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Why going private might be the right move for Astro

Malaysia’s pay-TV operator and broadcaster Astro is rumored to be going private. The speculations first started approximately a week ago when The Star reported that its billionaire founder, Ananda Krishnan is pondering on the possibility of taking Astro Malaysia Holdings Bhd private again.

The company first became public in October 2003 as Astro All Asia Networks, but was taken private in June 2010. It was then listed again on 19 October 2012 as Astro Malaysia Holdings.

While Astro did not comment on A+M’s request of a statement, it directed us to its filing on Bursa which it responded to The Star report a day after it was published. The report said the company has not received confirmation of any privatisation proposal and said, “As far as the company is aware, after due enquiry, it has not received confirmation of any privatisation proposal.”

The Star also reported that, according to its industry sources, Ananda who owns 40% of Astro, is looking at a corporate exercise to buy out the rest of the shares in the company. This is via his private vehicle company Usaha Tegas. In addition, it said the exercise is still in preliminary stages and that Usaha Tegas feels that the market is not valuing the company fairly.

Coupled with Ananda’s previous style of delisting and relisting other companies under his stable such as Maxis and Bumi Armada, it probably will not shock industry players as much – if he is indeed going to delist Astro once again.

Experts that A+M spoke to are pretty upbeat about its privatisation, that is – if it does happen.

Ranga Somanathan, newly appointed CEO of Omnicom Media Group of Singapore and Malaysia said that Astro’s privatisation will enable the company to reinvest its revenue towards future proofing. It will also ease the management of any distractions from the investors and focus all its energies on its customers.

Privisation process is a growing pain, Rajesh Mahtani, head of business development and brand communications of Asia Pacific at Publicis Groupe Media said. He added that while it is a higher risk to take, it can potentially bring positive benefits for Astro’s business as a whole with more leeway to try new things and make faster decisions to come up with a new business idea.

“It will no longer answer to the public stakeholders and have less restriction in their business directions and goals too,” he said, adding:

Public listed companies are often handcuffed with more obligations to follow such as internal staffing and policies.

Prashant Kumar, senior partner of experimental marketing firm Entropia is also optimistic. He added:

It’s clear that the market undervalues Astro. I believe that Astro has some fundamental strength that can be leveraged into new platforms and new commercial models to deliver sustained performance.

More opportunities to innovate

Going private, Kumar said, apart from the financial dimensions, is expected to allow it more strategic choices, “Without the pressures of quarterly numbers, it can make longer-term bets to re-orient the company in a deeper way. I consider it a positive step from this point of view.”

Also sharing the same sentiment is, Ivan Wong, commercial director of SPH Magazines in Singapore. He said that without having to be concerned over the impact to shareholders and short term business targets, privatisation could actually free Astro to develop longer term strategies and pivot more nimbly to grasp opportunities. Wong added, without the statutory shackles, Astro could likely operate and innovate more as a startup.

Mahtani also pointed out that some startup firms are doing better than larger companies, also because they have much more freedom to innovate and execute those ideas with lesser restrictions, “Privatisation will probably allow more innovation initiatives coming from Astro, including invention or partnerships to bring even more digital and tech-related ideas and platforms in making sure it remains competitive in the industry.”

With more freedom, we may see Astro hiring more talents in boosting up various teams especially in the digital and tech space.

Impact on advertising revenue

In terms of advertising revenue, Wong said in the short term, he does not think Astro’s privatisation will have much impact on its business, “For instance, advertisers will still continue to support in order to connect with its vast audience via Astro.”

Prashant too, agreed with Wong as he does not see a major impact on advertising revenue growth trend.

With lesser bureaucracy, Mahtani said, Astro also may be able to show a much bolder and hungrier side when facing potential advertisers: “It will be interesting to see how the company navigate as a private firm.”

However, there are always two sides of a coin. In this case, Mahtani said the drawbacks will be in terms of scale and connection: “A listed company would have the big bothers funding you and watching your back for larger investments, in driving scale. Their projects also tend to get approval easier from the government.”

The critical thing about privatisation is, to change your behavior and adjust to the new environment and system, said Mahtani.

Challenges and what the future holds 

That said, one of the challenges Astro faces, apart from a weaker ringgit, is also the increasing competition from upcoming video-on-demand (VOD) service providers such as Netflix, iflix, Viu and most recently, the newly launched Dimsum by Star Media group.

With seismic shifts in audience viewing habits and robust competition in new ways of distributing content, Somanathan also said, it will be critical for Astro to invest in data and tech to stay ahead and stay relevant.

Somanathan added that if Astro gets it’s formula right, the investments in data, tech and new licensing models will not only enable the company to endear itself to the Malaysian consumers, it will also help in market expansion and wider footprint across the region.

Meanwhile, Entropia’s Kumar also noted that increased VOD competition is expected to expand the market, “I would like to believe that their understanding of the content market in Malaysia and the commercial appetite is better than the pure play operators.”

 

 

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