Will consumers see A La Carte Cable Service?

Cable rates have risen significantly where ever DAS has been fully implemented. It was assured by the Ministry as well as the Regulator that consumers will get plenty of choice and will be able to watch only those channels in digital cable which they subscribe and also pay only for them. Thus one of the biggest advantages of digital cable is that a subscriber can adjust his monthly billing according to his affordability by taking a basic package of 100 FTA channels for Rs 100 and a few ‘pay’ channels that he prefers to watch. This way he could manage his entertainment only in Rs 150 and of course the taxes. We are forced to ask this question after two years of DAS implementation if the consumer really started enjoying such a freedom.

The answer is a big NO. And the way the things are going on, I have no doubt that the vertically integrated large ‘Pay’ Broadcasters will never let this happen and the regulator and the government will only be a mute spectator. The way DAS regulations are being implemented, consumers will never have the ‘freedom of choice’. In fact one of the reasons behind introducing mandatory digitalization was that the large media groups make more money that they have been supposed to be losing because of under reporting of connections by the MSOs and LCOs. Since the revenue has to come only fr0m the consumers, either the broadcasters make money or consumer interest is looked after. 

 Consumer groups counter that this approach is flawed because it values all the new channels the same, ignoring the fact that subscribers are not watching all the added channels. According to a Nielsen Media Research report, the average home received 104 channels in 2006, but only tuned in to 15.7 channels for at least 10 minutes per week. One proposed solution to exorbitant cable bills is to allow cable subscribers to eliminate the 90 channels they do not watch by adopting an A la carte system, which would allow customers to pick, and pay for, only the channels they want.

What is a la carte system? 

A la carte pay television refers to a pricing model in which cable and satellite companies allow customers to subscribe only to those channels they select. A la carte pricing contrasts the prevailing practice of bundling channels into packaged subscription tiers. But advertisers, who would see yet another mass-reach vehicle upended if a la carte becomes the norm, have been strangely silent so far. 

Broadcasters have come out strongly against the a la carte cable. All big pay broadcasters having their own multi genre TV channels, say a la carte is a bad idea because it would almost surely result in reduced TV viewing and fewer ad revenue. So they had no other option than making the a-la-carte price very high to recover their costs. The Big Brothers of the Industry, Star TV and Zee both are in the programming business and want their channels in the homes of all their subscribers, not just the ones who want them. This they are ensuring through their own group MSOs like DEN and Siticable who have monopolized many DAS markets and their DTH operators TataSky and Dish TV who have gained a lot fr0m a hurriedly implemented DAS in cable. So they will ensure that all subscribers get all their channels or get none.  It is a practice called bundling and all the big programmers engage in it.

One of the arguments against a la carte is that while it sounds good on paper, it would not actually lower cable bills. For example, if 40 million homes were suddenly given the choice to decide for themselves if they wanted Star Plus and all said no thanks, than the other 40 million would see their bills go up to pick up the slack. That would be true for any channel under an a la carte system. There are also still technological issues as the 20 channels you want may not be the same as what your neighbor wants and figuring out how to deliver two extremely different packages of channels out of the same headend is no small task. 

The Regulatory scene

In India, terrestrial television and Free Dish (DTH Service) of Doordarshan are free with no monthly payments while cable TV, six private direct to home (DTH) and IPTV require a monthly payment that varies depending on how many channels a subscriber chooses to pay for. So far Operators are resorting to packages/ bouquets/ bundles to sell channels. These bundles are forced upon them by the pay broadcasters or their channel aggregators and in turn they force them on subscribers. 

All television service providers are required, by law, to provide a la carte selection of channels. India is the first country in the world to couple a la carte pricing with a price cap. On 3 September 2007, the Telecom Regulatory Authority of India (TRAI) issued the Telecommunication (Broadcasting and Cable Services) Interconnection (Fourth Amendment) Regulation 2007, coming into force fr0m December 1 of the same year, making it mandatory for all broadcasters to offer channels on an a la carte basis to all DTH operators on a non-discriminatory basis. The regulation states, "All broadcasters will compulsorily offer all their channels on a la carte basis to DTH operators. Additionally, they may also offer bouquets, but they will not compel any DTH operator to include the entire bouquet in any package being offered by DTH operators to their subscribers". Prior to the regulation, only customers in areas covered by the conditional access system (CAS), and the cable operators providing the services, had the option of choosing the channels they want to watch and pay for those alone. 

However, in practice broadcasters ensured that these regulations were never implemented as they had the bargaining power having most popular channels with them. Also sports broadcasts, in particular Cricket empowered them to arm-twist the operators whenever there was an India centric event. TRAI intervened after DTH operators complained that broadcasters were forcing them to carry channels that they did not want. In a revised regulation called the Telecommunication (Broadcasting and Cable) Services (Second) Tariff (Eighth Amendment) Order, 2007, issued by TRAI on 4 October 2007, a revised tariff order with an overall ceiling for cable TV services in non-CAS areas was fixed, and broadcasters were ordered to offer all channels on an a la carte basis to cable operators (MSOs and local cable operators). Like the earlier regulation, concerning DTH operators, this order also took effect on 1 December 2007 and also permitted bouquets of channels to be offered along with a la carte. 

Several broadcasters, such as STAR India, Zee Turner, Set Discovery and Sun TV, challenged TRAI's October 4 order in the Telecom Disputes Settlement Appellate Tribunal(TDSAT). On 11 December 2007, TDSAT dismissed the plea to stay the a la carte tariff order for non-CAS areas. TDSAT said that the October 4 tariff order for non-CAS areas is an experiment in the interest of the consumer and should be implemented. The Eighth Amendment to the Tariff Order was challenged by several service providers in the TDSAT which, in its judgment dated 15th  January 2009, struck down the said amendment to the tariff order. On TRAI’s appeal Hon’ble Supreme Court, in its interim order dated 13th May 2009, stayed the TDSAT judgment and directed the Authority to carry out de novo tariff determination exercise and submit a report to it. This matter is still pending in the Supreme Court.

On 21 July TRAI issued another Tariff Order (No 1 of 2010) for addressable systems where it gave the formula to calculate the a-la-carte price of a channel. This has further been amended for DAS on 30 April 2012 (No 3 of 2012) and again on 20 September 2013 ( No 4 of 2013) in which a-la-carte rate was fixed at three times the ascribed rate of the channel. This is well known as the twin conditions of a-la-carte pricing as given below:-

(a)the a-la-carte rate of a pay channel forming part of a bouquet shall not exceed two times the a-la carte rate of the channel offered by the broadcaster at wholesale rate for addressable systems; and 

(b)the a-la-carte rate of a pay channel forming part of a bouquet shall not exceed three times the ascribed value of the pay channel in the bouquet.

With the TRAI regulation on aggregators and dismantling of bouquets a new problem has arisen. Although the regulation was to help control the monopoly and arm twisting by the channel aggregators, it has given a chance to the large ‘pay’ channel groups to redesign their packages exploiting the situation further. 

Now broadcasters are planning to offer channels only on ala-carte basis which is in fact another attempt to stifle and kill the independent MSO’s or cable operators who operate their own headends. Let us take an example, suppose the bouquet of a broadcaster consisting of five channels was available for Rs 27/- consisting of five channels and based on that price to the consumer was decided at Rs 200/-. However, by discontinuing the bouquet of five channels at Rs27/- and offering those five channels on ala-carte only the cost of the same five channels will now be at least three times the cost of the bouquet which means Rs 81/-. Thus it will not be possible for the cable operators to continue serving the customers in the same price bracket of retail pricing even after taking into account the increase provided due to inflation.   

People watch an average of 16 -20 channels per month, yet typically pay for something like 150 channels. But, paying for all 16-20 of your favorite channels separately would add up quickly to many times the price of the whole package of 150 channels.

In addition, a la carte channels would have to charge even more because the audience drop would result in decreased advertising revenue. The bundle brings more viewers to channels—you can’t channel surf your way onto a station you would never watch if you don’t pay for it a la carte. It’s also a guaranteed sell to advertisers. Unbundling that would ruin everything—in theory.

Additionally, some networks would disappear entirely because they would likely be unable to attract sufficient subscribers to make up for the likely loss in advertising revenue that they would experience fr0m being detached fr0m the wider universe of DEN or Siticable subscribers. Customers served by independent operators - who lack the negotiating power to command more attractive deals with broadcasters - face reduced choice and disproportionately higher cable costs, as the cable operators have no choice but to pass on the cost for carrying bundled channel packages in order to continue offering high demand programming. 

In addition, for a cable operator to carry so many channels requires significant infrastructure and bandwidth investments. Frequently, an independent operator finds his inability to offer broadband services to the disconnected communities they serve impeded as resources and bandwidth is taken up by the bloated packages demanded by the programmers. Carrying so many channels of the largest programmers also reduces an operator's ability to provide channels owned by independent programmers which might be more desired by the community and cost less.

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Digicable in its response to TRAI consultation on Aggregators and the general contention spread by the broadcasters that unbundling of their bouquets will result in the subscriber paying more as a-la-carte prices are much higher than bouquets, very rightly said that:-  a) On the contrary, it has been observed that because of bundling of channels of different broadcasters by the content aggregators, the cost of content of the distribution platforms have been steadily increasing.

 b) The content aggregators have been formulating the bouquets in a manner whereby the distribution platform providers are forced to subscribe to unwanted channels increasing the cost at wholesale level and putting an upward pressure on the MRP.

 c) At the same time it is pertinent to point out that the bouquets have been created such that it becomes difficult and unviable for the distribution platforms to exercise the a-la-carte option.

 d) The main purpose of Digitalization is defeated as the consumers are forced to subscribe channels which they would otherwise not choose.

 e) We believe that disaggregation will result in broadcasters distributing their own content thereby promoting competition amongst them which will bring down the content cost.  Responding to the same consultation, COFI has said that it is the ‘PAY’ Channel Broadcasters who have created the unbalance in the industry through various means including Bouquets, Aggregators, high cost of a-la-carte etc. It is very important for the Regulator to differentiate the ‘PAY’ channels fr0m FTA channels. It is the first time that people will experience addressability and they must be given ample time to adjust with the new system. This also requires to change the definition of a ‘Pay’ Channel that for some reasons has been adopted in the DAS law, probably on the instance of the ‘Pay’ Broadcaster Lobby. Instead of-  “Pay channel means a channel for which a subscription fee is to be paid to the broadcaster by the MSO operator and due authorization needs to be taken fr0m the Broadcaster for it’s Retransmission on cable”.  

It should be- “Pay channel means a channel for which a pre-declared subscription fee is to be paid to the broadcaster by the Subscriber for which due authorization needs to be taken fr0f

m the MSO for its reception on cable signing a consumer authorisation form (CAF).” 

Source: http://cablequest.org/articles/digitization/item/4848-will-consumers-see-a-la-carte-cable-service.html
Source: http://cablequest.org/articles/digitization/item/4848-will-consumers-see-a-la-carte-cable-service.html