Trai’s broadcast revolution will not be televised

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Over the last few years, the Telecom Regulatory Authority of India (Trai) has been on a crusade. This crusade was meant to shield the TV-watching consumer from the cloak and dagger tactics of the broadcast and cable services industry.

The problem, as the regulator saw it, was simple—broadcasters and distribution operators transmit hundreds of television channels to subscribers. Despite viewers only watching a few select channels—say, sport or news—they have little choice but to subscribe to and, therefore, pay for the entire gamut.

So, since 2016, Trai has formulated one policy paper after another, all aimed at addressing the woes of subscribers. To do this, it sought to control and establish a level playing field between mighty content behemoths and the companies which transmit this content to subscribers. This resulted in the Tariff Order 2017—which required broadcasters to declare prices for individual pay channels and capped the pricing of a pack of channels at no less than 85% of the sum of their a la carte pricing.

Notified in 2017 and enforced on 29 December the following year, Trai expected the order to aid in price discovery of individual channels. This would allow subscribers to choose only the channels they wanted and effectively spend less on their direct-to-home (DTH) or cable TV bill. It would also let Trai keep tabs on the exclusive deals between broadcasters such as Sony, Star and Zee and distribution operators like Tata Sky DTH, Airtel DTH and Hathway, which have led to an unlevel playing field.

No FruitFul Efforts

But the road to hell is paved with good intentions. After broadcasters challenged Trai’s order in the courts—which ruled the discount capping of packs was arbitrary—a wave of disruption has been unleashed in the space.

Just not in the way Trai had hoped.

Broadcasters and operators began creating hundreds of heavily discounted channel packs—confusing viewers and dissuading them from opting for standalone channels. Today, it is either more complicated for subscribers to renew a cable or a DTH connection, more expensive, or both.

Cable or DTH operators—the pipe between broadcasters and viewers—feel they have lost bargaining power with the broadcasters, as the latter sets the price of channels under Trai’s regulation. Payouts by DTH operators to broadcasters have increased by around 40%, according to sources.

Smaller channels and broadcasters, which don’t have the leverage of their larger broadcast counterparts, are also reeling under the new system. With big broadcasters perversely incentivising channel packs, smaller players are left in the lurch. Lower traction will lead to lower ad rates.

The writing on the wall is clear: “All small channels will shut down. The small operators will die,” said one executive with a DTH provider. “This regulation will create monopolies. You are making sure that only people with deep pockets will survive,” the executive added.

Trai isn’t blind to this new reality. In a consultation paper released in mid-August, it acknowledged that the situation hasn’t panned out as it hoped. But even as Trai ponders the chaos it has unleashed, new heavyweights are emerging—OTT players.

With the cost of internet data plummeting, video streaming services such as Netflix, Amazon Prime, and Hotstar have seen a marked uptick in popularity. The subscriber base of the 16 top OTTs increased 2.5X—from 63 million to 164 million—between August 2016 and August 2017.

“Amid this changing landscape, Trai is over-regulating the sector, strangulating the traditional players,” says the DTH executive quoted earlier. And while the reign of the old guard seems shakier than ever, the gatekeepers of India’s data revolution—Mukesh Ambani-owned telco Reliance Jio and its arch-rival Bharti Airtel—seem primed to rule the space. Positioned as an OTT player, Jio is also shielded from Trai’s regulations.

A Skewed Broadcast System

For years, five broadcasting companies—Star India, Zee Entertainment Corp, Viacom18, Sun Network and Sony Entertainment—have dominated India’s broadcast and cable business. Accounting for the bulk of the sector’s $9 billion-plus revenues in 2017, they virtually control the sector. Indeed, their heft, both in terms of finances and content, means they wield considerable influence on distributors as well. Here’s how they functioned:

Broadcasters charged distributors (DTH or cable operators) for transmitting their channels to subscribers. The larger the platform, the better the rate a distributor can negotiate with the broadcaster. Smaller platforms, therefore, are forced to shell out far more.