Will scale help the DTH industry fight the rise of DD's Freedish & Netflix?

The on-today, off-tomorrow merger of Videocon d2h with Essel Group’s Dish TV was finally consummated last week. What does the birth of the Rs 60 billion Dish Videocon Limited (DVL) mean? 

That depends on who you talk to, says Rohit Dokania, senior vice- president for research, IDFC Securities. The deal means nothing for consumers, but for a broadcaster, “distributors getting scale is a negative, it will push down the price of content,” he says. It means a more consolidated market with four players, down from six earlier. Tata-Sky, DVL and Airtel will be slugging it out nationally while Sun Direct remains largely South-based. This means better margins and more investor interest. Warburg Pincus’s buying of a 20 per cent stake in Airtel’s DTH arm for $350 million in December last year is one indication, says Mihir Shah, vice-president, Media Partners Asia. 

And it could mean more consolidation. There have been persistent rumours of an Airtel Digital TV-Tata Sky merger for some months now. Harit Nagpal, managing director and CEO, Tata-Sky, denies it, while Sunil Taldar, CEO, Airtel Digital TV, declines to comment on it. 

All of this  —more scale, investment and consolidation — is expected to help DTH fight the two big battles on its hand: against DD’s Freedish and streaming services such as Netflix. 

What is driving the action?

“Consolidation is inevitable given the construct of the industry. There are four to five DTH operators accounting for 35 per cent of homes but contributing more than 65 per cent of pay TV revenues,” points out Jawahar Goel, chairman and managing director, DVL. 

TV distribution in India's Rs 660-billion television industry is fragmented and overregulated. There is no level playing field among different distributors of the same TV signal — DTH, headend-in-the-sky, cable, IPTV. For example, there are about 60,000 cable operators, many of whom don’t declare their total connections thereby saving on tax. Also unlike DTH, cable operators don’t have to pay licence fees. As a result, their operating costs are half or one-third of DTH. Not surprisingly, then, most DTH players have taken 10 years and more to turn profitable and are still not fully out of the woods. 

For instance, Dish TV had seen revenues stagnating for two years now and operating profit falling in March 2017. Now the combined DVL expects to push down costs and improve margins by about 13 per cent by the end of March 2020, says the IDFC Securities report. With 29 million homes or a 44 per cent share of DTH homes, DVL is a dominant DTH player. Add the homes that holding company Essel Group covers through Siticable and the total is over 40 million across the two distribution technologies. So about 22 per cent of all TV homes in India are controlled by Subhash Chandra’s Essel Group, making it a monolith of sorts. 

However, it is the privately held Tata-Sky with over 15 million homes that does better. It has the same top line as DVL, implying much better average revenues per user or ARPUs. 

There is no guarantee that DVL’s size or Tata-Sky’s better ARPUs will help them deal with the two main challenges. “Competition for DTH is (DD’s) Freedish, that is what is leading to down trading (falling ARPUs),” reckons Shah. DD’s Freedish reaches 24 million homes in small towns and rural India, the fastest growing markets for TV in India. In the small towns and rural markets, where free-to-air TV is spreading, customer acquisition is the game, thinks Taldar. Then there is cable which controls 100 million of India’s 183 million TV homes. Nagpal reckons that “if someone can bring scale to cable with better processes, it will be good for the industry because cable delivers the same product.” 

Then, there are streaming services such as Netflix or Amazon Prime Video. There are murmurs of cord-cutting, which both Nagpal and Goel dismiss. “There is no cord-cutting here. Netflix, despite having less than a million active subscribers, is an ‘And’, not an ‘Or,’” says Nagpal. “DTH and cable offer a cheaper solution,” says Goel. On an average Indians watch three hours of TV a day translating into Rs 3,000 a month as just data costs compared to an average of Rs 200 or more for DTH. “If Jio comes with dual play (Fibre to home plus TV ) it could take away the top 5-7 million homes,” thinks Dokania.  

Analytics help Tata Sky to monetise its largely urban consumer base better. “We get an equal measure of growth from new subscribers and from existing subscribers buying more content,” he says. Taldar from Airtel reckons that in urban markets where online is growing, there is an opportunity for products such as the Airtel Internet TV pack launched last April. It allows users to move seamlessly between linear TV served via satellite and a streaming service. “All our research suggests that consumers want to watch online also on a TV screen,” says he. 

The best company then may not necessarily be the largest one. It will be the one that can balance the growth needs of these two markets — the urban, over-served one with the rural fast-growing one.