IBS Mumbai
Date: 05/07/2012 Time: 16:29:07
ME0016
2009, IBS Case Development Center. All rights reserved. To order copies, call +91-08417-236667 or write to IBS Case Development Center (IBSCDC), IFHE Campus, Donthanapally, Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: info@ibscdc.org
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It plans to expand its infrastructure with 9,000 outlets to sell its wares, 100 vans to sell the kits and 150 Dish Care centres.[3] Dish TV platform includes 225 channels with 21 audio channels. It has a huge distribution network of about 650 distributors and 45,000 dealers spanning around 6,500 cities and towns across the country. Highly serviceoriented, Dish TV has a 24X7 call centre with 1,600 seats in 11 different languages[4] across cities to take care of subscriber queries at any point of time and ensure a timely solution to problems. Its registered subscriber base has crossed 5 million[5].
Indian DTH industry is perhaps the first instance of a cross-media restriction in India. There is 49% cap on foreign investment. DTH industry, being a capital intensive industry, this restriction hampers its progress. The capital intensive nature of the DTH industry necessitates long gestation period to reap results. DTH licenses in India cost $2.14 million and are valid for 10 years.[6]
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India cost $2.14 million and are valid for 10 years.[6] The Indian DTH policy requires all operators to set up earth stations in India within 12 months of getting a license. Being the first mover, Dish TV has incurred huge expenses on spreading awareness of the product and launching brand building on a pan-India basis. The company entails cost on some major heads like software and its implementation cost, Customer Premises Equipment (CPE) and content cost. There is capital and incidental expenditure and advances incurred during the pre-operational period .The Subscriber Acquisition Cost (SAC) is a key cost factor and takes on the characteristics of the variable cost. The rest of the cost - the expenditure towards operations - is the fixed cost. The license fee, transponders fee, uplink charges, content charges, etc., are components of the fixed cost (Exhibit II).
The universal goal of any business enterprise is to remain viable. The business viability depends on the maximisation of profit or minimisation of loss. If a firm is making profit, it implies total revenue is greater than total cost. Hence, it is undoubtedly advisable to be in business. When a firm is making loss, it will have to decide whether to continue production or not. This decision will, in fact, depend on the different cost levels. The firm incurs loss if Total Cost (TC) is greater than Total Revenue (TR). In case of Dish TV, its total revenue for FY2008 is INR 4,130 million while the total cost is accounted for INR 6,310 million. Hence, the negative differential of INR 2,180 million constitutes the loss for FY2008. The total fixed cost of Dish TV being INR 4,980 million, its total variable cost is INR 1,330 million (Exhibit III).
Exhibit III Dish TV Financial Year 2008 Report (INR million) Total Revenues Income towards Subscriber Acquisition Income from Operations Total Expenditure Expenditure towards Subscriber Acquisition Expenditure towards Operations Reported EBIDTA Reported EBIDTA Margin (%) 4,130 600 3,520 6,310 1,330 4,980 -2,180 -35%
Compiled by the author from Dish TV India Limited, Investor Presentation Q3FY09, http://www.dishtv.in/Static/pdf/ Dish%20TV%20Investor%20Presentation%20Jan%2023,%202009.pdf, page14
Total revenue of INR 4,130 million being greater than Total Variable Cost (TVC) of INR 1,330 million, Dish TV prefers to remain in business instead of shutting down. Even if it closes its operations, it cannot escape the fixed costs, which have already been sunk. Dish TV is continuing its operations with the expectation of breaking even very soon. Dish TV has 1-year lead over its nearest competitor and around 3-year lead over others. As there is no limit on the number of companies that can apply for the DTH license, the number of competitors is increasing. By leveraging its first mover advantage, it has, however, ensured continued market leadership through aggressive subscriber acquisition strategy (Exhibit IV).
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The cut throat competition in the DTH industry had promoted fierce price war that told upon their margins. Media Partners Asia's (a consultancy that specialises in analysing Asian media markets) recent report reflects that the DTH industry's combined losses are set to cross INR 20,000 million[7] in 2008-2009. As per analysts, each connection sold, entails loss for every DTH player due to provision of subsidised hardware to consumers. However, Dish TV intends to focus on improving its business economics. Dish TV, which was famous for price curtailment in favour of subscribers, has started initiating the process of increasing charges of its connection and offerings. It intends to revamp its entire price structure. The service tax which was being absorbed by the Dish TV would be passed to its customers resulting in around 12%-12.5%[8] hike in monthly subscription. Jawahar Goel (Goel), managing director of Dish TV, has clarified that as the fixed cost of the company has increased radically, the price cutting trend has to be put to an end. Dish TV intends to pass on the cost to the customer without affecting them immensely .Hence, it is focusing on innovative ways where price increase is to be assuaged with value added services. There are industry level initiatives which might help Dish TV achieve its goal. The license fee is reduced from 10% to 6%[9] with retrospective effect from April 1st 2008. There is an attempt to pass on the entertainment tax to the subscriber through consensus. Central Value Added Tax (CENTVAT) is reduced from 14% to 10%[10] leading to lowering of Customer-Premises Equipment (CPE) cost. Dish TV is in the sixth year of its operation. In a recent interview to the Business Standard in March 2009, Goel sounded optimistic, We will turn EBITDA positive within the current, or at the most within the next quarter, much ahead of our targets.[11] EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) is thus, a measure of a firm's gross income. Being EBITDA-positive implies the company is heading towards break-even. In 2008-2009 fiscal, Dish TV crossed the 5 million subscriber mark. Having set aggressive targets for 2009-2010, it aspires to achieve gross subscriber base of over 7.5 million subscribers[12] through addition of yet another 2.5 million subscribers. Advertising, generated on the clean-feed of select foreign channels and carriage fees seem to be the additional source of revenue for Dish TV. It expects the carriage fees to increase from INR 250 million[13] in 20082009 to around INR 500 million in the current fiscal 2009-2010. Whether or not India's No.1 DTH company should remain in business if it undergoes loss is a matter which has recently gained traction from the experts who are evenly divided in their opinion.
[1] Annual report 2007-08,The Undisputed Leader in DTH, http://www.dishtv.in/static/pdf/Annual Report- Full Download.pdf, page 41 [2] Guidelines for DTH Broadcasting Service in India, http://www.indiantelevision.com/dth/dth11.htm, March 16th 2001 [3] Khandekar Kohli Vanita, Life Beyond Cable, http://www.businessworld.in/index.php/Media-Entertainment/Life-beyondCable-2.html, page 2 [4] Reduction of Centvat: Imapct on DTH, http://www.dishtv.in/Static/pdf/Dishtv%20Cenvat.pdf, December 8th 2008 [5] Sinha Ashish, Dish TV May Break even Before target, http://www.business-standard.com/india/news/dish-tv-maybreak-even-before-target/351678/, March 13th 2009 [6] Bharti Airtel gets LoI for rolling out DTH services, http://news.oneindia.in/2007/08/06/bharti-airtel-gets-loi-for-rollingout-dth-services-1186417986.html, August 6th 2007
[7] Dish TV may Break even Before Target, op.cit. [8] Bajaj Vipin, Dish TV to Increase Prices of its DTH Offerings 115.249.252.231/casestudies/mumbai/ME0016.asp
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IBS Case Studies [8] Bajaj Vipin, Dish TV to Increase Prices of its DTH Offerings http://www.televisionpoint.com/news2008/newsfullstory.php?id=1226664399, November 14th 2008
[9] Dish TV India Limited, Investor Presentation Q3FY09, http://www.dishtv.in/Static/pdf/Dish%20TV%20Investor%20Presentation%20Jan%2023,%202009.pdf, page 17 [10] Reduction of Centvat: Impact on DTH, op.cit. [11] Dish TV may Break even Before Target, op.cit. [12] Ibid. [13] Ibid.
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