India’s pay-television industry, a magnet for foreign investors for the past two years, is facing a shake-out amid intense competition during the economic crisis.

Multinationals, including Rupert Murdoch’s Star TV, are expected to suffer a squeeze on profits from the region this year, while others could suffer losses on investment in new channels that are struggling in tougher conditions, according to a report from a leading industry research firm.

“All of these players have to rationalise their costs because advertising sales and subscriptions are falling,” said Vivek Couto, executive director at Media Partners Asia.

India has been a standout market in Asia for pay-TV channels and distributors because of its large audiences and relatively liberal foreign ownership and content laws – particularly compared with China.

Foreign-owned or affiliated companies in India’s pay-TV industry last year generated about $1.2bn in sales compared with about $500m in China, according to MPA, which on Wednesday releases its annual sector report.

India’s pay-TV market is one of the world’s largest, with more than 94m customers generating $5.89bn in revenue a year, about 29 per cent from adverts and the remainder from subscriptions.

Large foreign investors have rushed to capture part of the pie, including Viacom, Warner, Disney and Singapore government investment company Temasek.

However, the industry has become overcrowded. MPA estimates there are 350 channels in India competing for space on distribution systems capable of carrying only about 150 each.

This has sharply increased the cost of “carriage” – the price of being carried on a cable system. The firm estimates channels paid nearly half their revenues from subscriptions to distributors last year just to carry their content.

Another problem is much of the industry is controlled by the “unorganised” sector – small operators who misreport earnings from customers to broadcasters and pocket the difference.

Subscribers to digital pay-TV, controlled by larger conglomerates, often with foreign investors, number only about 13.4m.

MPA predicts a relatively mild slowdown in revenue growth, from 20 per cent last year to 16 per cent this year, with ad growth slowing to 7 per cent.

News Corp’s consolidated profit from ventures in the region, led by Star TV in India, is forecast in the report to fall from about $100m to less than $50m.