A new research note from media & telecoms industry research and consulting group, Media Partners Asia (MPA), highlights ongoing challenges in Indonesia’s pay-TV market but says the market could be optimized by new strategies and improved execution.

According to MPA, Indonesia' s legal pay-TV subscriber base will total 3.85 million this year, about 10% penetration of TV households.

Monthly Arpus will continue to fall, with the blended industry average reaching US$9 by year-end.

Three key realities provide context for the market going forward: (1) Price-based competition; (2) Growing piracy, with close to 4 million illegal pay-TV customers; (3) A thriving free satellite market serving ~12 million homes, with Matrix TV the largest operator in this segment.

"There is a big market receiving free satellite services, with viewers accessing national and local free TV channels as well as select pay-TV content legitimately,” says Vivek Couto, MPA director.

"Few pay-TV operators have been able to capitalize on such demand effectively. At the same time, provincial pay-TV piracy has grown and, in spite of recent raids and crackdowns, it remains a real issue."

FOUR FOR THE FUTURE

MPA highlights four key issues which will likely determine the future of Indonesia's pay-TV market:

1. Ex-Jakarta consumption

Most new legal pay-TV customers are coming from outside Jakarta. This demand is anchored to big, basic low-Arpu packages, built around venacular content and local channels along with popular global pay-TV brands. Operators that cater best to this demand, with scale, will prosper the most in the future.

Historically, market leader MNC Sky Vision (MSKY) has used its Top TV brand well in this respect but has come up against a big price disruptor in Big TV.

MSKY may start moving on lower price and flexible consumption options to effectively meet this disruptive challenge. Big TV has put together a large local/regional content offering with some international pay-TV brands at competitive prices.

2. Prepaid services

In India and Latin America, both large scalable markets for DTH satellite pay-TV, prepaid is a must-do strategy to build long-term scale. Prepaid services have been offered by some players in Indonesia but not consistently executed. Some major players are now considering a bigger role for prepaid as it will help drive cash conversion cycles, according to MPA analysis.

3. Costs and capital expenditure

Both the cost to acquire a customer, as well as upfront capital expenditure on set-top boxes and related servicing costs, could go down through more efficiencies, volume and a change in policy. This would also help profitable customer growth for a number of players, says MPA.

4. Content

There are significant strategic opportunities for large platform-neutral producers of local content such as Emtek, which owns Screenplay and AS Productions, as well as smaller local and regional groups, to partner with organized platforms to grow the market profitably outside Jakarta. Bigger pay-TV platforms will also continue to invest in self-produced channels.

In addition, as operators meaningfully penetrate the mass market and start to fully declare subscriber bases, some global content providers are likely to waive minimum guarantees, enter into cost-per sub (CPS) or revenue-sharing agreements, and capitalize on local advertising sales.

The full research note is featured in the October 8, 2014 issue of The Route