Business - India;DTH - Part 1

Dhaleta Surender Kumar

It is not just the direct to home (DTH) players who are beaming with joy. The Indian consumer too never had it so good. From two players last year, viewers have a choice of two – may be three – more now. The ad industry, too, is in for good times as a big spending category explodes on the scene.Last year, there were only two players – DishTV (an Essel Group venture) and Tata Sky (an 80:20 joint venture of the Tata Group and STAR) – in the paid DTH market. DD Direct+ existed, but it catered mostly to the areas that did not have cable TV. Today, four players are crowding the skies and two more are waiting to take off. Eight months ago, Sun Direct from the Chennai based Sun Network kicked off in style. Today, it already has 1.2 million subscribers.Last month, Big TV of Reliance Communications (Anil Dhirubhai Ambani Group) announced its arrival. Bharti’s DTH service – under the brand name, Airtel – is ready to move in. Another player waiting with licence in hand is Videocon. Round 2 of the DTH war promises to be exciting. But just how exciting is it going to be?Consumer is kingBig TV and Airtel are telecom players and have a huge distribution network in place by virtue of their telecom business. Has that unsettled the existing players? Not really. If Big TV and Airtel have their distribution networks, both Sun Direct and DishTV understand exactly how distribution works. Sun has a cable network called Arasu, while DishTV has Siticable (an Essel venture).The new players say that since DTH in India is in its nascent stage, the entry of more players will help the category grow. The old ones say that they are not competing with one another. Each of them is looking to convert cable TV consumers. And what a market the latter is.
Of the 120 million TV homes in India at present, 80 million are cable and satellite (C&S) homes. Out of these, 14 million homes have DTH connections. Of that, DD Direct+ takes 50 per cent (seven million homes) market share. DishTV is at No. 2 with 3.6 million connections, Tata Sky at No. 3 with 2.3 million, followed by the eight month old Sun Direct at No. 4. But is it easy to get the cable subscribers to jump on to this bandwagon?The two new entrants, Sun Direct and Big TV, fancy their chances highly. While Big TV is banking on its strong distribution network and varied offerings, Sun Direct – which is present in Tamil Nadu, Andhra Pradesh, Karnataka, Kerala and Pondicherry – is banking on competitive pricing. It plans to go pan-India soon. ‘Consumer experience’ is the mantra they are chanting.
Technology is a big factor for the consumer to actually experience anything. And price. To get the consumer hooked, companies announce how they are subsidising the cost of the set-top boxes (STBs) needed to access DTH telecasts. Salil Kapoor, chief operating officer, DishTV, says, “Almost all players are subsidising the STBs to the extent that even if interoperability (one provider’s STB being used by another) were allowed, the cost of installing new software would be as much as a new STB.”Kapoor is happy about one change. With more players coming in, he doesn’t need to educate the customer about DTH. Instead, he can focus on the brand’s services. He believes the education part “will now be done by the collective noise”. Till now, DishTV’s campaigns focused on educating the customer about differentiating between cable and DTH. Brand ambassador Shah Rukh Khan has been urging customers not to be “santusht” with the current offerings.The way ahead
The fun has just begun, and in the words of Tony D’Silva, chief executive officer, Sun Direct TV, “The year ahead is exciting.” But he is careful to add that “all platforms – cable, DTH and IPTV – will coexist. The real question should be how soon or how slowly India will get digitalised.”Analysis reports on the media and entertainment industry predict that by 2012, India will have about 30 million DTH connections. But as of now, the segment is characterised by high customer acquisition and marketing costs. DishTV has made losses of close to Rs 664 crore between April 2006 and now. According to Sanjay Behl, group head, brand and marketing, Reliance Communications, just the advertising and marketing costs of acquiring a customer is between Rs 400 and Rs 500. Breaking even is a tough game.D’Silva, is more forthcoming. According to him, as STBs are highly subsidised, the cost of acquisition of a customer is close to Rs 4,000 (including expenses for the cable, STBs and others). Industry analysts, however, say that such subsidies include the cost of the STB (normally not more than Rs 2,500) and bundling of packages. And that for Sun Direct to break even would take “close to four years”. “However,” he adds, “in our model we will be able to recover the cost in a shorter period than others as the STB is an asset.” The company will keep the STB on its books and claim depreciation, taking the box back if the consumer deserts the service.Kapoor of DishTV feels that breaking even depends on how soon a provider can encourage the customer to upgrade her package. To do that, the players are spending big on advertising. The ad spend in this category is estimated to be around Rs 200 crore – according to Kapoor – and is likely to shoot up manifold in a year’s time. Making the consumer aware is just one of the things. As the war livens up, what battle plans have each of the players drawn up? afaqs! takes a trip through the war room of each contestant.Old gunsDishTV, DD Direct+ and Tata Sky were the early entrants in this space and they enjoyed the first mover advantage, although they also had to fight against the two decades old cable television distribution system. Now with the entry of the new kids, their game plans have also changed. DishTV
Launched in 2003, India’s first DTH service provider hopes to touch the magical figure of five million connections by the end of this fiscal – magical because that is the figure at which DTH providers are expected to start making a profit. Experts say that it is when a company crosses five million that the base starts contributing to recovering the cost of acquisition of adding new subscribers (assuming that the cost of an STB is Rs 2,500 and the cost of subsidies doesn’t exceed this figure). What also helps is that by this time, the service provider has the clout to bargain with the channels for better margins.DishTV believes that it knows the pulse of the customer. Kapoor highlights three areas of DishTV’s strength. The first is how content across various demographies is consumed. Second, that the game is not just about selling an STB, but also acquiring and retaining customers. Third is channel management – where and how the customer goes and buys the STB.According to Kapoor, cable dark areas (where there’s no cable TV) are content with the basic package. The South is divided into four language pockets, but in the bigger cities, people opt for the English packages as well. It is the same in the North. DTH is also about last mile connectivity. “The customer is not going to stay forever with the package he subscribed to initially. The question is how to encourage the customer to subscribe to other packages and value added services (VAS) quickly,” says Kapoor.However, revenue from VAS such as movies on demand is minimal and hasn’t picked up yet. “People are just testing the waters. But it is just a matter of understanding and awareness and people getting used to it,” Kapoor says. He adds, “The core business will always be supply of content.”DishTV, when it started off, had to build up a distribution network from scratch. Does the fact that new players have a telecom network to bank upon bother him? “I’m not sure if their huge distribution system will actually deliver. STBs are sold more through consumer durables shops. They have a huge distribution system, but in a different category, telecom, and the dealers are used to selling low cost products like recharge cards and handsets. Once these channels start delivering, they are bound to keep our products because these channel partners will keep multiple products and at least three-four brands to give the consumer a choice. That will benefit us too and open up another channel for us,” he says.DishTV has an edge over its competitors in that it has 14 transponders (transmission hardware) – other competitors have about seven to eight only – which give it the capability to carry more channels. It is in the process of launching its own satellite, too, and claims that it will be in a position to beam more than 400 channels in the next 12 months.Tata Sky
Launched on Independence Day in 2006, Tata Sky hopes to have about eight million connections by 2012. Though the Indian broadcasting regulations do not allow exclusivity of content and one has to carry all channels, Tata Sky has taken upon itself the onus of investing in more interactive services to differentiate it from the other players.
It has about 10 interactive services, such as Actve Wizkids, Actve Stories, Actve Matrimony, Actve STAR News and Showcase (a pay per view system of movie rentals). Vikram Mehra, head, consumer marketing, Tata Sky, says that he personally met the principals of 1,500 schools across the country to persuade them to adopt Actve Wizkids, Actve Stories and Actve Learning as a part of their teaching. He is elated to point out that as per internal research, “children spend 66 minutes a day during weekdays and about 78 minutes during weekends on Wizkids.”Mehra feels that Tata Sky’s interactive services will do well because “TV is a modern fireplace in India, where the family gets together, and it is watched collectively as compared to Europe and the US, where viewing is individualistic, except during soccer matches.”The company recently tied up with BharatMatrimony.com to provide a matrimonial channel to its users, which Mehra feels is fun. DishTV, too, has tied up with Shaadi.com for a similar service. Like DishTV, for Tata Sky too, the movie on demand service has not been a great revenue generator.According to Mehra, people are content watching a pirated movie on the cable system, even though half the screen is covered with an ad strip. “And in any case,” he says, “they believe that the movie will premiere on television after six months.” To change this perception, Tata Sky has been working on two fronts. One, to approach the producers and release movies simultaneously on Tata Sky, and two, to educate the customer about the ad free movie experience.Most of Tata Sky’s advertising was about its interactive services. Recently, it took on film actor Aamir Khan, who stands for exclusivity and perfection, as its brand ambassador. The focus of the campaign with Khan is to establish the pedigree of Tata Sky. “Many people don’t know that the ‘Sky’ in Tata Sky comes from our joint venture and the learning we have from one of the world’s leading DTH players, British Sky Broadcasting. They think that Sky stands for transmission through the sky,” Mehra says.To be continued...