To collaborate or to confront?-The Indian DTH Dilemma
Introduction
For better or worse, we live in very interesting times. With the outbreak of CoVID-19 that has gripped the world for the better part of the past 2 years, one would tend to focus on (and very rightly so) the turmoil it has landed on humanity. But on the technology front, the pandemic was a red-letter day for disruptive solutions to drastically shorten their Time-to-Market. Before we knew it, WFH model was adopted as a standard work methodology across the world, companies had to rethink their supply chains practically overnight to stay alive, and so the challenge was how much of a normal world you could fit inside one’s home.
Home Entertainment is not an alien concept for India by any means. In fact, at this point it is ingrained into our cultural identity. A little nostalgic trigger to my mother would lead me to her distant memories of how she would lay diligently crouched in front of the family TV every 7:30pm on Friday, awaiting Doordarshan’s “Oliyum Oliyum” which compiled all the trending Tamil movie songs.
Let’s just say that the “diligence” has passed from the consumers to the companies over the span of a few decades. I’m sure you are familiar of the average human’s receding attention span(i.e. blaming TikTok). We have shifted from impatiently waiting for content to being overwhelmed by it. The problem used to be Information Scarcity and amusingly ,its Information Overload now.
Being spoilt with choices is arguably the better problem to have of the two. Aided by multiple events such as the internet, reducing costs of devices, increasing hardware capabilities and network transmission breakthroughs, we find ourselves at this situation. There are multiple ways you could consume content and this is a story about one of those.
The Indian DTH space has been considered a legacy business for so long. But government regulations, cross-industry effects and the Covid-19 has closed existing roads but also given the choice for roads not taken. To understand the way forward, it is important to understand the path crossed so far…
NTO 2.0- Choice at a cost
There are now exceedingly more TV channels and more customer-engagement points ,courtesy of social media. The “one-size-fits-all” ideal TV channel which singlehandedly tried to cater different audiences with different programs has now split into genre-specific channel clusters. The basic function of a TV has been the same though — the consumer gets content through channels, the content is scheduled by the broadcaster and it is transmitted through a Distributed Platform Operator (DPO) such as Cable, DTH or the recent IPTV (more on that later).
And the way this model worked was left majorly untouched, until TRAI (Telecom Regulatory Authority of India) rolled out the NTO (New Tariff Order) regulation in 2019. This regulation mandated that consumers should have the choice to select and pay only for the channels they consume, instead of being subscribed for a vast library of channels of which only a small section of channels is consumed. The expected outcome was that this would reduce the bill for the end consumer since they now don’t pay for channels they don’t watch.
However, what proceeded was only counter-intuitive. Broadcasters priced their popular channels to the maximum and less popular channels at a negligible price in a-la-carte (i.e. individual purchasing). However, they bundled select popular channels with a bunch of less popular channels (collectively termed as a ‘bouquet’) and offered at a big discount. The consumers would end up opting for the bundles rather than a-la-carte, thus defeating NTOs entire purpose.
But the TRAI would not go down on their vision easily! Come 2020, and a revised NTO (casually referred to as NTO 2.0) was put in place, which pegged the a-la-carte prices of individual channels to the prices of the bouquets that they were present in. This meant that now there was an upper and lower boundary of how much a broadcaster could price an individual channel. The ceiling price (maximum price payable) for a channel was also brought down from Rs 19 to Rs 12.
The restriction on pricing, amidst the pandemic in which ‘quality of life’ entertainment consumption had overall decreased and ad revenues had declined, meant that broadcasters as well as DPOs would see a slump in their revenues. On top of that, there was a “new kid in the block”……..
IPTV — The All-rounder
The OTT whirlwind has been going for a while on the incumbent DPOs. What was expected to be a head-on tussle with traditional media consumption model surprisingly opened up opportunities for collaboration. The dish providers adapted to the new trend and embraced it wholeheartedly by bundling OTT offerings along with the DTH subscription. It was taken a notch above with the introduction of Smart Set-up boxes which was powered by Android TV capabilities, meaning it could convert “non-smart” older TVs in households into a modern entertainment machine with access to a plethora of applications from Google Play Store. The customer proposition looked mouth-watering now, a single subscription would give you access to TV channels, multiple OTT offerings and a smart OS for your old, bland TV. Some DTH providers even came up with their own OTT platforms!
But there is a gap in this system which becomes apparent once the brilliant plan is set to practice. While offering TV channels through the dish and Android capabilities through the Set-up boxes, DTH operators still required customers to have an active internet connection. This translates to the fact that the customers have a hidden cost of setting up and paying for home internet to access most of these brand-new features. Without the pre-requisite, it is essentially the same old DTH setup box.
This is where internet providers jumped into the scene with a true “one-stop-for-all” solution- Internet Protocol TV or IPTV. The channels were broadcasted to the home digitally through the high speed and high bandwidth fibrenet , as opposed to a satellite dish or traditional cable. This meant that IPTVs came with the internet required to explore these new offerings. This was what the Smart DTH aspired to be, but without any caveats. One subscription allowed you to seamlessly access across Channels, OTTs and other smart features with no customer prerequisites. The perceived value of Smart DTHs in conventional urban spaces was evidently less in comparison to IPTVs. With the existing digital infrastructure there was not much DTHs could do to fill the competitive gap, all this while the existing processes were already facing hiccups due to a global phenomenon…..
CoVID — Perpetual torrent
The above problems are bad enough on their own but they become worrisome in context with the world. Legacy DPOs have been affected in two ways in the wake of CoVID-19, both directly affecting the net profit of operators.
With everyone forced to be at home, TV consumption hit an all-time high to a point which overloaded the existing operational bandwidth. On the surface, increased consumption would seem like a positive thing but the “devil in the details” is the type of consumption. Given the widespread anxiety, media consumption majorly consisted of News and informative channels. The demand for the rest of the media palette had considerably declined to impact the overall demand adversely with respect to pre-CoVID times. The need for value-added entertainment which could command a premium price slumped heavily resulting in a loss of revenue.
Moreover, a good portion of these informative channels were offered Free-to-air as mandated by the regulations ,which did not generate any direct subscriber revenue for the DPOs. The number of new subscriptions also fell substantially thus impacting the revenue further.
With consumption breaching the known “normal” levels, operators and maintenance workers ended up working heavily overtime to an unhealthy extent. Adding that to the overload and measures taken to fix the shortcomings meant a spike in operational costs which was yet another negative effect on the net profit. These costs had arrived quite unexpectedly and thus the operators with insufficient cash reserves had even tougher times to manage the overbearing costs that mounted on them.
The future implications of these events would be that the incumbent players would not be in the most favourable position to satisfy the capital expenditure requirements to pursue bold new ventures in a disrupting field to stay afloat. Although new pastures come with their own challenges….
Satellite Broadband– Bane or boon?
Starlink — yet another buzzword hyped by the proverbial real-life Tony Stark, Elon Musk , has gained significant traction in recent months. The idea of Satellite Broadband is seeing its transition from science-fiction to reality. But what is Satellite Broadband? It is simply the transmission of data that enables us to access the internet, via proprietary dish setups which establish connections directly with satellites hovering over earth. In principle it seems almost like the current satellite TV broadcasting which the DTH services use, until the fact is realized that it is a two-way data transmission for internet as opposed to a single-way transmission such as TV channels.
Satellite broadband has already been commercialized for the B2C segment in major markets such as Europe and USA by players such as HughesNet, OneNet, etc.
In the context of Indian market, it is yet to flap its wings owing to a few factors. To begin with, enabling it would require High Throughput Satellites which could handle the wide bandwidth of broadband transmission and India has a lack of these type of satellites. Indian companies who would want to provide satellite internet end up leasing foreign satellites, which come with the hassle of complicated approvals and enormous added costs involving the Department of Space (DoS) for lease approvals, Department of Telecommunications (DoT) in seeking a VSAT permit required for the operation, and involving with several intermediaries which shoot up the leasing costs to Rs 75000 per Mbps per month, which is 10 times the global average. But developments in this space have been fast paced, in regulatory as well as market spaces.
Deriving hints from major markets, where the satellite service providers have been allowed to control every cost element involved — from satellite to dish, India government had shown signs of progress by announcing “Open Space” policy which would aim to create favourable grounds to develop businesses with updated space communication policies. This could open an entire untapped market within the Indian population and could aid in tremendously boosting the broadband penetration in the country which is hurdled by lack of wired infrastructure in remote and rural places.
With speeds of 50–150 Mbps, Starlink has begun its beta service and accepts pre-orders in Himalayan zones such as Keylong-Leh road in Lahaul Valley, and OneWeb(co-owned by Bharti Global and the UK government) has made statements that it is in constant touch with the Indian Space Research Organisation(ISRO) to ensure smooth regulation processes and plans to launch by mid-2022. Several other global Satellite Broadband players have also shown interest in the Indian market. Quite interestingly, Nettle Infrastructure Investments, a wholly owned subsidiary of Bharti Airtel has acquired 100% stake of OneWeb India Communications to throw hints on what could be the future.
Focusing back to our DTH industry, the forte for dish-powered entertainment has been the rural and remote population due to the lack of cable infrastructure. Options such as high-speed internet, value-added services, interactive arts which require wider digital infrastructure has been so far restricted to urban spaces. With the game-changing satellite broadband on the brink of the horizon, the incumbents are left with more questions than answers on the way forward. Satellite broadband has the potential to deliver the exact proposition of IPTV, sans the dependency on wired connections to truly tap an unaddressed segment. How Indian DTH players would view these new entrants in the satellite transmission place is up in the air right now.
We could go with the precedence set by the incumbents during the OTT wave, as they did their best to adapt by choosing to partner with the OTT platforms rather than face them head-on, and hope for the same. But would Indian DTH firms rise to the occasion to welcome the forbearers of this new technology while offering to share the pie of existing customer base? Or would the DTH industry see Satellite Broadband as too close for comfort and declare war? Could they afford to do so , given their current situation? My guess is as good as yours, but as a consultant it is habitual to look up to frameworks that might help us guess better…..
Conclusion
Above is the Harvard Business Review article “Strategy for Startups” by Gans, Scott and Stern(May-June 2018) which helps in understanding situations involving disruption in the marketplace across two axes:
New entrants-Attitude toward incumbents (collaborate or compete?)
Incumbents- Attitude toward the innovation (build a moat or storm a hill?).
The example given in the article, and referred by the image above is quoted below:
“RapidSOS was an easy sell: It would bring 911 calls into the smartphone age. Emergency-response systems had evolved in a pre-mobile era, which meant that few of them could accurately identify the location of callers who were using mobile phones, compromising response times and medical outcomes. The founders of RapidSOS — Michael Martin, an HBS graduate, and Nick Horelik, an MIT engineer — had developed a way to transmit mobile phone locations to existing 911 systems that would require only minimal adaptation on the part of other players in the emergency-services sector. After attracting early-stage financing at business plan competitions, Martin and Horelik reached a crossroads: How should they take their technology to market?”
I present a much-needed end to this long write-up with the above analogy and some food for thought.
I love to end this article like one of RL Stein’s “Give Yourself Goosebumps” books where you have the choice on how the book ends. I’m positive that you might’ve resonated with one of the four quadrants above.
I appreciate your time taken to read through this story and would be elated to hear which choice you picked and why. Feel free to reach out to me on LinkedIn.
- S Lal Vasanth Rupan
Business Consultant, Tata Consultancy Services
Sources
Performance Indicators Reports | Telecom Regulatory Authority of India (trai.gov.in)
