Last month, the Competition Commission of India approved the merger of Indian satellite operators Dish TV and Videocon D2H. This landmark deal is the most significant example of consolidation in the Indian pay-TV market since 2000, when direct-to-home (DTH) satellite TV services were first permitted by the government.
What this means for Indian pay TV
Dish TV was already the top DTH operator by market share in India, although it was fourth overall behind the top three cablecos. Videocon was the fourth-largest pay-satellite operator out of six. The merger makes Dish TV Videocon Ltd the largest pay-TV company in the country, but with an estimated 16% share of the market overall, it is hardly in a dominant position. This is probably why the merger was allowed to go through.
This merger is not due to maturity in the market: India is very much a growing market, albeit a crowded one. India's TV household penetration in 2017 is merely 65%, with almost 90% of TV households taking some form of pay TV. TV household penetration is likely to reach 70% by 2022, according to Ovum's latest forecasts, meaning that 30 million new households will have at least one television set within the next five years. India can expect a net addition of 11 million users over the 2017–22 period to reach 162 million, surpassing every other developing region apart from China. Because of this, Indian pay TV offers one of the most exciting near-term growth narratives in the global TV industry.
Dish TV Videocon Ltd will be the largest DTH operator in the world by subscribers, with an active user base of 26 million, leapfrogging AT&T's DirecTV in the US as the largest national DTH service provider in the world, according to Ovum. Still, its combined revenues for 2016 were $883m, whereas AT&T's DTH business in the US generates more than $20bn. This demonstrates the current gulf between US and Indian TV spending. Pay-DTH ARPUs in India are expected to double over the forecast period, from $5 in 2016 to just under $10 in 2022 as Indian audiences slowly increase TV spending from relatively low levels.
Ovum believes the following main factors drove this merger:
Given sharply rising content costs, a key motivation for all pay-TV service providers is driving down spend on content on a per-subscriber basis.
There are lower costs associated with being one company: DTH operators are charged with recurring license fees (10% of gross revenues) that are not required of national cable operators in India.
Pay-TV service and technology infrastructure will, over time, benefit from the combined entity's increased scale. This is particularly critical for pay-TV service providers in the highly competitive Indian pay-TV market.
During the period of integration and consolidation, the combined entity will have the opportunity to focus on each company's respective strengths, such as Videocon D2H's customer engagement, TV set-top boxes, and value-added services, and Dish's content acquisition.
Digitization and media convergence are on the agenda in India. The opportunity to invest in the digitization of analog homes, which will total more than 40 million households at the end of 2017, will be a key motivator in ensuring these homes are connected first to satellite and not cable.
As a dominant player in the DTH space, the combined entity will be able to focus more on higher ARPU segments instead of merely increasing its subscriber base by focusing on the lowest spenders. Combined with the type of content that it is expected to attract to its platform, the company can buck the trend in India of racing to the bottom in identifying the cheapest segments. At the moment, higher ARPU segments in India are adopting SVOD services such as Netflix and Amazon, meaning that satellite companies, which have a tendency to focus on the lowest common denominators, are losing revenue.
Telcos have the potential to strike deals for multiplay bundling. For Indian telcos, the IPTV experiment of the past several years has failed. They will be keen to diversify their revenue portfolio and willing to work with satellite operators against the dominant cable players.
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