Tuesday, April 01, 2014

Tariff hike a distinct positive for broadcaste​rs

In a major boost to broadcasters, the Telecom Regulatory Authority of India (TRAI) has announced a 27.5% inflation-linked tariff hike for analog cable areas. The hike, which comes after a gap of almost five years, will be implemented in two installments—while first installment of 15% will be effective from April 1, 2014 (today), the second installment of 12.5% will be effective from January 1, 2015. With this hike, consumer ARPU should increase and accordingly contracts signed on Reference Interconnect Offer (RIO) basis should see a surge. It will also lend higher bargaining power to broadcasters when fixed fee deals come up for negotiations. Though this order is only for analog areas, we expect DTH as well as DAS area deals to be revised upwards.

Ideally, this tariff hike should benefit LCOs, MSOs and broadcasters in terms of higher subscription revenue. However, recovery of proportional incremental share from LCOs will not be easy for MSOs. Also, broadcasters will put pressure on MSOs for higher content fees payout. This ruling can more than mitigate any negative impact on broadcasters due to TRAI’s action on content aggregators. 

Wednesday, February 12, 2014

TRAI aggregator norms positive for Dish TV; negative for Zee/Sun

TRAI just a while ago notified amendments to regulations governing aggregators that distribute channels on behalf of broadcasters.

Only a broadcaster shall publish an RIO (Reference Interconnect Offer, a document with channel/bouquet prices) and enter into contracts with a distributor. In case the broadcaster hires an agent, or aggregator, the agent shall act only in the name of the broadcaster. The broadcaster shall ensure that the agent does not alter the bouquets as offered in its RIO. If an agent acts on behalf of multiple broadcasters, the individual broadcasters shall ensure that the agent does not bundle its channels or bouquets with other broadcasters. However, broadcasters belonging to the same group can bundle their channels.

Impact Analysis of NEW TRAI Regulations
We view this as negative for broadcasters (such as Zee, Sun TV) who use aggregators (such as Media Pro) to distribute their channels. In our view, the aggregators may no longer be able to bundle channels from
different broadcasters (thereby creating a bouquet with dominant viewership share) and enjoy better pricing power. However, given Sun TV does not use an aggregator in southern India (from where its majority of
revenues come from), we expect the negative impact to be more on Zee vs. Sun TV.

We also view these norms as positive for Dish TV given Dish TV, as a distributor may benefit from lower content costs and better margins.

Thursday, December 05, 2013

4 Key Issues Shaping the Indian DTH Industry

While we believe that the TV industry is still undergoing structural changes and it could be some time before a relatively stable state is achieved, we identify four key issues that will shape the industry in the next 1-2 years.

Digital subs uptake: We expect slower pace in the next 6-8 months, but see a material pickup in activity in 2H2014, closer to Phase 3/4 deadlines

Tariffs: We expect price hikes in 2014 to continue for digital subs, but expect Phase 3 and 4 launches at lower price points

Content: We see further market fragmentation with new/niche channels. Consensus is not factoring in material content cost increases. We think that this should continue in 2014 as subscribers become more addressable and market segmentation improves. While this would lead to further fragmentation of the market, we think larger broadcasters (such as Zee, Sun TV) should benefit from this given their existing infrastructure, know-how and content library, which will lead to a relatively lower cost of rolling out new channels (faster payback periods) vs. a new entrant.

Regulations: We expect the final outcome of the ad-cap regulation in early 2014, while regulations on media aggregators may come in 2H14. Consensus estimates are currently not factoring any material negative impact, in our view. We think that bigger broadcasters, should be able to better offset the decline in inventory by price hikes given their higher viewership share and reach vs. smaller/news broadcasters.
Indeed, few broadcasters (have indicated ad-rate hikes in the medium term to offset decline in inventory

We note that Phase 1 and 2 of digitization are not yet complete, with court-stays in few cities. An analysis of Census of India’s (2011) data indicates that over 90% of India’s population and c.75% of subscribers to be digitized fall under the regions under Phases 3 and 4 of digitization.

Wednesday, November 20, 2013

Hathway - Robust subscription, carriage fees; surge in content cost

Hathway’s net realisation per subscriber in Mumbai and Delhi remained unchanged QoQ at INR85 (inclusive of service tax). Subscription revenue jumped ~32% QoQ in Q2FY14 largely due to higher income from Kolkata and Phase 2 cities. Though content costs surged a massive ~75% YoY in  Q2FY14, further increase in H2FY14 will be limited in existing cities as most content deals have been inked.

Currently, Hathway’s total digital subscriber base stands at ~7.7mn, while at Q2FY14 end it was ~7.6mn. The consolidated entity seeded ~0.4mn boxes in Q2FY14. With ~0.8mn boxes in inventory, the company is looking to aggressively seed boxes in Phase 3 cities in H2FY14.

Hathway is one of the best placed MSOs to capitalise on the huge digitisation opportunity.  Compared to DEN, Hathway has a sizeable primary subscriber base, well-entrenched broadband operations and has seeded the highest boxes amongst MSOs. However, commencement of gross billing in Mumbai and Delhi is a key monitorable.

Friday, November 08, 2013

DTH players explore boosting carriage fees revenues

DTH operators ( Dish TV, Airtel and Videocon) are evaluating possibilities of forming joint venture to reduce their content costs and demand higher carriage fee from broadcasters. The news-flow is not
surprising as it more or less in-line with thoughts shared by the Dish TV management during the 2Q FY14 earnings call. With the regulator already raising questions about media aggregators and the market power enjoyed by them, it will tough for three big DTH players to come together.

While we don’t see a case for content costs to come down but we do agree that future increase in content costs could be lower if DTH players come together and some savings are very much possible. Second, DTH players can benefit from incremental carriage revenues as it will be easier for new/small broadcasters to negotiate with a DTH JV representing 3 players and addressing 26m subscribers versus negotiating with 200 small MSOs to get the same reach.

Only a full-fledged merger can allow DTH players to have economies of scale and mere formation of JV for negotiating content costs may not be enough. A fully merged entity can save on transponder /distribution costs and content costs. However that is not what is being explored today but with DTH industry facing growth issues, consolidation seems to be the next logical step for the DTH space in our view. Cable TV space (MSOs) is fragmented in B&C towns, markets where DTH is strong. It may be a matter of time and cable operators may attempt to consolidate in these markets over the next 2-3 years and such a move can hurt DTH.