Monday, July 08, 2013

Riding the digitization wave

A revolution is taking place in the delivery of content in India. While content has been historically delivered over cable in analogue form, a government led mandatory digitization is currently being implemented. By Dec’14 (as per government schedule), mandatory digitization would have been rolled out in the entire length and breadth of India. As a result of mandatory digitization

Cable distribution companies have outplayed their DTH rivals in Phase 1 & 2 digitization. Our discussions with industry participants lead us to believe that cable may have captured c3/4th of digital converts from analogue cable. Hathway, as market leader in cable distribution has seeded ~6.0m boxes so far in Phase 1 & 2 which signifies their ability to execute.

The latent need for data consumption of the Indian consumer is evident in mobile data usage and revenues’ rapid growth. We believe that cable operators such as Hathway have an opportunity to sell fixed broadband delivered through cable to their digital subscribers with minimum additional investment. Given ARPUs for
broadband could be significantly more than cable TV, Hathway could be viewed as a call option on fixed broadband growth in India.

The significant under-reporting of cable TV subscribers will reduce significantly and will be close to zero over the next 3-4years. This is a game changer for multi system operators (MSOs) such as Hathway as they
can account for any digital cable box they have seeded and get paid. Customers will end up paying more for content which bodes well for broadcasters as well as distribution companies.

The government will also collect more tax in form of entertainment tax, service tax.

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