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APOS 2015,Investors,Growth Markets,Asia listed media companies

Growth, But Under Pressure

Investment, innovation and economic growth continue to power the Asia-Pacific TV and video sector, on course to generate more than US$155 billion in revenue by 2023, versus US$97 billion last year.

At the same time, players in many markets are starting to encounter more formidable barriers to growth, as economies shift down a gear and media markets continue to diversify, noted Vivek Couto, executive director at Media Partners Asia (MPA), speaking on the opening morning of the APOS conference in Bali.

Analysts from MPA are projecting a 5.3% regional CAGR for APAC TV and video revenues over the next decade so, compared with a 7.3% rate from 2007 to 2014.

Signs of a slowdown, in both subscriber and ad growth, are visible in many markets across the region. At the same time, competition from both legal and illegal alternatives persists while costs continue to rise.

As a result, margins contracted again on a regional basis, by 1.3% in 2014 according to MPA calculations, largely due to rising content costs, heightened by inflation caused by weaker local currencies for international content traded in US dollars.

Some of the biggest profit erosion has taken place in Hong Kong (-3.6%) and India (-6.55%), but some of this also reflects investment to shore up future expansion in an increasingly diverse landscape.

“Everyone is making bets, and so operator margins for the last year continue to remain under pressure across the board,” Couto said.

Sizable Growth Engines

Despite the obstacles ahead, the general outlook remains fairly robust in key growth markets: in China, driven by advertising across broadcast and online video platforms as well as utility cable collections; in India, powered by continued expansion and diversity in pay-TV, as well as emerging plays in OTT; and in large Asean economies, on the back of a strong free TV ecosystem and continued investment and diversification by leading domestic media groups.

At the same time however, pay-TV subscriber growth is starting to tail off, despite plenty of headroom, in large Southeast Asian growth markets such as Indonesia and Thailand.

Prospects are notably brighter in the Philippines, currently Southeast Asia’s fastest growing economy, although pay-TV’s trajectory in Indonesia in particular has failed to live up to earlier promise.

“There are various structural issues to do with that, a lack of alignment between various stakeholders, and some distorted competition which we saw earlier in the Indian market,” Couto said.

“But when you look at what is happening in a region such as Latin America, growth in Indonesia from 10% in 2014 to 14% in 2023 doesn’t seem right. That market has a lot more potential.”

Multichannel penetration in Indonesia would double today, from 10-20%, if free satellite and illicit pay-TV services were included in MPA’s tally, Couto added.

An Evolving Profile

The evolution of Asia’s TV industries has primarily been marked by a steadily rising profile for pay-TV in recent years, accounting for a 54% slice of slice of the industry’s regional revenue last year, compared with 43% in 2007.

Over the next decade, online video will become more prevalent to represent around 11% of region-wide industry revenue, driven primarily by China, where it is largely ad-supported, and Japan, home to an emerging SVOD sector.

Australia and India should also record smaller but noticeable gains in monetizing online video.

The big story of the moment, however, is arguably taking place in OTT infrastructure, where the penetration of fixed line services, still growing at a steady clip, is being eclipsed by mobile broadband.

Wireless services are primed to reach almost 3 billion connections in APAC by 2023, compared with 444 million household connections for fixed line in the same time-frame.

“That’s going to make a big impact on how online video is consumed, charged for, and how advertisers engage with it,” Couto said.

Most online video revenues in APAC will come from advertising for the foreseeable future, especially in China, India and much of Southeast Asia.

Nonetheless, traditional pay and broadcast platforms will still account for 89% of APAC industry revenues in 2023, according to MPA, highlighting the financial importance of existing models.

While the industry needs to engage with the evolving dynamics of OTT, especially over mobile networks, working out how to further strengthen the current ecosystem, especially through data, analytics and new measurement systems, remains critical.

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