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OTT and piracy knock lumps out of Asian Pay TV

OTT has joined piracy as a thorn in the side for many Asia Pac pay TV operators and threatens to derail growth in many of the markets. This has already happened in Singapore, which as a saturated pay TV market exposed to cord cutting which has some similarity to the US.

The decline started a little later in Singapore around the end of 2015 when Pay TV saturation combined with renewed growth in piracy and this affected the two big, incumbent Telcos StarHub and Singtel. StarHub actually lost 6,000 subscribers in Q4 2015 while SingTel only managed to gain 1000 after a period of much faster growth. Since then the arrival of Netflix and rival OTT services, has added an additional drag, leading to an accelerated decline, although with SingTel continuing to outperform the market.

The four main forces in OTT SVoD in Southeast Asia include PCCW’s Viu, Netflix, SingTel’s own Hooq as well as iflix, and they all have a widespread presence in the region with some customers in Singapore.

Which is perhaps why over Q3 2017 the total number of pay TV subscribers fell 4% to 871,000, with StarHub losing 2.1% of its base quarter on quarter to 467,000 subscribers and Singtel flat at 404,000. Yet just like the major US pay TV operators around two years earlier ARPUs held up at their historically quite high levels for the region, for example $51 for StarHub, reflecting the early sub losses being concentrated among lower tier customers.

Singapore is a fairly small market, but the impact of piracy and OTT is a common theme across the entire Asia Pac region, which is diverse in other respects. In sheer population China and India dwarf the rest, but in pay TV revenues China and Japan are, and will remain, dominant although with India catching up. These three large markets are set to gain pay TV revenue and more than counteract expected losses resulting from piracy and OTT impact in many of the region’s other countries. According to Digital TV Research, total Asia Pacific pay TV revenues will increase by $5.75 billion between 2016 and 2022 to reach $40.13 billion, with China and Japan between them accounting for half by then and India one sixth. But India will account for $3.25 billion or 57% of the revenue growth, while China will put on just $1.1 billion or 19%. Pay TV revenues are also set to gain in Bangladesh and Myanmar, but fall in at least six other countries.

But it is on subscription numbers where piracy and OTT are having greatest immediate impact in some Asia Pac countries, as in Singapore. For this reason, India will continue to underperform in subs growth, even though ARPUs will rise from their exceptionally low values by global standards. Most surveys have Indian subs rising from around 155 million in 2017 to 180 million in 2022, while China, where the impact of piracy has been slightly less, is on course to grow from around 320 million in 2017 to 350 million in 2022. China also has AVoD from local suppliers at massive scale, and considerable local SVoD (see Rethink TV Report into Asia Pacific OTT).

Beneath the headline figures there are great differences in dynamics between the Asia Pac markets. Some analysts rope China off as a category of its own because it is so different under its hybrid of communism and capitalism, with pay TV almost a utility and growth opportunities limited for legacy pay TV limited as a result of tight regulations as well as a rampant indigenous pay OTT sector. Netflix gave up on its original plan to enter China on the same basis as other countries of the region and instead had to come in early 2017 through the back door through a licensing deal with one of the largest local online portals iQiyi, which has about 500 million monthly viewers.

While early traction may be modest, Netflix can at least pin hopes on anticipated rapid OTT and SVoD growth there, with the country expected to take half Asia Pac’s $24 billion OTT total revenues from TV episodes and movies by 2022, a fourfold increase over the 2016 total of around $3 billion. OTT revenues across Asia Pac as a whole are expected to triple over that timeframe to just $24 billion from $8.27 billion recorded in 2016. China is expected to be a particularly strong market for SVoD and account for 59% of the region’s total $9 billion SVoD revenues by 2022, having already just overtaken Japan to be Asia Pac’s leading earner in that sector.

As we know OTT has become inextricably linked with the rising piracy, which is fuelled by improved broadband access and higher speeds, making illicit stream distribution more attractive. The growing ownership of illicit streaming devices such as Kodi has also been a major factor, as witnessed by recent action against a set top box supplier based in Melbourne, Australia, after a joint investigation by the global coalition of content owners Alliance for Creativity and Entertainment (ACE) and the region’s cable and satellite trade association CASBAA’s Coalition Against Piracy (CAP).

The company was allowed to remain anonymous as part of the settlement deal, which involved cessation of selling IPTV set-top boxes, pre-loaded to play pirated movies, television shows, sports programming and other content in Asia. This part of the firm’s operations in Australia have been closed down. The devices were sold on average for A$400 ($300), which included a year’s unauthorized subscription to pirated versions of VoD movies, as well as live sports channels, and premium TV channels from Europe, India, the United States, and South-East Asia.

Piracy is as old as pay TV in Asia Pacific, just as elsewhere. Back in 2004 CASBAA reported that the total cost of piracy in the region measured as additional pay TV revenues that would have resulted in its absence (always something of a guestimate) were about to pass the $1 billion a year mark across the Asia Pac region for the first time.

The figure was rising by just over 10% per annum at that time, which would have brought losses up to about $3.6 billion a year by 2017 had that trend continued. In fact the growth if anything slackened off over the following few years but then took off to new heights as the impact of higher broadband speeds and penetration kicked in. Estimates vary but most put the cost of Asia Pacific video piracy up to three times that figure, around $11 billion when OTT and SVoD are taken into account. This highlights how OTT and SVoD services are themselves major targets for pirates, with providers of streaming content as a whole set to lose about $28 billion worldwide during 2017 alone. Meanwhile Asia Pacific is about to take over from North America as the region losing the most revenue to video piracy.

The only consolation here is that the rapid growth in OTT revenues is outstripping losses to piracy. Whether this represents success in a fast-growing market is debatable, but in some Asia Pacific countries there are signs that a combination of anti-piracy measures such as network forensics and video watermarking, along with making premium content more widely available affordably, is helping contain the problem. OTT then can be seen as both a cause and remedy for piracy.

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