KPMG FICCI Report 2017 projected a subscription revenue growth of 14.8 per cent CAGR in 2016-21 to reach Rs 77,100 crore, yet paid-television revenues in India have not kept pace. The gains are marginal, if at all. The subscribers–analog cable TV, digital cable TV and direct-to-home (DTH) services—MSOs, LCOs and broadcasters have played a part in this unremarkable show. The result: a tepid 7 per cent growth in TV subscriptions in 2016 sized around Rs 38,700 crore (KPMG FICCI Report 2017). It’s apparent from Zee Entertainment Enterprises Limited’s Q4-FY’17 subscription revenue, which stood at Rs 558 crores, a decline of 6.1 per cent YoY, due to high base on account of catch-up revenues in Q4FY16.
Why the slow growth?
Slower than envisaged pace of digitisation: The delay in digitisation of Phase III and IV with an analog base of 47 million subscribers has been a big obstacle to growth. When digitisation gained pace four years back, the industry saw a subsequent rise in subscription revenue – between 15 and 20 per cent according to industry experts – and was to bring in transparency and addressability among the stakeholders. Unfortunately, it did not keep up the initial momentum. Then the broadcasters felt that the benefits were not reaped.
The non-implementation of Digital addressable system (DAS) in phase III and IV has turned out to be a major roadblock with the packages not being introduced. Nitin Sharma, Sr. Vice President – Distribution, 9X Media expresses serious concern as he says, “There were leakages in LCO and MSO revenues. The channels were carried in digital mode with an analog regime. The advantages of digitisation, including payment by consumer as per the choice of channels, transparency between MSO, LCO and the broadcaster, were not reaped.”
On the other hand, Avinash Pandey, Chief Operating Officer at ABP News, points out that the addressability part of distribution has yet not been established, “It is there in DTH, but not on LCO. The digitisation process is not complete, contrary to government claims. A large part of Tamil Nadu has not been digitised.”
Experts believe another critical area that needs attention is packaging, which is crucial for stakeholders to get revenue. While it has happened to a certain extent on DTH, cable TV still has a long way to go. “That means the consumer is still paying Rs 250 for 500 channels,” said Rajesh Kaul, President, Distribution and Sports Business, Sony Pictures Network. Kaul said the MSOs, however, are equally to be blamed for not being able to put the required infrastructure in place.
FTA eating into the share of Pay C&STV: Free Dish’s huge uptake – the platform’s subscriber base is estimated at 22 million – has impacted the share of Pay Cable and Satellite TV (Pay C&STV), the possible reason for Hindi news channels’ shift to the FTA route last year including Aaj Tak and Zee News. As a result, subscription revenue is drying up for news broadcasters. Zee Media Corporation (ZMCL) is a case in point. Its subscription income fell 39.9 per cent to Rs 16.37 crore in the last financial quarter ending September 30, 2016 compared to Rs 27.24 crore a year ago, after Zee News went FTA.
TS Panesar, CEO (Video business), Hathway offers a digital angle, “The main reason for growth in subscription revenues being lower than expected is the proliferation of DD Free Dish connection. Furthermore, the broadcasters offer the content free on their OTT platform. The crash in data costs has expedited video consumption on mobile devices. These two factors provide major threat to the future of pay TV business in India. We expect this revenue to de-grow for all stakeholders in the coming days when video consumption will shift from linear television to ‘on demand’ OTT.”
Marginal ARPU growth:
Another key hurdle coming in the way of the desired growth has the overall low Average Revenue Per User (ARPUs). “Low ARPUs at ground level of Phase III and IV is causing the problem of revenue sharing between LCOs and MSOs. Investment by MSOs has gone up because of boxes, technology and reach, but the returns have not kept pace,” Kaul added.
Price-sensitive nature: A few experts argued that the people in rural regions perhaps have failed to get the message and are not ready to pay a higher price for it. In other words, the broadcasters have not been able to milk the subscription model due to the nation’s price-sensitive nature. “People in the metros are more willing to pay than those in rural areas. Also, audiences are used to receiving services at a certain cost,” says Anita Nayyar, CEO India & South Asia, at Havas Media.
The road ahead
Economy, content to be growth accelerators: Despite the odds, industry experts are optimistic about the future of subscription revenue in the country, given proper infrastructure and higher pace of economic growth. “When economy grows there is a positive sentiment all around,” explains Nayyar.
For MK Anand, MD and CEO, Times Network, HD channels, 4K and differentiated content will accelerate growth. “India will be in a better position in the next five to 10 years and subscription revenue will grow substantially.”
Kaul predicts that it will take the industry at least a year and half to settle down before revenue starts doubling up in the three to four years that follow. Meanwhile, the broadcasters are not deterred and many new pay channels are being launched. SPN introduced Sony BBC Earth and music channel Sony Rox. Kaul adds, “Our focus has been channels which drive huge ad sales and majorly contribute to distribution revenue. Tens Sports acquisition is driven by the subscription philosophy.”
Given the high cost of content acquisition borne by the broadcasters, Sharma feels the cable bill (of Rs 250-300) as against Rs 800-1,000 paid in other parts of the world has to go up.
Steps by industry bodies: Industry bodies such as Indian Broadcasting Foundation, MSOs, LCO and DTH players can play a substantial role in correcting the ecosystem by working closely together.
Sharma agrees as he says, “IBF and bigger broadcasters meeting LCOs and MSOs to educate them and coming up with ads requesting subscribers to move to set top boxes to boost digitisation is crucial. The benefits of that should pass down the value chain.”
Experts added that for concrete solutions key stakeholders including broadcasters and MSOs will have to sit together to work out the right pricing of the channel. “We must work on the principle of a free market environment where we will have the right to deliver content and sell it,” said Pandey, who is part of NBA and IBF.
Less government interference: Few broadcasters feel that less interference from the government can yield better results in subscription revenue. This was likely an oblique reference to TRAI’s proposed new tariff order with a new framework and packaging of TV channels offered to subscribers and a cap on channel prices which has been challenged by Star India and Vijay TV.
Pandey firmly believes that the government should not be in the business of signal delivering. Anand agrees, “Subscription revenues will not go up unless the powers that be stop meddling in content prices.”
However, Panesar of Hathway has a different perspective: “We are confident that once the new regulation kicks in, the broadcasters will be able to transparently realise the value of the TV channels. The current era of opaque force bundling will give way to a transparent a-la-carte offering, which will enable broadcasters unlock the value of their content.”
Improved infrastructure: Better infrastructure is the rant. Pandey is all for providing broadcasters the option to stream through internet and cable, as in the US. “That makes the whole system sustainable for broadcasters and the delivery mechanism. It will help ARPUs and eventually, the subscription revenue, go up significantly. India has capacity issues right now.”
Despite all hurdles, neither experts nor studies rule out the eventual success of the module. KPMG FICCI Report 2017 expresses hope that some form of TRAI interconnect regulation, taking into account the concerns of all stakeholders, will emerge within a couple of years. The report states that these are expected to result in better ARPU realisations and along with HD adoption and up selling to consumers, the subscription revenue will reach the above mentioned size of Rs 77,100 crore by 2021. Further, hope is generated by the 12 per cent spike in Sun TV Network’s subscription revenue at Rs 241.88 crore as against Rs. 216.60 crore for the corresponding quarter ended March 31, 2016.