"Amendments to NTO: Potentially negative for broadcasters, DTH and cable players": Edelweiss

Financial services group Edelweiss analyses the impact of amendments to the NTO.

TRAI has released a few amendments to the NTO ( New Tariff Order) and Interconnect Regulations, pursuant to the comments and feedback received on its consultation papers.

Also Read: TRAI amends New Tariff Order; "To protect interests of consumers"

Edelweiss' Views

The amendments proposed by the regulator are definitely customer-centric and focus on stemming the spike in cable/DTH bills endured by the customers. We expect that with the new guidelines, end-consumer ARPUs (Average Revenue Per User) to reduce owing to the constraints placed on – bouquet discounting (capped at 33 per cent), price-linked bouquet inclusion of channels (likely to prompt downward price revision of flagship channels), and cap on the NCF.

For broadcasters, this could lead to slowdown in the subscription revenue growth in the NTO as the prices are likely to come down. On the flip side, we might also see – i) increased offtake of channels due to the downward price revision, ii) migration of FreeDish customers to pay TV which could partially offset the slowdown in subscription revenues.

Q4FY20 will be impacted marginally due to these amendments as they are effective from March 1, 2020. Broadcasters have been asked to publish the revised MRP rates and bouquets by January 15, 2020. Overall, this is likely to be potentially negative for broadcasters given that ad revenue growth has been sluggish YTD20 and resumption looks challenging; a larger portion of growth for broadcasters in FY20 was driven by subscription revenues. However, in the long run, this would have a positive impact for the broadcasters, as it reduces the OTT migration risk by lowering the price differential.

• Key pointers and impact:

• The sum of the a-la-carte rates of the pay channels (MRP) forming part of a bouquet shall in no case exceed one and half times the rate of the bouquet of which such pay channels are a part

• This implies a discount cap of 33 per cent. If we take a look at the base packs of the leading broadcasters, except ZEEL and Colors, other bouquets are at a discount greater than 33 per cent (Star – 35 per cent and SPNI – 54 per cent).

• This could lead to either a few tail channels getting dropped from fat bouquets or increase in the MRPs of the bouquets

• However, given the rise in the end-consumer ARPUs in the new regime, likelihood of reduction in channels is higher

• While this improves the channel selection for consumers as tail channels would get dropped, price-wise there could be only marginal impact for the consumers

• The a-la-carte rates of each pay channel (MRP), forming part of a bouquet, shall in no case exceed three times the average rate of a pay channel of the bouquet of which such pay channel is a part

• This could lead to price revision of the flagship channels which were earlier priced at max MRP of Rs 19 and offered along with tail channels in the bouquets.

• For instance, as shown below, the MRP of ZEEL’s base pack is Rs 8.5 offering 24 channels, which translates to an average rate of Rs 2.43 per channel with a threshold of Rs 7.30

• Hence, according to the above regulation, the a-la-carte price offered for ZEE TV or &TV cannot be more than Rs 7.30

• We would want to have more clarity on this guideline as one channel can be part of the many bouquets offered by the broadcaster and DPO.

• This could bring some relief for customers who have opted for a-la-carte offering as the under this regulation the a-la-carte pricing is likely to get revised

Issues highlighted –

• Absence of any discount cap between the a-la-carte and bouquet pricing

• NCF for multi-TV homes

• Flexibility to Distribution Platform Operators (DPOs) in offering long term subscription plans and carriage fee payable by broadcasters to DPOs.

• Authority decided that only those channels which are having MRP of Rs12 or less will be permitted to be part of the bouquet offered by broadcasters.

• This could lead to price revision of the flagship channels of the broadcasters as most of them have an a-la-carte price of Rs 19 (to Rs 12)

• With this and the above mentioned guideline, we could see significant a-la-carte price revision for flagship channels and channel revision for the bouquets offered by the broadcasters

TRAI has examined various provisions in detail and accordingly mandated provision of 200 channels in maximum NCF of Rs 130, excluding taxes per month. In addition, it has also been decided that channels declared mandatory by Ministry of Information and Broadcasting will not be counted in number of channels in the NCF. DPOs have also been mandated that they will not charge more than Rs 160 per month for giving all channels available on their platform.

• This will be a big relief for customers who were earlier charged Rs 130 for 100 channels along another Rs 20 (as incremental NCF) for every 25 channels over and above the first 100 channels

• For distributors, the authority has placed a cap of Rs 160 on the NCF charged, which limits their role even more in the entire value chain

• TRAI has decided that in case of multi-TV homes where more than one TV connection is working in the name of one person, it will charge maximum 40 per cent of declared NCF for second and additional TV connections. Authority has also permitted DPOs to offer discounts on long term subscriptions which is for 6 months or more

• A cap of Rs 0.4mn per month has been prescribed on carriage fee payable by a broadcaster to a DPO in a month for carrying a channel in the country

• Broadcasters are required to publish revised MRP of a-la-carte channels and bouquets on their website by January 15, 2020 and DPO are required to publish revised DRP of a-la-carte channels and bouquets on their website by January 30, 2020. Consumers will be able to benefit as per the amended provisions with effect from March 1, 2020