3 November 2014: The world's second largest TV market is going through cataclysmic changes. The twin forces of consolidation and digitisation are playing havoc with the way the US$7.7-billion Indian TV industry, which reaches 800 million people, has done business so far.Consolidation has meant that more than 65% of all TV viewing in India is now controlled by five large networks – Star (owned by 21st Century Fox), Sony, Zee, Viacom18 and Sun. So content costs have been a challenge for most pay-TV operators.On the other hand, digitisation is causing havoc and bringing hope too. In 2011, India's government mandated digitisation of television and set the all-India deadline for December 2014. This was recently extended to December 2015.More than half of India's 160 million TV homes (about 86 million homes) are currently digital. The bulk of the digital households, about 62 million, are satellite TV homes. This was a huge and growing number even before digitisation became mandatory. It is at the cable end that digitisation faces roadblocks. For a system long used to not declaring all the money it made, shifting to 100% transparency on subscribers and rates was always bound to be tough.As things stand, digitisation is complete in the top three metros and 38 towns of India. However most pay-TV operators reckon that this digitisation is symbolic since complete addressability hasn't come in yet.India then has this unique situation where the satellite pay-TV operators are way ahead of the curve on everything to do with packaging and pricing. However they compete, in large measure, with cable platforms that have just about installed boxes in homes and are far from understanding what it takes to package or market TV signals.Then there is a free DTH operator – DD's Freedish from the state-controlled Prasar Bharati Corporation – giving them a hard time in semi-urban and rural India. Add another dimension to this – online video. At 100 million users and counting, online presents both an opportunity and threat.The net opinion? Times are both good and bad for pay-TV operators in one of the world's largest consumer markets.Harit Nagpal, Managing Director & Chief Executive Officer, Tata Sky.What would you say your major achievements as a pay- TV operator have been this year? "The first achievement is that from being a linear provider of TV via satellite we have made the shift to providing video-on-demand and then broadband to the box in the last couple of years. We now offer the same content to devices anywhere through Everywhere TV [Tata Sky's OTT brand]."The second achievement has been the starting of HD in regional channels. The first phase of HD was in knowledge channels, the next was sports and the third in Hindi general entertainment channels (GECs)."The fourth phase of HD has gone down south. Gemini [a channel in Telugu, the language spoken in Andhra Pradesh, South India] and Udaya [a channel in Kannada, the language spoken in Karnataka, South India] are now available in HD."There was a lot of scepticism about entertainment channels going HD, but it gives a boost (to viewership and ARPU). Especially because the sets on shows aired on Hindi general entertainment channels are rich and they get enhanced in HD. [GECs across languages get more than half the total viewing time spent on Indian television]. 60% of our new add-ons are in HD and 30% of our base [of nine million active users] is now HD. It has been a big investment from our end and it opens up the future."What were the big learnings? "New customers need more handholding for selection, use or upgrade,than in the past. This is where digitisation in phase one and two has failed. It was meant to put in infrastructure which helped the whole process and choices, but it did not enable choice. We got badly circled by collecting forms and putting in boxes. We can't say that digitisation has improved ARPU, the lowest price remains the lowest price. If cable was selling at Rs200 (about US$3.4 a month), the basic package is still for Rs200."What do you see as the big challenges in the next 12 months? "Regulation, regulation, regulation. Does the government want access or not? You can't keep milking the guys who digitised voluntarily and then expect them to compete with analogue with its wonky costs. We [digital pay TV operators] are at a higher cost and are competing with guys who are not paying taxes."What about the composition of your revenues and changes/trends in costs, revenues, margins or ARPU? "Ninety percent of our revenues are subscription fees. On costs there are no major trends. One-third is content costs, one-third goes to the government (as taxes) and one-third of our revenues are used to run our business. The big constraint is that of having to fight with the cable guy who doesn't pay taxes. I fight him with one third of what he makes.""The big challenges in the next 12 months are regulation, regulation regulation. Does the government want access or not? You can't keep milking the guys who digitised voluntarily and then expect them to compete with analogue with its wonky costs. We [digital pay-TV operators] are at a higher cost and are competing with guys who are not paying taxes."Tony D'Silva, Group Chief Executive Officer, Hinduja Group Media Companies, Managing Director/Chief Executive Officer Induslnd Media & Communications Ltd.You took over in February this year and received your HITS (headend-in-the-sky) license in March. Tell us more about the HITS service you are planning."We are planning to launch our HITS services by the end of this calendar year. It will be a whitelabel service, not a full-service. A full-service HITS platform is like a DTH or cable operator who does the bundling, etc, and sells to last-mile operators (LMOs) and/or consumers. We will be a nominal service that does the backend, customer-management software, packaging and bundling as per our customers – who are the last mile operators. The ownership vests with them. They negotiate with the broadcasters. Both LMOs and MSOs can be my customers and they pay me for backend services only. The quality of service will be better because we are on C-band."What's the investment? "We are investing about Rs500 crore/US$84 million." What have the big learnings been this year? "The DAS (digital addressable system or digitisation) process has not proceeded the way it should have. The manner of STBs (set-top boxes) and configuration make it more difficult to implement digitisation the way it was envisaged. And after all the hype about HD, there is no real effort to install high-definition instead of standard-definition boxes. MSOs (multi-system operators) are investing huge amounts of money in STBs and the backend but they have not recovered enough of the money. And broadcasters are demanding an increased share of revenues without realising this."What do you see as the big challenges in the next 12 months? "The introduction of pre-paid. Also the regulator should realise that we are not in this business for fun, he should give us time. Some appreciation from broadcasters and their support would be nice. They have to accept a dip in revenues before the results of digitisation start showing."Have there been any major changes/trends in costs, revenues, margins or ARPU? "The fee paid to broadcasters has increased and they have started adding sports to the new pricing. But the fact is sports is event-based. There is one big event every six months or so. So why should people pay the same price for sports through the year. Unless there is transparency, revenues will always be under pressure. Margins are better in HITS since we are only a service provider in that business.""Some appreciation from broadcasters and their support would be nice. They have to accept a dip in revenues before the results of digitisation start showing." Tony D’silvaIndusInd Media and Communications, a part of the US$128-million Hinduja Ventures, has two pay-TV brands – InCable and InDigital. The company claims to have eight million subscribers across 36 cities in India. Of these, 2.5 million are digital cable subscribers. The media business of Hinduja Ventures had a topline of US$105 million in March 2014, though it is not clear if this was all from its pay-TV business. According to its annual report, "Grant Investrade, a wholly owned subsidiary of the company has been granted permission by Ministry of Information and Broadcasting in India to launch HITS. HITS would principally offer infrastructure services of retransmission and backend services to hundreds of Local Cable Operators (LCOs) without disturbing their current status. HITS project is expected to go live by the fourth quarter of this fiscal and have a full year's operation in FY 16".R.C. Venkateish Chief Executive Officer, Dish TVWhat would you say your major achievements as a pay-TV operator have been this year? "This year has been good. In March we launched our second brand, Zing, in Odisha [a state in Eastern India]. It then rolled out to West Bengal, Maharashtra, parts of the North east and now Andhra Pradesh."Why Zing? "Zing was launched to deal with digitisation. It is a brand meant for first-time digital users converting from analogue. The packaging and content is different from the normal Dish TV offering. It is very local. For example, the base pack in Odisha has 26 Oriya [the local language] channels. All DTH platforms are national and view the subcontinent through a national lens. There are national channels, rest of India and a South pack. With Zing, the idea is to localise everything from the box to packaging and content. We found that in semi-urban and rural areas, the content consumption is local. They buy a national DTH brand and then buy local channels a la carte. We reversed that and now give local channels in the base back. And national channels are the addon. Because of this our content costs are lower. So even though the ARPU on Zing is lower, the gross margins are much higher than Dish. We have also regained momentum on Dish. We plan to continue rolling Zing out in non-Hindi markets."What have the big learnings been? "India is a very fragmented market and you need a different strategy for different markets. Our thinking was spot on."What do you see as the big challenges in the next 12 months? "The challenge for the whole industry is the botched up digitisation of phase one and two. It is a botched up digitisation because it is without addressability and billing. The LCOs (last mile cable operators) are still charging the same old rates. And the whole unlocking of economic value is stuck, making it a big drag on the sector."Have there been any major changes/trends in costs, revenues, margins or ARPU? "The biggest element of costs is content and that has seen single digit inflation, so it is reasonable. Our content costs are around 28%." – twitter.com/vanitakohlik Our biggest challenge in the next 12 months for the whole industry is the botched up digitisation of phase one and two. It is a botched up digitisation because it is without addressability and billing."Dish TV, launched in 2003, was India's first DTH service. The platform is part of Subhash Chandra’s Zee Group, the media conglomerate that owns one of India's largest broadcasters – Zee Entertainment. In March 2014, Dish TV had revenues of US$418 million. It claims to have a total of 12 million subscribers across its major brands – Dish TV and Zing.