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Photo: iStock

Opinion | A heavy blow for pay TV in the name of consumer protection

New price curbs imposed on broadcasters could push them out of business and hurt a creative industry of content suppliers

Imagine you run a fast-food kitchen and are told how to price meals by the government, though you produce a non-essential product. Specifically, consider a scenario where you lack the freedom to price individual or à la carte dishes if they are also part of any combo meals you offer. Additionally, think about your business prospects if service providers who deliver your food are allowed to increase their charges every year. Can your business survive such differential regulatory burdens? The Telecom Regulatory Authority of India (Trai) seems confident it can.

On 1 January, Trai introduced regulations that tighten the noose around broadcasters that provide pay channels in “bouquets", while relaxing constraints on distribution platform operators (DPOs) that carry these channels to consumers. The price ceiling on à la carte pay channels, which are also part of a bouquet, stands reduced to 12 from 19. Additionally, channel bouquets can only be priced 33.3% lower than the price of constituent channels, while distributors can charge consumers any price below 160 for carriage. Another difference is that DPOs are allowed to offer any discount on carriage fees for “long term subscribers", while broadcasters are given no equivalent leeway.

Just like the road to hell is paved with good intentions, a death blow for pay TV is justified by Trai as being in “consumer interest". The regulator has identified the market failure it is trying to remedy in an explanatory memorandum, stating that “huge discounts are offered on bouquets coupled with high a-la-carte prices of popular channels… making the a-la-carte choice of the popular channels a less attractive option". Let’s assume this is indeed the case, and think of the fast food delivery analogy. Why should a regulator intervene on grounds that fast food kitchens offer heavy discounts on combo meals?

It would be logical for the regulator to intervene if consumers are worse-off because they were offered attractive bouquets by broadcasters. In other words, consumers are forced to pay more than the price they are willing to, to exercise their choice. To determine this, the regulator should first identify the price consumers are willing to pay for content and distribution respectively. It should also mandate that distributors explicitly specify both costs to consumers. Alas, Trai has resorted to hyperbole, stating that discounting strategies have “gone to the extreme of some broadcasters pricing some of their bouquets equal to or even less than the MRP [maximum retail price] of a single but popular channel present in that bouquet".

Again, the fast food analogy may help. Would consumers be worse off if a combo meal cost less than an individual dish? They would be only if there were no competition in the market for fast food and consumer choices were consequently constrained. However, the market for pay content is more competitive than most. Pay channels account for over a third of the 900-odd total TV channels. Conversely, there is a lack of competition in the market for content delivery, which prevents consumers from exercising informed choices. Consider the fact that around 60 million households still rely on cable operators, despite the fact that such DPOs rarely respond to consumer grievances because of entrenched locality-specific monopolies.

Unfortunately, TV consumers pay more for delivery than they do for content, on average. The way to remedy this is to ensure competition at each level of the supply chain. Distribution costs should decrease with time in a competitive supply chain. Take the case of e-retail as a well-documented example. But if distributors can get away with charging hefty fees, they have no incentive to invest in technological efficiency. Thousands of cable operators maintain opaque billing practices and have outdated subscriber management systems. Theirs is an extractive rental business model, protected by regulatory sanction.

Trai regularly misdiagnoses the consumer’s interest. There is evidence of this in the telecom market—once the poster child of liberalization, now almost reduced to a duopoly. Similarly, perhaps only a couple of large broadcasters will remain in the business of pay TV if the competitiveness of distribution remains a challenge.

Why should cost-sensitive Indian consumers care about the death of pay TV? Global experience suggests that the free-to-air model of producing content entirely reliant on advertising suffers from a quality loss. Trai has recognized this in its memorandum too, stating that “the Authority did not place any cap on pricing of individual TV channels so that broadcasters could concentrate more on improving the content quality of TV channels". However, quality talent requires reward. Moreover, if pay TV collapses, a large section of a dependent creative economy will follow—compounding the country’s larger economic woes. It would mean job losses, value erosion, and another opportunity lost to nurture a regulated industry to achieve global levels of performance.

Vivan Sharan is a public policy expert and author of ‘Wonked!: India In Search Of An Economic Ideology’ These are the author’s personal views

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