Industry ARPU to increase with Television Digitisation Completion: Crisil

Crisil report ‘Digitisation Manna’ summarises that completion of the next two phases of cable television digitisation programme would work in favour of all stakeholders who will see benefits of about Rs 14,800 crore. This would happen due to increased revenue disclosure by local cable operators.

A Crisil statement says, "Of this, direct-to-home (DTH) operators are expected to garner as much as Rs 3,300 crore, multi-system operators (MSOs) are expected to receive Rs 1,500 crore, broadcasters are estimated to receive Rs 3,900 crore and incremental tax revenues of Rs 6,100 crores are estimated to accrue to the government.”

The report points out:

■ Of the total analog cable subscription base of 66 million today, 65% is expected to be digitised in Phases III and IV.

■ New subscriber addition of 25 million will add to both subscription revenue and activation revenue.

■ Churn in subscribers is assumed to remain at 7-8% per year. This will additionally contribute to activation revenues.

■ The activation revenue per new subscriber is estimated at Rs 1,100 for DTH and Rs 700 for MSOs after licence fee (only for DTH companies), service tax and entertainment tax.

■ CRISIL has assumed an ARPU of Rs.210 for DTH subscribers and Rs.195 for digital MSO subscribers. While gross average revenue per user (ARPU) for DTH and MSOs are assumed to be maintained despite penetration in cost-conscious segment of the rural market, up-trading in existing customer base due to better value-added services and shift towards high-definition and paid channels will help retain ARPU. Average industry  ARPU will, however, increase as DTH (which enjoys more ARPU than MSO) is expected to add more customers. The ability of players to uptrade their existing subscriber base will be a key monitorable during this phase

■ ARPU share between MSOs and LCOs in digital cable is expected to be 60:40 – with growth in the share of MSOs (which was 40% in the past) triggered by better negotiations

In line with their expected subscriber addition of 31 million and 37 million respectively, MSOs and DTH will generate similar increase in their revenues. However, MSOs are expected to report lower profits at the EBITDA level. That’s because they have to share revenue with LCOs and so their net revenue will be significantly lower than that of DTH players.

Digitisation will lead to improved transparency, higher benefits

Digitisation is expected to lead to better transparency in the industry. CRISIL estimates that currently, unreported subscriptions of LCOs account for 33% of the total subscriber base of the industry. Digitisation aims to bring these subscribers into the organised fold. These undeclared subscribers, who will be subsequently declared to the MSOs and broadcasters, will contribute to the revenues of MSOs, broadcasters and governments.

MSOs dominated play in Phase I & II of digitisation

In 2002, when the government tried to introduce digitisation, LCOs did not respond. While MSOs had to incur high capex, LCOs had to part with a greater share of revenue and improve disclosure. There was no threat of market-share loss for both because there was no competition. The emergence of DTH
as a competitor, however, forced MSOs and LCOs to gravitate during the government’s second attempt at digitisation in FY2012 (refers to financial year, April 1 to March 31). In this phase, though the DTH segment garnered a share for itself, MSOs and LCOs retained dominance, garnering around 67% of the incremental digitised subscribers.

For complete report < https://www.crisil.com/pdf/ratings/CRISIL-Ratings-DTH-and-MSOs-14Dec2015.pdf>