Media: RIO - Can it be a Game Changer for ARPU?; Sector Update:: Edelweiss

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Though the Indian TV industry is not a stranger to clashes between MSOs and broadcasters, the recent tussle pertaining to content deals between the 2 is unprecedented as it has dragged on for unusually long period. Exasperated by delayed monetisation from digitisation, STAR decided to resort to reference inter-connect offer (RIO; ala-carte) deals with MSOs in digitised areas of Phases 1 and 2 for at least a year. On the other hand, ending its temporary RIO deal, ZEE has inked a cost per subscriber (CPS) deal with Hathway. In our view, RIO should be perceived as a bargaining tool employed by broadcasters to enhance their subscription revenue. We expect the resultant higher content costs of MSOs to be a catalyst for TV distributors (including DTH players who have been awaiting cable price hikes) to increase consumer ARPUs in India, which is a potential game changer (ARPU in India is half of Sri Lanka and one-sixth of some emerging Asian economies).

Broadcasters edgy on delay in monetisation of digitisation

Despite completion of digitisation in Phases 1 and 2 cities, monetisation has been much slower than anticipated. This has made broadcasters, who have been waiting on the sidelines for the past 2 years, edgy. To add fuel to fire, Phases 3 and 4 deadlines have been extended by 1 and 2 years, respectively, leading to slower subscription revenue growth. Ergo, STAR, equipped with the wherewithal to deal with MSOs, has embarked on the RIO path. However, smaller broadcasters, with weak channel networks, hope to avoid RIO due to its potential to dent viewership.    

ZEE goes for CPS; STAR is more aggressive

The end of the Hathway-ZEE RIO impasse is an example of better understanding between broadcasters and distributors till monetisation from digitisation improves. With the new GEC launch expected in ensuing months and a weak India-cricket portfolio till FY16, ZEE’s willingness to hard bargain with MSOs may be limited. However, in order to ensure more transparency, STAR is keen on signing RIO deals with MSOs. To offset the impact of RIO, which will lead to higher content costs, national MSOs will add 7 STAR channels in the base pack and hike ARPU by ~INR30.

What will be financial impact of RIO deals?

We believe Indian consumers are still not ready for pure ala-carte packaging (STAR is offering incentives on RIO pricing to lure MSOs). However, in the long run, RIO deals will bring in the much needed transparency and respite from murky fixed fee deals. Apart from higher subscription revenue from MSOs (higher content costs to MSOs), broadcasters will also pay lower carriage fees. We expect the proposed ARPU hikes by MSOs to partially offset the impact of higher content cost. Broadcasters (especially weak channels) could suffer from lower ad revenue as viewership declines. However, larger broadcasters like STAR and ZEE can weather the uncertainty and upheavals in viewership by virtue of their strong brand pull and quality content.

LINK

https://www.edelweiss.in/research/Media-RIO--Can-it-be-a-Game-Changer-for-ARPU;-Sector-Update/27660.html