NTO 2.0: Implementation order by TRAI ignores reality of TV business
Industry experts believe the sector is already going through a rough phase due to COVID and implementation of NTO 2.0 will further put pressure on the business
The television industry, which is already under pressure because of the coronavirus pandemic hitting the advertising revenues hard, recevied yet another blow on Friday as the Telecom Regulatory Authority of India (TRAI) asked broadcasters to implement the New Tariff Order (NTO) 2.0 by August 10.
The industry had objected to the order even when it was notified in January this year. Some broadcasters had moved the Bombay High Court stating that the order is impunging on price control. The matter is currently subjudice. Later in May, Information and Broadcasting Minister Prakash Javadekar assured broadcasters/IBF members that NTO 2.0 will not be implemented any time soon. However, just two months after the assurance, TRAI now wants broadcasters to implement the order.
Leading players and industry experts believe this is not the right time to impose new regulations as the industry is already going through a rough phase and implementation of NTO 2.0 will further put pressure on the business.
“Why Now?” asks Partho Dasgupta, Management Consultant and ex-CEO of BARC India. “The regulator is supposed to facilitate business. We all know what broadcasters are going through in these tough times. This is not the time to rub salt on the wound,” he says.
Dasgupta's remarks pretty much sums up the mood of the entire industry.
According to Elara Securities (India), the rule in NO 2.0 that the sum of ala carte forming a part of bouquet can’t exceed one and a half times of the bouquet price will leave a negative impact for the broadcasters. "This clearly implies that the discounting of ala carte versus bouquet can not exceed more than 34%. Currently, the broadcasters are giving a discount of almost 60%-80% on their bouquets versus the a la carte pricing," it stated.
Another key implication of NTO 2.0 that channels priced above Rs 12 can't be part of a bouquet, according to Elara Securities, will have a neutral impact as the same norm was mentioned in the NTO 1.0 too wherein a channel which is above Rs 19 cannot be a part of the bouquet. "Broadcasters usually won't charge more than Rs 12 as 93% of the revenue is from bouquet and only 7% is ala carte based," it said.
Karan Taurani, VP – Research Analyst (Media), Elara Securities (India) , feels that NTO 2.0 will lead to lower ARPU for TV which has shot up by almost 60% on an average post NTO 1.0. “Lower ARPU would mean a lower share of revenue for the broadcasters (who were getting almost 50% share post NTO 1.0). We expect the share to remain similar, but the absolute distribution revenue to move down substantially,” he said.
Taurani also predicted an enhanced movement towards selective viewing as few consumers may move towards a la carte due to price correction. Also, the size of bouquet will come down in terms of channels from about 8-10 channels to 3-4 channels which will lead to a big management problem for distributors. “Ad spends will see a negative impact for sure due to the transition phase just like it did during NTO 1.0. This will have a negative impact on TV ad growth in H1CY20. However, it won’t be just as subdued as last time as this has only few changes.”
While speaking about the financial implications, Taurani said, “Overall, this move will have a negative impact on broadcasters subscription revenue which has grown at almost 30%-40%YoY due to higher share and increased ARPU. With Jio pushing its Jio TV offerings which has access to channels free of cost for Jio subscribers, we believe the TV channel monetisation will go through a major disruption in the near term.”
“We have been having a positive stance on broadcasters, given the increased time spent (on TV viewing) in recent past due to COVID and better subscription revenue growth prospects. The above (NTO 2.0) was always an overhang and a risk to our call which will lead to earnings downgrade if implemented. Our channel checks indicate that this order will be further challenged by the broadcasters and uncertainty remains on when it would be implemented.”
According to Pawan Jailkhani, Chief Revenue Officer, 9X Media, though NTO 2.0 has some valid/debatable points and there is some merit in NTO 2.0, this is not the right time or the year to implement it.
He said, “We are in the middle of a huge crisis where revenues are under stress. When the industry is already going through a lot of churn and stress, this is not the right time to disrupt it again. This should be deferred. The timing is extremely bad. This will disrupt the whole ecosystem. We are trying to get up now for the festive season and this is avoidable. As an industry, we should right now focus to sustain and increase subscription revenue. All broadcasters are right now building up the advertising revenue. We haven’t yet come out from this pandemic. This move will further kill the industry to a large extent.”Asking broadcasters to implement the order, TRAI on Friday said, "To promote orderly growth of the sector and to balance the interests of service providers and to safeguard the interest of the consumers, it is necessary to give effect to the Tariff Amendment Order 2020 and Interconnection Amendment Regulations 2020 without any further delay."
The regulator has directed broadcasters to publish details such as maximum retail price per month of channels and maximum retail price per month of bouquets of channels, composition of bouquets and amended RIO (Reference Interconnected Offer), among others on their websites by August 10.
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