Challenges and Horizons of Pay TV Market Discussed by Industry Experts at ‘Media without Borders’ Roundtable
Challenges and Horizons of Pay TV Market Discussed by Industry Experts at ‘Media without Borders’ Roundtable
The ‘Media without Borders’ roundtable brought together top officials of the Ministry of Telecom and Mass Communications of Russia, RTRN, and largest market players, on the first day of the milestone event of the TV and telecom industry, the 19th international exhibition and forum CSTB. TELECOM & MEDIA 2017. The discussion was moderated by Yuri Pripachkin, President of the Russian CATV Association, and Yana Churikova, Head of Youth and Music Channels at VIACOM.
Business-metabolism or friendship for cash
The roundtable session started with discussion of a large-scale topic, both in terms of content, and the demographics involved — cooperation between Russia and China in media and technologies. Every party was given the floor. The domestic ‘side’ was represented by Alexey Volin, Deputy Minister of Telecom and Mass Communications of Russia, co-chair of the Russia-China Media Cooperation Committee, Daria Khubova, Head of Russian-Chinese Cooperation at the ‘First Channel. Global Network’, Cyril Lysko, CEO, Digital TV, Mikhail Kovalchuk, CEO, Signal Media, and Cyril Philippov, CEO of SPB TV.
According to Alexey Volin, business interests see China as a priority partner for Russia in the media industry, and many Russian companies are actively probing opportunities in the neighbouring country. Moreover, this proved to be a new opportunity and a new sales market for industry players after the closure of the Ukrainian market for Russian companies. The Chinese market is huge. Shanghai Media Group alone has annual budget of over USD 5 billion. Given the size of the population of one and a half billion people, one can say that the Chinese market is far from being saturated. However, according to Mr Volin, it is not all about the opportunities, as it is a difficult partner. It can take up to two years to sign a contract, from the first ‘date’ to actually executing a binding agreement.
Discussing this latter statement, Lu Libo, Vice President, Solution Sales and Marketing, Huawei, Russia, a representative from the Chinese side, explained that there were various business models, and the national bureaucracy was not always so slow.
The principal driver determining the speed of reaction of our neighbours is popular content offered by the business partners. This statement was supported by other participants of the discussion. Mikhail Kovalchuk mentioned the memorandum between Digital TV (coordinated by Signal Media) and LeEco which had been signed back in May — the first content under this memorandum was launched in June, and fully-fledged cooperation was in place in November 2016. The speaker noted that the Chinese side is happy to be buying Russian cartoons (e.g. MiMiMishki series), and documentary products. In the latter category, our foreign colleagues are themselves quite competitive on the world level. Cyril Philippov and Daria Khubova, supported this position: ‘First Channel. Global Network’ had signed a memorandum of understanding with Shanghai Media Group back in August 2016, and started sharing the content. Daria said that some Asian products may be offered not only to pay TV subscribers but also to the “main” First Channel.
Another sector where we can offer competitive product to our neighbour is software. Chinese companies are used to their own hardware, but they are prepared to buy software made in Russia.
Lu Libo concluded this part of the roundtable saying that video and media are among the basic needs of the today’s people, reasonably close to the need for water and air. This is a bold statement. However, considering that the number of pay TV subscribers in China exceeds 340 million (!), one can conclude that all those people see pay content as a basic value.
‘21st button’ and houses without wastewater disposal systems
The second part of the roundtable touched upon the most urgent issues faced by the Russian TV and telecom industry. Yury Pripachkin presented a summary of 2016 year results (ARPU is up by 5% at RUB152 per user, the number of pay TV subscribers reached 41,280,000 people, the market size is around RUB 74 bn), and turned to the issue that is particularly sensitive for the operators — the ‘regional channel’ (or the ’21st button’ problem). How should this channel be shared by the regions (e.g. Moscow users see Moscow.Doverye channel when selecting the 21st button, while people in the Moscow Region would see Channel 360), what should be the order of broadcasting? Alexey Volin believes one must respect the law and change the network to comply with the existing regulations.
“What if there is no regional content (TV channel) in a given region? Where should we get local advertising from, for the operators to be able to include two multiplexes?” Oleg Grishenko, President of Rosteleset Association, asked representatives of the regulator. It seems there is already an answer to this: in late November RTRN had received a schedule for inclusion of regional advertising; the work will be done between February and June 2017 — all currently suspended initiatives will be considered, and necessary permits will be issued. These plans, with some of them already implemented, were shared by Andrey Chernikov, Head of Technical Policy Strategy of RTRN. As to another controversial point — connection of operators to RTRN networks — this problem does not any longer exist, the official said. Each and every individual claim was considered: of 666 applications, only 164 were rejected for objective reasons.
There were several other sensitive issues covered in the discussion: how to boost operators’ ARPU, how to monitor the quality of signal and who is to blame in case of problems, how to ensure non-discriminatory access of operators to apartment blocks. Alexey Volin noted that it is not the ‘mandatory’ channels that hinder operators’ ARPU growth (today, ARPU in Russia is within USD 3 per person), but strong competition and dumping practices of operators; the requirement to include must-carry channels in the package has nothing to do with it.
Discussing regulation of the signal quality, the public official noted that the quality does not necessarily depend on the operator. The latter often gets a ‘low grade’ signal from the broadcaster and can’t be held accountable for that. In this case the main task is not to make the quality even worse.
Non-discriminatory access to apartment blocks for all operators is a real point of pain in the industry. Where the Ministry of Mass Communication is fiercely lobbing for their industry players, the construction sector has their own reasoning — installing modern communication networks in houses drives up the cost of construction, thus making it less profitable to construction companies. Alexey Volin’s shrewd remark was: it would be still cheaper to build a house without water disposal systems, but nobody would do it nowadays. In any case, this is the area where the interests of two markets — construction and telecom — need to be reconciled. Representatives of the private sector are already prepared to see the funny side of how municipal service providers take money to let operators enter the building; and the price of such a ‘permit’ is on the level of the subscription fee, said Andrey Semerikov, CEO of R-Telecom Holding. The point he made is that such conduct of business disturbs the balance of the entire market.
How many shades of grey?
Ways of boosting the ARPU were a matter of intense discussion: should one keep fighting for new subscribers, or focus on pushing up the ARPU of the existing ones? Mikhail Demin, Director of NTV-PLUS, reported the indicators achieved by his company (ARPU is 2-2.5 times the market average); he believes it is crucial for NTV-PLUS to maintain those high levels at the same time expanding the subscription base. Practically all marketing tools have been tried, now it is the time for technological solutions that would ensure high quality and convenient service to the subscriber, e.g. penetration into the OTT environment, even if it is somewhat of a ‘grey’ area. For example, till today OTT services may not legally broadcast the first multiplex’ channels.
Alexey Kholodov, CEO of Tricolor TV, recommended his colleagues to measure the market by counting the number of TV sets rather than households, as we all know that most Russians have more than one TV set at home. This creates more room for market growth.
Different strategies in product creation were discussed by representatives of Beeline and MTS. Alexey Zhuravlev, Head of Business Development at Beeline, spoke about their convergence product that packs together mobile communication, Internet and TV, and thus creates competitive advantage, primarily due to its user-friendliness. On the other hand, MTS is creating separate products for every service, and feels quite confident in the market too, noted Natalia Bratchikova, Head of Marketing of Fixed Communication Business and TV at MTS.
Sergey Nazarov, President of ACADO Group, in his presentation moved away from the ‘grey’ zone to ‘black’ one. He touched upon the problem of pirate content broadcasting services. Such providers do it illegally, without sharing revenues with the producers of the content, and thus can use all the cash to develop their services. What can be done about it? Legal pay services should be made more sophisticated and thus more popular than pirate ones, even if it is not an easy task for pay TV operators as they have to give away most of their revenues to the content producers.
The latter were represented by Elena Balmont, General Director of Viacom International Media Networks Russia. She noted that all operators want high quality content. However, high quality means expensive. For example, her company spends around USD 4 billion per year for content production, and just 25% of western content is free-to-air, the rest of it is distributed through pay channels.
Dmitry Mednikov, Deputy Director of VGTRK, Chairman of the Board of Digital TV, stated in his presentation that “the principal result of 2016 is that the pay TV industry has withstood the crisis”. Rosstat data show that in three quarters of 2016, the pay TV market achieved a growth of 9.6% against the backdrop of declining GDP (0.7% reduction) and stagnating consumer demand. One can ask: how is it possible to boost revenues in the situation of negative demand and unfavourable economic environment? Could this be a short-term upsurge to end as quickly as it started? “In fact, there is no enigma there, it is all about personalized work with the audience, and expansion of topical channels,” Mr Mednikov said. Since 2015, the viewing share of the channels offered by Digital TV is growing consistently, with the growth rate of 8.6% in 2016. This figure if applied to the number of viewers is still more impressive given that the operators’ claim that almost 70% of users in Russia are already covered by the service. Establishing a channel for all groups serves to expand the audience, and consequently the number of connections per family and helps attract new viewers who were never interested in pay TV services before. The task of boosting the ARPU can be achieved by expanding the audience.
Cyril Lysko said the industry had to attract more money, be it for Russian or foreign-made content. It is crucial that the copyright owner should help the operator to get added value on the product, so as to guarantee high quality the service subscriber will be prepared to pay for. Another pressing need is a good counter, a media measuring tool that would enable planning and support a balance between Russian and foreign-made TV product.
‘Media without Borders’ set a powerful start of the year for the pay TV industry identifying key pain points, potential mitigation options, and industry trends, and setting the vectors for the next two days of CSTB. TELECOM & MEDIA 2017. At eight specialized sections in the course of this event, experts will be participating in detailed discussions on all matters of the TV and telecom industry.
Please follow the link for more details on the event: www.cstb.ru