ALREADY hounded by slow growth due to cable overbuilding by multiple operators, the pay-TV market in the Philippines is set to face tougher competition once major player SkyCable rolls out its own direct-to-home (DTH) satellite TV service, an industry group said.
In a filing with the National Telecommunications Commission (NTC), the Philippine Multi-Media System Inc. (PMSI) said the local pay-TV market has an estimated 1.5 million cable TV subscribers and 100,000 DTH subscribers, citing a May 2010 study of the Cable & Satellite Broadcasting Association of Asia (CASBAA) entitled “The Philippines in View.”
One of the factors found to be restraining the growth of pay TV is the overbuilding of cable systems by cable operators and the subsidy borne by operators for the subscriber hardware, PMSI said.
It said cable operators’ subsidy for the subscriber hardware is around P1,000 to P3,000 per new subscriber.
PMSI explained that DTH players sell their subscriber hardware at below acquisition costs to eliminate the high hurdle of the entry cost of subscribers for DTH service compared to cable TV.
Because of these factors, DTH players are expected to continue to incur losses in the next two to three years, particularly once SkyCable enters the DTH segment, which would further stoke competition.
With the Philippines’ total population reportedly at 100 million, the estimated number of households based on an average of five members each household is around 20 million.
Currently, SkyCable remains a dominant player in the cable market. Likewise, Cignal TV has flourished to dominate the DTH market, next to DreamTV (of Philippine Multi-Media System Inc.) and GSat (of Global Broadcasting and Multi-Media Inc.).
Cignal TV was launched middle of 2009 with an initial capitalization of P62.5 million. As of December 31, 2013, total equity infused reached almost P4 billion. To sustain and deliver its service to its subscribers, Cignal has employed a total asset base in the amount of P6 billion which was financed by equity infusion, loan from a local bank and suppliers’ credit.
PMSI also said that “Despite the significant improvements of Cignal’s annual losses from P1.8 billion in 2012 to P427 million in 2013, it is yet difficult to foresee a financial recovery of its more than P4-billion investment in the near term, given the declining price preference of the subscribing public while maintaining a high cost of acquisition and after-sales support and maintenance.”
It added that, “On the other hand, the outlook for SkyCable for DTH market and its annual estimate for subscriber build-up seems to be fair and realistic.”
Based on its projected income statements, SkyCable will start to generate net income starting Year 5; however, recovery of its accumulated losses from Year 1 to Year 4, totaling above P1 billion in Year 9 will pose a challenge to Skycable, PMSI said.
Cignal TV reported net revenue in 2013 amounting to P2.3 billion, posting an exponential growth coming from only P105 million in 2009. In the same manner, direct cost and operating expenses posted a similar growth trend from 2009 to 2013. From 2009 to 2013, Cignal TV incurred huge net losses every year, which resulted in an accumulated deficit of P5 billion.
In its 2013 audited financial statements, Cignal reported to have gained 601,895 subscribers in 2013 and 441,894 in 2012. For the last three years, about 50 percent of revenue is spent by Cignal TV on subscriber acquisition including subsidies and advertisement, about 40 percent for programming cost and around 10 percent for transponder lease.
In absolute values, Cignal TV spends around P3,500 to acquire one subscriber (selling the set-top-box at a price below acquisition cost), allocates P400 per subscriber on advertising costs and incurs P1,500 per subscriber or programming cost. This level of spending is projected to continue for Cignal TV given the tough competitive environment.
The huge deficits in proportion to the amount of funds infused remain to be a going concern for Cignal TV. To break even, Cignal TV has to generate a total subscriber base of 800,000 to 1 million, which may be attainable in another year or two. The next challenge for Cignal TV is the return of shareholders’ investment of P5 billion.
Meanwhile, G-SAT’s DTH service was introduced in the first quarter of 2009 focusing on the lower segment of the market.
From 2009 to 2013, net losses of GSat have accumulated to P173 million, mainly attributable to huge accumulated costs of sales of P269.9 million. More than 50 percent of cost of sales account for satellite service cost, while the balance represents program cost and cost of DTH equipment for sale.
Dream TV was launched in October 2001. To date, capital infusion and advances from shareholders stand at around P3 billion. Active subscribers are below the 100,000 level. Dream TV’s cost to acquire one subscriber is around P1,000. Importation, marketing and distribution of set-top boxes are currently outsourced to NEO Satellite TV Distribution Corp. Dream maintains and operates a call center for subscription loading activities, service activation and trouble shooting.
From 2009 to 2013, net losses of Dream have accumulated to P1.1 billion, mainly attributable to slow subscriber build-up and declining average revenue per subscriber,which disabled Dream TV to attain its break-even sales revenues.