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.
Monday, June 27, 2016
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