Finding Gold at the End of the Digital Cable Rainbow in India
India is a vast market today for Pay TV, with over 100 million Pay TV households and an estimated 140 million TV households. It is also arguably among the least developed market for Pay TV, despite these numbers. For example, the number of TV households pales in comparison to the country’s population of over 1.2 billion. Also, India still does not have a digital terrestrial transmission plan, true HD programming is limited, average monthly subscription fees are among the lowest in the world, and cell phones outnumber television sets by more than 5:1.
As with most nations worldwide, cable is the dominant form of Pay TV in India. Frost & Sullivan estimates that there are 6000 multi system operators (MSOs) and 60,000 local cable operators (LCOs) serving Indian subscribers today. In contrast, the country only has seven direct to home (DTH) satellite TV operators and four IPTV service providers, although these are posing a growing challenge to cable. Partly to control piracy but also in large measure to more effectively tap into the vast potential of this market, the Indian cable industry is undergoing a comprehensive and very rapid metamorphosis as the entire country switches to digital cable.
Digitalisation is proceeding in 4 phases. The four major cities – Delhi, Mumbai, Kolkata and Chennai completed the transition last year in Phase 1, while around 40 cities and towns with populations of 1.0 million or more are scheduled to complete their transition in March 2013 as part of Phase 2. All other urban areas are required to digitalise during Phase 3 which ends on November 2014, with the rest of the country following suit in March 2015 during the fourth and final phase.
The investments required for rolling out digital cable are considerable – cost estimates range from USD 2 to 4 billion dollars. Recouping these investments is not a straightforward proposition in India. Consumers have limited awareness of the value of digital cable, and remain significantly more sensitive to cost than to content selection and quality. The role of local cable operators (LCOs) who own the actual relationships with end cable subscribers also makes it difficult for MSOs to independently differentiate services and grow revenues in a way that provides satisfactory levels of return on investment in digitalization, and promises long-term growth potential.
Value added services like internet telephony, triple data services (voice, Internet and TV), advanced media services such as video on demand, multi-screen content services and HD, and new applications such as gaming are attractive targets for monetization for two reasons. First, because they can raise the all-important average revenue per user (ARPU) without the need to increase base subscription fees. Second, because they can promote subscriber loyalty, increase TV watching times in subscriber households, and ultimately serve as a magnet for increased advertisement revenue. However, these services cannot be implemented over the traditional cable architecture that predominantly relies on uni-directional QAM connections to end subscribers. A multi-network architecture that encompasses uni-directional or (better) bi-directional DVB networks, along with IPTV and/or broadband for OTT services is necessary to deliver the full range and quality of possible content and applications to the widest possible range of subscribers.
India is a diverse nation in more ways than one. Consumers vary in sophistication from BYOD cord-cutters who push the boundaries of their devices and connectivity, to traditional viewers who continue to browse through less than 20 channels in live-linear fashion even with digital cable. Content preferences also vary widely, certainly across major linguistic regions in the country but also across various cultural groups within larger cities and towns. Multi-generational households dominate the country, with consequent diversity of viewing preferences across members of the same household as well. Income levels across households also vary tremendously, although income levels are not always correlated to appetite for spending on Pay TV and entertainment services.
It is easy to see that optimally meeting the needs of this tremendously diverse audience using only the bouquet-based linear live model will be neither optimal nor effective in the long term. On-demand, OTT and IP-based delivery can play significant roles in growing long-term monetization capability for Indian MSOs by allowing a much broader range of services and applications to be delivered in a customized and cost-effective fashion to a wide range of households. Still, many risks and questions remain. Are Indian subscribers ready to consider such offerings and will they understand the value proposition? Is it realistic to lay out these more complex network architectures when many MSOs are grappling with the newness of even basic digitalization? What business models will succeed, and how should offerings be positioned and priced? How should MSOs evaluate and select partners, technologies and vendors, and what cost structure and ROI levels can they expect? These are all open issues and unsolved questions for the majority of tier II and tier III MSOs in India, with even Tier I vendors still grappling with many of the same challenges. Predictably, many myths and misconceptions abound in the cable community as well regarding value added services and the role of multi-network solutions in monetization of digital cable. We’re taking this discussion to the floor at Convergence India this week, during 2013’s first event in a planned series of forums on Multi-Network Solutions in the Real World, which will be held across the globe throughout the year. I’m excited to be moderating this discussion, which features panelists from Ericsson, Magnaquest Technologies, iNovo Broadband and Verimatrix. I’ll continue to post insights and discussions from the forum here. Whether you are an MSO, an LCO or a technology vendor – if you have a story to share or a question to ask, please feel free to reach out to us via email, join our group on LinkedIn, or follow the discussion on Twitter (#multinetwork #CI2013).