The TV industry grew from INR594 billion to INR 660 billion in 2017, a growth of 11.2% (9.

8% net of
taxes). Advertising grew to INR267 billion while distribution grew to INR393 billion. Advertising
comprised 40% of revenues, while distribution was 60% of total revenues. At a broadcaster level,
however, subscription revenues (including international subscription) made up approximately 28%
of revenues.

Distribution

The market remained highly fragmented

The distribution segment in India has an estimated 60,000 local cable operators (LCOs) and more
than 6,000 multiservice operators (MSOs). As on Oct 2017, 1,469 of these MSOs were registered
with the MIB. There were six pay direct-to-home (DTH) operators and Doordarshan’s free satellite
service in operation. In addition, there was one Headend-in-the-sky (HITS) operator. The DTH
companies and 10 largest MSOs dominated the market, serving around 65% of pay TV homes.

TV viewing households grew to 183 million of the estimated 286 million households in India, TV
penetration reached 64% taking the total number of TV viewing household to 183 millon in 2017,
which is a 3.5% growth over 2016. This accounted for approximately 780 million viewers. 83% of the
total TV households were paying households.

Net of temporarily suspended subscribers, which if included, could grow the subscriber base to
around 65 million. Digitisation resulted in increased customer ARPUs (Average Revenue Per Unit)
and it led to increased collections from end customers, across all DAS markets. While the increases
varied by location approximate ranges are provided in the table below.

Increased collections from end customers has resulted in an increase in revenue received by MSOs
and broadcasters. The impact can be seen in the table below:

In the analog regime, MSOs suffered from revenue leakages since LCOs used to under report the
actual number of subscribers and earn higher margins. However, with digitization, transparency has
increased and MSOs have increased clarity on number of active consumers with each LCO. This has
led to increased bargaining capacity with MSOs. Disbanding of channel aggregators and distributors
has also resulted in higher bargaining power with MSOs. MSO collections from digitized LCOs in DAS
I and DAS II markets now ranges from INR80 to INR125 per subscriber per month. In DAS III markets,
collections grew significantly to INR50 to INR80 per subscriber per month from the earlier range of
INR 30 to INR 5010.
HD subscribers crossed 10 million

As per industry estimates, HD grew with digitization and has been estimated to cross 10 million, on
the back of increased sale of large television screens of 40 inches and above, where the viewing
experience requires higher quality content. In addition, many distributors are providing over 60 HD
channels, including sports, which is a large incentive for subscribers. HD audiences contribute to
higher revenues for distribution companies due to the premium pricing that such channels
command.

Growth of OTT viewership poses a threat to linear distribution platforms

With the fall in broadband pricing triggered by Jio, the gap between the cost of watching an hour of
TV on broadband and traditional cable or DTH has significantly reduced. Given that an average TV
household watches over three hours of content a day, it is currently still more expensive to watch TV
using broadband, particularly if watched on a large television screen. However, the fall in broadband
prices could pose a threat to the cable and DTH industry. It could lead to increased viewership of TV
content on larger screens, for more affluent customers, second television connections and nuclear
families, who can move to OTT platforms for their TV consumption. EY estimates that by 2020, there
would be around 4 million people who primarily depend on OTT platforms for their content. A
number of distribution companies are investing in broadband to mitigate this risk, leading to
increased ARPUs and margins.

Free TV continued to grow

DD Free Dish, the state-run DTH provider, is the largest TV distribution company in the country with
over 24m estimated subscribers. This is considerably higher than large national pay TV companies,
which average 8m to 16m each. With over 80 channels currently, DD Free Dish plans to eventually
reach 256 channels by 2020. The implementation of the Tariff Order of 2017 could further push the
Free TV viewer base to 46 million by 2020. One of the key drivers for the growth of Free Dish was the
overlap in the content played by leading broadcasters on their FTA and pay channels. The content
played on the FTA channel was as recent as one to three months in certain cases. The key genres on
Free Dish include GECs, movies and news. Star has launched a channel with exclusive GEC content
for Free Dish, as well as a sports channel, Star Sports First. Broadcasters have now limited the
quantum of recent content from their pay channels to Free Dish, after pressure from DTH and MSOs
forced them to take this move. There is also a move to remove private pay channels from Free Dish,
to protect ad revenues and viewership of Doordarshan’s channels, which matter is currently being
debated.
Content

Cost of content is increasing

The advent of more TV channels, as well as several OTT players like Amazon Prime, Alt Balaji, Netflix,
etc. has increased the overall demand for content. While Indian broadcasters produce over 100,000
hours of content annually across languages and formats, newer players are investing higher amounts
per episode (albeit for much smaller quantities of content) and are tying up with leading talent. The
increase in cost is expected to impact cost of film acquisition more than costs of episodic content.
Some broadcast CEOs estimate that this can increase the overall cost of content by as much as 2-3%
of their top line, and that they have no choice but to go down that route. Others maintain that while
they are moving towards increased quality in their programming, if it cannot result in
disproportionately higher viewership (which in turn can be monetized better), they may not pursue
higher quality, but stick to current cost metrics.

Viewership by state

Hindi speaking market (HSM)

Maharashtra / Goa 14%

UP/Uttarakhand 8%

MP/Chhattisgarh 7%

Punjab / Haryana / Chandigarh / HP / J&K 6%

West Bengal 6%

Gujarat / D&D / DNH 6%

Rajasthan 3%

Delhi 3%

Odisha 3%

Bihar/Jharkhand 3%

Assam / North East / Sikkim 2%

South market

AP / Telangana 13%

TN/Pondicherry 12%

Karnataka 9%

Kerala 4%
When BARC revised its rural weightage

It impacted certain genres 2017 saw the full impact of BARC’s enhanced rural panel weightage, with
genres like infotainment, English news and English entertainment seeing a reduction in their
viewership. The increase in weightage to rural India had a positive impact on the kids’ genre which
saw a jump in absolute terms of viewership numbers compared to the previous year. News channels,
too, now appear to be firmly entrenched in many cases as free to air offerings, with several of them
on DD’s FreeDish platform.

Satellite rights values increased

The amount broadcasters paid for satellite rights increased by around 18% in 2017. Large increases
were seen for blockbuster films, particularly in the regional language space. Movie channels
generated 23% of total viewership. In addition, movies on regional channels also generated
significant revenues.

Content exports provide a new Global opportunity

Indian television continued to be exported to over 150 countries across the globe, led by
broadcasters like Zee, Star, Sun, Sony and Viacom18, which provided Indian broadcasters with a
steady stream of subscription revenues, as well as advertising revenues. News channels have also
now become available in over 70 countries. While these channels largely catered to Indian diaspora
in Indian languages, the opportunity for growth in markets like Africa, Middle East, Eastern Europe,
etc. for dubbed Indian content has grown significantly. In addition, Zee has also commenced its
original productions in foreign languages as it aims to penetrate the global market outside of the
Indian diaspora, with a mix of local stories and remade Indian content.

The rise in global consumption of Indian content has also created the ubiquitous challenge of
protecting this content in markets such as Canada, Australia and UK where circumvention devices
such as Kodi boxes continue to be used to pirate Indian content especially in diaspora communities.

Licensing and merchandising grew

As the Indian middle class grows, and per capita income rises, the opportunity for licensing and
merchandising of characters is increasing. Led by children’s characters, sports leagues and
innovation in brand licensing we expect this revenue source to continue growing. Media companies
are now providing products across multiple price points. Manufacturers and brands benefit from
licensing characters as it enables them to take their existing price points higher by demonstrating a
premium value, thereby increasing margins. Merchandising is led by international characters from
Disney, Viacom18 and Turner.
Advertising
Events played an important role in revenue generation for news channels
Events and activations counted for as high as 40% of revenues for certain channel genres,
particularly business and regional news. The number of awards, contests, etc has been
steadily rising over the past few years, and the space is quite cluttered now, with over 650
events estimated to be telecast on news channels in India annually5. The bundling of
sponsorship with advertising time is a formula that provides an effective cost per contact for
sponsors.
Slot sales to advertisers
The volume of slot sales to advertisers has continued to hold for many channels. The launch
of additional FTA and pay channels in the news, GEC and movies genres – which have high
distribution in HSM and regional markets - has created inventory availability, and generate
estimated revenues of between INR 5 to 8 billion6.
When BARC revised its rural weightage, it impacted certain genres
2017 saw the full impact of BARC’s enhanced rural panel weightage, with genres like
infotainment, English news and English entertainment seeing a reduction in their
viewership. The increase in weightage to rural India had a positive impact on the kids genre
which saw a jump in absolute terms of viewership numbers compared to the previous year.
News channels, too, now appear to be firmly entrenched in many cases as free to air
offerings, with several of them on DD’s Free Dish platform.
Digital advertising
Digital ad spend contributed 17% of total ad spend in India
Currently, digital media contributes to approximately 17% of the total ad spend in India, and
this percentage has grown from 15% in 2016. However, by 2020, it is expected that
approximately 22% of total ad spending will be on digital. According to Zenith, India is
placed at number 4 in the top 10 contributors to global ad spend growth 2017-20, where it
follows the US, China and Indonesia in that order. Digital advertising primarily comprises
search, social, display, video advertising and classifieds.

Digital subscription
Digital subscription grew 50% in 2017
Digital subscription comprises video and audio streaming subscription income. It grew 50%
in 2017 to INR3.9 billion, and we believe that this growth will continue unabated till 2020.
Key drivers for this growth will be low data costs and sachet pricing for content, facilitated
by micro-payment mechanisms.
Video subscription
The video subscription ecosystem has matured, and there are over 30 video OTT platforms
in India.
Targeted OTT offerings across languages and target audiences
OTT platforms in India have reached scale and now provide something for a vast array of
audiences. Be it Eros Now with its huge library of Indian films, Zee5 with its wide regional
offerings, Sony LiV and Hotstar with their TV content and premium sports and English
entertainment content, there is a clear case of a lot of content being made available to
Indian consumers. With data charges at their lowest ever rates, consumers are beginning to
consume subscription content, particularly when OTT services are bundled with data
packages.
Global opportunity
Global consumer spending on SVOD (Subscription Video on Demand) services is expected to
total US$18.7 billion in 2017. It is an increase of 28% from 2016. Indian OTT players plan to
enter the international market with a subscription-based model to capitalize on the Indian
diaspora moving to digital consumption.
Players such as Zee and Saavn have been able to monetize their content targeting the right
set of consumers across the globe. Zee, apart from launching Zee5 worldwide, has launched
Weyyak, its Arabic language OTT platform. Hotstar has launched its SVOD service in the US
and Canada. The monthly charge for Hotstar is US$9.99 for the US and C$12.99 in Canada.
Viacom18’s OTT platform VooT is all set to make its international debut. B4U is also
expected to launch an OTT platform catering only to international audiences. Eros Now has
entered the South African market through a strategic partnership with telecommunications
provider Telecel Global, allowing the latter’s customers to access Eros Now’s content library.
It has also collaborated with Amazon Prime, Roku and web OS-enabled LG Smart TVs to
make its OTT content from Eros Now available globally. Alt Digital entered into a partnership
with Lemon Advisors to assist in strengthening its international distribution system through
alliances with telecom operators, internet service providers and OEMs (Original Equipment
Manufacturers).