Indian Council for Research on International Economic Relations An Analysis of Competition and Regulatory Intervention in India’s Television Distribution and Broadcasting Services March 2019 Indian Council for Research on International Economic Relations An Analysis of Competition and Regulatory Intervention in India’s Television Distribution and Broadcasting Services Rajat Kathuria Mansi Kedia Richa Sekhani March 2019 Disclaimer: Opinions and recommendations in the report are exclusively of the author(s) and not of any other individual or institution including ICRIER. This report has been prepared in good faith on the basis of information available at the date of publication. All interactions and transactions with industry sponsors and their representatives have been transparent and conducted in an open, honest and independent manner as enshrined in ICRIER Memorandum of Association. ICRIER does not accept any corporate funding that comes with a mandated research area which is not in line with ICRIER’s research agenda. The corporate funding of an ICRIER activity does not, in any way, imply ICRIER’s endorsement of the views of the sponsoring organization or its products or policies. ICRIER does not conduct research that is focused on any specific product or service provided by the corporate sponsor. Table of Contents ACKNOWLEDGEMENT..................................................................................................................iv EXECUTIVE SUMMARY.................................................................................................................v 1. Introduction ............................................................................................................................ 1 1.1 Broadcasting Services and the Distribution Value Chain 2 1.1.1 Distribution Platform Operators (DPOs) 3 2. Evolution of India’s Television Broadcasting and Distribution Services ................................. 7 2.1 Cable and Direct-To-Home (DTH) Markets in India 11 2.1.1 Cable TV Market in India 11 2.1.2 Direct-To-Home (DTH) Market in India 12 2.1.3 The Relevant Market for Cable TV and DTH 15 2.2 The Rise of Over –the-Top (OTT) Platforms 17 3. Consumer Preferences for TV Broadcasting and Distribution Services in India .................... 18 3.1 Survey Trends Match Secondary Data 18 3.2 Regional Preferences 20 3.3 Preference for DTH over Cable 22 3.4 OTT-an emerging trend 23 4. An Analysis of Tariff Regulation in India .............................................................................. 25 4.1 Summarising the Tariff Orders since 2004 25 4.1.1 History of Tariff Regulations for the Addressable System 26 4.1.2 Evolution of the Digital Addressable System and the Tariff Order of 2016 27 4.2 Analysing the Impact of the New Tariff Order 28 4.2.1 A Comparison of Channel Pricing Before and After the New Tariff Order 30 4.2.2 Literature and Cross-Country Analysis on Tariff Regulation and À la carte versus Bundling 34 5. Conclusions and Policy Recommendations ........................................................................... 39 BIBLIOGRAPHY .......................................................................................................................... 40 APPENDIX ............................................................................................................................... 43 i An Analysis of Competition and Regulatory Intervention in India’s Television Distribution and Broadcasting Services List of Tables Table 1.1 Economic impact of the television industry 1 Table 1.2 Advertisement and subscription revenue from Pay-TV industry 2 Table 2.1 Share of revenue collection before and after digitisation of cable TV 12 Table 2.2 History of National MSOs in India 12 Table 2.3a Snapshot of DTH operators 14 Table 2.3b HHI and subscriber market share for DTH operators 14 Table 2.4 Comparison of DTH packages across select countries 15 Table 4.1 À la carte Maximum Retail Prices for general entertainment of standard definition channels reported on December 18, 2018 31 Table 4.2 Price list for base value pack by Broadcasters for DTH operators 32 ii List of Figures Figure 1.1 Market share for DPOs in India over time 4 Figure 1.2 DTH and OTT subscribers in India 5 Figure 2.1 Average daily TV viewing time per person in selected countries worldwide in 2017 (in minutes) 10 Figure 2.2 Contribution of channels in advertising revenue (%) 11 Figure 2.3 Number of Active Pay Subscribers for Private DTH Operators (in million) 13 Figure 2.4 Average revenue per user per month (USD) 15 Figure 3.1.1 Type of connection 18 Figure 3.1.2a First favourite DTH operators 19 Figure 3.1.2b Subscribers of DTH operators 19 Figure 3.1.3 Percentage of respondents subscribing to cable operators 20 Figure 3.2.1 State wise type of connections in 2018 20 Figure 3.2.2 Percentage of respondents subscribing to DTH operators across states in 2016 21 Figure 3.2.3 Percentage of respondents watching TV in different languages 22 Figure 3.3.1 Percentage of respondents who agree and completely agree that DTH offers excellent value for money and is more flexible and convenient than cable and offers more value than cable 23 Figure 3.4.1 Percentage of respondent using OTT services 23 Figure 3.4.2 Use of OTT applications in 2018 by level of education 24 iii An Analysis of Competition and Regulatory Intervention in India’s Television Distribution and Broadcasting Services Acknowledgement We are grateful to all stakeholders for sharing their views and enriching our study. All errors of course remain our own. iv Executive Summary The television (TV) industry in India is undergoing a to end consumers through DPOs. DPOs include multi- digital transformation, as are most other Information system operators (MSO), local cable operators (LCO) or Technology (IT) sectors in the economy. While cable direct to home (DTH) operators. television is likely to dominate the market over the The regulation of content is divided across different next few years, satellite television and online video are authorities and self-regulatory organisations. The the current growth drivers. There has been significant broadcasting and distribution segments are regulated by growth of subscribers, industry revenue and availability the Ministry of Information & Broadcasting (MIB) and the of services. Much of this growth has been driven by Telecom Regulatory Authority of India (TRAI) respectively. digitisation of cable, higher uptake of High Definition The focus of this study is DPOs and their contractual (HD) channels and the increase in smart device arrangements with broadcasters and the impact of penetration resulting in increased consumption through regulations on both parties. In technical or regulatory alternate platforms. With 197 million TV households, jargon, this is the interconnect agreement between India is the second largest television market in the world, business entities that has a spillover impact on the retail next only to China. According to the Cable and Satellite segment. Broadcasting Association of Asia (CASBAA), China has over 378 million TV households with a multichannel DPOs in India comprise cable operators, direct-to-home penetration of 48 per cent. On the other hand, the United (DTH) operators including Doordarshan’s free satellite States (US) and the United Kingdom (UK) account for 36 services, Internet Protocol Television (IPTV) operators per cent and 41 per cent TV households respectively. and one Headend in the Sky (HITS) operator. Cable operators are either multi-system operators (MSOs) The industry has made significant direct and indirect that run multiple cable TV systems across more than contributions to the economy. According to a Deloitte one community or local cable operators (LCOs) that report titled “Economic Contribution of the Film and confine services to a single neighbourhood. According Television Industry in India”, the gross value addition to data provided by the Broadcast Audience Research by the TV industry in 2017 was INR 65,377 crore. The Council (BARC), about 54 per cent households have industry employed 16.44 lakh people in that year. The a cable connection, of which about 80 per cent are industry today boasts of more than 800 channels across digital and the remaining are analogue. Under Section various genres. Of the total revenue of about INR 66,000 4A of the Cable Television Networks (Regulation) Act, crore, about 40 per cent is attributable to advertising and 1995, mandatory digitisation of cable TV services is 60 per cent to distribution and subscription services. For already underway. The switch-over to digital is being broadcasters, however, subscription revenues (including implemented in a phased manner, Phase I and II of the international subscription) account for only 28 per cent of implementation has already been completed. Recent the total revenue, and the remaining share comes from statistics from the Subscriber Establishment Survey (SES) advertisements. The share of advertisements is expected suggests that 70 per cent of rural India had already to increase to 75 per cent by 2020. This trend is sharply been digitised. Cable TV is managed and run by various different from most other countries, where the share of business houses in India. Some of the prominent national subscription revenue is higher than advertisement revenue. MSOs are Siti cable, Digicable, Hathway Datacom, Content producers, broadcasters, delivery platform IndusInd Media & Communication Ltd. and DEN Networks operators (DPOs) and end