In a price-sensitive country like India, changing economics can make the most indispensable of all tools dispensable; even among the seemingly affluent. This seems to be the case with TV, which hitherto has been a vital source of entertainment for Indian households.
With television bills escalating 30-70 percent after the New Tariff Order (NTO) was implemented in February, affluent households with multiple TV units are disconnecting their secondary connections and instead migrating to content-streaming apps on their TVs and mobile phones, underscoring how value-conscious Indian consumers are.
Cable TV bills rise
35-year-old Shivaji Park resident Rahul Gaggar says he is contemplating disconnecting the TV in his bedroom after his monthly bills rose from nearly Rs 900 to Rs 1200 under the new tariff regime.
“The new TV framework has caused our bills to go up by 30 percent and we still don’t get the channels we desire. The packages offered by DTH providers do not match the ones advertised by broadcasters or those on the Trai website. Given this, maintaining two TV connections is not feasible. My family has discontinued a few channels on the second TV and we are contemplating disconnecting it altogether,” said Gaggar, a senior associate at a Mumbai-based PE firm.
While Gaggar is considering disconnecting his secondary TV connection, others like 39-year-old Mustafa Cementwala from Bandra has snapped the power lines of his primary TV too.
“Our bills of Rs 6,000-7,000 per annum for two cable TV connections jumped to about Rs 12,000 for a quarter after the new rules were introduced. It was too expensive so we disconnected both and instead installed Netflix, Amazon Prime and other apps on our primary connection,” said Cementwala, who works at a leading financial services company in Mumbai.
Executives from leading Multi-System Operators (MSOs), DTH companies and LCOs who spoke on condition of anonymity agree that the trend of disconnecting multi-TV connections is clearly visible, although there is no official data available to corroborate the same.
According to the Broadcast India 2018 survey by BARC, two percent of the 197 million TV homes in the country have multi-TVs, translating to nearly four million households. In urban India, three percent of TV homes are multi-TVs households; representing the most affluent of TV consumers.
With rising ARPUs forcing customers to reconsider their TV viewing habits, DTH companies introduced multi-TV policies by heavily discounting the Network Capacity Fee (NCF) to incentivise customers to retain their secondary TV connections. Under the New Tariff Order, a customer has to pay an NCF of Rs 130 + taxes for each connection. DTH operators D2H and Dish TV have reduced the NCF on the secondary TV to Rs 50 while Airtel Digital TV reduced it to Rs 80.
On June 15, however, leading DTH player Tata Sky scrapped its multi-TV policy, which means subscribers would be required to pay the complete NCF on each TV connection but would be offered the full flexibility to independently choose channels for the secondary connection as against the previous practice of having to choose the same channels for multiple TV connections. On June 22, India’s second largest MSO Hathaway followed suit, in a clear reflection of how unviable it is for distribution platforms to offer discounts to keep multi-TV customers on board.
“Ever since multi-TV discounts were pulled off, having the price doubled or tripled for multiple TV units, there is a negative impact with consumers either disconnecting multiple TV connections, or choosing channels wisely for each TV unit,” says Jehil Thakkar, Partner, Media and Entertainment, Deloitte India.
“For DTH customers, marketing and advertising costs are significantly higher than in the case of MSOs, pushing up the cost of customer acquisition to Rs 75-Rs 90. This makes it tough for DTH companies to continue to pedal these high discounts on the NCF,” said an industry executive from a leading MSO who did not wish to be named.
For MSOs, the Fixed Fee Deals they entered into with broadcasters in the pre-NTO regime offered them substantial bandwidth to offer discounts to multi-TV users. Under the fixed fee deals, MSOs would agree to make a broadcaster’s channels available to a particular number of households in an area. Consequently, MSOs would bring in more consumers than agreed and therefore, the MSO would earn more than the expected fee. This margin allowed MSOs to offer secondary TV connections at a discounted rate to consumers.
Fixed fee deals abolished
Trai’s new regime has however abolished fixed fee deals, on the premise that MSOs on fixed fee deals offered all kind of incentives to acquire additional subscribers. The marginal cost of channels for acquiring new subscribers being nil, such MSOs with fixed fee deals harmed the market tremendously, states Trai in its white paper on the ‘Benefits of New Framework for Small LCOs’, published on April 23, 2019.
For Local Cable Operators (LCOs), there is little incentive to push customers to opt for or retain multi-TV connections given their reduced earnings under the new regime. The dramatic decrease in earnings for LCOs along with the fact that broadcasters no longer offer discounts on pay channels has made it unfeasible for them to service multi-TV connections at subsidised rates, prompting many to forgo consumers.
LCOs take home a smaller share
In the pre-NTO era, MSOs sourced pay channels from broadcasters for Rs.90-110. The MSOs, in turn, sold these pay channels to LCOs for Rs.130, thereby making a profit of about Rs 40. The LCOs would download these channels, bundle them and offer packages at different prices in different markets (differentiated pricing model). Assuming that the LCO charged a subscriber Rs 350 for a package, it earned Rs.220 on the connection. With 200-odd rupees profit from the first connection, it was conducive for LCOs to offer a discount on the second TV connection in lieu of earning a customer’s goodwill.
Under the NTO, the situation changed dramatically. If a consumer wants to maintain his bill at Rs 350, the bill would be split as Rs 130 for the NCF and Rs 220 towards pay channels. Of the NCF, the LCO would receive Rs 100; of the pay channels, the LCO would receive half of the 20 percent share that broadcasters would pay MSOs (50 percent x 20 percent x Rs 220). In totality, an LCO would earn Rs122.
OTT platforms benefited
This rising cost of TV along with a general dissatisfaction over the sacrifice in the number of channels is benefitting Over-The-Top (OTT) platforms the most. Media reports claim that the advent of OTTs along with access to cheap data has caused the cable TV universe to shrunk 15 percent in the past few years, with viewership of both the Hindi and English entertainment genre dipping 20-25 percent during the same period.With consumers gravitating towards OTTs, it is obvious large advertising dollars from large broadcast houses such as Star, Zee and Viacom are being spent on promoting originals streamed on their apps rather than on their TV shows.