TM jumps into IPTV market, but the odds of success are long

Posted by Tony Brown Sunday, February 7th, 2010

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Telekom Malaysia ™ has finally decided to make the jump into IPTV, after several years of deliberating, but the operator looks almost certain to be fighting a losing battle to establish itself as a significant player in the country’s pay TV market.
Despite the strong odds against it, TM has several reasons for entering the IPTV market, which it will most likely do by the end of March.
The first reason is the same one most other fixed-line operators around the world have for launching IPTV: TM is seeing its fixed-line revenues dwindle rapidly as subs dump their fixed lines in favor of using only their mobiles for voice services.
The second reason, and probably the most compelling for TM, is the fact that its MYR11.3 billion (US$3.4 billion) High Speed Broadband (HSBB) network is about to launch commercially and TM desperately needs something to persuade subscribers to migrate to it from DSL.
Although a sizable minority of DSL subscribers might be willing to pay higher subscription fees for the greater speeds and additional download allowances available on the HSBB, the truth is that most subs will need some persuasion to move to it – and that is where TM hopes IPTV can play a key role.
TM says that it will offer HSBB subscribers at least 10Mbps downlink speeds and that it will try to keep HSBB pricing close to what is being charged for DSL services. But that seems like a tough proposition, since the company will need to recoup its considerable investment in the network from subscription prices.
Not that easy
The problem for TM is that although its IPTV plans are based on a logical business plan, they do not seem to recognize the harsh realities of the Malaysian broadband and pay TV markets.
One thing that clearly made TM think long and hard before entering the pay TV market is that Astro has already established an extraordinarily strong position in the market – one that leaves little room for anyone else – and has already seen off several potential challengers.
Astro is fast closing in on 3 million subscriptions – in a market of fewer than 6 million TV homes – giving it a market penetration of nearly 50% at end-2009, and the company’s subscription base is still growing strongly, with the operator adding nearly 100,000 subs in the three months to end-October.
In addition, Astro has cemented a particularly strong position in the crucial Klang Valley region, where the HSBB network will be initially available to 200,000 homes and where the majority of the 1.3 million homes the network will reach by end-2012 will be located.
That means, in effect, that TM will launch its IPTV service deep in Astro’s heartland and will be facing a tough challenge to persuade subscribers to ditch their Astro subscriptions in favor of TM’s IPTV service.
Content is still king
TM has already conceded that Astro has virtually all of the best content available, both local and international, but is arguing that it can still piece together a successful IPTV platform, even though it will most likely launch with only 20-30 channels.
TM says that its market research has found that most subscribers have little use for most of the 130 or so channels being offered by Astro and that the majority of subscribers spend most of their viewing time watching only five or six channels on the platform.
Although it might be true that individual subscribers concentrate their viewing time on only a few of the many channels available, it is also true that subscribing to pay TV is normally a decision made by a household rather than an individual and that catering to the demands of an entire household with just 20 or 30 channels would be difficult.
Astro has built a phenomenal content platform, featuring 27 Astro-produced channels and content aimed at the Malay, Chinese and Indian ethnic audiences in the country – a feat that has cost hundreds of millions of dollars that TM simply does not have.
Astro is also backed by one of the country’s richest people, Ananda Krishnan, whose pockets are deep enough to make sure Astro can afford to bid high to keep its key exclusive content rights.
Astro has already locked up the crucial English Premier League soccer rights from August 2010 to August 2013, in a deal worth a reported US$250 million. TM bowed out of the bidding early.
Along with fellow regional pay TV operators PCCW and StarHub, Astro is likely to register a loss on its EPL investment, since it cannot increase its sports-package costs too dramatically without inviting a subscriber backlash. But the company sees the retention of the rights as a key defense against TM.
Regional counterpart SingTel has recently bitten the bullet and also paid a reported US$250 million for the 2010-2013 EPL rights to boost growth of its MioTV IPTV platform, which has only 126,000 subscriptions over two years after launching.
But TM does not have SingTel’s deep pockets and is unlikely to be able to secure the EPL or any other blue-chip sports rights in a direct clash with Astro.
What’s more, TM has already admitted that it has no desire to follow Astro’s lead and become a content producer itself, which means it will be forced to buy whatever content it can with its relatively meager financial resources.
As a result, it is hard to see how TM’s IPTV service can provide any serious competition to Astro – even if TM offers cheap a la carte pricing to try to lure value-seeking subscribers – given that the operator will be so heavily outgunned in terms of content.
Unfortunately for TM, although its HSBB network might provide, for the first time, a high-quality video-delivery platform, viewers pay not only for the quality of the picture but also for the quality of the content – and there is a very big difference.