Digitization of the broadcasting industry has led to a large increase in ARPU (average revenue per unit) of multi-system operators (MSOs), direct-to-home (DTH) and especially for TV broadcasters. While MSOs’ net ARPUs have grown by 10x to now Rs.100 per subscriber per month after the transition to digital from analog, the same is true for the DTH operators as the ARPU is expected to see a 39% rise in 2015 from a 34% rise in 2014. This is according to a research conducted by Media-Partners Asia (MPA) called Future Value Creation in TV & Broadband.
However, it is the TV broadcasters who are currently benefitting out of the digitization process and are expected to see a huge growth in subscriber revenues. In the analog markets in DAS phase III and IV, subscribers account for 71 million but the yield is only Rs.18 per subscriber per month. In digital markets (DAS & DTH) the subscribers account for 60 million but the yield is much higher at Rs.74 per subscriber per month. The report says that for TV broadcasters at 60% TV households (TVHH) penetration and the country continuing to add about 7 million new TV homes each year is a good time for TV broadcasters for achieving higher digital pay-TV penetration. At an average family size of 4.5 members, TV is gaining more than 30 million potential viewers each year. This in turn will make television as a medium with the highest reach for advertisers, thereby growing the advertising revenue stream for broadcasters, says the report.
MPA projects that total pay-TV channel revenues for broadcasters will grow from US$3.5 billion in 2014 to US$6.1 billion in 2019 and to US$7.9 billion by 2023. The report said that based on relative growth for other markets in Asia-Pacific (excluding China), India is expected to contribute more than one-third of the total channel revenue business in the region by 2023. India already contributes a significant part of the overall APAC business for major international networks. The India revenue contribution in 2014 towards the international networks such as Viacom was 75%, Sony Pictures TV was 71%, 21st Century Fox was 65%, Discovery was 23%, Disney was 18% and Time Warner was 17%.
Digitization has also improved the channel distribution economics by lowering the cost of distribution and allowing multiple modes on content delivery such as SD, HD, SVoD, TVE, etc. The report also says that although cable continues to account for more than 80% of the carriage and placement (C&P) market in India, since digitization began in 2012, the cable net distribution income (NDI; which is essentially subscription income minus C&P costs) for broadcasters has grown by 137% to US$218 million.
For MSOs the rise in ARPUs is a result of driving operational efficiencies through prepaid services and packages. Operators that successfully execute such moves will attract refinancing (of existing debts) to expand their consumer offering with bundled broadband and HD services. With the option of offering more services to the customer, MSOs will bring about a total increase in ARPUs. For instance the report shows that MSOs get an EBITDA margin of 17% for only digital services and increases to 21% on offering digital with tiering, for MSOs offering HD service the EBIDTA margin is 30%, if they offer BB (Docsis 3.0) services it rise to 34%. Primary point digital with tiering + BB brings a 50% EBIDTA margin. The report also states that things in the MSO space could change with the entry of Reliance Jio and the growth of HITS (Headend-in-the-Sky) platforms as these players seek to digitalise the rural markets. This could prompt MSOs to go in search of width rather than depth of the operations of the business structurally and could look at them concentrating beyond the top 50 cities.
In the DTH space ARPUs are expected to increase and contribute to growth. While in 2014 subscriber additions were 66% and ARPUs were 34%. In 2015 ARPUs are expected to increase to 39% while subscriber additions to 61%. As digitization progresses, subscriber additions are expected to decrease while ARPUs is expected to increase for DTH players. In 2016 subscriber additions are expected to account to 70%, while ARPUs will grow to 30%. However, by 2023 ARPUs are expected to increase to 51%, while subscriber additions will account for 40%.