With Netflix causing a right old stir last month by finally launching its services across the region, now seems as good a time as any to assess the current state of play within the Middle East and North African (Mena) broadcast market.
It’s fair to say that the region’s broadcast space evolved considerably over the course of 2015, with the establishment of several strategic partnerships causing a notable shift in the content aggregation landscape and setting the stage for further collaborations in 2016.
There are over 50 million TV households in Mena that can access the 900+ channels that are broadcast on a free-to-air (FTA) basis. However, a growing number of FTA channels are switching over to the Pay TV environment, despite the fact that only about 10 per cent of the region’s households have subscriptions to access such content. So what is driving the emergence of this seemingly incongruous trend?
The FTA business model is typically entirely funded by advertising. And while it is true that some programming may generate additional revenue from associated merchandising and consumer products, the vast majority of funding required by the region’s FTA channels for staff, content, and broadcasting operations comes from advertisers paying for airtime in the traditional manner.
The number of FTA channels in the region has grown 150 per cent over the last ten years, but rather predictably there has not been a corresponding increase in the size of the advertising revenue pie. Approximately 25 channels share the vast majority of all ad revenue in the region, meaning the other 875+ FTA channels require extremely deep pockets in order to survive.
With this in mind, it is hardly surprising that FTA channels are beginning to view Pay TV networks with increasing fondness. Yes, these networks have a much smaller reach in terms of sheer numbers, and yes, the average Pay TV penetration rates here in MENA are much smaller than those found in the world’s more mature markets, but there are still more than five million homes in the region that house paying subscribers. And it is little wonder that there is now a growing scramble to tap into that relatively affluent customer base.
The Pay TV model traditionally involves yearly (or even multi-year) carriage deals struck between channel/content owners and the Pay TV networks themselves. The revenue split is negotiated at the outset, and there is an argument that such deals can deliver more secure and committed revenue streams that are not ultimately at the mercy of the region’s monopolistic advertising groups.
Another benefit perceived by some channel/content owners is the increased editorial control. With FTA distribution comes the challenge of ensuring that content complies with regional sensibilities and meets the required broadcasting standards. Of course, the Pay TV space also has stringent editorial guidelines in place, but these are generally self-regulated, and there is an assumption that if the consumer is paying for content, they are effectively giving the green light for it to be less heavily edited.
In the Mena market, two large international broadcasters have so far made the switch. Viacom’s MTV Arabia moved from the FTA model to OSN’s pay network at the start of 2015, alongside the relaunch of Nickelodeon and Nickelodeon Junior.
Meanwhile, Fox opted to swap the FTA arena for beIN Media’s new pay entertainment packages, and IDC expects to see more broadcasters follow suit in 2016.
It is worth noting at this point that beIN Media has recently instigated another significant shift in the region’s TV landscape by serving up a new entertainment offering for consumers. OSN had enjoyed a monopolistic position as Mena’s only premium Pay TV network since the 2009 merger between Orbit and Showtime, but beIN Media entered the fray towards the end of last year, adding an entertainment bouquet to its existing sports packages.
It didn’t take for the impact on the status quo to be felt, with Turner Broadcasting announcing its intention in December 2015 to switch stables from OSN to beIN Media. Turner’s Middle East channels (Cartoon Network, Boomerang, TCM, HLN, and CNN HD) officially moved in early 2016, with Italia Films International following suit — not with channels but with exclusive content deals.
In response, OSN signed exclusive deals to bring the giant broadcasting brands of HBO and BBC to the network and released news of more channels set to launch in the first quarter of 2016. All this signifies an increased opportunity for content owners, as they leverage their popularity and programming strength to ensure that both the FTA and Pay TV environments are much more complex and competitive than they were just 12 months ago.
That brings us neatly back to Netflix’s long-awaited launch across MENA, which is sure to cause yet more disruption within the region’s increasingly competitive consumption ecosystem. That’s because having previously sold the distribution rights for some of its own smash-hit productions to OSN, Netflix will now presumably work hard to resecure them.
But will the new subscribers that OSN gained by screening original Netflix series such as ‘House of Cards’ and ‘Orange is the New Black’ now be willing to pay for both services or will OSN have to rethink its strategy? Only time will tell, but where “Content is King” was once the industry battle cry, it is the content owners themselves that are the true kings now.
The columnist is group vice president and regional managing director for the Middle East, Africa and Turkey at global ICT market intelligence and advisory firm International Data Corporation (IDC) He can be contacted via Twitter @JyotiIDC.
