Monday, February 13, 2017

Demonetization hits ARPUs and subscriber additions

Demonetization weighed on gross subscriber additions and ARPUs in 3Q, and the situation has not normalized yet. Slower Ph IV digitization could put pressure on 4Q subscriber adds. Management expects smaller increase in content cost going forward and new license fees regime in next few months.

Management suggested that F3Q17 revenue could have been 8% higher absent the demonetization impact.
While Dec-16 and Jan-17 have seen some improvement, revenue is still not back to pre-demonetization levels, and gross subscriber additions and ARPUs could remain pressured in 4Q.

While ARPUs are likely to be lower than previously expected, management hinted at a smaller increase in content costs as well, due to increasing mix of Zing and Rs99 packs along with downgrades to lower base packs. Management expects F17 margin (net of entertainment tax) to be 34% vs 35-37% as guided earlier.

Dish does not see an issue in getting CCI approval for the merger with Videocon d2h as the DTH industry is 35 – 38% of the total Cable and satellite industry combined. Churn rate for the quarter was 0.9%, which Dish is looking to maintain in Q4 as well.

Tuesday, January 03, 2017

Merger of Videocon DTH with Dish TV - Synergies

We believe synergies on the cost front (content, transponder and other operating costs) outweigh benefits on the revenue side (subscription, carriage, advertising, VAS etc). Currently, while Dish TV is non-committal about quantifying the synergy benefit, they mentioned sourcing, distribution, backend etc. as areas where savings are possible.

Content costs: Dish TV’s content cost (% of total revenues) at ~30% is ~840bps lower than VDTH’s. Even if we discount for the slightly weaker subscriber profile of Dish TV due to higher rural penetration, Zing and Rs174 pack, we believe there is scope for Videocon d2h’s content costs to reduce by Rs1-1.5bn.

Transponder costs: Dish TV and Videocon d2h operate on separate satellites with slightly different (few degrees apart) orientations. FY16 transponder costs of Dish TV and Videocon d2h were Rs1.7bn and Rs1.55bn, respectively. If the company decides to have only one transponder, we believe there can be a saving of Rs1-1.5bn. We note that shifting satellites will be a one-time tedious task (worth it, in our view) as it would entail visiting each subscriber household and changing the necessary settings.

We note that Dish TV’s incremental market share has been gradually under pressure and acquisition of high-ARPU subscribers would improve its revenue mix. With only three serious private DTH operators
remaining post-merger, we can see higher ability to influence pack as well as STB prices (depends on cable industry dynamics to a large extent).

Wednesday, July 13, 2016

OTT - Convergence battleground

Indian broadcasters have made sizeable investments in over the top (OTT) platforms. However, there is intense competition as broadcasters, independent content producers, aggregators, distribution platforms and
telcos facilitate on-demand, universal content consumption.

This coincides with rapid improvements in bandwidth availability (3G/4G rollouts). Convergence will be the next battle frontier for the media and telecom industries with customer engagement being the Holy Grail. Getting space in customer smartphones entails (1) outgunning rivals to procure relevant content, and (2) recurring marketing spends, viz. app originals/freebies to sustain traction.

ZEEL’s benefit from increased content consumption will be diluted by reduced TV viewing and incremental investments. Downstream industry participants like content producers, syndicators (like Shemaroo),
creative talent and data scientists could emerge as unexpected beneficiaries.

These are early days for the OTT ecosystem and industry is experimenting with a variety of monetisation
models and advertising video on demand (AVoD), subscription/transaction video on demand (SVoD/TVoD). Growth will be driven by (1) increased smartphone penetration and falling data prices, (2) regional and OTT relevant content availability, which platforms will create as they imbibe viewership insights.

In our view, the battle has just begun and the real challenge for broadcasters is from focused content aggregators like Amazon Prime, Netflix and Jio, which ascribe primacy to their OTT distribution. Our channel checks point to aggressive content acquisition by Amazon Prime (likely to launch by Diwali 2016), while Jio appears focused on an entertainment experience rather than sale of GBs/MBs of data.

Monday, June 27, 2016

India Ready for HD Eco-System

We believe all catalysts necessary to propel growth of HD are in place—(1) cost of high-definition (HD) STB has converged with that of standard definition (SD) STB (versus 3X five years ago), (2) HD TV set has become the ‘default’ TV set; it is available at all price points and non-HD variants have largely been discontinued, (3) supply of HD channels has gone up to 63 from 15-20 in FY2011 and it will cross 100 in the next two years. Subscription cost per HD channel is trending down, and (4) broadcasters have begun tapping into the HD ad inventory, a separate and incremental ad revenue stream. Monetization potential of HD channel far outweighs the associated costs.

India has about 6.5 mn active HD subs (FY2016-end) as compared with stretched potential target segment of 78 mn NCCS A and NCCS B households (HHs). We expect trebling of HD subs to 19 mn over the next 3-4 years, assuming (1) 4% growth in NCCS A+ B HHs, (2) 18% HD penetration in the same, and (3) 10% multiple TV connections. Our understanding of affluence levels based on car ownership and 3G subscriber data has fed into these assumptions. While seemingly stretched, in view of the current annual run-rate of 1.5 mn sub adds, we believe our expectations are within the realm of possibility given the strong ecosystem development.

HD subscription garners an additional `140/month. Trebling of HD subs can add incremental `25 bn to the industry’s subscription kitty. Additionally, higher HD penetration will boost HD viewership that can command higher ad yields (2-2.5X premium) once critical mass is attained. We estimate potential upside of `35 bn to TV ad revenues after factoring cannibalization of advertising attributable to shift to HD from SD.

Friday, June 10, 2016

Videocon d2h - Healthy Momentum

Recent results suggest healthy business momentum for the top DTH-based satellite operators. VDTH mgmt
highlights that ~70% of the digitalized consumers in phase 3 markets thus far have opted for a DTH service (as per government releases).

Dish, VDTH and Airtel added 0.51, 0.59 and 0.62m net adds in 4Q, which has been the key driver of revenue growth. From an incremental sub adds perspective, the major players appear to be neck and
neck; taking Dish's higher sub base and stable churn, we estimate its gross addition is 0.8m / 2.7m in 4Q / FY16, same or slightly higher than peers

VDTH mgmt appeared more guarded with its guidance for FY17E – perhaps a function of phase 3 + 4 digitalization timing and also in light of the pending regulatory tariff order. That said, mgmt expects the
company to turn PAT and FCF positive in FY17E and aims to add at least 2.5m gross adds (upside subject to pace of digitalization). Per mgmt, the regulator is making attempts to bring transparency to the pay TV market (incl. cable & carriage fee norms), which works well for the entire industry – besides also working on
service quality, inter-connect offers, et al. Zee mgmt also kept its domestic subscription revenue guidance in mid-teens for FY17E given same uncertainties