Last September, Deepak Badlani, who runs a cable TV company in Andheri, a bustling Mumbai suburb, overhauled his cable business. First, he parted ways with In2Cable, a cable network owner (network owners provide signals to operators such as Badlani), and signed up with Wire and Wireless (India) Ltd, a competitor. The change meant a new cable, a fibreglass one. So, he and his team installed the cables, throwing them over rooftops, trees, and power pylons, and connected them to televisions of customers who had subscribed to Badlani’s service. This was Badlani’s way of preparing for the coming of the conditional access system (CAS).
In theory, this should be good news for INX Media, UTV Ltd, and NDTV Ltd, broadcast firms that are launching some of the 30-odd, likely free-to-air channels expected to go on air before 2009. The new system and the new cables should be a saviour for broadcasters, who pay cable operators large sums, usually called carriage fees, for the right to be carried to television sets. Not just yet though.
Badlani’s customers now have the ability to access up to a thousand TV channels, IPTV, and other interactive services. The old cables, called RG-11, which belonged to In2Cable, could carry no more than 120 channels, Badlani says. But the new cable has another, more pivotal, advantage for broadcasters: with its large capacity to carry channels, it is likely to end the old practice of carriage fees, where free-to-air broadcasters pay operators to carry their channels to the viewer. “Soon channels won’t have to pay that money to cable operators,” Badlani says. “It’ll (the payment of this fee) only happen for a few more months.”
This, some broadcasters say, is far from true.
In a few months, cable operators and cable network owners expect the conditional access system, or CAS, to be implemented across major Indian cities. Subscribers will receive their chosen channels through a set-top box that decodes signals received by cable (the new kind of cable) sent by the network owner, who, in turn, receives the signals from broadcasters via satellite. The system allows viewers to watch free channels, and pick pay channels.
But the progress of CAS has been intermittent. The first phase of the system finally came into effect across small parts of Mumbai, Delhi, and Kolkata on 1 January, 2007 (Chennai had adopted CAS earlier, and whole-hearterdly, in 2003). It is unclear when exactly the next phase, in which entire cities convert to the addressable system, will be implemented.
Some media analysts guess that over 90% of the Indian cable industry still work off an analogue platform, and expect the carriage fee to continue. “Channels are mushrooming, catering to many tastes,” says Arpita Pal Agrawal, associate director, PricewaterhouseCoopers India, an audit firm. “In pockets of the country you have some bits going digital. But otherwise we have a primarily analogue platform. Each time a new channel comes in, they have major negotiations with MSOs (multi-system operator, or cable network owner) and the cable guys, telling them: ‘mera channel aagey karo’ (Rs.Please carry my channel’). In that way, it is like real estate.”
Real estate, even on television, is scarce. Broadcasters negotiate with cable operators and network owners over where their channel is placed on television sets. The prime band, as the most lucrative bunch of channels is labelled, starts at channel No.1 on TV sets and goes up to either No.22, 30, 40, or 56, according to various estimates. This represents a band of channels between which viewers choose.
“It’s no different from companies paying retailers for shelf space to display their products,” says Indrani Mukerjea, head of INX Media. “Carriage fees are a fact of life and should be seen as marketing costs.” Mukerjea, the wife of Peter Mukerjea—the former CEO of STAR India Pvt. Ltd who resigned in January—has plans to launch 12 channels, beginning in 2007.
According to Yash Khanna, senior vice-president, corporate communications, STAR India Pvt. Ltd, “Everybody wants to get on to those 22 channels.” That works to the advantage of the cable company. “So you pay more for the prime band,” adds Khanna.
There is the added issue of old television sets, which take no more than 20-30 channels. “Look, you’ve got to understand that we Indians don’t throw things away,” says the head of a channel, on condition of anonymity. “We have new television sets, but the old ones haven’t gone away.”
Channels are keen to be in the prime band because it gives them a better chance of being seen by households that influence the rating measurements of TAM Media Research, the television audience ratings agency, which derives its information from special boxes in randomly selected homes designated as ‘TAM households’. Even a few decimal points’ upturn in ratings helps raise advertising rates.
The most optimistic estimate of the size of the prime band puts the number of channels that can be accommodated at 56, just over a fifth of the more than 250 channels available in India today. For this reason, broadcasters exchange serious money, running in to crores, for a good slot on television sets. “Yes, carriage fee is a significant amount, but it is an operational expenditure,” says Pal Agarwal. “That’s why they (broadcasters) want the regulator to step in and do something about it.”
Broadcasters have been lobbying the sector’s regulator, the Telecom Regulatory Authority of India, to factor in the huge carriage fees they pay to cable network owners while working out revenue-sharing formulae between the broadcaster, cable network owners, and cable operators.
Broadcasters know what it is like to be involved in a fight for the prime band. Earlier this decade, several free-to-air news channels were launched in a short span of time. Some of the channels managed to reach customers by paying huge amounts of money to cable companies so that they could be on the prime band. “It’s fine to say it’s a marketing cost, but you should see the difference between our marketing cost and that of others,” says the executive editor of one news channel who did not wish to be identified. He adds that it isn’t easy to deal with cable companies and cable operators and claims there are times when the latter walk into his office and say, ‘I know I have a TAM household in my territory, and another channel has offered me more money than you, so tell me what I should do?’
There is, however, one thing that new channels can do to subvert the process: build a strong package. “A lot of the 30 new channels will end up paying a carriage fee,” says Shashi Kalathil, CEO, NEO Sports Broadcast Pvt. Ltd, which owns an eponymous channel that broadcasts India’s cricket games at home.
NEO didn’t have to pay the carriage fee because of the demand for cricket. “It depends on your strength in terms of programming and viewership. If you’re a relatively new channel that’s not part of a strong bouquet of channels, you have to do that. If you’re a big broadcaster, you don’t need to pay,” adds Kalathil.