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Mon 6 Jul 2009 11:50 AM

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Mergers make sense

The denial that followed the latest rumour of pay TV consolidation last month was not a surprise. It is hard to understand why three pay TV operators in a small market suffering from rampant piracy would continue to operate from three separate broadcast facilities and compete with each other for the same content rights.

The denial that followed the latest rumour of pay TV consolidation last month was not a surprise. It is hard to understand why three pay TV operators in a small market suffering from rampant piracy would continue to operate from three separate broadcast facilities and compete with each other for the same content rights.

There are two conclusions that can be drawn from the fact that consolidation is yet to occur.

Firstly, the parent companies of each operator, are not concerned by the lack of profitability of their high-profile, glamorous investments. The second is that any financial concerns that do exist, are superseded by pride.

The loss of one brand could – in the eyes of its owners – be seen as a concession of defeat. Mergers should not be viewed in such a negative light.

At the same time, they should not be considered an instant fix. The Sirius XM satellite radio merger has proven to be a disaster. TimeWarnerAOL is currently undergoing a ‘divorce’. A change of ownership for MySpace has seen its fortunes dwindle with falling traffic and 720 job losses in June.

Whereas competition is healthy in most industries there seems to be a ‘less is more’ scenario in the pay TV industry. The UK saw Setanta – the only major rival to BSkyB’s 10 million-strong service – slip into administration last month. BT’s IPTV offering has less than 500,000 subscribers.

As the telcos get better at aggregating content and their IPTV networks grow in terms of coverage and ability they could choose to offer premium TV services on their own, rather than acting as a conduit for the current pay TV operators. Typically, each telco has access to small, fragmented but wealthy audiences via IPTV networks. Their success could lead to further splintering of the pay TV landscape in the Middle East.

John Parnell is the deputy editor of Digital Broadcast.

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