Digitization phase II: Broadcasters, MSOs to outshine DTH

Harsha Jethmalani & Riken Mehta
Moneycontrol.com

Officially, the government's digitization plan spanning the four metros - Mumbai, New Delhi, Chennai and Kolkata -- saw the end of analog cable era on October 31, 2012. But conflicting claims of conversion to digitization point to the fact that analog streaming is still surviving in pockets. While the government says 96% of television houses in the four metros have been digitised, MSOs put the figure at 60-65%. Notwithstanding the claims, the government has now set the ball rolling for the Phase II of digitization, deadline for which ends on March 31, 2013. Phase 2 is designed to cover digitization of 38 cities (22 million analog subscribers), which will present a mammoth opportunity compared to Phase 1 (7 million analog subscribers in four metros). According to a recent Edelweiss report, it expects digital cable to do better than DTH (direct to home) in Phase II as last mile connectivity is not a big hurdle. Here, Hathway enjoys a dominant position as it has a presence in 25 out of the 38 cities under the coverage area and holds numero uno status in 11 of them. It is targeting around 4-4.5 million subscribers in the second phase.
DEN has presence in 19 cities and targets 3.5-4 million boxes. Siti Cable covers 18 cities. The set-top box (STB) is only route to view television channels. While the STB would ensure high picture and sound quality and give access to an array of channels, not many are aware of the real reason of the government's diktat to abandon analog streaming. Digitization is expected to correct the current pricing anomaly, which is largely supported by significant leakage at LCO level, preventing fair share of value getting captured by broadcasters/MSOs (pay channel revenue) as well as the government (taxes). Parties involved: India’s TV distribution market is the third largest in the world with 146 million households. Digitization is expected to be a game changer for the Indian television industry, which has a pay TV penetration of 80%. It is expected to bring a sea change for three parties’ broadcasters, DTH players and multi system operators (MSOs). But the million dollar question is amongst the three who will make more money? In a bid to acquire more subscribers, MSOs and DTH operators will resort to continued pricing innovations and low entry points. For example, Dish TV, a DTH operator, launched ‘life time free TV’ offer in the metros for new subscribers. Under this offer, subscribers will continue to receive 70 free channels for five years if they recharge for a minimum of Rs 200 every six months. It is likely that other players like Tata Sky, Videocon, Airtel will follow suit to lure customers. Steady growth in ARPUs ARPU alias Average Revenue Per User is the amount of money a company generates from each of its customers on an average. The higher the ARPU of a company, the better it is. ARPU of DTH operators like Dish TV/Airtel has increased in the last 2-3 quarters on account of an increase in the price of the base pack. Subscriber acquisition is likely to put pressure on ARPUs in the near term. ARPUs will show healthy growth in the long run. Broadcasters have upper hand The broadcasters are expected to reap benefits without significant incremental investment. They are likely to witness strong growth both in advertising and subscription revenues post digitization, reports KPMG. Carrying all private TV channels will become obligatory and carriage fees (fee charged by cable operators to broadcaster) will be abolished, this will help revive sick TV broadcast industry. Zee Entertainment, Sun TV, Balaji Telefilms, TV18, TV Today will be key beneficiaries. Motilal Oswal is bullish on broadcasters and maintains neutral stance on DTH/MSO operators. It believes that current valuations have priced in positive for the latter and one should focus on former players. harsha.jethmalani@network18online.com riken.mehta@network18online.com
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