1. INDIAN C&S MARKET– DISTRIBUTION PERSPECTIVE December 18, 2005 Presentation by Shri Anuj Gandhi, President, SET Discovery Pvt. Ltd. at TDSAT Open House Forum – Guwahati

2. 2 TDSAT presentation: for review and discussion Indian Market – Overview C& S Industry – Stakeholders/Distribution Chain/Investments Ground Realities/Concern Areas Regulation Impact Possible Way Forward Myths

3. 3 TDSAT presentation: for review and discussion a market called India  1billion + Individuals living in less than 200 million Homes  Spread across a huge geography  Literacy level of 62%  Television reaches 108 million homes  Cable & Satellite in about 61 million homes  Television is a great platform for providing education, promotes literacy, science and technology, sports, general entertainment and encourages individual talents.  If there is one word that describes Indian Television industry’s outlook, it will be “Potential”.  The Cable and Satellite industry is expected to grow to INR18,900 crores by 2006*. * Source KPMG Research

4. 4 TDSAT presentation: for review and discussion Urban vs. Rural C&S market growing; max growth from Rural markets India C&S Market ( source NRS 2005 )  Total TV Households: 108 mn  Total C&S Households: 61 mn  Urban – about 32 mn @ Rs150 pm  Rural – about 28 mn @ Rs 75 pm  Total Subscription Revenue: INR 8280 crores  Subscription Revenue expected to grow to INR 10,700 crores in 2006* * Source KPMG Research

5. 5 TDSAT presentation: for review and discussion Stakeholders/Distribution Chain BROADCASTERS Distribution Agency of Broadcasters Cable Operator (one headend owner) MSO (Multiple headend owner) LMO

6. 6 TDSAT presentation: for review and discussion Broadcasters Costs / Revenues Broadcasters Costs Cost of content- 1.Sports rights 2.Movies 3.Programs Cost of production Distribution costs Marketing/promotion Carriage Fees Broadcasters Revenues Advertisement Revenue Subscription Revenue Revenue from sub-licensing of content

7. 7 TDSAT presentation: for review and discussion Distribution of Subscription Revenue - % Share of Stakeholders Broadcaster MSO/ CABLE OPERATOR LMO Viewer Broadcaster 5-10% 75-80% Viewer 100% 20-25% 10-15% The share of the Retailer i.e the LMO is 75-80% whereas the Industry average worldwide is about 50%. Is it wrong for the Broadcasters to demand a fair share???? Distribution agency of Broadcasters

8. 8 TDSAT presentation: for review and discussion Uneven Distribution of Subscription Revenue : A case study  Case Study : Bangalore –Total C&S Households: 1 million –ARPU: Rs. 175/- pm (Avg.Price ranges from Rs 150/- to Rs. 350/-per house ) –Total inflow (Annual)Rs. 250 crores –Broadcasters: Rs. 35 crores * –MSOs:Rs. 10 crores * - Retained by LMOsRs. 210 crores (84 percent!) *Estimated Not considering installation charges and 2 nd /3 rd TV connections at home

9. 9 TDSAT presentation: for review and discussion Some Myths Myth – Subscriber numbers are negotiated on the basis of TRP’s and popularity of channels Reality – Popularity of channels and TRP’s have no bearing on subscription numbers. Myth -- If Broadcasters offer channels on a stand alone basis, consumers will be able to choose the channels they want Reality -- In the absence of addressability consumers cannot choose the channels they want. Myth – If the operator is not charging the consumer Rs 642/- (cost of all pay channels and applicable taxes), there is no under declaration Reality - As explained in the last slides, even when the operator collects at an average Rs 150/ per household the broadcaster gets only 10-15% of the total subscription revenue.

10. 10 TDSAT presentation: for review and discussion Regulation Impact The industry has been affected by virtually no meaningful regulation until a couple of years back The present regulations are ad-hoc, one-sided and do not take into account the realities on the ground This adhocism vitiates the investments and growth opportunities for the broadcasting business without meaningfully benefiting the consumer. While the regulations were intended to correct the ills of the trade, the imbalances in the regulations has resulted in these ills continuing to grow.

11. 11 TDSAT presentation: for review and discussion Must Provide Impact : A Case Study  City: Moradabad  Existing Cable Operators: 2 –Declared Subscribers to Broadcasters : Operator 1= 2000 & Operator 2 = 750 –Truce on ground/ areas demarcated –Ground collection by Cable Operator from LMO’s : Rs. 100/- per ‘declared’ subscriber –LMO’s charge consumer average Rs 150/- per home  Enters New Cable Operator –Cost of entry: Post office registration – Rs 500/- (presently) Headend equipment and cable costs- Rs 15 lacs (Estimated) Content costs: would want to start at 300 subs to the Broadcasters –New cable operators offers connection to LMO’s at throwaway prices of say Rs 70/- per `reduced declared subscriber’  LMO’s shift to new Cable operator on account of price advantage –The LMO continues to charge the customer the same amount but their margins go up !!!  The broadcasters starts to receive lower revenues from all the CO.  Ground wars starts amongst cable operators  Availability of signals to consumers becomes uncertain  The value chain suffers in the medium to long term

12. 12 TDSAT presentation: for review and discussion `Must Provide’ without a `Must Carry’ obligation on the cable operators - Impact Huge unregulated carriage fees Disincentive for cable operators/MSO’s to digitalise and increase bandwidth Reduced channel options for consumers No recourse to broadcasters if the Cable operator refuses to carry its channels.

13. 13 TDSAT presentation: for review and discussion Notice period : Imbalances and Impact  30/2 days notice by Broadcasters/ Mso’s to operators and Public before disconnection: –encourages multiple defaults –takes away the tool to put pressure on operators to pay –modifies credit/payment terms –Does it help the consumer??? Meaningless in so far as the consumer is concerned unless there is a similar obligation on Cable operators /LMO’s to give notice to customers. For example when a Cable operator refuses to carry the channels of broadcasters and switches off the channels without any notice to consumers despite the Broadcasters willing to provide signals to the cable operators. –Notice period is unduly long; even essential service providers like water and electricity do not give such long notice.

14. 14 TDSAT presentation: for review and discussion Impact- Price Freeze “Interim” price freeze has now been in force for almost two years even though it was intended to be a “temporary measure”. Price freeze fundamentally inconsistent with the current realities pricing of other goods and services are being deregulated in favor of market competition: energy, telecommunications, utilities, and insurance (to name just a few) To use the Wholesale Price Index (the “WPI”) which is based on the prices of food, grains, vegetables and fuel, among other items, as a basis for a rate increase of television channel pricing is clearly illogical In the garb of this interim price freeze even commercial establishments, who are not really subscribers under the industry norms and practices, are seeking to secure cable signals at individual residential subscription pricing.

15. 15 TDSAT presentation: for review and discussion Viewer/ Cable TV Customer Why don’t I get receipts for my payments? Can I pay by cheque? Do I really care for Cable Operator? If the cable operator denies me signals, where do I go? What am I paying for? Cable TV/ Channels Why do rates go up anytime?

16. 16 TDSAT presentation: for review and discussion Possible solutions  Territory-wise Licensing –Encourage the availability of choices for consumers in terms of LMO’s –Discourage Monopolies at the LMO level  Voluntary CAS –The choice should be with the consumer, when he wants to shift –MSO should be the drivers  Phase-wise introduction of Digital Cable –TRAI has already initiated steps in this direction

17. 17 TDSAT presentation: for review and discussion THANK YOU