Galaxy Confident It Can Succeed In Hong Kong

A new era of digital television began in Hong Kong in February, when Galaxy Satellite Broadcasting, the joint venture between Intelsat and Television Broadcasts Ltd. (TVB), launched pay-TV services. The joint venture’s exTV product aims to attract a number of new consumers in one of Asia’s key pay-TV markets.

The joint venture aims to take a piece of the action that previously had been dominated by cable operator i-Cable Communications. The man charged with leading Galaxy to profitability is CEO Jim Blomfield, and he believes the company should reach the break-even point between 2007 and 2008. He also believes the dynamics are far more favorable for the operator than they may have been a few years ago.

Blomfield told Satellite News, “How many times have you heard a pay-TV operator say that they would break even on a certain date, and they don’t make it? We have come at this at a better time. The cost of STBs (set-top boxes) is a lot lower. The content contracts that we have are very good and are economically favorable to us. The overheads we have for the company are substantially less than they would have been three years ago, so our cost base is much lower. We should have an opportunity to reach break-even much earlier.”

While Blomfield is confident the company can reach the break-even point, a number of industry analysts previously expressed skepticism that the operator can win enough market share in what is essentially a small market. In the June 18 issue of Interspace last year, Danie Schutte, a media equity analyst at CLSA, commented that Galaxy could struggle because it lacked the international channels and sports rights that i-Cable had and, despite its relationship with TVB, the operator had a number of potential content disadvantages.

While acknowledging their concerns, Blomfield thinks there is still a great opportunity for Galaxy.

“I think if you are relevant, you have a very good chance,” Blomfield said. “Yes, analysts have been concerned as to whether we can cut out the type of business that we want to. I do feel that there is room for some change in the next couple of years and it is certainly a market to watch carefully. I would also suggest, that there will be variations to the current players. I am not hinting at anything here but it is a small tough market and there is a lot of work to be done. We know the challenge, we went into it with our eyes open, and I think we can come out of this very well.”

Local Programming

The operator hopes to gain between 70,000 and 80,000 subscribers in its first year of operation. Its rival i-Cable Communications has more than 650,000 subscribers, and it has been profitable for the last two or three years. However, with pay-TV penetration only at the 30- percent mark in Hong Kong, there clearly is an opportunity for Galaxy, although it will have its work cut out during the next couple of years.

Its major competitive advantage will be its high degree of Cantonese programming, but other key differences also exist between i-Cable and Galaxy.

“We do have a different philosophy [compared] with our competitor,” Blomfield said. “We are not in the quantity game. We are effectively in a language island, and there are not a lot of places in the world to go and buy Cantonese programming. Does the consumer want a whole range of channels by volume or do they want more of a quality product? We believe the audience is looking for quality, and we feel the product exTV is launching is balanced and very good. However, there is always an opportunity to improve.”

The joint venture’s crown jewel of programming is a 24-hour Cantonese news program exclusively supplied by TVB. Galaxy hopes that programming will win viewers in large numbers. “We have great contracts with TVB, the supplier of the Cantonese programming, and some Mandarin programming,” he said. “The cornerstone of the content proposition is the 24-hour news channel, which is made by a company with 40 years of experience. They know what they are doing. They have excellent resources and provide a quality product in terms of news coverage. They are providing the TVBE channel, from the resources of the TVB drama library and they are the largest producer of Cantonese drama in the world.”

He added, “There is then TVBQ, a kids channel. It is a very nice little channel. TVBQ is a safe harbor offering entertainment for pre-school to early teen [viewers], and we expect great things from that channel. TVB supplied some Mandarin channels, and we also have exclusive channel agreements with Celestial Movies, which gives us the power of the Shaw Brothers library as well and newly acquired movies. There is another exclusive movie channel [called] Mei Ah, and it is well-positioned for the Hong Kong audience.”

Leveraging Expertise

Galaxy naturally is keen to leverage the expertise from its shareholders — TVB and Intelsat. Both companies have provided significant amounts of cash to the joint venture. Intelsat has moved an Intelsat VII series satellite to the 85 degrees East orbital location to transmit the service via a high-powered Ku-band beam. In terms of the benefits it derives from Intelsat, Blomfield said, “They certainly work hard and assist us in all that we do. Intelsat provides financial, technical and, not to mention, moral support. exTV is not just about a 30-50 channel pay-TV business. We provide many services to the industry, including the teleport business and the channel play-out business.”

Intelsat is a “terrific” supporter. “We are a central video hub, and we are building the business out with keen assistance from them,” Blomfield said.

–Mark Holmes

Contact: Ruth Kan, Galaxy Satellite Broadcasting, e-mail: ruthkan@ gsbhk.com