Digitisation to drive value shift in India pay-TV ecosystem: MPA

The latest MPA projections indicate that pay-TV industry subscription fees will grow at 11 per cent CAGR between 2011-16, driven by increased volume of DTH and digital cable. The total pay-TV subscribers are expected to reach 172 million by 2016, and 199 million by 2020.

At a time when there is nearly a consensual belief that digitisation will bring in a gradual but inevitable consolidation of last-mile local cable operators, Media Partners Asia's (MPA) latest report has almost led to an affirmation of the same.

According to the latest report published by MPA, digital pay-TV penetration of Indian television households is expected to 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 for this growth will come from cable operators, six commercial DTH pay-TV platforms, and DD Direct, the government-owned free DTH platform, says the report.

For the record, the latest report is titled Asia Pacific Pay-TV & Broadband Markets 2012 and measures consumption and revenue generation across pay-TV and broadband industries in 16 Asian markets, including India.

According to Vivek Couto, executive director, MPA, India's digitisation timetable implies a three-year transition to full digital TV (DTV) conversion. "The industry will remain capital-intensive until 2017, due to the CAPEX requirements associated with digitisation. 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," he says.

Nevertheless, the industry will also have to face its biggest concerns during this transition. These include cable execution and capitalisation, as MSOs transit from a B2B to B2C model; DTH satellite capacity; and the extent of regulation in the broadcast ecosystem.

But, despite the hindrances, the latest MPA projections indicate that pay-TV industry subscription fees will grow at 11 per cent CAGR between 2011-16, driven by increased volume of DTH and digital cable. The total pay-TV subscribers are expected to reach 172 million by 2016, and 199 million by 2020.

Furthermore, the study also notes that the majority of DTH pay-TV platforms will generate free cash in the next three to four years. The active DTH subscriber base (that is the paying customers only) could grow from 29 million in 2011 to 69 million by 2016, and 93 million in 2020 - implying a 46 per cent share of the overall television market by 2020 (versus 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 concerns," says Couto.

As per the report, the DTH industry revenues are expected to 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. However, there will be a greater contribution from high-ARPU HD subscribers.

Meanwhile, the 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, says MPA. Also, the 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 versus 85 per cent for pay-TV.

For broadcasters, digitisation 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. But, due to fixed fee deals already in place between broadcasters and DTH operators, subscription revenue upside from DTH will be capped.

Therefore, 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, the report notes.