DD Free Dish turns the heat on private DTH players

Some like Videocon d2h are negotiating with broadcasters to create differentiated content

It’s the DTH (direct-to-home) industry’s telecom moment. Akin to the price war started by Reliance Industries’ (RIL)’s aggressive foray in telecom, private DTH players such as Dish TV, Tata Sky and Videocon d2h, among others, are witnessing strong disruption from government-owned DTH provider DD Free Dish over the past year or so. 

The company has grown its revenues by 53 per cent in FY17 to Rs 275 crore and added seven million subscribers in the past one year (see table), albeit on a smaller base. It now has close to 22 million subscribers, an increase of almost 47 per cent over the CY2015 base. Comparatively, the entire pay DTH segment grew by about 23 per cent in CY2016. Notably, Free Dish’s subscriber base is now higher than Dish TV’s 15.3 million net subscribers and 12.5 million subscribers of Videocon d2h. While the merger of these two private players will elevate them to the top position in the sector, the threat of Free Dish again catching up will continue to loom given the pace at which the public sector company is growing. Nonetheless, growing the subscriber base and/or retaining the existing ones may prove difficult for private players going ahead, believe analysts.

The trend is in contrast with earlier expectations. Most private DTH companies were hoping to accelerate the pace of subscriber additions in Phase-III and Phase-IV of digitisation and analysts had pegged the opportunity at 75-80 million subscribers. The disruptive growth of Free Dish could dampen these expectations.

Rajiv Sharma, analyst at HSBC Securities, says, “Free Dish ramping up to 250 channels over the next two years may hurt both broadcasters and private DTH players meaningfully as this may see existing paying subscribers churning to Free Dish.”

As the name goes, Free Dish provides free DTH services to the price-sensitive consumers in the tier-III and tier-IV cities and towns; it earns revenues in the form of carriage fees (earned through auctions) and advertising. 

The company provides original content of channels such as Zee Entertainment, Sony TV and others with a time lag on the free-to-air (FTA) channels of these broadcasters, which include Zee Anmol and Sony Pal, among others, or the content is generated specifically for the targeted audience. 

The Doordarshan-led DTH company collects significant money from auctions where broadcasters can bid for the different channel slots available on Free Dish. The money so raised provides fuel to grow Free Dish. In its latest auction held on May 9, Sony Wah, Zee Anmol Cinema and 9X Jalwa each bid successfully at the reserve price of Rs 8 crore; Free Dish is now gearing up for its 35th auction on Thursday.

While DD Free Dish provides broadcasters an opportunity to reach and tap into the high-growth regional advertising market, it also reduces their subscription revenues. Subscription revenues contribute just 30 per cent to pay television companies’ revenues in India (with the rest coming from advertising) as against 60 per cent globally. Revenues from subscription services are more sticky and sustainable as compared to advertising revenues which are a function of economic growth as well as the television ratings of channels.  

The price-sensitive nature of Indian consumer is a key factor driving Free Dish’s expansion. "We are seeing instances of people watching Videocon d2h and Free Dish on the same satellite dish. Since they do not want to pay Rs 250 to Videocon d2h every month, they use two set-top boxes. One is a Free Dish box and the other a Videocon d2h one. So whenever there are events such as IPL, Champions Trophy or any other cricketing event involving India, these users pay for one month and watch it on Videocon d2h; then they shut it off. It is loss of revenue for us," said a senior spokesperson at Videocon d2h. Even as revenues are under pressure for these private DTH companies, they have limited scope to cut costs, which, in turn, could pull down profitability, believe experts.

Tata Sky did not participate in this story citing their spokesperson was travelling and hence unavailable to comment.

“We believe Free Dish could add 30-50 million subscribers in the coming years. We find DTH companies to be most vulnerable to Free Dish as most new subscribers may move to FTA and some paid subscribers may move to FTA as well,” said Sachin Salgaonkar, media analyst at Bank of America Merrill Lynch. Industry body Ficci, along with KPMG, estimate Free Dish’s net negative impact on industry revenues over 2016–21 will be around Rs 9,000-11,000 crore.

Though most DTH players have launched Rs 99-plus entry-level packs to cater to the mass segment, the process will pull down their average revenue per user (ARPU). 

“We are discussing this issue with broadcasters, wherein they could offer differentiated products to subscribers on Free Dish and those on pay TV. Broadcasters should also pay carriage fees to us like they do to Free Dish,” the spokesperson from Videocon d2h said.

Some analysts believe the pay TV model could come under pressure. “Broadcasters’ shrinking the window (time lag) of fresh content on FTA channels is a concern as subscribers might then see no reason to subscribe for pay TV,” said Vikash Mantri, media analyst at ICICI Securities.

Already reeling under the disruption caused by Free Dish, pay television DTH players also need to watch out for RIL’s entry into the sector and its growth strategy thereof.