Policies drive business or business drives policies?

At a panel discussion, industry experts discussed the reasons, role and importance of regulations in the digital era.

At the CII-Media Entertainment Summit 2012 titled India - The Big Picture, a panel comprising of DTH service providers, cable operators, broadcasters and MSOs, along with a representative of the regulator of the industry, discussed the way forward in the digital era.

The second day of the conference saw the discussion on "Policy conundrum - Waiting for Godot?" moderated by Vinod Dhall, former chairperson, Competition Commission of India. The panel comprised Harit Nagpal, managing director and CEO, Tata Sky; Deepak Jacob, president and general counsel, head legal and regulatory, STAR India; S N Sharma, CEO, DEN Networks. Vanita Kohli-Khandekar, contributing editor, The Business Standard; Anuj Gandhi, group CEO, Indiacast; Gopal Jain, senior advocate; Ameet Naik, managing partner, Naik & Naik Company; and Rahul Khullar, chairman, Telecom Regulatory Authority of India (TRAI).

Dhall started the discussion by laying out the broad scenario, facilitated by a conducive policy relaxation of the FDI norm and the digitisation of the cable industry. He said that looking ahead, we can be confident that many of these factors will continue to ensure a protected regulatory environment.

Khullar spoke about the upcoming changes in the next decade and what the government and the regulator need to do in partnership to deal with that change.

He said, "What has happened in the broadcasting industry is that the people who knew about technology, moved much faster and created things with jugad, while the government was not aware of what exactly was going on. It was the typical problem of the regulation coming after the industry move. That is exactly what happened in the cable industry business."

He added that convergence is coming near. "In this scenario, we have to decide how we are going to deal with the content and carriage issues and regulation. Because of the intimidating differences between the Ministry of Broadcasting and Ministry of Telecommunication, there was a need to start looking at how it should be regulated. Should the carriage be left to one and content to the other?" he said.

He also addressed intellectual property rights. Citing the example of property rights in the music sector, he said that technology overtakes an industry before the industry knows it. Even Japan and the US have gone through this, he mentioned.

Emphasising the need to understand things in their proper context, he said that better awareness was required. "I understand law and regulations and policy matters, but the business part of the industry can be understood with the help of the broadcasters only," Khullar said.

Next, Jacob of STAR explained the immense potential of narrowcasting. "Narrowcasting is when one national feed is split into regional feeds so that the national content can reach at the local regional level. Narrowcasting can also be done through cable, where one can actually use the cable head-end to provide the national content to the regional advertising. The bigger benefit of this is the fact that it actually allows far more efficient use of the spectrum."

Explaining the implications of this, he cited the example of local advertisers who depend entirely on local print. With narrowcasting coming into the picture, he said that local brands will be able to use the TV platform, too.

Nagpal of Tata Sky focused on the hindrances posed by regulation and taxation. He said that there are 800 channels released by the Ministry of I&B. Even with content producers and customers willing to pay for content, several bottlenecks exist. Permissions from about eight secretaries from different departments are required before this content can reach the customer, he said, citing how regulation creates interference.

He added, "Another problem is taxation. Content is being made available to the customer at the lowest possible price in this country. Despite that minimal amount, we are the highest taxed industry in the country. We pay about 32-35 per cent tax. Apart from the import fees on the STBs, there is 10 per cent license cost. The big brother, telecom has been given the relaxation to pay 10, 8 or 6 per cent depending on the city they are operating in. Apart from this, there is service charge that comes into play."

He also added that there should be some way to control taxation because eventually it affects the consumer ARPUs.

"Digitisation is a step forward for all the stakeholders of the ecosystem, from the broadcasters to MSOs to LCOs and most importantly, the consumer is going to benefit at the end. The huge pile which was getting stuck at one corner of the value chain will now be set equally and will be shared equally with due proportion amongst all stakeholders. This will provide a huge stage for a robust media and cable TV industry in times to come," he said.

Speaking on ARPU, he asserted that the Indian consumer has time and again proved the willingness to pay for services in which he sees value. From single movie theaters, he said, they have upgraded to multiplexes across the country and now pay more than Rs 100 to watch a movie. Clearly, the consumer has the appetite to pay.

The discussion further delved on the benefits reaped by the LCOs and the broadcasters in the digital scenario. Digitisation opens a plethora of bandwidth availability. The LCO will still be the front face of the value chain with thousands of subscribers on the ground. With digitisation, his profile will change, he will be the service provider, retailer and official partner of big cable companies. Definitely, as the quantum of services improve, there will be increase in the price. And, this will benefit the LCO too, as they will get a fair share since the whole revenue stream is unlocked and the money is shared by all.

Gandhi said, "We need to sort the carriage related issue. We need to make sure that either through the regulator or the discussions between the two stakeholders involved, we get to realistic level of carriage fees. Frankly, the kind of money that was being paid for the carriage and placement fees until recently was too high. Rightly so, because there was a demand and supply constraint of just 80-90 slots and 800 channels to accommodate. Through digitisation, we can get some realism in the carriage fee part."

He explained the need to get the ARPUs right. "People are willing to pay more. The reality is that even on a 250-channel platform like DTH or cable, there is not a single genre which is missing. You have all the international or homegrown brands. At the end of the day, there are about 35-40 million DTH households, but only those 20-25 per cent give about USD8-10 ARPU. As an industry, we must try to get more consumers to give higher ARPUs. I think that is going to be a big challenge for the industry," he said.

Jain said that the cable and entertainment industry is at a transformation stage and needs higher investments, which in turn requires a strong, effective, global and enabling regulatory regime supported by policies. "In India, the policy papers have not come necessarily for regulatory support. This divergence or this gap has actually increased the investments," he added.

Comparing with other sectors, he mentioned that whenever sectoral policies are formed in India, a lot more is promised. "In the media sector, in January 2004, when regulation and regulator came in the way of broadcasting, we saw an interim order, one of the longest standing interim orders in the last seven years. It mentioned tariff. If tariff doesn't offer a cost cut formula, it does not account for cost, then we certainly would not see investment, particularly better content. Likewise, while you see there is an increase in FDI in every other sector, we still hold on to 49 per cent and 74 per cent in news and broadcasting," he said.

Jain clearly cautioned that unless this bottleneck is removed and realistic tariff is applied, even with infrastructure in place, we won't see investment coming.

Kohli-Khandekar touched upon three important points where regulation is strictly required. She said, "The science of the industry has grown by seven times. That was the little trigger across the country for regulations to come up, for revenues to go up. And that's what regulation can do. It can freeze its industry from fear, help it become financially stable. Good facilitating regulatory environment can do that."

She added, "First, the cross media norms: there are specific regions (South India), especially, where in vertical and horizontal monopolies are building up. Media influences how we think, eat, what end thing we consume and how we vote. Hence, it is necessary to stop this kind of atmosphere."

Secondly, she explained that the industry should not only look at media owners but also the agencies. "Fifty-60 per cent of the media buying in the country is done through media agencies. We always look at media owners, but we must look at the buying side of media. If we say that media is 80 per cent revenues from advertising, who is controlling that advertising?"

she asked.

Further, she threw light on the issue of ownership of media, especially news media. Many countries, she said, have specified norms about who can own news media. In India, nothing specifically defines that. Fifty per cent of the cable network in the country is owned by local politicians, she pointed out.

Lastly, Kohli-Khandekar stated that she believed that the government and ministry by and large have a problem in regulating the media. They are either overindulgent with the media or they leave it completely, because they are afraid of touching it. Also, the focus is always ad hoc, she concluded, stressing on the need for a balanced approach.