Cable to go digital; Den, Dish, Hathway top gainers

If you had bought Hathway Cable’s stock a year ago, till three days back, your asset had lost 80 percent of its value. Today you have recovered almost half the losses. The obvious reason for such excitement is the government’s assurance to add a new clause to its Cable Act that will make digitisation in the cable sector mandatory. Analog cable services will see its death on 31 March in the four metros while the final nail in the coffin will be put by 2014-end.

This mandatory digitisation, will be done in four phases as recommended by telecom regulatory authority of India (Trai) and information and broadcasting ministry.

Multiple system operators (MSO) like Den and Hathway will be the biggest gainers from the move. Morgan Stanley says the biggest beneficiaries will be Hathway, Dish TV, Zee and Sun TV (in that order). Den Networks is up 21.7 percent in one week, Sun TV is up 2.7 percent and Dish TV is up 3 percent.

G Subramaniam, the chief financial officer for Hathway told CNBC Tv18 that subscriber levels could go up more than 4 times, mainly because of better declaration. In fact, more transparent declaration of the subscriber base will perhaps be the biggest gain from the digitisation move. Hathway already has 1.8 million subscribers in Phase 1, of which less than 0.5 million are digitised. This means the remainging 1.3 million subcriberers are waiting to be digitised.

IDFC says in the past one year, voluntary digitisation on ground has been muted. In fact Den and Hathway together have added less than 1 million subscribers as players did not have the incentive or capital to go and aggressively digitise. Now they would probably be eager to offer 100 percent subsidy on set top boxes to complete the digitisation process.

The other main stakeholders in the ordinance are local cable operators (LCO) and broadcasters . LCOs will not be too eager because they have to now declare the actual subscriber base unlike under declaration as before. But since digitisation is mandatory, and they don’t have enough capital to go ahead with the process on their own, they have to align with MSOs .

But broadcasters are stakeholders who could in fact push hard for this ordinance to become successful. Over the years, subscription has become an important part of their revenue. Though DTH constitutes 30 percent of the cable universe, it contributes half of the revenue for broadcasters. IDFC says, they are also subsiding content cost for DTH players as ad revenues are suffering due to intense competition. Their dependence of subscription revenue now is way more than what it was a few years ago.

TV stocks could see re-rating though none of the estimates are out yet. The only hitch in the ordinance lies in the timeline. The deadline for completing digitisation could be a bit too ambitious because it’s still not clear who would be responsible and accountable for this. Irrespective of a few month’s delay in the process, the decision to digitise will change the dynamics of the TV and cable industry once and for all.

Watch video:Hathway Cable eyes huge subscriber growth post digitisation