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Tough times ahead for broadcasters like Zee, Sun TV as NTO 2.0 may see the light of day

Broadcasters who are already facing a tough time due to the pandemic have another difficult situation to deal with.

On June 30, the Bombay High Court upheld various clauses under the New Tariff Order (NTO) 2.0.

First, let’s understand what NTO 2.0 is.

The Indian TV industry saw a major change in February 2019, when the Telecom Regulatory Authority of India (TRAI) came up with an NTO which brought in effect the new regulatory framework popularly known as the MRP regime.

In January last year, TRAI came up with amendments to the NTO. This includes price cap on channels coming down from Rs 19 per channel which was introduced under NTO to Rs 12 under NTO 2.0.

Along with this, NTO 2.0 offers customers double the channels or as many as 200 channels under the base Network Capacity Fee (NCF) slab, which is Rs 130. It is 100 channels currently.

While NTO 2.0 bodes well for the customers, broadcasters are wary of its implementations.

NTO 2.0 worries broadcasters

This is because Karan Taurani, Senior VP, Elara Capital, estimates subscriber revenue growth to drop from seven to eight percent year-on-year to three-five percent in the first year of NTO 2.0 implementation.

And the Bombay High Court’s ruling upholding TRAI’s NTO 2.0 comes at a time when broadcasters like ZEE Entertainment, Sun TV are seeing growth in their subscription revenues.

According to FY21 results, ZEE registered like-for-like growth of 5.8 percent in subscription revenues for the year. However, it was primarily driven by the company’s streaming platform ZEE5.

As for SUN TV, the company saw a 10 percent growth in subscription revenues in FY21 as compared to FY20.

Now, with NTO 2.0 coming into the picture, subscription revenue growth prospects remain muted as TV networks that are more reliant on bouquet discounting are likely to lose out on more subscription revenue than others, believes Shailesh Kapoor, CEO, Ormax Media, a media consulting firm.

“A la carte has not been a popular option in India, and it’s unlikely to become so overnight,” he added.

According to Taurani, broadcasters like Zee Entertainment and Sun TV Network would take a hit if they were to move their marquee channels outside the bouquet and charge higher prices which will impact a channel’s reach as viewers can watch the content on OTT as well.

“Shift towards a la carte may increase APRU (average revenue per user). However, consumers transitioning towards smart TV may not pay higher money for traditional media as they may choose selective channels on an a-la-carte basis,” added Taurani.

He pointed out that only channels which have a strong recall value like channels offering sports or large non-fiction shows may move to an a-la-carte basis (outside bouquet) without caps, due to the price cap being reduced from Rs 19 to Rs 12 (a-la-carte basis) for bouquet based channels.

What Taurani means is that broadcasters who choose to offer channels on an a-la-carte basis without being part of any bouquet can price their channel at any cost.

However, if channels are part of a bouquet then under NTO 2.0, broadcasters will have to cap the price at Rs 12 to offer the channels on an a-la-carte basis which earlier under NTO 1.0 was Rs 19. This will impact a-la-carte-based revenue by 37 percent, said Taurani.

A-la-carte-based revenue contributes six percent of overall subscription revenue and the rest of the revenue comes from bouquet channels.

“The limitation in pricing from Rs 19 to Rs 12 is what the broadcasters find arbitrary. This is odd because TV media is going through a huge amount of trouble. They are not in the best state in terms of revenues especially due to the impact on ad revenues,” said N Chandramouli, CEO, TRA, a brand intelligence and data insights company.

He further said, “If further subscription revenue goes down then they will be competing with OTTs (over the top) platforms. There will be a strong reaction from the (TV) industry and it will be a bad situation for the broadcasters in terms of revenue because they depend on subscriptions and now it is going to suffer.”

Losses broadcasters faced under NTO 1.0

If we look at NTO 1.0’s implementation, broadcasters claimed that they lost 50 percent of their subscribers which in turn impacted advertising revenue.

Indian Broadcasting Foundation (IBF) had also noted that there was an overall loss of 12-15 million subscribers during the transition to NTO 1.0. In addition, the collective cost to the broadcasters was around Rs 1,000 crore in communicating the changes to the consumers for NTO 1.

While broadcasters will feel the pinch due to NTO 2.0’s implementation, looks like viewers will get a lot more choice in terms of choosing what to watch and at what cost.

More choices for consumers

“A-la-carte should get a push as consumers don’t want a large bouquet,” said Chandramouli.

This is because under NTO 1.0 broadcasters were giving huge discounts on bouquet channels while keeping the prices high for a-la-carte in order to push their bouquet offerings which offered second and third-tier channels along with premium channels. This in turn impacted the choice of the viewers.

Under NTO 2.0, experts say that viewers will be able to select the channels they want to watch without worrying about high prices.

“In NTO 2.0 scenario, a-la-carte subscriptions may eventually begin to get traction,” said Ormax’s Kapoor.

NTO 2.0 may take time

When it comes to implementation of NTO 2.0, the Bombay HC has asked TRAI not to take any coercive measures for six weeks.

However, it looks like IBF will challenge the Bombay HC’s order in the Supreme Court as implementation of NTO 2.0 will put more pressure on the broadcast industry. Money Control

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