The amendment directs broadcasters and distributors to submit the revised channel prices by 15 January 2020 and 30 January 2020 respectively, with full implementation from 1 March 2020.
The Telecom Regulatory Authority of India (TRAI) has amended its New Tariff Order (NTO) which came into full effect in February 2019. The change in regulatory framework, back then, was accepted with a pinch of salt as it disrupted the entire ecosystem. The NTO mandates subscribers to choose and subscribe to the channels they want to watch. Instead of the earlier system, where Digital Platform Operators (Cable and DTH players) made the packs for the consumers and they had no option but to subscribe to all the channels.
TRAI made the move to benefit consumers, but, the opposite happened. The regulator noted that the Pay TV prices are heading north forcing customers to opt-out of Pay-TV, migrate from Cable to DTH and from Pay TV to Freedish. In some cases, cord-cutting was also noted. In August 2019, TRAI released consultation papers sharing the pain-points it has come across and an amendment was on the cards. The broadcasters criticised the release of fresh consultation papers just six months into the new regime and at the same time cautioned the regulators that any tariff-related amendment will result in channels shutting down which will mean unemployment and negative economic growth.
An open house discussion was organised by TRAI to discuss the responses it received from various stakeholders. The broadcasters made it clear that they have made a serious investment in content and therefore they should have the authority to price their bouquet and channels depending on their business needs. The DPOs blamed the broadcasters' "astronomical pricing" and pleaded to the regulator to intervene and put a cap when it comes to discounting and bouquet formation. The broadcasters countered and blamed the Network Capacity Fee (NCF) as the single largest reason behind consumers being forced to pay more than what they used to.
NCF is the compulsory fee that a consumer needs to pay. Earlier, it was Rs 130 (excluding GST) for which they got access to all DD channels and could choose 74 others from the list of free to air channels. TRAI, in its latest order said that it has examined various provisions in detail and accordingly mandated provision of 200 channels in maximum NCF of Rs 130, excluding taxes per month. In addition, it has also been decided that channels declared mandatory by the Ministry of Information and Broadcasting (DD Channels) will not be counted in the number of channels in the NCF. DPOs have also been mandated that they will not charge more than Rs.160 per month for giving all channels available on their platform.
While it is clear that the NCF of Rs 130 per month remains the way it was, to reduce the price-rise, the TRAI has come up with a few other tariff-related amendments which left the broadcasters fuming. TRAI in its amendments to the new tariff order mandated that the sum of the a-la-carte rates of the pay channels (MRP) forming part of a bouquet, shall in no case exceed one and half times the rate of the bouquet of which such pay channels are a part. It added that, the a-la-carte rates of each pay channel (MRP), forming part of a bouquet, shall in no case exceed three times the average rate of a pay channel of the bouquet of which such pay channel is a part. Additionally, the Authority decided that only those channels which are having MRP of Rs.12 or less will be permitted to be part of the bouquet offered by broadcasters.
Where is the "Ease Of Doing Business?" asks Indian Broadcasting Foundation
Indian Broadcasting Foundation, which represents the broadcaster fraternity has expressed its shock and dismay at the latest amendments. "TRAI has reduced the cap on the MRP of individual channels, which can form part of any bouquet, to Rs.12 per month, from the earlier cap of Rs 19. Less than a year ago, TRAI itself determined that the price per channel can be Rs 19, which has now been reduced to Rs 12 without giving any logical reason thus making the change totally arbitrary. The regulator has also sought to impose twin conditions for bouquet formation, effectively introducing a cap on bouquet pricing which was left untouched in the NTO," the IBF mentions in its media statement. Adding, "Coming barely a few months after TRAI notified the NTO effecting a disruptive change of the distribution ecosystem, these amendments will severely impair broadcasters’ ability to compete with other unregulated platforms and adversely affect the viability of the pay-TV industry."
The IBF has accused TRAI of "micromanaging" the broadcast sector which according to the industry body is the "cheapest form of news and entertainment in the world." In its media statement, IBF mentions that in the last 15 years of regulating the broadcast sector, TRAI has issued more than 36 tariff orders and ancillary regulations. "This goes contrary to the Government's stated position of ensuring the ease of doing business," IBF opines.
While TRAI claimed that the amendments are in the consumers’ interest, IBF feels the regulator has conveniently forsworn the interest of broadcasters. "This change will only benefit the DPO’s as they have been allowed to charge as much as Rs 160 for the channels that are supposed to be ‘FREE’. It appears all IBF's pleas have been ignored. Unfortunately, in this exercise, content creators and owners have been disempowered and the entire authority has shifted to the middlemen," adds the IBF statement.
Expressing its disappointment on the development, Indian Broadcasting Foundation (IBF), the apex body of broadcasters in the country, has conveyed that these changes will have very significant and industry growth hampering ramifications for the Broadcast sector. "At a time when the economic environment is tough, this tariff order will force a lot of channels to shut down and will lead to unemployment in the sector. While the Government is looking at ramping up growth, these changes will have the opposite effect for the Broadcast sector is just recovering from the twin shocks of NTO in the first half of 2019 and the ad slowdown business," states IBF.
"The Regulator’s intent was to address infirmities in the New Tariff Order (NTO), however, it has been done solely at the cost of the broadcasting fraternity. Over-regulation, inconsistency and frequent changes in the regulations by the Regulator has already cost the broadcast sector 10-12 million TV subscribers as per various industry estimates in 2019. These amendments will compound the problem further. IBF is disappointed at the lack of understanding shown by the Regulator. It will strategize its future course of action, including evaluating legal options, based on feedback from its member channels and networks," IBF makes its stand clear.
DPO's Stand - Amendments are pro-consumer
Anil Malhotra, chief executive officer of Siti Cable believes that when a regulator forms a regulation it keeps the consumer at the heart of it. "They have done well for the consumers," Malhotra opines. His view is that the consumers have been given huge discounts, it has been taken care that there is no predatory pricing done by either the DPOs or the broadcasters and these will ensure that they are benefitted.
However, if the consumer is paying less, the average revenue per user (ARPU) is set to decline. How does that impact the DPOs? "We are not concerned about the ARPUs, for us the margin matters," responds Malhotra. He explains, "We are service providers and what matters most is if we are getting paid for the services we provide irrespective of what the ARPUs are. What I mean by that is, in a Rs 400 pack I was making Rs 60 now if it drops to Rs 200 we continue to make Rs 60, both the ARPUs are equal to us."
He clarifies, "Yes, sometimes the margin is a subset of ARPU, but in our case, we are getting money from NCF majorly. Broadcasters were giving us a margin of 20 per cent of which only 10 per cent was with us so it does not impact us much."
During the open house discussion on the new tariff order, the DPOs pointed it out that subscribers were opting out of Pay-TV as the broadcasters have priced their channels too high. Will this amendment help consumers return to Pay TV? "People will migrate from freedish to us when we reduce our pricing. People migrated from us to freedish when our prices went up because of anomalies in the NTO," replies Malhotra.
Analyst's view - Consumers to pay less at the cost of broadcasters bearing the largest burden
Credit rating agency India Ratings and Research (Ind-Ra) a part of the Fitch Group believes that TRAI's amendments to the tariff and interconnection regulation are largely neutral for multiple system operators (MSOs) and negative for broadcasters. "The amendments have focused on a reduction in the final customer price, resulting in broadcasters bearing the largest burden in the entire value chain," says Prashant Tarwadi, director - Corporate, India Ratings and Research.
Ind-Ra adds in its understanding of the amendment that the revised regulations stipulate a reduction in a-la-carte pricing for channels and a cap on bouquet prices in line with a-la-carte prices, which according to Ind-Ra would impact broadcasters’ profitability meaningfully. "Measures such as cap on network capacity fees (NCF) & carriage fees and a higher number of pay channels in base NCF sound optically negative for MSOs, but eventually would have a marginal impact as they are broadly in line with current on-the-ground ecosystem. Also, the reintroduction of discount on bouquet prices compared to a-la-carte channel prices is surprising, given that the Hon’ble Madras High Court had earlier ruled against it," adds Tarwadi.
The amendment directs broadcasters and distributors to submit the revised channel prices by 15 January 2020 and 30 January 2020 respectively, with full implementation from 1 March 2020. Ind-RA believes the broadcasters will see a negative growth due to this. It states, the earlier regulation essentially converted broadcasters’ business model to B2C (selling content to consumers) from B2B (selling content to distributors). Broadcasters have been selling their channel bouquet to end-customers rather than relying on MSOs. Hence, a continued investment in content remains critical for broadcasters.
"However, the revised regulation capping prices of both a-la-carte channel and channel bouquet may curtail broadcasters’ ability to invest in quality content. The risk is even higher for the sports genre, where content creation/acquisition costs can be more than in the news genre. Also, the regulation on channel prices discourages bundling weaker channels with strong anchor channels in the same bouquet. Hence, while the earlier regulation favoured broadcasters with a strong set of anchor channels along with a comprehensive set of weaker channels across genres, the revised regulation supports broadcasters with a strong set of anchor channels and relatively lean portfolio of weaker channels," assesses Tarwadi.