Spotlight: How TRAI's tariff order could change the broadcast game in India
If the tariff order manages to pass the litmus test before the law, it would drastically alter the manner in which channels are offered by broadcasters/distributors, impact channel pricing and disrupt existing subscription revenue model
The fate of the domestic broadcast industry depends on a judgement which is to be pronounced shortly by the Madras High Court in relation to the tariff order devised by the Telecom Regulatory Authority of India (TRAI). If the tariff order manages to pass the litmus test before the law, it would drastically altogether alter the manner in which channels are offered by broadcasters/distributors, channel pricing and disrupt the existing subscription revenue model. According to this tariff order, broadcasters are required to offer their pay channels on a standalone or a-la-carte basis. They have to declare the monthly maximum retail price (MRP) of the channel with the condition that no pay channel which is a part of a bouquet is priced above Rs 19. Free-to-air (FTA) and pay channels have to be segregated in different bouquets with the MRP of a pay channel bouquet being not less than 85 per cent of the standalone cost of all the pay channels forming it.
How are broadcasters expected to react?
“Nobody wants to disturb the status quo,” remarked the ad sales head at one of the country’s biggest media houses, hinting at powerful broadcasters and DTH operators who are opposed to the set of reforms initiated by TRAI. The broadcast veteran stated that most news channels are FTA. Therefore, the real impact of the pricing as laid down by TRAI will be seen on general entertainment channels (GECs). Maintaining that discounts being offered by broadcasters at the moment are too many, the source reasoned that bundling will disappear. “It will become a price game,” the source insisted, labelling the market as price-competitive.
Comparing the bouquet system to a hotel buffet, the senior broadcaster added that the preference of a consumer changes the moment he/she is provided with a menu like the a-la-carte rate card. “Good channels will be picked up. Others will be shed,” said the source, adding that the consumer will go after the driver channels while ensuring that his/her monthly expenditure on subscription goes down. Earlier, if a subscriber was being forced to buy 200 channels, he/she will become choosy now and may just buy 50 channels. Therefore, the source emphasized that not only will the broadcasters/distributors lose money with a reduction in the monthly bills of subscribers but the reach of some channels will drastically fall.
A media pundit who leads an agency also lent some insight into the subsequent developments in the event of the tariff order overcoming legal obstacles. As per his assessment, subscribers will recalibrate, buy the channels they watch and try to keep their costs down. “Consumers will ask themselves, can I save something and get the channels I want,” said the source. However, there will be a “momentary” and not a “drastic” drop in subscription revenues. On the other hand, broadcasters and distributors will have to identify opportunities within the given set-up. They may opt for dynamic pricing with frequent or monthly changes in the rates of channels. For instance, the price of a sports channel during the IPL or cricket season can be taken to the highest possible price point whereas it can be brought down to a low range when no such mega events are taking place, stated the source.
With the new regime set to come into effect from the month of September, broadcasters and distributors will have to gear up for a number of operational difficulties which they might encounter. Broadcasters have enough reasons to worry considering the looming threat of reduced reach and fall in subscription revenues. They are wary of heightened carriage fees which the distributors may demand in the event of a large number of pay channels switching to FTA. Currently, there is some murmur regarding state cable operators asking for 3X carriage fees from news broadcasters. Sources at an industry association told exchange4media that such decisions are within the domain of individual distributors and should be directed towards them.
The former Group CEO of a large media network, who has even led DTH and MSO platforms, offered a slightly different take though. Acknowledging the “new regime as the right way forward”, he felt that the Reference Interconnection Offers (RIOs) “can never become operational” if broadcasters were to hold on to the current pricing. At best, it was reasoned that the subscribers may increase, if at all, their expenditure by 10-15 per cent. But they will certainly not double or triple their expenses. Therefore, if they are being asked to pay Rs. 80 just for watching three to four GECs, they will not be able to spare enough money for the remaining categories of channels. “Broadcasters must revisit their pricing model,” said the source, suggesting them to forget about the MSOs and think about the subscribers.
On the question of carriage fees, the executive noted that it was a big question mark at the moment and dependent on factors like channel placement. “If pricing is high and demand is low then nobody will offer you prime frequency,” mentioned the media veteran. In order to solve these pressing concerns, broadcasters need to come together in a show of solidarity which does not exist at the moment. Despite the Indian Broadcasting Foundation, an intervener in the case, opposing the regulations, the Madras HC observed, “Though this entity (IBF) would support the plea for stay, we are informed that many broadcasters, who are said to be under its wings, are now in favour of the impugned interconnect regulations and tariff order.”
Challenges before distributors
Distributors have been given the right to declare the monthly distributor retail price for the pay channels and bouquets. But the standalone rates of the pay channels as determined by the distributors and which are directly payable by the subscribers cannot exceed the MRP set by the broadcasters. In the case of bouquets too, the rates decided by distributors cannot be less than 85 per cent of the distributor retail prices of the pay channels forming that bouquet. TRAI’s reason for doing this has been well articulated in the notification dated March 3, 2017. As of present, TRAI has claimed that the a-la-carte rates of channels are disproportionately high when compared with the bouquet prices which show that there is no correlation between the two. “As per data available with TRAI, some bouquets are being offered by the distributors of television channels at a discount of upto 80-90 per cent of the sum of a-la-carte pay channels constituting those bouquets,” mentioned TRAI. Going further, it highlighted that the bouquets formed by broadcasters contained very few popular channels.
The choice which is provided to distributors is to either buy the bouquets or be denied the popular channels. “To make the matters worse, distributors of television channels have to pay as if all the channels in the bouquet are being watched by the entire subscriber base, when in fact only the popular channels will have high viewership,” argued TRAI. Even distributors push channels to maximum number of subscribers to recover their costs. At the end of the day, a situation is created wherein subscribers are forced to buy bouquets instead of individual channels and they ultimately have to bear with unwanted channels as part of their pack. The TRAI’s tariff order focuses on undoing this structure and protecting the end consumer. Hence, they have capped the network capacity fees also which is payable by subscribers to distributors at Rs. 130 per month for availing an initial capacity of 100 standard definition (SD) channels.
The direct-to-home (DTH) operators, however, seem to be a divided lot when it comes to opposing TRAI’s tariff order. Tata Sky, which is a joint venture between Tata Group and Star’s parent company 21st Century Fox, views it as a regulation which cannot be realistically implemented. Alongside Airtel Digital TV, Tata Sky has challenged the regulations before the Delhi High Court with the matter scheduled to come up for hearing next on August 16.
It is noteworthy to mention here that Tata Sky and Airtel Digital TV are reportedly in merger talks which are rumoured to have fallen apart. Though the two petitions were filed separately, they are being heard together. Holding the regulations to be in contravention of Article 19(1)(G) i.e. the right to carry out business freely, the petitioners have called for the quashing of the same. Some of the DTH operators are miffed at being treated on par with multiple system operators (MSOs) by TRAI. The regulator, on the other hand, is not repentant. “The DTH operator, while making the argument that the input cost is higher to them compared to MSOs, had ignored the fact that MSO also incurs cost of developing ground infrastructure and engagement with LCOs (local cable operators), and handles manpower on the ground infrastructure,” said TRAI. It is firm in the belief that there is enough scope for both to create profit margins within the prescribed framework.
In its legal battle against aggrieved broadcasters and DTH operators, TRAI has received the support of All India Digital Cable Federation (AIDCF). The representative body of nearly 10 MSOs, including Subhash Chandra’s Siti Cable, is an intervener in both the cases being heard by Madras HC and Delhi HC, respectively. Besides AIDCF, more than 1,000 MSOs haven’t objected to TRAI’s tariff order in the courts so far. But the same consistency is invisible on the side of DTH players. Being an intervener before the Madras HC, Videocon d2h is backing TRAI in sharp contrast to Tata Sky and Airtel Digital TV. It would be naive to analyse Videocon d2h’s position in isolation given their merger with Zee Entertainment’s Dish TV. With the latter going ahead and releasing the “Mera Apna Pack” initiative a month before the tariff order kicks in, it has become increasingly clear that DTH and MSO platforms controlled by or aligned with Zee Entertainment are siding with TRAI.
Contention of the petitioners & respondent’s viewpoint
Star India and Vijay TV, the petitioners before the Madras HC, have argued that TRAI’s tariff order is a gross violation of its jurisdiction. They have insisted that certain provisions of the tariff order are infringing on the Copyright Act of 1957, which is a complete code of governance as far as broadcast organizations are concerned. While maintaining that TRAI can regulate carriage but not content, they have repeatedly criticized the regulator’s tariff order for pricing content by imposing ceilings/restrictions on both standalone cost of channels and bouquet discounts.
On the question of the tariff order violating provisions of the Copyright Act, TRAI’s position is that there is no overlap between TRAI Act of 1997 and the former legislation. Citing a notification issued by the central government in 2004, TRAI has stressed that it can regulate tariff, interconnect and quality of service issues pertaining to the broadcast sector. They claim that this mandate is also backed by clause 5.10 of the policy guidelines issued by the Ministry of Information and Broadcasting in 2011 and Rule 9 and 10 of Cable Television Networks Rules, 1994. According to TRAI, their mandate has been time and again validated by courts including a judgement delivered by the Delhi HC (2007) in a petition filed by Star India which was subsequently upheld by the SC. If their word is to be believed, they are regulating channel pricing and not individual components of content which strictly rests with the content producer.
What could be the verdict?
Although exchange4media approached nearly 20 top-notch executives from the different industry associations, broadcast companies, carriage firms, and media agencies for comments, not even a single individual chose to respond. It was probably owing to the sub judice nature of the matter.
If the regulations are upheld, the entire Indian broadcasting scene is bound to undergo a tectonic shift. But the prevailing of Star India’s plea will deliver a major blow to the efforts of TRAI with the regulator’s twenty months of hard work becoming redundant. The process began on January 29, 2016 when TRAI floated a consultation paper on “Tariff issues related to TV services” as a response to which it received 60 comments and 10 counter-comments from various stakeholders involved. The government regulator held two open house discussions on the subject in New Delhi and Raipur on April 8 and 21, respectively. Post that, TRAI issued the draft tariff order on October 10 which garnered a sum total of 135 comments from the stakeholders. The following year on March 3, the Telecommunication (Broadcasting and Cable Services) (Eight) (Addressable Systems) Tariff Order, 2017 was notified.
Terming the dispute between broadcasters and TRAI as opaqueness versus transparency, a media professional specialising in revenue generation said, “In the interest of transparency, it (the regulations) will go through.” The source conceded that the biggest reason behind this would be the current khichdi state of affairs wherein subscribers actually do not understand the pricing mechanism they are being subjected to. However, the assertion did not go uncontested. “There is no way anybody can dictate a detailed pricing structure,” said the Managing Director of a media agency, emphasizing that India is a democratic country and not a dictatorship. Giving the example of Colgate, the media executive said that if the price of toothpaste cannot be fixed by the government then how a consumer product like entertainment can be subjected to such a treatment. Talking about mineral water bottles sold at airports, the source argued that the price of that particular commodity is relatively higher at a certain place because of the superior rental rates. Yet people are buying. “The government cannot control. Companies and businesses will find a solution,” said the source, sticking by the argument that TRAI has overstepped its jurisdiction.
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