SECTOR UPDATE - MEDIA

WatchDog : It’s show time for OTT industry

India Equity Research | Media COMPANYNAME In our first edition of WatchDog, we explore ’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 [email protected]

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 [email protected] 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 available1 on www.edelresearch.com, Edelweiss Securities Limited Bloomberg EDEL , 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 (, 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

Edelweiss Securities Limited 2 Sector Update

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

3 Edelweiss Securities Limited

Media

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

Edelweiss Securities Limited 4 Sector Update

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

75

(mn) 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.

5 Edelweiss Securities Limited

Media

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.

Edelweiss Securities Limited 6 Sector Update

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

7 Edelweiss Securities Limited

Media

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 Q3FY18

Domestic Streaming International Streaming 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

Edelweiss Securities Limited 8 Sector Update

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

9 Edelweiss Securities Limited

Media

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 , 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.

Edelweiss Securities Limited 10 Sector Update

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

Source: Similarweb.com Edelweiss research

11 Edelweiss Securities Limited

Media

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.

Edelweiss Securities Limited 12 Sector Update

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   Mulk  Karwaan  Satyamev Jayate  Happy Phirr Bhag Jayegi  Yamla Pagla Deewana: Phir Se  Paltan   Batti Gul Meter Chalu  Pataakha     Vodka Diaries  Gold  Tumbbad  Source: Edelweiss research

13 Edelweiss Securities Limited

Media

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.

Edelweiss Securities Limited 14 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, – 400 098. Board: (91-22) 4009 4400, Email: [email protected]

Aditya Narain Head of Research [email protected]

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

17 18 17 18

18 18

18 18

18 18

18 18 18 18

18 18 18 18

18 18

18 18

18 18

18 18

- - - -

- -

- -

- -

- -

- -

- - - -

- -

- -

- - -

-

Jul Jul

Jan Jan

Jun Jun

Oct Oct

Apr Apr

Feb Sep Feb Sep

Dec Dec Dec Dec

Aug Aug

Nov Nov

Mar Mar May May PVR Zee Entertainment Enterprise

16 Edelweiss Securities Limited

Sector Update

DISCLAIMER Edelweiss Securities Limited (“ESL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is licensed to carry on the business of broking, depository services and related activities. The business of ESL and its Associates (list available on www.edelweissfin.com) are organized around five broad business groups – Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance.

This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration No.INH200000121 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 includes Financial Instruments and Currency Derivatives. The information contained herein is from publicly available data or other sources believed to be reliable. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in Securities referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors.

This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ESL and associates / group companies to any registration or licensing requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. ESL reserves the right to make modifications and alterations to this statement as may be required from time to time. ESL or any of its associates / group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. ESL is committed to providing independent and transparent recommendation to its clients. Neither ESL nor any of its associates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The information provided in these reports remains, unless otherwise stated, the copyright of ESL. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of ESL and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

ESL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the ESL to present the data. In no event shall ESL be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the ESL through this report.

We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of their receiving this report.

ESL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the Securities, mentioned herein or (b) be engaged in any other transaction involving such Securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. ESL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with ESL.

17 Edelweiss Securities Limited

Media

ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. ESL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk. Research analyst has served as an officer, director or employee of subject Company: No ESL has financial interest in the subject companies: No ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report. Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No Subject company may have been client during twelve months preceding the date of distribution of the research report. There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer. A graph of daily closing prices of the securities is also available at www.nseindia.com Analyst Certification: The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Additional Disclaimers

Disclaimer for U.S. Persons This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

Edelweiss Securities Limited 18 Sector Update

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.

Disclaimer for U.K. Persons The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA").

In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).

This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person.

Disclaimer for Canadian Persons This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst.

This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person.

ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.

Disclaimer for Singapore Persons In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No. 201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors. Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

Access the entire repository of Edelweiss Research on www.edelresearch.com

19 Edelweiss Securities Limited