DTH Players to Join Hand Negotiate with Broadcasters

The top three DTH players (market share >60%) (Dish TV, Tata Sky, and Airtel Digital TV) are planning to form a JV to jointly negotiate content cost and carriage revenue with the broadcasters. At present, net content cost (content cost less carriage revenue) for DTH is ~Rs50/sub/month as against Rs5-10/sub/month
for digital cable and negligible cost for analog cable. Increase in bargaining power coupled with the already high payment for content compared with digital cable would enable DTH service providers to restrict growth in net content cost.

TV’s 1Q margins were impacted by higher content and advertising costs. Transponder and middleware costs are expected to rise due to rupee depreciation. Nonetheless, we expect margins to improve in the
coming quarters on normalisation of advertising expense, operating leverage, and increase in ARPU

DTH Players Pay Higher than Cable Players
The Indian media industry is marked by inequitable sharing of content costs and carriage revenue between DTH and cable. Prior to digitisation (FY12), the DTH industry’s net content cost (content cost
less carriage revenue) was ~Rs50/sub/month whereas it was negligible for analog cable. Even after digitisation, we estimate Hathway’s net content cost in digitised markets (phase I and II) at ~Rs10/sub/month in FY14ii as against Dish TV’s net content cost of Rs47/sub/month. In the medium to long term, we expect  this gap to narrow as cable’s carriage revenue declines and content cost rises