Why IPO-bound Tata Play’s performance will be under pressure in FY23

Revenues from DTH services, Tata Play’s core business, will drop in FY23, an analysis by Crisil Ratings noted.

Tata Play, one of the largest direct-to-home (DTH) players, which is looking to have an initial public offering (IPO) of Rs 2,500 crore, is likely to see a drop in its DTH business, say analysts.

The company, which rebranded itself last year after being known for years as Tata Sky, offers DTH services. It also aggregates streaming platforms via Tata Play Binge, which houses around 17 over-the-top (OTT) platforms, and has a broadband service called Tata Play Broadband.

Growth in the company’s average revenue per user (ARPU) and active subscriber base has slowed with more people cutting the cord and opting for streaming platforms for content, as well as competition from free-to-air satellite TV provider DD Free Dish. Consequently, revenues from DTH services, Tata Play’s core business, will drop in FY23, an analysis by Crisil Ratings noted.

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“DTH operators face risks arising from technological advancements and changing consumer behaviour. The growing popularity of over-the-top (OTT) platforms could be a threat in the medium to long run. With limited product differentiation, the DTH industry is exposed to intense competition among the DTH operators and from cable TV operators as well as Free Dish,” said Crisil Ratings.

Queries on financial performance emailed to Tata Play had not not elicited a response till the time this article was published.

The DTH business contributes 96 percent to the company’s overall revenue.

Shifting landscape

“If we look at the subscriber count today, then the Free-To-Air (FTA) part is gaining, Multiple System Operators (MSOs) are losing and DTH is flat. Then there is connected TV (TV sets connected to the internet, mostly used to view streaming content), which is 10 million households currently and estimated to increase to 20-25 million households over the next three years,” said Karan Taurani, senior vice-president, Elara Capital. “We will move towards 220 million TV households in the next three years, of which a large portion of growth will come from free-to-air and connected TV.”

He added that FTA and connected TVs will add close to 15 million and 20-25 million households, respectively. Overall, 75 percent growth in TV households will come from connected TVs and FTA. Only a small portion of growth will come from DTH services.

According to Taurani, Tata Play’s DTH business will be under pressure as linear TV and Pay TV are not gaining much ground in terms of adding new households.

"Growth for DTH will be 3-4 percent and ARPUs will see 6-7 percent growth in the near-term due to channel price hikes because of implementation of the NTO (New Tariff Order). However, channel pricing is increasing after around three years, so this growth cannot be expected every year. So, in the medium to long term there are challenges," the analyst said.

In 2019, the Telecom Regulatory Authority of India (TRAI) had introduced a new regulatory framework called NTO, popularly known as the MRP (maximum retail price) regime for TV channels, to bring more transparency into pricing.

How the numbers stack up

According to TRAI data, the number of paying direct-to-home (DTH) subscribers declined to 66.92 million in March 2022 from 68.52 million in December 2021. In June 2022, pay DTH active users inched up to 67.04 million.

Tata Play had 23 million active pay subscribers at the end of March 2022.

In FY22, the company reported revenue from the direct-to-home (DTH) segment at Rs 4,566.68 crore compared to Rs 4,593.01 crore in FY21, a drop of 0.57 percent. In FY21 as well, Tata Play’s DTH segment was down 1.2 percent from Rs 4,648.83 crore the previous fiscal year.

While Tata Play’s consolidated operating revenue grew by 1.3 percent year-on-year in FY22 on the back of growth in revenues from the broadband business and traction for the Tata Binge mobile application, operating margins are estimated to see pressure during FY23 due to operating losses accruing from Tata Play Binge, said Crisil Ratings.

The company had reported operational revenue of Rs 4,741.07 crore in FY22 versus Rs 4,682.21 crore in the previous fiscal.

“The DTH business has been under pressure because of the onslaught of fibre/ broadband. To add to this, all the local cable operators are also going the digital way. Further, cord cutting has started happening, especially in major cities, with the advent of OTT,” said Nitin Menon, co-founder of NV Capital. “Today linear television is facing the heat with a lot of homes especially in the metros watching their shows on broadband rather than the conventional cable route.”

The decline as well as slow growth in DTH subscribers is a concern for Tata Play, which saw its subscriber market share drop to 32.8 percent as on June 30, 2022, versus 33.4 percent a year earlier, according to TRAI data.

Industrywide challenges

Crisil Ratings said that the drop in the company’s active subscriber base is due to industry-level headwinds coming from competition from DD Free dish and other growing digital entertainment alternatives.

“People are moving to smart TVs from DTH, and as we move ahead we will see smart TV penetration. Here, the set top boxes may not have any play unless they offer a combo pack in terms of OTT apps and channels. There are concerns for the growth of core DTH subscribers," said Taurani.

He also pointed out that a lot of investment is needed by Tata Play to get a large subscriber base for Tata Play Binge. “OTT players go for bulk deals, hence, this is a business of scale."

Tata Play Binge aims to increase the number of streaming platforms to 25 by the end of FY23 and noted that it had reached 10 lakh customers in November last year.

Menon said that while the OTT as well as the broadband business should add growth, it will take time before these businesses become strongly cash-flow positive.