The Indian television sector has witnessed strong growth over the past few years with industry revenues increasing at about 13 percent on an annual basis Compound Annual Growth Rate (CAGR) from INR 215 billion ($4.0 billion) in 2007 to INR 398 billion ($7.4 billion) in 2012, according to PwC’s India Entertainment and Media Outlook 2012. India’s pay-TV market now boasts one of the largest subscriber bases in the world, rising from approximately 75 million in 2007 to about 130 million households last year.

The strong growth in TV subscription and advertising revenues has contributed to a sustained increase in the number of licensed TV channels, which has boosted rapidly from about 230 in 2007 to over 820 in 2012.

The outlook for the next five years is also robust, as rising Gross Domestic Product (GDP) rates, increase in TV and pay-TV penetration, and growth in advertising revenues are expected to propel the industry forward. Additional growth drivers such as cable digitization, regionalization of content, and entry of foreign players will lead to further expansion in the number of TV channels in India.

With these driving factors, India can potentially have about 1,600 licensed channels by 2017, of which approximately 1,300 channels (80 percent of licensed channels) are expected to be operational. An important indicator of the latent demand is the high number of TV license requests pending approval with the Ministry of Information and Broadcasting, India – the number stood at about 350 in January 2012. Also, in line with other international markets, adoption of high definition (HD) channels is expected to increase in the country. Approximately 130 HD channels are expected to be operational by 2017.

The demand for C-band transponders from Indian TV broadcasters is expected to almost double from about 30 in 2012 to approximately 55 in 2017. The ramp-up in demand for Ku-band capacity used by Indian DTH operators is expected to be even steeper, driven by their need to match channel counts of digital cable operators and accommodate more HD channels. Thus, the number of Ku-band satellite transponders required by the Indian DTH players is expected to rise from about 70 in 2012 to more than 220 in 2017. The demand projections are even higher when requirements for backup and redundancy are taken into consideration, especially for Ku-band.

In this context, it is unlikely that any single satellite operator will be able to fulfill even the most immediate demand, let alone the future demand for satellite capacity. Foreign satellite operators need to be encouraged to invest in capacity to serve the Indian market.

In spite of the immediate and future requirements for satellite capacity, there are challenges placing practical restrictions on leasing transponder capacity from foreign satellite operators. Key hurdles include procedural requirements and delays, and short contract durations, leading to uncertainty for both Indian players and outside investors such as satellite operators. From the point of view of Indian DTH players, short contract durations can lead to the possibility of shifting orbital locations at the end of contract tenures. In turn, this can lead to significant expenses to be incurred for re-pointing satellite receiver dishes at millions of consumer homes.

It is important that these challenges are addressed to ensure that the growth momentum of the Indian TV sector is not impeded. For instance, the capacity crunch could restrict the launch of local regional channels and special interest channels, leading to constrained consumer choice. Supply constraints can also lead to industry underperformance, lost employment opportunities, and lost gains to the government exchequer. Ku-band capacity constraints can lead to distortion of competitive balances in multiple ways: DTH players would be unable to match the channel-counts of digital cable operators and it is also possible that many channels would not be carried by DTH operators, weakening the business cases of those channels.

In order to mitigate the challenges, the Indian government should formulate policies and processes to spur growth in satellite services. Additional measures include allowing Indian DTH operators more freedom to lease additional space on authorized satellites they already use, lengthening the terms of satellite transponder contracts, improving publicly-available market information from the government and ensuring adequate availability of spectrum for satellite use in India.

Smita Jha leads the Entertainment and Media practice in PwC India. She has authored consultation papers for various industry forums and authored annual reports on the industry.