by Jose del Rosario
Senior Analyst & Regional Director, Asia-Pacific NSR
As the world’s attention turns to the U.S. due to the impending recession that could have serious consequences for the global economy, some are eyeing Asia as a haven for economic safety or even economic growth amidst the current global slowdown. Indeed, the region has two budding superpowers with the dynamic economic performance of China and India. The region likewise has countries that have shown impressive economic numbers in recent years that include Indonesia, the Philippines and Vietnam.
Apart from economic statistics, these countries have rising populations, large landmasses, large rural populations, population demographics where the vast majority are below 35 years of age, and rising television ownership. All these factors as well as the development of content from Hollywood to Bollywood that are making their way to Asian TV sets make DTH services a compelling proposition well into the next decade.
Growing economic power and internal demand that appears sustainable even during global downturns make the region in general and the countries aforementioned in particular, the most attractive consumer markets in the globe for pay-TV services. One of the key markets for DTH lies in rural areas and although urbanization has been on the rise, the vast majority or some 70 percent of Asian populations still reside in rural areas where terrestrial infrastructure is lacking.
Regulatory Environment Dictates Success
Foremost for DTH success as well as expected continued favorable prospects has been the regulatory front. In India for instance, DTH services were first proposed in 1996, but only came into fruition in 2000. After seven years of DTH services, India has fared well such that estimates by the end of 2007 placed the Indian DTH market at 3.5 million paying subscribers. If Doordashan’s free-to-air services are included, the figure could be as high as 8.1 million.
In Indonesia, new market entrant Astro of Malaysia, which entered the market only in 2006, reported 80,000 subscribers through July 2007 and noted to NSR that it had 125,000 subs in December 2007, which grew to 140,000 in March 2008. The Philippines and Vietnam have relatively low DTH subscribers, but the market is open to new market players as well.
Of all the dynamic and highly promising countries in Asia, China still maintains a regulatory environment that is challenging to navigate. In its latest market study on the DTH market, NSR postponed the analysis of the Chinese DTH market as satellite operators and service providers surveyed, viewed China as a relatively closed market where local entities are favored to the detriment of internationally-based market players.
But in the other countries analyzed by NSR, specifically India and Indonesia, growth in the DTH market can be attributed partly to relatively favorable regulations, which are expected to continue over time. And this trend is partly the reason why new market entrants are eyeing the Indian and Indonesian markets. The Philippine and Vietnamese markets hold promise as well, and here, the entrance of new market players will once again be key to dynamic growth.
Nevertheless, the regulatory environment is still not perfectly open, and foreign governments have formally made known their concerns. In December 2007, for instance, the U.S.-based Satellite Industry Association (SIA) wrote to the Office of the U.S. Trade Representative (USTR) where the SIA offered “comments in an effort to identify necessary elements that require review in the commitments made by accession countries to the World Trade Organization (WTO), and to improve existing offers by WTO members that are relevant to the provision of satellite services.” The SIA raised concerns in China, India, the Philippines and Vietnam. For India, one of the potentially largest markets for DTH in the globe, the SIA indicated among others, the following:
Restrictions on the use of foreign satellite capacity for direct-to-home (“DTH”) services: the Ministry of Information & Broadcasting (“MIB”) has established guidelines that provide a preference for Indian satellites for DTH services, but which allow the use of foreign satellites if the foreign satellite has completed the international frequency coordination process with the domestic INSAT satellite system. However, in practice, DTH licensees are not able to contract directly with foreign operators even if the coordination has been completed; the foreign satellite capacity must be procured through the Indian Space Research Organization (“ISRO”), the operator of the INSAT system. ISRO only permits such use if it has not available capacity on its system.
Lack of clarity regarding Department of Space (“DOS”) role: the Department of Telecommunication’s New Telecom Policy 1999 stated that users of transponder capacity would be able to access both domestic and foreign satellites, in consultation with the DOS, of which ISRO forms part. While it might be necessary for the DOS to ensure that foreign satellites are completing international coordination agreements with the INSAT system, there are no technical or commercial reasons why foreign satellite capacity should need to be procured through DOS (ISRO), a direct competitor of foreign satellite operators. This lack of clarity results in a competitive advantage for the domestic Indian satellite system.
NSR would like to note that India as well as the Philippines and Vietnam’s regulatory environments appear to have opened up in relative terms. Many will argue that the pace of regulatory openness has not been fast enough and their point is well taken, including the SIA’s concerns. However, compared to other markets around the globe, countries like India, in NSR’s view at least, have opened up in relatively good pace. The end result (specifically in India) has been the entrance of service providers and at the end of 2007, three companies (over and above the three existing companies plus Doordashan) are looking to seriously provision services in 2008.
Favorable Economic and Household Conditions Complete the Picture
The four Asian countries (India, Indonesia, Philippines, Vietnam) analyzed by NSR are growing DTH markets due to their steady population growth and (more importantly) due to rising GDP per capita levels. NSR estimates that the population of the four countries combined should grow from 1.53 billion at the end of 2008 to close to 1.74 billion by the end of 2015 based on historical population growth levels.
In terms of GDP per capita levels, nominal GDP was recorded at or close to $1,000 at the end of 2007, which NSR expects to grow at steady levels, breaching the $2,000 level in India and the Philippines while growing more dynamically in Vietnam and Indonesia by the end of 2015.
In terms of households, a net gain of close to 51 million households is expected to take place from 2008-2015. With increasing wealth, TV households should improve as well from close to 190 million to over 300 million for a net gain of over 114 million.
The market led and dominated by India is enlarging due to wealth effects that NSR expects to continue over time. In terms of the number of households and TV households, these should grow at highly dynamic levels. The combination of local economic resurgence and programming availability should lead to steady growth in pay-TV consumption for a prolonged period of time.
DTH Subscriber Growth Prospects
Given the favorable economic and regulatory conditions outlined above, growth in DTH services is expected to exhibit double-digit levels until 2015. This trend assumes better consumer awareness and new entrants to the market, as well as continued economic growth
Paying subscribers to traditional service providers should grow, but new market entrants that are expected to be more aggressive in order to be competitive with the incumbents are expected to drive market growth. One case in point (once again) is Malaysian-based Astro, which garnered subscribers very quickly in the two short years it has been in the Indonesian market.
However, the main market is expected to be India and indeed, NSR expects India to account for over 80 percent of the subscriber base of the four emerging markets by 2015. Apart from high population, TV ownership and rising GDP levels, India has a unique feature that renders pay-TV viewing as a compelling proposition: Bollywood. It has also been widely reported that more than 100 new TV channels are scheduled for launch in India over the next 12 months, with the total number of channels on air set to hit 700 by 2009.
There are also over 110 million television households in India, of which 71 million are reportedly enjoying cable TV. India’s population of 1.1 billion with half under the age of 25 represents a viewing audience that is ripe for pay-TV targeting. Moreover, about 15 million new televisions are sold every year in India such that the number of households with a second set translates to demand for more niche channels.
Moreover, low priced service offerings should lead to increased subscription as well. DTH services that cost around $5 per month that may be more expensive than cable TV services at about $3.50 will likely not become too price prohibitive except for the accompanying equipment. However, the quality of digitized channels over DTH should lead wealthier households to opt for better TV reception. Indeed, the India Space Research Organization (ISRO) announced in May 2008 that it was launching three additional satellites to address the growing demand from DTH service providers including incumbent Dish TV and newcomer Reliance. Some 300-350 channels have to be carried by each DTH service provider, which could number more than six by the end of 2015.
In all four countries analyzed by NSR in Asia, household growth and television ownership is one of the fastest in the globe. These countries should continue to become wealthier, and this has been key to market penetration for DTH. But there is one large caveat in all these favorable market metrics, and that is income distribution. Although these countries continue to grow at highly dynamic levels, the poverty rates are still high and relatively unchanged compared to year 2000 levels.
Moreover, DTH is not alone in the pay-TV market. Growth is expected to lead to a large addition of the installed base of pay-TV subscribers by the end of 2015.The good news is that pay-TV services are expected to grow over the forecast period, which favors DTH service uptake. But the bad news is that pay-TV will continue to be led by cable TV in the four countries tracked by NSR, except Indonesia. Should current poverty levels remain over the next several years, market saturation levels are expected to grow relatively quickly. Indeed, NSR in its latest study accounted for poverty incidence and estimated the “true” saturation levels, where household income and financial wherewithal were taken into account. And here, NSR expects the saturation rate or the number of truly addressable households in the four countries to reach over 90 percent by the end of 2015.
Conclusion
Other countries in Asia as well as around the globe are experiencing similar economic and regulatory trends that favor pay-TV services in general and DTH in particular. Some of these countries include Brazil, the Czech Republic, Poland, Russia, Slovakia and Turkey among others. Favorable economic conditions have to go hand-in-hand with favorable regulatory environments to attain high levels of penetration very quickly.
Once again, China is a market that, although economic conditions are ripe for DTH take up, the regulatory environment appears to be not particularly favorable for foreign players. It remains to be seen where DTH services in terms of subscribers will be in China over the next several years and what role the regulatory environment will play.
About the author
Mr. del Rosario covers the Asia Pacific region and is a senior member of the consulting team where he focuses his research on quantitative modeling, data verification, and market forecasting for the wireless industry and satellite communications sector.
Information for this article was extracted from a new Northern Sky Research (NSR) report entitled Direct to Home (DTH) Satellite Markets: An Analysis of Ten Emerging DTH Markets Complete information can be found at www.nsr.com
