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<b>Lunch with BS:</b> Harit Nagpal

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Harit Nagpa
Vanita Kohli-Khandekar
Last Updated : Oct 18 2014 | 12:23 AM IST
It was a harrowing morning in September. Almost anyone trying to get into Taj Palace Hotel, Delhi for the Confederation of Indian Industry’s Big Picture Summit had to go around in circles for hours and then walk. This was part of the inconvenience of having Chinese President Xi Jinping staying in the same hotel. As Harit Nagpal and I settle in for lunch at the coffee shop, we first exchange our “getting into the Taj” stories and then decide on the convenience of a buffet.

The 53-year-old CEO of Tata Sky, one of India’s largest direct-to-home or DTH operators, is a good interviewee. He is brutally frank and shares data. So I start by asking him why the Rs 43,000-crore television industry thinks digitisation has been botched up.

Digitisation will eventually mean 10 times more capacity to carry TV channels, 100 per cent transparency and better pay revenues. At 160 million TV homes, India is the world’s second-largest TV market and a painfully difficult one. After digitisation was mandated in late 2011 three major cities and 38 towns are fully digital. Sure, Know-Your-Customer forms haven’t been filled and boxes haven’t been activated in parts. However, in a market of this size and complexity all progress on digitisation, which will eventually release a couple of billion dollars in leaked revenues, is welcome. Why, then, is everyone so glum?

Some of the answers are evident. The financial fruits of digitisation are a long way from coming thanks to cable operators who are loathe to lose their fiefdoms. And their lobbying, more effective than the rest of the industry’s, has meant a pushing of the digitisation deadline from December 2014 to 2015 recently. There is also a new insistence on indigenous set-top boxes.

Nagpal is forthright about the problems. “Unless we catch the bull by its horns we cannot tackle this. An LCO [last mile cable operator] cannot remain an LCO forever. Why can’t he become a service provider for the MSO [multi system operators or TV signal distributors]? Digitisation is the same as automation — whenever an industry automates, jobs are redeployed,” he says.

He points to Tata Sky, which has 1,500 full-time employees and provides full-time employment to 40,000 people outside of the company. These could be engineers, salesmen, call-centre agents and so on. This figure was 10,000 just four years ago, when he joined. So as the digital part of the business grows, more jobs are bound to be created.

My soup is pretty tasteless, so I go for the salads. Nagpal bites into his bruschetta before continuing. “Sooner or later, everyone will realise that 100 per cent of the money [taxes] is coming from 30 per cent of the industry, which is players like us.”

He’s neatly jumped to his pet peeve — the non-level playing field that television distribution has become in India. DTH operators, who declare all their numbers and pay full taxes, reach 55 to 60 million homes. Cable operators (analog and digital) and DD’s free DTH service have the remaining 160 million. Analog cable operators, because they do not declare all their numbers, pay taxes only on a small proportion of what they earn. “You can’t keep milking the guys who digitised voluntarily and then expect them to compete with analog with its wonky numbers,” he points out.

His suggestions — have a cross-industry committee that looks at why the first two phases failed, set a switch-off date and don’t micro-manage. “Postponing without a game plan is not the solution. If somebody has a bad box, his customer will not accept it and his business will suffer. Did Trai [the Telecom Regulatory Authority of India, which is also the broadcast regulator] stop the telecom revolution while mobile phones were not manufactured in India? So why this obsession with indigenisation of boxes? We won’t want to import if good boxes are available here. Enable Indian manufacturing and just give us an analog switch-off date. The revenue-sharing mechanism between partners and everything else is the industry’s problem,” says Nagpal.

Does some of this angst come from Nagpal’s background? After his MBA, he has been with Lakme, Pepsi, Shopper’s Stop and Vodafone among other firms. All his experience has been about the final consumer and his needs. For example, in Shopper’s Stop, which he joined in 1999, he saw how minute changes – such as shifting a display counter by 45 degrees – could cause immediate changes in consumer response to a product and its sales. But given the state of the TV industry, the battles he must fight are about getting more space on Isro satellites or reducing taxes. In most digital markets such as the UK or US, television is a BtoC or business-to-consumer industry. In India, structural flaws have meant that it has remained a BtoB or business-to-business industry because advertising still brings in the larger share of revenues for broadcasters. Till digitisation is complete and operational, the chances of TV becoming a pure consumer business – where getting viewers to pay for a channel or a show, or a package is what drives the business – are poor.

Nagpal doesn’t agree. “On the contrary I drive the business by keeping the customer, his needs and responses in the centre. We buy content in bulk from a few makers and sell in small packets to millions of viewers [Tata Sky has nine million active users]. That’s the core and no different from any consumer business like cola, candy or cosmetics. Whatever comes in between is detail,” he says. For instance, in the last year or so there has been HD in the regional space or an OTT service – Everywhere TV – which allows you to watch Tata Sky’s service on any device. Many of these initiatives push average revenues per user and keep Tata Sky’s reputation as the firm with some of the best margins in the business.

But it still doesn’t make money. The estimate is that six DTH operators have pumped more than $4 billion into the Indian market over the last seven years to reach this number of 55 to 60 million. Some are cash flow positive, but no one has reached a complete break-even. Tata Sky is a joint venture between Tata Sons (60 per cent) and Rupert Murdoch’s 21st Century Fox (30 per cent). The remaining 10 per cent is held by Temasek Holdings. Are the investors getting antsy? No, says Nagpal. Their dictum is, “don’t cap [customer] acquisitions.”

He heads for a plateful of desserts while I gorge on cheese and crackers. Nagpal, a foodie at heart, wants to leave early for the airport not just to catch his flight to Mumbai, but because he wants to stop at Green Chick, a popular frozen food place in Delhi, for packets of kebabs and kulcha bread. So I jump to my last question — what is the tough part of running a digital pay TV service in, arguably, one of the world’s most complicated TV market. “The biggest Indian weakness is that people don’t collaborate, don’t experiment and don’t take ownership,” he replies.

It has taken some effort to get that going in a business that is about service. Nagpal claims he prefers not to get into execution. He is happy reviewing his team on a quarterly basis. Does he feel like getting in? “If my instinct says it won’t work I do say it. But I have been right only half the time. The younger guys definitely relate better to the customer,” he admits.

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First Published: Oct 17 2014 | 10:32 PM IST

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