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PROJECT REPORT ON

TATA SKY
Submitted To
Prof. Trilochan Tripathy
In
Partial Fulfillment of the Course Requirements of
Managerial Economics
During June – September, 2009

Submitted By
Amitoj Kaur(09BSHYD0079)
D.Anvesh(09BSHYD0236)
Manisha Mittal(09BSHYD0429)
Unadkat Mansi Niranjan(09BSHYD0940)
Sumit Saini(09BSHYD0880)
Vivek Kr. Bhutania(09BSHYD0991)
Y.V. Sai Shanmukha(09BSHYD0999)

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CONTENTS
1. Objective ………………………………………………………………………………4

2. Why DTH Sector ……………………………………………………………………...4

3. Background of television industry …………………………………………………….5

4. DTH industry – An Overview ………………………………………………………...6

5. Company Analysis – Tata Sky ………………………………………………………..8

6. Factors for growth of Tata Sky ………………………………………………………..9

7. Pricing ………………………………………………………………………………..10

8. Tata Sky Financial Status …………………………………………………………….12

9. Product Comparison Across the DTH Industry

9.1 Tata Sky ………………………..………………………………………………..14

9.2 Big tv ….………………………..………………………………………………..15

9.3 Airtel Digital tv …………………..………………………………………………16

10. Product Differentiation ……………………………………………………………....17

11. Promotion Strategies of Tata Sky …………………………………………………….20

12. HHI Index …………………………………………………………………………….22

12.1 DTH industry – Market Structure ……………………………………………….23

12.2 Features of Oligopoly ……………………………………………………………23

13. SWOT Analysis for Tata Sky ………………………………………………………...24

14. Porter’s 5 forces model ……………………………………………………………….25

14.1 Threat of Substitutes …………………………………………………………26


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14.2 Bargaining Power of Suppliers ………………………………………………28

14.3 Bargaining Power of Buyers …………………………………………………29

14.4 Rivalry among Competitors ………………………………………………….29

14.5 Threat of New Entrants ………………………………………………………30

15. Customer Base – Comparison across the industry …………………………………...31

16. Challenges for the industry …………………………………………………………..32

17. Recommendations ……………………………………………………………………33.

18. References ……………………………………………………………………………34

1.OBJECTIVE

The objective of our project is


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• To analyze the economics of Tata Sky Ltd.

• To analyze the Indian DTH industry.

• The project is also aimed at studying the different strategies followed by


Tata Sky

• How Tata Sky is increasing its customer base, especially at a time when
there is tough competition in the Indian DTH industry?

• We would be studying the challenges and opportunities present before


Tata Sky in Indian DTH industry.

• We would be analyzing the cost structure of Tata Sky, and would be


comparing it across different other players in the market.

• The project also gives us the scope to study the extent of dominance of
Tata Sky in the market using HHI index.

2.WHY DTH SECTOR?

DTH is a very attractive sector, on growth front, it has huge opportunities and companies will act
aggressively to garner subscribers as it happened in mobile space. Only 5 million homes have
DTH connections out of 75 million cable households in India. This is a positive aspect for this
sector.

This sector offers huge investment opportunities for long term investors , and with coming up of
new companies in this sector , it is very interesting to see how these companies react to each
others’ strategies and how far they are successful in penetrating the market.

DTH companies need to invest heavily in the initial years and breakeven point is also high, the
fixed cost that a company incurs in this sector includes the license fee, transponders fee, uplink
charges, content charges, etc thus Customer acquisitions skills assume a very important role in
this sector which makes this sector a very interesting study.

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3.BACKGROUND

As India is making rapid strides in terms of growth, and the average Indian’s disposable income
and purchasing power rising to a never before level, there is sense of growth prevailing
everywhere and the Indian entertainment and media industry is not far behind. It is currently
estimated at Rs 450 billion with a CAGR of 18 % over the next 5 years.

To begin with, there was only one TV channel in India, “Doordarshan”, which was owned and
operated by the government of India. In that era, every home which had a TV set, used to have
its own antenna to capture the signals.

With the liberalization of Indian economy from the License Raj in 1992, major initiatives like
inviting foreign direct investment and deregulation of domestic business led to arrival of foreign
channels like Star TV and creation of domestic satellite channels like Sun TV and Zee TV.

In 1992, the Cable TV industry started. With the increase in number of channels as the outcome,
it literally changed the way the average Indian watched the television. Until few years back,
there were as many as 1 lakh cable operators across India. However the services provided by
them were poor. There were strikes, changes in tariff plans, selective broad cast which caused
dissatisfaction amongst the customers.

This created market for the DTH (Direct-To-Home television). DTH is defined as the reception
of satellite programmes with a personal dish in an individual home. DTH service involves
distribution of multi-channel TV programmes.

DTH does away with the need for the local cable operator and puts the broadcaster directly in
touch with the consumer. Only cable operators can receive satellite programmes and they then
distribute them to individual homes.

A DTH network consists of a broadcasting centre, satellites, encoders, multiplexers, modulators


and DTH receivers. A DTH service provider has to lease Ku-band transponders from the
satellite. The encoder converts the audio, video and data signals into the digital format and the
multiplexer mixes these signals. At the user end, there will be a small dish antenna and set-top
boxes to decode and view numerous channels. On the user's end, receiving dishes can be as small
as 45 cm in diameter.
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4. DTH INDUSTRY – An Overview:

DTH services were first proposed in India in 1996. But they did not pass approval because there
were concerns over national security and a cultural invasion. In 1997, the government even
imposed a ban when the Rupert Murdoch-owned Indian Sky Broadcasting (ISkyB) was about to
launch its DTH services in India.

Finally in 2000, DTH was allowed. The new policy required all operators to set up earth stations
in India within 12 months of getting a license. DTH licenses in India cost $2.14 million and will
be valid for 10 years. The companies offering DTH service will have to have an Indian chief and
foreign equity has been capped at 49 per cent.

Today, broadcasters believe that the market is ripe for DTH. The prices of the dish and the set-
top box have come down significantly. Overall investments required in putting up a DTH
infrastructure has dropped and customers are also reaping the benefits of more attractive tariffs.

The major thing that DTH operators are betting on is that the service is coming at a time when
the government is pushing for CAS (conditional access system), which will make cable
television more expensive, narrowing the tariff gap between DTH and cable.

Some of the features of DTH service are as following:

• DTH offers better quality picture than Cable TV.

• DTH can reach remote areas where terrestrial transmission and cable TV have failed to
penetrate.

• DTH has also allows for interactive TV services such as movie-on-demand, Internet
access, video conferencing and e-mail.

• In DTH, the payments will be made directly by the subscriber to the satellite company
offering the service.

• In DTH, the payments will be made directly by the subscriber to the satellite company
offering the service.

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India currently has 6 major DTH service providers and a total of over 5 million subscriber
households.

• Tata group and Star network owned Tata Sky

• Zee group owned Dish TV

• Sun network owned SUNDIRECT DTH.

• Reliance owned BIG TV

• Bharti Airtel’s DTH

• DD Direct Plus

India - DTH Potential

DTH to grow from 3.2 mn in 2007 to 43 mn by 2015, with 30% share of Pay TV

TVHouseholds PayTVHHs PayDTHHHs


180
111
111
160 111 111
111 111
140
111
120 111
100
80

60
11 11
40 11
11
20
-
1111 1111 1111 1111

Source : MPA report, 2009

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5. COMPANY ANALYSIS – A Birds view of Tata Sky:

Tata Sky launched its services pan-India in August 2006. It resulted as a joint venture between
the TATA group and the STAR group. Within a short span of time it garnered a subscriber base
of nearly 2.5 million (Aug 2008). It has over 147 channels to choose from. Tata Sky has
launched an entry-level subscription plan called ‘Super Hit Pack’ at Rs. 99 per month with a
bouquet of 53 channels.

Tata Sky recently launched Tata Sky Plus which uses the personal video recording (PVR)
technology that allows consumers to record live. It is available at a price of Rs. 8999/-

Tata Sky, though a late entrant created a mark as a first mover in the minds of the customers, as
it was the first DTH service to be advertised in India. Few salient features of the company are:

• Strongly innovative product offerings – Tata Sky has taken the responsibility on itself to invest
in more interactive services to differentiate it from other service providers. It was the first DTH
company in the world to offer its subscribers interactive VAS under the umbrella.
• Kick started the category advertising - Although it was the 3rd player to enter the market it
sought to create consumer education about the category with focused advertising.
• Focus on heritage – Tata Sky latest campaign features superstar Aamir Khan. The focus of the
campaign was to establish the lineage of Tata Sky and inform potential customers about Sky.
• Low cost packages to increase penetration - Tata Sky has recently introduced a Rs 99-a-month
low-value pack for 53 channels to increase penetration of Tata Sky in smaller towns of the
country.

• Tata Sky has also gone a step further and enhance the service delivery by introducing an
electronic program guide (EPG) in Hindi especially for people in small towns who are more
comfortable with Hindi. This is the new quality standard for Indian pay TV against which other
companies as well as future entrants will be judged.

• Tata Sky is collaborating with HUMAX and THOMSON to increase availability of Set Top Box.
These Set top boxes are being supplied with the help of local manufacturers.

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• Tata sky, in order to increase its rural penetration, has tied up with ITC e-Choupal and Godrej
Aadhar.

• For Effective distribution Tata Sky has tied up with ITC international Business Division.

• With the adoption of 360 degree marketing campaign which includes television, print, outdoor,
radio, on ground activities, Tata sky has been able to pursue marketing on a digital platform.

6. KEY FACTORS OF GROWTH FOR TATA SKY:

The 3 major reasons for growth of Tata Sky that can be explored are:

a) SUPERIOR PICTURE QUALITY


1
Unlike analog cable, Tata Sky subscribers can view TV through superior digital DVD quality
picture and CD quality sound
2
b) WIDE ARRAY OF INTERACTIVE APPLICATIONS

In order to empower the Indian viewer with choice, control and convenience Tata Sky has a wide
array of programming choices and interactive services like Active Cooking, Active Wizkids etc.
that can be ordered with any of the basic packages. This service is being provided in association
with 24 X7 guru.com. The customer is not going to stay forever with the package he subscribed
to initially, he should be encouraged to subscribe to other packages and value added services
quickly to increase revenues. These applications are expected to do well given that in India TV
viewing in India is done as a family.

c) UNPARALLELED CUSTOMER SERVICE

Tata Sky has established an extensive customer service network across the country. It has
engaged a field force of approximately 3000 service engineers who are complemented by high-
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end 24x7 call centre’s, manned by multi-lingual customer service associates, trained to solve all
customer problems.

Tata Sky takes direct responsibility for installing and servicing the hardware for periodic
problems that exist at every subscriber's home, thereby ensuring the highest levels of customer
service. Tata Sky retails its hardware and prepaid recharge vouchers through popular consumer
electronic stores to enhance customer convenience

7. PRICING:
The prices of the key brands in the category are as follows:

Contents Tata Sky (South Jumbo Pack) DIS Dish TV


Rate per 310 325
month
(Rs)
No. of 128 119
channels
Re Hindi movie channels, Hindi GEC, News GEC, English GEC, News- Hindi,
Channels channels Hindi and Business, kids English and business, infotainment
Available channel, English GEC, music channels, channels, lifestyle channels, music
lifestyle channels, infotainment channels, channels, Hindi and English movie
English movie channels, DD channels channels, sports channels, kids channels,
regional channel, DD channels

From the above table it can be inferred that:


• The price per month of Tata sky (South Jumbo Pack – Rs. 310) is less than that of Dish TV (Rs.
325) hence providing more benefits in terms of cost to its customers.
• Number of channels that Tata Sky is providing (128) is more than the number of channels being
provided by Dish Tv (119). At less prices Tata Sky is offering more services hence, providing
value for money services to the customers.

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Tata Sky

From the above table it can be interpreted that:


• The price range of various packages of Tata Sky, vary from Rs. 99 to Rs. 310. With the help of
this they could target lower-end customer as well as the higher-end customers.
• In different packages Tata Sky provides a variety of channels. The lowest number of channels
being provided are 53 (Super Hit Pack) to 128 channels ( South Jumbo Pack).
• Tata Sky provides a vast variety of channels and services to its customers. The channels offered
are different in different packages.
• Tata Sky also provides cost saving economic packages like family and Value packs.

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8. TATA SKY FINANCIAL ANALYSIS:

Assumptions:

• ARPU increases from Rs 190 to Rs 470 in 2010-11


• Revenues increases @ CAGR of 112% till 2010-11
• Expenditure reduces from 180% to 75% till 2010-11
• Debt : Equity reduces from 2:1 to 1:2 till 2010-11

From the above table the following interpretations can be made:

• The total revenues of Tata Sky have been continuously increasing from 0.19 million in FY 2007
to .845 million in FY 2009.

• The company is expected to generate revenues of 3.838 million in FY 2011.

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• A significant increase in the company’s assets can be observed, that is, from 1000 in the year
2007 to 1769 in the financial year 2009. The company is expecting an increase in the total value
of its assets to 3000 in the financial year 2011.

• A significant shift in the EBITA Margin of the company, from negative in FY 2007 to 25% in
FY 2010, is being expected.

• The profit after tax is also expected to shift from -355 in FY 2007 to 358 in FY 2011

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• Hence it can be concluded that the company has been showing a good performance in terms of
revenue generation. The company is expecting a breakeven by financial year 2011.

9.TATA SKY, DISH TV, AIRTEL DTH, RELIANCE BIG TV: PRODUCT
COMPARISON :

9.1 TATA SKY

Tata Sky Features:

• Joint venture with International DTH Brand-Sky, famous for its exquisite technology.
• Uniform volume level across all channels
• Stable set-top-box with less bugs or issues
• Provides good Customer service and after-sales support
• Exclusive access to some authentic international channels like BBC entertainment, Ceebebies

Tata Sky Product Review :

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• Tata Sky has made constant innovation and technology enhancements which are the main
reasons that the company could provide a very stable set top box.
• As a result its customers have to worry less about the maintenance issues regarding the Set-Top
Box.
• Another important feature which can be of great value to the customer is - the uniform volume
level across all channels.
• This feature ensures that the customers don’t have to waste time on adjusting the volume levels
as they surf the channels.
• Tata Sky has customized its packages which enable the customer to choose and pay for only
those channels which they require.
• Tata Sky provides excellent picture/audio quality.
• Tata Sky also provides installation services within 24 hours of the purchase of the product.

9.2 RELIANCE BIG TV

Reliance BIG TV Features:

• Reliance Big TV uses MPEG-4 technology which can carry more number of channels
• Good picture and audio quality
• The company makes its packages cost effective by providing lots of channels in base pack itself.
• It also provides a feature of viewing 12 channels at a time on single screen
• Good performance even during the monsoon season.

Reliance Big TV Product Review:

• Reliance BIG TV is a cost-effective service whose base package comes with large number of
channels.
• The customers get to select regional package based on their language/regional/cultural
preferences.
• This entitles the customer to get an option to make a package having base package and any one
of the regional languages like kannada, malayalam, telugu, hindi/Punjabi or oriya/bengali
packages.

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• The set-top box of Big TV is little unstable. This acts as a disadvantage for the customers
• For the installation of the set-top box the customer has to wait for 3-4 days from the time of
purchase

9.3 AIRTEL DIGITAL TV

Airtel Digital TV Features:

• Airtel digital tv has good DVD Quality picture and CD quality


• It provides a universal remote which works both with TV and Set top box
• One of the major features of Airtel digital is that it exclusively offers World-space satellite
radio channels.
• The set-top box provided by Airtel Digital is Sleek and stylish
• It provides better connectivity as provides a larger dish antenna

Airtel Digital TV Product Review:

• Although Airtel Digital is a late entrant in DTH space it has come up with a completely
flawless DVD quality picture and sound.
• At the time when the other players were providing different remotes for set top box and
television , Digital Tv has completely undone that issue by coming up with universal
remote.
• It provides a sleek and stylish looking set top box.
• It also provides exclusive access to World-space channels
• While Airtel Digital tried to differentiate its product from the rest the high cost associated
with it acted as a big negative aspect for the company
• The are many other players in the market providing lots of channels at a lower price,
Digital TV by Airtel stands out as a lot costlier.

Few Inferences from the above comparison:

• Tata Sky is the only DTH which provides uniform volume level across channels.
• Tata Sky and Big TV are better choice for rainy areas because of bigger antenna size.

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• Incase the customer is very selective about channels, Tata Sky is the best fit as it has lots of
small packages and add-on packages so that the customers can customize the package as
per their needs.
• To start enjoying DTH experience from today, go for Tata Sky because that’s the only
DTH which will be delivered and installed the same day after you place the order.

10. PRODUCT DIFFERENTIATION:

Tata Sky launches itself as a DTH services requiring a Dish, A set top box and network access
card per television.

Tata Sky as a product provides to its customers a large bouquet of channels at different pricing
packages. These packages are formed according to ensure user convenience. Customers can
select any of the various attractive package of channels available.

Also the system provides the user with efficient navigation system as shown in the figure below:

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It provides a large number of services to its customers. Various services provided by TATA Sky
include:

• Active Services
• Active Cooking
• Active Stories
• Active Newsroom
• Active Darshan
• Active WizKids
• Active Sports
• Active Learning
• Active Games
• Active Astrology
• Parental Control
• Search and Scan Banner
• Guide (including Hindi Display)
• Customer Service- 24 x 7 help.
• Support in 11 languages

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Thus Tata Sky has all features to compete well with the existing players in the market. However
Tata sky recently launched a new variant called Tata Sky +. This product contained some
additional features over the original Tata Sky.

Tata Sky+ is a premium set-top box with a personal video recorder that allows you to record up
to 45 hours of live TV. Tata Sky+ gives you the power to record one program while watching
another, pause a live telecast and even rewind a TV program that you are watching.

Thus Tata sky gained an edge over its customers by adapting Product Differentiation. To protect
its existing customer base using Tata Sky, it also introduced a special offer of up gradation to the
premium product at reasonable cost.

For its new customer the cost of Tata Sky Plus is given as below:

Tata Sky Plus Cost


Rs 8,999 for the hardware (Digicomp) + Rs 1,000 installation & activation charges + Rs 50 per
month Tata Sky+ usage fees + Cost of the channel package.

11. PROMOTION:

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In order to stay ahead of its competitors, Tata Sky has always followed an aggressive promotion
strategy. When Tata Sky was about to be launched, it earmarked approximately Rs 1.5 billion for
marketing the DTH service across all platforms, traditional and non-traditional.

They invested not only in the pilot MDU (multi-dwelling unit) projects in some cities of India
but also planned to educate an average Indian about the advantages of a DTH service supported
by the Tata’s and Star.

A major part of the Rs 1.5 billion marketing budget was planned to be spent during the festival
season in India, starting late September and lasting till Christmas-New Year, when consumers
have a tendency to splurge on goodies.

Meanwhile, apart from Zee Turner family of channels, most other major TV channels found a
place on the Tata Sky platform

INTERACTIVE ADVERTISING is a new stream of revenue that DTH operators are now
eyeing. DTH operator Tata Sky has made the first move in this direction by tying up with
consumer electronics major, Samsung.

The company is also had talks with several mutual funds and financial services firms to advertise
through its interactive services. The DTH operator believes that 68% of its consumer base
belongs to the SEC A category and, therefore, represents consumers with high disposable
income.

A DTH user can access advertising content by clicking on an active button and can then access
the information brochure on TV. If she/he needs more information, the consumer can then text to
customer care. Industry players believe that DTH interactive advertising may work out to be the
cheapest way to reach out to a targeted set of consumers and is likely to generate more interest in
the future.

One of its major competitors, Dish TV is also exploring its options.

Tata Sky has also launched an interactive game quiz featured around Mahendra Singh Dhoni to
coincide with the Twenty20 World Cup.

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In the past, the DTH operator has been test-piloting feature by running several contests around
programmes and the interactive features were made available to its customers. For instance when
the movie Dhoom was offered on its pay-per-view service, consumers were offered free goodies
by participating in a contest.

Recently Tata Sky signed Aamir Khan, one of India’s highly acclaimed actors, as a brand
ambassador. The company believes that the actor makes a perfect fit with the Tata Sky brand
values of trust, high-quality entertainment and innovation.

As the brand ambassador, the actor will be instrumental in communicating the benefits of Tata
Sky to consumers across the country. Aamir Khan will feature across all Tata Sky brand and
product communication including advertisements on TV, Print, Outdoor, Radio and other
mediums.

Earlier also the company used various Bollywood celebrities for different campaigns like Hritik
Roshan, Kiron Kher, Boman Irani and Paresh Rawal. Thus the company has followed an
intensive promotion and advertising strategy.

Its tag line “ Isko laga dala, toh life jingalala “ has become quite popular.

12. HERFINDAHL – HIRSCHMAN INDEX (HHI Index):

A commonly accepted measure of market concentration is the HHI index. It is calculated by


squaring the market share of each firm competing in a market, and then summing the resulting
numbers. The HHI number can range from close to zero to 10,000. The HHI is expressed as:

HHI = s1^2 + s2^2 + s3^2 + ... + sn^2

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where sn is the market share of the ith firm.

The closer a market is to being a monopoly, the higher the market's concentration (and the lower
its competition).

If, for example, there were only one firm in an industry, that firm would have 100% market
share, and the HHI would equal 10,000 (100^2), indicating a monopoly. Or, if there were
thousands of firms competing, each would have nearly 0% market share, and the HHI would be
close to zero, indicating nearly perfect competition.

The following diagram shows the major players in the DTH industry and their market share.

Here,

HHI = (7*7) + (51*51) + (18 * 18) + (24 * 24) = 3550

Thus the in the range from 0 to 10000, the HHI value is not at all close to 10000. Nor is the value
close to 0. Hence it is neither a monopoly nor a perfect competition. The value of H indicates
that it is an oligopolistic market.

12.1 DTH Industry – An Oligopolistic Market Structure:

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The DTH industry in India can be categorized as an OLIGOPOLY. The HHI index and the
market share of firms indicate the amount of competition among them.

OLIGOPOLY: Oligopoly is a Greek word which means “for few entities with the right to sell”.
It is a market structure in which the market or the industry is dominated by a small number of
large players who are called “oligopolist”.

In this type of market the degree of market concentration is very high, with barriers to entry in
the market.

12.2 Important features of Oligopoly Market:

• Small number of large players dominates the market.

• The oligopolists produce branded products.

• There exists interdependence between firms.

• Each oligopolist is aware of the actions of the others.

• There are significant entry barriers in this market.

Entry barriers in Indian DTH Industry:

The Indian DTH industry is a high tech industry requiring huge capital investment. The initial
cost required for setting up the company is very high as it requires transponders and other hi tech
equipment. Following entry barriers exist in the DTH Industry.

• DTH Industry is a high volume low margin industry: Any new entrant in the DTH
industry has to make sure that it builds significant customer base as soon as possible to
ensure its profits.

• High set up cost of satellite, transponder and other high tech equipment: the huge initial
cost of setting up the business acts as a huge entry barrier for the new entrants.

• High Cost of the set top boxes


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• Long gestation period and high break even period

• Multilingual & Multicultural differences in India.

13. SWOT ANALYSIS FOR TATA SKY:

STRENGTHS

1. Leveraging on brand TATA and High brand recall


2. Technological expertise with Newscorp’s DTH arm Sky
3. Superior Picture quality
4. Leads in introducing new packages & Services
5. Customer service
6. Rural penetration through ITC E-Choupal and Godrej Aadhar
7. Interactive channels and program guides
8. Innovative Product offering Tata Sky Plus

WEAKNESSES

1. Second Mover after Dish TV who captured Market Share


2. Cannot match free service like DD
3. Currently Does not offer free Set Top Box like Dish TV
4. Litigation due to issues related to sports channels which it lost
5. Dependency on broadcaster and had issues with Sun TV

OPPORTUNITIES

1. Larger disposable incomes with India


2. Tapping niche markets with Better service and Product offering
3. Expansion of distribution network through exclusive stores
4. Interactive advertising – Tie up of with Samsung
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5. Increase in number of TVs sold
6. Increase in the geographical boundaries with Rural Market untapped
7. Growing demand for quality of service in the form of DTH over Cable
8. CAS being made Compulsory would encourage switch.
9. Value Added Services are gaining steam.

THREATS

1. IPTV provides superior technology if implemented


2. Cable Set top Boxes provide easy switching due to negligible switching costs
3. Increasing Competition internally
4. Dependency on CPE suppliers to some extent
5. High dependence for transponders on ISRO
6. Dependency on broadcasters for their channel content and thus increase in cost
7. Videocon may enter DTH by building its own set top boxes.
8. No Exclusivity in Content and Rule of ‘Must Carry’
9. Cap on Investment (20%)
10. Interoperability Regulations
11. Cap on foreign Investment (49%)

14. ENVIRONMENTAL ANALYSIS – PORTER’S 5 FORCES MODEL:

Michael Porter has identified five forces that are widely used to assess the structure of any industry.
Porter’s five forces are the:

• Threat of substitutes.
• Bargaining power of suppliers.
• Bargaining power of buyers.
• Rivalry among competitors, and
• Threat of new entrants.

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Together, the strength of the five forces determines the profit potential in an industry by influencing
the prices, costs, and required investments of businesses - the elements of return on investment.
Stronger forces are associated with a more challenging business environment.
We now apply the Porter’s five forces model in the context of DTH industry. Our observations
are categorized into the five forces as below.

14.1 THREAT OF SUBSTITUTES

DTH faces stiff competition from the Terrestrial, Cable and IPTV. As per the industry estimates,
there are 120 million TV homes, of which 71 million are served by cable and around 6 million
served by DTH with the remaining taken by terrestrial transmission. As IPTV is a new entrant,
there is not much data on its subscriber base.

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Figure: Medium of Broadcasting and their share.

a) Terrestrial Television:

Doordarshan is the world’s largest terrestrial broadcaster with over 1400 terrestrial TV
transmitters. The reach provided by this route is phenomenal with Doordarshan covering
88% of India’s geographical area. Covering the remaining 12% area required substantial
capital investments which does not outweigh the benefits. The transmission was done
originally in Analog mode but beginning from 2002, Doordarshan has partnered with
BBC resources – the consulting wing of BBC, in offering digital terrestrial television. Even
with the wide reach and low cost approach that is possible with this technology, due to the lack
of attractive content, we do not see it as a formidable threat.

b) Cable TV:

Cable TV currently operates in 2 modes. One is through CAS (Conditional Access System)
covering cities such as Chennai, Parts of Delhi, Mumbai and Kolkata, and the other through
Non-addressable system in the rest of the country. As seen in the above figure 1, Cable TV
enjoys a big share in comparison with other mediums.

In case of CAS controlled areas, the subscriber has to either buy or rent the Set Top Box (STB)
to see the pay channels. Of course, he can also do without that and see the 70 odd Free-to-Air
(FTA) Channels. On the other hand, in areas where non-addressable system is used, all the
channels are available without the necessity of any separate receiver. Irrespective of whether
CAS or not, the subscriber can comfortably see the channels by paying anywhere between
Rs.100 to Rs.300 per month depending on the place where he lives.

Due to the phenomenal reach of the Cable TV, it poses a serious threat to the growth of DTH
industry. Also there would be resistance from the Local Cable Operator’s (LCOs) lobby as DTH
totally displaces them.

c) Internet Protocol Television (IPTV) :

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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 the country and
the growing techno savvy population, IPTV has a potential to become a huge success.
Telecom companies such as BSNL and MTNL have spotted these earnings 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.

IPTV takes the interactivity to a newer level. In regular mediums, all the channels are pushed to
the consumer regardless of his preference. IPTV encourages a two-way request-response
model where the consumer chooses the program he wants to view. Right now this medium
is totally unregulated and hence there is a chance for customers being taken for a ride.
Cable companies are urging the TRAI to issue a consultation paper process to include IPTV
under the aegis of Cable TV act.

After this small discussion on IPTV, even if strict regulations are enforced on, we see it as
a considerable threat to DTH in Urban and Semi Urban areas where broadband has made its
mark.

14.2 BARGAINING POWER OF SUPPLIERS:

DTH industry relies on three major supplies. They are:

• Customer Premise Equipment (CPE) comprising of the Satellite Dish.

• Set Top Box with the necessary Access Card.

• The Ku band transponders in the orbiting satellites and content.

With India set to overtake Japan as Asia’s largest DTH by next year , the bargaining power
of Indian DTH operators with CPE suppliers have been steadily increasing.

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However, the availability of transponders is increasingly becoming difficult. With only two
domestic satellite launches between 2007 and 2010 and increasing DTH players, Astrix (the
supplier of transponders – a subsidiary of ISRO) is in a better position to use DTH as its cash
cow for the next 5 to 10 years.

As there is not much of regulation particularly in terms of channel pricing, acquiring content
from the broadcasters is also difficult. DTH vendors are at the mercy of the broadcasters.

14.3 BARGAINING POWER OF BUYERS:

We would take the entire broadcasting industry for analyzing the bargaining power of the buyers.
With enough options to choose both from the point of alternate mediums like Cable, IPTV and
Terrestrial broadcast and from the point of increasing DTH operators, the consumer is at his
will to decide.

Customers will continue to have a high bargaining power until DTH platforms try to differentiate
them as superior players with better content and clarity.

14.4 RIVALRY AMONG COMPETITORS:

With 5 operational players and 1 player in the queue, the Inter firm rivalry is quite high. The
competition from state owned DD-Direct to private players is negligible from the content
point of view as the number of channels offered by DD-Direct is very limited.

However, DD-Direct does not charge any monthly subscription fee which poses a threat to the
private players who charge monthly subscription charges.

TATA SKY v/s DISH TV – Showcase of Rivalry:

Between Dish TV and Tata Sky there is an intense rivalry exhibited by price wars and discount
schemes offered to new connections. Being the First move, Dish TV had price advantage in both
the STB as well as in procuring the transponders. On the other hand, Tata Sky claims its STB to
offers superior DVD quality video due to its advanced STB.
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While Dish TV is planning to spend Rs. 850 crore over the next 3 years, the rival Tata Sky is
willing to spend Rs.2000 crore over the medium term. The companies have also set ambitious
targets with Dish TV aiming to reach 4.5 million subscribers in the next 18 to 20 months while Tata
Sky aiming for 8 million subscribers by 2012.

15.5 THREAT OF NEW ENTRANTS:

With already 6 players in the DTH space, threat of new entrants is relatively low. There
is already enough competition which will discourage new firms to enter this business.
While getting a license is relatively easy, the barriers to entry are high when it comes to pricing
of CPE and getting the required transponders. There is a definite First mover advantage . So
any new entrant will face a high cost when it comes to equipment and transponders.

Figure: DTH Industry – Five Forces Model

15. CUSTOMER BASE – COMPARISON ACROSS THE COMPANIES:

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The five DTH operators, Big TV, Airtel Digital, Dish TV, Tata Sky and Sun Direct are expected to
add six million new subscribers by the end of December, to take the overall subscriber base to over
17 million. Although this sounds pleasant, it is actually not. The five DTH operators will still have
only around 30% market share by 2013, as compared to 70% for the cable operators.

A comparison is made for all the existing players in the DTH industry in terms of current customer
base, projected customer base and increase in the customer base for the period December 2008 –
December 2009.

DTH OPERATOR DEC 2008 DEC 2009 Net projected


(Projected) Additions
(In mn)

DISH TV 4.20 5.20 1.00

TATA SKY 3.10 4.20 1.10

AIRTEL DIGITAL 0.18 1.60 1.40


TV

RELIANCE BIG 1.10 2.20 1.10


TV

SUN DIRECT 2.40 3.90 1.50

TOTAL 10.90 17.10 6.10

Table: Comparison of Customer base

Observations:

From the above table it is very much apparent that DISH TV enjoys the first mover advantage by
having the maximum number of connections.
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However, one firm that needs to be looked upon with interest is TATA SKY. Though it was
incorporated in 2004, it has got the highest growth rate. There are many factors that have helped
Tata sky in achieving such a feat. One phrase that needs a mention here is “No one knows India
better than the TATA GROUP and No one knows Entertainment better than STAR. Together
they bring the world’s best satellite television service TATA SKY”.

16. CHALLENGES:

The challenges faced by the DTH Industry are:

• High License Fee


• Organization of taxation regime , particularly state levied entertainment tax
• Technology Neutrality as a policy needs to be consistently followed by the Government
• Content differentiation through bringing in a Self regulatory regime and technological
controls
• Control of Content Cost for DTH to make it a level playing field
• There exist sales and distribution challenges in India. Although India is a very big country,
the trade is relatively unorganized. Products go into tens of thousands of shops in large
geographies, and getting set-top boxes and remote controllers in good shape across the length
and breadth of India is a significant challenge
• Massive logistical challenge.

17. RECOMMEDATIONS:

The following price related strategies could be adopted, which may lead to a short term loss but a
medium term break even and profit.

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• Free Set Top: Set top Boxes can be given free while ensuring lock in by providing base
pack free for limited time duration, thus inducing update to next level.
• Multiple Connections: Provide discounts for consumers buying second Tata Sky
Connection (up to 50% off)
• Encourage References: Provide discounts on Monthly charges if a reference from
existing consumer becomes a new customer.
• Payment Options: Allow multiple points of payment, ensuring timely payment and
convenience to the customer – Credit Card through Website, Pre Paid cards from Retail
shops to be activated using Telephone and Drop Boxes at Societies.

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18. REFERNCES:

• www.tatasky.com

• www.tatasky.com/channel-packages.html

• www.indiantelevision.com/headlines/y2k9/sept/sept57.php

• www.business-standard.com/india/news/tdsat...tata-sky.../on

• www.sun.com/customers/servers/tatasky.xml

• www.blogs.oneindia.in/tata+sky/1/showtags.html

• Data Given by various manufacturers and service providers


http://www.dth.in/players.php
• National Programs on Energy Efficient Set top Boxes
http://www.iea.org/Textbase/work/2007/set-top/background/stb_programs.pdf
Data shared by Consumer Electronics and Appliances Manufacturers
Association (CEAMA)

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