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The changing landscape of India’s media industry

Published on January 29, 2020 by Avinash Kumar

New Tariff Order 2.0

The Telecom Regulatory Authority of India (TRAI) released on 2 January 2020 the following amendments to the New Tariff Order (NTO):

  • Broadcasters to cap à la carte channel pricing at INR12 vs INR19 previously, if the channel is to be included in a bouquet package

  • The sum of à la carte pay channels shall not exceed 1.5x the rate of the bouquet package of which such pay channels are a part, effectively a 33% discount vs no such cap previously

  • Distributors to charge a maximum network capacity fee (NCF) of INR160/TV, irrespective of the number of channels opted for

  • The number of channels in the base NCF pack (INR130/month) to exclude government-mandated channels

  • Other minor adjustments: Distributors can charge up to 40% of the NCF for an additional TV in the case of multi-TV households; carriage fee capped at INR0.4m per month per channel

  • Broadcasters will have to submit their revised channel prices by 15 January 2020 and distribution platform operators (DPOs) by 30 January 2020. These will be effective for consumers from March 2020

Key effects of the proposed changes

The basic industry operating dynamics will be the same as those introduced under the previous Tariff Order (2019). Through the NTO amendments, the TRAI aims to reduce the average consumer’s monthly TV bill, although this will likely be tough on broadcasters, as it lowers subscription revenue upside through content monetisation. Broadcasters may challenge a few of the new amendments in courts of law, especially the cap on à la carte pricing and bouquet package discounting. Recently, the Indian Broadcasting Foundation (IBF) and top broadcasters filed a petition against these amendments in the Bombay High Court.

The change in the industry structure effected by the NTO

The major distributors (DEN, Hathway, GTPL and Siti) will likely benefit the most from the NTO. Prior to NTO implementation, the distributors paid a large lump sum – termed “content cost” – for carrying the broadcasting channels. Content cost was a significant cost factor for all distributors (accounting for 40-45% of subscription revenue) and depended on piecemeal negotiation with each broadcaster; therefore, broadcasters had an upper hand in the negotiations.

With the introduction of the NTO, the price of each channel/channel pack is decided by the broadcasters and paid by the end consumer, with DPOs being compensated in between as pure-play cable distributors (without actual channel costs affecting their bottom lines). This has resulted in large cost savings and, therefore, significant EBITDA accretion for DPOs, leading to improved DPO profitability to INR40-65/subscription/month on average in tier 1, 2 and 3 cities versus the previous c.INR15/subscription/month. As the industry settles further, the players are likely to see opportunity for higher margin accretion.

Long-term effect on media industry dynamics

The DPO industry used to be touted as the next big thing in India’s media space due to its ability to offer dual-/triple-play product offerings (TV + internet + voice calls). However, the high content cost payouts to broadcasters (especially for their premier channels) crippled the financial strength of DPOs and significantly reduced their ability to innovate and to offer bundled services to the end customer.

These companies consequently lost market/investor interest. With the advent of the NTO and improving profitability, however, DPOs now have the opportunity to get their houses in order. Some of the DPOs have started investing in new technologies, which would enable them to offer value-added products and services to the end customer. They are also investing in innovative product offerings such as smart set-top boxes (STBs), higher over-the-top (OTT) integration, smart home solutions, and fibre-to-the-home (FTTH) delivery. If these companies do it the right way, we believe they can usher in a new dawn in the media space and restore the lost investor interest.

Acuity Knowledge Partners supports global investors by helping them internalise more of their investment research process by building dedicated teams of research analysts at our delivery centres in South Asia, Beijing and Costa Rica. Our analysts (MBAs, chartered accountants, CFAs) work as an extension of the client team and provide support on various types of client-specified research assignments, including financial modelling and valuation, conducting background research, gathering primary and secondary data, preparing for company visits, and providing earnings-season support and a host of other value-added research. Each research output we produce is customised for the client and reflects the client’s proprietary and differentiated research process. This gives the client a unique, sustainable edge.




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About the Author

Avinash Kumar has over 7 years of experience in Equity research roles. He has worked extensively in conducting fundamental and technical research for listed companies in emerging markets. Avinash extensively covered Media and Telecom companies across Asia region and has been actively assisting Buy side clients with equity research roles. Avinash is a CFA and MBA in Finance.

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