ZING Brand Gains Traction in Orissa- Dish TV

Subscriber addition trends are encouraging in Odisha, but for the rest of India the trends are similar to last year, as per our survey. Notably, Odisha is one of the three states where Dish has launched the lower priced Zing brand. Additionally, some of the dealers we surveyed were of the opinion that Dish’s relatively weaker customer service (compared to other direct to home [DTH] players) has proved to be a hindrance in retaining/improving market share, especially in Tier 1 cities

Zing (low-cost regional offering) in Odisha and the north-east is likely to pull down the average ARPU. Dish indicated during its 4QFY14 conference call that the base pack for Zing users is typically 20% lower than its regular product.


Our survey revealed that package prices have risen 6-10% over the past 6-12 months. Dish’s mid-tier package monthly charge of INR 300 is very similar to that of cable operators in Tier 1 cities (c.INR 250-300) leaving little room for material ARPU upside. A higher proportion of subscribers on Zing and lower ARPU from marginal customers in Tier 3/Tier 4 cities could drag down overall ARPU growth for Dish, in our view.

Dish’s average gross ARPU is c.INR 225 vs INR 250-300 charged by cable operators. While Dish’s ARPUs are marginally lower vs. cable operators, we believe that the differential is not big enough to induce churn given the activation costs for a DTH connection. Besides, Dish’s mid-tier package monthly charge of INR 300 is very similar to that of cable operators in Tier 1 cities (c.INR 250-300). Therefore, we believe it would be difficult for Dish to push up its package prices materially from these levels.

The increasing proportion of lower paying marginal subscribers from Tier 3 and Tier 4 cities would drag down the average ARPU, in our opinion. A further addition in Tier 1 and Tier 2 is difficult as digitisation in these towns is mostly complete and incremental additions would be only via churn (from other operators). The perception that Dish’s customer service is poor, as was highlighted by a few distributors in our survey, would be a hindrance in gaining further churn subscribers, in our view

Cable TV has to go the prepaid way for ARPU Improvement

The -Indian Media sector started getting lot of interest from global and regional investors when the Indian regulator decided to pursue digitisation in four Phases across 2-3 years. So far, DAS has been implemented in phased manner across 40 cities/32 m households over the last two years. However, except for implementation of set top boxes, there has been hardly any benefit as MSO and LCOs have been struggling among themselves over revenue share and subscriber ownership issues. That said, as an interim solution, LCOs have agreed to pay a part of the ARPU to MSOs (referred as gross billing), but this approach has failed to expedite progress on subscriber segmentation and billing.

We highlight the two potential risks gross billing suffers from. Firstly, gross billing based revenue accounting is no way suggesting that cash collections will be at the same rate and MSOs suffering with bad debts over a period of time is not ruled out. The second risk that a gross billing-based approach suffers from is keeping the model on a flat fee structure for long and limiting upsides for all the stakeholders. The large part of the growth for Digital Cable is going to be a function of ARPU improvement. As such, ARPU has to be in link with the content being consumed, suggesting that there has to be a significant amount of focus on subscriber
segmentation and there have to be systems in place that can drive this. Today, there is not much pressure on the LCOs to hasten up subscriber segmentation and drive ARPU improvement.

To sum up, we are of the view that if Cable TV goes the prepaid way, all the above issues could be resolved and subscriber segmentation can be achieved in a more a scalable manner as there will be only a small amount of management bandwidth focussing on collections/bad debts

Tariff hike a distinct positive for broadcaste​rs

In a major boost to broadcasters, the Telecom Regulatory Authority of India (TRAI) has announced a 27.5% inflation-linked tariff hike for analog cable areas. The hike, which comes after a gap of almost five years, will be implemented in two installments—while first installment of 15% will be effective from April 1, 2014 (today), the second installment of 12.5% will be effective from January 1, 2015. With this hike, consumer ARPU should increase and accordingly contracts signed on Reference Interconnect Offer (RIO) basis should see a surge. It will also lend higher bargaining power to broadcasters when fixed fee deals come up for negotiations. Though this order is only for analog areas, we expect DTH as well as DAS area deals to be revised upwards.

Ideally, this tariff hike should benefit LCOs, MSOs and broadcasters in terms of higher subscription revenue. However, recovery of proportional incremental share from LCOs will not be easy for MSOs. Also, broadcasters will put pressure on MSOs for higher content fees payout. This ruling can more than mitigate any negative impact on broadcasters due to TRAI’s action on content aggregators. 

TRAI aggregator norms positive for Dish TV; negative for Zee/Sun

TRAI just a while ago notified amendments to regulations governing aggregators that distribute channels on behalf of broadcasters.

Only a broadcaster shall publish an RIO (Reference Interconnect Offer, a document with channel/bouquet prices) and enter into contracts with a distributor. In case the broadcaster hires an agent, or aggregator, the agent shall act only in the name of the broadcaster. The broadcaster shall ensure that the agent does not alter the bouquets as offered in its RIO. If an agent acts on behalf of multiple broadcasters, the individual broadcasters shall ensure that the agent does not bundle its channels or bouquets with other broadcasters. However, broadcasters belonging to the same group can bundle their channels.

Impact Analysis of NEW TRAI Regulations
We view this as negative for broadcasters (such as Zee, Sun TV) who use aggregators (such as Media Pro) to distribute their channels. In our view, the aggregators may no longer be able to bundle channels from
different broadcasters (thereby creating a bouquet with dominant viewership share) and enjoy better pricing power. However, given Sun TV does not use an aggregator in southern India (from where its majority of
revenues come from), we expect the negative impact to be more on Zee vs. Sun TV.

We also view these norms as positive for Dish TV given Dish TV, as a distributor may benefit from lower content costs and better margins.

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.