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Date: 01/09/2014 Time: 17:43:44

IBS Case Development Center

Business Viability of Dish TV: Would it Break or Break-even?

This case study was written by Nitu Gupta and Akshaya Kumar Jena under the direction of Dr. Nagendra V Chowdary, IBSCDC. It is intended to be used a
class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources

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Business Viability of Dish TV: Would it Break or Break-even?

Indian Television viewership with 115 million households is among the largest in the world.
This figure is projected to increase to 132 million by 2012 at 3%[1] growth rate, with Direct-
To-Home (DTH)'s ground breaking broadcasting service majorly accounting for this. DTH
service involves distribution of multi-channel TV programmes by using a satellite system that
provides TV signals directly to the subscriber's premises. The need for an intermediary such
as a cable operator is evidently dispensed within the DTH service.
However, the transition of DTH digital entertainment services in India was not very smooth.
It was first proposed in 1996. However, approval was denied on grounds of national security
and cultural invasion. In 1997, the Indian government imposed a ban when the Rupert
Murdoch-owned Indian Sky Broadcasting (I Sky B), which about to launch its DTH services
in India. Finally, DTH service was allowed by the Government with the relevant notification
towards this end on January 9th 2001.[2]
Dish TV is the pioneer and leader of DTH services in India. Dish TV, formerly known as
ASC Enterprises Ltd., is a part of renowned Essel Group. It has improved TV viewing with
digital technology for enhanced picture quality and stereophonic sound effects. Dish TV has
changed the Indian television technology by bringing it on par with the global entertainment
industry with exclusive features such as international channels, uninterrupted viewing,
electronic programme guide, parental lock and geographic mobility. Various futuristic
features of Dish TV like interactive TV, movie on demand, video games, etc., have taken
television viewing to a higher level of sophistication.
Since the DTH industry in India is in its nascent stage, its license does not allow a
broadcaster to offer content exclusivity to any particular player, thus disallowing
differentiation, either on technology or in programming. Successful acquisition of maximum
number of subscribers is, therefore, directly linked to the advertisement and marketing
budgets and customer acquisition skills.
Dish TV's biggest cost lies in the process of customer acquisition, which involves large
amount towards subsidising the Set Top Boxes (STB) and first year subscription prices. It
hardly makes any money on the hardware. Therefore, the key area of focus of Dish TV is
subscriber addition and a good market share in a market, which is gradually attracting more
competitors (Exhibit I).
 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 service-oriented, 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]
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 4,130

Income towards Subscriber Acquisition 600

Income from Operations 3,520

Total Expenditure 6,310

Expenditure towards Subscriber Acquisition 1,330

Expenditure towards Operations 4,980
Reported EBIDTA -2,180
Reported EBIDTA Margin (%) -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).
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 2008-2009 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-beyond-Cable-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-may-break-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-rolling-out-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”
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,%2
02009.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.