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Cable digitisation to transform India’s US$7bn TV industry

The government mandate to digitise India's fragmented cable TV network will provide a boost for the state economy, consumer choice, broadcasters' revenues, cable and direct to home (DTH) subscriptions, and investment, says a new report from Media Partners Asia (MPA).

"India's broadcasting and pay-TV market is on the cusp of a high growth value phase similar to North America between 1998 and 2003, Korea during 2003-7, and Taiwan during 2005-10," said Vivek Couto, executive director, MPA.

"Valuations of the domestic companies in these markets during the high growth value stage typically skyrocketed, as networks were upgraded and services to consumers expanded. In India, domestic players and foreign investors will both do well, to the benefit of consumers, when the government's policies take shape."

The study, 'Investing in Digital India: The Dynamics of Mandatory Addressable Digitisation', says the cumulative value of the tax receipts lost by the government under the current analogue cable TV distribution model with limited digital penetration amounts to US$1 billion per year.

The incentive to push for digitization may be accompanied, believes MPA, with tax incentives to accelerate the potential multi-billion-dollar industry.

Digitisation will improve broadband penetration in line with government goals, and also boost the economy. A 10% increase in broadband penetration could increase India's gross domestic product (GDP) by ~1.5%, says the report. Broadband per capita penetration in India was only 1% in September 2011.

Consumers will benefit from more television channels; attractive tiering options with multiple genres and local, regional and niche content; an improved viewing experience; better quality of service; and benefits from intense competition from DTH operators. Globally, spending on pay-TV typically accounts for ~5% of GDP per capita. In India, digital cable TV will remain in this bracket given the heavy subsidies on set top boxes from multi system operators (MSO), says MPA.

The analysts expect a six fold increase in subscriber revenues for MSOs, although also forecast a 20% churn in the cable subscriptions base to DTH. Subscriber declaration, which is a significant problem in India, is currently at a level of 15%. This will rise to 100%, and the retained average revenue per user (ARPU) will increase six fold if a 30% base case revenue share is agreed with the local cable operator (LCO).

Furthermore, broadband will reduce the payback period on digitization by about a year to 24 months if the product is bundled, when compared to a standalone digital offer, says MPA.

As for broadcasters, digitisation will increase subscription revenues and reduce advertising dependence. Carriage and placement fees are predicted to fall between 20-50% in certain markets and moderate in others, according to the study.

Last but not least, once the digital implementation begins, gradual consolidation of LCOs is inevitable. As a result, industry profits and value will move to centralized distribution platforms and broadcasters. MPA points out the valuations for cable and pay-TV operators in the US, Korea and Taiwan during their high growth value stage typically averaged 12-16 times one year forward EBITDA, rather than the current trading average of 9-10x for India's listed cable and pay-TV companies. MPA assumes similar or higher valuations for India's operators, subject to successful execution of their digital networks.

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