Pay Channel Market: Realities & Reforms

1. Pay Channel Market: Realities & Reforms TDSAT Presentation May 2010

2. Prevailing Broadcaster Practices in Cable Distribution How to Reform the System

3. The MSO Operating Environment Today In their Territories, Universe is Getting Squeezed – Subscribers on the Ground Migrating Away MSOs Operating in a Challenging Environment MSO Profitability Being Hit on Revenue and Cost Sides Simultaneously Broadcasters Extracting Higher Rates Through Unfair Bundling of Channels in Bouquets

4. Territories & Subscribers – Reality Check MSOs Losing Subscribers on the Ground in their Territories Money Demanded From Cable Going Up Disproportionately • In-built annual 7% increase in rates charged by broadcasters • Total subscribers in a given territory is a fixed number • With lesser subscribers, cable collects lower amounts from the ground • Cable subscribers routinely shifting from cable to DTH • Overall subscribers in the territory remain unchanged • Hence, cable has lesser subscribers • Broadcasters disregard cable’s loss of subscribers • Net increase for cable is 25% - 30% for content

5. Broadcasters – Irrational Behaviour • The TRAI mandated 7% year-on-year subscription rate growth for pay channels is habitually flouted by broadcasters • Broadcasters resort to tricks and dubious logic to circumvent the law and extract rate hikes far higher than the prescribed 7% Circumventing TRAI Guidelines Disregarding the Meaning of Universe • Where the same universe is being served by 5 or more new players, it automatically implies that the MSO is losing subscribers to these platforms • Broadcasters are making significantly more money from these new platforms • However, broadcasters disregard this fact and continue to demand payment increases based on a universe figure that is much higher than what the MSO actually serves

6. Channels – Supply & Capacity Mismatch Analog Cable & Its Channel Carrying Capacity The Supply of Channels from Broadcasters • Most cable homes in India are analog homes • Analog systems can carry a maximum of 100 channels • Households can be charged a rate commensurate for these 100 channels • Over 450 channels in the market • A majority are pay channels • Analog cable cannot carry all these channels The Ground Realities of the Cable Distribution Industry – Known Well to All Stakeholders Including Broadcasters

7. Channel Bouquets: Unfair Bundling Understanding Bouquets The Subscriber’s Perspective • Broadcasters create bouquets with one channel that is a major draw (e.g. Hindi GECs) • Along with the 1 popular channel, several other channels of limited appeal are included in the bouquet • Such a bouquet, with a high sticker price, is then forced on to MSOs • There is frequent annual shuffling of channels within bouquets with no corresponding re-pricing • Demand for viewers is highest for only 10-15 channels • However, these channels are all parts of separate bouquets, forcing the MSO to pay for hundreds of channels nobody wants to watch • Subscribers want hassle free, uninterrupted viewing experience at low costs • They should not be expected to understand these complexities Bouquets: A Tool Used by Broadcasters for Arm Twisting MSOs into Paying Artificially High Rates for Pay Channels

8. Prevailing Broadcaster Practices in Cable Distribution How to Reform the System

9. Key Areas in Need of Reforms Ensure Fairness in all Parts of the Broadcasting & Cable Distribution Chain A fixed definition of the universe of a territory Define Territories Replace the unfair bouquet system with a la carte options Flexible Pricing

10. Defining Subscribers within a Territory Create a System That is Fair for All Concerned Parties The universe of subscribers within a territory should be a defined figure, irrespective of the number of operators (both cable & DTH) • There should be a strong check on the broadcasters’ revenue growth • Any growth beyond 7% should be refunded to MSO/ DTH players. • If this check are not put in place urgently then MSOs will continue to bleed and the consumer will be the ultimate loser When DTH or other operators enter a territory and take away one MSO’s subscribers, the subscriber count for that MSO should be reduced proportionately Broadcasters should be transparent and agree on the no. of subscribers for any given territory and the rates being charged for these areas

11. Allow Flexible Pricing of Channels • Disallow the Practice of Bundling Channels into Bouquets • Allow a-la-carte selection of channels by MSOs • Make pricing transparent for all platforms (cable & DTH) and for all markets • Pricing of popular channels should be reasonable: • The highest channel price should not exceed 2 times the lowest channel price Flexibility & Transparency will Ultimately Empower the Consumer with Choice & by Keeping Prices Reasonable

12. Thank You