Bakrie-owned media group Visi Asia Media (Viva), still in the target zone for a takeover this year, will launch a new platform branded Viva Sky in Q4 in Indonesia's highly competitive but lowly penetrated pay-TV market.

Viva Sky plans to differentiate itself through return-path based interactivity and educational programming, says Viva Sky CEO David Khim, in an interview with Media Business Asia.

The company targets a critical mass of 2.5 million customers, with initial capital expenditure slated at US$30 million. According to Khim, US$150 million is available for the venture, through internal equity.

Viva Sky also plans to capitalize on Bakrie’s exclusive rights to the 2014 FIFA World Cup and Indonesian Premier League football to anchor its sports offering.

At the same time, the company will develop educational and local language content with plans to produce eight original channels in-house, in addition to leveraging parent Viva’s terrestrial brands, ANTV (entertainment) and TV One (news).

Survival of the fittest

According to Khim, 2 million subscribers is the minimum for “self-perpetuating growth” in Indonesia’s pay-TV industry.

Viva Sky will launch nationwide at the end of 2013, with emphasis on selected regions, including specific campaigns.

With 60 dealers currently signed up, Khim will utilize Bakrie Telecom and Viva’s existing user base, as well as direct sales using online communities as a distribution channel.

Indonesia's pay-TV market leader MNC Sky Vision (MNCSV) has built a successful business on the back of local as well as regional and international linear channels, combined with strong sales and distribution.

MNCSV had 1.87 million subscribers across its three brands, as of Q1 2013. The company generated US$106 million in EBITDA during 2012, and also raised US$227 million in an initial public offering in June last year.

Difficult to be different

Most other players, including new entrants, have struggled to differentiate themselves and gain a large subscriber base.

One exception is LinkNet, part of First Media, which has built a profitable business on bundled cable and broadband services in Jakarta. LinkNet’s private equity owners, CVC Capital, are said to be considering an IPO for the business.

As Khim points out, Indonesia's pay-TV market is largely untapped due to the continued dominance of terrestrial broadcasting.

Industry analysts Media Partners Asia (MPA) estimate pay-TV penetration at almost 7% of TV homes in 2012, projecting growth to 18% by 2017.

This growth will be driven primarily by investment in local content and new distribution to meet rising demand from homes outside Jakarta, according to a recent report.