4 Key Issues Shaping the Indian DTH Industry

While we believe that the TV industry is still undergoing structural changes and it could be some time before a relatively stable state is achieved, we identify four key issues that will shape the industry in the next 1-2 years.

Digital subs uptake: We expect slower pace in the next 6-8 months, but see a material pickup in activity in 2H2014, closer to Phase 3/4 deadlines

Tariffs: We expect price hikes in 2014 to continue for digital subs, but expect Phase 3 and 4 launches at lower price points

Content: We see further market fragmentation with new/niche channels. Consensus is not factoring in material content cost increases. We think that this should continue in 2014 as subscribers become more addressable and market segmentation improves. While this would lead to further fragmentation of the market, we think larger broadcasters (such as Zee, Sun TV) should benefit from this given their existing infrastructure, know-how and content library, which will lead to a relatively lower cost of rolling out new channels (faster payback periods) vs. a new entrant.

Regulations: We expect the final outcome of the ad-cap regulation in early 2014, while regulations on media aggregators may come in 2H14. Consensus estimates are currently not factoring any material negative impact, in our view. We think that bigger broadcasters, should be able to better offset the decline in inventory by price hikes given their higher viewership share and reach vs. smaller/news broadcasters.
Indeed, few broadcasters (have indicated ad-rate hikes in the medium term to offset decline in inventory

We note that Phase 1 and 2 of digitization are not yet complete, with court-stays in few cities. An analysis of Census of India’s (2011) data indicates that over 90% of India’s population and c.75% of subscribers to be digitized fall under the regions under Phases 3 and 4 of digitization.