The TV viewing experience of 167 million households in India is undergoing a radical transformation with the government making it mandatory for cable operators and multi-system operators (MSOs) to shift from analog to digital transmission systems. This involves the transmission of TV signals in an encrypted format through a digital addressable system (DAS). The move is aimed at making TV viewing more interactive, personal and social, and is likely to prove to be a game changer for the broadcast and cable industry.
Digitisation presents several benefits to all the stakeholders involved – consumers, broadcasters, MSOs and local cable operators (LCOs). For subscribers, it promises an enhanced experience and wider content choice at affordable rates. Viewers have the freedom to select the channels they want to view and accordingly budget their expenses. The picture and reception quality is better in the digital medium vis-à-vis analog systems. In order to avail of digital cable TV services, consumers are required to install a set-top box (STB) at their premises. These STBs can be installed on a rental/hire purchase/outright purchase basis.
Digitisation will also equip LCOs to compete against direct-to-home (DTH) players and enable them to increase scalability for cross-selling other services. As for broadcasters and MSOs, the process will address the issue of under-reporting of subscription revenue by LCOs. Reportedly, LCOs under-declare subscriber numbers by as much as two-thirds, which has resulted in a major dent in broadcasters’ pockets.
Further, digitisation will result in the emergence of a large number of pay channels with improvised content. Consumers will be able to watch niche channels and access value-added services (VAS), including broadband, video-on-demand, telephone and interactive television services. VAS would create new opportunities for content developers and drive ARPUs for MSOs. Also, consumers would watch advertisements that are relevant to and in sync with their TV viewing patterns. They also have the choice to record their preferred media and educational content, play games, etc. Digitisation will also enable wider adoption of emerging services for in-home automation and security, and home, health and lifestyle applications. In sum, digitisation is likely to usher in convergence across the media, entertainment and telecom segments.
The DAS programme has been undertaken in four phases. Phase I was completed in October 2012 and involved the digitisation of cable networks in Delhi, Chennai, Kolkata and Mumbai. The second phase was completed in March 2013 wherein about 18 million STBs were installed in 38 cities, with a population of more than 1,000,000 across 15 states. The third phase focused on all other urban areas except cities/towns covered in the previous two phases and was scheduled to be completed by December 31, 2015. However, it hit a roadblock when MSOs of several states including Telangana, Andhra Pradesh, Maharashtra, Guwahati and Odisha appealed to the high court for deadline extension. The fourth phase is currently under way and the government is striving to complete the process in the rest of the country by December 31, 2016. Industry experts, however, believe that Phases III and IV would take three to four years for completion as these involve a significantly greater number of cities than the previous phases. Further, most of the areas covered under these two phases are Tier III cities and rural areas that lack basic digital infrastructure.
The government has made it mandatory for cable operators and multi-system operators to shift from analog to digital transmission systems. This move is aimed at making TV viewing more interactive, personal and social, and is likely to be a game changer for the broadcast and cable industry.
Implementation challenges in DAS
With the sunset date for mandatory digitisation approaching fast, there are ground-level challenges and unresolved issues even in the Phase I and II markets. Owing to these issues and challenges, even three years since its start, digitisation has not been able to achieve its target of addressability and transparency in billing systems.
According to ICRA Research, addressability continues to remain a key area of concern for MSOs in Phase I and II markets due to the slow progress in the consumer application form collection process and LCOs effectively retaining their control over the subscriber base. Further, disputes over the sharing of entertainment tax liability between LCOs and MSOs have restricted the implementation of gross billing and channel packages for most players in the key markets such as Mumbai and Phase II areas.
In addition, the growth in ARPU for MSOs has remained constrained as collections are made largely on per subscriber basis and not on the basis of the channel packages chosen. The expected benefit of higher subscription revenues for MSOs and broadcasters is yet to be achieved. Also, end-consumers are yet to gain from the targeted subscription packages that were expected to optimise user experience.
Road ahead for DTH players and MSOs
For DTH players, the key growth drivers in Phase I and II cities have been significant price hikes in cable TV offerings, higher penetration of VAS and the introduction of high-definition (HD) channel packages. Going forward, DTH is expected to gain considerably in the rural markets in Phase III and IV cities, primarily on the back of easier reach in the cable-dark areas. Moreover, incremental investments in infrastructure in the rural areas and relatively high operating costs render it commercially unviable for national MSOs to enter such markets.
However, in view of the large growth opportunity that exists in these markets, MSOs have opted for inorganic growth strategies. To this end, several regional/ local operators have been acquired by the national MSOs while some MSOs have also entered into strategic joint ventures to ensure their healthy presence in Phase III and IV markets.
Moreover, since the rural markets continue to remain cost sensitive, MSOs and DTH players are also looking to introduce plain vanilla STBs, specifically for these markets, for encouraging subscribers to migrate. For instance, Dish TV recently launched a lower-priced STB under the brand name Zing, the base pack of which is typically 20 per cent lower than a regular Dish TV STB.
IPTV – The future of broadcasting?
Internet protocol television (IPTV) refers to a system through which multimedia services, including video, audio, text, graphics and data, are delivered using an IP suite such as the internet, instead of being delivered through the traditional terrestrial, satellite and cable TV formats. IPTV services can be classified into three main groups. The first kind is video-on-demand IPTV that allows a customer to watch a programme from a catalogue of videos as in the case of Netflix and Hotstar. The second is time-shifted IPTV that provides scheduled broadcasts at a time convenient to the customer. The third kind is live IPTV or IP simulcasting that involves broadcasting of live TV programmes. All these three forms of IPTV can work either using the customer’s computer and an ordinary web browser, or through an STB with an ordinary digital TV. The STB is placed between the internet modem and the existing TV receiver for decoding incoming signals.
According to industry estimates, the global IPTV market was around $34.67 billion in 2015 and is expected to reach $93.59 billion in 2021, growing at a compound annual growth rate of around 18.01 per cent between 2016 and 2021. IPTV adoption is being driven by the increasing demand for HD viewing, decreasing cost of IPTV services and entry of several new start-ups in the space.
The Indian IPTV market, however, is still at a nascent stage, which can be attributed to the low broadband penetration and lack of requisite infrastructure to support the growth of IPTV. While many countries have successfully installed optic fibre cables for deploying high quality IPTV services, India is still dependent on copper or coaxial cables for IPTV deployment over digital subscriber line (DSL), asymmetric DSL and ADSL2+ network infrastructure. Besides, IPTV requires at least a 1.5 Mbps line for basic services and an 8 Mbps line for HD TV services, speeds which are seldom achieved in many parts in India. IPTV’s adoption in India is also hindered by the fact that it is more expensive than other channels. Although the cost of IPTV services offered is quite competitive, the cost of IPTV STB is still very high compared to the traditional DTH or cable STBs. India currently lacks the appropriate regulatory and legal framework for IPTV, particularly for time-shifted IPTV with regard to content storage, redistribution and super-distribution (access from multiple devices). There are also no well-defined laws to protect the privacy of user content.
Meanwhile, the Indian market has witnessed an interesting trend where state-owned operators including Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) have been more aggressive in launching and promoting IPTV services as compared to their private peers. The biggest differentiator for MTNL/BSNL is that they can leverage their large fixed line networks, which are larger than those of private telecom competitors. India’s first IPTV deployment was in 2006, when MTNL rolled out its IPTV service called “MyWay” in Mumbai. This was followed by BSNL. Other major players like Bharti Airtel and Reliance Communications were given the go ahead by the Telecom Regulatory Authority of India to launch their IPTV services in the Indian market in February 2008. Airtel launched its service in January 2009.
DTH versus IPTV
DTH service is the most obvious competitor of IPTV. Notably, both these platforms have their own sets of merits and demerits, and the industry opinion is divided about which is the better option. DTH currently has the advantage of customisable packages, rather than the all-or-nothing service offered by most IPTV providers. In the case of DTH, there is no need for a middleman between the broadcaster and the consumer, whereas IPTV requires an ISP to act as a bridge, further increasing costs. In this respect, DTH can provide better value for money, particularly as an IPTV box or internet-enabled TV can be much more expensive than installing a satellite dish along with an STB.
One of the arguments against DTH is the potential loss of signal due to bad weather or hardware failures, whereas an IPTV box can only be affected by problems related to domestic internet connections. However, in areas with patchy internet access, that can be a significant problem in its own right.
Moreover, DTH is a stand-alone service that is paid for independently, while a single IPTV box can deliver triple-play services of voice, data and TV using shared infrastructure and a single account. Thus, IPTV generates economies of scale, which is further complemented by the fact that IPTV prices are coming down due to fierce competition among providers to lock in consumers with triple-play packages.
Despite execution delays, cable TV digitisation in the longer term is expected to bring in significant benefits for consumers, operators and broadcasters. Industry players are expected to witness sustained growth in subscription revenues and increased penetration of VAS such as HD channels and video-on-demand in digitised markets. As the industry progresses to the last two phases of digitisation, an uptick in activation revenues is also expected in the next few months. This, coupled with the scale-up in the broadband business segment as telecom operators continue to make incremental investments towards higher penetration in digitised markets, augurs well for the growth of the cable TV industry.
Moreover, over the medium term, monetisation of investments from the Phase I and II markets is expected to pick up pace as MSOs look at achieving full addressability and implementation of gross billing in these markets. Moreover, the content costs for MSOs are expected to increase as broadcasters migrate to per subscriber billing from the legacy of block deals. The effective roll-out of channel packages across markets as well as the collection of subscription revenue based on such packages is imperative to support the operating margins of distributors.
Further, the ability of cable operators as well as DTH players to introduce innovative channel packages in Phase III and IV markets, with a greater focus on regional content at competitive rates, will remain crucial for supporting the margins of players in these markets.
Meanwhile, customer satisfaction with IPTV is rising rapidly, having already eclipsed the levels achieved by its rival cable services. As the speed of domestic connections increases with the roll-out of 3G and 4G technologies and network loss or buffering issues dwindle, it seems that IPTV will march way ahead of DTH and cable TV in the broadcasting war in the coming years. Performance and reliability will, however, determine the winner.