Sunday, May 07, 2017

FreeDish growth hurting private DTH players

Free Dish has benefited primarily from the BARC (Broadcast Audience Research Council) rating system which attaches a higher weighting to rural markets versus previous systems, with BARC reaching 98.5 m rural households out of a total of 183 m TV households. The rise in the number of Free to Air (FTA) channels and reducing time gap between content aired on FTA channels and pay channels has been a catalyst to Freedish growth.

With Free Dish planning to increase channel capacity over the next two years to 250 from 104 at present, private DTH players may find it more challenging to compete with FreeDish in future, more so in Phase 4 markets.

Given affordability concerns in FreeDish markets the net impact for broadcasters may not be worrying today. However, Free Dish ramping to 250 channels over the next 2 years may hurt both broadcasters and
private DTH players meaningfully as this may see existing paying subs churning to FreeDish. Moreover, there is an additional trend whereby a good percentage of content even on Pay channels seems to be targeting rural markets to capture rural ad budgets and viewership and this focus on the rural pie may see broadcasters losing their grip over urban viewership and ad market and make them vulnerable to digital platforms. However, we may not see any near term impact as at least 3-4 OTT players may need to scale up
with 10-15 hours of fresh programming per week to be perceived as a viable alternative platform, which seems unlikely to happen in the near future.

Wednesday, April 12, 2017

Zee - Tariff order Not a Big Overhang

The new tariff order is focused on giving a choice of a-la-carte vs bouquet to subscribers, however, management feels that it is impractical to implement 180 different packages as the tariff order suggests, especially given the US$ 3 ARPU in the industry, and hence the industry will continue to function on bouquets. Broadcasts, DTH & LCOs are not in favour of the order, only Large MSOs and TRAI are currently agreeing. Even if forced to, Zee believes it has enough driver channels to safeguard its subscription revenues without impacting reach in a big way. The order has been challenged in the courts and that might mean we do not see any impact of the same in FY18. The tariff order, if implemented, would mean that a large number of channels would have to shut down; we are not sure if the regulator is prepared for that as its job is also to ensure growth of the industry. Whilst this may be positive for the large broadcasters like Zee, it may not be too favourable for an industry that may feel it has to oppose what it perceives as overreach by regulators.

Phase 3 digitisation is largely done and broadcasters get only 10% of subscription revenues vs 20%+ in Phase 1 and 2, hence, over the next 12 months, there should be upside from Phase 3. Over the next
3-5 years, the company expects subscription revenues to grow at a low double-digit to mid-teen CAGR. The company expects Phase 4 implementation to take time, as there are 50mn+ homes. ARPU growth has also not kept pace with inflation.

The company has recently changed the top management handling the Hindi GECs, and is in the midst of changing its content. It has already changed a few shows and has launched two programs, where the
initial response has been encouraging and ratings have already seen an improvement.

Monday, April 10, 2017

DishTV + Videocon Merger on Track - Synergy benefits

The company has received required approvals from exchanges, and expects CCI approval to come in by May. Once that comes in, Dish TV is confident the transaction should close by September/October.
The combined entity would have 17% cable and satellite, and 45% DTH market share. Dish TV will buy 4.95% stake from the Videocon promoters on the first day the merged entity begins trading, based on
the previous day's last traded price. Dish would also have the option of buying a further 4.95% stake post the completion of one year of trading of the merged entity for a period of three months, at the closing price of trading on the previous day.

Synergies are possible on multiple fronts with (1) content cost being the largest with content cost for Videocon at 38%, which can come down to the levels of Dish ~30% and then aim for further reduction, (2)
potential to increase both advertising and carriage revenues, (3) reduction on set-top box hardware and software on account of larger scale, (4) other fixed costs like call centre, IT & HR, and (5) transponder costs at a later stage as it will need efforts on realigning dish at consumer premises.

With the proposed tariff order, the regulator is looking to limit bouquets and increase customer choice. This would hurt broadcasters as it limits the free-to-air channels they can push to consumers. MSOs face some pressure on account of carriage, while it does not really impact DTH operators, it will push up content costs for cable operators, which is a positive for Dish.

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).