Wednesday, November 20, 2013

Hathway - Robust subscription, carriage fees; surge in content cost

Hathway’s net realisation per subscriber in Mumbai and Delhi remained unchanged QoQ at INR85 (inclusive of service tax). Subscription revenue jumped ~32% QoQ in Q2FY14 largely due to higher income from Kolkata and Phase 2 cities. Though content costs surged a massive ~75% YoY in  Q2FY14, further increase in H2FY14 will be limited in existing cities as most content deals have been inked.

Currently, Hathway’s total digital subscriber base stands at ~7.7mn, while at Q2FY14 end it was ~7.6mn. The consolidated entity seeded ~0.4mn boxes in Q2FY14. With ~0.8mn boxes in inventory, the company is looking to aggressively seed boxes in Phase 3 cities in H2FY14.

Hathway is one of the best placed MSOs to capitalise on the huge digitisation opportunity.  Compared to DEN, Hathway has a sizeable primary subscriber base, well-entrenched broadband operations and has seeded the highest boxes amongst MSOs. However, commencement of gross billing in Mumbai and Delhi is a key monitorable.

Friday, November 08, 2013

DTH players explore boosting carriage fees revenues

DTH operators ( Dish TV, Airtel and Videocon) are evaluating possibilities of forming joint venture to reduce their content costs and demand higher carriage fee from broadcasters. The news-flow is not
surprising as it more or less in-line with thoughts shared by the Dish TV management during the 2Q FY14 earnings call. With the regulator already raising questions about media aggregators and the market power enjoyed by them, it will tough for three big DTH players to come together.

While we don’t see a case for content costs to come down but we do agree that future increase in content costs could be lower if DTH players come together and some savings are very much possible. Second, DTH players can benefit from incremental carriage revenues as it will be easier for new/small broadcasters to negotiate with a DTH JV representing 3 players and addressing 26m subscribers versus negotiating with 200 small MSOs to get the same reach.

Only a full-fledged merger can allow DTH players to have economies of scale and mere formation of JV for negotiating content costs may not be enough. A fully merged entity can save on transponder /distribution costs and content costs. However that is not what is being explored today but with DTH industry facing growth issues, consolidation seems to be the next logical step for the DTH space in our view. Cable TV space (MSOs) is fragmented in B&C towns, markets where DTH is strong. It may be a matter of time and cable operators may attempt to consolidate in these markets over the next 2-3 years and such a move can hurt DTH.