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Event update: Media - Does Madras HC’s split verdict dilute TRAI’s new tariff order considerably?

Event

The Madras High Court has delivered a split verdict in the case in which Star India had challenged TRAI’s new TV broadcast rules (which mandate end consumer pricing of content by broadcasters and providing content compulsorily on a la carte basis). The Chief Justice of Madras HC said that since it is a split verdict, Star’s challenge “may be placed before a third Judge”.

Background

• TRAI had released the new regulations and tariff order on 3^rd March 2017 (key provisions on page 2 of this note).
• Star India had challenged the regulations in the Madras HC which had denied a stay. After the Madras HC denied the stay, Star India approached the SC.
• The SC had granted a stay on 8^th May 2017 and directed the Madras HC to hear the matter within four weeks from the next date of hearing (which was 12^th June 2017).
• The Madras HC heard all the parties involved and reserved its judgment on 2^nd August 2017. It finally delivered a split verdict on 2^nd March 2018.

Key details from the judgment

• Star India had challenged TRAI’s jurisdiction to come up with the said regulations/tariff order and has not challenged the regulations/tariff order on its merits.
• The matter was heard by a two-judge bench. The Chief Justice of Madras HC, Ms. Indira Banerjee, concluded that Star India’s challenge fails and TRAI acted in conformity of the TRAI Act. However, she opined that “the clause putting cap of 15% to the discount on the MRP of a bouquet is arbitrary” and not enforceable.
• Justice Mr. M. Sundar concluded that these regulations and tariff order “are struck down as not in conformity with the parent act”.

Our view

The split verdict could result in two possibilities, (1) all the parties involved could wait for the appointment of the third judge in Madras HC who would then go through the case afresh and pronounce his/her judgment or (2) either of the parties can directly approach the SC for an expeditious resolution. The SC could take up the matter for hearing or ask the parties involved to go back to the Madras HC and wait for the third judge to pronounce his/her judgment. In either case we believe that the implementation, if at all, of the new regulations could get delayed to FY20E giving some breathing space to the entire broadcast/distribution industry and ensuring continuity.

Another positive reading of the judgment is that the Chief Justice of Madras HC (who sided in favour of TRAI) found the 15% discount cap (on bouquet pricing) as arbitrary. We believe that removal or increasing the discount cap would give the broadcasters far higher flexibility in pricing channel bouquets ensuring broad status quo. This weakens TRAI’s new regulations dramatically. However, whichever party loses the matter will approach the SC for a relief and the SC would have the final say.

We believe that if the regulations are indeed implemented in the existing form then it would create disruption in the entire supply chain over 3-4 quarters and could end up hurting all players in the value chain during the implementation phase. Post implementation, if the consumer off-take is on expected lines, then larger broadcasters would end up being beneficiaries whereas MSOs/DTH will lose pricing power which could hurt their long-term prospects. We currently have an Outperformer on Zee Entertainment, Sun TV Network, Dish TV; Neutral on Hathway Cable and Underperformer on Den Networks.