The Hindu Business Line : ‘Level playing field between cable, satellite needs addressing’

NDS, the News Corp-owned pay TV solutions provider to Bharti, Tata Sky and DEN Networks recently announced investment plans of $150 million for India. India, with its TV-loving millions making its transition from analogue to digital, has, after all, unmatchable numbers. It is also passionate about television. Dr Abraham Peled, Chairman and CEO, NDS, had been vacationing in Rajasthan when Conditional Access System was to be mandated. “Nowhere in the world have I seen people know so much about what I do. Everyone knew about conditional access. The driver and everyone else I talked to were all worried that cricket was going to be encrypted,” he says.

The Nasdaq-listed company is in the process of going private, to avoid a tax situation which makes acquiring new assets expensive for the once Australian company. Dr Peled shares his views on the challenges and the opportunities in a market where NDS is a leading player. Excerpts:

How big is the opportunity in India, and how do you see the market growing?

The basics are clear to everyone — more than a 100 million pay TV households. Now, yes, they don’t pay a lot, but the cost of technology has come down, and if they like what they get they will pay more for it.

In India people love television. I think only Brazil watches more hours of television per week. India also has a massive content industry which has held back in other places. Yes, you can do 200 channels, but if you don’t have any new content it doesn’t help you. All these factors will come together, in my opinion, to make India perhaps the largest digital pay television market. I wouldn’t like to predict how many years, but it’s inevitable. Already the rate of daily additions of subscribers in India is probably twice or three times what it was even at its peak in the US. It just goes to show the massive scale of the market.

NDS is very focused on this market. I contrast it with China. While they have better infrastructure there is no freedom of TV production, of content. So even if digitisation happens it is not a consumer pull, it is the Government saying digitise. That is why the rate of adoption is much slower.

So, yes, there is a cost issue here but the combination of the competitive environment and the fact that the technology that is being used is on a cost reduction curve of 15-20 per cent compound growth rate per year will keep costs down. Affordability will be driven both by volume and natural cost reduction.

What’s more attractive — DTH or cable? What is the opportunity in IPTV, or is too small?

DTH grows faster normally, but in the longer term both cable and satellite are important. The rate at which they digitise will depend on pricing, the region in which they are — under CAS mandate or non-mandate — and all those things.

We are fortunate to work with some of the leading players already. There will be more opportunities in cable, because while cable is always slower to get going on digital, when it gets there it has certain advantages. They can pursue broadband, VoIP (Voice over Internet Protocol) and I would expect satellite to also pursue broadband strategy such as BSkyB in UK.

With regard to IPTV, broadband penetration in India is quite low, so is the bandwidth. And even in countries where broadband is more advanced and a lot of money has been spent on IPTV, it hasn’t taken on, and certainly doesn’t compare to the numbers in cable and satellite. France is a good example — it’s less than a million; the UK has a few hundred thousand users; in US it’s less than a million. IPTV is naturally not a leader and will be more of complementary delivery technology rather than the primary delivery technology.

Unlike in cable (once the cable has been laid) and satellite, there is an incremental cost of delivery for every new subscriber in IPTV. And telecom networks are designed for low utilisation, for 5 per cent utilisation, that’s why you can get through when everyone’s trying at the same time.

Given that the DTH players have dropped prices rather early, and not all cable operators are as large as DEN, are you faced with pricing pressures?

India is a big country with different income levels, many different cultures. We have to be competitive. We have different level products. The VideoGuard Express, for example, is essential a turnkey product with less functionality. To customise all you can do is put a logo on it. It is for small operators offering basic services.

Cable operators in India have traditionally been very enterprising and we would like to work with them. While we recognise the pricing pressures, there are certain things, such as security, for example, on which we don’t compromise. NDS is also a service company, and we pride ourselves on the level of R&D and service support we provide to our consumers and would not be comfortable with a price that doesn’t allow us to do that.

If you look at the Bharti EPG (electronic programming guide) and Tata Sky EPG, they look and feel different, probably represent a different design philosophy, and some of the features are also different. That’s why NDS is able to work with multiple players in the same market; the underlying technology is the same but then people can customise and develop it in a way that they think will best meet their objectives.

What do you see as the bigger challenges?

I think the main challenge is the lower ARPU (average revenue per user) and the initial ‘land grab’ that operators will have to participate in. The economics of the pay TV industry worldwide works like this — there is an initial cost, then a subscriber acquisition cost. The bigger scale you have the better the turn around. Now BSkyB in the UK was loss-making in the first four years of its existence. When it went digital it again went loss-making. Now it’s extremely profitable. It is really that balance, the pace at which they grow and much the market can absorb.

How does the Indian market compare technology-wise?

The Tata Sky digital video recorder (DVR) is the latest DVR anywhere, other than High Definition (India does not have HD telecast). In fact, there are some things Indian operators are bypassing. Some of the new operators have, for example, gone directly to Mpeg 4, a better technology that opens up the opportunity to HD in a smooth way.

Did they have a choice given the shortage of transponder space on satellites?

Listen, having no choice is good sometimes. It leads you to make the right decision.

I have been talking to operators, and I think that the question of the level playing field between cable and satellite needs to be addressed. Content exclusivity has been a driver for pay TV. There is anyway plenty of competition in the market place and it would be beneficial especially to sports. In the UK, the premiere league had no money, no stadiums, football in general wasn’t what it is. Content exclusivity makes more money available for good content and talent, and elevates the level of the game. You wouldn’t have Formula One without exclusive rights.

How have you been coping with currency fluctuations?

I don’ remember currency fluctuations of this magnitude. We saw the pound go down versus the dollar by ten per cent in a day. We use dollar accounting but our revenue are all in pounds, euros and dollars — 60 per cent in dollars and 40 per cent in pound and euro — so clearly it makes a big impact. Last quarter we had $11 million exchange loss, some of that actually real because we sold the euros, some of that was paper losses. Hopefully they will find a new level around which they are more stable.

What pre-emptive measures are you taking?

Well, it is damned if you do and damned if you don’t, especially in these turbulent markets. We do some hedging on the rupee and shekel currencies because they are expenses primarily.

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