Pay-TV needs more than live sports to survive

SINGAPORE'S pay-television operators have been struggling as viewers shift to over-the-top (OTT) video services such as Netflix and Amazon.

Meanwhile, the live sports events that the pay-TV players have been banking on for years are no longer the sure fire draw they used to be.

As at end-March 2020, StarHub had 327,000 pay-TV subscribers while Singtel had 382,000. This was down from 528,000 and 423,000, respectively, at end-March 2016.

StarHub's pay-TV revenue was S$248 million in 2019, lower by 34.4 per cent from S$378 million in 2016. Singtel, which has a March 31 financial year-end, reported Singtel TV revenue of S$218 million in FY2020 - down by 6 per cent from S$232 million in FY2016.

Other countries where pay-TV is retreating include the United States - with penetration tipped to plunge by 17 percentage points to 48 per cent from 2019 to 2025 - and South Korea, where it could slide by four points to 160 per cent, according to industry research unit GSMA Intelligence.

Even expanding markets are expected to clock only marginal growth - such as a forecast two-point uptick in penetration in China, to 131 per cent.

One proposed remedy is the incorporation of OTT services into entertainment bundles.

Take the launch of StarHub TV+ last month, which touts the availability of third-party apps and services, such as TVB and Netflix, on top of StarHub channels on an Android TV box.

Deloitte, in its outlook for 2020, suggested "'reaggregation' or rebundling of streaming offerings".

Providers could offer customised packages that include video, music and games, "as well as the option for customers to accept ad-supported video", it said, citing the strength of this model in emerging Asia markets.

India's Reliance Jio last month wooed consumers onto a new postpaid mobile plan by dangling Netflix access, which was missing from Singtel-backed rival Bharti Artel's offering.

Zhao Wangxing, associate research analyst at S&P Global Market Intelligence's media research unit, told The Business Times that "consumers in price-sensitive markets are more likely to sign up for services with longer free trials, better discounts and any other associated telco benefits".

But such a strategic focus on value proposition - also recommended by PwC in its latest four-year outlook for the sector - may be less applicable in developed markets.

Fitch Solutions analyst Kenny Liew told BT that, in markets where fixed broadband is limited to higher-income segments, such added media and content services can differentiate a telco's offering and increase the stickiness of high-value customers.

But in developed markets where OTT services are widely accessible, consumers are "unlikely to migrate back to more rigid and expensive linear services", he said.

The second remedy for pay-TV providers is to include live sports in their entertainment packages.

In a recent report, Mr Liew called access to sports, especially the English Premier League (EPL), "the most appealing prospect for pay-TV services".

Similarly, GSMA Intelligence suggested cord-cutting is less of a threat in Europe, "as live sports is still the exclusive domain of pay-TV providers".

Consider: Singtel TV revenue in FY2019 came in at S$253 million on the back of income from the 2018 Fifa World Cup, but the telco added that revenue would have otherwise been 13.4 per cent lower at S$219 million.

But live sports broadcasts may not be an indefinite cushion. Flagging Singtel's S$49.90-a-month price tag for EPL broadcasts, a post last month on personal finance website Seedly pointed out that "we are paying the highest price" in the region for games.

At one stage, live sports nearly became a casualty of the pandemic too during lockdowns. One local viewer complained to The Straits Times in May that, with football matches suspended, reruns had been aired instead and "subscribers are not getting what they paid for".

Even when the pandemic ends, disruption may still come knocking. As trade show organiser IBC noted in January, after Amazon bid for EPL game rights: "Increased revenue from broadcasters is driving money to the top football clubs, but the entrance of OTT players into football rights bidding could prevent a plateau."

That would drive up content costs for telcos - fuelling doubts over how conventional pay-TV can survive.

As outgoing StarHub CEO Peter Kaliaropoulos told BT back in late 2018: "We never made a net positive bottom line from pay-TV... You cannot have a business unit where it's costing more than the revenues that you're getting back in net returns."

StarHub, betting on the trade-off between expenses and demand, parted ways with Discovery in 2018.

In time to come, telcos may come to the same conclusion on sports.