International Conference on Business Management and Environment (ICBME’2012), Dec. 28-29, 2012 Bangkok (Thailand)
The challenges of Pay TV Business in Indonesia Market
Melani. Anugrahani, Faisal. Baharudin, and Anna. Lumumba
TV broadcast, 4%. Thus, it describes the profit and market Abstract— Market penetration of pay TV subscriber is about growth is high for cable operator, cable network and satellite 3% relative to total household. Comparing to Asia pacific market TV. However, different results are applied for TV broadcast. whose penetration is about 46%, market in Indonesia is growing It has slow growth that is about 4% comparing to others. slowly. Based on this situation, this paper try to identify what are Compare to Indonesia, the results are slightly different. the causes of the market rate for Pay TV in Indonesia to grow slowly comparing to other countries in Asia Pacific. Some interviews to Indonesia with almost 300 million populations has different strategic key position in Telkom Indonesia and its subsidiary - market condition. The market growth for Indonesia pay-TV Telkom Vision were conducted to increase understanding about Pay like cable operator, satellite TV has reached about 3% within TV in Indonesia market. 5 years. Comparing to other Asian Pacific market which has relatively small market size, Indonesia pay TV penetration is Keywords—pay TV, free to air, TV penetration rate. the lowest. Referring to the market situation occurred in Indonesia, it I. INTRODUCTION leads to the research question: what are the causes of the P based technology has influenced customer behavior in market rate for Pay TV in Indonesia to grow slowly Iconsuming media. The emergence of smart phones with a comparing to other developing countries in Asia Pacific? bunch of application has attracted many customer especially younger customer generation or digital generation. Based on II. METHODOLOGY type of media, customer spending on television (TV) and In order to identify the causes of Indonesia pay TV market video is still higher than other online media like laptop, smart differ from Asia Pasific’s, several interviews with strategic phone and tablet (Nielsen, 2012). These condition shows that key positions involved in pay TV delivery is conducted. the business opportunities on TV still exist even the growth Samples of respondents come from Telkom Indonesia as of mobile is rising. Indonesia telecommunication incumbent and its subsidiary The technology and business model for TV has changed that plays in pay TV services - Telkom Vision. over 20 years. Television nowadays can be accessed from The questions have been exploratory and semi structured. cable, satellite and internet protocol. The business models for The crucial points in most interviews included: television are numerous as well from free to air with 1. How is trend of pay TV market in Indonesia advertisement to pay TV without advertisement. 2. How is the market condition for media industry in World wide market for media and edutainment for cable Indonesia television and satellite TV are higher that TV broadcast (free 3. What are the major barriers to deliver pay TV services to air/FTA). Ernst and Young (2012) found that the to Indonesia Market profitability among media and entertainment industry are 4. What are the critical success points to win the differ as follows; cable operator 2006-2010 is 39%; competition in delivering pay TV services interactive media, 36%; cable networks, 33%; satellite TV, The respondents are encouraged to describe the 27%; publishing, 20%; conglomerates, 18%; TV broadcast, opportunity and challenge of pay TV business in Indonesia 16%; electronic games and film and television production, from different perspectives either from strategic or both at 12%; and music, 9%. Based on market growth, operational. interactive media, 15%; electronic games, 14%, cable TABLE I network, 10%, satellite TV, 9%, film and TV producer, 7%, RESPONDENTS INFORMATION Company Division Perspectives Melani. Anugrahani is with Business Performance Lab,. Research & Telkom Indonesia Consumer Product Strategic responsible Development, Telekomunikasi Indonesia, Jl. Gegerkalong Hilir No.47 Solution Bandung, Indonesia (corresponding author to provide phone: +62-22- Telkom Indonesia Multimedia Division Strategic responsible 4572425 ; fax: +62-22-2012234 ; e-mail: [email protected]). Telkom Indonesia Marketing & Promotion Strategic responsible Faisal . Baharudin, is with Business Performance Lab,. Research & Telkom Indonesia West Chanel Operational responsible Development, Telekomunikasi Indonesia, Jl. Gegerkalong Hilir No.47 Distribution Bandung, Indonesia (e-mail: [email protected]). Telkom Indonesia East Chanel Operational responsible Anna. Lumumba is with Business Performance Lab,. Research & Distribution Development, Telekomunikasi Indonesia, Jl. Gegerkalong Hilir No.47 Telkom Vision Broadcast Operation Operational responsible Bandung, Indonesia (e-mail: [email protected]). 51
International Conference on Business Management and Environment (ICBME’2012), Dec. 28-29, 2012 Bangkok (Thailand)
III. FINDINGS B. Customer Behavior A. Market FTA TV services have existed for almost 50 years comparing pay TV services which have been introduced for There are top 4 of 7 pay TV operators playing in Indonesia 15 years. This condition influences to Indonesia customer market. These are, from the largest to smallest based on behavior that has already used to get the show for free. It numbers of subscribers: MNC Sky TV (brand name: causes the reluctance to pay TV services while there are so Indovision, Top TV, Oke Vision), Telkom Vision (brand many TV network available free. name: Yes TV, Usee TV, Groovia TV), First Media, Aora Pay TV customers are mainly watching Indonesia FTA TV TV. First Media and Telkom Vison, via Telkom Vision contents, generally local contents, even though they are brand, provides cable TV service. Telkom Vision, via brand subscribing for pay TV services. Customer choice to local Usee TV and Grovia TV provides broadband and IP-based content is high particularly for news and entertainments. It TV service. Other operators use satellite technology. These becomes the challenge for pay TV operators to provide local shows that most pay-TV operators are using satellite contents to their customer. Several pay TV operators provides technology to deliver their services. The advantages are the in-house channel to fulfill customer need to local contents. satellite technology is suitable to reach Indonesia’s The business scheme could be by building self production archipelago territorial than cable technology and it has house or buying license to FTA network. However, building economic of scale. However, the coverage of satellite pay self production house requires high investment. So, that is the TV operators is currently still limited to urban areas focused reason why some pay TV operators not taking this into to Java and Sumatera Island. account. The same case for licensing option, several pay TV Within 2008-2010, market penetration of pay TV operator whose the same group with FTA network are given subscriber is about 3% relative to total household or is about access to get FTA content but it is not applied for those who 11% relative to total TV household (ITN Venture, 2011). It are not in the same group. These become impediment for shows that there are approximately 89% TV household in creating fair competition in pay TV business. Indonesia not using pay TV subscriber scheme. These In the beginning, satellite pay TV operators introduced indicates that the customer still tend to watch free to air their services to customer by leasing customer premises services compare to pay TV services. Whilst, in general Asia equipment (CPE) for free in first installment. It is considering Pacific pay TV household penetration is about 46% as a marketing way to attract customer to use pay TV services (Telegeoraphy, 2012). refer to customer behavior who used to get TV free. This The revenue growth of top 3 pay TV Indonesia market way is only applied in Indonesia. In other countries, the leader is approximately 30% with subscriber growth 30%. customer should buy in advance the CPE which cost nearly Considering pay TV penetration rate at 3%, this growth is $80. Payback period of CPE is lasting within one to two relatively insignificant to increase Indonesia pay TV years of customer subscription depending on amount of penetration. This condition indicates an opportunity for pay monthly subscription fee. In reality, some customers TV business to grow. discontinue the subscription in early year so it make pay TV Free to air (FTA) TV network is the main competitor for operators take the CPE cost. The higher of number customer all pay TV operators. There are 6 main FTA networks in churn causes pay TV operators bear the loss of CPE returns. Indonesia: MNC Group, Para Group, Viva Group, Metek, Metro TV, and Indosiar. These FTA networks occupy 22% C. Regulation FTA household penetration (ITN Venture). The emergence of Public Broadcasting Agency has issued 477 broadcasting pay TV services attracts some FTA networks to expand their right to private, community, and pay broadcasting agency in business to pay TV business. For example MNC Group 2011. Moreover, Department of Communication and launched MNC Sky Vision to deliver Pay TV services. Information has issued pay TV right to 13 providers as well The emergence of pay TV operators consider as a threat (Business Review, 2012). It considers that more pay TV for some FTA TV networks. A trick used by FTA network to right will exist since demand for delivering pay TV business inhibit competition with pay TV operators by banning the increase. Non license pay TVoperators offer their services to channel on favorite TV shows. Yet, it is not the case for Pay the public openness. They attract the customer by distribute TV operator within the same group with FTA network. flyers on the public space so their business look like as legal Another competitor of pay TV operators is non-license business. The number of non-license pay TV operators is cable TV operators. The business scheme of this non-license very huge, 688-2500 non-license operator which operate in business is to collect the channel from many sources Kalimantan, Sulawesi and Sumatera (APMI, 2008). including legal pay TV, FTA and parabola and illegally Government should not only govern the pay TV business redistribute to surrounding household with very low but also should push the development of pay TV as well. subscriber fee. The non-license cable TV operators mainly (Business Review, 2012). Besides pushing market exist in Sumatera, Sulawesi and Kalimantan. penetration, government is expected to control the tariff of foreign content so that the pay TV operator could offer pay TV services with low price. Compare to other countries like
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International Conference on Business Management and Environment (ICBME’2012), Dec. 28-29, 2012 Bangkok (Thailand)
China, India and Vietnam, their government involve does not have a unique positioning. Unique positioning is controlling the content price. required to attract customer loyalty. One of approaches to create a unique positioning is by building partnerships with creative production house to seek local content with high- IV. CONCLUSION rating. For start-up pay TV operator, this scheme could be Pay TV business in Indonesia has different market done through sharing profit in order to minimize investment condition comparing to other countries. It is the lowest in advance. among Asia Pacific market. Some root causes and solutions C. Set Top Box could be identified as follows: The investment for Set Top Box (end user premise A. Pay TV non-license equipment) is a critical issue in pay TV business since STB is Pay TV services are commonly delivered through cable provided free. It is rather difficult to change strategy to and satellite. Cable operator is first introduced in Indonesia. charge customer to pay in advance for STB. Otherwise, there During initial cable TV penetration period, households which is commitment from all pay TV operator to charge customer have access difficulties can not be serviced with both cable for STB provision. Considering the customer behavior that TV service and FTA services. Thus, so many non-license has already got STB for free and the strategy to increase pay pay-TV operators were growing especially in Sumatera, TV subscribers, the option to give STB for free should not be Kalimantan and Sulawesi. Cable operator could reach changed. It could become a sweetener to attract customer to household in which the cable investment did not give a subscribe for pay TV service. When pay TV operator has had sufficient business return. a unique positioning for its core services then the STB could Non license pay TV operators are currently still growing be gradually be charged to customer. Other strategy is to even though satellite TV operator has already existed. If build partnership with STB supplier through sharing profit in Indonesia government does not take an action to the provisioning of STB to customers. emerging abundant number of non-license pay TV operator, D. In-house local content channel it could weaken fair competition among all TV operators. Some pay TV operator has own in-house local content Therefore, government should controlled non-license channel. However, it requires high investment to build own operators by giving special incentive to existing non license production house. Only pay TV operator that is part of or has operators to legally register their business and providing joined with big media group/consortium could have in-house progressive B2B tariff scheme with pay TV operators. local content channel. For start-up pay TV operator, the B. Content premium partnership with content provider could become a potent One of the attractiveness of pay TV services is that it strategy. By sharing profit mechanism, the customer need for provides premium channels which are not available in Free to local channel could be delivered. This strategy could be Air (FTA) services. For example box office movies and top success if it is supported with good marketing campaign. league football matches are commonly first aired in pay TV services. In case of Indonesia TV market, the premium content could be provided and, mostly, first aired by Free to REFERENCES Air TV operators. Some FTA Indonesia operators have [1] Association of Indonesia Media Provider 2008, “Government sufficient capital investment to buy premium TV shows. This Seriously Overcome Illegal Pay TV re-distributors,” Media Release, accessed in 18 October 2012, condition weakens the bargaining position of pay TV