Tuesday, February 26, 2013

Bright for Phase II of Digital Cable / TV

Phase I of the DAS process has been a reasonable success so far with the cities of Mumbai and Delhi almost fully digitized. Kolkata and Chennai have witnessed delays, but these are more due to state-specific issues. We understand that momentum has picked up in Kolkata and digitization should be completed in the next few months. Chennai is a regional market and hence does not have a significant bearing on pan-India players such as Hathway, Dish TV and Zee.

High level of awareness amongst Phase I subscribers. We believe this should apply to Phase II subscribers as well, which includes reasonably big cities such as Bangalore, Pune, Hyderabad and Ahmedabad.

The benefits of digitization are well known and hence we believe there should be little push-back from most of the Phase II consumers as well. This should at least help in fast-tracking the process as time spent on customer education may be less than earlier perceptions.

The average time spent per day by households on watching TV is in excess of six hours, with Mumbai
respondents watching close to eight hours. This is much higher than the national average of ~2.5 hours and 5.3 hours in the US. We believe the trends could be similar in Phase II cities as well (though viewing hours may vary across cities), thus showcasing the importance of TV entertainment and potential for ARPUs to improve.

Companies are also witnessing promising trends in the cities of Pune, Aurangabad, Nashik, Vadodra, Ahmedabad, Surat and Rajkot which in our view augurs well for the roll-out of DAS.

Friday, February 22, 2013

Sun TV Arasu TV deal - Status

Sun TV's management provided some background information - as part of her election manifesto, Tamil Nadu’s current chief minister Ms Jayalalitha had promised low cable TV rates of Rs70 per month. Arasu was essentially executing this election promise.

Sun TV has now signed a deal with Arasu at a reduced rate of Rs25m/month (versus Rs100m/month earlier)

Based on the TRAI recommendations that state monopolies cannot distribute digital cable TV content, Arasu is unlikely to get a licence for distributing digital cable. With digitisation likely to be completed over the next three years, Arasu should lose its significance.

Sun TV's management mentioned that it is confident that Sun TV's promoted Mr Kalanidhi Maran will be exonerated following the CBI enquiry on Astro’s deal with Sun Direct.

Wednesday, February 20, 2013

Impact of Digitization - Sun TV

Phase 1 digitisation is still pending in Chennai. Management is confident of an additional 1.5m homes contributing to subscription revenue once Chennai digitises over the next quarter or two.

Phase 2 digitisation for Sun TV means an additional 4m homes.
— Bangalore – 1.7m
— Hyderabad – 1.3m
— Coimbatore – 0.4m
— Visakhapatnam – 0.4m
— Mysore – 0.2m

Sun TV believes there may be close to 35-40m cable users in total across the four southern states, and that very few are paying for access currently. Some of these analog cable users may switch to DTH as local multi-system operators (MSOs)/local cable operators (LCOs) are unable to invest in capex. Sun TV charges Rs39/subscriber/month for DTH and Rs25/subscriber/month for digital cable.

Even assuming no increase in rates and no increase in cable and satellite (C&S) households, with a 12-month slippage in the digitisation timetable, management believes subscription revenue could at least triple from the
current annual run rate of Rs5.25bn (based on the latest quarterly subscription revenue of Rs1.3bn).

For the benefit of Subscribers, Sun TV has established a dedicated online consumer complaint box.

Tuesday, February 19, 2013

Sun TV - Advertising Strategy 15% Growth

The Sun TV Management is confident of delivering 12-15% advertising revenue growth YoY over the next three to four years as business sentiment seems to have improved significantly with the initiatives by the current Indian finance minister, P Chidambaram. Management pointed to the 20% YoY growth in Q3 FY13 in advertising as an encouraging sign of things to come.

Sun TV has not increased its advertising rates since April 2011. Depending on business sentiment, there is a likelihood that advertising rates will be revised ahead of the festival season in September 2013. The last advertising rate increase in April 2011 was by 12-15%.

Sun TV’s advertising inventory is almost completely sold in its GEC and movie channels during prime time. However, non-prime time slots and other channels have significant inventory that can be used if advertising volume picks up.

Fast-moving consumer goods (FMCG) companies account for 55% of its advertising revenue. Local advertisers such as jewellers and textile companies account for 33% of its advertising revenue. The remainder is mostly made up of auto and telecom companies.

Sun TV charges around Rs43,000 for a 10-second slot for its primetime GEC channel. While this is 4-5x of what its Southern rivals charge, it is a fraction of the Rs250,000-300,000 that Hindi GEC broadcasters charge for 10 seconds in a prime time slot. Given Sun TV’s dominance in South India, the company therefore offers a compelling proposition to advertisers.

Sun TV - Strategy - Focus on Content

Sun TV management outlined the company’s strategy as follows,

Content as a big differentiator
— Fresh content from 10:30 am to 11 pm daily, with no repetitions
— A movie library with over 10,000 titles built over the last two decades. All movie rights are perpetual and across all electronic mediums.
— Invest in movies. Buy 60-70% of movies in the four Southern languages

Unique model for outsourced content. For every 24 minutes of content produced by independent producers, Sun TV gives 4 minutes of advertising to the content producer. Given Sun TV’s dominant position in South India, this ensures that Sun TV is not taking a risk that the content may fail to click with its audience. Additionally, as prime time GEC advertising rates for Sun TV are 4-5x that of its rivals, the best producers are aligned with Sun TV. Sun TV only works with content providers on an exclusive basis. It is diversified across content providers and no content provider is producing content for more than two 30-minute slots

Sun TV is focused on the four Southern states (Tamil Nadu, Kerala, Andra Pradesh and Karnataka) that constitute around 38% of households with TVs in India. The company is unlikely to move into the Hindi segment. However, moving to contiguous states such as Maharashtra and Orissa are possibilities.

Sun TV has also partnered with India's Leading Online consumer complaint's platform to resolve its subscribers problems.