India will be one of the biggest markets for satellite pay-TV services throughout the next few years. Dish TV, backed by Zee Telefilms, already is seeing strong growth in this market, and Tata Sky, a joint venture between Star and Tata, launched a nationwide direct-to-home (DTH) service in India in August 2006.

The market may be huge, but Tata Sky CEO Vikram Kaushik believes it can support only three players. He detailed Tata Sky’s plans to develop satellite pay-TV in India, its initial subscriber targets and the role of satellites in what is arguably one of the world’s most intriguing markets for satellite pay-TV services.

Satellite News: How do you view the market opportunity for Tata Sky in India?

Kaushik: I think the opportunity is truly stupendous, and that is largely because all over the world the process of digitalization of television has been set in motion. It has been seen as one of the processes which everyone has to follow for reasons of using spectrum more efficiently. We do know that on the ground, cable and analog operations today are inefficient for the simple reason that you are not using the latest compression technologies or digitalization to optimize this scarce resource. For that reason alone, I think the opportunity is tremendous.

The second thing is that entertainment, particularly in the Indian marketplace, occupies a very promising place in peoples’ lives. The macroeconomic data seems to suggest that expenditure on entertainment and going out is half of that in the developed countries. So I think there is a lot of scope for people to spend their newly acquired wealth.

Satellite News: What are the major challenges now that you have launched your service?

Kaushik: I think we are now faced with two fundamental challenges. The first challenge is a regulatory challenge. We have to be able to convince the regulators and governments in general that they need to grow beyond their fear of vertical monopolies. A lot of these regulatory restraints that have been placed on pay-TV businesses emanate from a fear of vertical monopolies and out of a fear of large foreign media conglomerates who might come and build on these vertical monopolies.

There are artificial constraints such as no exclusivity of content, and the "must provide" requirement on a non-discriminatory basis. All of these fundamentally undermine differentiation whereas consumers are looking for differentiation. They are looking for variety. They are looking for value. So in a sense, all this regulation is somewhat retrograde, but it is understandable.

And I am hopeful. In the meetings, I have had with people in government, there are indications that they are willing to move from some of these positions, but they will have to be led there so they can understand the logic. Progress is likely to be a little slow. I think that is the one key challenge on the environmental side.

The second challenge is a little more tangible. It is based on the situation on the ground, and is to do with affordability. To move consumers – who are suffering from a high degree of inertia, having gotten used to cable television and move them to a situation where they accept that there should be a box between them and their TV set – is a marketing challenge. You are selling them a new concept and that is probably the biggest marketing challenge that the emerging DTH sector has.

You also have sales and distribution challenges. This is a very large country. The trade is relatively unorganized, and what I mean by that is the nascent presence of modern trade where you can buy virtually everything under one roof. Instead, products go into tens of thousands of shops in large geographies, and getting set-top boxes and remote controllers in good shape across the length and breadth of India is a significant challenge. Then you have to get installations done effectively in peoples’ homes. This is also a massive logistical challenge.

Satellite News: What are the biggest challenges in terms of growing the subscriber base?

Kaushik: Digitalization is an objective that the government has set for itself. They believe that when the Commonwealth Games happen in 2009, at least the top 30 cities should be fully digitalized, and then by 2015 they are seeking to digitalize the next rung of urban centers. I think that will happen, provided that industries such as the DTH business are pushed and incentivized to grow.

There are pretty punitive levels of taxation imposed on this industry. We pay a 10 percent share of our revenue from our top line to government as a revenue share. This is over and above corporate tax. The total incidence of tax on the hardware alone exceeds 30 percent. That is a heavy tax burden on a category that is supposed to pioneer digitalization of TV in the country. We hope the government will recognize this.

Satellite News: How optimistic are you that you can boost the numbers of subscribers who take digital TV services?

Kaushik: One of the key learnings that we have had is the importance of demonstration in a business like this. So we have invested a fair amount of resources on demonstrating the service, not only in areas where people shop but, more importantly, even in localities where people gather. In Mumbai, you have this phenomenon of building societies. So you have large apartment blocks where people live and you can actually conduct demonstrations where people who are interested can come and watch. We use exhibitions, fairs, and events to demonstrate our service actively. The interesting phenomenon we have used is word of mouth. There is no better recommendation than your neighbor or your friend who owns the service. These people become your best ambassadors because you can actually invite someone over to see how the system works. That is your best means of getting a recommendation and word-of-mouth marketing is very important.

Satellite News: What levels of growth in the subscriber base are you looking for throughout the next 12 months?

Kaushik: When we launched in August 2006, I was asked this question quite frequently. I always said that if we did less than a million subscribers in the first 12 months of launch, I would be disappointed. I can say pretty confidently now that we will have 1 million subscribers well before those 12 months are up. So I am hopeful that we will be clocking at least a million subscribers a year as we go forward.

Satellite News: What is your realistic total subscriber target?

Kaushik: I might say between 10 million and 12 million, but there are a number of imponderables. You probably know the Indian government mandated something called the Conditional Access System in the metropolitan cities of Delhi, Mumbai and Calcutta in January, where it has become compulsory for consumers in certain parts of these cities to buy set-top-boxes and only receive pay-TV through these addressable systems. If this kind of mandate was extended then that number would probably go up. However, if the consumer continues to operate with free choice and move at their own pace, and the inertia to move from cable persists, then the number could well be between 10 million and 12 million.

Satellite News: How many subscribers will Tata Sky need in order to be profitable?

Kaushik: The number of subscribers will have to be many, many millions. It will be quite challenging, but we are looking at five years of a seriously large investment before we can break even.

Satellite News: Do you expect other DTH platforms to emerge in India?

Kaushik: Some licences are out there already. You have players like Reliance and Bharti Telecom, who have expressed their intention to enter this market. Frankly, I don’t know whether they will be four or five DTH players. You might want to get some people coming in and seeking to form alliances with existing operators. But, in every other major territory, there are no more than two DTH players that really work successfully, three at the most. However, India is a huge market place. It has a lot of people. So, maybe three, but I don’t think there will be five players.

Satellite News: How soon will Tata Sky be in a position to offer services such as personal video recorders (PVR) and high-definition (HD) TV?

Kaushik: I think PVRs are sophisticated, value-added market service products. They can be introduced once you have a broad infrastructure for DTH in place. We would want to launch PVR as soon as possible. We have identified the people that will manufacture it for us. We are studying different business models. We are doing market research. There might be a combination of rental and full price offerings.

HDTV requires a significant investment in infrastructure which goes way beyond just an operator. You have to have the whole system from the hardware to the cameras to actually broadcast HDTV. I don’t see HDTV coming to India for at least another three to five years.

Satellite News: What are the major content challenges facing, and how important will local content be in terms of attracting subscribers?

Kaushik: I think the content question is the most vexing of all. On the regulatory side, there is no exclusivity allowed on DTH platforms at the moment. The first thing is that there must be some exclusivity permitted by government. I believe once the fear of vertical monopolies recedes a bit and enough competition is visible, there will be some kind of loosening up of the regulations.

The second challenge is to do with capacity. There are more than 300 analog cable channels available in India, but no DTH platform today has the capacity to market or actually broadcast more than 140 to 150 channels. And if you look at the capacity cannibalized by interactive services, you are really talking about 100 to 110 channels being available. That limits your ability to show everything you would like to.

If you couple that with the fact that we are a multilingual country and you must have a certain representation for all key linguistic groups of channels, then the total number of channels you can carry is seriously limited. So, therefore one of the challenges is actually managing this whole constraint of capacity effectively.

Another major challenge is somewhat philosophical. While the DTH and pay-TV business offers a new revenue stream to broadcasters, they are greedy for the new revenue stream but not accommodating enough to actually lower the cost of content so that their revenues can grow quickly. So the price of content is still too high. There has been all kinds of arm- twisting when it comes to selling content. I hope this will diminish, but initially it has been a massive challenge for us.