Dish TV to become stronger with Videocon d2h acquisition
The news which is in the air for some time is finally on the cards with announcement coming from both the companies on last Friday (11 Nov 2016). Videocon d2h is merging with Dish TV to become largest D2H player in India. The Board of Directors of Dish TV and Videocon d2h today approved the amalgamation of Videocon d2h into Dish TV and after the merger it will be renamed as Dish TV Videocon. The all stock deal will see Videocon d2h shareholders getting 2.021 new shares of Dish TV Videocon for every share they hold in Videocon d2h. This would result in Dish TV shareholders owning 55.4% of Dish TV Videocon and Videocon d2h shareholders owning the rest.
India has an estimated 145 million households with cable and satellite television. The DTH provider industry, while small, has been growing fast and is becoming increasingly competitive. At present, India has six private DTH firms—Dish TV India Ltd, Videocon d2h, Reliance BIG TV Ltd, Tata Sky Ltd, Sun Direct TV Pvt. Ltd and Bharti Telemedia Ltd. State-owned broadcaster Doordarshan also runs a DTH platform for free-to-air channels called DD Free Dish. With the cable & satellite households expected to touch 85% of 220mn TV households by 2020 there is a significant growth opportunity for the industry as a whole. The current TV broad casting industry is highly fragmented with local cable operators having high pie. But with the acceleration of digitation of Indian households, the consumer are shifting towards DTH players for high quality experience. In a push to create level playing field for all players the government also reduced the License fees from 10% to 8% of the gross revenues. The high entertainment and service tax will be subsumed once GST comes in to the picture.
Dish TV, a part of Essel group, is the first entrant in the Indian DTH industry which has started operations in 2003. And since then the company has maintained its leader ship with its strong operational efficiencies. Dish TV currently holds 26% market share followed by Tata Sky and Videocon d2h. The managing director of Dish TV, Jawahar Lal Goel (Who will also lead the combined entity) said, “There was a need for consolidation in the industry because of the competition and regulatory challenges. This transaction, that brings together two powerhouse brands of the cable & satellite industry in India, will provide us with a gateway to harness growth opportunities in an ultra-competitive multi-player environment.”
The combined entity will emerge as a largest media company by sales and it would have around Rs.5900cr of revenue in FY16. The new entity will follow a multi brand strategy with Dsih TV, Zing and Videocon d2h as the brand names. The combined subscriber base would be 27.6million at end of the September. As far as DTH is concerned, from a current market share of 25% for Dish TV, the new entity will have a market share of 45% after merger. This is nearly double the size of the second largest DTH operator Tata Sky with a share of 24.2%.
With 27.6 million subscribers, the Dish TV Videocon will have a scale similar to leading global cable & satellite players. The company will become second largest players in terms of subscribers after US based Direct TV with 37.8 million subscribers. In domestic, this will create scale in the highly fragmented TV distribution landscape in India. Dish TV Videocon will have 16% market share of of the 145-million subscriber pay-TV market.
The merged entity will have cost efficiencies and its large scale economics will provide bargaining power in terms of content deals, taking price hikes and lowering subsidy burden . Management has indicated that it will maintain operating margins of above 30% for the company.
Saurabh Doot, the executive chairman of Vd2h said “The Videocon group has extensive distribution and service expertise, with set-top box sourcing and manufacturing advantages. Dish TV has extensive media experience and content sourcing. Clearly, a DTH platform catering to 25-30 million subscribers could have big scale benefits. The merger would enhance our ability to grow alternate revenue streams such as carriage, advertising, value-add services and new channel launches.”
The proposed transaction is subject to various approvals including from the Securities and Exchange Board of India, the stock exchanges, shareholders and creditors of both companies, the Competition Commission of India, the high court in Mumbai and the ministry of information and broadcasting. It is expected to close in the second half of 2017.
This transaction once completed will potentially spark a consolidation in the Indian DTH and cable distribution space. The company will gain huge moat with scale and cost efficiencies. This provides better synergies and growth opportunities and enable Dish TV Videocon to provide differentiated and superior service to all customers through deeper after-sales, distribution and technology capabilities, and also become a more effective partner for TV content providers in India.