28 June 2005, 12:49

India's satellite TV growth prospects fuzzy
Reuters News
(c) 2005 Reuters Limited

By Rina Chandran

BOMBAY, June 28 (Reuters) - Satellite dishes may become a fixture in more Indian homes now that two big celestially named players have approval to launch direct-to-home (DTH) satellite services in the world's third-largest cable-TV market.

But convincing viewers used to cheap cable bills to switch to pricier satellite services may take some time, analysts warn, which means making money soon will prove a major challenge.

India recently gave the green light to long-delayed DTH applications from Space TV -- 80 percent-owned by India's Tata Group and 20 percent-owned by News Corp.'s Star India -- and Sun Direct, owned by regional language giant Sun Network.

They will join Dish TV, 20 percent-owned by Zee Telefilms Ltd. , and state-owned, free-to-air network DD Direct.

"It's an extremely price sensitive market and broadcasters will bleed in the near- to medium-term," said Nitin Khandkar, vice president of research at Keynote Capitals.

"The conversion to DTH will take place, but very slowly."

Space TV's $368 million investment and Sun's near-$35 million investment will help the satellite TV market grow to 7.2 million subscribers by 2010 -- 10 percent of the expected cable base -- with annual revenues of about $400 million, analysts estimate.

While satellite has struggled to grow in the cable-saturated United States, analysts believe India can support both as vast areas remain underserved by cable due to poor infrastructure.

"Though DTH will never replace cable as the mass medium of choice, it will survive and thrive, especially if licensees execute ably and regulations ease," said Vivek Couto, an analyst at Media Partners Asia.

"Now comes the hard part: rolling out digital distribution platforms and competing in the current regulatory environment."

NO EXCLUSIVE CONTENT ALLOWED

The regulator ruled last December that broadcasters cannot deny content to DTH services, so they will compete on service quality, tariffs and packaging rather than exclusive content.

"The key to profitability is exclusive content at prices comparable to cable. (The rule) could commoditise the business," Couto said.

India's cable TV market, with revenues of more than $1 billion last year, has a base of more than 50 million homes in an overall market of 90 million TV homes, which is growing quickly as incomes rise and consumers spend more on home entertainment.

"Cable operators will oppose anything they see as posing a threat to their business, and private players will also have to contend with the free-to-air model of (state-owned broadcaster) Prasar Bharati," said Keynote's Khandkar.

Indian cable consumers have long been held hostage by cable operators who charge at random, offer little content choice, frequently black out channels and provide poor signal quality.

Broadcasters, frustrated by chronic under-reporting of subscriber numbers by cable operators, believe consumers will need little persuasion to sign up for the new DTH offerings. But Zee, the first out of the blocks last October, has only hit a third of its June target of 600,000-700,000 satellite subscribers, bogged down by a slow rollout and the lack of Star and Sony Entertainment Network channels on its platform.

Zee has since cut prices and is now adding 2,000 subscribers daily -- mostly from semi-urban and rural areas where cable connectivity is low -- and hopes to hit 1 million subscribers by March 2006 and about 10 million over the next three years, said Rajiv Garg, Zee's chief executive of strategy and finance.

"The new entrants will now expand the market, as awareness will increase," he said.

Dish TV has two offerings, priced at 3,990 rupees and 4,990 rupees, including a year's fee and the cost of the set-top box. But the cost is subsidised by nearly 700-800 rupees per customer.

There are other costs to broadcasters, whose options are limited by a 20 percent cap on foreign equity holdings, including an annual fee equivalent to 10 percent of gross revenues and a spectrum royalty fee of 2 percent of gross revenues. ($1=43.5 rupees)