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DTH: The road ahead

Dec 15, 2008

Television media is among the fastest growing industries in India. Its value chain consists of three parts -content providers (production houses), distributors (channels) and platforms (cable, DTH or Direct-To-Home). All three are witnessing massive investments and severe competition. In this article, we shall compare the DTH space with the telecom industry in search of lessons for the road ahead. Telecom and DTH - The similarities
Just around a decade back, the Indian telecom industry was entering its first phase of growth, the same stage in which DTH today finds itself. Technology plays an important role in both the industries. Both introduced technologies superior to the entrenched players (state owned landlines in telecom and cable providers in media). As a result, both require significant capital expenditure upfront.

Telecom and DTH - Different strategies
According to Michael Porter, there are 2 broad strategies in which a company can achieve competitive advantage - cost leadership and differentiation. In cost leadership, the firm tries to become the lowest cost producer. ‘Economies of scale’ is one of the most important drivers of cost leadership. In differentiation, the firm tries to be unique along some dimensions that are widely valued by customers. ‘Policy choices’ is one of the most important drivers of differentiation. It covers product features, services provided, intensity of advertising etc.

The winning strategy in the telecom industry so far has been cost leadership. Bharti Airtel has achieved leadership through sheer economies of scale. As per its Chairman, Mr. Sunil Bharti Mittal, the company has battled hard to achieve a customer base of 60 m subscribers (February 2008) in India and now boasts of at least 1 bn minutes of traffic flowing through its network each day. He adds that any new player offering talk time of 20 m, 50 m or even 100 m minutes a day can only make losses.

The question is - What will be the winning strategy in the DTH space? We believe cost leadership is not the answer. Providing cheaper set-top boxes will not do. In telecom, successful players were able to reach out and make the service affordable to a very large section of Indians. In DTH, the service is unlikely to ever become that affordable. In telecom, the cost of acquiring a GSM customer is low because the equipment is provided by the handset manufacturers and not the service provider. In DTH, the equipment is supplied by the service provider. In fact, all DTH players provide basic equipment (antenna and set-top boxes) to customers at a loss. While the subscriber base is likely to grow, it is unlikely to ever reach the levels achieved by the telecom players.

We believe the road ahead for DTH player will require differentiation. Tata Sky and Dish TV have already begun the process of differentiating. Personal Video Recorders (Tata Sky) and mobile antenna (Dish TV) are steps in that direction. In the western world, DTH players differentiate by providing exclusive programming. For example, in the UK, DTH players vie for exclusive sports telecast rights. However, In India, the regulator has disallowed the players from airing exclusive content till the segment reaches some maturity. So, expect different - more product features and add on services like pay per view movies - and not cheaper DTH services in the future.

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