There has been no shortage of analysts forecasting doom and gloom lately for Latin American pay TV, with Digital TV Research adding its weight behind earlier predictions of imminent slowdown from Dataxis and Business Bureau among others. Such forecasts are roughly on the money over the broad outline, but fall down by lumping the whole region together when it actually comprises diverse markets with varying dynamics at different stages of development, influenced by contrasting regulatory regimes and macro-economic factors. Even piracy, widely considered a common blight across the whole region, varies greatly between markets being most rampant in Colombia and Brazil.
Back in 2010 we issued our first five-year Latin America forecast which was bullish, but turned out to be substantially correct both over total numbers and in singling out Brazil as the engine of growth. We have since issued updates which have become increasingly nuanced and predicted that Brazil would slow down as a result of its economic plunge in fortunes. In the event, as we pointed out two weeks ago, Brazil’s pay TV market has gone into reverse and is in serious danger of being re-overtaken by Mexico as the region’s biggest pay TV market, sometime in 2017.
Brazil overtook Mexico around 2011 and the gap widened, which was not surprising given that it has twice the population and was coming from a base of much lower penetration. We never expected that gap to start closing again so dramatically as it has been doing, but then no economist we are aware of saw the extent of the current recession coming, which is now causing concern among the Olympic committee given the accompanying instability.
Brazil still has most pay TV subs, but a smaller proportion of households, as a result of which, penetration expanded rapidly for some years with the total doubling between 2010 and 2014. But in 2015 the Brazilian base shrank from 19.65 million to 19.39 million over the calendar year according to regulator Anatel, as a result of the acute economic slowdown. By contrast Mexica has been booming and this has helped pay TV growth accelerate significantly with the base soaring 1.81 million year on year to reach 17.4 million by the end of Q3 2015.
One salient factor, accurately highlighted in the Digital TV Latin America report, is that Brazil has unusually high ARPU, which means that it is way ahead of Mexico for revenues despite the gap in subscribers being small. This has acted as a check on pay TV growth in Brazil, offsetting the push given by the historically low penetration rates combined with an expanding middle class until recently. But Brazilian ARPU has been declining over the last few years and converging towards the rest of the region, and we agree with the expectation that this will continue. The result is that Brazilian pay TV revenues are expected actually to decline over the next few years even though growth in subs will resume, although at nowhere near the rampant rates of the six years up to 2014.
In any case Brazil, Mexico and Argentina will remain the dominant markets by revenue as well as subs, accounting for two thirds of takings by 2020, that is $12.9 billion out of $20 billion by 2020, according to Digital Research and those numbers are as plausible as any. Brazil is on course to take $7.3 billion of that, Mexico, $3.4 billion and Argentina $2.2 billion. Argentina has already done a lot of its growing with penetration at over 70%, well over double Brazil’s of 29%. Uruguay and Chile are also fairly saturated at close to Argentina’s level and therefore have limited growth potential in terms of subs or even revenues, given that ARPU is fairly high at the moment.
The region’s average penetration, which stands at 45% now, therefore masks huge inter-country variations. The total has been growing quite quickly in most of the countries, having been 29% in 2010, exactly where Brazil is now. Digital Research predicts it will rise to just over 50% by 2020 but this seems based on a much more favorable macro-economic situation than at present in Brazil, given the limited room for growth in the other major markets that are more saturated. This prediction equates to an additional 14 million new pay TV homes over that forecast period, with Brazil accounting for 4.7 million of those, bringing the total to 82 million.
All these forecasts have to side step or in practice ignore as many as three large elephants in the room. These are piracy, chronic underreporting of customers and OTT (including Mobile First TV), none of which are properly taken into account in these reports. Again all three of these vary a lot between countries and can really skew the numbers. In Colombia the Business Bureau’s Market Estimates report suggested that pay TV subscriptions topped 8 million in 2014, an increase of 4.3% over the year, but this was far higher than the 5.1 million cited by regulator Autoridad Nacional de Television (ANTV). BB said that piracy added about 15% to the official number and under reporting another 11%, although this still leaves over 1.5 million unaccounted for.
Fortunately, discrepancies are less in most of the other markets, but in Brazil piracy is at a similar or even greater level per head. The latest figures we can find were published in August 2014 by the Brazilian Pay TV Association (ABTA) and the national union of operators in the sector, Seta, estimating pay TV piracy at 4.2 million households, which is almost 25% of the official total and 7.5% of all homes.
The other big distorting factor is pure play OTT, both by adding revenues that are usually not counted in pay TV reports and creating a new category of subscriber that is not always acknowledged either. We know that there are currently close to 10 million SVoD subscribers in Latin America generating revenues of about $1.2 billion a year at the moment, perhaps 7% of the total for pay TV, but still growing much faster than pay TV as a whole.
Prospects for OTT also vary between countries, but in a different way from legacy pay TV, because of the dependence on underlying broadband infrastructure or mobile delivery. Currently fixed broadband is most advanced in Mexico, Chile, Uruguay and the more urban regions of Argentina. In Mexico there were 5 million VoD OTT subscribers by the end of 2015 according to Dataxis, making it the region’s number one ahead of Brazil, Colombia and Argentina.