DTH industry’s uphill battle with policies, competition

By Bharat Vasani, Cyril Amarchand Mangaldas
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India is one of the largest direct-to-home (DTH) television markets globally in terms of subscribers. Of the approximately 197 million television viewing homes, 69 million are DTH subscribers. The significant increase in DTH subscribers in the last five years can be attributed to the successful digitization by the government of India across the country. However, the DTH industry’s teething troubles are not over yet, as many of them have been posting losses.

Content fee and non-exclusivity

Bharat Vasani id
Bharat Vasani
Partner
Cyril Amarchand Mangaldas

DTH operators are locked in a perpetual battle with broadcasters and content providers on content fees. Broadcasters argue that their subscription component is approximately 30% of their total revenue, while the remaining 70% is accounted for by advertising. DTH players argue that because of the high consumer acquisition cost, the average revenue per user (ARPU), at `200-250 (US$2.9-3.6) per month for most operators, is perhaps the lowest in the world.

The sector regulator, the Telecom Regulatory Authority of India (TRAI), has regulated prices of subscription-based television channels at the retail level since 2004. Despite the increase in DTH subscribers and the increase in their toplines, it has not resulted in an improvement in their bottom-lines due to the steep increase in operating and customer acquisition costs. The revised tariff regulations issued by TRAI recently has aggravated the concerns of the sector. Furthermore, the TRAI regulations prevent DTH platforms from broadcasting any exclusive content, a deviation from international practices, thereby restricting them from offering any unique services.

Delay in DTH licencing policy

The DTH policy meant that the licences given in March 2001 were for a period of 10 years, and with no provision for renewal and extension. DTH operators have, however, continued their services on the basis of ad hoc approvals given by the Ministry of Information and Broadcasting (MIB).

This has posed a challenge for DTH operators that were considering carrying out initial public offerings, as the lack of a licence will be a major risk factor that will impact their valuations.

DTH operators have also asked for the licence fee to be reduced to 6-8% of adjusted gross revenue (AGR) from 10% now. They have also demanded that content fees paid to the broadcasters be deducted from the total revenue when computing the AGR of DTH providers.

Impact of new TRAI regulations

The new TRAI tariff regulations have proposed tectonic shifts, challenging the very business model of DTH platforms. With the Supreme Court, in the Star India Private Limited v Department of Industrial Policy and Promotion and Ors case, upholding TRAI’s power to prescribe tariffs, the regulations came into force on 1 February 2019. One of the key proposals in the new regulations is that channel prices will no longer be determined by the DTH platforms but by the broadcasters and content providers.

The DTH platform will collect subscription fees, and pass them on to the broadcasters in return for a distribution fee. Additionally, the distributor will be permitted to charge a network capacity fee (capped at `130 per month) plus applicable taxes. The jury is still out on what the implications of the new tariff orders are for the various stakeholders.

Competition

Doordarshan Free Dish, a free-to-air platform from the state-owned broadcaster, has attracted a lot of customers recently. This practice of having the same content aired simultaneously on paid and free platforms is unique to India and has led to a significant decline in the ARPUs of DTH operators, particularly in rural areas.

Similarly, the arrival of over-the-top (OTT) platforms such as Netflix, which broadcast over broadband, has led to a significant migration of high-ARPU customers. OTT service providers offer exclusive, uncensored content making them more attractive. DTH operators are now exploring ways to collaborate with the digital platforms to preserve their business.

The DTH industry creates thousands of jobs, and is currently the most popular television medium. The merger of Dish TV and Videocon marks the beginning of a consolidation the industry. However, legal and regulatory ambiguity along with high costs (licence fees, indirect taxes, as well as customs duty on set-top boxes) have made DTH operations non-profitable. The recently revised tariffs by TRAI and the verdict in the Star India judgment have added to the woes of the industry. The government must reduce regulatory hurdles for the players for them to survive in an intensely competitive market.

Cyril Amarchand Mangaldas is India’s largest full-service law firm. Bharat Vasani is a partner at the firm.

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