The direct-to-home (DTH) market has 18 million subscribers and is around Rs 3,400 crore in size. There are five incumbents — Dish TV, Tata Sky, Big TV, Bharti Airtel and Sun DTH. Most of them, it is an open secret, are struggling with red ink on their books. They all sell set-top boxes at a huge discount to hook in the customer. And this accounts for the losses. In this scenario, Videocon has entered the market with its service called Videocon d2h.

The low 13 per cent DTH penetration among TV households might have tempted Videocon. But does it have a differentiator? “We are not just another DTH operator. We have the world’s first integrated entertainment device in the DTH market. It is much simpler,” says Videocon Group Director Saurabh Dhoot.

Direct to TV

Videocon, which has entered the market under a separate company called Bharat Business Channel, wants to leverage its strengths in manufacturing to grab a share of the market. Thus, it will offer DTH set-top boxes, DVD players with a built-in set-top box and televisions (flat screen as well as LCD) with a slot for the DTH card.

At first brush, some analysts think this might do the trick for Videocon. Apart from a whole new value proposition, this will also address the different price points in the market. The LCD TV is priced at Rs 13,490, the flat-screen TV at Rs 8,190, the DVD player at Rs 2,590 and the set-top box at Rs 1,790. The hardware and cable stores (which sell set-top boxes and DVD players) have been told to upgrade curious DTH consumers to DVDs. Multi-brand consumer electronic stores will push the LCDs and flat-screen TVs. This underlines the benefits of an uncluttered drawing room with two devices clubbed in one, needing “that much less number of cross connections between devices that were stacked against each other in a mesh of wires” says Videcon d2h CEO Anil Khera.

Videocon can target not just existing TV households but also consumers on the lookout for a replacement for their old TV set. “Fifteen million TVs are sold every year in India, of which 1.8 million are LCDs. As a group, we sell 3 million TVs. If we meet the remaining demand with even 1 million of our satellite TVs, that would still be substantial,” says Khera. DVD players could exist in as many as 45 million homes, according to industry estimates.

Yet, this very coupling of a larger gadget with a DTH receiver could work against Videocon. An industry observer who refused to be quoted does some wishful thinking, “If it had come up with an interoperable set-top box and then included it in its appliances, it would have been a game-changer. Leveraging its core competence, it could then have complimented existing players, optimised its logistics and taken advantage of the DTH market. Now it will have to start from scratch and make sure consumers don’t get discouraged by the thought of being tied to a specific service when buying such a gadget.”

Positive reception

At the moment, it looks as if the bundling has begun to work. The DVD players have already become the largest selling product in Videocon d2h’s portfolio since consumers have to shell out just Rs 800 over the cost of the set-top box. “The integrated products will act as a differentiator in the categories of consumer durables and DTH, both of which are very crowded,” says KPMG Executive Director (media & entertainment) Jehil Thakkar.

The service has so far got over 100,000 subscribers. This is not bad since it completed the first phase of its launch in the North and West only in September. But it is still way behind what rivals clocked this festive season with various promotions. Most of them got over 300,000 new subscribers in the same period, up from the average of 150,000 that they see during non-festive months. November will see Videocon d2h’s pan-India roll-out. Khera expects 50 per cent subscribers to come from the North and the West, 20 per cent from the East and the rest from the southern states.

The company has kept just two variants of its packages — Gold which offers 115 channels for Rs 150 per month and Diamond with 160 channels for Rs 275 a month, with add-ons that a subscriber could opt for. The south will have its customised South Gold and South Diamond to take care of the regional preferences.

With free subscriptions offered at the launch, it is difficult to ascertain the average revenue per user in the initial three months (the duration of these offers). So, it is still early to tell if it will move towards the industry average of Rs140 to 160 or align with that of the more premium players such as Bharti Airtel at Rs 200. While the volume game continues, observers believe that the industry has got to move to higher revenue per user.

Taking on entrenched players will not be easy for Videocon. Dish TV leads the pack and offers several value-added services. It has drawn up aggressive plans to grow in the rural markets. Tata Sky has leveraged the tremendous equity the Tata brand enjoys in markets across the country. Bharti Airtel is playing the technology card — how it offers superior picture quality. Sun TV is positioned as a price warrior and Big TV too has upped the ante. Dish TV, which is owned by Zee TV, and Sun Direct of Sun TV can also leverage their parents’ access to content — sourcing costs 40-50 per cent of the operations.

The hardware card

Videocon, by reworking the role hardware plays in the DTH services sector, is trying to play to its strengths in consumer durables. Says Dhoot: “For the last 25 years, we have had a strong supply chain in place which brings down our costs.” Adds Khera: “There is no separate housing for the DTH box, no extra cables that we have to provide. We also save on transport, the cost of servicing and distribution margins since we need to work with just one device to sell one of our appliances and our service.” The company claims such advantages have cut its customer acquisition costs to half of that of the industry benchmark of Rs 3,000 to 4,500, which if true, is “significant”, according to Vivek Couto, the founder of Media Partners Asia, a Honk Kong-based media research agency.

Rivals say it can’t be a significant advantage. Dish TV Chief Operating Officer Salil Kapoor reasons that hardware sale is incidental to the DTH industry: “We only make money when subscribers renew their connection recurrently. Retaining customers for the long-term is what matters.”

In the long run, reasons Ernst & Young Partner and National Leader (media & entertainment) Farokh Balsara, value-adds count more than channel bouquets and installation costs. These could range from movies on demand and pay-per-view channels, tickers and information nuggets, and intuitive electronic programming guides. Videocon does not seem to have neglected it. Its pay-per-view movie channels will get launched in the last week of November. For content beyond TV channels, it is working on a tie-up with Axis Bank for net-banking services and the portal ezeego1.co.in for online bookings. In its software interface, it has some unique functions such as genre-switching and weather updates. The technology it uses is similar to Bharti Airtel. Hence, it claims that its picture quality is comparable.

A promotion budget of Rs 400 crore for the next three years has seen the company begin with outdoors and print ads to mark its launch. In November, the company will roll out its TV campaign with the tagline ‘Direct Hai, Correct Hai’ (Direct is correct) developed by Ambience Publicis, possibly roping in a celebrity for endorsement.

Videocon wants to plunge into the DTH market that is set to include 40 million subscribers by 2013 (according to Media Partners Asia). It has a war chest of Rs 2,000 crore. Couto feels players will have to gain critical mass at higher rates within the next two to three years to reap profits. Any player needs 5 to 6 million subscribers at average user revenue of Rs 300 by the next couple of years to break even. d2h, on its part, has set its eyes on 2 million subscribers by August 2010.