{UAH} Pojim/WBK: Strong commercial undercurrents in analog-to-digital migration wars - News - www.theeastafrican.co.ke
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Strong commercial undercurrents in analog-to-digital migration wars - News
Industry analyst says it will be difficult for content distributors to break even under the user-pays model as feud between regulator and broadcasters continues. PHOTO | TEA GRAPHIC
Strong commercial undercurrents are playing out in the signal distribution war that has seen four television stations in Kenya taken off the air for more than a week.
As the country's largest three media houses — Nation Media Group, Royal Media Services and Standard Group — battle it out with the communications regulator to broadcast their content to protect investments of more than Ksh40 billion ($44.4 million) that they have made over time to establish themselves in the segment, two firms — Signet and Pan Africa Network Group — are positioning themselves for grabbing a major share of the pie.
PANG, which has been licensed to distribute signals, is majority-owned by Chinese investors and shadowy Kenyan punters who own 9.3 per cent through Excel Magic International. The Kenyan outfit is registered in the tax haven of the British Virgin Islands while the directors of PANG are listed as Xinxing Pang and Shang Junqi.
Kenya has adopted the user-pays model that requires content generators to pay distributors a fixed rate of between Ksh185,000 ($2,055) and Ksh200,000 ($2,222) per channel.
With 43 broadcasters offering free-to-air channels, defined as outlets where viewers do not subscribe to watch, each of the signal distributors therefore has the potential to earn Ksh8.6 million ($95,555) per month or nearly Ksh100 million ($1.1 million) a year.
The three media houses control four free-to-air channels, from which the two distributors were expecting about a tenth of their expected revenue every month, some Ksh800,000 ($8,888).
An industry analyst says the distributors will be struggling to break even under the user-pays model. It is estimated that a signal distributor needs Ksh10 billion ($111.1 million) to roll out across the country.
"Thus, one signal distributor is operating at more than Ksh100 million ($1.1 million) per year below the break-even point." He estimates that the initial outlay at current tariffs could thus take 100 years to recoup. Ideally, such projects should take about 25 years to pay back with a decent margin.
This has forced the signal distributors to venture into support services like selling set-top boxes and aerials to raise more revenue for operations through their pay-tv subsidiaries.
Signet, which is owned by the the Kenya Broadcasting Corporation in partnership with MultiChoice of South Africa, offers subscription services through GOtv, while PANG has Star Times.
The current situation, analysts say, what with the major free-to-air channels switched off, meaning that both consumers and advertisers are under pressure to migrate to pay-TV channels, is thus clearly in favour of the distributors' long term aim of revenue maximisation.
However, the three media houses, which command 80 per cent of television viewership in the country, are counting on the quality of their content to retain their market share of advertising revenue.
Their investment has given them a wide reach across the country and huge audiences, making them the media of choice for advertisers seeking to promote their products.
A PwC report on the Kenyan entertainment and media outlook for 2013-2017 estimates that expenditure on television advertising will rise from $490 million last year to $550 million this year and $750 million in 2017. That would be a quarter of the estimated total entertainment and media expenditure of over $3 billion by then, assuming a 16.3 per cent annual growth rate.
PwC projects that TV will account for 45.8 per cent, up from 35.3 per cent three years ago, of all advertising spend in Kenya; buoyed by a new urban middle class. TV penetration is projected to almost double over the period, from eight per cent to 12 per cent.
The analyst quoted earlier said none of the free-to-air broadcasters would survive in their existing form and would have to make a drastic shift to, among other things, offering pay-tv and other value added services.
"We are looking at stiff competition for advertising because the number of eyeballs will no longer be determined by geographical reach but by content," he said.
The three media houses, under investment vehicle Africa Digital Network (ADN), plan to bring into the country up to two million set-top boxes with ability to offer Wi-Fi, 3G and 4G internet, pay-tv, video on demand, games and signal distribution for third parties, subject to regulatory approval.
The three media houses have for three years been fighting for more time to switch from analog to digital broadcasts through a dedicated carrier run by ADN.
The four stations run by the three houses — NTV, Qtv (NMG), KTN (Standard Group) and Citizan (Royal Media) — which went off-air last weekend after the Communications Authority switched them off, command more than 80 per cent of the free-to-air TV market in Kenya.
According to the Communications Authority, there are two million TV sets countrywide against 300,000 pay-TV subscribers. Three quarters of the sets are in Nairobi and 900,000 of them need set-top boxes to receive the digital signal.
That means that in Nairobi alone, set-top box sales would have raised at least Ksh2.3 billion ($25.6 million), at a base price of Ksh2,500($28), if all sets were equipped with a free-to-air box. Prices for free-to-air set-top boxes range from Ksh2,500 to Ksh5,000 ($56) depending on which of the 60 licensed vendors is selling.
"We have sold 1.2 million set-top boxes and have 800,000 in stock," Waithaka Waihenya, the managing director of KBC, said.
There are five pay-TV service providers — MultiChoice's GOtv, StarTimes, Digital TV, Azam TV and the Wananchi Group's Zuku TV — selling decoders at between $21 and $88. PwC projects the number of households with pay-TV will increase from 232,000 in 2012 to 531,000 by the end of 2017.
In December, the Communications Authority of Kenya estimated that the digital signal sent out by the distributors covered 58 per cent of the country. "There are places where TVs will function for the first time because of this switchover," said Mutua Muthusi, the director of consumer and public affairs at the Communications Authority.
PANG was licensed in disregard of the national ICT policy that bars foreign companies from operating telecommunications infrastructure. Pang was instead required to cede a fifth of their shares to Kenyans within three years of starting operations. The window closes next year.
Mortimer Hope, director of spectrum and public policy Africa at the GSM Association, said last month that migrating to a digital signal would allow broadcasters to provide more television services and release spectrum for mobile broadband services.
Strong commercial undercurrents in analog-to-digital migration wars - News - www.theeastafrican.co.ke
http://www.theeastafrican.co.ke/news/Who-stands-to-gain-from-the-great-switch-off-/-/2558/2630956/-/d8inx4z/-/index.html
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