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How DAS deadline extension can impact broadcasters

India will continue to live with analogue cable TV in vast patches of the country till 31 December 2016. The Narendra Modi-led BJP government has just pushed the sunset date for Phase III of digital addressable system (DAS) to 31 December 2015 and the last round to 31 December 2016.

Under the original plan designed by the Congress-led UPA government, analogue cable would have been buried by 31 December 2014. Along with making it mandatory to install digital set-top boxes (STB) in consumers’ homes, this would have opened up bandwidth for carriage of more channels, made the subscription revenue accounting process transparent, strengthened the power of the multi-system operators (MSO) over the last-mile owners (LMO), facilitated channel launches, encouraged foreign investments and fattened the purses of the state governments through collection of entertainment tax.

The new government has decided to take a pause, allow the domestic manufacturers an opportunity to build facilities to tap the estimated 110 crore (1.1 billion) STB market and provide a breather to the MSOs who are financially stressed. In the interval, the MSOs and LMOs are expected to sweeten their relationships, kick-start consumer billing and packaging, and clean up legacies to build a new order.

The frenetic pace at which MSOs were required to digitise their networks needed to slow down. The first two phases of DAS covered 20 million cable TV households. A whopping 70 million are waiting to come up for digitisation in the next two rounds. Information and Broadcasting Minister Prakash Javadekar is surely right in giving the cable TV folks some time to rest; nowhere in the world has digitisation been achieved in such a short time frame.

But the halting time is, perhaps, a little too long. Phase III is a little less than 15 months away and Phase IV a year from then. What is scary for the broadcasters and MSOs is that the momentum could be lost and the old guards may just feel empowered. A worrying concern is how the LMOs will react and if such behaviour will infiltrate into the Phase I and II cities which have digitised but have yet to move to consumer billing and packaging in the true sense.

An uneasy feeling has already crept in with the Ministry of Information and Broadcasting (MIB) reconstituting the DAS task force to give more representation to independent MSOs and LMOs. The new task force will comprise five independent MSOs, registered LMO associations and prominent consumer organisations respectively, one each from the north, south, east, west and north-east regions. In all other respects, the task force will be similar to the previous one set up for DAS Phase II.

“With such a large body of members, arriving at a consensus will be difficult. The relaxation time is also too long,” said the head of a broadcasting company who did not want his name to be revealed.

Broadcasters locking horns with MSOs over pay TV revenues and carriage payouts knew where to look: cable TV digitisation. When the government flagged off DAS on 1 November 2012, they had much to cheer and hope for. With the subsequent introduction of the second phase of DAS in 2013, subscription revenues for broadcasters were looking up while carriage fees were shrinking.

Now with the deadline getting an extension, broadcasters fear their businesses could get impacted. “Phases III and IV constitute a larger universe. We were looking at the possibility of an immediate revenue upside of 20 per cent once these towns got digitised,” said the head of a television distribution company.

The southern markets will be more impacted than the northern belt. The reason: Only six cities in South India fall within the first two phases of DAS. On top of that, Kerala will witness DAS only in Phases III and IV.

In the large state of Tamil Nadu, just two cities, Chennai and Coimbatore, are under DAS. Worse still, due to political reasons and the existence of state-owned Arasu Cable, digitisation has not taken off in Tamil Nadu. Andhra Pradesh has only Hyderabad and Visakhapatnam in Phase II while Karnataka has Bangalore and Mysore. So almost the whole of South India is waiting to be digitised.

Sun TV Network, the dominant southern-language broadcaster, had more to gain from Phases III and IV of digitisation. “Sun TV Network is expected to see good subscription growth this fiscal as it will gain from the second phase of digitisation, particularly from Hyderabad which had issues of geographical area definition under DAS. But it will definitely feel the pinch in FY16 as DAS has been extended. The subscription revenue growth in the next fiscal will slow down for Sun,” said a senior executive of a broadcasting company.

Even national broadcasters will see their subscription revenue growth restricted. This will be evident in FY16. “Overall, there will be an impact. We had not factored in Phase IV as we did not expect it to sail through smoothly. But we were looking at substantial upside from Phase III cities where our subscription revenue collection from analogue cable has not been great,” said the head of a large television broadcasting company.

What about carriage fee for news broadcasters? “There has been substantial correction in the Phase I and II cities. They account for 60–70 per cent of total carriage payouts for national news broadcasters. What I see getting more impacted is subscription revenues,” he added.

There is another worrying point for broadcasters. MSOs are going to resist hikes in the content cost. The boiling point is evident from the case residing in the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) between some MSOs, such as Hathway Cable & Datacom, and Star India and ZEEL’s subsidiary Taj Television.

One opinion is that the government could have shortened the DAS deadline extension period for Phase III or even broken it down into certain cities which could have gone for DAS earlier. “The uncertainty element then wouldn’t have been there. It would have sent strong signals in the market that DAS is bound to happen. An element of urgency would have been felt,” said an executive who works in the distribution side of the broadcast business.