JAPAN’S PAY-TV PICTURE

By | August 15, 2001 | Feature

The once dominant terrestrial networks are losing money in the satellite networks. Recently returned from Japan, Chris Forrester asesses the market

Ariane’s July 12 loss of Japan’s BSAT-2b DBS satellite will not harm the country’s DBS/DTH growth. Thankfully the satellite was intended as an in-orbit spare for Broadcast Satellite System of Tokyo. Its twin, BSAT-2a, built by Orbital Sciences Corp of Dulles, Virginia was successfully put into orbit in March. Orbital says the lost bird can be replaced in about 18 months.

Despite suffering its own economic pressures, Japan has so far managed to avoid the advertising downturn that has so badly impacted on broadcasting in the UK, the United States and Europe. In fact Japanese TV ad-income to its 45.8 million TV households is currently up, with forecasts for the rest of 2001 being either flat or cautiously optimistic. But that hasn’t helped Japan’s ‘big three’ television companies (Fuji, Nippon and Tokyo Broadcasting Co-TBS) all of which have seen stock prices fall by as much as 25 per cent in the period from March to the end of June. Morgan Stanley says that it can foresee no positive factors that could “ignite any upswing in [TV station] shares over the near term.”

Meanwhile, the multi-channel sector has never been healthier and is forecast to further expand to some 60 per cent penetration of Japan’s homes by 2010. Japan’s satellite and multi-channel scene is complex, not helped by the transfer of services from analogue to digital, consolidation between past satellite competitors, some channel closures and new start-ups from fierce terrestrial rivals.

Japan’s core terrestrial broadcasters are all investing (read, losing heavily) significant sums in satellite and cable channels and still have to fund digital terrestrial. Some broadcasters have readied digital studios, but others have still to break turf on their digital plans. Fuji TV, for example, once dominated the terrestrial ratings and has a huge inventory of programming that it is now re-shaping into thematic channels with an investment in satellite broadcasting. However, its digital/thematic losses are already placed at Y3.7 billion (E34 million) last year, and predicted to top Y9 billion by the time the exercise gets close to breakeven.

These investments are already hitting its core profitability, and it’s the same story over at Nippon Television and TBS. Japan’s first ever licensed broadcaster, Nippon, is market leader having topped the ratings every year since 1993, although there are signs this domination might now be slipping. Worse, perhaps, is Nippon’s reluctance to whole- heartedly embrace multi-channel. It has a 10 per cent stake in a satellite venture and is building a new digital broadcast centre for readiness in 2003. Rival TBS, although third in viewership, is further ahead with digital. It built a digital facility back in 1994 and is heavily involved in satellite through the Sky Perfect and NHK-backed Broadcast Satellite (BS) multi-channel operations. It has already announced an increased spend on local production, especially in daytime and drama.

The country’s cable operators have achieved a 23 per cent penetration (expected to grow to 36 per cent by 2010), while NHK-backed Broadcast Satellite (BS) has a 24 per cent penetration, or 10.7million homes helped by cable distribution, predicted to grow to 60 per cent overall by 2010. BS is growing by 33,000-64,000 homes a month, depending on the season. What is termed locally as “communication satellite-CS” and elsewhere would be straightforward DTH, currently has a 6 per cent share, and is expected to grow to 13 per cent by 2010. CS now means SkyPerfecTV, the merged Sky and DirecTV outfits, which currently enjoys 2.692m subscribers (individual and corporate) and growing by a net 31,000-77,000 a month dependent on season. News Corp holds a 9.9 per cent slice of SkyPerfecTV and other major investors include Itochu, Softbank, Sony and Fuji TV.

Wowow, has grown from a single snappily-named full-service channel similar in concept to the core Canal+ channel. That is offering a rich mix of movies, sport and in Wowow’s case music concerts, and has now matured to a mini-bouquet, and distributed via DTH/BS and cable, has 2.66 million total subscribers, with analogue growth at zero and digital now bringing in between 2,000 and 28,000 a month. All systems suffer churn. Wowow claims a 12 per cent annualised churn, while SkyPerfecTV is lower at about 9 per cent annually.

SkyPerfectTV is now fully digitised, the former DirecTV service having been discontinued last year, and this year the merged outfit will fully reap the benefits of its 1998 consolidation.

Sky PerfecTV moved into the EBITDAM black last year, (based on pre-marketing EBITDA), helped by an attractive 58.4 per cent year-on-year jump in revenues. For this year the company is predicting around 480,000 net additions, a 9 per cent annualised churn rate, Y60 billion in revenues ($4.19 billion) – and a loss of Y16 billion ($1.1bn). Its 2002 income is expected to hit Y72.8bn. This boost to subscribers and income came about thanks to last year’s DTH consolidation, and in particular the switch over of DirecTV Japan. The combination has also meant ten additional channels joining SkyPerfecTV and growth from 15 to 21 PPV channels. Despite increased subscriber growth, SkyPerfecTV’s losses will increase next year thanks to heavier World Cup soccer costs.

As to SkyPerfecTV’s latest numbers, its says its end-June status stood at 2.726m subs (including trials and corporates) although annualised churn is down impressively from 9.2 per cent to 8.4 per cent. DTH subs form 2.316m of this total.

SkyPerfecTV uses the JSAT fleet (Japan Satellite Systems) at 150 degrees East. JSAT has just announced plans to acquire a 67 per cent stake in SNET, the leading provider of Japanese satellite communication and broadcast services by buying Yen1.072 billions-worth of stock from Itochu, Mitsui, NEC and other shareholders. Local analysts say the closer integration of JSAT and SNET will lead to the elimination of overlap services and improved cost-efficiencies. JSAT itself owns about 7 per cent of SkyPerfecTV, and one local report talks of JSAT making further investments in SkyPerfect, probably of some 2 per cent.

A recent report from investment bankers Morgan Stanley says that with SkyPerfecTV facing increased competition from Broadcast Satellite, “it is trying to distinguish itself from the BS service and prevent cancellations by strengthening its own product line-up.” Sports is one aspect, and Sky is already tapping into Japan’s growing love affair with soccer by adding the Italian Serie A league into its schedules. 2002 is an important year for soccer locally and Japan is host of the important World Cup tournament. Soccer on TV is doing increasingly well and Fifa is hoping for great things following the World Cup. Japan’s national sport, besides Sumo, is baseball which is already covered by Japan’s terrestrial broadcasters – and therefore also on some of the BS channels – has slipped in terms of TV ratings over this past year or so and is seen as of declining importance.

Last October SkyPerfecTV raised $1 billion in fresh funding, partly to help pay for Italian soccer rights. On July 6 it added the English Premier League matches for this upcoming season, as well as France’s Division One soccer. Merrill Lynch put the cost of these two deals at Y6 billion to cover three seasons. Next winter SkyPerfecTV is expected to launch its CS110 service, which includes an optional combined set-top box able to receive BS signals as well as its own channels. This advance has come about with the help of Japan’s ‘big four’ electronic companies (Sony, Matsushita, Toshiba and Hitachi) working together to overcome the technological obstacles for a single box solution. Subscribers will still have to sign separate contracts with each of the platforms, but at least installation is eased.

Broadcasting Satellite System Corp launched its BSAT-1a (and 1b) back in April 1997 to 110 deg East (Hughes HS376 ‘spinners’), co-locating them with the BS fleet of craft already beaming analogue programming, which it now hopes to end by 2007. BS is also where viewers find NHK’s impressive High Definition output, again a follow-on service from NHK’s Satellite Channel 1 that started transmission back in July 1987. Besides movies and local sport, a key recent element of BS’s coverage was non-stop transmissions of Wimbledon tennis complete with live, local commentary from a purpose-built studio at the venue. The BS digital service went live on December 1 last year. On July 12 it launched its latest fleet addition. BSAT2B (from Kourou, in a joint-launch with Artemis) and destined for 100 degrees East.

Satellite, and cable, is being pushed vigorously while their window of exclusivity remains, for digital terrestrial is nipping at their heels. Tests are already taking place, and full-scale digital terrestrial broadcasting is scheduled to commence in the greater Tokyo, Chubu and Osaka regions at the end of 2003. A national system is expected to be in place by the end of 2006 and an analogue switch-off date of 2010 is being talked about. The technical costs for this conversion are placed at some Y560 billion.

A word on the wonderfully named Wowow service. Wowow was founded in 1984 as Japan’s first commercial sat-channel and it has grown from a single analogue channel (transmission started in 1991) to a three-channel digital mini-bouquet that went live last December on BS. Wowow has a good reputation for transmitting quality movies amongst a mix put at movies (60 per cent), sport (10 per cent), animated cartoons and drama (10 per cent), concerts (10 per cent) and 10 per cent for other subjects. However, despite this, subscriptions are more or less static at 2.5 million for the past two years. As at May 2001 those subscribers stood at 2.56 million viewing in analogue and about 100,000 viewing in digital. About 50 per cent of these homes come from CATV distribution.

Wowow is predicting a net addition of some 149,000 subs, year-on-year, taking overall numbers to 2.8 million. The transfer from analogue to digital will continue until about 2005 when it is hoped that the full migration will be complete. Wowow’s current numbers (end June) stand at 2.661m, up a tiny fraction at just 0.04 per cent, or 1000 subs in the month. Using the same calculation methodology as SkyPerfecTV, Wowow is suffering a 15.9 per cent annualised churn rate.

Who backs the BS Digital channels?
Channel
Broadcaster
Ownership share
BS Nippon NTV affiliate
10.1 per cent
BS-I TBS affiliate
21 per cent
BS Fuji TV Fuji TV affiliate
20.3 per cent
BS Asahi TV Asahi affiliate
16 per cent
BS Japan TV Tokyo affiliate
17 per cent


Japanese Subscriber Predictions (millions)

2000A
2001E
2002E
2003E
2004E
2005E
2006E
2007E
2008E
2009E
2010E
TVHHs
45.8
46.1
46.5
46.8
47.2
47.5
47.8
48.1
48.3
48.6
48.9
BS sat*
11.069
12.669
14.669
16.669
18.669
20.469
22.269
24.069
25.07
27.57
20.17
(Wowow)
2.65
2.75
2.83
2.88
2.91
2.93
2.93
2.93
2.93
2.93
2.93
CATV
10.48
11.48
12.48
13.48
14.38
15.18
15.88
16.48
16.98
17.38
17.68
CS/DTH
2.618
3.118
3.768
4.418
4.988
5.478
5.828
6.078
6.248
6.358
6.408A
Note: BS data includes analogue and digital subs. Analogue subs forecast to fade to zero during 2007
Wowow figures shown are already included in overall BS Sat figures
Data: Morgan Stanley research estimates

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