Changes in the Most Dynamic DTH Market

With the recent announcement of a proposed merger between Reliance Digital and Sun Direct, which would form India’s 2^nd largest DTH platform, the world’s most dynamic DTH market has kicked it up a notch. With 5 major platforms jostling over 1.1 billion people, the Indian DTH market is transitioning from being characterized by breakneck subscriber growth to more nuanced subscriber retention and development.

As the market continues to grow at a considerable clip, there will be several key concepts to grasp in order to capitalize on this growth—the fundamentally unique aspects of the Indian market, the way in which operators are trying to retain existing customers, and the future direction of the industry following digitalization.

The Indian DTH market is by no means unique among developing economies, in the sense that a high percentage of Indian DTH subscribers are pre-paid and short-term. However, it is a unique market when considering the sheer number of these types of subscribers, which themselves outnumber the DTH subs in most countries. NSR’s Direct-to-Home Markets, 6^th Edition estimates that there are around 40 million DTH subscribers in India as of 2012, making it the largest DTH market in the world by subscribers. However, many published articles and press releases would put the number at around 60 million subscribers. This difference of around 20 million represents a sea of short-term, pre-paid customers, who are currently inactive. Moving forward, it will be critical for Indian operators to tap into this customer segment and up their retention rate, for these people have already made the effort to get satellite TV, and thus are considerably more likely to be long-term customers. Platforms are employing an arsenal of different tools to help retain these customers, and eventually grow their ARPUs.

Platforms up to this point have used a number of promotional strategies to lure customers into the DTH market, which include 3 free months of service, buy a 1-year contract and receive 2 months free, etc. While these offers have helped to boost customer retention, subscriber churn remains the single biggest issue among operators, in some cases reaching as high as 35%.

In NSR’s view, the Indian DTH market requires further granularity of product offerings. In a country and an economy as diverse as India’s, customization is a must. This business model has proven very successful for other firms within India, most notably Samsung, who has recently unseated Nokia in mobile phone sales in India. A large driver of this success is Samsung’s diverse product offering—for example, they sell 10 different phones priced between $16US and $31US, each with a few more features. DTH operators could and should learn from this example, by offering a diverse array of services allowing customers to marginally upgrade content for a minimal added cost, thus helping them move up the ARPU chain.

As the digitalization process continues in India, nearly 100M new households will become digital by EoY2014. DTH holds a geographical advantage over cable in signing up these new households, due to their tendency to be located in rural areas where cable is prohibitively expensive to install. However, with more lax controls over payment and content viewing, cable does have a competitive advantage over DTH, particularly among India’s most poverty-stricken regions. Overall, for DTH operators to capture a large share of the newly digitized households in the coming years, they will need to combine their existing core competencies of better customer service and quality of product with a more diverse product offering. This will lead to meager profit margins for the short-term, but place them in better position for long-term sustained growth in the world’s most dynamic DTH market.

Bottom Line

NSR’s Global Direct-to-Home Markets, 6^th Edition projects a global addition of just over 124M DTH subscribers by 2022. Of this number, nearly 45 million will come from South Asia, of which the overwhelming majority will be in India. By changing focus from customer acquisition to building customer ARPUs, DTH platforms are changing the market landscape. With a variety of options at their disposal, it is in NSR’s view that the most effective method of building ARPUs will be granular subscription options, allowing customers to slowly and cheaply add a few more channels. As digitalization continues to march across the subcontinent, DTH platforms need to rely on their core competencies while also stemming the tide against cable, particularly by leveraging their accessibility in rural areas. Bottom line, growth, as well as competition, will be fierce in the coming years in India, and it is up to DTH platforms to capitalize on the development of the country and its populace.