Tata Sky kicks off a new price war

Direct-to-home (DTH) major Tata Sky made headlines last week - first, for Aamir Khan playing the role of a milkman in its new commercial, and second, for kicking off a price war.

The company said that its "first-of-its-kind, no conditions apply" offer will redefine the DTH landscape in the country.

It surely would, as Tata Sky has slashed the price of its set-top box by almost 40 per cent to Rs 999. Competitors provide set-top boxes at Rs 1,400 to Rs 1,800.

But the move has surprised many as Tata Sky has always taken the position that it is not interested in shoring up subscriber numbers at the cost of profitability.

Company executives have also never missed the opportunity of claiming that it has the highest average revenue per user (ARPU) in the industry where Dish TV is the clear market leader in terms of subscriber numbers.

Tata Sky is, however, convinced it has taken the right path and its pricing strategy isn't something that it has adopted for the first time.

"We were the first to break the Rs 100 price barrier in packaging; first to introduce HD service at an unimaginable price point and now, the first to provide a world-class quality DTH service at an affordable price point. Our service will now be affordable for consumers across all strata of the society," says Vikram Mehra, chief marketing officer, Tata Sky. The company claims a subscriber base of 5.5 million, making it the third largest DTH player after Dish and Sun.

Mehra also says reducing the price of hardware does not mean the company, a joint venture between Tata Sons and News Corporation, will reduce the price of channel packs as well. The company has left the minimum subscription charges unchanged at Rs 160 per month.

He is banking on a huge increase in subscription to the DTH provider's value-added services. Unlike other DTH operators who offer interactive services free, Tata Sky charges a fee.

Observers also say the move implies a shift in Tata Sky's positioning of a premium brand and the low-entry price is an attempt to cater to the bottom-of-the-pyramid subscribers. Mehra would only say that being premium is not synonymous with being expensive.

There is no reason to assume, Mehra says, that new subscribers (after the reduction in set-top box prices) will not pay for interactive services.

Interactive services like ACTIVE English and ACTIVE Cooking, for which the operator charges Rs 30 per application, have more subscribers in Tier II and Tier III cities than in urban areas.

"With our differentiated content, we will continue to earn a sizeable revenue than competition," he says.

Ashesh Jani, Media Leader at Deloitte, says Tata Sky's move was inevitable as DTH companies have to play the volume game to expand the market.

"The only way operators can make money later is by increasing their consumer base. In the short-term, they might feel hard-pressed, but that is a strategy which works to bring in more users," he says. He gives the example of mobile telephony which has been seeing a price war, resulting in offers like per-second billing.

For the moment, competitors are taking a contrarian stand. Salil Kapoor, CEO of Dish TV, says the industry should be more careful while offering such aggressive price points.

"We are already operating on a self-subsidised model. Also, the price that has been announced doesn't include any content bundle. We at Dish TV charge Rs 1,390 for two months. If Rs 450 is deducted from this for content, we will also land up in the same price range," Kapoor adds.

Umesh Rao, senior VP of Reliance Big TV, takes an even more aggressive stand. "Reliance Big TV has always enjoyed a premium pricing over its competitors on the basis of product superiority and the largest bouquet of channels. We will continue to maintain our premium tag while being price competitive." A Reliance Big TV connection is available at Rs 1,390.

There are over 25 million households subscribing to DTH services, which is around 30 per cent of the cable and satellite homes. It is expected to touch 33 million by the year-end. Dish TV is the market leader with a 30-35 per cent market share.