Digitalisation to drive value shift in India pay-TV ecosystem

MUMBAI: A new report by Media Partners Asia (MPA) indicates that digital pay-TV penetration of TV homes in India will grow from less than 20 per cent in 2011 to 50 per cent by 2016, and 61 per cent by 2020.

The key demand drivers will come from cable operators, six commercial DTH pay-TV platforms, and DD Direct, the government-owned free DTH platform. A gradual consolidation of last-mile local cable operators will become inevitable, leading to a shift in industry profits and value to centralised distribution platforms and broadcasters.

The report ‘Asia Pacific Pay-TV and Broadband Markets 2012‘, measures consumption and revenue generation across pay-TV and broadband industries in 16 Asian markets, including India, which the remains the key pay-TV market for Asia in the future.

MPA executive director Vivek Couto said, "India’s digitalisation timetable implies a three-year transition to full digital TV (DTV) conversion. This is ambitious though we believe DTV transition will occur but over a longer time frame. The industry will remain capital-intensive until 2017 at the earliest, due to the capex requirements associated with digitalisation. This will lead to more M&A and fund-raising activity in both primary and secondary markets."

The sector’s improved transparency, scale and operating leverage will attract large domestic and international strategic players, who will play a key role in M&A activity.

MPA’s biggest concerns include cable execution and capitalisation as MSOs transition from a B2B to B2C model; DTH satellite capacity; and the extent of regulation in the broadcast ecosystem. While digitalisation is the result of policy progress, this has not been the case for investment and taxation policies.

MPA projections indicate that pay-TV industry subscription fees will grow at an 11 per cent CAGR between 2011-16, driven by increased volume over DTH and digital cable. Total pay-TV subs are expected to reach 172 million by 2016, and 199 million by 2020.

MPA projections measure pay-TV penetration after accounting for households that opt for multiple services. Using this definition, MPA estimates that pay-TV penetration will grow from 79 per cent to 89 per cent between 2011 and 2020.

The majority of DTH pay-TV platforms will be generating free cash in the next three to four years, says MPA. The active DTH subscriber base (i.e. paying customers only) could grow from 29 million in 2011 to 69 million by 2016, and 93 million in 2020. This implies a 46 per cent share of the overall market by 2020 (versus 23% in 2011), and a 65 per cent share of the digital pay-TV market. DTH operators have been working together to improve the overall economics for the business; nonetheless, a rise in subscriber acquisition costs due to growing competition from digital cable, as well as medium-term satellite capacity constraints, remain concerns.

DTH industry revenues will reach almost $4 billion by 2016 and $6 billion by 2020, with revenue growth largely driven by expanding the subs base. ARPU growth will be partially limited as DTH expands nationally, with low-income homes coming into the mix, although MPA also sees a greater contribution from high-ARPU HD subs.

Digital cable subs will reach approximately 33 million by 2016 and 48 million by 2020, with cable’s consumer proposition, in the form of channel packs, HD, VAS and broadband, driving subs and Arpu growth. Monthly digital cable ARPUs will grow from $4 in 2011 to $5 by 2016 and $6 by 2020. Total cable industry subscription revenues will grow from $4.2 billion in 2011 to $6.4 billion by 2020, with broadband contributing 15 per cent to sales by 2020 versus 85 per cent for pay-TV.

For broadcasters, digitalisation and greater transparency in the pay-TV ecosystem will result in a higher proportion of subscription revenues, as well as rationalised carriage and placement fees. At the same time, broadcasters will need to programme stronger, differentiated content to survive and prosper in a new ecosystem, and create new consumer demand.

MPA expects total pay-TV channel revenues to grow from $3.4 billion in 2011 to $6.7 billion by 2016, and to $9.6 billion by 2020. Subscription revenue upside from DTH will be capped, however, due to fixed fee deals already in place between broadcasters and DTH operators. Incremental growth and upside will largely be driven through digital cable platforms.

Revenues will continue to remain skewed in favor of advertising, with the latter contributing 70 per cent to total broadcaster revenues in the long term.

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