Reliance Jio Entry into TV will Disrupt Cable & Dish Market in India

Reliance Jio Infocomm has also applied for a cable MSO license. We believe RJIO has the following connectivity offerings relevant to the space in which HATHWAY operates. 

RJIO could also launch IPTV services using its cable MSO license once its pipe is present in homes. Last, were RJIO to offer IPTV services, it would compete with HATH’s cable TV offerings. While we acknowledge the risk and build it in our bear case through lower cable subs for HATH, we believe the extent of the challenge will be clearer when the below details are available.

Since seeding is already largely done in Phase I and II markets, RJIO might decide to focus on Phases III and IV, in which case it will not be significantly in HATH’s way. If RJIO launches in IPTV in Phases I and II, it will have to subsidize the boxes completely, in our view, given that subscribers have already paid for the box of either an MSO or a DTH company, and so there is a barrier to exit.

IPTV has not been a big presence even in developed markets and accounts for a very small presence in India. Hence, the acceptability will depend to a large extent on the quality of any offering from RJIO and on the possible bundling offers RJIO announces

Cost push for MSO’s is DTH’s gain

Star and Zee are hard-negotiating content deals with MSOs. Star has shifted to the RIO model, which has increased the cost significantly for the MSOs. Dish TV on the other hand has content cost fixed for at least the next 20 months (management guiding for 5-6% annual inflation). Star and Zee content-cost deal expires in Sep 2016, India Cast in Mar 2017 and Sony in Mar 2018. Cost pass-through for cable gives DTH players headroom to raise prices. Dish plans to implement differential pricing for different regions. While this may not be a water-tight plan, it still allays our concern that ARPU increases will only be region specific and hence may benefit urban DTH player more

Despite 416k net subscriber addition, Dish is still gaining 28% incremental market share. It seems that the DTH subscriber additions have been strong during the quarter and are probably gaining market share.

Separately, Dish TV  has sealed content-cost deals with all of the leading broadcasters for 2-3.5 years. The agreements with Zee and Star Plus are due for renewal in Sep 2016, India Cast in Mar 2017 and Sony in Mar 2018. Fifty percent of the agreement for content cost with the broadcasters is fixed, while the remaining is on CPS. Management has guided for higher single-digit growth in content cost over the agreement period.

Zing is positioned for local language consumption and has achieved impressive success since its launch across all regions. Zing now accounts for 17-18% of the company’s incremental subscriber additions and 18-35% of incremental market share in the states where it was launched.

Reliance Jio to Power Your TV with OFC / Wireless Technologies

Reliance Jio Media, a subsidiary of Reliance Jio Infocomm has applied for Pan India multi-system operator (MSO) license that will enable the company to broadcast TV channels to local cable TV operators as well as households. We view RJio's entry in to TV distribution business as incrementally negative for Hathway and Dish TV as it increases competition. RJio’s entry may also limit the ability of MSOs to increase ARPU meaningfully in the near to medium term. RJio owns Network 18 which gives it access to some content such as news.

We believe RJio is likely to use all three mediums – Fiber, Cable TV, and wireless – to offer high speed broadband and pay TV services to households. Also, the company may look to acquire small MSOs and LCOs to increase its foothold in the cable TV distribution business especially in the phase 3 and phase 4 areas where 90-100m households are likely to be digitized over the next 3years. In the phase 1 and phase 2
cities, the company may put emphasis on fiber to home network as affordability is high in the cities of Phase 1 and Phase 2.

Hathway Packaging Star Channels like DTH

Post the move by market leader Star TV to offer channels a-la-carte and at wholesale rates, Hathway has responded by coming out with five packages in its key digital markets (we note that it is only via packaging that cable operators can improve ARPUs and pass on the increase in content costs to subscribers, and it is only via packaging Multi System Operators (MSOs) that it can use the multiple incentives offered by Star TV). The company is following up with aggressive marketing (ads across mediums likely to spread over a couple of months).

There is strong case for cable TV operators to hike tariffs, particularly after the move by Star TV to offer content at wholesale rates. Key reasons which support tariff hike include,
Churn - local cable TV operators could see churn in case they fail to match content at par with Direct-to-Home (DTH) operators.

Increase in content costs - The move by Star TV has resulted in increased costs for cable TV players. We have seen in other sectors, such as telecom, that an increase in input costs has resulted in increase in voice tariffs. We understand only Hathway has started the packaging initiative as of now. That said, if Hathway sees a robust sign-up by existing subscribers, others are likely to follow suit (in addition, we expect other big broadcasters to replicate the move by Star TV once big MSOs implement packaging).