Impact of TRAI New Tariff Order
TV Channels’ Performances, Advertising, Subscription Revenue Growth in 2019.
Dangal TV Continues Dream Run, Monthly performance across genres.
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Z channels reported stable performance in December, 2019 as it retained its top position across smaller regional genres, such as Bangla, Kannada, and Marathi, with strong gains in viewership share in the Bangla & Kannada genres while dropping in Marathi. Further, Zee Tamil lost market share to STAR Vijay amid increased competition for weekend shows. Ranking within the Telugu genre remains stable, with a slight loss of 20bp MoM to 18.5%. Within the GEC genre, viewership share dropped in December for Z channels. Zee TV dropped at the fifth spot in the GEC urban segment for fifth consecutive month; whereas within GEC rural Big Magic maintains its second spot despite a 100bp MoM drop in viewership share.
SUN TV, the flagship channel in the Tamil genre, reported a dip in viewership share by 30bp MoM to 1.3% but retained its top spot within the category; however, its other channel, Sun Life remained at 6% share, flat MoM. KTV, Sun TV Group’s other offering in the Tamil genre, gained share by 125bp MoM to 13.6% which would primarily be on the back of movie premiers. Within the Kannada genre, Udaya TV had viewership share gains of 40bp MoM at15.2% whereas in the Telugu genre too Gemini TV was at 17.6%, down slightly by 20bp MoM.
Within the regional GEC genre, impressions for Tamil, Telugu and Kannada grew 17% MoM, 13% MoM and 13% MoM, respectively, on low base as the impression count declined consecutively for the past two months and also supported by some popular shows gaining traction within the genre. In case of Tamil genre, Roja & Naayagi featured on SUN TV continued to be favorites gaining traction; within the Telugu genre, Karthika Deepam & Vadinamma were consistent toppers. Within the Kannada genre, Jothe Jotheyali was the highlight of the month. Within the Hindi GEC (urban+rural) genre, impressions count were up 10% MoM while in case of individual Hindi GEC (urban) & (rural) genre, it improved by 10% MoM and 9% MoM, respectively.
Other genres like Hindi Movies reported an uptick in impressions count by 5% MoM while Marathi viewership impressions improved 18% MoM. Impressions in the Hindi news genre grew 6% MoM.
TV Advertising growth prospects are expected to remain muted in the near term, primarily due to
1) weakness in free-to-air channel spend post NTO for Z and due to flat viewership for SUN TV
2) sentiment in TV ad. remains muted even post the festive season,
3) spend cuts by key sectors, including auto, real estate & BFSI
4) due to the transition phase during NTO 2.0 (to be implemented on 1st March,2020), which will negatively impact TV ad growth in H1CY20;however the negative impact this time around will not be as subdued as NTO 1.0 (Jan’19). Ad spend on the regional genre will remain strong, due to better pricing prospects as the latter is expected to grow ahead of industry average, Z may report a slight out performance on the ad growth front vs industry average, due to dominant positioning in key regional genres, such as Bangla, Kannada and Marathi; however, the gap of outperformance vs the industry is expected to converge, as other genres report a stable performance.
Further, if Z were to move its key channel Zee Anmol from pay based back to Free To Air which may lead to better ad. growth Momentum will continue in subscription revenue growth in FY20; however, medium- to long-term prospects on subscription revenue remain muted due to lower HD penetration post New Tariff Order as HD has become an expensive proposition. Further, NTO 2.0 will have a negative impact on broadcasters subscriber revenue which grew 30-40% YoY due to higher share and increased ARPU. With Jio pushing its TV offerings – access to channels free of cost for Jio subscribers – we believe TV channel monetization will go through major disruption in the near term.
We reiterate our Accumulate rating on Z with a TP of INR 310 based on 14x one-year forward P/E as much uncertainty remains long term. We retain our underweight stance on broadcasters, given key disruptions over monetization on digital and traditional media being hampered due to NTO revision.
We recommend Reduce on SUN TV with a target price of INR 520 based on 13.5x one-year forward P/E on the back of weak ad revenue and no significant improvement in viewership within the flagship genres.
Karan Taurani @ Elara Capital