SECTOR UPDATE

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MEDIA
WatchDog: It’s show time for OTT industry
COMPANYNAME
India Equity Research | Media

In our first edition of WatchDog, we explore India’s over the top (OTT)
market, its key players and evolving dynamics. We expect the robust
momentum of a few key players—ZEE5, Netflix and Amazon prime—to
sustain given their focus on customer acquisition and differentiated as
well as voluminous content creation. We also explore implications for pay
TV in the wake of the OTT disruption. Netflix’s story and the censorship
angle are also touched upon. Finally, we explore brewing innovation that
entails potential to spur a paradigmatic shift in industry dynamics. Our
top picks are ZEE and PVR.

Massive investments underway; pricing among key pivots

In the race to grab eyeballs, in our view, differentiated content and pricing will play a
crucial role in generating traction (ZEE5 is the most aggressive in this). Netflix and
\ Amazon Prime will be investing aggressively towards regional content. While Netflix
charges INR500 for one month, ZEE5 is priced at INR499 for 12 months and INR49 for
one month. SUN NXT charges INR480 for 12 months and INR50 for one month –
international OTT platforms charging higher than the domestic broadcasters’ OTTs.
Along with partnering with telcos, ZEE5 is also aggressive in tie ups—OYO, RailYatri
and Paytm— to provide discounts and free trial periods.

End of pay TV?; Censorship risk for OTTs

Among OTTs, we expect the AVOD model to outclass the SVOD model, in line with the
global phenomenon, as highlighted by WARC, a global marketing and advertising
research firm in its recent ad forecast. The sheer size of India’s demographics and low
propensity to pay for content points towards the same. That said, we do not expect
significant dip in pay TV’s subscribers as OTT will largely be an add-on since the former
is a single source for varied content consumption, particularly news and sports. There
has also been a hue and cry for policing OTT content. If OTT platforms are censored, it
could dilute the propensity of consumers to pay for content. However, considering this
is a sensitive topic, we expect censorship guidelines to shape up over the long term.

Convergence of linear TV and OTT; innovation in distribution

Threatened by the acceptance of OTT platforms and rising online content consumption,
cable and DTH providers are working aggressively to introduce hybrid set-top boxes
(STBs), which enable OTT viewing on normal televisions. OTT platforms are also
exploring content dissemination via telcos to tap wider catchment.
Abneesh Roy
+91 22 6620 3141
Top picks: ZEE, PVR abneesh.roy@edelweissfin.com

We remain positive on ZEE and reiterate it as one of our top picks in the media space Prateek Barsagade
based on: a) strong programming pipeline of ~90 shows likely to be added on ZEE5 in +91 22 4063 5407
prateek.barsagade@edelweissfin.com
FY19; b) deals with leading telcos (Jio, Airtel) to stream OTT content; c) management’s
vision to take its OTT platform ZEE5 global by tying up with a global player with
cutting-edge technology; and d) asset monetisation at the group level.
December 4, 2018

Edelweiss Research is also available on www.edelresearch.com, Edelweiss Securities Limited

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Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
 Media

Massive investments underway; competition in OTT intensifies

Considering the sheer size of the Indian OTT market (currently about USD700mn) and its
potential (expected to touch USD2.4–5bn by 2023 according to various industry estimates),
investments from both domestic and international players are pouring in for developing
differentiated content and promoting their OTT platforms via attractive offers. Apart from
content spends, the international and pure-play OTT players such as Netflix and Amazon
Prime Video will need to invest reasonably more than the likes of ZEE5 and Hotstar to market
their brand and content to a large audience. Players such as ZEE5 primarily leverage their
existing network’s ad inventory to market the OTT platform.

Netflix plans to invest INR5–6bn every year to produce original content for the Indian
audience. Hotstar, whose USP is sports, has also secured capital infusion of up to INR5bn
from parent Star US for content production and improving its technology platform. Similarly,
ALTBalaji is looking to spend about INR5bn over a period of three years to strengthen its
content. Amazon Prime Video has proclaimed it would continue to invest aggressively to
produce content for the Indian audience, particularly regional audiences. Even YouTube has
started Youtube Originals for the Indian audience, which will not be behind a paywall.

All in all, the number of OTT platforms catering to the Indian audiene has gone up from nine
in 2012 to 32 in 2018. The influx of such huge investments will eventually crowd out the OTT
market and intensify competition.
Table 1: Snapshot of Indian OTT players
Platform YouTube Jio TV Netflix Amazon Prime Video Hotstar

Owner Google Reliance Industries Netflix Amazon STAR India

Revenue Model AVOD AVOD SVOD SVOD Freemium
Susbcription Fee (INR) - - 500-800 per month 999 per year; 199 per Premium: 999 per year;
month 199 per month
Content User generated content; Aggregates LIVE TV International (Movies, TV Shows, Movies Sports (Cricket
music, broadcast channels, catch-up TV Shows); Netflix (Bollywood, Hollywood, tournaments), Movies
content, exploring content; Partnered with Originals; Indian (TV Regional), Amazon (Bollywood, Hollywood,
original content multiple OTT platforms shows, Movies, Originals, Kids content Regional), Hotstar
for content Regional) Originals, Live TV, catch-
up content, Star India
channels, HBO
Originals, 21CF content
MAUs (mn) 245 - 5-10 20-30 70-150

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Table 1: Snapshot of Indian OTT players (Contd…)

Platform ZEE5 Voot Sony Liv Sun NXT Eros Now ALTBalaji

Owner Zee Viacom18 Sony Pictures Network Sun Network Eros Balaji Telefilms
Revenue Model Freemium AVOD Freemium SVOD SVOD SVOD
Susbcription Fee (INR) Premium: 499 per - NA INR50 per month Premium: INR99 INR300 per year
year; 49 per month per month
Content Live TV, Movies Movies, Viacom18 Sports (Ten Sports Sun Network Movies, catch-up Originals, Select
(Bollywood, content, Kids feed), Sony catch-up content (Movies, content, Religious movies, Kids
Hollywood, content, Voot content, Movies TV Shows) music content
Regional), Originals (Bollywood,
Originals, Music, Hollwyood)
Network group
channels

MAUs (mn) 41.3 45 20-35 2-5 0.5-0.8 1.5-2.5

Source: Edelweiss research

However, this upheveal in the OTT space will boost smaller, upcoming and maybe niche
production houses. Production houses such as Arre Studios, TSP, TVF and others are likely to
benefit greatly given the spike in demand for diffrentiated content. Such content is
particularly targeted towards youth and is will only increase in the coming years, thereby
providing a strong business opportunity to newer production houses, thereby eating into
the opportunity for long-standing players such as Balaji.

Given the scale of investments and the alliances being forged in the sector, smaller players
are likely to eventaully find their way out through integration/content-sharing with either
bigger OTT players or content aggregators. Recent deals such as HooQ partnering Hotstar and
ALTBalaji tying up with YuppTV are setting the stage for alignment of smaller platforms with
larger players.

AVOD or SVOD? End of pay TV?

Most large players are betting that the SVOD market would drive the OTT industry going
ahead. However, for a market such as India with markedly lower willingness to pay and
availability of cheaper options, we estimate that the SVOD market would remain smaller than
the AVOD/Freemium market in our view.

The major reasons are: i) pay TV is relatively cheap in India; ii) globally too, growth (and
investment) in AVOD is outpacing SVOD; iii) in online video consumption, audiences in small
towns and the SEC D/E segment of the demographics show highest consumption (number of
hours), implying a larger market; iv) proliferation of piracy; and v) the prooblem of too-many.

In light of the above, we believe AVOD models would remain more popular than SVOD
counterparts. Taking this into account, with the significant investments being made to
produce original programming, we estimate OTT players’ profitability would continue to be

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under pressure for at least 3–4 years largely due to their inability to monetise content. In
addition, the AVOD model provides an excellent medium to direct targeted advertising
towards a richer dataset. Similar forecasts were released by WARC, a global marketing and
advertising research firm, in its International Ad Forecast, wherein the AVOD expenditure is
seen to outpace the paid media. It also mentioned that, though SVOD has propelled the OTT
services among consumers, it will be the AVOD-led services which present a better
opportunity for the companies and hence, firms such as Amazon and AT&T will be be
exploring measures in the AVOD segment in the next year.

In our view, pay TV’s share in the advertisement pie will not diminsh greatly, mainly because
of traditional consumption habits and the fact that it is the cheaper alternative with better
reach as well as pricing. What we do believe though is the loss of share for the print segment
will accentuate instead of the television segment.

Additionally, OTT is currently percieved as secondary viewing medium in India, and not the
primary one as most such platforms do not provide access to sports, news and varied content
(music, current events, religious programmes, etc). Hence, we do not foresee any imminent
risk to the pay TV business due to the accretion in OTT/online video platforms.

Building on this, over the medium term, if subscribers continue to pay for pay TV, it is less
likely that they would also pay for multiple other OTT platforms. In India, the ‘cord-cutting’
phenomenon will still take several years to find feet. Over the medium term, we might see
cord-shaving happening among Indian consumers, which will be largely driven by attractive
bundled offers being rolled out by content aggregators such as Jio and Airtel.

Table 2: Pay TV to remain robust; Print to lose steam to OTT in terms of ad revenues
FY18 FY19 FY20 FY21 FY22 FY23
Industry ad revenues (INR bn)
TV 223.5 255.0 291.5 330.1 373.0 425.3
Print 210.6 223.7 236.4 250.1 264.7 280.7
Digital advertising 116.3 154.7 202.6 263.4 339.8 435.0
OOH 32.0 35.7 38.6 42.0 45.7 49.7
Radio 25.9 28.3 31.8 34.8 38.8 42.0
Total 608.3 697.4 800.9 920.4 1,062.0 1,232.7
Industry ad revenue growth (%)
TV 10.3 14.1 14.3 13.2 13.0 14.0
Print 3.0 6.2 5.7 5.8 5.8 6.0
Digital advertising 34.9 33.0 31.0 30.0 29.0 28.0
OOH 11.9 11.6 8.1 8.8 8.8 8.8
Radio 7.9 9.3 12.4 9.4 11.5 8.2
Total 11.5 14.6 14.8 14.9 15.4 16.1
Industry ad revenue share (%)
TV 36.7 36.6 36.4 35.9 35.1 34.5
Print 34.6 32.1 29.5 27.2 24.9 22.8
Digital advertising 19.1 22.2 25.3 28.6 32.0 35.3
OOH 5.3 5.1 4.8 4.6 4.3 4.0
Radio 4.3 4.1 4.0 3.8 3.7 3.4
Total 100.0 100.0 100.0 100.0 100.0 100.0
Source: KPMG Report

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In the US too, the pay TV subscirber base did not fall sharply despite rapid popularity of
Netflix, other online video consumption platforms. This implies a resistance to cord-cutting,
which reinforces our thesis that OTT content viewing will typically happen on second screens
such as mobile devices and largely entail personal consumption of content rather than group
consumption.

Chart 1: Pay TV subscriber base robust despite spike in Netflix subscribers

125

100

(mn) 75

50

25

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Netflix Subscriber base US Pay TV households

Source: LRG Report, Company

Chart 2: Pay TV retains lead (percentage of time) in video consumption across screens
100.0

80.0

60.0
(%)

40.0

20.0

0.0
US AUS
Live TV Playback TV Desktop Video Smartphone Video Table Video
Source: Nielsen, IAB/OZTam 2017

The Netflix story so far

With its potential pegged at USD5bn by 2023, the OTT market has surely become one of the
hotspot markets in India media. Netflix being one of the global players trying to establish its
presence in India, is spending aggressively to gain eyeballs. For FY18, Netflix’s India
operations reported revenue of ~INR580mn, EBITDA of ~INR11mn and PAT of ~INR2mn.

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Table 3: Netflix India FY18 Financial Snapshot

Netflix India (INR mn) FY18
Net revenues 580
Expenses
Raw material consumed -
Purchases made for re-sale -
Consumption of stores and spare parts -
Personnel Expenses (55)
Administrative expenses -
Payment to auditors (3)
Selling expenses -
Insurance expenses -
Other expenses (511)
Total expenditure (570)
EBITDA 11
Depreciation and amortization (7)
EBIT 4
Interest -
PBT 4
Provision for Tax (2)
PAT 2
Source: Company, Edelweiss research

Netflix Inc., reported CY18 revenue of USD11.7bn and PAT of USD559mn. The overall
(streaming and DVD subsrciption) revenue shot up ~32% YoY, but content and marketing
costs too spurted 27% and 29% YoY respectively, largely on account of the streaming
business. A strong uptick in revenue enabled the business to achieve stellar PAT growth of
about 200% YoY.

Table 4: Netflix Inc. CY17 Financial Snaphshot

Netflix Inc. (USD mn) CY17
Revenue 11,693
Cost of revenues 7,660
Marketing 1,278
Contribution profit 2,755
Other operating expenses 1,916
Operating income (loss) 839
Other income (expense) (353)
Provision (benefit) for income taxes (74)
Net Income (loss) 559
Source: Company, Edelweiss research

For CY18, the total streaming revenue spiked ~36% YoY and operating margin ~400bps to
22.3%. The overall ARPU stood at USD9.9 (domestic: USD10.4; international: USD9.4). The
driver of Netflix’s strong growth is its focus on international operations (streaming services).
The international paid subscriber base grew by ~40% YoY to over 57mn in CY17, lifting YoY
revenue growth to 58%. Content and marketing costs for the same increased by 42% YoY and
19% YoY, respectively.

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Chart 3: International business gaining momentum…

100.0

80.0

60.0

(%)
40.0

20.0

0.0

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19
Domestic Streaming International Streaming Domestic DVD

Chart 4: …57% of Netflix’s total paid subscribers are international subscribers

100.0

80.0

60.0
(%)

40.0

20.0

0.0
Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q3FY18

Q1FY19
Q2FY18

Q4FY18

Q2FY19
Domestic International

Chart 5: International subscriber additions outpacing domestic additions

150,000

120,000

90,000
('000s)

60,000

30,000

0
Q2FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q1FY18

Q2FY18

Q3FY18

Q1FY19

Q2FY19
Q3FY16

Q4FY17

Q4FY18

Domestic International Overall

Source: Company, Edelweiss research

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Chart 6: Domestic ARPU continues to grow while International ARPU tapering off
15.0

13.0

11.0

(USD)
9.0

7.0

5.0

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19
Q2FY16

Q3FY16

Q1FY18
Domestic International Overall

Chart 7: Contribution to operating profit – International business going strong

135.0

100.0

65.0
(%)

30.0

(5.0)

(40.0)
Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q4FY18

Q1FY19

Q2FY19
Q2FY17

Domestic Streaming International Streaming Q3FY18 Domstic DVD

Chart 8: Net addition trend erratic – likely driven by tent-pole content and promotions
10,000

8,000

6,000
('000s)

4,000

2,000

0
Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q4FY18

Q1FY19

Q2FY19
Q2FY18

Q3FY18

Domestic International Overall

Source: Company, Edelweiss research

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Indian OTT play – Key players at a glance

With the Indian OTT market poised grow exponentially in the years to come, the race to
capture eyeballs has intensified. OTT platforms are devising strategies to garner traffic and
sell their platforms. We are seeing OTT platforms resorting to aggressive promotions, free
trials, and also parterning with content aggregators to increase traction on their platform.

As of now, OTT platforms have been successful in gaining traction through a mix of
promotions, flagship content and other indirect channels. However, for these platforms to
sustain in the long run, differentiated content will be key. The platforms that will come up
trumps will most likely differentiate themselves on content (which would justify the price-
value equation), mechanism for longer user engagement on their platforms and excellent
content recommendation engines (which boost user retention on platforms). OTT players are
currently eyeing regional and semi-urban markets for expansion and thus beefing up regional
content offerings, particularly the one that resonates with the Tier-II and Tier-III cities’
audiences.

Table 5: Market share by app installations on smartphones

Platform Jan'18 Feb'18 Mar'18 Apr'18 May'18 Jun'18 Jul'18 Aug'18 Sep'18 Oct'18
Amazon Prime video 4.0 4.0 4.1 4.3 4.7 6.5 9.0 10.5 11.1 10.8
Alt Balaji 0.4 0.4 0.4 0.3 0.4 0.3 0.2 0.2 0.2 0.2
Jio TV 31.0 31.1 31.7 30.5 27.6 26.1 25.7 25.4 24.9 23.9
Jio Cinema 8.1 7.7 7.2 6.2 5.3 4.9 4.6 4.5 4.4 4.2
Netflix 0.5 0.5 0.5 0.5 0.7 1.8 3.7 5.3 6.0 6.3
SonyLIV 3.9 4.8 5.8 5.5 4.6 4.3 4.8 5.3 6.0 6.8
Voot 8.8 8.4 7.8 7.1 6.5 7.2 8.1 8.1 8.3 8.4
Hotstar 36.0 34.5 32.1 34.9 40.4 40.4 36.1 32.6 30.2 30.4
Source: Kalagato

Table 6: Market share of active users – November 2018 Table 7: Hotstar leads in rank by session time
Platform Nov'18 Platform Sept'18 Oct'18 Nov'18
Amazon Prime Video 1.4 Hotstar 1 1 1
Alt Balaji 0.2
Jio TV 2 3 3
Jio TV 17.6
Jio Cinema 1.9 ZEE5 3 2 2
Netflix 2.1 SonyLIV 4 5 6
Tata Sky 0.9 Voot 5 4 4
Sony LIV 3.2 Airtel TV 6 6 5
Voot 11.8
Jio Cinema 7 7 8
Hotstar 40.2
Netflix 8 8 7
Airtel TV 4.6
Tatasky 9 10 10
Amazon Prime Video 10 9 9
Vodafone Play 11 11 11
Alt Balaji 12 12 12
Source: Kalagato

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ZEE5 – Going global

With a strong content library and big ambitions, ZEE management is leaving no stone
unturned to take its OTT platfrom – ZEE5 – global. The platform has garnered strong traction
in the Indian market since its launch in February 2018, driven by strong demand from
regional audiences (which account for ~60% of its traffic).

ZEE5 has also launched special subscription packs for its Tamil and Telugu markets to boost
sampling of its regional content and to be at par with SUN NXT’s offerings, at ~INR49 per
month (INR25 per month with the Paytm offer). It has already started experimenting with
content, e.g. it has carried out digital premieres of recently launched movies such as Mulk,
Pamanu, Veere Di Wedding and Batti Gul Meter Chalu. We believe that such measures will
continue to drive higher sampling of its app.

Table 8: ZEE5 beefs up on varied content across languages

Name Type Language
Karenjit Kaur Zee5 Originals Drama Hindi, English and 5 other regional languages
Table No. 5 Zee5 Originals Thriller Hindi and 5 other regional languages
Life Sahi Hai 2 Zee5 Originals Drama, Comedy Hindi and 5 other regional languages
The Story Zee5 Originals Drama, Comedy, Thriller Hindi and 5 other regional languages
B. Tech Zee5 Originals Drama Hindi, Tamil
Liftman Zee5 Originals Comedy Hindi, and 5 other regional languages
Kaali Zee5 Originals Drama, Action Hindi, English and 5 other regional languages
Lockdown Zee5 Originals Reality, Music Hindi
Source: Edelweiss research

Having gained presence in the Indian market, management now aims to tap the Indian
diaspora and then eventually produce content for foreign audiences. To this end,
management has taken steps to address technological shortcomings in its platform and is
looking to partner a global player with cutting-edge technology.

Additionally, in our view, the promoters’ decision to divest upt 50% in stake in the company
to a strategic partner, is surely a step forward to transform the company into a global media-
tech company (Refer our note - Stake Sale: Crucial step for group deleveraging, ZEE5 scale
up). Moreover, the asset-monetisation happening at the promoter group – i) Recent
announcement of sale of Essel Infra’s colar assets worth ~INR55-60bn to Actis LLP; ii) Deal
with Sekura Energy for power transmission assets worth ~INR60bn, reinforces our confidence
towards the leverage issue in the promoter entity. However, the group’s recent decision to
enter into manufacturing lithium ion batteries might stress the group’s balance sheet in the
medium term.

Overall, we remain positive on ZEE and reiterate it as one of our top picks in the media space,
based on: a) strong programming pipeline of ~90 shows likely to be added on ZEE5 in FY19;
b) deals with leading telcos (Jio, Airtel) to stream OTT content; c) management’s vision to
take its OTT, ZEE5 global by tying up with a global player with cutting-edge technology; and d)
asset monetization at group entity.

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Fig. 1: ZEE5’s web platform: Key statistics for October 2018

Source: Similarweb.com Edelweiss research

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SUN NXT – Trying to scale up

During its Q2FY19 concall, SUN TV Network’s management mentioned that SUN NXT will be
the top priority for the business going ahead. Management also mentioned that it will
continue with the existing model for the platform and will focus on generating traction
through movie content. Based on the earnings call, we expect Sun TV Network’s OTT
platform – SUN NXT – to partner telcos for content distribution. Management also plans to
roll out exclusive content on the platform and will continue to invest more. Currently, SUN
NXT is charging INR50 per month and INR480 per year for its subscription, and has
significantly ramped up content on its OTT platform. However, SUN NXT has limited content
for sampling.

Netflix – Pricing a dark spot on the picture

Thanks to the success of Sacred Games, Netflix managed to gain strong traction in India. It
now plans to launch a slew of orginals for the Indian audience with premium Bollywood stars.
Some of its new orginals, web series and one feature film will also be in Hindi and Marathi. To
drive higher sampling, Netflix has partnered various content delivery companies such as
Hathway, Airtel and Tata Sky for a dedicated Netflix button on their respective STB remotes.
That said, despite receiving a strong response to its promotions, Netflix continues to battle
with the issue of pricing and afforadability in India. In his interview, Netflix CEO had clearly
dismissed any plans of providing cheaper offerings for the Indian audience. Netflix’s lowest
plan in India ranks as the 10th most cheapest among 24 other countries. For the amount that
Netflix charges, it provides ~5,000 titles to its Indian users, whereas it provides ~6,000 titles
to its Japanese users at a much cheaper cost.

Amazon Prime Video – Bulking up on content

Amazon Prime Video has accumulated a strong base owing to its offering that bundles
Amazon Prime with Amazon Prime Video. Currently, India is the cheapest place to watch
Amazon Prime Video across 28 countries that it is available in. On a per title basis, Indian
audiences pay 137% less than the worldwide average. Amazon Prime Video currently houses
2,351 titles for Indian consumers (~2,000 movies and ~400 series). Looking to expand its
presence in India, Amazon Prime Video plans to shore up regional content, especially in
Marathi, Bengali and Kannada.

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Table 9: Amazon Prime Video bagged the most digital rights for newly released movies
Amazon Prime
Movies released in 2018 Netflix Video ZEE5 Hotstar
Padmavat 
Pad Man  
Sonu Ke Titu ki Sweety 
Hichki 
Raazi 
Raid 
Baaghi 2 
Parmanu - The Story of Pokhran  
October 
102 Not Out 
Veere Di Wedding 
Race 3 
Dhadak 
Sanju 
Hate Story 4 
Blackmail 
Mercury 
Bhavesh Joshi Superhero  
Kaala  
Soorma 
Saheb, Biwi aur Gangster 3 
Nawabzaade 
Fanney Khan 
Mulk 
Karwaan 
Satyamev Jayate 
Happy Phirr Bhag Jayegi 
Yamla Pagla Deewana: Phir Se 
Paltan 
Mitron 
Batti Gul Meter Chalu 
Pataakha 
Aiyaary  
Mukkabaaz 
Vodka Diaries 
Gold 
Tumbbad 
Source: Edelweiss research

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Censorship poses long-term risk to OTT industry

With mediums such as television, cinema and print operating within tight censorship
guidelines, the lack of censorship on OTT platforms is an important contributor to its growing
popularity among Indian audiences. The consequent greater degree of freedom in content
creation allows producers to come up with fresh, adult and unconventional programming,
among others, that resonate with young audiences. However, in doing so, producers must be
very careful about the fine line of what is socially acceptable and what isn’t.

Recently, with OTT platforms coming up with sharper/differentiated content, there has been
a hue and cry on policing the OTT content. The content offered on OTT platforms is said to be
‘unregulated and uncertified’ for public viewing, which is one of the one of the grounds for
putting this content under regulatory purview. To tackle this emerging threat, a few OTT
players met up to deliberate self-regulation, which we believe would help them avert
compliance with potentially stricter regulation. ZEE5 seems to be toeing this line.

“I think self-regulation is the best way of regulating content. OTT is a very personal medium
and I don't think, at this point in time, there is any need to regulate the content. The
government has been very good about regulating content on TV and it is self-regulation that
works there as well. So, I don't see a reason why it would be any other way."
– Tarun Katial, CEO, ZEE5

Although self-regulated censorship would bring all the OTT players on the same level, we
believe that potential censorship guidelines in the OTT segment would defeat the purpose of
subscribers paying up for specific content, which is unavailable on other mediums. This
would, in particular, impact SVOD-based businesses more as it could lead to a loss in
subscribers with the added risk of piracy. Considering the steady growth experienced by OTT
platforms in India, in our view, the players will eventually resort to self-regulation, which
highlights necessary warnings to audience, rather than curtailing freedom of content. As of
now, since OTT video consumption happens more on a personal level rather than
group/family viewing, we believe that it will take some time for the OTT content to come
under the regulatory lens.

Convergence of linear TV and OTT; innovation in distribution

Cable and direct to home (DTH) operators are now working aggresively to introduce hybrid
STBs, which are capable of receiving and transmitting both satellite and internet signals.
Threatened by the rapid acceptance of OTT platforms, the increasing number of content
aggregators and popularity of online content consumption, cable and DTH providers have
found a way out to underscore their weight in the value chain.

Operators such as Tata Sky, Dish TV, Hathway Cable and Datacom are in the process of
introducing their hybrid STBs while SITI Networks has already launched its hybrid STB. hybrid
STBs will enable OTT content viewing on (smart/non-smart) television sets. The boxes will
have in-built applications such as YouTube, Netflix, Hotstar, etc. Hathway recently announced
its tie-up with Netflix, wherein it will be able to provide Netflix service to its customers
through STBs. Subscribers can pay for Netflix with their monthly Hathway bill. Now, with Jio
acquiring a controlling stake in Hathway and Den Networks, we anticipate the convergence of
OTT and linear TV to expedite.

14 Edelweiss Securities Limited

 Sector Update

In our view, this is a surely a disruptive move towards gaining market for OTT players while
ring-fencing the cable/DTH customers. Now with the opportunity of upselling, companies
such as Hathway and DishTV are likely to benefit from rising ARPUs (particularaly in Phase I
and II). However, the success of this strategy is contingent upon installation costs, quality of
internet service and attractive bundled offers likely to be rolled out by the cable/DTH
operators.

Given OTT platforms have been lately partnering telcos for content distribution (ZEE deal
with Jio, Airtel), we believe OTT platforms are moving in the right directio to make their
platform available to a wider audience, not to mention bundled offers, especially with mobile
being the most preferred device for online video consupmtion. In our view, this would be a
big trigger for the OTT platforms, and we beileve that large OTT platforms would eventually
enter into such agreements with the leading telecom operators.

15 Edelweiss Securities Limited

 Media
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com

ADITYA
Digitally signed by ADITYA NARAIN
DN: c=IN, o=EDELWEISS SECURITIES LIMITED,
ou=HEAD RESEARCH, cn=ADITYA NARAIN,
Aditya Narain serialNumber=e0576796072ad1a3266c27990f20
bf0213f69235fc3f1bcd0fa1c30092792c20,

NARAIN
postalCode=400005,
Head of Research 2.5.4.20=3dc92af943d52d778c99d69c48a8e0c89
e548e5001b4f8141cf423fd58c07b02,
st=Maharashtra
aditya.narain@edelweissfin.com Date: 2018.12.04 09:09:13 +05'30'

Coverage group(s) of stocks by primary analyst(s): Media

DB Corp, DEN Networks, Dish TV India, Hathway Cable & Datacom, Jagran Prakashan, PVR, Sun TV Network, Zee Entertainment Enterprises

Recent Research
Date Company Title Price (INR) Recos

22-Nov-18 Media Conference Call

Compendium,
Sector update
16-Nov-18 Den Weak quarter; Jio deal 69 Hold
Networks potential game changer
Company Update
15-Nov-18 Hathway Jio deal to bankroll growth; 30 Hold
Cable & Result Update
Datacom

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period
* 1stocks under review
Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 156 62 11

One year price chart

2,000 700

1,700 600

1,400 500
(INR)

(INR)

1,100 400

800 300

500 200
Dec-17

Dec-18

Dec-17

Dec-18
Jun-18

Jun-18
Oct-18

Oct-18
Nov-18

Nov-18
Apr-18

Jul-18

Apr-18

Jul-18
Feb-18

Sep-18

Feb-18

Sep-18
Mar-18

Mar-18
Jan-18

Jan-18
Aug-18

Aug-18
May-18

May-18

PVR Zee Entertainment Enterprise

16 Edelweiss Securities Limited

 Sector Update
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