Indian DTH (Direct to Home) Industry An Economic Analysis

Managerial Economics Assignment

Indian DTH (Direct to Home) Industry An Economic Analysis

Prepared by: Prashant Vashishtha ePGP-03-055

Submitted to:

Dr. Kausik Gangopadhyay Indian Institute of Management, Kozhikode 16-Jan-2011

Indian DTH (Direct to Home) Industry An Economic Analysis

Contents
Contents..................................................................................................................... 2 Scope.......................................................................................................................... 3 DTH Industry An Overview.......................................................................................3 Structure of the Indian DTH Industry.........................................................................4 3.1 Pricing............................................................................................................... 5 Substitutes products for DTH offerings.......................................................................6 Complement products ...............................................................................................7 Entry barriers in DTH industry....................................................................................8 Recent entrants..........................................................................................................8 Conclusion.................................................................................................................. 9 References..................................................................................................................9

Indian DTH (Direct to Home) Industry An Economic Analysis

Scope
This assignment is mainly to understand the market structure of DTH (direct to home) industry in India. This paper also explains the various factors based on economic theories like current structure, various players, competition and the entry barriers.

DTH Industry An Overview

Long back we only had only one TV channel in India. Doordarshan was the only channel available for viewers and it was owned & controlled by government of India. Reception of signal used to happen via an antenna installed in every home with Television. Then with Cable TV Ordinance law passed in January 1995, cable operators started providing more channels to Indian viewers which were owned by private companies. This led to a momentous and huge growth in TV industry resulting in a lot of channels resulting in a big industry. But there were lot of issues with Cable Television which gave an opportunity for DTH industry to bloom in India. DTH is defined as the reception of satellite programmes with a personal dish in an individual home. Cable TV and DTH are two methods of delivery of television content. Cable TV is through cable networks and DTH is wireless, reaching direct to the consumer through a small dish and a set-top box. Although the government has ensured that free-to-air channels on cable are delivered to the consumer without a set-top box, DTH signals cannot be received without the set-top box. The rapid growth of DTH in India has propelled an exodus from cabled homes, the need to measure viewership in this space is more than ever; aMap, the overnight ratings agency, has mounted a peoplemeter panel to measure viewership and interactive engagement in DTH homes in India. India currently has 6 major DTH service providers and a total of over 20 million subscriber households in 2010. And these are: Dish TV(a ZEE TV subsidiary) Tata Sky(Joint venture between Tata and Rupert Murdochs Sky TV) South India Media Giant Sun Network owned 'Sun direct DTH' 3

Indian DTH (Direct to Home) Industry An Economic Analysis

Reliance owned BIG TV Bharti Airtel's DTH Service 'Airtel Digital TV' Public sector DD Direct Plus.

As of 2010, India has the most competitive Direct-broadcast satellite market with 7 operators vying for more than 110 million TV homes out of a Television population of 135 million. So as we see there is still a very vast scope for DTH in terms of market. All this when in 2006 we only had 1 Million as subscriber base for DTH in India. India is set to overtake the USA as the world's largest Direct-broadcast satellite market by 2012. DTH Player Dish TV Tata Sky Sun TV Airtel TV Big TV Videocon Market Share % 27% 24% 23% 12% 11% 3%

Structure of the

Indian DTH Industry

The structure of DTH industry in India can be categorized as OLIGOPOLY. As we know that Oligopoly is a market form in which few players dominate the entire market. As we saw in above section that we have few players in this market and major market share is enjoyed by some of them. These players dominate a very emerging market in India. Studies (Media Partners Asia) reveal that by 2012 India

Indian DTH (Direct to Home) Industry An Economic Analysis

would be worlds largest DTH market. By 2020 expected number of DTH subscribers in India is expected to be more than 60 million. So no wonder we have an Oligopolist structure in place for a market which still has to mature and these players are trying to gain more market share & dominate the industry with their unique offerings to customers. Some of the projection (very conservative) trends for DTH industry are as follow:

3.1 Pricing
Most of the DTH providers follow Third Degree of Price Discrimination as their pricing strategy. Pricing is something where these competitiors are fighting with each other aggresively to gain more and more market share in this emerging market. Each provider has different offerings of packages for consumers for same product. How it qualifies into third degree of price discrimination is in the form of packages (of channels) they offer at different prices.
DTH PACKAGE Titanium pack Child pack Platinum Dish TV Gold Silver South platinum South Gold South Silver D2h Gold pack Diamond pack NO OF CHANNELS 193 190 Shine Pack+1 free top up190 165 145 190 155 145 125 165 COST PER MONTH 332.5 165 312 210 125 312 190 125 150 275

Indian DTH (Direct to Home) Industry An Economic Analysis

DTH

PACKAGE Super value New value

NO OF CHANNELS 110 118 155 177 184 81 111 123 138 152 156 63 103 104 124 130 30

COST PER MONTH 127 160 221 304 364 90 + Taxes 135 + Taxes 180 + Taxes 225 + Taxes 270 + Taxes 315 + Taxes 160 200 225 275 120 300

Airtel

Economy Mega Ultra Value pack Bronze pack Silver pack Gold pack Diamond pack Platinum pack Super Hit pack Super Value pack Super Value Kids pack Super Saver pack Shine Pack+1free top up North Jumbo pack

BIG TV

TATA SKY

SUN DIRECT

Substitutes products for DTH offerings

Some of the substitutes for DTH are as mentioned below: Cable TV IPTV Terrestrial Television Conditional Access system (CAS) OnLine TV

Although it looks very odd to mention Cable TV as a substitute because DTH ate into the market of Cable TV as Cable TV was into existence well before DTH came in India. But now Cable TV operators have also started something called similar to what DTH does. Cable TV operators now offer set-top box for digital picture quality something similar to what DTH does but then again it has dependence on cable. If there is a power cut then you cannot watch TV even if you have your own inverter or generator as relay points from operator to your house also need to have power back-up. 6

Indian DTH (Direct to Home) Industry An Economic Analysis

IPTV is a service where television signals are digitally sent over the telecommunications line. It is often presented as a bouquet of Video (IPTV), Audio (Telephone) and data (Broadband Internet) services. With widespread adoption of broadband in India and the ever growing techno savvy population, IPTV has a potential to become a huge success. Telecom companies such as BSNL and MTNL have spotted these earning potential and have already started with trial implementation in cities like Bangalore and Kolkata. Companies like Reliance communications and Bharti Airtel are also planning to follow soon. And how can we ever forget the evergreen good old Doordarshan. Doordarshan is the worlds largest terrestrial broadcaster with over 1400 terrestrial TV transmitters. The reach provided by this route is phenomenal with Doordarshan covering 88% of Indias geographical area. Conditional Access System (CAS) is a technology where subscriber has the provision to choose the channels they wish to view. CAS requires the subscriber to buy settop boxes, something similar to what DTH has in place. CAS is mainly focused on the big cities of India. With ever changing developments of World Wide Web, we have something new for users and that is OnLine TV. Web 2.0 offers users to watch TV programs online. We already have some websites like this. e.g. www.tvdekho.com, www.indiatvonline.com. Another important economic phenomenon which might come into play in near future is Cartel. DTH industry is still in very nascent state. As we know that once a Oligopolistic industry starts to mature then sellers would think about Cartel to agree upon matters like pricing, industry output, market share etc.

Complement products
DTH & Cable industry are the complimentary goods for TV sales and vice versa. An increase in TV sales leads to more market and hence more penetration for DTH players. With economic prosperity, more consumers will buy televisions and hence further growth for DTH through complement product. Following figures will give us an idea about possibilities of DTH expansion in India (Rural & Urban) vis--vis TV penetration in these areas:

Indian DTH (Direct to Home) Industry An Economic Analysis

Entry barriers in DTH industry

DTH industry is a relatively high tech industry and requires lot of capital investment to start the business. Some of the entry barriers which exist in DTH industry are: High initial setup cost of satellite, transponder etc. DTH is a low margin industry Pricing has to be competitive against other competitors in DTH industry as well as against Substitutes to make inroads in unsubscribed base of DTH Packaging of content has to be spot-on to attract right customer base Long gestation and break-even period

Recent entrants
As DTH industry is at a very nascent stage and lot of market potential is there so its a very lucrative industry to get into. But most of the recent entrants are established corporate names in India. Latest entrant in DTH industry is Videocon D2H. Before Videocon entered the market other recent entrants were Reliance Big TV & Airtel Digital TV. Normally all of the DTH providers use the same technology and business delivery model for consumers but Videocon used a little different strategy. Videocon offered a new technology where if you go with Videocon D2H satellite TV then there is no need for set-top box. These TVs have the inbuilt set-top box to get signals directly from satellite. This offering was an addition to the normal set-top box based approach. Also Videocon offered very competitive price on its packages compared 8

Indian DTH (Direct to Home) Industry An Economic Analysis

to the existing DTH providers. Videocon has already touched 2 Million subscribers in India.

Conclusion
DTH industry is a high competition Oligopolistic market where all the providers are vying for more market share. It has huge potential but at the same time entry barriers and operating mechanism is not easy for everyone to start venturing into it. DTH industry in India, although a fast growing industry needs to watch out for the substitutes in long run. Pricing is one big factor which ensures your market share in India. And most of the Indian consumers are very price elastic if quality of service is same from different sellers.

References
http://en.wikipedia.org/wiki/Satellite_television http://en.wikipedia.org/wiki/Television_in_India http://www.pluggd.in/dth-industry-in-india-analysis-297/ http://www.indiadth.in/ http://sivasundaram.com/wp-content/uploads/2007/08/dth-industry-inindia.pdf http://www.saveondish.com/forum/dth-players-with-market-share-t17564.html http://www.dataxisnews.com/?p=18701 http://economictimes.indiatimes.com/news/news-byindustry/media/entertainment-/media/India-to-be-worlds-biggest-DTHmarket-by-2012-Study/articleshow/5840938.cms http://www.indiantelevision.com/dth/dth12.htm http://www.ximb.ac.in/ximb_journal/Publications/Article-12-13.pdf

Indian DTH (Direct to Home) Industry An Economic Analysis

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