Business Today

Thinking blue sky

DTH firms in India sight profits as they find themselves on the cusp of what promises to be the world's biggest market for satellite-based TV services.

Anusha Subramanian and Kushan Mitra         Print Edition: August 8, 2010

Entertainment will never be the same again for Yash Panwar, 25, in Uttarkashi. The professional mountaineer from the Uttarakhand village is ecstatic that he and a constant retinue of house guests can watch the latest Bollywood flicks just three weeks after release — at just Rs 50 a day, with multiple viewings thrown in.

All the excitement thanks to a Dishtv direct-to-home satellite television connection, commonly referred to as DTH, which he installed at home eight weeks ago at an upfront cost of Rs 1,590 and Rs 150 a month subscription. The alternative earlier, says Panwar, was either to watch the much-telecast movies on government-run Doordarshan or a six hour drive to Dehradun to catch the latest Bollywood releases. And, in the weeks gone by, the new DTH connection also had a bonanza: the telecast of the FIFA World Cup.

Uttarkashi is not atypical on India's rapidly expanding DTH frontier. It really does not matter if you are in a bungalow in Walkeshwar in South Mumbai or at 13,000 feet above sea level in the far-flung areas of Uttarakhand — a TV signal is just a satellite hop away. Even Indian soldiers posted on the Siachen Glacier count DTH-delivered TV service as their biggest source of entertainment today.

In effect, what DTH is doing to television viewing in India today is what the mobile phone has done for communication in the last decade or so. Like mobile telephony in its early days in India, TV signals that bounced off a satellite to your home were initially touted as a product for rich consumers but have gained in mass appeal since. On offer are entertainment, news and lots more to viewers even in those remote pockets where neither public television nor cable have penetrated.

Through the transition, the DTH industry has grown from 1.5 million homes in 2005 to 23 million today. And, if research firms such as Hong Kong's Media Partners Asia, or MPA, are to be believed, the industry is well on its way to doubling that number by 2012, making India the world's biggest DTH market, ahead of the United States. Yes, that will still lag cable homes (which number 80 million) but will make big revenues. Brokerage IDFC Securities sees the handful of DTH companies in the fray earning total revenues of Rs 12,500 crore in fiscal 2015, taken together.

That potential explains the battle of elbows between the likes of DishtV, Tata Sky, Airtel, BIG TV, Sun Direct and Videocon D2H today for market share. It also throws light on why India is one of the few, if not the only, national market in the world that has half-a-dozen players fighting it out when market structures elsewhere are mostly a monopoly or a duopoly, given the heavy investments that the business takes up.

The big play for DTH in India, believes Jawahar Goel, Managing Director, Dishtv, is a virgin market served only by terrestrial broadcaster Doordarshan. In several swathes of the hinterland, he explains, "people do not have any access to cable TV in the first place; DTH brings them their only source of entertainment". Of the some 125-million colour TV sets in India, his company estimates, about one-third have no access to cable and satellite channels.

With some seven million homes, DishtV, the first entrant in the DTH space, is also the biggest in the business by number of customers. It is closely followed by Tata Sky, a joint venture between the Tata Group and Rupert Murdoch's News Corp., which counts 5.5 million homes among its customers as of end-June.

Third in line is Chennai-based Sun Network's Sun Direct. The entry of big private players such as Reliance ADAG and Bharti Airtel about a yearand-a-half ago, and that of Videocon D2H just six months ago, had the market exploding like never before The business logic for different players in the market varies. Some like DishtV, Tata Sky and Sun Direct see DTH as a forward integration of the programming businesses that they run through Zee TV, STAR Networks and Sun Networks, respectively.

For Videocon D2H, the entry is backward integration. "Our in-house capability of designing, managing and integrating the set-top box inside the television has enabled us to grow faster," says Saurav Dhoot, Director, Videocon Group. Others, such as Airtel or BIG TV, see DTH as a natural corollary to mobile telephony, the main business of their parents. Bharti Airtel and Reliance Communi-cations are the top two players in mobile telephony in India by customers.

Airtel's trump card, it believes, is its network of some 150,000 points of sale built up for the telephony business. "Most retailers who can recharge an Airtel mobile can also recharge Airtel DTH," says Ajai Puri, CEO, adding that nine in 10 of Airtel's DTH recharges are done electronically. This gives it copybook benefits of cross-selling multiple services through the same distribution chain. His company is adding some 250,000 new DTH subscribers every month, he claims, and totals four million today.

Sun Direct is banking on its parent's regional language channels and has learnt to dominate the game fairly early on. CEO Tony D'Silva believes Sun Direct found acceptance thanks to the Sun TV brand and today has 65 per cent market share in the DTH market in southern states. Even with that dominant southern skew in its business (it sells aggressively in Mumbai, Delhi, Ahmedabad and Kolkata, too), Sun Direct recently claimed it overtook Tata Sky to the No. 2 in the business spot with 5.7 million customers. The aggression and hype show on the bottom line of the DTH players: not one has yet reported net profits.

Dishtv made its first operational profit, of Rs 91.5 crore, in 2009-10 but had accumulated losses of Rs 1,140 crore for the three-year period ending March 2009. In a June 2010 report, IDFC Securities analysts Nikhil Vera, Bhutan Gadara and Swati Angelia predict that the listed firm will turn profitable at the net profits level only by the last quarter of 2011-12.

The privately-held Tata Sky is the second-largest player by subscribers, but is No. 1 in terms of revenues, say the IDFC analysts. They estimate Tata Sky ended financial year 2010 with revenues of Rs 1,100 crore but reported losses of Rs 900 crore. The company has invested about Rs 3,265 crore in the last four years.

MPA, the Hong Kong research outfit, reckons that the six Indian DTH firms lost a total of $464 million (Rs 2,134 crore) in 2009 at the operating level. This poor performance is a consequence of rock-bottom pricing to attract customers. DTH service, which began selling at Rs 4,000 for a set-top box, including installation, is now available for Rs 1,600-1,700. The latest price war started in June with the introduction of high definition (HD) services at a heavily subsidised upfront price ranging between Rs 2,599 and Rs 2,990. To sign up each new customer, a DTH company spends an estimated Rs 3,000 but has to make up for that and other costs with an average revenue of Rs 150 a month from each home.

Tata Sky Managing Director and CEO Vikram Kaushik says his industry entered a price war too early in its life cycle. What doesn't help is that cable operators, who DTH players compete with while delivering services in cities, have kept their subscription charges at as low as Rs 100 a month in certain pockets. Sanjay Behl, who runs BIG TV as CEO of Reliance Communications' DTH and Internet protocol TV business, points out that the economic viability and profitability of the DTH industry rest on three pillars: growth in customers, cost of content and taxation of the sector.

Content pricing "for DTH platform at 50 per cent higher than analog cable TV pricing is ridiculously high given the current levels of under-declaration in analog cable industry", he says. India's cable TV providers have been accused of not reporting accurately the number of homes they connect because payments to broadcasters are linked to such customer numbers. High levels of taxation and licence fees, at a cumulative 45 per cent, are another hurdle. "If these things get corrected, we will have a profitable industry," says Behl.

Even so, TV viewing, clearly, is gravitating towards DTH as television buying in India shifts to LCD (liquid crystal display) flat panel displays — some 11.5 per cent of TVs sold in 2009 were flat panels. Data from elsewhere show how that will grow in the coming years. Research firm DisplaySearch says that more than 75 per cent of worldwide TV sales in 2009 were LCD-based. Other experts point to China where conventional tube-TVs made for 80 per cent of television sales in 2008 but this year will account for just 20 per cent sales with flat panel TVs making for the rest.

As Indians buy bigger screen LCD TVs, DTH will likely be the preferred conduit for HD-quality video over other media like digital cable networks or IPTV. Most cable networks in India still run on analog technologies and IPTV has hardly made its presence felt. The sky suddenly looks sunny for India's DTH firms.

— Additional reporting by Nitya Varadarajan

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