On 17 May, a Tuesday, even as the new information and broadcasting ministry secretary SK Arora, after taking over from his predecessor Navin Chawla, was telling journalists around 3:30 p.m. that two direct-to-home (DTH) television service applications — that of Space TV and Sun group —- had been cleared by the government for necessary issuance of formal letters of intent (LoI) in “a couple of days time”, his office staff were quietly calling representatives of the two companies almost at the same time, asking them to collect the (LoIs) from the ministry.

As reporters from wire agencies and online media portals scrambled to flash the news, a PR agency in Mumbai issued a release around 6:30 p.m. on behalf of Tata-Star joint venture Space TV that a LoI from the government has been obtained, paving the way for formal work to start on the launch of its estimated Rs 16 billion DTH service in India.

It comes as a surprise, though, that Space TV had a release ready in a few hours time, which must have been done in consultation with the Hong Kong based Star Group. The speed at which the official statement was issued to the media, including a posting on Star TV’s official website, does raise one very interesting question, amongst several others: did by any chance, Star and Sun know about the evening developments beforehand?

I&b minister Jaipal Reddy

Indiantelevision.com learns from I&B ministry sources that minister Jaipal Reddy had signed the relevant files a few days before, after which he left for the Cannes Film Festival to take part in various events that had been lined up by the Indian contingent (where India did not have much to offer in form of creativity it needs noting).

A senior ministry official later admitted that the government was “playing it safe” and did not want to commit anything till the LoIs had been delivered to the parties concerned and that’s why Arora did not make a mention of it in his briefing to journalists.

Given India’s penchant for filmi antics in cases most serious — like placing international contracts for airplanes for the national carrier — it’s no wonder that the DTH story, involving Space TV and South India-based Sun group, has all the ingredients that make for good Bollywood potboilers — intrigue, suspense, politics and, above all, flexing of financial muscle.

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The LoI, to be followed by a formal license, will enable Space TV, an 80:20 joint venture between Tata Sons and Star, to commercially launch its DTH service. Target: end of 2005 or at least by early 2006. Ditto for Sun, though the project cost is not estimated be as high, as per Sun TV head honcho Kalanithi Maran’s own admission earlier to Indiantelevision.com.

There must have been some relieved souls in the Tata and Star groups as a delay in the application’s clearance was threatening to take a toll on the career prospects of quite a few. When told that the government had issued the LoI, a senior Star India executive exclaimed with relief, “Finally, at last!”

While Space TV CEO Vikram Kaushik maintains the company is “fully committed to invest in building a high quality digital infrastructure in the country to offer a world class television viewing experience” to Indian households, enhancing viewers’ choice, Maran, son of the late DMK party heavyweight Murasoli Maran, remains “cautiously optimistic.”

Zee Telefilms C&MD Subhash Chandra

Before both Space and Sun can achieve their goal however, they have some catching up to do first. The country’s first private sector DTH service Dish TV, 20 per cent owned by the Subhash Chandra-controlled Zee Telefilms, has had a clear head start (claimed subscriber base over 225,000) since its launch in October 2003, while public service broadcaster Prasar Bharati, having launched its subscription less DTH platform, DD Direct+, in December 2004, is rubbing its hands in glee as it says subscriber base has swollen to over 1.5 million and counting.

THE STORY TILL NOW…

But why this noise about DTH, in general, and the two companies that recently got the green signal from the government?

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Forget anything else. In the long run, DTH could emerge as a viable business proposition as KPMG associate director Anindya Roy Choudhury points out, “The next phase of home entertainment setting will be the new distribution players, DTH (service providers).”

Considering the chaotic situation of cable TV distribution in the country and, unlike in the UK, the lack of options in terrestrial broadcasting where pubcaster Doordarshan has a monopoly, DTH is seen by broadcasters and businesspersons as an avenue to build a profitable venture.

Despite regulatory impediments in the DTH segment, Hong Kong-based research and analysis firm Media Partners Asia (MPA) feels at stake are a potential 7.2 million DTH subscribers by 2010 (6 per cent of total TV households and 10 per cent of total cable homes), and a revenue pie worth Rs 17.4 billion. “On a base of 11.8 million subscribers, the market could grow to over Rs 45 billion by 2015,” MPA has stated in a recent report.

And, it’s this financial angle that has probably seen DTH get mired in controversy since Star first mooted a service in 1997. Felt slighted by Star’s mega promotional blitz of its DTH service under the ISkyB brand name even as some regulatory framework was being proposed by policy-makers in the late 1990s, the then government slapped a ban on the reception of KU-band signals (or DTH services) in the country. Incidentally, Reddy was the I&B minister then also, but representing a different political party.

In 2004, when Tata-Star re-applied for a license, domestic media houses allegedly led Zee Telefilms, raised questions over the structure of the company that would manage the service. And, the much-used arguments of “national security could be compromised and pornography could permeate into Indian households” were again raised.

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Agreed, Star had tried to pull a fast one by putting ‘dummy‘ candidates in Space TV in an earlier avatar of the company in 2003. Still, the unity shown by domestic media companies and Indian policy makers was something strange.

In 2004, Star tied up with the Tatas hoping to get an early clearance by applying afresh. But it was not to be. First the general elections marred their chances and a change of government in Delhi added to the woes as the present government went about scrutinizing the Space TV application with rare zeal.

Zee Telefilms additional vice-chairman Jawahar Goel

Still, Zee Telefilms gamefully denies allegations of trying to block or delay Star’s entry into the DTH arena. “Similar questions have been raised in Parliament over the last one year and the I&B minister(s) has adequately replied to such queries,” Zee Telefilms additional vice-chairman and younger brother of Subhash Chandra, Jawahar Goel, says, adding, “Why should we be bothered about other people’s business? We are concentrating on ours and the result would be there for everybody to see.” Short-term target: 500,000 subscribers by September.

AND, NOW THE FUTURE

Why this rush for DTH applications? Especially when global trends indicate for a service like DTH, monopoly is an ideal situation, while duopoly would work. Even in a developed market like the US, the two big DTH players are EchoStar and Rupert Murdoch-controlled DirecTV.

But in India, with the clearance of Space and Sun’s applications, it would amount to four DTH players. Not to mention, two more applications — those of the Dr JK Jain-promoted Software Technology Park and Essel Shyam — still pending with the government. And, four players would mean hectic activity and more action.

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CEO of New Era Entertainment Network Limited Sunil Khanna

With Space TV and Sun being given the initial green signal, the country’s first private sector DTH service, Dish TV, is gearing up for intense competition, though Sunil Khanna, CEO of New Era Entertainment Network Limited (NEENL), which manages Dish TV, asserts that the focus is on their own business rather than thinking of the competition and their would-be services.

“At the moment, we are focusing on increasing our subscriber base. Once competition comes in, the market will further open up. But by that time, we would have had a solid foundation,” Khanna explains.

In its effort to further penetrate into untapped areas, Dish TV is pulling out all the stops. Sample some of the initiatives: the hardware cost (inclusive of a year’s subscription) has been slashed by about 50 per cent to Rs 3,990; company’s DTH equipment are being also sold through electronics goods shops that display hi-end gadgets like plasma TV; subscriber management system is being spruced up for a more efficient after sales service and value-added service like video-on-demand are being readied for subscribers.

Dish TV’s mobile DTH

In Delhi alone, there are 120 outlets where Dish TV equipment is displayed for sale along with modern premium electronics goods. India-wide, such outlets would number over 2,000. Not to mention the aggressive promotional activity where Dish TV’s mobile DTH service , mounted on moving vehicles, is crisscrossing the country highlighting the benefit of such a service even for long distance plying vehicles like tourist’s buses.

“Our new scheme (of reduced hardware cost) is already resulting in 2,000-3,000 subscribers being added daily on an average and during the festival season (October-December) we expect DTH sales to increase like any other FMCG by between 50 to 100 per cent,” Khanna points out, adding that the target is to achieve a million plus subscribers by FY ’06 end (31 March, 2006).

In a smart move, Dish TV has not only brought down the entry level to affordable levels in a rice-sensitive market like India, it is also using the time that would be taken by competition to start their services (Space is targeting a year-end launch) to hand out sops in the form of various schemes. For example, though Dish TV has tiered services, any new subscriber for a year can buy Dish services for either Rs. 3,990 for 75-odd channels (depending on regional variants) or can pay another thousand rupees extra to get the entire bouquet of TV and radio channels on offer, which number around 120.

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The marketing aspect is important, KPMG’s Choudhury points out, as “competition between the DTH players will trigger a price war.” Concurred another market analyst, who follows media companies like Zee Telefilms closely, DTH service providers would “have to have compelling reasons for the cable consumers to switch.”

With Dish TV ready to up the ante, it does make it a difficult wicket to bat on for the competition. For example, during a conference call with investors to discuss Q4 FY 2005 earnings, Zee stated that the subsidy amount in its new (DTH) package is between Rs 700 – Rs 800 per subscriber.

If Space TV, for instance, matches Dish TV’s subsidization spree, it could be a worthy competition. However, MPA feels Space TV may not be as aggressive with subsidies if its 80 per cent controlling shareholder Tatas (a conservative group) is “opposed to heavy subsidies and is uncomfortable with absorbing cash flow losses.”

What does Space TV have to say about competition and its services? Not much at the moment. In an interview with Indiantelevision.com, Space TV CEO Vikram Kaushik points out that this was an “evolving industry, (and) details of our service will be decided and announced closer to the time of launch.” (Kaushik Q&A)

But Space TV is not sitting idle, the Tata Group’s conservative approach to business, notwithstanding. Putting in place key personnel for the proposed DTH venture has been going on quietly.

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For example, Virender Ahluwalia is the present operations head of Space TV, while Yigs Riza, a person from Hong Kong, has been on deputation from Star for the last 18 months as the technology head. Without divulging much details, Kaushik admits, “Key functional heads, including international talent, have been in place for a while.”

Information available indicates the company currently is busy putting in place the distribution and sales team. As of now, the teams that have been designed include those pertaining to installation, sales and quality control. Each team from the three segments will be headed by supervisors who will report to branch managers or state heads. In the initial phase, all the states of India are not being simultaneously targeted. These state managers will report to regional heads who, in turn, will report to the national heads.

The company is also not averse to getting back some of the talents in the distribution and marketing team who were with Star India earlier when the Rupert Murdoch company had its own DTH division in the mid-1990s.

Keeping in line with the Tata conservatism — and, of course, the controversies surrounding DTH — Space is mum on even the formation of the board. However, Indiantelevision.com does learn that

Newscorp chairman Rupert Murdoch

on the 10-member board of Space TV, eight representatives would be from the Tata side, while two would be from Star Group. One of the obvious persons to be on the board is Kaushik, but it is not clear whether both Star Group CEO Michelle Guthrie and Star India CEO Peter Mukerjea would be board members too.

It is also being said that the chairman of the Tata group, Ratan Tata, may be the chairman of Space TV to lend it weight — the same way as Indian media baron Aveek Sarkar of ABP Ltd is chairman of MCCS (Media Content and Communications Services India Pvt Ltd), the parent company of Star News.

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That the service cannot be launched before year-end is quite evident. Not just because other logistics need to be put in place, but because the Space TV service — a new brand name for the service has not been finalized yet — is scheduled to be beamed from an Insat 4 series satellite, which is slated to be launched by September, where about 10 transponders have been booked for lease.

Indian Space Research Organisation director (contracts-marketing) SB Iyer confirmed that most DTH players, including Space TV and Sun, have booked KU-band transponders on Insat satellites 4A, 4B and 4C, all to be launched soon.

The uplinking of the Space TV’s service would be done from Delhi’s Chattarpur area (near Qutub Minar) where the Tata-controlled Videsh Sanchar Nigam Ltd (VSNL) has a hub and the DTH encryption technology would be of NDS, which is a Murdoch-owned company.

Sun Network chairman & MD Kalanithi Maran

Very little information is available on Sun’s proposed DTH service, though it is estimated that Kalanithi Maran might come up with a DTH platform that is looking at bunching all the South Indian language channels together.

Commenting on the revenue viability of a regional DTH platform, Lodestar‘s media director Arpita Menon says, “The regional DTH platforms would result in more of a market expansion as they would be targeting different geographical regions.”

In the meantime, DD Direct Plus too has come up with an incentive scheme with reduced cost for its hardware.

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THE REGULATORY HICCUP

What could make things difficult for Space, Sun or any other prospective player is the ‘must provide‘ legislation. MPA points out that such a mandate is not only unprecedented, but “could commoditize the business of programming with significant implications for the price or sanctity of content.”

Yes, this part of the sector regulator’s emphasis on non-exclusivity and making available all content to all platforms on a nondiscriminatory basis would pose a big challenge for a DTH service provider.

Pointing out that DTH players would have to “bundle both good content and price” to gain pace in the space, KPMG’s Choudhury opines that premium content offerings like Bollywood movies and cricket would be a significant consumer-pull in comparison to the traditional cable offerings. Zee Telefilms had earlier pinned much hope on cricket to drive pay subscriptions and also its DTH offering.

Essel Group’s corporate affairs CEO Rajiv Garg

Agrees Essel Group’s corporate affairs CEO Rajiv Garg, who is now associated very closely with Dish TV, “Premium content and value added services like video-on-demand, gaming and interactivity would definitely create a pull. We are finalising these services too.”

But with Star and Sony having refused to give their channels to Dish TV, would Zee and the Zee Turner bouquet give its channels to Space TV so easily? This issue has not been lucidly addressed by the sector regulator or the government as yet.

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The Telecom Regulatory Authority of India mandated that all channels should be made available to all platforms without any discrimination, but has failed to have the rule enforced in the case of Dish TV, which had to move a disputes tribunal against MTV’s resistance to be part of its platform. Also irritating would be the Trai diktat that no DTH service provider could have exclusive content.

Murmurs have already started surfacing in the industry. While Space TV has started negotiations with “most major broadcasters” for their content to be available on the proposed DTH platform, broadcasters like NDTV now want their pound of flesh.

Until now, NDTV channels have been on the present DTH platforms on an “informal and non-commercial basis”, but as a company executive says, having turned pay, it would like more subscription revenues to flow in, which may include revisiting the NDTV-Dish TV agreement.

Media mogul Rupert Murdoch

Though an interesting episode in the Indian DTH chapter has come to an end with the granting of recent LoIs (a media journalist exclaimed, “Sadly, one less issue to write on now!”), further politicking flaring up the issue cannot be ruled out.

When proposed services start to get rolled out in a price sensitive market like India, questions on inter-operability of set-top boxes, as mandated by the government, may be raised adding another dimension to the already vexed and complex DTH issue.

What is it they say about the gap between the cup and the lip?

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(With additional inputs from Taro W in Bangalore)

(On 25 May 1 USD= Rs. 43.50)