As with fixed broadband and telephony, penetration of pay-TV services remains comparatively low in many emerging markets. Most pay-TV operators appear stuck in a self-perpetuating cycle of servicing a limited premium customer base, while free-to-air and pirated content caters for the majority of middle and lower income consumers.
As long as service prices remain high, pay-TV will struggle to break out of its current niche role. Operators need to be bold and develop lower-end packages that will help bring about the scale required to make their pay-TV services viable.
Piracy in the form of counterfeit DVD and Blu Ray discs or the hacking of smartcard-based conditional access systems (CASs) is common in countries with below-average income levels. Online piracy is less prevalent than in advanced economies where broadband is more universally available. The MENA-based DTH operator Orbit Showtime Network (OSN) is estimated to have between 1.5 and 5 million illegitimate viewers, compared with a paying customer base of less than half a million.
From December 2010 OSN began the year-long migration of its customer base onto a new, purportedly hack-proof CAS, providing all users with new HD decoders free of charge. The aim is to eliminate smartcard piracy and force pirate users to become legitimate customers, while also upselling existing customers to its hitherto only mildly-successful HD packages.
Meanwhile a number of major pay-TV operators in the Middle East have moved from a smartcard-based CAS to closed delivery via dedicated set-top boxes. While it’s too early to gauge these new systems’ impact on piracy reduction and subscription growth, we expect such measures will inevitably become more widespread.
Not too distant from piracy in its capacity to stifle pay-TV development is the strong presence of a legitimate free-to-air market – something that has also affected the landscape in more advanced economies such as Germany and Spain. In Brazil, for example, a large selection of desirable content is available via analog terrestrial TV and remains under the control of a major local media conglomerate that enjoys a robust business based on the ad-supported, FTA model.