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How TRAI’s cross-media restrictions can impact Star, Zee and Sun

MUMBAI: Three vertically integrated media companies—Star, Zee and Sun TV Group—will be impacted by the Telecom Regulatory Authority of India’s (TRAI) recommendations on cross-media restrictions if the government approves them as is.

Star free to increase stake in Tata Sky

Star India, a fully owned subsidiary of 21st Century Fox, will be able to up its stake in Tata Sky with the TRAI freeing the broadcast sector cap of 20 per cent in a direct-to-home (DTH) company. The government allows 74 per cent foreign direct investment (FDI) in DTH.

“From a regulatory perspective, it is a positive for Star as it can ramp up its stake in Tata Sky [currently it has an effective stake of 30 per cent]. It will, however, be subject to a different set of regulations as it will fall under the vertically integrated company category,” said a senior executive of a leading broadcasting company.

Being a vertically integrated broadcaster, Star can only do charge-per-subscriber (CPS) agreements with various distribution platform operators (DPOs), including DTH and multi-system operators (MSOs). As per the TRAI recommendation, vertically integrated entities cannot do fixed-fee deals.

More importantly, the CPS deals should be non-discriminatory. What this means is that a vertically integrated broadcaster cannot have different CPS pricing for different DPOs. Star, thus, cannot have a favourable pricing system for Tata Sky and discriminate against the others.

So will economies of scale not work under the TRAI’s proposed cross-media norms? TelevisionPost.com has learnt from sources that the regulator has provided for a slab system which would accommodate DPOs of various sizes. Pricing variation will work under this slab structure, taking into account the subscriber bases of the DPOs. But within the slabs, there can be no discriminatory pricing.

There are other clauses such as a vertically integrated entity cannot have its DPO enjoy more than 33 per cent share of active subscribers at a category level in a relevant market (state level in case of MSO and national in case of DTH). If the limit is crossed, then a restructuring will have to take place in such a manner that the DPO and the broadcaster no longer remain vertically integrated.

In addition, Star cannot have ‘controlling’ interest in another DPO. According to TRAI, the entity that controls a broadcaster or the broadcaster itself, shall be permitted to ‘control’ only one DPO (of any category, i.e. either an MSO/headend-in-the-sky (HITS) operator or a DTH operator) in a relevant market and vice versa.

“A rather too much microscopic management needs to be done to see if the market share has exceeded the 33 per cent limit or not at any given point of time. One has to also assess whether the market is ready for CPS deals. There are multiple restrictions and Star will have to weigh all this in before it decides to take control of Tata Sky. But TRAI has definitely opened the door and Star can step in,” said an industry observer.

Promoters of Zee Group will have to unload Dish TV or Siti Cable

TRAI has recommended that a broadcaster or its holding entity can be permitted to ‘control’ only one DPO. It has allowed an MSO and a HITS operator to combine, but DTH is treated as another category. This in effect means that the Essel Group will have to unload either Dish TV (DTH) or Siti Cable (MSO). Incidentally, Essel is the holding company of Zee Entertainment Enterprises Ltd (ZEEL), Zee Media Corporation Ltd (ZMCL), Dish TV and Siti Cable.

Jawahar_Goel“There is a separate consultation paper on FDI and cross-media that the TRAI is supposed to be working on. There was no need for them to recommend these new restrictions when they were dealing with issues relating to DTH licensing regime. These recommendations will, of course, have to get government approval. But restrictions such as these for existing players are unfair. This is harming our constitutional right to do business. We will fight it out,” Dish TV managing director Jawahar Goel told TelevisionPost.com.

Incidentally, Siti Cable recently got board approval for raising up to $100 million via qualified institutional placement (QIP). The MSO is planning to seed six million set-top boxes (STBs) in Phases III and IV of digitisation.

“If the TRAI recommendations get the government nod, it will be bad for the Essel Group. They will have to get rid of either Siti Cable or Dish TV. Since the sale will take place due to regulatory requirements, this will impact the valuations,” said an investment banker who did not wish to be identified.

As per TRAI recommendations, the vertically integrated entities shall be allowed a period of one year to comply with the cross-holding restrictions.

Sun TV promoters also need to offload

The promoters of Sun TV will also need to get out of their cable or DTH venture if the TRAI recommendations get the government go-ahead. The group owns and operates the Sun TV channels, FM radio stations, SCV (cable) and Sun Direct (DTH).

Media analysts expect Sun to unload SCV as it is much smaller than Sun Direct and faces unfair competition from Tamil Nadu state-owned Arasu Cable.

Other irritants

As per TRAI, vertically integrated broadcasters will not be allowed to enter into fixed-fee deals. They will have to do CPS deals without discrimination. This means that the content cost for Dish TV payable to Zee could see an upward revision.

For a vertically integrated entity, the market share cap of 33 per cent is also seen as a minor irritant. It is highly improbable that a DTH or an MSO can capture one-third of the category share in a relevant market (country for DTH and state for MSO). In case of an MSO which is not vertically integrated, the market share ceiling is at 50 per cent at the state level.

As per TRAI, a vertically integrated DPO shall not reserve more than 15 per cent of its channel-carrying capacity for its vertically integrated broadcaster. This will not impact Zee, Star or Sun as they are nowhere near that limit.

In case of vertically integrated DPOs, the access fee (carriage) shall be non-discriminatory for all the broadcasters. This is nothing new and has been specified in DAS.

M&A deals to be impacted

With the TRAI limiting the market share to 33 per cent in case of a vertically integrated MSO/HITS or DTH operator, merger and acquisition (M&A) deals could get impacted.

Broadcasters will also have the option of going with only one category of DPO. “A worry is that the portfolio gets restricted. If the market twists and turns, one doesn’t have the flexibility of grabbing opportunities,” says a senior executive of a broadcast network.

‘Control’ à la TRAI

An entity is said to ‘control’ another entity, if it, directly or indirectly through associate companies, subsidiaries and/or relatives:

(a) owns at least 20 per cent stake in the other entity; or

(b) exercises de jure control by means of:

(i) having not less than 50 per cent of voting rights; or

(ii) appointing more than 50 per cent of the members of the board of directors in E2; or

(iii) controlling the management or affairs through decision-making in strategic affairs of the other entity and appointment of key managerial personnel; or

(c) exercises de facto control by means of being a party to agreements, contracts and/or understandings, overtly or covertly drafted, whether legally binding or not, that enable the entity to control the business; or

(d) decisions taken in the other entity, in ways as mentioned in (b) (i) (ii) and (iii) above.

Also read:

DTH ops to save 2.5–3.5% in licensing fee as per new TRAI reco
Running through TRAI’s cross-media recommendations
TRAI puts cross-media restrictions in DTH licensing regime