India is poised to be the largest DTH market in the world, albeit with one of the lowest on ARPUs.

India is set to become the largest DTH market in terms of subscribers by 2012, overtaking the US, according to a study by research firm Media Partners Asia. By 2012, India will have 36 million DTH subscribers as against 18 million at the end of March 2010. The US, currently the largest market with 32 million subscribers at the end of 2009, will have some 35 million DTH consumers by 2012.

MPA also predicts that the market will consolidate to four platforms within three to five years, and ultimately be confined to three big players. The six-player DTH market is simply untenable even as DTH subscribers would climb to reach 45 million by 2014, and 58 million by 2020. The estimate is that the top four will be making money at the Ebitda level by the financial year 2013. Currently, the average revenue per user (ARPU) is Rs. 200 as compared to USA's Rs. 3850.

Rural India

In the last one year or so, all the DTH operators in India have been aggressively marketing their products in the non-metro cities. Of the total 134 million TV households in the country, 50 percent are in the rural areas, as per the figures released by television audience measurement agency TAM Media Research. Not just that, 30 percent of the 70 million TV households in rural India do not have access to cable and satellite (C&S) TV. The data further identifies two trends. One, the market for digital TV is bigger in rural areas, and is growing at a much higher rate than in urban areas. And two, bulk of this digital TV is DTH. Contrary to common perception, rural India segment constitutes 20 percent of the total market.

There is a huge number of cable dark and cable underserved areas, most of them in rural India. These small cities, towns and villages have seen higher incomes and new aspirations. Around 15 percent of people in rural India can be equalized to the urban upper middle class. All companies can address that very well. In addition, cable operators in these regions do not have the muscle to take on the big corporate players from the DTH arena.

All of these have helped DTH operators taste success in the rural areas encouraging them to aggressively promote their services to the small town TV viewer. Big TV plans to repeat the exercise it conducted last year in other regions of southern India this year. Airtel Digital TV is utilizing its parent company's vast telecom distribution network to push sales in this region. Ditto for Sun Direct, which says it will continue to grow nationally and think regionally and understands that a bigger opportunity exists in rural. Videocon d2h has its counterpart's (Videocon CTV and home appliances company, Videocon Industries Limited) vast dealer network in place.

So far the marketing campaigns of DTH operators have focused on sound and picture quality, flexible payment structure and new interactive services. The DTH players are now looking at cost-effective subscription packages to woo consumers in small towns. DTH players are also banking on their pre-paid mobile and fixed line customers in tier II and tier III cities to bite the bait, and have schemes where new DTH subscribers get free talk time on their phone connections or other such freebies. Others are working on low-cost set top boxes and offering tailor-made packages, especially language channel packages that suit rural consumers' interest.

Issues of Concern

Though the subscriber numbers look impressive, the churn the industry faces, with subscribers going back to cable subscription or switching between operators, is a huge challenge. Industry experts say the average churn is around five-six per cent every month, while it is as high as eight per cent for some operators. "Churn is a challenge, as the cable industry is unregulated in the country and they artificially maintain lower prices. There is a lack of level playing field with cable operators," says Vikram Kaushik, CEO of Tata Sky.

Another pressure the industry faces is the huge subscriber acquisition cost, which is as high as Rs.2500- Rs.3000 per customer.

Operators are, trying various methods to control the churn and improve their profitability by increasing the ARPU. "A challenge for DTH is ensuring that recharge availability is simple and easily available. This is the core to controlling churn", says Fugato Basenji, Chief Marketing Officer-DTH, Bharti Airtel.

Since just acquiring additional customers cannot be a profitable model, operators are making efforts to convince customers to migrate to higher packs. Operators are also making a sales pitch on the value-added services they offer.

Price War

A major tariff war seems to be imminent between cable operators and the DTH operators with the Telecom Regulatory Authority of India (TRAI) recommending a reduction of the existing pricing formula for broadcasters on DTH, which is likely to bring down DTH bills by half.

The regulator is involved in the tariff revision as directed by the Supreme Court over a legal battle between cable operators, broadcasters and DTH firms. The new formula means cheaper content on DTH platforms compared to cable services.

HDTV

Buoyed by the FIFA World Cup and the forthcoming Commonwealth Games, HDTV is witnessing a growth spurt in India. While media planners are excited about HDTV, they feel spectrum and bandwidth for HD transmission pose the biggest challenge. Also, the price is high and it is a drawback as Indian consumers are price sensitive and it will all boil down to the price value.

HD opportunity is there, but there is really no demand for HD content from broadcasters. The number of high definition television sets in the country is miniscule too. Transmitting HD is significantly more expensive for channels so it is not a priority for them. Also, analog cable networks that supply content to the majority of C&S homes is already too clogged with channels to deliver HD content. For now, HD seems to be a niche phenomenon and more of a marketing gimmick.

All eyes are on TRAI, which is close to coming up with a practical plan to extend cable digitization across India within a three-year time frame. Such a plan, if implemented with intent, could provide significant impetus to cable consolidation and digitization as well as improved DTH pricing power.