Competition sweeping into pay-TV


WHEN Astro All Asia Network plc launched its exercise for a listing on Bursa Malaysia last year, you might have read in the prospectus about the exclusive licence it has for direct-to-home television broadcasting services until 2007. That would give it a monopoly over pay-TV for a few more years.  

Its exclusive licence apparently covers broadcast satellite TV services only. That leaves it open to competition from delivery platforms other than satellite-based ones.  

We've now seen that. In a report on Wednesday, quoting sources, Reuters said Tan Sri Vincent Tan bought a company that was licensed and capable of delivering terrestrial TV broadcasting using digital technology. This TV station, called MiTV, may begin broadcasting in October.  

The giant in this sector made its public move last Thursday. The Telekom Malaysia Bhd group said it had started trials for its video-on-demand-on-TV project and this might be introduced as early as July.  

Both MiTV and Telekom will be competitors to Astro, an extra-terrestrial experience for the latter, which is still a monopoly today. That looks set to change before the year is out.  

There was naturally a reaction of that on Astro's share price. The price fell 8 sen on Wednesday and 12 sen on Thursday. The stock, however, recovered fully with a gain of 26 sen to end the week at RM4.90.  

This involves high stakes for Astro, which is traded at a premium in the market. Astro carries a market valuation of RM9.4bil, not bad for a company that made a net profit of just RM12mil for the year ended Jan 31, 2004, although its fourth-quarter earnings of RM38mil showed some promise. Even so, a great deal of potential is built into that massive market value of RM9.4bil.  

Some fund managers have been aware the competition will come one day. They knew PCCW in Hong Kong had started pay-TV operations by using the telephone wire network of Hong Kong Telecom that PCCW controls. It has been shown therefore that pay-TV programmes can be routed through copper telephone lines.  

Telekom, being in the industry, would obviously know about that too. Indeed, it is understood Telekom officials have met with their counterparts at NOW TV, the Internet-based digital TV service of PCCW. NOW is an abbreviation of Network of the World.  

The meeting was for Telekom officials to learn from the experience of NOW TV, which is said to be profitable.  

This has important implications. Telekom intends to become a pay-TV operator like Astro and will become a media-telecommunications converged company.  

Currently, Telekom is in negotiations to buy programming content. It is likely to offer channels like ESPN, Discovery, Cinemax and CNN. These are some of the channels offered by Astro and are not, it is believed, exclusive to Astro.  

The new operators will naturally have to differentiate themselves from Astro. They could do so with pricing, positioning for certain market segments and content quality.  

There is HBO and there is HBO, according to an observer. You could, for instance, buy a package of older HBO movies or newer HBOs.  

Competition will drive all the pay-TV operators to buy better programmes for their customers.  

Astro had taken steps to be competitive. It purchased Celestial Pictures, the library of Chinese movies produced by Shaw Brothers in Hong Kong. This gives Astro a leg up with its own proprietary entertainment programmes.  

Will Telekom and MiTV be able to compete with Astro? Among investors, T. Ananda Krishnan, who controls Astro, is highly regarded. This trust is reflected in the premium valuations in the shares of companies controlled by him.  

Telekom has one advantage. It owns the last mile telephone lines that reach into most homes in the country.  

Ownership of the telephone line network is crucial for operators of broadband services. Without it, the operators would be at the mercy of the telephone companies for the rental charges the latter would impose.  

For this reason, Softbank Corp, Japan's biggest Internet access company, is in discussions to buy a majority stake in Japan Telecom, according to reports. Japan Telecom is the third largest fixed-line telephone company in Japan, and control of it would allow Softbank to stream entertainment programmes through the telephone lines.  

Over here, it is understood Telekom will deploy an Internet-based system via its Streamyx broadband service. It is likely to offer two packages – monthly subscriptions and pay-per-view. This is similar to Astro's offerings.  

As for MiTV, it is expected to offer 80 channels for which it will charge a fixed monthly fee, according to Reuters.  

There will soon be three pay-TV networks in Malaysia, which will introduce competition for multi-channel TV services. That should dispel complaints of Astro's abrupt increases of its subscription rates. The competition will soon take care of that. 

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