Viewpoint: Back on Track

By Vivek Couto, the managing partner and a co-founder of MPA, an information-services group focused on media and related sectors in the Asia Pacific.

What a difference a year makes. The market for media consumption and advertising expenditure has yet to revert to optimal levels, but macro conditions have improved and the momentum in Asia’s growth story is back.

According to Media Partners Asia’s (MPA) latest analysis, media advertising revenues in Asia will fall by 4.8 percent this year but will rebound to almost 5 percent growth in 2010 and 6.7 percent growth in 2011. The economies of China, India and Indonesia are roaring back to something like top form, while Korea and parts of Southeast Asia are also recovering fast. In spite of a recent softening, the climate for financing has improved overall with buoyancy returning to equity markets, making it easier for domestic media owners to access capital in public markets rather than rely on still-conservative private-equity investors.

Having fallen by 5.5 percent in Asia so far this year, television advertising, including free-to-air and pay TV, will recover to 5.3-percent and 6-percent growth, respectively, in 2010 and 2011, with pay TV reverting to double-digit expansion in 2011. In China, a post-Olympics, global-crisis-driven lull dominated much of the first half of 2009, but TV and especially provincial satellite-TV networks are growing at a clip again. In India, TV broadcasters have experienced a tougher time. However, ahead of the festive season and a stronger macro environment in 2010, yields and a level of pricing power is returning to the Indian market.

The future distribution of TV services in Asia remains anchored to pay TV and the digitization of networks, though increasingly the proliferation of broadband and the ascendancy of the Internet, especially in North Asia, are also having an impact. By the end of 2009, 37 percent of pay-TV homes in the region will be powered by a set-top box while broadband-household penetration will have exceeded 20 percent.

Most of these digital and broadband homes are in China, India, Korea, Japan, Australia and Malaysia. China’s emerging digital-cable marketplace does not count for many global media distributors because of the utility models of the industry and existing regulation on content distribution. In India, digital DTH remains a big story, with about 19 million gross subscribers expected by the end of this year, though profit visibility remains problematic. Cable digitization is expected to improve in India after a significant slowdown this year, as funding accelerates with the imminent IPOs of the two biggest cable operators.

Amid all these shifting trends, with the accent very much on nimble-minded local growth, the outlook for strategic global media investors has changed. Perhaps the most affected has been News Corporation. Its move to decentralize its Asian operations from Hong Kong and focus on India means that James Murdoch (the chairman and CEO for Europe and Asia) now has a major driver of market value for News Corporation’s international operations—Star India—to join its combination of pay-TV and print assets in Europe.

Star’s India operations have been hit by a rising competitive intensity in the Hindi-language general-entertainment genre, where Colors has raised the stakes. Star India remains a highly profitable business with growth exposure as it secures a national footprint with new regional entertainment channels. Analysts at MPA estimate that Star India posted operating income of around $80 million in the last fiscal year, on sales close to $440 million. News Corporation is reallocating significant global resources and investment to India, a process it started in January of this year when it paid $235 million in cash and about $20 million in assumed net debt to take a controlling interest in four entertainment channels in southern India. In the future, more money will go into its movie venture, Fox Star Studios; its DTH venture Tata Sky; and the home-shopping joint venture with Korea’s CJ Group.

News Corporation has also finally decided to save costs and roll its English-­language brands in Asia into FOX International Channels (FIC), a business better built for profitable growth in the English-language channel space than STAR ever was. FIC has laid the foundations of its pan-Asian business with decent money in Japan and Korea, both markets where Star has failed to make much of an impression. Post-restructure, FIC will act as the distributor and ad-sales agent for STAR’s Indian and Chinese channels outside of Mainland China, India and Taiwan. Under Ward Platt and Zubin Gandevia, FIC Asia’s president and COO, respectively, the company is run as a fairly lean, mean machine, adept at driving margin growth on low-cost niche channels. Absorbing STAR Movies, STAR World and Channel [V] may lead to a better regional advertising bounty and improved affiliate pricing and leverage in Southeast Asia and Greater China.

Elsewhere, expect more momentum and changes among global media in Asia.