New Delhi: Airtel Digital TV, which began offering direct-to-home (DTH) services in October, is building up its subscriber base by targeting viewers outside the big cities that provide the bulk of customers for market-leading rivals such as Dish TV and Tata Sky.
“Most of the business has started to come from very rural and semi-urban areas,” said Ajay Puri, director and chief executive, DTH, at Bharti Airtel Ltd. “The top 100 cities contribute to only 30% of our revenues.”
Graphics: Sandeep Bhatnagar / Mint
Airtel Digital TV had about 1 million of the total 15 million net installed DTH subscribers as of July, according to media research firm Media Partners Asia (MPA).
The company, likely to add a net 1.4 million new DTH subscribers by December, according to MPA, is going against the conventional wisdom of seeking to convert customers of cable TV services in the larger urban agglomerations.
“We think the DTH market is far beyond cable,” Puri said. While “there are 80 million cable households, there are another 50 million without cable. That’s a ready-made market waiting for DTH”.
Airtel’s plan aims to take advantage of the reach of its phone services, said Farokh Balsara, partner, advisory services, Ernst and Young India Pvt. Ltd. Bharti Airtel is India’s biggest telecom company, with 105 million users as of 31 July, according to the Cellular Operators’ Association of India (COAI).
“It makes sense for them to start from the semi-urban and rural areas given their reach in these places through their telecom business,” Balsara said. “Since there is no cost of laying cables or other capital-intensive infrastructure, they have an edge over traditional cable networks.”
Airtel can take advantage of markets where people have disposable incomes, without the entertainment options available in the big cities.
“You will be surprised how much people in semi-urban and rural areas are willing to spend,” Balsara said. “The idea for them right now is to get as many subscribers as possible on their network. With incumbent players dominating the urban markets, it makes sense.”
Puri agrees that Airtel’s target is to maximize customers.
“We have got our network, our own transponders, our own brand, our own set-up, so we are here to take the share that is due to us,” he said.
Market leader Dish TV, set up by Zee Entertainment Enterprises Ltd, was the first private company to start DTH operations in India in 2005. At the time, the company had to avoid the big cities because it didn’t have all the popular channels on its platform.
Dish TV had no option but to launch in the semi-urban and rural areas, said chief operating officer Salil Kapoor.
“We did not have Star and Sony content so it did not make sense for us to launch in urban areas,” Kapoor said. “Therefore we targeted cable-dry areas.”
Dish moved into the urban areas quickly, once it got the bouquet of channels right, using Bollywood star Shah Rukh Khan in its advertisements to sell connections. Khan still features heavily in the Dish TV ads.
“Urban markets are critical, due to the easier conversion of customers who are used to television and cable but want better value for money,” Kapoor said. “The average revenue per user is also much higher and makes business sense in terms of higher revenues.”
Dish TV gets around 60% of its customers from the top 100 cities and towns, he said.
“We already have our footprint in the areas that other players are trying to get into,” Kapoor said.
Tata Sky, the second largest DTH operator with 4 million subscribers, is confident about its strategy of targeting big cities.
“Large markets are sound ground for us. Therefore, our focus lies in these markets,” said Vikram Mehta, chief marketing officer, Tata Sky. Half of “our revenues come from the top 50 towns and cities alone...”
Tata Sky, which features Bollywood star Aamir Khan in its commercials, says the actor has helped expand outside the main urban areas.
“It’s only when Aamir Khan was brought in as our brand ambassador, after 15-odd months of operations, that we started expanding to relatively smaller markets,” Mehta said. “It all depends on the company’s strategy. According to us, the consumer wants value. We will not go after the consumers who only want basic services.”
The Reliance-Anil Dhirubhai Ambani Group’s Big TV, which started services in August 2008, has a similar strategy. It gets nearly half its 1.8 million subscribers from the top 110 cities.
The company is stepping up the campaign to wean away cable customers with a new marketing drive in the country’s top 50 cities, which, according to Umesh Rao, chief marketing officer, Big TV, contribute 35% of subscribers.
In “each of these cities, the largest share will come from the cable homes. The biggest challenge is to communicate with these consumers”, Rao said. “The bottom line is that we cannot offer consumers the same price that a cable operator does, so we are setting up service camps and targeting housing societies.”
Sun Direct, present mostly in the southern states, has 3.8 million users, having launched in December 2007. The company did not reveal how much revenue it gets from the top 100 cities.
The four states of Tamil Nadu, Kerala, Karnataka and Andhra Pradesh account for 70% of subscribers, a company spokesperson said.
Research company MPA points to the inviability of current subscription rates, as low as Rs70 a month in some areas. Average revenue per user, or Arpu, in the DTH business is already low at Rs160, MPA says.
“This is not sustainable in the long term,” the MPA report said. “The combined losses of the DTH industry for 2008-09 were $450 million (around Rs2,200 crore today).”
Against the annual average revenue per user of Rs1,900, the subscriber acquisition cost is put at Rs2,500 with the content cost at Rs850 per connection, according to the MPA.
“In the initial phase, the land grab strategy might work,” Kapoor said. “But it is essential to have a balance between rural customers and high Arpu-yielding urban customers.”
Still, Airtel’s Puri said the company’s current focus isn’t hurting it.
“Our basic services come at a cost of Rs125 per month, which is perfectly fine average revenue per user for us,” Puri said.
“Even in this lean period, the market is starting to gain 700,000-800,000 customers a month,” Puri said, while declining to give the exact number of subscribers on Airtel Digital’s network.
In the past 3-4 months, every fourth DTH customer has been picking Airtel, Puri said. Across regions, excluding the south, every third customer is on the Airtel platform, Puri said.
“Our entire go-to-market strategy—brands, communication, distribution—seems to be paying off,” Puri said about the company’s rural push.