Behind the smokescreen called carriage fees

The carriage fee - paid by broadcasters to MSOs - has always been a subject shrouded in mystery. A new study by Chrome Design & Media, however, throws some light on the topic.

Consider this. A leading broadcaster pays a carriage fee of Rs 82 crore a year for renewing its contract for three channels which includes a top ranked GEC on the prime band, while the other two are on S-band. In terms of quality of reception, Prime and Colour bands are the best followed by S-Band, Hyper band and UHF band.

Another mid-level GEC pays around Rs 60 crore to occupy 70 per cent of the prime band that comprises only 11 channels (channel numbers 2-4 & 20-27. These are the channels you get on auto tuning the television set) of which, two slots are occupied by Doordarshan's channels. Is that kind of outflow unsustainable?

Not really, considering that a brand new channel will have to pay at least four times - which it cannot afford to - this rate for a prime band slot. And even a new channel does manage to pay, it will be extremely difficult to dislodge an existing channel from the prime band.

Renewal rates for existing channels on prime band are quite low for two reasons. Firstly, the initial deal was done at a lower rate and the renewal fee is based on that. Next, these channels (mostly GECs) enjoy a content pull and no cable operator can afford to remove these channels. Besides, prime band (old B&W television sets are only equipped with prime band), colour band (channel number 5 & 16-19) enjoy a similar status today. Since prime and colour can accommodate only 17 channels, the battle moves to S-band and then the UHF.

For a second or third level GEC, or a news channel, S-band becomes the first option. Even S-band has just 19 channels (6-15 & 29-37) and since these channels may not be able to pull in viewers if they are on some obscure band, they pay a higher amount for this better place in the distribution pipe.

A broadcaster, which renewed its space in the S-band across India (includes all 194 cities covered by TAM) in March-April 2011, would have shelled out around Rs 58 crore a year which includes around Rs 20 crore for north, Rs 14.5 crore for west, Rs 12 crore for south, Rs 8.5 crore for the east and Rs 3.3 crore for central India.

Existing UHF band deals that were renewed during the same period were worth Rs 36 crore � Rs 11.3 crore for north India, Rs 10 crore for west, Rs 8 crore for south, Rs 4.7 crore for east and Rs 2 crore for central India.

Taking Prime, S- and UHF bands into account, the total carriage fees paid by all channels in the fray has already crossed Rs 1,600 crore including new deals and renewals.

A channel can also mix and match its repertoire to optimize reach and cost. If a broadcaster signed a new deal for its presence on S-band, it would have paid Rs 74 crore a year for the pan-India presence between October 2010 and February 2011. For UHF-bands, that figure dropped to Rs 46 crore. However, no broadcaster opts for a 100 per cent penetration and 60-70 per cent penetration is good enough for a national footprint. Therefore, the channel would have paid between Rs 44-51 crore for a 60-70 per cent penetration. That leaves some more room for the MSO to accommodate more broadcasters. For instance, a music channel launched last year, got 3 per cent of S-band and 74 per cent of UHF in the Hindi speaking markets for Rs 23 crore for a year.

This was revealed by Chrome Design & Media, founded by former UTV Movies and World Movies head Pankaj Krishna in 2008, provides consultancy to broadcasters on optimising distribution carriage fee investments. Each average in the Chrome study took into account six deals per network with a maximum variance of 15 per cent from the mode.

The Chrome study also has some interesting regional break-ups. Northern India - led by Delhi and Greater Punjab - is in front with each new deal worth Rs 25 crore. Delhi takes away 50 per cent of that, while Greater Punjab (which includes Punjab, Haryana, Chandigarh and Himachal Pradesh) accounts for 20 per cent.

Says an industry observer, "Markets like Punjab and Chennai are monopolised by a one or two MSOs, which is why they ask for a higher rate." In the south, on the other hand, the entire region's S-Band can be penetrated with Rs 16 crore, Chennai taking the lion's share of Rs 9 crore.

For renewing a place in S-band in six metros, a broadcaster would have paid around Rs 35 crore. Delhi claims the maximum fee of Rs 9.5 crore followed by Mumbai at Rs 9 crore, Kolkata at Rs 7.2 while Chennai asks for Rs 6.75 crore. Bengaluru and Hyderabad have to be bought together and they account for Rs 3 crore out of which Hyderabad's share is only 10 per cent.

Chrome also reveals that the cost (renewals, S-band) per contact (household) is highest in the east, followed by north, central, west and south. In the east, the cost per household contact is Rs 19.5 (Kolkata itself is at Rs 29.1). In the north, the cost per household contact is Rs 17.8 (led by Punjab). For central India, this figure is Rs 15.4, in the west, it is Rs 13.1 and for the south, Rs 11.1. The national average for renewals stands at Rs 14.7. The average for new deals is Rs 18.4.