Digitalisation to drive value shift in India's pay TV ecosystem

The latest study by MPA says that India will be the key pay TV market for Asia in the future with digital penetration seen rising to 50% of TV homes

BestmediaInfo Bureau | Delhi | April 24, 2012

A new report by Media Partners Asia (MPA), published today, indicates that digital pay TV penetration of TV homes in India will grow from less than 20 per cent in 2011 to 50 per cent by 2016, and 61 per cent by 2020. The key demand drivers will come from cable operators, six commercial DTH pay TV platforms, and DD Direct, the government-owned free DTH platform. A gradual consolidation of last-mile local cable operators will become inevitable, leading to a shift in industry profits and value to centralised distribution platforms and broadcasters.

The report, 'Asia pacific Pay TV & Broadband Markets 2012', measures consumption and revenue generation across pay TV and broadband industries in 16 Asian markets, including India, which the remains the key pay TV market for Asia in the future.

Commenting on the findings, MPA executive director Vivek Couto said, “India's digitalisation timetable implies a three-year transition to full digital TV (DTV) conversion. This is ambitious, though we believe DTV transition will occur but over a longer time frame. The industry will remain capital-intensive until 2017 at the earliest, due to the capex requirements associated with digitalisation. This will lead to more M&A and fund-raising activity in both primary and secondary markets. The sector's improved transparency, scale and operating leverage will attract large domestic and international strategic players, who will play a key role in M&A activity. Our biggest concerns include: cable execution and capitalisation, as MSOs transition from a B2B to B2C model; DTH satellite capacity; and the extent of regulation in the broadcast ecosystem. While digitalisation is the result of policy progress, this has not been the case for investment and taxation policies.”

MPA projections indicate that pay TV industry subscription fees will grow at an 11 per cent CAGR from 2011-16, driven by increased volume over DTH and digital cable. Total pay TV subscribers are expected to reach 172 million by 2016, and 199 million by 2020. MPA projections measure pay TV penetration after accounting for households that opt for multiple services. Using this definition, MPA estimates that pay TV penetration will grow from 79 per cent to 89 per cent between 2011 and 2020.

The majority of DTH pay TV platforms will be generating free cash in the next three to four years, the report says. The active DTH subscriber base (i.e., paying customers only) could grow from 29 million in 2011 to 69 million by 2016, and 93 million in 2020. This implies a 46 per cent share of the overall market by 2020 (against 23 per cent in 2011), and a 65 per cent share of the digital pay TV market. DTH operators have been working together to improve the overall economics for the business; nonetheless, a rise in subscriber acquisition costs due to growing competition from digital cable as well as medium-term satellite capacity constraints remain areas of concerns. DTH industry revenues will reach almost $4 billion by 2016, and $6 billion by 2020, with revenue growth largely driven by expanding the subscriber base. ARPU growth will be partially limited as DTH expands nationally, with low-income homes coming into the mix, although MPA also sees a greater contribution from high-ARPU HD subscribers.

Digital cable subscribers will reach approximately 33 million by 2016 and 48 million by 2020, with cable's consumer proposition, in the form of channel packs, HD, VAS and broadband, driving subscribers and ARPU growth. Monthly digital cable ARPUs will grow from $4 in 2011 to $5 by 2016 and $6 by 2020. Total cable industry subscription revenues will grow from $4.2 billion in 2011 to $6.4 billion by 2020, with broadband contributing 15 per cent to sales by 2020 against 85 per cent for pay TV.

For broadcasters, digitalisation and greater transparency in the pay TV ecosystem will result in a higher proportion of subscription revenues, as well as rationalised carriage and placement fees. At the same time, broadcasters will need to programme stronger, differentiated content to survive and prosper in a new ecosystem, and create new consumer demand. MPA expects total pay TV channel revenues to grow from $3.4 billion in 2011 to $6.7 billion by 2016, and to $9.6 billion by 2020. Subscription revenue upside from DTH will be capped, however, due to fixed-fee deals already in place between broadcasters and DTH operators. Incremental growth and upside will largely be driven through digital cable platforms. Revenues will continue to remain skewed in favour of advertising, with the latter contributing 70 per cent to total broadcaster revenues in the long term.

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