Wednesday, April 12, 2017

Zee - Tariff order Not a Big Overhang

The new tariff order is focused on giving a choice of a-la-carte vs bouquet to subscribers, however, management feels that it is impractical to implement 180 different packages as the tariff order suggests, especially given the US$ 3 ARPU in the industry, and hence the industry will continue to function on bouquets. Broadcasts, DTH & LCOs are not in favour of the order, only Large MSOs and TRAI are currently agreeing. Even if forced to, Zee believes it has enough driver channels to safeguard its subscription revenues without impacting reach in a big way. The order has been challenged in the courts and that might mean we do not see any impact of the same in FY18. The tariff order, if implemented, would mean that a large number of channels would have to shut down; we are not sure if the regulator is prepared for that as its job is also to ensure growth of the industry. Whilst this may be positive for the large broadcasters like Zee, it may not be too favourable for an industry that may feel it has to oppose what it perceives as overreach by regulators.


Phase 3 digitisation is largely done and broadcasters get only 10% of subscription revenues vs 20%+ in Phase 1 and 2, hence, over the next 12 months, there should be upside from Phase 3. Over the next
3-5 years, the company expects subscription revenues to grow at a low double-digit to mid-teen CAGR. The company expects Phase 4 implementation to take time, as there are 50mn+ homes. ARPU growth has also not kept pace with inflation.

The company has recently changed the top management handling the Hindi GECs, and is in the midst of changing its content. It has already changed a few shows and has launched two programs, where the
initial response has been encouraging and ratings have already seen an improvement.

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