New PayTV rules:My opinion of how it benefits Singtel,Starhub and M1 | Investment Moats Skip to Content

New PayTV rules:My opinion of how it benefits Singtel,Starhub and M1

Seems like the government is really trying to promote competition by the telcos by making sure telcos can cross carry Pay TV content.

With immediate effect, Pay TV providers which acquire exclusive broadcast rights to any programme, must cross-carry each other’s content.

This applies to any contract signed or renewed from March 12. It does not affect existing contracts.

The fierce bidding over rights to broadcast the upcoming World Cup matches raised concerns over the issue of ‘exclusive’ rights, which has affected consumers in the Pay TV market.

To lock out competitors, Acting Minister for Information, Communications and the Arts Lui Tuck Yew said on Friday said Pay TV operators are willing to fork out substantial amounts for exclusive rights.

This has led consumers to cry foul, especially since they have to subscribe to both SingTel and StarHub – rivals in Singapore’s PayTV market – for example, to catch their favourite football teams in action.

This practice of holding on to exclusive content though is rare in international markets.

Mr Lui said: “Content costs now constitute a significant percentage of pay TV operators’ revenue, compared to international benchmarks. For example, SCV’s content costs to revenue ratio has risen from 40 per cent prior to 2007 to close to 70 per cent today. This is much higher than the average 40 per cent for Pay TV operators in most other countries, including US, UK and Hong Kong.

“Secondly, Singapore suffers from a high degree of content fragmentation compared to other countries. Out of 179 channels today, only seven channels are common to both SCV and SingTel. An international benchmarking exercise using a group of 16 popular channels showed that Singapore was the only country with exclusive arrangements for all 16 channels.

“MDA’s (Media Development Authority) review has concluded that this situation is unlikely to self-correct in the near future, and steps need to be taken to address this market failure”.

So under the new Media Market Conduct Code, there will be a Public Interest Obligation. This means Pay TV providers must cross-carry each other’s exclusive content.

For example, if SingTel acquires a new channel exclusively, it must make this channel available to StarHub.

StarHub must carry this programme at the same time SingTel is airing it – and vice versa.

StarHub also cannot make any modifications to the content.

This includes all the advertisements and branding SingTel may have embedded into the programme.

And SingTel will have to pay StarHub to carry its exclusive content.

It will be left to the telcos to work out a cost for this.

For consumers, it means that they can watch an exclusive channel through just one Pay TV retailer.

Consumers, regardless of which Pay TV service provider they belong to, will be charged the rate that has been stipulated by the original content provider. In the case of the example, whatever SingTel charges its customers for the exclusive content, StarHub customers will pay the same rate.

Mr Lui elaborated: “Consumers would no longer require multiple set-top boxes or switch retailers each time the rights of exclusive content changes hands. This will facilitate greater consumer access to pay-TV content, and re-focus competition to other aspects, such as service differentiation and competitive packaging”.

For the industry, it means opening up the market to new players.

The rights holder will be able to brand the exclusive content, market it and monetise it as it wishes.

While the law takes immediate effect, the actually sharing of content is likely only to take place from September. For now, MDA will consult industry players, and sort out the details, like how consumers’ bills will look like, and whether the review will affect new media platforms.

As for how this will impact the broadcast of World Cup matches in Singapore, it is status quo for now, as SingTel and StarHub have submitted a joint bid and are waiting for FIFA’s reply.

Mr Lui said: “Let me just say that I am very happy that World Cup comes around only once every four years. We understand that SingTel and StarHub have recently made a new offer and negotiations with FIFA are still on-going. This is a commercial matter that is best left to the two pay-TV retailers and FIFA to settle.

“I know time is running short; we are well into the second half, we are approaching injury time, but we remain hopeful that the negotiations will reach a sensible outcome.”

Meanwhile, Pay TV operators SingTel and StarHub have responded to the government’s announcement on content exclusivity.

SingTel said it will review the details and actively engage the MDA through the industry consultation process.

StarHub said it fully supports the government’s efforts to ensure fair and reasonable content costs. It also added that it supports the idea of a common set-top box for consumers.

MediaCorp also spoke to Singaporeans for their views.

One person said: “If a particular coverage has got wide appeal, like it is a national event or an international event, I think this should be made readily available, preferably free, if not, (at) a very reasonable rate to the consumers.”

Another commented: “If this new initiative comes up, there is no edge by one service provider over another.”

Analysts have said consumers will benefit from the move requiring Pay TV operators with exclusive content to allow such programming to be carried by other operators.

Kenneth Liew, senior market analyst, IDC Financial Insights, said: “In terms of pricing, in future bidding, both companies are likely to not bid so much on exclusive content, because at the end of the day, the other party will get to screen it, so they will actually bid at more reasonable prices.

“This is good news for consumers, because the bid price being lower will actually bring down the cost for consumers as well.”

What does this mean to each telco?

How it works out for Singtel

Many felt that Singtel is the biggest loser here.

  1. Offer Starhub’s content and create a more comprehensive bundle to compete in an area they were weaker than starhub.
  2. They could potentially have to share EPL content with Starhub. this is good as it will let Starhub do the work for them.
  3. They have a better mobile internet content now. Singtel for me have the better team here, it will benefit them.
  4. Their strategy to get exclusive content and crush Starhub will likely fail.

The impact to bottom line will likely be:

  1. Mio TV subscribers will be up. But it will not factor significant into Singtel’s bottom line as the revenue stream from Singapore is small.
  2. Cost for content likely to come down.
  3. This will be made up by increase cost to compete in other front. At the end of the day it might be  more cost since they paid high for EPL. But they are deep enough to afford that.
  4. Cross carrying means that Starhub is likely to buy their content. They will not charge low for this. It is still a win for them here.

Essentially, Singtel should stay quite stable.

How it works out for Starhub

Many felt that Starhub could be the biggest winner here.

  1. They have more content that are valuable. For now. For Singtel and even M1 to come up with good packages, they can monetize and its a good revenue stream.
  2. It also means that the differentiating factor for starhub, which are their Hubstation and Exclusive Content will not differentiate them. A big minus.
  3. They lag Singtel in mobile internet content now. They will need to buck up here.

The impact to bottom line will likely be:

  1. New stream to monetize content for now. Likely impact will be minimal
  2. Churn rate would fall since people are resistant to change set top box. New couples will not want to get a new phone line just to put Mio Tv and Mio Tv is facing some problems with reliability of transmission from what i heard. This will benefit revenue
  3. Cost will even out. They will ask for EPL content, but it is likely not to be cheap or even much higher! Eventually, their content cost may be even higher and they will not take this up.
  4. Increase in marketing cost. They will need to find new ways to differentiate themselve. it is likely they are fighting a battle to not fall into the likes of M1, where they pale in comparison in the eyes of consumers compare to Singtel. Cable TV was Starhub’s shinning light. Now its not exclusive anymore.
  5. Cost may mean dividend yields get impacted. Starhub’s attractive 20cent forward div is flirting very close to their free cashflow. If capex dun go down, we might not see so high div in the future.

How it works out for M1

Its open playing field for M1

  1. Likely case they will be the front runners because they have no access baggage. Pay TV could make them look better in the eyes of consumer.

Conclusion

I believe the main theme here is that:

  1. Competition environment will change. Reducing switching costs and churn prevention cost through giving freebies will increase. On the whole it impacts net profit and margins.
  2. They will need to differentiate again. The key differentiation is in service level. Things like will Mio TV disconnect from my soccer match? Can i receive my Starhub calls or can i always get 3G anywhere i want? Why is my internet speed on mobile so slow? Why is it at night, Starhub cannot access youtube fast?
  3. All this above means that investment in infra increases. This impacts free cashflow and Starhub and M1’s dividends.
  4. Telco will be commodity thats all. Margins based on game theory might remain steady but will thin. With a limited basket of subscribers, likely profits will go down and free cashflow as well. We should be looking at smaller dividends.
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