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Netflix deal will help in customer retention, revenue enhancement: Tata Sky's Harit Nagpal

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Tata Sky MD and CEO Harit Nagpal has been a bit of an early mover in terms of innovation and building a world-class satellite TV operation. Whether it has been in the case of HD or VAS or top-notch customer services, Tata Sky has been driving many of the path-breaking initiatives in the DTH sector. Nagpal announced a major strategic partnership with Netflix under which Tata Sky subscribers will be able to watch the world-class streamer’s on-demand content, including TV shows, films and documentaries, in the coming months through the direct-to-home operator’s platforms.

Nagpal was in APOS Bali and was on stage for a conversation with MPA’s Vivek Couto. He openly spoke about the reasons behind the Netflix partnership, how it will benefit customers, what it means for Tata Sky and how does he see the satellite TV leader continuing with its leadership status. Sources indicate that Tata Sky is generating close to a billion dollars in revenue from about 15 million subscribers. Excerpts from the conversation:

Why the Netflix tie-up?

We don’t look at us as satellite TV platforms, we look at ourselves as the equivalent of grocers in this industry that produce and distribute content. We are a distributor part of the content, depending on the customer, whenever he wants to buy wherever he wants to watch we are privileged to provide him that—that was our thinking.

Some customers of ours—not all, a very small fraction in India—are having access to good quality broadband, which can carry video. Also, they have the capability of paying for the broadband. And third, they don’t have the time to watch when it is broadcast; they’d rather watch it at their time.

Who are these customers?

Unlike the western world, where almost everybody falls in this category, in our country, a very small fraction falls in this group. Fortunately, we are providing linear television services to this kind of customers and today there are about 3.5 million such customers who are paying about $10 plus per month on content in a country whose ARPU is much lower. We have two million of these customers. So, it’s been our endeavour to create a platform. Because the lunch is lying in front of me, I would rather eat it rather than wait for someone else to come and eat it. We met Reed (Hastings) and Bill two years ago at their villa in Bali during APOS. And the rest is history.

How will you differentiate from other service providers and mobile companies?

We are going to distribute almost everything but not on-demand content like the mobile guys did. Mobile guys could best take a phone and put in five, six, seven eight apps. We were distributing television very differently. We were going to Sony, Star, Zee, Colors and buying content in bulk but providing it to the customer by genres making content discovery easy. That means if a linear TV customer says I don’t have kids, I like music, I don’t like sports, and I speak Malayalam, then I see no reason why he should not be watching on-demand content in the same way.

It is my job to get all the content from various sources or on demand platforms and make the content discovery as easy as I have made it on the TV screen. We are giving him probably seven days catch-up TV for what he is subscribing on linear. To that you add Netflix, Amazon, Hotstar, YouTube, and whatever else become the prominent apps. You distribute that content via genre and offer it to him for a little over what he is willing to pay for linear TV.

Is the Netflix addition mostly about ARPU enhancement in India?

It’s retention and revenue enhancement. We have noticed that a customer when he gets into one of our services, his inclination to churn reduces. To the extent of around 75 per cent. The moment he gets dependent on a DVR, the 12 per cent churn becomes three per cent churn.

So one more dependency for another service which is OTT will drive down the churn or deactivation even if it is for a short duration. The premium segment which accounts for 15-20 per cent of our base, there is no more price increases you can take on them and hence grow revenue.

They are also consuming almost every single genre of content that is there. There is no genre to go into and select. We can lure in these guys by giving him additional services.

Will the tie-up work against Tata Sky? Don’t you fear competition?

Competitive intensity is good for the industry especially at the stage we are in. We need more high-quality competition to come into this business. I don’t want to run a monopoly because monopolies become very lethargic and they don’t feed the customer and they don’t grow the industry. At this stage, the more, the larger number of good quality competition that comes in it will keep us on our toes it should be there. It will help get good quality of product to the customer and is welcome.

It’s not going to be a single platform. It’s going to be a combination. Just like a set top box is HD, DVR, SD and all those kinds of things. It’s going to be low cost to high cost. Even the customer price models will be different. You pay upfront a lot and don’t make me subsidise, you pay less per month. You make me subsidise the equipment, you pay me more per month.

Has not the pay TV market slowed down in India? What about free to air?

Deceleration is not happening. First of all the pay TV mass in India was not growing. What was happening was the transition from analog cable to digital platforms. If you look at the last five or six years, the pay TV base has not grown tremendously. 50 million people we have migrated from cable TV to DTH. That was growing at a pretty fast pace earlier. In the last two years, it slowed down. First year was because of free to air (FTA). We licked that problem in May last year. And since that the FTA growth has been curbed.

There has been a lack of competitive intensity amongst the DTH competitors in the last one year. Primarily because a couple of them were busy panning out the merger and they were not participating in the competition in the market. Which has probably led to the slowing down of migration from cable TV to DTH. It’s a momentary thing, I guess. It’s going to come back.

We don’t treat FTA as competition. FTA is a good thing. FTA provides me a pool from which I can source customers from. Because the customer does not buy a TV and decide to pay subscription simultaneously. He first buys it as subscription is going to be free. Then some of them upgrade to a paid service and that’s the pool we can tap into.

Where do you see growth coming from?

I see growth coming from phase IV. Two thirds of India lives in phase IV. They

live in small villages which have 50 and 100 households. Drawing a cable to that village is uneconomical. If the cable operator who was serving those 150 households, if he loses 50 households then serving the balanced left-over subs become uneconomical.

Will the march of the telcos like airtel, Jio, Idea Vodafones into content and distribution also impact your business?

I welcome the telcos getting into the content business because it will keep the addiction to content alive. Compare it to the time when we only had land lines, we talked for 200 minutes a month. And we added mobiles, we are talking for 600 minutes a day. Because I am not restricted to my sofa and talking. I can be in the car, on the road, in the loo, wherever. Similarly, if I am restricted to my living room, then there are chances of addiction not become addictive enough.

If I have the option I am watching something on the phone then I come back and again watching it on the TV, the addiction will stay. So, it’s additive not subtractive. And nobody has watched content on a six-inch screen if a 42-inch was available in front of him. You will watch it if the remote is taken from you by your wife or the kid, you will watch it on the mobile sitting in the same room: I am not deprived of the content I want to watch.

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