GTPL benefits from TRAI tariff scheme, Den not as much

The new TV tariff system introduced by TRAI, which gives channel owners the full power to price their channels, does not seem to have hurt the earnings of cable networks as much as feared.

It was feared that because the pricing power over channels was taken away from distributors like cable and DTH operators and handed over to channel owners, distributors would see an impact on their revenue and profit.

Going by early results — from Den Networks and GTPL Hathway — the new tariff order did indeed result in a sharp increase in the pay channel charges paid by cable operators to channels. However, this has been cushioned by an increase in subscription revenue from end consumers and local cable operators.

As a result, the net impact was largely neutral-to-slightly-positive on the cable companies, especially for GTPL that has a high proportion of direct customers, versus Den which gets most of its customers via local cable operators.

Overall, the new tariff scheme seems to have been benefited cable companies as it offers them a fixed revenue of at least Rs 130 per subscriber per month — even if it has to be shared with the local cable operator in case of indirect subscribers.

In addition to the Rs 130, the feed provider (MSO) also gets to keep 20% of the pay channel costs paid by end consumers.

This can be seen particularly well in case of GTPL Hathway.

In case of GTPL Hathway, subscription revenue from its cable TV customers/partners jumped by 47% in April-June quarter compared to the same period of 2018, while placement revenue — paid by channels to cable operators — increased by only 7.6%.

However, the spectacular increase in subscription revenue from users was also accompanied by an equally spectacular jump in the fees paid by GTPL to channel owners. Pay channel costs jumped by 43% on year to 180 cr in April-June.

In other words, 73% of the total amount the company got from its cable TV partners or subscribers was passed on to channel owners. This limited the positive impact of the sharp growth seen in subscription revenue on the company’s profit margins.

Still, GTPL’s overall operating profit — which also includes profit generated by its broadband business — jumped 31% to 110 cr.

Den’s numbers were less spectacular. The company did not see much of an increase in subscription revenue, possibly because its customers opted to see fewer channels instead of maintaining the number of channels they had access to, by paying more.

Subscription revenue from cable TV increased only by around 1% on year, while content costs increased by 6%. As a result, cable TV operating profit fell by 15% to 41 cr.

However, compared to the January-March 2019 period, they were up 11% for Den, which is in the process of being absorbed by telecom and broadband operator Reliance Jio.

What is not reflected in these numbers is the impact that the new tariff order has had on the revenue of local cable operators, who ‘own’ the customer.