Digitisation Dhamaka in 3 years

15 Dec,2015

 

By Megha Mandavia

 

Rating agency Crisil said the next two phases of digitisation of television distribution that is expected to extend until 2018 fiscal end would be best so far for all stakeholders in the industry.

 

 

DTH and MSOs to gain Rs 4,800 crore after investing Rs 22,000 crore

Government and broadcasters to gain Rs 10,000 crore sans investments

 

Excert from the executive summary of the CRISIL report:

The next two phases of digitisation of television (TV) distribution, which we foresee extending all the way to fiscal 2018-end, should be the best so far for all the stakeholders.

 

CRISIL analysis shows stakeholders would benefit by Rs 14,800 crore:

> Of this, direct-to-home (DTH) operators are expected to garner as much as Rs 3,300 crore

> Multi-system operators (MSOs) are expected to receive Rs 1,500 crore

> Broadcasters are estimated to receive Rs 3,900 crore

>Incremental tax revenues of Rs 6,100 crores are estimated to accrue to the government, thanks to increased disclosure of revenues by local cable operators (LCOs) and increase in overall subscription base. Of this, around 80% will accrue to the central government through licence fee and service tax, and the rest to state governments through entertainment tax

 

CRISIL estimates that given their already stretched balance sheets and high capital expenditure (Capex) requirement in these phases, MSOs will be able to garner only 45% of the incremental digital market in the next two phases of digitisation. The balance will go to DTH service providers. This is in contrast to the previous two phases of digitisation wherein MSOs garnered 67% of incremental digital market together with LCOs.

 

DTH’s upper hand in ‘cable-dark’ and sparsely populated regions will aid its market growth. And while incremental revenues will be on similar lines for both, profit share will be significantly more for DTH firms as they have complete access to subscription revenues unlike MSOs, which share a large part of their revenues with LCOs. While MSOs will continue to benefit from carriage revenues from broadcasters, CRISIL believes they are unlikely to receive incremental carriage revenues after digitisation.

 

The only catch for the DTH operators is that they need to invest around Rs 13,700 crore over the implementation period. For MSOs, capital expenditure (capex) need is around Rs 8,300 crore. The capex requirements will be insignificant after the digitisation phase.

 

LCOs, who had hitherto been disclosing only an estimated 20% of their analog subscription base, are the only stakeholders who will lose in this phase of digitisation.

 

CRISIL believes the increase in overall market share and higher profits combined with promoter backing to part-fund the capex will benefit the credit profile of DTH operators. On the other hand, MSOs will have to increase their revenue share with LCOs to nearly 60% to prevent deterioration in their credit profile.

 

Furthermore, while easing of foreign direct investment (FDI) norms will support fund raising plans for both DTH and MSO operators, the ability of MSOs to attract FDI funding will remain contingent on  improving their revenue share with LCOs.

 

Direct-to-home (DTH) operators are expected to garner as much as Rs 3,300 crore, multi-system operators (MSO) Rs 1,500 crore, broadcasters Rs 3,900 crore and government Rs. 6100 crore in taxes, according to Crisil.

 

“CRISIL estimates that given their already stretched balance sheets and high capital expenditure (capex) requirement in these phases, MSOs will be able to garner only 45% of the incremental digital market in the next two phases of digitisation. The balance will go to DTH service providers,” the report said.

 

This is in contrast to the previous two phases of digitisation wherein MSOs garnered 67% of incremental digital market together with local cable distributors (LCOs), it added.

 

Crisil said DTH’s upper hand in ‘cable-dark’ and sparsely populated regions will aid its market growth. “While incremental revenues will be on similar lines for both, profit share will be significantly more for DTH firms as they have complete access to subscription revenues unlike MSOs, which share a large part of their revenues with LCOs,” it added.

 

The Indian television industry is the second largest television market of the world, after China, with television penetration in the country exceeding 165 million households in 2014, according to ICRA.

 

Source:The Economic Times

Copyright © 2015, Bennett, Coleman & Co. Ltd. All Rights Reserved

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