NTO 2.0 to have a positive impact of 4-5% on broadcasters' revenue in FY24: Karan Taurani of Elara Capital

Most large broadcasters have increased the price of bouquets by 10% on average. The broadcasters have also rolled back a-la-carte pricing towards Rs 19 for their marquee channels from Rs 12 earlier due to uncertainty over NTO 2.0.

This revision is 2% more than Elara Capital’s estimates of an 8% price hike.

This increase in the bouquet price has come on the back of NTO 2.0, which will be implemented by February 2023. TRAI had asked the channels to submit their pricing list by January 1, 2023.

Karan Taurani

According to Karan Taurani, Senior Analyst at Elara Capital, this upward revision is bound to have a positive impact of 4-5% on revenue estimates for broadcasters in FY24.

As per the earlier NTO 2.0 version, the price on channels forming a part of the bouquet was capped at Rs 12; this would directly hit ARPUs of consumers subscribing to channels on an a-la-carte basis (~8% of the universe), as pricing pares ~40%.

Also, there was a capping on discount of 33% for bouquet prices versus the sum of à la carte. This meant that broadcasters would have to take a hit on their marquee channels (with higher MRP) by either removing them from bouquets or hiking the total bouquet price to meet the 33% discount requirement.

But as per the latest NTO 2.0 order:

1) Channels forming a part of the bouquet should be capped at an à la carte price of Rs 19 (same as in NTO 1.0)

2) A discount of a maximum of 45% can be imposed on the bouquet price versus the sum of à la carte.

Elara Capital has analysed that most broadcasters are already offering their bouquets with discounts in the 35-55% range. Hence, this norm may not have a big impact in terms of bouquet/a-la-carte prices of the broadcasters.

The Elara report further added, “This may hit subscription revenues of channels/broadcasting groups (sports/mainstream GEC-led broadcasters) offering a discount of >45% on the bouquet prices versus the sum of à la carte, as the former will have to reduce discounts by either removing certain ancillary channels from the bouquet or by removing some marquee channels from bouquet to pure à la carte.”

It is also mentioned in the TRAI order that the discount quantum on the MRP price of a channel will depend on the combined subscription of that particular channel.

Taurani believes that this rollback won’t have any impact on ARPU’s (average revenue per unit), as the shift from Rs 19 to Rs 12 was only notional in nature as by RIO’s (Reference Interconnect Offers) submitted last year post-NTO 2.0 norms.

According to the Elara Diet report on NTO 2.0, NTO 3.0, does not have any material difference from NTO 1.0, except the fact that the discount percentage for the sum of Ala carte versus the same channels in the bouquet should be capped at 45%.

Taurani estimated that price hikes in bouquets are positive for broadcasters and may drive upgrades in the range of 3-5%, in case of no chord cutting/shaving trends due to price hikes.

Subscription revenue CAGR for Sun TV and Zee Entertainment Enterprises was just 5% and 12%, respectively (supported by OTT subscription revenue) in FY19-22.

Below are the reasons given by Elara Capital for the reduction in subscription revenue of broadcasters:

• The negative impact of the pandemic
• Eyeball shift to digital (catch-up TV/other OTT content)
• Chord shaving trend (away from multiple TV households)
• No major price hikes by broadcasters due to uncertainty on NTO.

The report further stated that the TV industry subscription revenues dipped at 2.2% CAGR in FY19-22, on NTO 2.0 overhang.

NTO 2.0 implementation will pave way for at least inflation-led price hikes in TV broadcasting, in Elara’s view. The firm expects the price hike to be at the lower end of the high single-digit range. Thus, core TV subscription revenue (excluding OTT) may grow at least 6-7% (price hike) over the medium term, on clarity emerging over NTO 2.0.

Elara Capital doesn’t foresee a sizeable growth (double-digit price hike) in TV subscription ARPUs given:

• The lack of growth in HD penetration (digital, a key winner for HD content).
• OTT offers convenience-led viewing.
• Continued dip in TV consumption by the youth
• Increased penetration of smart TV (bundled OTT offerings)
• Very little or no growth for TV households(net adds).
• Cable ARPUs in India are still very low at ~Rs 350 versus OTT ARPU in Rs 600-700 range if one were to subscribe to the top OTT platforms in India (excluding data charges).

Elara Capital believes that a larger chunk of the above growth will come from sports /mainstream GEC genres, which appeal to the urban audience on a very large subscriber scale.

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