Direct Tv Descrambler

Go on. Admit it. You've done it at least once in your life. You've knowingly paid for pirated multimedia. Or you know someone who has. Maybe it was the first season of Buffy The Vampire Slayer on DVD, or a Best of the Bee Gees CD, or Final Fantasy X for PS2. Or maybe it was something more hardware-based, like having your DVD player reconfigured to ignore regional codes or buying a cable W/satellite descrambler.

Okay. Maybe you haven't. But odds are, you have. [Full disclosure: your reporter admits to once buying a fake Faye Wong CD. And Season 2 of CSI on DVD. Sorry.] Case in point: an instant audience poll during a panel session at the CASBAA (Cable and Satellite Broadcast Association of Asia) conference in Hong Kong this past October asked the following question: "Have you ever purchased, rented or knowingly viewed a pirated video product in the last 12 months?"

Some 63% of the audience responded "yes".

The punch line: the topic of the panel session was pay-TV piracy.

Pay-TV piracy is as old as pay-TV itself, particularly in Asia, where in many markets cable TV operations themselves were either unlicensed or downlinking satellite video channels illegally--practices that still go on today. But it wasn't until last year that CASBAA and CLSA Asia-Pacific made the first serious attempt to quantify the scope of pay-TV piracy in Asia in terms of lost dollars, as well as defining the different types of piracy that cable and satellite companies must deal with.

The report was well-timed. Not only is pay-TV becoming a major force in liberalizing markets where cable/satellite monopolies are getting some competition, it's also being positioned as the next big growth area for telcos aiming for triple-play broadband services. Several broadband players across the region have already cracked their respective pay-TV markets, and piracy issues will affect them just as much as they affect cable operators. The same will be true for mobile operators that adopt broadcast video standards like DVB-H (digital video broadcast for handheld devices) or satellite DMB being developed in Korea and Japan.

How big a problem is pay-TV piracy? Last year, CLSA reported that annual losses from various forms of piracy came to a conservative estimate of $874 million for all of Asia Pacific. This year, according to a report released at the end of October, the number was $970 million--up 11%.

Simon Dewhurst, director and head of media and entertainment investment banking at CLSA Asia-Pacific Markets, cautions that this doesn't necessarily mean that piracy is becoming a worse problem, although in some markets it is.

"The figures in the report are estimates, not exact numbers," he says. "The fact that the amount we came up with is 11% higher doesn't necessarily mean the industry is losing more money than last year. It means we've got better at finding where the piracy is. We were much more cautious last year, and even this year's numbers are still conservative."

In fact, says Dewhurst, in a sense the dollar numbers are beside the point. "It's not a matter of operators being out of pocket. This is money that is not being reinvested into the industry. It's not being passed on to the channel providers and the program providers and everyone else in the value chain."

Moreover, Dewhurst adds, the damage from pay-TV piracy also comes from the knock-on impact on things like foreign investment, concerns over IPR protection and even tax losses. There's also the darker side of pay-TV piracy--the fact that some of the money generated by illegal services goes to crime syndicates and terrorist groups.

Beyond black boxes

One key element in pinning down the extent of the pay-TV piracy problem is knowing piracy when you see it. The most obvious facet of piracy is, of course, the consumers who buy descramblers to view cable or satellite TV channels for free. Many in the industry see this as a behavioral issue, in which consumers see cable TV as an entitlement and don't see buying a descrambler as stealing.

"Many people, because of the cultural characteristics in a given market, don't think stealing cable is morally wrong," says David Dea, president and CEO of Taiwan Broadband Communications. "We need to do something about it."

Francis Chang, chair of CASBAA's legal and anti-piracy group, as welt as VP of legal and business affairs for Star Group, says that consumer piracy is a behavior issue based more on economics and ease of access than a desire to stick it to the Big Cable Company.

"Piracy is easy behavior," he says, drawing a comparison between cable piracy and illegal MP3 downloads. "Look at Napster today. There was a survey that asked people if they would rather pay $20 for a CD or download it for free. Most said 'free'. But when they were asked what if they only had to pay one dollar, most said they would pay. So I think most people want to do the right thing, but it comes down to cost benefit analysis."

Many experts say that consumer education about the true nature of piracy would convince many not to do it, although similar campaigns by music companies to counter MP3 downloading have proven strikingly unsuccessful.

CLSA's Dewhurst notes that the industry is perhaps putting too much focus on customer piracy, which is in fact just one element of piracy that only accounted for $154 million in lost revenues this year. He adds that educating the consumer only addresses one aspect of the problem, which is where the customer knowingly does something wrong.

"In other cases, the customer doesn't even know the service is illegal or that the operator is getting their satellite channels illegally," he says.

Indeed, unauthorized operators are costing the pay-TV industry much more money-at least $256 million annually. That includes both operators operating without a license and licensed operators that downlink satellite channels without paying for them.

Other types of piracy include under-declaration of subscribers by operators (typically in an attempt to lower licensing fees from channel operators--$32 million), ad masking (the practice of operators selling local advertising space over advertising already sold by the channel operator--$17 million) and satellite overspill (i.e. pointing your satellite dish in, say, Singapore to a satellite and downlinking channels intended for operators in Thailand--$3 million).

The amount of these types of piracy varies from market to market. For example, Thailand has twice as many illegal pay-TV subscribers as legitimate subs, due mostly to illegal cable systems outside of Bangkok. In the Philippines, unauthorized access by users accounts for 77% of piracy. Taiwan loses $113 million annually to a mix of piracy activities, including unauthorized operators, subscriber under-declaration and ad masking. Hong Kong's piracy mainly comes from overspill and pirated cable set-top boxes.

Interestingly, India's piracy problems are so vast and idiosyncratic that it's a pay-TV piracy category unto itself. It's also by far the largest, logging over $564 million in piracy losses a year--more than all other categories in all other markets combined.

"There's a huge gray market in India where dollars are not being reported by the channel operators, the MSOs or the last-mile operators that actually go door to door and collect the cash," says Dewhurst. "That alone is costing India's pay-TV industry $507 million a year."

One reason India gets its own category, Dewhurst explains, is that the gray market stems from the legacy of how India's the pay-TV market has developed.

"In 1991 during the first Gulf War, CNN ran its Middle east footage using a satellite that sits over the subcontinent. Small cable operators were formed in India to pass those signals on so people could know what was going on. A professional pay-TV infrastructure was later built on top of that, but they found that they couldn't eradicate the old structure, because that's what people were used to, and were forced to adopt the market practices at the last mile."

Not just revenue leakage

While the CLSA/CASBAA report may go a long way in illustrating the scope of the problem, the immediate question is: What can be done about it?

Chang of CASBAA and Star Group admits that fighting piracy will be a question of bringing it down to "an acceptable level" rather than eliminating it altogether.

"I think we have to accept that there will always be piracy," Chang says. "Whether we get it down to an 'acceptable level', well, what's acceptable? It's really a cost-effectiveness issue."

There's also the question of just how serious a problem it is at the end of the day--and just how serious government regulators should be taking it.

Dewhurst admits that $970 million doesn't look like much when compared to the revenues that Asia's legit pay-TV industry is pulling in.

"The pay-TV industry in Asia-Pacific is worth about $14 billion, so $970 million in losses is not going to bring the industry to its knees. It's not looking at a crisis like the music industry, which is facing a complete rewrite of how music is distributed."

However, he argues that stealing satellite and cable TV signals creates more problems than just revenue leakage. For example, it can be a major factor for investment fund managers looking for new market opportunities.

"Fund managers, whether domestic or international, demand three things in a market," he explains, "a strong rule of law; a fair, open, safe banking environment; and third, they want to be sure their IPR and business operations won't be stolen. Pay-TV piracy, as well as optical disc piracy, is a direct attack on the government's ability to argue that they have robust IPR protection. it creates the impression that if there's a problem there, there's a problem in other areas of IPR protection."

CASBAA chief executive Simon Twiston Davies makes the even stronger point that piracy operations are often linked to and funded by organized crime syndicates that have the money to invest in breaking encryption systems and collecting illicit cable subscriptions.

"These characters are often involved in drug running and prostitution. In some markets these guys have relationships with terrorists," Twiston Davies says. "The offenders are far from nice people, and the perception that pay-TV theft and the theft of other types of intellectual property rights is a victimless crime must be clearly rebutted."

Step in the right direction

If nothing else, CASBAA and the CLSA have made headway with governments by pointing out that pay-TV piracy is also costing them at least $152 million a year in tax revenues, including corporate profits tax, withholding tax and VAT/GST, according to PricewaterhouseCoopers. The Thai government alone is losing $63 million in tax revenue from piracy, Dewhurst says. The Philippines, India and Vietnam are also losing millions.

"The calculation with the tax is a good number that governments like to hear." Twiston Davies says, adding that governments are generally starting to get the message that pay-TV piracy is a serious issue.

"It's even becoming a trade issue in some markets, such as Thailand, for example," he says. "We were able to get a hearing in Washington, DC to look at their FTA [free trade agreement] with Thailand and get piracy included in the agreement. The same with the Philippines. These types of meetings weren't happening 12 months ago."

Dewhurst adds that Singapore is introducing regulations this year to criminalize illegal set-top boxes, while CASBAA's prosecution of illegal satellite operators in Hong Kong has helped reduce overspill piracy there by 16%.

Dewhurst notes that new pay-TV competition in liberalizing markets could also reduce issues such as illegal access. "Many users in Hong Kong who resorted to piracy did so because their area or building wasn't served by i-Cable. We think that deregulation that brings in new competition can help fill in the piracy gap."

However, fighting piracy isn't just the government's responsibility. David Dea of Taiwan Broadband argues that pay-TV piracy categories such as subscriber under-declaration are the product of the way the pay-TV distribution chain has developed.

"There's a lot of history to it, so you can't just blame the operators," Dea says. "Programmers have erected a distribution chain and a value chain that puts more emphasis on minimum guarantees than making sure operators are playing fair."

Dea says that this system needs to change, starting with the programmers.

"Programmers want more, but the pie is only so big. It has to start from the programmer down to the operator."

ASIA-PACIFIC SATELLITE ROSTER

AUSTRALIA
Optus

Satellite                    Transponders

Optus-A3                     15 Ku-band
Optus-B1                     15 Ku-band
                             1 L-band
Optus-B3                     15 Ku-band
                             1 L-band
Optus C1                     24 Ku-band

CHINA
China Satellite Communications
Corp (ChinaSat)

Satellite                    Transponders
ChinaSat-6                   24 C-band
ChinaSat 10                  24 C-band
(formerly                    24 Ku-band
ChinaStar 1)

Sino Satellite Communications
Satellite                    Transponders
SinoSat 1                    24 C-band
                             14 Ku-band
HONG KONG
APT Satellite Co.

Satellite                    Transponders
Apstar-IA                    24 C-band
Apstar-2R                    28 C-band
(also known                  16 Ku-band
as Telstar 10)
Apstar V                     38 C-band
                             6-Ku band
Asia Satellite
Telecommunications Co. (AsiaSat)

Satellite                    Transponders
AsiaSat 2                    24 C-band
                             9 Ku-band
AsiaSat 3s                   28 C-band
                             16 Ku-band
AsiaSat 4                    28 C-band and
                             20 Ku-band

INDIA
Indian Space Research Organization
(ISRO)

Satellite                    Transponders
Insat-2E                     17 C-band
Insat 3A                     12 C-band
                             6 extended C-band
                             6 Ku-band
                             1 S-band
Insat-3B                     12 extended C-band
                             3 Ku-band
                             1 S-band
Insat-3C                     30 C-band
                             2 S-band
                             1 S-band
Insat 3E                     24 C-band
                             12 extended C-band

INDIA
Satelit Palapa Indonesia (Satelindo)

Satellite                    Transponders
Palapa C2                    30 C-band
                             4 Ku-band
Telkom 1                     24 C-band
                             12 extended C-band

Indostar

Satellite                    Transponders
Cakrawarta-1                 5 S-band

JAPAN
Broadcasting Satellite System Corporation
of Tokyo (BSAT)

Satellite                    Transponders
BSAT-1 a                     8 Ku-band
                             (4 live, 4 back-up)
BSAT-1b                      8 Ku-band
                             (4 live, 4 back-up)
BSAT-2a                      4 Ku-band
BSAT 2c                      4 Ku-band

JSAT Corporation

Satellite                    Transponders
JCSAT-3                      12 C-band
                             28 Ku-band
JCSAT-4                      12 C-band
                             28 Ku-band
JCSAT-4A                     32 Ku-band
JCSAT-5                      32 Ku-band
JCSAT-8                      16 C-band
(also known as JCSAT 2A)     16 Ku-band
JCSAT-110                    12 Ku-band
(also known as Superbird 5)
NSTARa                       11 Ka-band
                             8 Ku-band
NSTARb                       11 Ka-band
                             8 Ku-band
NSTARc                       3-5 S-band
                             2 C-band
                             (control only)

Space Communications Corporation (SCC)

Satellite                    Transponders
Superbird A                  23 Ku-band
                             3 Ka-band
Superbird B2                 23 Ku-band
                             6 Ka-band
Superbird C                  24 Ku-band
Superbird D                  12 Ku-band
(also known as Superbird     5 and JCSAT-110)
Spacenet-4                   18 C-band
(shared with SES Americom    until launch of AMC-13)
Superbird A2                 23 Ku-band
                             4 Ka-band

MALAYSIA
Binariang Satellite Systems

Satellite                    Transponders
Measat 1                     12 C-band
                             5 Ku-band
Measat 2                     4 C-band
                             9 Ku-band

PAKISTAN
Ministry of Information Technology

Satellite                    Transponders
Paksat-1                     30 C-band
                             6 Ku-band
(formerly Palapa             C1, HGS-3, and
                             Anatolia-1)
PHILIPPINES
Mabuhay Philippines Satellite
Corporation (MPSC)

Satellite                    Transponders
Agila II                     30 C-band
                             24 Ku-band

SINGAPORE/TAIWAN
Singapore Telecom/Chungwa Telecom

Satellite                    Transponders
ST-1                         14 C-band
                             16 Ku-band

SOUTH KOREA
Korea Telecom Satellite Business
Center

Satellite                    Transponders
KoreaSat-2                   15 Ku-band
KoreaSat-3                   30 Ku-band
                             3 Ka- band

THAILAND
Shin Satellite

Satellite                    Transponders
Thaicom1A                    12 C-band
                             3 Ku-band
Thaicom2                     12 C-band
                             3 Ku-band
Thaicom3                     25 C-band
                             14 Ku-band

GLOBAL PLAYERS

Intelsat

Satellite                    Transponders
Intelsat 602                 64 C-band
                             24 Ku-band
Intelsat 604                 64 C-band
                             24 Ku-band
Intelsat 701                 42 C-band
                             20 Ku-band
Intelsat 702                 42 C-band
                             20 Ku-band
Intelsat 704                 42 C-band
                             20 Ku-band
Intelsat 802                 64 C-band
                             12 Ku-band
Intelsat 804                 64 C-band
                             12 Ku-band
Intelsat 902                 72 C-band
                             22 Ku-band
Intelsat 904                 72 C-band
                             22 Ku-band
Intelsat 906                 72 C-band
                             22 Ku-band
APR-1                        11 C-band
APR-2                        6 C-band

New Skies

Satellite                    Transponders
NSS 513                      42 C-band
                             12 Ku-band
NSS 703                      42 C-band
                             20 Ku-band
NSS-6                        50 Ku-band

PanAmSat

Satellite                    Transponders
PAS-2                        16 C-band
                             16 Ku-band
PAS-4                        16 C-band
                             24 Ku-band
PAS-7                        14 C-band
                             30 Ku-band
PAS-8                        24 C-band
                             24 Ku-band
PAS-10                       24 C-band
                             24 Ku-band

ON THE LAUNCH PAD

AUSTRALIA

Optus

Optus D1

Capacity: 24 Ku-band + 8 back-up channels

Status: scheduled for launch at the end of 2005

Optus D1

Capacity: 24 Ku-band + 8 back-up channels

Status: scheduled for launch in 2007

CHINA

Sino Satellite Communications Sinosat 2

Capacity: 24 Ku-band

Status: to be launched in the fourth quarter of 2005

HONG KONG

APT Satellite Apstar VI

Capacity: 38 C-band and 16-Ku band

Status: to be launched in 2005 to replace Apstar IA

JAPAN

JSAT Corporation JCSAT 9

Capacity: C-band and Ku-band transponders (specifics not disclosed)

Status: to be launched at the end of 2005 to replace NSTARa

JCSAT10

Capacity: C-band and Ku-band transponders (specifics not disclosed)

Status: scheduled for launch in 2006

MALAYSIA

Binariang Satellite Systems Measat 3

Capacity: 24 C-band and 24 Ku-band

Status: to be launched in mid-2005

THAILAND

Shin Satellite

iPSTAR-1

Capacity: 87 Ku-band spot beams, 3 Ku-band shaped beams, 10 Ka-band

Status: to be launched in February or March 2005

VIETNAM

Vietnam Posts and Telecommunications Corporation (VNPT)

Vietnam Communication Satellite (VINASAT)

Capacity: up to 28 transponders

Status: plans for a 2005 launch have been shelved "indefinitely", pending slot coordination with Tonga and Japan

INTERNATIONAL

Worldsat Worldsat 3

Capacity: 18 C-band and 20 Ku-band

Status: launch scheduled for late 2005

COPYRIGHT 2004 Advanstar Communications, Inc.
COPYRIGHT 2005 Gale Group

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