Cable TV

Q1-2016: Cable TV in India - Sequential quarter revenues down, broadband shines

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Indian Cable TV is a long haul work-in-progress is what we had said last quarter. The results of the four sample companies in the quarter ended 30 June, 2015 (Q1-2016) in that report seem to endorse this fact. All four companies comprising the big three – Hathway Cable and Datacom Limited, Den Networks Ltd, Siti Cable Network Limited and the minnow - Ortel Communication Limited reported a quarter on quarter (QoQ) drop in total income from operations (TIO or revenue) in the current quarter. As expected, broadband subscribers and revenue continues to grow.

Note: (1) 100,00,000 = 100 lakh = 10 million = 1 crore.

(2) Some figures are approximate.

(3) Generally other income has not been factored in for EBIDTA figures in the report.

Performance

Though Den Networks’ and Hathway’s YoY results in the current quarter deteriorated, QoQ, both performed better, albeit both the cable companies reported losses. Siti Cable’s loss in Q1-2016 increased YoY and QoQ, and though regional player Ortel returned a profit in the current quarter as compared to a loss in Q1-2015, its Q1-2016 profit was less than half the profit reported in the immediate trailing quarter.

Over the last few quarters, Den Networks’ financial performance has shown a marked decline. From a company that reported profit after taxes, it has started reporting a loss. Without considering other income, the company reported a negative EBIDTA of Rs 4.67 crore as compared to the operating profit of Rs 57.16 crore in Q1-2015 and a higher operating loss of Rs 5.97 crore in the immediate trailing quarter. However, the company’s Cable TV segment reported a higher QoQ EBIDTA in Q1-2016 of Rs 18 crore (6.9 per cent margin) as compared to the Rs 14 crore (5.3 per cent margin) in Q4-2015, but a lot lower than the EBIDTA of Rs 69 crore (27 per cent margin) in Q1-2015.

Hathway’s EBIDTA in the current quarter declined 25.4 per cent to Rs 32.73 crore (12.8 per cent margin) as compared to the Rs 43.87 crore (17.5 per cent margin) in the corresponding year ago quarter but was 5.7 per cent more than the Rs 30.98 crore (11.5 per cent margin) in the immediate trailing quarter.

Siti Cable’s EBIDTA including other income for Q1-2016 increased 5.1 per cent to Rs 38.1 crore as compared to the Rs 36.26 crore in Q1-2015 and was 18.7 per cent more than the Rs 32.11 crore in Q4-2015.

“Our commitment to improving operational efficiency and streamlining operations continues, leading to EBITDA growth of 18.7 per cent and margin expansion by 501 bps QoQ,” explains Siti Cable executive director and CEO VD Wadhwa.

Ortel’s EBIDTA in the current quarter improved by 24.1 per cent to Rs 10.84 crore (26.7 per cent margin) as compared to the Rs 8.73 crore (22.1 per cent margin) in Q1-2015, but declined 34.5 per cent as compared to the Rs 16.55 crore (36.9 per cent margin) in the immediate trailing quarter.

Ortel president and CEO Bibhu Prasad Rath said, “Overall growth was delivered on the back of steady contribution from Cable TV and Broadband segments supported by continued momentum in the Infrastructure Leasing segment. Significant growth in subscriber base, deeper penetration, enhanced product offerings and a strong team, should enable us to notably improve our performance going forward.”

Total Income from Operations

Please refer to the figure below. Den Networks, the company with the largest TIO among the four, reported TIO at Rs 265.60 crore, 11.1 per cent less than the Rs 298.81 crore in Q1-2015 and 1.7 per cent lower than the Rs 270.30 crore in Q4-2015. The company’s loss in the current quarter at Rs 51.89 crore was lower than the Rs 61.15 crore reported in the immediate trailing quarter Q4-2015. The company had posted a profit of Rs 1.12 crore (0.4 per cent margin) in the corresponding year ago quarter – Q1-2015.

Though Hathway reported 5.7 per cent growth in standalone TIO in Q1-2016 to Rs 264,41 from Rs 250.11 crore in Q1-2015 QoQ, its TIO was 2.1 per cent lower than the Rs 270.03 crore in Q4-2015. Hathway’s loss in the current quarter widened to Rs 43.91 crore as compared to the Rs 0.93 crore in Q1-2015, but was considerably lower than the Rs 76.99 crore in Q4-2015.

Siti Cable reported TIO of Rs 228.09 crore in Q1-2016, which was 9.1 per cent higher than the Rs 209.02 crore in Q1-2015, but was 10.9 per cent lower QoQ than the Rs 256.01 crore in Q4-2015. The company reported a higher loss of Rs 37.11 crore in Q1-2016 as compared to the loss of Rs 31.67 crore and a loss of Rs 34.13 crore in Q4-2015.

Ortel reported 20.5 per cent growth in TIO at Rs 40.60 crore in Q1-2016 as compared to the Rs 33.69 crore in Q1-2015, but 9.6 per cent lower than the Rs 44.91 crore in Q4-2015. Ortel reported profit after tax (PAT) of Rs 2.44 crore (six per cent margin) as compared to a loss of Rs 1.16 crore in the corresponding year ago quarter, but Q1-2016 PAT was less than half (lower by 56.8 per cent) the PAT of Rs 5.65 crore (12.6 per cent margin) in the immediate trailing quarter.

Cable TV (Video) Subscription Revenue

Subscription revenue in the current quarter dropped QoQ in the case of Siti Cable and Hathway, while both Den Network and Ortel saw an increase in YoY and QoQ subscription revenue. At the same time, all the companies have reported higher digitisation numbers in DAS and non-DAS areas. Siti Cable and Ortel have reported a gain in subscription numbers as well. While Den Networks and Hathway have reported flat or slightly higher digital as well as analogue average revenue per user (ARPU), Ortel has reported a slight drop in both ARPUs. 

According to company sources, Siti Cable, which is the biggest player among the four sample companies in terms of cable TV subscription revenue, had flat QoQ ARPUs in Q1-2016, while YoY ARPUs showed double digit growth. The company claims that its subscriber base has increased by two lakh (all digital) to 107 lakh as it expanded its footprint by entering into 12 new towns across India as a part of the ongoing voluntary digitization process in order to be compliant with the DAS phase III digitisation deadline.

Despite the flat QoQ ARPUs and higher subscription numbers, Siti Cable’s cable TV subscription revenue fell QoQ because the company had initiated strict measures against erring LCOs and had switched off signals to the extent of about four lakh cable TV consumers, as per industry sources.

“During the quarter, we have further tightened our credit control measures and started taking strict actions against defaulting operators, which shall result into improved credit discipline and saving in operating cost,” revealed Wadhwa. A source told Indiantelevision.com that Siti Cable’s strict measures seem to have worked and signals have been resumed to the subscribers, but that it would take time to reflect the improved numbers in its financials.

Ortel’s Rath added, “I am also pleased to share that over and above the 542,217 RGUs (revenue generating users) as on 30 June, 2015, we have signed buy out agreements with multiple LCOs with total estimated RGUs of 33,000, which would be integrated into Ortel’s last mile network going forward. So we remain on track and are confident of achieving our target of one million RGUs by March 2017 backed by our LCO buy out strategy and focus on organic growth both in broadband and cable TV.”

Pay channel Costs

Please refer to the figure below that represents the Cable TV costs paid by the four sample companies. 

The big three reported a QoQ fall in pay channel costs, while in the case of Ortel, pay channel costs rose. This does not mean that a la carte has become a reality and the multi-system operators (MSOs) are only paying for what their subscribers are paying. It’s just that this quarter, balancing amounts have been paid to a broadcast aggregator, since excess payments had been made until Q4-2015. 

Diverting from the performance for a bit, a source from an MSO says, “As a matter of fact, it’s the big broadcasters that are resisting a la carte. A la carte will affect their overall advertisement revenues for packaged deals across the multiple channels within their fold.”

Internet subscription revenue

This is one avenue that most cable companies are looking at as their business and revenue growth alternative. Internet ARPUs in India are much higher – to the extent of 3 to10 times the ARPUs from cable television. All the four sample players in this article reported YoY growth. The big three- Hathway, Den and Siti Cable also reported QoQ revenue growth, while Ortel’s internet subscription revenue remained flat. Higher subscription numbers, higher ARPUs brought in the accelerated revenue growth for Hathway, Den and Siti Cable. Typically, broadband ARPUs for the big three were in the range of Rs 750 in Q1-2016 as Rs against 650-700 in Q1-2015 and Rs 720-750 in the previous quarter.

Among the four, Hathway with an initial higher internet subscriber base in excess of four lakh plus, reported a growth of 50,000 subscribers to bring its total subscriber numbers to 4.6 lakh in Q1-2016. Already its internet revenue subscription has a reasonably big share in its overall revenue pie. Comparatively, the other three have internet subscribers than number in just tens of thousands, though all have reported reasonable YoY and QoQ growth in subscribers.

Ortel reported a slight depletion in ARPUs and hence the flat internet subscription revenue despite a higher QoQ subscriber base. Ortel’s broadband RGUs in the current quarter grew 4.1 per cent to 60,900 from 58,519 in Q4-2015. Ortel also launched up to 50 Mbps DOCSIS 3.0 Broadband Internet in Odisha. The company’s broadband ARPUs in the current quarter also declined by Re 1 to Rs 393 from Rs 394 in Q4-2015.

End Points

At present, most MSOs have two separate arrangements with broadcasters – one for Digital Addressable System (DAS) areas and another for non DAS areas. Recently the Essel Group that operates both carriage platforms – DTH though Dish TV as well cable TV through Siti Cable - formed a common entity called “COMNET” to help synergize strengths of both entities in dealing with broadcasters. Siti Cable says that the primary reason for forming this venture was to ensure that consumers have access to quality content at affordable prices. This move would assist in keeping content cost in consonance with consumer ARPUs and market realities. 

Players across mature markets such as the US continue to report a fall in video subscribers – to that extent that most companies there have higher broadband subscribers than video subscribers. Such a scenario is not probable in the near future in India, but cable TV players do face competition from wireless internet players and mobile companies as well as from other devices as a mode of entertainment rather than the idiot box. Carriage or placement fees could continue as bargaining currency in the near future.

Once a la carte becomes a reality, to some extent, one could infer that if the pay channel costs are down, it’s because subscribers have used the option, and not that the player has lost more subscribers than it gained. In theory, DAS has made it possible for carriers to pay broadcasters if and when the subscriber subscribes for pay channels. It now remains to be seen if the players in the industry allow the theory to be put into practice. Cable TV subscription revenues and ARPUs could fall if players don’t play it right.

The response to the Hinduja’s HITS (headends in the sky) platform from local cable operators (LCOs) has been tremendous, if one were to go by initial reports. The DTH industry has started making inroads into DAS phase III and IV areas and could grab more than the 30 to 40 per cent of the subscribers that it did in phase I and phase II.

As has been pointed out by industry experts, just the seeding of set top boxes (often non-BIS compliant STBs) does not mean implementation of DAS as it was truly meant to be. It can be safely reiterated that there’s a lot of work to be done by the industry.

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