With conditional access system (Cas) coming in next year and DTH already in, the time is right for television technology firms to take a serious look at India. One such firm is NDS, which provides technology solutions for digital pay-TV. It has opened a dedicated sales and support operation in Mumbai. Indiantelevision.com's Ashwin Pinto caught up with NDS chairman and CEO Dr. Abe Peled for a lowdown on the company's plans and the emerging digital age.

Excerpts:

For NDS, DTH is a high revenue earner. How is the company gearing up to new delivery technologies, particularly at a time when investments are coming into IPTV and growth in DTH subscribers is slowing?

The market for satellite is getting competitive and complex because of triple play. We have 70 per cent of our revenues coming from DTH. We expect our growth in this area to stay strong as DTH service providers are going in for advanced technologies. We will benefit not primarily from subscriber growth but because of penetration of new technologies. We, for instance, have shipped 4.2 million digital video recorders (DVRs) and there is a scope for explosion in this segment as prices drop. But we realise that IPTV is also offering opportunity and have 14 different contracts including Yahoo in Japan which has 200,000 subscribers.

You have just acquired for $107.5 million Jungo Ltd. which is a leading provider of software for residential gateways. Will this help you penetrate the broadband television market?

It will definitely help us better serve the telecom network operators to offer reliable video over broadband services. We are looking at acquisitions in the IPTV and mobile space even as pay-TV operators are looking at different delivery platforms.

With Cas coming in next year and DTH already present, how is NDS tapping the growing opportunity in India?

We actually started selling our products in India three years back with Hathway Cable & Datacom. The reason why DTH and Cas are coming in now is that the technology is sufficiently inexpensive to be able to be used even in countries where subscriber revenue is a few dollars each month. The first set-top box (STB) launched by DirecTV in the US cost $700. But now the cost of the STB is below $50. Also, the cost of digital compression has fallen. All this makes digitisation affordable in countries which have low ARPUs (average revenue per user). China and India are key growth markets for us.

NDS is seen as a high-cost encryption system. Do you have a pricing strategy for the low ARPU countries like India?

We have a product called VideoGuard which addresses this issue. There is a myth spread by our competitors that we are not affordable. We are very competitive and cable operators will have to take a long term view. It is not the Cas mandate that they have to service but also look at interactive features. Besides, we see a consolidation take place in the cable TV industry here.

DTH has grown wherever there has been premium content. How do you see the Indian DTH market evolve?

I have a word of caution. While we would like to supply technology to lots of people, the experience is that in satellite very few places have room for more than one player; it is just not cost effective. In France, the two operators merged this year. The US has two operators as it is a large country. So maybe India will follow the US. But surely there can't be space for so many players who have expressed their intent to join the fray. Exclusive content is also not allowed and the sectoral cap on DTH of 20 per cent stake by broadcasters can seriously hamper big capital coming into the business. But Tata Sky is off to a good start. And with DVR prices falling, we see it as an incentive to push digitisation.

Are you in talks with the major telcos like Reliance Infocomm for IPTV?

We are looking at expanding business in India and are in talks with several companies. But I can't give any specific details. We have opened office in Mumbai specifically for this purpose.

Are you also ramping up the research and development facility in Bangalore?

We have almost 600 people in our Bangalore lab and are still hiring. We have just moved into our new office premises which can house double the capacity we are operating in now. Bangalore is a key part of our research and development operations. The EPG (electronic programme guide) was developed out of here and the middleware was adapted for our two clients, Tata Sky and Hathway, in India.

What are the challenges that lie ahead for NDS?

As the media landscape changes, pay TV operators are facing more competition. There are new modes of delivering and distributing content that perhaps bypass traditional avenues. Our challenge is firstly to help our pay TV customers embrace new technologies and broaden the entertainment experience that they offer. At the same time, we want to work with telecom firms or people who want to distribute content directly to the PC or are keen to get into triple services play. We will be an enabler in this changing, fluid media landscape.

How has NDS been able to quickly identify consumer tastes and preferences with evolving technology?

While consumers are not our direct customers, our success critically depends on them enjoying the entertainment experience. For example, in the early days of interactive television the first instinct was to say that we will allow consumers the technology to access the web to view television. We did not do that, as we understood that is not the case. We, instead, moved towards enhancing the television experience, which means interactive sports and other programmes. Companies came to us wanting to sell stuff through interactive TV. MTV wanted to sell music CDs. But we learned quickly that there isn't a good enough business model to do that. The margins are not enough after you account for all the costs. We focussed on things that allowed channels to increase their viewership share like interactive quizzing. This way they could hike their ad rates. One of the key lessons was that T-commerce does not really work. We are working with Nickelodeon in the UK for games that you can overlay onto the programme.

There is something called Pie in the face. So if you score enough points you can throw pie on an actors face. These things enhance the television experience.

Is there a resistance from consumers for digital TV?

The only resistance from the consumer is the price. They appreciate what the DVR and EPG have done. Price is determined by two factors. One is the absolute cost of the technology, which is coming down. Second is the business model of the operator. Will they bundle the cost into subscription and spread it out over several years or expect consumers to pay upfront? That is what dictates the rate of adoption. If the payment asked for upfront is modest, the adoption is quite quick. If the upfront is higher, the adoption is slower.

What are the key markets for NDS in terms of revenue?

The US accounts for 35 per cent of our revenues while 20 per cent comes from the UK. Asia is about 11 per cent. Our hope is that in five years time Asia will contribute at least 20 per cent. Last year in China, one million STBs with our technology were deployed in Shenzhen. This year we expect three million deployments.

Has China been a more difficult market to penetrate vis-a-vis the rest of Asia as you need to show demonstrable commitment and the fact that the Chinese government takes a personal interest in how TV technology develops?

The Chinese government takes an active interest in content. I don't think that it takes a greater interest in technology than governments in other countries. We have a small development lab in Beijing as we are committed to it. The challenge is that there is no premium content that an operator can offer. So digitilisation is a result of government initiatives rather than a demand from consumers for getting more premium content. NDS has contracts with the larger Chinese provinces.

How is NDS coping in the face of competitors like Kudelski and Irdeto?

In terms of scale, NDS has 66.6 million STBs deployed worldwide. Irdeto has two to three million. Kudelski, a Swiss firm, is our main rival but we are ahead. The fact that we have so many deployments gives us the scale to invest in research and development. That enables our technologies to be more sophisticated and secure.

Secondly NDS has a much broader offering for pay TV operators. While conditional access is necessary, you have other technologies like interactivity and games. None of our competitors have this broad range of technological capabilities. It is not just about providing Cas but also about providing an enhanced experience. We are at much better place to do that vis-avis our competitors. Our competitors can offer price but we are competitive there as well.

NDS recently was ranked as the top research and development investor among all UK-based software companies. Could you talk about your R&D centers and their importance?

We believe in being a leader in television technology. We spend over 30 per cent of our revenues on research and development. We have centres in Israel, UK, Bangalore, France, Korea, US etc.

Is NDS also working in the mobile sphere which allows for content viewing anytime, place?

We have a DVB H system that we are doing trials with. Korea is the most advanced country in terms of mobile deployment. We are doing a trial there with WiFi Hotspots. If you go into that Wi Fi it will pick up different channels that you can watch by streaming.

Finally what are the major changes you see in the digital television landscape five years from now in India and Asia?

A large percentage of homes will have a box. It will offer interactive TV. A percentage of that will be DVR I would hope at least eight per cent. A similar percentage will have broadband capabilities. I am not sure about the potential of High Definition. It will be a small percentage.