Chief Executive Officer | 10 Dec 2010
“If I am able to convert an analog guy into a digital one, I am creating a revenue stream for the government and they should reward me and not punish me. So there is a case for substancial rationalization of the tax structure. Nonetheless we continue to struggle on, so we deserve to get more encouragement than that. But that said and done, the momentum is firmly in. The last piece of the puzzle needs to fall into place is the role of these rating agencies which is dubious to say the least - even as we speak we have 29 million homes in DTH. The guy who buys a DTH is a better customer than the guy who buys analog cable. The entire digital platform in the eyes of noble rating agency has got only 11 per cent weightage. This is an anomaly which needs to be corrected.”
R. C. Venkateish, Chief Executive Officer, joined Dish TV on 19 July, 2010. He brought with him a wealth of more than 27 years’ experience, of which 12 years have been in senior international positions with global brands like Smithkline Beecham, Nestle India, Gillette, Kellogg India and ESPN Star Sports. Prior to this, Venkateish was Managing Director India and South Asia, ESPN Star Sports. His key achievements include developing new businesses into sizeable operations and setting up Sales and Distribution channels. He was a key player in consolidating ESPN Star Sports position as the clear market leader in sports broadcasting and launch of Star Cricket. Venkateish has a successful track record in turning around businesses and improving operating performances while re-defining the business process for winning brands like Oral-B, Kellogg’s etc. Venkateish holds a Bachelor of Electrical Engineering degree from IIT – Madras and a Master’s in Business Administration from the Indian Institute of Management, Kolkata. Venkateish talks about DTH in India and the future of television with exchange4media's Shikha.
Q. Why don’t you take us through your own personal experience. ESPN by itself is a great case study of how the subscription model can work and doesn’t matter whether you are C&S or digital, people wanted the channel given some of the content it had. And from that you are at the back end rather, how is the experience?
It is quite interesting that you mentioned that ESPN has a strong subscription model, again that was a model that evolved in the early days. The whole evolution of this business started with the analog cable through the late 90’s and early 2000’s. It pretty much had its way where there was issue of lack of addressability, under declaration, the game with the cable operators were concerned. Which is where ESPN was successful because of the fact that they had a lot of leverage with the content as they had pretty strong content. If you shut off a cricket match it would create huge amount of pressure. Because we were able to leverage that pressure, we were able to extract the extra out of the cable network. That is changing and in fact it started changing with the early days of CAS. Then it got stuck there and it didn’t roll out further because of the whole court matter. During the same time Dish launched DTH operations around September- October 2003. ESPN was the first channel outside the Zee family of channels to come on board in February – March 2004, we saw the opportunity at that point of time. From then on, in a short span of 5 years, DTH which was really struggling in the early days, with first year it was at a 400,000 mark and in 2007 it moved barely to a 3 million. Today DTH is adding more than a million per month, November was the bumper month with diwali and dhanteras where the total industry added more than 1.8 million subscribers in a single month. The cumulative total number of DTH subs with all the operators is close to about 29 million and total C&S households 106 million, we have a penetration level of 26 – 27 per cent, if we are adding 1.2 , 1.3; that means we are adding about 10 per cent penetration every year. It is quite dramatic in a market like India, which was an analog market 6 years back. And suddenly within a span of 5 - 7 years transformed into an addressable market and a digital market led by DTH and this whole evolution has reached its critical mass and momentum stage where it is much like everyone switching to mobiles from landlines. Now DTH industry has reached that stage, that in the next 3 -4 years, because of mass and momentum, it will become a mass product. It will no longer be a niche product, it will have five or six operators, who are represented by very well capitalized big industrial group and some very strong brands. If you look at market capitalization of all the groups who are backing the DTH operations in India there is Reliance, Tata, Videocon, essel group , Sun , the entire market cap of these companies put together is almost 30-40 per cent of the total market cap of the industry. You have very substantial interests which are actually driving the DTH business and that is reflected in the kind of investments that are being made both in terms of brand building and product and actually subsidising the hardware to the customer. And we believe we have reached that cusp where the growth is going to accelerate in the next 2-3 years. We have all these studies from FBA and various studies which projected the growth of various components of the DTH market most of the studies if you went by them, DTH has blasted past those estimates. They are all foreseeing a growth for DTH, growth for cable, growth for analog and a linear model where you assign differential growth rates to different segments of the market and all of them going that way, we don’t see that happening , we really believe that DTH will blow past as it has already done that. In fact the estimate of march 2011 the MPA estimate was 25 million DTH households, we will actually end up at close to 33-34 million. We are already a year ahead of the MPA estimate.
Q. In last two years despite the slowdown from that in 2007, we are talking about 7 million becoming 28 million? How did that shape up?
It’s been almost three and a half years. The structure of the market which was projected at a stable state, most of the models projected that by the time we reach stable state you will have a situation where DTH will get 36-37 per cent share, digital cable will have 24-25 per cent, analog cable will still have the balance. But the way we have seen that is not happening because firstly, digital cable is difficult to grow unlike something which comes from the sky and needs an antennae; digital cable requires last mile investments, the cable companies are not putting in the last mile investments, they are really focusing on high carriage fee markets, Bombay or Delhi, putting in boxes to hold on to their subscribers in those markets. Infact they have even refund or revenue model as far as the subscriber is concerned, most of the cable companies still charge like a analog cable guy used to charge 150 or 200 rupees, in most cases they have waivered that too and they hang on to the subscribers for the carriage fees. For DTH we have 5 different packages, silver, silver plus, gold and platinum, so there is truly a transaction which is happening between the customer and the service provider because there is a range of services which have a tangible value. We provide to the customers so as they actually make a choice and there is competition as he can evaluate our products vs of an airtel or tata sky and then the weigh the whole thing together, and make an informed choice just like any other consumer product. So, this is actually building that bond between the customer and the product rather than so called digitization by the cable industry is really a phantom business because in the sense that you place a digital box you use that pipe to expand the capacity so that you can you can run more channels; but in terms of customer you can say that there is no need for choice because I am giving him everything. But at sometime that model will stop working where we are giving everything for 100 rupees because it doesn’t work for us. The only way it can work is if you can change the content provider which is what they are doing. Even in the so called digital addressable system the broadcast is not a paid amount in some places, it is still being under declared. It is just a bandwidth increasing device and it has no addressability, a lot of people in digital cable companies are placing the digital boxes without addressability in the sense that they haven’t activated the cards in the box at the consumer end, but omn the other end they always say that the box can be activated whenever. But that is not the issue. Why wouldn’t you want to activate the cards if the guy is actually your own subscriber, if he doesn’t pay - you want to switch him off. So, it is not that I will introduce addressability at a point of time that I choose to address, if you don’t do that you are just using the digital means to increase the capacity in the pipe and nothing more. Otherwise the revenue model is exactly the same as that of the cable operators - you provide signals to all one way and then you keep the money .
Q. The digtal cable component of the overall digital household business is not something that is likely to irriate the growth of DTH in future?
That is miniscule. Most of the major companies which are listed - talk about adding 100 thousand or 200 thousand subscribers in a quarter - which we would add in 3-4 days. So, the numbers are really small therefore the mass migration to DTH is really driving the growth to digital.
Q. How did this consumer who was used to getting all his channels in 150 – 200 rupees became alright in spending 1500 rupees?
See, not all the customers were getting the 150 – 200 channels. The analog customer because of the constraints in terms of analog pipe was not getting the promised package. The number of digital set top boxes placed through cables systems in this country is about around 6 million. So the bulk of the rest which is close to 70 million connections are still analog connections. Most of the cable companies that report 10 million subs or 9 million subs 90 per cent of that are analog subs which are basically connected through cable operators. The model is simple, overnight 10 million subs lining 25 operators and giving our feed to all of them. But overnight I can lose my 10 million subscribers when these guys decide to go on to take on the feed from a different MSO. So it is not a sustainable model, it is like I am a wholesale feed supplier to some 30 or 40 hundred operators and the day the operator decides to part ways with me or gets a little more duct out of the carriage fee from the other MSO. Most of the operators have multiple feeds available in their control rooms, there is hathway feed, Den feed and incable feed. If one will take this plug off- overnight your network is gone.
So, if it is 70 million pure analog and 5- 6 million digital cable then 70 million analog is constrained by the analog pipe because in the analog pipe you have 80 to 85 channels and also a prime band, S band, hyper band, thus the quality keeps deteriorating. That is straight away is the benefit for 90 per cent of the cable subscribers who are getting much more than they can ever hope to get out of the local cable from the DTH. Secondly prices have come down, entry level costs two years back used to be 2500 now it has come down below thousand, packages are also more flexible, entry level packages also 150 rupees
Q. The after sales service is getting sorted out now? Which used to be a complain area not too long ago?
See, the whole industry is new and it is evolving. Whenever you have an industry growing 40 -45 per cent, as a company our challenge remain not only at that level, but 3 months from now aim to be 20 per cent bigger, so we have to keep on adding capacity as we grow. It is a huge challenge not only trying to do what you can do well but scale up at the same time and maintain the quality, we are getting better at it. We Dish TV are a home grown company, we don’t have any legacy support of any large multinational. We have found our way, evolved and maintained our leadership in the market. We just crossed nine million subs earlier this month, we have increased the gap between us and the next largest player by almost by 50 per cent. Tata sky and Sun are around six million, we are at nine million, my aim to double the gap.
Q. What are some of the things you are doing for that?
What is very important for us is that inn a country like India and we have a product which is relevant for each and every household. First challenge is to get into brand distribution, penetration as far as possible in terms of width to make the product readily and easily available. Apart from the width we have a strategy for the upper tier, we have a strategy for mass distribution. We already have probably the best distributed DTH product in the market but we want to expand still. The more you go into the interior the more is the hunger for entertainment.
Q. How much you say is the rural urban divide in terms of distribution?
In DTH market today, the actual growth is in the urban areas because of the fact in the metros we are also competing with cable. Cable has a strong presence because geographically these are legacy areas -like a hatchway or incable traditionally being very strong in Mumbai. In the rural markets the cable guys and the actual cost of getting cabling through and the optic fiber is rather prohibitive. So it is an open market in terms of people being actually able to switch, from whatever local cable that they have or terrestrial , straight on to DTH. Even in the urban areas where we have moved to second generation- that is high definition. We are talking about two generation gaps between cable and DTH because the issue with high definition is the volume and quality of content that is improving. More and more content providers are investing in putting up content in high definition and with that you will have a clear dual generation between cable and DTH. That is going to drive the penetration in urban, the clear strategy in the urban areas to attack cable with high definition.
Q. Because the so called first leg of growth of digital; and I am saying digital because we also have DD direct in the picture which has contributed to the growth of digital. Hence there is a perception that in rural areas the growth of digital was much faster because of the fact that cable was not present in those markets?
That is true vis a vis DD direct and in early days it really took off really well for the first couple of years. 2006 they started and they had very good uptake in the initial years because this was the first exposure to the rural guy- he paid 1000 rupees for the box and everything. But now the guy has also become picky, customer is no longer happy with just watching just Star Utsav’s of the world and free to air channels. His neighbor has got this nice little dish where he can watch Colors and Zee. At the end of the day it has become affordable. Earlier when DTH was 2500 and DD direct was 1000 rupees- that was a substantial gap, but now your DTH is also available at 1000 rupees. So you can very well buy a Sharukh Khan endorsed product.
Q. Do this endorsements help? I was wondering whether it is important to have a brand ambassador?
Brand ambassadors have built the brand. At a different stage in the evolution of a brands life an ambassador can add or not add to it. At a stage at which we were we thought it would add and ultimately we are an aspirational product we are an entertainment product, we are selling entertainment and not a plain vanilla box. So having an ambassador who symbolizes entertainment, fun and enjoyment has worked very well for us.
Q. Tell me, Everybody expected DTH to grow but not in this manner. Do you ever foresee that in a couple of years suddenly we would see the like of IPTV to also grow and compete with DTH then?
IPTV or anything else will have constraints like cable. In IPTV you need last mile connectivity. We can come straight from outer space into his house - but any of these guys have to lay wires to accomplish that. So the whole infrastructure itself is the limiting factor.
Q. Explain the role of the government in all of this. Unfortunately or fortunately somewhere between TRAI and thre government, everybody has been talking about digitization. Did that also somewhere help that government was so pro digitization and DTH was the obvious route that you did have enough support from the external environment then for DTH to grow?
The role of the government as a regulator they have always been supportive of digitization, starting from 2003, it has been that DTH is the way to go . Now CAS was supposed to be theoriginally thought of concept as the way to go for digitization. This is where they had this whole plan of switching off obviously; that dint work because of the push back and other issues. After that I think the government has not specifically inacted anything I would say to push digitization,not that they stood in the way. In terms of most of the regulations which have been inacted, they have been to basically provide a level playing field like a must provide. For example for the platform providing them basic access to content where a lot of broadcasters were playing hard for providing the content. The rest the investments the platforms have done, we are paying huge amounts of money as content fee to the various channels and we have absorbed that and we have carried forward our investments and we will continue to grow. I think the government has been playing a neutral role. There is a lot more they can do for the DTH industry which we have been asking for because we are fulfilling their dream of digitization. There isn’t any other constituent in this whole equation; whether it is analog cable or digital cable, they are not anywhere closeto fulfilliling that digitization dream, carrying it through.We are still crippled by huge amounts of license fee, entertainment taxes, other taxes, sales taxes and all of that. For every 100 rupees we are close to spending 34 in taxes and all of this is transparent because this is the money which the analog cable guy never gave to the government. If I am able to convert an analog guy into a digital one, I am creating a revenue stream for the government and they should reward me and not punish me. So there is a case for substancial rationalization of the tax structure. Nonetheless we continue to struggle on, so we deserve to get more encouragement than that. But that said and done, the momentum is firmly in. The last piece of the puzzle needs to fall into place is the role of these rating agencies which is dubious to say the least - even as we speak we have 29 million homes in DTH. The guy who buys a DTH is a better customer than the guy who buys analog cable. The entire digital platform in the eyes of noble rating agency has got only 11 per cent weightage. This is an anomaly which needs to be corrected.
Q. DTH will never become an ad revenue player would it?
It could. We are working on our home channel we are in the process of revamping and re launching our home channel and a lot of features around that service. I have captive 10 million people so I am looking how can I market or get advertisers to connect with my 10 million people on my platform. We have two or three channels we are revamping them and making them more interesting. We are making it something which will be really interesting to watch. We are working to try and unlock the ad revenue.I have two objectives; one is acquisitions - that is getting new people on my platform which is where I get my growth and try to get a large share and maintain leadership position by distribution. So that is the clear acquisition strategy driven by distribution expansion, by product innovation, by technology innovation and price range promotion and marketing- like any classic FMCG marketing exercise which takes major chunk organisation’s energies and investment. The other constituent that I have is to look at aremy existing subscribers who are on board and that number is large. So how do I do I make sure that I do service to these people properly which brings the whole gamut of customer services, touch points keeping these guys happy and also they are already a huge base. How do I actually monetise that base through revenue streams which we have not yet tapped - like advertising which has huge potential.