Clear the mist. It is not meant for just urban folks! That was one of the instructions given to the team who drove a float van, with a big dish mounted on it, through the hinterland of Andhra Pradesh last year. Giving a demo of Reliance ADAG group's direct-to-home or DTH service Big TV, the campaign lasting for 30 days notched up 5,000 subscribers, says the company. Strange as it may seem, the company's on-ground activities attempted to dispel the myth that DTH was targeted at only the cosmopolitan television viewer with deep pockets living in the big metros. And to be fair, it is not just Big TV.

Airtel, which started its DTH services in October 2008 a few months after Big TV, had initially focused on the metros, launching a high-decibel campaign endorsed by celebrities of all hues to attract customers. But failing to garner too many subscriptions, it, too, went in for a change of strategy in April last year. "While the cable frustrated market is not to be ignored it is just about a fourth of the total market", says Ajay Puri, CEO, Airtel Digital TV. The focus on tier 2 and tier 3 cities has worked well for the company, with 1.5 million subscribers added in the period since then.

Tata Sky, which started with the aim to win over cable homes in the urban centres too has strengthened its focus on the rural markets. "We are not making an assumption that what works in urban markets will work in rural areas and non-metro cities. We have to give services which make sense to those people," says Vikram Mehra, chief marketing officer, Tata Sky, from Bhopal. Mehra has been touring the Madhya Pradesh state capital meeting heads and staff of schools to gauge response to Tata Sky's Active English service and make it more relevant to people there.

In the last one year or so, all the DTH operators in India have been aggressively marketing their products in the non-metro cities. Of the total 134 million TV households in the country, 50% are in the rural areas, as per the figures released by television audience measurement agency TAM Media Research. Not just that, 30% of the 70 million TV households in rural India do not have access to cable and satellite (C&S) TV. The data further identifies two trends. One, the market for digital TV is bigger in rural areas, and is growing at a much higher rate than in urban areas. And two, bulk of this digital TV is DTH.

For the market leader, Essel Group owned Dish TV India going rural was natural. With not many channels, especially the popular ones, on board, it could not take the cable operators head on in big urban cities when it started its services. So it set up a distribution network in small towns and cities to capture the market there. Six years down the line, the company with around 250 channels on offer, however, is yet to break even on full basis.

The journey began in the year 2000 when government gave approval to DTH services in the country. The cost of a DTH licence was $2.14 million and then the operator also had to pay 10% of its gross revenue as annual licence fee to the government. The total foreign equity holding that includes foreign direct investment (FDI), foreign institutional investment (FII), non resident Indian holding, overseas commercial borrowing (OCB) was capped at 49%. Of this, the FDI component was restricted to 20%. The first DTH service rolled out four years later was DD Direct+ by state-owned public broadcaster Doordarshan. Though Essel Group owned Dish TV did a soft launch in 2003, it was only in 2005 that it started commercial operations. In 2005, when Dish was the only DTH player in the market, the market size was 0.6 million. The second player, Tata Sky (a joint venture between the Tata Group and Star), entered the market in 2006 and it expanded the market to 2.6 million by the year-end. And that's when the real action started.

Today, there are six players in the market with a combined subscriber base of around 20 million and nearly 1 million new subscribers signing up every month. Besides the afore-mentioned Dish TV, Tata Sky, Airtel Digital TV and Dish TV, there's Kalanithi Maran promoted Sun Direct, which has primarily concentrated on the DTH market in the south and the latest entrant, Videocon d2h, promoted by consumer durables company Videocon Group. Interestingly, all of them except for this new entrant, either have a broadcasting/ entertainment business (as in the case of Dish TV and Sun Direct) or a telecom company (examples are Airtel Digital TV, Tata Sky) or both (as in Big TV), the benefits of which are being leveraged to the maximum.

The entry of big companies meant that the consumers were bombarded with high-decibel advertising campaigns, which has helped them mop up subscribers. But this also meant a price war and ARPU (average revenue per user) nose diving. Though this has been good news for consumers, the companies are taking a huge hit. With the companies heavily subsidizing, and in some cases, giving the set-top box (STB), which receives the signals from the DTH operator, literally for free, the cost of customer acquisition has remained high, between Rs 3000 and Rs 4000, say industry sources.

According to a report by Media Partners Asia (MPA), a Hong Kong based independent provider of information pertaining to the media and entertainment sector, the combined loss of the entire DTH industry in 2008-09 stood at US$450 million. Its ARPU is one of the lowest in the world and which the MPA report says, "is not sustainable". The FICCI-KPMG 2009 report on media and entertainment sector points to ARPU between $3-4 per month in India compared to $60-80 in the US, the UK and Australia or $21 for most big players in Asia-Pacific.

In such a scenario, operators had to aggressively look at expanding the market base and raise ARPU through means other than hiking subscriber fees. However, the urban market, especially the metros, was already saturated with multi system operators (MSOs) ready to give a tough fight to DTH players. "MSOs are upgrading their networks and adding competitive services to rival the DTH operators while still offering popular local content to viewers," says Alan Dishington, GM, NDS India, a company that supplies technology to both DTH and cable companies.

That is where the rural market comes into picture. As figures indicate, there is a huge number of cable dark and cable underserved areas, most of them in rural India. These small cities, towns and villages have seen higher incomes and new aspirations. "Around 15% of people in rural India can be equalized to the urban upper middle class. All companies can address that very well," said S Sivakumar, chief executive, agri business, ITC, at a marketing conference organized by All India Management Association recently. In addition, cable operators in these regions do not have the muscle to take on the big corporate players from the DTH arena.

All of these have helped DTH operators taste success in the rural areas encouraging them to aggressively promote their services to the small town TV viewer. Big TV plans to repeat the exercise it conducted last year in other regions of southern India this year. Airtel Digital TV is too is utilising its parent company's vast telecom distribution network to push sales in this region. Ditto for Sun Direct, which says it will continue to grow nationally and think regionally and understands that a bigger opportunity exists in rural.

So far the marketing campaigns of DTH operators have focussed on sound and picture quality, flexible payment structure and new interactive services. The DTH players are now looking at cost-effective subscription packages to woo consumers in small towns. DTH players such as Airtel Digital TV, Big TV or Tata Sky are also banking on their pre-paid mobile and fixed line customers in tier II and tier III cities to bite the bait, and have schemes where new DTH subscribers get free talk time on their phone connections or other such freebies. Others are working on low-cost STBs and offering tailor-made packages, especially language channel packages that suit rural consumers' interest.

Rural has the potential to push volumes—but there is still one hurdle for DTH companies. "There's been rapid growth, especially in rural area. But pricing power has been limited which is somewhat expected (with multi player scenario) as subscriber acquisition has been aggressive and average revenue per user therefore suffers," says Vivek Couto, executive director, MPA.

To increase ARPU, the operators have been busy developing and selling interactive or value added services (VAS) that includes the entire gamut of applications ranging from interactive features to movies on demand. These services are charged and hence open up an additional revenue stream for the company, besides drawing subscriptions. "Right now, they form a very small portion of our total revenues, about 1-2%. But we do expect this to rise to 10% in the near future," says Sanjay Bahl, CEO, Big TV. A point to consider over here has been that even among the interactive services being offered, there are very few which target the rural consumer specifically.

In face of lack of content exclusivity, these services also act as differentiators from cable operators and among the DTH players themselves. According to Tata Sky, the average viewing time of interactive applications per day is 34 minutes, out of the total viewing time of 180 minutes. Tata Sky's Mehra points out to the Indian market being a very different market compared to others. "Yes, content exclusivity is what has driven DTH growth worldwide. But it's also true that nowhere in the world has DTH grown so fast as in India. Also, no country has had as many as six DTH players. There is something going right over here," says Mehra.

While most operators agree that content exclusivity would have helped them grow faster, Salil Kapoor, CEO, Dish TV has a different take on it. "It gives a fair platform for all players and no subscriber is at a disadvantage," he says. Tony D Silva, chief operating officer, Sun Direct, adds, "In India there are certain channels whose viewership is way ahead than anybody else, whereas in the US there are no channels which have that kind of difference in viewership. Therefore by having exclusivity you could actually set the clock back for the growth of DTH."

"Dish TV will breakeven on a full year EBITDA (earnings before interest, taxes, depreciation and amortization, which indicates the company's cash flow before such deductions) basis over the next year or so but as it capitalises its STBs (as opposed to expenses), operating profits and free cash flow will take time—at least 3 years away. Sun TV's is likely 3-4 years away, Tata Sky probably 4-5 years away," says Couto. He expects consolidation down the road.

While in 2005 there were just a million households in India watching television through a DTH connection, four years later, the figure jumped to 20 million. "DTH sector globally is expected to have 160 million subscribers by 2014. India is expected to account for 20% of global market share at 32 million subscribers by then", says Mohit Ralhan, head - media and telecom, Barings Private Equity. And rural India is expected to be the focal point of this growth.