Exclusive Interview: OSN’s David Butorac

February 1, 2012 World Screen Top Stories

PREMIUM: Original content, shorter windows on imported shows and driving HD and DVR rollouts are key to increasing Middle Eastern pay-TV platform OSN’s subscriber base, its CEO, David Butorac, tells World Screen Newsflash.

In 2009, after a 15-year battle for supremacy in the pay-TV landscape in the Middle East and North Africa (MENA), Orbit and Showtime merged their operations to become OSN Network. Shortly after the combination, OSN tapped pay-TV veteran David Butorac as its new CEO. With a career that includes stints at the pan-Asian STAR, Malaysia’s Astro, BSkyB in the U.K. and FOXTEL in Australia, Butorac is tapping into his extensive experience to build out OSN’s business in the rapidly developing MENA region.

WS: When you came into the position at OSN, what was your strategy for the recently merged platform?
BUTORAC: If you look at the history of pay TV all over the world, there were often competing platforms; I was around in the Sky days before the merger [with BSB] and lived through that. The difference there is BSB and Sky competed with each other for two years and Showtime and Orbit competed with each other for 15 years. In 2009 they merged and that created an opportunity to grow out the platform. The shareholders also made a really bold decision to invest in a complete change of the CA [conditional access] system and boxes, so that we could have a secure platform. Piracy was hurting the business badly. So the businesses finally had merged, we’d overcome piracy—that [served as] the bedrock for growth.
 
The key for me is being able to get the consumer to reengage with pay TV after 15 years; a lot of them had looked at pay TV and decided there was nothing there for them. We now have to encourage them to reengage and [we need] to invest in localized content. We’ve just embarked on investing in original production in the Arabic language, entertainment content. Over the last two years we’ve quadrupled our marketing spend. We have quadrupled our spending on research so that we can actually understand the consumer a lot more. [We’ve also created] a stronger brand: we’re no longer Orbit Showtime Network, we’re OSN, it’s a much easier, articulated brand.
 
WS: Can you talk more about addressing the piracy problem?
BUTORAC: Piracy really is on two fronts. One is technology piracy, and prior to the switch-off of the old [conditional access] platform in December 2010 we were heavily pirated and the DreamBox [a widely available set-top box] was receiving all of our signals unencrypted. By changing our conditional-access [software] we’ve secured the platform. There is redistribution piracy, which is similar to what happens across South Asia. We need the assistance of governments to help in clamping down on illegal [signal] redistribution. That still exists in some of the more populous markets of the Middle East. We’re working alongside governments to try and recognize the real impact of [intellectual property rights] and piracy. We can’t do it on our own.
 
WS: You’ve also been rolling out imported content almost day-and-date with the U.S. release. Does that help to discourage piracy?
BUTORAC: What we do with all of our major series now is that we’re within 24 hours of the U.S release. So when Desperate Housewives season nine aired in the U.S., 24 hours later it was on our screens in the Middle East. All of the major series: Pan Am, Boardwalk Empire. BSkyB launched Sky Atlantic in March 2011 with Boardwalk Empire. We aired it in September 2010. We were six months ahead of the curve. We do that to stop the imperative to download. Why would my teenage daughter download content? Because she wants to watch it as soon as it’s available. If we can deliver it in beautiful high definition on a beautiful TV screen, why download it onto your laptop?
 
WS: What are your plans for offering your viewers access to content on multiple platforms?
BUTORAC: We’ve committed expenditure to build out our digital platform, which commenced in Q1 2012. I want our customers to feel the value proposition of their broadcast subscription extending way beyond the TV screen. They can have content on their tablet, on their smartphone, on their PC, on their laptop. So long as we get the DRM [digital rights management] right, the studios will be hugely supportive of this. Initially it will bring churn rates down, eventually it will also add to incremental revenues.
 
WS: What are some of the other strategies you’ve put in place to reduce churn and increase your ARPU?
BUTORAC: Lowering churn is about providing a high quality product and making a value proposition for subscription television. What we’re doing is investing in local content and making certain we can shorten the windows of the content, have consistency in our approach and have a quality customer-care experience. All of those go together to bring churn down. In the last 12 months we’ve halved our churn rate. At the same time [in 2011 we increased] our subscriber base by 34 percent. So the subscriber base is taking off, the value proposition is taking off, the churn rates are dropping. And that’s all to do with the quality of content. The emphasis is on HD. We now have 19 true 1080i HD channels—no one else in the region is doing it.
 
WS: How has the takeup been for your DVR and HD services?
BUTORAC: DVR and HD are two really important strategies. Our premium customers get a free DVR. Over 60 percent of our new customers are coming in at premium. Once you experience television on a DVR, you don’t go back. We just commissioned a new hybrid set-top box, which will have a terabyte of hard drive space—that will allow us to do push VOD. It will be an Internet-connected box as well, so we can do true VOD downloads, we can do all sorts of connectivity between the satellite stream, which is our primary distribution, and the Internet. We will continue to stay on the front end of the curve when it comes to that level of technology. And there are 400,000 HD panels sold every month in the MENA region. Most of those customers are going home, bolting a beautiful television to their wall and watching SD on a nice TV! As we expand our HD experience, our viewing share in HD is just skyrocketing.
 
WS: Did the Arab Spring protests last year impact your business?
BUTORAC: In terms of our sales, it probably in some parts enhanced them. It gave us some minor disruptions—particularly in Egypt, Libya. A lot of the areas where there was a movement and change, there was a bit of a distrust of state-run television. We aggregate the international view, we have a myriad international news channels, so what we’ve seen is not a long-term [reduction] of sales in these markets—it has actually allowed us to continue to expand. Egypt is going very well for us, even though they’ve been through the issues they’ve had.
 
WS: What are some of your other growth markets?
BUTORAC: Saudi Arabia is our biggest growth market and so it should be, as it’s got a [high] level of affluence. We need to simply get our message out about what pay TV is about, and our sales are already taking off. UAE is always a very strong market for us. It has a predominantly foreign workforce and we’re able to aggregate a lot of content. And throughout the region, if you cut affluence off at household incomes of say $25,000 or more a year, most of those households have English-proficient Arabic-speaking locals—a lot of them have been educated overseas. So our English-language content is very important. The number one driver is English-language movies. The big markets of the Gulf states—Kuwait, UAE, Bahrain, Saudi Arabia—and the volume markets like Egypt, that’s where you’ll see the biggest growth.
 
WS: What kinds of content packages are you offering to appeal to the large population of migrant workers in markets like UAE?
BUTORAC: There’s three and a half million Filipinos working through out the MENA region, and the South Asian [population], the Hindi and Urdu-speaking [segments], are very strong as well. We currently aggregate a five-channel Filipino-language package, which is hugely successful, and we’re looking at getting into the South Asian markets. The South Asian market is usually fairly English proficient, so our English-language content will be appropriate for them as well. But [we’re looking to] aggregate some of the core sports, particularly cricket, and entertainment from [South Asia]. That’s a focus in the next 12 months.
 
The other significant thing we’re doing is we’re looking to pull together some French-language content so we can have a package specifically targeted across North Africa.
 
WS: You mentioned acquiring some cricket programming. How do you manage the constantly escalating issue of sports rights?
BUTORAC: The reality is in our region, round-ball sports rights, i.e. football, have gone to uneconomic levels. The two predominant sports platforms [Al Jazeera Sports and Abu Dhabi Sports] are [government] backed and the economic return is not an imperative—we can’t compete with that. We would love to aggregate English Premier League football or Champions League football onto our screens, but the rates we’d have to pay for the rights, we can’t do it. We carried the Rugby World Cup live and exclusive, all 48 games in HD. We carry a lot of golf and U.S. sports. So there’s a market for sport beyond international round-ball football.
The FAPL in England have done a very good job of creating what is probably the premiere international sport. The last time around [English Premier League football] went for about £2.8 billion pounds, about $3.5 billion for three years of rights. Back in 1992, Sky paid £205 million for five years of rights and everyone thought that was overpriced!
 
WS: In your current position, do you see any parallels with pay-TV platforms you’ve run in Europe or Asia?
BUTORAC: The biggest similarity is with Astro [in Malaysia]. Astro is in a multiethnic, multilingual market. What we have in the Middle East is quite a diverse multiethnic market, albeit ultimately a single language one. If I look at pay TV in the MENA region, 16 years in existence, it’s at about the same state that Astro was back in the early years of this century. I joined Astro in 2002, when we were just on the cusp of taking off—we floated the company and the business has been hugely successful. I see the Middle East region on the cusp of taking off. We have an increasingly affluent market. We are a very forward-thinking regulatory environment—that’s a surprise for a lot of people coming from the outside. The key difference is [in MENA] you have about 500 free-to-air channels, all of which are distributed on satellite. Satellite is the main distribution means for free to air. So what we have to do is differentiate our product by quality and by localization. That’s fairly similar to what we had to do in markets in Asia as well.