Only one month into 2009 and many broadcasters and media institutions across the globe are scrambling to protect themselves from the financial crisis. Digital Broadcast looks at some of the challenges facing the Middle East content delivery industries and some of the solutions that could buffer it from the worst aspects of the economic downturn.
US newspaper publisher The Tribune Company filed for bankruptcy protection at the turn of the year, the UK’s Channel Four has joined commercial network ITV in a major round of job losses and programme-making budget cuts even the Middle East’s own media tycoons have seen their fortunes slide in line with the rest of the world.
Despite all this, there are plenty of positives on the horizon for the Middle East broadcasting industry. A bout of consolidation of resources and streamlining of costs could lead to a “survival of the fittest” scenario with the most efficient commercial entities coming through the other side along with the state broadcasters and non-commercial FTA channels.
The following is a selection of the most pressing issues and potential solutions for those looking to monetise content in 2009.
Ad revenues will be redistributed not spliced
The decrease in advertising spending – particularly for print media – has been an ominous black cloud hovering over western media outlets for some time. There are statistics that back up these claims. According to eMarketer, US TV ad spending, which had grown 2.4 percent in 2007 and 2.9 percent in 2008 (with the Olympics and US elections making a big contribution), will fall 4.2 percent in 2009 to US $66.9 billion and will level out at that level in 2010 at $67.2 billion.
US newspapers will fall by even more from $45.4 billion in 2007 to just $28.4 billion in 2012.
However, a recent study by the World Association of Newspapers has found that despite the dramatic declines in Europe and the US, the global newspaper market is experiencing three percent growth in circulation and one percent growth in advertising sales.
Even in the depressed Western markets, growth in online ad spend is set to hover around the 10 percent mark or higher until 2013.
The message for Middle East media companies is clear: don’t believe the doom mongering and do give the internet the attention it deserves.
Projections on ad spend show major shifts in the distribution of spending rather than dramatic overall cuts. If your content is not already available online, there is a strong possibility that you are already losing money as advertisers take their much coveted cash elsewhere.
2009: The year of Arabic production?
Expensive, premium international content will of course always have an audience in the Middle East but it may become increasingly difficult to sustain over the next few years.
Fortunately, several cogs will fall into place next year that could produce content that not only fills the gaps in the schedules, but adds value to the networks’ programming and satisfies the demand for quality Arabic entertainment.
Last month Abu Dhabi’s Twofour54 tadreeb, the cluster’s learning academy, welcomed its first students for a course on production co-ordination. As a steady flow of professionals and students alike begin to apply their newfound skills and knowledge within the local market.
Dubai Studio City should also begin racking up programming hours in 2009 and stimulating additional creativity and competition among the existing producers.
The appetite for Arabic content is undoubted with last year’s surprise hit, Noor, firmly dismissing any claims that the region’s viewers yearn only for blockbuster US-sourced programming.
The slow-burning investment at the Abu Dhabi Media Company is on the verge of sparking a burst of big budget programming which will raise the stakes, and the standards.
The other differentiation that could emerge in the local market in 2009 is the increased proportion of Arab nationals involved in content production.
Arab cinema emerges
Saudi Arabia boasts almost two thirds of the population of the GCC countries. If the Kingdom’s modestly sized cinema screenings of late were to become mainstream, the Gulf market would receive a huge boost and the Arabic market at large would also receive a significant increase in potential audience share.
Presently however, audiences in Lebanon, Kuwait and the UAE have tended to turn out in force for the same blockbuster scale movies as cinemagoers in Europe and North America. The Dark Knight broke UAE box office records in 2008, a year which was dominated by the big Hollywood releases including Indiana Jones and Iron Man leading the way. This has made it difficult to judge whether the appetite for locally produced films is missing or whether it simply hasn’t been cultivated because the cinemas have given such limited runs.
Recent Arabic-language success stories such as Captain Abu Raed have been given only limited runs in regional cinemas. The distributors point to the fact that they need to run Hollywood, Bollywood and Arab cinema concurrently and as a consequence, they cannot afford to provision lengthy runs to every film.
As production ramps up and the Arabic-language market is given more Arab cinema – perhaps on the small screen to begin with – the demand will increase and film distributors may have to reassess the prominence of Arabic movies in their schedules. Showtime and MBC have both enjoyed success with Arabic-language films and if the fervour that surrounds the annual Ramadan Musalsals could be replicated among cinema goers all year round, success would seem guaranteed.
New satellite launches: An end to the capacity crunch?
With Arabsat, Nilesat and newcomer Yahsat all planning to launch new satellites in 2009, broadcasters will be hoping to see more bandwidth available for added value services and of course, to bring down the price of the much in demand transponder space.
“These launches will not bring a complete end to the capacity crunch. The demand for satellite capacity is on the rise in the Middle East and Africa and to some extent the availability of spectrum holds the key,” claims Shawkat Ahmed, CCO, Yahsat.
“There is a constant increase in the number of new television channels emerging in the region. This is in addition to increasing demand for new interactive channels offering Arabic-language content.
Furthermore, with the growing numbers of HD ready television sets available in the region, the demand for HDTV services will become more prominent through 2009. HDTV requires approximately three to four times more satellite capacity than standard definition TV,” claims Ahmed.
With the likes of Arabsat having laid down expansion plans several years ago it is unlikely that recent events will have any significant effects on these plans.
“The credit crunch means that satellite operators might struggle to find finance for new satellites in the near future.
However, we believe satellites currently in development will continue as scheduled as finance has already been secured for most of these projects,” assures Ahmed.
“We are confident that the satellite industry in the Middle East is buffered from the global financial situation due to the fact that the demand is higher than the satellite capacity supply. That demand will continue to be strong.”
Financially, the satellite industry looks fairly secure. Broadcast clients make up only a small part of its customer base and more lucrative applications for governmental clients will shore up the satellite service providers.
This should ensure that they are in a strong position to continue expanding the available bandwidth.
EPL rights: Pay TV competition heats up
The tender for 2010-2013 English Premier League (EPL) football rights in the Middle East will open once the UK rights deal has been finalised. Speculation has been mounting in the regional and international press that Al Jazeera will join the bidding process as it looks to add to the UEFA Champions League and UEFA Cup rights that it acquired in February last year.
There is a proven record of premium football driving subscription numbers in the Middle East with ART claiming to have doubled their figures as a consequence of its exclusive 2006 World Cup rights deal. Subscriptions to Al Jazeera’s sports channel rocketed to the half million mark following its acquisition of the pan-European club competitions and both the Italian and Spanish domestic leagues.
In the past, ART and Showtime were considered as the only likely bidders for the EPL however the competition’s now proven ability to bring in subscribers has seen a new cast of interested parties lining up on the sidelines. The same situation is emerging in the UK where American sports broadcaster (and Disney subsidiary) ESPN is eyeing the UK rights.
ESPN enjoys strong brand recognition in the Arab world with NBA basketball the second most watched sports competition in the region. If they believe as strongly in the potential of the EPL as is suggested there is no reason why they may too enter the race to secure pan-MENA rights.
One issue that pay TV channels rather than pay TV networks will have to consider is how they monetise this significant investment the EPL rights demand. The increase in subscribers seen by Showtime drives up ad revenues across all of its Show- branded channels, it increases sales on its pay-per-view movies and live events services and increases traffic on its VOD platform.
The options for a pay-per-view channel would be limited to the direct subscriber fees and sponsorship associated with the competition, which may not be enough to offset the cost of a winning bid. This would leave the way clear for the pay TV operators to secure the rights.
New platforms and STB investments could drive revenues and sink piracy
New platforms equal a new front for the battle against pirate operators based in the region and securing these signals becomes increasingly important given the current financial climate.
This, coupled with the entry of new broadcast entities – the telcos – means that 2009 could be a busy one for conditional access hardware and software developers as operators go on the defensive and turn up the heat on pirates.
The key to achieving this could be a change in mindset from the operators themselves.
“DRM and security issues are undoubtedly becoming one of the major issues for pay TV operators. In the past, price has held the biggest influence on STB choice in the Middle East. This is rapidly changing however, with content security and service innovation becoming more important to them,” says Shane McCarthy group account director at Pace.
“Service providers are recognising that choosing a higher-end box that offers greater flexibility to provide market differentiating services can both drive adoption and help reduce piracy – two important ways to build revenue.”
The selection of a STB by an operator is a huge decision. The box limits or enables the services they can offer. Aside from these features, the box must also support adequate middleware – the medium that connects the operator and the viewer – which must remain easy to use without limiting functionality. McCarthy believes that making the right choice can seriously impact the commercial success of an implementation.
“VOD and PVR services are enabling more opportunities for premium content theft and this can seriously undermine revenue generation for the content owner. To be successful in the pay TV market, the region’s operators need to recognise that in the long run, deploying a high-end STB solution that effectively manages DRM and security will lead to improved ROI,” claims McCarthy.
How will broadcast technology vendors cope with the downturn?
The IABM, the industry body representing broadcast manufacturers, revealed that it had seen the first signs of a slowdown in the broadcast technology sector when it announced the results of two key reports at the tail end of 2008.
The IABM Index tracks year-on-year change in overall sales and profitability. Participating companies had previously recorded sales growth of 11.9 percent annually with 2008 sales totalling US $10.3bn but the latest edition of the research has shown that this growth has peaked. The profit margins of these companies are also affected with the previously expanding profit margins growing at a slower rate.
“The cyclical peak rate of sales growth seen in both October 2006 and October 2007 has hardly happened at all this year,” says Roger Stanwell, IABM CEO. “There is now an indication of the start of a decline in the long term value of this Index, for both North American and European companies.”
The financial outlook is echoed by the executives of the participating companies. An IABM/Ernst & Young poll of senior executives at the manufacturers emphasised the seriousness of the global situation.
“The extended period of growth in the sector may be coming to an end and responses to our survey suggest that suppliers are now expecting much more challenging times over the immediate period ahead,” says Stanwell.
For the first time since the survey was conducted in 2005 confidence in the industry has switched from being positive to negative overall.
The report describes the “late cyclical” nature of the industry with the momentum of large projects delaying the impact of an adverse economic situation. Over the previous 18 months the industry has also benefited from both the Olympics and the US Elections, which triggered vast investment in broadcast and production infrastructure and may have masked any early signs of the impending “difficult period”.
Despite the report finding a decrease in order volumes in the final quarter of 2008, there are few signs that this global trend is representative of the Middle East given the number of tenders emanating from the region.
As broadcast manufacturers look to more resilient markets for business, regional buyers could find themselves in a stronger position than they were previously as the competition for orders heats up.
“The Middle East media groups are less reliant on venture or short term debt than many Western companies and this seems to have allowed them to escape the worst of the credit crunch effects,” says Stanwell.
“Nonetheless, the volatility of stock markets and more recently the oil price collapse will surely cause many to hold off on major new commitments until there is more stability.
In such conditions, there are some great opportunities for investment now to secure good future positioning when the upturn comes. Finding the right opportunity is the tricky part.”
This assessment is also backed up by IABM members, with Stanwell reporting that they are finding the Middle East market “more vigorous than many other regions and are aware of the importance of long term relationships”, adding that this year’s CABSAT will offer a good indicator of future regional trends.