China DTV Conversion Complete In 2015

Wednesday, April 22nd, 2009
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HONG KONG — A strong national will, anchored to government incentives, will continue to fuel the growth of digital TV (DTV) in China, according to a new report published today by Media Partners Asia (MPA).

The report, part of the ASIA PACIFIC PAY-TV AND BROADBAND MARKETS 2009 series, sees the government mandate of 100% digital switchover by 2015 being achieved with a total of 221 mil. digital pay-TV subs: ~90% via cable; ~10% via DTH and IPTV. MPA projects this number growing to 236 mil. by 2018, more than 48% of TV homes.

The key criteria for the industry in the future, the report suggests, is not digital TV switchover, but profiting from investments made in digital infrastructure through pay channel revenues, HDTV, and broadband digital value-added services (VAS).

Monthly pay-TV fees will climb from US$2.6 in 2008 to reach US$4.9 by 2013 and US$7.1 by 2018, as pay channel adoption, HDTV and VAS gain gradual traction. By 2018, MPA estimates the subscriber base for pay-TV over DTV cable networks will reach ~50 mil. This will help grow subscription revenues for channel suppliers and content providers. Broadband, meanwhile, will remain controlled by fixed networks, led by ADSL an fiber, though MPA sees growth for wireless. We see broadband penetration as a ratio to population climbing from 6.3% in 2008 to reach 14.7% by 2018, boosted by growth in rural areas.

Commenting on the report’s findings, MPA executive director Vivek Couto said: “A big government drive is helping boost the digitization of incumbent cable networks and also providing a foundation for the emergence of direct-to-home (DTH) satellite and IPTV networks. While digitization in China is a utility-based phenomenon, migration is creating a critical mass for multichannel pay-TV, which remains nascent on the mainland. We also see some scope for growth in the deployment of HDTV, VOD and broadband VAS through pay-TV.”

DTV and Pay-TV business models remain key to the future

The government is effectively subsidizing the rollout of digital TV into a large number of cable households. In turn, cable operators are searching for ways to develop profitable business models on the back of investments made in digital infrastructure.

These models typically focus on the development of pay-TV services, HDTV and VAS, including VOD (video-on-demand), PVR (personal video recorder), interactive TV and ad sales (i.e. electronic program guide advertising) and, finally, broadband. Each of these planks of the next-generation Chinese cable business model has hit stumbling blocks. This is largely because of a combination of regulatory, commercial and technological barriers.

In the long term, the outlook for cable and pay-TV is positive though not transformational. There will be a significant though not overwhelming addressable market for pay-TV with around 60-70 mil. homes above the basic tier on cable, DTH and IPTV forecast by 2018, versus ~7 mil. in 2008.

The future for HDTV and broadband VAS remain more complex. MPA analyst Adrian Tong notes: “We are more circumspect about VAS, because of limited two-way DTV infrastructure, online proliferation and piracy. VOD is also more costly than most cable operators currently factor into their business models. VOD is nonetheless likely to grow, as interactivity on IPTV and DTH will challenge cable operators to get more functionality from their digital infrastructure. Moreover, a government initiative to develop “push VOD” services, a cheaper alternative to VOD and PVR, may also become adopted nationwide by cable and DTH operators. Incremental market share in broadband could also be achieved at little cost, delivering a significant boost to profits and margins for cable operators.”

MPA forecasts indicate that HD users on cable, DTH and IPTV will grow from 0.6 mil. in 2008 to reach 6.6 mil. by 2013 and ~18 mil. by 2018 with HD revenues scaling up to US$1.3 bil. per annum over the same period. VAS revenues, MPA projects, will scale up rapidly from less than US$100 mil. in 2008 to top US$1 bil. by 2018, fueled by VOD, PPV and PVR services. Broadband cable sub fees will total ~US$0.5 bil. per annum by 2018, MPA predicts.