Dish TV: In a soup

The DTH player has piled up huge losses, thanks to higher ad spends, commissions.

The losses are piling up at Dish TV, a direct-to-home service provider. While subscribers continue to sign on "" one million paid up for the service in FY08 "" higher dealer commissions and advertising costs have left the company reeling with losses of Rs 414 crore.

That is disconcerting to say the least because the income from sales and services for the year were just Rs 412 crore, though they rose 115 per cent over FY07. Little wonder then that the stock, which currently trades at Rs 33, has been underperforming the market.

The company desperately needs resources to meet rising costs and has planned a Rs 1,100 crore rights issue. However, it will not find it easy to raise resources in a weak market and moreover, the equity overhang will mean further pressure on the stock.

Dish TV has lost market share to competitors over the past year "" its share currently is 59 per cent down from 70 per cent in FY07. However, it nonetheless boasts a subscriber base of 2.5 million (net of churn) the result of some aggressive marketing "" the advertising bill alone was Rs 97 crore last year.

The customer base has been built up at a price; the cost of acquiring a subscriber has jumped to Rs 2,600 in the March 2008 quarter from Rs 1,800 in the December 2008 quarter, which is a rather sharp increase.

That's because Dish TV has been subsidising the set top boxes that customers buy, providing them at a very low price. Of late, the price of set top boxes has been reduced further and the management has indicated that the cost of customer acquisition could go up to Rs 2,800 per user in FY09.

Given the keen competition in the space and the prospect of some deep-pocketed new entrants, Dish TV perhaps needs to pursue a strategy where it makes the product more affordable for customers.

That's the only way by which it can add subscribers and hit the target of two million in FY09. However, that means it will be a long while before the company recoups its losses.

Dish TV is currently be realising more from its customers "" the average revenue per user (ARPU) was up 27 per cent to Rs 165 in FY08 over the previous year but the competition will only increase there is bound to be a price war. Moreover, costs seem to be rising faster and are offsetting any increase in ARPUs.