Fate of Brazilian pay-TV hangs in the balance

. Oct 02, 2019
Fate of Brazilian pay-TV hangs in the balance

In parallel to the broad reformist agenda that has been rolling forward in Brazil, less-publicized—yet vital—sectoral overhauls aim to modernize Brazilian legislation and foster a better business environment. After the new Telecoms Law finally passed in Congress, senators are now scrambling to update the so-called Pay-TV Law—a fight that is set to be just as fierce as its predecessor. 

Established in 2011, Brazil’s pay-TV legislation, as it is known,

forbids cross-ownership between telecom service providers (such as cable and satellite operators) and content producers, such as TV channels or studios. Also, operators are not allowed to use Brazilian artists’ images for any purpose other than their own advertising, restricting any form of content production. The new bill analyzed in the Senate aims to scrap those prohibitions, allowing a verticalization of services in Brazil.</p> <p>The proposed goal is to make <a href="">Brazil’s media market</a> less concentrated. However, data provided by Teleco, a Brazil-based telecoms consultancy, shows that not only does the market remain highly concentrated between America Movil’s Claro—the owner of pay-TV service NET, which has over half of the market—and Sky, but these companies have also been suffering customer losses over time. </p> <p>As pointed out by Senator Arolde de Oliveira, the rapporteur of the bill, projections estimated Brazil would reach 30 million pay-TV subscribers in the following years. However, subscriptions have been consistently falling since 2015, reaching only 16.3 million subscribers as of August 2019, <a href="">according to telecom watchdog Anatel</a>.   </p> <p>“Nowadays, the decadence of pay-TV is irreversible and it is only a matter of time before it is totally replaced by online video applications”, <a href=";ts=1569860491741&amp;disposition=inline">wrote the senator</a>. </p> <div class="flourish-embed" data-src="visualisation/731952"> </div> <p><script src=""></script></p> <h2>Diverse interests </h2> <p>But, as local media says, there’s more behind the bill than the desire to give a boost to a doomed sector. In 2014, AT&amp;T—the world’s largest telecommunications company—bought DirecTV, the owner of Sky in Brazil. Two years later, it acquired Warner Media, the holding company behind pay-TV channels such as Warner, Cartoon Network, Boomerang, and HBO. Although the purchase has already been approved by Cade, Brazil’s competition watchdog, it won’t get the nod from Anatel, on the grounds of the current pay-TV law. </p> <p>Newspaper <a href=""><em>Folha de S.Paulo</em></a> reported that Brazil is the only one out of 18 countries that still stands in the way of the USD 85 billion merger. That’s why U.S. President Donald Trump reportedly asked for an overhaul of Brazil&#8217;s law. According to the report, Jair Bolsonaro has agreed to it and asked the Ministry of Science and Telecoms and Ministry of the Economy to prepare a decree similar to the bill currently being debated in Congress. Newspapers report it has been drafted, but hasn’t been officially presented.</p> <p>But neither the bill nor the decree is a consensus. <a href=""><em>Folha</em></a> also reports that Senate President Davi Alcolumbre, has personally interfered to stall the bill in the Science and Technology Committee, presenting a request for information from Brazil&#8217;s antitrust authority.</p> <div class="flourish-embed" data-src="visualisation/731900"> </div> <p><script src=""></script></p> <p>The proposal has become something of a reason for war among media companies. As it is now, the bill doesn’t address the fact that streaming and online video services are not included in pay-TV regulations, opening room for double standards. </p> <p><a href="">The most recent case</a> involved Claro, Anatel and Fox. The latter released subscriptions for its streaming service, Fox+, in Brazil, without the intermediation of a distributor. Then, Claro sued Fox for breaking the law and was backed up by Anatel. However, courts ruled against the regulatory agency, saying that Fox+ services are not covered by the same legal framework as pay-TV.      </p> <p>According to specialized <a href="">telecom news site Telesíntese</a>, senators were looking for a solution, rejecting all amendments upon which there is no consensus and redirecting the debate to another bill, <a href=";ts=1569949681811&amp;disposition=inline">PL 57/2018</a>, to regulate streaming services in Brazil.   </p> <h2>Comprehensive overhaul </h2> <p>For Pedro Ortiz, a journalism professor at the São Paulo-based Belas Artes University, a proper overhaul of Brazilian pay-TV should be just the beginning of a comprehensive updating of Brazil’s media legislation. In his view, the first step is reviewing taxation models for both pay-TV distributors and streaming services. </p> <p>“The competition is unfair. Pay-TV distributors make the reasonable complaint that they have to pay state goods and services tax (ICMS), while streaming services pay lower municipal services tax (ISS). A new law should address this, making it more equal and involving the Economy Ministry and Executive,” he told <strong>The Brazilian Report</strong>. </p> <p><a href="">According to Teleco</a>, ICMS on pay-TV varies between 10 percent and 15 percent (depending on the state), while a 2016 federal law established a minimum ISS tax rate of 2 percent for streaming companies.     </p> <p>He also points out that the loss of paying subscribers goes beyond competition and more issues should be addressed to make this market more attractive.</p> <p>“Pay-TV is losing subscribers due to its high prices … taxes, and also the competition with streaming and illegal online services. And Anatel doesn’t have the means to oversee all of that. It’s a muddy area and new legislation should consider all of this and also think of the benefit of services. (&#8230;) As it is now, I believe the new law will only make the Brazilian market grow even more concentrated,” he said.

Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, she worked as an Editor for Trading News, the information division from the TradersClub investor community.

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