A Clearer Picture

This article originally appeared in the MIPCOM 2012 issue of TV Asia Pacific.

 

 

As the Asia Pacific’s pay-TV industry heralded the arrival of the long-awaited digital transition last year, there was much talk about what that would mean for next-generation services like HD, on-demand and over-the-top television. But if the theme of 2011 was the potential of multiplatform, 2012 has been much more about realizing the basics: driving linear distribution growth and increasing pay-TV’s share of the ad pie.

 

For both the well-established brands looking for growth opportunities and newer entrants, the outlook is bullish; the number of pay-TV subscribers across the region is expected to exceed 600 million by 2016, according to Media Partners Asia, up from 411 million last year, with the penetration rate rising to 62 percent after finally topping the 50-percent benchmark in 2011.

 

For the region’s biggest pay-TV channel operator, FOX International Channels (FIC), setting up a structure to take advantage of the industry growth still to come has been a top priority. “We’re big believers in a decentralized model for our organization,” says Zubin Gandevia, the COO for the Asia Pacific and the Middle East at FIC.

 

For the company, whose flagship brands FOX, National Geographic Channel and STAR World are already well distributed, the next stage of expansion has been ramping up the number of localized feeds for each service, as well as staffing up across Asia, with bigger teams in Malaysia, Singapore and Indonesia, and a new base: Vietnam. In the Philippines, meanwhile, “We used to have five people two years ago,” Gandevia says, “now we have 50, and they make five channels, including one that’s made specifically for the Philippines, called FOX Filipino. We’ve done deals with two of [the terrestrials] to buy their product. We will probably create similar channels in some other markets too.”

 

“It is becoming a market-specific approach,” notes Sunny Saha, the senior VP and managing director for entertainment networks at Turner International Asia Pacific, on his company’s plans for expansion. As an example, Saha cites Turner’s deal with TV5 in the Philippines for a Cartoon Network-branded free-to-air block, a move he is looking at replicating in other territories as well.

 

Being seen as a local brand can drive distribution, ratings and, ultimately, ad revenues.

 

“Local ad sales will be the focus for the next few years,” says Ricky Ow, the executive VP and general manager for networks in Asia at Sony Pictures Television (SPT). “We are extremely happy with Indonesia because we think that that market has a lot of potential to grow, both in terms of penetration and advertising. We think Thailand will come up, too. We now have [ad-sales] operations in Singapore, Malaysia, the Philippines, India, Taiwan and Hong Kong.”

 

A+E Networks is also looking at boosting local ad sales in Southeast Asia, according to Alan Hodges, the managing director for the Asia Pacific. Hodges says that A+E is beginning to staff up in key territories like Malaysia, Indonesia and the Philippines, with a continuing emphasis on India and Japan.

 

India, in particular, has been a highlight for A+E’s Asia-Pacific business over the last year, following HISTORY’s debut in the country in 2011. “HISTORY has helped grow the [factual] genre in India by an unprecedented 55 percent over the last nine months, something that was the key element of our launch strategy,” Hodges says. “We did not want to just eat into existing audiences but grow the category. HISTORY has also garnered a leadership position in ratings, as well as achieving a number two position in revenue within the genre.”

 

While A+E’s focus is on increasing its local ad-sales businesses, Hodges notes that pan-regional ad sales “continue to deliver steady growth as we build our distribution and viewership.”

 

Gandevia, too, is seeing gains in FIC’s pan-regional ad revenues. “It may be that we’re getting more share out of the market than we used to. That’s a result of an increasingly compelling proposition that we offer the advertiser. First of all, there’s the scale that we can offer across 30-plus channels. We also provide efficiency in terms of buying spots or ad time on our platforms. We have our leading core brands—FOX, FOX Movies Premium, STAR World, National Geographic Channel, etc.—which are priced at a premium. You also get a lot of coverage on our other channels: FOX Crime, FX, etc. Increasingly, we’re starting to encroach on advertisers who would traditionally go only to free to air.”

 

“We’re still seeing growth this year on our pan-regional advertising,” says SPT’s Ow. “AXN is attracting a lot more Asian multinationals. They are much more willing to try the entertainment route than [advertising on] the usual news channels.”

 

Nevertheless, Ow admits that the pan-regional market “is still soft in a sense—it’s not going downward, it’s just not moving upward much either.”

 

Christine Fellowes, the managing director for Asia Pacific at Universal Networks International, states that while there are “strategic branding campaigns that will go out on a pan-regional basis, anything now that’s tactical in retail is all going out to the local markets.”

 

Watching that trend, Fellowes and her team have started building out their local ad-sales operations. “We’re a late entry to the advertising business,” concedes Fellowes of the UNI portfolio, which has only just recently been formalized in the last year following Comcast’s buyout of NBCUniversal. “When we pulled these businesses together, we’d had a little bit of advertising on E! DIVA and Universal had been doing advertising for about two years. So we’re really just entering [the market]. The emphasis is going to be local,” particularly in Malaysia, the Philippines, Indonesia, Korea and Australia, which Fellowes says “has been a juggernaut from an ad-sales perspective. We’ve seen an 8-percent growth in 2012, the expectation for 2013 is it will be 17 percent.”

 

The selling point for the UNI portfolio, Fellowes says, has been its strength in attracting female audiences. “We deliver a portfolio that addresses women more than any other in the market,” Fellowes says. “For advertisers and for operators, who know that women make decisions on what channel bouquets they’re going to subscribe to, we’ve become a compelling portfolio.”

 

While the landscape of female-skewing channels in Asia has become increasingly congested, a number of operators see growth opportunities in the kids’ sector.

 

Discovery Networks Asia-Pacific (DNAP), for example, added to its portfolio of lifestyle and factual networks this year with Discovery Kids. “The kids’ market is a high-potential sector, with over 50 percent of the world’s under-14s located in the Asia-Pacific, and India having the largest kids’ population in the world at 420 million,” says Tom Keaveny, the president and managing director of DNAP. “In the TV landscape, there is a gap in the market for edutainment programming targeting older school-going kids between the ages of 6 and 12. Our research has shown us that there is an appetite among kids and parents for a channel that is fun and enriching, that stimulates learning and imagination within a safe environment that parents can trust.”

 

Discovery Kids, Keaveny says, fits that bill, with distribution already secured in India, the Philippines and Indonesia.

 

Turner is also looking to broaden its kids’ portfolio in Asia, recently announcing plans to roll out Cartoonito, for preschoolers, and

Toonami, targeting boys aged 10 to 14.

 

Another key gap in the market, according to Gregg Creevey, the managing director of Multi Channels Asia (MCA), has been networks focused on male audiences. To fill that void, MCA has been rolling out Outdoor Channel, which today reaches about 4.5 million homes in 12 territories. “The programming proposition is unique and differentiated,” Creevey says on why operators, and audiences, have responded well to the network. “When we launched the channel we couldn’t see anything like it in the market. When you look at the lineup of channels on platforms, there’s a lot of duplication in various genres. When we come along with Outdoor Channel, it’s a very clear proposition.”

 

Next up, MCA will be looking to introduce operators to Motorvision and, targeting the 15-to-34 set, Havoc, a music and action-sports network with a strong social-media component. Creevey says he expects the channel to “appeal to viewers who aren’t typically in front of a TV these days. It makes television a bit more relevant to that generation.”

 

While Creevey himself is a veteran of the early days of Asian pay TV, MCA is among the newer crop of channel operators in the region, part of a second wave of companies that weren’t around in that initial land grab in the ’90s. Those early entrants—notably Discovery, Sony, Turner and STAR/FIC—have now built up substantial portfolios that offer considerable leverage when dealing with pay-TV platforms. “The challenge is always trying to secure shelf space for something that is new,” Creevey says, “and in the eyes of the operators, is unproven, untested, and is not riding on the back of a big master channel deal. That for us has been a bit of a challenge because we’re an independent, but at the same time that’s been quite a good calling card as well.”

 

Also in this set of newer players in the market is the BBC Worldwide Channels portfolio, which has been targeting a broad range of audiences with a slate that includes BBC Knowledge, BBC Lifestyle, BBC Entertainment and CBeebies. Over the last year, the group has seen distribution gains in Taiwan, Thailand and Indonesia, according to Mark Whitehead, the senior VP and general manager of BBC Worldwide Channels Asia. And further launches are expected over the next six months. “With this offering of quality content, combined with the legacy and trust that the BBC brand brings to the table, we are poised for growth,” Whitehead says.

 

A far newer entrant to Asia’s pay-TV arena is AMC/Sundance Channel Global, which has notched up a number of distribution deals in recent months, including landing on TrueVisions in Thailand and rolling out a Sundance Channel-branded VOD service in China. “That’s been in the wake of lots of other activity this year,” says Bruce Tuchman, the president of AMC/Sundance Channel Global. “Taiwan and South Korea, in particular, have been really great markets for us,” joining existing territories Malaysia, Hong Kong and Singapore. “We’re seeing some of our best growth rates in the world coming out of Asia,” Tuchman says.

 

Sundance Channel in particular has been resonating with audiences and platforms, Tuchman continues, in part thanks to exclusive program launches like Breaking Bad. “Being new in and of itself may not be good if you don’t have the brand or the programming,” Tuchman says. “But we come in with some key advantages. We have a brand that is arguably as famous and certainly has as much, if not more, goodwill than any of the incumbent legacy brands. We have really hot programming that very few people have. And then, especially on the technological side, you see a lot of programmers have invested heavily in old analog or early age digital-linear technology. We came to the region in HD. Our investment is state of the art. So we don’t have to make excuses for old technologies.”

Offering up an HD feed—or gearing up to do so—has certainly become standard operating procedure for Asia’s biggest channel brands. But the technology is nowhere near critical mass; a recent study by ABI Research estimated that just 15 percent of the region’s pay-TV subscribers are signed up for HD services.

 

“We launched [Outdoor Channel] in HD—that was about future-proofing it,” says MCA’s Creevey. “But most of our distribution, oddly enough, remains in SD. A lot of markets still have not made that transition. Where HD exists, it’s a very small subset. For the most part, operators are still charging a premium for HD.”

 

Creevey believes channel operators need to do a better job of offering “original, unduplicated HD channels—that might be the catalyst. Consumers have been sold on the technology, they take [the HDTV] home and plug it in and they wonder, why does this look worse than what I had before? The penetration of the technology is way ahead of the content. With channels like Outdoor Channel, Havoc and Motorvision, I think we can help shift that.”

 

Turner began offering up an HD feed for Cartoon Network last year, making it the first kids’ network to do so. “That has helped us get a tremendous response from [the platforms] as well as from consumers,” Saha says. Carriage deals have been secured in Indonesia, the Philippines, Hong Kong and Mongolia. “Digitization is finally starting to pick up pace,” Saha says.

 

A+E’s Hodges is also “bullish on HD; it is the engine of digital growth in Taiwan, [there’s been] a massively quick uptake in Malaysia and a steady growth in Singapore. It is an inevitable trend, although some markets will obviously get there much quicker than others. HISTORY was launched in HD in India and we wouldn’t have thought of a non-HD launch in that market.”

 

AXN has an HD feed in almost all of its markets. “It is a big driver for us,” Ow says. “In every market that we operate in, both the HD feed and the SD feeds coexist. We do expect that at some point, in the next two years, there will be a gradual reduction in the SD subscribers and an increase in the HD subscribers. The transition will be a natural one. As the penetration of HD sets grows, we will see more of that happening. In a market like Malaysia, where we have three channels in HD—AXN, BeTV and One—we do extremely well for the HD pack. On the back of that, we launched our first HD-pack ad sales in Malaysia so that [brands] can buy into a very select audience who are the early adopters. That shows how confident we are about HD.”

 

FIC has made HD a priority, already having rolled out 16 high-definition networks. “It’s [not only] a value addition and therefore increases ARPU, but it’s actually driving digital take-up.” says Gandevia. “Ultimately that’s what we want.”

 

UNI has HD feeds for a number of its brands, including DIVA Universal and Syfy, in Singapore, Taiwan, Indonesia and the Philippines. “We’ll see a couple more markets launch in HD in 2013,” Fellowes says.

 

“It’s inevitable it all goes there,” says AMC/Sundance’s Tuchman on the transition to HD. “It’s a question of whether it’s months or years. It’s just like any other transformation. You’ll reach a critical mass, a turning point where technologically it’s actually cheaper because there will a supply of new infrastructure that is HD-ready. It will become more economical each day that goes by.”

 

The pay-TV operators that have taken the lead in offering HD tiers to their customers have also been experimenting with multi­platform rollouts, offering on-demand and online access to programming. But the concept of over-the-top television in Asia is still in its infancy. Nevertheless, a number of companies are developing ways they can work with operators to enable viewers to access programming on a device of their choosing. FIC, for one, has been making an online and tablet version of its premium service FOX Movies Premium available in select markets.

 

“We want to be in a position where we provide our platform partners the ability to offer a transactional VOD service, like iTunes, for our content, [as well as] our linear channel and the nonlinear catch-up service,” says Gandevia. “We’ve done the last two already.”

 

BBC Worldwide Channels has been piloting its Global iPlayer in Asia, “in order to establish a greater understanding of the appeal of our content and of the subscription model,” says Whitehead.

 

The key with any multiplatform rollout, says Discovery’s Keaveny, is doing it in a way that “builds viewership and strengthens loyalty without cannibalizing our core TV business model. We will be working closely with our affiliate partners to offer our content on new platforms, and helping them experiment with new technologies and interaction opportunities.”

 

Although Hulu has launched in Japan with its online-content subscription service, the consensus among Asia’s leading channel executives is that the threat of OTT is still a long way off.

 

FIC’s Gandevia notes, “A platform that has a dominant position in the market already, has all the big brands from a linear point of view, has a critical mass of subscribers—those are significant entry barriers to a new player coming along who is only going to provide an OTT service, who is going to have to shell out bucks for content, which they can’t subsidize from other businesses. If a traditional platform also provides an OTT service, they’ve captured everything. Ideally that’s what you want to do. You want to address the consumer at every price point and every proposition.”

 

While they plan ahead for new-media business models and face the continued problem of signal piracy in Asia, channel operators are still feeling upbeat about where the business is headed. “Penetration will continue to grow,” says SPT’s Ow. “As a whole, Asia is not isolated from the problems around the world, but the economies are much more fundamentally sound. They’re not facing high unemployment and they still have a huge middle class and a growing one that is willing to pay for entertainment. That bodes very well for pay television.”