TVNXT 2012: Can digitisation truly improve ARPUs?

In the analog system, the last mile pricing is driven by the LCOs and because of how the whole value chain in currently structured - which is more about carriage fee rather than subscription revenues - the pricing is being depressed. However, once digitisation takes place, the ability to price will shift toward the MSO, and as structures become more transparent coupled with the pressure to pay the right taxes, ARPUs will slowly start to rise.

Yes, the Indian broadcast industry poses to positively move ahead with the government mandated digitisation in the next couple of months. And yet, the mindset of the core stakeholders in this advancement is still to undergo a sea change. Yes, digitisation is slowly but steadily finding acceptance amongst the core players, but even as it does so, can digitisation truly improve ARPUs and thus change the mindset of these core stakeholders?

These were some of the few questions to which the industry experts expected to seek an answer on the second day of TV.NXT, an annual event organised by afaqs!, during the panel discussion, 'Digitisation begins, What Now?'

Moderated by Aravind Venugopal of Media Partners Asia, the panel comprised Dinyar Contractor of Satellite and Cable TV; Anuj Gandhi of Indiacast; Anil Khera of Videocon DTH; R C Venkatesh of Dish TV India; Anjan Mitra of CASBAA; and Pankaj Krishna of Chrome Data Analytics and Media.

The session began with Venugopal quizzing Venkatesh on the key elements that needed to undergo change in a bid to introduce transition within the existing ARPUs in the entire television ecosystem.

Venkatesh noted that in the analog system, the last mile pricing is driven by the LCOs and because of how the whole value chain in currently structured - which is more about carriage fee rather than subscription revenues - the pricing is getting depressed. However, once digitisation takes place, the ability to price will shift toward the MSO, and as structures become more transparent coupled with the pressure to pay the right taxes, ARPUs will slowly start to rise.

Contractor, meanwhile, noted that right now, what would be witnessed on ground would be 'the fight for turf'. The cable operator will try to establish his digital delivery; in fact the cable operator is not in a mood right now not to increase ARPUs but retain as many homes as he can.

"Increasing ARPUs will be a Phase II scenario which will come in after digitisation takes place across the entire country, that is way beyond 2013. I do not see hiking ARPUs as the prime agenda until then," Contractor averred.

Gandhi noted that there are two basic issues here - consumer-led digitisation and government-led digitisation. According to him, the first big step that everyone has to deal with is the placement of boxes because this is the first hit that the consumers are going to face.

Gandhi said, "Second, if you look at the packages that the DTH players offer to close to 30-35 million homes in this country, they range anywhere between Rs 200 to Rs 450. So, if one goes by the definition of ARPUs, they are currently already close to Rs 230- Rs 240 ARPU depending on the penetration of the packages."

"The same thing is going to happen with cable," he further added. "The ARPUs are not going to become Rs 300 or Rs 350. Rather, what has to be looked at in MSO packages are what is the start level pack and what the top level pack is which has all the channels in it; and a guesstimate of what percentage of the consumers will take the base pack and what percentage will take the highest, will determine the ARPUs."

Khera noted that if one looks at the DTH pricing structure, it is observed that from day one, the DTH subscribers are 'digitised' which means it is totally transparent. The number of DTH subscribers per player is declared to the government and local authorities and they pay taxes for the entire consumer base. Now similarly, with digitisation of the cable TV system, the MSOs and the LCOs will also have to be as transparent, wherein a large part of the revenue collection will end up as payments to the government.

"The process of digitisation will naturally lead to a higher ARPU than today. In fact, the ARPU across the four metros is very good when compared to 38 cities and the rest of the country. If the average subscriber revenue is anywhere between Rs 100-150 for LCOs across the country, in the metros the consumer is anyway paying Rs 200-300 depending on the area and pocket he is staying in," he opined.

Krishna noted that digitisation is itself a harbinger of correction of ARPUs. There is a currency in place called the 'Distribution Revenue Realisation' (DRR) which many broadcasters subscribe to, to audit their pay channel revenues from the market. According to DRR, the highest average ARPU in India which covers most of the cable markets in Rs 180.

"But there is a huge disparity too," says Krishna. He noted that Pune did the best ARPU which stood at Rs 332. "Meanwhile, the lowest ARPU that has been recorded across the country is Rs 42. So, there is a huge scope for correction of ARPUs once digitisation takes place. If things go on track, one would expect an ARPU of Rs 550-600 provided it is 100 per cent digitised," he added.

Meanwhile, when Venugopal asked how the taxation issue on satellite would impact the overall ecosystem, Mitra said that the issue is an ongoing process wherein the dialogue with the government is on at the moment. "In fact, we have been told that if the BRIC countries can tax satellite services, so can India. However, I think the service providers will not pass on the effects of taxation immediately to the consumer,"

he said.

This was the third edition of TV.NXT, an afaqs! event presented by ABP News.