Media Quick View (Television) – New Tariff Order 2.0 is here – Yet another disruptive move for Broadcasters – Prima Facie Analysis.
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TRAI recently announced some changes in the new tariff order for broadcasters. Some of the key implications of the same as per our current understanding and channel checks are –
1) Sum of a-la carte forming a part of bouquet can’t exceed one and a half times of the bouquet price.
Impact Negative – This clearly implies that the discounting of a-la carte vs bouquet can not exceed more than 34%; currently the broadcasters are giving a discount of almost 60% – 80% on their bouquets vs the a-la carte pricing
2) Channels priced above RS 12 cant be part of a bouquet
Neutral impact – This is the same norm which was mentioned in the New Tariff Order 1.0 too where in a channel which is above RS 19 cannot be a part of the bouquet – broadcasters usually wont charge more than Rs 12 as 93% of the revenue is from bouquet and only 7% is ala carte based.
3) DD channels will not be a part of the Free To Air pack and distributors cannot give more than 160 channels in the FTA pack.
Impact Negative – As per the earlier order, there was no capping for maximum number of channels in Free To Air (FTA), which implied that more niche channels will move towards FTA. However this capping is a negative for the ancillary channels of Broadcasters as the FTA cap makes the segment highly competitive.
4) Capping of 4 lakh per month in terms of carriage for a particular channel
Impact – Mild positive for broadcasters – This implies that there is a capping in terms of carriage fee being charged and hence broadcasters here are in a win win situation as the rush for FTA is bound to increase for their smaller channels which are not a part of bouquet.
We maintain our view that as per expectations NTO 2.0 which has now officially been released will lead to
1) lower ARPU’s for TV which has shot up by almost 60% at an average post the NTO 1.0
2) lower ARPU would mean a lower share of revenue for the broadcasters (who were getting almost 50% share post NTO 1.0) – expecting the share to remain similar, but the absolute distribution revenue to move down substantially.
3) Enhanced movement towards selective viewing as few consumers may move towards ala carte due to price correction.
4) Size of bouquet will come down in terms of channels from about 8-10 channels to 3-4 channels which will lead to a big management problem for distributors.
5) Expect some of the key Channels like zee Anmol which were earlier FTA pre NTO and then became pay and lost viewership/ ad revenue to again consider the FTA route.
6) Ad spends will see a negative impact for sure due to transition phase just like it did during NTO 1.0 – this will have a negative impact on TV ad growth in H1CY20- however it won’t be just as subdued as last time as this has only few changes.
7) Niche channels of broadcasters will face big problems due to the capping on the FTA front; expect niche genre channels to move directly to OTT/digital in that case.
As per Conversation with Broadcasters
Actual (Revised) – No capping on number of FTA channels.
DD channels will continue to be part of the BST ( FTA pack) a must offer to consumers by DPO.
Network Capacity Fee (NCF) is different and is the rental for channels paid by consumers for a combination of FTA and Pay channels. NTO 2 says zero NCF charges for DD channels and caps total NCF do all channels offers by DPO at 160. And Has increases no of channels in base NCF of INR 130 to 200 channels in NTO 2 which was 100 in NTO 1.
So effectively there is a capping on the NCF fee to RS 160 and not a capping on the number of FTA channels; capping on NCF is a negative for Distributors (MSO & DTH), however it has not material impact for broadcasters.
DD channels will not be a part of the FTA pack and distributors cannot give more than 160 channels in the FTA pack.
Impact Negative – As per the earlier order, there was no capping for maximum number of channels in FTA, which implied that more niche channels will move towards FTA. However this capping is a negative for the ancillary channels of broadcasters as the FTA cap makes the segment highly competitive.
Overall, we believe that this move will have a negative impact on broadcasters subscription revenue which has grown at almost 30% – 40% YoY due to higher share and increased ARPU. With Jio pushing its Jio TV offerings which has access to channels free of cost for Jio subscribers, we believe the TV channel monetisation will go through a major disruption in the near term.
Our current estimates factor subs review growth of 8-10% YoY for FY21 and FY22 for broadcasters with a better growth for SUNTV due to TN digitisation prospects. Based on our sensitivity prime facie, we expect the subs revenue growth to decline in low single digit and ad growth too will grow in low single digit which will effectively lead to an earnings downgrade of almost 8%-10% for SUNTV and Z. Nonetheless, the stocks are currently trading at low valuations of 12x/12.7x based on FY22 PER respectively (after factoring the earnings downgrade) which limits scope for an 8-10% downside, however negative bias cannot be ignored. We maintain our underweight stance on broadcasters given key disruptions over monetisation on digital and traditional media getting hampered due to NTO revision.
Karan Taurani @ Elara Capital