Phases I and II of digitisation of Indian television have supported subscription revenue for broadcasters by limiting leakage due to the high under reporting in the past. Also, the television industry is witnessing a higher fragmentation wherein large broadcasters are on a channel launching spree to capture more viewership, thereby biting into a larger pie of ad revenue.
Revenue sharing issues between the multi-system operators (MSOs) and local cable operators (LCOs) are impacting the industry. The profitability and credit profiles of MSOs are stressed due to the large capex incurred for set top boxes, while LCOs are not ready to dole out a large share due to their control over last mile connectivity. Ind-Ra does not expect, with both parties trying measures to improve their control over the value chain, any resolution in the short-term.
During the first two phases of digitisation, digital cable outperformed DTH for new subscriber addition due to its cost competitiveness. Ind-Ra believes average revenue per user (ARPUs) of digital cable operators shall be further supported by bundling of services, introduction of high-definition packages and pushing higher value-added services. However, DTH and headend-in-the-sky are believed to play a vital role in phases III and IV markets due to low population density.
The Indian print industry's continued growth in the circulation of newspapers is primarily driven by Hindi and regional language dailies, while the English print medium is most vulnerable to direct competition from online English media. Vernacular and Hindi print medium provides a highly targeted value to its advertisers due to the strong reach of regional print medium and a low internet penetration in these markets.
Ind-Ra believes the successful completion of phase III auction for new channels of FM radio will result in a much-improved FM radio coverage, which will drive up listenership and increase the radio industry's share of advertising revenue.
Ind-Ra has maintained a stable outlook on most of its rated M&E companies as the likelihood of revenue growth from subscriber addition and stable margins has already been factored into the ratings. Also, the credit profile of these players could improve on the back of gradually improving ARPUs and increasing advertisement revenue for print media.
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What Could Change The Outlook?
Ind-Ra believes any further delay in the revised timelines of December 2016 for the final phases of digitisation shall have a negative impact on the already stretched credit profiles of MSOs, affecting their financial revival. Also, higher-than-expected capex by MSOs to expand their reach in sparsely populated phase III and IV markets could have a negative impact on the industry.
Higher-than-expected economic growth impacting industry ad spend shall have a positive impact on the outlook.
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