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Digital fallout: DTH cos set to lose, broadcasters poised to reap benefits

for broadcasters, direct to home
(DTH) operators however, are set to
lose out.
According to a research report by
Bank of America-Merrill Lynch, just
like in the West, online video content
will disrupt India’s Pay TV market.
While broadcasters will benefit
because of ad supported content
monetisation, DTH players will suffer
because of pressure on ARPUs.
Moreover DTH companies are also
poised to lose most as the price-
sensitive Indian consumers will
refrain from paying premium for
content on live television when they
have online alternatives.
Broadcasters are well placed to
monetise content on digital platforms
as it only increases the opportunities.
As a result, ad revenues are expected
to improve following a pick up in
economy. The report states that
broadcasters will be able to improve
their content monetisation through
increased ad revenues and better
declaration of subs in a digitised
For DTH companies, despite
digitisation delay, there will be
improvements in the average revenue
per user (ARPU) driven by the
following factors: 1) HD channel
penetration increase; 2) Differential
tariff hikes; and 3) MSOs hiking
tariffs to maintain profitability –
offering DTH players more headroom
to raise tariffs.
Creating a scenario comprising Zee TV
(broadcaster) and Dish TV (DTH), Bank
of America-Merrill Lynch’s analysis
suggests that the overall risks are
skewed to the upside for broadcaster
Zee and to the downside for DTH
operator Dish TV.
According to the report, Zee has
underperformed the markets by eight
per cent year-to-date (YTD) on
concerns about the loss in market
share due to channel fragmentation
and investments in new channels.
“Post the share-price
underperformance, we see the risk-
reward as favourable since, in our
view, the market is now factoring in
all the risks, but not giving full
benefits of strong ad growth,
monetisation of new content and
digitisation benefits,” the report
Factoring in the positives for Dish TV,
the report says that though
digitisation is inevitable, the
expectations on timelines are
optimistic and complete benefits of
digitisation will be seen only by
FY2020-21. However, over the next
12 months, ARPU improvements are
expected due to: 1) MSOs hiking
tariffs to maintain margins; 2)
Increased penetration of HD channels;
and 3) Differential price hikes in
urban areas. “However, Dish TV has
outperformed the market by 65 per
cent YTD, and we see most of the
positives are priced in,” says the
The upside of digitisation will be
gradual. Citing risks and benefits of
digitisation, the report says that it
sees the risk of distributors (MSOs
and DTH players) not realising the full
potential of digitisation as the pace
of roll out is slower than what the
market is anticipating. Moreover, by
the time the full benefits of
digitisation are realised, the new-age
video disruptors, internet-enabled
smart devices like mobile, TV and PC
will start eating into the revenues of
Pay TV and MSOs like they have done
in the West. Additionally, though
phase-I and II of digitisation is
complete, the expected benefits have
not flowed to the players because of
issues like MSOs/LCOs tussle and
absence of customer billing. “There
has been some progress on resolving
the issues but it has been slow. These
problems will only increase with roll
out in phase-III and IV areas,” the
report states.
In the next few years, the Indian
media sector is expected to evolve as
digitisation gradually picks up,
fragmentation of channels increases
and all companies (broadcasters, DTH
and MSOs) evolve their business
models in face of online content
Positive on broadcasters: Content
still the king
According to the report, companies
like Zee will benefit from an
improvement in ad growth (led by GDP
uptake) and expect to benefit from
content fragmentation as it is one of
the better companies leveraging this
trend. “Over time, as traffic will
shift to smart devices, we expect
consumption of video content to
increase. This presents increasing
opportunities for broadcasters to
monetise content. With improving
economic activities, digitisation
rollout and pressure on distributors’
P&L, we expect both advertisement
and subscription revenues of
broadcasters to increase. On the
other hand, we believe that given the
reluctance of Indian consumers to pay
for online consumption, content on
smart devices (smartphones, PCs,
tablets) will be monetised primarily
through advertisements,” the report
DTH: Digitisation is gradual; ARPU
improvement to flow in
Despite slow digitisation, companies
like Dish TV are likely to improve their
ARPUs and EBITDA margins over next
12-18 months. The ARPU improvement
will be led by the following factors: 1)
MSOs facing some pressure from
broadcasters to hike tariffs allowing
DTH operators to follow them; 2)
Increased penetration of HD channels;
and 3) Players like Dish TV
implementing differential pricing
across cities to improve realisations
and monetising on its “Zing” offering.
MSOs: Broadband push is the next big
With the ongoing tussle between MSOs
and LCOs, the full benefits of
digitisation will come gradually for
MSOs. As a result, MSOs are likely to
focus on other revenue streams like
broadband subs. According to checks
carried out by Bank of American-
Merrill Lynch, there’s increasing
focus by MSOs to improve their
broadband coverage, which would help
cross-sell services overtime and have
direct control over subs. The major
MSOs have already started
experimenting with high-speed
broadband in high-density urban
areas, and slowly they will start
rolling out in Tier-2 and Tier-3
Key risks:
1) Economy not picking up: Any
slower-than-expected economic
uptake may lead to material
downgrades to our consensus ad
revenue numbers for Zee.
2) LCOs/MSOs tussle unable to reach a
solution: Continued tussle between
LCO and MSO (LCOs are unwilling to
share consumer details with MSOs in
order to guard their turf) will impact
ARPU improvements for the sector.
3) Rise in piracy: With the
proliferation of online content and
new mediums of consumption, we may
see a rise in piracy. In such a
scenario, it will impact the entire
industry negatively as it would be
difficult to monetise the content

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