Chasing the digitisation rainbow

Chasing the digitisation rainbow A reality check 7 October 213 It was way back in 23 that the foundation of digitisation was laid in the form of Conditional Access System (CAS). CAS was largely a failure because free-to-air (FTA) channels were allowed to be received without the compulsion of installing set-top boxes (STBs). Digital Addressable System (DAS) addresses this fallacy. The Ministry of Information & Broadcasting (MIB) and the Telecom Regulatory Authority of India (TRAI) have zealously pursued DAS, with stakeholders ensuring that almost 2 million STBs were seeded across 41 cities in a matter of 15 months. While seeding boxes is work half done, customer acquisition form (CAF) and gross billing are still work in progress. We, at Televisionpost, have tried to study the implications of digitisation for all stakeholders. Our analysis shows that multi-system operators (MSOs) can raise their revenue share (net of broadcaster payout and carriage) to Rs 58 billion (from almost nil currently). Following digitisation, broadcaster subscription revenue would almost triple while local cable operators (LCO) income would dwindle to almost half of what they were making in the analogue regime. Looking at relationship charts, we examine issues like carriage, content costs, activation revenue, subscription income, profitability, debt, funding and acquisition opportunities. Key findings: Cable leads in STB seeding DTH s incremental market share less than 15% 4 MSOs spend north of Rs 3 bn and rule the market Higher capex generally funded through debt though DEN, Hathway and Siti Cable have raised equity Profitability still hinges on carriage fees, but this dependence is likely to fall Content costs up 3% EBITDA growth for MSOs led by activation revenue Acquisition route to be largely via STBs Subscription revenue for major broadcasters swells Carriage fees drop for news channels Believing that digitisation will herald a new era for the Indian media space, we are no less excited than you to be party to this expedition as we go on to chronicle this space offering unparalleled analyses and insights. Read on! research@televisionpost.com

October 213 The shifting dynamics of pay-tv economy in the digital age Forget the older dynamics of the pay-tv economy. Digitisation is going to throw all of that out of the door. Consider how much money the television channels and the broadcast-carriage companies will be making in the new era. That is where the business models are being redrawn. That is where the chase is on. Let us dig into the past for a brief moment. The subscription revenue collected by the cable TV operators from an estimated 9 million (cable only) households (HHs) is in the region of Rs 162 billion. How does this split across the value chain? Our industry interaction and Televisionpost.com insight point towards rampant under-declaration of subscribers to the extent of 85%. This leaves the local cable operators (LCOs) with a lion s share of subscription revenues amounting to Rs 138 billion. Multisystem operators (MSOs) take home just Rs 24 billion and give away almost everything (Rs 23 billion) to broadcasters. They are, thus, kept afloat by carriage fees coughed out by broadcasters. Pre-Digitisation scenario No of cable TV HHs (mn) 9 Post Tax ARPU (Rs) 15 Subscription revenue on the Ground () 162, Under-declaration (%) 85 Under-declared revenue () - or LCOs revenue 137,7 This analysis excludes DTH HHs... MSO revenues () 24,3 Broadcaster share () 23, Source: TelevisionPost Research Now turn to the post-digitisation age and notice the estimated revenue for the MSOs and the broadcasters (cable contribution only): Rs 58 billion and Rs 68 billion respectively. Not a bad business for them, right? How have we arrived at this? We have taken a bird s eye view of the cable distribution industry assuming that all 9 million households have got digitised and post-tax ARPUs have moved up from Rs 15 to Rs 18 per month. For the time being, we have assumed no organic growth in TV households. We have also excluded carriage revenue (or fee) from our calculations. Based on these parameters, total revenue collection from cable subscribers climbs to Rs 195 billion, or 2% growth (as we have assumed a higher post-tax ARPU while the subscriber base has remained constant). Going by TRAI s tariff order of sharing 35% post-tax ARPU with LCOS, their revenue falls by almost 5% to Rs 68 billion, thus taking care of under-declaration. MSOs net revenue (after LCO and broadcaster share) increases to Rs 58 billion. Do note that pre-digitisation, the revenue that the MSO collects is completely 2

October 213 shared with the broadcaster. This is not the case after digitisation. The MSO is left with almost 3% of on ground collections, even after sharing with the LCO and broadcaster. MSOs are, thus, the biggest beneficiaries of digitisation as from almost negligible subscription revenue (after payment to broadcasters), they would now reach a sizeable number. Broadcasters will have more to cheer. Their revenue from cable (excluding DTH) increases threefold to Rs 68 billion - and this gain comes on the back of absolutely no direct capex in digitisation (broadcasters will have to invest in better content but that is out of the scope of this present study). Post-Digitisation scenario No of cable TV HHs (mn) 9 Post Tax ARPU (Rs) 18 Subscription revenue on the Ground () 194,4 Under-declaration (%) LCOs revenue @ 35% of on-ground revenue () 68,4 This analysis excludes DTH HHs... MSO revenues @ 3% of on-ground revenue 58,32 (Net of LCO share & Broadcaster, ) Broadcaster share @ 35% of on-ground revenue () 68,4 Source: TelevisionPost Research MSOs seed record number of STBs in shortest time The festive season of late 212 will be remembered for the local cable operators knocking at the doors of consumers and installing digital set-top boxes. They achieved a mammoth task in the course of the next 12 months. As India marched into digitisation, a record was being created by these men on the street: nowhere in the world have so many homes been digitised in such short a time. As per our industry interaction and informal discussions with the government, Phase I and II (metros of Delhi, Mumbai and Kolkata, and 38 other cities) comprises a total universe of 28 million STBs. Cable has been able to deploy 21 million STBs while DTH has taken away the rest seven million. However, in terms of incremental seeding, the DTH market share has been less than 15% in the DAS cities. The market is dominated by the top four MSOs. Hathway Cable & Datacom, DEN Networks, Siti Cable and IndusInd Media & Communications Ltd (which operates under the InCablenet brand) have seeded a whopping 17.5 million STBs, occupying almost 83% of market share (amongst MSOs). 3

October 213 STBs seeded by major MSOs 6.7 Phase I Phase II Total (MN) 2.5 4.2 2 3 5 2 3.2 2.6 Out of the 21 mn STBs seeded by cable in Phases I & II, the top four MSOs have seeded a whopping number of 17.5 mn STBs... 1.5 1.2 1.1 HATHWAY CABLE DEN NETWORKS SITI CABLE INCABLE Source: TelevisionPost Research Market share amongst the Top 4 MSOs during Phase I & II 1 9 14.5 15.2 14.9 % 8 7 6 5 4 3 2 1 26.3 26.3 32.9 12.1 3.3 42.4 18.3 28.6 38.3 Hathway has been the leader (followed by DEN) in seeding STBs with a market share of 38% in Phase I & II combined; Incablenet seems to have lost out the opportunity Phase I Phase II Phase I & II combined Hathway Cable DEN Networks Siti Cable Incable MSOs make hefty investments As digitisation cruised along, the MSOs pumped in massive capital to fund the STBs. As per our estimates, the top four MSOs spent north of Rs 3 billion in Phase I and II. And they are lining up more hefty investments for the remaining two phases. The biggest capital expenditure in digitisation is seeding of STBs. The price per STB to the MSO is about Rs 1,6 (if bought in high volumes) and the realisation is Rs 6 per box (post taxes) from the subscriber/lco. The net capex per STB is almost Rs 1,. So the strain of organising more funding will continue unless the subscription revenue flow from the LCO to the MSO improves significantly. 4

October 213 Capex incurred by MSOs in Phase I & II 14, 12, 1, 8, 6, 4, 2, Hathway Cable (Consolidated) Den Networks Siticable Source: TelevisionPost Research The debt load Never drill with debt. That is what the MSOs have been trying to do as funding for digitisation has meant more loans. Meanwhile, cash flows have been somewhat choked at the LCO end as the full on ground subscription collection has not gone back to the MSO. Net debt profile of MSOs 12, 1, June'12 June'13 Rs million 8, 6, 4, 2, The higher capex has been largely funded through debt. DEN, Hathway and Siti Cable have managed to raise funding through equity as well... -2, Hathway Cable (Consolidated) Den Networks Siticable -4, Source: TelevisionPost Research DEN Networks, Hathway and Siti Cable have all raised equity to keep their debtequity ratio at a comfortable zone. 5

October 213 Equity raised in the past 18 months by MSOs 12, 1, 8, 6, 4, 2, Den Network Hathway Cable Siti Cable Profitability continues to hinge on carriage MSOs will continue to depend on carriage revenue to stay profitable till the full impact of digitisation is felt. But this will change dramatically over a period of time and the new roof sheltering them will have to be subscription income. The current profitability of MSOs is driven by carriage revenue. As exhibited in the chart below, if we strip DEN Networks and Hathway Cable of their carriage revenue, their consolidated EBITDA turns negative. Carriage revenue is the only profitability driver 4, 3, 2, 1, -1, Den Networks Hathway Cable -2, -3, Consolidated FY13 EBITDA Consolidated FY13 EBITDA Excluding Carriage Source: TelevisionPost Research Post digitisation, the dependence on carriage revenue for profitability diminishes to a great extent, as is depicted in our calculation below. We assume the gross ARPU (including taxes at the consumer level) to be Rs 25 per month. From this, we remove service tax (at 12.36%) and entertainment tax (assumed to be an average of 1% of Gross ARPU) to arrive at a net ARPU of Rs 194 per month per subscriber. From this we remove the LCO share (at 35% of net-arpu, as mandated by TRAI) and broadcaster share (assumed at 35% of net ARPU, as is a global practice) 6

October 213 and fixed costs (overheads) per subscriber. To this we add Rs 3 as carriage per subscriber per month and arrive at an EBITDA of Rs 58 per subscriber. This is an average number and would vary depending on the area of operation of the MSO (as ARPU could be different) and fixed overhead cost structure. In the post digitisation scenario, carriage revenue will contribute only 5% to MSO EBITDA. Compare this with the pre-digitisation era in which carriage contributed more than 1% (as depicted in the chart above). Per subscriber profitability after digitization Post-Digitisation per subscriber profitability Gross ARPU (including Taxes), Rs 25 Service Tax (@ 12.36%), Rs 31 Average Entertainment Tax (@ 1% of ARPU), Rs 25 Net ARPU (post Taxes), Rs 194 A. Net ARPU (excluding Taxes) of Subscriber (Rs) 194 B. Total Expenses (B1+B2+B3) (166) B1. LCO Share @ 35% of Net ARPU (Rs) (68) B2. Broadcaster Share @ 35% of Net ARPU (Rs) (68) B3. Fixed cost per subscriber (Rs) (3) C. Carriage Revenue per Subscriber (Rs) 3 EBITDA = A+B+C (Rs) 58 EBITDA Margin on Net ARPU (%) 3. D. Depreciation (STB price of Rs 1,6 depreciated over 8 years, Rs) (17) EBIT 42 Tax (at 34% of PBT) (14) E. PAT 27 PAT Margin on Net ARPU (%) 14.1 Source: TelevisionPost Research Carriage contribution to EBITDA (pre and post Digitisation) 2.5 2 (x times) 1.5 1.5 Dependence on carriage for profitability to decrease significantly post - digitisation Pre -Digitisation Den Networks Pre -Digitisation Hathway Cable Post -Digitisation Source: TelevisionPost Research 7

October 213 Impact of digitisation on carriage fees As more than 5 active channels sought to be carried on analogue cable networks which could not accommodate more than 7-1 channels, carriage fees came into existence. It will not be wrong to say that in the analogue regime, carriage revenue for MSOs kept them profitable because whatever cash they collected from the ground was almost passed on to the broadcasters. Our industry interaction and TelevisionPost insight point towards a 3% drop in carriage fee on a per channel basis. Carriage revenue for MSOs, however, has not necessarily fallen because the number of frequencies which they used to sell earlier has almost doubled. We estimate carriage revenue (including placement) to be nearly Rs 2 billion for the last fiscal (FY13). Content cost goes up In order to gauge the impact of digitisation, we compare content cost in the first half of calendar year 213 (this would have impact of both Phase I and Phase II digitisation) over the year-ago period (pre-digitisation era). Our analysis shows that content cost has increased by 3% year-on-year on an average. This is reflected in the subscription revenue for broadcasters, which has seen an increase (we cover this aspect in another section later). Content cost for MSOs and DTH operators 1HCY212 1HCY213 % increase in Content Cost DEN Networks (1,35) (1,568) 16.1 Hathway Standalone (777) (1,8) 38.9 Siti Cable Consolidated (832) (1,189) 42.9 Dish TV (2,978) (3,883) 3.4 Total (5,937) (7,719) 3. Note: Siti Cable figures are approximations MSOs expect content cost to increase by 2-25% year-on-year in FY14E. They will eventually move away from fixed fee to cost-per-subscriber (CPS) deals. DTH player Dish TV, on the other hand, is expecting content cost to increase no more than 1% year-on-year this fiscal. 8

October 213 Spurt in revenue Revenue is on the upswing but the most visible change is in the activation income. This is a one-time charge collected from consumers for installing STBs. Revenue uptick 7, 6, 5, 4, 3, 2, 1, Den Networks Hathway Standalone Siticable Consolidated Dish TV All distributors (MSOs and DTH) have seen an uptick in revenue as is visible from the exhibit alongside. However, for MSOs this was led by activation revenue EBITDA profile 1,8 1,6 1,4 1,2 1, 8 6 4 2 Den Networks Hathway Standalone Siticable Consolidated Dish TV Higher overall revenue has led to a better EBITDA profile for all MSOs. Dish TV saw a decline in EBITDA because of its lumpy content deal renegotiation with Media Pro PAT trend 4 3 2 1-1 -2-3 -4-5 Den Networks Hathway Standalone Siticable Consolidated Dish TV EBITDA profitability did not translate into better PAT because of higher interest expense (on debt acquired to seed STBs) and depreciation of STBs without any meaningful uptick in subscription revenues... 9

October 213 Activation revenue drives EBITDA growth With the seeding of STBs seeing hectic activity, the activation revenue counter for MSOs has been busy. Activation revenue for MSOs 1, 9 8 7 6 5 4 3 2 1 Den Networks Hathway Standalone Siticable Consolidated An MSO realises Rs 6 per STB seeded and this is booked upfront in the quarter. With high no. of STBs seeded, there has been a spurt in activation revenue. It has been the key EBITDA driver (see the next set of exhibits)... Note: DEN and Siti Cable figures are approximations The EBITDA growth for MSOs is led by activation revenue, as of now. Den Networks - EBITDA excluding activation revenue 9 8 7 6 5 4 3 2 1 As subscription revenue pick up takes some time, activation revenue comes in handy to drive profitability. However, investors treat this income as a one-off Reported EBITDA EBITDA Excluding Activation Revenue Source: Company, TelevisionPost Research Note: DEN figures are approximations 1

October 213 Hathway Cable (Standalone) - EBITDA excluding activation revenue 1 9 8 7 6 5 4 3 2 1-1 Reported EBITDA EBITDA Excluding Activation Revenue Source: Company, TelevisionPost Research Siti Cable - EBITDA excluding activation revenue 4 3 2 1-1 Siti Cable would have reported EBITDA losses but for activation revenue... -2-3 -4 Reported EBITDA EBITDA Excluding Activation Revenue Source: Company, TelevisionPost Research Note: Siti Cable figures are approximations How MSOs plan to protect carriage revenues MSOs are trying to protect their carriage revenues by spreading their footprint and tapping a wider pool of channels. With bandwidth no more a constraint, they can accommodate carriage of more channels. Even as broadcasters get the benefit of reducing their per channel carriage cost, MSOs will have more frequencies to sell. 11

October 213 Carriage revenue of MSOs 1,4 1,2 1, 8 6 4 2 Den Networks Hathway Standalone Siticable Consolidated Carriage revenue has not seen any drop. This is despite fall in carriage on a per channel basis. Reason: MSOs have started selling higher number of frequencies... Note: Siti Cable and DEN figures are approximations Harvesting subscription revenue some time away MSOs will reap the harvests of digitisation when they start collecting subscription income based on retail billing from the LCOs. The tussle with LCOs continues even now. Subscription revenue of MSOs 9 8 7 6 5 4 3 2 1 Den Networks Hathway Standalone Siticable Consolidated Pure subscription revenue for MSOs has started looking up. However, true fruits of Digitisation are yet to be plucked. Net revenue collection in Mumbai & Delhi stands at Rs 85 per sub and Rs 6 per sub in Kolkata... Note: Siti Cable and DEN figures are approximations Acquisition route to largely be via STBs MSOs are reluctant to make big-ticket acquisitions based on cash. Instead, they are keen to pick up operators who are unable to fund digitisation. Their contribution in terms of equity would be in terms of providing STBs and other digital infrastructure support. In the analogue cable regime, this was not the situation. MSOs led the consolidation wave by acquiring controlling stake in large LCOs. A larger subscriber base meant higher bargaining power when it came to carriage revenues. In DAS, MSOs are not showing the same zeal to acquire LCOs and then seed them with STBs. 12

October 213 The reasons are purely financial. As per our calculations (below), to acquire an analogue subscriber (at reasonable valuation of 24 months ARPU) and then digitise would entail a payback period of 5.1 years. But if the MSO only seeds the STB (without acquiring the LCO), the payback period is just two years. Once the STB is seeded, the LCO is largely married to the MSO. Shifting the MSO would mean the LCO would have to change all the STBs to comply with the CAS of the new MSO - and subscribers would resist paying again for the boxes. Just by seeding the STB if the MSO is getting quasi control over the last mile, then there is no need to own it and wait for a payback period of 5.1 years. Payback period calculation per subscriber Total Buy-out Pure STB Seeding Net ARPU (excluding Taxes) of Subscriber (Rs) 18 18 Valuation in terms of months of ARPU (Assumed) 24 Valuation (Rs) 4,32 Capex on STB (Rs) 1,6 1,6 Total Capex per subscriber (Rs) 5,92 1,6 Activation revenue (on STB) recovered from subscriber (Rs) 8 8 A. Net Capex per subscriber (Rs) 5,12 8 B. Net ARPU (excluding Taxes) of Subscriber (Rs) 18 18 C. Total Expenses (C1+C2+C3) (156) (156) C1. LCO Share @ % of Net ARPU (Rs) C2. Broadcaster Share @ 35% of Net ARPU (Rs) (63) (63) C3. Fixed cost per subscriber (Rs) (3) (3) D. Carriage Revenue per Subscriber (Rs) 3 3 EBITDA = B+C+D (Rs) 117 54 E. Depreciation (STB depreciated over 8 years, Rs) (17) (17) EBIT 1 37 Tax (at 34% of PBT) (34) (13) F. PAT 66 25 G. Operating Cash Flow = F-E (Rs) 83 41 Payback in months = A/G 62 19 No of years for payback 5.1 1.6 Source: TelevesionPost Research 13

October 213 STB depreciated over number of years 9 8 No of years No of years 7 6 5 4 3 2 1 Hathway and DEN have an aggressive policy of depreciating STBs over eight years while the Essel Group is realistic at five years Hathway Den Siti Cable Dish TV Source: TelevesionPost Research DTH operators rework biz strategy Concerned about staying healthy, direct-to-home (DTH) companies have taken a somewhat cautious approach towards expansion opportunities in digitisation. They have, perhaps, reworked their business strategy. Shunning away from reckless chasing of customers to gain size in the DAS markets, their focus seems to be on adding quality and sticky subscribers, improving ARPUs and reducing customer acquisition costs. Cleaning up their internal house also means lowering the churn rate and shaving debt. STBs seeded April 212 - June 213 (15 months) 6 (mn) 5 4 3 2 1 MSOs seem to have outperformed DTH operators in terms of STB seeding in Phase I &II As per industry sources, DTH s incremental market share has been less than 15%... Hathway Cable Den Networks Siti Cable Dish TV (Net addition) 14

October 213 DTH companies will benefit once digital cable ARPUs rise. They can then lift their ARPUs by initiating more significant price hikes. Dish TV: Subscription revenue and ARPU () 5,4 5,2 5, 4,8 4,6 4,4 4,2 4, Subscription revenue (LHS) ARPU (RHS) 166 164 162 16 158 156 154 152 15 (Rs) Subscription revenue growth for Dish TV (and other DTH) operators has been led by ARPU improvement rather than high subscriber addition Source: Company, TelevisionPost Research Dish TV: SAC and Churn (Rs) 2,2 2,15 2,1 2,5 2, 1,95 1,9 1,85 1,8 1,75 1,7 1,65 1. 2,145 2,145 2,145 Source: Company, TelevisionPost Research 1. 1. 1,996.8 SAC (LHS) Churn (RHS).6 1,828 Some DTH operators are making concerted efforts to drive in carriage revenues, a turf efficiently exploited by cable TV networks in an analogue environment. So far this has been a dry revenue stream and Dish TV, India s largest DTH player by subscribers, has been able to pocket around Rs 35 million in FY13. In the digital era, the carriage fee tap is going to open for DTH as well. Subscription revenue for broadcasters swells 1.2 1.8.6.4.2 (%) Over the past 15 months, DTH operators have increased prices of entry level STBs and also across monthly packages This has led to not only lower subscriber addition but also helped them bring down SAC (despite an adverse movement in currency) and churn (as the quality of subscriber addition improved). With DAS, cost of churning out from DTH to cable has increased from zero to cost of STB and this would be another reason for churn coming down Major broadcasters are seeing their subscription revenues expand briskly, offsetting leakages that were evident from under-reporting of subscribers. For Sun TV Network, Zee Entertainment Enterprises Ltd and TV18 Broadcast, the three large listed broadcasters, domestic subscription revenue has been growing 15

October 213 at a healthy pace over the past 4-5 quarters. Some growth in Zee Entertainment s subscription revenue can also be attributed to the formation of Media Pro, the joint venture company which distributes the Star, Zee and Turner group of channels, and subsequent better realisation from the analogue areas. Subscription revenue for broadcasters 4, YoY subscription revenue growth for broadcasters 5 3,5 3, 2,5 2, 1,5 (%) 4 3 2 1 1, 5-1 Sun TV Network Zee Entertainment -2 Sun TV Network Zee Entertainment TV18 Broadcast net-subscription revenue 4 3 2 1-1 TV18 Broadcast has shown a remarkable increase in its net subscription revenue (net of carriage) because of lower carriage costs and higher subscription revenue from digitisation... -2 Source: Company, TelevisionPost Research Impact of digitisation on news broadcasters Coming from a heavy carriage baggage, news broadcasters were looking at digitisation to correct their business models. The repair work is already on, though the increase in subscription revenue is not meaningful as of now because almost all of them are on a fixed fee deal with the aggregator (only Zee News has seen a growth in subscription revenue as it is distributed by Media Pro). Carriage cost is on the decline and is clearly visible in the results of the listed news broadcasters. NDTV says that carriage costs have come down by 33% in 1QFY14 and it will be net positive (on subscription revenue minus carriage) this 16

October 213 fiscal. TV Today, on the other hand, expects its FY13 carriage cost of Rs 72 million to fall to Rs 58 million in FY14E. None of the news broadcasters report carriage costs on a quarterly basis. We, thus, study the Selling & Distribution expenses (of which carriage is the biggest component) to conclude that carriage is on the decline for these broadcasters. S&D cost of News Broadcasters 4 35 3 25 2 15 1 YoY decline in S&D cost for News Broadcasters (%) 6 5 4 3 2 1-1 NDTV TV Today 5 NDTV TV Today Zee News -2-3 -4-5 Challenges ahead While it is pretty commendable how the Government, TRAI and stakeholders across the industry have seeded STBs, few pressing issues still remain. Clarity on local taxes: Entertainment tax is a state subject and there is little clarity on who this liability falls on. In Delhi, the law is clear that it is the prerogative of the MSOs while in Maharashtra the LCOs want to collect entertainment tax on behalf of the state government and deposit the same with it (they have filed a case in the Bombay High Court stating that they own the customer and hence it should be their right). LCOs still defiant: While LCOs have been largely on board for seeding STBs, they are still resisting submission of Customer Acquisition Forms (CAF), implementing packages and undertaking gross billing. CAF forms in the metros (excluding Chennai where DAS has not been implemented yet as there is a Court case against it in the Madras High Court) have been filled to the extent of 95% (including Kolkata). The pick-up is just about 5% (on an average) in the rest of the 38 cities falling under Phase II and, hence, TRAI has delayed the last day for CAF submission to 15 November 213. Only Delhi has implemented gross billing whereas Mumbai is expected to undertake the same from the month of October. The real benefits of digitisation would be visible when the consumer has the right to choose channels of his/her choice and the MSO starts directly billing the subscriber. 17

October 213 ARPUs need to move up: Early indications show that ARPUS are increasing, particularly in pockets where they were miserably suppressed. They will have to further rise to make the business profitable. Margins for MSOs will shrink in future as content costs climb and carriage revenues drop. Higher ARPUs will then come to the rescue. DTH companies will also stand to gain from this. 18

October 213 Annexure Journey from CAS to DAS The year 23. The date 14 January. The Indian government announces a policy making it mandatory for the cable operators to transmit every pay channel through an addressable system or CAS, the aim being to give consumers choice to pay for the channels that they want to watch. The Ministry of Information and Broadcasting (MIB) specifies the first cities as the Municipal Council of Greater Mumbai area, the National Capital Territory of Delhi and the Chennai Metropolitan area. The time given is six months. Then follows resistance from various groups of the broadcast industry and legal battles. The government decides to retreat. Citing public interest and wider consultation, the MIB issues a notification withdrawing CAS (Conditional Access System) in Delhi, Mumbai and Kolkata while leaving out Chennai where it gets implemented in a restricted manner. Time comes for the multi-system operators (MSOs) to move the court. In late 26, a Delhi High Court order forces the government to bring back CAS in parts of Delhi, Mumbai and Kolkata from 1 January 27. The government, however, does not extend CAS to other cities, despite the Telecom Regulatory Authority of India s (TRAI) recommendation that it should be rolled out countrywide. The government s contention is that it has not taken a final view and was consulting various stakeholders. 212: CAS becomes DAS or Digital Addressable System In October 211, the Union Cabinet approves the Ordinance on Digitisation setting December 214 as the sunset data for analogue cable across India. The Ordinance receives Parliament nod and India s journey to digitisation begins. TRAI issues a detailed tariff order for Digital Addressable System (and subsequent amendments), addressing contentious issues and prescribing revenue sharing formula and the constituents of various packages for consumers. According to the tariff order, the Basic Service Tier (BST) has to be priced at a maximum of Rs 1 (plus taxes) per month. BST is to have at least 1 free-to-air (FTA) channels, including five channels of each genre. TRAI said consumers could subscribe to pay channels without taking the BST, and MSOs could fix a minimum monthly pay subscription not exceeding Rs 15 per month. Carriage fees need to be uniform and non-discriminatory across all channels. Placement fees, however, are barred. Trai also introduces the concept of must carry (earlier only must provide was there) wherein an MSO has to carry a particular channel provided the broadcaster pays the designated carriage charge. 19

October 213 TRAI asks local cable operators (LCOs) and MSOs to negotiate revenue share amongst themselves. In case of a breakdown, the revenue share is to be fixed at 35% for pay packages. On the wholesale price, the interim Supreme Court order of a maximum of 42% of non-cas rates for all digital platforms (DTH, IPTV, HITS and now DAS) remained unchanged. TRAI also mandated linking retail a la carte rates with wholesale rates and the implied price of the retail level bouquet in which they are present. 2

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