Competition in the Indian DTH market continues to intensify with seven pay-TV oriented providers lining up to do battle, launcing PVRs around Diwali while at the same time focusing on penetrating the mass market further with low ARPU packages.

Three current DTH pay-TV providers – Dish TV (DSTV.BO), Tata Sky and Sun Direct – have invested more than US$700 mil. in aggregate to acquire close to 7.5 mil. subs between them but the ARPU range is only Rs 68 – 150 per month and heading South with incoming competition from the recently launched Reliance’s Big TV (~ 4 K subs per day) and Videocon. The prospective launch of Bharti may bring a semblance of price rationalization to the market.

In an attention grabbing presentation high on marketing glitz, Vikram Kaushik, CEO of Tata Sky, prioritized the incoming Diwali launch of PVRs as a big value driver but also remained squarely focused on a classic FMCG strategy of penetrating the mass market at a cost to ARPU. Kaushik said he would continue to minimize the inherent risks of this strategy by reducing fees to content providers and other suppliers – part of the “commodity trap” that keynote speaker Uday Shankar, CEO of Star India, a 20% investor in Tata Sky, said the industry must avoid in the future. Kaushik also spoke about carriage fees, VAS and advertising as future revenue streams but urged regulators “not to regulate but to facilitate so the industry can grow.”

Dish TV CTO Amitabh Kumar said that competition would continue to spur industry growth, adding at least 40% growth to new industry subs per annum for the next two years. He also indicated that may be room for a Freeview type service in India (beyond DD Direct) and said that Dish TV had ramped up net adds in spite of the launch of Reliance’s Big TV. Kumar added that Dish TV was likely to breakeven in 2009 – 10.

Going forward, a potential hike in DTH FDI from 49% to 74% may be welcome news for Dish TV, Tata Sky, Bharti, Sun Direct and others as it should allow PE firms and strategics (News Corp, Astro, Liberty) to fund future cash flow losses, which could run to US$500-600 mil. cumulatively per operator before break-even. “The growth is strong but churn levels are high and ARPUs are getting lower. Even though there’s some scale emerging for Dish and others in content and technology costs, generating significant profits after five years will be problematic with seven players in the market,” said Sanjeev Prasad, head of research at Kotak Securities.

Sue Taylor, SVP of NDS Asia Pacific, said that the launch of DVRs by DTH and cable players would be a transformational tool as linear services were so regulated and commoditized. “It should help limit churn, which is a big problem for DTH at present and also for digital cable operators while also boosting ARPUs and should flow through more to the profit line as opposed to more costly services like VOD and other value added services.”

According to Irdeto country manager – India head – South Asia Sanjiv Kainth, PVRs would mean that digital pay-TV (both DTH and cable) could drive some elasticity in pricing and tap the premium segment, which has not yet been meaningfully penetrated. That said, Kainth warned that there needed to be the “right conditions” in the regulatory and content environment so that digital platforms could profit from the sale of the TV channels over secure systems – “that’s the core business and it’s hard to monetize today because of various limitations.”