NTO 2.0 – why is it a threat to the local cable operator as millions of jobs are at stake

In the last one-two years, LCOs have seen a big reduction in earnings under CASS and NTO 1.0

NTO 2.0, NTO, trai
Some of the key differences between NTO 1.0 and 2.0 are that those channels which are priced more than Rs 12 can no longer be bundled and sold as part of a bouquet.

It has been an uphill task for the cable and direct-to-home industry, post the implementation of the national tariff order 1, and just when things began to look a bit better, in terms of increase in subscription, the industry is geared to face another challenge with the rollout of NTO 2.0. Under the new tariff order, consumers can expect almost a 20% increase in prices. “After the roll-out of NTO 1.0 the monthly subscription fee of direct-to-home connection (DTH) connection is expected to increase to Rs 410 from the current Rs 345. Given that we are still in the middle of pandemic and the economic condition in tier-2 and tier-3 cities remains a challenge, the price rise may not work in favour and we may see a lot of disconnection or users opting between free-to-air channels and OTT platforms,” said a senior analyst on condition of anonymity.

Source: TRAI

As of September 30, 2021, there are 1745 (includes 2 provisional registered) MSOs registered with MIB, as per the latest data released by Telecom Regulatory Authority of India (TRAI). Further, as per the data reported by MSOs and HITS operators, there are 12 MSOs and one headed-in-the-sky (HITS) operator who have a subscriber base greater than one million.

DTH has a total active subscriber base of around 68.89 million. This is in addition to the subscribers of the DD Free Dish (free DTH services of Doordarshan). The total active subscriber base has decreased from 69.86 million in June 2021 to 68.89 million in September 2021.

Some of the key differences between NTO 1.0 and 2.0 are that those channels which are priced more than Rs 12 can no longer be bundled and sold as part of a bouquet. Earlier, under NTO 1.0, there was a provision for a commission of 20% along with a 15% incentive, which has now been reduced to just a commission of 20%. In a letter dated September 14, 2019, the All Local Operator Association, Delhi wrote to the Ministry of Information and Broadcasting, stating the issues with NTO 2.0. In its letter, the association said that there should be no 15% cap on bouquet discounts, in addition to calling a-la-carte prices unrealistically high. This thereby forced consumers to opt for inflated broadcaster bouquets. “Local cable operators are dependent on MSO contracts and will find it tough to collect more money from end customers in these difficult economic times when viewers are rapidly cord cutting and switching to Digital Media/OTT,” Ashok Mansukhani, Media Specialist/Advocate Bombay HC, said, adding that matter is sub-judice in the Supreme Court and will be heard in March or even at a later date due to the current wave.

Yet, another key issue is the reduction in earning of local cable operators. Currently, the network capacity fee (NCF) is split between MSO and LCO on a 55:45 ratio, which means the former gets 55% of the money. The fee is split between broadcaster and MSO on the basis of 80:20, with the former taking the majority home. In the last one-two years, LCOs have seen a big reduction in earnings. If earlier they earned Rs 100, per month, it has reduced to Rs 70 under NTO 1.0 and now will further reduce to less than Rs 40 per month. According to Jehil Thakker, partner, Deloitte India, LCOs are certainly holding the short end of the stick. “This whole process has been more accentuated towards the broadcasters and MSOs and even the government’s intent is to consolidate the ecosystem. Hence, it’s not the most ideal situation for LCOs but given all the back and forth, I believe there is no room to backtrack anymore,” he added.

The industry body in the letter pointed out that more than 30% of TV households have already disconnected cable connection and a further rise will have an adverse impact, thereby leaving a lot of LCOs jobless. As per Mansukhani, the industry and regulators should together try and resolve perceived grievances instead of spending crores in legal fees in courtrooms.

Meanwhile, Emkay Global Financial Services, an equity firm in its research report on Media and Entertainment, stated that domestic subscription revenues should continue to be impacted by the delay in the implementation of NTO 2.0.

Read Also: Looking-forward 2022: Why creators will earn more money than ever this year

Follow us on TwitterInstagramLinkedIn, Facebook

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.