Mixed signals

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Marc-Antoine d’Halluin, CEO, Showtime/NewCo.

Last month's merger announcement by Orbit and Showtime is set to alter the Middle East pay TV landscape dramatically. Digital Broadcast recaps the events leading up to the deal and assesses the prospects for the new company, and the regional industry as a whole, in the era of ‘Shorbit'.

It began with a vigorous denial from Showtime on June 22.

"Showtime can categorically deny that there is any truth in these rumours," a company spokesperson told Digital Broadcast when asked if there was any truth to the speculation. This - as we now know - was not strictly correct.

Both companies had spoken of consolidation openly over the previous two years, as they looked to combat piracy and the competition from hundreds of FTA channels.

"Without these challenges three operators could healthily co-exist, but with them... three is probably too many," Orbit's CEO Samir Abdulhadi told Digital Broadcast in April 2008.

His counterpart at Showtime, Marc-Antoine d'Halluin, has also previously talked up the benefits of rationalisation in the industry.

""I've made the point previously that there's no other market in the world where you have three rival pay TV operators. Given that more than a decade has passed since pay TV services were launched here. My thoughts are that the key stakeholders will move to embrace some form of consolidation within the next two or three years. I would very much like for Showtime to act as a potential market consolidator in the future," said d'Halluin in February 2008.

The companies announced a joint press conference to be held on July 11.

Finally, it was confirmed. Showtime and Orbit's pay TV operations would merge. New packages would be developed to include both sets of content and made available by August. Within 24 hours of the announcement subscribers were able to sample some of the new channels available to them.

The question remaining is, why now? Has it taken this long to negotiate and construct the terms of the deal or has the current economic situation forced the two parties together?

"The recession is part of the environment we operate in and one of the factors [behind the merger], but not the main one," says d'Halluin, who is keen to demonstrate the significance of the deal.

"To put egos aside and work together with a combined plan and a shared vision... we have achieved that together. Our shareholders are very supportive and they will be even more satisfied if we deliver on what we have promised."

Showtime Arabia and Orbit's pay TV operation will each take a 50 percent stake in the new company. Showtime's d'Halluin will be installed as CEO and Orbit's Abdulhadi as president. The partners will retain their broadcast facilities in Dubai and Bahrain.

Once the ink on the deal was dry more details of the terms of the agreement began to emerge.

On July 14, questions were raised over staffing levels at the new company and where potential areas for cost saving would be made as speculation over redundancies began to circle.

"I'm categorically stating that we have not discussed this subject yet," says Ali Ajouz, VP marketing sales and distribution, Orbit.

"We will be setting up integration committees in the next couple of weeks. They will set up sub-committees and we will evaluate where we can synergise without compromising the business," he reveals.

"It is unfair to tell you what will happen. All I know is that we are mandated by our shareholders not to compromise the business, to focus on the customer, make the merger as smooth as possible and build the business in this market," adds Ajouz.

At present - and for the foreseeable future, 18 months at least according to d'Halluin - both broadcast facilities will remain fully operational and as a consequence, fully staffed.

"Both broadcast centres are very big and require the present staffing levels to maintain them. We are looking at doubling the current offerings . This clearly means that we will need our engineers," reaffirms Ajouz.

The much publicised piracy issue will also be addressed more aggressively with the new company determined to raise its game.

"In the UAE, we are working with the telecom regulators to block servers and we will have more ammunition in the future to fight piracy. And this will bring a chunk of the market back to pay TV, which is currently exploited by criminal organisations. This is a substantial chunk of the market," says d'Halluin.

Neither Abdulhadi or d'Halluin could estimate the exact value of the damage done by piracy although both are well aware of its impact on the pay TV industry.

"It is not a few million dollars; it is hundreds of millions of dollars. It is very difficult to estimate but it is significant and the impact is larger than compared to any other market in the world.

"This is because there are less regulators and the issue has not been treated as a priority by the authorities so far... This awareness is building in Saudi, the UAE, Kuwait (which happens to be our largest market) and Egypt," claims d'Halluin.

The (multi-)million dollar question

The Showtime-Orbit merger raises more questions than it answers, writes Aaron Greenwood.

Synergies, whether they relate to ethos or practice, are generally an accepted prerequisite for mergers in the corporate world.

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