Sustaining momentum in Asia’s growth markets isn’t as straight-forward as it used to be. Local economies are shifting down a gear, slowing year-on-year lifts in ad spend and pay-TV subscriber numbers, but at the same time, media networks also have greater scale, and more ways to leverage it, opening up a challenging but potentially more rewarding cycle of development.

“The reality is, we have to work harder for our dollar – everyone has to,” says Zubin Gandevia, president of regional broadcaster Fox International Channels (FIC) in Asia-Pacific and the Middle East. “Your core business is going to continue growing, but you’ve got to take some of that profit, or a lot of it depending on what kind of player you are, and invest it in a whole lot of other businesses, manage those different areas and see which ones come out ahead.”

Nonetheless, cyclical changes in the market shouldn’t jolt long-term players that are making forward-thinking bets, Gandevia suggests, stocking up on multiscreen TV Everywhere rights today for example, having secured HD options ahead of demand in the past. Meanwhile, investment in channel brands and content IP has provided a deeper pool of assets that can be leveraged with incremental spend. “We believe we have the scale to keep driving revenue, even in a market that’s slowing down on the growth front,” Gandevia says. “What we have to do when we get that revenue is over-deliver on the value equation.”

In sports for example, FIC is open to sharing rights from franchises such as Bundesliga and Wimbledon with local pay-TV platforms, raising the profile of these properties through wider exposure and marketing. Even closer working partnerships can open up more opportunities to connect with audiences and extract more value from the market.

FIC is sharing rights for Spain’s La Liga football league with Indonesian platform Indovision, while in a longer-term bet, the broadcaster is working to develop a local football league in Malaysia with Astro, the country’s leading pay-TV platform. Deeper partnerships are likely to remain the exception rather than the rule for the foreseeable future however, as it is easier to craft deals with rights FIC already owns.

In this new cycle of growth, content and distribution companies must broaden their offer to attract new audiences, and do more to keep existing ones loyal, while keeping an eye on costs at the same time. Distributors and aggregators want the best windows and shows, but increasing choice – for a widening array of paid-for and free options – is pushing up prices for the best stuff.

Output deals for US content are less common these days, while channels and platforms are spending more on making their own shows, a pricey investment that can help them stand out in an increasingly crowded marketplace, while providing IP that can be potentially monetized across multiple pipes. Being different however is not enough, as competition pushes up the quality threshold across all content genres.

FIC’s production business in Taiwan, a revenue engine at home and abroad, is being re-engineered around more expensive shows at the expense of volume. “Everybody loves to say Asian product is going to be the next big thing, and it is important, but we also recognize that it is competing with similar looking product, which is in the free-to-air space,” Gandevia says. “How do you make a consumer be willing to pay for something they could get almost free? That’s a challenge. Movies as a category has been doing well in this space, and not necessarily TV shows, but the possibility of making premium Chinese content is certainly there. We are looking at it very actively.”

The ongoing popularity of Korean dramas in Southeast Asia, the backbone of regional channels such as One from Sony and Oh!K from Turner, has stoked interest in the multi-country appeal of Asian-made shows. Now, Sony is testing regional demand for a channel anchored around dramas from mainland China, hoping to roll out the new offering, called Gem, across Southeast Asia in 2015, after the channel made its debut in Vietnam in February 2014.

The business rationale for such a channel, based on demand from operators looking for extra fillips to Arpu and subscriber growth, only started to make sense in recent years, notes Hui Keng Ang, SVP & GM at Sony Pictures Television Networks Asia. As with One, Gem comes with a full set of multiscreen rights, boosting its appeal in an increasingly crowded market. “When that Chinese wave comes, it will be fast,” Ang forecasts. “Storylines can resonate well for many Southeast Asian citizens. And in terms of structuring a deal with rights, they are as flexible as the Koreans.”

Larger TV ad markets are more likely to produce exportable shows, as competition and scale drives experimentation with genres, stories and characters, while supporting bigger budgets. The combined size and rapid development of the mainland China market, on course to match Hollywood in scale one day, has pushed Chinese content up the regional agenda, but TV companies sense pockets of opportunity to broaden their content portfolios elsewhere from telenovelas from Latin America to movies from Thailand. Hollywood content also retains its appeal, with big blockbusters and niche offerings helping create demand for premium services.

Piracy Threat

However, illegitimate access to content, unrestrained by windowing and rights agreements, threatens to undermine that premium value. Laptops, smartphones and tablets, offering more intimate and personalized viewing experiences, are more likely to be owned by consumers within pay-TV’s core demo, the rising middle class, but pay-TV content has been slow to move online.

“In 2015, I hope that the pay-TV industry will do a better job at offering audiences the kinds of technology that can provide a seamless viewing experience,” says Ricky Ow, president of Turner International Asia-Pacific. “The TV Everywhere ecosystem will grow because of improving technology and distribution options – in fact, consumers now expect to watch TV that way.”

The first step has to be making it easier for people who don’t subscribe to pay-TV but are willing to pay for content, Ow says. “We do not want a situation where consumers misperceive that the primary screen in the living room at home is for legal content, and that secondary mobile devices are platforms to consume only free or illegal content. As an industry, we are not at this stage yet. Both channels and platforms need to work much harder to make it easy for audiences to watch.”

Success hinges on a variety of components controlled by different players, from rights to user interfaces to broadband access, posing a challenge to companies assembling multiscreen services. Time spent watching video via OTT app Astro On The Go, which provides access to free and paid linear and on-demand shows, has been climbing, from around 110 minutes today from 40 minutes a year ago. The app has been downloaded more than 1.2 million times but only 100,000 people have ended up as regular users, with patchy bandwidth compromising the viewing experience outside the home. Astro, actively pursuing personalized as well as household viewing, is tweaking the app to improve the mobile viewing experience, working to provide WiFi hotspots to make the service more user-friendly.

“In the past, we always looked at trying to move the TV offering onto mobile, but the reality is smart devices are a lot smarter than the TV and set-top box,” says Astro Malaysia CEO, Rohana Rozhan. “Now we’re going to capitalize on the technology that drives the smart devices and address the younger consumer segment, giving them a good experience on these devices. That’s going to be a challenge for us.”

Astro, which provides pay-TV to around half of Malaysia’s TV households, has continued to develop its core platform too, upgrading set-top boxes and bulking up satellite capacity to broaden its suite of linear services. These include more HD and early window options, as well as value-added extras such as a recently launched VOD service, Astro Plus.

The pace of change is being set by people’s access to technology, which often bypasses regulatory and national boundaries, rather than economic growth, Rohana notes. “Our job must be to equalize the playing field and provide the best experiences that consumers can get elsewhere,” she says. “For us, it’s about trying to be that aggregator and distributor of choice. The rest is only how we do that.”

For Astro, key building blocks such as distribution and CRM infrastructure, which account for about two-thirds of the cost base, are now in place, allowing management to focus on raising the value of existing assets. Even though pay-TV growth is slowing in Malaysia, Astro continues to expand its customer base as more people sign up to its three-year-old free satellite service, Njoi. Growing scale has also justified commissioning research agency Kantar to provide more details on media consumption and buying habits in subscriber homes, enabling Astro to better understand consumer needs, and make a more persuasive pitch to advertisers.

This scale also provides backing for Astro to produce more of its own content, sometimes in partnership with other companies, to fill perceived gaps in the market. More content in turn offers new ways to monetize the library, domestically and overseas, while providing a platform for forays into new areas, such as a new regional factual channel, Spark. “We’ve got the right platform, the right technology, the right content contracts, and we’ve got a certain portion of our vernacular plans in place,” Rohana says. “The rest has to be looking at opportunities and how to bring scale to bear in the business model.”

In the Philippines, leading TV group ABS-CBN, a major content producer with strong positions in both free and pay-TV, already has a diversification strategy to offset slowing growth. ABS-CBN is facing a cost crunch however, as returns from new sources of revenue rely on factors beyond the company’s control.

ABS-CBN has spent US$45 million preparing for the launch of DTT, which should boost viewing for its flagship offering Channel 2, which suffers from poor reception in Manila, while allowing ABS-CBN to further monetize its library with five new digital channels. However, key regulations for the new platform are still waiting for government sign-off.

In 2014, the company also launched a mobile offering, ABS-CBNmobile, which has attracted more than a million subs and will offer original content in addition to telecoms services, while setting up a new digital media division to focus on online opportunities, including ecommerce through a digital newsstand and online store.

While broadband infrastructure is improving, the market remains heavily geared to broadcast TV however, with free-to-air advertising taking the lion’s share of the market for the foreseeable future. That represents only a modest opportunity to ABS-CBN, preparing for a future fight fought across multiple pipes against the country’s largest telco PLDT.

“We cannot rely solely on advertising to drive growth,” says ABS-CBN CFO Aldrin Cerrado. “First, there is a limit in the total number of ad minutes that we can sell. Our primetime, which accounts for 70% of our total airtime revenues, is almost fully loaded. Secondly, ad spend in the Philippines is growing in the mid-single digit range. Customers are changing the way they consume content, migrating to different platforms. Given this, we expect to see a change in our revenue mix. In three to five years, our consumer businesses will account for the majority of total revenues.”

The biggest gearshift however is happening in India. An ambitious national switchover to digital TV promises to usher in a new era of content diversity and consumer choice, including tiers for more premium offerings, helping diversify revenues long-term.

For now however, that remains a future prospect. The focus so far has been on getting boxes into people’s homes in a bid to meet government deadlines, rather than exploring new ways to tap consumer demand. The country’s largest broadcaster, Star India, started a storm after asking cable operators to buy its channels a la carte, effectively making them more expensive, rather than in bundles, the mainstay of channel negotiations for decades.

“If you want to move the needle in distribution, you need to make some dramatic moves,” says Star India COO, Sanjay Gupta. The aftershocks could take a year to settle down. “There are very clear opportunities in distribution but the process has just started,” he says. “We have to be patient. It’s not a quick win.”

Gupta estimates that real change in the distribution value chain will take another two to three years of sustained investment to play out. Ad revenues will remain pre-eminent in the meantime. Star India is focusing on mass market genres, placing big bets on sports and entertainment, while investing in new ad targeting technology to make its channels more accessible to local and regional advertisers.

These moves should also benefit from the current economic uplift in India, triggered by a change in government, which should encourage advertisers to step up marketing activities, while also bringing more local and regional brands to the fore. “Changing the value chain behavior is something we continue to invest in strongly but there is a bigger opportunity in advertising in the next two to three years,” Gupta says. “Given the mood of the country and assuming the economy grows faster than it has in the last three to four years, advertising can be a big growth driver.”

Mass Market Opportunity

Likewise one of the main areas of focus for Indian broadcast major Zee is the launch of a second Hindi entertainment channel to run alongside flagship offering Zee TV, a move that will have a significant impact on cost structures and margins in 2015, says Punit Goenka, MD & CEO of Zee Entertainment Enterprises.

The move follows the launch of more niche channels from Zee in recent years including Zindagi, another Hindi entertainment channel programmed with foreign content, initially from Pakistan, and & Pictures, a Hindi movie channel targeting young consumers.

The company has also branched out into music rights, launching Zee Music Company in March 2014, and plans to add digital content to the remit of its in-house production company Essel Vision Productions, which currently produces both TV shows and films, in 2015. “As a content company, we want to produce content for relevant platforms which have a decent viewership base,” Goenka says. “We currently have deals with YouTube and ErosNow but there are a few more in the pipeline.”

Zee’s own OTT service, DittoTV, now has over 200,000 active subs, Goenka adds. Zee is broadening its focus internationally too. “Earlier, we mainly targeted the Indian diaspora,” Goenka notes. “Now we want to create more localized content, aimed at the local population in territories like the Middle East, Southeast Asia and Africa.”

A Largely Familiar Playing Field In Southeast Asia In the medium term, alternative distribution channels for TV content will shake up existing hierarchies in Southeast Asia’s large TV markets, initially from digital terrestrial TV, which has already launched in Thailand, fueling short-term competition for both advertising and investment. As broadband infrastructure firms up in the medium term, online video should in turn further redefine entertainment economics. Business models are still taking shape however, keeping attentions focused on future-proofing current ecosystems. Despite the free-to-air’s firm grip on still expanding ad markets, pay-TV subscriber bases have plenty of room for growth too. Flexible cost structures can help companies move on smaller but more numerous business opportunities, but medium-term programming contracts also provide a degree of confidence in a landscape where much of the opportunity still rests within existing relationships. “Emerging digital opportunities, whether it is OTT or DTT, have added a layer of uncertainty to the traditional pay-TV model, but their underlying revenue challenges mitigate those risk factors,” remarks Hui Keng Ang, SVP & GM at Sony Pictures Television Networks Asia. “The risk factor has increased, but we will not give it an undue high rating. To operate in the pay-TV business, one needs to have a very long-term view and a big risk appetite.”

This article also appears in the Q4 2014 edition of Media Business Asia magazine.