Vanita Kohli-Khandekar: Pricing myths in cable

A buffet is normally cheaper than an a la carte meal and also offers more variety

When you go to a five-star restaurant, what is cheaper, an a la carte meal or the buffet? It’s the latter, normally, and it also offers more variety.

Last week’s Supreme Court decision on cable-pricing means that 83 million cable homes will end up paying more for their television. It reinforces the normally-sensible Telecom Regulatory Authority of India’s (Trai) bizarre notion that forcing broadcasters to sell channels separately will give consumers more choice at a lower price.

The facts first. In 2004, on the back of rising protests over cable prices, Trai froze, and later in 2005, mandated a 7 per cent increase in the tariff in CAS (Conditional Access System) areas. In 2007, it extended this to all cable networks across India. While the Telecom Disputes Settlement And Appellate Tribunal (TDSAT) rejected the order, the Supreme Court upheld it last week.

There are two flaws with Trai’s argument.

One, it is applying the telephony logic in television. When it pushed through mandatory price ceilings in telecom, volumes rose, competition increased and firms started cutting prices. Telecom firms, however, made money even on the lower revenues per user because of the huge volume of traffic generated by 362 million subscribers jabbering away.

Unlike voice, however, TV content is not a commodity; it comes in different shapes, sizes and textures. A cricket tournament could cost millions of dollars while a top-rated talk show might cost a million rupees per episode. To say that every channel from Discovery to Colors must be priced at Rs 5 per month (the current rate) is ridiculous. It is akin to insisting that all dishes in a restaurant, irrespective of the ingredients, should sell at the same rate; or every theatre should have tickets priced at Rs 50 whether it is a crummy cavern or a five-screen, air-conditioned multiplex.

The battle is not new to India alone. In the US, the Federal Communications Commission (FCC) has been wanting to push through a la carte pricing in cable. It argues that bundling was increasing prices. The National Cable and Telecommunications Association (NCTA) used Price Per Viewing Hour (PPVH), similar to the average revenue per minute metric in telecom (since that is what FCC is equating it with).

This showed that the real price of basic cable had steadily declined from 28.4 cents in 2002 to 26.3 cents an hour in 2005.

Unfortunately in India, while the data exists, broadcast associations do not use economic logic to beat down price regulation. Going by the Indian Readership Survey figures for 2008, the average TV viewing per person on a weekday was 98 minutes. If we take an average bill of Rs 200 per cable home per month, Indian consumers paid only Rs 0.24 per person per viewing hour (mobile telephony costs roughly one rupee a minute). It is, I concede, a very rough measure. But my guess would be that even if we plotted inflation-adjusted average cable prices, irrespective of hours watched, they would have fallen in real terms.

The second flaw is the argument that a la carte is somehow better. In the US, research shows that a subscriber would have to limit buys to 6-9 popular (and therefore more expensive) channels if he wanted to beat the bundle price. In markets where it has been pushed through — Canada and France, for instance, — a la carte pricing has failed. In India, the basic package (in Delhi and inclusive of taxes) is Rs 107 for 70 channels. Any pay channel over and above that is Rs 5 per month plus taxes. The average per home, assuming you take 10 channels, would work out to about Rs 160. On the other hand, some direct-to-home (DTH) operators offer over 100 channels at an average of Rs 200 a month. Others offer 110 channels for Rs 99 and so on. So cable consumers end up paying more for less.

Note that DTH is very competitively priced. This then is the biggest flaw in Trai’s argument. Instead of trying to ‘mandate’ or ‘incentivise’ more competition, so that prices can fall by themselves, it wants to freeze content innovation and offer the same fare at the same price. The fact is that true choice will come only when there is variety in programming and that is possible with revenue flexibility.

With their abject dependence on advertising — currently 80 per cent of broadcaster toplines — most are left doing the same thing in their rush for ratings. Where then is consumer choice?

The writer is a media consultant and author of The Indian Media Business.

vanitakohli@hotmail.com