Faultline: Latin America swings to satellite as TV subs explode Nov 10, 2011 – Rethink Research
Beneath the fog of fluctuating exchange rates and some little local
difficulties, the round of Q3 results confirm Latin America’s status as
an emerging pay TV powerhouse with big aggregate increases in subscription
levels. The other headlines are a continued fairly rapid swing towards
satellite across the continent as a whole, and a healthy increase in ARPU
(Average Revenue Per User). The trends are very much in line with predictions
made in Rethink Technology’s Latin America Report and Forecast
published early in 2011, with our seemingly optimistic outlook now appearing
conservative in Brazil, the region’s biggest economy by some distance.
Indeed Brazil ended September 2011 with 11.9 million subscribers according to
the country’s regulator Anatel, already well ahead of Rethink’s
prediction of 11.4 million by the end of the year. This represents phenomenal
growth in subs exceeding 30% over the whole year from September 2010, with
780,608 added during Q3 2011. Of these additions 650,000 were satellite,
highlighting the massive performance of that sector across the whole region.
By contrast cable was generally fairly flat, while IPTV performance is
patchy, with growth in some countries such as Venezuela increasing its share
of overall Latin American subscriptions from 1% late 2010 to just under 2% by
September 2011.
The top four countries, Brazil, Mexico, Argentina and Colombia, between them
account for about 83% of the overall Latin American pay TV market. The region
is also dominated by relatively few big operators, with just two significant
players on the satellite front DirecTV and Dish Networks. The cable side is
characterized by large numbers of small local operators in some countries,
but with the lion’s share of subscriptions taken by a few big national
operators, such as Cablevision in Argentina, which is 60% owned by the
country’s Group Clarin media group, Televisa in Mexico, and NetServicos
in Brazil. For IPTV, Spanish Telco giant Telefonica is one to watch in
several of the countries, even though so far it is only a fairly minor player
for pay TV in most cases.
The recent financial fates of the big national cable operators reflects the
squeeze imposed by the two big satellite operators, especially DirecTV. In
Brazil, cable operator Net Servicos is still the market leader with around 4
million pay TV subscribers in Q3 2011, up from 3.6 million a year ago. The
company has not revealed the latest subs numbers, but we can infer them from
the 24% year on year growth in overall revenues from BRL 1.381 billion ($787
million) Q3 2010 to BRL 1.715 ($978 million) billion in the third quarter
2011, combined with Net Servicos claim of a healthy increase in sales of high
end HD packages. But despite this Net Servicos profits were 67% down at BRL
23.6 million, largely reflecting recent depreciation of the Real against the
dollar in which the company’s debt is calibrated. It also reflects the
growing heat being felt from DirecTV, for the gain in subs has to be seen
against the background of the faster expansion of the satellite sector.
This continues a strong trend that really picked up two years ago at the
start of 2010, when satellite had 37.4% of the Brazilian pay TV market and
cable 57.9%. By the end of 2010 the respective figures were 45.8% and 51.0%,
and by September 2011 DTH had overtaken cable and taken more than half the
market, 52.7% against 45.1%. The Rethink Technology forecast predicts this
trend continuing with satellite accounting for twice as many subs as cable by
the end of 2014.
The strong performance of pay TV, especially satellite, can be explained by
several factors, notably the continuing growth of the Brazilian economy
despite a few recent wobbles, and the fact it is coming from a lower base
than either Mexico or particularly Argentina. Another factor is the all round
strength of DirecTV, the world’s biggest pay TV operator, which is
advancing in most of Latin America through a combination of marketing muscle,
provision of premium content gained via both global and local deals, and in
some markets attractive advanced services such as home DVR.
DirecTV Latin America revenues were up 45.8% at $1.356 billion for Q3 2011
compared with a year earlier, while profits rose by a similar ratio from $313
million to $434 million. The latter reflected both cost reductions and an
increase in monthly ARPU from $58.20 to $64.63 over that period through price
increases, greater penetration of advanced services, and favorable exchange
rates in Brazil.
One consequence of this rapid growth is that around mid 2011 Brazil overtook
Mexico as the region’s biggest pay TV market in terms of subs. Mexico
has been in the lead for some years on account of its higher pay TV
penetration, currently 40% of households. This has more than compensated for
Brazil’s greater population, 195 million against 113 million for
Mexico.
At the start of 2011 Mexico had 9.67 million pay TV subscribers compared with
Brazil’s 9.0 million, but by September 2011 Mexico was around 600,000
behind at 11.3 million. Even so Mexico is still growing fast in pay TV and
will continue to do so, while mirroring Brazil’s swing towards
satellite. June 2011 is the last month for which we have hard data on the
comparison between cable and satellite in Mexico, with 5.503 million subs for
the former and 5.09 million for the latter. With satellite growing at about
four times the rate, it is poised to overtake cable around the end of the
year in line with Rethink’s earlier prediction.
This has left Sky Mexico as the main beneficiary, being the country’s
biggest satellite operator, gaining 238,000 subscriptions in Q3 2011, heading
for around 3.6 million by the year end. Sky Mexico represents DirecTV’s
interests in the country just as a minority shareholder in this case with
about 41%, the rest being held by multimedia conglomerate Grupo Televisa. In
fact Sky Mexico’s overall performance was affected by a dispute between
the majority holder Grupo Televisa and companies controlled by Mexican
multi-billionaire Carlos Slim, the world’s richest person. This
deprived the group as a whole of advertising revenue, although the effect was
to peg the rise in that to 2.4% when it would have been greater. As a result
the group posted a 6.8% fall in net profits for Q3 at 2.05 billion pesos
($148 million) compared with a year earlier. Revenue rose 8.1% to 15.96
billion pesos (1.18 billion).
On the cable front, Megacable, now the country’s second biggest pay TV
operator behind Sky Mexico, typifies this sector with relatively modest
growth in the context of the pay TV sector as a whole of 7% year on year to
reach 1.864 million subscribers by September 2011, still losing ground. In
fact the gain was achieved by increasing the footprint, with penetration rate
as a proportion of homes passed falling from 34% to 33%. Profits were
similarly flat, up just 0.2% net at 393 million pesos ($28 million) for the
July-September period.
However the company hopes its agreement with Telefonica in October 2011 to
launch a joint mobile service in Mexico will stimulate subs. It turns
Megacable into a quad play operator, with access to Telefonica’s 20.6
million cellular subscribers, many of which are outside its cable footprint.
More immediately there is the hope that quad play bundled will increased
cable TV penetration within the footprint. Megacable is in charge of
marketing, sales and distribution for the new venture, which will operate as
a virtual mobile network operator, or MVNO, over Telefonica’s mobile
network.
Across in Argentina the dominant cable operator Cablevision is also
struggling to gain subscriptions, but there the resemblance with other
countries of the region ends. Argentina has not only Latin America’s
but the world’s highest pay TV penetration rates of nearly 80%, or
around 7 million subscribers. This means the market is saturated and
therefore growing only sluggishly now. The high penetration has been achieved
largely by extensive cable distribution in the country’s urban areas of
Buenos Aires, Cordoba, Santa Fe, San Juan and La Rioja and Mendoza, which
account for most of the population and an even higher proportion of pay TV
subscribers. Given this background cable TV will remain the dominant pay TV
distribution medium even though satellite will make some inroads, with
DirecTV the main threat, standing at just over a million subs in September
2011. By comparison Cablevision is now on almost 3.3 million, just slightly
up over the year. But Argentina also differs from other countries of the
region in the large number of subscribers accounted for by small cable
operators often covering just one town or locality. These, of varying sizes,
account for about 2.5 million subscribers, with the main trend being
consolidation between them, at least over content.
Indeed content is seen as critical in the developing fight for eyeballs
between these smaller cable operators, as well as Cablevision, and DirecTV.
The latter believes it must pull its finger out on the content front if it is
to exceed the growth in market share predicted by analysts such as Rethink
Research, which although significant, is modest compared with the other
leading markets of the region. Satellite capacity has become rather an
inhibitor, leading DirecTV in October 2011 to launch a hybrid receiver and
satellite set-top box for Argentinean viewers. The idea is to supply a DTT
(Digital Terrestrial) tuner in order to receive terrestrial signals alongside
DirecTV’s portfolio of satellite transmissions. The device, now being
tested, will integrate up to 15 DTT channels directly into the
service’s EPG. At the same time DirecTV Pan Americana serving countries
of the region including Argentina but excluding Brazil and Mexico, has
already leased extra capacity on board two satellites to be launched by
Intelsat in 2014 and 2015.
Colombia, with population of 46 million, is Latin America’s fourth
largest pay TV market. Despite lagging behind Brazil, Mexico and Argentina in
broadband penetration, it compares much more favorably for pay TV. By
September 2011 there were 3.74 million subscribers, up 10.6% from 3.4 million
a year earlier, according to the regulator Comisión Nacional de
Televisión (CNTV). This is about one third of households, which is a
higher penetration rate than Brazil and not far short of Mexico.
On the face of it this position reflects Colombia’s status as the
fourth largest economy in Latin America, but this fact masks extreme
divisions of wealth with 46% of the population below the poverty line. This
in turn is linked to the history of pay TV in Colombia, with EPM
Telecommunications (UNE), the country’s second biggest cable operator
also offering IPTV, being state owned, having gained market share in the
latter by setting artificially low prices.
UNE has slowly been gaining ground on the market leader, cable operator
Telmex Hogar, which like most other big cable operators is almost flat lining
with subs at 1.78 million in September 2011, 4.1% up on the 1.71 million a
year earlier. Subs at UNE by contrast rose 11% from 881,000 to 998,000, with,
as elsewhere, DirecTV also showing some form with subs up 18.3% from 345,000
to 408,000.
The latest crop of results and data from regulators among others confirms
that the boom in Latin American pay TV that started in 2009 is continuing and
even gathering pace in some of the countries, including Brazil the biggest,
which has furthest to rise from a low base. At the same time ARPU is also
increasing, making pay TV generally more lucrative in Latin America than many
others regions including much of Asia Pacific, and especially both China and
India. The downside perhaps is that power is being concentrated among a few
big players, such as DirecTV and Dish, along with Telefonica, which are
benefiting from the boom on a continent wide basis. The cable market is much
flatter, but the big players are still chugging along nicely. In the case of
IPTV, much of the growth so far has come in Venezuela and Colombia through
government initiatives, but that is going to change with interest in emerging
4G mobile services after completion of relevant spectrum auctions in several
countries. This is seen as an opportunity by some cable operators to break
out of their footprint by teaming up with mobile operators, as Megacable is
doing in Mexico.
Faultline: Latin America swings to satellite as TV subs explode
