DTH industry to rev up as subscribers rise, costs ease

MUMBAI: After years of depressed growth, the direct-to-home industry is likely to improve over the next two years as costs decline, companies aggressively increase their subscriber base and the market leader nears breakeven.

However, profits at loss-making DTH providers, bogged down by high subscriber acquisition costs, selling and marketing expenses and low revenue per user, might take longer, analysts said.

"Like in a lot of businesses, the first round of economic destruction has happened, the business has bled, but from here on, the industry will take off," IDFC Securities analyst Nikhil Vora said.

Salil Kapoor, chief operating officer at Dish TV, said the Indian DTH industry should have 33 million subscribers by the end of this fiscal and expects it to be the largest globally, overtaking the U.S., much earlier than analysts' projections of 2012.

The historically high subscriber acquisition costs -- cost the DTH provider records for each subscriber -- have stabilised over the last one year.

Subscriber acquisition costs, which were initially as high as 6,000 rupees, have now stabilised at somewhere between 3,000 rupees and 4,000 rupees, Anil Khera, chief executive at Videocon D2H, a unit of Videocon Industries , said.

Subscriber acquisition costs should fall by 20 per cent in the next two years, an analyst, who did not wish to be named, said.

"Subscriber acquisition costs should definitely come down because of stabilisation in price war and reduction in the price of set-top boxes," the analyst added.

Dish TV launched its DTH services in 2005, becoming the first entrant in the Indian market. Tata Sky, Sun TV Network's Sun Direct, Reliance Big TV, Bharti Airtel's Airtel Digital TV and Videocon D2H jumped in later, setting off a price war to gain subscribers in an analog-dominated market.

Prices of set-top boxes, a large chunk of the subscriber acquisition cost, have dropped considerably over the years, especially in markets such as China and Taiwan. Service providers such as Videocon D2H are also manufacturing their own set-top boxes to cut down on costs and avoid import duty.

Additionally, the rupee's appreciation against the dollar is also pushing the cost down. The rupee has appreciated 3.2 per cent against the dollar so far this year.

MUTED ARPUs COULD EDGE UP

Cut-throat competition has so far kept average revenue per user (ARPU) subdued, but going forward DTH companies could see ARPU rising to 225-260 rupees in the next three years from the current 140-150 rupees, Vora said.

Changes in the content sharing agreements between broadcasters and service providers are also helping DTH companies reduce costs to a certain extent.

Earlier, the broadcasters' fee would change depending on the DTH companies' total subscriber pool, but of late, many DTH providers have worked out fixed-pay agreements with broadcasters.

Dish TV, which recently crossed the 9-million-subscriber mark, is leading the way to recovery. The company is aiming at profitability in the coming months and analysts expect the firm to break even in calendar year 2011.

"Others should be able to breakeven by FY13 or FY14 because you need to have more subscribers to breakeven faster," K.R. Choksey analyst Rohit Maheshwari said