Wall Street Bets on India’s Videocon d2h Satellite Service

How does a company that came last to market — a market that has lost its sheen with global investors — manage to launch a successful IPO on Wall Street?

That’s a question perhaps best answered by those who have backed Videocon d2h, which in 2009 was the sixth private sector direct-to-home satellite TV provider to launch in India (out of six), and now has more than 13 million subscribers in a market with 175 million TV households, making it one of the top pay TV providers on the subcontinent.

“What impressed us was that they were going up against some of the biggest companies in India — Reliance, Airtel, Tata — and winning,” says Jeff Sagansky, the former Sony TV and CBS exec who formed Silver Eagle Acquisition Corp. with Harry Sloan, former MGM chair and founder of Europe’s SBS Broadcasting. In April, Silver Eagle took Videocon d2h onto the Nasdaq, where it raised $325 million.

The influx of cash was welcome to both the highly diversified Videocon parent company (petroleum, manufacturing, retail) and Videocon d2h, which is spending freely to grow both its number of subscribers and channels. Advanced discussions with the Hollywood studios include plans for proprietary content.

In recent presentations to analysts, Videocon, and its 31-year-old executive chairman, Saurabh Dhoot, unveiled net subscriber additions of 1.7 million year over year to March 2015.

The gains come at a price. Deputy CEO Rohit Jain, who oversees the company’s financial and programming strategy, says the cost of acquiring subscribers is about $30 per head, and total capital expenditure is running at $110 million per year. New subs have accounted for 30% of all incoming DTH subs in the past five years.

Jain says cash flow should soon appear as bottom-line profits.

But what gets analysts really excited is the potential for far more growth: Indian consumers are signing on to video services in ever greater numbers, as greater wealth begets more media consumption. (Literacy and newspaper readership levels are growing in India, as are the number of TV households.) Even better for Videocon, such gains are taking place fastest in rural areas, where DTH has an advantage over cable.

Hong Kong research house Media Partners Asia forecasts that the number of Indian TV households will climb from 175 million in 2015 to 197 million by 2019. Jain predicts that 100 million more households will emerge from poverty levels to become economically viable in the next five years.

Growth for satellite TV operators also is coming at the expense of other forms of TV delivery. Even though the government has ordered the rollout of digital cable, DTH is forecast to increase its revenue share from 41% today to 47% by 2019.

Videocon’s Dhoot says the company’s late entry into the crowded market is an advantage, affording it time to study consumer needs. “We have the best content, the latest technology and the best sales-and-distribution network in India,” boasts the exec, who adds that part of its tech advantage comes from the 50-year-old Videocon brand, third-largest maker of consumer electronics in the country

Videocon 2dh offers 4K service, and 450-plus channels, including more HD and ethnic and local channels than its competitors, according to Dhoot.

The company has just appointed Himanshu Dhoreliya as content head, while in July, it launched a targeted ad sales program across its offerings. “As we look to roll out a bouquet of new branded channels, we will be able to use the extensive reach of our platform to turn ad sales into bottom-line dollars,” said Sloan at the time. “This is a program that will benefit our growing consumer base, as well as those advertisers seeking their stake in the lucrative Indian TV market.”

Dhoot, a Videocon scion, and engineering graduate of London’s Imperial College, says he is “passionate” about technology, and has a five-year plan for the company that includes a growing number of proprietary channels, the delivery of OTT options and related products that make use of the parent company’s control of the last mile to the consumer’s living room.

Videocon 2dh already runs seven proprietary channels — three Bollywood-themed, two music channels and two for kids — and Dhoot plans to bow a handful of Hollywood premium channels. English-language content is much bigger in India than it was five or 10 years ago, Dhoot says, due to demographics education, and perceptions of quality.

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