Subscriptions zoom, but profitability is taking some hard knocks.
Direct-to-home connections may have improved the picture quality on television sets, but the industry's finances are getting hazier by the day.
Media Partners Asia, an international research agency based in Hong Kong, says the Indian DTH industry is bleeding, with a negative Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of 84 per cent. This, despite the robust subscription numbers DTH operators report every month.
Today, there are around 18 million DTH subscribers in the country. In March this year, Tata Sky crossed the five-million customer base and the company said it was adding around 1,50,000 customers every month. Bharti Airtel DTH has been aggressively gaining ground in the urban markets and its subscriber number has gone beyond two million.
Though the numbers look impressive, the churn the industry faces, with subscribers going back to cable subscription or switching between operators, is a huge challenge.
Industry experts say the average churn is around five-six per cent every month, while it is as high as eight per cent for some operators. "Churn is a challenge, as the cable industry is unregulated in the country and they artificially maintain lower prices. There is a lack of level playing field with cable operators," says Vikram Kaushik, CEO of Tata Sky.
Dish TV, the market leader with over seven million customers, however, says its churn of one per cent per month "is below the industry average and is not an issue", according to Salil Kapoor, chief operating officer.
Tony D'Silva, CEO of Sun Direct DTH, also says "our churn level is in single-digit and we are managing it by providing additional features to our customers".
Another pressure the industry faces is the huge subscriber acquisition cost. Dish TV, the only listed operator, has a customer acquisition cost of Rs 2,500 per customer. Since the other players -- Sun Direct DTH, Tata Sky, Bharti Airtel DTH, Reliance Big TV, Videocon D2H -- are private entities, they do not share financial numbers. However, experts say the customer acquisition cost for most players is in excess of Rs 3,000 per subscriber, which includes cost of sales and marketing and installation of hardware and, in some cases, part of the hardware cost that operators absorb to make the equipment saleable.
MPA projects India to be the world's largest DTH market by 2012. However, the earnings for operators would be much lower than the global benchmark. "While the number of subscribers in India will be higher, at 36.1 million, than that in the US at 32 million, the ARPU (average revenue per user) would be far lower at $4 per month than in the US at $80 per month," said Vivek Couto, executive director, MPA.
MPA also envisages consolidation in the Indian DTH market. "We suspect the DTH market will consolidate from six to four platforms within three to five years, and estimate four will be making money at the Ebitda level by FY13 (2012-13)," says Couto.
Operators are, however, trying various methods to control the churn and improve their profitability by increasing the ARPU. "A challenge for DTH is ensuring that recharge availability is simple and easily available. This is the core to controlling churn. We have our easy recharge platform and our vast reach of mobile distribution. We have also built several other channels like the IVR, the web, SMS, etc, to ensure there are multiple access points which the customer can use at his convenience," says Fugato Basenji, chief marketing officer-DTH, Bharti Airtel.
Since just acquiring additional customers cannot be a profitable model, operators are making efforts to convince customers to migrate to higher packs. Operators are also making a sales pitch on the value-added services they offer.
Tata Sky claims its ARPUs are healthier than most others, thanks to its interactive services and quality of its subscribers. Dish TV had ARPUs of Rs 140 in the last financial year and expects it to be Rs 145 in the current year. D'Silva of Sun said his company was making efforts to not only get more customers but also getting them to buy higher packs.
Echoes Banerji of Bharti: "Our ARPU levels are growing steadily, as we are acquiring consumers in higher packs and because of our programmes on the usage side. Our usage and revenue enhancement programmes are run on a wide range of attractively priced top-ups, as well as our excellent pay per view movie collection," said Banerji.
