Trai tariff order favours DTH players: IBF

NEW DELHI: The Indian Broadcasting Foundation has said that the Tariff Order issued by the Telecom Regulatory Authority of India has set the clock back for the ongoing efforts towards digitalisation by micro managing the business models of stakeholders without suitably incentivising the creators of content.

In a strong criticism of the Order, IBF said the Tariff Order sets about putting a cap on wholesale rates for content and further goes on to link it with the rates prevailing in non addressable markets instead of a healthy light touch regulation.

Without addressing the key issue of under-declaration of subscriber base in non-addressable markets, the Tariff Order has legitimised the same by turning it into a benchmark for Tariff in addressable markets as well.

"This is nothing short of endorsing an illegal activity on the part of cable operators and encouraging revenue loss to the exchequer," the IBF adds.
The Regulator has pegged tariff for addressable systems at 35 per cent of the rates prevailing in non addressable markets thereby even lowering the earlier ceiling of 50 per cent fixed by the sectoral tribunal. As a result, the value of content has been squeezed out of content creators for the benefit of carriage operators, thereby distorting the level playing fields.

While broadcasters are not asking operators to subsidise the creation of content, the operators on the other hand have been demanding a sizeable subsidy from the broadcasters to sustain their business models.

"The Regulator has clearly given in to the unjustified demands of certain DTH players who had been arguing for a hefty discount on content cost for no apparent reason. This has not only destabilized the existing arrangements between broadcasters and operators, by paving the way for reopening concluded contracts but has also brought in a degree of uncertainty within the regulatory regime itself," the IBF says.

Broadcasters are unanimous that such random and knee jerk changes in ground rules on the basis of grievance mongering by some isolated players in the value chain do not augur well for a nascent industry even in the short run.

Industry watchers contend that such intrusive regulations are contrary to Trai’s own stated position of deregulating pricing in addressable platforms and altogether militates against Trai’s own findings that whole sale price regulations are altogether nonexistent in the international scenario, IBF adds.

In most other countries, where competition in television broadcasting is much lesser as compared to India, there is no attempt to regulate price for entertainment including pay television. The average ARPUs for Pay TV range from Rs 800 to Rs 2,500 per month in other countries but is less than Rs 200 per month in India. An average person in Indian cities pays Rs 150 per movie ticket, which amounts to more than Rs 600 per family.

In comparison, the prices are lower than Rs 200 for Pay TV which includes more than 100 television channels for the entire family for the entire month.

In view of this, IBF has asked if there is any need to regulate this kind of pricing. There is enough competition in each genre and the prices can be easily determined by the operation of market forces viz. laws of demand and supply. The industry needs to focus on building better infrastructure for content creation, on creating more variety of content and cater to the diverse needs of the Indian consumer.

If the price for content is regulated by putting a price cap, then there is a strong possibility of impeding the growth and creativity in the industry, the broadcasters’ body adds.

While the broadcaster-operator pricing has been heavily regulated, the pricing between operators inter se and to the ultimate consumers have been surprisingly left to free market pricing, IBF points out. With a multitude of channels being beamed and multiple delivery platforms made available to consumers, content availability to addressable platforms or to consumers was never an issue.

The Broadcasters in any case have an ever present need for greater “Reach”. In the absence of any market abuse or anti competitive practices, there was no case for the Regulator to have intervened in such an intrusive and regressive manner.

The Regulator’s argument has been surprisingly that broadcasters are in any case offering substantial discounts to addressable platforms and hence a lower ceiling would do no harm. The point that is being missed is that such discounts were the results of market based negotiations between parties at equal terms which covered a host of issues ranging not only pricing but also packaging, volumes, and joint promotional and marketing spends among others.

The regulator has only selectively picked up the aspect of discounts already available to DTH operators as a justification for further lowering the cap without however addressing the entire gamut of issues that concern the parties in market based negotiations. Also there was no reason for the regulator having intervened when by its own findings the operators were availing content at rates far below the stipulated ceiling which goes to show that market based negotiations were successful in keeping the prices at competitive rates.

Discounts and pricing are always calibrated against volumes all over the world, but Trai has taken packaging out of the broadcaster’s narrative altogether and the content creators are now required to offer channels at a universal discount irrespective of volumes that result from the packages the operators create and sell.

The IBF points out that ‘ironically, the present chairman of Trai who has now delinked pricing from packaging had in his earlier “avatar” as one of the presiding members of the sectoral tribunal clearly exempted “add on packs” from the 50 per cent ceiling’.

While DTH operators have been given complete liberty to price their offerings, and also discriminate by having different region wise price formulations, this flexibility has been denied to broadcasters. Given the fact that the retails rates have more or less bottomed out, any further options for operators to renegotiate pricing from 50 per cent to 35 per cent will only serve to augment margins for operators at the cost of broadcasters without any corresponding benefits being passed on to the consumers.

In the presence of a clear finding by Trai that television channels cannot be taken as ‘essential commodities’ and are in effect similar to ‘consumer durables’ which have been identified as “esteemed needs” as opposed to physiological needs, one fails to comprehend the rationale for such intrusive and high handed regulations more so when television channels are not inputs or intermediary products to be utilised by any other industry.

The apparent justification for mandating an ala carte mandate is that the FCC in its “Further Report” had recommended ala carte regulation. Trai, however, has not adverted to the fact that economists, industry, consumer groups and most importantly the Government Accountability Office i.e. the investigative arm of the US Congress, had desisted FCC from acting upon the said report after research revealed that such a mandate would actually be anti consumer and anti competitive.

The minimum retail price of 150 for ala carte offerings have all the trappings to ensure that ala carte offers by operators are illusory and the consumer will end up being compelled to subscribe to bundled offers.

While no increase in prices is permitted within six months of subscription, the minimum subscription period for subscribing to channels on ala carte has been pegged at three months.

Also it is high time that the question of mandatory carriage to Doordarshan channels is revisited along with the direction for mandatory sharing of sports feed.
As has been held by Trai, retail pricing for content in India is the lowest when compared to international benchmarks. There is, thus, an urgent need for a course correction in order to assure content providers into having long-term commitments in the sector or consumers shall be the worst sufferers.

The IBF says it is unfortunate that the Regulator has targeted broadcasters unfairly and has chosen to deprive the creators of content the legitimate monetisation of their intellectual property value that they are legally entitled to under law.

There is urgent need to revisit the pricing norms for broadcasters, which are based on historical filing of prices with Trai and which has very little connect with operating cost of each channel.

Today, a channel, which may cost only Rs 200 million to operate, may be priced at Rs 5 per month while another channel, which cost Rs 5 billion or more to operate, may be priced at Rs 15 per month. This is a major anomaly and needs to be urgently corrected.

If Trai pricing norms can address and cap the pricing of content, then only it makes sense to put pricing of the end consumer product. For example, there is a clear distortion in the pricing of Sports Channels by linking the same to the historical benchmarks specially when there is a phenomenal increase in the cost of broadcasting rights. Such kind of price cap, which is based on historical pricing, is far from reality and needs immediate correction.

As an analogy, if the regulations want to protect consumer interest (assuming that is the only objective) in other sectors and we take the case of the automobile industry, then regulation should ensure that for every category of two wheelers and four wheelers each, the price is capped and only inflation adjusted increase would be allowed each subsequent year.

What the example above illustrates is only the impracticality of pricing norms for an industry, which focuses on entertainment. This is not an essential commodity, for which price control is essential.

With more than 400 channels available to the Indian consumer, they can easily decide if they want to buy a channel or choose another, which is better value for money. Regulation should encourage competition to ensure that pricing would be governed only by the law of demand and supply.

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