MUMBAI: The Indian local cable & satellite advertising market is set to surpass China and lead the Asia Pacific region by 2017 as it settles at 5.6 billion in net revenues, according to a forecast by Media Partners Asia (MPA).
The pay-TV advertising market is expected to grow at an average annual rate of 17 per cent over 2010-2015, driven by the economy, the positive impact of category competition and rate increases implemented by TV networks. Titled 'Asia Pacific Pay-TV & Broadband Markets 2011', the report said the pay-TV subscription revenues is set to grow at a 12 per cent CAGR over the same period to reach 8.4 billion by 2015, driven by DTH and digitisation of cable networks.
The report also predicted the six-player Indian DTH (direct-to-home) market to overtake the United States next year, to become the worlds largest DTH market in volume terms, with an active subscriber base of close to 42 million, as against a projected customer base of 35 million in the USA.
The report noted that four out of six DTH players will be generating free cash flow after 2015, driven by scale and cost control. The US market has two dominant and profitable groups competing in that market.
Also, total pay-TV subscribers are expected to reach 166 million by 2015 and 190 million by 2020.
MPA clarified that projections measure pay-TV penetration after accounting for households that opt for multiple services (i.e. cable and DTH). On this basis, pay-TV penetration will grow from 79 to 88 per cent between 2010 and 2020. DTH will be the main driver of subscriber growth, digital penetration and HD growth.
However, the active DTH subscriber base (i.e. paying customers only) will grow from 23 million in 2010 to 64 million by 2015 and 83 million by 2020, implying a 44 per cent share of the overall market by 2020.
The main challenges are transponder capacity, high churn, subscriber acquisition costs and limited pricing power.
MPA executive director Vivek Couto said, India remains Asia's largest pay-TV market opportunity in which revenue, cost and capital expenditures are growing at an alarming rate due to various dynamics, including macro growth, competition and digitisation. Encouragingly, revenue growth is trending at optimum levels due to a strong economy a buoyant advertising market and the rapid growth of DTH. Yet, such is the extent of competition, cost and fragmentation that profit margins remain low, even for market leaders. We expect margins and value chain economics will improve in the long term, through digitisation of cable networks, rising subscriber scale, improved cost control and strong advertising growth. Pricing power for pay-TV services will still be modest however, as ARPU growth will remain under pressure due to competitive and regulatory dynamics.
Three Indian companies - Sun TV, Zee and Star India - dominate the top 10 profit rankings for Asian pay-TV broadcasters. However, distribution platforms are yet to feature in the operator mix due to limited profitability, the report said.
Meanwhile, citing some concerns over the margins, MPA said that margins across the India pay-TV industry value chain are amongst the lowest of any emerging market. It said the reasons of this are cost inflation, competitive pressures, regulation and a reliance on legacy analogue cable networks.
Margin pressure will remain in the medium term but improve in the long-term as operating leverage improves, the report said.
Broadcasters generated 2.9 billion in sales during 2010, up 18.5 per cent year-on-year, driven largely by advertising growth. However, average operating margins remain sub-optimal at less than 15 per cent, due to continued cost inflation.
Competition is intense, as there are 550 channels in the marketplace despite limited spectrum on dominant analog cable networks. As a result, carriage and placement fees continue to grow for new entrants and, in some cases, existing players, the report said.
According to MPA analysis, the carriage fee pool topped 400 million in 2010, while total affiliate fees for channel suppliers on cable (i.e. excluding DTH) reached only 425 million.
MPA also said that operating margins remain low for market leaders such as Star and Zee (Ebitda margins trending at 20-25, versus 30-40 in other emerging Asian markets), due to escalating costs across the value chain. This level of cost inflation is unlikely to moderate over the medium term, but operating leverage may improve as affiliate fees grow from digital cable and DTH.
Broadcasters will continue to benefit through advertising growth, DTH expansion, the slow digitisation of the cable pipe, and the expansion of pay-TV audiences.
Competition and fragmentation will remain significant pressures, while affiliate fee growth will come gradually rather than overnight. MPA said it sees total pay-TV channel revenues growing from 2.9 billion in 2010 to 6.3 billion by 2015, with advertising remaining dominant.
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