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

Saturday, May 14, 2016

Broadcasters to Distributors - Changing Interconnect Regulations

In Indian media, TV interconnection regulations between broadcasters anddistributors are under review to keep pace with digitisation. These areunderlined by the need for interconnect to be non-discriminatory and common in framework across distributors. As per the recent TDSAT ruling, reference interconnect offer (RIO) has been made the starting point for deals and the regulator TRAI has a consultation process for fresh comprehensive guidelines. The two parallel processes of TRAI and TDSAT have caused broadcasters and distributors to defer new content deals,impacting near-term subscription revenues of broadcasters. However,long-term increased transparency will be a positiv.

TDSAT ruling compelled TRAI’s comprehensive review
The recent Telecom Disputes Settlement Tribunal (TDSAT) ruling (in case of NSTPL vs Media Pro) has made it mandatory for RIO to be the starting point for negotiations from 1 April 2016. In a move to increase transparency, TDSAT has also asked broadcasters to clearly state all bulk discount schemes on offer in their RIO and have asked broadcasters to issue new RIOs by 1 May 2016. TDSAT has also asked TRAI to issue a comprehensive code for thebroadcasting sector, and TRAI has come out with a consultation paper on key issues surrounding interconnect agreements. Broadcasters have also made available new RIOs, which clearly specify the basis for discounts which could go up to as much as 70-80%. In the wake of these developments, stakeholders have put the signing of new interconnect agreements including the ones for phase 3 digitisation on hold,which is impacting near-term subscription revenues of leading broadcasters.

Beyond digitisation, interconnect agreements hold the key to subscriber billing tariffs and ARPU.The key reason for delayed ARPU uptick in digitisation phase 1 and 2 was delays in finalisation of interconnect agreements between MSOs (multi-service operators) and broadcasters and between MSOs and LCOs (local cable operators).Increased transparency in interconnect agreements in medium to long term will add upsides to Zee Entertainment’s subscription revenue forecasts.

Thursday, April 14, 2016

TRAI on Reference Interconnect Offers

Mr. RS Sharma, the Chairman of TRAI, highlighted that the broad principles on which TRAI’s orders are based are: (1) transparency and non-discrimination for all stakeholders, (2) consumer protection and (3) ensuring growth of the sector. He said that in Telecom, the principle of net neutrality is broadly defined as ‘pipes being agnostic to content’. In this context, the TRAI asked all stakeholders to ponder if a similar principle could be applied to the Media sector where ‘content could be made agnostic to the pipe’.

Broadcasters want price forbearance at the wholesale level; however, genre-based price caps are acceptable to them. They refuted that discounts on RIO rates are to the extent of ~90% and highlighted that weighted average discount is far lower. Most of the broadcasters want carriage/placement charges to be regulated/abolished or subsumed within the RIO. Broadcasters do not want HD and niche channel pricing to be regulated. They wanted TRAI to mandate prepaid billing at the consumer level.

MSOs are against price forbearance at the wholesale level as they believe that consumer interests will be impacted. MSOs highlighted that HD channels are priced at multiple times that of SD pricing and this has to be regulated. They favour ‘integrated model’ of pricing of content under which the broadcaster can declare the retail pricing of its channels and the MSO declares the price for distribution services. MSOs believe that the existing carriage regulation is working well and should be left unaltered. MSOs also urged TRAI to mandate compulsory prepaid billing at the consumer level.