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‘Addressable’ digitization, finally. The Ministry of Information & Broadcasting (MIB) in
India has (finally) given an ‘in-principle’ approval (see Exhibit 1) to TRAI’s roadmap for
digitization of C&S TV in India. We foresee the C&S TV undergoing a transformation as a
result: (1) Increase channel capacity, (2) choice of channels, (3) value-added services but
most important, (4) improved transparency resulting in (5) improved investment climate for
the sector. We highlight significant upside for (1) large broadcasters Zee, Sun and IBN18
(subscription revenues) as well as (2) large C&S distributors Dish TV, Hathway and DEN
(consolidation, revenue visibility). However, risks remain: (1) Sunset deadlines are still
aggressive, (2) large investment requirement and (3) legal challenge to associate regulations
(content costs). We prefer broadcasters (low-risk, high-reward).
Digitization with ‘Addressability’: Revisiting key highlights of TRAI recommendations
Exhibit 2 presents the summary of TRAI’s recommendations on digitization; the stress on digitization
with ‘addressability’ is the key highlight (as opposed to un-addressable digitization currently being
voluntarily implemented in India). We believe the under-declaration of subscribers in the dominant,
largely analog cable system (except CAS – conditional access system) is the root cause of the problems
(disputes and litigation, under-monetization) in the Indian C&S TV sector (broadcasting as well as
organized distribution – MSOs). The other key highlights of TRAI recommendations are (1) significant tax
incentives, (2) tech-neutrality, (3) higher foreign investment limits but most important, (4) linking
potential tax incentives to ‘addressable’ digitization. The sunset dates are the only change proposed by
MIB to the TRAI recommendations (see Exhibit 3).
Benefits for large distributors: Subscriber growth, consolidation, improved revenue visibility
Exhibit 4 presents KIE estimates of breakdown of existing TV subscriber base in India currently (FY2011E)
and potential for strong growth in subscribers assuming (1) TRAI’s recommendations are formally
accepted without (2) any changes in sunset dates (deadlines). The other benefits for large organized
MSOs would come from (1) consolidation (as small MSOs and LCOs have neither technology nor
investment capability) and (2) improved revenue visibility given higher subscriber declaration from LCOs,
which impacts MSOs more than broadcasters (see Exhibit 5). However, MSOs will need to improve their
execution capability (~100 mn digital subs in 4 years) lest DTH with (1) proven execution capability, (2)
better balance sheets and (3) better technology (HD) take the cake.
Benefits for large broadcasters: Improved subscription revenue visibility, more channel capacity
Exhibit 6 presents an analysis of the existing domestic subscription revenues of Zee (FY2011E) and
potential by FY2015E, with similar assumptions as above; we note (1) domestic subscription revenues
may be 57% higher versus our base case given value derived from a digital subscriber is ~2-3X of an
analog subscriber and (2) the incremental revenues will flow directly to EBITDA/FCF given limited
associated cost. We do not include incremental benefits of (1) improved monetization of existing
bouquet (price inflation, regional channels), (2) likely launch of new niche channels (Zee Khana Khazana,
for example) or (3) up-gradation to HD services. Additionally, broadcasters will benefit from higher
channel capacity available on digital networks (low carriage and placement charges) though this may
further fragment an already competitive market (>500 channels).
Risks are aplenty: Political will (MIB/TRAI) being the key, in our view; we prefer broadcasters
(1) The revised deadlines set by MIB may yet be challenging (~100 mn digital subs in 4 years) given
execution capabilities and large investment requirement. (2) The political will (MIB/TRAI) to push through
digitization would be critical given the scale of change, opposition from interested parties (LCOs) and
interim litigation between stakeholders. (3) The associated regulation (content costs for addressable
platforms) has already been set aside by the Supreme Court on objections by broadcasters. We prefer
broadcasters given low-risk (already profitable), high-reward (direct benefit to EBITDA), if only to protect
from potential pitfalls and delays in digitization/implementation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Media
India
‘Addressable’ digitization, finally. The Ministry of Information & Broadcasting (MIB) in
India has (finally) given an ‘in-principle’ approval (see Exhibit 1) to TRAI’s roadmap for
digitization of C&S TV in India. We foresee the C&S TV undergoing a transformation as a
result: (1) Increase channel capacity, (2) choice of channels, (3) value-added services but
most important, (4) improved transparency resulting in (5) improved investment climate for
the sector. We highlight significant upside for (1) large broadcasters Zee, Sun and IBN18
(subscription revenues) as well as (2) large C&S distributors Dish TV, Hathway and DEN
(consolidation, revenue visibility). However, risks remain: (1) Sunset deadlines are still
aggressive, (2) large investment requirement and (3) legal challenge to associate regulations
(content costs). We prefer broadcasters (low-risk, high-reward).
Digitization with ‘Addressability’: Revisiting key highlights of TRAI recommendations
Exhibit 2 presents the summary of TRAI’s recommendations on digitization; the stress on digitization
with ‘addressability’ is the key highlight (as opposed to un-addressable digitization currently being
voluntarily implemented in India). We believe the under-declaration of subscribers in the dominant,
largely analog cable system (except CAS – conditional access system) is the root cause of the problems
(disputes and litigation, under-monetization) in the Indian C&S TV sector (broadcasting as well as
organized distribution – MSOs). The other key highlights of TRAI recommendations are (1) significant tax
incentives, (2) tech-neutrality, (3) higher foreign investment limits but most important, (4) linking
potential tax incentives to ‘addressable’ digitization. The sunset dates are the only change proposed by
MIB to the TRAI recommendations (see Exhibit 3).
Benefits for large distributors: Subscriber growth, consolidation, improved revenue visibility
Exhibit 4 presents KIE estimates of breakdown of existing TV subscriber base in India currently (FY2011E)
and potential for strong growth in subscribers assuming (1) TRAI’s recommendations are formally
accepted without (2) any changes in sunset dates (deadlines). The other benefits for large organized
MSOs would come from (1) consolidation (as small MSOs and LCOs have neither technology nor
investment capability) and (2) improved revenue visibility given higher subscriber declaration from LCOs,
which impacts MSOs more than broadcasters (see Exhibit 5). However, MSOs will need to improve their
execution capability (~100 mn digital subs in 4 years) lest DTH with (1) proven execution capability, (2)
better balance sheets and (3) better technology (HD) take the cake.
Benefits for large broadcasters: Improved subscription revenue visibility, more channel capacity
Exhibit 6 presents an analysis of the existing domestic subscription revenues of Zee (FY2011E) and
potential by FY2015E, with similar assumptions as above; we note (1) domestic subscription revenues
may be 57% higher versus our base case given value derived from a digital subscriber is ~2-3X of an
analog subscriber and (2) the incremental revenues will flow directly to EBITDA/FCF given limited
associated cost. We do not include incremental benefits of (1) improved monetization of existing
bouquet (price inflation, regional channels), (2) likely launch of new niche channels (Zee Khana Khazana,
for example) or (3) up-gradation to HD services. Additionally, broadcasters will benefit from higher
channel capacity available on digital networks (low carriage and placement charges) though this may
further fragment an already competitive market (>500 channels).
Risks are aplenty: Political will (MIB/TRAI) being the key, in our view; we prefer broadcasters
(1) The revised deadlines set by MIB may yet be challenging (~100 mn digital subs in 4 years) given
execution capabilities and large investment requirement. (2) The political will (MIB/TRAI) to push through
digitization would be critical given the scale of change, opposition from interested parties (LCOs) and
interim litigation between stakeholders. (3) The associated regulation (content costs for addressable
platforms) has already been set aside by the Supreme Court on objections by broadcasters. We prefer
broadcasters given low-risk (already profitable), high-reward (direct benefit to EBITDA), if only to protect
from potential pitfalls and delays in digitization/implementation.
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