Hi friends.
I reproduce below an article I came accross in Business Standard. It is worth going through if you have an exposure in Dish TV. Surely a HOLD is suggested for a short time longer. Happy reading and investing.
"Things are looking up for the DTH business. Why, then, is everybody so glum?
The first slivers of profit in the direct-to-home (DTH) business are just six months away. That is when the first DTH operator in India, Dish TV, claims it will become profitable, over seven years after it began operations.
It signals very clearly that the sweet spot in DTH comes after seven years and over 6 million subscribers, just like it did for many global players. Dish hit both those milestones in 2009.
“On operating parameters, most of the operators are not negative. If I ignore the (one time) customer acquisition cost, they make good money,” says Salil Pitale, head of media and telecom, Enam Investment Banking.
As an industry, DTH now reaches 18 million homes and gets in Rs 3,000-odd crore (albeit at a loss). In fact one of them, Tata-Sky, has already made to the list of India’s top 20 companies by topline.
The future looks equally good. Currently, DTH reaches just over 13 per cent of the 134 million TV homes in India. At an average growth rate of 30 per cent or so, it is expected to hit just under 50 million homes by 2014, five years from now, going by Enam’s numbers. At an average revenues per user (ARPU) of Rs 150-200 a month that would bring in a topline of Rs 9,000 crore or a couple of billion dollars.
Assuming there are no new entrants and nobody sells out, by then all the six players should be nice and profitable with Ebitda (earnings before interest, taxes, depreciation and amortisation) margins of 30 per cent and a profit after tax (PAT) of at least 10-12 per cent. So, even if the industry is roughly a billion dollars down, chances are it will make up by then, because a bulk of that money is a one-time cost.
The cost problems of pay
The first and biggest issue is costs, the biggest chunks of which are consumer acquisition costs, content costs and taxation. Take each of them.
Consumer acquisition costs could vary between Rs 1,700 and Rs 8,000 per subscriber, depending on whom you talk to. Pitale reckons the industry average is more like Rs 2,400-4,000 per subscriber. The biggest part of this cost is the set-top-box (STB).
Most analysts find this complaint pointless. If companies stopped acquiring news consumers today, they would all be profitable. The choice is to stay put at 2 million subscribers or go up to 7 million. Obviously, most want to acquire more because this business, like any infrastructure industry, is about scale. “People with money are just building market share,” says Pitale. Unlike publishing where newsprint costs rise everytime circulation rises, acquisition costs in DTH are a one-time affair.
Also, churn rates in DTH are about 2 per cent a months compared with 4-5 per cent for telecom. So, once you have a customer, he stays with you for 8-10 years. That gives any operator enough time to recover the subscriber acquisition cost. Pitale points to Dish TV. Of the six million subscribers it has, its acquisition cost was for just the million-odd it acquired in FY2009. So, the money from the other 5 million was revenue that only has to bear operating costs.
Of these, the biggest chunk is content costs. These vary between 40 and 55 per cent of revenues. That, claim operators, are because broadcasters are trying to make up on pay revenues from cable, which usually under-declares. “Why should I pay for your (a broadcaster’s) bidding (highly) for sports rights?” asks Tony D’Silva, COO, Sun Direct TV.
Again, this is a matter of size and negotiating power. DTH operators could become big enough to bump broadcasters off, a la cable. According to estimates, Reliance’s content costs are less than 40 per cent of revenues. “Broadcasters want to bet on winners in the long run and that gives us an advantage in our content deals over our competitors,” says Sanjay Behl, CEO, Reliance BIG TV.
Globally, DTH operators pay about 30-40 per cent as content costs, so Indian operators will probably not be able to go below that.

Continued-2-

The last cost head, taxes, is a valid irritation. The DTH industry pays over 30 per cent of its revenues as taxes. It pays state taxes such as entertainment tax, plus central ones such as service tax. Cable operators on the other hand, pay only state taxes; plus, they under-declare their subscriber numbers. Therefore, about 4 per cent of cable revenue is taxed, according to estimates.
Some good old lobbying as an industry should help there. So would a dedicated broadcast regulator that, unlike the Telecom Regulatory Authority of India, or Trai, does not double as the telecom regulator. “Nobody in TDSAT (Telecom Disputes and Settlement Tribunal) or Trai understands broadcasting,” says one CEO.
Of the total 240 million households in India, 134 have television sets. Of these, 83 million have a cable connection, while 18-odd million have DTH. So, there is a lot of untapped potential for both cable and DTH.
For now, however, most players are squabbling for the cable consumer, since he is the easiest to target. The average cable price of Rs 150-200 per month creates a ceiling of sorts. As competition increases later entrants such as Sun have pulled prices down to Rs 100 a month and even below. “ARPU really depend on how you segment the market,” says Salil Kapoor, COO, Dish TV. If you target cable-dry or frustrated areas, then the ARPU will be different from what you get from cities that are cable sated. And since most players are targeting the same 83 million cable homes, ARPU is bound to come under pressure.
Vikram Kaushik, CEO, Tata-Sky, adds that growth in ARPU will also depend on how cable prices move. If digitisation happens fast and declaration of subscriber bases increases, then cable prices too are likely to go up. In fact, the two big IPOs coming up from DEN Networks and Hathway Cable should hasten this process. These are two of the largest cable companies in the country. If they manage to raise enough capital to push the pace of digitisation, then there could be good news on ARPU.
What could also buffet revenues somewhat is value-added stuff. Already, the release of new films on DTH has seen anywhere between 30,000 and 150,000 people signing in on an operator. This means subscribers paid Rs 75 each to Tata-Sky to watch say Kaminey in different shows over 24 hours. Dish, for instance, uploads 3,000 jobs a day for its subscribers. “Value-added-services should bring in 4-5 per cent of topline going forward,” says Ajai Puri, director and CEO, DTH, Bharti Airtel."
HOLD is surely suggested.