Wednesday, May 16, 2012

TRAI regulations on Ads can be a significant drag on earnings

TRAI regulations will lead to reduction in ad inventory across genres thus impacting the ad volumes. Current primetime ad inventory for leading GEC channels could be ~14min/hr vs 12min/hr (to be regulated on clock-hour basis as per TRAI order)

Ad revenues from movies to be impacted significantly. Economics of the movie genre would be impacted because of 30 min ad-free regulation (significant reduction in ad inventory) Companies believe that it is unfair to put such stringent regulations on advertising time in the current scenario when even first phase of digitization in not through and advertisement remains the primary revenue stream.

Sports genre will be impacted due to ban on part-screen/drop-down advertising and limited ad breaks but the genre gets sold differently so taking price hike could be easier. While the broadcasters will try to offset this by yield improvements, we believe this will be a tough ask in the current weak ad environment.

While prime time GEC inventory might be impacted by 10-20%, the impact would be much higher in other genres like news, movies, and sports. We believe it will be difficult for the broadcasters to fully offset the volume impact through price hikes given current weak advertising environment.

Thursday, May 03, 2012

DISH TV Strategy for Customer Acquisition

DTH players may have to increase spends on dealer commission and advertisements in attempt to churn customers from cable TV. Separately as the gap between cable and DTH narrows (as cable goes digital and picture quality improves), DTH players will have more compulsion to position themselves as a premium service.

All this will result in higher costs as positioning is related to higher ad spends as well. Separately the other way to improve positioning is related to more HD offerings. With no immediate solutions available to increase
transponder capacity, it may not be an easy exercise. However there could be some respite for DTH sector
overall as rise in Cable ARPUs will lower gap between DTH and Cable TV. That said, two way offerings
of cable TV network allows MSO to bundle broadband and TV services together.

In addition, post digitisation cable TV will be able to offer 500+ channels and this may used a good marketing tool by MSOs to retain present customers. While we agree that it is not about providing all channels and it is
more about being present with relevant channels, the mass market may opt for more offerings in our view. In some of the regional pockets, the regional channels have lot of demand and cable operators may be better placed to deal with such consumer behaviour.

Wednesday, May 02, 2012

Analysis on TRAI Policy on Digitization of TV

TRAI rules will govern the implementation of Digital Addressable System (DAS) in the four metros of Delhi, Mumbai, Kolkata and Chennai, to be effective from June 30 2012. The key highlights are (a) Basic Service Tier to have 100 channel at INR100 per month; (b) legitimises carriage fees but in a regulated manner; (c) MSOs to ensure capacity to carry 500 channels by the end of this year, this could drive consolidation in our view; (d) revenue share for MSOs fixed at 65% in case of pay channels and 55% in case of FTA channels (positive respite).

Clarification on revenue sharing by TRAI is a positive to DAS implementation and should accelerate the process, assuming broadcasters share in lines of DTH sector at c35%, MSOs blended revenue share is estimated to be c35% and LCO share at 30% in our view.

TRAI has brought carriage fees under regulation and suggested that it cannot be increased for a period of two years. This transparency might be negative for MSOs in our view. However, as DAS implementation
starts with metros which have a fair weight-age in programme ratings, the decline in carriage fees may not be immediate. However, some set off for MSOs may come from broadcasters trying to be part of the Basic Tier pack which will have only 82 channels for private broadcasters. However, TRAI has suggested 5 channels from each genre to be included in Basic Tier, this in our view dilutes the upsides for MSOs