August 30, 2008

Let bygones be bygones

Its been quite a long time and I don't even want to get into the reasons for the delay. Quite a lot of things have happened during this time but the one that stands out for me is the finalization of 3G policy - making way for the long cherished dream of the industry to become reality. But that's not what is being written about today. Last week Reliance entered the Indian DTH market thereby continuing its push to become a leading converged telecom operator. The market already has some established players like DD, TATA Sky, Zee group, Sun Network etc. Bharti, not be left behind is going to start their own DTH service very soon. All this to penetrate into the 80 million "unsatisfied" cable homes of the country. With the Indian cable industry in such unorganized state, the time is ripe for the DTH (may be even IPTV) operators to go for the killing.

The problems surrounding the cable industry seem endless at the moment. The industry is too fragmented to put up a meaningful fight against the DTH pack. What more can be expected when 80 million cable TV homes are being serviced by more than 60000 cable operators and 6000 MSO's. Worse, the top 3 of the industry - Hathway, WWIL and Incable address only 25% of the market with the rest being taken care of by (mostly) unorganized players. So easy is the entry in this market that someone with an approval from the head post master of that area can launch a service. Recently the Tamilnadu government launched its own cable network by the name "Arasu". One has to question the independence behind this decision of the government to become an MSO itself. Further to this comes the aspect of technology. 90% of the cable networks in the country are analog in nature. Meaning they cannot carry more than 90 channels (post migration to HFC) with the existing network capacity. It is fair to say that the industry is in the middle of a massive digitization drive converting their existing networks to IP - but only time will tell whether the efforts are too little too late. Promises of pay-per view, red-button, video on demand don't seem too far but the key question is when will they reach the critical mass. With a installed set-top box, a digital cable TV network promises to deliver more than 1000 channels. Arrival of DOCSIS 3.0 compliant cable equipments are definitely a step in the right direction for the industry. What we comfortably forget is that the cable operators hold a substantial chunk of Internet subscriber in the country. They are till date best positioned to leverage on their existing networks which already deliver video(TV) and data (broadband). With further evolution of FTTC or FTTN networks in India, they are the closest to making the Indian IPTV and triple play dream a reality - but the question still remains, who will drive this in a fragmented and cash starved industry. Some years ago, CAS implementation promised to bring in some much needed relief - but lack of political will seems to have put it on the back burner. But these are not all. Years of distrust have also created a lot of bad taste between the TV channel owners and the industry.

In the initial few years of cable TV revolution in India, most of the channels were available free to air. This was both to increase the viewer base and help in better penetration on the Cable industry. Once channels thought they had substantial chunk of the user base, they turned pay channels. Since the structure of the industry is such that the cable operator pays the channel owners on a per subscriber basis, what followed was massive under reporting of subscriber numbers. The cable operators under reported to MSO's who in turn under reported to the pay channel owners. This lead to frequent squabbles between them leading to blackouts ahead of key television events (often sports). In order to cover their costs, the channel owners further increased the rates of their channels which lead to more under reporting. Lack of proper audit mechanism for subscriber numbers is one issue that digitization promises to address. Although the top 3-5 players of the industry are showing interest keeping long term gains in perspective , the more fragmented part of the industry is unwilling to migrate to digital networks - more because of the lack of knowledge of the advantages that digitization would bring. Its not just the pay channels who are unhappy but newer channels who are having to pay astronomical carriage fee to these operators. An extremely skewed demand supply ratio has sent the carriage fee of all channels skywards. There are constraints on the number of channels an analog cable TV platform can carry. Pay channels are generally allotted the premium bands but every other day, there is a new channel vie-ing for the slot of a pay channel thereby pushing the fee upwards. One wonders what is prompting the business leaders to launch new channels left, right and centre when the bandwidth choc-a-bloc is not expected to clear at least until 2010. Here again digitization seems to be the answer. The Content owners are hoping that DTH penetration increases at a faster pace as they are confident that even after digitization of some cable networks, a major portion of the cable industry will still reel under analog platforms.

The flag bearers of the cable industry today are maintaining that they are on par with the DTH players as far as innovation is concerned and their industry today lacks only a face for selling their products. Dish TV has Shahrukh Khan whereas Tata Sky has Aamir Khan among a whole host of other small artistes. But the situation on ground suggests otherwise. As already mentioned, these operators already have a key pipe laid into people's homes through which they can push various other services - with minimal capital investments from the subscriber. Next comes the mobile opportunity - these operators will be under gross disadvantage if they dont leverage on the wireless opportunity when the 3G/BWA auctions get underway. By the time they get their act together and once the consolidation effors reach maturity, one whole line of business will be past them and they wouldnt even know when it went by. It is difficult to blame them because they need to address some much more important short term priorities which threaten their survival before thinking of the long term.

July 15, 2008

No free lunch in User generated content

After a hectic few days of trying to redesign the procurement processes, I am back again doing something am more comfortable with. This one is for all those UGC buffs out there who by nature overestimate the effect of advertising in today's social networking landscape. Lets start with a bit of background. 2007 was a big year for social networking - It became a norm for everyone using Internet to hop-on to the social networking bandwagon giving birth to an entirely new set of companies in the online space. It eventually re energized the fast debilitating online advertising industry. So positive were some industry observers that some industry reports pegged the total online advertising revenues (in social networking) at US$500 Bn worldwide. If 2007 was a year of positives for social networking, 2008 is the year year that sounded warning bells for those who believe social networking represents the next frontier in online advertising revenues. A sobering slowdown in growth, combined with a more worrying drop in usage of social networking sites, has highlighted the significant challenges that the big established players, in particular, face in keeping users engaged.

This could well sway the odds in favour of some of the more specialised sites, who are able to focus on catering to the needs of different audiences. Bain Capital recently invested US$53 Mn in professional networking site LinkedIn which now values the site at more than US$ 1 Bn. Although this was far less than what Microsoft paid Facebook, but it is an indicator of things to come. Merely having appealing platforms for users to interact may not keep users glued to the sites. The focus has well and truly shifted to applications. This again brings us back to the same question. How profitable is social networking as a business model. One more testimony to this is the news released last week where google conceded that the revenues from its pet UGC video site, You tube will fall short of expectations.
Much of success You Tube has enjoyed as discussed in one of my other articles (http://svsantosh.blogspot.com/2008/02/death-of-30-second-tv-commercial.html) is due to minimal content filtering. This has been crucial to its popularity and the core of its ability to now boast to advertisers of millions of eyeballs that visit its site dialy. But advertisers are starting to weigh the gains of exposing their product/brand to millions of unpredictable users. Viral marketing can have its own set of disadvantages as well. As an example, the popular mentos + coke video created so much buzz that some other user uploaded a clip of a person eating Mentos, drinking Diet Coke and then projectile vomiting. How positive would a brand like Diet coke (which targets health concious audience) be for such positioning is quite questionable. Another issue is that of hosting ads on "copyright infringed" content. A substantial amount of content in You tube fall into this category, exposing it to potential legal wrangles.
There are many examples which project both good and bad (for the brands) of hosting content on Youtube or on other social networking sites in general and you can always argue either ways. Google believes that the next big opportunity in online advertising lies in playing a wider role of a broker for offline and online content. But this next big opportunity is definitely not an immediate one and only time and innovation will bring this to fruition in years to come (how many years will depend on how patient we are).