Amid increasing competition, are East Asian pay TV operators innovative enough?

East Asian countries share a common demographic downturn. Japan was the first country in the region to experience negative population growth, before South Korea and China reported a similar phenomenon for the first time in 2021 and 2022 respectively. As Taiwan also seems to reach its demographic peak, local pay TV operators must cope with a stagnating or even shrinking market size, and must battle fiercely to capture market shares and offer value-added services to retain their customers.

Against this backdrop, the East Asian pay TV markets are impacted differently by the trends one can observe in other regions of the world, such as the rise of IPTV or the withering of pay DTH and cable TV.

With high speed broadband becoming more accessible, TV distribution over Internet protocol networks has been rapidly expanding, as exemplified by China and South Korea. The Chinese IPTV subscriber base has displayed an impressive growth over the past three years, accounting for more than 373 million households at Q3 2022, up from 270 million at Q3 2019. Revenues also surged over this period from CNY 4.19 billion (USD 598 million) to CNY 5.98 billion (USD 873 million), thanks to growing ARPUs fueled by the provision of various additional services by the three telecom giants, namely China Mobile, China Telecom and China Unicom. Likewise, South Korea has experienced a strong growth of its pay TV subscriber base, which can be largely attributed to IPTV distribution. While the total number of direct pay TV subscribers grew from 21.5 million at Q3 2019 to 25.1 million today, 4 of the 4.6 million new subscriptions (or 87%) were IPTV. The larger telecommunications operators of the country (Korea Telecom, LG Uplus, SK Telecom and SK Broadband, the latter two being both part of the South Korea Group chaebol) have positioned themselves to gain control over what has become the paramount pay TV distribution access.

Challenged by this concurrent technology, cable TV has been a bear market in those two countries. In China, the total number of cable TV subscribers has decreased from 205 million at Q3 2019 to 172 million 3 years later. This did however not change the market structure, as most operators are regional or local companies controlled by the corresponding authorities. The few companies that operate across Chinese provinces (such as Wasu Digital TV Media Group or Citic Guoan) are also state-backed and thus partially protected from exogenous economic shocks. On the contrary, the South Korean cable market has undergone steady consolidation. With revenues decreasing from KRW 227 billion at Q3 2019 (USD 195 million) to KRW 200 billion at Q3 2022 (USD 149 million), smaller players such as D’Live and CMB were targeted by the tier 1 telecommunications operators in 2020 and 2021. Although the offers did not meet the sellers’ expectations in these two examples, they were more convincing in the cases of TBroad (which merged with South Korea Broadband in April 2020) and HCN (acquired by Korea Telecom in September 2021). The same trend is observed in Taiwan, where five major groups (China Network System, Kbro, Taiwan Mobile, Taiwan Broadband Communications, Taiwan Optical Platform) consolidated the cable TV market, which shrunk to 4.7 million households, down from 5 million at Q3 2019. This seems to highlight the withering of this technology in the most advanced market, where alternatives have gained popularity.

Alongside cable TV, DTH pay TV distribution also loses ground in the region. In Japan, the duopoly formed by Sky PerfecTV! and Wowow has lost half a million subscribers (from 6 to 5.5 million) in 3 years. Korea Telecom, enjoying a monopoly position in its local market, has lost the same number of subscribers to now provide 3.7 million households with its offer.

In this changing environment, companies and their markets have reacted in different fashions, depending on their specificities.

In South Korea and Japan, cable TV has proved very resilient against the aforementioned trends (despite decreasing revenues in South Korea), partially thanks to a quite atypical model that has been deep-seated for years: indirect cable distribution. Cable operators establish agreements with landlords which then provide cable TV to their lodgers who pay fees by default. Particularly popular in multi-dwelling units (MDUs), this model has enabled local and regional cable operators to secure substantial market shares and is the main reason why this technology is so resilient in those two countries. In South Korea, as mentioned above, cable is a withering technology, but indirect cable subscribers still account for 11.9 million households. In Japan, cable TV has remained stable and has even steadily expanded over the past three years. This can be explained by the particularly fragmented market structure: local-scale cable TV operators (i.e excluding Tokai Cable, Itscom and KDDI) account for 3.7 million subscribers, which represents almost 50% of total cable TV subscriptions in the country. Furthermore, Tokai Cable is itself a group operating a patchwork of nine regional cable networks managed by local subsidiaries, such as Ichihara Cable Television Corporation, AIC in Kanagawa prefecture or LCV Corporation in the Nagano prefecture. Local cable operators are very strong and benefit from a hardly replaceable link to the end-consumer, which explains why IPTV is also not growing in Japan, and has even decreased to 4.8 million subscribers over the last 6 months.

Therefore, Japanese mobile operators have taken the lead to provide end-customers with content by launching mobile OTT services. KDDI launched the first version of Telasa (branded Video Pass at the time) in partnership with TV Asahi as early as 2012 and revamped it to the current version in April 2020, and NTT Docomo launched two set-top boxes in 2018 and 2020 to directly distribute their already existing SVOD platforms dTV and dAnimeStore. Despite limited popularity, these initiatives aim at filling the gap between the lack of standard OTT offers by pay TV operators on the one hand, and the highly developed on-demand market on the other hand, spearheaded by pure players such as Amazon Prime and Netflix, and by broadcasters through AVOD platforms such as TVer, which just reached a new high at 25 million monthly active users last December.

A similar situation occurs in Taiwan, where quite atypically, IPTV has not expanded and remained stable at over 2 million subscribers, while cable has slowly gone down (from 4.9 million subscribers in Q3 2019 to 4.7 million in Q3 2022). This can be explained by the maturity of the Taiwanese AppTV market led by national telecommunications market leader Chunghwa Telecom and BandOTT, amounting to 1 million subscribers in total despite a 30% decrease in three years.

In Hong-Kong too, the largest OTT pay TV offer has been developed by a new entrant on the market, the oldest national FTA broadcaster TVB, which launched MyTV Super in collaboration with Hong Kong Broadband Network Limited in April 2016. The service quickly gained popularity and now provides 1.7 million subscribers with the OTT offer over the total 10.5 million users of the application.

The best example of a pivot made by players in the market is that of Chinese cable operators. Experiencing tough market conditions, some of them decided to develop what regulation authorities report as the “cable video-on-demand users” segment to add value to their service. Between Q3 2019 and Q3 2022, the rate of VOD users surged from one third (70 million over 205) to over half (95 million over 172) of the total customer base, thus directly responding to the fierce competition from outside the market.

As a matter of fact, pay TV operators have been increasingly challenged by streaming platforms and struggled to find the right way to cope with them. The total revenues of the pay TV market have gone down in Japan (-4% over three years) and China (-2%). Against the rising popularity of the numerous SVOD and AVOD services offered either by streaming pure players or by FTA broadcasters, going OTT seems to be only one out of many ways for pay TV distributors to keep the pace. The three Chinese giants seem to have a clear view of the future development of IPTV, considering it as a part of a bigger picture, where the IPTV gateway paves the way for smart home applications. China Telecom has largely developed smart family solutions, China Unicom reports “video platform” figures in the “smart home products” segment, and China Mobile bets hard on its service Mobaihe. All three hope to increase their ARPU in the short term, and most importantly, to secure future vantage points in services to consumers that are still yet to be developed. As a consequence, the surge in IPTV subscriptions should not be considered tantamount to a surge in actual IPTV take-up, which is in turn not a sign of a failed entry by pay TV operators in the consumer attention market. Local streaming players such as WeTV (Tencent Video), iQiyi or Youku Tudou already map it with great success. The focus for the three Chinese telecom giants is rather on securing a direct link to the households to explore other ways to grow the ARPU, such as through AR/VR and metaverse-related initiatives.

Lucas Ackerer | Analyst at Dataxis   This research highlight is based on our data coverage of Pay TV markets in Asia-Pacific. Please contact us to get a demo and see the depth of our service.

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