Sun TV, Dish TV better investment pick: ICICI Securities

Vikash Mantri of ICICI Securities, says that the process of digitization in western world or developed markets takes around 10 years. It will take at least two-three years for us to see some benefits of higher ARPUs or cost to consumer and those benefits getting passed on to the broadcaster.

In the broadcaster space, we continue to prefer Sun TV over Zee because Sun is relatively trading cheaper than Zee. In terms of the digitization we favour Dish TV. Below is the edited transcript of his interview to CNBC-TV18. Q: What is your view on Hathway which reported numbers yesterday? Can you throw some light on how is the progress on digitization?
A: We don't have coverage on Hathway per se, but according to the management the company is doing good business in seeding boxes and has reported high numbers in the Q1. The management also indicated that they have signed up deals with the broadcasters for content. Hathway is doing a relatively good job. But as of now, I don't have a call on this stock. Q: In your digitization report, you are not expecting digitization to come very quickly because of controversy about cross media ownership? How will this entire digitization process play out?
A: Cross media ownership is a very relevant issue which is hampering digitization. Especially, the independent MSOs are complaining that because there are vertically integrated players into existence and they have ownership in either DTH players or the cable companies.
Networks are playing favoritism to these operators, therefore the topic of cross media ownership has come into limelight and the I&B ministry has currently floated a report in 2009 to decide what should be the way forward. Before we have a fair digitisation play there should also be clarity in terms of norms for cross media ownership.
In fact there should not be any cross media ownership just to have a fair ground for all the players. This definitely has implications for the players in the market place because most of the players would have investments in DTH and cable per se. So, it will be interesting going forward. Q: When you say cross-media ownership, what you mean is those who own broadcast channels should not own the carrier, should not own the DTH or the cable companies is that your point?
A: Yes. That has been a regulation where a broadcasting channel company cannot own a DTH nor have more than 20% share in DTH. But I think while that has been done and none of the channels currently have 20%, but it is not so true for the promoter companies per se. So whether it should be direct holding or a perception of control that also should be looked into as cross-media ownership. So, it is not about direct holding anymore, but if it is at promoter level it should be looked into. Q: If that is the case and that argument is holding water with the authorities, do you think they will now blink and allow the deadline for digitisation to get pulled out further down?
A: While the deadline of digitisation might get extended because of the lack of movement at the ground level where boxes are not being seeded and there are multiple issues regarding that, especially in Delhi and Kolkata market. In Mumbai it is relatively well.
Cross media ownership is a relevant topic and it will take the limelight. A mid-way would be the regulator coming in to ensure that the pricing is not discriminatory in nature and the broadcasters don't play favoritism to one party or the other, one might have a situation similar to what was seen in CAS, where every broadcaster has to provide a channel at a maximum price of Rs 5.35 later per se.
So, a similar pricing would now be suggested by TRAI, so that there is no issue of favoritism in the market to ensure that digitisation moves ahead, whereas before we have an open market pricing mechanism the issues of cross media gets solved. Q: So do you see it happening at all. The local cable operator will give away 55% of the basic amount of Rs 100 that he makes or Rs 85. Will that regime come at all, because many broadcast companies, I believe their stocks were running up in anticipation that they are going to get that under-subscription or under-declaration and they will get the money that is due to them. Do you see that happening?
A: Under-declaration is a funny point. Broadcasters say that the MSOs or the LCOs are under-declare. MSOs say that LCOs are under-declare, LCOs say that we are paying whatever they are asking for and we are competing with each other to ask for lower and lower price because the business model of an MSO carriage fee and broadcaster is advertisement revenue.
So, it is not a question about under-declaration per se, it is a question about how much you and competitor is asking me and I will party with the person who asks me to pay lower. So, I think that situation might continue even in a digitised environment for long because we are still talking about fixed-fee deals. We have grossly 44 million DTH subscribers.
Deal will still continue to be fixed, call it an under-declaration or negotiated deal per se. So, the question is whether who has the power to exert pressure on the pricing. That is an endless debate. For that to resolve there should be digitisation and everybody agree to the fact that they will now price themselves on a per subscriber-basis rather than doing a fixed contract deals and maybe part, giving benefits to one operator where he will give him a better placement or a better carriage in one network to another. So there are many moving parts to it, solely blaming under-declaration would not be correct. Q: In your report you have mentioned while initially the cost to consumer will rise, but later on the ARPUs could pick up. By when do you see the industry in general benefiting from higher ARPUs?
A: The process of digitization in western world or developed markets takes around 10 years. It will take at least two-three years for us to see some benefits of higher ARPUs or cost to consumer and those benefits getting passed on to the broadcaster. The immediate beneficiary will be news channels or the niche channels who are paying huge sums of money as carriage fee in Delhi and Mumbai markets, which might start benefiting on the cost side. Q: In the entire MSO and broadcasting space as an investor which stocks would you pick?
A: In the broadcaster space, we continue to prefer Sun TV over Zee because Sun is relatively trading cheaper than Zee. In terms of the digitization we favour Dish TV.