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Event update: Media - SC rules in favour of TRAI – Status quo for broadcasters, neutral to mildly positive for distributors…

Event

• The Supreme Court of India (SC) has ruled that TRAI has jurisdiction in TV channel tariffs and can formulate guidelines for the same. The SC has, in essence, upheld the Madras High Court’s (Madras HC) order (declared in March 2018). Read the final judgment here.

Case Background

• TRAI had released the new regulations and tariff order on 3^rd March 2017 (key provisions on page 4 of this note).
• Star TV India Ltd. (STAR) had challenged the regulations in the Madras HC which had denied a stay. After the Madras HC denied the stay, STAR 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 originally delivered a split verdict on 2^nd March 2018 and hence referred it to a third judge. The third judge upheld TRAI’s power however concurred with the Chief Justice of Madras that the ‘15% discounting cap‘ was arbitrary.
• STAR challenged the verdict in the SC. The SC sided with TRAI on 30^th October 2018.

What happens next?

• The latest judgment effectively means that STAR. will have to disclose its Reference Interconnect Offer (RIO) tariff rates for distributors. The new regulations are as of now applicable from January 2019 (the date earlier given by TRAI). Other broadcasting houses like Zee Entertainment, Sony Television, TV18 Group, and Sun TV Networks have already released their latest RIOs (applicable from December 29, 2018).
• All attention will now shift to the case filed in the Delhi High Court by Tata Sky / Airtel DTH against TRAI challenging the Interconnect / Quality of Service (QoS) norms of the same tariff order. No judgment has been pronounced on the same so far.

Our take

• As per our understanding and discussion with broadcasters, the ‘15% discount cap on channel bouquets’ was not under contention in the SC and as decided by the Madras HC, it has been termed arbitrary and hence cannot be implemented. We note that the broadcasters who have declared RIO rates are offering discounts much higher than 15% as it is now allowed (refer page 2 and 3 of this note).
• We believe that the latest ruling by the SC would broadly mean that status quo would prevail for the TV Broadcast industry.
• Although most regulations were largely neutral to broadcasters/distributors, the removal of the 15% cap on channel bouquets would mean that the new TRAI regulations particularly pertaining to bouquet pricing are practically futile and the old regime would continue on broadly similar terms in the new tariff regime.
• Subscription revenue for broadcasters would be largely unaffected in the new regime (given no discount caps). However, in implementing the new order there could be disruption in subscription revenue over 1-2 quarters (implementation from FY20E onwards in our opinion). On a full-year perspective, nothing much would change.
• The TRAI tariff order is mildly positive for MSOs/DTH players (distributors) as content costs would become a pass through expense for them. However, the positive impact of this would be mostly negated by a fall in net subscription revenue as infrastructure fees have been capped in the new regime. Everything depends on how they are able to scale up placement/marketing fee which has been left to market forces.

We have Outperformer ratings on Zee Entertainment Enterprises, Sun TV Networks, and Dish TV India. Our ratings on Hathway Cable & Datacom and Den Networks are ‘Under Review’ for now.