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NEW DELHI: The TRAI-mandated cap on advertisements has proved to be the last straw for broadcasting companies hit hard by usurious carriage fees, falling advertisement rates and the slow rollout of digitization - all of which have combined to lead to a dramatic shrinking of revenues.
With the government dragging its feet over the implementation of digitization, TV companies have been unable to get their due share of subscription monies and break their continued dependence on advertising revenues. Broadcasters have demanded an urgent course correction so that the TRAI directed 12-minute cap on advertisements per clock hour be kept in abeyance for at least two years - that is, until 2015 - and be reviewed to allow its effective implementation without adversely affecting the TV industry.
Analysts point out that one of the biggest challenges faced by broadcasters has been surging carriage fees demanded by distribution platforms to carry these channels which approximates to more than Rs 2500-2600 crore per year. The worst affected have been the smaller channels and news channels, especially because with so many free to air (FTA) news channels available, even a premium channel has been subjected to unreasonable carriage costs.
With the introduction of digitization, it was felt that carriage costs would initially come down, and then be eliminated. Broadcasters had also hoped to see subscription revenues going up. However, despite the rollout of the two phases of digital access system (DAS), and repeated representations from the industry, the government has done nothing to control carriage fee.
Broadcasters continue to be subjected to very high carriage fees, and the worst impacted are news channels, which are crippled with heavy capital investments in their operations and input costs. Subscription revenues, if at all, are not large enough to cover the investment costs. The situation is worsened by the fact that ad rates are currently at their lowest despite an increasing number of television households.
Broadcasters point out that under the circumstances, news channels will take a huge hit if the 12-minute ad cap is implemented. In the analogue regime, broadcasters were hit by massive revenue leakage at the last mile of distribution. Cable operators did not declare the actual number of subscribers passing on only a fraction of the payments due to broadcasters.
Even multi system operators (MSOs) were not getting their share of revenues from the cable operators, and thus their dependence on carriage fees from broadcasters kept increasing over the years. Only 15-20% of total subscription revenue due to broadcasters reached them which also meant a significant revenue loss for the government in entertainment and service tax.
In fact, one of the objectives of DAS, was to identify the actual number of cable viewers so that there would be transparency in the system and the revenues would be justly distributed among the stakeholders. But digitisation has not rolled out as planned. Instead, under the garb of digitization, MSOs and cable operators have actually increased subscription fees, given that viewers are now paying for a single TV set rather than for the overall household. The cost of set top boxes is to be borne by the household.
To compound the problem, the carriage income of cable operators has not reduced, because with DAS, a larger bandwidth allows for more channels to be carried, and hence a bigger carriage kitty for the operators. For established channels, carriage fees did come down somewhat in DAS I market (the four metros of Delhi, Mumbai, Kolkata and Chennai), which has been neutralized on the ground by way of payouts by the new channels.
In the midst of delays and ineffective implementation of DAS, broadcasters have not been able to garner the potential revenue that an ideal and effective DAS implantation should have generated. Hence, the revenue share of the broadcaster remains in the range of 22-25% of ground revenue collections, which was not envisaged when broadcasters put their heart and soul in the efforts of making DAS a success.
Industry sources point out that most TV channels, and nearly all news channels, depend heavily on advertisement revenue. News channels are the worst affected by the TRAI's decision as they have to significantly increase their own ad rates due to a very high dependence on advertisement time. Industry analysts say that the implementation of the new ad cap regulation will cut inventory of channels by almost 50%.
To overcome this, some channels, especially in the news genre, will have to increase their ad rates by around 50% to keep afloat. But these rates would then be competing with channels of other genres with much higher advertisement rates, and hence, industry sources fear that many independent news channels would have no option but to shut down.
With their back to the wall TV companies have demanded that the TRAI order be held back till 2015 and then reviewed. Analysts pointed out that reduction of ad inventories cannot be envisaged when nothing has been done to reduce the enormous burden of carriage fees that news channels have to endure and pointed out that subscription revenues must also kick in with a drop in carriage fees before any move to regulate ad revenues is contemplated.
Trai move on 12-minute advertisement cap will kill news channels - The Times of India
.
With the government dragging its feet over the implementation of digitization, TV companies have been unable to get their due share of subscription monies and break their continued dependence on advertising revenues. Broadcasters have demanded an urgent course correction so that the TRAI directed 12-minute cap on advertisements per clock hour be kept in abeyance for at least two years - that is, until 2015 - and be reviewed to allow its effective implementation without adversely affecting the TV industry.
Analysts point out that one of the biggest challenges faced by broadcasters has been surging carriage fees demanded by distribution platforms to carry these channels which approximates to more than Rs 2500-2600 crore per year. The worst affected have been the smaller channels and news channels, especially because with so many free to air (FTA) news channels available, even a premium channel has been subjected to unreasonable carriage costs.
With the introduction of digitization, it was felt that carriage costs would initially come down, and then be eliminated. Broadcasters had also hoped to see subscription revenues going up. However, despite the rollout of the two phases of digital access system (DAS), and repeated representations from the industry, the government has done nothing to control carriage fee.
Broadcasters continue to be subjected to very high carriage fees, and the worst impacted are news channels, which are crippled with heavy capital investments in their operations and input costs. Subscription revenues, if at all, are not large enough to cover the investment costs. The situation is worsened by the fact that ad rates are currently at their lowest despite an increasing number of television households.
Broadcasters point out that under the circumstances, news channels will take a huge hit if the 12-minute ad cap is implemented. In the analogue regime, broadcasters were hit by massive revenue leakage at the last mile of distribution. Cable operators did not declare the actual number of subscribers passing on only a fraction of the payments due to broadcasters.
Even multi system operators (MSOs) were not getting their share of revenues from the cable operators, and thus their dependence on carriage fees from broadcasters kept increasing over the years. Only 15-20% of total subscription revenue due to broadcasters reached them which also meant a significant revenue loss for the government in entertainment and service tax.
In fact, one of the objectives of DAS, was to identify the actual number of cable viewers so that there would be transparency in the system and the revenues would be justly distributed among the stakeholders. But digitisation has not rolled out as planned. Instead, under the garb of digitization, MSOs and cable operators have actually increased subscription fees, given that viewers are now paying for a single TV set rather than for the overall household. The cost of set top boxes is to be borne by the household.
To compound the problem, the carriage income of cable operators has not reduced, because with DAS, a larger bandwidth allows for more channels to be carried, and hence a bigger carriage kitty for the operators. For established channels, carriage fees did come down somewhat in DAS I market (the four metros of Delhi, Mumbai, Kolkata and Chennai), which has been neutralized on the ground by way of payouts by the new channels.
In the midst of delays and ineffective implementation of DAS, broadcasters have not been able to garner the potential revenue that an ideal and effective DAS implantation should have generated. Hence, the revenue share of the broadcaster remains in the range of 22-25% of ground revenue collections, which was not envisaged when broadcasters put their heart and soul in the efforts of making DAS a success.
Industry sources point out that most TV channels, and nearly all news channels, depend heavily on advertisement revenue. News channels are the worst affected by the TRAI's decision as they have to significantly increase their own ad rates due to a very high dependence on advertisement time. Industry analysts say that the implementation of the new ad cap regulation will cut inventory of channels by almost 50%.
To overcome this, some channels, especially in the news genre, will have to increase their ad rates by around 50% to keep afloat. But these rates would then be competing with channels of other genres with much higher advertisement rates, and hence, industry sources fear that many independent news channels would have no option but to shut down.
With their back to the wall TV companies have demanded that the TRAI order be held back till 2015 and then reviewed. Analysts pointed out that reduction of ad inventories cannot be envisaged when nothing has been done to reduce the enormous burden of carriage fees that news channels have to endure and pointed out that subscription revenues must also kick in with a drop in carriage fees before any move to regulate ad revenues is contemplated.
Trai move on 12-minute advertisement cap will kill news channels - The Times of India
.
