TRAI suggests a regulated RIO model for channel pricing

The Telecom Regulatory Authority of India (TRAI) has suggested that all available channels be classified into different genres with a regulated genre price cap placed on each genre. Broadcasters may be allowed price forbearance within the prescribed genre caps.

The presently defined genres along with the minimum and maximum declared Reference Interconnect Offers (RIOs) rates as follows:

Some of the plausible models at wholesale level include:

• Price Forbearance model
• Cost based model
• RIO based models

1. Universal RIO model
2. Flexible RIO model
3. Regulated RIO model

Price Forbearance model

It envisages minimal regulatory intervention for price fixation at the wholesale level for B2B transactions. This model envisages minimal regulatory reporting requirements but ensures that content is provided in a transparent and non-discriminatory manner. The broadcasters have complete freedom to price and market their TV channels as per their business requirements. The broadcasters would be free to innovate their offers and marketing strategies for creating a competitive environment. The retail price to subscriber will be declared by the distribution platform operators (DPOs).

Cost based model

It envisages that the price of a channel would be regulated on the basis of actual input costs incurred on creating content. Thereafter the average unit outflow of a channel will be determined considering total cost of the content production, revenue from advertisements and number of total subscribers subscribing to that channel. The broadcaster can then fix the price of the channel and bouquets by adding their profit margins. The details of calculation would be made available to regulatory authorities who may vet the reasonableness and fairness in arriving at the price of the channel.

RIO based models

Universal RIO model: This model gives complete freedom to broadcasters in deciding the price of each channel except that the broadcaster is mandated to notify the RIO and declare the price of each of its channel on a-la-carte basis. RIO will include other terms and conditions of interconnection also. Any discount, if proposed, has to be transparently declared upfront in the RIO on an objective basis. All deals with DPOs have to be carried out based on terms and conditions declared under RIO. No mutual agreements are permitted in this model. Broadcasters cannot offer bouquet of channels in this model. The model has inherent potential to enhance customer payout abnormally, but such possibility will be limited as price increase will impact eyeballs. Reduced eye balls will adversely impact revenue from advertisement which in turn will balance any abnormal increase in channel price by broadcasters.

Flexible RIO model: It is very similar to Universal RIO model. In this model, the broadcaster has the freedom in notifying the price of the channel both for a-la-carte and bouquets. In addition to price formulation flexibility, the broadcaster can also enter into mutual agreements on certain issues as indicated in the RIO.

Regulated RIO model: As name of the model suggests, the broad contours of the RIO has to be notified by broadcasters. Regulatory framework may specify price cap for channels of each genre, linkage between prices of a-la-carte and bouquet of channels, framework for discounts offered by broadcasters to ensure non-discrimination, transparency, measures for transparent declaration of number of subscribers of each channel/ bouquet, manner of providing TV channel signals to DPOs, checks for piracy etc. Under this model, a window can be opened for innovation, price discovery and production of diversified content by not prescribing any price cap for a category of pay channels subject to certain conditions such as that channels will be provided on a-la-carte basis only and will not form part of any bouquet either, directly or indirectly, at broadcaster or distributor level. Broadcasters would be free to declare their channels under this category.

The disputes

Presently, broadcasters provide their channels to DPOs, who distribute them to customers either directly or through Local Cable Operators (LCOs). The broadcasters have to publish RIOs specifying terms and conditions for providing channels to DPOs and ensure that such channels are given to all DPOs on non-discriminatory basis. They have to enter into a written interconnection agreement for distribution of channels based either on RIO or on mutual agreement basis. DPOs form the bouquets of the channels and price both a-la-carte and bouquets of channels.

DPOs indicate that large gap between RIO and mutually agreed price compel them to sign and pay for all channels of a particular broadcaster irrespective of the subscribers choice.

Small and medium MSOs insist that mutual interconnection agreements are not meeting the intent of non-discrimination. Quite a few MSOs are of the view that presently there is no systematic method available to know whether broadcasters are providing TV signals to them on non-discriminatory basis. There are number of disputes regarding interconnect agreements between broadcasters and DPOs and also between DPOs and local cable operators. Such disputes are detrimental to the growth of TV broadcasting sector as a whole.

Channel pricing methodologies

The existing channel pricing framework wholly depends on market prices of the analog network frozen in 2004. Subsequently, the prices of a-la-carte channels and bouquets were also derived based on various formulations. Even after digitalisation, the prices of analog era were used as a reference to derive the channel prices in addressable systems. This price structure continues to operate till date. With rapid changes that have taken place over the years, several aberrations have crept into the current pricing system.

According to TRAI, in order to ensure a balance between freedom of the broadcasters to price their content, and to protect the interests of the consumers, the pricing framework must be transparent, flexible and growth oriented. Interests of the DPOs also need to be protected. Therefore, the pricing framework must be designed in a manner that it ensures adequate flexibility to broadcasters to prescribe content price while also protecting the DPOs from monopolistic practices.

TRAI maintains that the indirect method of deriving price from the analog pricing regime must be done away with. The regulatory body has called for moving away from the legacy system while prescribing new pricing framework and a need to relook at the channel price caps that were imposed in 2004.