'The price war has come at an early stage of the DTH game' : Vikram Kaushik- Tata Sky MD & CEO

 Tata Sky, a direct-to-home joint venture company between Tata Group and Star, is betting big on value-added services such as PVR (personal video recorder) and is ready to pump in another Rs 20 billion as it eyes a subscriber base of eight million by 2012.

The focus is on building a strong brand with heavy spending on advertising. While rival network Dish TV has used Bollywood star Shah Rukh Khan, Tata Sky has Aamir Khan as its brand ambassador. Occupying a premium position in the mindshare has been part of the strategy as the company has the technology support of News Corp. and the trusted name of the Tatas.

The DTH game has got tougher with competitive entries from Sun Direct, Reliance's Big TV and Bharti's Airtel Digital TV. This has meant a rise in project expense from Rs 30 billion to Rs 40 billion, lower ARPUs and high customer acquisition costs.

Cable TV, which has a strong footprint across the country, is also offering stiff competition to DTH operators.

In an interview with's Sibabrata Das, Tata Sky MD & CEO Vikram Kaushik talks about the company's decision to stay away from being a discounted brand while fighting at different price points to tap different consumer segments.


Has Tata Sky revised upwards the project cost from Rs 30 billion to Rs 40 billion?

When we first formalised our business plan, we were looking at an investment of Rs 12 billion. Then we came up with a realistic estimate of Rs 30 billion. We revisited that plan and now believe our funding requirement for the venture would be Rs 40 billion. We have already invested half of this amount.

Has the project cost gone up because of the higher element of subsidy in the Indian DTH market?

When we first did our business plan, we didn't expect so many DTH operators to come in. There is a lot of activity in the category and the price war has come at an early stage of the game. Competitive entries and an explosive growth in volumes mean higher costs. Customer acquisition accounts for a significant percentage of the costs.

Will this mean that the gestation period for profitability will go up?

I wouldn't like to comment on when we would reach the break even situation. DTH is an infrastructure business and requires high investments and long gestation periods. We have no illusions about that. Generally, the break even for this kind of business is in excess of five years.

Industry estimates put Tata Sky's losses at Rs 8.15 billion in FY'07 and a little more than that in FY'08. Do these losses fall in line with your business plan?

I can't talk on financials.

Are you in line with the projected subscriber growth?

We have already touched 2.7 million subscribers and are targeting at least eight million connections by 2012. When we were at the drawing board, our broad plan was to add a million subscribers every year. We are growing faster than that.

'When we first formalised our business plan, we were looking at an investment of Rs 12 billion. We revisited that plan and now believe our funding requirement for the venture would be Rs 40 billion'

But are ARPUs (average revenue per user) in place?

I can't reveal to you where our ARPUs currently stand. But there are definite efforts to push ARPUs up with the launch of value-added services such as PVR (personal video recorder). This technology allows subscribers to watch a particular television show while recording another. Viewers can also pause and rewind live television programmes. We have priced the set-top boxes (STBs) for PVR, which will use MPEG-4 compression technology, at Rs 8,999. For our existing subscribers, we will be offering at discounted rates.

Isn't the pricing on the higher side?

Being below Rs 10,000, it is very competitively priced. We are aggressively marketing Tata Plus. In just a couple of days since launch, we have already sold 2500 PVRs. It took BSkyB 3-4 years to convert 50 per cent of its eight million subscribers to Sky Plus.

Our priority is to make this really big as the product is very powerful and also addresses the ARPU issue. We realise that people in India are investing in high quality entertainment at home as out-of-home is becoming expensive. The PVR is a recognisation of this trend and we want to capitalise on it.

Are you looking at niche content for lifting your ARPUs?

Unless we have a critical mass, we can't slice the market that thin in India. The Indian DTH market is endemically short of satellite capacity. We have 12 Ku-band transponders on Insat 4A, but want more and nothing is available at this stage. We can address niche audiences and offer more channels to consumers if we have more transponders available.

It is, however, possible to offer premium content like lifestyle within large segments. On our interactive service, we have NDTV Good Times offering specialised cookery.

Segmentation in the marketplace is also possible. And we have interactive services like Actve Wizkids (for children and pre-schoolers), Actve Darshan (24-hour darshan of Sai Baba, SiddhiVinayak, Iskon and Kashi Vishwanath) and Actve Matrimony. But the problem with interactivity is that it is very bandwidth hungry.

What is the premium content you are lining up?

We are in talks with movie producers like Sony Pictures, UTV, Eros and Fox for sourcing their movie content. We are looking at recent Bollywood, international and Hollywood content for our pay-per-view service. The challenge is how to get into revenue share deals as we can't pay high MGs (minimum guarantees) and it is not attractive for the content suppliers if there are not high volumes.

How about getting premium content channels?

For premium content channels, we are at an early stage of development. There is also the transponder capacity issue. One area we are looking at is HD channels.

Are you planning to strengthen your regional content line-up?

Regional markets are integrated into the overall content plan. We have national, regional, international and eclectic consumers.

Sun Direct has mopped up over one million subscribers in a short span of time because of its aggressive pricing. How has that impacted you in the southern market?

Our growth has not stopped in the South because of Sun. We have the right kind of share in the right kind of segment. Sun's pricing is unviable and we are at 30 per cent premium over them. Their strategy seems to reflect the pressure of their cable TV business while pricing their DTH proposition. The danger is that you can attract the wrong kind of customers - and you are vulnerable to a high degree of churn. In DTH business, this is a recipe for disaster because of the high subsidies involved in customer acquisition.

The South has been a high pay-TV penetration market because of pricing. In this blood bath situation, one has to be cautious and keep away from just adding subscriber numbers.

Isn't market leader Dish TV also involved in the price war?

More than Dish TV, it is Sun Direct which is acting as a discounted brand. The DTH market in India is open to segmentations. We are also offering subscriptions at Rs 99. But the question is how much at the bottom of the market you can afford to go.
Why hasn't the Tata Sky brand been able to stop Dish TV from mopping up a high number of incremental subscribers?

Dish TV has followed a discounted brand strategy. We have operated at a Rs 1000 premium over them from the moment we launched. Dish TV has also picked up the low hanging fruit in smaller markets. Besides, they continue to work as an integrated media company and have leveraged that advantage as a vertical player.
Has regulation worked against the DTH players?

Regulations relating to the broadcast industry have been largely progressive. The problem has been the lack of a level playing field across the different addressable platforms. Why should cable operators get channels capped at Rs 5 in the Cas (conditional access system) areas? There is a structural inconsistency in this. Besides, the tax burden on DTH is scandalous. Around 40 per cent of our revenue goes towards taxes and licence fee. When our national objective is to push digitalisation, let's lower the barriers and incentivise the sector.
Hasn't the Telecom Regulatory Authority of India provided some relief to the DTH operators by way of directing broadcasters to offer their channels at 50 per cent of analogue cable TV rates besides making them available at a la carte pricing?

When we started, there was no RIO (reference interconnect offer). In fact, it is amazing that most of the content deals were done in the court. New players like Reliance, Bharti and Sun would have found it tough if the RIO regulation hadn't come about.

But even now there is an anamoly. Why should we get content from broadcasters at 50 per cent of what they offer to analogue cable when the Trai and the Information & Broadcasting ministry have formally admitted that the cable sector operates on 20 per cent declaration of their subscriber base?

Besides, DTH should get content from broadcasters at Cas rates since we are an addressable platform.

But aren't cable operators offering set-top boxes even below the regulated price because of competition in the marketplace?

Pay TV in India is subverted by cable prices which are artificially depressed because of under-declarations. DTH operators have had to drop prices because they have to compete with cable. Today the gap is higher between the two because cable TV pricing is artifically suppressed. If some DTH operators decide to go as low as cable, then it becomes unviable.
Don't you think exclusivity of content will allow platform providers to raise ARPUs?

The ARPUs in the UK, US and Australia vary between $60-80. In India, the ARPUs are a fraction of this. Exclusivity of content is there in all markets except India. But we hope the regulation on exclusive content will also wither away. This will allow us room for being more creative and innovative.
Since cable already has a wide presence, do you see them winning the war against DTH in India as in the US?

DTH has already tapped over six million subscribers and will see explosive growth from now on. In the US, cable companies have made massive investments to digitalise their networks. And even there, 40 per cent of the market is still with DTH. Indian cable companies have not made such investments. Besides, the cable TV market here is hugely fragmented. And the last mile challenge (multi-system operators do not own much of the last mile which is with the local cable operators) will not go away.
Tata Sky and Dish TV are on MPEG-2 compression technology while the new players have MPEG-4. What is the status on the inter-operable issue?

There is a regulation on DTH boxes being inter-operable. But why have a law when this is not being followed?
But why was Tata Sky opposing the inter-operable clause then?

The regulator can say that the inter-operability clause was a mistake and just do away with it. We are asking for more clarity on the issue. If we are to switch over, then we want some amount of subsidy which the government can give from the revenue share that we part with them.
There has been a drive to reduce the revenue share with government. What is the status on this?

The Telecom Disputes Settlement and Appellate Tribunal has ruled that the licence fee for DTH services should be based on adjusted gross revenue - and not on the basis of gross revenue. But the government has not yet issued any notification on this.
After Temasek Holdings took a 10 per cent stake in Tata Sky for $55.5 million, have we seen a rise in DTH valuations?

I can't talk about valuations or the price at which we got Temasek to invest in. But Temasek has 10 per cent while Star's holding is untouched at 20 per cent and the Tata Group's stake has come down from 80 per cent to 70 per cent.

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