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How Dish TV planned its new phase of growth

MUMBAI: For market leader Dish TV, the 2014 fiscal year was tough and needed repair. Debt was high at Rs 1,633 crore (Rs 16.33 billion) at the beginning, content cost was climbing, subscriber additions were sluggish and average revenue per user (ARPU) was at a low level.

It was time to take corrective steps to cut debt, get in quality customers, push HD acquisitions and minimise subsidy for a faster break-even.

Dish TV CEO RC Venkatiesh“Our focus in FY14 was to lighten our balance sheet. Since this was our priority, we had to compromise a bit on growth and were not aggressive on mopping up subscribers,” said Dish TV CEO RC Venkateish.

When Dish TV set foot on a new fiscal beginning 1 April 2014, it was ready to accelerate. It had a number of things on the agenda such as higher subscription growth, expanding ARPU, taming content cost, adding HD subscribers and preparing for launch in Sri Lanka.

Zing and subscription growth

Strategy is Venkateish’s strong suit. Realising that digitisation in the smaller Phase III and IV towns would leave the door wide open for direct-to-home (DTH) operators to penetrate, he designed a sub-brand called Zing for the price-conscious consumers who prefer a skinny bundle of regional-language television channels.

Launched in March 2014, Zing ensured that Dish TV ran on a double-engine growth strategy. As the mother brand, Dish TV’s role was to mop up subscribers at a broader level while also focusing on driving HD subscribers. Zing would, on the other hand, be a price warrior brand and tap the regional-language consumption market.

“We put in place a two-pronged strategy for growth. The tenets of our strategy will ensure that future growth is sustained,” said Venkateish.

Net subs base

Just a year old, the strategy seems to be working well. After a sluggish FY14, Dish TV is motoring again. There is a sharp turnaround and the company is on course to add 1.5 million subscribers at the net level this fiscal, double of what it achieved a year ago.

Launched in eight regional markets, Zing already contributes 16–17 per cent of the company’s incremental subscribers. In states like Odisha and West Bengal, it claims to have an incremental share of nearly 35 per cent. A few more regional-language markets are being targeted for launch.

Armed with a definite positioning, Zing will keep out of the Hindi belt. While spreading its net across the country, Dish TV will exclusively cater to the Hindi-speaking market (HSM).

Subs addn QoQAs the Phase III and IV DAS [digital addressable system] towns open up for digitisation, Dish TV is going to flash the Zing card more aggressively.

“In Phases III and IV of DAS, Zing has a special role to play. We are targeting these markets through Zing and are already seeing strong growth in these places. Even if the cut-off date for Phase III of DAS  is stretched beyond 31 December 2015, we expect to add a similar 1.5 million net subscribers in FY16. If digitisation happens as per the scheduled deadline, we could do more subscriber additions than this,” averred Venkateish.

Zing operates on higher margins than the mother brand. “Zing is run on a profitable model. Zing’s gross margins are much higher than Dish TV’s in percentage terms, despite lower ARPU. Since its primary target audience is people who consume local-language content, the content cost for Zing is significantly lower,” explained Venkateish.

By bringing in people who were earlier not part of digital cable or DTH, Zing has also helped in building a laddering process. It taps customers at the base level and then moves them up the value chain. At the top-end is the HD customer from whom Dish TV gets Rs 670 a month. Thus, the DTH company criss-crosses its customers across two brands.

ARPU expansion

Dish TV has been making efforts to move its ARPU upwards. The 2014 fiscal ARPU was Rs 163, which has inched up to Rs 172 in the second quarter of the current fiscal, and Rs 177 in the next three-month period ended 31 December 2014.

Dish ARPUAhead of the cricket World Cup, the DTH operator hiked its subscription rates. With effect from 1 February, Dish TV implemented an increase of 5–8 per cent in subscription rates.

Another step taken by the DTH operator is to introduce intermediary packs. Dish TV now has five price points, instead of three-layered packages, to accommodate upgrades.

Dish TV has also introduced differential pricing, becoming the first DTH operator to do so. In the four key metro cities of Delhi, Mumbai, Kolkata, and Pune, all Dish TV pay packs have been increased by Rs 10. It offers five packs starting from Rs 240 per month (New Super Family Pack) to Rs 499 per month (New Titanium). Other packs include Maxi Sports (Rs 285), All Sports (Rs 335), and Platinum Sports (Rs 460 per month).

After its rollout in the key metros, Dish TV plans to introduce differential pricing in DAS Phase II cities. “We will use differential pricing as a strategy to increase ARPU. In fact, we are looking at both differential pricing and moving the overall subscription table up,” said Venkateish.

FY15 ARPU QoQ DishDish TV feels that in the wake of cable TV digitisation and Star supplying its channels to MSOs on reference interconnect offer (RIO), there is headroom for further increase in subscription rates.

With HD population growing, ARPU should see a boost over the next few years. HD currently contributes almost 18 per cent to Dish TV’s incremental subscriber additions, up from earlier 12 per cent.

Taming content cost

There was a bump up in content cost in FY14. According to market estimates, there was a rise of Rs 100 crore (Rs 1 billion) in the fiscal ended 31 March 2014, compared to the year-ago period.

With content cost threatening to reach an uncomfortable zone, Dish TV decided to take a hard line against the broadcasters. The channels distributed by IndiaCast, including Colors, were put on RIO. Later, the Multi Screen Media (MSM) channels such as Sony, Sab and Max, were also put on RIO. Since then, the disputes have ended and Dish TV has stitched longer-term content deals with the broadcasters, including Star India.

Adopting a tough stance, Dish TV has managed to tame content costs. The dismantling of content aggregators following the Telecom Authority of India’s (TRAI) regulation no doubt helped the DTH operator. According to market estimates, Dish TV’s content cost will go up by just Rs 40 crore (Rs 400 million) in FY15, compared to the earlier-year period.

More importantly, Dish TV now has a fix on what kind of inflation its content costs will incur for the next couple of years. Contracts with Star India and Zee come up for renewal only in September 2016, followed by IndiaCast in 2017 and MSM in March 2018.

Cost as pc of subs rev

“The RIO strategy worked for us. We were the first distribution platform operator to use it successfully as a negotiating tool. Broadcasters realised that we had an alternative option to access their content. While our content cost in FY15 will grow in lower single digits, we expect this to increase in mid-single digits in the next fiscal,” said Venkateish.

Net profit in close distance

Dish TV is closer home to achieving net profit. In the fiscal third quarter, the company reported a net loss of just Rs 2.9 crore (Rs 29 million). With the top-line growing much faster in the high teens than the cost line, Dish TV should be profitable at the net level soon.

Spreading wings overseas

Dish TV will be an overseas player in the next fiscal. The company has received the necessary regulatory approvals and is finalising its launch in Sri Lanka.

Dish TV will operate in Sri Lanka through a joint venture company with Satnet Pvt Ltd. While Dish TV holds 70 per cent stake in the JV, the rest is with local partner Satnet. Dish TV has invested $6–7 million in the venture.

“It is a 20-million market, the ARPU is high, and there is zero subsidy. It is a highly profitable model. It does not require much incremental investment, nor do we require an additional satellite,” said Venkateish.

Amid hyper competition in the DTH space, Dish TV has demonstrated organisational capability to remain strategically innovative. “While Tata Sky is positioning itself as a premium brand, Dish TV wants to occupy the full space and fill in the gaps in the market. Zing is a product launch in that direction. In FY15, subscription growth is stronger, there is a healthy addition of HD subscribers, ARPU is moving up and content cost is under control. The company will end the fiscal much stronger than what it was when it started,” said a media analyst.