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Saturday February 18, 2012

Astro’s game plan

Astro is a dominant player in the country’s entertainment business. Three million out of 6.6 million households in the country subscribe to its services.

It’s a lucrative market that has attracted other players. The competition dynamics will change in the months ahead but Datuk Rohana Rozhan is not worried.

As CEO of Astro Malaysia Holdings Sdn Bhd, a position she has held since 2006, Rohana is not going to sit idly and not do anything about it.

Rohana knows too well that Astro needs to do something in order to maintain what it has built since launching its services in September 1996.

That is being done by getting its services into new areas and having the right marketing strategy.

Perception can make and break a brand and she, knowing more than a thing or two about marketing, understands the importance of positioning.

Throughout the interview with StarBizWeek, Astro took on the competition poser by highlighting what it would be doing. Njoi, its free subscription TV offering, is seen as a defensive move to stave off competition. But it is growing its business to capture a larger slice of potential customers.

“We are (always on a) growth trajectory,” she says.

Astro, which began its journey 15 years ago to provide Malaysians a new way of watching TV, has taken on previous contenders.

Pay TV operators, such as Mega TV and MiTV, had tried to get a slice of Astro’s business but have failed. But some observers say the mistakes of the past won’t be repeated. Some people are confident that competition this time around would finally break the stanglehold Astro has on the pay TV market because of the new delivery channel – the Internet and cable.

The new group of competitors use the Internet to deliver their content and they include some of the largest companies in the country such as Telekom Malaysia Bhd and Maxis Bhd. Smaller newcomers into the scene are REDtone International’s DETV, and the soon to be launched digital cable TV service by Asian Broadcasting Network (ABN).

“We are telling our people to swim stronger against the tide,” Rohana says.

The reason why newcomers are emboldened is that new technology is making it more convenient and exciting for people to watch TV.

Interactive services have seen people get video on demand. Watching it when they want means consumers are able to relax in the knowledge that they can watch their favourite TV shows at their own pleasure. It also means that they can access new and exciting content, enabling them to broaden their viewing while enjoying the ultimate in flexibility and freedom.

Astro understands that and is reacting to the changing patterns.

“We are constantly moving up the value chain and trying to address a wider market. It is the evolution of business,” says Rohana.

Still, does it have what it takes to capture a new market that awaits to be addressed?

Satellite technology

It’s been a long 15 years ever since the Measat satellite went into orbit and Astro began beaming channels into the viewers’ living rooms.

They introduced the pay-TV concept using satellite technology. Prior to that, Malaysia only had free to air channels that were limited to four and Mega TV showed a handful of subscription channels such as HBO and ESPN. Then Astro began with 22 channels with a monthly charge of RM80 but the catch was it included a one time payment of RM1,400 for the satellite dish and the set-top box to enable pay TV viewing.

Over time, the installation cost fell and its subscribers rose. When it launched, Astro said it needed at least 700,000 subscribers to break even in two-and-a-half years.

In 2003, it got listed at an offer price of RM3.80 a share. Subsequently it also spread its wings into Indonesia but that venture did not turn out as planned and they had to pull out.

It also has a stake in India’s Sun Direct TV and a stake in Celestial Pictures, a company with a huge content library. The company has since also entered into the domain of producing its own content and when combined with Celestial, it has a huge data base of content that can be sold across all networks.

In 2010, the shareholders decided to de-list Astro and the company was worth RM8.5bil then. Tycoon T, Ananda Krishan continues to have a majority stake in the company via Usaha Tegas Sdn Bhd.

If not for its Indonesian venture that had gone sour, larger profits would have been realised earlier and Astro was privatised in 2010.

Today, operations are running nicely. Astro’s revenue for its financial year ended Jan 31, 2011 was RM3.2bil and its net profit was RM232mil. Its average revenue per user has grown from RM85 to RM90 over the past year.

There is talk that Astro would be heading back to the market soon. Ananda delisted and eventually re-floated Maxis and Bumi Armada Bhd.

“We would have to do it anyway. We are in the business for the long term,” Rohana says but she would not go into the details and would rather skip the question as that is something for the shareholders of Astro to answer.

Enjoy Njoi

Over the years, Astro has added content to its service and today it has various packages for different segments of the market. Its basic package is at RM37.50 for 35 channels. In total from a 22 channel base it has grown to 153 channels.

Besides its basic product, Astro has ventured into offering high-definition TV known via the branding, Astro B.yond, also a recording service via PVR, and entered the domain of IPTV in a partnership with technology partner, Time dotCom Bhd.

Its IPTV service is available in multi dwelling units in major cities. Apart from channels, the services includes broadband and interactive services.

It has 800,000 subscribers for its Astro B.yond and its IPTV offerings and 500,000 for its PVR services.

Astro will today launch Njoi. It’s been seen as a defensive strategy to compete on pricing rather than content.

The timing appears to be appropriate when potential rival ABN intends to come out with the own service.

A coincidence? Rohana sees it as a natural progression.

“All I can say is that Njoi is just a natural progression of the business. I think when we launched Astro 15 years ago, the whole idea was to address the total Malaysian market and grow beyond Malaysia. Like any business you cannot do everything in one go. You actually progress based on the economics of business. So we take the low hanging fruit first, the obvious segment of the market.” she explains.

To her Njoi is part of reaching out to a wider population and giving back to society. It can be seen as part of its corporate social responsibility (CSR) efforts.

“As at end-2011, we have 50% penetration as we have three million households but we know there is still room to grow. Based on our research, we can grow our penetration to around 60% to 70% based on the current offerings. But we do not want to wait for that.

“With the evolution of technology, there is ability to address the balance and there is where Njoi comes in,” she says.

To her, the emergence of Njoi allows Astro to tap into the 30% of the balance of the market.

“We had to come up with a value proposition for each and every segment of the market. There is also a part of Astro which looks at certain core and key content that should be made available to all Malaysians, primarily education, news, entertainment and sports. You can call this part of our CSR efforts as it is an important input into society,” she adds.

Njoi is free for all but the very poor will get free set top boxes while for others there is a one-time fee for purchase of the set top box. People who take Njoi will get to view 37 channels (18 TV channels and 19 radio channels) for free and anything more will be based on budget and preferences.

There’s more to come.

Before mid-year, Astro, which has a huge library of content would make its library available on multi devices, and that is something Rohana is very excited about. That is a new market and it allows the pay-TV company to address a large viewing population that it could not before multi devices became a tool for TV viewing. It did try that out during the last World Cup but that was based on a limited number of channels.

A report said that Virgin Media customers managed to get through a whopping 490 million hours of on-demand TV last year – something that would take a single person watching television programmes back to back an astonishing and impossible 56,000 years to achieve.

“Essentially people are watching more TV – whether that’s on demand, suggestions recorded for them, or as a result of new and exciting interactive experiences,” Rohana says.

She adds that “our next growth aspiration is not only to address the households but we are addressing the people in the household. Everyone has his or her own viewing needs, so our next growth trajectory is to address that. The father may want to watch sports and news, the mother dramas and cooking shows or some other serials, the son may be interested in anime. For us, it is about enabling a lifestyle of the individuals, and we do not stop in the living rooms, since there is a mobility and interactive element that we provide,” she adds.

This is made possible because of its ability to aggregate content and owns a huge library of content. It wants to exploit all windows and push its content on multiple devices. If it doesn’t start now, others will.

The battle

Njoi and multi devices are two new growth areas for the company and its ARPU (average revenue per user) should grow but Rohana is not about to give a peek into how much more Astro can make.

“This is another growth driver for Astro,” she says. Together with the existing households and the potential new customers with Njoi and its offerings on individual devices such as smartphones and tablets, Rohana feels Astro’s potential reach expands to 12 million subscribers. This is also about the pull factor.

Previously subscribers are used to operators pushing content to them. Now they want to chose what they want to see and when they want to see. They also want interactive services. Astro’s current system is limited by just how it can engage the viewer but with its service migrating to the Internet and broadband (IP-based), Astro will get more interaction with its subscribers. It also addresses the “rain” stigma Astro has had to deal with.

As at end last year, Infonetics Research says the global pay-TV market, which includes telco IPTV, cable and satellite video services, totalled US$125bil in the first half of 2011.

The market is expected to grow to US$353bil by 2015 and North America is currently the highest value pay TV market, despite second-place Asia-Pacific having nearly four times its subscriber base.

Users can now browse, navigate and watch their programmes on devices other than own proprietary set-top boxes. Comcast and Verizon of the United States are making their pay TV available on Microsoft’s Xbox Live service. Singapore’s Mediacorp programmes are available on tablets.

To do that, they are transitioning to a cloud-based architecture for their user interfaces. That is also what Rohana is talking about.

A report said there are advantages to the cloud-based approach as with access to many more devices which the operator cannot control, “it reduces the processing requirements needed on the customer premises.

That means cheaper, lighter and more energy-efficient boxes get installed. It also means that operators can make more frequent improvements and updates to their user interface, since all updates happen on the back end, and a firmware update isn’t required to push the new services and features live.”

Rohana says: “We also give a cloud of services from you to pull the content you want. The good thing is that our platform is end-to-end digital and it is modular so we can add on it. These days it is about getting the content to the where the consumer is.”

All this hinges on its relationship with subscribers and whether it is deep enough for people to stay on or leave.

“These days people talk about quality of experience and quality of service, and where exactly to get the content they want. We have three million households and everyone knows we have relationships and various windows, so it is really an extension of our relationship, not a new relationship with our users,” she says.

That is not the only battle for Astro. The fight for exclusive content is yet to begin. The complaint has been that Astro for years has been getting exclusive content and contracts. This leaves little room for budding players to get programmes they believe can win customers over.

Astro has often maintained that any party can buy content and it should not be seen as a stumbling block. More recently, the Government has said that the Communications and Multimedia Act (CMA) has been amended to include competition for the pay TV market.

Soon the guidelines for popular content purchases would be out and that would determine if Astro could continue to bid for sporting events. Some have also accused Astro of putting in bids that others have difficulty matching.

But Rohana believes it is a free market and anyone can bid for content.

“What can we do when others do not want to bid or miss the deadline for bidding,” she asks.

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