Trai tariff order aligns all stakeholders, but at what cost, asks Dipali Banka.
In the run-up to the first cable TV digitization deadline of June 30, 2012 for metros, the Telecom Regulatory Authority of India’s (TRAI) latest order specifying tariffs and setting other norms for smooth implementation of the process has stirred up a hornet’s nest. While the TRAI order is certainly a good move to streamline matters in the direction of digitization, most industry stakeholders have been busy trying to dissect each clause to see how it impacts their business. Even as the broadcast industry is shocked by the diktat of a uniform, legalized carriage fee structure, Multi System Operators (MSOs) find they have a lot of responsibility on their hands. The consumer, meanwhile, is empowered to pick and pay for channels of his choice.
Since the time the Cable Digitization Bill was passed in Parliament in December 2011, there has been a lot of apprehension and uncertainty among industry stake-holders with regard to its implementation. Last week, TRAI issued its tariff order for Digital Addressable Cable TV Systems (DAS) after a lot of consultation and feedback from the industry. On the face of it, TRAI has done a brave job in addressing issues relating to various stakeholders and the order is expected to give a strong boost to digitization. However, in the process of bringing multiple stakeholders on one page, TRAI has had to take a few strong decisions and make a few compromises.
MSOs rise
MSOs can now fix a minimum monthly subscription for pay channels. They will be the ones to negotiate, broadcast and do the entire book-keeping for their operations. Meaning, they are responsible for declaring all households that subscribe to their services. Because of this, broadcasters will now be in a position to actually verify the revenues at the consumer level. This will, in a way, address the whole problem of under-declaration of subscription revenues. Till today, revenues came in from a prenegotiated amount and there was no clarity on the actual on-ground revenue. Now, the broadcaster can actually go back and check with the MSO every month as to how many subscribers took which channels and thereby be genuinely comfortable about the subscriber base for the first time. This is expected to lead to significant growth in revenues. According to Ashish Pherwani, Associate Director, Ernst and Young, with this step, the subscription revenues of broadcasters will almost double over a period of two-three years. “Right now, from what gets published, if Rs 100 is collected by the local cable operator, about Rs 10-11 comes to the broadcaster on an average. Now, as transparency in numbers goes up, it will go up to 20-22 per cent in three years,” he says.
What is this cry about carriage fee?
The broadcast industry has been crippled by the carriage fee factor (the fee that channels have to pay to distributors, so that their feeds are carried on a particular band of cable). Most of the large MSOs were relying more on carriage fee revenues than regular subscription revenues because of rampant underreporting and limitations of carriage under analogue distribution. With DAS coming in place, the broadcast industry was really hopeful that the carriage fee would be eradicated. But it came as a shocker to them when the TRAI order actually legalized the carriage fees, and proposed that every MSO could fix the carriage fee per channel. According to the order, this fee would be applicable in a uniform manner across all broadcasters and would need to be disclosed in a transparent manner.
While the News Broadcasters Association (NBA) expressed its disappointment and urged TRAI to reconsider the proposal, the Indian Broadcast Foundation (IBF) has sought more clarification on the matter.
The broadcasters are now hoping for some kind of rationalization in the carriage fee structure. Nowhere does the order mention the exact structure of carriage fees or how they plan to cap it. However, TRAI has said that the carriage fee will be moderate and expects a range of 50 paise to Re 1 per subscriber per year as carriage fee. Also, TRAI expects to phase out carriage fee in a couple of years.
The biggest blow for broadcasters will be that while they’ve been using stronger channels to distribute weaker channels as part of a bouquet so far, customers now can take any channel on a-la-carte basis, making the actual number of subscribers for a particular channel apparent. If they try to push a bundle of, say, five channels through the MSOs, they will have to pay carriage fees for all five, which was also not the case earlier. All these dynamics will start playing now. “There is a lot that broadcasters need to be wary about. Their key concern today will be how they are going to price the channels and prepare their bouquets,” says Pherwani.
The ‘must carry’ factor
A rider that comes with the carriage fee structure for the MSOs is the ‘must carry’ clause. This will be in force from January, 2013 or April, 2013 as the case may be, for Hindi, English and channels in the regional language of the concerned area. Today, the maximum capacity of any MSO in the country is 500 channels. Given that there are around 815 channels in the country, do the MSOs have the bandwidth to carry all of these channels on their platform? According to TRAI, the MSOs are expected to keep increasing capacity as channels increase. But MSOs don’t see a fair business model in place as yet in order to upgrade themselves.
As Anil Malhotra, COO, Wire, and Wireless (India) Ltd. (WWIL) says, “I cannot go on spending on network expansion, equipment, upgradation overnight. I have to invest again in back-end and front-end operations and then re-do the entire network. I’m also not denying that I’ll do it if my business permits and the subscriber is willing to pay. But forcing me to upgrade when there is no business model is not viable.”
“Until now, the industry has been living in an artificial environment. It is like saying that I am a better photographer because I have a camera. Today, channels that are available are getting the ratings. By January, when all 500 channels will be up, and when there is a level playing field, we will get to know who is actually faring well,” quips the CEO of a broadcast company who does not wish to be named.
The pricing and revenue share
From a customer choice point of view, it is a good thing that TRAI has maintained certain pricing caps – for instance, in a bouquet, a channel cannot be priced more than three times the average price of all the channels in that bouquet put together. It cuts the impression that a broadcaster is forcing unpopular channels on to the public. Similarly, the fact that the a-la-carte rate of individual channels cannot be more than 1.5 times the rate of all the channels in the bouquet is also something that will go a long way in preventing exorbitant pricing of some channels and low pricing of others. “One of the most innovative suggestions which they have come up with is that the customer can actually choose his basic tier of 100 channels. That gives enormous choice to the consumer,” states Pherwani.
“With most popular channels across genres available in the pay mode, we expect the BST (Basic Service Tier) offering to get limited subscriptions,” says Nikhil Vora, Managing Director, IDFC Securities. He adds that the Average Revenue Per User (ARPU) of Rs 150 will include only two to three pay channels. With a consumer expected to subscribe to a minimum of six or seven pay channels, ARPUs will be well above Rs 200 per month and will only inch upwards. On an improved declaration base (on account of digitization), this will imply an exponential growth in subscription revenues for MSOs.
The revenue sharing model between MSOs and Local Cable Operators (LCO)s also works in favour of MSOs. As against a less than 15% share of the consumer ARPU till date; MSOs will now witness their share moving up to 55-65%. If this pans out properly, it will change the entire dynamics of the industry.
Deadline sacrosanct
The deadline of June 30, 2012 for Phase I of digitization in the four metros looks difficult to meet as there are a lot more households yet to be covered and MSOs too have not taken full stock of their requirement. According to an industry source, MSOs have ordered fewer set-top boxes (STB)s than required as they are also treading cautiously on how things transpire. According to Jagjit Singh Kohli, CEO, DigiCable, there are around 10 million STBs yet to be deployed in the metros. Given the 50 odd days left for the deadline, more than 1.5 lakh STBs would need to be installed daily, which looks to be a herculean task. Going by statistics too, the total number of STBs installed last week across the country, including those by DTH players, is around 38,000. At this rate, there is no way that all households will get converted to digital in the four metros by June 30.
This is a big opportunity for DTH players, because they have systems that are ready, tried and tested. All they need to do is wire up the customer with the dish and STB, and they are on.
However, the biggest challenge that will come after the move to digitization is a possible fall in the number of consumer households. Even if channels try and focus on a certain set of households so that viewership doesn’t drop when the rating numbers start coming in, given the experience of CAS, that is a real and serious threat. If enough digitization has not happened and the analogue plug gets pulled off, there will be a drop in consumer households. This may lead to drop in viewership for broadcasters and may impact their advertising revenues. This is one issue that the industry would need to look into.
As the debate on carriage fees continues, the industry at the back end would already have started working out calculations for pricing and bouquets to be at the right point in terms of maintaining viewership and subscription revenues. Now that the Ministry of Information and Broadcasting has also stepped in to re-look at carriage fees, the next few weeks are bound to be action-packed for the industry.
Feedback: dipali@exchange4media.com
