Exclusive Interview: OSN’s David Butorac

PREMIUM: David Butorac, the CEO of OSN, shares the gains made by the platform over the last two years and reveals what’s in store for the future.

TV MIDDLE EAST & AFRICA: What are the major gains you’ve seen in OSN’s subscriber base over the last year?
BUTORAC: In December 2010 we finalized the switch of our conditional-access system to a secure silicone-based system and [that] shut down the piracy [by preventing the transmission of OSN signals to illegal set-top boxes]. Ever since then, we’ve seen a significant growth in our subscriber base. In 2012 we added more than 30 percent of the total base in one year alone. After 18 years of pay TV in the region it’s finally really taking off. What we now see is rapid accelerated growth, some of that driven by the cut down in piracy and some of it driven by investments that we’ve made in content and in marketing the platform.

TV MIDDLE EAST & AFRICA: Tell me about the new investments you’ve made in enhancing the channel lineup.
BUTORAC: It’s been twofold. When you look at the history of our platform, we’ve always had a reputation for the premium nature of the English-language content—first windows. We’re now running most of our U.S. series in full 1080i HD within 24 hours of the U.S. release and that has removed the imperative for download piracy. That’s one significant step we’ve taken.

In September 2011 we launched our first Arabic-language entertainment channel, OSN Ya Hala! HD, and that immediately rocketed up the charts. It’s now our number two channel overall in terms of viewership, on a 108-channel platform. In January 2013 we launched two more Arabic-language entertainment channels. OSN Ya Hala Shabab HD is targeting a slightly younger demographic and is a little more Egyptian focused. OSN Ya Hala Arabella HD is a telenovela channel—soap operas out of Mexico, dubbed into Arabic, are hugely successful here. Investment in Arabic-language premium content has been a core strategy and it’s significantly paying off in terms of viewership and sales.

TV MIDDLE EAST & AFRICA: You mentioned that Ya Hala! is your second highest-rated channel; what’s number one?
BUTORAC: Our Movie HD channel. Western movies are still a significant driver. We have output deals with all seven Hollywood studios. The whole concept of, You’ll always see it first on OSN, is very clearly the case with our movie content.

TV MIDDLE EAST & AFRICA: Having a platform that serves so many countries, how can you tailor your services to the unique tastes of each market?
BUTORAC: We do it in different ways. If you look at OSN Ya Hala! HD and OSN Ya Hala Shabab HD, they [each have a] slightly different focus, and different premiere times. So we will premiere more for the Gulf states on Ya Hala! and Shabab is more for Egypt, KSA [Kingdom of Saudi Arabia], and it’s styled around [those markets] from a content perspective. We do the same with our movie channels; some of our movie channels are more designed for prime time in the Gulf states and some are designed for prime time in Egypt and KSA. So yes, we do a regional feed, but we do create different imperatives for different markets in terms of program timing and the style of programming. And we do offer a mix. Our Arabic-language content is produced in the GCC [nations of the Gulf Cooperation Council] and Kuwait and UAE [United Arab Emirates]. We have content that’s produced in Saudi and we have content that’s produced in Lebanon and Egypt.

TV MIDDLE EAST & AFRICA: How has HD takeup been?
BUTORAC: HD is huge. We’re now running 36 HD channels across the platform. There are about 4 million HD screens being sold every year across this region. What we’ve witnessed (there’s no industry ratings in the Middle East, so we rely on our research) is that the viewership of our HD channels has grown by about 20 percent on each channel over the last year. We are investing heavily in ensuring that everything we do now is HD. We’re converting our own channels to HD and all the new services that we’re adding to the platform. The intention is to get the entire platform to HD. That’s not going to happen this year but certainly as we step forward with all new program acquisitions and channel acquisitions, the focus is on HD.

TV MIDDLE EAST & AFRICA: How are you allowing your subscribers to access OSN content on multiple devices?
BUTORAC: We’ve invested in two significant digital platforms. The first is OSN Play, which is our digital player available region-wide on tablets, smartphones and PCs. It has almost 100,000 registered users already and we’ve only had it in market for less than 12 months. The OSN subscriber gets the app for free and the content they can receive on the player is tied to their subscription—so if they are a movie subscriber they can watch movies, if they are a sports subscriber they can watch sports. We will continue to develop OSN Play. The next advancement is that we’ll develop some significant push capabilities—we’ll allow consumers to control their home set-top box and push additional data [to the TV set] so it becomes a true second-screen experience.

The second product that we launched was our hybrid set-top box, OSN Plus HD. It’s a Terabyte PVR with an ethernet and a satellite connection. That allows us to open up vast libraries of on-demand content. Currently we have about 750 movie titles, free on-demand, and about 50 pay-per-view [movie] titles. There are almost 1,000 different titles of content that the consumer can watch through download off the ethernet. That product has been hugely successful. We launched it in September 2012 and already there are more than 40,000 units in the market.

TV MIDDLE EAST & AFRICA: Do you see over-the-top services emerging as a competitive threat in the region?
BUTORAC: I think broadcasters the world over have to be very mindful of the potential threat posed by the different ways of [accessing] media. But I far prefer to see it as an opportunity rather than a threat. That’s what led to our strategy of developing the [OSN Play and OSN Plus HD] platforms. I’m certainly cognizant of the fact that we have to adapt and we have to be able to deliver choice to the consumer. That’s something that both of these technical platforms are allowing us to do. And our task isn’t to sell technology. We haven’t developed that technology because we want to sell boxes. We’ve developed that technology because it allows us to continue to sell our entertainment, education and information service.

TV MIDDLE EAST & AFRICA: You mentioned that movies are a key driver and I imagine sports are as well. How do manage the cost of escalating sports rights?
BUTORAC: We’ve taken exclusive coverage of U.S. PGA Golf off Fox Sports and it is now exclusively on OSN. We carried the Olympics to huge success on multiple platforms. We have a significant position in rugby, golf, cricket—a number of the sports that are of appeal in the region. Where the issue lies in this region is the monies that are being paid by some of the sports broadcasters for world-class football (soccer) rights. They are being paid at significantly uneconomic levels. We can’t afford to, nor do we wish to, pay uneconomic rates. I think some economic rationality will start to spread across the region. Two sovereign-backed sports broadcasters [Al Jazeera Sport and Abu Dhabi Sports] are certainly showing signs of recognizing they need to bring the rights costs down. The [new negotiations for] English Premier League will be of great interest. The rights haven’t landed yet and despite what we’ve seen in the press I believe those costs are going to come down [to below] where they were under the previous deal. We’ve also proved, by increasing the size of our base by 30 percent in a single year, that the consumer wants to watch more than just sports. They want to watch television seven days a week, not just twice a week for 90 minutes at a time. That’s allowing us to continue to grow by aggregating meaningful and world-class sports alongside the best entertainment.

TV MIDDLE EAST & AFRICA: What are your priorities for the rest of this year?
BUTORAC: We will continue to develop and be innovative in content and in technology. We have a lot of room to grow the subscriber base and that’s going to be our priority. The best way to grow the sub base is to ensure that we have the best quality content, that we’re recognized for the fact that you’ll always see it first [on OSN] and that our technology platform stays innovative and world-class.

TV MIDDLE EAST & AFRICA: What’s the penetration rate for pay-TV services in the region?
BUTORAC: The total number of TV households in the region is probably in the order of 90, 92 million. Penetration of total TV households is very small. We see the addressable market for pay TV as being [about] 6 million households—[homes that have reached a level of] affluence such that they can afford a premier product like OSN. We’re still at a relatively low penetration rate, so that gives us the confidence to know that our business can continue to accelerate.