If the Madras HC validates the tariff order and interconnect regulations formulated by the Telecom Regulatory Authority of India (TRAI), the entire Television broadcast scenario will undergo a humongous transformation, affecting channel pricing, bundling by networks and revenue prospects
BY SAIF AHMAD KHAN
On July 19 this year, a division bench of the Madras High Court chose to walk the extra mile in order to wrap up a long-standing dispute which could alter the landscape of the domestic television broadcast industry in India. The court of Chief Justice Indira Banerjee and Justice M Sundar, which usually sits until 4.45 pm every day, remained in office as late as 5.45 pm to complete the rejoinders in the tariff order dispute involving the Telecom Regulatory Authority of India (TRAI) and Star India. However, on July 31, the court reserved its judgement in the case. Now, as TRAI, broadcasters and distributors await the crucial verdict – expected anytime even as we go to Press – we take a look at how the entire saga unfolded over the last two years, and the possible fallout if the court upholds the TRAI order.
GENESIS OF TRAI’S TARIFF ORDER
At the heart of the dispute is the tariff order and interconnect regulations formulated by the Central Government’s regulator. Its genesis can be traced back to a consultation paper titled ‘Tariff issues related to TV Services’ which was floated by TRAI on January 29, 2016. Given the wide-ranging ramifications of any such policy measure, the consultation paper attracted 60 comments and 10 counter-comments from the numerous stake-holders. Thereafter, the regulator organized two open house discussions on the theme in New Delhi and Raipur on April 8 and 21, respectively.
The initial discussions led to the release of the draft tariff order on October 10, 2016. However, the proposed framework raised some concerns among industry circles, and TRAI received a total of 135 comments regarding it. Eventually, on March 3, 2017, TRAI notified the Telecommunication (Broadcasting and Cable Services) (Eight) (Addressable Systems) Tariff Order, 2017 and Telecommunication (Broadcasting and Cable) Services Interconnection (Addressable Systems) Regulations, 2017.
FEATURES OF THE TARIFF ORDER
Talking about the tariff structure which is set to come into operation from the month of September, Tony D’Silva, until recently MD and CEO of IndusInd Media and Communications Limited (IMCL), a subsidiary of Hinduja Ventures Ltd., and ex-Group CEO of Sun TV Network, says,”The new regime is the right way forward.”According to the tariff order, broadcasters are required to offer all their pay channels which are sold as part of a bouquet on a standalone basis. The maximum retail price (MRP) of such channels which is to be declared by broadcasters cannot exceed Rs 19 per month. Moreover, free-to-air (FTA) and pay channels are to be separated into different bouquets. Not just that, the maximum discount which can be given by broadcasters on a bouquet of pay channels has been restricted at 15% of the entire standalone cost of the pay channels forming that particular bouquet.
On the distribution side of the business, the unbridled power of distributors vis-a-vis channel pricing has been heavily curtailed. Though the distributors can set the monthly distributor retail prices for the pay channels and bouquets which will be directly paid for by subscribers, their rates have to necessarily comply with the pricing framework dictated by the broadcasters. This has been done by TRAI after finding out a prevailing discrepancy between the rates of bouquets and the a-lacarte price of channels. “As per data available with TRAI, some bouquets are being offered by the distributors of television channels at a discount of upto 80-90% of the sum of a-la-carte pay channels constituting those bouquets,” mentioned TRAI, while notifying the tariff order.
The intent of the regulator is to empower the subscribers by providing them with more choice. At present, TRAI has observed that broadcasters and distributors create a situation in the market wherein subscribers are forced to buy bouquets instead of individual channels due to uneven pricing. Resultantly, the subscriber ends up with several unwanted channels in his/her pack which are packaged by broadcasters and distributors alongside popular or driver channels.
IMPLICATIONS FOR BROADCASTERS
Media planner Arun Sharma, Senior VP at Lodestar, says the non-driver channels will face a major hurdle in the days to come. “The lower-rung channels have piggy-backed on driver channels and they will not be able to do so anymore,” Sharma states, basing his opinion on the understanding that subscribers will exercise the option of choice at their disposal. He predicts that the “reach and ratings (of non-driver channels) would go down” with consumers only opting for the channels they really follow. His assessment is supported to a certain extent by Arun Anant, former CEO of Kasturi & Sons, who earlier headed UTV News Limited. Anant agrees that the reach of some “add-on” channels will suffer.
Insisting that subscribers will try to keep their expenditure in check, Anant predicts that channels offering relevant programming to viewers will be picked up while others will take a beating. “The bundled sale of channels and bundled advertising which broadcasters used to benefit from will disappear,” Anant says. Nevertheless, both Sharma and Anant identify opportunities available to broadcasters in the future set-up. In Sharma’s opinion, the driver or mainline channels “could benefit” since “somebody’s loss is somebody’s gain”. This is articulated in a far more unambiguous fashion by Anant: “Some channels will grow because the total viewing time remains the same and there is less distraction,” he says, adding that an hour of Television viewing by a certain subscriber may now be restricted only to his/her favourite channels. He also sees TRPs and advertising revenues of these channels growing simultaneously. “Some more channels will start making more money, though they may not all belong to the same network,” Anant adds.
Whether this leads to greater fragmentation over the long run is something only time can tell, though Anant reasons that fragmentation in the beginning will be less and overall subscription revenues will come down. In the words of Lodestar’s Sharma, Star India is trying to pre-empt this likely scenario. Reflecting on the nature of channels, he explains that pay channels usually air original TV programmes while FTA networks mostly rely on re-runs of old shows. “There is no channel which does equally well in both urban and rural settings,” Sharma says, pointing out that Star India is trying to undo this by converting Life OK into Star Bharat and promoting it as FTA. Going by Sharma’s assessment, the strategy is to make up for fall in subscription revenues through advertising revenues propelled by high ratings of free channels infused with original programming.
Sharma feels that the upcoming months would witness increased media investment, wherein broadcasters would “spend a lot of money to become a channel of preference” for viewers, and the money will be directed towards refreshing content, promotions and placement on the top band.
Meanwhile, Anant advises television producers to invest in quality programming, and recognizes the tariff order as an instrument which will provide “more power to consumers”. “Each channel will be a driver channel and not an add-on one, which only increases distribution expenses,” Anant explains, claiming that several broadcasters were waiting for something like this to happen for a long time.
On condition of anonymity, the former Group CEO of a multimedia network too highlights the most important aspect of the tariff order regime which would pass “control to the consumers” with the “balance of power” shifting away from the broadcasters and distributors. In his assessment, the GECs are sitting on top of abnormal profits, which will get corrected soon. “The pay channels will have to price very carefully,” he says, advising channels to go for lower pricing to manage high reach. With carriage fees slated to increase along with reduction in subscription revenues, broadcasters are hoping that ad revenues will somehow catch up - if ad revenues do not increase, it will affect the industry as a whole.
EFFECT ON DISTRIBUTORS
The other side of the coin pertains to distributors, which includes both direct-to-home (DTH) operators and multiple system operators (MSOs). Interestingly, TRAI’s tariff order does not draw any distinction between the two. This has not gone down well with the DTH operators, who argue that they cannot be treated on par with MSOs, owing to heavy input costs that their business requires. However, the proposition is debunked by TRAI, which points out that MSOs also invest significantly in “developing ground infrastructure and engagement” with local cable operators (LCOs). The regulator’s belief is that the tariff order provides the two with enough opportunities to create profit margins. Similar to the price restrictions on broadcasters, TRAI has also capped the monthly network capacity fees payable by every subscriber to a distributor at Rs 130 for availing an initial capacity of 100 standard definition (SD) channels.
Drawing on his news broadcast background, RK Arora, former Executive Director & CEO, Zee Media Corporation Limited, talks of a series of events which could benefit DD Free Dish in the new regime. “News channels will not be affected, because most of them are FTA,” says Arora, mentioning that the real casualty will be nonnews pay channels. If the subscribers refrain from opting for a large number of pay channels, the fall in subscriber base will generate a sequential fall in reach, channel share and revenue prospects, he points out. The natural fallout of such a development would be the conversion of pay channels into FTA, which is where the “shift to DD Free Dish” could take place.
He states that Free Dish is successfully reaching out to smaller towns, where it is enabling subscribers to watch general entertainment, music, regional and news channels at zero cost. The broadcasters stand to gain by forging an alliance with Free Dish through the payment of reserve price, which stands at Rs 8 crore and Rs 6.5 crore for non-news and news channels, respectively. He argues that FTA channels which are available on Free Dish can air old programmes, which would mean incurring negligible content cost. Distribution cost is already taken care of, and a marketing budget may not be required either. On top of that, Arora mentions that the channels can make money through advertising. In a way, he hints at a strategy that can be devised to curb costs and create revenues by going for Free Dish once the tariff order kicks in.
Nonetheless, this does not take into account the role of private distributors. Speaking on condition of anonymity, celebrated industry veterans including media buyers and sales heads flagged the possibility of distributors hiking carriage fees with a large number of pay channels expected to take the FTA route. This would burden the broadcasters further with a northward movement in distribution costs. But Tony D’Silva contends that broadcasters must first revisit their pricing model. “Under the current pricing, the RIOs (reference interconnection offers) can never become operational,” says D’Silva, adding that subscribers cannot be expected to increase their expenditure exponentially. For him, the central issue is to be aware of the market realities and safeguarding the interests of consumers. “Carriage fee is a big question in itself which is dependent on a number of factors which includes where the channel is to be placed. If pricing is high and demand is low, obviously nobody will offer you prime frequency,” he remarks.
WHO STANDS WHERE?
The tariff order has to overcome several legal hurdles before it can become operational. Claiming that certain provisions of the tariff order violate the Copyright Act of 1957, Star India and Vijay TV have asked the Madras HC to declare it as unconstitutional. Their legal stand is that the TRAI can regulate carriage, but not content, by imposing restrictions on bouquet discounts and capping channel pricing. In its judicial battle, Star India has received the support of the Indian Broadcasting Foundation (IBF). Still, the IBF’s backing cannot be seen as being representative of the whole broadcast industry. “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,” the Madras HC clarified on April 28, 2017 while hearing the interim plea for stay on the regulations. With the matter being sub judice, most broadcasters have refrained from commenting on its specifics. Sharing his viewpoint, Jwalant Swaroop of Happy Ho says that “some impact on subscription revenues” is sure to follow because most channels “had independent pricing” until now. He thinks that a great deal of realignment is on the cards. “Medium-sized networks would benefit, but I believe this will lead to greater skew towards consolidation,” Swaroop tells IMPACT.
As far as distributors are concerned, Tata Sky and Airtel Digital TV, that are reportedly in merger talks, have filed prayers against TRAI before the Delhi High Court, insisting that its regulations are in contravention of Article 19(1) (G), i.e., the right to carry out business freely. Like Star India, whose parent company 21st Century Fox has a stake in Tata Sky, the petitioners in the Delhi HC case have called for the quashing of the regulations. TRAI, on the other hand, has maintained that whatever it has done is within its jurisdiction and it has the power to regulate tariff, interconnect and quality of service issues pertaining to the broadcast sector. The regulator has not spotted any overlap between TRAI Act, 1997 and Copyright Act, 1957. Secondly, it has claimed that its actions are backed by clause 5.10 of the Union Information & Broadcasting Ministry’s policy guidelines (2011) and Rule 9 and 10 of Cable Television Networks Rules, 1994. Their penultimate argument is a judicial precedent as the Delhi HC (2007) had ruled in its favour in a similar case filed by Star India.
SUPPORT FOR TRAI
TRAI isn’t alone in its struggle against big broadcasters and distributors. The All India Digital Cable Federation (AIDCF) and Videocon d2h have backed TRAI in their capacity as interveners in the case before the Madras HC. The support extended by these two is significant because AIDCF is a representative body of nearly 10 MSOs including Subhash Chandra’s Siti Cable. To add to that, Videcon d2h is merging with ZEEL’s Dish TV and the latter has gone ahead with preparations for the partial implementation of the tariff order through its ‘Mera Apna Pack’ initiative. The contradictory position of the parties involved in the twin cases reflects the division among broadcasters and distributors regarding the regulations. Simultaneously, Dish TV has hit out at Star India accusing it of trying to create monopolistic control over cricket broadcast rights in the country. The largest DTH provider in the country has alleged that the petitions filed by Star India and Tata Sky are a part of the “entire modus operandi of Star” to get TRAI’s regulations quashed. “In order to serve its long term objective of charging an exorbitant price for its sports channels containing cricketing content, Star has challenged the authority/jurisdiction of TRAI itself to fix the price of TV channels and the matter is pending before the Hon’ble High Court of Judicature at Madras,” wrote Dish TV Chairman Jawahar Goel in a letter sent to the I&B Ministry, TRAI and others last week. Through the letter, it was made clear that the judicial consequences in relation to the tariff order dispute shall have far-reaching implications than what just meets the eye.
THE LEGAL VERDICT
At the time of going to Press, the verdicts in both the cases before the Madras HC and Delhi HC were pending. The pleas filed by Tata Sky and Airtel Digital TV will be taken up next in the Delhi HC by Chief Justice Gita Mittal and Justice C Hari Shankar on August 29, 2017. Meanwhile, the judgement in the Madras HC case stands reserved with pronouncement expected to happen any day. This particular case has had a long history. During the initial phase of the case on December 23, 2016, the court put into place an interim stay order on the regulations. But TRAI did not take it lying down. They approached the Supreme Court by filing a special leave petition and were permitted to notify the regulations on March 3. The SC also directed the Madras HC to dispose the case within two months, though the deadline could not be met owing to a series of recusals. Firstly, the two-judge bench of Justice S Nagamuthu and Justice Anita Sumanth recused themselves from adjudicating over the case. This happened after an anonymous petition was filed which alleged that Justice Nagamuthu had sought favours from Star India’s counsel P Chidambaram to become a judge. Thereafter, on April 17, Justice S Manikumar also recused himself from the hearing. In a similar matter, he had upheld the International Telecommunication Access to Essential Facilities at Cable Landing Station (Amendment) Regulations, 2007, and International Telecommunication Cable Landing Stations Access Facilitation Charges and Co-Allocation Charges Regulations, 2012. Presently, the matter stands challenged before another forum.
Post the recusals, Chief Justice Indira Banerjee stepped in, which was followed by the dismissal of Star India’s plea for an interim stay on the regulations on April 28 by the Madras HC. In a reversal of sorts, this time around the SC came to the rescue of Star India as a two-judge bench of Justice Pinaki Chandra Ghose and Justice Rohinton Fali Nariman stayed the regulations. The duo had set a deadline of four weeks for the Madras HC starting June 12 to settle the matter which could not be complied with. The dispute, nevertheless, is far from over despite the judgement having been reserved. Although the implementation of the regulations is only a few days away, a source mentioned that the 2012 regulations will remain in force if the judgement is not delivered in time by the Madras HC.
Even if the judgement is pronounced before that, the party which ends up losing is sure to approach the Supreme Court, a viewpoint echoed by Avinash Pandey, COO, ABP News Network, who advocates market-based pricing for Television content, just like any other product. “According to me, the High Court would uphold the value of free market and may ask TRAI to amend its own ruling. In case the honourable court upholds TRAI’s stand on the subject, IBF shall go to the Supreme Court,” says Pandey. Therefore, the judicial battle between TRAI, broadcasters and distributors, which has engaged some of the finest legal minds in the country like P Chidambaram, Abhishek Manu Singhvi and P Wilson, does not appear to wash away anytime soon.
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