If the direct-to-home sector is suffering from growth pangs, it?s a cycle we have watched unfold in the home video sector, musical downloads, and even the early days of cable. All these sectors, even telecom?s value-added services to give a recent example, have had long gestation periods, because that is the nature of the business: customers will experience it, and then opt for it if the experience is good. That?s what the Indian DTH sector has been striving to do?the players are doing everything and more to woo consumers, ensure they stick on and thus drive up volumes and sustain the business. So, from launching HD channels, varied content, competitive prices to eye-catching advertisements, DTH players are trying it all. For a sector which is seeing phenomenal growth?30 million subscribers as of December 2010 and growing?the players also point out that they are under stress due to various reasons ranging from inactive users to rigid tax structures, severe competition and high content costs.
Says RC Venkateish, CEO, Dish TV the largest DTH player in the country with a subscriber base of 9.9 million: ?The churn is under control, it?s about 7-8% now. Our launch of 30 HD channels will be a game-changer, the subscriber base will grow much higher.? But Venkateish wishes there is some rationalisation in the tax structure and lower licence fees. ?The government should look into the taxation issue,? he adds, echoing sentiments of other DTH players.
Though most players in the business, including Dish TV, Tata Sky, Reliance Digital TV, Airtel Digital, know that the DTH sector is a long-gestation business, there is a concern about low average revenues per user (ARPUs). ?The overall prices levels are depressed, ARPUs are low, but we have critical mass in the volumes game,? says Venkateish. Analysts say the ARPUs on an average have been hovering around the R 145-R 165 level.
Dish TV has been aggressively pushing its HD channels, strengthening its distribution network and offering a bouquet of 267 channels to woo the customer. ?With our HD offering we are different from other competitors,? says Venkateish.
For Reliance Digital TV, a late entrant to the sector in August 2008, the ?journey has been exciting and challenging?, according to Umesh Rao, senior VP & CMO, Reliance Digital TV. ?We were a big challenger brand and by defining some of the paradigms of the sector, like offering cinema channels on our platform to name just one, we have managed to grow to 3.5 million subscribers,? he adds. Like Airtel Digital, Reliance, too, has fallen back on its ?telecom heritage? to focus more on distribution. ?We have been able to minimise churn,? he points out. But every player is battling churn?customers switching to other players or simply not renewing subscription. Says PwC?s Smita Jha: ?We must learn to distinguish between total subscribers and actual subscribers.? The potential is huge, with India having 140 million TV households, with 70-100 million on cable.
In October 2010, Tata Sky had a subscriber base of six million. Vikram Mehra, chief marketing officer, Tata Sky, doesn?t want to get into numbers, but points out that ?our objective at all times is to get the customer for the right reason.? With differentiated content and a lot of emphasis on customer services, ?the problem of churn is not there?, says Mehra. For instance, for the cricket World Cup, Tata Sky is offering fans an option to watch highlights in the middle of the match, stump angle views, commentaries in Bengali and Gujarati, besides English and Hindi, and an option to record every match with an HD personal recorder.
Reliance?s Rao says it was the first to spot the trend of the industry moving towards HD. The World Cup is on HD, so are channels like NatGeo and Star Plus. ?We are looking for opportunities to source HD content. One of the biggest challenges is to keep the customer engaged with content,? he adds. For Mehra, the biggest challenge is that there is ?no level playing field between cable and us?. DTH, he argues, is growing at a fast pace having reached 30 million in seven years, but the tax structure is rigid, with at least 30% going in taxes.
Airtel Digital TV CEO and director Ajai Puri says the magic of wireless is playing in the DTH sector and the government must take note of this. For Airtel, the fifth operator to launch DTH services, the growth is coming largely from rural India. ?Two-thirds of our growth is coming from outside the top 200/300 towns. It?s positive that we are spreading in cable- dark areas,? says Puri.
Besides digitising large parts of the country, the DTH players, facing intense competition, are also upgrading on technology, network and reach. So, while some players are pushing the HD mode aggressively, others are upgrading dish sizes, strengthening distribution and marketing, focusing on customer care and so forth. Airtel, for instance, has an off-site in Bangalore where signals are switched if there?s a calamity from their main site in Delhi.
In content, too, a lot of variety is on offer. ?We are going beyond the linear content. A whole host of value-added services is starting to catch up. The latest movies are on DTH, gaming has caught on in our platform,? says Puri. Airtel, too, is using its 150 million mobile customer base to good effect. ?Now, TV, mobile, broadband are being integrated. You can now record a TV show from your mobile,? he adds.
According to insiders, DTH cost of content is 2.5 times more than analogue cable. ?No industry can have such a high cost structure, pay such high taxes and have a viable model,? insists Puri. Most players agree the business model needs a correction. The cumulative losses of the industry are at R 5,000-R 6,000 crore. And though, as Puri says, ARPUs are looking slightly better after the advent of HD, some government support is necessary?the Budget didn?t provide any.
By far, the biggest challenge of the sector is profitable growth, and analysts say they need to come up with innovative business models. Or the players need to hang in there. Says Jha: ?The sector will grow and make money; it?s just a matter of time. The two biggest positives for the sector are that the spending power of India isn?t going down like other advanced markets, and with the population relatively young, disposable income is also going up.? But every player must be wishing there was a little less bloodbath.