18 August 2019

The Changing Landscape of the Malaysian TV Industry

By Johan Ishak

TELEVISION, or commonly referred to as the abbreviation ‘TV’, is about to change shape. It is suspected that TV may soon be referred to as ‘V’. ’V’ for Vision or for Video. With the wake of the digitalisation era, entertainment media businesses face a disruptive prospect, that is, the prospect of a world that platforms do not matter. A world of platform agnostic. A world of media consumption at any time you want and at any location you want. A world of information at your finger tips. A world of horrifying freedom as depicted by the BBC series, Black Mirror, but yet, a world of opportunities to make money (only if we change).

The TV landscape is changing. This is driven by changes in technology, consumption behaviour, and how business models are applied. In many countries, the TV industry is struggling. Viewers have migrated, in an exodus fashion, to on-line content streaming services (or initially referred to as the Over-the-Top (‘OTT’)). In Malaysia, the broadcasters are also on their toes and opening their eyes. Whilst the ‘Platform Agnostic’ idea is slowly creeping into the entertainment industry, broadcasters have been strategising strongly to ensure that their content is king. Investments in content is key to ensure that wherever their content goes, people will watch. There have been many debates of whether ‘Content is King’ or ‘Distribution is King’? For distribution to be king, it requires a significant change in the infrastructure. For content to be king, you just need to radiate from the creative ideas for content.

The Malaysian TV industry is not as big as many other economies. However, at 32 million population who reside in approximately 7 million TV households, it is sizeable to attract money from the advertisers’ coffers to the tune of RM2.5 billion. In 2019, Malaysia finally rolled-out its Digital Terrestrial Transmission Broadcast (‘DTTB’ or ‘DTV’) under the management of the Malaysian Communication and Multimedia Commission (‘MCMC’). Although the transmission of the digital terrestrial had already been switched on nation wide since 2017, the distribution of devices that can capture the digital terrestrial wave was only spread out in 2019. The TV broadcasters are expected to let go of the incumbent 700Mhz air wave for economic exploitation by the telecommunication industry. Meanwhile, the digital air wave to be adopted is expected to efficiently cater for the TV industry.

The TV broadcasters, both Free-to-Air (‘FTA’) and Pay TV, has begun their own restructuring to adapt to this new landscape, the landscape of TV adopting Internet of Things (‘IoT’). Media Prima Berhad (Media Prima), a FTA TV operator, who operates the number one TV station in Malaysia, TV3, had recently democratised its on-line streaming platform, tonton.com.my, from a Subscription Video on Demand (‘SVOD’) model of RM10 per month to a free platform applying the Advertising Video on Demand (‘AVOD’) model. This is because the volume of transactions on the digital space will see an increase following the DTTB initiative by the Government. Astro, a Pay TV operator, had also ventured into the free content mode by establishing Astro Enjoi set top boxes (‘STB’) that do not charge viewers monthly subscription.

Although there are many debates between SVOD and AVOD advocates, the mystery remains to which method can earn better economic outcome. Whilst Media Prima is putting its bets on the advertising model where viewers are not charged with monthly fees, Astro has split its bets onto both advertising as well as subscription models. Out of the Astro TV households, it is believed by many researchers that almost half has migrated to the free model, that is Astro Enjoi. Iflix, a new on-line content streaming service that came into the Malaysian market in 2014 is also splitting its bets by having free as well as priced content on its platform. Netflix, also a new on-line content streaming service that came into the Malaysian market in 2015 has chosen to remain as a full SVOD platform. There are other players in the market whom have also taken the same position as Netflix. They are Viu, Dim Sum, and many more. A fibre optical infrastructured content player, Unifi TV, has a slightly different model whereby their viewers enjoy free content as long as they continue to pay subscription fees for the high speed broadband services for their homes.

Whether AVOD or SVOD can make money or not, the players in the market have their own strategies that are a hybrid of retaining some legacy thinking as well as adopting the new wave in the industry. A Pay TV that charges an average subscription fees (Also known as Average Revenue Per Unit (‘ARPU’)) of, say RM100 per month, can earn annual revenues in the billions of Ringgit if they hit the subscriber numbers beyond 1 million. On the other hand, the advertising money pool (also known as ‘Adex’) in Malaysia is also in the billions of Ringgits. It is believed by many researchers that the TV industry alone accounts for RM1 billion cash revenues. This used to be RM2 billion before half of the pie got shifted to the likes of Google and Facebook. Therefore, if the money is there, for the various businesses, it is now a matter of cost structuring (or restructuring) that makes sense, content play to gain market share of eyeballs and, the most mythically believed critical success factor they call ‘Technology’.

Cinemas, video games, social media and mobile content are all the competitors to TV. TV used to be big enough to not worry about these other sources of entertainment. It is (was) like comparing Coca-Cola to Dutch Lady or comparing 'owning a car' to taxi rides. The former now seems logical when Coca-Cola faces sugar taxes and, the latter becomes inevitable when hailing services like Grab and Uber are spreading like wild mushrooms. TV will not escape the same threat. The question we should be asking is not whether people will watch competitors’ channels but whether people are doing other activities replacing the TV watching activity? When people are not watching TV, they will be facing their handphones or computers for activities such as Facebook, Instagram, League of Legend, Pubg and many more. Some are even returning back to the traditional family outing of watching movies at cinema. The challenge TV stations have now is to be present in people’s lives beyond the conventional black box we call TV. Perhaps cinemas should start showing episodic TV content in the cinema theatre itself. As for handphones, TV has found its new partner in crime they call OTT. OTT allows TV content to go beyond the normal TV set. A step towards platform agnostic.

Let us digress a bit for a fuller comprehension of the TV landscape. Ignoring cinemas, social media and mobile content, the TV industry alone has an intense intra-industry competition. As mentioned earlier, other than FTA, we also have Pay TV that normally operates via satellite or the internet. Astro is an example of a satellite TV. In fact, they are a monopoly. Unifi TV is an example of an internet TV that operates via the high speed broadband. Other internet TV, also known as OTT or streaming services are Iflix, Netflix, Viu, Dim Sum, Amazon Prime, Apple TV Plus and many more to come including the anticipated giant, Disney Plus. Within FTA itself, the 7 incumbents are TV1, TV2, TV3, ntv7, 8TV, TV9 and Al Hijrah. Under the new DTTB platform, the number of FTA channels have increased from 7 to 15 as of 21 August 2019 (the date of the first Malaysian Analogue Switch Off ('ASO') done in Langkawi). On top of that, there are new Content Applications and Service Provider ('CASP') license holders that are expected to introduce another 5 new FTA channels in 2020 under the DTTB FTA service brand myFreeview. That will increase the number of FTA channels to 20. In fact, if the Government wants, they can issue up to 50 CASP licenses.

With 20 FTA channels, or potentially 50, a market that consists of 7 million TV households or estimated 21 million pair of eyeballs (assuming a third of the population do not watch TV) and a slow growing TV Adex of RM1 billion, the word 'Dilution' becomes demonic. Out of the maximum 21 million pair of eyeballs identified as the TV universe, it is believed that only half are frequent TV viewers in Malaysia. This is gauged by observing the statistics by Nielsen’s TV Audience Measurement (‘TAM’) that uncovered that for popular content such as Buletin Utama, Majalah 3, 999 and the numerous Malay drama series, maximum unique viewers can reach up to 12 million for a particular programme. Where do the remaining half spend their time? The answer is in their pocket of their jeans. They defaulted to the Samsung’s, the Oppo’s, the Hua Wei’s of this world. When this behaviour is converted to what we should deem as the TV Universe (or rather, V Universe), it isn’t going to be 7 million anymore. It will now be 60 to 70 million devices inclusive of tablets such as iPads.

What does this really mean? Will a universe of 70 million mobile devices as opposed to 7 million TV households change the way TV players do their business? How will their strategy pivot to account for this? Will the DNA of the content change? Will the advertisers change their marketing strategy? Is the law ready to fight new or renewed battles such as IP infringements? Will there be more opportunities for production houses? And most feared of them all (questions); who will survive and who will collapse in light of the demonic 'Dilution'? As we speak, many households are already switching off their Pay TV subscriptions giving way to the new FTA channels that are being introduced by myFreeview as their preferred choice of entertainment. If we release ourselves from the cocoon of TV, we will realise that powerful quasi-TV operators have now grown out of its chrysalis into fully accepted entertainment platforms – they are Facebook videos, Instagram TV and of course, the multi channel network that accounts for 80% of Malaysian online video consumption, You Tube.

Let’s just leave You Tube and its gang out of the scope of this discussion first and put business into perspective by looking at the impact of OTT to the business transactions. As mentioned earlier, Pay TV in Malaysia earns ARPU of about RM100 per month per household. The same household that pays RM100 per month will soon (if not already) question why do they have to pay RM100? They can pay RM42 to Netflix to watch a whole bouquet of programmes that they cannot get from Pay TV especially when Pay TV works on repeats and are on looping basis. If they prefer cheaper options, they can pay RM8 per month to Iflix. They used to be able to pay RM10 per month to tonton.com.my but now they can do it for free. If 7 million households pay RM100 each per month, that accounts for RM700 million worth of subscription revenue. If RM700 million revenues are to be earned from 70 million mobile devices, then the equation, ceteris paribus, would mean that the charges per month can be reduced to RM10. So, clinically, if we are to apply a linear approach to the progression, the RM100 per month should gradually be reduced to RM10 following the pace of the migration of viewers from Pay TV to mobile content consumption.

What about FTA? What will become of its revenue earning ability? Currently, FTA TV industry earns about RM1 billion a year. It used to be RM2 billion a year. Half of it has gone to the digital media. In fact, to blame it on 'Digital' is probably not fair because in reality, there are only 2 players that have been pulling away TV Adex, they are Facebook and Google. These 2 are not entirely TV in nature although they do have huge components of video technology. TV Adex has now moved to user engagement following advertisers’ craze in targeting the millennials whom many believe, (millennials) are not have the spending power anyway. Proctor and Gamble’s Global CEO had recently expressed his doubts over the effectiveness of digital advertising. What constitute a ‘view’ in digital platform? 2 seconds? What about the actual viewing of the advertisements? Surely one would comprehend that a TV commercial that is not skippable has better chance of people viewing it versus skippable digital advertisements? A more robust analysis is needed to conclude this.

Back to the RM2 billion Adex. If TV operators are to expand back their pie from RM1 billion to RM2 billion, they have got to embrace digital technology. Media Prima introduced its own OTT (also the first OTT in Asean), tonton.com.my, in 2009 and since then, it has gone through the evolution of moving from a full AVOD, to a hybrid AVOD-SVOD, then to a full SVOD and now back to a full AVOD. It is as if we are looking at the diagram of the Aedes mosquito lifecycle at a Government Hospital’s lift where the Aedes mosquito transforms from an egg, to a larvae, a pupa, a mosquito and back to eggs. The point is, 'Change' is the only constant that is worth being embraced in this era of dynamic and demonic technological race. Media Prima TV has re-emerged in 2018 under its Democratising slogan where they had democratised digital (tonton), democratised content (partnership with You Tube), democratised advertisements (Jom Masuk TV advertisement package for Small and Medium Enterprises) and democratised shopping ('CJ Wow Shop'). By democratising their business, not only are they able to reconnect to the missing RM1 billion pie that has gone to the digital media, they can also tap into revenues from commerce transactions via TV platform.

Evolution is inevitable. We have got to change. Kodak failed to realise that their then 95% source of revenue, i.e. film, wasn’t going to be there forever. Despite being the inventor of digital camera, they lost their film revenues because competitors had embraced digital camera more effectively. Kodak is now under the American Chapter 11 bankruptcy proceeding. Let us look at other examples. The largest transportation business in the World such as Uber and Grab, do not own any fleet of vehicles. The largest accommodation booking services in the World like Airbnb do not own a single property. Soon, in Malaysia, the largest TV station, TV3, need not even own a single transmission tower and equipment to continue transmitting its content. OTT like tonton.com.my has now started to discard their own technological platform and has instead, outsourced that function to You Tube and Daily Motion. This saves a lot of operational expenditure to the tune of USD10million to USD20 million per annum.

Again, back to the RM2 billion Adex. What used to be separated between TV Adex and Digital Adex have got to be merged again in both the content strategy as well as media management – at least to the extent of digital money that has gone to on-line video. Malaysia is in a unique position where such merger makes sense. The TV audience base and the on-line audience base have a symbiotic relationship. A research was done by the Media Prima TV Research team concurrent with the statistical survey done by Nielsen as well as statistics fro Google. By sampling drama titles such as Pujaan Hati Kanda, Leftenan Zana and many more in 2019, their observation revealed that there is a positive phenomenon where we can (although not yet conclusive) start shouting this statement: “Cord Cutters are Returning to TV and Cord Nevers are Embracing TV”. This claim is on the back of the behavioural change of the audience. Cord Cutters are Gen X and Y that grew up watching TV and Cord Nevers are the Millennials who had never seen a Cathode-ray Tube TV (the box TV in the 80’s) and they grew up watching content on tablets and computers.

The behavioural change was catalysed by the modern habit of binge watching. Our youth likes to binge watch. When they hear their friends, sisters, mothers or even grandmothers talk about some drama series that have casting team of actors and actresses of their same age, they are moved to watch the drama series on You Tube. This led to the continuous watching on on-line to catch up up to the latest episode that had been aired on TV. This normally happens at week 6 or 7 that means that the binge watching involves 6 to 7 episodes accumulating a total of 6 to 7 hours of eyeballs on the screen of the laptops or phones. This is not uncommon nowadays. Once they are on track (i.e. watched up to the latest episode), they will join their friends or families to watch comfortably on the sofa in front of the flat screen HD TV sets at home. The statistics showed that this surge in viewership on You Tube for these dramas translates to a surge in TV viewership as soon as the so called binge watch period ends. This is a good news to the TV operators.

Another example worth mentioning is, the long tail effect of content that has gone across multiple platforms. TV3’s Anugerah Juala Lagu ('AJL') has been around for 33 years. This Malaysian number 1 ranked music entertainment competition garners an average of 3.6 million viewers on TV with a cumulative unique viewers of 5 million. If repeated again on TV, it can garner another 1.6 million viewers. The same AJL can be sliced and diced into 15 to 20 shorter videos according to the songs that have been performed by both contestants as well as invited singers. These videos can then be put onto the on-line platform for subsequent viewing forever until such point when the TV operators decide to take them off. The result was quite a delightful surprise for the 32nd AJL in 2018 ('#AJL32'). All those #AJL32 videos on You Tube, Daily Motion as well as tonton.com.my had accumulated 26 million views in the space of 2 months subsequent to the live transmission on TV3. The sponsors, Samsung and Nivea, had not only benefitted from the huge viewership on TV, they had also benefited from the viewership on-line for an extended period of 2 months. Surely this is an efficient marketing budget well spent. With such benefit, TV stations can now pull back monies into their coffers.

What is the prospect of making money for the production houses in the country arising from the implementation of the DTTB? This question cannot be answered in a straight forward manner. There are many factors in play and miscalculating moves can cost money, big sums of money. The use of DTTB makes transmission more efficient by 7 to 10 times as compared to the analogue method. With such efficiency, there is no more scarcity of the radio wave spectrums for the Government to issue CASP licenses to FTA TV business owners. This results in the increase of FTA channels from 7 to 20 and possibly more. More channels coupled with the efficient transmission that covers 100% of the country (as opposed to 85% under analogue) provides wider viewer base. This enlarged footprint and service offerings create more demand for content and hence, provide more opportunities for production houses to get production jobs. Many production houses will jump to this opportunity and to no surprise, some even considered to obtain their own CASP license. As many would believe, competition creates better quality. True in this case.

Whilst we can plan for the macroeconomics of the industry to achieve positive intended good results such as better content and more opportunities to do business, profitable businesses; inefficiencies of the reality will always kick in. Expectations need to be adjusted. Efforts need to be focused. Pragmatism must be embraced. Most importantly, investments need to be carefully strategised. Earlier we touched on the matter of Adex. Adex is the source of money that will cascade down from the advertisers, to the TV stations and finally to the production houses. Without the advertising revenues, TV stations cannot commission the production houses to produce TV content. If the TV Adex is experiencing a slow growth, or more accurate, a decline (given the digital disruption), then there will be more slices of pie from the same or shrunk sized pie. Mathematically each TV station will get less revenue from the same pool. This means that the amount of money could potentially be the same but diluted across many players. As such, some TV stations may be forced to repeat content, do low production value content or even cut spending altogether.

This is why it is crucial that the TV industry is merged with the digital media industry. This will first combine the Adex for TV and digital. Then, advertising model needs to be accompanied by other revenue model such as partial SVOD or Transactional VOD ('TVOD'). Other interactivity is needed to make the experience more engaging with viewers and more angles to create business transactions. TV shopping for example has been in operation for some years now on both Astro and Media Prima TV. It was reported that TV shopping can garner revenues up to RM300 million a year a channel. At the rate it is growing, it can even reach the same level as TV Adex. In fact, the TV shopping habit has shown some contagious effect whereby the shopping has extended onto E-Commerce and Mobile Commerce ('ECMC') platforms for those TV shopping channels. In 2019, ECMC has been reported to have achieved 40% of overall revenues collected. Apart from TV shopping, there are many other interactivity that can give rise to economic transactions. Imagine how moneys can be made from video games that can be played on the DTTB? This would certainly pull TV into the same category as the rest of the digital media platforms.

The level of competition is just going to increase. Intense competition leads to the dilution of market share. Dilution of market share results in the rationalisation of pricing strategy downwards shrinking the magnitude of revenues even further. This vicious cycle needs to stop in order for the industry to prosper. Therefore, FTA TV operators must work together, collectively, to urge the Government to regulate Pay TV operators as well as OTT operators to ensure a level playing field between all players vis-à-vis advertising on content platforms. People who are paying monthly subscription fees to watch TV are expecting that they do not see advertisements like those appearing on a FTA channel. This expectation must be respected. On-line video platforms that are getting loads of revenue from advertising must be made responsible to pay income taxes as well as consumption taxes to the Malaysian Government and not hide behind some tax heaven incorporated companies on some island thousands of miles away.

If we are to take stock, what are the entities with strength that act as natural barriers to entry to new players in the market? The largest TV station is TV3 with the market share of 27% as of Quarter 1 of 2019 out of the total TV universe defined as aged 4 plus. That is almost one third of the viewers. All of the 4 Media Prima channels account for about 35%. All of the 180 plus channels under Astro have a combined market share of about 55%. TV1, TV2 and Al Hijrah accounts for the remaining 10%. So, for new stations that are coming on board, not only do they have to fight with the colossus TV3, they will have to fight with Astro’s 180 over channels. The fight is on both accounts, advertisement pricing as well as viewership for their respective content. Advertising rates are known to have been as expensive as RM21,000 per 30 second commercial during prime time (8pm to 11pm) and as cheap as RM100 to RM200 per 30 second commercial when heavy discounts are applied in the name of price war. Therefore, it is important for the Government to step in when there is a market failure whereby the industry is spiraling downwards rather than upwards. Excessive price cuts and discounting must be regulated to normalise the situation.

As aspired earlier, content quality is important. However, there is a risk of not achieving this if the money to production houses is not good. Rising costs result in quality being compromised if the overall production value stays stagnant. The lack of funds do have significant impact on the freedom of creativity. It (lack of funds) constraints the production propensity to evolve and as a result, stale content is produced again and again. The will to change is required. If not, the industry faces its worst enemy, that is, self-suicide. Like a cancerous limb that needs to be amputated, this problem needs to be tackled. Whilst waiting for the Government to come out with policies that are constructive to the economic well being of the TV industry players, the industry TV players themselves need to change from within. What can be done?

Firstly, TV industry players need to identify new sources of revenues. As discussed at length earlier, they must embrace technology not just because of customers’ sake, but also for the sake of revenue. Secondly, there needs to be a lean cost structure. Processes must be nimble and workforce must be without wastages. The last thing a business needs is having a fixed costs that are too huge to be recovered from any contribution margins of its portfolio of projects. In TV sense, what it means is that, advertising revenues less programme costs must be adequate to cover fixed costs as well as acceptable profit margin. If outsourcing functions are cheaper, then, difficult but honest decisions must be made to replace existing workforce with an outsourced partner. Other options would be automation and shared services. Thirdly, there needs to be a pragmatic approach in targeting the audience that matters as far as making money is concerned. Values in the eyes of the customers may not be the same as values in the eyes of the suppliers. TV channels cannot produce programmes that they like. They must produce programmes that the viewers want even if the TV stations disagree with it. The most that TV stations can indulge in their own taste is to give viewers what they don’t know they like (yet).


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