As broadcasters get ready to roll out new genres of programming content, they may find themselves running up a slippery slope. Securing the viewer’s attention is becoming increasingly difficult with new channel launches threatening to shake up the hard-earned market shares of incumbents.
New concepts such as the Indian Premier League appear to have stolen ‘eyeballs’ from family soaps with great fanfare. Viewership is fragmenting and big advertisers, who now have access to multiple platforms to reach out to their target group, are playing hardball. To top it all, international giants such as Time Warner, NBC Universal and Walt Disney now want a larger piece of the television pie too. The intensifying competition is only to be expected in a booming industry. However, the problem is compounded by the fact that channels, including ‘pay’ ones, remain significantly dependent on advertising income to cover their costs.
Subscription revenue, which would help cushion any adverse turn in advertising spends, has been growing at a slower than expected pace. The subscription growth of listed companies has been in single digits, or at best low double digits, heavily overshadowed by advertising revenue growth.
Pay revenues of leading broadcasters were projected to grow at annual rates of 20 per cent and above between 2007 and 2011, on hopes that the adoption of CAS (conditional access system) and entry of DTH (Direct to Home) operators would address the problem of under-declaration of subscribers by cable operators. However, the process of digitisation has been slower than expected.
Slow progress of CAS
It’s been more than a year since CAS was mandated in select areas of the three metros of Delhi, Mumbai and Kolkata (CAS areas account for less than 20 per cent of the overall cable households in each of these cities). But its implementation has been slow. This is despite TRAI’s (Telecom Regulatory Authority of India) efforts to ensure a smooth transition to the new digital regime.
Subscribers opting for CAS, in all likelihood, pay a lower monthly cable bill, thanks to the cap on channel price at Rs 5 per month per subscriber. Moreover, a digital format allows viewers to pay for channels they actually want to watch. Yet, the adoption rate of CAS as of December 31, 2007, was under 30 per cent in the three metros overall (40 per cent in Mumbai).
High upfront costs, inertia to shift to a new format and preference for free-to-air channels are some reasons cited for the slow adoption rate. Sections of the industry claim that some households have not opted for CAS because they continue to receive pirated pay channels.
DTH, a silver lining
One likely explanation is that a large number of households have opted for DTH (Direct to Home) over CAS. Dish TV and Tata Sky now cater to over 4 million households, while the number of CAS set top boxes installed in the three metros was a little more than 4 lakh as on December 31, 2007.
The greater success achieved by DTH in acquiring customers has been the prime driver of subscription revenues over the past year. DTH operators, with their deeper pockets, appear better placed to subsidise set top boxes and are able to ramp up a subscriber base faster than local cable operators, who need to invest significant sums in upgrading their networks to digital transmission. However, 5 million digital households is just a fraction of the 70 million cable and satellite market.
Subscription picture
Broadcasters remain positive on subscription revenue growth. The entry of Reliance Infocomm and Bharti Airtel into the DTH market may fast-track the pace of customer additions.
The recent extension of CAS to cover the entire area of the three metros and the promise of extending it to 55 more cities over the next couple of years has also raised hopes that subscription revenues will improve.
For now, however, the proportion of subscription in overall revenues remains at 10-20 per cent, for most listed companies.
Zee Entertainment derives about 40 per cent of its revenues from subscription, thanks to its large international subscriber base. International subscription is a revenue stream that is yet to be tapped by broadcasters. But with the exception of general entertainment category, this stream is unlikely to make up for the slack on the domestic subscription for broadcasters.
In the near term, the price cap on channels is also likely to limit the revenues on the domestic subscription front; broadcasters’ share of the monthly subscription fee per subscriber is Rs 2.25 per channel in CAS areas. TRAI has also recently urged broadcasters to offer their channels to DTH operators at half the prices at which they are offered in non-CAS areas. They are also required to offer channels on a la carte basis.
Clearly, these issues will be ironed out over the long term. Cable home penetration is still growing, more DTH players will broaden the market, and consumers are increasingly willing to spend more on entertainment. But in the medium term, broadcasters will have to continue to tune their programming to advertisers.
Ad dependent
Broadcasters continue to plan new channel launches, betting on a growing advertising pie. Advertising spends as a percentage of GDP is less than 1 one per cent in India, half the global average. Advertising spends, particularly on television, have increased at an impressive rate over the last two years.
Many see Indian advertising at an inflection point. As Indian per capita income crosses the $750-mark, advertising spends are expected to gallop. The concern right now as far as television is concerned: Is advertising spends growing fast enough to accommodate the expanding number of channels? Even if it were, there are still other challenges.
Television broadcasters pitch their medium as the most cost-effective, considering that it reaches out to more than 100 million households (70 million are cable and satellite homes). Advertisers have also accommodated advertising tariff hikes over the past couple of years, for the same reason. However, competing mediums such as outdoor media, radio, the Internet, sports advertising, and in-theatre advertising are also vying for their attention.
Rating worries
The lack of adequate rating systems that capture audience preferences for programming also make it harder for advertisers to justify their investments. Advertisers rely on TRPs (Television rating points) to determine a programme’s program’s popularity with the audiences. Yet, the industry is increasingly dissatisfied with the current rating systems of the two rating agencies.
The sample size used by these firms to measure a programme’s popularity is considered inadequate, as it does not capture a large part of rural audience preferences.
Moreover, as the number of channels increase, viewership is fragmenting. A study by rating agency TAM reveals that while the number of channels watched in a digital set-up is as many as 28 (as against 15 in an analogue set-up), the overall time spent on viewing has not gone up.
The numbers game
The lack of accurate information on audience preferences forces both broadcasters and advertisers to play the numbers game.
Broadcasters tailor-make their content to reach out to as many viewers as possible. The result is a lot of repetitive, formulaic programming and spiralling costs of content; the rising cost of movie acquisition rights being a prime example. The absence of a strong “pay” television market also leaves little room for niche channels.
There is space for new genres of programming, such as Lifestyle and youth channels, that allow advertisers to focus on a target group. But so far, focused genres such as infotainment channels and children’s channels have managed to garner only 3-4 per cent of the advertisement pie. so far.
Whether the latest genres will have greater success in attracting advertiser interest remains to be seen.
TV broadcasting — Subscription revenues yet to take off - Sify.com
New concepts such as the Indian Premier League appear to have stolen ‘eyeballs’ from family soaps with great fanfare. Viewership is fragmenting and big advertisers, who now have access to multiple platforms to reach out to their target group, are playing hardball. To top it all, international giants such as Time Warner, NBC Universal and Walt Disney now want a larger piece of the television pie too. The intensifying competition is only to be expected in a booming industry. However, the problem is compounded by the fact that channels, including ‘pay’ ones, remain significantly dependent on advertising income to cover their costs.
Subscription revenue, which would help cushion any adverse turn in advertising spends, has been growing at a slower than expected pace. The subscription growth of listed companies has been in single digits, or at best low double digits, heavily overshadowed by advertising revenue growth.
Pay revenues of leading broadcasters were projected to grow at annual rates of 20 per cent and above between 2007 and 2011, on hopes that the adoption of CAS (conditional access system) and entry of DTH (Direct to Home) operators would address the problem of under-declaration of subscribers by cable operators. However, the process of digitisation has been slower than expected.
Slow progress of CAS
It’s been more than a year since CAS was mandated in select areas of the three metros of Delhi, Mumbai and Kolkata (CAS areas account for less than 20 per cent of the overall cable households in each of these cities). But its implementation has been slow. This is despite TRAI’s (Telecom Regulatory Authority of India) efforts to ensure a smooth transition to the new digital regime.
Subscribers opting for CAS, in all likelihood, pay a lower monthly cable bill, thanks to the cap on channel price at Rs 5 per month per subscriber. Moreover, a digital format allows viewers to pay for channels they actually want to watch. Yet, the adoption rate of CAS as of December 31, 2007, was under 30 per cent in the three metros overall (40 per cent in Mumbai).
High upfront costs, inertia to shift to a new format and preference for free-to-air channels are some reasons cited for the slow adoption rate. Sections of the industry claim that some households have not opted for CAS because they continue to receive pirated pay channels.
DTH, a silver lining
One likely explanation is that a large number of households have opted for DTH (Direct to Home) over CAS. Dish TV and Tata Sky now cater to over 4 million households, while the number of CAS set top boxes installed in the three metros was a little more than 4 lakh as on December 31, 2007.
The greater success achieved by DTH in acquiring customers has been the prime driver of subscription revenues over the past year. DTH operators, with their deeper pockets, appear better placed to subsidise set top boxes and are able to ramp up a subscriber base faster than local cable operators, who need to invest significant sums in upgrading their networks to digital transmission. However, 5 million digital households is just a fraction of the 70 million cable and satellite market.
Subscription picture
Broadcasters remain positive on subscription revenue growth. The entry of Reliance Infocomm and Bharti Airtel into the DTH market may fast-track the pace of customer additions.
The recent extension of CAS to cover the entire area of the three metros and the promise of extending it to 55 more cities over the next couple of years has also raised hopes that subscription revenues will improve.
For now, however, the proportion of subscription in overall revenues remains at 10-20 per cent, for most listed companies.
Zee Entertainment derives about 40 per cent of its revenues from subscription, thanks to its large international subscriber base. International subscription is a revenue stream that is yet to be tapped by broadcasters. But with the exception of general entertainment category, this stream is unlikely to make up for the slack on the domestic subscription for broadcasters.
In the near term, the price cap on channels is also likely to limit the revenues on the domestic subscription front; broadcasters’ share of the monthly subscription fee per subscriber is Rs 2.25 per channel in CAS areas. TRAI has also recently urged broadcasters to offer their channels to DTH operators at half the prices at which they are offered in non-CAS areas. They are also required to offer channels on a la carte basis.
Clearly, these issues will be ironed out over the long term. Cable home penetration is still growing, more DTH players will broaden the market, and consumers are increasingly willing to spend more on entertainment. But in the medium term, broadcasters will have to continue to tune their programming to advertisers.
Ad dependent
Broadcasters continue to plan new channel launches, betting on a growing advertising pie. Advertising spends as a percentage of GDP is less than 1 one per cent in India, half the global average. Advertising spends, particularly on television, have increased at an impressive rate over the last two years.
Many see Indian advertising at an inflection point. As Indian per capita income crosses the $750-mark, advertising spends are expected to gallop. The concern right now as far as television is concerned: Is advertising spends growing fast enough to accommodate the expanding number of channels? Even if it were, there are still other challenges.
Television broadcasters pitch their medium as the most cost-effective, considering that it reaches out to more than 100 million households (70 million are cable and satellite homes). Advertisers have also accommodated advertising tariff hikes over the past couple of years, for the same reason. However, competing mediums such as outdoor media, radio, the Internet, sports advertising, and in-theatre advertising are also vying for their attention.
Rating worries
The lack of adequate rating systems that capture audience preferences for programming also make it harder for advertisers to justify their investments. Advertisers rely on TRPs (Television rating points) to determine a programme’s program’s popularity with the audiences. Yet, the industry is increasingly dissatisfied with the current rating systems of the two rating agencies.
The sample size used by these firms to measure a programme’s popularity is considered inadequate, as it does not capture a large part of rural audience preferences.
Moreover, as the number of channels increase, viewership is fragmenting. A study by rating agency TAM reveals that while the number of channels watched in a digital set-up is as many as 28 (as against 15 in an analogue set-up), the overall time spent on viewing has not gone up.
The numbers game
The lack of accurate information on audience preferences forces both broadcasters and advertisers to play the numbers game.
Broadcasters tailor-make their content to reach out to as many viewers as possible. The result is a lot of repetitive, formulaic programming and spiralling costs of content; the rising cost of movie acquisition rights being a prime example. The absence of a strong “pay” television market also leaves little room for niche channels.
There is space for new genres of programming, such as Lifestyle and youth channels, that allow advertisers to focus on a target group. But so far, focused genres such as infotainment channels and children’s channels have managed to garner only 3-4 per cent of the advertisement pie. so far.
Whether the latest genres will have greater success in attracting advertiser interest remains to be seen.
TV broadcasting — Subscription revenues yet to take off - Sify.com
