Is the NTO 2.0 ambiguity hurting broadcasters?
There's been a 7% drop in subscription income due to growth of free television, reverse migration and reduction in ARPUs spurred by part implementation of NTO 2.0, says EY report  Its been over a year since the New Tariff Order (NTO) 2.0 was announced, but broadcasters are still in the dark about its implementation. Neither the centre nor the regulatory bodies have offered any update on the order. Adding to the industry's woes are dwindling top lines and revenues in the wake of the ongoing pandemic. One of the key concerns about NTO 2.0 implementation is the stagnation of broadcasters' revenues since they won't be able to increase channel prices. Last month, while speaking to the investors during a Q4 earnings call about the investment phase of ZEE 4.0, Zee Entertainment Enterprises Limited, Punit Goenka  Managing Director and CEO, mentioned that the impact of higher investments would have been less had there not been an embargo on TV channel pricing because the NTO 2.0 is sub-judice. Goenka said: "The impact of these investments on our margins would have been lesser, had there not been an embargo on subscription price hikes. The loss of more than a year of subscription revenue growth is one of the important reasons for around a 5% reduction in our margins as we make investments." Goenka said that multiple affidavits were filed by all parties to expedite the order. "It's tough for me to predict when that will be solved, but we, as an industry, are working with TRAI to find an amicable solution to see that this logjam is resolved as soon as possible for the betterment of the industry. I believe this is now even hurting the DPO parts, not just the broadcasters," he said. According to the FICCI-EY report 2021, TV witnessed a 7% fall in subscription income, led by the continued growth of free television, reverse migration, and a reduction in ARPUs due to the part implementation of NTO 2.0. A senior broadcast executive contended that TRAI didn't factor in the consequences of NTO 2.0 or analyse its impact while introducing it. "The first and second wave of the pandemic, coupled with TRAI's NTO 2.0 and onslaught of OTT, is a massive setback for the sector," said the senior executive. He added, "The matter is sub judice, and the content acquisition cost is not coming down. Due to COVID, broadcasters have been shooting outside Maharashtra; we bear the additional cost of travel and stay. Content cost is only going up, and we can't change the channels' pricing. TRAI's regulation is hurting this sector." Industry experts believe that NTO 2.0 is just hurting the growth of the subscription market, which has already been facing challenges due to COVID and OTT emergence. The FICCI-EY report states that the number of channels increased marginally between December 2019 and March 2020 but had declined by December 2020 due to channel shut-downs, led by the English entertainment genre. 64% of channels were free-to-air as compared to 63% in 2019. Another distribution head of a leading broadcaster, on condition of anonymity, shared, "There are primarily two factors affecting revenues - a lot of churns has happened in last one and half year. People are moving from the conventional TV screen to the second screen. The second reason is that most consumers, instead of renewing the set-top boxes, are getting DD FreeDish boxes where they don't have to pay any subscription charges except the one-time payment of the box. After coming back on DD FreeDish, the demand for channels like Zee Anmol, Sony Pal, and Star Utsav has increased. Also, there is no shortage of good channels on DD FreeDish." Meanwhile, MSO registrations increased only by 4% during 2020 compared to 11% in 2019, as per the EY report 2021. It was mainly due to the implementation of the NTO 2.0 and the ongoing impact of COVID-19. "There are a lot of challenges at the ground level. People aren't renewing the TV connection affecting revenues at the LCO level. Due to which LCO cannot pay out to MSOs and MSOs to the broadcasters," said an industry observer. As per the EY report, while DTH and HITS were relatively stable in 2020, cable saw a decline of 3% compared to 2019. The fall in paid subscriptions attributed to metro subscribers who went back to their hometowns and subscribers who did not renew their subscriptions precisely due to a lack of fresh content on major GECs and live sports. The report observed 131 million paid subscriptions for which broadcasters earned revenues in 2020 compared to 133 million we had reported in 2019. "NTO 2.0 wasn't implemented entirely; the rates are not going down like TRAI mentioned that it would decline. Even though the packaging is done the way broadcasters or MSOs feel, the consumer still doesn't choose. This has been a complete failure on the TRAI side for the implementation. They could have done something as the matter is sub-judice to see that matter comes on board, but there is no communication at all from TRAI on the issue. Now with the OTT onslaught, there has been a massive drop in cable TV subscriptions. Things are not suitable for the cable TV industry, although things look quite bright for OTT platforms," said Arvind Prabhu, President, Maharashtra Cable Operators Foundation. Before implementing NTO 1.0, the subscription revenue grew at 12-15%, which was the mix of - incremental household, and shift towards HD channels and ARPUs growth, said Karan Taurani, VP, Elara Capital. "Now, after that, the primary growth driver- the pricing has been completely absent now. The price can't go up, but it can go down because the competitive intensity can also increase. Many broadcasters may give some discount to make the market more aggressive to push more bundling or channels. Therefore the entire ARPUs growth trigger has been absent now," Taurani explained. He said that the HD penetration was impacted because the consumer base who watch HD or pays premium money has moved to digital. Therefore, the control on pricing and the shift to OTT resulted in zero ARPU growth. Instead, only the incremental subscriber base is getting added. "Distributors are getting impacted here primarily the LCOs and MSOs because, pre- NTO period, the ratio was heavily skewed towards LCOs which was around 80%, and now this number has declined to 45%. The LCOs revenue earnings have halved and secondly, the kind of clause NTO 2.0 includes the cap on carriage fee, cap on Network Capacity Fee (NCF) will lead to these distribution platforms to bleed even more." 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