The Telecom report Kotak believes that the implementation of TRAI’s new tariff order would enhance the bargaining power of distributors versus broadcasters. As per the report Dish TV would most likely benefit. The impact on Zee would be negligible, if any, given the strength of its bouquet. Sun can potentially gain, but its upside is contingent on digitization in TN.
Benefits for Dish TV, modest impact on Zee if at all, and neutral/positive for Sun TV:
We expect stakeholders to work closely to protect industry’s subscription pool: (1) subscription packs would be constructed and priced such that consumers opt for bouquet over a-la-carte options, (2) diversity in demographics and consumption pattern of a typical Indian household makes the bouquet more appealing, (3) Cable/DTH may not explicitly push a-la-carte options. Given this, we expect industry subscription pie to remain intact even as there will be a shift of value broadcasters to distributors at the margin. We expect Dish TV to be a key beneficiary as there is potential to increase carriage revenue. Zee is well-placed to broadly protect its subscription revenue (net). Sun may benefit given the strong positioning of its channels; upside is contingent on digitization in Tamil Nadu. It is difficult to predict the impact on cable players as it is contingent on LCO:MSO revenue share (TRAI has prescribed 55:45 for MSO:LCO but we have doubts on LCOs abiding it) and increase in cable tariffs.
Impact on Dish TV, Zee and Sun TV:
- Impact on Dish TV:
Dish TV’s ARPU is about Rs165/sub/month and its content cost is Rs50-55/sub/month; the contribution subscriber net of content cost is about Rs110/sub/month. Access fee of up to Rs130/month (net) and distribution fee and discounts positions it well to protect its revenue subscriber (net of content payment) if not increase. Carriage revenue of Dish TV at Rs1 bn has room for increase on implementation of regulation. Potential increase in cable tariffs or reduction in content of existing packs can increase competitiveness of DTH offerings. We expect a number of channels to convert pay to FTA on implementation of regulation. Availability of more FTA content on DD Freedish could impact subscriber growth in phase IV markets.
- Impact on Zee Entertainment:
Zee operates close to 35 channels in India. At network level, it has strong driver channels in Hindi GEC, Hindi movies and select regional genres. As per our estimate, Zee garners close to Rs20/sub/month (ex-sports) in phase I and phase II markets and less than Rs10/sub/month in phase III markets. Implementation of regulation could increase carriage costs of the company at the margin. We do not expect any material risk to subscription revenue given 3-4 driver channels. The company could most likely increase the price of key channels and lower the price of less popular channels to construct bouquet such that price of the bouquet (85% discount to sum of MRPs of a-la-carte channels) is more or less similar to that of top 3-5 channels bought on a-la-carte basis.
- Impact on Sun:
Sun garners about Rs42/sub/month DTH subscribers and about half (or less) that digital cable in non-Tamil DAS markets. Given the strength of the company’s Tamil channels, there is scope for upside in cable subscription. However, most of the upside is contingent on digitization in TN. We note that these regulations are not applicable in analog markets.