MPA Sees Strong Asia Pacific Pay-TV Subs Growth

Wednesday, April 22nd, 2009
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HONG KONG — Against the background of a poor global macroeconomic environment, media owners and investors focused on Asia Pacific can take comfort from the defensive nature of the region’s pay-TV and broadband industries, according to a report published today by Media Partners Asia (MPA).

The report, entitled ASIA PACIFIC PAY-TV AND BROADBAND MARKETS 2009, covers the distribution of analog and digital multi-channel TV services as well as broadband, telephony and high definition digital TV (HDTV), video-on-demand (VOD) and personal video recorders (PVR) over cable, direct-to-home (DTH) satellite, and IP-enabled DSL and fiber networks, in 16 Asian markets.

Commenting on the report’s findings, MPA executive director Vivek Couto said: “Consumer demand for pay-TV and broadband remains robust in spite of various shifts in media consumption and the severity of the current economic cycle. Audience fragmentation and disintermediation will be a key trend to watch, especially at its anchor point (i.e. online media). Over the medium term, originators of localized pay-TV and unique English language content will continue to grow while a number of distribution platforms should remain or emerge at the forefront of industry growth if they maintain/step up investment in next generation digital infrastructure.”

Key findings include:

1. Near term concerns: Focus on investment and ad demand: Rising unemployment, falling consumption and softer demand will curtail the near-term growth of new subscribers to pay-TV and broadband in certain markets while also limiting ARPU growth in others. One key concern is visibility over the recovery in capital markets as well as broader stability in GDP and currencies. Deteriorating investor sentiment is a big near-term concern as distribution platforms need more funds to acquire subscribers, upgrade infrastructure and invest in content.

2. Quantifying growth: Key trends in distribution: Net new subscribers in Asia hit a record 26.6 mil. in 2008, fuelled by India and China in particular. The digitization of distribution platforms along with competition between infrastructural networks will be a key driver of pay-TV industry growth. In terms of market share, cable networks will remain dominant because of their size and presence in the largest markets including China, India, Japan, Korea and Taiwan.

3. Growth leaders and DTV converters: By market, much of regional pay-TV distribution growth will continue to converge around China and India while certain markets in Southeast Asia will also benefit going forward. Mature markets, where pay-TV penetration is already trending above 80-90% and the upside lies in the benefits of DTV migration, include Korea, Hong Kong and Taiwan. In China, a big government drive is helping boost the digitization of incumbent cable networks and also providing a foundation for the emergence of DTH satellite and IPTV networks.

Elsewhere in Asia, MPA highlights: (1) rapid growth, albeit from a low base in Indonesia and Vietnam, driven principally by DTH satellite networks and aggressive pricing; (2) the continued growth of DTH satellite in Malaysia with greater penetration of the mass market and rural areas; (3) the growth and increasing success of IPTV in Hong Kong and Japan; (4) moderating growth but profitable value from full next generation DTV upgrade on cable networks in Japan and Singapore; (5) gradual acceleration in Korea DTV cable deployment; (6) the exponential growth of HDTV and VAS (including VOD and PVR), in Australasia and Japan; and (7) better and more significant growth from DTV upgrade and competition in the Philippines, Taiwan and Thailand.

4. HDTV and VAS: HDTV adoption remains nascent in the region and is largely a North Asian phenomenon. The same applies to the growth of VAS, including VOD and PVR, which is growing in Japan and Korea and more recently, Australasia. Outside Japan, HDTV is largely marketed as a premium, next generation DTV product and its take-up is therefore discretionary and a function of marketability, pricing and affordability as well as attractive content. Increasingly, HDTV adoption has begun to grow because distribution platforms are anchoring the product to PVR and VOD.

5. Broadband: Broadband penetration is scaling up rapidly in Asia Pacific. In developed, mature markets, the upgrade to fiber networks is gaining traction, led by Japan and Korea and followed by Greater China. As a result, FTTx adoption is emerging as a viable substitute for ADSL. In Australia and emerging Southeast Asian markets, wireless broadband is also emerging as a viable alternative to fixed networks, consistent with the general trend of fixed-to-mobile substitution and the growth of low cost computers.

6. Revenue prospects: MPA forecasts indicate pay-TV and broadband sector revenues will grow from ~US$64 bil. in 2008 to US$102 bil. by 2013 and ~US$130 bil. by 2018. Broadband revenues will dwarf those of pay-TV in Japan over the long term but pay-TV will overtake broadband in China, driven largely by utility DTV adoption. In this respect, India will remain the greatest pay-TV revenue generating opportunity in Asia Pacific with total sales reaching ~US$18 bil. by 2018. Japan is the next most lucrative market, generating ~US$10 bil. Korea and Australia will be generating ~US$4 bil. by 2018, followed by Taiwan with US$2 bil.

7. The market for broadcasters and content suppliers: Regional pay-TV broadcasters and content providers are facing their biggest challenge since the start of pay-TV distribution in Asia close to twenty years ago. The challenge is being shaped by a number of key factors, including: (1) A deep economic crisis which is eating into pay-TV advertising growth and limiting subs revenue growth for channels; (2) shifts in media consumption with the exponential growth of online media as well as on-demand networks reshaping audience and advertiser trends; and (3) the demands of a current cycle of competition and digitization which means the cost of creating better, relevant content.

In spite of these challenges, MPA highlights significant growth prospects for pay-TV channels and content providers, boosted by: (1) advances in digital pay-TV distribution; (2) growth in pay-TV penetration and (3) healthy prospects for advertising growth in the long term. Competition and cost will remain significant in India in the near term, while though MPA highlights continued upside for broadcasters from evolving business models and a robust macro landscape.