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Airtel in talks to buy Tata Play as digital TV industry sees shake-up

The DTH market faces pressure as consumers shift to over-the-top (OTT) streaming services and cheaper options like Doordarshan's Free Dish, forcing traditional operators to seek growth opportunities

Airtel

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Nandini Singh New Delhi

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Sunil Mittal-led Bharti Airtel is in advanced negotiations to acquire Tata Group’s loss-making Tata Play, the country’s largest direct-to-home (DTH) service provider, reported The Economic Times citing sources familiar with the matter. 

The move is seen as a strategic effort by Airtel to bolster its presence in the digital TV space, which faces slow growth, while strengthening its bundled services to increase non-mobile revenues.

The potential sale would signal the Tata Group’s exit from its content and entertainment ventures, following its earlier divestment of the consumer mobility business to Bharti Airtel in 2017. That acquisition was Tata Sons Chairman N Chandrasekaran’s first major divestment since taking over the reins of the group.
 
 
The DTH market has been grappling with shifting consumer behaviour, with Tier-I and Tier-II customers increasingly opting for over-the-top (OTT) streaming services via home broadband connections, while rural users have moved towards cheaper alternatives like Doordarshan’s Free Dish. This migration has placed pressure on traditional DTH operators to find new growth avenues.
 
Negotiations between the two business giants have been ongoing for several weeks, and an official announcement is expected soon, according to those cited. Tata Sons has yet to issue a formal comment.

Market dynamics and strategic fit
 

Tata Play, formerly known as Tata Sky, has struggled to maintain its position in the market due to evolving industry dynamics. “The group had initially seen strategic value in Tata Play, but market conditions shifted,” said a source close to the discussions. “Tata Play fits more seamlessly into Airtel’s broader strategy of bundled consumer offerings.”

Tata Sons holds a 70 per cent stake in Tata Play, having acquired Singapore’s Temasek Holdings Pte’s 10 per cent share in April for Rs 835 crore ($100 million), which valued the company at $1 billion, down significantly from its $3 billion pre-pandemic valuation. Walt Disney, which owns the remaining 30 per cent, is also looking to exit the TV distribution business as part of a larger strategic shift following its 2019 merger with 21st Century Fox.

Airtel is likely to acquire Tata Play at a valuation similar to the recent Temasek deal, according to insiders. It had initially planned to list Tata Play and had even filed for an initial public offering (IPO) in 2022, but the plan was shelved in August.

 

Tata Play: The numbers behind the deal
 

Since its inception in 2006, Tata Play has garnered 20.77 million subscribers, translating to a 32.7 per cent market share, according to Telecom Regulatory Authority of India (Trai) data from March. Bharti Telemedia, which offers Airtel Digital TV, holds a 27.8 per cent share, making it the second-largest player in the DTH market.

Airtel Digital TV has been steadily growing its subscriber base, reporting 190,000 net additions in the June quarter, marking three consecutive quarters of growth. This bucks the general trend in the DTH industry, where cash-strapped players like Dish TV, which holds a 20.8 per cent market share, and Sun TV Direct, with an 18.7 per cent share, are struggling to expand.

Tata Play Broadband, operating under the Tata Play Fibre brand, currently has 480,000 subscribers. In contrast, Airtel DTH has a strong presence in key regions such as southern India, Maharashtra, and West Bengal.

Analysts see the acquisition as a significant move for Airtel to compete with Reliance Jio’s aggressive content and distribution strategies. “The play here is all about convergence,” said an industry expert. “Once telcos are inside a customer’s home, they can bundle DTH, broadband, and even IoT services, securing customer loyalty and eventually offering content for free.”

However, valuation remains a key hurdle, with global DTH businesses facing headwinds. “Airtel is expected to negotiate a discount due to the industry’s overall stagnation and the capital requirements for Tata Play’s broadband expansion,” said another analyst.

Financial and legal hurdles
 

Tata Play’s financial performance has deteriorated, with its consolidated net loss widening to Rs 353.8 crore in FY24, up from Rs 105.25 crore in FY23, according to filings with the Registrar of Companies. The DTH segment alone recorded a Rs 247 crore loss, compared to a Rs 20 crore profit in FY23. Revenue also declined by 6.1 per cent to Rs 3,982.57 crore.

In comparison, Airtel Digital TV saw its net loss narrow to Rs 76 crore in FY24, down from Rs 349 crore the previous year, with a slight revenue increase to Rs 3,045 crore.
 
Beyond the financials, there are operational challenges tied to the merger. One major obstacle is the difference in satellite infrastructure, with Airtel using SES and Tata Play operating on GSAT. Consolidating these platforms could be costly and may risk customer churn, as experienced by Dish TV when it merged with Videocon d2h, which used different satellites.
 
Furthermore, the telecom industry has been dealing with substantial pending licence fees. Bharti Telemedia potentially faces a liability of Rs 5,580 crore, with Rs 3,426 crore already provisioned. Tata Play, too, has received demand notices totalling Rs 3,628 crore, including Rs 1,401.66 crore in interest. The outcome of these legal disputes could influence the final terms of any transaction.

Telecom industry outlook
 

The ongoing consolidation in the pay-TV industry, particularly after Disney’s merger with Reliance-owned Viacom18, is driving speculation of more mergers and acquisitions. The new entity is expected to wield significant influence over content distribution and advertising revenues.
 
As the DTH market continues to face disruption from OTT platforms, Airtel’s acquisition of Tata Play, if finalised, could mark a pivotal moment in the industry, helping Airtel secure a competitive edge against Jio’s growing dominance. All eyes are now on the final valuation and the operational integration challenges that lie ahead.

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First Published: Oct 08 2024 | 11:04 AM IST

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