By Vidya S Nath, Research Director, Frost & Sullivan

What digitization of broadcasting in India means today is very different from what it meant in 2011, when the official mandate to “digitize” TV signals was announced.

In its sixth year of analog to digital transition and penetration of 40% of the total TV households, the industry is reeling under several challenges, affected by many disruptions outside its control.

The USD7.5 billion India television 1  industry, comprising tens of thousands of local cable operators, 6 private DTH service operators, 1 state public broadcaster, and 100 broadcast companies, realizes that seeding television households with set top boxes is hardly digitization today and cannot help them scale up their business as initially imagined. Indians are now more empowered with handheld screens than TV sets and their ‘digital’ behaviour and attitude is driven by several influences outside a TV broadcaster’s purview.

Even as the cable and satellite TV service providers continued to struggle to increase their digital footprint, Over the top (OTT) broke on the horizon. In the last two years, a plethora of OTT video services have emerged, creating an universe of 90 million individual viewers for non-television mobile and Internet based video content.

Mobile networks upgrades to 3G and 4G technologies; increased penetration of smart phones; and an aggressive push by the Government for a #digitalindia has transformed what digital means to the consumer, enterprises and thereby, the video industry in India.

Set-top boxes or Smart phones: what will ‘digitize’ India faster?

According to the national regulator, Telecom Regulatory Authority of India (TRAI), India had nearly 180 million registered digital TV households. Our estimates peg that this number would have grown to nearly 144 Million by end of 2016, out of which about 60% or about 85 million will be active subscribers, which is about 400 million viewers.

In contrast, India has over a billion telecom subscribers, out of which 97% are wireless subscribers. While there were a total of 391.5 million Internet subscribers 2 , 236 million were broadband Internet subscribers in 2016, roughly translating to 320-450 million individual Internet users that had access to reasonably good speed networks. After the entry of Reliance Jio in 2016, and based on its YTD numbers, India’s broadband penetration will likely double over the next 12 months.

This is a highly attractive trend that content companies want to try and capitalize with the launch of OTT video services. Today completely unregulated, this market comprises more than 30 OTT services offering Subscription Video On Demand, Transactional Video On Demand and Advertising Video On Demand video services. The surplus of services has helped the market to grow rapidly on the back of highly subsidized data services by mobile operators.

However these trends are hardly a sign of cord cutting. India’s dependence on television is highly under-rated. The footprint that television has through cable, satellite and terrestrial networks is far more universal than the coverage of mobile networks in the country today. While there are 1.1 Billion mobile phone subscribers, these are still concentrated in urban areas. India’s rural population comprises 65-70% of the total country and the teledensity hovers around 52%.

Contrary to all mass beliefs, there will never be a departure of the television set. The TV set continues to be a central point of information, entertainment and communication for several households in India. In fact, according to the broadcast measurement agency, BARC, 80% of the TV households have a single TV screen and that too, a CRT (Cathode ray Tube) television set. Even for the more affluent demographic, the TV screen is still needed for an optimal viewing experience.

What will increasingly be moot though is how to enable screens, whether large or small to enable media services. India is today ill equipped to handle video distribution over IP. And despite all efforts to drive broadband penetration faster through wireline, WIFI and wireless networks, the journey towards connecting 280 Million households is going to be arduous and unlikely to be complete before 2020. Therefore the mandated digitization through set-top boxes will be required. According to TRAI, 60% of cable TV households are digitized and only the fourth phase of digitization targeting largely the rural areas remains.
The challenges cited by the industry in driving the penetration further are the following:

  1. Lack of government subsidies to support the cost of set top box seeding
  2. Despite room for significant Foreign direct investment in the cable and DTH sector, India has been unable to attract large scale investments for this sector, because of reasons such as confusion in the industry among local cable operators, the low ARPUs, taxation challenges, the legal battles between broadcasters and service providers, and, intense competition
  3. Mostly the low propensity to pay for the service by the consumers
  4. The unavailability of affordable good quality set-top boxes that can ensure optimal quality of service and experience

However, according to our analysis, the penetration of digital services will rapidly grow driven by the aspirational middle class comprising 50% of the population in India. This demographic segment will be key to the growth of digital services as well as ecommerce.

The collapse of the linear business model

India’s OTT video services market is set to grow at a CAGR of 47% to 355 million viewers by 2020; more, if the penetration of broadband will grow at a more accelerated rate. In parallel India will achieve 80% digital penetration among its TV households. However what bothers media companies today is that this independent growth trends are more likely to cannibalize their business than grow it. Viewership trends among consumers are fast changing, and moving towards on-demand content, influenced by social media and addictive personalized viewing. With this background, Pay TV service providers as well as broadcasters are admittedly convinced that this is the true dawn of convergence in India but are flummoxed on how to structure their business models going forward.

So far most media conglomerates have subsidized their OTT or digital departments with their broadcast content rights, thereby reflecting reasonably high growth in revenue. Broadcast and digital exist in separate silos in terms of technologies used, resources, and budgets. We expect that this trend will continue for the next 3 years, but companies will start to unify their operations gradually to combine distribution across all media. Companies are trying to unspool regulations that can help them make the transition. Several have invested heavily in technology upgrades, MSO registration and licensing, and in their set-top box inventory in the last few years, and hence are battling the predicament of when to make the transition, trying to realize some more return on investment (ROI).

The Future of Digital in India

Despite its current challenges, India’s universe is too attractive to ignore for global investors as well as service providers. While with a remote-lens view, penetration figures of broadband, Internet, and digital TV appear lower than industry expectations, they are highly attractive as a consumer base. India is among the top three countries in the world in terms of its volume of television households as well as Internet users. There are three things that could work to India’s advantage over the next 12 months:

  1. Technology for this industry has sufficiently matured as well as declined in pricing. Solutions such as cloud based services, headend virtualization, analytics, hybrid set-top boxes, smart TVs, social media applications, among others will enable a faster conversion to converged services.
  2. The government’s commitment to Digital India initiatives and faster actions to boost connectivity
  3. The regulator’s efforts in simplifying regulations for the growth of the industry

The author is the Research Director for Digital Media practice in Frost & Sullivan, a global research, consulting and business advisory company. Her team works on market intelligence such as industry trackers, competitive analysis, market opportunity assessment as well as consulting on business growth and transformation for digital video services. She can be reached at vnath@frost.com

[[1]Includes total revenue from TV advertising and Pay TV subscription (Source: TRAI)
[2]http://www.trai.gov.in/sites/default/files/TRAI_Annual_Report_English_16052016.pdf]

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Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

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