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Economics of the MSO model in Solapur
Even a year after digital addressable system (DAS), multi-system operators (MSOs) are still dependent on carriage income to stay profitable. With DEN Networks and GTPL having a very small subscriber base, this revenue stream is hardly alive for them. The main chunk of the carriage market in Solapur is enjoyed by Bhima Riddhi Digital Services (BRDS), a company owned by former IndusInd Media & Communications Ltd (IMCL) CEO Nagesh Chhabria.
Carriage has, however, stayed flat after digitisation. The expectation this fiscal is that it will fall by at least 15 per cent. MSOs will, thus, have to focus on augmenting subscription revenue collections.
With the MSOs getting sandwiched between rise in content costs and the inability to collect more from the LCOs, the business model tumbled for them in FY14. While the content costs for BRDS stood at Rs 85–90 per STB, the payment it got per subscriber from the LCOs was Rs 65 (including service tax). The carriage income was Rs 35 per STB. With shooting overheads and maintenance costs, the margins were under real tight pressure. The subscription ARPU did not increase and BRDS did not even up the rates in its direct cable connections to consumer homes.
From April 2014 drive is to get Rs 85+ service tax from cable ops
The content cost in Solapur is following a pattern similar to that in Mumbai while the consumer ARPU is lower. With the carriage income likely to dip, the MSO business in Solapur is under some strain. The pressure will be to streamline the value chain and get more subscription revenue from the LCOs. Consumer ARPU is also poised to go up.
The financial health could improve this fiscal if the MSOs are able to get Rs 85 (excluding service and entertainment tax) from the LCOs. Though the task will not be easy, the mobilisation process has been started by BRDS.
Chhabria’s first big task as owner of the leading MSO in Solapur is not just to decide when to raise collections from his link operators. It is also deciding how. Besides, he has plans to acquire primary points, which currently make up 20 per cent of his total network.