58 Days to D-Day | Analysis: TRAI’s Tariff Order will make channels bleed more

04 May,2012

By A Correspondent

 

In another major blow for TV channels, the Telecom Regulatory Authority of India’s (Trai) recent tariff order for digitization has a loophole that allows distributors to surreptitiously charge ransom-like placement fees from broadcasters. While this would be true for all tiers, it would be especially compounded in the Basic Service Tier (BST) where around 80 private free-to-air (FTA) channels are to be offered at Rs100 a month.

 

This makes for a crippling double whammy for TV channels and makes the “must carry” proviso meaningless as Trai has also legitimized the usurious carriage fee racket which has turned multiple system operators(MSOs) and cable companies into the most profitable part of the Indian TV industry, even as it has bled nine-tenths of the TV channels into sickness.

 

Over and above their other costs, TV channels annually pay over Rs3,500 crore as carriage fees alone, but collectively receive around Rs4,000 crore only of the approximately Rs20,000 crore paid by India’s viewers to cable companies and distributors.

 

Trai’s own report had said that there was evidence of tax evasion in the cable industry while independent industry estimates have routinely put under-declaration by this cash-rich industry at a whopping four-fifths of its subscriber base – all of which allows for thousands of crores to be denied to the exchequer every year.

 

According to an estimate, the government had lost around Rs5,950 crore in 2006-2011 in service tax alone due to under-declaration even as it posited the income tax evasion during this period at Rs17,413 crore, besides the loss of entertainment tax by states.

 

In this situation, industry sources said, Trai’s move to force TV channels to pay carriage fees to distributors, ostensibly to enable them digitize their systems, was totally unacceptable. “There is no justification for robbing the already impoverished TV channels to pay the rich distributors, as they have had a favourable business model for years, and in any case, would reap the rewards of digitisation far more than any other segment of the TV business,” said an industry source.

 

Adding that there was no justification for making the broadcasters pay for upgrading the infrastructure of the MSOs, they pointed out that upgradation was a one-time investment, but the carriage fees would continue to be an annual recurrence for broadcasters who, in any event, could not be suddenly made the medium to fund distributors.

 

Broadcasters are especially aghast by this move as the prices of their channels are regulated and have been frozen for years, even as distribution costs have been allowed to rise unchecked in the garb of scarcity of bandwidth – problems which were supposed to have been addressed by digitization.

 

Industry sources told ET that while they welcomed the Rs100 BST for 100 channels as being in consumer interest, there was a hidden minefield in the Trai tariff order that had come as a further shock. They said that the new order had no rules banning placement fees for channels in any tier, including the BST, and hence, this would again allow cable companies and distributors to fleece TV channels by demanding huge sums of money.

 

Distributors already demand placement fee for placing the channel in a particular slot – by a process known as Electronic Programme Guide management. However, they had hoped digitization to end this malpractice.

 

This problem is especially compounded, with the BST having only a restricted number of private free-to-air channels in its basket of 100 channels, compared to the large number of channels in the market place. As per the rule, at least five channels are to be carried in each of the following genres: movie, general entertainment, children’s content, news and current affairs and sports. This would allow distributors to cherry pick the minimum five channels in each genre and demand a huge placement fee to carry them since there are many more channels in each genre, language or market. In addition to carriage fees, this would be a crippling double whammy for broadcasters, sources specified.

 

The solution, sources said, would be to increase the numbers of channels and also ensure an equitable, but not equal, split between genres, since there is a larger proportion of news channels to, say, sports channels.

 

They also said that there was another burden in store for TV channels that Trai did not appear to have foreseen: Since every broadcaster would like to place its channel in the BST, the distributor could potentially subvert the letter and spirit of the Trai digitization order by fixing the carriage fee of the BST much higher than the carriage fee of its platform.

CARRIAGE FEE

Earlier, the News Broadcasters’ Association had slammed the Trai move to legitimize the ransom-like carriage fees charged by distributors, which have now been made a mandatory payment by all the broadcasters to the MSOs. Under this order, the MSO will not be bound to carry the channel of a broadcaster unless it pays carriage fees – which means that the broadcaster would have to pay carriage fees to the MSO to be carried on its platform – which would be decided solely by the MSO and would differ from MSO to MSO even in the same geography.

 

Industry sources said legitimizing carriage fees could sound the death knell for small broadcasters, particularly the regional channels. The Trai move also goes against the concerns showed by the government for small regional channels. Information and broadcasting minister Ambika Soni, in a Parliamentary motion to discuss the Cable Television Networks (Regulation) Amendment Bill, 2011, had said: “This process of digitalization, I feel, would have a major impact on regional channels. They do not get on to national carriages. They cannot pay the high (carriage) fee. There are small channels catering to different states…”

 

MUST CARRY

However, the nub of the matter was that the evil of carriage fee would be abolished only if the capacity constraint was adequately addressed by mandating MSOs to increase their capacity to 999 channels instead of just 500 channels.

 

India currently has around 800 registered channels available in the market and more are lined up for approval in the information and broadcasting ministry.

 

Despite this, surprisingly, Trai has put the minimum number of channel at 200 for small distributors and 500 channels for large distributors, which frustrates the purpose of “must carry” as outlined in the regulation. “Assuming for a moment that every broadcaster is willing to pay the carriage fee declared by the MSO in its RIO, how is the MSO going to carry all the channels on its platform if it has no capacity to carry all the channels,” sources asked.

 

They feared that the end result would be increased litigation between the broadcasters and distributors, thus potentially adversely affecting the smooth rollout of digitization. They said the situation can be salvaged only if Trai increases the numbers of “must carry” channels to atleast 500 channels by June 30 and 999 channels by January 1, 2013.

 

Industry sources also pointed to other major systemic issues which the Trai order had failed to address.

 

First, MSOs have been given the unfettered rights to decide the maximum retail price of the channels they carry- a move that would adversely affect both consumers and broadcasters as the MRP of the same channel could be different at the platform of every MSO. This would not only create confusion among the consumers, but would also increase the number of disputes apart from potentially allowing distribution platforms having their own channels a distinct advantage to manipulate for their own benefit. Sources said the solution to the peculiar situation was in allowing the broadcaster to have a say in fixing the MRP as is the right of manufacturers in all other sectors.

 

Second, the freeze on the price of a TV channel – which had been introduced as a temporary measure – had not been lifted even after eight years. This has seriously affected broadcasters as many have not been able to recover their basic cost of operation. Given that there are more than 800 channels, with more in the pipeline, market forces should be allowed to play out.

 

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

 

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