DEN Digital subscribers Reach 5 Mn

DEN Networks Total digital subscribers are 5mn. The company added 2mn subscribers in Phase 1 and 3mn in Phase 2. DEN added 1.07mn subscribers in Q4FY13. Phase 3 seeding in a major way will start from Q3FY14. Management expects good traction in view of Phase 3 and 4. Also, adjoining cities of Phase 3 and 4 are being targeted even now.

TRAI’s regulation to rent out STB will help increase consumer base in Phase 3 and 4. This will also increase affordability at the bottom of the pyramid. However, it still needs to be seen how the process is implemented. Also, cash flow for cable players will become better in this.

DEN is planning to enter the broadband market by investing USD50mn from fund raising proceeds. It will be targeting Tier I and II cities initially, and based on the success in these markets, it is planning further expansion.

DEN is looking to digitise 6mn subscribers. Hence, till end of Phase 3, investment requirement will be INR6bn. Also, in FY14, investment in broadband will be INR1.5bn and other capex requirement will be INR500mn.

Hathway Digital & Broadband Subscriber Reach 7 Mn

Total digital subscribers are currently ~6.2mn for Hathway. The company added ~2.4mn subscribers in phase 1, ~3.3mn in Phase 2 and ~0.5mn in Phase 3 (adjoining parts of Phase 1 and 2, but officially part of phase 3). Of the 6.2mn subscribers, ~0.6mn are primary while the balance are secondary subscribers. Hathway seeded ~3mn boxes in FY13. Hathway’s subscription revenue increased by INR170mn YoY in FY13. The number was similar at the consolidated level as consolidated numbers include only nine month numbers of GTPL. Subscription revenues will start kicking in from next quarter, which would aid profits. Hathway has entered several new cities in some states where it has strong presence. The company has also strengthened its position in cities like Faridabad, Allahabad, Bengaluru, etc. Phase 3 seeding in a major way will start from Q4FY14. The company is looking to increase its presence in West Bengal, Maharashtra and Andhra Pradesh during Phase 3. Over 1mn boxes of inventory. Hathway’s broadband subscriber base remains at ~0.416mn. Its broadband ARPU is INR300. Mumbai, Pune, Bengaluru and Hyderabad are important cities where the company is looking to improve its technology, which will help increase ARPUs.

TRAI's standard tariff order not a game changer

TRAI has issued a tariff order, prescribing standard tariffs for set-top boxes (STB) for digital cable and DTH subscribers. This specifies security deposit of `400-800 (refundable after three years) and monthly rent of `33-56 for cable TV subscribers for three years. For DTH subscribers, deposit and monthly rent is set at `500-1000 and `43-71, respectively. Besides, MSOs and DTH operators can offer additional tariff plans. They currently charge ~`2000 (non-refundable) for STB activation and no monthly rent. Current value of rent under standard tariffs is equivalent to these realizations. However, we find standard tariffs unattractive due to: (1) Lower upfront collections; (2) risk of default on rent, as subscriber churn rates in DTH are ~10% p.a; and (3) no protection from any increase in STB costs and INR depreciation Impact of the tariff order on DTH companies would depend on actual uptake of STB under the standard tariffs. We expect limited uptake due to likelihood of: (1) Lower promotion of standard plans; (2) customer resistance to monthly rents; and (3) unavailability of additional features under standard plans (recording facility, HD). They currently charge `800-1000 to end users (no rent); its realization is `500-800 after LCO commissions. These tariffs leave limited arbitrage vis-à-vis standard tariff plan.

TRAI Draft Cable Tariff Order not Draconian

The regulator has released a draft tariff order instructing standard tariff packages for set top boxes (STB) for DTH and cable subscribers. The authority has asked for comments from all stakeholders by 26th April. According to the order, all cable and DTH operators would need to offer 4 set top box schemes to consumers (details on Pages 3-5). The cable and DTH operators are free to offer other schemes in addition to the ones prescribed by TRAI.

TRAI believes that post digitalization, STBs provided by various cable and DTH providers would be incompatible with each other making migration between networks difficult for subscribers. Thus in the interests of the consumer, provision for commercial interoperability of STB has to be provided and the tariff order proposes to address that concern.

Our channel checks show that Siti cable has been offering a similar package but it is not finding many takers for this scheme.

We believe that on the ground implementation of the rental scheme of STBs is filled with challenges. The primary concern of the cable and DTH providers would be the difficulty associated with collecting
the boxes from subscribers in case of default of payment or movement of the customer itself.

Zee Growth Rates to Moderate

Zee Entertainment's outperformance (vs. TV ad industry) due to gains in viewership share, favorable base and increased programming hours is largely reflected in FY13 and we expect ad growth rates (ex-sports) to moderate to mid-teens level in FY14E. While sectors like FMCG, durables, luxury retail and internet continue to register higher ad spends, there has been some moderation in ad spends by sectors like autos, telecom and DTH in recent months. ZEEL continues to invest in content and number of original programming hours on its flagship channel Zee TV has risen from 24 to 29 hrs over the last one year and is likely to go up to 31 hrs soon.

Digitalistation to lead the way; though Phase 2 benefits are likely to be limited as per mgmt. Monetization from Phase 2 HH is already good for ZEEL. However benefits from Phase 3 could be substantial but
they will likely accrue over FY15-16E.

Original number of programming hours has been increased to 29.5hrs in Q3 vs. 24hrs last year. Mgmt plans to increase number of original programming hours to 32hrs in FY14. Domestic subscription revenues
have seen a healthy uptick driven by benefits of digitalization and better pricing power with Media Pro JV