CABLE FABLE - Part 1
In most issues, I prefer a Libertarian-ish solution. However I am not a full scale Libertarian yet, because I don't subscribe to some of the views that Libertarians hold. One view, though not stated in as many terms, is that Libertarianism is the panacea to all evils. Here I disagree based on many examples I have seen in real life. One eample is the mess that the Cable TV industry in India finds itself in.
And as news of a blackout of the Indo-Pak series by Cable Operators fills the air, I feel like looking at this issue in greater detail. A conversation with Yazad is basically what got me thinking.
Let us look at the cable industry through the 90s.
-There was no governmental entity having a monopoly.
-The entry barriers were fairly low. Licensing was not a major issue, and anyone who could buy the equipment could become a cable operator.
-That is was quite easy to arrange for funds for the equipment is clear from the profile of the cable operators. Look at cablewallahsin your neighbourhood. Most of them are lower middle class types who started off in a small garage or a ramshackle office.
The above points are what the Libertarians want. Less governmental meddling, level field, etc. And in the first few years, the response was the way it would be in a perect competition scenario. Hundreds of cable operators sprung up all over the place. In my neighbourhood, at one point of time, there were 3 cable operators and you could choose between them. Prices were reasonably low, and the concept of pay channels and bouqueting were not there.
Then in the late 90s, a few things happened
- Consolidation started among cable operators. The cable operators started "merging". Big players like Hathway and Citicable entered the scene, and started "acquiring" small players. This led to regional monopolies. The same cable operator who was courteous a few years back for the fear of losing you to a competitor now became cocky and the service quality declined.
- Consolidation started among TV channels. Firstly, they all started going "pay". i.e subscribers had to pay a separate charge for a TV channel. It was started by ESPN, who had the rights to many sought after cricket series. It started with the 1996 tour of England by the Indian cricket team. Ever since then this drama is repeated whenever there is a big sporting event. This time it is the turn of TEN Sports who have hiked their fees from Rs 14 to Rs 32 per subscriber for the Indo-Pak series.
- Secondly, TV channels started forming cartels or bouquets. So if I am someone who took a cable connection, just to watch Star World, I could not subscribe to it alone. The broadcasters sold channels as a "bouquet". So if I wanted to watch Star World, I would have to buy the 10-channel bouquet of Star, and pay for 9 channels that I have no desire to watch.
- Vertical integration started happening. Citi and Hathway, the big players were associates of the broadcasters who offered the bouquets. Citi is a company owned by Zee, and Hathway, I think has some Star stake in it. Now what this did is that it gave the broadcasters means to manipulate the wavelengths on which channels were shown. Not all TVs in India have the "s band". So if you show certain channels on that band, the viewership decreases and the advertisers are nothappy. So a Citi cablewallah would put star channels on the inaccessible s band. All the consumers could do was complain and crib. They could not change operators because there were now regional monopolies.
- The government said that it is the job of the cable operators to collect entertainment tax. This is in line with established practices. After all, the movie theatres collect entertainment tax, since they provide the service. The government does not stand outside the theatre and collect taxes from each viewer. However the cablewallahs had a problem with this.
So exactly why did all this happen?
->Consolidation among cable operators is said to have happened because of two-fold reasons.
-One is sheer economies of scale. It is better to have one central control-room, which accounts bulk of the expenses, than to have 500 different control rooms for the city.
-The second reason is supposed to be muscle power. Some cable operators are aid to have given in to big players because they were threatened. The big players would threaten the small fish that they would destroy their equipment.
Now the second reason is as old as the hills in any industry. I fail to see how that would be a stronger reason for monopolies in just this sector. Intimidation and threats are a sad part of life, but can not be said to be the primary reasons behind the consolidation.
->Consolidation among broadcasters was not caused by threats at all. It was caused by business interests. By bouqueting channels, broadcasters were in effect "subsidising" the lesser channels.
->SELECTION AND CONSUMPTION BY DIFFERENT PARTIES - This in my view is one of the major flaws in the process. Let me illustrate this with an example. Suppose I want to get a cellphone connection. I will get brochures from all the companies, look at their rates, their services, then select one. After selection, I will use the cell and if I don't like the service or I find it too high, I will shift to another cell company. The cell company knows that if it makes people like me unhappy, I will make another selection and they will lose a customer. Thus I have a "bargaining power".
Now I want to watch the India-Pak series.
Can I select a cable operator? No, because of the monopolies. So for the sake of libertarian argument, we assume that these monopolies were brought about by threats, intimidation, etc etc. i.e they can be blamed on the "state". So I asuem I have many cable operators to choose from.
Can I choose the TV channel? No!!!! It has to be Ten Sports. And whichever cable operator I choose will have to pay Rs 32 as against Rs 14 to the channel.
Who chose TEN Sports? Not me, the consumer. It was chosen by the Pakistan Cricket Board. And they are not consumers. They do not treat my criteria of service quality, subscription price etc as important. For them the only important criterion is the money that the channel pays.
So as opposed to the cell phone situation, I have no "bargaining power", since the selecton and consumption is by different parties.
(to be contd in a couple of days. Please leave your comments.)
In most issues, I prefer a Libertarian-ish solution. However I am not a full scale Libertarian yet, because I don't subscribe to some of the views that Libertarians hold. One view, though not stated in as many terms, is that Libertarianism is the panacea to all evils. Here I disagree based on many examples I have seen in real life. One eample is the mess that the Cable TV industry in India finds itself in.
And as news of a blackout of the Indo-Pak series by Cable Operators fills the air, I feel like looking at this issue in greater detail. A conversation with Yazad is basically what got me thinking.
Let us look at the cable industry through the 90s.
-There was no governmental entity having a monopoly.
-The entry barriers were fairly low. Licensing was not a major issue, and anyone who could buy the equipment could become a cable operator.
-That is was quite easy to arrange for funds for the equipment is clear from the profile of the cable operators. Look at cablewallahsin your neighbourhood. Most of them are lower middle class types who started off in a small garage or a ramshackle office.
The above points are what the Libertarians want. Less governmental meddling, level field, etc. And in the first few years, the response was the way it would be in a perect competition scenario. Hundreds of cable operators sprung up all over the place. In my neighbourhood, at one point of time, there were 3 cable operators and you could choose between them. Prices were reasonably low, and the concept of pay channels and bouqueting were not there.
Then in the late 90s, a few things happened
- Consolidation started among cable operators. The cable operators started "merging". Big players like Hathway and Citicable entered the scene, and started "acquiring" small players. This led to regional monopolies. The same cable operator who was courteous a few years back for the fear of losing you to a competitor now became cocky and the service quality declined.
- Consolidation started among TV channels. Firstly, they all started going "pay". i.e subscribers had to pay a separate charge for a TV channel. It was started by ESPN, who had the rights to many sought after cricket series. It started with the 1996 tour of England by the Indian cricket team. Ever since then this drama is repeated whenever there is a big sporting event. This time it is the turn of TEN Sports who have hiked their fees from Rs 14 to Rs 32 per subscriber for the Indo-Pak series.
- Secondly, TV channels started forming cartels or bouquets. So if I am someone who took a cable connection, just to watch Star World, I could not subscribe to it alone. The broadcasters sold channels as a "bouquet". So if I wanted to watch Star World, I would have to buy the 10-channel bouquet of Star, and pay for 9 channels that I have no desire to watch.
- Vertical integration started happening. Citi and Hathway, the big players were associates of the broadcasters who offered the bouquets. Citi is a company owned by Zee, and Hathway, I think has some Star stake in it. Now what this did is that it gave the broadcasters means to manipulate the wavelengths on which channels were shown. Not all TVs in India have the "s band". So if you show certain channels on that band, the viewership decreases and the advertisers are nothappy. So a Citi cablewallah would put star channels on the inaccessible s band. All the consumers could do was complain and crib. They could not change operators because there were now regional monopolies.
- The government said that it is the job of the cable operators to collect entertainment tax. This is in line with established practices. After all, the movie theatres collect entertainment tax, since they provide the service. The government does not stand outside the theatre and collect taxes from each viewer. However the cablewallahs had a problem with this.
So exactly why did all this happen?
->Consolidation among cable operators is said to have happened because of two-fold reasons.
-One is sheer economies of scale. It is better to have one central control-room, which accounts bulk of the expenses, than to have 500 different control rooms for the city.
-The second reason is supposed to be muscle power. Some cable operators are aid to have given in to big players because they were threatened. The big players would threaten the small fish that they would destroy their equipment.
Now the second reason is as old as the hills in any industry. I fail to see how that would be a stronger reason for monopolies in just this sector. Intimidation and threats are a sad part of life, but can not be said to be the primary reasons behind the consolidation.
->Consolidation among broadcasters was not caused by threats at all. It was caused by business interests. By bouqueting channels, broadcasters were in effect "subsidising" the lesser channels.
->SELECTION AND CONSUMPTION BY DIFFERENT PARTIES - This in my view is one of the major flaws in the process. Let me illustrate this with an example. Suppose I want to get a cellphone connection. I will get brochures from all the companies, look at their rates, their services, then select one. After selection, I will use the cell and if I don't like the service or I find it too high, I will shift to another cell company. The cell company knows that if it makes people like me unhappy, I will make another selection and they will lose a customer. Thus I have a "bargaining power".
Now I want to watch the India-Pak series.
Can I select a cable operator? No, because of the monopolies. So for the sake of libertarian argument, we assume that these monopolies were brought about by threats, intimidation, etc etc. i.e they can be blamed on the "state". So I asuem I have many cable operators to choose from.
Can I choose the TV channel? No!!!! It has to be Ten Sports. And whichever cable operator I choose will have to pay Rs 32 as against Rs 14 to the channel.
Who chose TEN Sports? Not me, the consumer. It was chosen by the Pakistan Cricket Board. And they are not consumers. They do not treat my criteria of service quality, subscription price etc as important. For them the only important criterion is the money that the channel pays.
So as opposed to the cell phone situation, I have no "bargaining power", since the selecton and consumption is by different parties.
(to be contd in a couple of days. Please leave your comments.)
