Tata Sky’s Revenue Management (or the lack of it)

Last week Direct To Home (DTH) ┬átelevision provider Tata Sky launched a new channel called “Star World Premiere HD”. As the name suggests it is a high definition channel, and it broadcasts TV shows from the United States simultaneously in India (as opposed to the usual lag of about a year before a show goes on air in India). The business case for this channel itself is particularly strong – for people are nowadays unwilling to wait for a TV series’ release in India and instead download it from illegal torrents. The availability of the TV Series now through a legal channel will discourage torrents, and also allow the producers to make some money via selling advertisements.

The problem, though, is with the pricing. With great fanfare, Tata Sky had launched this “Mega Pack” a few years ago, where for a fixed annual fee (of the order of Rs. 6000) you would get all channels for an entire year. Built in to this plan was the promise that any channels launched during the year would be available for free for all Mega Pack subscribers. It was like the subscribers were paying a premium for the option of not having to pay for any newly introduced channels.

For the last few years, this plan has been going well. Numbers are not available publicly but based on a small sample of people I know, I know that the Mega Pack has a large number of subscribers (Disclosure: I too subscribe to this). Given the “bundled pricing” (which is what the Mega Pack essentially is), Tata Sky is making more money than it would have with subscribers picking only the channels they wanted.

Unfortunately their handling of Star World Premiere HD is likely to change this. With this channel, they have reneged on their promise to provide any new channels for free to Mega Pack subscribers and have asked subscribers to pay Rs. 60 per month for the channel. Over the course of the last week, there has been considerable outrage on Twitter about this. There are reports of people (Mega Pack subscribers) calling up the call centre and talking of failed promises and getting the channel for free. There are other reports of subscribers who last updated their Mega Pack after February 1st 2013 getting this channel free for the remainder of their current Mega Pack subscription period. Tata Sky CEO Harit Nagpal has been on Twitter, and has explained that he wasn’t able to offer the channel for free due to some fee arrangements with the broadcaster (Star TV India). In all, the entire handling of the launch of this new channel has been a mess.

So far, there has been a cozy relationship between Tata Sky and Mega Pack subscribers. Subscribers pay up once a year, no questions asked. In return, they get all channels for free. So far, the renewal process has been fairly mindless – given the seamless experience customers are renewing without much thought.

What this mis-handling of the Star World Premiere HD launch by Tata Sky will do is to get the customers thinking. With this one breakage of promise on the part of the distributor, customers whose Mega Packs come up for renewal will soon start asking themselves if Tata Sky will not renege on their promise with respect to other channels also. While porting across DTH operators is still not easy, what is likely to happen is that customers will critically evaluate whether they need all the channels they are paying for, and opt for a package which only includes channels they need (after a regulatory change last year, all channels have to be offered a la carte).

In short, Tata Sky’s mishandling of this episode is likely to reduce the number of their Mega Pack subscribers, and thus a decrease in their overall revenue. The additional amount they are charging for Star World Premiere HD is Rs. 720 per subscriber per year. The price gap between the price of a Mega Pack and any other pack is much more than that. In short, it has been a process of extremely bad revenue management by Tata Sky.

PS: We would be interested in offering revenue management consulting to Tata Sky or any of its competitors. If you are from any of these companies, get in touch with us through the contact form in the Contact page.

One thought on “Tata Sky’s Revenue Management (or the lack of it)

  1. REBUTTAL

    1. The customers who watch Star World Premiere HD are likely to have SMART HD TV’s which can broadcast this content via internet still free to them at their disposable time with a click of button on remote. (Some kind of free Riders Syndrome)

    2.As you mentioned portability in DTH is a BIG issue, the consumer pays more for this dissonance since he needs to buy a STB and pays for installation apart from extra package cost (if any). Thus even after evaluating Tata Sky, He continues with Tata Sky. (You are in India)

    3. A la carte channels are at least 5 times more expensive than the bundled arrangement . Also consumer ,whether watches all or not , he loves that he has the ability to watch all the broadcast channels on his DTH. (Indian Consumer Syndrome)

    4. In fact Tata Sky smartly managed to make Rs. 750 more per customer over and above the package cost from a very less number of Star World Premiere HD freakies ;-) who actually paid and acquired the channel at Rs. 2 every day. (Less than the cost of a Good Chewingum)

    5. I believe you are still not privy to other DTH services who do not relay HBO hits ,Star World Premiere HD, and some more channels in their Mega Pack, they charge extra too. Also their Mega Pack is costlier than Mega pack of Tata Sky.

    Read Newton’s 3rd Law before getting excited and replying.

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