Market Insight

New channel tariff regime aims to increase transparency in Indian TV market

December 19, 2018

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The Telecom Regulatory Authority of India (TRAI) has introduced a new tariff regime to all Indian broadcasters, with the aim of providing more transparency between broadcasters and pay TV operators, and more choice for the consumer.

The new regime will come into effect from 1 January 2019, and broadcasters are expected to list new channel carriage fee prices on their websites ahead of the implementation. As of 16 December 2018, Zee Entertainment and Star India had listed new prices ahead of other broadcasters.

The new tariff order has also introduced a number of key changes in the pay TV market in the country. These changes surround the bundling methods of broadcasters and pay TV operators, with a restriction on operators combining free and pay channels in the same package coming into force. Another restrictive element states that high definition and standard definition formats of the same channel are not to be included in the same package.

Following implementation, broadcasters and pay TV operators may continue to provide bundles, but at the same time must offer channels on an a-la-carte basis. Consumers will be billed monthly, rather than committing to long term contracts. 

Our Analysis

TRAI plans to achieve two major goals by introducing the new tariff. The first is to force both broadcasters and pay TV operators into a more transparent way of conducting their business with one another. An expected result from this is an increase in visibility of taxable revenues for the government. The second major goal is to offer more consumer choice, allowing customers to make their selections of content on a fair and non-discriminatory basis. Depending on the area, consumers tend to pay between 200 and 400 Rupees on average ($2.83 to $5.66) for a bundle of 250 channels. Under the new tariff regime, they will have the option to select and pay only for the channels they want to watch. 

Historically, when cable TV infrastructure was still predominantly analogue, pay TV operators had little incentive to promote the a-la-carte carriage of channels due to the comparatively higher subscription fees that a package of channels can offer. Meanwhile, broadcasters, when signing distribution deals with cable & satellite operators, did so at a pre-determined single rate per-subscriber per-month (Cost Per Subscriber-CPS). This method therefore brought with it a certain level of uncertainty to the broadcaster regarding which channels were being watched. As a result, under a CPS regime the broadcast favours a situation where its channels reach the largest potential audience - which is often via channel bundles.

The process of digitization and government regulation has resulted in a new form of content distribution deal being introduced: the Reference Interconnect Offer (RIO). In contrast to the CPS method, under a RIO the pay TV operator pays the broadcaster only for those subscribers who have chosen the broadcaster's channels, providing more visibility to the broadcaster. This is more favourable for India's major broadcasting houses (Star India, Sony, ZEE, Viacom18) since ownership of the most popular channel brands can result in around 20% more revenue than a CPS deal.

Effects of the new regime

From one point of view, the new tariff regime provides more power to the consumer coming from the option to select (and pay for) only the channels that they want to watch. However, one potential side effect from encouraging the a-la-carte model is the potential inflation of the consumer end-price. This comes from the requirement of broadcasters to declare a maximum retail price (MRP) for each channel offered on an a-la-carte basis. This price will ultimately be reflected in the amount the consumer has to pay in order to watch the channel, independent of the platform being used. 

In the case where a channel is offered bundled with other channels in a package, the broadcaster and the pay TV operator are entitled to offer a discount. The amount of discount has been a topic of hot dispute lately. Some broadcasters and pay TV operators have been known to offer discounts to the range of 35% to 55% of MRP, in an effort to sell less popular channels bundled in with more popular ones. As a result of heavy discounting, the government has introduced legislation dictating that the price of any channel within a package cannot be lower than the 85% of its MRP. India’s major broadcasting houses have adopted a negative stance towards this legislative initiative, with some (such as Star India) challenging the new law via India’s Supreme Court. A final decision has yet to be reached on this, meaning broadcasters and pay TV operators are still able to offer discounts higher than 15%.

For consumers the new tariff regime looks like a double-edged sword: it offers them more choice but on the flip side it may drive up the price of content. In major metropolitan areas like New Delhi and Mumbai, the price of packages may rise by 10% - 20%, according to calculations made by an industry body representing cable TV operators. However, customers residing in semi-urban and rural areas could possibly face price rises in the range of 40% to 50%. While prices rises are not new to cable customers in India, with fees having previously rose as result of digitization of cable networks, customers living in rural and semi-urban areas may be adversely affected. For cable operators, passing on higher prices to consumers brings with it fear of subscriber churn, yet not passing higher carriage fees on to consumers raises the possibility of higher costs.

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