Pay-TV: Focus On Competition And Profit

Broad industry trends remain favorable in Asia’s pay-TV and broadband markets, according to a new report published by Media Partners Asia (MPA).

The report, entitled Asia Pacific Pay-TV & Broadband Markets 2010, says industry fundamentals remain strong, but competition and capital intensity will grow, limiting margins in the near term. Profits will grow significantly over the long term however, driven by consolidation in the largest markets, India and China.

Asia’s macro environment has firmed up since Q4 2009, boosting consumer demand. Investor sentiment has also improved, helping pay-TV operators as well as content providers raise capital that is needed to fund future growth.

By 2014, 446 million homes in Asia-Pacific will be receiving pay-TV, according to MPA, with household penetration reaching 55%. At the same time, more than 70% of Asia Pacific pay-TV subscribers will have at least one digital set-top box in the home by 2014. MPA forecasts indicate that HD pay-TV adoption will grow to 37 million homes by 2014, while PVR pay-TV users will reach 10 million.

MPA projections suggest that total pay-TV industry sales will climb at an average annual rate of 13% between 2009-14 to reach US$54 billion by 2014, and at 8% over the next decade to reach US$75 billion by 2020. Digital pay-TV services will remain a key driver of revenue growth, along with next-generation technologies. Digital pay-TV subscription revenues will grow to US$35 billion by 2014.

Advertising will remain especially important in India, Greater China and Korea, and will grow from a low base in Southeast Asia. Total pay-TV advertising revenues are expected to grow at an average annual rate of 10% over the next five years to reach US$11 billion in net terms by 2014, and thereafter expand to reach US$15 billion by 2015.

Earnings visibility
MPA analysis indicates that the top 60 pay-TV and broadband operators in Asia-Pacific generated ~US$19 billion in sales in 2009 with EBITDA close to US$6 billion, a 30% profit margin. Sales were up 11% year-on-year, while EBITDA profits grew 14%.

Pay-TV platforms in Australasia, North Asia (Japan, Korea and Taiwan) and Malaysia continue to lead in revenues, profits and margins.

Emerging Indian platforms have begun to make money at the EBITDA level but are still in the midst of a competitive and capital-intensive cycle, albeit one with prospective growth. Chinese cable operators are generating a higher volume of EBITDA but face a similar cycle.

Cable remains Asia’s primary platform for pay-TV, but competition is intensifying with the growth of DTH and IPTV in key markets. Cable broadband is also facing significant challenges, especially in Korea and Japan, while competitive online media services are starting to make an impact in Australia, China and Japan.

Cable and satellite operators are responding with next-generation ramp-up, including personalized set-top boxes equipped with internet functionality and plans to deploy home gateways in the future.

Among content providers, MPA analysis indicates that the top 20 pay-TV broadcasters saw total revenues grow by 7% in 2009 to reach US$5.3 billion, while EBITDA profits expanded by more than 13% to reach US$1.26 billion, a 24% margin.

In terms of margins, Sun TV, Discovery Networks Asia, TVB and Fox International Channels lead the way.

News Corp., including Star India and Fox International Channels, leads in profit volume, followed by: Indian market heavyweights Sun and Zee; regional majors Disney and Discovery; Australia’s Fox Sports; and Korea’s On*Media, which is likely to grow in scale after its merger with CJ Media gains approval, which is likely by June 2010.

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