Wednesday, July 13, 2016

OTT - Convergence battleground

Indian broadcasters have made sizeable investments in over the top (OTT) platforms. However, there is intense competition as broadcasters, independent content producers, aggregators, distribution platforms and
telcos facilitate on-demand, universal content consumption.

This coincides with rapid improvements in bandwidth availability (3G/4G rollouts). Convergence will be the next battle frontier for the media and telecom industries with customer engagement being the Holy Grail. Getting space in customer smartphones entails (1) outgunning rivals to procure relevant content, and (2) recurring marketing spends, viz. app originals/freebies to sustain traction.

ZEEL’s benefit from increased content consumption will be diluted by reduced TV viewing and incremental investments. Downstream industry participants like content producers, syndicators (like Shemaroo),
creative talent and data scientists could emerge as unexpected beneficiaries.

These are early days for the OTT ecosystem and industry is experimenting with a variety of monetisation
models and advertising video on demand (AVoD), subscription/transaction video on demand (SVoD/TVoD). Growth will be driven by (1) increased smartphone penetration and falling data prices, (2) regional and OTT relevant content availability, which platforms will create as they imbibe viewership insights.

In our view, the battle has just begun and the real challenge for broadcasters is from focused content aggregators like Amazon Prime, Netflix and Jio, which ascribe primacy to their OTT distribution. Our channel checks point to aggressive content acquisition by Amazon Prime (likely to launch by Diwali 2016), while Jio appears focused on an entertainment experience rather than sale of GBs/MBs of data.

Monday, June 27, 2016

India Ready for HD Eco-System

We believe all catalysts necessary to propel growth of HD are in place—(1) cost of high-definition (HD) STB has converged with that of standard definition (SD) STB (versus 3X five years ago), (2) HD TV set has become the ‘default’ TV set; it is available at all price points and non-HD variants have largely been discontinued, (3) supply of HD channels has gone up to 63 from 15-20 in FY2011 and it will cross 100 in the next two years. Subscription cost per HD channel is trending down, and (4) broadcasters have begun tapping into the HD ad inventory, a separate and incremental ad revenue stream. Monetization potential of HD channel far outweighs the associated costs.

India has about 6.5 mn active HD subs (FY2016-end) as compared with stretched potential target segment of 78 mn NCCS A and NCCS B households (HHs). We expect trebling of HD subs to 19 mn over the next 3-4 years, assuming (1) 4% growth in NCCS A+ B HHs, (2) 18% HD penetration in the same, and (3) 10% multiple TV connections. Our understanding of affluence levels based on car ownership and 3G subscriber data has fed into these assumptions. While seemingly stretched, in view of the current annual run-rate of 1.5 mn sub adds, we believe our expectations are within the realm of possibility given the strong ecosystem development.

HD subscription garners an additional `140/month. Trebling of HD subs can add incremental `25 bn to the industry’s subscription kitty. Additionally, higher HD penetration will boost HD viewership that can command higher ad yields (2-2.5X premium) once critical mass is attained. We estimate potential upside of `35 bn to TV ad revenues after factoring cannibalization of advertising attributable to shift to HD from SD.

Friday, June 10, 2016

Videocon d2h - Healthy Momentum

Recent results suggest healthy business momentum for the top DTH-based satellite operators. VDTH mgmt
highlights that ~70% of the digitalized consumers in phase 3 markets thus far have opted for a DTH service (as per government releases).

Dish, VDTH and Airtel added 0.51, 0.59 and 0.62m net adds in 4Q, which has been the key driver of revenue growth. From an incremental sub adds perspective, the major players appear to be neck and
neck; taking Dish's higher sub base and stable churn, we estimate its gross addition is 0.8m / 2.7m in 4Q / FY16, same or slightly higher than peers

VDTH mgmt appeared more guarded with its guidance for FY17E – perhaps a function of phase 3 + 4 digitalization timing and also in light of the pending regulatory tariff order. That said, mgmt expects the
company to turn PAT and FCF positive in FY17E and aims to add at least 2.5m gross adds (upside subject to pace of digitalization). Per mgmt, the regulator is making attempts to bring transparency to the pay TV market (incl. cable & carriage fee norms), which works well for the entire industry – besides also working on
service quality, inter-connect offers, et al. Zee mgmt also kept its domestic subscription revenue guidance in mid-teens for FY17E given same uncertainties

Saturday, May 14, 2016

Broadcasters to Distributors - Changing Interconnect Regulations

In Indian media, TV interconnection regulations between broadcasters anddistributors are under review to keep pace with digitisation. These areunderlined by the need for interconnect to be non-discriminatory and common in framework across distributors. As per the recent TDSAT ruling, reference interconnect offer (RIO) has been made the starting point for deals and the regulator TRAI has a consultation process for fresh comprehensive guidelines. The two parallel processes of TRAI and TDSAT have caused broadcasters and distributors to defer new content deals,impacting near-term subscription revenues of broadcasters. However,long-term increased transparency will be a positiv.

TDSAT ruling compelled TRAI’s comprehensive review
The recent Telecom Disputes Settlement Tribunal (TDSAT) ruling (in case of NSTPL vs Media Pro) has made it mandatory for RIO to be the starting point for negotiations from 1 April 2016. In a move to increase transparency, TDSAT has also asked broadcasters to clearly state all bulk discount schemes on offer in their RIO and have asked broadcasters to issue new RIOs by 1 May 2016. TDSAT has also asked TRAI to issue a comprehensive code for thebroadcasting sector, and TRAI has come out with a consultation paper on key issues surrounding interconnect agreements. Broadcasters have also made available new RIOs, which clearly specify the basis for discounts which could go up to as much as 70-80%. In the wake of these developments, stakeholders have put the signing of new interconnect agreements including the ones for phase 3 digitisation on hold,which is impacting near-term subscription revenues of leading broadcasters.

Beyond digitisation, interconnect agreements hold the key to subscriber billing tariffs and ARPU.The key reason for delayed ARPU uptick in digitisation phase 1 and 2 was delays in finalisation of interconnect agreements between MSOs (multi-service operators) and broadcasters and between MSOs and LCOs (local cable operators).Increased transparency in interconnect agreements in medium to long term will add upsides to Zee Entertainment’s subscription revenue forecasts.

Thursday, April 14, 2016

TRAI on Reference Interconnect Offers

Mr. RS Sharma, the Chairman of TRAI, highlighted that the broad principles on which TRAI’s orders are based are: (1) transparency and non-discrimination for all stakeholders, (2) consumer protection and (3) ensuring growth of the sector. He said that in Telecom, the principle of net neutrality is broadly defined as ‘pipes being agnostic to content’. In this context, the TRAI asked all stakeholders to ponder if a similar principle could be applied to the Media sector where ‘content could be made agnostic to the pipe’.

Broadcasters want price forbearance at the wholesale level; however, genre-based price caps are acceptable to them. They refuted that discounts on RIO rates are to the extent of ~90% and highlighted that weighted average discount is far lower. Most of the broadcasters want carriage/placement charges to be regulated/abolished or subsumed within the RIO. Broadcasters do not want HD and niche channel pricing to be regulated. They wanted TRAI to mandate prepaid billing at the consumer level.

MSOs are against price forbearance at the wholesale level as they believe that consumer interests will be impacted. MSOs highlighted that HD channels are priced at multiple times that of SD pricing and this has to be regulated. They favour ‘integrated model’ of pricing of content under which the broadcaster can declare the retail pricing of its channels and the MSO declares the price for distribution services. MSOs believe that the existing carriage regulation is working well and should be left unaltered. MSOs also urged TRAI to mandate compulsory prepaid billing at the consumer level.

Tuesday, March 15, 2016

Hathway Cable & Datacom - Maximize Digital Gains

After rolling out prepaid billing and packing for its primary subscribers, Hathway has now launched packaging for its secondary subscribers under “Hathway connect”. The company has launched 2 commercial packs (INR330 – all channels except English bouquet and INR425 for all channels). Currently, it is at pilot phase and only launched in Bangalore. The company awaits feedback on the packs, post which it will roll out the packs in entire Phase I and II markets. As compared to Den Networks, Hathway has higher primary subscriber base, well entrenched broadband operations and has seeded the highest number of boxes amongst MSOs. 

Hathway is the best placed MSO to capitalise on the digitisation opportunity. Currently, the company’s digital subscriber base stands at 9.6mn. Also, we like the company’s strategy of increasing investment in the high-margin broadband business, which has started to yield returns.

Sunday, March 06, 2016

DTH Business Report healthy Numbers - Airtel / Videocon

Both Videocon DTH and Airtel DTH reported healthy quarterly numbers over the last couple of days. We look at the metrics and some read-through for Indian cable/satellite space, including Dish.

VDTH added 0.43m subs in the December quarter, increasing net subs by ~15% yoy. The comparable number for Airtel DTH was 0.53m subs, increasing net subs by ~13% yoy. While both VDTH and Airtel
DTH also benefited by sequentially lower churn, underlying momentum in the market remains strong - we expect Dish to add 0.40m subscribers in the quarter.

The trend on ARPUs remains healthy (VDTH: ~8% yoy, Airtel DTH: ~7% yoy) - this is a result of price
hikes taken in the recent past, HD adoption (trends do vary from quarter to quarter though) and increasing value added services. For Dish TV, we model in ~5% increase in ARPUs for FY16 yoy.

With attractive content deals and operating leverage continuing to play, the sector continues to deliver good EBITDA margin expansion. Both VDTH (~390 bps yoy) and Airtel DTH (~600 bps yoy) reported healthy margin expansion resulting in EBITDA growing ~42%/45% yoy respectively.

Tuesday, February 23, 2016

Sun TV Vs Regional Channels Ratings

A quick update on ratings of Sun TV Vs other Regional Channels

Tamil. Sun TV’s ratings have come off by about 10% over the past 3 weeks and it is at about 4.5-5X that of Star Vijay as against 5.5-6X earlier. That said, on an average, Sun TV's ratings are ~5X that of Star’s Vijay TV under BARC as against 3X TAM. The Movie channel KTV's ratings have also improved under BARC.

Telugu. Gemini TV has been pushed to a distant #4 position under BARC from #2 under TAM. Further, the quality of ratings is weaker, both in terms of urban/rural mix and composition (movies/non-movies). Gemini TV’s viewership share in the top four Telugu GECs has come down to 19% in the past two weeks as against an average of 21.4% since mid Oct 2015.

Kannada. Udaya TV has been pushed to #2-4 position under BARC from strong #1 under TAM. Colors Kannada is a clear #1 in a 4-player Kannada general entertainment genre. Further, the quality of ratings is weak both in terms of urban/rural mix and composition (movies/non-movies). Udaya TV’s viewership share in the top four Kannada GECs has come down to 17% in the past two weeks as against an average of 20% since mid Oct 2015.

Malayalam. Surya TV's position has dropped to #4 position in the four-player Malayalam GEC market dominated by Asianet. Flowers TV, a new GEC launched in 2015 has consistently surpassed Surya TV to settle at #3 spot. Surya TV’s share is down to single digits in the top four Malayalam GECs.

Monday, February 22, 2016

Sun TV Network & OTT Play

Sun owns perpetual rights for Television, digital and others platforms (in-flight entertainment) for most of its content. It has signed content deals with a few OTT players which include YuppTV and HOOQ among others. The management indicated that it usually enters into a minimum guarantee fixed fee contract
for six to12 months following which it moves to per subscriber basis. The management indicated that talks are underway for content contracts with Reliance Jio

Sun management indicated that negotiations with media agencies and advertisers are underway and ad revenue gains pertaining to improved viewership share under BARC will start from 1QFY17. We believe a part of the upside from potential increase in yields in Tamil Nadu will be offset by weak ratings in other markets.

Sun management indicated that it has signed content contracts with a few MSOs in phase III markets of Karnataka and Kerala. The benefits will start from March 2016 quarter even though modest. That said, the pace of digitization in phase III is slow, given temporary court stays in most states.

Wednesday, January 13, 2016

Digitization in Phase 3 will be slow and gradual

Recent stay orders by four state high courts have postponed digitisation by couple of months, however we believe the impact will be broad based in slowing the overall process and completion may take c6 months. As per the broadcasting ministry Phase 3 digitization is estimated to cover c38m TV households across 630 districts and 7709 urban centres. After Phase 3 we estimate total digitized households to increase to c35% to c90 m TV households. Delay is particularly negative for Direct to Home (DTH) players (including Dish TV) as it limits their ability to benefit from subscriber growth. Delay allows smaller cable operators to get in more time to retain existing subscribers.

Broadcasters to benefit most from Phase 3 as sector subscription revenues rise by c45% to USD3; however monetization will be gradual over 9-12 months. Theoretically entire subscription revenues should be flowing to EBITDA, however due to rising competitive intensity and the need to invest in Over the Top (OTT) offerings, we see subscription EBITDA at no more than c60%. With expansion in mobile data users by 2x to
250m over the next 12 months, entry of global giants like Netflix in the OTT space, OTT investments by traditional broadcasters should see an increase

Thursday, January 07, 2016

Netflix a Damp Squib in India

Netflix is a successful OTT in US as: (1) cable TV ARPU is USD60 per month versus Netflix’s ARPU of USD20-24; (2) higher broadband penetration (~80%) with good speed; and (3) original content is dished out by Netflix. In India, Netflix currently lacks these advantages. Hence, we do not expect Netflix to have any major impact on Indian DTH/cable TV players over medium term. Netflix has a long way to go before tasting success in India.

In India, Netflix’s subscription rates are INR500, INR650 and INR800 for basic, standard and premium packs, respectively, which are 2-3x the prevailing cable TV/DTH rates. Besides, broadband will entail additional costs. Internationally, Netflix has done well riding attractive pricing which is almost half the cable TV/DTH rates, and original content. The company currently does not enjoy these benefits in India. To attract subscribers, it is offering free services in its first month of operations. Plans are also afoot to facilitate streaming via laptops, TV, smart phones and tablets. However, we believe in India where subscribers pay ~INR250-450 per month for cable TV (includes sports channels), Netflix’s rates are on the higher side. Broadband speed will also be a challenge. Netflix requires minimum speed of 512kbps and recommends 3mbps speed for SD content and 5mbps for HD videos, which further limits its expansion plans.  

Netflix is currently beaming international movies and TV shows in India including its original productions such as House of Cards and Orange Is the New Black. The company is currently not offering local content. Sports content, the main driver of the OTT platform, is also not offered. With India being a country with diverse culture it consumes content in 8 different languages. Currently, Netflix is beaming only English content which will attract only niche audience.