New TRAI plans could increase cable, DTH prices from Dec 29

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Star India’s Standard Definition channel bouquets for Hindi, Marathi and Bengali

TRAI’s tariff order for TV channels was supposed to simplify life for cable and DTH operators and their customers. However, given the recent Madras High Court order and prices announced by broadcasters, the implementation of the order from Dec 29 is likely to raise prices for cable and DTH services in the country.

The original intent was simple: Stop broadcasters like Star India, Zee and Sun TV from forcing DTH and cable companies to carry unwanted channels and free up space for newer and more interesting channels.

This was sought to be done by breaking the ‘bouquet’ system, also known as the ‘bundling’ of ‘junk’ channels with must-have channels.

If all channels were available one-by-one to cable and DTH operators, TRAI reasoned, cable and DTH players will not carry junk channels. The new rules also wanted to stop the constant disputes over price by forcing channel owners to offer the same price to all cable and DTH operators. There is no scope for cable and DTH players to try to force special discounts from channel owners in the new system.

All this was supposed to encourage the launch of new and innovative channels from smaller companies and improve customer choice and experience. At present, smaller players find it more or less impossible to launch new channels due to the congestion on cable and DTH platforms.

While the ban on bundling was supposed to help DTH and cable operators, the ban on negotiated deals and fixed price contracts was supposed to help the channel owners.

However, the Madras High Court — in an order challenged by the TRAI at the Supreme Court — struck down some of the key provisions of the regulator’s 2017 order relating to bundling.

The net impact of the court’s intervention was that broadcasters could continue to bundle ‘good’ and ‘bad’ channels and force DTH and cable companies to carry them, but the platform operators can no longer negotiate for lower rates based on their size.

This has upset the balance of power between the channel owners and the distribution providers, giving broadcasters a rare opportunity to increase their revenue.

PRICE INCREASE

As bundling has not been banned, but price negotiations have been, the TRAI order has given the edge to broadcasters, who have announced new pricing for their channels.

Going by the new prices, the implementation of the order is likely to lead to an increase in the monthly cable and DTH bills of most households, not least because platform providers can no longer use their humongous subscriber numbers to drive down channel prices.

Contrast this with the existing system in which DTH and cable operators enter into ‘fixed payment’ deals with broadcasters like Star and Zee. Under such deals, they promised to pay a fixed amount to the broadcaster and were then left alone to sell these channels at any rate they wanted to their subscribers. Not surprisingly, some operators were selling HD channels for just Rs 2.5 per month.

However, the new rules require the rates to be transparent and uniform for all players. The net result is that broadcasters like Star, Zee and Sun have slapped on a price of Rs 15.2 per subscriber on most of their popular channels, with no discounts possible even for bigger players.

This has had the impact of throwing the existing packs and plans of DTH and cable networks — based on fixed price contracts — into total disarray and confusion.

This can be illustrated using the case of HD channels.

Today, most DTH and cable companies offer about 60 HD channels at a price of Rs 225 per month.

However, under the new tariff scheme, the average distributor price of an HD channel works out to around Rs 14.40. 

So, if the DTH and cable operators try to provide the same 60 HD channels under the new scheme, they will have to pay Rs 864 to the channel owners (broadcasters). In other words, they would get only Rs 225 from each subscriber, but they have to pay Rs 864 to the channel providers.

Even if they qualify for various penetration incentives, which are in the range of around 10%, they would still have to pay around Rs 778 per subscriber.

BOUQUET REDUX

There is a second option — using the bouquets or bundles.

Star India, for example, is offering practically all its HD channels at a distributor price of Rs 96 per subscriber as part of its HD Premium bouquet.

Similarly, Zee has an ‘All-in-One’ pack priced at around Rs 68 per month per subscriber and Sony at Rs 72. Network18 charges around Rs 42 per month, while Discovery around Rs 7.20 and Times Network Rs 17.60. Disney group offers both its HD channels at Rs 8 per subscriber per month.

Adding all these prices gives a figure of Rs 310 per month.

In other words, for Rs 310 per month, a DTH operator can provide a Hindi-speaking person nearly all the HD channels he is interested in, including sports channels and international channels. 

In addition, he also gets a lot of standard definition channels ‘for free’ as they are thrown in as part of the HD bouquets.

At first glance, it may look attractive for the consumer as a similar pack under the current schemes costs around Rs 450 per month.

However, one has to remember that under the new tariff, the cable or DTH operator also has the right to charge carriage or capacity fees in addition to the pay channel fees discussed above. In fact, the pay channel fees of Rs 310 per month has to be transferred almost entirely to the channel owners, and the cable and DTH companies have to meet their expenses from the network fees that they charge separately.

The network fee, also known as capacity fee, can be as high as Rs 2.5 per HD channel and Rs 1.25 per SD channel, but is left to the discretion of the operator.

So, for the 130 or so channels that are contained in the above bouquets, a consumer can end up paying up to Rs 200 in terms of capacity fees, taking the total expense to Rs 510 per month.

Adding a tax of 18% gives a final figure of Rs 602 per month, which is about 33% higher than the present cost of around Rs 450 per month.

The situation is more complicated for non-Hindi speaking audiences, as they have to now include packs from regional players like Sun TV.

Sun TV’s Tamil bouquet costs Rs 56 (to the cable company) per subscriber per month and contains 7 channels, including four HD offerings.

Adding this pack would take the total price to around Rs 680 for a Tamil person who wants to watch most of the HD channels in India.

In comparison, he can watch nearly all the above HD and SD channels at a price of around Rs 450 at present.

On a positive note, if the TRAI wins its appeal in the Supreme Court, the prices of popular channels will have to be brought down by at least 50%, which will make it possible for consumers to stop relying on bouquets and bring down their monthly bills.

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