The birth and rise of Pay TV

What does pay TV mean to the traditional terrestrial TV business which most of us have grown up with and understand? How has StarHub Cable TV and SingTel's mio TV joining the mix changed the way marketers view advertising on-air? Deepika François asks the industry movers and shakers and gets a good feel of the business.

When John Logie Baird invented the television, he may not have imagined his invention would spur an entire industry. The era of black and white TV and colour TV has given way to different forms of TV like IPTV and mobile TV and these are grabbing the attention of viewers and marketers today. The early days of broadcasting seem like a far-away memory.

Not only have the methods of distribution changed but so has the way one watches TV. The dramatic change may have come about with the birth of pay TV, that caters to the individual as opposed to the collective. Of course, with individual tastes varying greatly, pay TV has grown, giving rise to multi-channel TV that speaks to all from new-born babies to intelligent housewives and retired audiences.

Simon Twiston Davies, CEO of CASBAA (Cable and Satellite broadcasting Association of Asia) sees no slowing down in the growth of the pay TV market in 2008 and believes the young media-savvy population across Asia will embrace new channels as much as they embrace new technology.

In Singapore, StarHub launched the first cable TV service in 1995 that continued to hold monopoly over the market until the arrival of mio TV (launched by SingTel) in July 2007. Five months following its launch, mio TV had 27,000 subscribers, proof that the market was ready for a duopoly.

The advantages of a duopoly may take time to materialise but some of the early changes one observes is the shift from that of a mass market cable TV approach to a more personalised one. Low Ka Hoe, director of mio TV and content, SingTel, believes mio TV has revolutionised the way one watches TV, with viewers no longer having to work around TV schedules and cites interesting features such as being able to pause and rewind ‘live' TV. Interestingly, StarHub's HubStation also enables its customers to control their TV viewing schedules, letting them record, pause and rewind ‘live' TV.

The duopoly has also answered the need for competition in the marketplace and may give way to a thriving multi-platform pay TV industry but StarHub continues to reign over the market.

Basil Chua, marketing director of National Geographic Channels and Fox International Channels, Asia says, "As technology providers, we are technology agnostic." Simultaneously, he admits that StarHub continues to be the "biggest and leading player", providing the channel with access to almost 50% of TV households in Singapore.

Content providers like HBO were also amongst the first to launch on StarHub over 10 years ago and may not shift their loyalties to mio TV. Neither may AXN, with the brand having grown with StarHub. Undoubtedly, mio TV's arrival gives consumers a wider choice of pay TV services, but may not directly affect content providers who have established themselves on StarHub's cable TV platform. On the other hand, as Chua observes, "it does give new channels the opportunity and alternative to tap into the burgeoning Singapore pay TV market."

This burgeoning market may be the reason for mio TV's existence with pay TV providers seeing great potential for growth in this market. As opposed to certain markets in the region that boast of 80-90% TV penetration rates, Singapore had only 40-45% TV penetration rates during mio TV's launch. With Hong Kong having rapidly grown from 30% to 60% over a short period of time, pay TV operators in Singapore may have reason to be optimistic.

Duopoly, evolution of consumer habits, more TV penetration - multiple factors may be responsible for the vibrancy of the pay TV scenario in Singapore. Multi-channel TV may be boosting pay TV viewership but so is technology. Mio TV subscribers can schedule remote recordings via the internet and can also record programmes off linear and free-to-air channels, actions that would not have been envisageable a few years ago. Technology is a major driver with digitisation adding ten times as much capacity as opposed to the limited bandwidth of the analog world.

With less than 10% of households in Asia equipped with digital capacities, Davies thinks "there is a story to tell and it may be the story of the future." Currently, the pay TV market continues to be dominated by distribution and multi-channel TV but this may change over time. So what will happen to terrestrial or free-to-air TV?

Does the predicted growth of pay TV mean the slow decline and ultimate death of terrestrial broadcasting? This may be tilting the scales too much in favour of pay TV as developing markets like India and China continue to rely on national broadcasters, particularly in rural areas. Cable TV penetration may be on the rise in these markets but it may be rather early in the day to put a finger on its future growth.

In Singapore, "local free-to-air TV commands the lion's share of audience exclusivity", says Chang Long Jong, MediaCorp deputy CEO for TV. The numbers are staggering - 53% or 1.8 million viewers only watch LFTA (local free-to-air) TV. On the other hand, pay TV commands 5%, which means 95% of cable TV viewers continue to watch LFTA TV. While these numbers alone may not tell the real story, they are proof that terrestrial TV may not be ready to retire.

Moreover, Chang tells me the regulatory authority in Singapore has made it mandatory for pay TV to carry free-to-air channels on it platforms giving free-to-air TV an automatic foothold in this market. So while StarHub carries the entire suite of MediaCorp's TV channels, Sing Tel's mio TV carries MediaCorp's HD5 (High Definition TV).

Patrick Lim, VP, cable TV services, StarHub, sums up the difficulties of the Singapore market: "We face unique challenges," he says, "as we operate in a country with a small population and one where viewers can access a comparatively high number of free-to-air channels." This co-habitation seems to define the character of the Singapore market, with both operators carrying a different set of benefits for viewers and marketers.

Pay TV by nature is specialised TV, catering to a niche audience, offering both variety and choice. It is also inherently personal, with individual TV homes electing content as opposed to free-to-air TV that dictates content from the onset. At the same time, free-to-air TV carries unique local content that addresses the needs of the local population. Mediacorp's Chang is right when he says that viewers get the latest information as well as the opportunity to watch in-depth analyses or discussions on issues relevant to Singaporeans.

On the other hand, as cities grow and become more global, audiences grow more sophisticated. They want a piece of the bigger picture and pay TV can give them a taste of that. While one could argue that in a small country like Singapore, this stays a minority, an increasing number of viewers are moving towards a global landscape. Be it Singapore or New York, the younger generation may share similar emotions, tastes and empathise with some of the same issues. Pay TV enables them to share the same reality, allowing for cross-cultural understanding of some of the major issues facing the global population.

It is also an answer to the needs of a population that is increasingly difficult to please and where attention spans may not hold longer than it takes to zap a few channels. More variety and choice are welcome but risks of overdosing are ample. "The more people experience multi-channel TV, the more they'll use it", Davies shrewdly observes.

This in itself harbours well for pay TV that is a highly competitive sector. Most of its revenue comes from a mix of subscriptions and advertising and the more viewership, the more advertising revenue a channel stands to gain. Smart marketers know segmentation is key to achieving their targets and pay TV enables them to do just that.

Ricky Ow, general manager, SPE Networks Asia, calls pay TV a "sophisticated marketing tool" and adds advertising in a "multi-environment" has proven to be more effective than advertising in a "single environment", as it reaches out more efficiently to target groups.

Caroline Wong, senior marketing director, HBO Asia, also recommends pay TV for its niche targeting but highlights one of its other benefits. "By virtue of it being a paid service," she says, "it also appeals to those with high purchasing power."

As it reaches out to a wider audience but also a more targeted one, pay TV proves to be cost-effective, allowing advertisers to maximise their resources while minimising media waste. More importantly, as Chua of National Geographic points out, it enables "multi-market advertising within the same media environment - something that cannot be done with terrestrial, which is specific to one market only."

Certainly a smart marketer would choose pay TV to increase brand awareness due to its wide regional/global reach. On the other hand, free-to-air TV can prove more efficient when it comes to targeting local audiences. Ultimately, it's about the choice pay TV gives to marketers, who can choose from over a 100 channels and over 100 varying audiences.

Alongside multi-channel programming, new platforms are also being explored with IPTV (Internet Protocol TV) growing in stature. SingTel's Low talks of features on mio TV such as true video on-demand, access to movies released on the same day as DVDs and high-definition content. Digitisation is on the rise but levels here are not comparable to those of more developed markets such as the UK. One of the major factors may be the cost of delivering digital content and marketing it to the consumer, reminds Davies of CASBAA.

As demand for pay TV rises, does the market have sufficient supply of bandwidth to enable the creation of new channels? National Geographic's Chua thinks there will always be room for another good channel, if it helps drive subscription to the pay TV service. Ow of SPE Networks Asia calls more channel offering a marketer's dream. Marketers are on the look-out for more channels to choose from but StarHub's Lim explains that a wide channel offering may not be the differentiating factor. The option of cross-platform selling - i.e offering marketers innovative ways of reaching their customers may be key.

So what does the future hold? Can free-to-air TV reside alongside pay TV and which one of them will have the upper hand? SingTel's Low believes there is room for different operators to cater to different segments of the population. He doesn't see terrestrial TV as competition and he is not the only one. Chua of National Geographic thinks terrestrial TV's propositions and business models are completely different from those of pay TV. However Ow predicts that terrestrial TV will have to fight harder to retain its viewership.

From the onset, it is clear that the objectives of national broadcasters and commercial broadcasters vary highly and they don't reach out to similar segments of the population. MediaCorp's Chang says FTA and pay TV can continue to grow alongside but is of the view that FTA will continue to be the main source of information and entertainment for viewers in Singapore in the foreseeable future.

Given Singapore's model, the regulatory authority has made it impossible for one to exist without the other.This makes it even harder for pay TV to hold its ground in the Singaporean context but gives it more opportunities for growth. It is the unexplored territory that pay TV operators need to target - the 50% odd population that has yet to subscribe to a pay TV service.

There may be various methods of reaching out to these audiences and while the medium is undoubtedly important, the message is the defining factor. Content is still master of the game and content providers who observe, analyse and understand the needs of their audiences may have a larger share of the cake. Low says with the evolution of consumption habits, customers will start expecting more on-demand and interactive content.

The more sophisticated audiences become, the more specialisation they expect. Pay TV needs to answer these growing needs and come up with innovative content that can keep pace with the demands of its audiences. The cost-factor may seem immaterial as affluent customers pay for services they request. The audience of today may be hard to please but this may lead to the continuous churning of new and more exciting content. If this is the case, Chua may be right when he says viewership between the two will gradually shift to pay TV. This shift may also force terrestrial TV to reinvent itself and compete on a more even footing.

The future may not be what one makes of it today and free-to-air TV may usurp cable TV or vice-versa. With over 250 million existing connections to pay TV across Asia and more up for the grabs, the battle is set to be an interesting one. In such a scenario, the loser may not lose all and the winner may keep the loot only for a short while. Attention spans are on the decline... the next channel or platform to win the game must know what it takes to stay in pole position.