ZEE-Hathway Rapprochement, A Win-Win Situation :: Edelweiss PDF link

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In a clear indication that ZEE and STAR are not working together (unlike consensus’ belief), Hathway and ZEE have signed a cost per subscriber (CPS) deal. Meanwhile, STAR intends to sign reference inter-connect offer (RIO; ala-carte) deals with all MSOs in Phase 1 and 2 cities. Post the MediaPro split, ZEE had failed to reach an agreement with Hathway over subscription revenue terms and decided to go ala-carte on Hathway’s network from August 1, 2014. Our channel checks suggest that all ZEE channels are now available on regular channel bands for the first time since August 1. In our view, as compared to a fixed fee deal (which was the case during MediaPro), subscription revenue benefits for ZEE will be higher in the CPS deal. RIO ala-carte deals always entail the risk of impacting viewership as not all channels will be subscribed to by consumers. A RIO deal can lead to fluctuations in subscription and ad revenues as consumers get to opt for channels of their choice. In our view, ZEE being a listed company, will not like to be susceptible to quarterly variations.

CPS deal a win-win for both entities 

In the recent legal battle between Hathway and ZEE, TDSAT directed Hathway to pay all outstanding dues to ZEE at INR21.5 per subscriber per month (almost similar to the DTH rate). We expect the current CPS deal to be largely similar, which should be a win-win situation for both Hathway (lower content cost vis-à-vis RIO) and ZEE (higher stability). We believe that the Indian consumer is still not ready for ala-carte packaging (STAR is NOW offering incentives on its proposed RIO pricing). End of the Hathway-ZEE RIO impasse is an example of better understanding between broadcasters and distributors, till monetisation from digitisation improves. MSOs like Hathway are also trying to focus on other revenue streams (Hathway has recently tied up with Aidem Ventures to launch a high-impact ad solutions’ suite).

RIO deal with Hathway largely failed to dampen ZEE’s viewership

With the new GEC launch expected in ensuing months, ZEE’s willingness to hard bargain with MSOs might be a bit limited as viewership of the channel could get impacted. After the initial upheaval owing to the RIO deal, many viewers had subscribed to ZEE’s flagship channels.

Key statements by Punit Goenka in recent Q2FY15 concall

Mr. Punit Goenka, MD & CEO, ZEE indicated a tough stance against MSOs.

• "ZEE is open to ala-carte arrangement with other MSOs too.”
• "MSOs cannot take broadcasters for a ride and they should focus on collecting right amounts from subscribers.”
• "No operator can survive if ZEE and STAR are offered on ala-carte basis.”

Download the full report now to read our detailed note.

LINK
https://www.edelweiss.in/research/EdelFlash-Media--ZEE-Hathway-Rapprochement,-A-Win-Win-Situation/27480.html