Media industry gears up fora churn: Zee best placed, says BofA Merrill Lynch

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Published: January 23, 2017 4:08:02 AM

In the coming years, with improvement in telco infra (4G/fixed broadband rollout), we expect consumers to start viewing more content on smaller screens, partly at the expense of TV.

tv-lZee best placed in 2-3 yrs; DTH vulnerable in the long-run: We see the shift of video consumption from TV to personal devices to be positive for broadcasters as they will have another medium with which to monetise content.

In the coming years, with improvement in telco infra (4G/fixed broadband rollout), we expect consumers to start viewing more content on smaller screens, partly at the expense of TV. We expect these changing consumer patterns to help evolve business models of media companies (to tap this market), impact the ad mix between print broadcasting/digital, create new multi-bagger opportunities in the content space and lead to disruption of traditional business like print companies etc.

Zee best placed in 2-3 yrs; DTH vulnerable in the long-run: We see the shift of video consumption from TV to personal devices to be positive for broadcasters as they will have another medium with which to monetise content. We find Zee to be the best positioned in the listed space to benefit from it given that it is focusing on improving its presence in OTT apps and building a music library to monetise it on the digital platform. We find DTH companies more vulnerable in the long-run as their only source of revenue, subscriptions, will come under pressure. We see ARPU growth under pressure but do not see disconnection as ARPU are as low as $ 3-4. In the long run (post 3 years), we see possibility of part of broadcasting ad spend moving to digital platform, in the process cannibalising broadcasters’ core revenues. We find multiplexes to be least impacted by these and consider them to be multi-year structural stories in India.

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Companies like Shemaroo; Balaji have exposure to OTT: We caught up with 10-12 listed and unlisted media companies to better understand their strategies and who is best placed to be content plays. While currently there is no direct way to play the ‘content theme’ in the listed space, we find companies like Eros, Shemaroo have good exposure in this space and companies like Balaji Telefilms etc. investing to grow in this space. These companies do expect 40-50% of revenues to come from the content business in next 2-3 years and consider margins to be high in these businesses especially after the initial few years.

Key content plays and monetisation ways in India: We also look at different ‘video content’ plays in India and their monetisation models. We find 4 key OTT content plays — broadcasters, telcos, global players (Apple, Netflix) and VC/PE funded cos like Saavn, Hungama etc. We find broadcasters’ best placed to gain traction in this space given their readily available content and easier advertising. The key monetisation methods are Ad supported, subscription and transaction based.

Given lower CPMs in India, most apps are looking to move from volume to value and charging consumers for premium content. For instance, Hotstar charges R200 per month for watching premium content. Our checks indicate that the uptake of the paid subscription service is not high as the price-point appears to be a hurdle (avg. DTH ARPU is around R200-250). In our view demand will be high for R50-100 subscription for premium content. We expect the market to gradually move in this direction.

Inflexion point in viewing patterns; content plays to emerge: We consider India to be at the cusp of change in terms of content viewing pattern with inclination to watch content on small screen (smart phones /tablets) rather than on TV. Star TV’s OTT app Hotstar has 130 million downloads to date. Estimated Hotstar revenue is R1.2 billion. Consumers are using 26 GB/month on Jio’s free connection. Bulk of users’ are streaming videos, mainly Youtube.

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Media industry to evolve to address this: In our view, on an average, an Indian consumer spends c. 4-5 hrs per day to watch TV (similar to the US) and spends less than 15 min in watching content on mobile. We expect this number to gradually increase in coming years but do not expect it to come at the expense of TV viewership but more from preference to watch diverse content from different households. Similar to developed markets, we also expect the ad spend to shift mix to digital. But we expect the shift to come at the expense of print and not so much from broadcasting. With expected change in consumption patterns, we expect the media companies to evolve their business models.

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