The regulator’s new rules on the pricing of television channels in India, which will come into effect in six months, will reduce the clout of big broadcasting companies such as Zee Entertainment Enterprises, Sony, Star India and Sun TV, while encouraging smaller media owners.
So far, bigger groups enjoyed a key advantage — they could keep launching more and more new channels and the DTH and cable companies had to accomodate these channels on their platforms.
As a result, it has become more and more difficult for smaller media companies to remain present on DTH and cable networks in India.
The reason why big broadcasting companies are able to push all their channels on to distribution networks has to do with one key practice: If a DTH company does not carry new, or less popular channels from a big media group, the group charges a higher price for the channels that the cable or DTH company actually wants to carry.
In other words, if a media house owns 50 channels, three of which are very popular, seven are moderately popular and 40 not so popular, it will insist that any cable or DTH company should carry all 50. If the distributor is willing to carry all 50 channels, it will offer a rate similar to Rs 50 per month per subscriber for all channels combined.
This is despite the fact that the cable or DTH company has the right to refuse to carry all these channels and instead pick and choose the ones which it would like to.
But if it exercised this right, the channel owner would start charging unsustainably high prices for each individual channel — for example, he could ask for Rs 40 per subscriber for each channel.
As a result, even if the cable company opts for only 5 channels, it would end up costing it Rs 200 per month per subscriber. This would make the cable or DTH company’s service costlier compared to those of others.
The reason the channel owner insists on all channels being carried has to do with advertising and the denial of space to the competition.
If a channel is available across the country, then it can charge higher advertising rates compared to if was only available on a single platform such as Den Networks.
However, the ‘force feeding’ of channels by big broadcasting groups led to difficulties for smaller companies in getting their channels distributed.
Given that most DTH and cable platforms have space for only around 300-400 channels and that many of India’s big broadcasting companies have 30-50 channels, most of the space on these DTH and cable platforms are taken by these big media companies.
As a result, if a new, independent company launches a channel, it stands very little chance of being carried on these platforms. On the other hand, big broadcasting companies continue to create newer and newer channels and the DTH and cable companies find it difficult to say no them.
The TRAI had, in its previous legislations, tried to curb this tendency by bringing in a ‘must provide’ obligation on broadcasters.
Under this clause, all channel owners had the legal obligation to provide even a single channel if demanded by the cable or DTH operator.
But the provision had a legal loophole — it did not prevent the channel owner from charging a much higher price for an individual channel compared to its full bouquet of channels.
For example, according to Star India’s tariff card, the company must get around Rs 600 from its distributor for each of their subscribers who have access to its 21 Hindi and English HD channels, including favorites such as Star Plus HD, Star Sports HD1 and so on.
Given that similar rates are quoted by other companies as well, a DTH or cable provider will have to pay these channel owners around Rs 1,500 per month per subscriber just to provide its subscribers with 50 HD channels and nothing else.
However, the actual price of an HD packwith 50 channels in India — including distribution costs — is only around Rs 300 per month, implying a discount of over 80%.
This is because the DTH and cable companies buy entire ‘bouquets’ of HD channels from the big media companies and in return, get lower rates.
“the wholesale a-la-carte rates of channels are too high and the bouquets are heavily discounted even to the extent of 90% of the sum of a-la-carte rates of channels,” TRAI said, quoting market information.
This anomaly in pricing has been ‘fixed’ by TRAI in its latest regulation by stipulating that the bulk discount offered by channel owner cannot be higher than 15%.
As a result, channel owners will have to bring down their prices over the next six months.
This will not only help smaller broadcasting companies, but also prevent the crowding of cable and DTH platforms with ‘unwanted channels’ pushed by big media companies for advertising purposes.
The ruling could affect the advertising revenue growth of big broadcasting groups, which has been growing fast in recent years.