HDTV is a certainty, but when will it take off in the Middle East? Nick Grande analyses the market.
With over 98 percent penetration, MENA satellite TV is currently the only game in town. By contrast, less than one percent of regional TV households watch digital broadcast provided by domestic broadcasters (such as Etisalat and QTel). Things are changing though: aggressive fibre and DTT initiatives mean HDTV will be available in most domestic markets in two to five years.
In my address at CABSAT 2009, I predicted that FIFA World Cup 2010 will prove to be the only stimulus that can prevent pan-regional HDTV from being consigned to history by regional telcos.
As with any consumer product, HD STBs must reach critical mass in the marketplace. The first million STBs to receive HDTV services in MENA homes will seed the demand for the next 20 million. - Nick Grande, managing director, ChannelSculptor
Few MENA broadcasters recognise how strategically significant HDTV is. Satellite channels are accustomed to their 15-year viewership monopoly, but more and more viewers have invested in HD-ready TVs. These viewers will soon be seeking HD channels in the same way that they sought Compact Discs in the 1990s.
Twenty-two million US households now regularly watch HDTV broadcasts - 40 percent up compared to last year. In Europe, there are now more than 130 satellite HDTV channels, including dedicated movie and sports channels, as well as channels from Disney, Discovery, Viacom and the BBC. The number will rise to 600 by 2013. By contrast, MENA HDTV is at a standstill. Last year, there were three regional HDTV channels. Now there are two - Luxe.TV and Oman TV (the latter of whose HDTV commercial launch date remained unconfirmed at the time of press).
My years at Showtime taught me that the HDTV problem sits in the "important, non-urgent" pile - expensive to implement with no guaranteed or immediate financial return.
Priority goes instead to instant growth opportunities / survival threats such as football, movies and series rights. The problem for pan-regional broadcasters is that ignoring HDTV opens the door to domestic IPTV / DTT services championed by profitable, government-backed and cash-rich regional telcos.
In five years, the MENA free-to-air market has grown from 80 to almost 400 channels, and the cost of programming has spiralled. Advertising revenue has failed to keep pace: few if any regional FTA channels are profitable - most are funded by external (often governmental) capital and compete primarily for viewership and status.
Regional Pay TV networks have historically been more profit-oriented, but the recent FTA explosion has changed this: they now compete not only with each other, but also with FTA operators, aggressively acquiring the premium content normally reserved for subscription services. The result is irrational competition: broadcasters throwing money at the problem, hoping their capital resources outlast their competitors. Nobody seems prepared to quit.
Ironically, when FTA channels are haemorrhaging money it's actually more likely that they will launch HDTV channels.
HDTV is an opportunity for wealthier FTA networks to enhance their status: satellite costs are stable and HD/MPEG4 head-end costs have reduced, so HDTV suddenly looks cheap compared with the cost of movie rights! Once one major network launches in HD, others will of course follow.
The prospect of ten major FTA channels operating in HD within 18 months might sound positive for HDTV, but there is a catch: nobody will be watching them.
The MENA satellite footprint delivers the same television channels to 300+ million people in 23 countries.
Viewing is homogenised from Morocco to Kuwait not only by channels, but also by the quality of receiver technology.
For more than 90 percent of MENA households, television is a free service acquired using a set-top-box (STB) purchased from the local souk. Such low-end STBs are incapable of running an EPG, let alone MPEG4 HD channels. Even the five percent or so who subscribe to pay TV services tend to prefer their own box to the one supplied by the network.
This means that any HDTV channel launched on Nilesat or Arabsat is broadcasting to an audience who cannot see it. To be visible, HDTV channels need to lower the cost of STBs.
The delay to MENA HDTV means we can learn from other markets, and the trend is clear; pay TV is the key driver in Europe, with more than 38 million pay TV households expected to receive HDTV services by 2013 - twice the number of FTA HDTV households.
The reason? Pay TV providers supply and install HDTV hardware in viewers' homes.
As with any consumer product, HD STBs must reach critical mass in the marketplace.
The first million STBs to receive HDTV services in MENA homes will seed the demand for the next 20 million.Pay TV services in the MENA region are still yet to achieve double-digit penetration.
Growth earlier this decade was checked by the explosion of the FTA sector. On the face of it, the regional pay TV market is simply not strong enough to drive HDTV viewership. However, one event in 2006 electrified the MENA pay TV market and set a worldwide precedent.
For many, being provided access to World Cup TV broadcast coverage is considered a basic human right - the TV equivalent of food. In 2006, ART did the unthinkable - they successfully encrypted it. Initially there was outrage and disbelief, but this quickly turned into a buying frenzy. ART's subscriber base more than doubled with over a million new subscriptions in the six weeks leading up to the knockout stage.
Effective packaging and marketing of World Cup 2010 could roll out 500,000+ HD-capable MPEG4 boxes, but premium HD content must be available after the end of the competition. This requires commercial cooperation between ART, Al Jazeera and others. - Nick Grande, Managing director, ChannelSculptor
Unfortunately for ART, the World Cup only lasts for a month. Despite attaching the games to a 12 month subscription, they were unable to convert the surge of new subscribers into long-term customers.
By June 2007, when ART's World Cup subscribers were coming to the end of their 12-month contracts, the competition amongst regional networks for programming rights had reached epic proportions.
The most significant development was FTA network Al Jazeera's move into the pay TV market following its acquisition of the (for a record sum) rights to the Italian and Spanish football leagues and Formula 1.
Al Jazeera's non-financial agenda was underlined by their annual subscription - the price of a smart card.
Showtime, facing stiff competition in movies and series from FTA giant MBC, also stepped into the football rights war and acquired EPL for an estimated $120m.
ART was left with the UEFA Champions League - which it lost to Al Jazeera the following year for a reported $200m.
These bidding wars show no signs of stopping: both the regional FTA and pay TV networks have seemingly bottomless pockets when it comes to programming.
There have been merger attempts in the pay TV industry, but the participants consistently fail to agree on valuations.
In this hostile environment, strategic long-term developments cannot take place, so satellite TV as a whole gradually stagnates and weakens. In the coming five years, pay TV over fibre and DTT networks will become more accessible, but the channels they offer mirror those already available on satellite networks.
HDTV provides the much-needed differentiator: given the choice between SD over satellite and HD over fibre, consumers with 42-inch LCD screens will start to make the switch away from pan-regional satellite TV.
Nobody in the pan-regional broadcast industry stands to gain if HDTV over satellite fails.
The only way it will succeed is through cooperation. Effective packaging and marketing of World Cup 2010 could roll out 500,000+ HD-capable MPEG4 boxes, but premium HD content must be available after the end of the competition. This requires commercial cooperation between ART, Al Jazeera and others.
Through cooperation on HDTV, the World Cup could serve as a catalyst to bring the regional pay TV industry out of its malaise.
The barriers to cooperation are not confined to egos and rights negotiations. There are technical hurdles as well, such as ART's move to Viacess encryption - away from the Irdeto system currently used by the other pay TV operators. These issues are complex, but surmountable if the parties work together now to solve them.
HDTV is becoming the worldwide standard. It has been overlooked by regional broadcasters and they need to wake up fast.
It's not enough simply to launch HD channels: MPEG-4 STBs need to penetrate the market. The only way to achieve this is through compelling Pay TV.
World Cup 2010 could bring 500,000+ HDTV viewers to the region, breaking the seal on the market. But ART alone does not have sufficient premium programming. For HDTV to succeed, regional content owners need to cooperate.
Time is short. Unless this opportunity is seized, satellite HDTV and ultimately pan-regional TV itself will be usurped by new technologies such as IPTV.
Nick Grande is the managing director of ChannelSculptor, a strategic consultancy working on behalf of regional and international television businesses. He has previously been employed in senior executive positions with MTV Arabia, Showtime and MTV Networks Europe.
For further information relating to ChannelSculptor, you can contact Nick at firstname.lastname@example.org.