JEDDAH, 10 December 2005 — The pay TV market has witnessed a 40 percent annual growth in each of the past several years, while buoyancy in the free-to-air TV sector has seen the number of channels grow to more than 150.
However, the Middle East TV broadcast industry, is “coming to a crossroads, with potentially drastic changes ahead,” according to Karim Sabbagh, partner and vice president at Booz Allen’s Communications, Media & Technology Practice based in Riyadh and Dubai.
“The combination of massive investments, oversupply of free-to-air channels, greater financial transparency and objectivity imposed by shareholders and capital market authorities post-IPO, and discontinuities in technology and regulations will most likely drive fundamental changes in the industry’s landscape and economics,” Sabbagh said in a study, claimed to be the first comprehensive review of its kind conducted in the Middle East, which is enjoying a significant triple-digit growth and substantial global attention.
The world is well aware of the region’s TV industry as reflected in Arabic-language news channel Al Jazeera joining the ranks of Apple, Google, IKEA, and Starbucks in the top five of the Broadchannel Readers’ Choice December 2004 Interbrand Survey. Local, regional, and international focus also is on the industry ahead of several high profile IPOs being planned for Al Jazeera, music channel Rotana, and pay TV network Showtime.
The Booz Allen study, which looks at the pan-Arab region and specifically the core markets of Saudi Arabia, Kuwait, the UAE, and Egypt finds that there were more than 1 million pay TV subscribers primarily with Showtime, Orbit, and ART. While pay TV has reached five percent of the overall market, this ranges from three percent in Egypt to 29 percent in the UAE.
“The longer-term prospects for pay TV will be driven by attractive fundamentals that include strong socio-economic growth, a young population coming to adulthood, and an increasingly discerning audience regarding content,” said Gabriel Chahine, principal and member of the Global Communications, Media, and Technology Group based in the UAE.
Pay TV operators also enjoy strong growth potential from relatively untapped countries such as the Kingdom and middle to low socio-economic segments across the region, which typically form the heart of pay TV subscribers in developed markets.
The 190-million inhabitant market is distinctive in part because of TV consumption rates significantly higher than those in most developed countries. However, Laurent Viviez, principal and member of Booz Allen’s Media and Telecoms Practices based in Paris, has warned that “providing audiovisual content is a complex proposition in the region since demand is significantly less homogeneous than a common language, culture, and religion may suggest. TV consumption behaviors and preferences present significant differences across traditional demographic segments, countries, and ethnic origins.”
The study points out that free-to-air broadcasters have made significant investments in modernizing and enhancing the quality of their TV programming, but adds that the free-to-air sector’s buoyancy is unsustainable over the longer term given that irrational ad sales practices and an evident over-supply of channels means most are being subsidized by their owners.
Pay TV growth, on the other hand, will be affected by its ability to strengthen its premium content and by the substantial rationalization expected in the free-to-air sector, a likely scenario given the transfer of free-to-air premium content to pay TV (e.g., Al Jazeera’s premium sports channel) and a growing emphasis on economic performance by free-to-air broadcasters, in part driven by planned IPOs, says the study, which draws on Booz Allen’s extensive consulting experience in the TV industry regionally and globally, as well as on data from international organizations, regional governments, market research companies and industry analysts.