Direct-to-Home (DTH) subscriber growth in India is following a pattern set by Cellular Mobile Telephony subscribers in the region a few years ago. I don’t just hint towards the fact that the “Honeymoon” period is over and the general complaints have increased, although that is very much the case. Three trends clearly emerge:
- Subsidy on CPE:Subscriber numbers reported by platforms are rising steadily, for the most part, because of subsidies offered by platforms on the upfront cost of Set-top Boxes (STBs) and Dish/LNB equipment. This subsidy is used to bring down the CPE cost of adding new subs which is about 50% of the total expense.
- Pre-paid Instability:Largely, if not all, DTH subscribers are on a Pre-paid payment model where they deposit a certain sum of money with the DTH operator and access the services until that “balance” runs out. This also means subs can churn very quickly and there are many inactive (read non-paying) customers.
- Rural Aspirations:Growth is coming in the form of Semi-urban or Rural households that aspire to have “Big City” products and services, be it LCD/LED TV sets or the Pay TV subscription that complements it. This is bolstered by the Government’s ambitious December 2014 Digitization plan.
Nonetheless, the same Government’s 2013 Union Budget of India carried a statement that will adversely impact the Pay TV industry at large. “Duty on Set Top Boxes increased from 5 to 10 percent” for STBs imported from outside India. For DTH operators the impact may be somewhat muted, given how most have recently increased the entry costs from about Rs.1,500 (~$30) to Rs.2,000 (~$40) per subscriber. CPE cost forms about 45% of the cost of adding a new subscriber for the likes of DishTV, Tata Sky, Sun Direct and others. For the cable MSOs, that were playing catch-up in the Digitization race, the same CPE cost can be as high as 55% of the total cost of adding a new subscriber. No wonder then that there is stiff opposition to this increase in Duty on STBs imported from overseas.
The rationale behind this hike was to “strengthen the domestic STB manufacturing industry”. However, the perception is that India lags behind manufacturing giants of the East, when it comes to making STBs. And the few domestic companies that do exist may find it difficult to match the demand both in terms of product specifications and overall volume. While this may not be the case, the fact remains that the industry mindset is to procure equipment from overseas, albeit at a higher cost.
As a result, the Pay TV industry is left with two (rather unpleasant) options:
- Increase the price of the STB to the end consumer. Something that DTH providers have either done pre-emptively or will most probably do in the near future.
- Absorb the 5% difference as a part of the (already large) subsidy they are offering new subscribers buying into their platform.
Neither of these options bode well for the Pay TV eco-system at large. This will also negatively impact Foreign Direct Investment (FDI) flowing into the sector. Much of which is already reluctant to be bullish on $3-$4 ARPUs and excessive churn. For the few operators that are cash-flow positive, it is another hiccough caused by the regulatory regime. For the average Pay TV consumer at home, it means paying more to watch the same thing. But as long as the Indian Cricket team beats Australia, I doubt anybody will complain.
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