No pay means only pain for pay channels!

Speculation is rife that most pay channels will turn free-to-air (FTA) post the implementation of conditional access system (CAS) on 14 July 2003. The I&B ministry is working overtime to convey this ray of hope to the already traumatised television viewer. Media analysts, politicians and consumer groups too, are predicting such an eventuality.

An overview of the pay television business shows that turning free-to-air is not an economically viable option for pay channels.

Let's look at some quick calculation...

CAS is to be implemented in four metros Mumbai, Delhi, Chennai and Kolkata. According to NRS 2002, there are 6.4 million C&S homes in these cities. With a total C&S universe of 42 million homes, over 85 per cent of C&S homes rest beyond the four cities and where CAS is not applicable.

For pay channels, the connectivity (the number of homes you eventually get paid for) in the four metro cities is the lowest at anywhere between 5-10 percent. Thus, for all bouquets of pay channels, over 90 per cent distribution revenues come from rest of India.

If a pay channel decides to go FTA, it cannot do so only in the four metros as the free-to-air signals can be picked up anywhere in the satellite footprint. It will have to let go of all India subscription revenues that range anywhere between 50 per cent for sports and other niche channels, to about 20 per cent for popular mass entertainment channels.

The newly turned FTA channels will confront a further problem in the cable operator, who is now armed with the notification, and hence legal protection, with no obligation to carry more than 30 FTA channels. Well, the FTA channels wanting to be part of the basic service tier will have to pay huge 'carriage fees' to the cable operator.

The total impact on a pay channel's overall revenues if it decides to become FTA is likely to range between 30 and 60 per cent of the current total revenues. One will also have to forsake the huge potential subscription revenues.

Let's analyse the impact on advertising revenues if the pay channels decide to remain pay post-CAS. Again, 85 per cent of the C&S homes are beyond these four metros and will continue to receive the pay channels without investing in set-top-boxes. The viewership therefore will be affected only to that extent. However, the C&S homes watching popular Hindi entertainment pay channels in Chennai and Kolkata is very low. Hence, the impact on actual viewership may not across 10 per cent.

Some people will argue that for advertisers, the urban TV viewer is the most affluent spender and the advertising revenues will thus be impacted more. From advertisers' perspective, there is some merit in that argument. However, if you look at the SEC classification, all ABCDE categories reside in the four metros with CDE categories dominating in absolute numbers.

The total impact on a pay channel's overall revenue if it decides to remain pay is likely to range between 10 and 15 per cent of the current total revenues. If one compares the impact on revenues, isn't there a clear choice for pay channels to remain pay?

Beyond the immediate impact, let's look at the big opportunity. At the current average pay bouquet rate of Rs 50, and at the current average connectivity in the four metros at only 10 per cent, the average realisation per subscriber home is only Rs 5 per month for supplying about 10 quality pay channels! That's a paltry 50 paise per month per channel per subscriber home. Whereas each consumer will end up paying Rs 3.50 per month per channel per subscriber home for FTA channels. Now isn't it a huge opportunity for pay channels if they are able to increase realisation up to Rs 5 per month per channel per month per home!

Samir Kale, MD, CMCG and president, SportzPR

(The views expressed here are those of the author. www.indiantelevision.com need not necessarily subscribe to them.)