19 Oct 2017 18:40 IST

DTH sector: The challenges ahead

Consolidation, stiff competition from internet TV and the fall in data prices are serious threats

In India, the direct-to-home (DTH) technology was launched in 2003 and since then, it has grown phenomenally. According to a TRAI report, the number of active subscribers has increased from 41 million users in September 2015 to 65.31 million in June 2017. At present, in the distribution industry, DTH holds 33 per cent market share, digital cable constitutes 29 per cent and about 38 per cent is dominated by analogue cable.

Despite this growth, DTH faces multiple challenges, such as the threat from cable television and the growing usage of data, which is drawing consumers towards internet TV. The only way for DTH players to survive is to adapt to this new era of data and the internet.

Threat from internet TV

Data consumption has increased 24 times in the last five fiscals according to a Crisil report. With the reduction in data tariffs by telecom operators and the increase in availability of data, consumers have been watching more content online. In 2016, about 49 per cent of data was consumed watching videos online, according to a KPMG-Ficci report. The share is expected to grow to 75 per cent by 2021.

The number of channels online has also increased. As a result, the viewership for this content has been higher. Improved connectivity and data speeds, better quality content and rising penetration of the internet, according to a Ficci report, have also aided growth. As on January 2017, Hotstar, a video-on-demand (VoD) platform, has an active subscriber base of 63 million, followed by Voot TV and Amazon TV, with 13.2 million and 9.5 million active customers respectively. Sony LIV, Netflix and Ozee TV follow with 4.6 million, 4.2 million and 2.4 million subscribers respectively.

The pricing for these platforms is either lower or on par with DTH and cable operators. This situation is forcing DTH players to offer better content, competitive prices and more channels. This has also paved the way for consolidation in the industry. Dish TV and Videocon d2h have entered a merger agreement where Videocon will be merged with the former, to provide DTH services and to better handle competition.

Adapting to the market

One of the major drawbacks of television viewing is the fixed prime time. When it comes to online content, it can be watched any time. According to the 2017 Ficci report, more viewers are watching their favourite shows online and the penetration is set to deepen in the coming years.

This is a major threat to DTH players such as Dish TV and Airtel. DTH companies not only have to invest capital to support the digitisation process but also face severe competition from internet TV. Since most of the households have not completely shifted to internet TV, DTH players have adapted to the market and are now providing internet TV along with their regular offers.

For instance, the DTH arm of telecom major Bharti Airtel has now started offering internet TV, where users get to watch online content as well as subscribed content. Thus, offering hybrid set-top boxes can help the players stay competitive in the market.

This being said, the complete shift to online TV will happen only over the long run, by which time, DTH players will have better technology.

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Digitisation of cable TV

The DTH sector has six players in India. Dish TV has a market share of 24 per cent, followed by Tata Sky with 23 per cent, Airtel with 21 per cent and Videocon with 20 per cent. The existence of so many players makes it difficult for them to retain customers.

Licence fees and taxes also act as hurdles to DTH companies’ growth. These, coupled with low tariffs, are one of the reasons for the lower ARPU (average revenue per user) for the DTH industry. For instance, Bharti Airtel has reported an ARPU decline of 2.1 per cent y-o-y in the June quarter to ₹228.

The digitisation of cable television by the Centre is not yet complete since most households, particularly in the rural areas, either prefer cable service or are unable to afford set-top boxes; this has a negative impact on DTH players. Now, with DD offering free dish services, the DTH sector has yet another challenge to tackle. Eventually, as competition intensifies, DTH players may be forced to lower tariffs, adding pressure to their profitability.