A widening gap between investment and returns, as millions of homes transition to digital TV, needs to be addressed.
TV executives in India will have to rewrite their business plans yet again, following an unexpected extension for the rollout of digital TV – a timetable already drifting worryingly from the original plan.
Close to 75 million households are supposed to have set-top boxes under phases 3 and 4, the final stages of the Indian government’s digital mandate. Deadlines have been pushed back a year, to December 2015 and December 2016 respectively.
Deployment, execution and economics across these homes will make or break the future of India’s US$7.5 billion TV industry.
At the same time, it will set some momentum for India’s emerging broadband digital highway, something new prime minister Narendra Modi is keen to promote.
The first two phases of the government’s digitalization drive have cost billions of dollars in infrastructure upgrades so far, resulting in 30 million homes transitioning to digital TV.
Promised returns have been slow to appear however, especially from phase 2, straining the bottom line as well as the appetite for innovation and future investment among channel providers and distribution platforms alike.
Mounting debt
The pain is particularly acute for cable MSOs, presiding over millions of analog homes. Gross debt for the country’s three biggest has escalated to four times Ebitda for example, pushing balance sheets to the brink.
As a result, carriage and placement fees – a brake on content investment and a legacy from an analog age of limited shelf-space – are climbing again after recent declines.
At the same time, India’s DTH satellite platforms are also frustrated by the recent digital extension. Most have ordered millions of set-top boxes for the next, and now delayed, wave of digital rollout.
Between them, the MSOs and main DTH platforms have commissioned 30-40 million boxes in preparation for phase 3.
While costs continue to increase, digital dividends seem to be on hold. These are testing times.
A research note from analysts at Media Partners Asia (MPA), however, proposes an intriguing solution.
The economics of India’s TV industry have always been shaped by the uneven flow of subscription revenue, especially via thousands of local cable operators that have direct access to consumers.
LCOs tend to represent the vast majority (around 95%) of an MSO’s subscriber base.
At the same time, pay-TV subscriptions in India are among the cheapest in the world, averaging US$3.20 a month. Tensions caused by rising costs will only ease once consumers start paying more for TV.
That means MSOs need to change the way they work with local cable networks, thinking about them as their main customer rather than the end-consumer, suggests MPA’s VP of India, Mihir Shah.
LCOs need more enticements to change, Shah argues, such as access to MSO subscriber management systems, as well as discounts on new channels and services.
After all, they are the ones that need to market the benefits of digital TV and persuade subscribers to spend more.
Payment upfront
In return, LCOs should start to pay MSOs in advance rather than in arrears – a prepaid model already deployed by related industries such as DTH and telecoms.
This will unclog cashflow in time for the biggest and most expensive phases of digital rollout yet to come – in small towns and rural homes outside India’s major urban centers.
Failing to lighten the debt burden and re-energize cashflow before the most challenging part of digital transition could be highly damaging to LCOs and MSOs alike, as rival services start muscling in on their patch.
DTH operators are already buying up more satellite capacity in order to launch more localized services, Shah points out, while Reliance – India’s biggest private company – is poised to launch a paid mobile video service running on 4G networks next year.
The first phases of digital rollout have been a painful experience for distribution platforms in India.
Nonetheless, the sheer weight of digital viewing, set to pass 50% of TV homes this year, is set to accelerate change and reduce inertia.
Meanwhile, markets are rebounding and keen to invest.
Now is the time for operators to learn from their early trials, and retune business models for the digital highway that lies ahead.
