Harit Nagpal, 50, must be a glutton for punishment. Late last year the former director marketing for Vodafone Group, UK, relocated to India to run a loss-making direct-to-home TV operator. As managing director and CEO of Tata-Sky, he has the unenviable task of figuring out how to make money in a very competitive market with six players, low average revenues per user (ARPU) and a regulatory tangle that foxes the best of minds. At 7 million out of the 35 million subscriber DTH market, Tata-Sky is not in a bad place. But it is the “how to achieve profits” question that is dogging the company. Over the five years since its launch, this 80:20 joint venture between the Tata Group and Star Group has sunk in Rs 5,000 crore or just over a billion dollars into the Indian DTH market. There are, however, no signs of a break even. One week before he completed a year at Tata-Sky, Vanita Kohli-Khandekar had a long chat with Nagpal on how he views this industry. Edited excerpts:
From telecom to media what are the big differences?
I am not feeling out of place. I have spent the early years of telecom, in telecom; saw the first five million telecom subs. This [the DTH business] reminds me of the early years of telecom. It has come farther in five years than telecom did. It has all the problems that go with scaling up. Both [telecom and DTH] are technology services, consumed by a fragmented and large customer base. There are elements of technology in the service and distribution. It is a new business so one has to understand the dynamics. But I have been part of nascent businesses earlier at Lakme, Pepsi and Marico. So the operations are easy to handle because all the variables are in our control.
The problem is that after opening up this sector, growth is being held back. The ministry of information and broadcasting (MIB) has allowed 700 channels into India, but my satellite capacity is only up to 300 channels. I am ready to buy that capacity, but am not getting that meeting with ISRO for a year. [It is mandatory for DTH operators to buy satellite capacity from the Indian Space Research Organisation. Capacity on foreign satellites can be bought only through ISRO. ISRO incidentally does not have enough KU-band capacity to meet the demands of the Indian market]. I have lost four satellites in the process [satellites that wanted to sell KU-band capacity over India and have moved on to other markets after waiting for ISRO]. And I am still stuck providing 300 channels. Just give me the freedom to go to the satellite operator that has bandwidth.
Why not lobby for a change in policy, there are six of you?
Who should we lobby with? Is there one person willing to or capable of taking a decision? We are meeting people constantly, but is there hope. I am not so sure. It will take longer. Tata-Sky has already put in Rs 5,000 crore. It will probably put in another Rs 5,000 crore over the next few years before we get a rupee. Break even could take 10 years. You could cut it down to six-seven years by giving a tax-holiday or tax breaks.
The bureaucratic hurdles around this business are very large. For example, this industry pays 30 per cent tax on revenues. Show me another fledgling industry paying those kind of taxes? DTH came in because of the under-declaration by cable operators. You are putting a 30 cent tax from day one on a sector from which you [the government] are making more money than cable. What is the intention of the government? Is it to allow addressable digitisation, get taxes, ensure broadcasters get a fair share and customers get interactivity? If that is the intention then either provide the infrastructure or let me buy it. Instead of focusing on creating infrastructural support we are focusing on the wrong things. This industry will make money for everyone in the long term. The government will get more in taxes, broadcasters in pay revenues and DTH operators in revenues.
There have been many product changes to Tata-Sky in the last six months. What is the logic?
We have done a lot of work to make the product as customer-friendly as possible. We are not selling metals but entertainment, so why were our packages called gold and silver. We have recreated our packages to make them easy to use. So if you say “I am in the mood for Hindi movies” you know what package to buy. There are packages for English entertainment, Hindi entertainment and so on.
That must be a nightmare at the backend.
It is complicated at the IT and installation level to create and execute.
Your comment on costs and revenues, both are problem areas for most DTH operators.
In the long term, the cost structures of the leading DTH operators tend to converge. I don’t see an opportunity for huge cost reductions in this industry. Don’t see mergers and acquisitions happening as easily as they did in telecom. Any DTH operator, who buys another operator, has to re-point all the subscribers to his satellite. Plus you have to re-price the new consumers and the chances are you will lose the consumer.