Pay TV provider adapts to ever-changing consumer appetite
FOR close to two decades, Astro Malaysia Holdings Bhd has established itself as a dominant pay TV provider, having today a 69% market share of the country’s total households.
Starting out as a satellite TV provider, Astro’s legacy has evolved with the times as it needs to adapt to the ever-changing consumer appetite.
Facing increasing content costs and greater competition from streaming platforms, Astro is not sitting pretty waiting for subscribers to continue paying for their traditional satellite TV content.
“You have to evolve, always and constantly because your consumers have also evolved. We look at all these technological disruptions as an opportunity and challenge for us,” says Astro chief executive officer Datuk Rohana Rozhan.
What has served Astro well has been its ability to reach every household in Malaysia and that is what it wants to continue doing and has set itself a very high target by 2020.
Astro is targeting to be in 90% of Malaysian households in five years’ time. To execute its business plans, it needs reach and scale.
“Customer reach is extremely important for us to get scale because scale brings with it the ability to price and compete from a cost-effective basis,” she says.
The four streams
From just offering direct-to-home (DTH) linear pay TV service, Astro over the years has diversified into a provider of four streams.
The diversification is done out of need. In mature markets, more than half the content watched is non-linear, meaning people watch when they want to. The remaining 40% is watched as the broadcast is shown, often for live sports, or for the older generation who are not too fussy about on-demand programming.
The proliferation of over-the-top (OTT) in mature markets and its impact on traditional pay TV companies meant that Astro had to react to changes in the marketplace, and fast.
Realising it needs to do the same, Astro has its own non-linear stream, Astro On Demand, where people can watch content at their convenience and on mobile devices.
“We are in all the worlds. We even have the mobile avenue, where we deliver OTT content to wherever our customers are,” says Rohana.
Of Astro’s 3.5 million pay TV customers, 900,000 have Astro’s Personal Video Recorder (PVR) service and it wants those customers to connect their set-top boxes to the Internet.
To date, only 350,000 PVR users have connected their PVRs to the Internet. The reason behind that migration is to get those with PVRs to purchase content on Astro’s library of title collection.
Rohana says Astro intends to use its leverage to get the latest titles and a wider collection on par with what the leading pay TV operators are enjoying. Being first to market will improve the enticement of what it is offering its subscribers.
Apart from that, Astro has ventured into e-commerce, via its 24/7 online home shopping channel, Go Shop.
Customers can watch the Go Shop TV channel, or browse and order products on the Go Shop website.
Some of the products sold on the platform includes digital and electronics, home and kitchen appliances, household, kitchenware, fitness, cosmetics, and fashion accessories.
Go Shop is expected to contribute RM1bil in total sales in five years.
Last year, Go Shop contributed a revenue of RM189mil.
Astro has also launched a content-based merchandise e-commerce site, iSooka, where products associated to content aired on Astro are sold.
Understanding customer trends
Part of Astro’s fundamental strategy is to drive value for households by catering to individual preferences that focus on non-linear delivery channels.
“With the digital proliferation and mobile devices, especially those who consume content on their mobile phones, there is a need for us to address the mobile or smaller screen viewers,” says Rohana.
This issue is addressed through Astro’s on-demand platform, Astro On The Go.
To date, there are about 2.2 million individuals who have downloaded the app, of which one million are active users who spend 173 minutes per week on the app.
Last year, the average minutes per week spent on the app was 100 minutes.
However, Astro is aware that the problem with smaller screens and out-of-the-home experience is bandwidth requirement, which can be expensive and suffers from sporadic quality issues.
“Thus, we have signed up with telecommunications companies to come up with mobile broadband plans. Our job is to convince the telcos that we are the ‘must have’ content suppliers,” says Rohana.
Astro has collaborated with Digi.com Bhd and U Mobile, and is currently in negotiations with Celcom Axiata Bhd.
Astro understands that its premium customers want day dates for hit content such as the Game of Thrones series.
Astro has 1.5 million premium customers, whose subscription rates are RM152 and above each month.
If it does not provide the service, it will lose customers to other competitors or to illegal downloads.
Thus, Astro does its best to obtain the shortest day dates possible, in order to provide these high-quality content for its customers’ convenience, whereby they can choose to watch it on their TV, mobile phones or even download and own the content.
“We should watch our customers, understand the global trends and understand the technology that enables us.
“The whole idea is to understand your customers better than anyone, and then use the complementary skills and talent we have to come up with the best products,” says Rohana.
Even in the TRIBE space, Astro does not want to just be an on-demand player.
“To be fair, Netflix’s major competitive strength is its simplicity. Netflix is very clear that its philosophy is to be an on-demand platform, which is why they do not offer sports content.
“For us, Astro, we do not want to be like Netflix and compete with them. We know who we are and our strength lies in the ability where we build a community of customers that we know better than anyone else,” says Rohana.
An aspect that Astro has always struggled with is dealing with the millennials because they consume content differently from the other demographics.
Millennials tend to be sociable and interactive consumers.
“It actually started with my son two to three years ago when he commented that Astro was lame because it did not speak to them. I noticed that he frequently played online games while chatting with his friends.
“So, one day I just brought it up to the head of sports content that why don’t we try going into e-Sports?” says Rohana.
So, in July 2015, Astro brought ‘The International 2015 DOTA 2 Championships’ to Astro screens and even cinema screenings.
The cinema tickets were sold out, primarily driven by the DOTA 2 and e-Sports fandom.
“Suddenly, you see the social media chatter and we’re cool again!” says Rohana.
The group then launched its e-Sports channel eGG, which stands for ‘Every Good Game’, available from June 7.
Instead of being a one-dimensional flat product on air, Astro tries to build a community around it, through socialisation platforms with the help of technology.
In between programmes on eGG, there would be fan chatter and Astro plans to monetise eGG via sponsorhips, advertising expenditure and e-commerce merchandising.
In addition, Astro has launched a differentiated OTT online service, TRIBE, which is targeted at the millennials.
“It is not our aim to be another ‘flix’, as we do not want to be another on-demand service that is already crowded.
“Instead, we built something for a particular market by making it a fan-based platform,” says Rohana.
Examples of content that will be featured on TRIBE are MotoGP, Korean content and horror movies.
Socialisation elements will be built around TRIBE, where viewers can give a thumbs up, recommend or engage on the web.
“We are never absolute about everything we do because frankly, we do not have the answers. What we are willing to do is ask questions, try to create and innovate a product which our customers want, then adjust it along the way,” says Rohana.
What Astro wants to do with TRIBE is to use it as a way to penetrate the Asean market and Astro has already launched that service in Indonesia. Astro recently signed a memorandum of understanding with Globe Telecom, Philippines, and intends to launch TRIBE in the Philippines by the end of this year.
Content at heart
Part of the evolution of Astro has been what it does. Today, it is the largest content producer in South-East Asia, producing 13,000 hours of content across all genres and vernacular, as well as owning the intellectual property (IP) rights. That is from TV programmes to movies.
From this figure, 11,000 hours of content is wholly produced by Astro, in addition to 29,000 hours of dubbing and subtitling.
“Content has to be at the heart of everything we do. We have to constantly be at a vantage point where we see the landscape of how things are moving, what our customers want and what the global players are doing.
“We always have to start moving our strengths, addressing our weaknesses and closing our gaps,” says Rohana.
Astro recognises that its strength in content production is vernacular content. The group realises that to play in the highly complicated Asean market, there is a need to offer content in all languages and vernaculars in the region.
Astro has been gaining traction in becoming the producer of choice among Asean players due to its skills and presence across all genres.
This gives the group the first pick at the right production that matters to them and enables their skill sets.
For example, Astro’s off-air talents like the camera and sound crew will obtain greater exposure from producing content like the SEA Games as well as working with international producers like Endemol.
Astro’s vernacular show, Maharaja Lawak, has obtained one million viewership, which came as a surprise to the group as large viewership numbers are more common on free-to-air (FTA) platforms.
This viewership achievement is important as it provides reach to advertisers and sponsors.
“It is our very intention to export it (Astro-produced local content), as well as help and collaborate with other players to co-join IP ownership so that both parties can monetise.
“We are happy to help to almost rejuvenate the local film industry through our movie productions, Ola Bola and Polis Evo.
“We aim to produce more movies by addressing not only the Malaysian audience but also the Asean audience,” says Rohana.
While it grows its local and vernacular content, Astro’s content strategy will also look at how it spends money to buy international content for what its consumers are willing to watch. Astro’s content cost is increasing to 37% of its revenue this year and to manage its expenditure, Astro needs to figure out whe-ther what it is paying for is actually being watched by its subscribers.
Astro’s traditional model entailed paying for all windows. A window refers to how long it is shown on Astro after the content is released abroad.
“So, we will pay for content that our customers will pay for, as well as content that differentiates us and keeps us premium,” says Rohana.
Therefore, Astro will cease coverage for content that is not needed, and instead reinvest the money in content that consumers will pay for.
Apart from being more frugal on content cost in the future, Astro will not be cutting down on its capital expenditure (capex) for the year.
In fact, the capex guidance for this year is estimated to be RM250mil and as a percentage of revenue, it will drop to 2% from 3% last year.
Astro’s rationale for spending less on capex is because much of what it needs to invest in its infrastructure has already been done. Its product such as TRIBE will scale and rely on an existing infrastructure. Rolling out such a service to countries in Asean could see a rise in revenues with much additional cost.
With scale, there would be more customers using the platform, which in turn will reduce the cost per unit.
Astro usually spends about 32% to 35% of its revenue on content, but due to UEFA Euro 2016 and the Rio 2016 Olympic Games this year, the content cost is expected to take up 37% of its revenue.
Some 25% of the group’s content budget is allocated for local vernacular content, while the remaining 75% is allocated for international content.
Astro is starting to shift the budget about, so that 50% of the content budget will go to Astro’s own content IPs in five years’ time.
Astro’s own content IP does not only entail vernacular content, but also Asean content and potentially, co-owned international content.
Reach and scale
Rohana’s personal view for the region and Malaysia is that satellite is by far a competitive advantage that Astro has, as the group is probably still the only player which can reach almost 100% of Malaysian households by virtue of satellites. Physical bandwidth FTTH only reaches 1.4 million urban households.
“This is a game for scale. If you want to buy more content or expensive content like the English Premier League, then you better be able to reach more people so that your cost per unit is advantageous.
“The same goes for the entire Asean region, how many of the population can you reach via economic broadband?” asks Rohana.
Astro remains platform agnostic, but it will not disregard the fact that it has an advantage of being the only satellite player in Malaysia.
“We can reach, yet have the best of all worlds,” she says.