Would broadcasters be willing to offer flat 35% distribution fee to cable operators?

Amidst the constantly evolving media landscape, the Telecom Regulatory Authority of India (TRAI) is confronted with a daunting task: striking a delicate balance between the demands of diverse market players, especially broadcasters and cable operators.

Recently, in their response to TRAI consultation paper on reviewing the regulatory framework for broadcasting and cable services, cable operators have sought a flat 35% distribution fee on the MRP of TV channels, along with the freedom to create their own channel bouquets.

Would broadcasters be willing to accept this proposal?

exchange4media spoke to industry experts who shared that providing an unconditional 35% distribution fee to cable operators will have a significant impact on the revenue and profitability of broadcasters.

As per the current mandate, distribution platform operators (DPOs) get a 20% distribution fee from broadcasters on the price of TV channels. They have an option to avail 15% more subject to conditions like ensuring 90-95% penetration of the broadcaster’s channels in their total customer base.

A senior executive of a leading broadcaster, on the condition of anonymity, said that broadcasters will have an issue with the “unconditional” distribution fee of 35%.

“Giving more amount to them (DPOs) may not be a problem but giving it unconditionally could be an issue. Broadly, giving 35% fee to them is ok, but not as a matter of right. It also opens gates for cable operators to ask for more stake later, like a 50% fee in the future,” the official said.

However, some experts feel that the demand will not be acceptable under any circumstances.

According to a senior broadcast expert, “Broadcasters will not accept a flat 35% distribution fee on the maximum retail price (MRP) of TV channels. This will negatively impact their revenue and profitability. Also, if they agree on this, may be, the next step would be cable operators seeking a 50% distribution fee.”

“It will open gates to more such demands, and in any scenario, no broadcaster would give away the amount to cable operators without getting anything in return,” said the official.

 Some legal experts well-versed with the broadcasting industry also feel that the demand will put pressure on broadcasters and they may not give in. They believe that small channels may find the fee too high. 

“A flat 35% fee would mean a significant reduction in the broadcasters' share of revenue, which they may find unacceptable. The current framework allows broadcasters to offer discounts of up to 15% on the MRP, subject to certain conditions. The proposed 35% flat fee would limit this flexibility and bargaining power of broadcasters,” said advocate Kunal Sharma, Partner, Singhania & Co.

“It will have a disproportionate impact on smaller channels as smaller and niche channels may find the 35% fee too high, considering that their MRPs are generally lower. This could make it unviable for them to be carried by distributors, reducing consumer choice,” he added.

According to advocate Madhu Gadodia, Deputy Managing Partner, Naik Naik & Co, it will put burden on broadcasters in an already difficult environment because of the pressure to compete with OTT and DD FreeDish.

“Increasing the fee to a flat 35% will put a burden on the broadcasters who are anyways struggling to compete with OTT and DD FreeDish. While the concerns raised by DPOs are genuine, there will have to be some fair mechanism to balance the concerns of the broadcasters as well,” she said.

In their recent submission to TRAI, DPOs had said, the practice of offering incentives and that too based on penetration for channels is against the spirit of the regulatory regime.

“In most of the cases, DPOs are hardly receiving the additional 15%, due to undue demands and conditions from the Broadcasters, to penetrate their channels to 90% to 95% of the DPO consumers, which is clearly mentioned in their RIO. 

“Practically, the same can be done for a single broadcaster and not for all broadcasters, therefore a DPO is bound to lose on the 15% from the rest of the Broadcasters, just to gain benefit from one of the broadcasters,” All India Digital Cable Federation (AIDCF) had told TRAI. 

“We, therefore, would request the Authority to mandate a flat 35% distribution fee to DPOs and prohibit the broadcasters from offering incentives on any unlawful and undue conditions as well as mandate Broadcasters to price their channels as Wholesale Price and DPOs to be allowed to make their own DRPs (distribution retail prices),” said the letter to TRAI, accessed by e4m. 

 According to Advocate Ravi Prakash, Associate Partner, Corporate Professionals, under the Interconnection Regulations of 2017, broadcasters are allowed to extend discounts on the MRP, yet the sum of these discounts and distribution fees cannot exceed 35% of the MRP. 

“It is imperative for broadcasters to offer these discounts transparently, with proper oversight to ensure fairness. With TRAI’s new tariff order, broadcasters might have leeway to discount distribution fees, albeit with set limits on both a-la-carte and bouquets channels. In determining these discount rates, the subscription plan should be taken into account,” he said.

Vouching for freedom for DPOs to curate channel bouquets, Prakash said that while TRAI regulates TV channel pricing, there is currently a disparity in charges between channel bouquets and a-la-carte channels, leading consumers to inadvertently subscribe to unwanted content.

“To tackle this issue, granting distribution platform operators and local cable operators the option to curate bouquets and offer a-la-carte channel selection to consumers could inject much-needed flexibility and choice into the system. This move would empower consumers to make informed decisions about their channel subscriptions. Moreover, by enabling this flexibility, the discrepancies in discounts on individual channel prices could also be addressed effectively,” he said.

According to an industry veteran, DPOs also pay 50% of what they get to the LCOs which leaves them with nothing.

The cable operators have also requested TRAI to allow DPOs to form their own channel bouquets, as they are closest to the consumer and understand the specific requirements of the consumer of the target market.