Monday, 19 November 2012

Incredible Sector - Digital Cable TV

In this post we will not study any individual company but a sector which is poised for tremendous growth in the coming years. Cable digitisation was recently in the news due to the govt. policy changes taking effect.
Recently the four metro cities have gone through cable digitisation process completing the first phase of the process. 31 October 2012 was the deadline. By 31 December 2014, the whole nation will have to convert to digital cable network.
Since the launch of DTH and Digital Cable services in India, approximately 1/3rd of the customers have converted to digital services and 2/3rd are still using analog cable networks. This is now set to change due to the mandatory roll-out of digital services and phasing-out of analog cable by December 2014.

In what way will this be of benefit to investors like us? Can we find any good stock investment options here?

This recent development is one example where the policy change by the govt. provides an opportunity for the betterment of a whole industry and benefits the economy as a whole. And as we are part of the system, grabbing the opportunity at the right time will definitely benefit us with good returns. We had hinted at this natural process while discussing about the Economic Ecosystem.

Let us study the development in some detail and try to find some investment rationale.

From now onwards Indian households will have two choices for cable TV. Either go with DTH providers of switch over to Digital Cable service providers, both of which are superior to analog cable networks. The digitisation of cable services has a number of advantages for the consumers. Some of which are :

  • Superior picture quality including HD television.
  • Interactive TV services like, internet services, games, Video on Demand etc.
  • Choice to customer to chose his bouquet of channels.
  • Choice to customer to choose from a variety of price packages.
  • Easier payment options with prepaid recharge and postpaid categories.
The upgradation to digital services is profitable to the industry too and by inference will provide good returns to anyone investing in this industry. Some of the positives of the policy change which will become evident either in the short or long run are :
  • This will lead to competition to the advantage of the customer and survival of the fittest.
  • More built-in transparency in the system.
  • subscription based revenue model will bring money back into the system and will be used for providing better content and better quality services.
  • Fair tax collection.
  • More available bandwidth will give rise to new uses and new revenue models for the service providers.
  • Fair share of revenue between Broadcsters, MSOs and service providers.
  • Lower dependency on Ad revenue leading to better content.
  • Lowering of losses. Till date the industry has downsized its loses from Rs.19000 Cr. to Rs.10000 Cr. due to the introduction of DTH and Digital Cable in India. The losses will further reduce due to more inherent transperency in the system leading to plugging of leakages and proper reporting of subscriber base.
  • The present and projected market share of DTH and Digital Cable are as follows :

                                            2012                    2020
         DTH                      USD 2 billion      USD 6 billion
         Digital Cable        USD 4.2 billion   USD 6.4 billion

There are many companies either listed or unlisted which are already providing Digital Cable services and DTH services. The better ones among these will certainly gain from the recent developments as they are stand to benefit from the large consumer-base in India who are yet to convert to digital services and will do so by the set deadlines for their regions.

Some of the listed companies in this sector which either exclusively are Digital Cable or DTH sevice providers, or provide these services as part of their larger media businesses are Dish TV, Tata Sky, Videocon d2h, Sun Direct, Airtel Digital TV, Reliance Digital TV, Hathway, Den networks etc. in random order.

Whether some or all of these companies or some new entrant will become the future mulitbaggers, only time will tell. We urge our readers to keep a watch over this sector. Who knows, this incredible sector may well provide some great stocks to invest.