Vivek Couto is founder and executive director of Media Partners Asia Ltd. (MPA) a Hong Kong-based firm providing analysis on the telecommunications and media industries. He spoke to World Vision about the company's recently-released study on regional markets in 2009.

World Vision: In its recent report, Asia Pacific Pay-TV and Broadband Markets 2009, MPA says that pay-TV in the region is facing its biggest challenge since its inception almost 20 years ago. Is that challenge primarily due to the economic crisis or are there systemic problems that need to be addressed?

Media Partners Asia: MPA is  broadly positive on the future of pay-TV distribution platforms in the long-term. In particular, some of the players who find themselves in the strongest position are:

• Deployers of next generation digital TV (DTV) and broadband systems in Australasia and North Asia;
• Operators whose growth is anchored to massive consumption (i.e. India, Indonesia);
• Dominant near-monopolies which have built up unbeatable content franchises and are now developing the mass market (i.e. Astro in Malaysia).

However, it is our belief that regional pay-TV broadcasters and content providers are facing their biggest challenge since the start of pay-TV in APAC close to 20 years ago. The challenge is being shaped by a number of key factors, including:

1. The economic crisis, which is eating into pay-TV advertising growth and, in some cases, limiting subscription revenue growth for channels as distribution platforms limit content spend;
2. Shifts in media consumption, with the exponential growth of online media as well as on-demand networks reshaping audience and advertiser trends;
3. The demands of a current cycle of competition and digitisation, which means the costs of creating better, more relevant content and increasing market share continue to grow, though current returns are often commoditised due to a combination of regulatory and commercial barriers.

In spite of these growing challenges, we believe that originators of local content, especially those catering to Chinese and Indian audiences, among others, will continue to remain relevant and profitable. But the outlook for English-language broadcasters isn’t as favourable, as distribution platforms in key markets invest more aggressively in local and non-linear programming and curb their spending on regional and international TV channels.

Deteriorating investor sentiment is a big, near-term concern

As for platforms, or pay-TV operators, we believe that a number of distribution platforms will remain or emerge at the forefront of industry growth if they maintain and/or step up investment in next-generation digital infrastructure, including HDTV, DVR, VOD and advanced fibre- and cable-based services. However, there is no doubt that in certain markets, rising unemployment, falling consumption and softer demand will slow the growth of new subscribers to pay-TV, while also limiting ARPU growth in others.

On a regional basis, net new subscribers to both pay-TV and broadband will continue to average 20–25 million per annum over the medium term while DTV, boosted by migration in North Asia and India, will average 30–40 million.

Much depends on a sustained recovery in capital markets, as well as broader stability in GDP and currencies. Deteriorating investor sentiment is a big, near-term concern, as distribution platforms need more funds to acquire subscribers, upgrade infrastructure and invest in content. How capital is allocated and available will be a big factor in how DTV and pay-TV develop in China, India and Indonesia, amongst others.

WV: Which pay-TV markets are likely to cope best with the economic crisis and for what reasons? Which will cope worst?

MPA: Capital constraints have probably hit India, Indonesia and Korea the worst. The advertising slump has been severe on Taiwan, Japan, Korea, Hong Kong and South-East Asia. India, Indonesia and China have fared better, though growth in these markets has also moderated significantly.

Demand for pay-TV has softened in Hong Kong, Japan and Australasia, but is still robust in India and several other markets. The pace of subscriber acquisition has slowed in India, Indonesia and, to some extent, China, as funding remains low and a number of players are keen to conserve cash.

Short-term funding expected to continue

WV: You said that deteriorating investor sentiment is a big, short-term concern. What levels of investment have been assumed for the purposes of the forecasts? What will be the effects if investment falls below the assumptions?

MPA: We have assumed that private equity firms and strategic investors will continue to fund the top tier of cable MSOs and DTH companies in India over the next 6-12 months. Some of the new funds have already gone through to DTH and one or two of the top MSOs are close to another new round of capital. But a lot could change in the strategic roadmap for DTH.

Now that the elections have been completed in India, with a highly favourable result for investors, we expect more momentum in the market. Foreign direct investment in Indian cable and DTH should increase significantly over the next few months. 

We have also assumed that two of the big platforms in Indonesia get the money they need; IPTV gets the rights and capital it needs in Malaysia and Singapore ... the list goes on.

Various government organisations are essentially funding the DTV industry in China, both on cable and, now, on DTH, though private equity and strategic investors are getting involved in minority positions and JVs. If Indian DTH and cable companies don't get the money they need and transition to more realistic business models, then that affects the whole ecosystem and we're in for a very tough time.