DTH industry: Where's the way out?

By Tarana Khan , afaqs!, New Delhi | In Media Publishing | March 24, 2009
The DTH industry is trapped under the weight of costs and taxes. What's the way out for the growing industry, afaqs! asks the experts

Direct-to-home (DTH) television distributors are bleeding their way to growth. Last year, DTH companies declared a loss of Rs 2,000 crore. The figure is expected to double this year.

Private DTH players had acquired around 11 million subscribers till last year. The number is growing, and as per industry estimates, a DTH operator loses Rs 1,500 to Rs 2,000 on acquiring a new subscriber.

Moreover, DTH operators work on a very low margin. For every Rs 100 earned from a subscriber, the DTH player gets only Rs 1.70, while the rest goes to the broadcasters and the government

& #BANNER1 & #According to documents available with the Telecom Regulatory Authority of India (TRAI), a DTH operator claims that if a package costs, say, Rs 100, Rs 70 is paid to the broadcaster, Rs 12.30 is the service tax, Rs 10 is the license fee paid to the government and Rs 6 is paid as entertainment tax. The current ARPU (average revenue per user) from DTH subscribers is about Rs 170-180.

In comparison, in the cable distribution system - which DTH players compete with - both MSOs (multi-system operators) and LCOs (local cable operators) are laughing their way to the bank.

What can save these DTH companies from going down in a vortex of costs is to have other streams of revenue, which are sizeable enough to enable keeping subscription rates under control. This is also what happens in television and print media, where advertising is a significant revenue stream.

Currently, for DTH players, the additional revenue streams are pay per view (PPV), advertising and carriage fees, which is also known as placement fees. Besides DTH players provide content tie-ups on the interactive channel, special short films or promotions.

However, none of these revenue streams are sizeable enough as of now to rescue the DTH players from sinking.

It is estimated that DTH operators charge between Rs 3-5 crore annually per channel. Last year, they collected an estimated sum of Rs 150 crore in carriage fees. Obviously, not all channels can be placed in the base pack and that is where negotiation and placement fees come in.

However, this is still a very small an amount to recover the loss of Rs 2,000 crore that the DTH players incurred last year.

Although the cable distribution system gets an estimated revenue of Rs 1000 crore in carriage fees every year, industry observers are of the opinion that in DTH sector, the figure will not go much beyond the current 150 crore mark.

Jehil Thakkar, executive director and head of media and entertainment at KPMG, agrees that carriage fees are currently sustaining DTH operators, but he clarifies that the broadcasting industry finds it tough on their business models to pay carriage fees, given their limited pricing for subscription.

Vivek Couto, executive director of Media Partners Asia, a Hong-Kong based company specialising in media research, also feels that carriage fees is not a viable revenue option for DTH players. In fact, he is of the opinion that increasing carriage fees will destroy content further.

"Expect carriage fees to remain flat and fall incrementally going forward. DTH operators need to re-evaluate their whole business models - acquiring subscribers below Rs 100 per month is not viable," he adds.

Dinesh Jain, chief executive officer of Zee Turner, explains further, "Negotiating with the DTH industry is easier, because the cable market is fragmented, while the DTH operators are corporate bodies." But he admits that a commercial negotiation happens with every platform operator.

The other revenue stream, PPV is a service through which subscribers pay to watch a particular movie or other content at specified times through 24 hours.

Both these sources do not contribute significantly to DTH operations at present, but show potential.

"DTH platforms such as Tata Sky are just experimenting with ad sales at present. This revenue stream will likely kick in at a later stage and won't conform to just traditional spot ad sales (it will also include sponsorship and other forms of advertising). In time, it could account for about 5-10 per cent of most revenues for DTH operations," says Couto.

Deepak Srivastava, chief executive officer of Airtel digital TV says, "We obviously have to monetise our active services, which are presently free. When we do it, it will be a combination of advertising and subscription models." He also emphasizes on differentiated content on interactive channels to enhance value offered to customers.

Clearly, DTH operators are playing the numbers game, acquiring the maximum customers before they can calculate the real value of their services.

So what's the way ahead for the DTH players? Until someone comes up with an alternative business plan, we will have to wait and watch.