DTH gains traction post TRAI’s new tariff order: Study

Elara Securities, a subsidiary of Elara Capital, has presented some key insights and trends in TV broadcasting in Punjab and Uttar Pradesh. The company interacted with multisystem operators (MSO) and local cable operators (LCO) to understand the businesses and their impact on listed companies, such as Zee Entertainment Enterprises Ltd, Sun TV Network, etc. 

NTO shaking things up in TV broadcasting space 

According to the research by Elara Securities, the Punjab market is highly fragmented, with small MSOs with 10,000-20,000 subscriber base taking up 20 per cent of the MSO market share. Fastway is the major player dominating the MSO market. However, DTH companies, such as TataSky and DishTV, are narrowing the gap by gaining market share within this space. 

On the other hand, in Uttar Pradesh, Den Networks dominates with a 60 per cent market share, followed by Siti Cables. 

Elara’s channel checks reveal that average revenue per user (ARPU) has moved up ~35 per cent in both the states post TRAI’s new tariff order (NTO); there is still ~15-20 per cent of consumers who are yet to migrate to NTO, which will happen in the next six months. 

In terms of subscription revenue for broadcasters, there are limited levers for better growth as the sharing ratio post NTO is almost fixed; HD penetration has lagged post NTO due to sharp price increase and digitisation, too, has almost played out; hence, subscription revenue growth is not expected to be more than 8-10 per cent YoY post FY21E. 

The study also reveals that MSOs have lost subscriber market share of ~20 per cent to DTH firms due to delay in implementation from LCO-end to move to NTO, which has raised confusion due to ARPU being at par with DTH. In terms of Jio, it is expected that LCOs will push Fiber to the Home (FTTH) if they are able to maintain wallet share of minimum Rs 125. In this ecosystem, however, post introduction of Jio, if consumers curtail spend on TV, their share would fall. Elara believes that broadcasters Zee/Sun TV will report strong subscription revenue growth of 25 per cent/ 18 per cent, respectively, in FY20E on higher share of 45 per cent (vs 20 per cent earlier) from NTO; however, growth prospects for FY21 remain slightly muted, due to limited growth triggers. 

The TV broadcasting space 

Elara conducted channel checks on MSOs and LCOs in Punjab and UP recently. The following are the key takeaways: 

TV user dynamics & impact on MSOs 

  • Punjab has 5.0mn TV users, out which ~2.9mn are with MSO and the rest with DTH. 
  • UP has 8.5mn boxes out of which ~3.5mn are with MSO, with Den Networks with ~60% market share, followed by Siti with 15%. Penetration of tier 3 cities in UP is equal to that in villages in Punjab. 
  • There are several smaller firms in the MSO space which have ~10,000-20,000 subscribers. 
  • Ludhiana-based Fastway Transmissions is one of the largest MSO in Punjab, with an ~80% share in the state’s MSO segment; it is a debt-free company. Its operational efficiency is better than peers, due to lower employee cost. It has >50% market share in Haryana and Rajasthan, with a smaller presence in Delhi and UP. 
  • Fastway has the advantage of local programming more than 90 channels, out of which ~15 are live-based. 

ARPU dynamics in cable & broadband markets 

  • ARPU in urban areas/ metro cities is almost Rs 275 vs Rs 200 in rural; cable ARPU has moved up by 40% in metro cities and 25% in non-metro cities post implementation of NTO. 
  • ARPU in UP for MSO has moved up from INR 200 pre-NTO to Rs 300 currently. HD penetration in the UP market is ~3%. 
  • ARPU of broadband in UP is Rs 500; selective TV viewing is the next big thing for consumers in UP. 

HD penetration: trigger for subscription growth 

  • In terms of HD, ~20% of users have an HD box installed; however, HD penetration is a mere 2%. Post NTO, a large portion of subscribers has moved from MSO to DTH in Haryana and other parts of Punjab, however, in Amritsar, impact has been minimal. 
  • There is no growth for subscription revenue post NTO, as HD penetration is the only growth trigger; we do not expect any major increase in ARPU and the number of subscribers. 
  • HD channels are not being sold in bouquets as it is expensive; however, it is being sold on a la carte basis. 
  • In UP, Den Networks operates a JV with Enjoy Cable Services; Umbrella Cable system was a part of this JV too, but moved out in 2017. 

Impact on broadcaster’s vs distributors (pre vs post NTO) 

  • The share of distributor pre NTO was ~80%, which has come off to 50%; and now moved in favour of broadcasters. 
  • Almost 80% of consumers have moved toward NTO; the rest will move in the near term. 
  • The current discount being offered by broadcasters on bouquet prices vs ala carte is almost 50%-60%; however with the recent ruling being challenged again the discount can come down to 15%; in case this gets challenged, the broadcasters will not be able to reduce bouquet charges as they already stand low at Rs 30-35, hence the only way will be to reduce channel prices on ala carte basis. 
  • Key drivers of subscriber revenue are: 1) activation of inactive boxes, which would lead to 3-4% growth; 2) 2-3% growth would be led by HD penetration; and 3) the number of TV households at 3% and overall at not more than 10%. 
  • Subscription revenue would decline sharply if a 15% discounting cap on bouquet is implemented as it is likely to reduce spend on TV on an overall basis; further, consumers choosing the a la carte channel option would have to spend less. 
  • MSOs lost market share post NTO as LCOs had yet to be trained well; pricing of MSOs and DTH is at par post NTO. 

Impact of Reliance Jio & Airtel on LCOs and MSOs 

  • Reliance Jio wants LCOs to be an integral part of the ecosystem and wants them to grow too. 
  • Jio has introduced a hybrid box, which will offer cable TV and Fiber internet and base price is Rs 699+GST. 
  • Majority of the LCOs are happy until they get their share of ~Rs 125 per subscriber; however, there is also concern among few LCOs that if TV viewing were to impact negatively post Jio Fiber implementation, their share could drop significantly with Jio gaining the market share. 
  • Airtel wants to remain an integral part of the ecosystem and is looking to acquire Dish TV to compete with Jio since it too has last-mile connectivity ready just as Jio. 
  • Airtel also can tie up with LCOs to promote internet broadband; it is believed whichever company gives higher margin to LCOs would gain in the ecosystem. 
  • Pre NTO, LCOs made up ~70% of distribution share; however, this has changed in favour of MSOs post implementation of NTO.

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