The Indian DTH pay-TV market has seen phenomenal growth with fierce competition and is now the largest DTH market outside the US. Four platforms signed up their first million subscribers within 12 months of their launch, with two platforms beating the previous record rate set in 1989 by BSkyB in the UK. With over 18 million Indian DTH subscribers today, and 25 million projected by Media Partners Asia (MPA) by the year-end, the growth continues and the traditional balance of power in the Indian pay TV industry is beginning to shift toward DTH, not only due to the rapid rollout quantity, but also in terms of quality.

In investment and new technology adoption, the Indian DTH sector is leading both, and is far ahead of the Indian cable industry. The 20 percent or so, of pay TV homes served by DTH are all provided with a fully addressable digital service; whereas only 3-4 percent of cable homes are provided with any addressable digital cable service. Across all broadcast pay TV delivery sectors, DTH, thus, accounts for over 87 percent of the digital-delivery market in India, and a similar proportion of the addressable pay TV market.

Considered by those who framed the DTH licensing regime to be a rich man's service, DTH has in fact proven to be a big hit with middle class Indians, many of whom are in rural areas and had no prior pay TV options. Thus, for many millions of viewers, DTH is their first experience of any kind of multichannel pay TV, and many of them may not have access to other pay TV options, such as IPTV, for years to come.

To date, the growth of DTH in India has been characterized by rapid mass adoption and the rollout of new services, including both content and technology innovations, such as electronic programme guides, interactive applications and digital video recorders. We have also seen increasing market segmentation, increasing competition, and declining average revenues per user (ARPU), along with increasingly regulation, which has been very unhelpful.

In broad terms, NDS expects rapid mass-adoption, new service rollout and increasing market segmentation to continue. Competition within the DTH sector may remain the same, or consolidate somewhat, and we expect the decline in ARPUs to be checked; though this decline will depend heavily on the degree and nature of the regulatory regime.

In terms of new services, other than new content, digital video recorders (DVRs) will become mass market as has happened in other pay TV markets. Indian families tend to watch one television all together, for example, during meals. When five individuals are watching the same television at the same time, it is highly likely that one or two would rather be watching something else. DVRs can save them from missing their preferred content for the sake of the shared family-experience.

High definition (HD) services will also become increasingly available, although some of the more optimistic original rollout plans have been postponed. For any benefit to the subscriber, they need to have an HD-compatible set top box or DVR, and to invest in an HD monitor or TV. Today, HD DVRs are several times costlier than standard definition (SD) DVRs, although the difference in cost will reduce over time. SD DVRs do not need any additional investment, to significantly improve the TV viewing experience.

Market segmentation is increasing between types of pay TV platform (cable, DTH etc), between DTH operators, and by DTH operators of their own subscriber bases. DTH operators are segmenting, both according to geographical region and language, by value of service and technology readiness of subscribers (e.g., mobile phone subscribers targeted by both Reliance Big and Airtel Digital TV). DTH operators are increasingly differentiating their offerings according to target segments.

While exclusive content offerings are more or less blocked by regulation, and some technical differentiation is hampered by interoperability regulations, operators are able to differentiate packaging and promotion of both content and technology. Examples are: Airtel Digital TV's strong branding of its set top box and electronic programme guide, Tata Sky's offering the world's first Hindi electronic programme guide, and Airtel Digital TV offering single universal-remote control for simplicity of use, and widgets on screen for the tech savvy viewer.

NDS expects increasing support for regional localization, packaging, and promotion, of content. Key to this on the consumer electronics technology side will be support for Indian languages other than Hindi, requiring scripts other than Devanagari.

The combination of localized content and DVRs will in the medium-to-long term enable targeted substitute advertisements to be delivered to, stored for, and played out, to subscribers chosen according to their geographic location and demography. Even without DVRs, a degree of localization of advertising is possible as a targeted set top box can overlay localized text and graphics, over a generic video advertisement - for example, indicating location of car dealers in a particular metro or state.

DTH pay-TV in India derives a higher proportion of its revenues from subscription than from advertising, as compared to cable TV. While this looks set to continue, despite their lower reach, DTH platforms can offer higher value to advertisers through use of viewer profiling and through feedback, derived from the set top box about viewing and behavioral data. Such data offers details not provided by other methods currently used for broadcast-audience measurement in India. This set top box-based audience measurement is already used by a number of world-leading DTH platforms (e.g., DirecTV, BSkyB), using NDS technology and audience/market research company analysis from TNS.

A number of analysts have been predicting consolidation in the Indian DTH sector for some years. Despite the enormous potential subscriber base and the rapid growth so far, the heavy equipment-subsidies and cut-throat price competition are taking their toll on all of the DTH platforms. Some have much deeper pockets than others and, as mentioned earlier, some platforms command twice or more, of ARPU than others. In the US, competition between cable, DTH (and more recently IPTV) is intense; and, as in India, DTH commands a smaller market share than cable. The US market supports two DTH pay-TV operators but not free-to-air DTH operators. India has three times as many DTH pay-TV operators and a free-to-air DTH operator as well, with just about 19 percent more television households than the US.

Indian viewers are fortunate to have what must be close to the widest choice of content, second only to the US, at the lowest prices anywhere. However, in the medium-to-long term, tariffs must become sustainable, otherwise content quality will decline, or DTH platforms will fold, merge or be taken over, reducing competition and eventually reducing choice. Much will depend on whether MIB and TRAI continue to regulate DTH so stringently in an already competitive environment. Over-regulation of pay TV pricing can bring about a decline in quality and choice of content. Taiwan, for example, has some of the worst pay-TV content anywhere, along with low digital pay TV penetration - both caused by rate caps on cable TV, which stifled investment for over a decade. The situation is somewhat similar in the analog cable environment in India, which DTH has to compete against in most non-rural areas, excluding the Metro areas, under mandated CAS.

To complicate matters, Doordarshan has a free-to-air DTH platform offering almost 60 channels that by some estimates is received in 20 million homes. In itself, this is not a bad thing, but recent statements by its Director-General that Doordarshan is going to increase the number of free-to-air channels further and even offer a pay TV service must be of serious concern to the existing privately-funded DTH operators. These should also be of concern to taxpayers, as significant (if not excessive) government revenues are derived from taxing those private DTH operators' gross revenues.

While one cannot argue yet that DTH regulation in India has failed, it has hardly encouraged this important sector of the market. In fact, it was ranked among the worst regulatory environments in Asia, under which to conduct the business, according to the Cable and Satellite Broadcasters' Association of Asia, CASBAA, in its publication Regulating for Growth 2008.

The anomalous status of the Doordarshan free-to-air DTH platform makes it difficult for private DTH operators to compete. Doordarshan is the only DTH platform in India which has no DTH license and for which BIS standards for set top boxes are not mandated. Regulations place excessive import taxes on set top boxes, arbitrary application of entertainment taxes and interstate "octroi" and other tariffs on DTH, and an excessive 10 percent tax on gross revenues (regardless of profitability - and none of the Indian DTH platforms are profitable yet). Anomalous restrictions on foreign ownership/investment compared to the rest of the pay TV industry and to the telecommunications sector (which must surely be more nationally strategic than a niche entertainment sector) all serve to postpone profitability and suppress sustainability of this dynamic sector.

It has been said that successful Indian companies are world beaters, precisely because they have to overcome massive hurdles in their home markets. This must surely then become true of Indian DTH operators, otherwise they will cease to exist, or cease to do business in India at any rate. The constant tinkering with existing regulations, the ever increasing complexity of regulations and the ever decreasing consistency and predictability of such regulations remain one of the greatest concerns regarding the Indian DTH sector. As an example, the hasty decision of MIB to stop accepting new satellite delivered channels for licensing in India was made with neither consultation nor warning and sent a very poor message to the industry in India, and potential investors abroad. If regulators want the Indian pay TV infrastructure to be upgraded, and the industry to be run on more professional lines, then some encouragement is surely needed, not simply coercion.

In this regard, it is interesting to make some comparisons with China. China does not have a pay TV market in the sense that India or many other democratic, freer market countries do - due to severe content and choice restrictions and a more or less command economy in the broadcasting sector. However, the fact is that on current trajectories it will leave India behind with modernization of its television broadcasting networks.

This is because its regulators have a clear vision of what they want to achieve and are implementing regulation to achieve these goals through encouragement as well as coercion. If the Indian DTH sector were left to compete more freely, which is surely appropriate, given that it is currently the most competitive DTH sector worldwide - it could undoubtedly achieve sustainability closer to the 3 to 5 years typically required elsewhere. As it is, this is going to take considerably longer to achieve in India. Whereas, China's pay TV market is commanded, and the US's is competitive, India's is constrained by the worst of both approaches.

The speed of growth and vibrancy of Indian digital pay-TV is a uniquely Indian phenomenon. However, we have now reached the crossroads for the industry, and the regulators will play a very important role in the future development and direction of digital pay-TV.

India requires world class digital broadcast services and the foundation has already been laid. However, the foundation is not as solid as should be and a freer commercial environment can only be beneficial to all involved in the digital pay-TV industry. A commercially sustainable, competitive, world-class digital broadcast industry will ultimately benefit viewers, the broadcast industry and the Government.