A sustained economic malaise in Hong Kong is undermining 2016 revenue and profit for TVB, the city’s biggest free-to-air broadcaster.

TVB executives pointed to tighter reins on ad budgets in Hong Kong, especially by skincare and retail brands, as well as content piracy and OTT competition, after experiencing a 30% drop in operating profit for the first half of the year.

Content spend meanwhile rose by 9%, mainly due to greater drama spend for flagship channel TVB Jade. The launch of TVB’s new OTT product, myTV Super, also pushed up costs.

The company continues to invest in new digital ventures at home and abroad to offset mounting challenges to its traditional business.

TVB is satisfied with audience gains for myTV Super, which also serves as a replacement for TVB Network Vision, the company’s pay-TV platform.

The service has more than 610,000 users – 370,000 via a mobile app and 240,000 via a set-top box – after launching in April. TVB Network Vision subs are gradually being migrated to the new service.

OTT Breakeven Next Year

MyTV Super’s losses could be in the HK$100 million (US$12.8 million) range for the current financial year (FYE Dec. 2016) although there may be upside due to higher-than-expected Olympics-related advertising.

TVB is targeting 1.4 million users for MyTV Super by November 2017. Breakeven for the OTT service is expected by the end of next year.

TVB executives are also working on a similar product for Malaysia – one of its biggest overseas markets – with local partner Astro, the country’s dominant pay-TV network, as well as a domestic video licensee.

Alongside that, they are planning an overhaul of its international OTT service, TVB Anywhere, starting with Canada this month.

The company is also seeking wider exposure to growth in mainland China’s film market, via a ~30% stake in Shaw Brothers, jointly held with China Media Capital (CMC), as well as a ~5% interest in Flagship Entertainment, a movie investment platform set up by Warner Bros, CMC and TVB.

Traditional engines of profit are starting to sputter for TVB, which currently relies on its Hong Kong broadcast business for over 60% of its income.

Ad revenue from TVB’s terrestrial networks fell 11% year-on-year in 1H and is expected to decline another 10% in 2H.

The company also confirmed that it had lost HK$150 million from its punt on Olympics rights, although that bet has also helped drive myTV Super momentum.

TVB had more than HK$2 billion in net cash as of end-1H 2016.