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.

DishTV + Videocon Merger on Track - Synergy benefits

The company has received required approvals from exchanges, and expects CCI approval to come in by May. Once that comes in, Dish TV is confident the transaction should close by September/October.
The combined entity would have 17% cable and satellite, and 45% DTH market share. Dish TV will buy 4.95% stake from the Videocon promoters on the first day the merged entity begins trading, based on
the previous day's last traded price. Dish would also have the option of buying a further 4.95% stake post the completion of one year of trading of the merged entity for a period of three months, at the closing price of trading on the previous day.

Synergies are possible on multiple fronts with (1) content cost being the largest with content cost for Videocon at 38%, which can come down to the levels of Dish ~30% and then aim for further reduction, (2)
potential to increase both advertising and carriage revenues, (3) reduction on set-top box hardware and software on account of larger scale, (4) other fixed costs like call centre, IT & HR, and (5) transponder costs at a later stage as it will need efforts on realigning dish at consumer premises.

With the proposed tariff order, the regulator is looking to limit bouquets and increase customer choice. This would hurt broadcasters as it limits the free-to-air channels they can push to consumers. MSOs face some pressure on account of carriage, while it does not really impact DTH operators, it will push up content costs for cable operators, which is a positive for Dish.