TRAI’s New Tariff Order For The Television Industry – Who Are The Winners And Losers?

Broadcasting market regulator Telecom Regulatory Authority of India (TRAI) has recently implemented the new tariff order for the television industry. Since the tariff order was fully implemented at the close of the fourth quarter of FY19, Q1FY20 was the first quarter to see the actual impact of it.

The new tariff order is based on pay-per-use basis. As per the new rule, broadcasters declare their pay channels or bouquets and they are now earning on the basis of channels that are subscribed by the end users. In the near term, it was expected that advertisement revenues for the broadcasters to shrink due to uncertainty of customer choice, but on the flip side, subscription revenues were likely to drive the growth and profitability. This was quite evident in the quarterly earnings of broadcasters. The new norms were likely to de-risk distributors, i.e. DTH and cable operators, as content cost will become pass-through for pay channels and help drive the operating margins. A few of the DTH players have reported their first quarter earnings for FY20 with higher operating margins due to lower operating costs.

Winners

• Primary gainers were broadcasters due to higher subscription revenues. However, advertisement revenues definitely took a hit on expected lines. But industry experts believe that it is temporary and will subside once the transition is complete. Based on the new trends in the pay channels/bouquets, advertisers will get over the uncertainty of customer choice. Zee entertainment reported 46 percent rise in subscription revenues and just 4.2 percent rise in ad revenues. Historical run rate for ad revenues for Zee is in the range of 16-20 percent. However, the slowdown in economy is one of the reasons for the slower ad revenue growth and the Zee management expects ad spend would come back once the tariff order settles down and the festive season kicks in. Sun TV’s Q1FY20 earnings are yet to be announced, but Edelweiss expects about 2 percent year-on-year (YoY) on about 20 percent base in Q1FY20 in light of new tariff order disruption and market share loss, while subscription growth is expected to be around 8 percent in Q1FY20 YoY, on base of around 15 percent.
• Content/programming cost for the distributors, ie DTH and Cable operators, is now pass-through leading to lower operating costs. Average revenue per user (ARPU) was expected to rise for the industry as well as for the DTH and cable operators. Dish TV reported its Q1FY20 earnings and clearly stated in notes that the company has entered into revised agreements with the broadcasters. The company has re-assessed its performance obligations, extent of control over broadcast content and various other responsibilities and liabilities, and accordingly, has considered services including network capacity fee, distributor margins on channel subscriptions and incentives from broadcasters as part of its revenue from operations. All this helped Dish TV’s operating expenses to reduce by 73.6 percent. Also programming cost is now 25.2 percent of total revenues compared to 53.4 percent in the same quarter last year. ARPU improved to 199 vs 184 QoQ. Similarly for Hathway, subscription revenue grew 38 percent YoY and margins improved to 20 percent vs 18 percent.

Losers

• Again broadcasters are the partial losers in terms of lower ad revenues but it is short-term in nature.
• With the implementation of the new pricing which suggests that subscribers will have to pay Rs315/month (Rs185 for content + Rs130/month capacity charge) for a base pack of top-four broadcasters. This is 45 percent higher than average industry pay-TV Arpu of Rs215/month.―CNBC TV18