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Help ‘There's room for growth, but it should be remunerative' Nagpal of Tata Sky
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#1
How much has Tata Sky invested in the business so far?

The overall investment by now would be in the region of Rs 3,500 crore.

Has the company broken even? If not, when do you see that happening?

No. I cannot give you specifics. But I can say we are pretty much on track for operational breakeven soon. We are focused on improving our ARPU further, which is currently significantly healthier than most other players.

What made it possible?

The prime factor is that we went for the right kind of subscribers. This kind of subscriber is willing to pay that much extra for better quality, service, equipment and better content. We primarily targeted urban areas and not the cable-dark rural market. And we got a predominant share in these large cities of people who pay more for better quality. And our content line-up has always been geared up in a manner where this subscriber base gets what it looks for.

It will be very tempting in this game to push every little regional channel into the bouquet, which makes no sense. We have launched a lot of innovative channels. From Active Learning to Darshan. No one has interactive services of this scale. For example, Active English is very successful. We are leveraging whatever we get through consumer insights.

Even our Showcase channel, which is a pay-per-view movie channel, is doing well. We buy exclusive rights from the movie producer to showcase them on our platform almost immediately after the movie's theatrical release. And producers too understood that piracy is a big problem here. If it is released on the DTH platform, if every household pays Rs 50 or Rs 75, the producer gets a straight revenue share. Dabangg is a very good example. Great hit. We did a deal with the producer. On the Tata Sky platform, after its theatre release, two lakh households paid and watched it at home. We priced it very attractively at Rs 25. So the secret behind superior ARPU has been better quality subscribers and a quality content line-up.

How does your revenue profile compare with the industry ARPU?

I think for the industry it's in the region of Rs 135-Rs 150. Ours is significantly higher than this.

So you are not essentially in the numbers game...but quality is a differentiator?

We look at businesses of this nature ... like how many boxes you sold ... what is the revenue ... and what is your share of the total revenues of the industry. We would have a revenue share in excess of 30 per cent. Just numbers is a meaningless game. If you get more numbers at a cheaper price, you track the wrong kind of subscriber. That subscriber won't give you ARPU and will also churn.

The default ads one sees when you switch on Tata Sky ... Is it a good revenue source?

It is ... but not very significant. Advertising is a good source of revenue. It's one part of the platform where the advertising space belongs to us. This is a local innovation and it works very well for us. It's focused advertising, where the advertiser gets to reach over 6 million discerning households.

Are you constantly looking at other revenue sources?

Rather than that I think innovation is the key. Be it products or services. For example, Active Darshan. One can sit at home and have darshan of one's favourite mandir every morning. Active English. Originally, we thought we will teach children. And our market research showed that children say, “we learn English at school and not again.” But, those who really want this are the housewives. And it's a sitting market.

Will digitisation of the cable industry take a toll on DTH business?

I think digitisation of cable will take a greater toll on the analogue cable sector. The differentiation between digital cable and DTH is that digitisation of cable requires huge investment to educate and explain to the consumer how it is better than analogue. In fact, most of our subscribers are from cities with cable connections — 50-60 per cent of our daily sales come from beyond the top 50 cities, not from cable-dark areas.

How big is the room for growth for the DTH industry?

There are about 130 million TV households in the country. The remaining, around 100 million households, are still TV-dark. Of this 130 million, only 30 million have DTH connections. Cable is three times this and growing ... and won't disappear either. But still, there is enough headroom for growth. But our problem is it should be remunerative. It must not be a situation where the taxation levels are so irrational.

Harit Nagpal: The Government should not penalise this sector. In fact, the DTH sector pays much more to broadcasters and the Government than the cable industry. At least, three times more. What has been done in regulation to support the growth of this sector? The role of the regulator has got to be very clear. The regulator cannot afford to sit down and design our tariffs and find more innovative ways to tax us.

What does the industry want from the Government?

Vikram Kaushik: Actually, I think we have made reasonably good progress. But there is a very long way to go. If you read the last tariff order of TRAI, it says digitalisation should be supported with a 10-year tax holiday. It also recognised that taxation systems are grossly punitive. It says the revenue share, which is currently 10 per cent of the gross revenue, should not be more than six per cent of adjusted gross revenue. And it also said the actual level of taxation is excessively high. The Finance Ministry and Information and Broadcasting Ministry must act on this. The truth is that after consulting all the players involved in the system, the regulatory authority has finally come to this conclusion. Actually, the Government is losing around Rs 6,000-Rs 8,000 crore a year because of the cable industry's under-declaration.

How fast has the industry been growing?

The industry has been growing at 30-35 per cent, and we hope to exceed that. We did our last one million in seven months. If I can recall, we did our first million in 11 months — which is a world record. After that the next one came in 10 months, the next in eight months and the next one has come in seven months. The industry adds between eight lakh and a million a month.

So, are you a satisfied man, while you leave the company, of a task well done?

The task of a company is never done. Because the whole corporate agenda is clearly much more long-term. However, what gives me satisfaction is — there is little doubt — that Tata Sky is clearly a premier DTH platform in the country — in terms of the standards we have set for product, service, branding and reputation. Also, we have managed to build a management team that is very competent and understands the business well, which is also important, considering the fact that it's a new category. When you enter a new category, you have to as much define the rules as help make the rules and set standards; I think that's the thing of which I am most satisfied. But, like I said, the work of a company is never done. And within the corporate business process there are cycles. You know there used to be a debate about the concept of time. Is time actually linear or is it spiral ... or circular ... I think it's probably spiral. Because there is a degree of repetition and at the same time there is a forward movement.

Asked what his agenda for Tata Sky would be once he takes over as MD & CEO, Nagpal says: It would be grabbing the lion's share of the growth, managing that growth, meeting our subscribers' expectations in terms of service, content, distribution and reach. So, having been through the telecom business where, when I joined the industry, all the players' subscriber strength put together was around 5.3 million… today, it's 600 million-plus. We have seen this ... when you suddenly grow, your service is lacking somewhere or the new segments that are coming in don't find your product attractive ... so you have to continuously reinvent yourself. That's exactly what I am looking forward to.
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Tata Sky ARPU is good compared to its competitors growth of the industry will further improve its strength.
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