Learning from case:

Business viability of DISH TV: would it break or break-even?

Q.1 What is break-even point?

It can be referred to as, a no profit-no loss situation for a company. At this level,
TR=TC
Q.2 When will dish TV break even?
Calculating break-even point i.e., subscriber base at which dish TV will break even,
TR (for FY 08’) = Rs.4130 ml, TFC = Rs.4980 ml, TVC = Rs.1330 ml
Total subscriber base or quantity = 5 million
AR = TR/Q
= Rs.826 ml
AVC = TVC/Q
= 1330/5
= Rs.266 million
At break-even point
TR = TC
 AFC + AVC = AR
 AFC = AR – AVC
 AFC = 826 – 266
 560
Now, AFC = TFC/Q (here, Q = break-even level of subscriber base)
560 = 4980/Q
 Q = 8.9 million
Thus, at the subscriber base of 8.9 million, dish TV will break even i.e., reach a no profit-no loss
level.

Q.3What is the projection for FY 09’? Are they getting any better?
FY 2008 FY 2009
 TR = subscription revenue + carriage cost Proposed carriage cost = 500 million
= 3880 + 250 TR (from 7.5 ml subscribers) = 5820
= 4130 TR = 5820 + 500
TR (from 5 ml subscribers) = 3880 = 6320
TVC = 1330 (32.20 % of 4130) Proj. TVC = 2035.25 (32.20 % of 6320)
TFC = 4980 Savings on:

This included, *Service tax = 485 (passed on to subscribers)

* Entertainment tax = 49.8 (---do---)
*Service tax (12.5 % of 3880) = 485 * License fee = 139.5 (reduced from 10% to 6%)
* License fee(7% of 4980) = 348.6
* Entertainment tax(1% of 4980) = 49.8 Total savings = Rs.674.24 million

Adjusted TFC = Rs.4035.76 million

EBIDTA = (2180) EBIDTA = TR – (TFC + TVC)
 (21.01)

Q.4 What strategies can DISH TV adopt to turn profitable ?

➢ Market Segmentation (on the basis of income level) – income elasticity.
➢ Shift tax burden on to subscribers as demand is inelastic.
➢ Generate TRP’s – 24 hr broadcast for Roadies, Indian idol, movies on demand (VAS).
➢ Economies of scope – foray into e-banking, ticketing, job search, matrimony services,
sharing infrastructure with other service providers.

Q.5 How should they maintain & increase their bottom line ?
➢ Prevent switching – free coupons to existing subscribers
➢ Product differentiation – various packages.
➢ Technological advancement – introduce multidualing units.
➢ Attracting attention through special tie-ups with
 ICICI active
 Indian railways
  Monster.com
 Kingfisher Jet airlines
Q.6 Increase revenues, how?
➢ Introduce FDI
➢ Investment by owner and content provider (broadcasters).
➢ High switching cost – subscriber have to pay when they switch to other brand
➢ Increased carriage cost
➢ Television advertising
➢ Target single channel viewers.
Q.7 How the DTH market is evolving?
➢ 2003 – Monopoly (entry by DISH TV)
➢ 2004 onwards – Tata Sky, DD+, Digital TV, Sun Direct, Big TV, etc.
➢ 2004-09 – Monopolistic
 Product differentiation
 Non-cooperation among competitors
 Intense advertising rivalry
➢ Way ahead
 Gradual shift towards oligopoly
 Players will realize interdependence
 Govt. encouraging participation
 Shifting from licensing to taxation

Major concepts discussed

➢ Total cost
➢ Fixed & variable costs
➢ Average variable cost
➢ Total/average revenue
➢ Break-even point
➢ Price elasticity/income elasticity
➢ Tax implications
➢ Market structures

Thank You