As per the predictions of Media Partners Asia, the Indian television industry will gain 11 per cent CAGR more revenues over the next five years, as compared to the current revenues. This was revealed by a report presented at TV. NXT, an annual conference organised by afaqs!.
Amongst the emerging markets, Indonesia will be the highest gainer with a growth rate of 16 per cent, followed by India. This compares against growth rates of 9.8 per cent, 5.0 per cent and 3.1 per cent, respectively, for China, USA and the UK, over the same period.
Under the TV conglomerate rankings, it was observed that STAR still rules the roost, while Zee is at No. 2. Apart from these, Network18 and Sony are the third and fourth highest gainers.
Next in the list are Sun, Discovery, Disney, Turner and Reliance, in that order.
While the advertising revenues will grow by 12.3 per cent CAGR, the subscription revenues are expected to grow by 10.2 per cent CAGR. Macro resurgence, digitalisation and regionalisation will support this growth and add more depth to the advertising revenues. The subscription revenues will come as a result of the benefits of digitalisation, FDI and a slow increase in ARPU.
Despite the slowdown, the TV industry continues to invest in content and innovation to improve advertising yields, says the report. For instance, STAR India's Satyamev Jayate has expanded the weekend primetime slot, while channels such as STAR Gold, Zee News and Channel V have reduced ad inventory to improve viewership and obtain better rates. Broadcasters are also launching new niche channels in various genres such as action and comedy. By 2017, MPA estimates that TV advertising will have a 43.5 per cent share of the total ad market.
As for subscription, it is expected that close to 65 per cent of India's TV households will subscribe to pay-TV through digital STBs - a universe of 115 million homes by 2017. In 2012, the DTH market added 6 million gross net subs between January and August (active adds at 1.5 million, MPA estimates) while new cable digital net adds have come in at 2 million.
The report mentions, "Consolidation amongst channel aggregators with the formation of MediaPro and IndiaCast has enabled major networks like STAR, Zee and Network18 to extract higher analog cable subscription revenues and expand distribution into new towns and cities. Major broadcasters have also made investments in technology to enhance the consumer experience and hedge future dispersion in viewership including HD variants of the flagship channels, digitalising archives and investing in new media platforms such as OTT, online and apps for handheld devices."
MPA expects that new media and non-linear segments will form a significant percentage of a broadcaster's total revenues in the future.
The Indian TV Industry is on the verge of experiencing a new ecosystem altogether. At present, the TV distribution segment operates under a B2B model with larger broadcasters bargaining with MSOs to garner a higher revenue share and vice-versa. As per the MPA study, over the next five years, as the wider market gets digitalised, stakeholders will align their businesses and interests, keeping the consumer at the centre. The ecosystem will gain in value and also consolidate with a more profitable business proposition.
On the flip side, the country has seen a few important reforms coming from the government's end. As per the MPA report, allowing more foreign investment comes as a big positive for the industry as the digitisation process gets underway. "According to industry sources, the total capital requirement for upgrading India's 85 million analog cable homes could be as much Rs 400 billion," says the report.
The study also points out that under mandatory digitisation, last-mile LCOs who fail to digitise face the risk of losing subscribers to DTH. Valuations for LCOs will therefore drop, making most of them viable M&A targets for larger MSOs keen on last-mile acquisitions. As per the study however, these deals won't happen right away, especially as most strategic investors will take a wait-and-see approach as Phase I of digitisation gets underway.
As per the MPA, India's television industry has yet to benefit from significant operating leverage. The combination of digitisation and subscription revenue growth will help boost profitability in the coming years, but not without medium-term capital intensity, a strong approach to ground execution and a profitable rationale on content investment, pay-TV pricing, packaging, sales and marketing.
The study reveals that over the past fiscal, with the notable exception of Sun, a pseudo monopoly in the South, operating margins for most of India's TV majors have been modest. STAR and Zee are in the 25 per cent range; Sony is approaching 20 per cent; Dish TV, the leading digital pay-TV distribution platform in the market, is at 26 per cent. Network18 and NDTV were loss making over the past fiscal.
Contrast this with operating margins for key free and pay-TV players in Indonesia (30-50 per cent on average), Latin America (45-50 per cent), Malaysia (35-40 per cent) and broadcast jewels in Hong Kong and Thailand (45- 55per cent).
Noting the major deals in the Indian media sector, the report states that the mergers and acquisitions in TV have been modest in 2012 to date, driven largely and encouragingly by big-ticket media consolidation (NW18-RIL) and News Corp's acquisition of ESPN-Star Sports; PE infusion with the Providence acquisition of STAR's stake in Hathway Cable; and a cleaner equity structure as Sony bought out various minorities.
Lastly, the study tried to rank the Indian TV conglomerates on the basis of Flagship channels (Weightage: 20), Bouquet strength (Weightage: 20), Scalability (Weightage: 20), Content sourcing, IPRs and syndication (Weightage: 10), Group companies driving distribution strength (Weightage: 5) and Future readiness (Weightage: 5).
The report assessed the rankings based on the above parameters. M&A activity, strong execution and sound strategies have helped drive rankings for STAR, Zee, Sony and Network18 (NW18). The lack of progress at Disney and Turner in particular is a sign of deals gone bad (that is, Turner's closure of Imagine TV) or lack of execution (the TV side of UTV's business post Disney's acquisition).
Going forward, the successful implementation of mandatory digitisation will expand the market for the TV industry, but the journey will be painful due to the scale of capital intensity for distribution platforms and a new level of investment required among broadcast networks.
MPA expects big ticket M&A over the next five years, consolidating the industry to three to five larger TV networks.
On the basis of all this, STAR stands at No. 1 position with 770 points, followed by Zee with 660 points. At No. 3, Network 18 garners 655 points, while Sony at No. 4 has 630 points. Sun (520 points), Discovery (450 points), Disney (400 points), Turner (290 points) and Reliance (125 points) stand at the trailing five positions in the rankings.
This was the third edition of TV.NXT, an afaqs! event presented by ABP News.