C&S universe saw an erosion of 12-15 mn active subs in Q4 FY19 due to NTO, OTT: KPMG report

MUMBAI: The Cable & Satellite (C&S) universe witnessed a decline of nearly 12-15 million active subscribers in the fourth quarter of FY19 due to non-renewal of subscriptions, transition to over the top (OTT) platforms and blackouts due to new tariff order implementation, according to a KPMG report ‘India’s Digital Future: Mass of niches’.

The decline in active subscriber base also dented the subscription revenue of broadcasters in Q4 FY19. Subscription revenue grew at a modest 8.1% in FY19 to reach Rs 46,300 crore, with the NTO implementation hiccups costing growth in the last quarter.

“While the C&S universe was reported to have expanded to 197 million households by end of 2018 with digital cable gaining the most, there was an erosion in the active subscriber base in the last quarter with a decline of nearly 12-15 million households in the overall C&S HH base,” the report noted.

“The potential reasons for this decline were non-renewal of subscriptions, the transition of subscribers to alternate sources of entertainment such as OTT (although this was only minimal as per our industry discussions) and certain blackouts owing to the implementation of the NTO.”

The report stated that the Average Revenue Per User (ARPU) was relatively flat for both direct to home (DTH) and cable operators in the first three quarters before seeing an increase by 10-25% in the last quarter due to the minimum payouts on account of the Network Capacity Fee (NCF) of Rs 130 + taxes, especially for Phase 3 and 4 subscribers whose ARPUs were reportedly much lower before the regime change.

While the active subscriber base declined, growth in ARPUs covered up a large part of the decline in the subscription revenues, leading to the overall growth of 8.1% for the year FY19, the report noted.

Television broadcasters, the report said, had a robust growth of 12.3 in FY19 to reach annual revenues of Rs 37,200 crore, with approximately 68% of the revenues contributed by advertising.

Advertising and subscription income for broadcasters grew at more than 12% each with subscription revenues growing faster than the TV industry subscription revenues as broadcasters started to realise the benefits of NTO in the last quarter of FY19 by getting a higher share of the consumer-level subscription from DPOs.

As per KPMG’s industry discussions, the share of broadcasters in the end consumer revenues increased from approximately 33% to approximately 40-45% for DTH operators, while for cable operators, the same increased from approximately 20-25 to approximately 30-35%.

KPMG stated that this sharing of revenues across the TV value chain augurs well for broadcasters in the long run.

The report also looked at the impact of NTO on the TV broadcasting industry. It stated that the tariff order has granted the choice of channel selection to customers, however, initial trends indicate that the monthly bills of viewers wishing to watch the same number of channels as earlier has gone up significantly.

Further, with a fixed payout of Rs 130 + taxes (assuming the DPOs charge the maximum mandated NCF), the ARPUs have increased across all the markets with the Phase III and Phase IV markets witnessing massive growth of 30-35% in average realisations.

However, the freedom to choose has come at a hefty price particularly for those at the lower end of the ARPUs. As per industry discussions, KPMG noted that some choice is taking place at the higher end of the subscription pyramid, leading to lower TV bills, however, the same is definitely accompanied by a lower number of viewable channels at the disposal of the consumers.

The report also stated that the uptake of pay regional channels, especially top GECs and movie channels, has remained firm in the regional markets in the new regime, particularly in the Southern markets. Contrary to this, the uptake of niche channels has suffered in the new regulatory environment as broadcasters focused on creating packs that ensured pick-up of their GEC and movie channels with distribution platform operators (DPOs) building on top of them with FTAs at their disposal.

“While niche channels belonging to larger broadcasters are likely to do better than others, in the long run, owing to the network effects enjoyed by their parent company, they will still need to be innovative in order to survive and remain relevant in the long run,” the report said.

The report also mentioned that the implementation of the NTO has also been facing significant on-ground challenges, with customer education forming a major part of the challenge. As per KPMG’s industry discussions, there have been cable TV blackouts in some areas, while the overall TV universe has shrunk as outlined earlier. However, despite the same, efforts are underway from all stakeholders to ensure complete implementation of the regime.

“In times to come, viewership and reach for the TV universe is likely to change as the effects of NTO start to play out. With consumer choice being a central part of the new regime, broadcasters will need to renew focus on content quality to ensure survival and pick-up of their channels. Niche genres on TV, in this new era, are expected to be under pressure from rival offerings on digital platforms. The English channels are also likely to encounter challenges in terms of viewership and subscription in the new regime,” the report stated.

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