After the Sandstorm

This article originally appeared in the MIPCOM 2012 issue of TV Middle East & Africa.

 

By any measure, broadcasting in the Middle East is a booming business. However, the region is severely affected by channel jamming, religious and factional rivalry, and viewers who are perhaps the most news-thirsty of any on the planet.

 

Of late, there have been serious squabbles between channel owners, licensing authorities at each other’s throats—some even banning satellite dishes—and a never-ending chase for advertising dollars to keep the free-to-air channels’ operational heads above water. One inter-satellite dispute has placed at risk a new $300-million satellite. Such is life in the never quiet Middle East.

 

The mere number of channels added over recent months are in themselves impressive. According to the Amman-based Arab Advisors Group (AAG), the number of free-to-air (FTA) channels in the Arab world grew by 19.3 percent between April 2011 and March 2012. Moreover, this growth was almost entirely focused on privately funded channels, helped by a more liberal environment over the past year in Egypt, Libya and Tunisia.

 

The number of FTA satellite channels grew by a massive 542 percent between January 2004 and March 2012. AAG says the total number of distinct FTA satellite channels is now 642. 

 

There’s very little authoritative published research on revenues, as almost every channel is privately funded. AAG, using published rate-card data, says that prime-time ad rates for the small handful of top FTA general-entertainment channels reached a record average of $3,299 for a 30-second spot. Unlike just about everywhere in the Western world, the very highest rates were for news and current-affairs channels, which reached $5,460 for a 30-second prime-time spot.

 

“Of the 38 analyzed FTA satellite TV channels, MBC Group’s Arabic-language general channel, MBC1, has the highest average advertising rate,” said Arab Advisors. How­­ever, it has to be stressed that even these low rates are rarely the true amounts received by broadcasters, as all manner of “net, net” discounts apply.

 

The Middle East, with few exceptions, is a region dominated by satellite delivery with the greatest concentration of dishes anywhere in the world. However, some countries are toughening up their attitude to satellite. For example, Sharjah emirate, which sits alongside Dubai on the Persian Gulf, in June banned satellite dishes that are fixed to balconies and terraces. Sultan Al Mualla, the director-general of the Sharjah Municipality, said residents can instead subscribe to cable or telco-supplied TV services, and he issued a 48-hour deadline for apartment-dwellers. Those who fail to remove their dishes face a fine.

 

A few days later, Abu Dhabi did much the same, with the city council calling on landlords and occupiers to limit and tidy up satellite dishes on the capital city’s rooftops, balconies and terraces. In a statement released on July 8, Abu Dhabi Municipality said that satellite dishes and their related cable connections have been “mushrooming in a haphazard manner” on both private and commercial building exteriors, creating a disheveled look and threatening the community’s health and safety.

 

Bans on dishes and local rules and regulations are but one problem. Deliberate satellite jamming of signals is another, more significant problem. Salah Hamza, the chief technology officer of Nilesat, which is based in Cairo, says that the jamming of satellite signals, especially prevalent in the Middle East, is hurting the industry very badly. “We now even have what we call voluntary self-jamming, where in order to curb unwanted signals coming into a country it seems that a nation is prepared to also lose its own signals by jamming a complete [satellite] transponder.

 

“For the past few months we have multiple examples of deliberate jamming,” Hamza continues. “This has spread to five transponders, affecting many of our clients. It is deliberate, and seems to us to be quite senseless. In some instances the jamming occurs on a daily basis starting promptly at 7:30 a.m. and finishing at 1 a.m. the following day. It is as if someone is just coming into an office and switching on the jamming mechanism as a matter of routine.”

 

Hamza explains that as the Arab Spring revolutions and local protests happened, the jamming intensified. “The recent events in Libya have added to the problems, but jamming now occurs from Bahrain, Syria and, of course, Iran,” he says. “We have pro-government jammers as well as opposition jammers. Recently we had jamming from a very sophisticated source. These people seem determined to act as satellite operators, judging what will—and will not—be carried by an operator. Indeed, this case was quite ridiculous because even after we had removed all of the channels from a transponder, which is a huge headache for us and our customers, the jamming continued onto an empty transponder! These are huge problems, and there’s no real sign of the problem going away.”

 

In July such complaints came to a head when Arabsat was publicly accused by France of supporting jamming, after Eutelsat’s transponders were disrupted. France’s National Frequency Agency said the jamming had been in effect since July 14, causing the agency to make a formal complaint to the International Telecommunications Union in Geneva, and to the government of Saudi Arabia, where Arabsat is headquartered.

 

One new satellite operator is beginning to carve out a very useful niche, supplying capacity as the region’s only all-HDTV player. YahLive, a new HDTV satellite platform targeting the Middle East, has signed an important deal with Abu Dhabi Media (ADM) to transmit many of its channels. YahLive says it currently carries about 30 HD channels, with plans to boost that to close to 50 by the end of the year. “The addition of exclusive Abu Dhabi Media channels means that our customers will be able to view some of the biggest sporting events and leading entertainment all in highest-quality HD,” said Mohamed Youssif, the CEO of YahLive.

 

Adding the ADM channels was a natural step, given that the broadcaster is a sister company of Mubadala, which is financially backing YahLive and YahSat. The HD channels covered by the HDTV agreement include Abu Dhabi Drama, Abu Dhabi Al Emarat, Abu Dhabi Sports 1 and 2, and Nat Geo Abu Dhabi. Ayman Safadi, the CEO of ADM, says, “The uptake of HD seems very strong. We’ll be looking at whether to extend that offering to some of our other channels, particularly our sports channels.”

 

YahSat’s sales arm is being helped by the Luxembourg-based satellite giant SES, and it is also active with another powerful “bird” in the shape of SES-5, launched on July 10, which also targets the Middle East and Africa. Also looking for more business in the Middle East is SES Platform Services (SPS), based in Munich. The satellite-services company is hoping to capture new business similar to that being successfully supplied from Munich to Johannesburg’s TopTV DTH pay-TV operation. 

 

“In Europe we have an excellent position because of our broadcast neighborhoods,” says Wilfried Urner, the CEO of SPS. “In the Middle East or Asia or Latin America or Africa, we are just one among many. If you cannot offer more to potential clients, and we can talk about what ‘more’ is, then we might not win the business. ‘More’ might include any number of incentives, or capacity agreements, or service bundles. This might include ensuring that the client gets to market a little sooner, or [helping] with their business models, or [aiding] them with their technology development. But what we have to avoid is stepping into their businesses. They are the broadcasters, not us.”

 

The Middle East and North African (MENA) region remains primarily a DTH satellite-television market, and mostly free to air. Pay-TV penetration is low, at around 8 percent of DTH viewers, according to the Arab Media Outlook report.

 

As in other regions of the world, sports is a big draw in the Middle East, and a number of services are vying for viewers’ attention. With 16 channels of sports and sports news, Al Jazeera Sports controls the majority of international and regional sports rights (including UEFA Champions League and the Italian, French and Spanish soccer leagues), and has the largest pay-TV subscriber base in the region. However, its active base cannot easily be measured accurately because it is a smart-card-only network—subscribers pay upfront for annual subscriptions and smart cards are sold pre-enabled—and DTH ARPU is very low (about $80 a year).

 

Many subscribers will simply buy a new card every year, distorting the active base figures. Arab Media Outlook estimated 1.4 million subscribers in 2011, so a reasonable current estimate might be 1.5 million active cards, or approximately 3 percent to 5 percent of MENA TV households. Local estimates suggest gross DTH revenue of perhaps $150 million. However, a significant proportion of this gross revenue goes to distributors (who purchase smart cards from Al Jazeera in bulk and sell them on to dealers).

 

The annual programming rights outlay for Al Jazeera Sports comfortably exceeds $200 million, as it controls the rights to almost all international and regional soccer leagues. After considering staff, production and operational costs, the Al Jazeera Sports DTH network is therefore running at a significant annual loss. As a network, its primary aims appear to be achieving maximum audience penetration and controlling access to premium sports on TV in the MENA region.

 

Al Jazeera Sports’ card-only “maximum penetration” strategy means it is not a platform as such. The majority of its channels are carried in standard definition in order to make them accessible to as many open-market Irdeto and Viacess (encrypted) set-top boxes as possible.

 

The Abu Dhabi TV Network, launched in the summer of 2010, is best known for its carriage of premium sports in HD, in particular the English Premier League, Formula 1 and Wimbledon. It also carries other genres of HD channels (19 in total), such as the MBC HD channels, National Geographic and Sky News Arabia. AD TV Network controls its platform, as its channels are only available on proprietary Humax set-top boxes embedded with Irdeto’s latest encryption system. About half of the AD Sports package price in year one (more than $200) is the cost of the set-top box.

 

The Arab Media Outlook report suggests that the 2011 subscriber base of ADM is 670,000, although this figure is not directly referenced (and seems high to many). This would suggest annual gross subscription revenue (excluding the cost of set-top box) of $50 million to $70 million.

 

In the two years since its launch, AD TV Network has marketed itself as the home of English soccer (EPL), but now appears to be moving toward a broader marketing strategy highlighting the range of its HD content.

 

ADM reportedly pays more than $100 million per year for EPL rights alone. Its current three-year license agreement will end in the summer of 2013, and the English Football Association was due to award the new three-year license in September 2012. A bidding war was anticipated between Al Jazeera Sports and ADM.

 

Al Jazeera is expected to try to consolidate control over premium international soccer in the region, even if the move costs a great deal and does not generate significant incremental revenues. After two years of business built on EPL, it is questionable whether AD TV Network would continue to exist if it lost the rights to English soccer. Competition could therefore be fierce.

 

The preoccupation with EPL rights means that the value of the AD TV Network platform itself is often overlooked. An HD subscriber base of, say, 300,000 to 400,000 using secured IP-enabled boxes, all acquired within two years, is an exceptional achievement in the fragmented and chaotic MENA TV market. It took the pay-TV platform OSN almost 20 years and a merger to achieve this.

 

Following the initial disruption of the merger between Showtime and Orbit in 2009, which formed OSN, the platform has now consolidated its headquarters in Dubai, rationalized its management and staff, and established a consistent and secure platform using NDS encryption.

 

OSN has kept clear of the price war for premium sports rights. Its priorities have included leveraging what is now effectively a MENA monopoly on encrypted Western entertainment from the Hollywood studios and other independent distributors. It also set out to secure its platform against card piracy and wire piracy (through deals with local cable operators); to develop an over-the-top version of its platform (OSN Play) to future-proof its content-rights deals and prepare for challenges from the likes of Amazon, Netflix and Google; and to develop some original Arabic-language content.

 

The result is a platform that continues to deliver high ARPU (probably $50-plus per month across DTH and IPTV subscribers) and a stable subscriber base. The claim of 600,000 subscribers in 2011, as quoted in Arab Media Outlook, seems high to many and probably refers to viewing points (which includes hotel rooms and the like). It is reasonable, however, to assume that subscriber revenues exceed $200 million per annum, and OSN may well now be EBITDA positive.

 

Perhaps more important, its consolidation of its platform and content licensing positions has given OSN a degree of protection in an industry plagued with irrational commercial behavior (such as bidding wars for sports rights) that constantly undermines the underlying MENA market potential.

 

OSN always maintains that its main competitor is piracy. The MBC Group of channels, although free to air, is also a rival. MBC’s English-language channels contain premium Hollywood output. MBC, like OSN, has also developed an OTT platform (Shahid.net), and through its massive DTH audience reach has created a potential platform for future growth.

 

There are a number of smaller services in the market that recognize the price sensitivity of the MENA consumer and the need to have a low-cost compelling basic offering in order to achieve significant market penetration for a new platform. They also recognize the commercial potential for new low-cost pay-TV bouquets, once a platform has gained a strong foothold in the market.

 

For example, the Al Majd TV Network provides Arabsat viewers with religious programming and culturally appropriate entertainment, partially FTA and partially in a pay-TV package. Its primary audience is Saudi Arabia, where it has successfully established a high ARPU package and (according to Arab Media Outlook) has in excess of 500,000 subscribers. It does not compete with any of the other MENA pay-TV networks, and as yet has not seen any players replicate its model. As a result it is probably the most profitable pay-TV network in the region!

 

The ICHD platform was established in 2011 and carries the MBC HD channels. Its mission was to sell a pay-TV box, which offers premium encrypted HD content at a near FTA price, and use rapid growth as the basis to establish a pay-TV platform. The network encountered pricing, technical and distribution issues during its first year of operation, and has not yet achieved a significant market presence.

 

My-HD was established in 2012, and also offers premium encrypted MBC HD content on a high-definition box at a near FTA price. It anticipates further premium content to follow, and aims to establish an independent platform.

 

There is also a growing number of IPTV-based players, either using fiber or DSL/cable lines. The UAE’s Du is the largest of these, with more than 100,000 subs, helped by having distribution rights with almost all the major pay-TV operators. Also in the UAE is e-vision, with a similar subscriber base to Du. Qatar’s Qtel is transitioning to fiber, and Saudi Arabia’s STC says it is aiming to fiber-connect 2 million homes by the end of 2013. Bahrain, Jordan, Kuwait and Palestine’s Paltel also have, or are developing, IP-based consumer TV offerings.