Divide & conquer

The thorny issues of HDTV implementation, broadband penetration and rampant piracy were among the hot topics debated at the recent Digital TV Middle East & Africa conference in Dubai. Derek Francis reports.
Patrick Samaha, COO of ATN and GM of MTV Arabia.
Patrick Samaha, COO of ATN and GM of MTV Arabia.
Analysis, Content management

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The thorny issues of HDTV implementation, broadband penetration and rampant piracy were among the hot topics debated at the recent Digital TV Middle East & Africa conference in Dubai. Derek Francis reports.

The 1966 Football World Cup marked a number of firsts, not least being the fact it represented the one and only time England has won the trophy. From a broadcast perspective, the event marked the first time a major sporting event was shot in colour.

While the event itself was televised in black and white, the colour scenes made famous from the Cup Final went a long way to ushering in colour TVs for the mainstream.

Today, that same generation can now witness the next big shift in the audio-visual sector. Again, sport is proving an important driver in the transition to digital TV services.

If there were any lessons to take away from Informa's Digital TV conference, held last month in Dubai, it would be that the successful uptake of digital TV services depends entirely on the market environment.

TV operators in the Middle East and Africa are looking to learn from their counterparts in Europe, where the EU has set a digital switchover date of 2012.

But it's not all smooth sailing; while the UK is one of the world's leading markets in terms of digital TV penetration, with four digital platforms offering enhanced content at various price points (Sky, Virgin Media, Freeview and the newest member, Freesat), Germany, by contrast, represents a more taxing proposition.

There, the continuing success of analogue broadcast services makes German demand for digital services limited, given the latter's higher price point. But in the Middle East and North Africa (MENA), digitalisation is uniform.

"The MENA region has already been pretty much digitalised; it's a market that's transitioned at a later stage with respect to the European market - it's leapfrogged the technology," explains Matteo Altobelli, marketing director, Eutelsat.

There is no exception. In Western Europe, there is the exception of Germany, which has a lot of free-to-air analogue TV channels, which are very sticky."

So to drive the uptake of digital pay TV services, MENA broadcasters need to differentiate their product - and to achieve this, premium content and sport can act as crucial drivers.

"The drivers need to be tailored to the market in question," says Phil Laurie, director, global distribution, Al Jazeera Network.

"In the Middle East, there is a distinction between the programming available on digital pay TV platforms (with more premium content and international programming) and FTA services - and that differential can be a driver.

"Sport, as anywhere, is a hook - Al Jazeera Sport's securing of the UEFA Champions League and UEFA Cup will undoubtedly drive the take up of Jazeera Sport's encrypted channels.

Going forward, HD will be another driver, particularly in the technology-savvy and wealthy GCC consumer markets," he added.

However, according to Laurie, the MENA region will struggle to support more than one HD pay TV platform. This is because of the higher cost base involved with HD, both on a technical and capacity level.

The cost burden is passed on to consumers, who may be reluctant to fork out more for content.

Given the difficulties in gaining traction in the pay TV market, many companies are increasingly looking to offer their content for free. Pay-TV providers need to ask themselves: why should consumers pay for TV services when they can access hundreds of FTA channels on a no-cost basis?

"The market in the Middle East is consumed with TV, but only if it is free," says Romain Delavenne, director, Capgemini Consulting Middle East. "If you are a pay TV provider, the market is challenging.

There are more and more FTA channels broadcasting a vast array of content. The development of free-to-air channels is based on this differentiation of content."

Still, there's plenty of scope for pay TV services in the region, with heavily-populated countries like Saudi Arabia and Egypt remaining virtually untapped. And the reasons for not subscribing to pay TV services aren't primarily to do with price.

The FTA model, being wholly dependent on advertising, conjures a different set of issues.

Television broadcasters are generally acknowledged as the biggest beneficiaries of advertising budgets globally, even while the internet threatens to overtake it.

But in the MENA market, TV ad revenues are small compared to Western Europe.

"The Middle East is one of the most densely serviced FTA television markets in the world, despite boasting a relatively small advertising market, which is quite strange really. One of the key questions is how can television provide additional revenues based on the brand, audience and content?" Delavenne asks.

Given the region's limited internet penetration, television remains the primary delivery platform for advertisers. Eutelsat's Altobelli explains: "The long-term sustainability of free-to-air channels operating in this region is largely based on advertising revenue projections.

Worldwide advertising spending has seen year-on-year growth since 2006.

"The only platform that has enjoyed stronger growth during this period is the internet. But broadband penetration remains limited in the Middle East, so advertisers rely wholeheartedly on television to deliver their message to consumers.

TV advertising spend in this region has been growing at 20 percent-plus annually, which is encouraging more and more broadcasters to join the FTA fray," he adds.

The MENA region represents one of the world's most developed satellite television markets. According to Altobelli, about two-thirds of the region's 55 million households receive TV via satellite. Because of the low population densities, often troublesome terrain and uneven distribution of wealth, terrestrial distribution is not cost-effective.

There are, however, several methods for delivering TV content. With regulators and operators committed to lifting the region's languishing internet penetration to reasonable levels, broadband penetration is expected to improve rapidly in the next decade. This environment represents fertile ground for the spread of IPTV services.

"In the US and Europe, the majority of FTA broadcasters are providing their content to IPTV and video-on-demand (VOD) service providers for free, in a bid to expand their audience base," says Delavenne. "IPTV is an ideal broadcast platform, because it provides better functionality than other next-generation technologies."

Offering VOD is an important part of the process. Apart from sports events, which are so-called 'appointment to view' programming slots, consumers in developed markets nowadays expect content to fit into their own schedules.

The days of flicking channels and planning an evening around a scheduled programme are disappearing quickly. Consumers want to watch what they want, when they want to.

"However, IPTV platform operators, such as du in the UAE, will need to find product differentiators to compete with DTH," declares Laurie.

VOD will be one area in which they will compete strongly, although personal video recorders (PVRs) from DTH platforms like Showtime are negating this advantage - so a lot will depend on the economics of IPTV triple- and quad-play offerings versus the incumbents."

Elsewhere, mobile TV services look set to succeed in the interim, providing mobile operators a brand differentiator as well as a vital new source of revenue.

Almost 75 percent of the world's mobile operators have either launched or are planning to launch mobile video and TV services by the end of this year, which has prompted a flood of new content providers opening their doors for business.

3G mobile TV, which delivers highly tailored mobile TV services to subscribers, is already a reality. However, the region is still waiting for mass market mobile TV broadcasting.

"Mobile TV represents a long-term play in this region, no doubt about it," Laurie says.

"3G mobile TV, including mobile VOD, is here right now, particularly in the GCC (and growing elsewhere in the MENA region). But broadcast mobile is a little way off in these parts; perhaps the region is best suited to the deployment of S-band [broadcast mobile via satellite]. Either way, handset availability will make or break the initial success of broadcast mobile."

Another massive challenge facing pay TV providers in the Middle East is lost revenues to piracy. Historically, the region, compared to more developed markets, has struggled under a combination of political apathy and weak deterrent sentencing.

However, a great deal of progress has been made in the last decade, most of which can be attributed to the work of the Arabian Anti-Piracy Alliance (AAPA), which was established in 1996.

Funded largely by the US and representing the Motion Picture Association of America (MPAA), the AAPA has a broad base of operations, from Jeddah and Riyadh to Oman, Kuwait and the UAE. And with members that include Showtime and Orbit, it is tasked with combating pay TV piracy.

Since 2001, the organisation has conducted 206 raids on behalf of the pay TV industry - seizing 15.5 million DVDs, five million VCDs and 19,000 pay TV transmission smart cards.

"The commercial potential of the pay TV market and more broadly, the audio-visual sector in the Middle East, is absolutely huge," said Scott Butler, CEO of AAPA.

The problem we face however is that the pirates are winning. The broadcast industry's best-laid plans will not materialise unless they get to grips with combating piracy."

Piracy comes in many guises, including optical disc and online offences, via peer-to-peer downloads. This is a negative side effect of the GCC's drive to increase broadband penetration.

But one of the biggest issues in the region remains pay TV piracy. Digital pirates commonly manipulate decoder boxes to circumvent encryption technology and access upwards of hundreds of channels at minimal cost.

"While piracy is a global phenomenon, pirates are making significant gains in the Middle East because of the inefficiencies here. That's sure to change, but we still have a long way to go," Butler concludes.

 

Appeasing youth

The youth (16 - 24 years) market comprises one of the largest social demographics in the Middle East.

"For the youth of today, technology, in the literal sense, is an organic part of their lives," says Patrick Samaha, COO of Dubai-based Arab Television Network and GM of MTV Arabia.

Samaha believes the future of content delivery lies in the hands of consumers themselves. Individuals will create content and share it with others, who will access it using multiple devices at a time of their own choosing.

"Is TV doomed as a content delivery platform? Not at all! Yes, web usage is booming in the Middle East. Social networking sites have proven hugely popular across the region and internet usage in Saudi Arabia is increasing exponentially on an annual basis, for example," says Samaha.

"Now, you can also watch regular television programming online and on-demand. If you take the example of the radio, everyone says that the radio is dead, but I think the device is dead, not the radio," he adds.

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