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  • A-Pac pay-TV piracy up 11%; revenue loss $1.06 billion: Casbaa

    A-Pac pay-TV piracy up 11%; revenue loss $1.06 billion: Casbaa

    MUMBAI: Pay-TV piracy is on the rise in the Asia Pacific region. A study released by The Cable and Satellite Broadcasting Association of Asia (Casbaa) and CLSA Asia-Pacific Markets (CLSA) revealed that the cost of pay-TV piracy in the region is projected to grow by 11 per cent from $952 million in 2004 to $1.06 billion in 2005.

    A collaborative effort between CLSA, Casbaa and its member organizations, this study reflects a continuing trend, highlighting the fact that the problem is far from under control and the tempo in terms of illegal activity is rising.

    This is the third annual study of the issue, covering all forms of cable and satellite pay-TV piracy in markets including Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam. The report highlights the impact of unlicensed pay-television operators and unauthorized pay-TV access on regional economies.

    The cost to governments in 2005 in lost taxes, license fees and other revenues is predicted to reach $155 million by year end 2005. Higher revenue leakage in India, Thailand, Vietnam and the Philippines is of particular concern. Nevertheless, with a stable $24 million loss, the piracy deficit in Hong Kong is extremely damaging for the overall health of the pay-TV industry, according to Casbaa.

    India still leads the region in terms of net revenues lost. Thus, although the revenue loss to unauthorised cable access by individuals is down from $57 million in 2004 to $38 million in 2005, the grey market deficit caused by theft of programming on a wholesale basis has increased overall losses from last years $507 million to this years $632 million, scaling up the total loss by 19 per cent to $670 million.

    Pay-TV piracy losses for China are not included in the report, since China is considered, by some industry definitions, to have a negligible, genuine pay-TV market.

    In Indonesia, due to the growing number of set-top boxes with breached security systems, an increase in the number of illegal pay-TV operators and satellite signal overspill, industry losses have surged by 25 per cent to an estimated $24 million this year.

    Losses to the industry in the Philippines are estimated to have jumped 16 per cent for 2005, as the number of illegal connections by individuals and by rogue cable operators continued to rise. Growth of the legitimate industry has been damaged by the unchecked growth in operations by cable operators who steal programming and resell it to an unsuspecting public. It is estimated that there are now almost the same number of pirate connections as legitimate paid subscriptions in the country.

    In Thailand, estimated losses are up 15 per cent year-on-year, to $160 million. While the legitimate industry in Thailand continues to grow, it faces debilitating competition from unlicensed and unregulated competitors.

    Vietnams revenue loss has seen a remarkable jump of 68 per cent as the pay-TV market there enters a phase of dynamic expansion. Legitimate subscriptions are rising rapidly, but connections through operators who steal their programming are rising even more rapidly. Vietnam is conservatively estimated to have an illegal subscriber count of 370,000 households.

    After reviewing the methodology for calculating pay-TV piracy in Taiwan and yet closer consultation with local operators and the pay-TV channels, estimated losses to the industry from pay-TV piracy still stand at $47 million. While this estimate has fallen from last year, the decline is due to a better understanding of the market-place and not to a real decline in the use of pirated programming. Revenue leakage remains serious and in need of active remedy by the industry and the government.

    Meanwhile, the good news is that jurisdictions such as Malaysia and Singapore have made progress since 2004, with dwindling piracy percentages.

    Indeed, in Malaysia the cost of pay-TV piracy has dipped by 45 per cent in 2005 to $2.7 million as a result of collaboration between industry and government in enforcement measures to combat the problem. The countrys pay-TV industry, represented by leading operator Astro, has invested substantially in new technologies in order to stay one-step ahead of the pirates.

    “While an overall growth of 11 per cent in estimated regional revenue losses due to pay-TV piracy for 2005 is in line with forecasts, the problem is far from under control. There are more markets showing negative development than those having success in counteracting pay-TV piracy. Thats why combating pay-TV piracy remains the industrys top priority. We will continue to work closely with regulators and those carrying out enforcement to roll back these costs to the industry and the community at large,” said Casbaa CEO Simon Twiston Davies.

    “The increased revenue loss resulting from pay-TV piracy is not only an issue for the industry but also one pertaining to intellectual property rights and to the entire economy in Asia,” said CLSA director investment banking and head of media and entertainment investment banking Simon Dewhurst.

    “Governments across the region must step up their efforts in protecting intellectual property rights and fight pay-TV piracy to encourage investment and further development of the industry and the economy,” he added.

    CLSA and Casbaa will release the results of the latest pay-TV piracy study today (27 October) at The Casbaa Piracy Lunch 2005 in Hong Kong during the annual Casbaa Convention.

     

  • ‘We expect valuations to go up, there will be cash available to build the market’ : Simon Dewhurst – CLSA’s media and entertainment investment banking head

    ‘We expect valuations to go up, there will be cash available to build the market’ : Simon Dewhurst – CLSA’s media and entertainment investment banking head

    When it comes to India, CLSA’s media and entertainment investment banking head Simon Dewhurst has a pretty good handle on the dynamics at work in the broadcast sector. After all, he’s far more than your average number crunching suit. Six years at Star, a part of which was spent as head of Channel [V], means he has had first-hand experience of business from the broadcaster’s perspective.

     

    In Asia, where he has spent more than ten years, Dewhurst has executed a broad range of equity capital markets, merger and acquisitions, and financial advisory transactions for several media and entertainment companies. He started his career in the global media and entertainment practice at Arthur Andersen, based in London and Hong Kong.

     

    CLSA has interest in India and, in the media sector, was financial advisor to Zee Telefilm’s $100 million FCCB (Foreign Currency Convertible Bond). It is a leading brokerage, investment banking and private equity group in the Asia-Pacific markets.

     

    Indiantelevision.com caught up with Dewhurst at the first India Television Summit – organised by indiantelevision.com and Media Partners Asia in Mumbai in end Septemberto – find out his views on what is spurring investments into India and how the media stocks are positioned in this. In an interview with Sibabrata Das, he says the broadcast sector is exciting and the established players have credibility. There will also be interest in the cable companies but the current form where there are too many leakages in the system has to change.

     

    Excerpts:

    Foreign investors are bullish about India as is evident from the massive inflow of funds into the stock market. Does this extend to media companies as well?

    With such high returns, India is very attractive. Investors interested in India are looking at those companies which have a strong domestic focus. The media industry has such a focus. But there is a fundamental problem in the distribution side of the television business. Investors would want this to be sorted out.

    What then is their perception of the TV media business in India?

    There are two clear camps in the TV industry here. The relationship between the broadcasting and cable TV distribution companies is anything but cordial. Growth, though, is taking place. The advertising market and the TV penetration rates will continue to grow as it did in the last decade. The lamp is bright because new channels are being launched. But if it gets too crowded, the risk will be for the new entrants who are copying the existing channels.

    Is valuation of broadcasting companies being pulled down by the negatives of distribution?

    The broadcasting channels would have an awful lot more value if the distribution business was better. There is talk of only 13 per cent subscription money going back to the broadcasters. Obviously, if this climbs to 40 per cent, broadcasting companies will become more profitable.

    So investors see prospects in broadcasting companies?

    In strong broadcast business, you will get cash into work. NDTV, TV18 and TV Today, for instance, are pure TV channel players with established and strong distribution base to attract investors. Zee Telefilms is another interesting media company. Even content companies like Balaji Telefilms, with strong focus, have growth opportunities. Balaji can also look at other means of development and growth like getting into animation and kids content. We expect valuations to go up. There will be cash available to build this market.

    Do you think Star and Sony Entertainment Television India will list in this market?

    Broadcasting companies like Star and Sony Entertainment are today reaping rewards for investments and risks which they have taken over a decade. They have a proven business model. I don’t think Star will list – at least there is no compulsion. Sony will as there are some Indian investors who would want to capitalise on their investments. The compulsion for Sony is definitely different. But if these two biggies list, it will be good for the media stocks and we will have big valuations at play.
    ‘Broadcast business has scalable opportunity. And there is scope to expand market leadership‘

    How are cable companies positioned?

    There will be interest in the cable companies but not in the current form where too many leakages are existing in the system. Siticable, for instance, is an intermediary with a majority of the households served through local operators. The joint venture partners have an awful lot of vested interests. Other MSOs in India like Hathway Cable & Datacom have a similar structure with the last mile operators possessing the customers. That doesn’t make a recipe for equity investment or debt structure. If you don’t control the commercial relationship with a household, it is hard to find a business model. There is no faith that tomorrow is going to be better than today. The status quo has ruled the last mile operator and household for the last decade. I don’t think that can change fundamentally. That is why it won’t attract capital from third parties.

    Why then did Rupert Murdoch acquire a stake in Hathway and Intel take a small stake in Incablenet? The environment was similar then as well?

    The vertical model has worked for News Corp. Murdoch thought it would work if he had an interest in both broadcasting and distribution businesses. There could have been strategic reasons. But he has not stepped up the investments or taken a stake in other cable companies. He, perhaps, didn’t like what he experienced.

    Can cable companies have access to debt in the current business model?

    In cable companies, debt has a significant part to play. But that will require considerable consolidation in the last mile. And there are different ways you can get to the household -direct-to-home (DTH), licensing spectrum and broadband infrastructure, for instance. In the US, cable companies like Comcast are run as modern organisations. They are listed, have access to capital, and follow strict corporate governance. The strategic thinking that goes on in these organisations can be compared with the Fortune 500 companies. But in India the cable operators have a totally different mentality and function more as rent collectors. They will squabble, not pay tax, and under-report. And why do they think they should enjoy this privilege? Because they have survived the turf wars. That is the fabric of the last mile operation in this market. The local cablewallahs do not want to take risks or make those tough business decisions. The MSOs, on the other hand, are distant from the customers. They flap their wings and question why they exist. They have failed to homogenise the cable industry. When they got into the business, they thought that would happen as it has in many other markets like Taiwan.

    How do Indian media companies compare with China?

    The listed China media stocks trade on forward PE (price earning) multiples higher than in India. But it will be unfair to compare as they are different kinds of stocks in different markets. It is the Internet stocks that are listed in China and they operate in a market which has 1.3 billion consumers of which over 100 million have Internet with high broadband connections. But Indian media companies are also exciting and the established players have credibility.

    Do you see Indian media companies tapping foreign markets?

    There are options of raising FCCBs (Foreign Currency Convertible Bonds) or GDRs (Global Depository Receipts). Though the market is thinking FCCBs are better than GDRs, we think the opposite. There is a cost attached to FCCBs. If you can do a GDR properly, you can get a price comparable to what a FCCB gets. And the advantage that you have is that you can actively market the full issue to high quality long holding investors.

    ‘In cable companies, debt has a significant part to play. But that will require considerable consolidation in the last mile ‘

     

    Why then did CLSA advise Zee Telefilms for an FCCB?

    We acted as financial advisors to Zee on this issue. But Zee needed to raise money and they couldn’t do an ADR (American Depository Receipts) or GDR. They had to pay a high interest on their debt. With market conditions and borrowing rates down, it was the right thing for them to do that. Zee is the largest media stock listed here. I recommend a buy for Zee at this stage and believe its stock price would further go up.

    Do you think print media companies offer better valuations than the TV companies?

    Broadcast business has scalable opportunities and there is scope to expand market leadership. Newspaper business is confronted with a tough competitive environment among the bigger players. But in the long term I am bullish about the newspaper industry. There is an opportunity for consolidation and growth.

    Do you think print media companies offer better valuations than the TV companies?

    Broadcast business has scalable opportunities and there is scope to expand market leadership. Newspaper business is confronted with a tough competitive environment among the bigger players. But in the long term I am bullish about the newspaper industry. There is an opportunity for consolidation and growth.

  • CASBAA study predicts $874 mn loss in TV industry due to piracy ’03 end

    HONG KONG: The cable and satellite TV industry would have lost US$874 million in net revenues by the end of 2003 due to piracy.
    This was indicated by the Cable and Satellite Broadcasting Association of Asia (CASBAA) and CLSA Asia Pacific Markets (CLSA) in its report which studied piracy in the industry in all its forms.
    The independent study, conducted by CLSA, CASBAA and its member organizations, highlighted the impact of unlicensed operators and pirate cable subscribers on regional economies including those of Hong Kong, India, Indonesia, Philippines, Taiwan and Thailand, a company release specified.
    The gross revenue losses across all sectors of the Asia Pacific pay-TV industry, from platform operators to independent suppliers of programming, are estimated to a total of US$1.29 billion for 2003. The cost of piracy is currently increasing at a rate in excess of 10 per cent.
    “This is an alarming cost and it continues to escalate at a rapid pace. However, there have been too few efforts to regulate the issue,” the company release quoted CASBAA CEO Simon Twiston Davies as saying.
    Twiston Davies explains that it has become essential for the industry, regulators and general community to work together to address a problem that is becoming more pervasive by the month.
    The survey also shows that under-declaration of pay TV subscribers in India dominates regional piracy numbers, contributing to 72 per cent of revenue leakage. As for the other cities, Hong Kong stands out in comparison with other developed regional cities such as Singapore, Seoul and Kuala Lumpur, reporting a gross loss of US$28 million from pirated cable and satellite subscribers.
    The release of the regional piracy report coincides with the CASBAA Convention 2003, which started today and will continue till 31 October in Hong Kong.
    A separate session on the piracy issue titled Stealing It: Chasing the Dragons of Asian Piracy will be held tomorrow (29 October) at 2:30 pm at the Academy for Performing Arts in Hong Kong. The session will have a panel discussion on the technical, operational and legal implications of widespread pay-TV piracy in Asia.