Since 2020, NTO 2.0 has been a raging battle between a top government body—Telecom Regulatory Authority of India (TRAI) and the broadcasters in the world’s second largest television market. The past few days have been vaguely reminiscent of a game of chess, and the latest move by the broadcasters to phenomenally increase the à la carte prices of their top TV channels and exclude them from the bouquets is like a checkmate to TRAI’s objective to reduce the cost of subscription for TV viewers in the country and provide them the freedom to choose and pay only for the channels they wish to watch.
But just when it appeared like NTO 2.0 will meet the fate of NTO 1.0, with the new guidelines seeming to backfire on consumers once again, TRAI hinted at the possibility of striking down the broadcasters’ big plan. The government body in a statement said, “TRAI will also keep a strict watch over the developments and will not shy away from reviewing certain provisions including forbearance allowed to broadcasters in the larger interest of consumers and the Broadcasting Sector.”
As it stands right now, there seem to be no winners in the game – not broadcasters, not consumers, not DPOs and not even TRAI. The networks may have decided to offer GECs on an à la carte basis risking the possibility of a drop in the reach of their channels, but it will prove to be a costly affair for consumers. A drop in reach will impact both the subscription and advertising revenues of the broadcasters. If the prices go up as expected, the DPOs risk losing customers to either DD Free Dish or OTT. The consumers will be worse off as they may have to pay more for less number of channels.
While a definitive move from TRAI in response to broadcasters is still awaited, ahead of the Supreme Court verdict on 30th November on the implementation of NTO 2.0, IMPACT goes back in time to understand how the matter unfolded over the past year and a half, and what its implications will be on the broadcaster ecosystem and the consumers at large.
The beginning
When the first-quarter results of the broadcasters and distribution platforms were announced in 2020, all of them had reported a significant spurt in their subscription revenue. Obviously, they had begun reaping the benefits of the new tariff order (NTO) that the telecom regulatory authority of India (TRAI) had announced in February 2019. The sector had started looking up. But did the NTO augur well for the consumers too? After all, it was woven around the premise that pay TV consumers must have choice and affordability while choosing their TV channels.
The regulator had believed that the NTO will “usher in a new era for TV consumers”. However, nothing like that happened. Analysing the NTO, the credit rating agency CRISIL had pointed out that “based on current pricing, the monthly TV bill can go up by 25% from Rs 230-240 up to Rs 300 per month for viewers who opt for the top 10 channels, but will come down for those who opt up to top 5 channels”. The impact of the new tariff order was loud and clear. While the broadcast community was witnessing robust growth, the Indian Pay TV consumers were left with only one choice. Either pay inflated monthly TV bills or limit their choice of channels to rein in their monthly bills.
TRAI, which is also the broadcast regulator, saw the need to regulate tariffs in the broadcast industry. Most of the subscribers had reconciled to the bundled package of channels that came with a long tail of channels with low entertainment value. Consumers were paying for the content that they hardly watched. A Broadcast Audience Research Council (BARC) study of 2018 had revealed that nearly 90% of TV homes watch less than 50 channels out of the universe of around 800 channels. The NTO was aimed at bringing in transparency in the operation of each value chain while offering greater freedom of choice to consumers.
Why NTO 2.0?
When the regulator witnessed that the regulation had not succeeded in passing down the benefits in terms of choice and affordability to consumers, it sought to bring in amendments to “address the teething issues faced by consumers, while balancing the interest of broadcasters as well as DPOs to create the level playing field”. The regulator highlighted that most broadcasters offered their channels bundled into bouquets in such a way that they were priced cheaper than the à la carte price of any channel in the bundle. This robbed the consumer of the freedom to choose an à la carte channel and keep the monthly bill to a minimum.
The NTO brought transparency and uniformity in negotiations and price-setting among broadcasters and DPOs. Before the NTO, the television broadcasters and distributors negotiated to decide a channel’s price. NTO made the pricing determination more process-driven and pre-determined. As per TRAI, all the reforms in the distribution infrastructure would eventually trickle down as benefits to the end consumer.
The social conscience of NTO 2.0
The NTO 2.0 attempted to address the anomalies that it observed in the original tariff order, and bring in even more flexibility in the selection of channels to consumers at an affordable cost. Overall, the NTO 2.0 sought to address three key areas:
1) The bundling of channels under bouquets — The Indian Broadcasting and Digital Foundation (IBDF) argued that the ‘bundling of channels’ was a practice followed across the world including in mature broadcast markets. It helps in providing “better service to subscribers allowing more consumer choice, variety and differentiation for subscribers”. The practice encourages greater advertising spend directing far better advertising revenue for producers as well as broadcasters resulting in better content quality, lower production cost, eventually benefitting the consumer.
2) Rampant discounting within bouquets – TRAI on the other hand felt that the consumers were still getting saddled with unwanted channels under the pretext of ‘bundling’, and channel producers were offering rampant discounting within bouquets to drive their subscription revenues rather than consumers’ interest.
3) The lack of consumer choice – The IBDF argued that ‘bundling’ of channels was a more democratic way of accessing TV content and taking care of the choice of a household with members of different demographic profiles – young, old ,and children. The foundation said that the fact that 80% of subscribers in India have chosen bouquets, “clearly shows that consumers have made their choice”.
Through the NTO 2.0, TRAI made it clear that the ‘bundling of channels’ as was in practice had failed to reach the desired objective of offering consumers choice at affordable prices. It announced the reduction of a channel MRP from Rs 19 to Rs 12 in the amended order, and introducing the twin conditions on the price cap will ensure ‘fair bundling’ and discourage ‘unfair bundling’, resulting in a better choice for consumers. If the broadcasters were offering 50% discount on bouquets, the regulator said they were doing this to force consumers to buy their bouquets instead of a-la-carte channels.
Within a fortnight of the regulator announcing the NTO 2.0 on January 1, 2020, the IBDF, along with Star & Disney India, Zee Entertainment Enterprises Ltd, and Sony Pictures Network, and TV18 challenged the NTO 2.0 in the Bombay High Court in February 2020. The court passed a judgment in June in which it upheld TRAI’s NTO 2.0 while relieving the petitioners from one of the ‘two key’ conditions. The petitioners have now moved to the Supreme Court in its tussle with the regulator. The court is expected to announce the final verdict on November 30.
Scope for increase in subscription base
India’s TV sector, both paid TV and Free to Air has been growing at a rapid pace. The importance of TV is very high since it has a huge reach in India. Advertisers get to reach 200 million homes across the country due to TV. As per the Broadcast Audience Rating Council (BARC), television-viewing homes in the country have grown 6.9% to 210 million at the end of 2020 compared to 2018, with over 197 million TV-viewing households. This growth has come despite sparring partnerships between different stakeholders. It’s not the first time that the industry stakeholders have contested TRAI’s broadcasting-related regulation in a court or tribunal. The agency added that the TV-viewing individuals also increased by 6.7% to reach 892 million from 836 million in the same period. As per experts, there is immense scope to improve the subscription base and revenues. According to the BARC study, there are additionally 13 million TV households, and another 90 million households who do not own a TV yet, creating a 100 million potential subscriber opportunity.
Regional content fires up sector growth
As the country stayed indoors to beat the COVID-19 pandemic in 2020, people were left only with TV or streaming video content for entertainment. The year saw a surge in demand for regional content among consumers. As per the FICCI-EY media and entertainment industry report released earlier this year, the share of regional languages in TV consumption is expected to touch 60% by 2025 from 55% in 2020. Broadcasters like ZEEL, Sun TV, and Viacom18 have lined up a variety of fictional, non-fictional, or reality shows in different languages and genres. According to the BARC India report, titled ‘What India Watched – 2019’, some of the languages other than Hindi, in which the demand for content has surged are Odia (111%) and Bengali (83%) Gujarati (157%), Assamese (125%), Urdu (179%), Bhojpuri (200%) and Marathi (128%).
The TV penetration has gathered pace across the rural heartland. BARC data shows that Hindi Speaking Market (HSM) and Rural are driving growth in the sector. While the TV households in rural markets grew by 9% to 119.2 million in 2020, the urban markets saw only a 4% growth to 91 million.
The impact of NTO 2.0 on consumers
To fan the growth momentum of TV households, all the stakeholders need to contribute to an ecosystem that is conducive to the growth of all stakeholders. The 2017 economic survey of the finance ministry had highlighted how long court battles and the slow resolution of economic and commercial cases taper off the investment cycle in the country. The slugfest between the TRAI and the industry stakeholders over the tariff order has gone ever since the Interconnection Regulation 2017, the QoS Regulation 2017, and the Tariff Order 2017 have notified. The NTO 2.0 brought the IBDF and its members, and TRAI at loggerheads in the Bombay High Court and the Supreme Court. The former upheld TRAI’s NTO 2.0, but only partially. Even though the capping of channel price in a bouquet was maintained at Rs 12, the court rejected TRAI’s second twin condition that mandated that MRP of any à la carte pay channel, forming part of such a bouquet, shall in no case exceed three times the average MRP of a pay channel of that bouquet. This has allowed the broadcasters freedom to price à la carte channel as they wish.
In keeping with the TRAI’s compliance order to file the Reference Interconnection Offers (RIO), starting last week, most of the major broadcasters have announced the new RIO that also has à la carte and bouquet prices of their channels. The prices will be effective starting December 1. All the driver channels: Hindi GEC like Star Plus, Sony, Zee, TV, Colors, Zee TV, Sony, and regional GEC are on offer à la carte basis, priced in double digits, between Rs 15-25 per month, and likely to spike the bill by up to 50%. The double-digit monthly pricing of the popular channels under à la carte will impact the consumers’ choice and once again defeat the premise around which the regulator brought in the new tariff order (NTO 2.0).
The new RIOs are only likely to make the pay TV monthly bills of consumers steeper. As per the industry sources, the double-digit hike in channel prices will on one hand push consumers to shift to the streaming platforms, while on the other result in the decimation of smaller channels, who would find no takers in the situation of high MRPs for driver channels. The consumer would prefer to put his money on a popular channel than on a less watched smaller channel.
The OTT platforms that are already making Pay TV nervous with 28% CAGR may even have the annual billing lower than Pay TV. A top distribution company source said that with the new MRPs, the annual price of base bouquets will be around Rs 4800-5000, more than the annual subscriptions to OTT platforms like Amazon Prime Video, Disney+ Hotstar, SonyLIV, ZEE5, Sun NXT, and Voot Select, which may be roughly around Rs 3600.
The interest of the TV consumer and the TRAI’s objective to offer an affordable choice to the consumer has failed to materialise so far. The sooner the crinkles over the pricing are resolved, the better it is for the industry growth. The industry can only flourish when consumer interests are taken care of. After all, like the adage says, the consumer is king.
