Tata Sky and the Emerging DTH industry

The Hindu Business Line carried several articles on the DTH industry in India which gives us an interesting perspective of the emerging DTH market in India. I shall restrict my post to the perspective given by Mr. Vikram Kaushik, the CEO of Tata Sky based on the article “Direct and Daring” on the DTH industry as well as his exclusive interview with The Hindu Business Line.

The Hindu Business Line carries details of the analysis as well as the growth trajectory of DTH industry in India as well as various DTH providers. In the article “Direct and Daring” Mr Kaushik reveals that almost 25 per cent of the pay TV market has moved to the DTH platform in a span of just two and a half years. The article also reveals that while DTH industry was adding 3 lakh subscribers in early 2008, now this number adds up to 7 to 8 lakh subscribers a month on average. Also, this year even in March, April and May, usually ‘slack months’ for the entertainment sector due to exams, the DTH industry witnessed tremendous growth

As per this article, this growth is attributed to the entry of multiple operators, which has created much greater awareness of the service, now seen as an easy-to-use technology. The competition in the industry has also resulted in “low and affordable” entry prices offered by various players with freebies to attract subscribers. They also bundle channels with regional focus to price them almost on par with cable TV charges. Besides, a number of value-added services such as ‘movie on demand’, interactive channels on matrimonial match-making, and education add to the appeal.

Tata Sky has 3.7 million subscribers. According to Mr. Kaushik, while it took 11 months to reach the first million, the second million was achieved in nine months and the third in seven months. And they hope to cross the 4-million mark in the next two months. It aims at eight million in the next three years.

Today, consumers know exactly what they want, doing much research prior to purchase. Industry experts say that in the absence of exclusivity of content, pay-per-view and interactive features are the core differentiators for DTH operators and they expect this is where the most innovation will happen. Mr Kaushik says customer service will also make a big difference. Though Tata Sky products are priced at a premium to those of other players in the industry, it commands close to 30 per cent of the market share. “Efficient customer service, superior technology and more interactive features are the keys,” says Vikram Mehra, Chief Marketing Officer, Tata Sky. The company recently rolled out “next generation set-top boxes” with 160-GB ‘personal video recorders’.

The article also contains an analysis of the challenges faced by the DTH industry. The DTH market is expected to grow even faster in the years to come. Industry players say that by 2015, DTH will enjoy at least 40 per cent share of the C&S market. Digital cable may have 40 per cent and analogue cable will follow with 20 per cent. But, the spate of expansions is only half the story. Considering that DTH is an investment-intensive, long-haul business, the biggest challenge would be to see return on investment.

According to Mr. Kaushik, apart from creating back-end infrastructure, almost all players are spending anywhere between Rs 5,000 and Rs 6,000 on every installation. However, while some companies charge a few hundreds, some charge in the range of Rs 1,000-2,000. DTH subscription is today being driven by large subsidies on set-top boxes (according to industry sources, all players are offering over 30 per cent subsidy) as well as low subscriptions ranging from Rs 100 to 300. This way, every company invests over Rs 4,000 to acquire every new subscriber. Sun TV offers new connections at Rs 499. And, it comes with free subscription. Other players too often come out with new discount offers.

Further Mr Kaushik states and I quote, “It’s a big problem. Take a look at the dynamics of the business. Overall, what happens is that the revenue model of all DTH players is fundamentally dependent on the subscription that the consumer pays every month, which is average revenue per user (ARPU). If the ARPU is Rs 75 a month, it will take at least five years to recover the cost of a connection – that too, provided the consumer stays with you and continues to pay every month,”

Primarily, it’s a long pay-back business, and second, if the subscriber acquisition cost continues to be inordinately high, and the DTH player’s ARPU is really inordinately low, “it’s a very dangerous business to do. And that has been why we have refused to go into the price war. Because, it’s a very dangerous business model. They are all trading on the future,” he further adds. The dollar is appreciating, interest costs have more than doubled, and all the players are currently investing and not earning. So, costs have moved up, and the ARPU has moved down. “This is the reason why we have said, it’s fine, we will focus only on getting the best-quality subscribers,” adds Kaushik. He says Tata Sky’s ARPU is at least 40 per cent higher than everybody else. It holds 45 per cent of the market in value terms. Tata Sky hopes to break even in the next couple of years.

To read about the Hindu Business Line article on the DTH Industry in India, check out the following link: http://www.thehindubusinessline.com/catalyst/2009/06/11/stories/2009061150020100.htm

To read the complete Hindu Business Line interview with Mr Vikram Kaushik, CEO of Tata Sky, check out the following link:

http://www.thehindubusinessline.com/catalyst/2009/06/11/stories/2009061150100300.htm