Future of the dth

DTH: Beaming future on zooming economy

SECTOR OUTLOOK

R. Ravikumar

Chennai, Jan. 3 From one service provider and a little over half-a-million subscribers at the end of the financial
year 2005-06, to six service providers and 30 million plus subscribers now, the direct-to-home (DTH) industry has
come a long way in an analogue cable-dominated market.

The first mover and the country's largest DTH player with over nine-million subscribers onboard, Dish TV, claims
to have acquired a little over a million subscribers in the last three-and-a-half months. “Now, as an industry, we
collectively enrol over a million subscribers a month with ease,” said a senior executive of Dish TV. In 2005,
when Dish TV launched the country's first DTH service, not many people knew about the technology and its
advantages. Making cable-dark areas as its prime target, the company managed to rope in just a little over half-
a-million subscribers in the first year of operation.

With the entry of other players such as Tata Sky, Sun Direct and Big TV, AirTel and Videocon in the following
years, the market gained good momentum and started expanding faster with every passing day, thanks to their
aggressive high-decibel marketing and low entry fee for subscribers.

Industry observers say, it is likely to improve further and grow even faster in the months to come. In India, there
are over 140 million TV homes, and of this, about 100-110 million homes come under the cable and satellite
(C&S) market. With around 32 million subscribers, the DTH industry commands 32 per cent share of this market.

Largest DTH market

According to a study by Media Partners Asia, India will become the largest DTH market in the world in terms of
subscribers by 2012 surpassing the US.
However, Mr Salil Kapoor, Chief
Operating Officer of Dish TV, is of the opinion that the
Indian DTH industry with at least 33 million subscribers by
the end of the current financial year would comfortably
become the largest market in the world.
This can also be attributed to the fact that there are still large patches of cable-starved areas in the country,
where people watch only terrestrial channels (which are Doordarshan channels), and also cable networks are not
yet digitised in the country.
Despite all this, companies (except Dish TV which turned EBITDA-positive in the last few quarters), continue to
bleed as the industry toils under a heavy tax regime, high subscriber acquisition costs and poor ARPU (average
revenue per user).

According to industry sources, ARPU currently hovers around Rs 125-150 a month, of which around 30 per cent
goes to the Government as licence fee and taxes (entertainment tax and service tax), and 50 per cent to content
providers (broadcasters as charges). Only the remaining 20 per cent is the net revenue for the service provider.
For example, if a subscriber pays Rs 150, nearly Rs 45 goes to the Government, Rs 75 to the broadcasters and
the DTH service provider gets only the remaining Rs 30.

“Provided the operator achieves a critical mass of subscriber base, it will be very difficult to be cost-effective and
turn cash-positive,” says Mr Sugato Banerji, Chief Marketing Officer (DTH Services), Bharti Airtel.

Big investment

Though the subscriber acquisition costs are said to have come down, companies still spend at least Rs 4,500-
5,000. According to industry sources, on an average, an MPEG 2 set-top box with antenna and other equipment
costs $37-38, while the MPEG-4 costs $12-15 more. This is despite the fact that bulk orders for these equipment
fetch a “substantial discount” for the service providers.

“It's still a big investment and will make the gestation period even longer considering the current ARPU,” said a
senior executive of another service provider.

However, according to some analysts, thanks to the increasing number of two-TV homes in urban and even tier-II
markets, delay in digitisation of cable networks and growing sales of high-definition TVs, the subscriber base will
certainly expand.

Besides, with rising ARPU and falling subscriber acquisition cost, majority of players will report at least break-
even in the next couple of years

Future of competition in the Indian DTH

market
BY ADITYA MHATRE AT 7 MARCH, 2009, 11:22 PM

The DTH market in India is relatively nascent but is getting crowded very quickly. In the past 3 months, two solid
competitors like Airtel, Reliance have entered the market and Space TV, a Star TV venture, is awaiting
government approval. The future of competition in the DTH market is not going to be in the core DTH service or
the subscription cost. To attract subscribers, companies will have to distinguish themselves from the competition
by providing value added services via DTH.

A DTH service provider delivers service using a set top box which can be compared to a tiny computer. Minor
enhancements to the set top box software and new business processes could provide a lot of scope to creatively
develop new revenue streams.

Here are few ways DTH companies could differentiate themselves from the competition.

Payments via DTH: DTH boxes could be developed as a payment platform similar to mobile phones.
People could use this medium to pay electricity bills using their credit cards. This is a very critical feature and has
the potential to open up a lot of revenue generating features.
Localized/targeted Ad platform for SMB: A very simple location based sales or coupon
distribution module can be built on top of the set-top box. This will specifically be of tremendous value to local
SMB like restaurants or jewellery outlets etc. Ability to select area, create, publish, and payment online for
publishing ads could be an innovative business model. The ad publisher could choose the channel that the
message would appear on and would be charged on the Cost per click model.
The system can also be made a more advanced by building in a business intelligence layer on top of DTH set top
box software. The BI layer would gather user specific data and which could be used to run highly targeted and
focused ad campaigns.

TV Commerce: An innovative e-commerce model for TV could emerge where the viewers will be able to
either buy or get information about the product while the ad is being aired on TV. For example: If a Nokia
commercial is being aired on TV, a message saying “Press Red button to buy” could flash using which the User
could be directly to the TV shopping cart and the product would be delivered just like any e-commerce site.
Streaming rental movies/movie ticket booking/online gaming : DTH
service providers will soon start offering internet services via DTH. Once that happens; the TV set-top box and
the internet modem would converge. Almost all companies in the DTH market have a telecommunication
business and hence the synergies are obvious. Company like Big TV is ideally placed with group companies, Big
Flicks and Reliance Communications, already operating in the movie rental business as well as internet services
business. Other companies like Tata Sky and Airtel will have to explore the possibility of partnering with content
companies like Rajshri.com who are in the online movie rental business.
The regulatory prohibitions to adopt any of the above points are yet to be verified like regulatory prohibition for
conducting financial transactions like payments via DTH service. Some of the services that companies offer
might not generate revenue but simply be for customer convenience like having flight status updates on TV or a
directory listing for household requirements like list of local plumbers.

The above services might not necessarily be the best solutions for DTH service providers but DTH companies
definitely have to start thinking beyond digital picture quality.

Here are a few other services that might not generate a lot of revenue but could be helpful to attract customer
attention.

Pizza Delivery: This might not seem like a very big opportunity but according to estimates, total pizza
industry is worth about Rs 2000 crores and is showing compounded annual growth of 20-25%. The set top box
software could be easily enhanced to offer the subscriber the ability to order a pizza right using their TV. The
nearest pizza outlet could be determined using the location details of the set top box itself. This could potentially
reduce the load on the Pizza order call center operation and improve the net profit per pizza for the company.
Grocery shopping: The set top box software could be enhanced to offer a TV based grocery experience to its
subscribers. The grocery items could be listed in category format like Grains, Cereals etc. There could also be a
section to push special discounts. Ability to reorder items from your previous shopping list could be one of the
features. One of the major hurdles faced by the grocery retail outlet is the lack of home delivery and the
personalized service that a local grocery vendor provides. The DTH set top box could be embedded with
customer business intelligence to personalize the experience
DTH Industry in India : Past, Present and Future

India has a total television population of close to 135 million, out of which 80% have access
to cable and satellite (i.e. 108 million). The total DTH subscribers are close to 22 million.
Thus the DTH has a market share of approximately 20%. The subscriber base for DTH in
2006 was meager 1 million. Now for an industry which is just 5 years old, it is a great
achievement.

Let’s have a look at how the DTH industry has grown in these 5 years. In 2005 Dish TV was
the only player in the DTH industry and was registering subscriber growth mainly in the
areas where cable TV was not available. The subscribers were not ready for the cost of set
top box. In 2007 CAS mandate was introduced in selected metro cities, where users had to
invest in a set top box.

Though the initiative was not very successful, it gave a wider acceptance to the DTH and
consumer became ready to pay for the set top box. Spotting the opportunity Sun Direct
launched its services in 2007 with a drastically low one time cost involved for DTH
subscriber. Followed by this Reliance, Big TV and Air-Tel and Videocon launched their
services. The market became competitive. Every player came with innovative offerings, Dish
TV offered Movie on Demand free worth the cost of set top box, Air-Tel and Big TV offered
free subscription for first few months etc. All these things were coupled with aggressive
marketing campaigns. Tata Sky gained the maximum subscribers during this period.

Today the market shares of various players are as follows

 DishTV : 30%
 Sun Direct: 25%
 Tata Sky: 22%
 BIG TV : 13%
 Airtel   : 8%
 D2H : 2%
So where is the real growth happening for the DTH industry. Is it the urban areas or rural?
Though DTH is comparatively expensive than cable service, the growth is coming from the
rural area. If we see statistics the growth for the digital segment in rural areas were 34%,
49% and 64% in the past three years.(source:- TAM Annual Universe Update –2010). The
growth in the rural segment can be attributed to frequent power cuts in the rural areas. DTH
platform gives the rural consumer access to their favorite programs, with the help of
generator/ invertors, which is not possible with the cable service in most of the areas.

Though DTH has certain advantages such as better picture/ sound quality, better customer
service. It also has a disadvantage of price. The DTH player have to pay various taxes such
as Adjusted gross receipts @ 10%, service tax @ 12.36%,VAT @ 12.5%,CST@3%,corporate
tax, Excise duty@ 16%, Customs duty, CVD ,customs duty etc. Whereas the local cable
operators easily get away with government taxes by underreporting the subscriber base.
Thus gaining a clear cost advantage. The regulator should take a note for the same and
provide regulations for the same.

At the same time in Indian market “One size fits all” strategy doesn’t work for long. So, the
DTH players have to design packages suitable for rural consumer enable them to enjoy the
digital content (For eg. Levi’s jeans had enabled consumers to buy their jeans with an EMI
scheme).

The DTH industry is expected to grow at a CAGR of close to 24% .The future of DTH industry
will largely depend on innovative marketing tactics adopted by the DTH players. The stage is
all set for DTH industry. Let the real game begin.