Investors, grab your popcorn: StarHub, Singtel are trying to boost their entertainment value

SINGAPORE telcos, once known for their embrace of "quad-play" product bundling, have been revamping their entertainment strategy with fresh attention paid to digital content.

Rather than offering over-the-top (OTT) subscriptions as add-ons to mobile, broadband or pay-television bundles, recent moves show that telcos are now approaching OTT services as a product in their own right - a promising rethink in a challenging environment for revenues.

Next, they must have the resolve and purpose to execute a full-fledged strategy for such content, especially as the pivot to OTT services and the demise of pay-TV seem inevitable.

Telcos may have dragged their feet on embracing OTT until push came to shove - especially since pay-TV has a bigger sticker price and is more profitable. Consulting firm Kearney has asked "whether the inclusion of these OTT products will yield synergies beyond the dollar value of the OTT product or will consumers treat it as a form of a 'digital gift card'".

As such, the move to count OTT users in the subscriber base is a shift away from an old mindset where pay-TV subscribers are the core pool and OTT media is thrown in on top.

In the second quarter of this year, StarHub began reporting revenue for a new consumer business unit dubbed "entertainment", which includes not just pay-TV customers, but also mobile and broadband customers who have OTT subscriptions.

By counting OTT subscribers, StarHub took headline entertainment subscriptions to 408,000 for the quarter, up from 338,000 the year before.

That's as the number of StarHub pay-TV connections actually dropped to 287,000, from 321,000 previously.

Similarly, Singtel has reported a downtrend in residential pay-TV customers, with the number of subscriptions falling to 368,000 as at Sep 30, from 377,000 the year prior.

Even though the Singapore telcos have managed to pare the business costs of pay-TV by negotiating with content providers for variable instead of fixed-cost pricing, it's not yet clear how greater prominence of OTT content will affect margins and revenue.

DBS analyst Sachin Mittal remarked that, while StarHub's experience shows that a decrease in pay-TV subscriptions can be offset by OTT, ultimately "it's a question of revenue".

That's as the contest between OTT media and pay-TV may be a zero-sum game. Market research firm GlobalData has projected that adoption of OTT video services will reduce Singapore pay-TV revenues by 1.5 per cent annually from 2020 to 2025, as IPTV subscriptions could decline by 2 per cent a year to just 630,000 in 2025.

But the decline of pay-TV is the inevitable result of a structural change in viewership habits. It's thus imperative for telcos to have a strategy to adapt to the new consumption model, and better late than never.

StarHub CEO Nikhil Eapen told the media at a briefing on Monday (Nov 22) that "high-growth businesses run at lower margins than lower-growth businesses in general, but we're focused not on blended budgets, but on Ebitda contributions", especially as the group's businesses gain scale.

He pointed to hopes of "increasing consumption", as well as "discrete revenue streams adding to the pot".

StarHub has already indicated that it plans to position itself as a one-stop shop for content. Similarly, Singtel subsidiary Optus launched OTT aggregator "SubHub" in Australia in August, consolidating subscriptions for services such as Amazon Prime, Netflix, Paramount+ and iQiyi.

With StarHub's launch of an entertainment category and Optus's launch of SubHub, telcos show that they have realised OTT is critical as pay-TV is on its way out of the door.

Content aggregation

And content aggregation - rather than direct content production - is what Singapore telcos should aim for, especially since they do not have the scale for large media investments.

This May, the United States' AT&T announced a merger of its WarnerMedia unit with Discovery - just three years after it finished a multi-billion-dollar acquisition of Time Warner. If even global behemoths struggle to gel content production with telecom operations, that's a warning sign.

Aggregating third-party services may have become more attractive as the liquidation of Singtel's Hooq in March 2020 showed the risks of offering in-house products. In the wake of the winding-up of video-streaming service Hooq - a partnership with Sony Pictures Television and Warner Bros Entertainment - SubHub indicates a new direction for OTT strategy.

Mittal told The Business Times that "Optus is trying an approach where they can become a one-player centre" and added: "We were always worried about the OTT business in the past - but not now, because what these guys have done is, they have dropped the unprofitable areas."

Ideally, this approach to digital content will give telcos confidence to re-evaluate the strategy for the rest of their digital portfolios too, rather than doubling down on sunk costs.

For example, Citi estimated at the start of the year that Singtel could improve on previous years' operating profits by up to 13 per cent if it wound down its digital life assets and international operations such as mobile payments and e-sports.

Indeed, Singtel has been grappling with the future of its digital investments. Hooq and marketing business Amobee were both part of the group digital life division, which was set up in 2012 but folded this year into a new "strategic portfolio unit".

With Hooq out of the way, Singtel this year turned to a strategic review of Amobee and cybersecurity unit Trustwave after multi-million-dollar impairment charges on the two units.

Lately, Singtel seems to have gone back to the drawing board on another digital product - mobile payments. When Singtel launched its "Via" regional payments alliance in 2018, the expansion of its Dash e-wallet to Thai-land was presented as a boon for cross-border tourists and shoppers.

But Singtel management confirmed on the telco's last earnings call that the group is now focusing on remittances for its regional e-wallet product, in contrast with a payments focus in the Singapore market.

Some might say that the review of Singtel's digital investments is overdue, as they were made during the tenure of former chief executive Chua Sock Koong, who retired on Jan 1.

Paul Chew, head of research at Phillip Securities, told BT that Singtel's latest results "only validate the need to roll back the earlier digital life strategy by disposing (of) Amobee which is still suffering losses after more than nine years".

Willingness to retool the digital strategy, in a fast-moving digital environment, is thus both welcome and - given the chronic underperformance of businesses such as Singtel's digital life segment and both Singtel and StarHub's pay-TV units - urgent.