FICCI-KPMG-Report-13-FRAMES

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16 The power of a billion: Realizing the Indian dream Distribution The year 2012 was a year of unprecedented changes for the cable television industry in India, with mandatory Digital Access System (DAS) being implemented in the four metros of Delhi, Mumbai, Kolkata and Chennai. Lastly, the industry believes that it is critical to see the entire digitisation effort through to completion. There is a risk of regression to a state of continued existence of analogue with digital in case the government or any of the stakeholders lose steam along the way. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. “ “ The key to usher in digitisation would be the capability of the operators to deliver infrastructure on time for consumers keenly awaiting the big change. Companies that have strong fundamentals such as technology and financial resources, would generally be able to service the consumer in the digital regime. However, the industry has been slow in adopting the new rules. - Jawahar Goel MD, Dish TV “ Digitisation has been the biggest development for the Television broadcasting industry in 2012. Whilst Phase 1 of DAS has been rolled out reasonably successfully, it is important to follow through with Phase 2 and complete digitisation in a timely manner. - Nitin Nadkarni CFO, Multi Screen Media Private Limited As per our FICCI KPMG Indian M&E report 2012, most stakeholders had indicated a delay of 6-12 months for complete digitisation across metros, and that DAS is likely to be successful in comparison with the earlier CAS. The digitisation experience has been largely in line with industry expectations. While there have been implementation challenges in Chennai, DAS roll-out is estimated to be almost complete in Delhi and Mumbai. Kolkata is expected to be largely digitised by the end of March 2013. Even as digitisation in Phase 1 cities moves towards completion, and as MSOs work to verify and stabilize their customer base, the deadline for Phase 2 is close. Phase 2 is expected to require significantly higher investments by MSOs versus Phase 1. While the investment in Phase 1 was primarily towards Set Top Boxes (STBs), Phase 2 requires investment in other infrastructure as well. Phase 2 is also expected to present challenges in terms of managing logistics. While industry participants highlighted certain issues in the digitisation process, at an overall level, all industry participants agree that digitisation has been a step in the right direction, and they remain committed to the digitisation effort. 06. India Today, 20 June, 2012 07. Business Standard, 2 November, 2012 08. Afaqs.com, 5 November, 2012 09. Livemint, 28 December, 2012 “ “ The Phase 1 experience The digital ecosystem in India cannot remain where it is. It will either move forward to completion, or regress, like CAS did. If Phase 2 and 3 don’t go through, even the metros will relapse. “ - Uday Shankar CEO, Star India The deadline for cable TV digitisation across four metros was originally scheduled for July 1, 2012. However, only 30 percent 6 of cable viewing households were estimated to have acquired STBs by mid-June, and hence the Phase 1 deadline was deferred by I&B Ministry to October 31, 2012. The October 31, 2012 deadline for Phase I cities was upheld by the Ministry, and households in Delhi and Mumbai faced an analogue cable blackout at the stroke of midnight on October 31 7 . While analogue broadcast resumed in a few parts of Mumbai and Delhi 8 , both cities reported a near complete shift to digital cable by the end of December 2012. Kolkata and Chennai continued to receive analogue signals even after the deadline. Industry discussions indicate that political reasons in the states of West Bengal and Tamil Nadu may have led to delays in implementation of digitisation in Kolkata and Chennai. While digitisation is underway in Kolkata and is estimated to get completed by the end of March 31, 2013, there is a lack of clarity on its progress and estimated completion date in Chennai. Telecom Regulatory Authority of India (TRAI) is yet to award a DAS license to the state-run Arasu cable which dominates the cable TV distribution market in Chennai, even as it issued a recent recommendation to disallow state and central governments from entering television broadcasting and distribution businesses 9 . There have been varied estimates regarding the extent of digitisation achieved across the four cities. However, our industry discussions indicate that on an overall basis, 80 to 85 percent of C&S households (including DTH households) are estimated to be digitised across the four metros. Phase I digitisation update As of October 31, 2012 As of Dec 31, 2012 I&B MxM* MPA # TAM Industry estimates Delhi 97% 45% 50% 97% 90-95% Mumbai 100% 86% 70% 93% 90-95% Kolkata 85% 53% 45% 70% 65-70% Chennai 86% 49% 30% 26% 25-30% Source: I&B Ministry Press release 31 October 2012, TAM Universe Update 2013; Industry discussions conducted by KPMG in India Note: *Refers to MxM TV Street Maps survey data released on 23 October 2012, reported by Medianama, 29 October 2012 # Based on MPA estimates reported by Business Today, 29 October 2013
The power of a billion: Realizing the Indian dream 17 Cable retains approximately 80 percent of analogue subscribers Conversion of analogue cable subscribers to digital cable was not expected to take place without some churn to DTH providers. However, MSOs demonstrated strong performance, and the analogue subscriber churn to DTH is estimated at approximately 20 10 percent during Phase I, which was lower than industry expectations. Industry discussions suggest that metros have traditionally been strongholds of cable providers with a higher presence of large national MSOs, which may have helped cable retain most of its subscriber base. Further, newly digitised subscribers appear to be currently paying analogue-level ARPUs, providing a cost advantage over DTH. “ MSOs may take a while to get their act together in terms of mapping their true subscriber base and launching packages. This will take most of this year. At present, DTH accounts for the larger share of paying digital subscribers in Phase 1 cities. Scan the QR code to hear more from Harit “ - Harit Nagpal Managing Director & CEO, Tata Sky Overall, the DTH industry added approximately 7 million to its subscriber base in 2012, versus 9 million in 2011. The decrease in free viewing period from about 5 months in 2010 to 1 month in 2012 may be one of the reasons for the muted growth. “ Mostly all DTH Companies, including Videocon D2H are EBITDA positive. However due to constant investment in the future by way of subscriber acquisition, the bottom line is impacted. Same would be better understood by differentiating between past operating performance and future investment impact. Digitised, but not addressable Our discussions with industry participants suggest that while homes in Phase 1 have been seeded with STBs as indicated above, these homes are not necessarily addressable. Industry discussions suggest that LCOs have acquired boxes in bulk from MSOs, and are holding back the identity of end-customers. Using a combination of penalties to LCOs and incentives to end-customers, MSOs are in the process of collecting Know-Your-Customer (KYC) information, verifying the same, consolidating their subscriber base, and updating their systems. This process may be completed by the second half of 2013, bringing in addressability. MSOs are, however, aware of the number of boxes seeded, and hence the true subscriber base. While they are billing LCOs for this true base, collection remains a challenge. An identification of the end-customer, and subsequently, movement to the pre-paid model is therefore viewed as a key step in improving collection. 10. Industry discussions conducted by KPMG in India “ - Rohit Jain Deputy CEO, Videocon D2H “ The good part is that we know the number of boxes that are lying with LCOs and we are billing them for every set-top box, albeit on a “wholesale” basis. The tough part is that cash collection remains a challenge, and in that sense, it will take a few quarters before the upside from Phase 1 digitisation can kick in. “ - Jagdish Kumar CEO &MD, Hathway Cable & Datacom Ltd. Easing in of consumers – All on the ‘highest pack’ for now In the process of digitisation, while STBs have been seeded by MSOs, and the consumer has started receiving digital signals, packages have not yet been deployed. Essentially, the consumer is receiving the full portfolio of channels from their MSO (barring a few exceptions such as some regional channels, which are made available upon request). Industry discussions suggest that the ARPU at the consumer’s end has not increased materially – the customer is still paying analogue rates. Industry discussions suggest that maintaining the status quo on ARPUs may be one of the factors that helped MSOs retain a large share of their analogue subscriber base. We also note that at current ARPU levels, most of the newly digitised customers would qualify for a ‘base pack’. Hence, it is likely that the consumer may have to pay more for the same set of channels or may not get all the channels at the earlier price. In such a scenario, cable TV operators will have to aggressively compete with DTH operators to retain their subscriber base, while providing the customer with a better value proposition. Discussions with MSOs suggest that while packages have been designed, and information regarding packages and pricing has been passed on to customers, deployment of packages will be done post verification and consolidation of their subscriber base. While MSOs appear to be optimistic about deploying packages by April 2013, the larger industry believes that this process may get done sometime in the second half of 2013. Deployment of packages, being a way to differentiate the customer base, is a key driver to raise ARPU. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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05 The power of a billion: Realizin
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Music The success of the iTunes mod
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06 Round up of the year that was Th
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FICCI 2013 143 “ The Amendments t
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© 2013 KPMG, an Indian Registered
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09 Outlook for the year The power o
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11 Technology The power of a billio
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Acknowledgement We acknowledge the
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FICCI-KPMG-Report-13-FRAMES

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