February 2010

INDIAN DTH - 2009

Indian DTH platforms are currently in their 'growth phase.' Their prime focus is to grow the number of subscribers, rather than sell their service at a price that will turn a profit. Clearly, they are all digging deep into their pockets, and their balance sheets are washed in red.

In the past, players have indulged in one upmanship & loudly declared milestones in subscriber counts. However, the going is clearly tougher and the percentage growth, particularly for the larger players is tapering off. As an example, in mid March last year, Dish TV claimed 5 million subscribers and said it would add 3 million subscribers by Dec 2009. That 8 million subscriber target remains elusive today. Estimates are that currently DishTV has approximately 6.5 million DTH STBs in consumer homes.

But the mood remains upbeat. In a mid Jan 2010 statement to the Bombay Stock Exchange, Subhash Chandra, Chairman, DishTV said, "Positive steps continue to be taken by industry players and regulators for a fast growing pay television market. With an estimated two million plus DTH households being added across the country during the quarter, signs are that digitisation continues at a heartening pace. I am confident that the Indian television industry will witness a paradigm change in the way business is conducted and will change for the better."

2 MILLION DEAD STBS ?

A dark secret within the DTH industry is that the number of DTH 'subscribers' claimed are actually associated with the number of Set-Top-Boxes (STBs) seeded into consumer homes. These STBs are not all active.

In fact a large number of STBs lie de-activated, earning zero revenue against a substantial subsidy cost incurred by the DTH platform. As an example, more than a year ago Dish TV's financials admitted that more than 0.5 million of its STBs were deactivated. At that time, Dish TV has less than 4.5 million subscribers. Today, even conservative estimates speculate that there are at least 2 million deactivated STBs lying in consumer homes. These STBs has often been taken against attractive festive offers but consumers have refused to renew or extend subscriptions at full price, later.

Deactivated STBs are a major burden for any DTH platform since the STBs are heavily subsidised. Typically the DTH platform counts on consumers subscribing to the service for 2 to 3 years before they recover their subsidy cost. Assuming that each STB has cost the DTH platform Rs. 2,000, 2 million deauthorised STBs represent an unproductive industry asset of Rs. 400 Crores !

DTH DOES NOT RULE OUT CATV

It is generally presume that every DTH subscriber is a loss or shift from the cable TV universe. This is in fact not true. Mr Subhash Chandra - Chairman Dish TV has pointed out at the November 2009 CASBAA Conference in Hong Kong "50% to 60% of DTH subs also have cable TV."

Hence there are less than 10 million DTH homes in the country that have not subscribed to Cable TV. It is reasonable to assume that at least half of these do not have the option to subscribe to Indian Cable TV. Also it is a well known fact that Indian DTH STBs are bought in India and often taken and utilised abroad in the neighbouring and gulf countries. When all this is accounted for, Indian Cable TV has probably lost less than 5% of its consumers to DTH.

TAXES ON DTH

Cable TV remains the dominant mode of TV distribution in urban and semi-urban homes, countrywide. State Governments levy heavy Entertainment tax on cable TV. Since DTH has emerged only recently, several state governments have not focused their attention on this medium. In 2009, state governments have realised the lacuna and have begun levying an Entertainment Tax on DTH also.

MRTP TO PROBE DTH

In January 2010, Press reports indicated that the CCI (which is the new avatar of the MRTP) is probing all Indian DTH platforms for restrictive trade practices and not abiding by the law. The TRAI has mandated that DTH STBs must be 'inter-operable' allowing the consumer to switch from one service provider to another without having to buy a new STB. DTH providers also do not offer their STBs on rent, on a returnable basis, as is required for Cable TV STBs.

Reports are that the CCI notices will be sent out to DTH platforms in Jan-Feb 2010.

SUBSCRIBER CLAIMS

DTH platforms regularly put out Press reports with their claims of the number of consumers/STBs they have in the market. In many cases these claims are unsupported by actual audits. For whatever it is worth, Table 1 is a compilation of claims/Press reports indicating subscriber counts for various DTH platforms.

SHAKE OUT SOON ?

While the top 3 DTH platforms have been growing well, at least 2 of the remaining platforms are reportedly languishing It appears that the big corporates behind these late entrants do not have the appetite for large infusion of funds. There were press reports in 2009 that BIG TV was looking for an investor to take part stake.

In general industry observers concur that despite the large subscriber numbers, industry monthly ARPUs are very slim and range from an average of Rs. 150 per subscriber to probably Rs 90 per subscriber for SUN Direct, who has predatory pricing to grow its subscriber numbers.

2009 saw attempts by many DTH platforms to introduced value added services such as Movies on Demand & Games. However, these have failed to draw consumer interest. Value added services today contribute less than 5% of the revenues.

With the current recession, the stock market has no appetite for new ventures with prolonged negative cash flows. In fact some pundits believe that 2010 will see at least 1 if not 2 Indian DTH platforms fold up or merge with their competitors.

The first few years of euphoria are over for the DTH industry. 2010 promises to a difficult year with growing STB subsidies and little increase in revenues and ARPUs. Some DTH platforms could get crushed under their own weight. n