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NTO 2.0: Broadcast tariff hike might lead to customer churn from TV to OTT, DD Free Dish

TV customers are already paying higher subscription fees under NTO 1.0 due to the addition of the Network Capacity Fee

e4m by Javed Farooqui
Published: Oct 19, 2021 8:35 AM  | 9 min read
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The unbundling of general entertainment and sports channels from bouquet will lead to an abnormal increase in the price of TV channels, which will accelerate the subscriber churn from TV to OTT platforms at the upper end of the pyramid and from pay platforms to DD Free Dish at the lower end, say experts.

In a bold move, the broadcasters have decided to keep their driver channels outside the bouquet under New Tariff Order (NTO) 2.0. Sony Pictures Networks India (SPNI), Star India, ZEEL, and Viacom18 have filed new Reference Interconnect Offers (RIO) to comply with NTO 2.0.

Considering the restrictions placed by the Telecom Regulatory Authority of India (TRAI) on bundling, the broadcasters had to make a difficult choice of either continuing with the same bouquet composition by reducing the price of driver channels to Rs 12 or to pull out these channels from the bouquet and provide them as à la carte offerings to consumers at a higher price.

The broadcasters have settled for the latter, considering broadcast tariff has remained frozen for the last two years due to litigation. According to experts, the broadcast tariff for each TV home will go up by at least Rs 100. The TV customers are already paying higher subscription fees under NTO 1.0 due to the addition of the Network Capacity Fee (NCF), which is earned by the Distribution Platform Operators (DPOs).

The experts also note that the increase in TV bills will make OTT look more affordable in comparison. This will force many high average revenue per user (APRU) customers to shift to OTT. The subscriber migration from pay DTH platforms to DD Free Dish will also accelerate.

However, broadcasters feel that the price rise is the need of the hour, even if it means a further drop in pay-TV base. “We have not been able to increase our rates for the last few years because we had a status quo thanks to Bombay HC order. Our revenues are also going down due to churn. Distribution platforms have been losing subscribers for the last couple of years. The lower end of the subscriber is going to DD Free Dish, while the upper end is going to OTT. So the overall pay base has been shrinking. On one hand, it is shrinking and on the other hand, we have not been able to increase our rates. We were left with no option but to increase the rates. We know that it will lead to further churn but did we have any other option?” a senior TV broadcasting official said on condition of anonymity since the matter is pending before the Supreme Court.

The official added that the DPOs will face difficult times due to the price hike. “DPOs will face challenges since they have been losing subscribers in the last few years. The industry lost 9-10 million subscribers in NTO 1.0 and in the last one year, they again lost 7-8 million subscribers because of the pandemic. Also, don't forget that DD Free Dish has reached 40 million from 20-25 million. Subscribers have been moving from pay to free platforms and from linear to digital. DPOs are under pressure and the price rise will be a big challenge for them. The monthly TV bills will go up by roughly Rs 100 and this price hike is important because we have the cheapest cable service in the world. The ARPU has to go up. Stakeholders will earn more only when the ARPU goes up,” the official noted.

According to a top official from a distribution firm, the double-digit hike in base bouquets will make TV a costly affair in comparison to OTT. The official noted that the annual price of base bouquets will come to around Rs 4800-5000 whereas annual subscriptions to OTT platforms like Amazon Prime Video, Disney+ Hotstar, SonyLIV, ZEE5, Sun NXT, and Voot Select is roughly Rs 3600.

“This is the worst thing for consumers because they will end up paying more compared to NTO 1.0. In terms of apple to apple comparison, Star's base bouquet price for HSM has gone up to Rs 69 from Rs 49 in NTO 1.0. ZEEL's HSM base bouquet of Rs 39 has become Rs 49. Sony's HSM base pack has increased from Rs 39 to Rs 71. IndiaCast's HSM bouquet which used to cost Rs 30 is now costing Rs 38-39. The combined annual price of six OTT platforms is cheaper than base bouquets. Amazon Prime Video (Rs 999), Disney+ Hotstar (Rs 499), SonyLIV (Rs 999), ZEE5 (Rs 499), Sun NXT (Rs 450), and Voot Select (Rs 299) will cost Rs 3745 compared to Rs 4800-5000 that TV customers will have to shell out just for the base pack. At Rs 300 per month, one can get all the relevant content from broadcaster-owned OTT platforms plus Amazon Prime Video and here people will have to shell out Rs 400 per month just for the base pack,” the official elaborated.

He noted that the resulting subscriber churn will be due to the regulator's restrictive policies. Another fallout of the price hike will be the impact on smaller channels. “The price rise will also make smaller channels unviable since consumers will only pay for relevant channels even if it means settling for a lesser number of channels. NTO 2.0 is not good for consumers and neither for the stakeholders. I don't know who is going to benefit from this,” the official said.

The official further stated that regional channels will become strong. That said, regional markets with a large overlap between Hindi and the local language will get impacted big time. “Regional is poised to become strong. The markets that will get impacted the most are Marathi and Bengali. Markets with dual languages that have overlap between Hindi and regional language s will get impacted. In Bengaluru, there is an overlap of three to four languages. That market will get impacted because people will not be able to afford multiple driver GECs. In the Marathi market, if somebody wants Zee TV and Zee Marathi, they will have to shell out Rs 50 just for these two channels. If somebody also wants Colors Marathi or Star Pravah then the price will move up even further for just these 4-5 channels,” he averred.

According to a senior executive with a DTH company, the price hike is good for DPOs, but it will also lead to churn, which is a bigger headache for pay platforms. “TV distribution will come under a lot of stress since consumers don't want to pay so much money for all these channels. For example, if someone opts for just Zee TV, then they will have to pay Rs 264 annually just for one channel at Rs 22 per month. Similarly, they will have to pay separately for Colors, Star Plus and Sony TV. Instead of spending so much money on one or two channels, a customer can get much more content by taking an annual OTT subscription,” the executive said.

NTO 2.0 and the decision by broadcasters to keep driver channels out of bouquet has the potential to destabilise the Indian pay-TV market. “This will destabilise the distribution industry as people are very price-conscious. Many customers will simply stop their TV subscription rather than pay extra bucks for these channels. Globally, there is little interest in consuming content on linear channels, barring live sports. A similar trend is playing out in India. TRAI needs to realise that the industry has changed dramatically rather than burdening the stakeholders with new regulations,” the executive stated.

He also said that the broadcasters will see lesser impact compared to DPOs. “Broadcasters have various other revenue streams like OTT and FTA, but for DPO the single income is NCF. If customer churn increases, the DPOs will take a huge hit. In any case, our subscriber base has been shrinking in the last two years. DPOs were anyway going through a difficult time. The price hike by broadcasters will only make it worse for DPOs. The price rise is profitable for us, but on the other hand, it will lead to customer churn which will hamper our long-term growth,” he added.

The CEO of a Cable TV company said that the bouquets might lose their relevance as customers may opt for à la carte channels. “Customers might take à la carte channels and leave the bouquet. DPOs will also not gain anything by pushing bouquets. We only get 20% commission on bouquets, whereas we stand to earn 35% on pushing à la carte offerings. Our interest lies in selling à la carte due to the higher earnings. Second, the bouquet rates are low while à la carte rates are higher, so we stand to earn more from pushing à la carte,” he stated.

On the hypothesis that the broadcaster-owned OTT platforms stand to gain due to customer churn from linear to digital, the CEO said that the low broadband penetration means that the losses will outweigh the gains. “Maybe the broadcasters want to push their OTT platforms as they are confident of selling their content on a B2C basis. However, there is a small issue which is the low broadband penetration of just 8%, and it will take at least 10-20 years to take that to 90%. Till then, broadcasters will have to depend on linear television and DD Free Dish.”

The cable TV executive also said that the NTO 2.0 is not loaded in favour of DPOs as there is a cap on NCF that they can charge from customers. “Unlike broadcasters, who can charge anything for channels outside the bouquet, DPOs cannot charge anything above Rs 160 on NCF. That is a challenge for us. We also have to offer discounts on NCF to keep the customers happy. The NCF earning from second and third TV is also not that promising.”

According to a senior regulatory official with a leading broadcasting firm, the TRAI has been favouring DPOs when it comes to framing regulations. He cited examples of regulations like dismantling content aggregators and bringing commercial establishments at par with residential customers. The NTO 2.0, he said, is also designed to benefit DPOs as they have a fixed earning of Rs 160 from NCF in addition to getting commission from broadcasters on selling bouquets and à la carte channels.

“TRAI only understands the pain of the DPOs. They don't care about the broadcasters. The price rise during NTO 1.0 happened due to NCF, but the TRAI wants broadcasters to reduce prices. There was no need for amending NTO 1.0 and putting further restrictions on bundling. Broadcasters are doing what TRAI wanted us to do. We have decided not to keep driver channels in the bouquet as the Rs 12 MRP cap is not viable. The price rise will happen due to TRAI's policies of putting curbs on bouquets. Now that the broadcasters have increased the MRP of their driver channels, will the TRAI also regulate that?” the official asserted.

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