Exclusive content mars pay-TV market's health

Exclusive content carriage has been a formidable pay-TV strategy but ultimately works against providers and consumers

Many alternative pay-TV providers around the globe including PCCW (Hong Kong), France Telecom (France) and SingTel (Singapore) are achieving success largely due to exclusive content acquisition. Incumbent pay-TV providers also use exclusive content to keep their market dominance from waning, and block the prospects of success for new entrants.

Content exclusivity is currently a contentious issue around the world and an on-going regulatory concern in many markets. Regulators and competitive bodies fear exclusive content carriage can give a provider significant unfair advantage over competitors. They fear that dominance of one provider can harm the competitiveness of the pay-TV market, damage its future growth and cause consumer dissatisfaction.

Pay-TV providers that are enjoying content exclusivity deals obviously view exclusive content carriage positively while providers without premium content are against it. In Hong Kong, for example, PCCW favors exclusivity deals while HKBN is strongly against them. PCCW has overtaken incumbent i-Cable, which was enjoying exclusive TV content before 2005, as the largest Hong Kong pay-TV provider due to exclusive content carriage. Generally, most providers do acknowledge that exclusive content deals increase content costs for them, but they are afraid that if they do not make a deal, a competitor will.

In a market with exclusive content carriage, the consumer is forced to choose its pay-TV provider based on who is carrying his or her desired content, rather than who has the best customer service, quality of service and pricing. Sometimes, it also happens that a consumer has chosen a provider based on its carriage of a particular content and in the next bid cycle, the provider loses the carriage rights for that content. The consumer is then stuck with a pay-TV subscription without the desired content.

In some markets with high content fragmentation among pay-TV providers, consumers are forced to subscribe to more than one pay-TV provider and maintain more than one set-top box. Expensive pay-TV provider content acquisition deals also drive up the subscription prices for consumers.

Content owners fiercely oppose any regulation or control on content carriage agreements, saying these should be allowed to promote a completely free market. They also argue that such deals benefit the consumer by helping the creation of quality and innovative content.

Before 2007, StarHub was the only pay-TV provider in Singapore. After the entry of SingTel with its mio TV service, there has been stiff competition in Singapore's pay-TV market. The two providers have been especially competing to acquire exclusive content carriage rights.

One of the high-profile content bidding between StarHub and SingTel took place in the second half of 2009 for the broadcast of the English Premier League (EPL) in the 2010/11, 2011/12 and 2012/13 seasons. SingTel won the bid with a hefty price tag of around $300-$400 million, significantly higher than the price set in the previous cycle. These exclusive agreements have resulted in a spike in content acquisition costs, negatively impacting profitability of the pay-TV business.

Consumers in Singapore are not comfortable with content being exclusive to one provider. Most of the popular content and channels are exclusive to either provider, and many Singaporeans are now having to face the prospect of being forced to subscribe to services of both the providers and getting two set-up boxes.

With content acquisition costs rising, it is inevitable that the subscription prices for pay-TV service will also rise significantly. This will negatively impact future growth of Singapore's pay-TV market, which has a relatively low household pay-TV penetration rate of 51%. Pay-TV ARPU in Singapore is already high compared to other similar markets, and even higher subscription rates would slow down the market's growth.

After the EPL bidding war, Singapore media regulator the Media Development Authority (MDA) started looking more closely into the issue of content exclusivity. In a new ruling, the MDA requires that the content for any exclusive carriage deals that take effect from March 12, 2010 will have to be carried by all pay-TV providers in the market.

The MDA is currently in talks with industry participants and was due to decide on the implementation of the ruling last month. The new directive was needed to cool down the content acquisition wars, but it might take three years for it to take effect fully and for Singapore to become a pay-TV market where any content is sold by all providers and available to all subscribers.
The new ruling will be welcomed by new providers aspiring to launch pay-TV service in Singapore because it will allow them to build attractive content considering the imminent roll out of IPTV service.

Regulators ban exclusive content

Exclusive content deals for pay-TV have been banned in the US since 1992. Last January, the FCC extended a rule that bars cable operators from keeping content from competing pay-TV providers. This rule means that cable TV companies like Comcast and Cablevision cannot use even their partial ownership of channels like Entertainment Television and Sundance Channel to keep them from being carried on the pay-TV networks of competitors. The extension of this ruling will give alternative providers enough content ammunition to attack the domination of the larger companies.

In some European countries, access to premium content is an ongoing competition issue. In 2007, UK regulator Ofcom began a competition investigation into pay-TV premium content. Last March, Ofcom ruled that the dominant UK pay-TV provider, BSkyB, must offer its premium channels to competitors at regulated prices.

Ofcom has not yet ruled on movie content but has asked the Competition Commission to investigate BSkyB's exclusive movie content offering. The new ruling by Ofcom on sports content, and a future one on movie content, is expected to help alternative pay-TV providers if they can leverage the new content and provide a superior service.

In France Orange Telecom has been aggressive in acquiring exclusive content for its IPTV service. The strategy has helped make Orange TV service one of the most successful IPTV services in the world. However, the French Competition Council said Orange TV service should not be allowed exclusive rights to its own Orange Sports and Orange Movie channels.

Content exclusivity remains among the most powerful weapons in the pay-TV provider's arsenal. When exclusivity is allowed, providers are forced to try to make exclusive deals at the expense of surging content costs. This should not be the case in an ideal pay-TV market. Service providers should be able to sell all available content and differentiate based on quality of service, customer satisfaction and competitive packaging.

Pay-TV providers should shift their focus to non-content differentiators to enhance the experience for consumers and introduce interactive and convergence-based features. With content exclusivity deals, the content owners are getting rich at the expense of service providers and, ultimately, consumers.

Adeel Najam is senior industry analyst at Frost & Sullivan, focusing on the Asia-Pacific telecom sector