MUMBAI: An ICICI Securities report released in December 2002 states that HITS (headend in the sky) will be preferred to the ground head-end system. The HITS system will result in significant consolidation in the cable industry; is likely to bring value to MSOs, it adds, as the bargaining powers would shift significantly from local cable operators to multiple service operators (MSOs).
However, the I-Sec report emphasises that the greatest impediment to HITS will be the fact that the system works only on a digital set-top box. HITS is a simple concept, whereby the MSO collects all feeds from all pay channels decodes them, and then once again encodes them, using his own CAS. These feeds can then be uplinked on a transponder and distributed throughout the country. HITS will enforce a very high level consolidation and regularisation in the cable industry.
The I-Sec analysts believe that MSOs, including Siticable, are buying time to evaluate the pros and cons before investing in HITS. The report adds that if Zee, through its affiliate Siticable, is able to successfully manage this transition, the company's profile and stability will improve significantly. Zee is likely to have a head start in this business as it has already made some investments in this regard. Zee, through its subsidiary, is likely to have a head start in HITS, as it has already partly invested in the required infrastructure.
The report states that the passage of the Cable Television Networks (Regulation) Amendment Bill, 2002, for cable TV distribution is a landmark event in the Indian media industry. The report mentions that the bill, if implemented, is likely to alter the dynamics of the media industry by consolidating and regularising the cable business.
I-Sec analysts believe that the biggest beneficiary amongst the companies covered by it is likely to be Zee Telefilms, through its subsidiary Siticable. Balaji Telefilms is also likely to benefit, with the increase in demand for content. The report claims that the valuations of the media industry will improve as the cable industry becomes organised and accountable. Also, revenues of broadcasters would improve, and become more stable and predictable.
Two roll-out possibilities 
The I-Sec report states that there are two roll-out possibilities of conditional access; firstly, through HITS and secondly, through a ground headend roll-out. If the MSOs are able to enforce HITS, then the bargaining powers and size of the MSOs is likely to increase significantly. On the other hand, if the HITS model becomes unviable, then the cable industry is likely to remain fragmented, although the fragmentation is likely to reduce significantly.
HITS likely to make LCO redundant 
The report states that the LCO would be reduced to just a pass-through, feeding the last mile and servicing the consumer with free-to-air channels, if HITS is implemented. Significantly, the LCO cannot tamper with/decode the feed received from the HITS system. I-Sec analysts believe this will result in a big shift in effective last-mile control from the LCO to the MSO.
Once HITS is implemented, the LCO would be reduced to just a pass-through, feeding the last mile and servicing the consumer with free-to-air channels. Significantly, the LCO cannot tamper with/decode the feed received from the HITS system. The analysts believe this will result in a big shift in effective last-mile control from the LCO to the MSO.
HITS expected to increase the penetration of C&S 
The HITS system is likely to increase the cable and satellite (C&S) household penetration significantly. The incremental cost to the cable operator for redirecting signals from the transponder to the consumer is limited. Also, the pan-India footprint of the transponder will aid in increasing the penetration and reach of C&S households.
Benefits of HITS outweigh the limitations
The most significant benefit of the HITS system would be the automation of the subscription collection system. The entire imbroglio of collecting cable subscription and follow-up will be replaced by a standard billing system, similar to services like telecom. HITS would eliminate the need for subscriber management at each headend, will bring complete transparency to the system, and is likely to simplify broadcaster audit requirements.
The impediments for HITS implementation
Digital set-top boxes: The biggest impediment of HITS implementation is that the system works only on a digital set-top box. Interestingly, the cost of a digital set-top box will be at least 2x the price of an analogue box. Also, the consumer does not get any perceptible benefit by opting for a digital set-top box. Hence, the MSOs opting for HITS have to gamble, as to whether consumers would opt for digital set-top boxes.
Objection by broadcasters: Broadcasters could also put roadblocks in the way of implementing HITS. The transponder will have a footprint which is larger than India's geographical area. Hence, the lack of authorisation to send signals to neighbouring countries could stall the HITS implementation process.
Local on-ground headend conditional access system
In this system, each headend will have to invest around Rs 50,000-Rs 200,000 per channel to ensure that the consumer receives all the pay channels. Hence, headends servicing a smaller subscriber base are unlikely to be able to bear the burden of all pay channels.
Also, the cable operator would have to install subscriber management system at each headend, which would raise administrative costs. Most importantly, the key objective of the CAS, i.e. transparency in declaration of subscribers, would get diluted as data from analogue set-top boxes can be tampered with.

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