Reliance Digital TV 2.0
October 2017
Overview of Reliance Digital TV
At a Glance
Headquarters
Year of
commencement
Revenue
Opportunity Summary
Mumbai, India
2008
US$55m
(Vivek to provide inputs)
EBITDA
(US$2m)
(Vivek to provide inputs)
Number of DTH
subscribers
Number of CBB*
subscribers
ARPU per
month/Industry
average
Ownership
*CBB - Cable Broadband
1.0m
Opportunity Overview
 Reliance Communications is looking to divest its position in Reliance Digital TV
 Reliance Digital TV (“the Company”) is engaged in providing direct to home cable broadcasting
services offering 250+ channels and digital picture with MPEG 4 technology
 It has 1.1 million subscribers
 The Company proposes to upgrade its technology at a low Capex and leapfrog competitors (for whom
it will be a very expensive upgrade), which will increase its bandwidth allowing it to provide better
services at a cheaper rate
 Business plan is in place which will require US$500 million over a period of three years
Business Proposition
 The Company plans to upgrade the 1.0 million set top boxes (STBs) to newer H.265 technology which
effectively doubles the bandwidth
 Better services, additional channel and features will help the Company to gain customers vis-à-vis
competitors
 The Company will also offer wired broadband & internet services
(Vivek to provide inputs)
Disruptive Technology
120K
(Vivek to provide inputs)
$4.1/$3.9
Reliance
Communications
 Will use the latest compression and modulation standards (H.265 STBs) to reduce satellite costs
 Middleware and Digital Rights management ecosystem selected to improve quality, add revenue
generating features (USB PVR, Reverse path, Karaoke, Advertising etc.), and seamlessly move to
Multi-play services
 Patentable Multi-Home Multi-Service Gateway for MDU and Multi-play services on and end to end
symmetric Ethernet FTTX Network
Multi-Play Services
 Subsequently offer Multi-play Infotainment services unlocking many new revenue generating
business models by providing services like – Home consumer services including television, broadband, wireline telephone and value added
services like movies on demand, games on demand, home automation, OTT platform etc.
– Enterprise solutions like enterprise broadband, wireline telephony services, VPN, digital fax,
video conferencing, SMS, Centrex, enterprise email, video surveillance etc.
1
Key investment highlights
Unique investment opportunity with several attractive, distinctive features
1
TV Broadcasting industry growth will be driven by digitization
Broadband industry growth will be driven by digital transformation and changing
consumption pattern of entertainment
2
5
6
3
Uniquely competitive position vis-à-vis existing player as well as new entrants
4
Equipped to overcome existing industry bottlenecks and offer better services to
consumers by using technology as an enabler
Well-thought business plan already in place with a vision to disrupt the Broadcasting &
Distribution industry
Experienced management with significant expertise to execute the plan
2
1
TV Broadcasting & Distribution industry – Subscriber & ARPU growth
Steady growth in TV viewership
In millions TV HHs CAGR: 2%
PAY C&S HHs CAGR: 3%
250
200
161
154
181
175
$30.0
186
191
83% 83%
100
81%
81%
200
196
81%
82%
83%
203
88%
$25.0
86%
$20.0
84%
$15.0
82%
80%
$9.1
$10.0
80%
79%
0
78%
2012
$26.0
90%
84%
150
50
168
Lot of upside potential on ARPUs…
2014
TV Households
2016
2018E
Pay C&S Households
2020E
$5.0
India
% of Pay C&S HHs
Service
₹ 400
₹ 400
₹ 361
₹ 350
₹ 290
2015
2016
China
Vietnam Philippines Thailand Indonesia Malaysia
Comments
 Presently, HD penetration in India is 13% with 86 HD
channels as compared to 59% in USA with 170 HD channels
 HD base pack is 2.5x more than standard definition pack; HD
base pack is priced at Rs. 650 as compared to Rs. 275 for SD
base pack
₹ 325
₹ 248
$4.7
… driven by HD content & value added services
₹ 450
₹ 255
$4.5
$10.9
$0.0
… which are expected to come…
₹ 300
$3.2
$10.7
 DTH providers have higher ARPUs than digital cable
providers due to higher HD penetration
₹ 266
 DTH providers have also started providing value added
services (VAS) like movie on demand, music on demand,
Karaoke etc. to drive the ARPU
₹ 250
₹ 200
2017E
2018E
2019E
2020E
2021E
 4K viewing options will further drive the ARPU
1
1
Digitization – Regulatory push to improve services and correct the
inefficiencies
Digitization of Analog Cable TV
Analog cable comes to an end
The Indian Government has mandated that all the country’s analog networks be
replaced with Digital Addressable System (DAS) structured in four phases:
In millions
DTH took
~40% of
the market
share
Expected to
gain
significant
market
share
9
9
10
15
34
37
40
44
28 million subscribers in 38 cities with a population of
(Mar – 13) more than 1 million completed the digitization process
19
25
Phase – 3
69
Phase – 1
(Jun – 12)
14 million subscribers in four metropolitan areas
(Delhi, Mumbai, Kolkata, Chennai) went digital
Phase – 2
(Jan – 17)
Phase – 4
(Ongoing)
44 million subscribers in over 6,100 towns with a
population of more than 100,000 went digital; 5
million subscribers are still going through the process
83 million subscribers in the rest of India went
digital; 42 million analog subscribers will convert to
DAS by the end of 2017
29
22
54
29
31
31
31
30
71
78
81
84
86
68
76
79
82
84
37
45
68
70
65
47
10
2012
2013
2014
2015
Analog Cable
2016 2017E 2018E 2019E 2020E 2021E
Digital Cable
Pay DTH
FreeDish
DTH players are better positioned as infrastructure costs are low
Direct-To-Home
Digital Cable
Analog Cable
Free Dish
Model
Pre-paid based subscription model
with no scenario for bad debts
Post-paid business model with an
element of bad debt
Post-paid subscription model
with revenue leakage due to
under reporting
Carriage fees (earned through
auctions) and advertisements;
free subscription
Customer
Facing
Engages directly with the end
subscribers
3 tired structure divided into
MSO’s, Distributors and LCO’s
Similar structure to Digital
cable
Free subscription
Content
Negotiations
Relatively easier as they account for Face regular bottlenecks on
60% of broadcaster’s subscription account of rising content cost
revenue
On its way out
Provides content with a time lag
which makes the negotiations
easier
Scalability
Easy to scale – satellite driven;
expected to gain significant of
market share in Phase 3 & Phase 4
Outdated technology; will have Similar to DTH
no subscribers post 2017
Revenue
Huge infrastructure investments
required to scale, hence will loose
out in market share in rural areas
2
2
Broadband industry is at an inflection point …
Broadband has so far seen limited penetration; growth to come from demand as well as better supply
for video
Low Broadband penetration, huge market opportunity…
…which itself is based on low standards
Broadband Definition (in Mbps)
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
79%
67%
65%
47%
47%
42%
USA
25
UK
24
China
42%
27%
25%
20
Australia
1
India
Europe
CIS*
The
World
Americas
Asia &
Pacific
India
Arab
States
0.5
Africa
0
Internet subscribers growth driven largely by wireless…
5
10
15
20
25
30
…which has it’s own limitations
In Millions
1200
1,004
1000
853
719
800
600
602
412
400
200
22
499
Cost
effective
Suitability Suitable for high-bandwidth
applications like HD video
streaming, gaming, video
conferencing
3G/4G only suitable for
low-bandwidth
applications
Stability & Can deliver high speed
Data
internet with allowance for
Allowance high data usage
Lower allowance on
data usage
35
29
24
390
475
575
690
821
969
2016
2017
2018
2019
2020
2021
0
*CIS - Commonwealth of Independent States
Wired
Wireless
32
26
Wireless
Wired
No spectrum costs allows the Have to deal with high
companies to provide
spectrum costs
services at a cheaper rate
4
2
…driven by digital transformation and changing consumption
patterns of entertainment
Both TV and broadband will become important modes of media consumption
1 Shifting consumer behaviour
 Consumers moving from “what’s on TV” mindset to “what do I feel like watching”
mindset driven by emergence of OTT platforms like Netflix and Hulu
 Increasing demand for flexibility in terms of timing, volume, and place of
content consumption
Emerging Trends
6  Growing HD adoption and increasing
demand for HD channels
 Industry working towards providing 4K
(Ultra HD) content
 Binge viewing and watching TV on the go
becoming popular trends among
millennials
2 Online viewing of TV content
 Broadcasters are launching their own
platforms to make their like Sony LIV,
ditto TV and Star Player
 Broadcasters are also using YouTube as a
platform to reach to more millennials
 Sports channel are also launching
advertisement based online portals
5 Digitisation drive by the government
 Government in India banned the analog
cable which has resulted in increasing
demand for Digital cable and DTH
networks
 Initiated Phase-4 in March-2017, which
will lead to digitisation of 42 million
analog cable connections
3 Proliferation of non-TV screen
 Increasing demand for tablets.
Mobile phones and laptops to
watch television driven by
increasing smartphone
penetration, falling data
prices and availability of
more content online
4 Increasing Multi-TV households
 Penetration of multi-TV households is currently estimated at ~10% in
India, with ~25-30% penetration in metros
 Increasing trend of multi-TV households will drive the demand for
broadcasting devices
5
Reliance Digital is at a uniquely competitive position vis-à-vis existing players
as well as new entrants
3
Reliance has an ongoing business presence with all approvals while still having flexibility to choose a
technology roadmap
New
Entrants
Existing DTH
players
Comments
Advantage over Existing Players
Advantage over New Entrants
Subscriber Base
Reliance Digital TV has an existing base of 1.1m DTH
and 120,000 CBB subscribers, which provides it
ongoing revenue to limit start-up loses
Licences & Approvals
There is a degree of uncertainty and time gap in
getting all regulatory approvals
Content agreements with
broadcasters
Sorting out content agreements with leading
broadcasters is a time consuming and difficult process
for new players
Existing satellite capacity
It’s difficult for the new player to get sufficient satellite
capacity for transponders
On-ground presence
Reliance Digital TV has an established ecosystem on
ground with existing distribution network and well
trained manpower
Capital Requirements
Each STB upgrade will cost US$30-US$35 to replace
which makes it a huge capital investment and time
consuming process for large DTH players
Technology Upgrade
Reliance with a small subscriber base has the flexibility
to replace the existing STB boxes cheaply and
efficiently
Value Added Service
Increase in bandwidth will allow Reliance Digital to
offer additional channels, HD content and value added
services like games, VoD, and music among others
Broadband
Opportunity to leverage the technology upgrade to
penetrate into the broadband and internet space by
developing a DTH/IP hybrid gateway
6
4
Equipped to overcome existing industry bottlenecks
Reliance Digital TV will offer better services to consumers by using technology as an enabler
H.265/HEVC
(Increases bandwidth)
Increase HD
channels
Additional
channels
Local /
Regional
channels
Multiple
language
support
Advertisement
free channels
DTH/IP hybrid gateway
(Enable multi-play services which increases ARPU)
Television Offerings
Karaoke
USB PVR
4K
VOD
Internet / Broadband
Services
E-Learning
VoIP
Games
E-Banking
Enterprise Services
E-mail
VPN
E-Trading
Video
Conferencing
E-Commerce
Video
Surveillance
Music
Home
Automation
Fax
7
5
Well-thought business plan already in place…
Has made significant progress in key areas with existing infrastructure in place
TIME SAVED ON LICENSES
1
3
 Reliance has existing
operations and
licenses which will
save a year in the
license process and
two years in the
uplink and download
process
ESTABLISHED CUSTOMER
BASE
 Established customer
base of 1.1 million
subscribers will reduce
costs of replacement
and delays in roll out
 Strong on the ground
presence to support
installation
LOW COSTING STBs & CAS
5
7
 Observed drastic reduction
in the cost of STB with
better features and no
compromise on quality
 Reduced cost of
middleware and CAS from
US$7 to less than US$1
RE-BRANDING AND RELAUNCHING
 Fresh branding and relaunching itself with
upgraded technology,
additional channels,
and better features and
services
VAS
Capabilities
 Involved in pricing
discussions with several
software vendors,
resulting in successful
outcomes
 Excellent pricing on
account of multiple
negotiations
 Initiated the process by
working directly with chip
vendors, design houses and
an India based EMS to
develop the highest quality
technology and accelerate
development
 GSAT satellite angles
are favourable and
can help Reliance get
free channels on their
platform without
paying for additional
bandwidth
IMPROVED TECHNOLOGY
MDU
Deployment
6
4
2
ADVANTAGEOUS SATELLITE
POSITIONS
4K
Hybrid
Gateway STB
FAVOURABLE VENDOR
CONTRACT
13M
Subscribers
8
…aligned to a vision to disrupt the Broadcasting &
Distribution industry
Opportunity to be a part of US$54 billion addressable market
Any Content, Any Service,
Any Where , Any Time,
Any Device
Triple-Play
giant
Phase -2: Triple-Play
Phase -1: DTH
Re-establish itself as one of the
major DTH players
Subscription Revenue
from Cable & DTH:
US$6bn
Use the subscriber base to
penetrate into broadband /
internet industry
Fixed Broadband
Revenue:
US$3bn
Phase – 3: Consumer &
Enterprises Services
Leverage the distribution
presence to penetrate into
complimentary industries in
addition to Tri-Play services
TV Broadcast Advertising:
US$3bn
Gaming Revenue:
US$475mn
Film Content:
US$15bn
E-Commerce:
US$26bn
Digital Advertising Revenue:
US$1bn
Music Revenue:
VAS at each stage:
6
US$187mn
9
Potential Concerns and Mitigants (1/2)
An insider’s view on the industry and the Company’s prospects and challenges
Concerns
EXISITING
PLAYERS
Mitigants and Responses
1
 RDTV vis-à-vis larger, existing DTH players ?
SUBSCRIBERS 2
 How will RDTV attract more customers?
ASSETS
FINANCIALS
 RDTV can provide newer technology at lower cost which will involve huge capital outlay
for existing players with large subscriber bases
 New STBs with H.265 technology alone will cost ~US$30 making the capex
requirement for a large player with 10m subscribers to be ~US$300m
 Additionally existing players neither have the management bandwidth or the
existing infrastructure to be able to deliver on a multi-play vision in the future
(Vivek to confirm)
 The technology upgrade will increase the bandwidth without incurring any additional
costs allowing RDTV to provide additional channels, HD content, and value added
services at the same price
 RDTV with its enhanced service offerings can attract new customers
– 47m analog cable customers converting to DTH as part of Phase IV Digitisation
– Win them over from competitors who will not be able to offer similar services
(Vivek to confirm)
3
 What is the value of existing assets?
 RDTV has an existing subscriber base of 1.1 million. With average customer acquisition
cost being ~US$60 in the industry, the customer base alone is worth ~US$60 million
 Intangibles like getting licenses and regulatory approvals, satellite capacity and
negotiating content agreement with broadcasters can take up to two years for a new
(Vivek to provide a ballpark figure)
player and could be worth XXX
 On the ground presence and management team with expertise, vision and a plan on
which they have already made progress
 What is the investment?
 Where will the funds be used?
 When will RDTV become profitable?
 US$450m required in funding over a three year period
 Majority of the funds will be used on revenue generating equipment upgrade and
remaining funds will be used to develop the infrastructure for a multi-play platform
 RDTV is expected to become EBITDA positive within year 2 and cash flow positive by
year 4
4
27
Potential Concerns and Mitigants (2/2)
An insider’s view on the industry and the Company’s prospects and challenges
Concerns
Mitigants and Responses
TECHNOLOGY 5
BROADBAND
OTT
RELIANCE JIO
 What is the technology that will be used by
RDTV?
 RDTV will use forward looking technology like
– Latest compression and modulation standards to reduce the satellite costs
– Middleware and Digital Rights management ecosystem to improve quality and add
revenue generating features like USB PVR, Reverse path, Karaoke, Advertising
– Patentable Multi-Home Multi-Service Gateway for MDU and Multi-play services on an
end to end symmetric Ethernet FTTx Network
 What is RDTV’s competitive edge in broadband?
 Long term goal of RDTV is to be a broadband and internet service provider with
reviving the DTH business being a medium term strategy to gain market presence.
Hence, RDTV is going to work on an integrated ecosystem right from the beginning
rather than as an after thought (Vivek to confirm)
 Why we believe competition has got it wrong? (Vivek to provide inputs)
6
7
 How does RDTV plan to address the growing
trend of consuming entertainment online?
 OTT is a concern for the DTH players who have to think about offering an online medium
 RDTV’s vision of providing broadband services means OTT should not be treated as
competition but just an another source of content for it’s broadband business
 Will Reliance Jio’s entry into the DTH and
broadband market pose a threat to RDTV?
 Reliance Jio is still many years away from entering the DTH industry
– They are still in the process of deciding the technology (Wireless, FTTH, Cable) they
are going to use
– RDTV on the other hand will gain from the first mover advantage and has also
formulated an effective strategy to counter “Freebies” by incumbents or new entrants
 Jio’s broadband plans and our response to them
8
(Vivek to provide inputs on broadband industry)
27
BDA contacts
New York
Euan Rellie
Senior Managing Director
London
Charles Maynard
Senior Managing Director
Dubai
Omar Dobouny
Registered Representative
Seoul
Howard Lee
Managing Director
Tokyo
Jeff Acton
Managing Director
Andrew Huntley
Senior Managing Director
Shanghai
Jeffrey Wang
Managing Director
Mark Webster
Managing Director
Hong Kong
Paul DiGiacomo
Managing Director
Ho Chi Minh City
Paul DiGiacomo
Managing Director
Singapore
Rica Wirianata
Director
Mumbai
Kumar Mahtani
Managing Director
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10