Govt can plug revenue leakage by banning carriage fees, says broadcasting industry

01 May,2012

By A Correspondent


Industry sources have said that banning carriage fees in the new digitisation of cable distribution regime w.e.f July 1 is necessary to ensure that government can plug the huge revenue leakage upwards of Rs10,000 crore annually due to cable companies levying huge carriage fees and grossly under-declaring their subscriber base.


Moreover, ensuring a “must carry” clause for all TV channels and putting an end to their regulatory pricing wherein TRAI mandates the price that viewers pay for every channel, are also critical to revive the sick TV broadcasting industry, which continues to reel under the triple burden of usurious carriage fees, regulated tariffs for their channels as well as getting a fraction of their due subscriber revenues.


At present, over nine-tenths of TV channels are in the red and are unable to invest in quality programming, while many smaller/niche channels with big-ticket pedigrees – Imagine TV being the latest – have had to shut down.


Another fallout of these distorted industry practices has been that potential new export avenues have closed, because India is not able to export television formats and finished content – while other industries like software, music and animation (which do not suffer such a usurious regulatory/industry scenario) have been big-ticket forex earners for over a decade.


Industry sources said that TV channels collectively paid at least Rs3,500 crore last fiscal to cable companies and distributors as carriage and placement fees, of which news channels alone paid at least Rs1,500 crore. These carriage fees turned many profitable TV channels immediately into the red, thus denying the government a large income tax earning opportunity upwards of Rs1,000 crore per year.


According to another industry estimate, given the estimated subscription revenues of all MSOs/LCOs in the country, the government has lost about Rs5,950 crore over the five-year period from 2006 to 2011 in service tax alone by reason of under-declaration while the evasion of income tax is about Rs17,413 crore over the five-year period 2006 to 2011; and loss of entertainment tax by states is in addition to that amount.


Additionally, TRAI had, itself mentioned in a March 2010 paper that “there is evidence of tax evasion in the cable industry…the last publicly available CBEC report of 2005-06 shows only Rs75 crore of service tax being collected from the industry on a base of 68 million subscribers paying an average of Rs165 per month, the estimated service tax collection from analog cable should be in the range of Rs1,400 crore per annum”.


Another estimate – from HSBC for 2011 – says that the government lost around Rs1,380 crore last year in entertainment and service taxes alone due to cable companies under-declaring their subscriber base by as much as four-fifths. This estimate assumed the potential revenue to government at Rs1,725.90 crore given a Rs165 ARPU for 67 million analog pay TV households and entertainment tax at Rs20 per household along with 12 per cent service tax.


But because only 20 per cent or 13 million households are disclosed, the actual revenues collated were estimated to be only Rs 345 crore even as TV channels lost out on the bulk of their subscriber fees. These practices have ensured that India now has a cash-rich last mile; India already has the third-largest TV distribution industry in the world where viewers can and are willing to pay for content – borne out by the fact that pay TV penetration is as much as 80 per cent in India, which is amongst the highest in the world.


On the contrary, TV channels, who actually create the content, get less than a fifth of what viewers actually pay the cable companies. However, broadcasters say that the only opportunity to correct these distortions and ensure that TV channels do not continue to close due to extraneous factors, lies in the digitisation of cable distribution, for which the government is currently putting together relevant rules.


Under this, it will be mandatory for all viewers to get a digital set-top box and for operators to distribute channels in a digital and addressable format. This will give viewers a wider choice of channels with better viewing quality. In fact, digitisation is now being seen as the game changer for the entire Indian TV industry as it will also significantly benefit distributors the multisystem operators – (MSOs) and local cable operators (LCOs) – whose paying base will improve even further.


In this regard, Dr Prannoy Roy, chairman, NDTV told ET, that “digitisation of cable distribution is a major step towards making India’s media achieve truly global quality”. However, Rajat Sharma, chairman, India TV, pointed out that digitisation will be “meaningless unless all channels are made available to the consumer and he is given the power to make a choice”.


He told ET that this can be done “only if it is mandatory for the cable operators to carry all channels and ensure that set-top boxes have the capability to carry more than 500 channels” and added that the government must curb any effort to create an artificial scarcity at the head end or in the box in carrying the channels.


Pointing to the other issue of price controls on TV channels, Uday Shankar, president, Indian Broadcasting Federation, told ET: “IBF has always believed that channel pricing should be kept under regulatory forbearance and market forces should be allowed to discover channel valuations. Internationally, apart from countries like China or Taiwan, there are no instances of government regulating the pricing of channels. Freedom in pricing is essential for channels to offer best in class, quality programming. In the absence of this freedom, broadcasters are compelled to somehow match spiraling input costs with regulated prices thereby running the risk of compromising quality”.


He added that there is enough competition in every genre to “remove any fears of exorbitant pricing”, given that the consumer has a choice between multiple DTH platforms and cable operators and “as a result of that, we have seen that the ARPUs have been flat to down”.


Source: The Economic Times
Copyright © 2012, Bennett, Coleman & Co. Ltd. All Rights Reserved


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