The Indian Broadcasting Sector is shrinking. Revenues and Subscriber base of DTH & Major MSOs are in the process of going down. The DTH active subscriber base went down from 70.99 Million to 68.52 Million from Dec 20 to Dec 21 (3.4%). In the same period, the major MSOs/HITS subscriber base went down from 46.73 to 45.81 Million (2%). Revenues too are dropping, from Rs 420 Billion to Rs 365 Billion (13%) for the broadcasters, and from Rs 358 Billion to Rs 343 Billion (4.2%) for the DPOs. In the same period, the advertisement revenues also dropped from Rs 262 Billion to Rs 217 Billion (17%). Affected DOPs and MSOs are attributing this to the migration of subscribers to Doordarshan's Free Dish service (grown exponentially with a subscribers base currently close to 50 Million), and the growth of OTT services — whose revenues are projected to grow by 33% to Rs 338 Billion in FY22. (Source — TRAI’s CP dated 7th May 2022). This data clearly tells us that both linear TV and its content is migrating slowly towards OTT, and since the conventional DPO platforms (DTH & IPTV) are facing discriminatory licensing structure (8% license fees on revenues) compared to MSO & Cable operators (very nominal fees), the DTH player’s agony is more than the later. The purpose of this note is to analyze this situation, and conclude the optimal strategy for the regulator and the operators to keep the sector healthy can growing.
TRAI’s Recent Actions
TRAI has taken two specific actions. A) Released a consultation paper on issues related to the New Regulatory Framework for Broadcasting and Cable services; B) Asked the broadcasters to clarify whether their actions on providing linear channels to their in-house OTT and third-party apps violate clause 5.6 of the downlink guidelines?
TRAI’s Tariff Orders
On 7th May 2022, TRAI released a consultation paper to review the implementation of its earlier tariff order dated 1st Jan 2020. The whole purpose of this tariff order was to prevent the broadcasters and the DOPs from limiting consumers’ ability to choose channels on a la carte basis — freely and flexibly. As per TRAI’s analysis, the broadcasters and the DPOs are pushing down the consumer's throat unwanted channels piggybacked on those which are on demand. This is forcing the consumers to view those channels which they don’t want to watch, thereby distorting the market in favor of broadcasters with deep pockets. This in turn is demotivating other small producers from creating high-quality content.
The major bone of contention is anchored on the TRAI’s directives on the amount of discount the broadcasters and DPOs can offer on their bouquets (bundle of pay channels sold as a unit). TRAI had initially ordered (3rd Mar 2017) that broadcasters cannot offer more than a 15% discount on the total sum of the MRPs of the individual pay channels part of the bouquet. This order was stuck down by Chennai High Court as arbitrary and unimplementable and was withdrawn by TRAI.
Then on 1st Jan 2020, TRAI came out with a new tariff order, which tried bringing the cap on discounts on bouquets through a twin clause (page 3, clause 3(b)). In the first clause, TRAI prevented the 1.5 times the MRP of any pay channel (part of the bouquet) from breaching the bouquet price. In the second clause, the TRAI prevented the 3 times the MRP of any pay channel (part of the bouquet) from breaching the average price of the MRP of all pay channels of that bouquet. The second clause was struck down by the Bombay High Court.
Apart from the twin clauses above, there are other issues like what should be the maximum MRP of a channel that should be allowed as part of the bouquet, Network Carriage Charges, discounts for Multi TV homes, number of bouquets that broadcasters and DPOs can offer are also being discussed.
It is clear from the above that since the TRAI has come out victorious in courts on its rights to regulator this sector, it won’t settle without putting some framework around the pricing of TV channels, which in turn will definitely reduce the flexibility of the broadcasters and DPOs in their ability to offer linear TV content to the consumers.
The OTT Issue
Recently, the cable operator complained to TRAI that the Broadcasters are driving the same linear content through their own OTT apps and through third-party apps at a subsidized rate compared to what they are offering to them (governed by TRAI’s tariff order).
The TRAI has contended that the broadcasters are in violation of clause 5.6 of downlinking guidelines which states that companies can ONLY provide signal reception decoders to cable, DTH, or IPTV platforms. However, the broadcasters insist that they are not using the infrastructure which is regulated to offer linear content to OTT and third-party aggregator apps. The matter is in TDSAT, and the next hearing is on 31st May 2022.
But the point is that if OTT apps can be used to circumvent the TRAI tariff order, then what purpose does it serve? That too when the OTT sector is growing leaps and bounds and will likely grow further with the advent of 5G.
Licensing Issues
Broadcasting
The broadcasting services are licensed by two ministries, the MIB and the DOT. All broadcasters, DTH, IPTV, MSOs, and Cable Operators fall under a licensing framework under MIB (Ministry of Information & Broadcasting). The DTH and IPTV pay a % of their revenues (8%) as license fees. Whereas the MSOs and the Cable Operators pay very minimal with no revenue share structure. The licenses empower the DPOs to enter into a contract with the broadcasters under the framework of downlinking guidelines and TRAI’s tariff order (currently being reviewed in TRAI).
Now since the OTTs do not fall under any bucket (DOT or MIB), they are neither governed by the downlinking guidelines nor the TRAI’s Tariff orders. This is the whole genesis of the current TRAI & Star tangle in TSDAT (next hearing 31st May 2022).
Carriage
The carriage is regulated primarily by DOT. It is of two types, a) unidirectional — where the traffic in the pipe flows in one direction only like DTH & some Cable Wires; b) bidirectional-where the pipe has the capability to drive traffic in both directions. In the case of the former since no internet is possible to run in the pipe, no ISP license is needed. However, in the latter case, an ISP license will be needed, for which license fees of @8% of the AGR are charged.
Fortunately, the DOT has allowed a pass-through of all revenues emanating from selling broadcast content licensed by the MIB from the GR in order to arrive at the AGR for the purpose of calculating ISP license fees. Therefore license fees obligations of MIB do not get double-counted on that of the DOT
Who Pays What to Whom?
A) Telecom Player — Therefore, it is clear from the above discussion that if a telecom operator has an MSO license then it can not only enter into an interconnect agreement with a broadcaster but also can drive linear TV over its telecom network without having to pay a revenue share to both DOT and MIB. Also, it can drive linear TV over its own OTT app without having to go through the TRAI-defined interconnect agreement.
B) DTH Player-It has to pay a license fee of 8% to the MIB, and is governed by the TRAI’s tariff regulation and interconnect agreement.
C) IPTV Player — It has to pay a license fee of 8% to the MIB, and is governed by the TRAI’s tariff regulation and interconnect agreement. Also, it has to pay a license fee of 8% to DOT on the AGR netted of licensed activity under the MIB.
D) Cable Operator — It pays some nominal fixed fees to the MIB, and no fees to DOT, but is governed by the tariff regulation and interconnect agreement set by TRAI.
Hence, MSO operators come out as winners especially those with an existing telecom network (wireless & wireline) already laid out for offering broadband services. And the Broadcasters who through their own apps or third party OTT apps are driving linear TV content on existing broadband networks, as they can provide special discounts to the OTT apps compared to those licensed by the MIBs.
Other Issues
There are other issues too which might lead to a preference for one platform (transmission medium) vs the other, especially the last mile.
A) Fixed Line Broadband-Recently there are news reports that the DOT is planning to give a waiver of 10 years on 8% license fees applicable to a player offering internet connection over fixed-line. Note this waiver may not be applicable to those offering internet through upcoming technologies like 5G, V-Band, E-Vand, Satellite, etc. Hence, there will be a direct bias of the telecom player to use fixed lines to offer OTT bundled with linear TV content using the MSO license.
B) Net Neutrality Rules — The current NN rules prevent a telecom operator from offering content over wireless with a differential quality compared to others using the same pipe. As all OTT apps using the same platform can’t be differentiated. However, since linear TV over wireline is tested and tried both by a player holding IPTV & MSO license, the same should be applied when the operators deploy 5G networks. The reason — 5G emulates wireline kinds of capabilities over wireless.
Conclusion
It is clear from the above discussion that the regulations and license fees for offering broadcasting services have differential structures. Therefore, some players/platforms enjoy advantages compared to others. DTH is the most unfortunate. As has no way of circumventing the obligation to pay license fees to the MIB and the TRAI’s tariff and interconnect regulations. It is also under threat by the Doordarsan’s free DTH service. The MSOs with an established telecom broadband network are reasonably well placed — with an option to use the unregulated OTT platforms and also can use their strong customer base to drive consumers towards it (by limiting the access to the OTT to only its telecom customers). The MSOs also pay no % revenue share on the content they offer under the purview of that license. The broadcasters have the flexibility to drive the same linear TV content through their own OTT or third-party apps. With consumer viewing preference moving toward OTT, and these OTT having the capability of offering content in much finer granularity (program level than at channel level) — making both linear channels and the TRAI’s effort of regulating them totally redundant.
Finally, since it is impossible to regulate the OTT platforms, the MIB should bring the licensee fees of all existing platforms to par (preferably to zero), and TRAI should refrain from imposing onerous tariff structures on the existing linear channels when their regulations are anyways getting circumvented through the OTT platforms. Also, the licensing fee structure for both wireline and wireless (including satellite) should be brought to the same level with the intent of spreading broadband by whatever means possible. This will be in the interest of India and its consumers.
(Views expressed are of my own and do not reflect that of my employer)
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