DTH players offer higher subsidy to their customers

[saurabh_g]

GROUND ZERO: A bleeding subsidy (Source: Impact Magazine)Curious why India's grossly underserved direct to home (DTH) market is not getting the kind of traction that it should? And that too with multiple players in the field. While the broadcasters Zee (Dish TV), Tata Sky (Star), Sun and Doordarshan (for cable dry zones) are fighting for market share, aggressive telecoms Reliance Communication (Big TV) and Airtel (Digital) are hot pursuing the networks in a market which clearly has enormous potential. Potential yes, but problems galore. The subsidy being provided by the DTH operators in this business is killing these players softly but surely. Bearing this cross, the DTH players are in a jam, while logic says that they should be making money hand over fist.Let us take a quick gander at the math of the DTH business. What is the per customer subsidy that is being given by the service provider? DTH operators, even the bigger telcoms Reliance and Airtel are bleeding profusely. Not only is the set top box being subsidised, but an extremely high customer acquisition cost is being forked out. Advertising an integral part of this customer acquisition programme is a scary Rs 500 per subscriber. Airtel's Digital is the broadcast sponsor for IPL 2.0. Each customer is being given approximately Rs 2910 subsidy by the operator for acquisition. The per subscriber subsidy broken down reads like this:*Customer premise equipment cost Rs 2000*Given to retailer/distributor per sub Rs 600*Advertisement per subscriber Rs 500*12 month free package cost Rs 1800*TOTAL COST Rs 4900*Money taken from subscriber on board Rs 1990*Subsidy given per subscriber Rs 2910Which brings us the old adage of the more you sell, the more you lose. In the newspaper business, it is the advertising which covers costs and returns profit. If newspapers were to sell without advertising, they would all be in the pawn shop. Similarly, the more the DTH operators sell under the existing regime, the more they lose money. So, here is a damn good business, but highly loss making. While the set top boxes are being shipped in from China at lowest cost, cut throat pricing in the market is not allowing any of the operators any room to manoeuvre.We are expected to have closed 2009 with around 83 million cable & satellite households, a growth of 8 per cent over the previous year which had 77 million C & S households. Against that DTH would have completed 15 million households this year, an increase of 50.3 per cent over last year's figure of 9.9 million households. I asked my young friend Rohit Dokania at Batlivala & Karnani Securities to provide me with some cold figures and projections for this business. The numbers are startling - the growth will slow down to a mere 25 per cent to 19 million for 2010, a trickle of 13 per cent to 21 million in 2011, a centipede like 10.5 per cent to 23 million in 2012 and so on. Instead of exponential growth, very matter of fact numbers. The reason is simple - the more you sell, the more you lose. DTH really got a fillip when Conditional Access System was notified in several metrops in India. This had seen a bitter battle between Subhash Chandra's Zee and then Peter Mukerjea led Star TV. It had spilled over to the news pages and I remember then I & B secretary Pawan Chopra being in the thick of the battle, trying his level best to control the two corporate rivals. Those days at HT, we wrote many stories on the subject.So, what is the future of this beleaguered industry? Market leader and first mover Dish TV now plans to launch ultra low cost set top boxes and even cheaper monthly subscription schemes to tap the 40 million non-cable and satellite TV homes in India. I must add here that if we have 83 million C & S households in India, we also have an additional 49 million terrestrial TV homes. This is what Dish TV wants to plug and play into. Dish TV MD Jawahar Goel hopes to post profits in the recently concluded quarter for the very first time. Goel believes he can add 2 to 2.5 million subscribers in 2009-10. His battleplan is segmentation and attrition from the DD homes. Dish TV wants to launch premium STBs for affluent homes with home theatre systems, as also live TV on the go to car owners. He is already providing live TV on the go to Kingfisher on board the aircraft. Tata Sky has already gone in for market segmentation by offering Live TV (record and watch live) by offering boxes and subscriptions at a higher price point.The biggest problem that DTH operators face today is the lack of forebearance (in reverse) in their sector. Unlike telecom tariffs which benefited due to forebearance as service providers slashed rates to rock bottom to benefit consumers. Here the situation is diametrically opposite - DTH operators cannot raise rates to survive. In a highly competitive but capital intensive business, this is a major downer. First the operator has to pay through his nose to buy the boxes from China, then he has to pay a hefty sum to acquire the customer.But the bigger challenge is the absence of a bonafide broadcast regulator in the country. India's telecom regulator doubles up as the broadcast regulator from the NDA's days when Pradip Baijal functioned as a dual authority. Now the problem is that the telecom regulator while smart and agile to the needs of his sector doesn't really have the wherewithal, expertise and bandwidth to deal with broadcast matters. The cap on consumer pricing is actually hampering growth in the sector. Since the telecom regulator and other members of the Authority are steeped in telecom experience, they don't have the basic understanding to deal with broadcasting issues. Let me explain why I say this. I knew Pradip Baijal extremely well and I know the present TRAI chairman Nripendra Mishra equally well. I am not casting aspersions on their conduct or capability. All I am saying is that broadcast is a vast business domain with complexities which are in variance with telecom regulation. At the same time, I must add that if India has a gangbuster telecom landscape, then it is primarily because of the push that it has got from two successive regulators - Baijal and Mishra.Let us understand the complexity - voice and data transfer require only two resources - one very scarce called spectrum and the other licence fee. Broadcast meanwhile is myriad. One cannot charge the same sum for money for news, general entertainment and cricket content. There has to be proper segmentation in pricing of content. The cap of consumer pricing means two things - not only is the DTH operator getting it in the neck, but equally the channel and network is suffering due to this. Which means that as a consumer I should be willing to pay more to my DTH operator, I guess end user needs to pay, as long as he doesn't get fleeced and it doesn't border on profiteering. Perhaps the cap can be enlarged so that the subsidy is partly taken care of. I hear that DTH operators, a powerful combine if not a cartel because Zee doesn't see eye to eye with Tata Sky while the animosity between Reliance Big and Airtel Digital is too well known to recount here, are already lobbying hard to get some justice. It is believed that animus between Airtel and Reliance Big TV cost Sony MSM boss Kunal Dasgupta his job, and set off a domino which nearly engulfed the IPL in a ring of fire.DTH is a good viewing experience if I am a consumer, but believe me, if you are the operator then you are walking on egg shells.

 

[the warrior]

thats a gr8 post mate:thumb:

 

[icycool25]

Several people has said this before that India is still not ready for DTH and its true. Really, not only Dish TV, almost all of the DTH players in India are running at a loss. Its only in India where DTH is still somewhat cheap. In the foreign countries, it damn expensive. This is the main area where the DTH operators are loosing out in terms of money. And they are helpless, they cant increase the cost to an unreachable level, because then DTH would not be accessible by the majority middle-class people in India. This is my opinion, no personal offence meant..!

 

[the warrior]

^but india is an devoloping country and if the DTH prices been increased then nobody would afford it and so they have to sacrifice something to get a new customer

 

[icycool25]

^but india is an devoloping country and if the DTH prices been increased then nobody would afford it and so they have to sacrifice something to get a new customer

Ofcourse India is a developing country. DTH operators cannot increase the cost keeping in mind the economic condition.

 

[the warrior]

:thumb::thumb:

 

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[jdjain1]

Well , In this case Gov must inter wen:wall::wall::wall::wall::wall::wall: , another wise in next 5 year we will only see 2 player in market rather than 5 to 6