Free Dish has benefited primarily from the BARC (Broadcast Audience Research Council) rating system which attaches a higher weighting to rural markets versus previous systems, with BARC reaching 98.5 m rural households out of a total of 183 m TV households. The rise in the number of Free to Air (FTA) channels and reducing time gap between content aired on FTA channels and pay channels has been a catalyst to Freedish growth.
With Free Dish planning to increase channel capacity over the next two years to 250 from 104 at present, private DTH players may find it more challenging to compete with FreeDish in future, more so in Phase 4 markets.
Given affordability concerns in FreeDish markets the net impact for broadcasters may not be worrying today. However, Free Dish ramping to 250 channels over the next 2 years may hurt both broadcasters and
private DTH players meaningfully as this may see existing paying subs churning to FreeDish. Moreover, there is an additional trend whereby a good percentage of content even on Pay channels seems to be targeting rural markets to capture rural ad budgets and viewership and this focus on the rural pie may see broadcasters losing their grip over urban viewership and ad market and make them vulnerable to digital platforms. However, we may not see any near term impact as at least 3-4 OTT players may need to scale up
with 10-15 hours of fresh programming per week to be perceived as a viable alternative platform, which seems unlikely to happen in the near future.
Sunday, May 07, 2017
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.
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.
Monday, April 10, 2017
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.
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.
Monday, February 13, 2017
Demonetization hits ARPUs and subscriber additions
Demonetization weighed on gross subscriber additions and ARPUs in 3Q, and the situation has not normalized yet. Slower Ph IV digitization could put pressure on 4Q subscriber adds. Management expects smaller increase in content cost going forward and new license fees regime in next few months.
Management suggested that F3Q17 revenue could have been 8% higher absent the demonetization impact.
While Dec-16 and Jan-17 have seen some improvement, revenue is still not back to pre-demonetization levels, and gross subscriber additions and ARPUs could remain pressured in 4Q.
While ARPUs are likely to be lower than previously expected, management hinted at a smaller increase in content costs as well, due to increasing mix of Zing and Rs99 packs along with downgrades to lower base packs. Management expects F17 margin (net of entertainment tax) to be 34% vs 35-37% as guided earlier.
Dish does not see an issue in getting CCI approval for the merger with Videocon d2h as the DTH industry is 35 – 38% of the total Cable and satellite industry combined. Churn rate for the quarter was 0.9%, which Dish is looking to maintain in Q4 as well.
Management suggested that F3Q17 revenue could have been 8% higher absent the demonetization impact.
While Dec-16 and Jan-17 have seen some improvement, revenue is still not back to pre-demonetization levels, and gross subscriber additions and ARPUs could remain pressured in 4Q.
While ARPUs are likely to be lower than previously expected, management hinted at a smaller increase in content costs as well, due to increasing mix of Zing and Rs99 packs along with downgrades to lower base packs. Management expects F17 margin (net of entertainment tax) to be 34% vs 35-37% as guided earlier.
Dish does not see an issue in getting CCI approval for the merger with Videocon d2h as the DTH industry is 35 – 38% of the total Cable and satellite industry combined. Churn rate for the quarter was 0.9%, which Dish is looking to maintain in Q4 as well.
Tuesday, January 03, 2017
Merger of Videocon DTH with Dish TV - Synergies
We believe synergies on the cost front (content, transponder and other operating costs) outweigh benefits on the revenue side (subscription, carriage, advertising, VAS etc). Currently, while Dish TV is non-committal about quantifying the synergy benefit, they mentioned sourcing, distribution, backend etc. as areas where savings are possible.
Content costs: Dish TV’s content cost (% of total revenues) at ~30% is ~840bps lower than VDTH’s. Even if we discount for the slightly weaker subscriber profile of Dish TV due to higher rural penetration, Zing and Rs174 pack, we believe there is scope for Videocon d2h’s content costs to reduce by Rs1-1.5bn.
Transponder costs: Dish TV and Videocon d2h operate on separate satellites with slightly different (few degrees apart) orientations. FY16 transponder costs of Dish TV and Videocon d2h were Rs1.7bn and Rs1.55bn, respectively. If the company decides to have only one transponder, we believe there can be a saving of Rs1-1.5bn. We note that shifting satellites will be a one-time tedious task (worth it, in our view) as it would entail visiting each subscriber household and changing the necessary settings.
We note that Dish TV’s incremental market share has been gradually under pressure and acquisition of high-ARPU subscribers would improve its revenue mix. With only three serious private DTH operators
remaining post-merger, we can see higher ability to influence pack as well as STB prices (depends on cable industry dynamics to a large extent).
Content costs: Dish TV’s content cost (% of total revenues) at ~30% is ~840bps lower than VDTH’s. Even if we discount for the slightly weaker subscriber profile of Dish TV due to higher rural penetration, Zing and Rs174 pack, we believe there is scope for Videocon d2h’s content costs to reduce by Rs1-1.5bn.
Transponder costs: Dish TV and Videocon d2h operate on separate satellites with slightly different (few degrees apart) orientations. FY16 transponder costs of Dish TV and Videocon d2h were Rs1.7bn and Rs1.55bn, respectively. If the company decides to have only one transponder, we believe there can be a saving of Rs1-1.5bn. We note that shifting satellites will be a one-time tedious task (worth it, in our view) as it would entail visiting each subscriber household and changing the necessary settings.
We note that Dish TV’s incremental market share has been gradually under pressure and acquisition of high-ARPU subscribers would improve its revenue mix. With only three serious private DTH operators
remaining post-merger, we can see higher ability to influence pack as well as STB prices (depends on cable industry dynamics to a large extent).
Wednesday, July 13, 2016
OTT - Convergence battleground
Indian broadcasters have made sizeable investments in over the top (OTT) platforms. However, there is intense competition as broadcasters, independent content producers, aggregators, distribution platforms and
telcos facilitate on-demand, universal content consumption.
This coincides with rapid improvements in bandwidth availability (3G/4G rollouts). Convergence will be the next battle frontier for the media and telecom industries with customer engagement being the Holy Grail. Getting space in customer smartphones entails (1) outgunning rivals to procure relevant content, and (2) recurring marketing spends, viz. app originals/freebies to sustain traction.
ZEEL’s benefit from increased content consumption will be diluted by reduced TV viewing and incremental investments. Downstream industry participants like content producers, syndicators (like Shemaroo),
creative talent and data scientists could emerge as unexpected beneficiaries.
These are early days for the OTT ecosystem and industry is experimenting with a variety of monetisation
models and advertising video on demand (AVoD), subscription/transaction video on demand (SVoD/TVoD). Growth will be driven by (1) increased smartphone penetration and falling data prices, (2) regional and OTT relevant content availability, which platforms will create as they imbibe viewership insights.
In our view, the battle has just begun and the real challenge for broadcasters is from focused content aggregators like Amazon Prime, Netflix and Jio, which ascribe primacy to their OTT distribution. Our channel checks point to aggressive content acquisition by Amazon Prime (likely to launch by Diwali 2016), while Jio appears focused on an entertainment experience rather than sale of GBs/MBs of data.
telcos facilitate on-demand, universal content consumption.
This coincides with rapid improvements in bandwidth availability (3G/4G rollouts). Convergence will be the next battle frontier for the media and telecom industries with customer engagement being the Holy Grail. Getting space in customer smartphones entails (1) outgunning rivals to procure relevant content, and (2) recurring marketing spends, viz. app originals/freebies to sustain traction.
ZEEL’s benefit from increased content consumption will be diluted by reduced TV viewing and incremental investments. Downstream industry participants like content producers, syndicators (like Shemaroo),
creative talent and data scientists could emerge as unexpected beneficiaries.
These are early days for the OTT ecosystem and industry is experimenting with a variety of monetisation
models and advertising video on demand (AVoD), subscription/transaction video on demand (SVoD/TVoD). Growth will be driven by (1) increased smartphone penetration and falling data prices, (2) regional and OTT relevant content availability, which platforms will create as they imbibe viewership insights.
In our view, the battle has just begun and the real challenge for broadcasters is from focused content aggregators like Amazon Prime, Netflix and Jio, which ascribe primacy to their OTT distribution. Our channel checks point to aggressive content acquisition by Amazon Prime (likely to launch by Diwali 2016), while Jio appears focused on an entertainment experience rather than sale of GBs/MBs of data.
Monday, June 27, 2016
India Ready for HD Eco-System
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.
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.
Friday, June 10, 2016
Videocon d2h - Healthy Momentum
Recent results suggest healthy business momentum for the top DTH-based satellite operators. VDTH mgmt
highlights that ~70% of the digitalized consumers in phase 3 markets thus far have opted for a DTH service (as per government releases).
Dish, VDTH and Airtel added 0.51, 0.59 and 0.62m net adds in 4Q, which has been the key driver of revenue growth. From an incremental sub adds perspective, the major players appear to be neck and
neck; taking Dish's higher sub base and stable churn, we estimate its gross addition is 0.8m / 2.7m in 4Q / FY16, same or slightly higher than peers
VDTH mgmt appeared more guarded with its guidance for FY17E – perhaps a function of phase 3 + 4 digitalization timing and also in light of the pending regulatory tariff order. That said, mgmt expects the
company to turn PAT and FCF positive in FY17E and aims to add at least 2.5m gross adds (upside subject to pace of digitalization). Per mgmt, the regulator is making attempts to bring transparency to the pay TV market (incl. cable & carriage fee norms), which works well for the entire industry – besides also working on
service quality, inter-connect offers, et al. Zee mgmt also kept its domestic subscription revenue guidance in mid-teens for FY17E given same uncertainties
highlights that ~70% of the digitalized consumers in phase 3 markets thus far have opted for a DTH service (as per government releases).
Dish, VDTH and Airtel added 0.51, 0.59 and 0.62m net adds in 4Q, which has been the key driver of revenue growth. From an incremental sub adds perspective, the major players appear to be neck and
neck; taking Dish's higher sub base and stable churn, we estimate its gross addition is 0.8m / 2.7m in 4Q / FY16, same or slightly higher than peers
VDTH mgmt appeared more guarded with its guidance for FY17E – perhaps a function of phase 3 + 4 digitalization timing and also in light of the pending regulatory tariff order. That said, mgmt expects the
company to turn PAT and FCF positive in FY17E and aims to add at least 2.5m gross adds (upside subject to pace of digitalization). Per mgmt, the regulator is making attempts to bring transparency to the pay TV market (incl. cable & carriage fee norms), which works well for the entire industry – besides also working on
service quality, inter-connect offers, et al. Zee mgmt also kept its domestic subscription revenue guidance in mid-teens for FY17E given same uncertainties
Saturday, May 14, 2016
Broadcasters to Distributors - Changing Interconnect Regulations
In Indian media, TV interconnection regulations between broadcasters anddistributors are under review to keep pace with digitisation. These areunderlined by the need for interconnect to be non-discriminatory and common in framework across distributors. As per the recent TDSAT ruling, reference interconnect offer (RIO) has been made the starting point for deals and the regulator TRAI has a consultation process for fresh comprehensive guidelines. The two parallel processes of TRAI and TDSAT have caused broadcasters and distributors to defer new content deals,impacting near-term subscription revenues of broadcasters. However,long-term increased transparency will be a positiv.
TDSAT ruling compelled TRAI’s comprehensive review
The recent Telecom Disputes Settlement Tribunal (TDSAT) ruling (in case of NSTPL vs Media Pro) has made it mandatory for RIO to be the starting point for negotiations from 1 April 2016. In a move to increase transparency, TDSAT has also asked broadcasters to clearly state all bulk discount schemes on offer in their RIO and have asked broadcasters to issue new RIOs by 1 May 2016. TDSAT has also asked TRAI to issue a comprehensive code for thebroadcasting sector, and TRAI has come out with a consultation paper on key issues surrounding interconnect agreements. Broadcasters have also made available new RIOs, which clearly specify the basis for discounts which could go up to as much as 70-80%. In the wake of these developments, stakeholders have put the signing of new interconnect agreements including the ones for phase 3 digitisation on hold,which is impacting near-term subscription revenues of leading broadcasters.
Beyond digitisation, interconnect agreements hold the key to subscriber billing tariffs and ARPU.The key reason for delayed ARPU uptick in digitisation phase 1 and 2 was delays in finalisation of interconnect agreements between MSOs (multi-service operators) and broadcasters and between MSOs and LCOs (local cable operators).Increased transparency in interconnect agreements in medium to long term will add upsides to Zee Entertainment’s subscription revenue forecasts.
TDSAT ruling compelled TRAI’s comprehensive review
The recent Telecom Disputes Settlement Tribunal (TDSAT) ruling (in case of NSTPL vs Media Pro) has made it mandatory for RIO to be the starting point for negotiations from 1 April 2016. In a move to increase transparency, TDSAT has also asked broadcasters to clearly state all bulk discount schemes on offer in their RIO and have asked broadcasters to issue new RIOs by 1 May 2016. TDSAT has also asked TRAI to issue a comprehensive code for thebroadcasting sector, and TRAI has come out with a consultation paper on key issues surrounding interconnect agreements. Broadcasters have also made available new RIOs, which clearly specify the basis for discounts which could go up to as much as 70-80%. In the wake of these developments, stakeholders have put the signing of new interconnect agreements including the ones for phase 3 digitisation on hold,which is impacting near-term subscription revenues of leading broadcasters.
Beyond digitisation, interconnect agreements hold the key to subscriber billing tariffs and ARPU.The key reason for delayed ARPU uptick in digitisation phase 1 and 2 was delays in finalisation of interconnect agreements between MSOs (multi-service operators) and broadcasters and between MSOs and LCOs (local cable operators).Increased transparency in interconnect agreements in medium to long term will add upsides to Zee Entertainment’s subscription revenue forecasts.
Thursday, April 14, 2016
TRAI on Reference Interconnect Offers
Mr. RS Sharma, the Chairman of TRAI, highlighted that the broad principles on which TRAI’s orders are based are: (1) transparency and non-discrimination for all stakeholders, (2) consumer protection and (3) ensuring growth of the sector. He said that in Telecom, the principle of net neutrality is broadly defined as ‘pipes being agnostic to content’. In this context, the TRAI asked all stakeholders to ponder if a similar principle could be applied to the Media sector where ‘content could be made agnostic to the pipe’.
Broadcasters want price forbearance at the wholesale level; however, genre-based price caps are acceptable to them. They refuted that discounts on RIO rates are to the extent of ~90% and highlighted that weighted average discount is far lower. Most of the broadcasters want carriage/placement charges to be regulated/abolished or subsumed within the RIO. Broadcasters do not want HD and niche channel pricing to be regulated. They wanted TRAI to mandate prepaid billing at the consumer level.
MSOs are against price forbearance at the wholesale level as they believe that consumer interests will be impacted. MSOs highlighted that HD channels are priced at multiple times that of SD pricing and this has to be regulated. They favour ‘integrated model’ of pricing of content under which the broadcaster can declare the retail pricing of its channels and the MSO declares the price for distribution services. MSOs believe that the existing carriage regulation is working well and should be left unaltered. MSOs also urged TRAI to mandate compulsory prepaid billing at the consumer level.
Broadcasters want price forbearance at the wholesale level; however, genre-based price caps are acceptable to them. They refuted that discounts on RIO rates are to the extent of ~90% and highlighted that weighted average discount is far lower. Most of the broadcasters want carriage/placement charges to be regulated/abolished or subsumed within the RIO. Broadcasters do not want HD and niche channel pricing to be regulated. They wanted TRAI to mandate prepaid billing at the consumer level.
MSOs are against price forbearance at the wholesale level as they believe that consumer interests will be impacted. MSOs highlighted that HD channels are priced at multiple times that of SD pricing and this has to be regulated. They favour ‘integrated model’ of pricing of content under which the broadcaster can declare the retail pricing of its channels and the MSO declares the price for distribution services. MSOs believe that the existing carriage regulation is working well and should be left unaltered. MSOs also urged TRAI to mandate compulsory prepaid billing at the consumer level.
Tuesday, March 15, 2016
Hathway Cable & Datacom - Maximize Digital Gains
After rolling out prepaid billing and packing for its primary subscribers, Hathway has now launched packaging for its secondary subscribers under “Hathway connect”. The company has launched 2 commercial packs (INR330 – all channels except English bouquet and INR425 for all channels). Currently, it is at pilot phase and only launched in Bangalore. The company awaits feedback on the packs, post which it will roll out the packs in entire Phase I and II markets. As compared to Den Networks, Hathway has higher primary subscriber base, well entrenched broadband operations and has seeded the highest number of boxes amongst MSOs.
Hathway is the best placed MSO to capitalise on the digitisation opportunity. Currently, the company’s digital subscriber base stands at 9.6mn. Also, we like the company’s strategy of increasing investment in the high-margin broadband business, which has started to yield returns.
Hathway is the best placed MSO to capitalise on the digitisation opportunity. Currently, the company’s digital subscriber base stands at 9.6mn. Also, we like the company’s strategy of increasing investment in the high-margin broadband business, which has started to yield returns.
Sunday, March 06, 2016
DTH Business Report healthy Numbers - Airtel / Videocon
Both Videocon DTH and Airtel DTH reported healthy quarterly numbers over the last couple of days. We look at the metrics and some read-through for Indian cable/satellite space, including Dish.
VDTH added 0.43m subs in the December quarter, increasing net subs by ~15% yoy. The comparable number for Airtel DTH was 0.53m subs, increasing net subs by ~13% yoy. While both VDTH and Airtel
DTH also benefited by sequentially lower churn, underlying momentum in the market remains strong - we expect Dish to add 0.40m subscribers in the quarter.
The trend on ARPUs remains healthy (VDTH: ~8% yoy, Airtel DTH: ~7% yoy) - this is a result of price
hikes taken in the recent past, HD adoption (trends do vary from quarter to quarter though) and increasing value added services. For Dish TV, we model in ~5% increase in ARPUs for FY16 yoy.
With attractive content deals and operating leverage continuing to play, the sector continues to deliver good EBITDA margin expansion. Both VDTH (~390 bps yoy) and Airtel DTH (~600 bps yoy) reported healthy margin expansion resulting in EBITDA growing ~42%/45% yoy respectively.
VDTH added 0.43m subs in the December quarter, increasing net subs by ~15% yoy. The comparable number for Airtel DTH was 0.53m subs, increasing net subs by ~13% yoy. While both VDTH and Airtel
DTH also benefited by sequentially lower churn, underlying momentum in the market remains strong - we expect Dish to add 0.40m subscribers in the quarter.
The trend on ARPUs remains healthy (VDTH: ~8% yoy, Airtel DTH: ~7% yoy) - this is a result of price
hikes taken in the recent past, HD adoption (trends do vary from quarter to quarter though) and increasing value added services. For Dish TV, we model in ~5% increase in ARPUs for FY16 yoy.
With attractive content deals and operating leverage continuing to play, the sector continues to deliver good EBITDA margin expansion. Both VDTH (~390 bps yoy) and Airtel DTH (~600 bps yoy) reported healthy margin expansion resulting in EBITDA growing ~42%/45% yoy respectively.
Tuesday, February 23, 2016
Sun TV Vs Regional Channels Ratings
A quick update on ratings of Sun TV Vs other Regional Channels
Tamil. Sun TV’s ratings have come off by about 10% over the past 3 weeks and it is at about 4.5-5X that of Star Vijay as against 5.5-6X earlier. That said, on an average, Sun TV's ratings are ~5X that of Star’s Vijay TV under BARC as against 3X TAM. The Movie channel KTV's ratings have also improved under BARC.
Telugu. Gemini TV has been pushed to a distant #4 position under BARC from #2 under TAM. Further, the quality of ratings is weaker, both in terms of urban/rural mix and composition (movies/non-movies). Gemini TV’s viewership share in the top four Telugu GECs has come down to 19% in the past two weeks as against an average of 21.4% since mid Oct 2015.
Kannada. Udaya TV has been pushed to #2-4 position under BARC from strong #1 under TAM. Colors Kannada is a clear #1 in a 4-player Kannada general entertainment genre. Further, the quality of ratings is weak both in terms of urban/rural mix and composition (movies/non-movies). Udaya TV’s viewership share in the top four Kannada GECs has come down to 17% in the past two weeks as against an average of 20% since mid Oct 2015.
Malayalam. Surya TV's position has dropped to #4 position in the four-player Malayalam GEC market dominated by Asianet. Flowers TV, a new GEC launched in 2015 has consistently surpassed Surya TV to settle at #3 spot. Surya TV’s share is down to single digits in the top four Malayalam GECs.
Tamil. Sun TV’s ratings have come off by about 10% over the past 3 weeks and it is at about 4.5-5X that of Star Vijay as against 5.5-6X earlier. That said, on an average, Sun TV's ratings are ~5X that of Star’s Vijay TV under BARC as against 3X TAM. The Movie channel KTV's ratings have also improved under BARC.
Telugu. Gemini TV has been pushed to a distant #4 position under BARC from #2 under TAM. Further, the quality of ratings is weaker, both in terms of urban/rural mix and composition (movies/non-movies). Gemini TV’s viewership share in the top four Telugu GECs has come down to 19% in the past two weeks as against an average of 21.4% since mid Oct 2015.
Kannada. Udaya TV has been pushed to #2-4 position under BARC from strong #1 under TAM. Colors Kannada is a clear #1 in a 4-player Kannada general entertainment genre. Further, the quality of ratings is weak both in terms of urban/rural mix and composition (movies/non-movies). Udaya TV’s viewership share in the top four Kannada GECs has come down to 17% in the past two weeks as against an average of 20% since mid Oct 2015.
Malayalam. Surya TV's position has dropped to #4 position in the four-player Malayalam GEC market dominated by Asianet. Flowers TV, a new GEC launched in 2015 has consistently surpassed Surya TV to settle at #3 spot. Surya TV’s share is down to single digits in the top four Malayalam GECs.
Monday, February 22, 2016
Sun TV Network & OTT Play
Sun owns perpetual rights for Television, digital and others platforms (in-flight entertainment) for most of its content. It has signed content deals with a few OTT players which include YuppTV and HOOQ among others. The management indicated that it usually enters into a minimum guarantee fixed fee contract
for six to12 months following which it moves to per subscriber basis. The management indicated that talks are underway for content contracts with Reliance Jio
Sun management indicated that negotiations with media agencies and advertisers are underway and ad revenue gains pertaining to improved viewership share under BARC will start from 1QFY17. We believe a part of the upside from potential increase in yields in Tamil Nadu will be offset by weak ratings in other markets.
Sun management indicated that it has signed content contracts with a few MSOs in phase III markets of Karnataka and Kerala. The benefits will start from March 2016 quarter even though modest. That said, the pace of digitization in phase III is slow, given temporary court stays in most states.
for six to12 months following which it moves to per subscriber basis. The management indicated that talks are underway for content contracts with Reliance Jio
Sun management indicated that negotiations with media agencies and advertisers are underway and ad revenue gains pertaining to improved viewership share under BARC will start from 1QFY17. We believe a part of the upside from potential increase in yields in Tamil Nadu will be offset by weak ratings in other markets.
Sun management indicated that it has signed content contracts with a few MSOs in phase III markets of Karnataka and Kerala. The benefits will start from March 2016 quarter even though modest. That said, the pace of digitization in phase III is slow, given temporary court stays in most states.
Wednesday, January 13, 2016
Digitization in Phase 3 will be slow and gradual
Recent stay orders by four state high courts have postponed digitisation by couple of months, however we believe the impact will be broad based in slowing the overall process and completion may take c6 months. As per the broadcasting ministry Phase 3 digitization is estimated to cover c38m TV households across 630 districts and 7709 urban centres. After Phase 3 we estimate total digitized households to increase to c35% to c90 m TV households. Delay is particularly negative for Direct to Home (DTH) players (including Dish TV) as it limits their ability to benefit from subscriber growth. Delay allows smaller cable operators to get in more time to retain existing subscribers.
Broadcasters to benefit most from Phase 3 as sector subscription revenues rise by c45% to USD3; however monetization will be gradual over 9-12 months. Theoretically entire subscription revenues should be flowing to EBITDA, however due to rising competitive intensity and the need to invest in Over the Top (OTT) offerings, we see subscription EBITDA at no more than c60%. With expansion in mobile data users by 2x to
250m over the next 12 months, entry of global giants like Netflix in the OTT space, OTT investments by traditional broadcasters should see an increase
Broadcasters to benefit most from Phase 3 as sector subscription revenues rise by c45% to USD3; however monetization will be gradual over 9-12 months. Theoretically entire subscription revenues should be flowing to EBITDA, however due to rising competitive intensity and the need to invest in Over the Top (OTT) offerings, we see subscription EBITDA at no more than c60%. With expansion in mobile data users by 2x to
250m over the next 12 months, entry of global giants like Netflix in the OTT space, OTT investments by traditional broadcasters should see an increase
Thursday, January 07, 2016
Netflix a Damp Squib in India
Netflix is a successful OTT in US as: (1) cable TV ARPU is USD60 per month versus Netflix’s ARPU of USD20-24; (2) higher broadband penetration (~80%) with good speed; and (3) original content is dished out by Netflix. In India, Netflix currently lacks these advantages. Hence, we do not expect Netflix to have any major impact on Indian DTH/cable TV players over medium term. Netflix has a long way to go before tasting success in India.
In India, Netflix’s subscription rates are INR500, INR650 and INR800 for basic, standard and premium packs, respectively, which are 2-3x the prevailing cable TV/DTH rates. Besides, broadband will entail additional costs. Internationally, Netflix has done well riding attractive pricing which is almost half the cable TV/DTH rates, and original content. The company currently does not enjoy these benefits in India. To attract subscribers, it is offering free services in its first month of operations. Plans are also afoot to facilitate streaming via laptops, TV, smart phones and tablets. However, we believe in India where subscribers pay ~INR250-450 per month for cable TV (includes sports channels), Netflix’s rates are on the higher side. Broadband speed will also be a challenge. Netflix requires minimum speed of 512kbps and recommends 3mbps speed for SD content and 5mbps for HD videos, which further limits its expansion plans.
Netflix is currently beaming international movies and TV shows in India including its original productions such as House of Cards and Orange Is the New Black. The company is currently not offering local content. Sports content, the main driver of the OTT platform, is also not offered. With India being a country with diverse culture it consumes content in 8 different languages. Currently, Netflix is beaming only English content which will attract only niche audience.
In India, Netflix’s subscription rates are INR500, INR650 and INR800 for basic, standard and premium packs, respectively, which are 2-3x the prevailing cable TV/DTH rates. Besides, broadband will entail additional costs. Internationally, Netflix has done well riding attractive pricing which is almost half the cable TV/DTH rates, and original content. The company currently does not enjoy these benefits in India. To attract subscribers, it is offering free services in its first month of operations. Plans are also afoot to facilitate streaming via laptops, TV, smart phones and tablets. However, we believe in India where subscribers pay ~INR250-450 per month for cable TV (includes sports channels), Netflix’s rates are on the higher side. Broadband speed will also be a challenge. Netflix requires minimum speed of 512kbps and recommends 3mbps speed for SD content and 5mbps for HD videos, which further limits its expansion plans.
Netflix is currently beaming international movies and TV shows in India including its original productions such as House of Cards and Orange Is the New Black. The company is currently not offering local content. Sports content, the main driver of the OTT platform, is also not offered. With India being a country with diverse culture it consumes content in 8 different languages. Currently, Netflix is beaming only English content which will attract only niche audience.
Wednesday, December 23, 2015
Phase 3 digitization: Slow but steady process
Our recent discussions with the industry participants indicate that Phase 3 digitization (with a deadline of Dec-15) is progressing at a slow but steady pace. Based on our checks we do not expect a sudden surge in conversion of the estimated 35-40 mn analog Phase 3 households onto the digital platform around Dec-15 deadline and hence do not expect digitization to be any immediate near-term catalyst for Dish/Zee. We have
modelled a gradual conversion of analog subs into digital ones and expect most benefits to accrue in FY17.
1) Broadcasters have started advertising on the Phase 3 timeline; 2) MSOs are increasingly focusing on signing up with broadcasters on phase 3 digitization; 3) DTH/MSOs have some inventory of set-top
boxes to sign potential analog consumers and 4) The government is taking regular updates from the stakeholders on the progress of digitization.
In our view, unless we see a “door to door” campaign towards digitization and until analog signals have been disconnected we see risks to timeline slippage for practical implementation of digitization. We remain
uncertain as to whether analog signals could be blacked out post the 31st Dec-15 deadline as we are still unsure of the extent of political support for the implementation (as state governments/local solicitations may come from different parties compared with the central government).
modelled a gradual conversion of analog subs into digital ones and expect most benefits to accrue in FY17.
1) Broadcasters have started advertising on the Phase 3 timeline; 2) MSOs are increasingly focusing on signing up with broadcasters on phase 3 digitization; 3) DTH/MSOs have some inventory of set-top
boxes to sign potential analog consumers and 4) The government is taking regular updates from the stakeholders on the progress of digitization.
In our view, unless we see a “door to door” campaign towards digitization and until analog signals have been disconnected we see risks to timeline slippage for practical implementation of digitization. We remain
uncertain as to whether analog signals could be blacked out post the 31st Dec-15 deadline as we are still unsure of the extent of political support for the implementation (as state governments/local solicitations may come from different parties compared with the central government).
Sunday, November 01, 2015
Sun gains, neutral for Zee - New ratings data
The Broadcast Audience Research Council (BARC) has released its maiden all-India viewership ratings for Indian broadcasters, which includes data from rural India. Earlier, the ratings data was based only on urban TV households. According to the new data release, Zee Entertainment has significantly improved its position in the Hindi GEC space but it ceded viewership share to competitors in the regional markets.
Sun TV further consolidated its hold on Tamil Nadu, the largest southern market for television advertising, and it moved up in ranking in the Kannada market. Sun TV retained its competitive positions in Telugu and Malayalam. Note that this is a big overhaul of the rating system and for the first time rural markets have been
given ~50% weightage. Industry would wait for a few more readings before these data are taken as firm trends. Similarly, advertisers would take time to understand viewership patterns in their target markets before modifying media plans based on the new data. Prima facie, these data are positive for Sun TV and neutral for Zee Entertainment.
For the first time in India, rural data on such a wide scale with 50% weightage in viewership rating survey have been included. Earlier, urban households had disproportionate influence on ratings. In this maiden rating, pecking orders of several genres have seen material changes. We would like to wait for a few more readings before taking the new pecking order as sustainable. Note that, the trend revealed in BARC’s first release for urban viewership did not change materially later.
Sun TV further consolidated its hold on Tamil Nadu, the largest southern market for television advertising, and it moved up in ranking in the Kannada market. Sun TV retained its competitive positions in Telugu and Malayalam. Note that this is a big overhaul of the rating system and for the first time rural markets have been
given ~50% weightage. Industry would wait for a few more readings before these data are taken as firm trends. Similarly, advertisers would take time to understand viewership patterns in their target markets before modifying media plans based on the new data. Prima facie, these data are positive for Sun TV and neutral for Zee Entertainment.
For the first time in India, rural data on such a wide scale with 50% weightage in viewership rating survey have been included. Earlier, urban households had disproportionate influence on ratings. In this maiden rating, pecking orders of several genres have seen material changes. We would like to wait for a few more readings before taking the new pecking order as sustainable. Note that, the trend revealed in BARC’s first release for urban viewership did not change materially later.
Wednesday, October 28, 2015
Reliance Jio's Plans to tackle MSOs / LCOs in India
Reliance Jio cannot get last-mile connectivity unless it ties up with LCOs in some areas. Jio will have to offer
lucrative deals to the fickle-minded LCOs in order to entice them to switch loyalties from cable MSOs.
We note that the balance sheet strength of Reliance Industries is far superior than all cable MSOs, including national MSOs like Hathway, DEN Networks and Siti Cable. Hence, offering a better price
to the LCOs/acquiring them outright should not be an issue for Jio.
Options available to Jio for rollout are as Under
The Indian cable TV industry is extremely fragmented. There are ~6,000 MSOs and ~60,000 LCOs in
India. Apart from the Rs1,600 cost of a set-top box, MSOs will have to incur additional capex towards
setting up digital-ready infrastructure like installation of digital headends and laying cables. Apart from bank loans, larger MSOs utilise vendor financing in the first two phases of digitisation. Slow monetisation from Phase 1 and 2 can act as a deterrent for MSOs, especially the smaller ones, to risk their balance sheets further and seed boxes rapidly. Banks are usually reluctant to issue loans to smaller MSOs due to their poor balance sheets. Given this scenario, we believe there is a high likelihood of smaller MSOs/LCOs wanting to sell off if they are offered a good deal by Jio.
The benefit of acquiring LCOs for Jio would be twofold:
A solution to tackle the above issues would be to acquire MSOs. Rather than acquiring many smaller
MSOs, the easier solution for Jio would be to acquire a large MSO. We believe Jio would like to retain entire control and, unlike MSOs, not follow the JV model. Historically, primarily due to funding constraints, MSOs have entered into JVs. Discord between MSOs and their JV partners is common and Jio would want to avoid this hassle.
lucrative deals to the fickle-minded LCOs in order to entice them to switch loyalties from cable MSOs.
We note that the balance sheet strength of Reliance Industries is far superior than all cable MSOs, including national MSOs like Hathway, DEN Networks and Siti Cable. Hence, offering a better price
to the LCOs/acquiring them outright should not be an issue for Jio.
Options available to Jio for rollout are as Under
India. Apart from the Rs1,600 cost of a set-top box, MSOs will have to incur additional capex towards
setting up digital-ready infrastructure like installation of digital headends and laying cables. Apart from bank loans, larger MSOs utilise vendor financing in the first two phases of digitisation. Slow monetisation from Phase 1 and 2 can act as a deterrent for MSOs, especially the smaller ones, to risk their balance sheets further and seed boxes rapidly. Banks are usually reluctant to issue loans to smaller MSOs due to their poor balance sheets. Given this scenario, we believe there is a high likelihood of smaller MSOs/LCOs wanting to sell off if they are offered a good deal by Jio.
The benefit of acquiring LCOs for Jio would be twofold:
- Acquisition of LCOs would help Jio circumvent the process of dealing with them on a daily basis
- Jio would not need to share subscription revenues with the LCOs. We agree that LCOs cannot be completely eliminated from the equation due to their strong customer connect and on-ground technical expertise. Jio can look to employ LCOs or provide a commission to them for their services.
A solution to tackle the above issues would be to acquire MSOs. Rather than acquiring many smaller
MSOs, the easier solution for Jio would be to acquire a large MSO. We believe Jio would like to retain entire control and, unlike MSOs, not follow the JV model. Historically, primarily due to funding constraints, MSOs have entered into JVs. Discord between MSOs and their JV partners is common and Jio would want to avoid this hassle.
Tuesday, October 27, 2015
How Distributors Will Face intense competition from Reliance Jio ?
Reliance Jio's entry into the cable TV and OTT space will lead to heightened competition for TV distributors like MSOs and DTH operators. Since Jio has obtained a cable MSO licence and will have to strike deals with LCOs, the competition will be more direct for MSOs vis-à-vis DTH operators. Despite the changing dynamics of the industry, broadcasters remain the best placed to capitalise on Jio’s launch. Jio's entry is likely to accelerate the conversion of analog cable subscribers to digital, thereby improving the monetisation of broadcasters like ZEE. Jio’s OTT platform, Jio Play, offers another avenue for the broadcasters to earn subscription revenue.
We would like to highlight that if the last 2 phases of digitisation are completed without much delay and monetization happens on time (which is highly unlikely in our view), incremental revenue for ZEE due to Jio would be restricted to the revenue from Jio Play. However, we believe that a delay in implementation of Phase 3 and 4 is very much on the cards and Jio’s entry could hasten the progress of digitisation in India, which is beneficial for broadcasters. Since the incremental subscription revenue from Jio will come at no significant cost, the entire benefit would directly add to ZEE’s bottom-line.
Our channel checks suggest that major broadcasters have already provided sample content for the pilot testing of Jio’s app, Reliance Jio Play. Similar to ZEE’s Ditto TV and STAR India’s Hotstar, Jio Play will enable the viewer to view live as well as dated content. However, content deals with broadcasters are yet to be signed. Broadcasters are known to play hardball with any new distributor especially with a limited subscriber base. In order to get sweetened content deals with broadcasters, Jio will have to garner a sizeable subscriber base within a short period of time. In addition, Jio striking content and carriage deals with broadcasters can be a long and tedious process.
We would like to highlight that if the last 2 phases of digitisation are completed without much delay and monetization happens on time (which is highly unlikely in our view), incremental revenue for ZEE due to Jio would be restricted to the revenue from Jio Play. However, we believe that a delay in implementation of Phase 3 and 4 is very much on the cards and Jio’s entry could hasten the progress of digitisation in India, which is beneficial for broadcasters. Since the incremental subscription revenue from Jio will come at no significant cost, the entire benefit would directly add to ZEE’s bottom-line.
Our channel checks suggest that major broadcasters have already provided sample content for the pilot testing of Jio’s app, Reliance Jio Play. Similar to ZEE’s Ditto TV and STAR India’s Hotstar, Jio Play will enable the viewer to view live as well as dated content. However, content deals with broadcasters are yet to be signed. Broadcasters are known to play hardball with any new distributor especially with a limited subscriber base. In order to get sweetened content deals with broadcasters, Jio will have to garner a sizeable subscriber base within a short period of time. In addition, Jio striking content and carriage deals with broadcasters can be a long and tedious process.
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