The Hindu Business Line : `Service providers need deep pockets'

TV viewing is not easy. On the one side, you have a long list of channels to keep surfing through. And on the other, the viewer has to contend with a stab of alphabet soup comprising DTH, CAS, STB, IPTV and more.

For clarity, BrandLine talked to Farokh Balsara, National Sector Leader, Media & Entertainment practice, Ernst & Young.

Why the sudden buzz on the TV?

The Indian television market, once a State-owned entity, has in the last few years become lucrative. Everyone, including telecom players, is jumping into the fray to lure customers with an assortment of choices.

As opposed to being a business driven by ad revenues, experts are laying their bets on the fact that subscription revenues will drive market dynamics in the years to come. India has an estimated 65 million cable and satellite (C&S) homes, expected to rise to 125 million households in the next five years.

How much money is in the game?

The Indian television market's average revenue per user is currently one of the lowest at $5. With local cable providers ruling the roost, compounded by the fragmented cable market, the issue of lack of addressability has led to loss in the share of subscription revenues due to under-declaration of the subscriber base.

Revenues are slated to increase once subscription-based models such as conditional access system (CAS), direct-to-home (DTH), and Internet protocol television (IPTV) come into play. Industry analysts are pegging the subscription revenues to form 60-70 per cent of the total revenues, as is the case in other developed nations, by 2015.

What is the technology difference?

In all subscription-based systems, consumers have the option to choose the channels they want to pay for and view, rather than receive the whole set of channels that the cable operator makes available to them. Although all three (CAS, DTH, and IPTV) focus on the addressability issue of the subscriber base, they have some distinctive differentiating factors. The digital technology used by the DTH provider gives clearer picture quality. CAS' and IPTV's reach is dependent on the cable infrastructure, thus enabling the satellite connectivity of the DTH to win subscribers in areas others cannot reach.

How does IPTV work?

IPTV provides limitless interactivity compared to the limited interaction possible through DTH or CAS. For instance, IPTV allows customers to: surf the Internet via TV sets; view caller IDs of incoming calls and with a click on the remote, even make a phone call; and purchase a product while it is being advertised on TV. Since DTH transmission is satellite-based, localisation of content is not possible, while IPTV can offer localisation and customisation of content up to the user level. Sounds appealing? Yes.

Another feature unique to IPTV is its ability to offer Quad Play - voice, video, data, and mobility - which is unfeasible with DTH. Users can also stream TV programmes to their mobile phone or to an office computer rather than being restricted to viewing them on TV sets alone, a feature that DTH and CAS lacks. IPTV users can also schedule their TV programmes and even set reminders from their personal computers (PCs) at work using the IPTV network.

How is the competition in the IPTV space?

Mahanagar Telephone Nigam Ltd (MTNL) has launched IPTV services in Delhi and Mumbai under the name `Tri-Band.' MTNL already has a captive base of 1.83 lakh broadband subscribers in Mumbai and 1.52 lakh in New Delhi, which it can leverage. Other players like Reliance Mobile and Bharti are contemplating IPTV services. In fact, Bharti is already tracking a trial run in Gurgaon.

What do you think of telecom companies getting into television?

For them, capital costs are lower as their network is in place. However, they will have to spend on aggregating content and making sure it is in the format to be distributed. Once the IPTV format becomes ready to be consumed by a larger base, the marketing budgets would need thrust to ensure sustainable subscription revenues.

There are nearly 3.5 lakh route km of optical fibre laid by Bhartiya Sanchar Nigam Ltd, Reliance Mobile, Bharti Tele-Ventures and Videsh Sanchar Nigam Ltd. However, 90 per cent is unutilised and the IPTV services offered by them will only increase their revenue stream. It is only rational for the telecom players to diversify to triple play of voice, data and video so as to ensure new revenue streams and ensure return on investment on their fixed lines.

How has the government been reacting to TV developments?

After keeping the matter of CAS under consideration, the government has finally provided a level playing field to all forms of technology, which would accelerate subscription-based revenue regime and put an end to under-reported revenues.

Any estimates of the DTH market's size?

DTH is expected to get 12 per cent of the TV households by 2010, that's a subscriber base of 15 million and revenues close to $ 1.4 billion.

What are the economics of DTH?

Inherently it's a highly scalable business with enormous economies of scale. There are upfront, significant investments to set it up, but thereafter, every single subscriber just requires some investment at the consumer end.

The number of channels it can deliver, using digital compression, is clearly more. But it requires enormous amounts of capital over time. It has a long gestation period and requires a fair amount of time to generate cash flows. The operating costs of each provider would differ based on the network and technology.

The DTH model is a capital-intensive investment in the first few years of operation, owing to high licence cost which is to the tune of Rs 10 crore valid for 10 years. Capital costs could increase further if the Ku band transponder is available at a higher price from the satellite space providers. Marketing budgets and operation costs in the first few years that the service providers will use to differentiate themselves from competition will be a determinant of larger gains. Once the costs are settled and the subscription revenues start flowing in, the companies currently running losses would not only break even but also make higher profits.

Your outlook for the next five years.

The war is on till players dig deep into subscription revenues and become profit-generating units. However, to earn higher revenues the service providers ought to have deep pockets to tide over the initial high costs. The television industry will witness increased investment from telecom giants entering the market to woo customers by offering broadband entertainment.

More Stories on : Interview | Radio/TV | Convergence

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