DTH industry still adding “value conscious” and not price-sensitive customers
Moneylife Digital Team 24 April 2013

Nomura Equity Research on the media sector believes that that the initial seeding of STB by cable operators, which has not been backed up by proportionate increase in service infrastructure, will mean that a significant part of these subscribers can still churn away to the DTH industry in the medium term

As per the latest data release by the ministry of information and broadcasting (MIB), between 1 March 2013 and 12 April 2013, multiple system operators (MSOs) have seeded 4.45 million set-top box (STB) compared to 0.38 million STB seeded by direct-to-home (DTH) players. This highlights that, in the short term, MSOs have gained more market share versus the DTH industry which is now focussing on profitability (package price increase), cash flows (reducing subsidy on STB) and adding “value conscious” and not “price conscious” customers, which will impact churn positively.

 

Dish TV increased the price of its STB in February, which was followed by similar action from other players like Tata Sky in February. While some of MSOs have also increased prices (Den Network increased the price of its STB by Rs200), but clearly the differential versus DTH has increased as the DTH companies choose to position themselves as an “upgrade option”.

 

Nomura Equity Research in its Quick Note on the media sector believes that that the initial seeding of STB by cable operators, which has not been backed up by proportionate increase in service infrastructure, will mean that a significant part of these subscribers can still churn away to the DTH industry in the medium term.

 

Dish TV

Nomura expects Dish TV’s reported ARPU in 4Q to improve to Rs161.8 (versus Rs160 in 3Q and Rs159 in 2Q). The brokerage has factored in the following impact to arrive at this number:

 

Package price increase of July 2012 to be reflected partially in 4Q ARPU—The company hiked the price of its non-south pack by Rs20 in July 2012 which has been partially captured in 2Q-3Q ARPU. Nomura expects its effect to be visible in 4Q as well (building in Rs3 increase in 4Q).

 

Lower number of days in 4Q—As per the company, billing to customer is done on per day basis. Since 4Q will have two lesser days than 3Q (as February 2013 had 28 days), reported average revenue per user (ARPU) will be depressed by around 2.2% compared to 3Q assuming everything remains same.

 

 Removal of free one-month subscription period for new subscribers—The company has removed the one-month free viewing period on purchase of new connection from February 2013 end (at the time of its latest STB price hike). This would have a positive impact on ARPU.

 

Content negotiation for FY13 between Dish TV and Media Pro was partially (around 27% as per Nomura’s estimate) completed in 3Q. The brokerage expects the negotiation to be complete in 4Q and, therefore, as in 3Q, Dish TV will pay increases pertaining to prior

FY13 quarters as well in content cost to Media Pro in this quarter.

 

On other hand, Zee Entertainment has not yet accounted for any incremental revenue from increase in content cost post partial competition of negotiation between Media pro (JV between Zee and Star) and Dish TV in 3Q. Nomura analysts expect Zee’s subscription revenue to be boosted in 4Q as the company will retrospectively capture increase in content revenue from Dish TV.

 

The brokerage expects no major surprises in the Dish TV results except that subscriber addition will be lower given that it took a lead in increasing the set top box price:

Content cost increase—Assuming 12% y-y increase in content cost as guided for FY13, the brokerage expects content cost to increase by around Rs693 million in 4Q y-o-y.

ARPU—Nomura expects the company to report 4Q APRU of Rs161.8 as it factors in the remaining impact of the July price increase, impact of fewer number of days in February and removal of one-month free subscription period for subscribers in February.

Subscriber addition—As highlighted above, STB price increase will mean subdued subscriber addition in the short term for DTH players. Nomura expects Dish TV to add 0.35 million subscribers in 4Q (versus 0.8 million in 3Q).

 

Zee Entertainment

Strong growth in subscription revenue to continue—The brokerage expects Zee’s subscription revenue to be boosted (it will get around Rs391 million based on Nomura’s assumption of around 40% market share ) in 4Q from increase in content cost post negotiation between Media Pro and Dish TV which Zee will book retrospectively for FY13 in 4Q. In 4QFY12, Zee captured July 2012-March 2013 (nine months) revenue from Media Pro of Rs506 million. Adjusted for July 2012-Dec 2012 revenue in 4QFY12, it expects Zee’s domestic subscription revenue to grow by nearly 30% y-o-y in 4QFY13.

 

Management has indicated increased losses in the sports business in the quarter—In 4Q, Zee broadcast the South Africa-Pakistan (3 Tests, 5 ODIs and 2 T20s) and South Africa-New Zealand (2 Tests, 3 ODIs and 3 T20s) cricket series which will lead to higher losses in the sports business. The brokerage is building in around Rs435 million loss in sports business in 4Q.

 

Steady growth in advertising—The brokerage expects advertisement revenue to grow by around 15% driven by a combination of robust advertising spend especially by FMCG companies, and uptick in advertising revenue from sports.

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