Business Today

Look up in awe

An indigenously designed device can make a big difference to TV viewing. But how will it fare in the market?
twitter-logo Goutam Das        Print Edition: Aug 18, 2013

Inside a nondescript building in Bangalore's Richmond Town, about 50 people are pottering about with orange, yellow, green, blue, purple and pink boxes. At first glance, some of the boxes seem like extra-large Lego blocks. But they are smarter; they have chipsets inside. In a few months, these blocks could sit right inside your home, alongside your television.

The 50 people are attempting a rare feat - building a consumer electronics start-up with the product conceived, researched, developed, designed, tested and manufactured entirely in India. The colourful blocks when assembled become the Lukup Player, a device that can make consumption of TV content and the Internet easier, and more fun.

Lukup does a number of things. "It can help people search, receive content from multiple sources and then stream it onto multiple screens," says Kallol Borah, one of the founders of the start-up, Lukup Media. "The concept is that my wife, mother, sister and I should be able to watch different programmes at the same time from many devices using the player."

Lukup remote
Lukup remote
When connected to an existing set-top box, Lukup can deliver content either from live television or from its video-on-demand platform to a second TV at home, to a tablet and even to a mobile phone, by using a wired broadband connection or home Wi-Fi.

The Lukup platform has 300 episodes of TV shows, 500 films, and a music catalogue of 10 million tracks

Lukup is more than just hardware - it has a device-plus-services model, much like Apple. The company has created its proprietary content platform by licensing films and TV shows from content makers such as Reliance Entertainment and ITV Studios. As of now, the platform has 300 episodes of TV shows, 500 films, 20-odd games, and a music catalogue of 10 million tracks. While the media player can mirror television content on multiple screens, it can also aid content search across TV channels, its on-demand platform and the Internet. It can personalise the watching experience by creating profiles and playlists for family members.

All of this sounds impressive. There is nothing of this sort in the market. But it is not hard to figure out where the Lukup Player gets its inspiration from. Mirroring TV content on other screens wherever you are is what US-based Sling Media Inc's SlingBox does, while streaming subscription-based online content has been mastered by services like Netflix in many countries. The differentiator for the Lukup Player is that no one has managed to merge these two into a single device so far. Plus, no content provider has ever bothered to sell its own hardware. Players like Netflix usually package themselves with digital video recorders such as the Tivo.

"In the future, one can potentially replace cable TV with Lukup player. Because of the sports, kids content, movies and TV shows available on our video-on-demand platform, one may not miss the television," Borah says.

Borah, 38, trained as an economist at the London School of Economics before becoming a serial entrepreneur. He then teamed up with Harsha Mutt, 49, a former techie who had worked with Infosys and HCL Technologies, to start Lukup Media in 2010. The two, along with two British investors, have invested Rs 30 crore in the company. That is sufficient capital to see the company through the first 10,000 units it will start shipping in October this year. But it will require a large round of investment to grow further and eventually make profits. Lukup's stiff uphill climb starts here.

"Cash-wise, I would like to be in a more comfortable situation because, of the Rs 30 crore, we have already spent one-third," says Borah. "We have to match demand with supply. We have to cope with long lead times."

The product has more than 1,000 components, which it sources from 60 suppliers. Since the supply chain has long lead times, it can lead to a working-capital gap because the company needs to have sufficient stock in hand to meet the immediate demand, says Borah.

The company, he reckons, will need to raise upwards of $10 million (Rs 60 crore) by the end of this year if demand for the product soars. For a consumer electronics company in India, that is a tall order. Two venture capital companies BT spoke to said consumer electronics is a tough market to crack considering that it is a thin-margin, high-volume game. Investors prefer to tread cautiously. Since 2010, only one company in the mobile handset, tablet, set-top box or television segment - Micromax - has been able to raise capital, according to data provider Venture Intelligence.

Investors will question Lukup's practices, including local manufacturing. It is wiser to manufacture outside, especially in China, some say. Rajiv Bapna, Director at consumer electronics company Amkette India, says he decided to make EvoTV, a smart box that brings Internet connectivity to TV, in China as India does not have the eco-system to produce state-of-the-art hardware. "Also, it is very difficult to scale up manufacturing here. But the fact is that production is a very small part of the innovation chain. Design and technology are the real challenges."

There are question marks also on who will buy the media player. Lukup cannot afford to subsidise the device rightaway and is starting with a premium positioning - the player is priced at Rs 9,000. Until two months ago, the plan was to price it at Rs 7,000 but the rupee's sharp drop against the dollar spooked the founders. The company sources components from Taiwan, China and the US. Since it is difficult to make any money on the hardware where margins will be in low single digits, Borah is banking on subscription revenues. "People will get some free or ad-funded content by default. However, there is pay-per-view content and then packages that start from Rs 325 a month," he says.

While Lukup vouches that the content it has licensed is top class and rare, one would have to wait and watch if it is indeed compelling. It also faces competition from direct-to-home operators such as TataSky who have ventured into the video-on-demand market; smartbox manufacturers such as Amkette have tied up with content providers like BoxTV to bring their content in.

To hedge its risks, Lukup is marketing the device to TV operators. The firm has secured purchase orders for 7,000 units from an operator in Australia and one in India who would replace some of its HD set-top boxes with the Lukup player - the device can double as a set-top box with some technical modifications. The company is also doing proof of concepts for another five operators.

Even so, the company has quite a task on its hands. To turn a profit, Lukup needs volumes upwards of 100,000 a year. "Every morning we wake up and question - Will this work," says co-founder Mutt. "But then the challenge has been to make it work and we strongly believe this will make a difference."

One can count Indian consumer electronics start-ups on one's fingertips. If Lukup can pull it off, it will become a great testament to India's nascent hardware product story.

Additional reporting by Nandagopal Rajan

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