They are doling out crores to the stars of Bollywood to sell their service. They are selling something that costs Rs 1,600-2,500 for Rs 1,000-1,500. They keep griping that government regulations provide an unfair advantage to a competing technology. They are all bleeding heavily and staring at losses of Rs 4,000 crore in 2009-10. Still, the five players in the DTH (direct-to-home) business are looking forward to doing business. It’s the nature of the business, they say. Tony D’Silva, Chief Operating Officer of Sun Direct, likens it to the infrastructure business—cash-hungry with high upfront investments. "Everyone loses money initially. It will take five to six years to become cash-positive," he says. Till date, Sun Network, the promoter of Sun Direct, has pumped in Rs 2,000 crore into its DTH company, while Astro Malaysia has invested $175 million (for a 20% stake in Sun Direct).
The great expectation of DTH players is that, progressively, more and more of the 120 million, and growing, TV households of the country will yank out the cable wires from their TV sets and hook it up with dish antennas on their rooftops. Once they sign up for DTH, they will stay with them and give them a few hundred rupees, month after month, much like a utility service.

The trick is economies of scale. Even if we sell set-top boxes at a discount, the cost for us will fall once customers begin to pay monthly subscriptions Salil Kapoor, Chief Operating Officer, Dish TV
The numbers are on their side. Of the current 120 million TV households, 75 million are on cable networks, while 11 million are on DTH (the rest don’t have cable TV). As a sign of things to come, DTH operators point to the jump in their subscriber base from 4 million in 2007 to 11 million in 2008. The 2008 media and entertainment industry report of PricewaterhouseCoopers has projected this number to increase to 14 million in 2009 and to 25 million in 2012.
Still, even in the best-case scenario, it’s going to be a long and gruelling conquest for DTH players. In the worst-case scenario, they might go the way of the airline industry, and keep bleeding. So far, DTH companies have been ‘buying subscribers’, by undercutting each other and offering large discounts on their DTH kits. But with the business not generating enough cash, and cash in the system drying up, these companies may have to do a rethink on their ability and strategy to buy subscribers.
Bleak signals, but...
In 2007, there were three DTH players: Zee’s Group’s Dish TV, TataSky (a 80:20 JV between the Tata Group and Star TV) and Sun Direct. Last year, Reliance’s Big TV and Bharti’s Digital TV joined their ranks. As of December 2008, Dish TV was the leader, with 4.8 million subscribers. All five are big business houses and like to be leaders in every business they get into. And they all revel in the game of brinkmanship.

At the moment, a fierce price war is raging among them, and no one is blinking. Today, the break-even point for DTH players is an installation cost of Rs 2,500 and a monthly charge of Rs 250-300. The rush to add subscribers is leading them to undercut each other on one, sometimes even both, of those fronts. In the process, they are losing up to Rs 3,000 per subscriber on entry. Sun Direct, for instance, is giving set-top boxes for free and has pegged its monthly charge at only Rs 99. "The price war has come a little too early," confesses Vikram Kaushik, Managing Director of TataSky, the number two player (3.2 million subscribers).
Still, even in this tight market, they are splurging on star-studded, long-playing marketing campaigns. According to a media planner, the industry’s advertising spend in 2008 was about Rs 1,000 crore. Reliance Entertainment spent about Rs 250 crore on Big TV’s launch; Bharti also reportedly spent a similar amount on its launch.
While all these sales and marketing moves might help them add subscribers, the red on their books is deepening. The industry posted losses of Rs 1,100 crore in 2007-08; analysts say their combined losses could mount to Rs 4,000 crore in 2009-10.
Exact numbers are hard to come by, as four of them are either rolling out their DTH business through an unlisted entity (TataSky, Reliance and Bharti) or it is one of the many businesses of the listed entity (Sun TV). Only Dish TV is listed, and its financials tell the story—smart revenue growth, but increasing losses. For the nine months ended December 2008, though its revenues increased by 72% over the same period last year (Rs 279 crore to Rs 533 crore), its net loss rose by 33% (Rs 298 crore to Rs 397 crore). As of March 2008, it had accumulated losses of Rs 683 crore and its net worth was a negative Rs 453 crore. Its stock is down 70% over the past year.
...High hopes
The companies say these are birthing pains of building the DTH business. Says Vikram Kaushik, Managing Director of TataSky. "The losses we have incurred are much lower than what we budgeted for."
Salil Kapoor, Chief Operating Officer of Dish TV, says a DTH player needs to achieve economies of scale. Basically, the trick is to spread the infrastructure, sales and marketing and content costs over a large number of subscribers. "Even if we sell our set-top boxes at a discount, the cost for us will fall once customers begin to pay monthly subscriptions," he says. Hence, the all-out, cost-no-bar press for subscribers. For Dish TV, in the nine months to December 2008, revenues increased at a faster pace (72%) than losses (33%), which is a sign of some economies of scale kicking in for the company. Still, it’s a long haul. Claims Kapoor: "We will make profits by the third quarter of next year."

Everyone loses money in the first few years. It will take five to six years to become cash-positive —Tony D’Silva, Chief Operating Officer, Sun Direct
If a company can keep pumping in cash, it should be able to keep adding subscribers at a brisk pace. Today, watching TV is a small and essential spend for most households, even among lower-income ones. DTH players are, in fact, seeing the maximum buoyancy in tier-II and tier-III cities, where cable is less organised and has a lower penetration. Says Sun’s D’Silva: "We are facing supply constraints in Punjab, Gujarat and UP." Similarly, Mahesh Prasad, Chief Operating Officer of Reliance’s Big TV, claims that his company mopped up one million subscribers within 100 days of launch. "Where’s the slowdown," he asks rhetorically. Big TV is targeting four million subscribers in two years.
According to TataSky’s Kaushik, the challenge is to continue funding the business aggressively even in a grim market. It’s a big challenge for all, some more than others. Sun TV Network, the listed entity which is rolling out Sun’s DTH business, is rofitable (net profit of Rs 323 crore for the nine months to December), and has cash to burn.
The Tata Group, by comparison, is cash-strapped. Tata Sons, the main promoter of TataSky, has pledged its shareholding in several group companies to raise loans, primarily to fund the JLR and Corus buyouts. At a time when cash is scarce and has to be prioritised, the group is likely to choose existing businesses (like automobiles, steel and telecom) over building new ones (like DTH).
Equity, the other option, also won’t come easy to DTH players. Dish TV managed to complete a Rs 1,140 crore rights issue in December to fund its Rs 1,600 crore expansion. Today, equity dilution would require players to resign themselves to lower valuations than, say, three or six months ago.
On their part, even as they add subscribers, DTH players have to find a way to shore up their average revenue per user (ARPU) per month. Dish, for instance, added 788,000 subscribers in the third quarter (an addition of 16%), but saw its subscription ARPU drop from Rs 150 to Rs 137. Players are looking beyond broadcasting revenues, at value-added services. Dish TV is launching a movie-on-demand channel, which will allow a subscriber to watch a new movie within weeks of its release—Dev D, for instance, will be available within three weeks of its release, at Rs 75 per viewing. Dish also plans to sell ad-time for this channel. Dish is looking to generate 10-12% of its revenues from value-added services.
Risk factors
More subscribers and revenue streams should materialise. Question is, will the

The price war has come in early...the challenge today is to keep funding the business aggressively -Vikram Kaushik, Managing Director, TataSky
accretions be big enough to make DTH players profitable? Besides cash woes, they have three other factors to contend with.
One, the way it is today, cable TV is largely a commodity business. The core offering of DTH players and cable operators is the same. Similarly, there isn’t much to distinguish a Dish TV from a TataSky, or from any others. So, subscribers can leave. They have been switching service providers, complaining of poor customer service. Says an industry observer: "Dish TV’s churn rate is 34% a year, TataSky’s is 15%." This is partly the fallout of competition today, when DTH players are offering packages that don’t require much upfront payment and have a low lock-in amount.
Two, cable operators are organising themselves and embracing the very features that DTH players are parading—interactivity and value-added services. Says Jagjit Singh Kohli, Chief Executive Officer, Digicable, a cable operator: "We are soon going to launch video-on-demand, Internet on TV and online games."
Three, unfriendly regulations have also clipped the industry’s wings. Says Smita Jha, Assistant Director (Media and Entertainment Practice), PricewaterhouseCoopers: "Globally, wherever DTH is the second player, it has always been riding on the back of exclusive content." Most DTH networks elsewhere have their own niche channels. Sky TV, for instance, has a 24-hour golf channel in UK. But in India, since the government doesn’t allow exclusive content (for example, a TataSky beaming its cricket channel only to its subscribers), they are at par with the the cable industry.
Also, compared to cable operators, DTH players pay more to the government as revenue-sharing (10% of revenues; cable operators don’t pay anything) and to broadcasters to carry their channels (50% more then what cable operators pay). For an industry with many players and mired in loses, consolidation could be an option. But that poses a practical problem. Says Jha: "Most players are on different bandwidths and use different technologies. So, mergers can’t be easy." But for cable TV, it is easier, as they are on analog format. What is possible is for DTH players to share infrastructure, the way telecom companies share towers.
Some players feel the new entrants have got carried away and have been too aggressive with their rollouts. "Most have not done their homework well," says an industry observer, who fears casualties if the bleeding doesn’t stop. The players are hopeful. Or, are they just putting a brave face?