Dish TV and Tata Sky, the country's two direct-to-home (DTH) companies, are expected to post losses in excess of Rs 1,400 crore for 2007-08 in their quest to expand the market by offering set-top boxes at subsidised rates.
The companies have over five million subscriber homes across the country collectively.
With three players all set to enter the DTH sector this year (with new technology offerings), the companies expect losses to go up further this financial year. Big TV (Reliance ADAG), Bharti and Sun Direct will bring in MPEG 4 set-top boxes, which provide higher quality pictures.
"Dish TV, the largest DTH company, is expected to incur a loss of Rs 300-350 crore, while Tata Sky is set to post Rs 1,100 crore-plus loss," industry sources said. Tata Sky, however, declined to comment on its financials and projections.
At present, DTH companies incur a loss of Rs 1,600-2,300 on each new subscriber they acquire, which includes the cost of the MPEG 2 set-top box and other hardware and installation costs.
However, with new players offering MPEG 4 boxes, the subsidy will go up even further and the loss for acquiring new customers will rise by at least 30 per cent.
The problem might get even more complicated as existing players might have to upgrade their old boxes to the new technology in order to guard against the churn of customers. This will obviously impact their bottom line.
For consumers, more DTH service providers will mean cheaper DTH connections with more value-added
"The financial burden of all the new DTH entrants will go up drastically as they will have to offer more value-added services at possibly lower price-points than at present," Smita Jha, associate director, PricewaterhouseCoopers, told Business Standard.
The industry expects the DTH market to hit the 10 million subscriber base mark by the end of this financial year. According to experts, DTH players will take five to six years to break even.
However, aware of financial loss projections, both Big TV and Bharti are expected to bundle a number of value-added services such as movie-on-demand, games, internet and telephony.
"Our daily loss should be to the tune of Rs 80-90 lakh, much lower than the competitor and all the new DTH players that will enter this space. When a DTH company gets about 7-8 million subscribers, these losses will start to fade away as the average revenue per user will increase," Jawahar Goel, managing director, Dish TV, told Business Standard.
Tata Sky will soon cross the 2-million DTH subscriber mark, while its rival Dish TV recently went past the 3 million user mark. For 2008-09, analysts project a DTH customer base in access of 8 million.
"Apart from the subsidy on MPEG 4 DTH boxes, there are other costs, including the cost of content, taxes, advertising and marketing expenses, which will further the losses for new DTH companies this year," an industry analyst said.