Brazil’s widely reported economic slowdown and street protests, fuelled partly by declining real living standards over the last one to two years looks like being reflected in pay TV, according to the very latest figures from regulator Anatel.
Until recently Brazil has been lauded (by us as much as anyone else) as one of the fastest growing pay TV markets on the planet in revenue terms, helped by far higher ARPU than India and China. Furthermore because Brazil’s recent boom started from a point of very low pay TV penetration below 10% of households in 2006, there was plenty of slack ready to sustain high growth rates until at least 2018, but that was on the assumption that the economy would continue to expand and a growing middle class.
At the end of 2006 when rapid pay TV growth began the total number of subs was 4.58 million. It grew by 16.7% in 2007, 18.2% in both 2008 and 2009, soaring to 30.7% in 2010 and holding close to that stratospheric level at 30.4% in 2011. Even in 2012 it only subsided a little to 27.0% and we were projecting continuing strong growth on a gently declining curve through to 2018 and just beyond. We always made the caveat there was bound to be a correction at some point, given that there were strains and imbalances in the Brazilian economy and that one or two backward years would happen at some point.
It turns out those chickens have come to roost this year. After growing 7.5% in 2010 and over 5% 2011, Brazil’s economy expanded by only 0.9% in 2012. This rate only improved a little Q1 2013 with GDP rising 0.6% over the previous quarter. At the same time inflation is now running at 6.5% and real wages are falling. Consumption therefore did well even to grow at just 0.1% in Q1.
Meanwhile the Bovespa, the country’s stock market index, is down nearly 28% over the year when the corresponding indexes have risen substantially in the US and UK for example over the same period. Then in June Brazilians took to the streets protesting over high costs around the World Cup and the Olympics. Protestors talked about expensive public services and are no doubt not thrilled about pay TV ARPUs, which are far higher than in corresponding developing markets such as India and China. Generally the new middle class responsible for pay TV growth was complaining about lack of further improvement in living standards, despite high expectations generated by the hype surrounding the Brazilian economy in the past few years.
There were few signs of this malcontentment feeding through to pay TV early this year as growth continued. According to Anatel subs increased further by 745,000 in the first four months ending April 30 to reach 16.93 million. But then in May something happened that had not been observed for many years, in that Anatel actually reported a subs decline of 35,260. Of course one month’s data does not represent a trend, but given the previous rate of growth and correlated with the wider economic figures, this does indicate that the wheels may be coming off Brazil’s engine of pay TV growth for now. This may be temporary, we shall have to wait and see.
Interestingly DirecTV’s DTH operator Sky Brasil, which was until recently one of the fastest growers, was responsible for the fall, shedding 130,000 subs in May after gaining 173,000 January to April. Market leader Net/Embratel managed to put on 66,400 subs in May to reach 8.91 million, reflecting perhaps its concentration in more affluent urban areas, but even that is a slowdown, after accumulation of 413,000 subs over the first four months of 2013.
Things may well pick up next year with the World Cup providing an uplift, but over the longer term it looks like our numbers may have to be revised downwards. Brazil has come to rely too heavily on a service economy too soon. Services account for 69% of GDP, much higher than in China say, while industrial production accounts for only 20% and exports just 11%.
The only good news in that breakdown is that Brazil is less reliant than is sometimes thought on China for exports, although still depends on it for inward investment. It would be surprising if Brazil is able to regain the growth capable of expanding the middle class at its previous rate or meeting their expectations, while at the same time the proliferation of DTT based FTA services and lower priced OTT offerings will restrict classical pay TV growth. ARPU in particular will come under pressure and is likely to decline in real terms.