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The Indian Direct-to-Home (DTH) television market is potentially on the cusp of a significant transformation, with telecom giant Bharti Airtel and Tata Group engaged in discussions regarding a merger of their respective DTH arms, Airtel Digital TV and Tata Play. This strategic move comes as both companies grapple with increasing competitive pressures from free-to-air (FTA) services like DD FreeDish, and the pervasive influence of Over-The-Top (OTT) streaming platforms such as Netflix, Amazon Prime Video, and YouTube. These factors are fundamentally reshaping media consumption patterns and compelling a reevaluation of traditional pay-TV models. The confirmed discussions, as highlighted in Bharti Airtel's notice to the Bombay Stock Exchange (BSE), signal a serious exploration of a potential transaction aimed at combining Tata Group's DTH business under Tata Play with Bharti Telemedia, a subsidiary of Airtel, within a mutually acceptable structural framework. This proposed merger has sparked considerable interest and analysis among industry experts, who are keenly assessing the potential strategic benefits that such a consolidation could yield in the face of evolving market dynamics. The potential for increased content power, enhanced distribution capabilities, and the creation of bundled service offerings are key considerations driving the rationale behind this potential alliance. Moreover, the convergence of telecom, broadband, and DTH services is envisioned as a pathway to fortify Airtel's competitive positioning within the consumer's household, establishing a more robust and integrated presence. The industry-wide trend of consolidation, driven by the shrinking pay-TV market and the rise of broadband and streaming, is a crucial backdrop to this potential merger. The strong parentage of both Tata and Airtel offers the prospect of cross-selling next-generation services and fostering innovation in the rapidly evolving media landscape. The merger also responds to broader economic and consumer behavior shifts. The telecom regulatory authority of India (TRAI) Indian telecom services performance indicator report for the quarter ending September 2024 indicates a shrinking active subscriber base in the DTH sector, further underscoring the challenges faced by these players. This decline reflects the growing preference among consumers for alternative entertainment options, including free-to-air channels and OTT platforms, prompting DTH providers to seek new strategies for retaining and attracting subscribers.
Rajesh Sethi, Senior Advisor at PwC India, emphasizes the significant headwinds confronting the DTH industry, highlighting the substantial market share captured by FTA services like DD FreeDish and the growing shift in media consumption toward OTT streaming platforms. This shift necessitates a strategic response from DTH providers to remain competitive in the evolving entertainment landscape. Sethi underscores that the proposed merger could provide Airtel and Tata Play with enhanced content power and improved content distribution capabilities. The addition of Tata Play's substantial subscriber base of over 20 million would significantly bolster Airtel's portfolio, enabling it to reach a wider audience and strengthen its market presence. Furthermore, the convergence of telecom, broadband, and DTH services presents an opportunity for Airtel to create bundled offerings that provide consumers with a more integrated and convenient entertainment experience. By combining these services, Airtel can enhance its competitive positioning and establish a stronger foothold within the consumer's household. The analyst's assessment of the competitive landscape reveals that the real competition lies in the convergence of broadband, telecom, and DTH services, rather than solely within the DTH sector itself. This convergence necessitates a broader strategic approach that leverages the strengths of each service to create a more compelling and integrated offering for consumers. The merger will also allow for the consolidation of resources. Tata Play recorded a net loss of INR 353.9 crore and revenue of INR 4,304.62 crore in fiscal year 2024 whereas Airtel DTH revenue in FY24 was INR 3044.8 crore and net loss was INR 76 crore. The Airtel digital TV customer base was 16.1 million in FY24. These figures highlight the financial pressures faced by both companies, making the merger a strategically viable option to improve profitability and sustainability. The analyst's observations regarding the challenges faced by the DTH industry, including subscriber losses and the growing popularity of FTA services, reinforce the urgency for DTH providers to adapt and consolidate their operations to remain relevant in the changing media landscape. The return of major broadcasters' channels to DD FreeDish further exacerbates the competitive pressures faced by DTH providers, as consumers gain access to a wider range of content without subscription fees.
The proposed merger between Airtel and Tata Play is structured as a share swap, with Airtel expected to secure a majority stake, ranging from 52% to 55%, in the merged DTH entity. Tata Play's existing investors, including Walt Disney, are anticipated to hold the remaining 45% to 48% stake. This arrangement reflects a balanced approach to ownership and control, with Airtel assuming the leadership role in the merged entity and Tata Group securing board representation. The estimated valuation of both companies in the INR 6,000-7,000 crore range underscores the significant financial stakes involved in this transaction. For the quarter ending September 2024, Tata Play led the DTH market with a 31.99% share, closely followed by Bharti Telemedia at 29.38%. Dish TV and Sun Direct TV held 19.53% and 19.10% respectively. These market share figures illustrate the competitive landscape and highlight the potential for the merged entity to gain a dominant position in the DTH market. The last major DTH merger occurred in 2016 between DishTV and Videocon D2H. However, the market has dramatically shifted since then, with the rise of OTT and free-to-air services creating even stronger imperatives for consolidation, as evidenced by the Airtel-Tata Play discussions. This shift underscores the need for DTH providers to adapt and evolve to remain competitive in the face of changing consumer preferences and technological advancements. In conclusion, the potential merger between Airtel and Tata Play represents a strategic response to the evolving dynamics of the Indian DTH market. The increasing competition from free-to-air services and OTT streaming platforms is compelling DTH providers to consolidate their operations, enhance their content offerings, and create bundled service packages to remain relevant and competitive. The merger aims to create a stronger, more integrated entity that can better address the challenges and opportunities presented by the changing media landscape. By combining their strengths and resources, Airtel and Tata Play can enhance their competitive positioning, improve their profitability, and deliver greater value to consumers. The success of this merger will depend on the effective integration of the two businesses and the ability to adapt to the ongoing changes in the media and entertainment industry.
Source: Airtel-Tata Play merger: strategic move for greater market penetration, ET BrandEquity