Indian cable and satellite industry - A brief introduction

As per the statistics, DTH has a 20% market share with more than 22 million DTH subscribers. The subscriber base for DTH has grown very rapidly in past 5 years. It can be evident from the fact that Dish TV was the only player in 2005 and now there are over 10 DTH service providers that have commenced their operations in DTH industry. The shortcomings of cable operators had led to the creation of immense opportunities for DTH that served as a better alternative to high-end cable networks. The Indian cable and satellite TV (C&S) services industry has grown significantly over the last few years. As of end 2010, the total number of C&S households in India is estimated to be 101 million, having grown at a CAGR of 8 per cent over the last 5 years. During this time, even though digital TV connections, especially direct-to-home (DTH) services, have gained traction, a large proportion of the households remain connected via analog cable. Analogue cable TV services poses several problems like poor broadcast quality, capacity constraints in terms of the number of channels that can be transmitted and non-addressability of the audience. Digital technology (either through DTH or digital cable), on the other hand, offers transparency, increased capacity as well as better broadcast quality. Besides, digital addressable systems can also help enhance the scope of other services, including broadband. Hence, there is a need for the speedy implementation of digitisation, which would be favourable to most stakeholders in the business.

Massive under-declaration of subscriber base leads to significant revenue leakage

Total subscription revenue for the television industry at Rs 200 billion for 2010. Revenue distribution, however, is heavily skewed (75-80 per cent) in favour of the local cable operators (LCO) due to the large-scale underdeclaration of subscribers as a result of which, LCOs end up paying for a far smaller subscriber base than the actual. This practice of under-declaring subscribers by LCOs has been the cause of several conflicts between the broadcasters and the cable operators, building the case for migration to digital platforms.

Migration to digital environment already underway

Over the last few years, migration of subscribers to digital platforms has seen significant traction, especially through the DTH services. As per TRAI data, DTH subscriber base, which stood at 11.1 million at the end of December 2008, has increased to 26.4 million as of September 2010 end. A large part of the digital subscriber base is constituted by erstwhile analog subscribers going digital, while some part of it are new subscribers in light of the growing trend of multiple TV households.

Market is valued at INR 15 bn in 2008-09 and projected to reach INR 30 bn in 2009-10 Estimated subscriber base of 15.17mn, expected to reach 36 mn in the next 5 years Current overall share of DTH households among total TV households of India is pegged at 13%
Since a large proportion of subscribers would be unwilling to pay the upfront cost of the STB (ranging from Rs 1,500 for a basic STB to Rs 3,000 for an STB with advanced features), the funding for the same could be done in any of the following ways: By charging a fixed monthly rental for a pre-determined period. Lack of interoperability among the STBs of different operators

would ensure customer stickiness. By providing it free of cost, which is subsidised through a fund, to be contributed by the broadcasters and the MSOs. By the consumer, MSO and STB vendor entering into a tripartite lease agreement, so that the MSO is not directly impacted (as done in China, Switzerland)

3. Share of organized players

10. Future growth rates

Drivers:

Tata Sky (joint venture of Tata & Star TV), Digital TV (Bharti Telemedia), Dish TV (Zee group), Reliance Digital TV (Anil Dhirubhai Ambani Group) SUN Direct (Sun TV). Vediocon

Growing middle class and rising disposable income Advantage over traditional cable operators Challenges Increasing television penetration and sale of LCD monitor Price war and different package options attracting consumers Proposed sunset dates for complete migration to digital environment pushed by a year
In August 2010, TRAI proposed the migration of analog cable TV homes to digital television, in a phased manner, with complete phase-out of analog cable networks by December 2013. Subsequently, based on discussions with and recommendations from industry participants, the Information & Broadcasting (I&B) ministry has pushed the sunset date for all analog transmission across India to December 2014. This will be implemented in 4 phases as under:

Improved subscription revenues to compensate for the decline in carriage fee revenue of MSOs
Currently, in a largely analog environment, carriage fee received from broadcasters constitutes a substantial part of the revenues earned by the MSO (40-75 per cent) since LCOs retain a majority share of the subscription revenues by under-declaring subscribers. Post-digitisation, though the quantum of carriage revenue from broadcasters would reduce, it would be compensated by increased subscription revenues, owing to greater transparency. Digitisation would also result in higher proportion of primary subscribers (subscribers directly serviced by the MSO) via-a-vis secondary subscribers (subscribers connected via an LCO). Since the contribution of primary subscribers is significantly higher than that of secondary subscribers (as LCO retains the charge for FTA channels), the overall subscription revenue of an MSO would receive a fillip. Hence, as can be seen from the chart below, digitisation would result in significant increase in MSO profitability over a 4-year period.

Digitisation, however, would demand significant investments from an MSO's perspective for the upgradation of equipment as well as subsidisation of set top boxes (STB) for the consumer. Hence, there is likelihood of significant amount of consolidation within the MSO segment. Large-sized operators have already raised or are in the process of raising funds, through IPOs and other sources.These funds would primarily be utilised for 1) digitisation and 2) consolidation in the industry.

DTH players to be prime beneficiaries

The DTH subscriber base is increasing rapidly, at the rate of 10-12 million new additions every year, and is expected to speed up further with the implementation of the digitisation mandate. Among the various distribution platforms, DTH would benefit the most from digitisation with significant improvement in operator margins. This is because, unlike MSOs who stand to lose a

large chunk of
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Challenges: Getting a share of the cable driven market and facing the new age IPTV Trapped in TRAI content guideline Demand supply gap for transponders in a 7 player broadcast market Cap on Foreign Investments

Trends Technological Innovations Shift from price war to offering exclusive VAS Partnerships with movie distributors Combined retail of LCD and DTH Connections

Competition

Dish TV, the first company to enter is the largest player, controlling ~32.5% market share Steep competition has led to a surge in advertising spend to improve penetration

Due to growing number of players in the market, Average Revenue Per User (APRU) will decline owing to price war and discounts

TV channels are transmitted from the satellite to a small dish antenna mounted on the rooftop

DTH The Concept Functioning of DTH Ku band satellite of the subscriber's home A DTH serviceprovider has to lease Ku band transponders from the satellite The encoder convert the audio, vedio signals into the digital format and the multiplexer mixes these signals Unlike Cable TV, the broadcaster directly connect to the user

Overview Pay

TV

Subscriber

Base

Digital

CableDTHSubscribers

in

mn In

the

Indian

Pay TV

market,

DTH

penetration

is

only

17.24% (June

09),

reaching

15

mn

out

of

87

mn

paid

subscribers 2215406080100 1603631469270469Analogue

Cable

among

total

TV

households

of

India

is

pegged

at

13%The

market

has

private

broadcasting

Distribution

across

TV

Households

(HH) 020 2006200720082009e2010e

Direct,

Air

Tel

and

Videocon

and

one

Free

to

Air

operator

Doordarshan

Direct

New

entrant:

Videocon

in

May

2009

6080 Cable

HHDTH

HHHH

(%age) 60% of DTH subscribers residein rural areas and towns with a population under 1 mn and is largely dominated by freetoair Doordarshan Direct service