Can MENA broadcasters share the train set?

Nick Grande, Managing Director of strategic consultancy ChannelSculptor.

Call me sentimental, but I love deals that are true collaborations, especially between parties who are traditionally rivals. In those situations, barriers are broken down, people get the opportunity to understand and respect others’ objectives and the whole is generally greater than the parts.

The 2009 merger of Orbit and Showtime was a milestone in cooperation, but for me, the best example in the MENA TV industry is the ART-Showtime collaboration that lasted in one form or another from 1995 to 2007. It’s hard for a MENA newcomer to appreciate the rivalry and distrust that existed between them at the time. Their relationship was frosty, but despite this, they managed to maintain their joint “one card one box” policy for twelve years.

One-card-one-box was wonderful for consumers, because it meant that if they had a subscription with either one of the networks, they could add a package from the other with just a phone call. Showtime and ART often clashed when it came to content auctions, but their common IRDETO encryption standard remained the most prevalent pay-TV platform in the region, peaking at well over a million paying subscribers with an ARPU across all packages of $20 for ART and $45

for Showtime.

The appetite for cooperation between regional media companies is seemingly not what it was. Across the MENA TV industry, some fabulous collaboration opportunities have come and gone over the past four years. To name just a few of them:

 HDTV over satellite

 In April 2009, I wrote an article on the 2010 World Cup, proposing that a single encrypted sporting event could create the perfect storm for satellite HDTV, galvanising the take-up of millions of MPEG4 set-top boxes. This take-up would protect pan-regional satellite DTH platforms from domestic IPTV alternatives for years to come. What was required was some cooperation between broadcasters. It didn’t happen. ART sold its rights to Al Jazeera, who broadcast the World Cup in standard definition, and didn’t share their platform. Three years on, there are still only about 300,000 HDTV viewers in the MENA region.

 HDTV over satellite again

In 2010, the chairman of EchoStar was touring the GCC, encouraging regional broadcasters to launch high definition versions of their channels exclusively on a new network. At the same time, the YahLive satellite was encouraging channels to join their exclusive HD neighbourhood. Not to be outdone, regional set-top box importers and distributors were offering cash incentives to a major free-to-air network to launch HD on their networks. Together, these entities had wonderful synergies: international pay TV expertise, huge set-top box buying power, extensive high-quality satellite capacity, local distribution networks and very deep pockets. They chose instead to compete with one another. 

IPTV content

By late 2009, I had started thinking that maybe it wasn’t such a bad thing if pan-regional DTH operations annihilated each other through lack of cooperation. Perhaps from a consumer perspective, it would be better if they were all superseded by domestic TV networks run over IPTV.

Domestic TV in the MENA region would mean people get to watch the channels that are relevant to them, and that advertisers would get to target local populations the same way they do on radio.

The opportunities for cooperation between regional IPTV operators are endless, because every country is going through basically the same process. Better still, they are not really competitors because their customers are in different countries.

The obvious starting point for cooperation is the biggest cost for any TV network: content acquisition. I reasoned that no individual telco could afford or need to buy pan-regional rights, but if they work together as a cooperative, they could outbid pan-regional DTH operators.

A cooperative of (say) seven major regional telcos would have a huge combined buying power when compared even with the likes of MBC, OSN or ADM.

But instead of a cooperative approach, regional telcos seem so far to be adopting a “last man standing” method. Each one is establishing itself as the regional aggregator, acquiring pan-regional content rights, and aiming to sublicense these rights to the other telcos.

Effect of capital oversupply

Unlike most established TV markets, the problem common to all these MENA TV stories is that there’s just too much investment capital coming from non-commercial sources, creating unviable investment strategies.

With so much capital available, there is also a great desire to control the train set and little interest in sharing it.

All large MENA broadcasters, (even those that are now cash flow positive), have invested hundreds of millions of dollars, and in some cases, billions since launch.

Telcos have the capacity to do the same for their media businesses using funding from voice revenues.

The examples above demonstrate that collaboration in the MENA TV industry is vital not simply as a means of sharing resources, but, more importantly, as a means of avoiding unnecessary and irrational competition.

In the coming six months, we will witness a profound instance of MENA TV industry rivalry: the auction for the English Premier League (EPL) rights. At the time I wrote about the World Cup, MENA Pay TV was dominated by commercial entities (Showtime, ART and Orbit). Al Jazeera’s involvement in pay TV was relatively new, and Abu Dhabi Media (ADM) was a domestic free-to-air public service broadcaster.

Fast forward three years, and all premium international sports rights in the region are owned either by Abu Dhabi or Doha. It is logical to assume that commercial pay-TV operators will stand well back as the economic might of Al Jazeera and ADM are pitted against each other for the 2013-2016 renewal of EPL rights.

You can probably guess where I am going with this: Abu Dhabi Media and Al Jazeera should work together. Specifically, they should submit a bid for joint MENA exclusivity.

Bid strategy for EPL rights

No MENA commercial pay TV network could justify a bid in excess of $150 million over three years, so ADM and Al Jazeera might expect to pay as little as $80-90m each, assuming they bid jointly.

By comparison, if they bid independently for exclusive rights, the winning bid would likely exceed $400m, and could be a lot higher.

The idea of either of these two rivals giving up exclusivity and cooperating might seem unlikely, and of course I cannot speak on behalf of either entity, but here are some factors to consider:

* If either party pays in excess of $400m for EPL rights, it is inconceivable that it will ever recoup this money based on its existing pricing

* Al Jazeera Sports seeks to have a comprehensive international football offering. The absence of EPL is a big gap in its programming line-up, but EPL exclusivity is not critical, as Jazeera’s existing exclusive offering already includes UEFA Champions League, Serie A and La Liga

* Abu Dhabi TV Network’s offering is currently dependent on EPL, but it also has a broader content offering focusing on HD as a differentiator, and this seems to be its strategic direction

Perhaps ADM has not yet amassed a wide enough spectrum of channel genres to be able to call itself a comprehensive entertainment package, but with its recent addition of MBC HD channels, it is moving in the right direction.

Maintaining EPL for a further three years would surely help ADM retain its existing customers in the short and medium term, and give the network space to expand its HD content offering across other genres of content if this is what it aims to do.

Finally, there is actually a precedent for this idea. ART and Showtime, those bitter rivals that I spoke of earlier, shared EPL rights from 1998 to 2001. At that time, they paid the princely sum of $1.5 million per annum each.

Of course, the overriding question is whether a saving of $300 million is sufficient reason for both ADM and Al Jazeera to consider sharing.

Abu Dhabi and Doha each has a capital base of a large industrial country.

The current trend of non-commercial capital skewing the MENA TV industry looks set to continue.

This column has been authored by Nick Grande, MD of ChannelSculptor, a strategic consultancy providing services to MENA media businesses, international broadcasters and content owners since 2008.


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