MUMBAI: A report titled "Conditional Access or Catch 22 - Who Will Blink First?" compiled by the Citigroup Smith Barney (CSB) report (dated 15 May 2003) states that if pay TV broadcasters refuse to play into the government's hands (and turn free to air) then it will have negative ramifications. The report says that the government is likely to blink first and postpone rollout (a la VAT implementation and telecom tariff roll-backs).
The CSB report says that if pay channels remain pay channels post-implementation of conditional access on 14 July, 80 per cent plus of the viewers in the metros will stop receiving most of the popular Hindi general entertainment channels.
The report says that this would have the following significant negative ramifications:
* Pay channels will see a significant dip in metro viewership - most advertisers are already holding back media spends until clarity emerges on the dynamics of implementation of CAS.
* Given that most advertising spend for the country is controlled out of metros, especially Mumbai and Delhi, the argument that the viewership dislocation impacts only the metros may not hold water with advertisers. Consequently advertising revenues for most pay channels would be at risk
The report cautions that the government would have to deal with a situation of effective cable blackouts across the metros, which would have significant negative political ramifications and lead to a possible postponement of the implementation deadline.
The report also notes that the government has not hesitated to roll-back telecom tariff hikes or implementation of VAT when they became politically sensitive issues, given that 2004 is an election year.
The CSB report adds that if the government is firm on its 14 July deadline or over a longer term stays firm on the issue of implementation of CAS, a number of pay-channels will need to evaluate the possibility of turning free-to-air to guard against possible loss in viewership.
The report states that this would play into the hands of the government and the cable fraternity (MSOs and LCOs) and hence tier 1 broadcasters like Star, Sony and Zee would not be likely to follow the route.
If, however, a number of pay TV channels turn free to air it would be extremely positive from the government's perspective as it could return to the Indian public in an election year and stake claim to having brought down cable charges (from the current Rs 150-300) by over 60 per cent.
Possible solutions don't enthuse
The report adds that a number of possible solutions to ensure smooth implementation of CAS have been proffered. However a consensus among the various parties, ie, broadcasters, local cable operators, multi-system operators, the consumer organizations and the government does not seem to be on the horizon.
In the absence of consensus - a smooth roll-out is unlikely. Strategies of a single city roll-out, longer transition period, allowing certain popular pay channels to be part of the free-to-air tier have been discussed. The report envisages the following scenarios:
Solution No 1: Chennai single city roll-out
One of the solutions to guard against the short-term implementation-related dislocations has been to roll-out CAS in only one metro - possibly Chennai. The experience of a CAS rollout in Chennai may not be representative of the experience that is likely in the rest of the metros, states the report.
Chennai has certain unique demographics/viewership preferences with a majority of the 1.5m cable households controlled by mostly one multi-system operator, Sumangli, and viewership preferences skewed towards free-to air-channels.
As apparent from the data, 87 per cent of the weekly viewing time in Chennai is spent on watching Tamil language channels, which are all free-to-air. The pay channels (which are generally popular in the rest of India) enjoy only a six per cent share of the viewing time.
This is in complete contrast to the experience in Mumbai and Delhi where pay channels, primarily the Hindi general entertainment channels, enjoy a much high viewership share. Consequently a successful test roll-out in Chennai may not be representative of the outcome of a CAS roll-out in the other metros.
Solution No. 2: Longer transition periods / dual mode transmission
The CSB report also states that certain segments have suggested a six-to-eight month transition period for seeding set-top boxes in consumer homes. Further the government could also allow pay channels to function in a dual-mode (provide a free-to-air feed during the transition period) in the metros.
In a best case scenario with the cooperation of MSOs/LCOs, set-top boxes could be seeded locality by locality in consumer homes over a three- to six-month period with the broadcasters switching off their free-to-air feed per locality as a minimum penetration level is achieved.
The CSB report contends that lack of availability of pay channels will be the most important lubricant towards take-up of set-top boxes. If pay channels are available in free-to-air mode (albeit temporarily due to the dual feed) the incentive to consumers to invest in a STB will be limited.
The report notes that consumers need to be 'pushed' into buying set-top boxes with the only effective push being in the form of a blackout of popular pay channels post 14 July. It is unlikely that the government will risk these jolts on a mass scale and look to demarcate the cable population into the 'haves and have-nots' in a politically sensitive election year.

Also read: 
One out of 6 cable households will get pay channels: CSB report

Cable ops real gainers of pay channels turning FTA: CSB report