The TRAI has, vide The Telecommunication Services (Broadcasting and Cable) (Eighth) (Addressable System) Tariff Order, 2017 dated 3 March 2017 and the subsequent amendment dated 30 March 2017 (Tariff Regulation), formulated a comprehensive framework for the broadcasting sector covering tariffs for Addressable TV distribution of TV broadcasting services across digital broadcasting delivery platforms (such as DTH, Cable TV, HITS, IPTV).

The Tariff Regulation has been challenged in the Madras High Court by Star TV and Vijay TV on the ground that fixing tariff for TV content is in violation of Copyright Act and is beyond the jurisdiction of TRAI. The hearing is in full swing, however the Tariff Regulation has not been stayed so far. Most of the provisions of the new Tariff Regulation will come into force after 180 days. Interestingly, the provision requiring broadcasters to declare maximum retail price (MRP) per month payable by a subscriber for each pay channel offered on a-la-carter basis is expected to come into effect from next month. Such MRP should be more than zero and uniform for all distribution platforms.

Background and Need for Change

In TV broadcasting services, there are three main stakeholders, namely, broadcasters, distributors of TV channels and viewers/subscribers. Broadcasters provide channels, distributors establish their network and subscribers pay price for viewing TV channels.

To enhance transparency, subscriber choice and quality of services digitalization was necessary. The amendment to the Cable Television Networks (Regulation) Act, 1995 (Cable TV Act) in 2011 marked the implementation of digital addressable cable TV system in India. The digitalization process was envisaged to be completed in four phases and is now complete. Although digitalization offered transparency and better view quality the issue of subscriber choice was not adequately addressed. The benefits of digitalization such as choice of selecting channels on a-la-carte basis and availability of multi - media services never reached the subscribers. Further, broadcasters have continued to bundle channels and push for channels to maximum number of subscribers, as they offer huge discounts on bouquets.

Since the main source of revenue for broadcasters are advertisements and subscription fees, the existing Tariff Orders have led to skewed revenues of broadcasters earned from advertisements resulting in lack of investment in niche and not so popular channels which in turn has led to a lack of choice for subscribers.

New Regulatory Framework

To facilitate choice for subscribers and to exercise their options in line with intention of lawmakers to choose individual channels, the new framework stipulates that broadcasters must declare to customer/subscribers the MRP of their a-la-carte channels and bouquets of pay channels. To ensure that prices of a-la-carte channels are kept reasonable, the maximum discount permissible for formation of a bouquet has been linked with sum of a-la-carte prices of the pay channels forming that bouquet. A broadcaster can offer maximum discount of 15% while offering its bouquet of channels over the sum of MRP of all pay channels in that bouquet to enable customer choice and prevent skewed a-la-carte and bouquet pricing. Full flexibility has been given to broadcasters to declare the price of their pay channels on a-la-carte basis. Such bouquets shall not contain any free to air channel. The bouquet will not contain any pay channel whose MRP per month is more than INR 19 and it will also not contain HD and SD variant of the same channel.

Similarly, the bouquet offered by a distributor to a subscriber will be without any alteration in the composition of a bouquet by the broadcaster and a maximum discount of 15% can be provided while offering a bouquet by the distributor at a retail level. As far as a-la-carte price of pay channel by distributor is concerned, in no case it shall exceed the MRP per month declared by the Broadcaster. Distributor can, also charge network capacity fee per month (with a cap of INR 130 up to initial 130 channels) from its subscribers for availing its distribution network capacity.

The net effect of fixing caps on discounts for bouquet by broadcaster and distributor will be a total maximum discount of approximately 30% on the bouquet of channels. Therefore, flexibility of formation of bouquet has been given to both broadcasters and distributors to such an extent that the total permissible discount does not kill a-la-carte choice.

Before this new framework was proposed, the retail tariff in addressable system for both free to air and pay channels was under forbearance i.e. the distributors of TV channels were free to decide their price as per market condition. Although some of this flexibility remains, it has been limited to some extent under the new framework.

Khaitan Comment

The overhaul of the tariff plan was the need of the hour considering the limitation that subscribers had in the choice of a-la-carte channels. It seems that TRAI has learnt from its experience and revised the tariff plan in such a manner that even if distributor of TV channels would like to indulge in predatory pricing it will only have limited flexibility in determining the price of channels. The new framework will change the dynamics of business between the three stakeholders and will resolve certain long pending issues and at the same time is expected to give rise to new controversies. Depending on the response from the market on the implementation of the new framework, the TRAI may review it in couple of years. We are keeping a watch on the proceedings in Madras High Court and will update this Ergo depending on the outcome.

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