Believes content is key differentiator, so far unaffected much by ringgit drop
New HD channels, value-added features for AOTG – including downloads
PAY-TV operator Astro Malaysia Holdings Bhd is confident that the emergence of new over-the-top (OTT) video-on-demand (VOD) players will not hurt its market dominance or have an impact on its revenue.
In fact, the company is optimistic that the growth momentum it achieved in the first quarter of this year, when Catcha Group-founded OTT service iflix had yet to launch, would be sustained for the remaining quarters of its financial year.
In its first quarter ended April 30, 2015, Astro reported a 6% increase in revenue to RM1.33 billion (US$355 million), versus RM1.25 billion (US$334 million) in the first quarter last year. Its net profit jumped 31% to RM168 million (US$45 million).
“We are expecting revenue to grow in the mid to high single-digit percentage range,” Astro Malaysia chief executive officer Rohana Rozhan told a media briefing in Kuala Lumpur yesterday (June 17).
Kuala Lumpur-based Internet investment firm Catcha Group launched iflix in Malaysia at the end of May, with free 14-day trials. It is offering Hollywood and Asian movies and TV series for as low as RM8 (US$2.13) a month.
iflix is a joint venture between Catcha and New York- and Los Angeles-based Evolution Media Capital, a merchant bank focused on the media, sports, and entertainment industries.
It has signed content agreements with Twentieth Century Fox Television Distribution, BBC Worldwide and Warner Bros. International Television Distribution (WBITD), and has also appointed Hollywood icons such as producer Brian Grazer and Metro-Goldwyn Mayer chief executive officer Gary Barber to its advisory board.
For now iflix appears to be the only serious OTT player in Malaysia, but industry observers are expecting competition to intensify in this space.
Hooq, a startup joint venture between Singapore Telecommunications (Singtel), Sony Pictures Television and Warner Bros Entertainment, has launched in the Philippines and is expected to spread to Thailand, India and Indonesia in the near term.
Another player expanding its presence is HBO Now, satellite television network HBO’s own VOD service, which is now available in Hong Kong, Indonesia, Singapore, Sri Lanka, Taiwan and Vietnam.
In the non-OTT space, Astro’s closest VOD rival would be Telekom Malaysia Bhd’s HyppTV services, which comes bundled with the fixed-line operator’s broadband Internet services.
Content is king
Astro’s Rohana is confident that her company’s leadership position will not be shaken. For a start, she believes that Astro’s content, which she claims is newer than that of its rivals, will help create the necessary ‘stickiness’ with its customers.
“If you look at the other services, their … product is a lot older than ours. One thing we understand from our Malaysian consumers is that it’s important to be current,” she said.
“Content is the big differentiator. If a consumer is looking for the best content, in terms of breadth, depth and newness, I think that’s where Astro’s strengths come in,” she declared.
Chief operating officer Henry Tan said that another differentiator is that Astro offers a wide variety of content, and not just in English.
“What people tend to forget is that Malaysia is a very colourful country. People tend to think that if they are English-speaking, then everybody in Malaysia wants English content.
“But the reality is that vernacular content is now the leading content [type],” he said.
However, it must be noted that both Hooq and iflix promise local language Asian content as well.
2015 game plan
Astro said that this year, it has big plans to woo more new customers, as well as to grow revenue from existing customers.
First, the company is expected to launch nine new high-definition (HD) channels, and two new standard definition channels.
The idea of having more HD channels is to entice more customers to sign up for its HD services, and in return, allow it to offer a better viewing experience to customers, resulting in a higher retention rate.
The company is also planning to add more features to its Astro-On-The-Go (AOTG) service sometime this year.
AOTG allows customers to watch Astro’s content across multiple online and mobile devices. Soon, users will be able to download content as well.
Currently, customers can use a laptop or tablet to watch a live football match which is showing concurrently on an Astro sports channel, for example. But to do that however, they would need to have good and consistent broadband access, as such content is streamed onto their devices.
“We know that the broadband experience outside the home is extremely expensive or sporadic,” said Rohana.
With AOTG’s promised new features, customers can buy a particular movie via the platform, download it into a device, and watch the content whenever and wherever they want, without having to worry about the broadband connectivity.
Astro said there are already 1.5 million downloads of its AOTG app, which is available for the Android and iOS platforms.
While 1.5 million downloads may sound impressive, Rohana believes there’s plenty of room for growth, especially when the company has 3.5 million pay-TV household customers.
Rohana said that the AOTG service will also be extended to its customers using NJOI, its subscription-free satellite TV service, this year.
This means that NJOI customers will also be able to get access to NJOI content “wherever and whenever” via their mobile devices and laptops, she added.
While adding more features to AOTG can be seen as a move to improve customers’ viewing experience, there is another benefit: By expanding its reach via AOTG, Astro will be in a better position to attract more brands and companies to advertise their products and services on the platform.
For the first quarter (Q1) of 2015, Astro attracted RM136 million in adex (advertising expenditure), an 11% increase versus the RM122 million in the same quarter a year ago. [RM1 = US$0.27]
The company also managed to grow its TV viewership share from 46% in Q1 2014 to 49% in Q1 2015.
Content cost and the weak ringgit
During Q1 2015, Astro spent RM397 million on content – a sum consistent with what it has spent over recent quarters, with the exception of the second quarter ended July 31, 2014 when it spent RM490 million.
The weakening of the ringgit, especially against the greenback, may burden Astro with substantially higher content costs.
“We are a market leader in this space and it was not achieved by shying away from spending on content,” Rohana (pic) said however.
“We spend about RM1.7 billion on content every year. I would say that 60% of our content costs, especially international sports content, are primarily US-denominated,” she added.
She said that every 10% depreciation of the ringgit, or 10% appreciation in the US dollar, would result in an additional RM35 million in content costs.
The ringgit weakened from RM3.20 per US$1 about 12 months ago to above RM3.70 per US$1 today, but Astro has not been affected much by the depreciation.
“The news is that for this financial year and part of the next financial year, we have a very good and prudent hedging strategy within our treasury group,” said Rohana.
“So, as far as this year is concerned, all of our forex exposure is covered, and is hedged at a much lower rate than the prevailing [currency] rate. I think three to four months of next year are hedged as well.
“It is something that we are actively managing,” she added.
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