blacked out, and additionally bad mouthing in the media about their bullying tactics. Politicians have in the past taken advantage of this schism between the cable TV trade and programmers and have stated that they will support the former (as this stance suits their political franchise).

Will Zee TV's DTO serve as a driver for India's pay TV market which has been singularly kept on a leash courtesy the lack of addressability? There are several creases, which will have to be ironed out to ensure its success: the pricing of the programming package and the tiering offered. The pricing of the digital receivers for cable TV operators, and how much financial and technical support is going to be offered to them for their encrypting equipment. The financial packages that will be drawn up for cable TV operators and individual subscribers for consumer addressable set top boxes.

One major influence on whether the Zee TV DTO package will drive the pay TV market will be the status of Zee TV. Will it continue in analog mode as a free service or be digitised and be converted to a pay TV channel for the Indian market? The company's management thinks the time to convert Zee TV to a pay TV service is not now. The network, while it is likely to notch up advertising revenues of Rs 5,000 million this year, has been under attack from a fast catching up Sony Entertainment and the resurgent Star Plus. Conversion to an encrypted pay TV service will immediately reduce its penetration to less than one third of what it has currently, that is about 6-8 million. That drop may well lead to a plunge in advertising revenues of 40-50% or even higher. Zee TV will have to sustain this drop for sometime. Revenues from subscription - if Zee TV alone is priced at Rs 10 per subscribing home - could tot up to Rs 500-700 million a year in the first year of encryption. The loss of air time advertising could in the worst case result in revenues halving - that is to about Rs 2,500 million.

But there will be immense pressure from viewers on cable TV operators to make Zee TV available even as a pay TV service. However, the contrarian view states that because of the presence of Sony Entertainment and DD in Indian homes, the number of viewers who are likely to be perturbed if Zee TV suddenly vanishes from their screens may not be enough to force a paradigm shift in the market towards addressability. Hence, Zee TV may have to plod along with not only a loss of advertising revenue but also with a less than optimum contribution from subscription revenues for more than a couple of years. This could put Zee Telefilms in a precarious position on the bourse too. What has been helping Zee Telefilms thinks big is its market capitalisation and if it loses that, the company's many plans may well be on a sticky wicket.

Bearing this in mind, it is highly unlikely that Subhash Chandra and his team will encrypt Zee TV and make it a pay TV service in the Indian market early on during the rollout of its DTO project. However, Chandra says he will try to generate as much revenue for the service in a digitally encrypted mode outside of India. Says he: "There are close to 10 million homes in Asia which can receive Zee TV today. We want to encrypt Zee TV to tap into this segment. Even if half of them agree to pay a dollar each to watch the channel over the next two years, the revenues work out to $60 million a year for us. That's attractive enough money for us to consider digitalisation and encryption."