NTO 2.0: Broadcast industry set for another disruption?

Broadcasters believe NTO 2.0 is a disruption that will destabilise the industry business. On the other hand, TRAI claims it will fix the gaps that the first one did not; consumer bills will go down

e4m by Naziya Alvi Rahman & Sonam Saini
Updated: Jan 13, 2020 9:11 AM

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2020 indeed did not start on a happy note for the television industry with all broadcasters staging a protest against the New Tariff Order 2.0 passed by the Telecom Regulatory Authority of India (TRAI) on January 1, 2020. The order came even before they had finished with the struggles of implementing the first one. Now the broadcasters are worried that the new order will push them to start the entire pricing cycle all over again. 

Going by the broadcasters, the implementation (including promotions/publicity) of the first order itself had cost them Rs 1000 crore. It even resulted in a loss of 12-15 million subscribers during the process yet they were bearing with it. Now the blow of another order is something the industry is just not ready to take on. Industry veterans have already come out and announced without mincing words about their plans to take this to the courts.

In a collective stand on Friday, NP Singh, IBF President & Sony Pictures Network India MD and CEO said this disruption will destabilise the business. “Any industry and especially one that is regulated looks forward to a stable and consistent regulatory regime that works for the benefit of all stakeholders. As broadcasters, we expect a stable regulatory regime, which is necessary to enable long-term business planning and a strategic approach towards investments. This is absolutely critical to enable us to provide the best of content to our consumers, more so in these times of rapid technological change,” Singh said.

According to sources, even the MSOs have taken issue with TRAI regarding NTO2.0. Meanwhile, All India Digital Cable Federation (AIDCF) has already moved Kerala High Court against TRAI’s interconnection agreements regulations. The local cable operators feel that NTO 2.0 will only benefit the broadcasters and MSOs and LCOs will suffer the most. 

Maharashtra Cable Operator Foundation (MCOF) President, Arvind Prabhu said that they are not fine with the NTO 2.0. “The primary reason is that TRAI has curbed our NCF. Earlier it was Rs 150 for 100 channels now they have increased the number of channels to 200. Also, earlier it was an additional Rs 20 for next 25 channels now they are saying that DPOs can’t cap more than Rs 160 per month which will certainly impact our revenue streams. We also oppose that for the second TV set they said we should give a 40% discount on NCF. With NTO 1 we started to stabilise after six months- one year of the implementation, now we again will have different rates. The new framework is not possible in the given period,” said Prabhu.

He further explained that TRAI’s claim that it will eventually benefit the consumer may also not turn out to be true as all key channels are paid ones and broadcasters can continue to charge higher rates for them. “There are around 1200 small MSOs in the country. In smaller towns the head end capacity is only 200 channels, therefore how are they going to offer 200 channels plus mandatory channels by MIB? In order to do this, they have to invest in 100 new channels at hardware, it's an unnecessary burden for them,” he added.   

NTO 1.0 vs NTO 2.0

Below are the main concerns raised by the broadcasters and MSOs post announcement of the second order:

In the previous order, the Network Capacity Fee (NCF) was set at Rs 130 (excluding taxes) for 100 Free to Air (FTA) SD channels, however, in NTO 2.0 the NCF cap remains the same as Rs 130 but the number of channels has increased to 200. Additionally, it has been decided that channels declared mandatory by the Ministry of Information and Broadcasting (MIB) will not be counted as part of channels in the NCF. This beats the intent of the regulator to help reduce the price for the consumers. They will be forced to pay Rs 130 for free channels while they will still be paying extra for the paid channels they wish to watch.

However, considering that the cost of the paid channels has now been capped at Rs 12 against Rs 19 in past, the consumer bill should reduce marginally. This will further lower broadcasters' revenue who only get 25% of the bill amount. As per the order, 60% of the consumer bill goes to the distribution platforms, 15% towards taxes and only 25% reaches the broadcasters. This is despite the fact that it is the broadcasters who creates the content, invests in talent and capability.

“Content is king and broadcasters invest substantial resources in producing and acquiring world-class content, be it entertainment, knowledge or live sports. By packaging a variety of genres in economically priced bouquets, broadcasters offer the Indian consumer world-class news, sports, movies, music and entertainment at affordable prices,” Singh said while raising objection to the new pricing.

First tariff order further gave 25 SD channels at Rs 20 and for HD channels one had to pay the amount applicable for up to two SD channels. Whereas in NTO 2.0, DPOs have been mandated that they will not charge more than Rs160 per month for providing all channels available on their platform. When SD and HD channels are clubbed together in a bouquet, the same price reduction is applicable to both in spite of HD being a premium offering. Additionally, using regulation to limit the number of bouquets being offered to consumers is fundamentally restricting consumer choice, given the large variability in consumer preference across 200 million TV homes.

What are consumers expected to gain?

When it comes to the consumer, in the previous system, they paid Rs 130 (excluding taxes) for 100 FTA channels but now the consumer will have to pay Rs 130 (excluding taxes) for 200 FTA SD channels. Now consumers can watch more channels by paying less fees. However, the question remains if the consumer is interested in the content offered to him in these 200 free channels?

Broadcasters are claiming this is just a number as they will still have to pay for all the premium channels that they want to watch. Moreover, most of the channels that they are selling at Rs 130 are anyway available for free on DD free dish. 

Also, TRAI has a mandate that operators cannot charge more than Rs 160 per month for all channels available on their platform. Earlier in NTO 1 there was no cap on the maximum number of channels in the FTA category. So now even if you select 10 paid channels your total bill will be between Rs 250 to Rs 280 against Rs 350 to Rs 500 (depending upon the package) in pre-tariff order days.  

TRAI’s defence

According to TRAI, the NTO 2.0 has been brought in to cover the shortcoming of NTO 1 which the body realised after implementation of NTO 1 early last year. The authority said it has analysed comments of stakeholders particularly to protect the interests of consumers and accordingly modified certain provisions of the new regulatory framework.

 “The new framework has been planned and made considering all repercussions to all the stakeholders and it will benefit everyone in the ecosystem,” said SK Gupta, Secretary, TRAI.

 He highlighted that “When we circulated the consultation papers in September, they (broadcasters) were telling us that there is no need to have any changes because we are all very happy. We are sensitive to the developments happening in this sector. There was some tweaking that was needed to ensure that the very purpose of the regulation is fulfilled and accordingly modification has been done.”

Gupta further explained that when the NTO 1 was implemented most of the things like the transparency of the rates to the consumers, the money which has to be given to DPOs directly, the freedom to the broadcasters to price their channel and the permission of bouquet was done. Unfortunately, it was done in such a manner that in certain cases DPOs and primarily the broadcasters formed the bouquet in a manner where consumer interest was not taken into account. For instance, the GEC channels which happen to be in the range of Rs 8 -9 all were planned and priced at Rs19.

 When asked if we can expect an NTO 3.0 too? Gupta said they are driven by consumer demand if the need be they may have to.

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