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In-depth: Reliance-owned MSOs blocking Disney Star content – a fallout of vertical integration

Many stakeholders including the people working at the television side of Viacom18 expressed concerns as the things are playing out in the run-up to the IPL

With Reliance building Jio platforms and betting big on sports with the acquisition of digital rights of IPL, the industry was already anticipating a tough battle for advertising revenue between Viacom18 and Disney Star.

Still, no one predicted this battle would escalate to the level of blocking content and damaging the entire television broadcasting businesses - including their own.

Many stakeholders, including the people at the television side of Viacom18, expressed concerns over the way things are playing out in the run-up to IPL 2023.

“This was a kind of disservice to TV, the medium, which has been bringing in the revenues for the network," Mint said quoting a senior Viacom18 executive. “Ideally, they could have promoted and sold digital on its own merit and didn’t have to compare it with TV.”

In an article - titled “Will removing Star Sports from base pack backfire for Reliance-owned DPOs?”, a distribution veteran called the move by Reliance-owned DPOs “unfair” and an “anti-trade” practice.

At the heart of the alleged ‘anti-trade’ practices is the vertical integration practices.

“This day wouldn’t have arrived if Indian media companies followed TRAI’s cross-media ownership restrictions and adhered to vertical integration restrictions in letter and spirit. TRAI doesn’t allow vertical integration and therefore, all the Indian companies are violating the restrictions,” said an industry observer.

What is vertical integration?

As per TRAI’s definition, vertical integration means a common entity, which can be a broadcaster itself or a stakeholder having ‘control’ over the broadcaster, “controls” a DPO in the same relevant market and vice-versa.   

It is understood that vertical integration helps scale the business and reduce costs. It is often manifested in the form of ills of monopolies, higher costs to the consumers, blocking competition, creating barriers to entry for new players and much more. 

For example, Zee owns both SITI Cable and Dish TV. Sun TV also owns both Sumangali Cable and Sun Direct. Disney Star India also has stakes in Tata Play. At some point, Anil Ambani’s Reliance Communications owned Reliance DTH and now Mukesh Ambani-led Reliance owns three of the largest cable networks. 

As per cross-media ownership restrictions, a broadcaster cannot own more than 20% of a DPO and vice versa.

In 2014, the then TRAI chairman - late Rahul Khullar - gave a recommendation that Indian companies are violating the vertical integration restrictions and proposed a solution to that. He said that one broadcaster and one DPO should be allowed to integrate completely. But it was never implemented and hence, it remains only a recommendation as of today.

It further mentioned that the entity that controls a vertically integrated DPO or the vertically integrated DPO itself, shall not be allowed to ‘control’ any other DPO of other categories. 

As per the recommendations, if a vertically integrated DPO, while growing organically or inorganically, acquires a market share of more than 33% in a relevant market, then the vertically integrated entities will have to restructure in such a manner that the DPO and the broadcaster no longer remain vertically integrated.

Is Jio indulging in predatory vertical integration practices?

In the case of Reliance, it is the only company which is both horizontally and vertically integrated. It is present in TV, MSO, Radio, news websites and channels, OTT and telecom. 

According to TRAI definition, horizontal integration means that a common entity, which can be a DPO itself or a stakeholder having ‘control’ over the DPO, “controls” the two categories of DPOs in the relevant market.

Reliance is not only a broadcaster but is also present in the MSO business and owns GTPL, Hathway and Den - having the power to control content delivery.

As the owner of the three largest MSOs in the country – Den, Hathway and GTPL – Jio is in a position to divert subscribers from its cable business to its digital arm because of its vertical integration in broadcast carriage services. on Thursday reported that Disney Star was allegedly singled out and punished for being the television broadcaster of IPL by Reliance-owned MSOs, because the base pack of these MSOs continue to have sports channels from Sony while excluding Star channels. 

At the same time, other major MSOs and DTH operators outside Reliance’s ecosystem have included Star Sports channels in their base pack offering to the consumers.

However hypothetical it is, Reliance is in a position to drive subscribers away from television  broadcasting (especially where they have competing digital offerings such as showcasing IPL on Jio Cinemas).

Implications of “TV is dead” narrative:

In order to push digital consumption, Jio has on several occasions insinuated that “TV is dead” or “it is dying” which has left its own TV staff upset, as quoted by Mint.

There is significant evidence indicating that Jio is trying to force migration from television to digital.

While it is beneficial to the digital push for Jio, it’s detrimental to its affiliate Network18, which is a listed company. 

Such statements have the potential to hurt investor sentiments and upset the stock market regulator SEBI.

Cricket rights were unbundled to encourage greater investment in the ecosystem and allow for greater competition amongst different mediums. In order to allow more investments, market forces and stakeholders need to push all the mediums. 

At a time when IPL is planning to expand to the United States (Major League Cricket), one of the most lucrative media markets in the world, the ecosystem simply cannot afford to dissuade media investments from television broadcasters overlooking holistic long-term objectives.

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