NTO 2.0 will hit broadcasters' subscription revenue: Karan Taurani, Elara Capital
According to Taurani, ad spends too will see a negative impact due to the transition phase, just like it did during NTO 1.0
The Telecom Regulatory Authority of India (TRAI) on Friday directed broadcasters to ensure compliance with the provisions of the New Tariff Amendment Order (NTO 2.0) by August 10.
“In order to promote orderly growth of the sector and to balance the interests of service providers and to safeguard the interest of the consumers, it is necessary to give effect to the Tariff Amendment Order 2020 and Interconnection Amendment Regulations 2020 without any further delay,” it said in its direction.
Reacting to the order, Karan Taurani, Vice President, Elara Capital, said NTO 2.0 will lead to lower average revenue per customer (ARPU) for TV, which has shot up by almost 60% at an average post NTO 1.0. Lower ARPU would mean a lower share of revenue for the broadcasters, who were getting almost 50% share post NTO 1.0. We are expecting the share to remain similar, but the absolute distribution revenue to move down substantially."
Talking further he said it may lead to "enhanced movement towards selective viewing as few consumers may move towards ala carte due to price correction. Also, the 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."
According to him, he expects some of the key channels, which were earlier FTA pre NTO and then became pay and lost viewership/ ad revenue to again consider the FTA route.
Talking about the impct on advertisng, Taurani said "ad spends will see a negative impact for sure due to the 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."
Taurani is of the opinion that 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," he remarked.
Talking about the financial implications of the order, Taurani said, "Overall, we believe that this move will have a negative impact on broadcasters subs 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 SUN TV 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."
Elara Capital also issued a pointwise implications of the various orders of NTO.2
1) Sum of ala 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 ala 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 ala carte pricing.
2) Channels priced above Rs 12 cannot be part of a bouquet
Impact - Neutral: This is the same norm which was mentioned in the NTO 1.0 too, wherein 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) No capping on number of FTA channels - NCF fee to get capped
DD channels will continue to be part of the BST ( FTA pack) a must offer to consumers by DPO. 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 Rs 160, and has increased no of channels in base NCF of Rs 130 to 200 channels in NTO 2 which was 100 in NTO 1.
Impact: 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 and DTH). However, it has not material impact for broadcasters*.
4) Capping of Rs 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 have been having a positive stance on broadcasters given the increased time spent in recent past due to COVID and better subs revenue growth prospects; the above was always an overhang and a risk to our call which will lead to earnings downgrade if implemented. Our channel checks indicate that this order will be further challenged by the broadcasters and uncertainty remains on when it would be implemented.
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