Leading pay channels are likely to lose 15-20 per cent of their advertising revenue under the initial impact of Conditional Access System but with increasing consumer acceptance, subscription revenue would smoothen over the medium to long run.

Major broadcasters like Star, Zee and Sony rely on advertising to drive their revenues. The Gross Rating Points for most leading pay channels is estimated to fall by 15-20 per cent as the loss in reach may translate into a similar drop in advertising revenue, the credit ratings agency Fitch said on Wednesday in a report on the impact of CAS.

But for ad revenues to become normal, the key assumption is that broadcasters maintain the cost for pay channels at reasonable levels so that the consumer outgo per month does not considerably exceed what they pay today, Fitch said.

The report states that local cable operators would have a dominant share of cable revenues in the short run but over the medium to long run, with increased CAS penetration, the broadcasters and MSOs' share in cable revenues will increase.

"If CAS is to achieve 50 per cent penetration, around 50 per cent of the revenue would go to the broadcasters and MSOs and this is a quantum jump from their current share of just 25 per cent", it said, adding that in future LCOs would be relegated to the role of collection and customer service agents.

Fitch estimates that this would happen by the second year of CAS implementation, if broadcasters and MSOs restrict the average household payout close to Rs 230 per month.

"Many of the free-to-air channels have recently revamped their production quality and have improved upon their programmes. Until the customers switch to CAS, they would be exposed to these channels and could get hooked to them jeopardising the CAS plans", Fitch said adding the support of LCOs is also key in the acceptance of CAS.

Expecting the overall demand growth of colour TV to taper off in FY04 on account of cyclical factors, the rating agency said the implementation of CAS was expected to further impact the sale of CTVs in the metros.