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 TVC = 1330 (32.20 % of 4130) TFC = 4980
= 6320 Proj. TVC = 2035.25 (32.20 % of 6320) 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
EBIDTA = (2180)
Adjusted TFC = Rs.4035.76 million 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