Dec 16, 2008

Business - Q&A Sun Direct COO Tony D'silva

Kalanithi Maran is building his DTH empire on one key proposition: pricing. Mopping up two million subscribers in his home turf, Maran expects to taste success in the northern pockets of the country with the very same recipe.

Armed recently with Hindi content and sports channels, Sun Direct has launched in Mumbai and will be quickly moving to other markets as a pan India direct-to-home service. The target: six million subscribers by FY'10.

Sun Direct plans to invest Rs 35 billion in the venture over two years, out of which Rs 20 billion will have been consumed by the end of this fiscal. A large chunk of this will be towards providing set-top boxes (STBs) free.

Malaysia-based Astro has taken a 20 per cent stake in the company for Rs 5.90 billion. Sun Direct is a zero-debt company and there are no plans to raise further money through dilution of equity.

Sun Direct's ARPU (average revenue per user) is the lowest among all the DTH operators, ranging between Rs 85-90. But the costs are tightly controlled and the company hopes to break even in six years.

In an interview with's Sibabrata Das, Sun Direct COO Tony D'Silva speaks about the company's ambitious growth plans.


How much is Sun Direct investing in the DTH venture?
We have an investment plan of Rs 35 billion over two years. We would have consumed Rs 20 billion by the end of this fiscal. We are pumping in the balance Rs 15 billion by FY'10.

How much has Astro put in so far?
Astro had made a commitment of putting in Rs 5.90 billion for a 20 per cent stake in Sun Direct. The full amount has already come in. The promoters have invested the rest of the amount. We are a zero debt company.

Is there a plan to raise further money through equity?
We have no such plan. We are considering whether it would make sense for us to raise debt and sit in excess liquidity at a time when the money market is tight. No decision has been taken in this regard. The promoters are ready to pump in whatever it takes to grow the business.

Since Sun Direct is offering STBs free, wouldn't the company have to absorb huge losses?
The loss for this fiscal would be in the region of Rs 4.50 billion. This is very much a part of our business plan. For anybody who wants to build scale, the only way forward is to acquire customers with high subsidy offers. We have already mopped up two million subscribers and are looking at ending FY'09 with a base of three million. High volumes will help us reach break even as our costs are not as high as the others.

Even when Sun Direct's ARPU is the lowest among all the DTH operators?
We have grown in the southern region and our current ARPUs are at Rs 85-90. We don't see them going up significantly even after our launch in Mumbai and the rest of India. In the volumes game, the margins will improve once you reach a particular threshhold of numbers. Our infrastructure cost is also less than the other DTH operators. We will break even in six years.

Is your content cost also lower than many of the other DTH operators?
Our content cost is 45-50 per cent, one of the lowest in the industry. We have not done MG (minimum guarantee) deals with broadcasters. Our main strategy is a la carte pricing.

What is your customer acquisition cost?
When we made our initial purchases, the STBs were costing us $55. But the economic meltdown is driving down the prices and our STBs currently cost $45.

The advertising budget for this fiscal is Rs 1.5 billion. We aim to spend a similar amount in the next fiscal unless the market dynamics changes drastically.

Our customer acquisition cost is Rs 4500. But with our pricing strategy, we expect to garner six million subscribers by FY'10.

The pricing strategy can attract wrong customers. Isn't it a dangerous model to have if your churn rate is high while the customer acquisition cost is steep?
We have a five per cent churn rate. We realise that it is important to have a lower churn.

What is the strategy Sun Direct has adopted to repeat its success model outside its home turf?
While 99 per cent of our current two million subscriber base comes from the south, we have an aggressive pricing policy which will help us garner subscribers from the other pockets of the country. Our regional package, "My Pack," will create hype in the market and drive our growth everywhere. Our bouquet of packages are value for money as we have custom designed packages for every state and region. We spent considerable amount of time since our launch last December.

We have also introduced a Hindi package. The ‘Shine Pack’ is available at Rs 499 and Rs 999 for five and 10 months respectively.

We have the highest number of add-on packages, ranging from Rs 6 to Rs 195. And the sports channels are available on a la carte rates.

Doesn't it make sense to offer sports channels in packages?
The rates are too high for us to offer the sports channels in basic tiers or in bundles. We recently added the three ESPN Star Sports channels into our offerings. They are available on a la carte rates - ESPN and Star Sports are priced at Rs 38 each per month while Star Cricket costs Rs 32. Ten Sports is priced at Rs 20 while Zee Sports costs Rs 15. We are in negotiations with Neo.

Why was your launch in Mumbai delayed?
Adding Hindi and sports channels in the bouquet took time and the launch in Mumbai was delayed by a shortage of supply in STBs. There has been heavy snowfall in China and Beijing Olympics also delayed the supply of boxes. So during the festival season of Diwali, we did not have STBs to sell. Now the supply is comfortable and we are in a position to launch in other parts of the country.

Have you added more STB manufacturers into your list of vendors?
Our STB suppliers are China-based Coship and Korean firm Homecast. We have just added Samsung into our list.

Have you launched high-end STBs?
We have, but only in the southern market. They are priced at Rs 10,000 and are made by Homecast. Only a couple of hundreds have moved and we are just testing the waters.

Are you lining up premium content?
We feel the market is too early for premium and interactive content. Our first task is to be successful as a pan India operator. The creation of bouquets and pricing has to be a big differrentiator.

Some DTH service providers are advertising their Hindi movie offerings. Is Sun Direct going to create such content to grab viewers outside the south?
We don't have any such plan at this stage. We are examining whether we should do that or go for HD. We have space for 5 HD channels. This will be for the top-end of the market and give us higher ARPUs.

Has Sun Direct approached Isro for more Ku-band transponders?
We have asked Isro for two more transponders. We offer 200 channels including 23 radio channels and video-on-demand. We are fortunate that we are co-located on the same satellite used by DD Direct Plus and so can get their channels without consuming our own bandwidth.

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