Sun TV Network, one of India’s top three home-grown broadcasters, said it did not expect a negative impact on its subscription revenue due to the implementation of TRAI’s amended television tariff order or NTO 2.0.
The company said it was confident of working out a way to make sure that the average amount paid by the customer (ARPU) remains the same even after the implementation of NTO 2.0.
At present, Sun TV’s channels are priced across the range of 0 to 22.40 rupees per month, while its packs are priced in the range of Rs 23.60 for its Kerala Basic SD pack to Rs 129.80 for its Ultimate HD pack.
Once the TRAI’s amended tariff order, NTO 2.0, comes into effect, Sun TV will have to either bring down the price of some of its premium channels from Rs 22.42 to Rs 14.16 or take them out of all its packages. This applies to channels like Sun TV, KTV and Gemini TV.
However, MD R Mahesh Kumar reassured investors that the company will implement certain changes that will ensure that the amounts paid by each customer will not change.
“It’s sub-judice, we don’t know which way it will come,” he said. “But we will figure out a way to make sure that whatever we believe is a fair price for us, we will ensure that, without compromising on our salience in the market place and our goodwill with the customer, we will try and work out a methodology whereby our ARPUs are not impacted. That assurance, I can give you,” he said.
However, he said it is not the right occasion to reveal how the company is going to do it. “..it’s very tactical, it’s very unique to our situation in the market place. But we will figure out a way,” he said.
It is possible that Sun TV Network may add more channels to its existing packs, while keeping the pack prices unchanged. Doing so will result in the average price of its channels going down, but it can prevent customers from migrating to cheaper packs.
In other words, if TRAI forces a price cut, the company can simply offer more goods for the same price, thus maintaining its revenue even as its price goes down.
Unlike in other businesses, in TV broadcasting, allowing customers to consume more channels does not result in any increase in costs for Sun TV. Thus, the revenue, expenses and profit can all remain the same even if the company allows users to watch more channels as part of each pack.
On its part, TRAI has been pushing for NTO 2.0 implementation by pointing to two projected benefits — lower prices for consumers and increased competition in the TV channel market and lower barriers to entry. Mahesh Kumar said he hoped that NTO 2.0 will not be implemented as TRAI wants it.
“I hope we get some relief from the court because we have shown that this is not something that is out of the ordinary, and we need to get our fair share of the value created in the food chain,” he said.
The MD also pointed out that, at least as far as Sun TV was concerned, the introduction of NTO 1.0 in early 2019 has proven Sun TV’s appeal among the masses.
Flagship channel Sun TV, despite being priced at Rs 22.42, is one of the few pay general entertainment channels in India to maintain its audience reach even after the introduction of the new rules.
Most of the erstwhile No.1 channels across India have seen a sharp decline in their reach after the introduction of NTO 1.0, as they priced their channels at Rs 22.42.
Mahesh Kumar said the strong showing by its flagship channels in the NTO era has proven has proven his company’s standing in target markets.
“I’m reasonably sure that we will get our due share of value added even if NTO 2.0 were to get implemented,” he said.
He even hinted that it may be possible to increase prices.
“I personally believe that there’s sufficient headroom to raise prices in the subscription business though NTO 2.0 is something that is staring us all in the face,” he said.
SUBSCRIPTION REVENUE GROWTH
The Sun TV Network MD said he continues to expect a healthy increase in the company’s subscription revenue, whether or not NTO 2.0 gets implemented.
From about 1:5 or so about five years ago, the ratio of subscription income to advertising income has increased to nearly level (1:1) for pay channel broadcasters after the introduction of NTO 1.0.
The COVID-19 pandemic has exaggerated the trend, even if it’s only for a quarter or two.
For the Apr-Jun period, for example, Sun TV Network got Rs 226 cr by way of subscription charges (including for its digital platform), while it generated only Rs 126 cr by selling advertising slots on its three dozen channels.
For broadcasters in India, the pandemic has come as a reminder of the importance of having a stable source of income like subscription charges.
“The subscription revenue is really going to be the saving grace for this year, because one thing that is coming out really loud and clear is that even during the thick of the pandemic-related lock-down, people were just watching our stuff because no new content was being produced and it was largely based on recycled content, or movies from the library. We’ve very clearly established that this is a content powerhouse,” he said.
Not surprisingly, therefore, Mahesh Kumar believes that companies like Sun TV Network will depend more and more in subscription revenue and less and less on ad revenue in the future.
“I have a feeling that subscription, as a percentage of our revenue, will rise, because everywhere, people want to see less ads and more content,” he said, pointing to the example of platforms like Netflix that offer a zero-ad experience.
“We may not be able switch to a Netflix kind of an approach in our country because purchasing power is an issue. We will have to blend it with some ad support. But ads, I think, will become less and less and subscription, which is a more robust and more sticky form of revenue, should increase,” he said.