Showtime, the leading Middle East pay-TV operator, hopes to add between 50,000 and 100,000 subscribers in 2003. It currently has around 250,000 subscribers and the operator could reach the cashflow breakeven point in the next year.

Showtime has an average monthly revenue per subscriber (ARPU) of around $55. With its pay-per-view (PPV) services showing healthy buy rates, this figure could increase still further. Around 80 per cent of its subscriber base takes one of the top two packages priced at $50 or more.

Showtime recently launched the first all Arabic premium movie channel, Al Shasha, as it bids to improve its localised programming. Around 85 per cent of Showtime’s customer base are Arabic speakers, so the development of Al Shasha is an important development. The operator launched a 10 channel PPV movies service in March 2002.

Showtime CEO Peter Einstein told Interspace, “The buy rates on PPV have been anywhere from 15-20 per cent of our whole subscriber base who are taking a PPV film each month and more than half of those not surprisingly are coming from Saudi Arabia, which is a market where there is a high per-capita income and not a lot of places to spend money on entertainment.”

In terms of PPV, Showtime’s first foray into sports PPV was covering the Tyson/Lewis fight last June. Even though the fight took place during working hours in the Middle East, the buy rates were considerably higher than expected. Einstein added: “I think we did 2-3 per cent in terms of buy rates. Certainly in comparison to the U.S., that was a very good uptake. It was at the wrong time and also we were a week into the World Cup. We still almost had a four per cent buy rate. So, we were surprised by that. It was much more than we thought, more than double. To be honest, we expected less than one per cent given all the factors working against us.”

There are 30 million TV households in the region and Showtime operates across a range of territories. There are potentially 800,000 homes for pay-TV in the region. Showtime’s main markets are far from saturation point. So, the main challenge over the next year will be to improve subscriber numbers. “I think our next job is to gain more subscribers. These new subscribers will mainly come from existing markets. So, in our main existing markets such as Kuwait and the UAE, we are heading towards a 30-40 per cent penetration figure of our target market. In Saudi Arabia, we are about 10 per cent of penetrating our target market. So, there is still enormous potential still left to garner. Egypt is a bit different. You have a massive population and we are only probably targeting around 2 per cent of that population that can afford pay-TV.”

Currency Issues in Egypt

Egypt is a tough market for Showtime mainly due to the problems with the local currency. “The Egyptian economy is in a difficult place right now and we suffered a 40-50 per cent decline in the pound between 2000 and 2002. They have decided to let the Egyptian pound float … That has led to a further decline of 20 per cent. We are probably going to have to increase prices in Egypt.”

While operating across a range of territories, Einstein does not rule out further expansion. In particular, Showtime is looking at Iran and north Africa. On these two potential markets, Einstein said, “Iran is a huge country where we have rights to licence too. Until the U.S. lifts the sanctions against Iran, we are not really allowed to establish any kind of trading relationship there for the moment. In North Africa, we have a small office in Rabat [in Morocco]. That is a different market because you have the French element there. I think our pricing would have to be different in those markets because there are completely different economics there.”

Showtime will also be in the thick of it should a U.S.-led invasion take place on Iraq. While there could be some decline in Showtime’s business should a conflict take place, once a conflict is over, there could be some upside, if the last Gulf War is anything to go by.

“We also know, and have seen from the history of the last Gulf War, the post-war boom is quite dramatic … In the euphoria of the liberation of Kuwait, there was a feeling of stability in the region. The stock markets really took off after the last conflict. We think there would be a similar boom after any potential post-Iraq scenario. We are not anticipating doom and gloom. If there is a conflict, we feel that after that, there will be an equally robust return to equally greater opportunities after that.”

PVR Possibilities

Generating revenues from interactive services is one area where Showtime is unlikely to see a great deal of success in the near future. With strict gambling laws in the Middle East, there are few options available to Showtime except to use interactivity to enhance the viewing experience. The operator is looking at personal video recorders (PVRs), but Einstein is not so enthusiastic about the PVR just yet. “We haven’t really seen PVRs become anything really big. I have heard that BSkyB’s penetration of PVRs is very low. I think once PVR becomes a standard part of the box it will be helpful and it will be a major enhancement. It will attract some people but I think the majority of people still want to choose what they want to watch and not plan to set things up to record. I used to think PVRs were the next big thing, and I still think it will. I think ultimately every box will be a PVR and it will become part of the landscape.”

In terms of the competition, Showtime competes against other direct-to-home (DTH) operators Orbit and ART. Despite the fact, most of its programming is Western-based, Einstein does not see this as a competitive disadvantage. “Two out of the 46 channels are in Arabic. Most of the other services are subtitled such as movies and entertainment channels. Around 50 per cent of those channels are customised. I don’t see it as a weakness the fact we don’t have much Arabic programming. Our success has mainly come from the fact we have western programming.”

–Mark Holmes

(Contact: Andrew Bone, Showtime, e-mail: [email protected])