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Carriage fee to remain static in FY17: India Ratings

MUMBAI: India Ratings & Research (Ind-Ra), a Fitch Group company, expects carriage fee to remain at current levels in FY17 due to the increase in the number of channels carried by multi-system operators (MSOs).

While noting that the MSOs are yet to realise the full benefits of cable TV digitisation, Ind-Ra believes FY17 should see better harmony in the MSO–LCO value chain, which in turn will contribute to growth in subscription revenue for MSOs.

India-Ratings-&-ResearchIt also said that additional efforts such as targeted channel packages and the rollout of HD channels would support MSO ARPU, which has remained low in the range of Rs 80–100 during FY16.

Besides, as the post-digitised Phase III market stabilises in FY17, direct-to-home (DTH) players could gain market share from cable TV operators due to better customer service and a well-packaged bouquet of offerings, it stated.

Ind-Ra’s analysis of four major listed broadcasters indicates that the benefits of digitisation are now being realised in top line by these players. The research firm expects the third and fourth phases of digitisation to be major revenue growth drivers for broadcasters in FY17. It also expects the profitability margins of the listed broadcasters to grow in FY17, as they have already incurred incremental costs for content fragmentation in FY16.

As major telecom operators roll out 4G services, the agency said that the rising broadband subscriber addition as well as growth in MSO broadband revenue would moderate in FY17. The broadband segment has provided MSOs an opportunity to enhance ARPU. Broadband ARPU currently ranges from Rs 650 to 750, while cable TV ARPU is still low at around Rs 80–100. However, Ind-Ra sees the 4G launch as a major threat to the broadband business in FY17, impacting revenue streams.

It also said that the delay in last-mile addressability could limit monetary benefits to MSOs while digitisation-led capex could have a negative impact on the industry.

Ind-Ra has maintained a stable outlook for the media and entertainment (M&E) sector for FY17. It expects improved GDP growth forecasts to be a major driver for higher year-on-year advertising spends in FY17.

E-commerce and auto will remain the primary contributors to the industry’s ad revenue growth, and the 4G launch by telecom operators will provide a further thrust, it noted.

Additionally, the digital media segment will retain its position as the fastest-growing medium, with around 50% year-on-year growth, while the overall industry is likely to grow 10–12% in FY17.

With respect to print, it expects the Hindi/vernacular print media to grow around 10–12% year-on-year in FY17, overshadowing the English print media, which is likely to continue facing headwinds from the growing acceptance of digital media content.

It expects the Hindi/vernacular print media’s circulation revenue to grow by 8–10% in FY17, driven by growing circulation as well as an increase in cover prices, implying higher pricing power. Ad revenue is likely to grow by 13–15% in FY17 on the back of improved GDP growth. Ind-Ra expects Hindi/vernacular print media companies’ profitability margins to improve in FY17 as newsprint prices moderate due to a decrease in global demand.

It has also maintained a stable outlook on all its rated M&E companies, as the likelihood of revenue growth and stable margins have already been factored into the ratings. Moreover, the credit profile of these players could improve on the back of gradually improving ad revenue, softening raw material prices and growing demand.