Taxation and HD
The DTH environment in Asia does come with certain challenges. Market taxation puts some operators at a disadvantage to regional competitors. In Khattir’s view, HD content may be able to serve as an impetus for growth.
“Heavy taxation is hampering the growth of DTH,” says Khattir. “The DTH sector is currently taxed to the tune of about 30 percent and cable will be taxed to the tune of 20 percent, putting a heavy burden on operators as the margins remain low. HD will play a role in increasing the ARPU on some level for pay-TV distribution platforms in the region, which will have majority of their consumers on SD. HD is growing in the region, and with flat panel sales picking up, HD is likely to see growth.”
Couto echoes these sentiments. “HD channels are doing okay in India,” he says. “There are only about 500,000 to 600,000 paid HD subscribers in India today. You have to be a little bit careful when analyzing the numbers. There are about 30 to 40 HD channels in India, and some of the platforms are carrying 15 to 20 HD channels. It is going to be big eventually.”
According to Spink at HBO, HD channels in Asia will catch up to North America and Europe when there is equilibrium between affordable pricing of HDTV sets and availability of content in HD.
“We’re in a region where markets are very different. Developing markets are faced with limitations of income disparity,” says Spink. “I came across a statistic that it was not until 1990 that over half of urban Chinese households possessed a color TV, and not until 2001 that rural areas caught up to this figure. Mature markets like Japan, Korea, Hong Kong and Singapore, on the other hand, are similar to the United States in terms of technology adoption and viewing habits.”
Spink notes that HD content is prevalent in Asia, led by sports, movies, gaming and factual content. “HD provides a more satisfying viewing experience for consumers and allows content owners to provide more value in their product offerings,” he says. “Certainly, it differs by region, but HBO Asia has had a presence through HBO HD since 2009 and we were the first regional movie network to do so. It’s encouraging to see that more channels are offering content in HD as it benefits the industry and consumer as a whole. Arguably, the catalyst for growth in HD content is TV manufacturers — given the significant reduction of retail prices of full HDTV sets in the last five years. “
Companies like SkyVison believe that platforms will influence the level of demand. Industry associations such as CASBAA feel that demand for localized content is driving consumption. Either way, both believe that demand for HD is on the rise.
“The growth of pay-TV will create demand for HD content in the future,” says Kentjono. “The majority of TV sets are still smaller than 32 inches. Right now in Indonesia, HD is nice to have but not currently a make or break factor. Variety and exclusivity are way more important to draw the premium distinction.”
Viewing habits and technology continue to evolve in parallel with options for distribution platforms. While the over-the-top (OTT) video distribution has recently become a buzzword in the video landscape, the general market perception is that OTT doesn’t pose much of a threat to existing, less expensive and more popular means.
“Asian viewing habits have changed and continue to evolve,” says Spink. “We are experiencing a demand for TV everywhere, for viewing over multiple devices and the need for control and time-shift television as opposed to appointment viewing. OTT is already in existence in China with Youku, Tudou and various other players there. Elsewhere, several legitimate OTT services have also cropped up in Southeast Asia as pure ad supported services. We should, however, tamper this excitement with the inherent issues of piracy, the lack of willingness to pay for content over the Internet and new media content rights. Until there is a solid and robust business model for OTT in Asia, we should tread this carefully.”
The one thing that Twiston Davies worries about most concerning OTT is that the regulators don’t really understand the platform and, therefore, don’t understand how to regulate it. “Regulators are standing back [from OTT] and not regulating it at all,” he says. “But they are continuing to heavily regulate the pay-TV market — which puts pay-TV operators at a serious disadvantage. Online (OTT) suppliers are not paying taxes while pay-TV and DTH operators are taxed sometimes upwards of 30 percent; these are not just revenue taxes either, they are taxes on equipment like set top boxes. In India and Indonesia there are import taxes on equipment, so this gives online suppliers a distinct advantage.”
OTT and IPTV have been gaining ground in markets where Internet penetration and speeds to the end consumer are developed, according to Khattir. “Southeast Asia is yet to come to that level of connectivity or speed, so the main distribution platforms for content will remain satellite and cable,” he says. “Currently, IPTV has high infrastructure costs and in this low ARPU market, it takes a long time to recover them. OTT operations have the cost of the Internet attached which makes the service costly for the consumer, thus satellite distribution and cable will remain the preferred mode of distribution.”
“The natural habitation for OTT will be small clustered sections in metropolitan areas,” says Kentjono. “The impact on pay-TV is marginal due to the nature of the geography of Indonesia. We are offering everything that OTT could offer, and we offer it in regions that OTT could not due to the terrain.”