The Indian market is set to explode over the next few years as the country enters a new digitization phase. While many urban areas in India have moved to digital, the next wave of digitization will offer Direct to Home (DTH) operators plenty of opportunity to target households in rural areas away from the main cities. While it is hard to put a number on this, executives from Dish TV, Tata Sky, and Videocon — three of the leading players in the market — expect there could be another 70 million homes their companies could target.
India Digitization
The first two phases of India digitization process saw the four metropolitan areas of Delhi, Mumbai, Kolkata, and Chennai go digital in late 2012. By March 31, 2013, 38 cities with a population of more than 1 million went through the digitization process. Phase 3 and Phase 4 are now underway. Phase 3 sees the rest of the urban areas go digital by the end of 2015, and by the end 0f 2016, the whole country should have gone digital.
RC Venkateish, CEO of Dish TV, is bullish about the operator’s prospects over the next few years. “There is still strong growth to be had with Phase 3 and Phase 4 digitalization, which is going to open up 70 million homes, which are currently analog, into the digital realm. That should give enough impetus to the DTH industry for the next three to four years at least. We are still at a stage where large chunks of households in India are either analog or terrestrial. Roughly, around 50 percent of the market is still analog/terrestrial now. So, over the next three to four years we will see this digital conversation.”
Himanshu Patil, COO of Videocon, also agrees that the market has reached a key inflection point calling this a “big opportunity” for DTH operators. “We have seen this in the past that when analog subscribers are forced to make a decision and go digital, at that point they have options such as DTH or digital cable. There is a good chance they will go to DTH,” he says. “So, I am hopeful we will be able to pick-up more subscribers. The analog people will be forced to make a choice, particularly in Phase 3 markets, where cable is not particularly well organized.”
Ultra-HD in India
India is one of the first markets to see 4K, with most of the operators now launching 4K-enabled Set-Top Boxes (STBs). Patil says 4K could be a competitive differentiator in India. In February, Videocon launched its first 4K channel in India and it shows 4K content on a 24/7 basis. It will soon add content from Bollywood to the mix to make 4K a much stronger proposition. Patil says this now gives the operator a 4K pipe, which it plans to use when there is a major event. The next T20 (Cricket) World Cup, for example, will likely be broadcast in 4K.
“There are already over 400,000 Ultra-HD enabled TV sets already sold in India. I think that number is going to grow. The television panel prices are going down. Once 4K sets become more popular, I think they are going to follow the same path as HD in India. Once devices get sold, content follows and then it will happen. In terms of HD, you had sports channels go to HD first, and then the general entertainment channels, movie channels and now you have even the regional channels in India going HD,” says Patil.
Patil believes next year the Indian Premier League (cricket) could be carried in 4K. And with the Olympics also being in 4K, 2016 could prove to be a dynamic year for such broadcasts.
Tata Sky showed the Cricket World Cup in 4K this year followed but the launch of its 4K in partnership with Ericsson. Harit Nagpal, CEO of Tata Sky, says 4K adoption is dependent on three things: televisions available for that technology, platforms adopting the technology, and content.
“In this case, normally you need to have content first. This is what we saw with HD. As the content became available, the penetration went up,” he says.
Despite making a foray into 4K, Nagpal is unsure as to when it will have a strong impact.
“I don’t have any visibility as to when that might happen,” he says. “That is down to the broadcasters. It will be the high-end customers that will really benefit. It will largely be upgrades when it does come in.”
From a Dish TV perspective, Ventateish admits it is still the “early days” for 4K and that the ecosystem is still maturing, particularly because there remains a way to go with HD.
“We are still really rolling out HD, and that is still just now becoming meaningful. That has been in the market for five years, so 4K will be a bit of a long haul. The penetration of TV sets is still miniscule — it is only in the thousands right now. We will have to see how the different pieces of the puzzle evolve. You need the content, licenses to really start to happen. All different parts of the ecosystem need to come together. Having a 4K set-top box alone is not going to create the market at the end of the day, so even though we are developing this, 4K is still a long way away in India,” he says.
Commercial Satellite Space
With a population of more than 1.25 billion, and an emerging middle class, India is a huge pay-TV market. Operators such as Tata Sky, Dish TV, and Videocon have managed to exploit the market to each have more than 10 million subscribers. Dish TV, which was the first operator in the market, now has more than 13 million subscribers. Tata Sky has more than 10 million subscribers, and Videocon has close to 14 million subscribers. Videocon could have more than 35 HD channels over the next year, and is looking to gain satellite capacity to cater for this demand for extra HD channels. The operator is looking at another two transponders at 36 MHz and will likely partner with SingTel for this capacity. Dish TV operates on two satellites: AsiaSat 5 and SES 8. Videocon is using 540 Mhz of capacity on the SingTel ST 2 satellite. Tata Sky is using a total of 12 transponders.
OTT and Changing Dynamics
Like in other video markets, the increasing prominence of mobile devices is changing the way viewers consume their content. Patil says Over-the-Top (OTT) distribution has been very slow, but there is interest in it, and ultimately it will come to the market in a big way, once the prices for data come down.
“Today, in India, the cost of bandwidth on the mobile network is very high,” he says. “Most of the OTT content is consumed on mobile phones in India. I would say the market here is at least a year away. However, OTT will come in a big way, and network charges will become more affordable and then people will start consuming more and more in this space. Right now, people are more snacking in this space, rather than watching full series. Average viewing times on OTT in India are very low.”
Nagpal sees OTT as a complement to DTH offerings currently on the market. With a lack of high quality wired broadband in India, the progress for OTT has been slow. However, operators such as Tata Sky are trying to adapt to the changing needs of customers. Tata Sky launched a TV on Demand and TV Everywhere service three years ago. It is a niche product limited by the availability of reliable Internet connectivity.
“Video needs good quality broadband to move. It is scarce in India. We launched it in the knowledge that numbers would be small in the country, but in the hope that it would give us a good experience about what the customers like and what they don’t like, so when a better quality of broadband is available, we know what to provide to customers,” Nagpal says.
The market is on the cusp of change and the dynamics could shift fairly significantly once good quality broadband comes into the market.
“India is now moving toward being an over-the-air market and this will improve once there is better availability of broadband. There are also over 450 million smartphones in India. The moment good quality broadband is available, online consumption will multiply,” adds Nagpal.
Venkateish, on the other hand, does not see the market changing any time soon.
“At the top end of the pyramid, we are seeing some consumption moving to media served over IP and broadband, but that is still very small as far as India is concerned. I think over the next five to seven years, it will all be about the traditional modes of distribution,” he adds.
However, Venkateish confirms that Dish TV will start working on other modes of consumption. It already has its own OTT service called “Dish Online” which it launched last year. The operator plans to further develop this service.
“If consumers move online, we don’t want them to sacrifice their satellite connection to do so. We also want to upgrade our technology so this can include 4K and expanding our wireless offerings. So, we are aiming to sell consumers more products,” says Venkateish.
Technology Investments
All of the operators are looking to invest in new technology to stay ahead of the game in India. Venkateish says Dish TV spends around $120 million a year in new hardware; Videocon is investing heavily in improving its customer service network, which boasts 300 service centers and engineers located in 1,200 towns across India; and Tata Sky is focusing its investments around the STB, according to Nagpal.
“When new capacity comes in, it means new investment in infrastructure. In our case, there is a large investment in STBs because, in India, the STBs have to be subsidized. This investment is proportionate to subscriber additions. Every subscriber we add, we subsidize the set-top box. That is my investment. If the rate of acquisition goes up, my investment goes up,” he says.
While all the operators show healthy subscriber numbers, Average Revenues Per User (ARPUs) tend to be pretty low — around the $5 mark. Trying to increase these ARPUs is one of the challenges facing Indian DTH operators. Even small increases in ARPU have the potential to make a huge difference.
“The ARPU right now is $4.25 at the consumer level. We hope to grow the ARPU 6 to 7 percent annually over the next three to four years. The major opportunity for us is to capture the low hanging fruit through digitization, which is happening over the next couple of years,” says Venkateish.
There is little doubt that the market for DTH services will continue to grow thanks to this new wave of digitalization. For all the DTH operators, the next few years will be about a landgrab for new subscribers.
“The market right now is all about new acquisitions. In terms of TV penetration, India right now has 65 percent. So, all of this means is that there is enough room for everybody to grow in this market. Some companies are definitely doing better than others, but the market is still strong,” admits Patil pointing to some interesting content trends taking place in the market. “If you look at the content side, a lot of regional channels are coming up, and pay-TV operators are looking at how they can have a full suite of channels, not only in the main Hindi-speaking markets, but also in some of the smaller regional markets. English content is also coming more into the market. More American shows are coming to India … these are the types of experiments that are happening.” VS